FOUNTAIN SQUARE FUNDS
EQUITY AND INCOME
MUTUAL FUNDS
U.S. GOVERNMENT SECURITIES FUND
QUALITY BOND FUND
OHIO TAX FREE BOND FUND
QUALITY GROWTH FUND
MID CAP FUND
BALANCED FUND
INTERNATIONAL EQUITY FUND
[LOGO]
FOUNTAIN SQUARE FUNDS
PROSPECTUS
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 seven 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;
- Fountain Square Balanced Fund; and
- Fountain Square International Equity 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, 1995, 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 at
1-800-654-5372.
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, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- ------------------------------------------------------
Risk Factors 1
EXPENSES OF THE FUNDS 2
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- ------------------------------------------------------
OBJECTIVE OF EACH FUND 11
- ------------------------------------------------------
Government Securities Fund 11
Acceptable Investments 11
Investment Limitations 11
Quality Bond Fund 12
Acceptable Investments 12
Collateralized Mortgage Obligations 12
Investment Limitations 13
Ohio Tax Free Fund 13
Acceptable Investments 13
Characteristics 13
Participation Interests 13
Variable Rate Municipal Securities 13
Municipal Leases 13
Temporary Investments 14
Ohio Municipal Securities 14
Investment Risks 14
Non Diversification 14
Investment Limitations 15
Quality Growth Fund 15
Acceptable Investments 15
Convertible Securities 15
Investment Limitations 16
Mid Cap Fund 16
Acceptable Investments 16
Investment Limitations 16
Balanced Fund 16
Acceptable Investments 16
Money Market Instruments 17
Investment Limitations 17
International Equity Fund 17
Acceptable Investments 18
Money Market Instruments 18
Foreign Currency Transactions 19
Forward Foreign Currency Exchange Contracts 19
Investment Limitations 19
Risk Considerations 19
PORTFOLIO INVESTMENTS AND STRATEGIES 19
- ------------------------------------------------------
Borrowing Money 19
Diversification 19
Restricted and Illiquid Securities 20
Repurchase Agreements 20
When-Issued and Delayed Delivery
Transactions 20
Lending of Portfolio Securities 21
Options and Futures 21
Put and Call Options 21
Futures and Options on Futures 22
Risks 23
Equity Investment Considerations 23
Foreign Investments 23
Exchange Rates 24
Foreign Companies 24
U.S. Government Policies 24
Emerging Markets 24
Foreign Bank Instruments 25
Bond Ratings 25
Temporary Investments 25
Variable Rate Demand Notes 25
Commercial Paper 25
Bank Instruments 25
FOUNTAIN SQUARE FUNDS INFORMATION 26
- ------------------------------------------------------
Management of the Trust 26
Board of Trustees 26
Investment Adviser 26
Advisory Fees 26
Adviser's Background 26
Portfolio Managers' Backgrounds 26
Sub-Adviser 27
Sub-Advisory Fees 27
Sub-Adviser's Background 27
Portfolio Managers' Background 27
Distribution of Shares of the Funds 28
Distribution Plan 28
Other Payments to Financial Institutions 28
Administration of the Funds 29
Administrative Services 29
Custodian, Transfer Agent and Dividend
Disbursing Agent 29
Independent Auditors 29
Expenses of the Funds 29
Brokerage Transactions 30
NET ASSET VALUE 30
- ------------------------------------------------------
INVESTING IN THE FUNDS 30
- ------------------------------------------------------
Share Purchases 30
Through Fifth Third Bank or
Fifth Third Securities 30
Minimum Investment Required 31
What Shares Cost 31
Purchases at Net Asset Value 31
Dealer Concessions 31
Reducing/Eliminating the Sales Charge 32
Quantity Discounts and Accumulated
Purchases 32
Letter of Intent 32
Fifth Third Bank Club 53, One Account
Plus or One Account Gold Programs 32
Purchases with Proceeds from Redemptions
of Unaffiliated Mutual Fund Shares 33
Purchases with Proceeds from Distributions
of Qualified Retirement Plans or
Other Trusts Administered by
Fifth Third Bank 33
Concurrent Purchases 33
Exchanging Securities for Fund Shares 33
Systematic Investment Program 33
Certificates and Confirmations 33
Dividends and Capital Gains 33
EXCHANGES 34
- ------------------------------------------------------
REDEEMING SHARES 34
- ------------------------------------------------------
Through Fifth Third Bank or Fifth
Third Securities 35
By Telephone 35
By Mail 35
Systematic Withdrawal Program 36
Accounts with Low Balances 36
SHAREHOLDER INFORMATION 36
- ------------------------------------------------------
Voting Rights 36
Massachusetts Law 36
EFFECT OF BANKING LAWS 37
- ------------------------------------------------------
TAX INFORMATION 37
- ------------------------------------------------------
Federal Income Tax 37
Additional Tax Information for
Ohio Tax Free Bond Fund 37
State of Ohio Income Taxes 37
Other State and Local Taxes 38
Additional Tax Information for
International Equity Fund 38
PERFORMANCE INFORMATION 38
- ------------------------------------------------------
ADDRESSES 39
- ------------------------------------------------------
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 seven
Funds described herein. The Funds are designed for individuals and institutions
as a convenient means of accumulating interests in professionally managed
portfolios.
The following seven 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;
- Fountain Square Balanced Fund ("Balanced Fund")--seeks to provide capital
appreciation and income 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; and
- Fountain Square International Equity Fund ("International Equity
Fund")--seeks to provide long-term capital appreciation by investing
primarily in equity securities of non-U.S. issuers.
For information on how to purchase shares of any of the Funds, please refer to
"Investing in the Funds." A minimum initial investment of $1,000 is required for
each Fund. Subsequent investments must be in amounts of at least $50. 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").
The International Equity Fund is sub-advised by Morgan Stanley Asset Management,
Inc. (the "Sub-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> <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)(1).............................. 0.21% 0.48% 0.52%
12b-1 Fees(2)................................................... 0.00% 0.00% 0.00%
Other Expenses (after waivers and/or reimbursements)(3)......... 0.54% 0.27% 0.23%
Total Fund Operating Expenses(4)............................ 0.75% 0.75% 0.75%(5)
</TABLE>
(1) The management fee of the Government Securities Fund, Quality Bond Fund and
Ohio Tax Free 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 or a
determination is made that such investors will be subject to the 12b-1 fees.
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 waiver by the
custodian. 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 0.46% absent the anticipated voluntary reimbursement.
(4) Total Fund Operating Expenses for the Government Securities Fund and the
Quality Bond Fund would have been 1.14% and 0.84%, respectively, absent the
voluntary waivers by the investment adviser and custodian. Total Fund
Operating Expenses for the Ohio Tax Free Fund would have been 1.12% absent
the voluntary reimbursement by the investment adviser, and the voluntary
waiver by the investment adviser and custodian. The Annual Fund Operating
Expenses of the Ohio Tax Free Fund were 0.35% for the fiscal year ended July
31, 1995.
(5) For the fiscal year ending July 31, 1996, Ohio Tax Free Bond Fund projected
Total Fund Operating Expenses of 1.05% absent the voluntary reimbursement by
the investment adviser, and the voluntary waiver by the investment adviser
and custodian.
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> <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 International
Growth Mid Cap Balanced Equity
Fund Fund Fund Fund
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
Management Fees (after waivers)(1)..................... 0.77% 0.65% 0.76% 0.93%
12b-1 Fees(2).......................................... 0.00% 0.00% 0.00% 0.00%
Other Expenses (after waivers)......................... 0.23%(3) 0.35%(3) 0.24%(3) 0.72%
Total Fund Operating Expenses(4)................... 1.00% 1.00% 1.00% 1.65%
</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%, except for the International Equity Fund which is 1.00%.
(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 or a
determination is made that such investors will be subject to the 12b-1 fees.
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 waiver of its fees
by the custodian.
(4) Total Fund Operating Expenses for the Quality Growth Fund, the Mid Cap Fund,
and the Balanced Fund would have been 1.05%, 1.18%, and 1.06%, respectively,
absent the voluntary waivers by the investment adviser and custodian. Total
Fund Operating Expenses for the International Equity Fund would have been
1.72% 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 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 International
Growth Mid Cap Balanced Equity
Fund Fund Fund Fund
------- ------- -------- -------------
<S> <C> <C> <C> <C>
1 Year........................... $ 55 $ 55 $ 55 $ 61
3 Years.......................... $ 75 $ 75 $ 75 $ 95
5 years.......................... $ 98 $ 98 $ 98 $ 131
10 years......................... $ 162 $ 162 $162 $ 232
</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 15, 1995 on the Funds'
financial statements for the year ended July 31, 1995 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1995 1994 1993*
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.64 $10.21 $10.00
- -----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------
Net investment income 0.58 0.51 0.35
- -----------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.13 (0.49) 0.13
- ----------------------------------------------------------- ------ ------ ------
Total from investment operations 0.71 0.02 0.48
- -----------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Dividends to shareholders from net investment income (0.58) (0.57) (0.27)
- -----------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions -- (0.02) --
- ----------------------------------------------------------- ------ ------ ------
Total distributions (0.58) (0.59) (0.27)
- ----------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.64 $10.21
- ----------------------------------------------------------- ------ ------ ------
TOTAL RETURN** 7.66% 0.11% 4.87%
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 0.75% 0.75% 0.74%(b)
- -----------------------------------------------------------
Net investment income 5.98% 5.17% 5.36%(b)
- -----------------------------------------------------------
Expense waiver/reimbursement (a) 0.39% 0.18% 0.33%(b)
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $25,054 $29,107 $29,603
- -----------------------------------------------------------
Portfolio turnover rate 115% 55% 23%
- -----------------------------------------------------------
</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) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Combined
Annual Report dated July 31, 1995, 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 15, 1995 on the Funds'
financial statements for the year ended July 31, 1995 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1995 1994 1993*
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.55 $10.29 $10.00
- -----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------
Net investment income 0.64 0.57 0.41
- -----------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.17 (0.69) 0.26
- ----------------------------------------------------------- ------ ------ ------
Total from investment operations 0.81 (0.12) 0.67
- ----------------------------------------------------------- ------ ------ ------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Dividends to shareholders from net investment income (0.64) (0.59) (0.38)
- -----------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions -- (0.03) --
- ----------------------------------------------------------- ------ ------ ------
Total distributions (0.64) (0.62) (0.38)
- ----------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.72 $ 9.55 $10.29
- ----------------------------------------------------------- ------ ------ ------
TOTAL RETURN** 8.89% (1.25%) 6.78%
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 0.75% 0.75% 0.74%(b)
- -----------------------------------------------------------
Net investment income 6.72% 5.76% 6.07%(b)
- -----------------------------------------------------------
Expense waiver/reimbursement (a) 0.09% 0.11% 0.23%(b)
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $55,767 $47,272 $37,962
- -----------------------------------------------------------
Portfolio turnover rate 138% 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) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Combined
Annual Report dated July 31, 1995, 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 15, 1995 on the Funds'
financial statements for the year ended July 31, 1995 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1995 1994 1993*
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.75 $ 9.95 $10.00
- -----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------
Net investment income 0.42 0.40 0.05
- -----------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.24 (0.21) (0.05)
- ----------------------------------------------------------- ------ ------ ------
Total from investment operations 0.66 0.19 0.00
- -----------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Dividends to shareholders from net investment income (0.42) (0.39) (0.05)
- ----------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.99 $ 9.75 $ 9.95
- ----------------------------------------------------------- ------ ------ ------
TOTAL RETURN** 7.02% 1.95% (0.01%)
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 0.35% 0.00% 0.00%
- -----------------------------------------------------------
Net investment income 4.36% 4.18% 3.53%(b)
- -----------------------------------------------------------
Expense waiver/reimbursement (a) 0.77% 1.33% 2.21%(b)
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $28,315 $23,854 $8,163
- -----------------------------------------------------------
Portfolio turnover rate 27% 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.
(b) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Combined
Annual Report dated July 31, 1995, 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 15, 1995 on the Funds'
financial statements for the year ended July 31, 1995 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1995 1994 1993*
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.70 $ 9.54 $10.00
- -----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------
Net investment income 0.15 0.13 0.10
- -----------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.08 0.17 (0.47)
- ----------------------------------------------------------- ------ ------ ------
Total from investment operations 2.23 0.30 (0.37)
- -----------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Dividends to shareholders from net investment income (0.14) (0.13) (0.09)
- -----------------------------------------------------------
Distributions to shareholders in excess of net investment
income (a) -- (0.01) --
- ----------------------------------------------------------- ------ ------ ------
Total distributions (0.14) (0.14) (0.09)
- ----------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $11.79 $ 9.70 $ 9.54
- ----------------------------------------------------------- ------ ------ ------
TOTAL RETURN** 23.21% 3.17% (3.73%)
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 1.00% 1.00% 0.99%(c)
- -----------------------------------------------------------
Net investment income 1.44% 1.42% 1.47%(c)
- -----------------------------------------------------------
Expense waiver/reimbursement (b) 0.05% 0.03% 0.05%(c)
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $82,594 $69,648 $67,681
- -----------------------------------------------------------
Portfolio turnover rate 34% 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 did 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.
(c) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Combined
Annual Report dated July 31, 1995, 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 15, 1995 on the Funds'
financial statements for the year ended July 31, 1995 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1995 1994 1993*
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.10 $ 9.68 $10.00
- -----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------
Net investment income 0.08 0.06 0.06
- -----------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.48 0.43 (0.33)
- ----------------------------------------------------------- ------ ------ ------
Total from investment operations 2.56 0.49 (0.27)
- ----------------------------------------------------------- ------ ------ ------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Dividends to shareholders from net investment income (0.07) (0.07) (0.05)
- ----------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.59 $10.10 $ 9.68
- ----------------------------------------------------------- ------ ------ ------
TOTAL RETURN** 25.45% 5.07% (2.73%)
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 1.00% 1.00% 0.99%(b)
- -----------------------------------------------------------
Net investment income 0.77% 0.60% 0.88%(b)
- -----------------------------------------------------------
Expense waiver/reimbursement (a) 0.18% 0.33% 0.40%(b)
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $47,184 $30,210 $24,019
- -----------------------------------------------------------
Portfolio turnover rate 23% 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) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Combined
Annual Report dated July 31, 1995, 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 15, 1995 on the Funds'
financial statements for the year ended July 31, 1995 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1995 1994 1993*
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.70 $ 9.78 $10.00
- -----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------
Net investment income 0.28 0.26 0.20
- -----------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.57 (0.06) (0.25)
- ----------------------------------------------------------- ------ ------ ------
Total from investment operations 1.85 0.20 (0.05)
- -----------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Dividends to shareholders from net investment income (0.27) (0.26) (0.17)
- -----------------------------------------------------------
Distributions to shareholders in excess of net investment
income (a) -- (0.02) --
- ----------------------------------------------------------- ------ ------ ------
Total distributions (0.27) (0.28) (0.17)
- ----------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $11.28 $ 9.70 $ 9.78
- ----------------------------------------------------------- ------ ------ ------
TOTAL RETURN** 19.37% 2.02% (0.51%)
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 1.00% 1.00% 1.00%(c)
- -----------------------------------------------------------
Net investment income 2.73% 2.64% 3.04%(c)
- -----------------------------------------------------------
Expense waiver/reimbursement (b) 0.06% 0.06% 0.09%(c)
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $58,075 $59,363 $60,168
- -----------------------------------------------------------
Portfolio turnover rate 58% 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 did 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.
(c) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Combined
Annual Report dated July 31, 1995, which can be obtained free of charge.
FOUNTAIN SQUARE INTERNATIONAL EQUITY 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 15, 1995 on the Funds'
financial statements for the year ended July 31, 1995 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
PERIOD ENDED
JULY 31, 1995*
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ---------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------
Net investment income 0.05
- ---------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.22)
- --------------------------------------------------------------------- -----------
Total from investment operations (0.17)
- ---------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.83
- --------------------------------------------------------------------- -----------
TOTAL RETURN** (1.70%)
- ---------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------
Expenses 1.65%(b)
- ---------------------------------------------------------------------
Net investment income 0.62%(b)
- ---------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.07%(b)
- ---------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------
Net assets, end of period (000 omitted) $86,442
- ---------------------------------------------------------------------
Portfolio turnover rate 54%
- ---------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from August 19, 1994 (date of initial
public investment) to July 31, 1995.
** 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.
(b) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Combined
Annual Report dated July 31, 1995, 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 combined prospectus
and in the Combined Statement of Additional Information.
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 objectives 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. The prices of fixed income securities fluctuate inversely to
the direction of interest rates. 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, Farm Credit System, including
the National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives, Tennessee Valley Authority, Export-Import Bank of the
United States, Farmers Home Administration, 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," "Restricted and Illiquid Securities," and
"Diversification."
QUALITY BOND FUND
The investment objective of the Quality 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 FUND
The investment objective of the Ohio Tax Free 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
objectives 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 objectives. 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 Balanced 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."
INTERNATIONAL EQUITY FUND
The investment objective of the International Equity 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 compared to a portfolio
of investments solely in domestic issuers by combining domestic and
international investments and thereby diversifying across a wide range of
countries and currencies.
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 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., 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.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to the following:
- common stocks of non-U.S. issuers;
- common stock equivalents (such as rights and warrants and securities that
are not convertible into common stocks); and
- corporate and government fixed income securities dominated in currencies
other than U.S. dollars.
In addition, the Fund may enter into repurchase agreements, invest in restricted
and illiquid securities, engage in options and futures contracts, participate in
when-issued and delayed delivery transactions, and lend portfolio securities.
(See "Portfolio Investments and Strategies.") The Fund may also make the
following investments.
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. 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.
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 Combined 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, but, as consistent with its other investment
policies, is not otherwise limited in its ability to use this strategy.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
RISK CONSIDERATIONS. Risk considerations relating to investing in non-U.S.
securities are discussed below under "Foreign Investments."
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 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.
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 or Sub-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 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. There is the risk that when lending portfolio securities, the
securities may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable price. In
addition, in the event that a borrower of securities would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending court
action.
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.
The International Equity 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.
A Fund may purchase and write over-the-counter options ("OTC 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 or Sub-Adviser.
OTC 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.
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.
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 conditions. 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.
The International Equity 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.
A 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 a 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's obligations with respect to such
instruments.
The Funds 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, (in the case of the International Equity Fund, 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 Funds 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 a 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, a
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. A Fund may also invest in securities
index futures contracts when the Adviser or Sub-Adviser believes such investment
is more efficient, liquid or cost-effective than investing directly in the
securities underlying the index.
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. 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. A 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. A Fund may also invest in
options on securities index futures contracts when the Adviser or 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.
Except as indicated above with respect to the International Equity Fund, 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. The use of futures and related options involves special considerations
and risks. For example, the ability of a Fund to utilize futures successfully
will depend on the Adviser's or Sub-Adviser's ability to predict pertinent
market movements, and the Adviser or Sub-Adviser could be incorrect in its
expectations about the direction or extent of market factors such as stock price
movement. In these events, the Fund may lose money on the future contract or
option. Also, there might be imperfect correlation, or even no correlation,
between the change in market value of the securities held by Fund and the prices
of the futures and options thereon relating to the securities purchased or sold
by Fund. This may cause the futures contract and any related options to react
differently than the portfolio securities to market changes. 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 Adviser's or
Sub-Adviser's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser or Sub-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.
EQUITY INVESTMENT CONSIDERATIONS
With respect to the Quality Growth, Mid Cap, Balanced and International Equity
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.
FOREIGN INVESTMENTS
Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. While a number of the considerations noted
below under "Foreign Companies" are
relevant to the ability of several funds to invest in ADRs, the following is of
particular interest with respect to the International Equity Fund. In an attempt
to reduce some of these risks, the International Equity 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 in that portfolio.
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 and possible delays in settlement
of foreign transactions (which could adversely affect shareholder equity);
- - 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 (including possible governmental seizure or nationalization of
assets).
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 International Equity 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.
FOREIGN BANK INSTRUMENTS. Different risks may also exist for Eurodollar
Certificates of Deposit ("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee
Certificates of Deposit ("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,
recordkeeping and the public availability of information.
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.
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 ECDs, Yankee CDs, and ETDs which are subject to the same risks as
detailed previously under "Foreign Investments."
In addition, all of the Funds may purchase shares of other investment companies,
primarily for the purpose of investing 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.
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 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 the Funds and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the assets of
each Fund.
With respect to the International Equity 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 this 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
this Fund's 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 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 the
Balanced Fund--0.80%; the International Equity Fund--1.00%. The fees paid
by the Quality Growth, the Mid Cap, the Balanced, and the International
Equity 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,
1995, Fifth Third Bank and its affiliates managed assets in excess of $7.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $67.2 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 $1.11 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
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.
PORTFOLIO MANAGERS' BACKGROUND. Steven E. Folker is the Chief Equity
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. Folker has over 16 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 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 1992, Mr. Folker was Director of Research with Central Trust Bank/PNC
Bank in Cincinnati for six years.
John B. Schmitz manages large institutional accounts and the International
Equity Fund for Fifth Third Trust and Investment Services. Mr. Schmitz is a
Vice President and Trust Officer of Fifth Third Bank and a Chartered
Financial Analyst. 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 12 years of
investment experience and has been with Fifth Third Bank for over 10 years.
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 14 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.
Dorothy C. Sawyer is a portfolio manager with responsibility for the
management of all short-term fixed-income and money market funds for the
bank. Ms. Sawyer has been the portfolio manager for the Government Cash
Reserves, U.S. Treasury Obligations, and the Commercial Paper Fund since
December 1992. Ms. Sawyer has assisted Mr. Atteberry in the management of
all fixed-income funds from time to time and assumes primary responsibility
for these funds in his absence. Prior to managing fixed income funds she
was a fixed income trader. A graduate of Denison University, Ms. Sawyer
earned a B.A. in Economics. She joined Fifth Third Bank in May 1992.
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 International Equity 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 June 30, 1995, the Sub-Adviser managed investments totaling
approximately $37.9 billion under active management and $14.3 billion as
Named Fiduciary or Fiduciary Adviser.
PORTFOLIO MANAGERS' BACKGROUND. Barton M. Biggs has been Chairman and a
Director of the Sub-Adviser since 1980 and Managing Director of Morgan
Stanley & Co. Incorporated since 1975. He is also a Director of Morgan
Stanley Group, Inc. and a Director and Officer of six registered investment
companies to which the Sub-Adviser and certain of its affiliates provides
investment advisory services. Mr. Biggs holds a B.A. from Yale University
and an M.B.A. from New York University.
Madhav Dhar is a Managing Director of Morgan Stanley & Co. Incorporated. He
joined the Sub-Adviser in 1984 to focus on global asset allocation and
investment strategy and now heads the Sub-Adviser's emerging markets group
and serves as the group's principal portfolio manager. He holds a B.S.
(honors) from St. Stephens College, Delhi University (India), and an M.B.A.
from Carnegie-Mellon University.
Francine Bovich joined the Sub-Adviser as a Principal in 1993. She is
responsible for product development, portfolio management and communication
of the Sub-Adviser's asset allocation strategy to institutional investor
clients. Previously, Ms. Bovich was a Principal and Executive Vice
President of Westwood Management Corp., a registered investment adviser.
Before joining Westwood Management Corp., she was a Managing Director of
Citicorp Investment Management, Inc. (now Chancellor Capital Management),
where she was responsible for the Institutional Investment Management
Group. Ms. Bovich began her investment career with Banker's Trust Company.
She holds a B.A. in Economics from Connecticut College and an M.B.A. from
New York University.
Ann Thivierge is a Vice President of the Sub-Adviser. She is a member of
the Sub-Adviser's asset allocation committee, primarily representing the
Total Fund Management Team since its inception in 1991. Ms. Thivierge holds
a B.A. in International Relations from James Madison College, Michigan
State University, and an M.B.A. in Finance from New York University.
DISTRIBUTION OF SHARES OF THE FUNDS
Until December 1, 1995, 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., a subsidiary of Federated Investors, is
located at Federated Investors Tower, Pittsburgh, PA 15222-3779.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
distributor for the Trust. BISYS Fund Services L.P. is wholly-owned by BISYS
Group, Inc., 150 Clove Road, Little Falls, NJ 07424, a publicly owned company
engaged in information processing and recordkeeping services to and through
banking and other financial organizations.
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 the distributor 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.
The distributor 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. Until December 1, 1995, 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, except with respect to the International Equity Fund, this amount
shall be $150,000. Federated Administrative Services may choose voluntarily to
waive a portion of its fee at any time.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
administrator. The administrator generally assists in all aspects of the Trust's
administration and operation including providing the Funds with certain
administrative personnel and services necessary to operate the Funds, such as
legal and accounting services. BISYS Fund Services L.P. provides these at an
annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
- ------------------- ------------------------------------
<S> <C>
.10% of the first $1 billion
.08% of the next $1 billion
.07% in excess of $2 billion
</TABLE>
The administrator may periodically waive all or a portion of its administrative
fee which will cause the yield of a Fund to be higher than it would otherwise be
in the absence of such a waiver.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performs sub-administration services on behalf
of each Fund including providing certain administrative personnel and services
necessary to operate the Fund for which it receives a fee from BISYS Fund
Services L.P. computed daily and paid periodically calculated at an annual rate
of 0.025% of average daily net assets.
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.
INDEPENDENT AUDITORS. The independent auditors for the Funds are Ernst & Young
LLP, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUNDS
Each Fund pays all of its own expenses and its allocable share of the Trust's
expenses. The expenses for 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 International Equity 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 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 must purchase shares
through Federated Securities Corp. at 1-800-358-2801 until December 1, 1995.
Effective December 1, 1995, Texas residents must contact BISYS Fund Services
L.P. at 1-800-554-3862.
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 $1,000. Subsequent
investments must be in amounts of at least $50.
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, normally 4:00 p.m. (New York time) Monday through
Friday, except on 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 and days during which no shares are tendered for redemption and no
orders to purchase shares are received. No orders to purchase or redeem shares
are processed on 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, One Account Gold or One
Account Advantage 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 obligate 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, ONE ACCOUNT GOLD OR ONE ACCOUNT
ADVANTAGE PROGRAMS. All shareholders who have a Club 53 Account, One Account
Plus, One Account Gold, or One Account Advantage 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.................................. 3.97% 4.13%
$50,000-$99,999.................................... 3.47% 3.59%
$100,000-$149,999.................................. 2.47% 2.53%
$150,000-$249,999.................................. 1.47% 1.49%
$250,000-$499,999.................................. 0.47% 0.47%
$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 $50. 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. With respect to the International
Equity Fund, dividends are declared and paid annually.
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 the
New York Stock Exchange and the Federal Reserve Bank of Cleveland are open for
business. 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. Normally, a
check for the proceeds is mailed within one business day, but in no event more
than seven days after receipt of a proper request for redemption has been
received provided the Fund or its agents have received payment for shares from
the shareholder. 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.
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 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 $1,000.
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, 1995, 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, 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 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,
if any, 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, 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.
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.
ADDITIONAL TAX INFORMATION FOR INTERNATIONAL EQUITY FUND
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.
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.
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.
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, advertisements for the Funds may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Funds' performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square U.S. Government Fountain Square Funds
Securities Fund c/o Fifth Third Bank
Fountain Square Quality Bond Fund 38 Fountain Square Plaza
Fountain Square Ohio Tax Free Bond Fund Cincinnati, Ohio 45263
Fountain Square Quality Growth Fund
Fountain Square Mid Cap Fund
Fountain Square Balanced Fund
Fountain Square International Equity Fund
- ------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
[LOGO]
FIFTH THIRD BANK
INVESTMENT ADVISER
65-0918 2090403A (9/95)
Cusip 350756888 Cusip 350756706 Cusip 350756862 Cusip 350756870
Cusip 350756805 Cusip 350756607 Cusip 350756854
FOUNTAIN SQUARE FUNDS
Combined Statement of Additional Information
This Combined Statement of Additional Information relates only to the
following seven 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;
- Fountain Square Balanced Fund; and
- Fountain Square International Equity Fund
This Combined Statement of Additional Information should be read with
the combined prospectus of the Funds dated September 30, 1995. 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.
Fountain Square Funds
c/o Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Statement dated September 30, 1995
FIFTH THIRD BANK
Investment Adviser
General Information About the Trust 1
Investment Objective and Policies of
the Funds 1
Types of Investments 1
Repurchase Agreements 7
Reverse Repurchase Agreements 7
When-Issued and Delayed Delivery
Transactions 7
Lending of Portfolio Securities 8
Restricted And Illiquid Securities 8
Portfolio Turnover 8
Investment Limitations 9
Investment Risks (Ohio Tax Free
Fund) 12
Fountain Square Funds Management 13
Officers and Trustees 13
Trust Ownership 14
Trustees' Compensation 14
Trustee Liability 15
Investment Advisory Services 15
Adviser to the Trust 15
Advisory Fees 15
Sub-Adviser 15
Sub-Advisory Fees 15
Administrative Services 16
Transfer Agent and Dividend
Disbursing Agent 16
Brokerage Transactions 17
Distribution Plan 17
Conversion to Federal Funds 18
Exchanging Securities for Fund
Shares 18
Determining Net Asset Value 18
Determining Market Value of
Securities 18
Valuing Municipal Bonds 19
Use of Amortized Cost 19
Trading in Foreign Securities 19
Redeeming Shares 19
Redemption in Kind 19
Tax Status 20
The Funds' Tax Status 20
Shareholders' Tax Status 20
Capital Gains 20
Foreign Taxes 20
Total Return 20
Yield 21
Tax-Equivalent Yield 21
Tax-Equivalency Table 22
Performance Comparisons 22
Financial Statements 25
Appendix 26
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 seven 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"),
Fountain Square Balanced Fund ("Balanced
<TABLE>
<S> <C>
Fund"), and Fountain Square International Equity Fund ("International Equity Fund").
The Funds are advised by Fifth Third Bank (the "Adviser"), with the International Equity Fund being sub-advised by
Morgan Stanley Asset Management, Inc. (the "Sub-Adviser"), (collectively herein referred to as the "Advisers").
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 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.
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.
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. The International Equity 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.
Stock Index Options. The Funds may purchase put options on stock indices 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 indices, 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 indices will be subject to the ability of the Advisers 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 (and in the case of International
Equity Fund, over-the-counter), 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, or in the case of the International Equity Fund 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.
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.
The International Equity 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.
Call Options on Financial Futures Contracts. The Funds may write listed call options or over-the-counter
call options on futures contracts, to hedge their portfolios against an increase in market interest rates,
or in the case of International Equity Fund, 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 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.
The International Equity 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.
Limitation on Open Futures Positions. A 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 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 securities or
securities index underlying the futures contract and the futures contracts. If a Fund exceeds this
limitation at any time, it 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 ("CMO"s)
The Government Securities Fund, Quality Bond Fund and 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, Mid Cap Fund, Balanced Fund and International Equity 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. 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 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 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.
Warrants
The Quality Growth Fund, Mid Cap Fund, Balanced Fund and International Equity 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 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 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.
Foreign Currency Transactions
The International Equity Fund may engage in 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 Advisers believe 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 Advisers believe 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 Advisers, 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
Advisers, 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.
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 Advisers 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. 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.
Restricted And Illiquid Securities
The Funds 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 Funds, 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 Funds through or with the assistance of the issuer or investment dealers who make a market in
such securities, thus providing liquidity. The Funds believe 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 Funds intend, 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 Advisers, 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.
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 following is a list of the
portfolio turnover rates for the Funds:
</TABLE>
Fiscal year ended
Fiscal year ended
July 31, 1995
July 31, 1994
Government Securities Fund 115% 55%
Quality Bond Fund 138% 112%
Ohio Tax Free Fund 27% 94%
Quality Growth Fund _34% 37%
Mid Cap Fund 23% 44%
Balanced Fund _58% 53%
<TABLE>
<S> <C>
For the period from August 19, 1994 (date of initial public investment) to July 31, 1995 the portfolio turnover
rate for International Equity Fund was 54%.
Portfolio turnover during the year ended July 31, 1995 for U.S. Government Securities Fund was 115%. During the
past fiscal year, the Fund had two major investment events that contributed to the increase in asset turnover.
The first was a complete change in the portfolio's mortgage holdings. This affected approximately 25% of the
Fund. This change was made in March of 1995, to better position the mortgage holdings against any changes in
average life given a falling interest rate environment.
The other event was the use of floating rate agency notes during the first six month of the fiscal year. These
floating rate notes represented about 25% of the Fund's assets by calendar year end and were eliminated from the
Fund by fiscal year end 1995. We used the floating rate notes during the fall of 1994 to protect the Fund's share
price during a rising interest rate environment. Once rates started falling in 1995, this protection was no
longer needed and the notes were sold.
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 (with the exception of Ohio Tax Free 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 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 indices) 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 (with the exception of Ohio Tax Free Fund and Government Securities
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 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 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, Quality Bond Fund, Quality Growth Fund, Mid Cap Fund, Balanced Fund and
International Equity 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 investments 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 Advisers will waive their investment advisory fee and sub-advisory
fees on assets invested in securities of open-end investment companies.
Investing in New Issuers
The Government Securities Fund, Quality Bond Fund, Quality Growth Fund, Mid Cap Fund, Balanced Fund and
International Equity 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.
Investing in Warrants
The Quality Growth Fund, Mid Cap Fund, Balanced Fund and International Equity 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.
Investing in Put Options.
The International Equity 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 in 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 International Equity Fund will not write call options on securities or futures contracts unless the
securities of 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.
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, Government Securities Fund, Quality Bond Fund, Quality
Growth Fund, Mid Cap Fund, and 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, Growth Fund, Mid Cap Fund, Balanced Fund and International Equity 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
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.
J. Christopher Donahue *+
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Chairman of the Board of Trustees, President and Treasurer
President and Trustee, Federated Investors, Federated Advisers, Federated Management, and Federated Research;
President and Director, Federated Research Corp.; President, Passport Research, Ltd.; Trustee, Federated
Administrative Services, Federated Services Company, and Federated Shareholder Services; President or Vice
President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds.
Edward Burke Carey
394 East Town Street
Columbus, OH
Birthdate: July 2, 1945
Member of the Board of Trustees
President of Carey Leggett Realty Advisors.
Lee A. Carter +
Cincinnati Commerce Center
Suite 2020
Cincinnati, OH
Birthdate: December 17, 1938
Member of the Board of Trustees
Formerly, President, Local Marketing Corporation (retired December 31, 1993).
Albert E. Harris
5905 Graves Road
Cincinnati, OH
Birthdate: July 2, 1932
Member of the Board of Trustees
Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993).
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and Assistant Treasurer of some of the Funds.
Jay S. Neuman
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 22, 1950
Secretary
Corporate Counsel, Federated Investors; prior to January, 1991, Associate Counsel, The Boston Company Advisors,
Inc.
*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.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the outstanding shares of each Fund.
As of July 31, 1995, Ms. Joan Bernard owned approximately 212,893 shares (7.5%) of the outstanding shares of the
Ohio Tax Free Bond 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 Fund as of July 31, 1995. The following list indicates the extent of its ownership
for each Fund:
</TABLE>
Government Securities Fund: 2,141,524 shares 83%
Quality Bond Fund: 4,861,546 shares 85%
Ohio Tax Free Fund: 1,318,691 shares 46%
Quality Growth Fund: 6,100,489 shares 87%
Mid Cap Fund: 3,118,954 shares 83%
Balanced Fund: 4,306,393 shares 84%
International Equity Fund 8,581,634 shares 98%
TRUSTEES' COMPENSATION
NAME , AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*+
J. Christopher Donahue $ 0
Chairman of Board of
Trustees, President and Treasurer
Edward Burke Carey $ 7,800
Trustee
Lee A. Carter $ 7,800
Trustee
Albert E. Harris $ 7,800
Trustee
<TABLE>
<S> <C>
* Information is furnished for the fiscal year ended July 31, 1995. The Trust is the only investment company in
the Fund complex.
+The aggregate compensation is provided for the Trust which is comprised of ten portfolios.
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 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. The following shows all investment advisory fees incurred by the Funds and the amounts of those fees
that were voluntarily waived by the Adviser:
</TABLE>
<TABLE>
<CAPTION>
Year ended Amount Year ended Amount Year ended Amount
Fund Name July 31, Waived- July 31, Waived- July 31, Waived-
1995 1995 1994 1994 1993 1993
<S> <C> <C> <C> <C> <C> <C>
Government
Securities Fund $ 134,241 $ 83,786 $ 184,118 $ 45,402 $ $ 11,967
88,059*
Quality Bond $ 265,658 $ 33,033 $ 251,563 $ 33,221 $ 103,014* $ 5,125
Fund
Ohio Tax Free $ 142,708 $ 7,814 $ 109,659 $ 7,912 $ $ 4,181
Fund 4,181**
Quality Growth $ 536,144 $ 18,889 $ 575,044 $ 10,880 $ 343,745* $ 12,890
Fund
Mid Cap Fund $ 287,494 $ 52,747 $ 220,198 $ 74,740 $ 104,664* $ 7,850
Balanced Fund $ 424,672 $ 18,857 $ 501,193 $ 25,861 $ 287,907* $ 15,179
International $ $ 45,670 $ ------ $ ------ $ ------- $ -------
Equity Fund 641,669*** -- - --- -
</TABLE>
<TABLE>
<S> <C>
* For the period from November 20, 1992 (date of initial public investment) to July 31, 1993.
** For the period from May 26, 1993 (date of initial public investment) to July 31, 1993.
*** For the period from August 19, 1994 (date of initial public investment) to July 31, 1995.
Sub-Adviser
Morgan Stanley Asset Management, Inc. is the sub-adviser to International Equity Fund under the terms of a Sub-
Advisory Agreement between Fifth Third Bank and Morgan Stanley Asset Management, Inc.
Sub-Advisory Fees
For its sub-advisory services, Morgan Stanley Asset Management, Inc. receives an annual sub-advisory fee as
described in the prospectus.
For the period from August 19, 1994 (date of initial public investment) through July 31, 1995, the Sub-Adviser
earned fees from International Equity Fund of $320,835 , of which $22,835 was waived.
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 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 and sub-
advisory fees 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 sub-advisory agreement and may be amended or
rescinded in the future.
ADMINISTRATIVE SERVICES
Until December 1, 1995, 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. The following shows
all fees earned by Federated Administrative Services and the amounts of those fees that were voluntarily waived:
</TABLE>
<TABLE>
<CAPTION>
Year ended Amount Year ended Amount Year ended Amount
Fund Name July 31, Waived- July 31, Waived- July 31, Waived-
1995 1995 1994 1994 1993 1993
<S> <C> <C> <C> <C> <C> <C>
Government
Securities Fund $ 50,047 $ $ 50,002 $ 4,247 $ 34,384* $ 34,384
0
Quality Bond $ 53,404 $ $ 53,076 $ 4,247 $ 34,385* $ 34,385
Fund 0
Ohio Tax Free $ 50,000 $ $ 50,002 $ $ $
Fund 0 0 9,041** 9,041
Quality Growth $ 74,089 $ $ 82,765 $ $ 52,614* $
Fund 0 0 0
Mid Cap Fund $ 50,000 $ $ 50,000 $ 4,247 $ 38,384* $ 38,384
0
Balanced Fund $ 58,741 $ $ 72,146 $ $ 44,044* $
0 0 0
International $ $ $ ------ $ $ ------- $ ------
Equity Fund 142,192*** 0 -- 0 -- --
</TABLE>
<TABLE>
<S> <C>
* For the period from November 20, 1992 (date of initial public investment) to July 31, 1993.
** For the period from May 26, 1993 (date of initial public investment) to July 31, 1993.
*** For the period from August 19, 1994 (date of initial public investment) to July 31, 1995.
Effective December 1, 1995, BISYS Fund Services L.P., 3435 Stelzer Road, Columbus, Ohio 43219, will provide
administrative services to the Funds for the fees set forth in the prospectus.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund Services L.P., Fifth Third Bank
performs sub-administration services on behalf of each Fund, for which it receives compensation from BISYS Fund
Services L.P.
Under the custodian agreement, Fifth Third Bank holds each Fund's 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 International Equity Fund's sub-custodian for foreign assets held outside
the United States and employs sub-custodians who were approved by the Trustees of the Fund in accordance with
regulations of the SEC. 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 out-of-pocket
expenses. The following shows all fees earned by the custodian, all of which were voluntarily waived:
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Fifth Third Bank serves as transfer agent and dividend disbursing agent for the Funds. The fee paid to the
transfer agent is based upon the size, type and number of accounts and transactions made by shareholders.
Fifth Third Bank also maintains the Trust's accounting records. The fee paid for this service is based upon the
level of the Funds' average net assets for the period plus out-of-pocket expenses.
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 selects 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 Funds 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 Sub-Adviser in advising the Funds and other
accounts. To the extent that receipt of these services may supplant services for which the Adviser and Sub-Adviser
or their 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 and Sub-Adviser, investments of the type the Funds may make may also be made by those other accounts. When
one of the Funds 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 Funds or the size of the position obtained or disposed of by
the Funds. 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, 1995 and July 31, 1994 , Quality Growth Fund, Mid Cap Fund and Balanced Fund
paid $82,652, $34,525, $47,855, and $58,123, $32,444, $43,250, respectively, in commissions on brokerage
transactions. For the period from November 20, 1992 (date of initial public investment) to July 31, 1993, Quality
Growth Fund, Mid Cap Fund and Balanced Fund paid $80,480, $28,647, $74,546, respectively in commissions on
brokerage transactions.
For the period from August 19, 1994 (date of initial public investment) to July 31, 1995, International Equity
Fund paid $320,889 in commissions on brokerage transactions. For the same period, Morgan Stanley & Co.
Incorporated, an affiliate of the Fund, earned $31,034 in brokerage commissions, representing 9.67% of the total
brokerage commissions paid by the Fund. These transactions with Morgan Stanley & Co. Incorporated amounted to
4.91% of the value of the Fund's securities transactions on which commissions were paid. Morgan Stanley & Co.
Incorporated executed trades for the Fund in Mexico and Indonesia which, in general, involve higher transaction
costs than trades done in such other markets as Japan or the European countries, which accounts for the
differences in these percentages.
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 the distributor 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, the distributor 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.
As of the date of this Statement of Additional Information, the Funds are not accruing or paying 12b-1 fees. The
Funds do not intend to accrue or pay 12b-1 fees until either separate classes of shares have been created for
certain fiduciary investors for these Funds or a determination is made that such investors will be subject to the
12b-1 fees.
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.
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 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 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 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.
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, International Equity 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 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 Government Securities Fund, Quality Bond Fund, Quality Growth Fund, Mid Cap Fund, Balanced Fund,
and International Equity 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 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 Government Securities Fund, Quality Bond Fund, Quality Growth Fund, Mid Cap Fund, Balanced Fund,
and International Equity 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 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.
FOREIGN TAXES
Investment income on certain foreign securities in which International Equity 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.
TOTAL RETURN
The average annual total returns for Government Securities Fund, Quality Bond Fund, Quality Growth Fund, Mid Cap
Fund and Balanced Fund for the fiscal year ended July 31, 1995 were 2.86%, 3.99%, 17.63%, 19.76%, and 13.97%,
respectively.
The average annual total returns for Government Securities Fund, Quality Bond Fund, Quality Growth Fund, Mid Cap
Fund and Balanced Fund for the period from November 20, 1992 (date of initial public investment) to July 31, 1995,
were 2.89%, 3.48%, 5.96%, 7.79%, and 5.56%, respectively.
The average annual total returns for Ohio Tax Free Fund for the fiscal year ended July 31, 1995 and for the period
from May 26, 1993 (date of initial public investment) through July 31, 1995 were 2.20% and 1.91%, 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.
The cumulative total return for International Equity Fund for the period from August 19, 1994 (date of initial
public investment) to July 31, 1995 was (6.11%). Cumulative total return reflects the International Equity Fund's
total performance over a specific period of time. This total return assumes and is reduced by the payment of the
maximum sales load. The Fund's total return is representative of approximately 11 months of activity since its
date of initial public investment
YIELD
The SEC yields for Government Securities Fund, Quality Bond Fund, Ohio Tax Free Fund, Quality Growth Fund, Mid Cap
Fund, Balanced Fund, and International Equity Fund for the thirty-day period ended July 31, 1995 were 5.58%,
6.36%, 3.97%, 1.29%, 0.47%, 2.27% and 0.12%, respectively.
The yield for the Funds is determined by dividing the net investment income per share (as defined by the SEC)
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 SEC 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 Ohio Tax Free Fund for the thirty-day period ended July 31, 1995 was 6.39%. 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>
TAXABLE YIELD EQUIVALENT FOR 1995
STATE OF OHIO
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET:
19.457% 33.201% 37.900% 43.500% 47.100%
SINGLE $1- $23,351- $56,551- $117,951- OVER
RETURN 23,350 56,550 117,950 256,500 256,500
Tax-Exempt
Yield Taxable Yield Equivalent
1.50% 1.86% 2.25% 2.42% 2.65% 2.84%
2.00% 2.48% 2.99% 3.22% 3.54% 3.78%
2.50% 3.10% 3.74% 4.03% 4.42% 4.73%
3.00% 3.72% 4.49% 4.83% 5.31% 5.67%
3.50% 4.35% 5.24% 5.64% 6.19% 6.62%
4.00% 4.97% 5.99% 6.44% 7.08% 7.56%
4.50% 5.59% 6.74% 7.25% 7.96% 8.51%
5.00% 6.21% 7.49% 8.05% 8.85% 9.45%
5.50% 6.83% 8.23% 8.86% 9.73% 10.40%
6.00% 7.45% 8.98% 9.66% 10.62% 11.34%
<TABLE>
<S> <C>
Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent.
Furthermore, additional state and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of past or future performance of
Ohio Tax Free Bond Fund shares.
* Some portion of Ohio Tax Free Fund's income may be subject to the federal alternative minimum tax and
state and local income taxes.
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 INDICES 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)
- 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. (International Equity Fund)
- 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,
Fountain Square Balanced Fund and Fountain Square International Equity Fund for the fiscal year ended July 31,
1995 are incorporated herein by reference to the Annual Report to Shareholders of the Fountain Square Equity and
Income Mutual Funds dated July 31, 1995. (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 broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are ample although not so large as in the
preceding group.
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.
</TABLE>
Cusip 350756888
Cusip 350756706
Cusip 350756862
Cusip 350756870
Cusip 350756805
Cusip 350756607
Cusip 350756854
2090403B (9/95)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
INVESTMENT SHARES
[LOGO]
FOUNTAIN SQUARE FUNDS
PROSPECTUS
[LOGO]
FIFTH THIRD BANK
INVESTMENT ADVISER
Cusip 350756300
9052205A-R (9/95)
65-0922
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, 1995, 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, 1995
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 8
Other Payments to Financial Institutions 8
Administration of the Fund 9
Administrative Services 9
Custodian, Transfer Agent, and
Dividend Disbursing Agent 9
Independent Auditors 9
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN INVESTMENT SHARES 10
- ------------------------------------------------------
Share Purchases 10
Through Fifth Third Securities 10
Minimum Investment Required 10
What Shares Cost 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
EXCHANGES 11
- ------------------------------------------------------
REDEEMING INVESTMENT SHARES 12
- ------------------------------------------------------
Through Fifth Third Securities 12
By Telephone 12
By Mail 13
Receiving Payment 13
Accounts with Low Balances 14
SHAREHOLDER INFORMATION 14
- ------------------------------------------------------
Voting Rights 14
Massachusetts Law 14
EFFECT OF BANKING LAWS 15
- ------------------------------------------------------
TAX INFORMATION 15
- -----------------------------------------------------
Federal Income Tax 15
PERFORMANCE INFORMATION 16
- ------------------------------------------------------
OTHER CLASSES OF SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 26
- ------------------------------------------------------
ADDRESSES 27
- ------------------------------------------------------
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)................................................ 0.32%
12b-1 Fee (after waiver)(2)..................................................... 0.00%
Other Expenses(3)............................................................... 0.17%
Total Investment Shares Operating Expenses(4)............................... 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) Other expenses have been reduced to reflect the voluntary waiver of its fee
by the custodian.
(4) Total Operating Expenses would have been 0.93% absent the voluntary waivers
by the investment adviser, distributor and custodian.
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.
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 26.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------
1995 1994 1993*
------- ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- ------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------
Net investment income 0.05 0.03 0.03
- ------------------------------------------------------ ------ ------ ------
LESS DISTRIBUTIONS
- ------------------------------------------------------
Distributions to shareholders from net investment
income (0.05) (0.03) (0.03)
- ------------------------------------------------------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- ------------------------------------------------------ ------ ------ ------
TOTAL RETURN** 5.25% 3.02% 2.70%
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------
Expenses 0.49% 0.49% 0.48%(b)
- ------------------------------------------------------
Net investment income 5.12% 2.97% 2.69%(b)
- ------------------------------------------------------
Expense waiver/reimbursement(a) 0.44% 0.45% 0.47%(b)
- ------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------
Net assets, end of period (000 omitted) $10,169 $6,147 $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.
(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 $1,000 is required.
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
the 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 U.S.
government securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be
advantageous. Settlement dates may be a month or more after entering into these
transactions, and the market values of the securities purchased may vary from
the purchase prices. Accordingly, the Fund may pay more or less than the market
value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the 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. 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; 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.
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 (the "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,
1995, Fifth Third Bank and its affiliates managed assets in excess of $7.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $67.2 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 $1.11 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.
DISTRIBUTION OF INVESTMENT SHARES
Until December 1, 1995, 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., a subsidiary of Federated Investors, is
located at Federated Investors Tower, Pittsburgh, PA 15222-3779.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
distributor for the Trust. BISYS Fund Services L.P. is wholly-owned by BISYS
Group, Inc., 150 Clove Road, Little Falls, NJ 07424, a publicly owned company
engaged in information processing and recordkeeping services to and through
banking and other financial organizations.
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 the distributor 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.
The distributor 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. Until December 1, 1995, 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
- --------------------- ----------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
on assets in excess of $750
.075 of 1% 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.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
administrator. The administrator generally assists in all aspects of the Trust's
administration and operation including providing the Funds with certain
administrative personnel and services necessary to operate the Funds, such as
legal and accounting services. BISYS Fund Services L.P. provides these at an
annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
- ------------------- ------------------------------------
<S> <C>
.10% of the first $1 billion
.08% of the next $1 billion
.07% in excess of $2 billion
</TABLE>
The administrator may periodically waive all or a portion of its administrative
fee which will cause the yield of a Fund to be higher than it would otherwise be
in the absence of such a waiver.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performs sub-administration services on behalf
of the Fund including providing certain administrative personnel and services
necessary to operate the Fund for which it receives a fee from BISYS Fund
Services L.P. computed daily and paid periodically calculated at an annual rate
of 0.025% of average daily net assets.
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.
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 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. at
1-800-358-2801 until December 1, 1995. Effective December 1, 1995, Texas
residents must contact BISYS Fund Services L.P. at 1-800-554-3862.
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 $1,000. Subsequent
investments must be in amounts of at least $50. 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.
The minimum investment requirements do not apply with respect to accounts that
have been established to automatically invest cash accumulations in the Fund.
Investors participating in such arrangements may be charged separate fees by the
financial institution that provides this service, and should read this
prospectus along with their financial institution's agreement or other
literature relating to this service.
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.
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
Federated Securities Corp. by calling 1-800-358-2801 until December 1, 1995.
Effective December 1, 1995, all other investors may redeem through BISYS Fund
Services L.P. at 1-800-554-3826.
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, provided the Fund or its agents have
received payment for shares from the shareholder.
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 $1,000.
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, 1995, 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.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
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 $1,000. 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.
To obtain more information and a prospectus for Trust Shares, investors may call
(513) 744-8888 in Cincinnati or toll free (800) 334-0483.
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
*COMMERCIAL PAPER--85.0%
- ---------------------------------------------------------------------------------
AUTO & TRUCKS--1.7%
------------------------------------------------------------------
$ 4,000,000 Daimler-Benz, 5.911%, 10/10/1995 $ 3,955,511
------------------------------------------------------------------ ------------
BANKING--19.5%
------------------------------------------------------------------
4,000,000 A.I.G. Funding, 5.957%, 9/19/1995 3,968,477
------------------------------------------------------------------
8,000,000 Banc One Corp., 5.784%-6.055%, 9/11/1995-11/6/1995 7,920,943
------------------------------------------------------------------
5,000,000 Morgan (J.P.) & Co., 5.821%, 9/1/1995 4,975,458
------------------------------------------------------------------
10,000,000 Rabobank Nederland, 5.891%-6.113%, 8/10/1995-10/25/1995 9,937,257
------------------------------------------------------------------
8,000,000 Republic National Bank of New York, 5.738%-5.775%,
10/13/1995-12/22/1995 7,877,168
------------------------------------------------------------------
6,000,000 Societe Generale N.A., Inc., 5.664%-5.912%, 10/26/1995-12/8/1995 5,900,312
------------------------------------------------------------------
5,000,000 Wachovia Corp., 6.134%, 8/2/1995 4,999,172
------------------------------------------------------------------ ------------
Total 45,578,787
------------------------------------------------------------------ ------------
CHEMICAL--2.1%
------------------------------------------------------------------
5,000,000 duPont (E.I.) deNemours and Co., 6.023%, 8/3/1995 4,998,364
------------------------------------------------------------------ ------------
CONSUMER PRODUCTS--3.8%
------------------------------------------------------------------
6,000,000 Hewlett-Packard Co., 5.784%-5.818%, 10/10/1995-10/30/1995 5,924,783
------------------------------------------------------------------
3,000,000 Procter & Gamble Co., 5.732%, 9/6/1995 2,983,200
------------------------------------------------------------------ ------------
Total 8,907,983
------------------------------------------------------------------ ------------
DIVERSIFIED--2.5%
------------------------------------------------------------------
6,000,000 Cargill, Inc., 5.894%, 9/27/1995 5,945,565
------------------------------------------------------------------ ------------
EDUCATION--8.0%
------------------------------------------------------------------
8,000,000 Harvard University, 6.03%-6.10%, 8/7/1995-8/14/1995 7,988,668
------------------------------------------------------------------
10,675,000 Stanford University, 5.899%-6.715%, 8/1/1995-11/13/1995 10,613,537
------------------------------------------------------------------ ------------
Total 18,602,205
------------------------------------------------------------------ ------------
FINANCE--AUTOMOTIVE--1.3%
------------------------------------------------------------------
3,000,000 Associates Corp. of North America, 6.072%, 8/2/1995 2,999,505
------------------------------------------------------------------ ------------
</TABLE>
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
COMMERCIAL PAPER--CONTINUED
- ---------------------------------------------------------------------------------
FINANCE--COMMERCIAL--15.3%
------------------------------------------------------------------
$ 3,000,000 A.I. Credit Corp., 5.880%, 10/12/1995 $ 2,965,800
------------------------------------------------------------------
7,000,000 General Electric Capital Corp., 5.786%-5.819%, 8/8/1995-11/28/1995 6,922,625
------------------------------------------------------------------
4,000,000 MetLife Funding Corp., 6.05%, 8/22/1995 3,986,280
------------------------------------------------------------------
11,000,000 Norwest Corp., 5.849%-6.19%, 8/14/1995-10/17/1995 10,926,508
------------------------------------------------------------------
11,000,000 Paccar Financial Corp., 6.094%-6.115%, 8/9/1995-8/23/1995 10,974,131
------------------------------------------------------------------ ------------
Total 35,775,344
------------------------------------------------------------------ ------------
FOOD AND BEVERAGE--4.4%
------------------------------------------------------------------
5,000,000 Coca-Cola Co., 5.911%, 9/8/1995 4,969,547
------------------------------------------------------------------
5,399,000 Nestle Capital, 5.921%-5.997%, 9/5/1995-10/23/1995 5,350,303
------------------------------------------------------------------ ------------
Total 10,319,850
------------------------------------------------------------------ ------------
MANUFACTURING--9.4%
------------------------------------------------------------------
5,000,000 Emerson Electric Co., 6.015%, 8/4/1995 4,997,563
------------------------------------------------------------------
8,000,000 Minnesota Mining & Manufacturing Co., 5.899%-5.985%,
8/25/1995-9/14/1995 7,952,933
------------------------------------------------------------------
9,000,000 Pitney Bowes, Inc., 5.915%-6.037%, 8/31/1995-9/21/1995 8,946,163
------------------------------------------------------------------ ------------
Total 21,896,659
------------------------------------------------------------------ ------------
OIL & GAS--3.4%
------------------------------------------------------------------
8,000,000 Shell Oil Co., 5.944%-6.220%, 9/15/1995-10/2/1995 7,929,954
------------------------------------------------------------------ ------------
PAPER/PRODUCTS--1.7%
------------------------------------------------------------------
4,000,000 Kimberly-Clark, 5.771%, 9/18/1995 3,969,973
------------------------------------------------------------------ ------------
PHARMACEUTICALS AND HEALTH CARE--3.4%
------------------------------------------------------------------
4,000,000 Schering-Plough Corp., 6.155%, 9/5/1995 3,976,861
------------------------------------------------------------------
4,000,000 Warner-Lambert Co., 5.803%, 10/23/1995 3,948,079
------------------------------------------------------------------ ------------
Total 7,924,940
------------------------------------------------------------------ ------------
</TABLE>
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
COMMERCIAL PAPER--CONTINUED
- ---------------------------------------------------------------------------------
RETAIL STORES--3.0%
------------------------------------------------------------------
$ 7,000,000 Toys R Us, Inc., 5.807%, 8/17/1995 $ 6,982,267
------------------------------------------------------------------ ------------
TELECOMMUNICATIONS--1.7%
------------------------------------------------------------------
4,000,000 U.S. West Communications, Inc., 5.944%, 8/11/1995 3,993,556
------------------------------------------------------------------ ------------
TRANSPORTATION--3.8%
------------------------------------------------------------------
9,000,000 United Parcel Service of America, Inc., 5.889%-6.028%,
8/9/1995-9/7/1995 8,964,826
------------------------------------------------------------------ ------------
TOTAL COMMERCIAL PAPER 198,745,289
------------------------------------------------------------------ ------------
**REPURCHASE AGREEMENTS--15.5%
- ---------------------------------------------------------------------------------
10,000,000 Bear, Stearns & Co., Inc., 5.80%, dated 7/31/1995, due 8/1/1995 10,000,000
------------------------------------------------------------------
16,311,000 Nesbitt Burns, 5.82%, dated 7/31/1995, due 8/1/1995 16,311,000
------------------------------------------------------------------
10,000,000 J.P. Morgan Securities, Inc., 5.82%, dated 7/31/1995, due 8/1/1995 10,000,000
------------------------------------------------------------------ ------------
TOTAL REPURCHASE AGREEMENTS 36,311,000
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $235,056,289+
------------------------------------------------------------------ ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** The 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
($233,808,744)
at July 31, 1995.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------
Investments in repurchase agreements $ 36,311,000
- -----------------------------------------------------------------
Investments in securities 198,745,289
- ----------------------------------------------------------------- ------------
Total investments, at amortized cost and value $235,056,289
- --------------------------------------------------------------------------------
Cash 308
- --------------------------------------------------------------------------------
Income receivable 5,865
- -------------------------------------------------------------------------------- ------------
Total assets 235,062,462
- --------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------
Payable to Adviser 97,171
- -----------------------------------------------------------------
Dividends payable 1,100,692
- -----------------------------------------------------------------
Accrued expenses 55,855
- ----------------------------------------------------------------- ------------
Total liabilities 1,253,718
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 233,808,744 shares of beneficial interest outstanding $233,808,744
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
- --------------------------------------------------------------------------------
Trust Shares ($223,640,180 / 223,640,180 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
Investment Shares ($10,168,564 / 10,168,564 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, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest income $13,526,740
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 958,506
- ---------------------------------------------------------------------
Administrative personnel and services fee 265,038
- ---------------------------------------------------------------------
Custodian fee 22,146
- ---------------------------------------------------------------------
Portfolio accounting, transfer and dividend disbursing agent fees and
expenses 57,676
- ---------------------------------------------------------------------
Directors'/Trustees' fees 6,771
- ---------------------------------------------------------------------
Auditing fees 13,066
- ---------------------------------------------------------------------
Legal fees 5,545
- ---------------------------------------------------------------------
Fund share registration costs 29,953
- ---------------------------------------------------------------------
Printing and postage 19,975
- ---------------------------------------------------------------------
Insurance premiums 8,210
- ---------------------------------------------------------------------
Distribution services fee 33,414
- --------------------------------------------------------------------- ----------
Total expenses 1,420,300
- ---------------------------------------------------------------------
Deduct--
- ---------------------------------------------------------------------
Waiver of investment advisory fee $190,170
- ----------------------------------------------------------
Waiver of distribution services fee 33,414
- ----------------------------------------------------------
Waiver of custodian fee 22,146 245,730
- ---------------------------------------------------------- -------- ----------
Net expenses 1,174,570
- ----------------------------------------------------------------------------------- -----------
Net investment income $12,352,170
- ----------------------------------------------------------------------------------- -----------
</TABLE>
(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,
--------------------------------
1995 1994
--------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------
Net investment income $ 12,352,170 $ 6,633,051
- ------------------------------------------------------------- --------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------
Dividends to shareholders from net investment income:
- -------------------------------------------------------------
Trust Shares (11,852,325) (6,444,903)
- -------------------------------------------------------------
Investment Shares (499,845) (188,148)
- ------------------------------------------------------------- --------------- -------------
Change in net assets from distributions to shareholders (12,352,170) (6,633,051)
- ------------------------------------------------------------- --------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -------------------------------------------------------------
Proceeds from sale of shares 1,139,381,157 868,472,344
- -------------------------------------------------------------
Cost of shares redeemed (1,124,845,195) (833,978,799)
- ------------------------------------------------------------- --------------- -------------
Change in net assets from Fund share transactions 14,535,962 34,493,545
- ------------------------------------------------------------- --------------- -------------
Change in net assets 14,535,962 34,493,545
- -------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------
Beginning of period 219,272,782 184,779,237
- ------------------------------------------------------------- --------------- -------------
End of period $ 233,808,744 $ 219,272,782
- ------------------------------------------------------------- --------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
(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 nine diversified portfolios and one
non-diversified portfolio. The financial statements included herein are 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.
(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 a custodian or
sub-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 under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
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 and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the agreements. 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.
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 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 valued 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, 1995, capital paid-in aggregated $233,808,744.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
TRUST SHARES 1995 1994
- -------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Shares sold 1,114,106,500 848,035,515
- --------------------------------------------------------------
Shares redeemed (1,103,592,384) (814,974,172)
- -------------------------------------------------------------- -------------- ------------
Net change resulting from Trust Share transactions 10,514,116 33,061,343
- -------------------------------------------------------------- -------------- ------------
INVESTMENT SHARES
- --------------------------------------------------------------
Shares sold 25,274,657 20,436,829
- --------------------------------------------------------------
Shares redeemed (21,252,811) (19,004,627)
- -------------------------------------------------------------- -------------- ------------
Net change resulting from Investment Share transactions 4,021,846 1,432,202
- -------------------------------------------------------------- -------------- ------------
Net change resulting from Fund share transactions 14,535,962 34,493,545
- -------------------------------------------------------------- -------------- ------------
</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. The Adviser can modify or terminate this
voluntary waiver 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's Investment Shares to finance activities intended to
result in the sale of the Fund's Investment Shares. The Plan provides that the
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
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 all or 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 FEES AND EXPENSES, PORTFOLIO ACCOUNTING
AND CUSTODIAN FEES--Fifth Third Bank serves as transfer and dividend disbursing
agent for the Fund for which it receives a fee. Fifth Third Bank sub-contracts
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 for which it receives a
fee. Fifth Third Bank sub-contracts 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 for which it receives a fee. The fee is
based on the level of the Fund's average net assets for the period, plus
out-of-pocket expenses. The custodian may choose to voluntarily waive all or a
portion of its fees.
Certain of the Officers and Trustees of the Trust are Officers and 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 Commercial Paper Fund (one of
the portfolios comprising Fountain Square Funds), as of July 31, 1995, 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, 1995, 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, 1995, 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 15, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square Commercial Paper Fund Fountain Square Funds
Investment Shares c/o Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------------
</TABLE>
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
TRUST SHARES
[LOGO]
FOUNTAIN SQUARE FUNDS
PROSPECTUS
[LOGO]
FIFTH THIRD BANK
INVESTMENT ADVISER
Cusip 350756201
9052205A-I (9/95)
65-0921
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, 1995, 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, 1995
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 4
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 8
Administration of the Fund 8
Administrative Services 8
Custodian, Transfer Agent, and
Dividend Disbursing Agent 9
Independent Auditors 9
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN TRUST SHARES 9
- ------------------------------------------------------
Share Purchases 9
Through Fifth Third Bank 9
Minimum Investment Required 10
What Shares Cost 10
Certificates and Confirmations 10
Dividends 10
Capital Gains 11
EXCHANGES 11
- ------------------------------------------------------
REDEEMING TRUST SHARES 12
- ------------------------------------------------------
Through Fifth Third Bank 12
By Telephone 12
By Mail 12
Receiving Payment 13
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Law 14
EFFECT OF BANKING LAWS 14
- ------------------------------------------------------
TAX INFORMATION 15
- ------------------------------------------------------
Federal Income Tax 15
PERFORMANCE INFORMATION 15
- ------------------------------------------------------
OTHER CLASSES OF SHARES 16
- ------------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 26
- ------------------------------------------------------
ADDRESSES 27
- ------------------------------------------------------
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)........................................... 0.32%
12b-1 Fee.................................................................. None
Other Expenses(2).......................................................... 0.17%
Total Trust 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) Other expenses have been reduced to reflect the voluntary waiver of its fee
by the custodian.
(3) Total Operating Expenses would have been 0.58% absent the voluntary waiver
by the investment adviser and custodian.
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.
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 26.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989*
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income 0.05 0.03 0.03 0.04 0.07 0.08 0.01
- --------------------------------- ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- ---------------------------------
Distributions to shareholders
from net investment income (0.05) (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 $1.00
- --------------------------------- ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN** 5.25% 3.02% 2.78% 4.27% 6.89% 8.22% 1.19%
- ---------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------
Expenses 0.49% 0.49% 0.48% 0.46% 0.50% 0.53% 0.45%(b)
- ---------------------------------
Net investment income 5.12% 2.97% 2.75% 4.19% 6.61% 7.86% 8.95%(b)
- ---------------------------------
Expense waiver/
reimbursement(a) 0.09% 0.10% 0.12% 0.14% 0.14% 0.16% 0.35%(b)
- ---------------------------------
SUPPLEMENTAL DATA
- ---------------------------------
Net assets, end of period
(000 omitted) $223,640 $213,126 $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.
(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 $1,000 is required.
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
the 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 U.S.
government securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the
market values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the 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. 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; 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.
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 (the "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,
1995, Fifth Third Bank and its affiliates managed assets in excess of $7.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $67.2 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 $1.11 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
Until December 1, 1995, 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., a subsidiary of Federated Investors, is
located at Federated Investors Tower, Pittsburgh, PA 15222-3779.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
distributor for the Trust. BISYS Fund Services L.P. is wholly-owned by BISYS
Group, Inc., 150 Clove Road, Little Falls, NJ 07424, a publicly owned company
engaged in information processing and recordkeeping services to and through
banking and other financial organizations.
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. Until December 1, 1995, 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>
AVERAGE AGGREGATE DAILY NET
MAXIMUM ADMINISTRATIVE FEE ASSETS OF THE TRUST
-------------------------------- --------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets 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.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
administrator. The administrator generally assists in all aspects of the Trust's
administration and operation including providing the Funds with certain
administrative personnel and services necessary to operate the Funds, such as
legal and accounting services. BISYS Fund Services L.P. provides these at an
annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
- ------------------- ------------------------------------
<S> <C>
.10% of the first $1 billion
.08% of the next $1 billion
.07% in excess of $2 billion
</TABLE>
The administrator may periodically waive all or a portion of its administrative
fee which will cause the yield of a Fund to be higher than it would otherwise be
in the absence of such a waiver.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performs sub-administration services on behalf
of the Fund including providing certain administrative personnel and services
necessary to operate the Fund for which it receives a fee from BISYS Fund
Services L.P. computed daily and paid periodically calculated at an annual rate
of 0.025% of average daily net assets.
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.
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. at 1-800-358-2801 until December 1, 1995. Effective
December 1, 1995, Texas residents must contact BISYS Fund Services L.P. at
1-800-554-3862.
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 $1,000. Subsequent
investments must be in amounts of at least $50. 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.
The minimum investment requirements do not apply with respect to accounts that
have been established to automatically invest cash accumulations in the Fund.
Investors participating in such arrangements may be charged separate fees by the
financial institution that provides this service, and should read this
prospectus along with their financial institution's agreement or other
literature relating to this service.
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.
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, provided the Fund or its agents have
received payment for shares from the shareholder.
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 $1,000.
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, 1995, 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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
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 $1,000. 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.
To obtain more information and a prospectus for Investment Shares, investors may
call (513) 579-6039 in Cincinnati or toll free (800) 654-5372.
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
*COMMERCIAL PAPER--85.0%
- ---------------------------------------------------------------------------------
AUTO & TRUCKS--1.7%
------------------------------------------------------------------
$ 4,000,000 Daimler-Benz, 5.911%, 10/10/1995 $ 3,955,511
------------------------------------------------------------------ ------------
BANKING--19.5%
------------------------------------------------------------------
4,000,000 A.I.G. Funding, 5.957%, 9/19/1995 3,968,477
------------------------------------------------------------------
8,000,000 Banc One Corp., 5.784%-6.055%, 9/11/1995-11/6/1995 7,920,943
------------------------------------------------------------------
5,000,000 Morgan (J.P.) & Co., 5.821%, 9/1/1995 4,975,458
------------------------------------------------------------------
10,000,000 Rabobank Nederland, 5.891%-6.113%, 8/10/1995-10/25/1995 9,937,257
------------------------------------------------------------------
8,000,000 Republic National Bank of New York, 5.738%-5.775%,
10/13/1995-12/22/1995 7,877,168
------------------------------------------------------------------
6,000,000 Societe Generale N.A., Inc., 5.664%-5.912%, 10/26/1995-12/8/1995 5,900,312
------------------------------------------------------------------
5,000,000 Wachovia Corp., 6.134%, 8/2/1995 4,999,172
------------------------------------------------------------------ ------------
Total 45,578,787
------------------------------------------------------------------ ------------
CHEMICAL--2.1%
------------------------------------------------------------------
5,000,000 duPont (E.I.) deNemours and Co., 6.023%, 8/3/1995 4,998,364
------------------------------------------------------------------ ------------
CONSUMER PRODUCTS--3.8%
------------------------------------------------------------------
6,000,000 Hewlett-Packard Co., 5.784%-5.818%, 10/10/1995-10/30/1995 5,924,783
------------------------------------------------------------------
3,000,000 Procter & Gamble Co., 5.732%, 9/6/1995 2,983,200
------------------------------------------------------------------ ------------
Total 8,907,983
------------------------------------------------------------------ ------------
DIVERSIFIED--2.5%
------------------------------------------------------------------
6,000,000 Cargill, Inc., 5.894%, 9/27/1995 5,945,565
------------------------------------------------------------------ ------------
EDUCATION--8.0%
------------------------------------------------------------------
8,000,000 Harvard University, 6.03%-6.10%, 8/7/1995-8/14/1995 7,988,668
------------------------------------------------------------------
10,675,000 Stanford University, 5.899%-6.715%, 8/1/1995-11/13/1995 10,613,537
------------------------------------------------------------------ ------------
Total 18,602,205
------------------------------------------------------------------ ------------
FINANCE--AUTOMOTIVE--1.3%
------------------------------------------------------------------
3,000,000 Associates Corp. of North America, 6.072%, 8/2/1995 2,999,505
------------------------------------------------------------------ ------------
</TABLE>
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
COMMERCIAL PAPER--CONTINUED
- ---------------------------------------------------------------------------------
FINANCE--COMMERCIAL--15.3%
------------------------------------------------------------------
$ 3,000,000 A.I. Credit Corp., 5.880%, 10/12/1995 $ 2,965,800
------------------------------------------------------------------
7,000,000 General Electric Capital Corp., 5.786%-5.819%, 8/8/1995-11/28/1995 6,922,625
------------------------------------------------------------------
4,000,000 MetLife Funding Corp., 6.05%, 8/22/1995 3,986,280
------------------------------------------------------------------
11,000,000 Norwest Corp., 5.849%-6.19%, 8/14/1995-10/17/1995 10,926,508
------------------------------------------------------------------
11,000,000 Paccar Financial Corp., 6.094%-6.115%, 8/9/1995-8/23/1995 10,974,131
------------------------------------------------------------------ ------------
Total 35,775,344
------------------------------------------------------------------ ------------
FOOD AND BEVERAGE--4.4%
------------------------------------------------------------------
5,000,000 Coca-Cola Co., 5.911%, 9/8/1995 4,969,547
------------------------------------------------------------------
5,399,000 Nestle Capital, 5.921%-5.997%, 9/5/1995-10/23/1995 5,350,303
------------------------------------------------------------------ ------------
Total 10,319,850
------------------------------------------------------------------ ------------
MANUFACTURING--9.4%
------------------------------------------------------------------
5,000,000 Emerson Electric Co., 6.015%, 8/4/1995 4,997,563
------------------------------------------------------------------
8,000,000 Minnesota Mining & Manufacturing Co., 5.899%-5.985%,
8/25/1995-9/14/1995 7,952,933
------------------------------------------------------------------
9,000,000 Pitney Bowes, Inc., 5.915%-6.037%, 8/31/1995-9/21/1995 8,946,163
------------------------------------------------------------------ ------------
Total 21,896,659
------------------------------------------------------------------ ------------
OIL & GAS--3.4%
------------------------------------------------------------------
8,000,000 Shell Oil Co., 5.944%-6.220%, 9/15/1995-10/2/1995 7,929,954
------------------------------------------------------------------ ------------
PAPER/PRODUCTS--1.7%
------------------------------------------------------------------
4,000,000 Kimberly-Clark, 5.771%, 9/18/1995 3,969,973
------------------------------------------------------------------ ------------
PHARMACEUTICALS AND HEALTH CARE--3.4%
------------------------------------------------------------------
4,000,000 Schering-Plough Corp., 6.155%, 9/5/1995 3,976,861
------------------------------------------------------------------
4,000,000 Warner-Lambert Co., 5.803%, 10/23/1995 3,948,079
------------------------------------------------------------------ ------------
Total 7,924,940
------------------------------------------------------------------ ------------
</TABLE>
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ ------------
<C> <S> <C>
COMMERCIAL PAPER--CONTINUED
- ---------------------------------------------------------------------------------
RETAIL STORES--3.0%
------------------------------------------------------------------
$ 7,000,000 Toys R Us, Inc., 5.807%, 8/17/1995 $ 6,982,267
------------------------------------------------------------------ ------------
TELECOMMUNICATIONS--1.7%
------------------------------------------------------------------
4,000,000 U.S. West Communications, Inc., 5.944%, 8/11/1995 3,993,556
------------------------------------------------------------------ ------------
TRANSPORTATION--3.8%
------------------------------------------------------------------
9,000,000 United Parcel Service of America, Inc., 5.889%-6.028%,
8/9/1995-9/7/1995 8,964,826
------------------------------------------------------------------ ------------
TOTAL COMMERCIAL PAPER 198,745,289
------------------------------------------------------------------ ------------
**REPURCHASE AGREEMENTS--15.5%
- ---------------------------------------------------------------------------------
10,000,000 Bear, Stearns & Co., Inc., 5.80%, dated 7/31/1995, due 8/1/1995 10,000,000
------------------------------------------------------------------
16,311,000 Nesbitt Burns, 5.82%, dated 7/31/1995, due 8/1/1995 16,311,000
------------------------------------------------------------------
10,000,000 J.P. Morgan Securities, Inc., 5.82%, dated 7/31/1995, due 8/1/1995 10,000,000
------------------------------------------------------------------ ------------
TOTAL REPURCHASE AGREEMENTS 36,311,000
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $235,056,289+
------------------------------------------------------------------ ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
** The 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
($233,808,744)
at July 31, 1995.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $ 36,311,000
- -----------------------------------------------------------------
Investments in securities 198,745,289
- ----------------------------------------------------------------- ------------
Total investments, at amortized cost and value $235,056,289
- --------------------------------------------------------------------------------
Cash 308
- --------------------------------------------------------------------------------
Income receivable 5,865
- -------------------------------------------------------------------------------- ------------
Total assets 235,062,462
- --------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------
Payable to Adviser 97,171
- -----------------------------------------------------------------
Dividends payable 1,100,692
- -----------------------------------------------------------------
Accrued expenses 55,855
- ----------------------------------------------------------------- ------------
Total liabilities 1,253,718
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 233,808,744 shares of beneficial interest outstanding $233,808,744
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
- --------------------------------------------------------------------------------
Trust Shares ($223,640,180 / 223,640,180 shares of beneficial interest
outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
Investment Shares ($10,168,564 / 10,168,564 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, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest income $13,526,740
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 958,506
- ---------------------------------------------------------------------
Administrative personnel and services fee 265,038
- ---------------------------------------------------------------------
Custodian fee 22,146
- ---------------------------------------------------------------------
Portfolio accounting, transfer and dividend disbursing agent fees and
expenses 57,676
- ---------------------------------------------------------------------
Directors'/Trustees' fees 6,771
- ---------------------------------------------------------------------
Auditing fees 13,066
- ---------------------------------------------------------------------
Legal fees 5,545
- ---------------------------------------------------------------------
Fund share registration costs 29,953
- ---------------------------------------------------------------------
Printing and postage 19,975
- ---------------------------------------------------------------------
Insurance premiums 8,210
- ---------------------------------------------------------------------
Distribution services fee 33,414
- --------------------------------------------------------------------- ----------
Total expenses 1,420,300
- ---------------------------------------------------------------------
Deduct--
- ---------------------------------------------------------------------
Waiver of investment advisory fee $190,170
- ----------------------------------------------------------
Waiver of distribution services fee 33,414
- ----------------------------------------------------------
Waiver of custodian fee 22,146 245,730
- ---------------------------------------------------------- -------- ----------
Net expenses 1,174,570
- ----------------------------------------------------------------------------------- -----------
Net investment income $12,352,170
- ----------------------------------------------------------------------------------- -----------
</TABLE>
(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,
--------------------------------
1995 1994
--------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------
Net investment income $ 12,352,170 $ 6,633,051
- ------------------------------------------------------------- --------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------
Dividends to shareholders from net investment income:
- -------------------------------------------------------------
Trust Shares (11,852,325) (6,444,903)
- -------------------------------------------------------------
Investment Shares (499,845) (188,148)
- ------------------------------------------------------------- --------------- -------------
Change in net assets from distributions to shareholders (12,352,170) (6,633,051)
- ------------------------------------------------------------- --------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -------------------------------------------------------------
Proceeds from sale of shares 1,139,381,157 868,472,344
- -------------------------------------------------------------
Cost of shares redeemed (1,124,845,195) (833,978,799)
- ------------------------------------------------------------- --------------- -------------
Change in net assets from Fund share transactions 14,535,962 34,493,545
- ------------------------------------------------------------- --------------- -------------
Change in net assets 14,535,962 34,493,545
- -------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------
Beginning of period 219,272,782 184,779,237
- ------------------------------------------------------------- --------------- -------------
End of period $ 233,808,744 $ 219,272,782
- ------------------------------------------------------------- --------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
(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 nine diversified portfolios and one
non-diversified portfolio. The financial statements included herein are 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.
(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 a custodian or
sub-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 under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
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 and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the agreements. 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.
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 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 valued 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, 1995, capital paid-in aggregated $233,808,744.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
TRUST SHARES 1995 1994
- -------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Shares sold 1,114,106,500 848,035,515
- --------------------------------------------------------------
Shares redeemed (1,103,592,384) (814,974,172)
- -------------------------------------------------------------- -------------- ------------
Net change resulting from Trust Share transactions 10,514,116 33,061,343
- -------------------------------------------------------------- -------------- ------------
INVESTMENT SHARES
- --------------------------------------------------------------
Shares sold 25,274,657 20,436,829
- --------------------------------------------------------------
Shares redeemed (21,252,811) (19,004,627)
- -------------------------------------------------------------- -------------- ------------
Net change resulting from Investment Share transactions 4,021,846 1,432,202
- -------------------------------------------------------------- -------------- ------------
Net change resulting from Fund share transactions 14,535,962 34,493,545
- -------------------------------------------------------------- -------------- ------------
</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. The Adviser can modify or terminate this
voluntary waiver 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's Investment Shares to finance activities intended to
result in the sale of the Fund's Investment Shares. The Plan provides that the
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
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 all or 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 FEES AND EXPENSES, PORTFOLIO ACCOUNTING
AND CUSTODIAN FEES--Fifth Third Bank serves as transfer and dividend disbursing
agent for the Fund for which it receives a fee. Fifth Third Bank sub-contracts
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 for which it receives a
fee. Fifth Third Bank sub-contracts 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 for which it receives a fee. The fee is
based on the level of the Fund's average net assets for the period, plus
out-of-pocket expenses. The custodian may choose to voluntarily waive all or a
portion of its fees.
Certain of the Officers and Trustees of the Trust are Officers and 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 Commercial Paper Fund (one of
the portfolios comprising Fountain Square Funds), as of July 31, 1995, 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, 1995, 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, 1995, 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 15, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square Commercial Paper Fund Fountain Square Funds
Trust Shares c/o Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------------
</TABLE>
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, 1995. 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.
Fountain Square Funds
c/o Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Statement dated September 30, 1995
FIFTH THIRD BANK
Investment Adviser
General Information About the Fund 1
Investment Objective and Policies 1
Types of Investments 1
When-Issued and Delayed Delivery
Transactions 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Investment Limitations 2
Fountain Square Funds Management 4
Officers and Trustees 4
Fund Ownership 5
Trustees' Compensation 5
Trustee Liability 6
Investment Advisory Services 6
Adviser to the Fund 6
Advisory Fees 6
Brokerage Transactions 6
Transfer Agent and Dividend
Disbursing Agent 7
Purchasing Shares 7
Distribution Plan (Investment
Shares) 7
Conversion to Federal Funds 8
Determining Net Asset Value 8
Use of the Amortized Cost Method 8
Redeeming Shares 9
Redemption in Kind 9
Tax Status 9
The Fund's Tax Status 9
Shareholders' Tax Status 9
Yield 10
Effective Yield 10
Performance Comparisons 10
Fountain Square Commercial Paper Treasury (such as U.S.
Fund (the "Fund") is a portfolio in Treasury bills, notes, and
the Fountain Square Funds (the bonds) and obligations issued
"Trust"). The Trust was established or guaranteed by U.S.
as a Massachusetts business trust government agencies or
under a Declaration of Trust dated instrumentalities. These
September 15, 1988. securities are backed by:
Shares of the Fund are offered in - the full faith and credit
two classes, Trust Shares and of the U.S. Treasury;
Investment Shares (individually and - the issuer's right to
collectively referred to as borrow from the U.S.
"Shares"). This Combined Statement Treasury;
of Additional Information relates to - the discretionary
the above-mentioned Shares of the authority of the U.S.
Fund. government to purchase
INVESTMENT OBJECTIVE AND POLICIES certain obligations of
The Fund's investment objective is agencies or
to provide current income consistent instrumentalities; or
with stability of principal. The - the credit of the agency
investment objective cannot be or instrumentality issuing
changed without approval of the obligations.
shareholders. Examples of agencies and
TYPES OF INVESTMENTS instrumentalities which may
The Fund invests in money market not always receive financial
instruments which mature in 13 support from the U.S.
months or less. At least 65% of the government are:
assets of the Fund will be invested - Farm Credit Banks;
in commercial paper. The remaining - Federal Home Loan Banks;
portion of Fund assets will be - Federal National Mortgage
invested in money market instruments Association;
which include, but are not limited - Student Loan Marketing
to, bank instruments and U.S. Association; and
government obligations. - Federal Home Loan Mortgage
The instruments of banks and savings Corporation.
and loans whose deposits are insured Bank Instruments
by Bank Insurance Fund ("BIF") or In addition to domestic bank
the Savings Association Insurance obligations such as
Fund ("SAIF"), such as certificates certificates of deposit,
of deposit, demand and time demand and time deposits, and
deposits, and bankers' acceptances, bankers' acceptances, the Fund
are not necessarily guaranteed by may invest in:
that organization. - Eurodollar Certificates of
U.S. Government Obligations Deposit issued by foreign
The types of U.S. government
obligations in which the Fund
may invest generally include
direct obligations of the U.S.
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.
These transactions are made to creditworthy, pursuant to guidelines
secure what is considered to be an established by the Board of Trustees
advantageous price or yield for the (the "Trustees").
Fund. No fees or other expenses, REVERSE REPURCHASE AGREEMENTS
other than normal transaction costs, The Fund may also enter into reverse
are incurred. However, liquid assets repurchase agreements. This
of the Fund sufficient to make transaction is similar to borrowing
payment for the securities to be cash. In a reverse repurchase
purchased are segregated on the agreement, the Fund transfers
Fund's records at the trade date. possession of a portfolio instrument
These assets are marked to market to another person, such as a
daily and are maintained until the financial institution, broker, or
transaction has been settled. The dealer, in return for a percentage
Fund does not intend to engage in of the instrument's market value in
when-issued and delayed delivery cash, and agrees that on a
transactions to an extent that would stipulated date in the future the
cause the segregation of more than Fund will repurchase the portfolio
20% of the total value of its instrument by remitting the original
assets. consideration plus interest at an
REPURCHASE AGREEMENTS agreed upon rate. The use of reverse
The Fund or its custodian will take repurchase agreements may enable the
possession of the securities subject Fund to avoid selling portfolio
to repurchase agreements and these instruments at a time when a sale
securities will be marked to market may be deemed to be disadvantageous,
daily. To the extent that the but the ability to enter into
original seller does not repurchase reverse repurchase agreements does
the securities from the Fund, the not ensure that the Fund will be
Fund could receive less than the able to avoid selling portfolio
repurchase price on any sale of such instruments at a disadvantageous
securities. In the event that such a time.
defaulting seller filed for When effecting reverse repurchase
bankruptcy or became insolvent, agreements, liquid assets of the
disposition of such securities by Fund, in a dollar amount sufficient
the Fund might be delayed pending to make payment for the obligations
court action. The Fund believes that to be purchased, are segregated on
under the regular procedures the Fund's records at the trade
normally in effect for custody of date. These securities are marked to
the Fund's portfolio securities market daily and maintained until
subject to repurchase agreements, a the transaction is settled.
court of competent jurisdiction INVESTMENT LIMITATIONS
would rule in favor of the Fund and Selling Short and Buying on
allow retention or disposition of Margin
such securities. The Fund will only The Fund will not sell any
enter into repurchase agreements money market instruments short
with banks and other recognized or purchase any money market
financial institutions such as instruments on margin but may
broker/dealers, which are deemed by obtain such short-term credits
the Fund's adviser to be
as may be necessary for instruments, including
clearance of purchases and repurchase agreements and
sales of money market variable rate demand notes,
instruments. permitted by its investment
Issuing Senior Securities and objective and policies.
Borrowing Money Acquiring Securities
The Fund will not issue senior The Fund will not acquire the
securities except that the voting securities of any
Fund may borrow money directly issuer. It will not invest in
or through reverse repurchase securities of a company for
agreements as a temporary the purpose of exercising
measure for extraordinary or control or management.
emergency purposes and then Diversification of Investments
only in amounts not in excess With respect to 75% of the
of 5% of the value of its value of its total assets, the
total assets or in an amount Fund will not purchase
up to one-third of the value securities issued by any one
of its total assets, including issuer having a value of more
the amount borrowed, in order than 5% of the value of its
to meet redemption requests total assets except repurchase
without immediately selling agreements and U.S. government
portfolio instruments. Any obligations. The total amount
direct borrowings need not be of the remaining 25% of the
collateralized. value of the Fund's total
Pledging Securities assets may be invested in a
The Fund will not pledge single issuer if the
securities. investment adviser believes
Investing in Commodities, such a strategy to be prudent.
Commodity Contracts, or Real The Fund considers the type of
Estate bank obligations it purchases
The Fund will not invest in cash items.
commodities, commodity Concentration of Investments
contracts, or real estate, The Fund will not invest more
except that it may purchase than 25% of the value of its
money market instruments total assets in any one
issued by companies that industry except commercial
invest in real estate or paper of finance companies.
sponsor such interests. However, the Fund reserves the
Underwriting right to invest more than 25%
The Fund will not engage in of its net assets in domestic
underwriting of securities bank instruments (such as time
issued by others. and demand deposits and
Lending Cash or Securities certificates of deposit), U.S.
The Fund will not lend any of government obligations or
its assets, except that it may instruments secured by these
purchase or hold money market money market instruments, such
as repurchase agreements. The
Fund will not invest more than The Fund will not invest more
25% of its net assets in than 5% of the value of its
instruments of foreign banks. total assets in securities of
Investing in Securities of Other issuers which have records of
Investment Companies less than three years of
The Fund can acquire up to 3% continuous operations,
of the total outstanding including the operation of any
securities of other investment predecessor.
companies. The Fund will limit Investing in Minerals
its investments in the The Fund will not purchase
securities of other investment interests in oil, gas, or
companies to those of money other mineral exploration or
market funds having investment development programs or
objectives and policies leases, although it may
similar to its own. The Fund purchase the securities of
will purchase securities of issuers which invest in or
other investment companies sponsor such programs.
only in open-market Except with respect to borrowing
transactions involving no more money, if a percentage limitation is
than customary broker's adhered to at the time of
commissions. However, there is investment, a later increase or
no limitation applicable to decrease in percentage resulting
securities of any investment from any change in value or net
company acquired in a merger, assets will not result in a
consolidation, or acquisition violation of such restriction.
of assets. For the purposes of its policies and
The above investment limitations limitations, the Fund considers
cannot be changed without certificates of deposit and demand
shareholder approval. The Fund does and time deposits issued by a U.S.
not consider the issuance of branch of a domestic bank or savings
separate classes of shares to and loan having capital, surplus,
involve the issuance of "senior and undivided profits in excess of
securities" within the meaning of $100,000,000 at the time of
the investment limitation set forth investment to be "cash items."
above. The following investment In order to permit the sale of
limitations, however, may be changed Shares in certain states, the Fund
by Trustees without shareholder may make commitments more
approval. Shareholders will be restrictive than the investment
notified before any material change limitations described above.
in these policies becomes effective. Accordingly, the Fund has undertaken
Investing in Restricted not to invest in: real estate
Securities limited partnerships; oil, gas, or
The Fund will not invest more other mineral leases; warrants; or
than 10% of the value of its the securities of any issuer if the
net assets in securities which officers, directors, or trustees of
are subject to restrictions on the Fund or its investment adviser
resale under federal owning beneficially more than 0.5%
securities laws. of the securities of such issuer
Investing in New Issuers together own beneficially more than
5% of such securities. Should the Lee A. Carter +
Fund determine that any such Cincinnati Commerce Center
commitment is no longer in the best Suite 2020
interest of the Fund and its Cincinnati, OH
shareholders, the Fund will revoke Birthdate: December 17, 1938
the commitment by terminating the Member of the Board of Trustees
sale of its shares in the state Formerly, President, Local Marketing
involved. Corporation (retired December 31,
FOUNTAIN SQUARE FUNDS MANAGEMENT 1993).
OFFICERS AND TRUSTEES
Officers and Trustees of the Trust Albert E. Harris
are listed with their addresses, 5905 Graves Road
principal occupations, and present Cincinnati, OH
positions. Except as listed below, Birthdate: July 2, 1932
none of the Trustees or Officers are Member of the Board of Trustees
affiliated with The Fifth Third Bank Formerly, Chairman of the Board EDB
("Fifth Third Bank"), Fifth Third Holdings, Inc. (retired July, 1993).
Bancorp, Federated Investors,
Federated Securities Corp., or Charles L. Davis, Jr.
Federated Administrative Services. Federated Investors Tower
Pittsburgh, PA
J. Christopher Donahue *+ Birthdate: March 23, 1960
Federated Investors Tower Vice President and Assistant
Pittsburgh, PA Treasurer
Birthdate: April 11, 1949 Vice President, Federated
Chairman of the Board of Trustees, Administrative Services; Vice
President and Treasurer President and Assistant Treasurer of
President and Trustee, Federated some of the Funds.
Investors, Federated Advisers,
Federated Management, and Federated Jay S. Neuman
Research; President and Director, Federated Investors Tower
Federated Research Corp.; Pittsburgh, PA
President, Passport Research, Ltd.; Birthdate: April 22, 1950
Trustee, Federated Administrative Secretary
Services, Federated Services Corporate Counsel, Federated
Company, and Federated Shareholder Investors; prior to January, 1991,
Services; President or Vice Associate Counsel, The Boston
President of the Funds; Director, Company Advisors, Inc.
Trustee, or Managing General
Partner of some of the Funds. *This Trustee is deemed to be an
"interested person" as defined in
Edward Burke Carey the Investment Company Act of 1940,
394 East Town Street as amended.
Columbus, OH +Member of the Executive Committee.
Birthdate: July 2, 1945 The Executive Committee of the Board
Member of the Board of Trustees of Trustees handles the
President of Carey Leggett Realty responsibilities of the Board of
Advisors. Trustees between meetings of the
Board.
FUND OWNERSHIP
Officers and Trustees own less than liability to which they would
1% of the Fund's outstanding Shares. otherwise be subject by reason of
As of July 31, 1995, Fifth Third willful misfeasance, bad faith,
Bank as nominee for numerous trust gross negligence, or reckless
and agency accounts, was the owner disregard of the duties involved in
of record of 223,640,168 Trust the conduct of their office.
Shares (100%) of the Fund. INVESTMENT ADVISORY SERVICES
As of July 31, 1995, no shareholders ADVISER TO THE FUND
of record owned 5% or more of the The Fund's investment adviser is
outstanding Investment Shares of the Fifth Third Bank (the "Adviser"). It
Fund: provides investment advisory
Trustees' Compensation services through its Trust and
NAME , AGGREGATE Investment Division. Fifth Third
POSITION WITH Bank is a wholly-owned subsidiary of
COMPENSATION FROM Fifth Third Bancorp.
TRUST TRUST*+ The Adviser shall not be liable to
J. Christopher Donahue $ the Trust, the Fund or any
0 shareholder of the Fund for any
Chairman of Board of losses that may be sustained in the
Trustees, President and Treasurer purchase, holding, or sale of any
security, or for anything done or
Edward Burke Carey $ omitted by it, except acts or
7,800 omissions involving willful
Trustee misfeasance, bad faith, gross
negligence, or reckless disregard of
Lee A. Carter $ the duties imposed upon it by its
7,800 contract with the Trust.
Trustee Because of the internal controls
maintained by Fifth Third Bank to
Albert E. Harris $ restrict the flow of non-public
7,800 information, Fund investments are
Trustee typically made without any knowledge
of Fifth Third Bank's or its
* Information is furnished for the affiliates' lending relationships
fiscal year ended July 31, 1995. with an issuer.
The Trust is the only investment ADVISORY FEES
company in the Fund complex. For its advisory services, Fifth
+The aggregate compensation is Third Bank receives an annual
provided for the Trust which is investment advisory fee as described
comprised of ten portfolios. in the prospectus.
TRUSTEE LIABILITY For the fiscal years ended July 31,
The Trust's Declaration of Trust 1995, 1994, and 1993,, the Adviser
provides that the Trustees are not earned $958,506, $891,943, and
liable for errors of judgment or $796,334,, respectively, of which
mistakes of fact or law. However, $190,170, $224,244, and $243,753,
they are not protected against any were voluntarily waived,
respectively, because of
undertakings to limit the Fund's
expenses.
State Expense Limitations order can be obtained elsewhere. The
The Adviser has undertaken to Adviser makes decisions on portfolio
comply with the expense transactions and selects brokers and
limitations established by dealers subject to review by the
certain states for investment Trustees.
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
- advice as to the advisability respectively.
of investing in securities; Effective December 1, 1995, BISYS
- security analysis and Fund Services L.P., 3435 Stelzer
reports; Road, Columbus, Ohio 43219, will
- economic studies; provide administrative services to
- industry studies; the Funds for the fees set forth in
- receipt of quotations for the prospectus.
portfolio evaluations; and Effective December 1, 1995, pursuant
- similar services. to a separate agreement with BISYS
The Adviser and its affiliates Fund Services L.P., Fifth Third Bank
exercise reasonable business performs sub-administration services
judgment in selecting brokers who on behalf of each Fund, for which it
offer brokerage and research receives compensation from BISYS
services to execute securities Fund Services L.P.
transactions. They determine in good Under the custodian agreement, Fifth
faith that commissions charged by Third Bank holds the Fund's
such persons are reasonable in portfolio securities and keeps all
relationship to the value of the necessary records and documents
brokerage and research services relating to its duties. Fifth Third
provided. Bank's fees for custody services are
Research services provided by based upon the market value of Fund
brokers may be used by the Adviser securities held in custody plus out-
in advising the Fund and other of-pocket expenses.
accounts. To the extent that receipt TRANSFER AGENT AND DIVIDEND
of these services may supplant DISBURSING AGENT
services for which the Adviser or Fifth Third Bank serves as transfer
its affiliates might otherwise have agent and dividend disbursing agent
paid, it would tend to reduce for the Funds. The fee paid to the
expenses. transfer agent is based upon the
For the fiscal years ended July 31, size, type and number of accounts
1995, 1994, and 1993, the Fund did and transactions made by
not pay any commissions on brokerage shareholders.
transactions. Fifth Third Bank also maintains the
Administrative Services Trust's accounting records. The fee
Until December 1, 1995, Federated paid for this service is based upon
Administrative Services ("FAS"), a the level of the Funds' average net
subsidiary of Federated Investors, assets for the period plus out-of-
provides administrative personnel pocket expenses.
and services to the Fund for a fee PURCHASING SHARES
as described in the prospectus. For Shares are sold at their net asset
the fiscal years ended July 31, value without a sales load on days
1995, 1994, and 1993, the Fund the New York Stock Exchange and the
incurred administrative service fees Federal Reserve Bank of Cleveland
of $265,038, $256,533, and $248,161, are open for business. The procedure
for purchasing Shares is explained
in the respective prospectuses under
"Investing in Investment Shares" and performed by the Fund's transfer
"Investing in Trust Shares." agent; and maintaining and
DISTRIBUTION PLAN (INVESTMENT distributing current copies of
SHARES) prospectuses and shareholder reports
With respect to the Investment to the beneficial owners of
Shares class of the Fund, the Trust Investment Shares and prospective
has adopted a Plan pursuant to Rule shareholders.
12b-1 which was promulgated by the The Board of Trustees expects that
Securities and Exchange Commission the Plan will result in the sale of
pursuant to the Investment Company sufficient number of Investment
Act of 1940. The Plan provides for Shares so as to allow the Fund to
payment of fees to the distributor achieve economic viability. It is
to finance any activity which is also anticipated that an increase in
principally intended to result in the size of the Fund will facilitate
the sale of Investment Shares of the more efficient portfolio management
Fund subject to the Plan. Such and assist the Fund in seeking to
activities may include the achieve its investment objective.
advertising and marketing of For the fiscal year ended July 31,
Investment Shares; preparing, 1995, distribution fees paid to
printing, and distributing Federated Securities Corp. amounted
prospectuses and sales literature to to $33,414, all of which was
prospective shareholders, brokers, voluntarily waived.
or administrators; and, implementing CONVERSION TO FEDERAL FUNDS
and operating the Plan. Pursuant to It is the Fund's policy to be as
the Plan, the distributor may pay fully invested as possible so that
fees to brokers for distribution and maximum interest may be earned. To
administrative services and to this end, all payments from
administrators for administrative shareholders must be in federal
services as to Investment Shares. funds or be converted into federal
The administrative services are funds. Fifth Third Bank acts as the
provided by a representative who has shareholder's agent in depositing
knowledge of the shareholder's checks and converting them to
particular circumstances and goals, federal funds.
and include, but are not limited to: DETERMINING NET ASSET VALUE
communicating account openings; The Fund attempts to stabilize the
communicating account closings; value of a share at $1.00. The days
entering purchase transactions; on which net asset value is
entering redemption transactions; calculated by the Fund are described
providing or arranging to provide in the prospectus.
accounting support for all USE OF THE AMORTIZED COST METHOD
transactions, wiring funds and The Trustees have decided that the
receiving funds for Investment Share best method for determining the
purchases and redemptions, value of portfolio instruments is
confirming and reconciling all amortized cost. Under this method,
transactions, reviewing the activity portfolio instruments are valued at
in Fund accounts, and providing the acquisition cost as adjusted for
training and supervision of broker amortization of premium or
personnel; posting and reinvesting accumulation of discount rather than
dividends to Fund accounts or at current market value.
arranging for this service to be
The Fund's use of the amortized cost or more nationally recognized
method of valuing portfolio statistical rating
instruments depends on its organizations. If the
compliance with certain conditions instruments are not rated, the
in Rule 2a-7 (the "Rule") Trustees must determine that
promulgated by the Securities and they are of comparable
Exchange Commission under the quality. Shares of investment
Investment Company Act of 1940. companies purchased by the
Under the Rule, the Trustees must Fund will meet these same
establish procedures reasonably criteria and will have
designed to stabilize the net asset investment policies consistent
value per share, as computed for with the Rule. The Rule also
purposes of distribution and requires the Fund to maintain
redemption, at $1.00 per share, a dollar weighted average
taking into account current market portfolio maturity (not more
conditions and the Fund's investment than 90 days) appropriate to
objective. the objective of maintaining a
Monitoring Procedures stable net asset value of
The Trustees' procedures $1.00 per share. In addition,
include monitoring the no instruments with a
relationship between the remaining maturity of more
amortized cost value per share than 397 days can be purchased
and the net asset value per by the Fund.
share based upon available Should the disposition of a
indications of market value. portfolio security result in a
The Trustees will decide what, dollar weighted average
if any, steps should be taken portfolio maturity of more
if there is a difference of than 90 days, the Fund will
more than .50 of 1% between invest its available cash to
the two values. reduce the average maturity to
The Trustees will take any 90 days or less as soon as
steps they consider possible.
appropriate (such as The Fund may attempt to
redemption in kind or increase yield by trading
shortening the average portfolio securities to take
portfolio maturity) to advantage of short-term market
minimize any material dilution variations. This policy may,
or other unfair results from time to time, result in
arising from differences high portfolio turnover. Under
between the two methods of the amortized cost method of
determining net asset value. valuation, neither the amount
Investment Restrictions of daily income nor the net
The Rule requires that the asset value is affected by any
Fund limit its investments to unrealized appreciation or
instruments that, in the depreciation of the portfolio.
opinion of the Trustees, In periods of declining
present minimal credit risks interest rates, the indicated
and if rated, have received daily yield on shares of the
the requisite rating from one Fund computed by dividing the
annualized daily income on the net asset value. The portfolio
Fund's portfolio by the net instruments will be selected in a
asset value computed as above manner that the Trustees deem fair
may tend to be higher than a and equitable.
similar computation made by Redemption in kind is not as liquid
using a method of valuation as a cash redemption. If redemption
based upon market prices and is made in kind, shareholders
estimates. receiving their securities and
In periods of rising interest selling them before their maturity
rates, the indicated daily could receive less than the
yield on shares of the Fund redemption value of their securities
computed the same way may tend and could incur certain transaction
to be lower than a similar costs.
computation made by using a TAX STATUS
method of calculation based THE FUND'S TAX STATUS
upon market prices and The Fund will pay no federal income
estimates. tax because it expects to meet the
REDEEMING SHARES requirements of Subchapter M of the
The Fund redeems Shares at the next Internal Revenue Code applicable to
computed net asset value after the regulated investment companies and
Fifth Third Bank receives the to receive the special tax treatment
redemption request. Redemption afforded to such companies. To
procedures are explained in the qualify for this treatment, the Fund
respective prospectuses under must, among other requirements:
"Redeeming Investment Shares" and - derive at least 90% of its
"Redeeming Trust Shares." Although gross income from dividends,
Fifth Third Bank does not charge for interest, and gains from the
telephone redemptions, it reserves sale of securities;
the right to charge a fee for the - derive less than 30% of its
cost of wire-transferred redemptions gross income from the sale of
of less than $10,000. securities held less than
REDEMPTION IN KIND three months;
The Trust has elected to be governed - invest in securities within
by Rule 18f-1 of the Investment certain statutory limits; and
Company Act of 1940 under which the - distribute to its shareholders
Trust is obligated to redeem shares at least 90% of its net income
for any one shareholder in cash only earned during the year.
up to the lesser of $250,000 or 1% SHAREHOLDERS' TAX STATUS
of a Fund's net asset value during Shareholders are subject to federal
any 90-day period. income tax on dividends received as
Any redemption beyond this amount cash or additional shares. No
will also be in cash unless the portion of any income dividend paid
Trustees determine that payments by the Fund is eligible for the
should be in kind. In such a case, dividends received deduction
the Trust will pay all or a portion available to corporations. These
of the remainder of the redemption dividends and any short-term capital
in portfolio instruments, valued in gains are taxable as ordinary
the same way as the Fund determines
income. charge fees in connection with
Capital Gains services provided in conjunction
Capital gains experienced by with an investment in either class
the Fund could result in an of Shares, the performance will be
increase in dividends. Capital reduced for those shareholders
losses could result in a paying those fees.
decrease in dividends. If, for EFFECTIVE YIELD
some extraordinary reason, the The effective yield for Investment
Fund realizes net long-term Shares and Trust Shares were 5.61%
capital gains, it will and 5.61%, respectively, for the
distribute them at least once seven-day period ended July 31,
every 12 months. 1995.
YIELD The Fund's effective yield for both
The yield for Investment Shares and classes of Shares is computed by
Trust Shares were 5.46%. and 5.46%, compounding the unannualized base
respectively, for the seven-day period return by:
period ended July 31, 1995. - adding 1 to the base period
The Fund calculates the yield for return;
both classes of Shares daily, based - raising the sum to the
upon the seven days ending on the 365/7th power; and
day of the calculation, called the - subtracting 1 from the
"base period." This yield is result.
computed by: PERFORMANCE COMPARISONS
- determining the net change in The performance of both classes of
the value of a hypothetical shares depends upon such variables
account with a as:
- balance of one Share at the - portfolio quality;
beginning of the base period, - average portfolio maturity;
with the net change excluding - type of instruments in which
capital changes but including the portfolio is invested;
the value of any additional - changes in interest rates on
Shares purchased with money market instruments;
dividends earned from the - changes in the expenses of the
original one Share and all Fund or of either class of
dividends declared on the shares; and
original and any purchased - the relative amount of Fund
Shares; cash flow.
- 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
- LIPPER ANALYTICAL SERVICES, publication reports monthly
INC. ranks funds in various and 12-month-to-date
fund categories by making investment results for the
comparative calculations using same money funds.
total return. Total return Advertisements and other sales
assumes the reinvestment of literature for either class of
all income dividends and shares may refer to total return.
capital gains distributions, Total return is the historic change
if any. From time to time, the in the value of an investment in
Fund will quote its Lipper either class of shares based on the
ranking in the money market reinvestment of dividends over a
instruments category in specified period of time.
advertising and sales Cusip 350756201
literature. Cusip 350756300
- BANK RATE MONITOR NATIONAL 9052205B (9/95)
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
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
INVESTMENT SHARES
[LOGO]
FOUNTAIN SQUARE FUNDS
PROSPECTUS
[LOGO]
FIFTH THIRD BANK
INVESTMENT ADVISER
Cusip 350756508
1041201A-R (9/95)
65-0920
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, 1995, 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, 1995
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 7
Independent Auditors 7
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN TRUST SHARES 7
- ------------------------------------------------------
Share Purchases 7
Through Fifth Third Securities 8
Minimum Investment Required 8
What Shares Cost 8
Certificates and Confirmations 8
Dividends 9
Capital Gains 9
EXCHANGES 9
- ------------------------------------------------------
REDEEMING INVESTMENT SHARES 10
- ------------------------------------------------------
Through Fifth Third Securities 10
By Telephone 10
By Mail 10
Receiving Payment 11
Accounts with Low Balances 11
SHAREHOLDER INFORMATION 11
- ------------------------------------------------------
Voting Rights 11
Massachusetts Law 12
EFFECT OF BANKING LAWS 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
OTHER CLASSES OF SHARES 14
- ------------------------------------------------------
FINANCIAL STATEMENTS 15
- ------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 22
- ------------------------------------------------------
ADDRESSES 23
- ------------------------------------------------------
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 Fee (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...................................................................... 0.20%
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 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 0.95% 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.
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,
---------------------------------------
1995 1994 1993 1992*
------ ------ ------ ------
<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 0.05 0.03 0.03 0.03
- ------------------------------------------------- ------ ------ ------ ------
LESS DISTRIBUTIONS
- -------------------------------------------------
Dividends to shareholders from net
investment income (0.05) (0.03) (0.03) (0.03)
- ------------------------------------------------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------- ------ ------ ------ ------
TOTAL RETURN** 5.22% 3.03% 2.76% 2.61%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 0.50% 0.50% 0.50% 0.50%(b)
- -------------------------------------------------
Net investment income 5.17% 2.96% 3.22% 3.68%(b)
- -------------------------------------------------
Expense waiver/reimbursement(a) 0.45% 0.48% 0.50% 0.50%(b)
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $45,726 $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.
(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 $1,000 is required.
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 the: 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 U.S.
government securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the 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. 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.
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 (the "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,
1995, Fifth Third Bank and its affiliates managed assets in excess of $7.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $67.2 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 $1.11 billion.
As part of their 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
Until December 1, 1995, 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., a subsidiary of Federated Investors, is
located at Federated Investors Tower, Pittsburgh, PA 15222-3779.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
distributor for the Trust. BISYS Fund Services L.P. is wholly-owned by BISYS
Group, Inc., 150 Clove Road, Little Falls, NJ 07424, a publicly owned company
engaged in information processing and recordkeeping services to and through
banking and other financial organizations.
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 the distributor 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.
The distributor 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. Until December 1, 1995, 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
- --------------------- ----------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
on assets in excess of $750
.075 of 1% 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.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
administrator. The administrator generally assists in all aspects of the Trust's
administration and operation including providing the Fund with certain
administrative personnel and services necessary to operate the Fund, such as
legal and accounting services. BISYS Fund Services L.P. provides these at an
annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
- ------------------- ------------------------------------
<S> <C>
.10% of the first $1 billion
.08% of the next $1 billion
.07% in excess of $2 billion
</TABLE>
The administrator may periodically waive all or a portion of its administrative
fee which will cause the yield of a Fund to be higher than it would otherwise be
in the absence of such a waiver.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performs sub-administration services on behalf
of the Fund including providing certain administrative personnel and services
necessary to operate the Fund for which it receives a fee from BISYS Fund
Services L.P. computed daily and paid periodically calculated at an annual rate
of 0.025% of average daily net assets.
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.
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. at
1-800-358-2801 until December 1, 1995. Effective December 1, 1995, Texas
residents must contact BISYS Fund Services L.P. at 1-800-554-3862.
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 $1,000. Subsequent investments must
be in amounts of at least $50. 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.
The minimum investment requirements do not apply with respect to accounts that
have been established to automatically invest cash accumulations in the Fund.
Investors participating in such arrangements may be charged separate fees by the
financial institution that provides this service, and should read this
prospectus along with their financial institution's agreement or other
literature relating to this service.
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.
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
Federated Securities Corp. by calling 1-800-358-2801 until December 1, 1995.
Effective December 1, 1995, all other investors may redeem through BISYS Fund
Services L.P. at 1-800-554-3862.
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, provided the Fund or its agents
have received payment for shares from the distributor.
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 $1,000.
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, 1995, 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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Trust Shares are sold to trust customers of Fifth Third Bank and are subject to
a minimum initial investment of $1,000. 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.
To obtain more information and a prospectus for Trust Shares, investors may call
(513) 744-8888 in Cincinnati or toll free (800) 334-0483.
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-TERM OBLIGATIONS--100.2%
- ------------------------------------------------------------------------------------
$44,250,000 * Federal Farm Credit Bank Discount Notes, 5.663%-8.101%,
8/1/1995-11/9/1995 $ 43,928,382
----------------------------------------------------------------
5,000,000 ** Federal Farm Credit Bank Floating Rate Note, 5.935%, 2/26/1996 4,993,628
----------------------------------------------------------------
74,900,000 * Federal Home Loan Bank Discount Notes, 5.683%-8.177%,
8/7/1995-11/20/1995 74,157,399
----------------------------------------------------------------
5,000,000 ** Federal Home Loan Bank Floating Rate Notes, 5.75%, 12/15/1995 5,000,241
----------------------------------------------------------------
5,000,000 Federal Home Loan Bank Fixed Rate Notes, 5.82%, 10/19/1995 4,997,269
----------------------------------------------------------------
4,000,000 * Student Loan Marketing Association Discount Note, 5.80%,
9/20/1995 3,968,889
----------------------------------------------------------------
15,000,000 ** Student Loan Marketing Association Floating Rate Notes,
5.67%-5.88%, 8/10/1995-12/14/1995 15,000,000
----------------------------------------------------------------
23,600,000 ** Student Loan Marketing Association Master Note 5.79%, 8/1/1995 23,600,000
---------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $175,645,808+
---------------------------------------------------------------- ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase.
** Current rate and next demand date shown.
+ Also represents cost for federal tax purposes.
Note: The category of investments is shown as a percentage of net assets
($175,328,820) at
July 31, 1995.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in securities, at amortized cost and value $175,645,808
- -------------------------------------------------------------------------------
Cash 32,091
- -------------------------------------------------------------------------------
Income receivable 543,243
- -------------------------------------------------------------------------------
Deferred expenses 5,572
- ------------------------------------------------------------------------------- ------------
Total assets 176,226,714
- -------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------
Dividends payable 799,670
- --------------------------------------------------------------------
Payable to Adviser 46,164
- --------------------------------------------------------------------
Accrued expenses 52,060
- -------------------------------------------------------------------- --------
Total liabilities 897,894
- ------------------------------------------------------------------------------- ------------
NET ASSETS for 175,328,820 shares of beneficial interest outstanding $175,328,820
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
Trust Shares ($129,603,214 / 129,603,214 shares of beneficial interest
outstanding) $1.00
- ------------------------------------------------------------------------------- ------------
Investment Shares ($45,725,606 / 45,725,606 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, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest income $8,570,187
- ------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------
Investment advisory fee $ 604,802
- ----------------------------------------------------------------------
Administrative personnel and services fee 166,528
- ----------------------------------------------------------------------
Custodian fee 8,917
- ----------------------------------------------------------------------
Portfolio accounting, transfer and dividend disbursing agent fees
and expenses 41,559
- ----------------------------------------------------------------------
Director's/Trustee's fees 2,837
- ----------------------------------------------------------------------
Auditing fees 13,066
- ----------------------------------------------------------------------
Legal fees 1,192
- ----------------------------------------------------------------------
Fund share registration costs 39,935
- ----------------------------------------------------------------------
Printing and postage 14,143
- ----------------------------------------------------------------------
Insurance premiums 6,625
- ----------------------------------------------------------------------
Distribution services fee 101,919
- ----------------------------------------------------------------------
Miscellaneous 8,861
- ---------------------------------------------------------------------- ----------
Total expenses 1,010,384
- ----------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------
Waiver of investment advisory fee $152,445
- -----------------------------------------------------------
Waiver of distribution services fee 101,919 254,364
- ----------------------------------------------------------- -------- ----------
Net expenses 756,020
- ------------------------------------------------------------------------------------ ----------
Net investment income $7,814,167
- ------------------------------------------------------------------------------------ ----------
</TABLE>
(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,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------
Net investment income $ 7,814,167 $ 3,502,654
- --------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------
Dividends to shareholders from net investment income:
- ---------------------------------------------------------------
Trust Shares (6,273,259) (3,237,670)
- ---------------------------------------------------------------
Investment Shares (1,540,908) (264,984)
- --------------------------------------------------------------- ------------- -------------
Change in net assets from distributions to shareholders (7,814,167) (3,502,654)
- --------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- ---------------------------------------------------------------
Proceeds from sale of shares 267,323,856 248,288,040
- ---------------------------------------------------------------
Cost of shares redeemed (209,700,168) (234,498,643)
- --------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 57,623,688 13,789,397
- --------------------------------------------------------------- ------------- -------------
Change in net assets 57,623,688 13,789,397
- ---------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------
Beginning of period 117,705,132 103,915,735
- --------------------------------------------------------------- ------------- -------------
End of period $ 175,328,820 $ 117,705,132
- --------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
(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 nine 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.
(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.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.
C.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 income. Accordingly, no
provisions for federal tax are necessary.
D.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
valued daily and begin earning interest on the settlement date.
E.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 its shares, have been deferred and are being amortized using the
straight-line method not to exceed a period of five years from the Fund's
commencement date.
F.OTHER--Investment transactions are accounted for on the trade date.
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
- --------------------------------------------------------------------------------
(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, 1995, capital paid-in aggregated $175,328,820.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------
TRUST SHARES 1995 1994
- --------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 195,672,222 226,131,178
- ---------------------------------------------------------------
Shares redeemed (172,701,456) (212,491,332)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Trust share transactions 22,970,766 13,639,846
- --------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SHARES
- ---------------------------------------------------------------
<S> <C> <C>
Shares sold 71,651,634 22,156,862
- ---------------------------------------------------------------
Shares redeemed (36,998,712) (22,007,311)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Investment share transactions 34,652,922 149,551
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Fund share transactions 57,623,688 13,789,397
- --------------------------------------------------------------- ------------ ------------
</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. The Adviser can modify or terminate this
voluntary waiver 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's Investment Shares 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 all or a portion of its fee. The distributor can
modify or terminate this voluntary waiver at any time at its sole discretion.
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
- --------------------------------------------------------------------------------
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES, PORTFOLIO ACCOUNTING
AND CUSTODIAN FEES--Fifth Third Bank serves as transfer and dividend disbursing
agent for the Fund for which it receives a fee. Fifth Third Bank sub-contracts
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 for which it receives a
fee. Fifth Third Bank sub-contracts 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 for which it receives a fee. The fee is
based on the level of the Fund's average net assets for the period, plus
out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $30,604 were initially borne
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following July 10, 1991 (Fund's date of initial
public investment). For the year ended July 31, 1995, the Fund paid $6,604,
pursuant to this agreement.
Certain of the Officers and Trustees of the Trust are Officers and 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, 1995,
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, 1995, 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, 1995, 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 15, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square Government Fountain Square Funds
Cash Reserves Fund c/o Fifth Third Bank
Investment Shares 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------
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
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Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
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</TABLE>
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
TRUST SHARES
[LOGO]
FOUNTAIN SQUARE FUNDS
PROSPECTUS
[LOGO]
FIFTH THIRD BANK
INVESTMENT ADVISER
Cusip 350756409
1041201A-I (9/95)
65-0919
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, 1995, 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, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--TRUST SHARES 2
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GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
When-Issued and Delayed Delivery
Transactions 4
Investment Limitations 4
FOUNTAIN SQUARE FUNDS INFORMATION 4
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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 6
Administrative Services 6
Custodian, Transfer Agent, and
Dividend Disbursing Agent 6
Independent Auditors 7
NET ASSET VALUE 7
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INVESTING IN TRUST SHARES 7
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Share Purchases 7
Through Fifth Third Bank 7
Minimum Investment Required 7
What Shares Cost 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 8
EXCHANGES 8
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REDEEMING TRUST SHARES 9
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Through Fifth Third Bank 9
By Telephone 9
By Mail 10
Receiving Payment 10
Accounts with Low Balances 10
SHAREHOLDER INFORMATION 11
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Voting Rights 11
Massachusetts Law 11
EFFECT OF BANKING LAWS 11
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TAX INFORMATION 12
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Federal Income Tax 12
State and Local Taxes 12
PERFORMANCE INFORMATION 13
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OTHER CLASSES OF SHARES 13
- ------------------------------------------------------
FINANCIAL STATEMENTS 14
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REPORT OF INDEPENDENT AUDITORS 21
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ADDRESSES 22
- ------------------------------------------------------
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)............................................. 0.30%
12b-1 Fee (after waiver)..................................................... None
Total Other Expenses......................................................... 0.20%
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 0.60% 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.
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 21.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
1995 1994 1993 1992 1991*
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------
Net investment income 0.05 0.03 0.03 0.04 0.003
- -------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- --------------------------------------
Dividends to shareholders from net
investment income (0.05) (0.03) (0.03) (0.04) (0.003)
- -------------------------------------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------- ------ ------ ------ ------ ------
TOTAL RETURN** 5.22% 3.03% 2.76% 4.19% 0.33%
- --------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------
Expenses 0.50% 0.50% 0.50% 0.50% 0.30%(b)
- --------------------------------------
Net investment income 5.17% 3.01% 3.22% 4.14% 5.49%(b)
- --------------------------------------
Expense waiver/reimbursement (a) 0.10% 0.13% 0.15% 0.15% 0.53%(b)
- --------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------
Net assets, end of period
(000 omitted) $129,603 $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.
(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 $1,000 is required.
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 the: 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 U.S.
government securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the 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. 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.
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 (the "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,
1995, Fifth Third Bank and its affiliates managed assets in excess of $7.8
billion on a discretionary basis and provided custody services for
additional assets in excess of $67.2 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 $1.11 billion.
As part of their 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
Until December 1, 1995, 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., a subsidiary of Federated Investors, is
located at Federated Investors Tower, Pittsburgh, PA 15222-3779.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
distributor for the Trust. BISYS Fund Services L.P. is wholly-owned by BISYS
Group, Inc., 150 Clove Road, Little Falls, NJ 07424, a publicly owned company
engaged in information processing and recordkeeping services to and through
banking and other financial organizations.
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. Until December 1, 1995, 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
- ------------------- ------------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets 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.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
administrator. The administrator generally assists in all aspects of the Trust's
administration and operation including providing the Funds with certain
administrative personnel and services necessary to operate the Funds, such as
legal and accounting services. BISYS Fund Services L.P. provides these at an
annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
- ------------------- ------------------------------------
<S> <C>
.10% of the first $1 billion
.08% of the next $1 billion
.07% in excess of $2 billion
</TABLE>
The administrator may periodically waive all or a portion of its administrative
fee which will cause the yield of a Fund to be higher than it would otherwise be
in the absence of such a waiver.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performs sub-administration services on behalf
of the Fund including providing certain administrative personnel and services
necessary to operate the Fund for which it receives a fee from BISYS Fund
Services L.P. computed daily and paid periodically calculated at an annual rate
of 0.025% of average daily net assets.
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.
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. at 1-800-358-2801 until December 1, 1995. Effective
December 1, 1995, Texas residents must contact BISYS Fund Services L.P. at
1-800-554-3862.
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 $1,000. Subsequent investments must
be in amounts of at least $50. 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.
The minimum investment requirements do not apply with respect to accounts that
have been established to automatically invest cash accumulations in the Fund.
Investors participating in such arrangements may be charged separate fees by the
financial institution that provides this service, and should read this
prospectus along with their financial institution's agreement or other
literature relating to this service.
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.
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, provided the Fund or its agents have
received payment for shares from the shareholder.
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 $1,000.
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, 1995, 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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
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 $1,000. 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.
To obtain more information and a prospectus for Investment Shares, investors may
call (513) 579-6039 in Cincinnati or toll free (800) 654-5372.
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-TERM OBLIGATIONS--100.2%
- ------------------------------------------------------------------------------------
$44,250,000 * Federal Farm Credit Bank Discount Notes, 5.663%-8.101%,
8/1/1995-11/9/1995 $ 43,928,382
----------------------------------------------------------------
5,000,000 ** Federal Farm Credit Bank Floating Rate Note, 5.935%, 2/26/1996 4,993,628
----------------------------------------------------------------
74,900,000 * Federal Home Loan Bank Discount Notes, 5.683%-8.177%,
8/7/1995-11/20/1995 74,157,399
----------------------------------------------------------------
5,000,000 ** Federal Home Loan Bank Floating Rate Notes, 5.75%, 12/15/1995 5,000,241
----------------------------------------------------------------
5,000,000 Federal Home Loan Bank Fixed Rate Notes, 5.82%, 10/19/1995 4,997,269
----------------------------------------------------------------
4,000,000 * Student Loan Marketing Association Discount Note, 5.80%,
9/20/1995 3,968,889
----------------------------------------------------------------
15,000,000 ** Student Loan Marketing Association Floating Rate Notes,
5.67%-5.88%, 8/10/1995-12/14/1995 15,000,000
----------------------------------------------------------------
23,600,000 ** Student Loan Marketing Association Master Note, 5.79%, 8/1/1995 23,600,000
---------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST AND VALUE $175,645,808+
---------------------------------------------------------------- ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase.
** Current rate and next demand date shown.
+ Also represents cost for federal tax purposes.
Note: The category of investments is shown as a percentage of net assets
($175,328,820) at
July 31, 1995.
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in securities, at amortized cost and value $175,645,808
- -------------------------------------------------------------------------------
Cash 32,091
- -------------------------------------------------------------------------------
Income receivable 543,243
- -------------------------------------------------------------------------------
Deferred expenses 5,572
- ------------------------------------------------------------------------------- ------------
Total assets 176,226,714
- -------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------
Dividends payable 799,670
- --------------------------------------------------------------------
Payable to Adviser 46,164
- --------------------------------------------------------------------
Accrued expenses 52,060
- -------------------------------------------------------------------- --------
Total liabilities 897,894
- ------------------------------------------------------------------------------- ------------
NET ASSETS for 175,328,820 shares of beneficial interest outstanding $175,328,820
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
Trust Shares ($129,603,214 / 129,603,214 shares of beneficial interest
outstanding) $1.00
- ------------------------------------------------------------------------------- ------------
Investment Shares ($45,725,606 / 45,725,606 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, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest income $8,570,187
- ------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------
Investment advisory fee $ 604,802
- ----------------------------------------------------------------------
Administrative personnel and services fee 166,528
- ----------------------------------------------------------------------
Custodian fee 8,917
- ----------------------------------------------------------------------
Portfolio accounting, transfer and dividend disbursing agent fees
and expenses 41,559
- ----------------------------------------------------------------------
Director's/Trustee's fees 2,837
- ----------------------------------------------------------------------
Auditing fees 13,066
- ----------------------------------------------------------------------
Legal fees 1,192
- ----------------------------------------------------------------------
Fund share registration costs 39,935
- ----------------------------------------------------------------------
Printing and postage 14,143
- ----------------------------------------------------------------------
Insurance premiums 6,625
- ----------------------------------------------------------------------
Distribution services fee 101,919
- ----------------------------------------------------------------------
Miscellaneous 8,861
- ---------------------------------------------------------------------- ----------
Total expenses 1,010,384
- ----------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------
Waiver of investment advisory fee $152,445
- -----------------------------------------------------------
Waiver of distribution services fee 101,919 254,364
- ----------------------------------------------------------- -------- ----------
Net expenses 756,020
- ------------------------------------------------------------------------------------ ----------
Net investment income $7,814,167
- ------------------------------------------------------------------------------------ ----------
</TABLE>
(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,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 7,814,167 $ 3,502,654
- -------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Dividends to shareholders from net investment income:
- --------------------------------------------------------------
Trust Shares (6,273,259) (3,237,670)
- --------------------------------------------------------------
Investment Shares (1,540,908) (264,984)
- -------------------------------------------------------------- ------------- -------------
Change in net assets from distributions to shareholders (7,814,167) (3,502,654)
- -------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 267,323,856 248,288,040
- --------------------------------------------------------------
Cost of shares redeemed (209,700,168) (234,498,643)
- -------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 57,623,688 13,789,397
- -------------------------------------------------------------- ------------- -------------
Change in net assets 57,623,688 13,789,397
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 117,705,132 103,915,735
- -------------------------------------------------------------- ------------- -------------
End of period $ 175,328,820 $ 117,705,132
- -------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
(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 nine 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.
(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.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.
C.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 income. Accordingly, no
provisions for federal tax are necessary.
D.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
valued daily and begin earning interest on the settlement date.
E.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 its shares, have been deferred and are being amortized using the
straight-line method not to exceed a period of five years from the Fund's
commencement date.
F.OTHER--Investment transactions are accounted for on the trade date.
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
- --------------------------------------------------------------------------------
(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, 1995, capital paid-in aggregated $175,328,820.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------
TRUST SHARES 1995 1994
- --------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 195,672,222 226,131,178
- ---------------------------------------------------------------
Shares redeemed (172,701,456) (212,491,332)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Trust share transactions 22,970,766 13,639,846
- --------------------------------------------------------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SHARES
- ---------------------------------------------------------------
<S> <C> <C>
Shares sold 71,651,634 22,156,862
- ---------------------------------------------------------------
Shares redeemed (36,998,712) (22,007,311)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Investment share transactions 34,652,922 149,551
- --------------------------------------------------------------- ------------ ------------
Net change resulting from Fund share transactions 57,623,688 13,789,397
- --------------------------------------------------------------- ------------ ------------
</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. The Adviser can modify or terminate this
voluntary waiver 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's Investment Shares 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 all or a portion of its fee. The distributor can
modify or terminate this voluntary waiver at any time at its sole discretion.
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
- --------------------------------------------------------------------------------
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES, PORTFOLIO ACCOUNTING
AND CUSTODIAN FEES--Fifth Third Bank serves as transfer and dividend disbursing
agent for the Fund for which it receives a fee. Fifth Third Bank sub-contracts
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 for which it receives a
fee. Fifth Third Bank sub-contracts 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 for which it receives a fee. The fee is
based on the level of the Fund's average net assets for the period, plus
out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $30,604 were initially borne
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following July 10, 1991 (Fund's date of initial
public investment). For the year ended July 31, 1995, the Fund paid $6,604,
pursuant to this agreement.
Certain of the Officers and Trustees of the Trust are Officers and 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, 1995,
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, 1995, 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, 1995, 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 15, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square Government Fountain Square Funds
Cash Reserves Fund c/o Fifth Third Bank
Trust Shares 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- ------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
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, 1995. 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.
FOUNTAIN SQUARE FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
Statement dated September
30, 1995
FIFTH THIRD BANK
Investment Adviser
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 3
Officers and Trustees 3
Fund Ownership 4
Trustees' Compensation 4
Trustee Liability 4
Investment Advisory Services 4
Adviser to the Fund 4
Advisory Fees 5
Brokerage Transactions 5
Administrative Services 5
Transfer Agent and Dividend
Disbursing Agent 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
State and Local Taxes 8
Yield 8
Effective Yield 9
Performance Comparisons 9
General Information About the Fund
<TABLE>
<S> <C>
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. 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.
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.
For the 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 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.
J. Christopher Donahue *+
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Chairman of the Board of Trustees, President and Treasurer
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative
Services, Federated Services Company, and Federated Shareholder Services; President
or Vice President of the Funds; Director, Trustee, or Managing General Partner of
some of the Funds.
Edward Burke Carey
394 East Town Street
Columbus, OH
Birthdate: July 2, 1945
Member of the Board of Trustees
President of Carey Leggett Realty Advisors.
Lee A. Carter +
Cincinnati Commerce Center
Suite 2020
Cincinnati, OH
Birthdate: December 17, 1938
Member of the Board of Trustees
Formerly, President, Local Marketing Corporation (retired December 31, 1993).
Albert E. Harris
5905 Graves Road
Cincinnati, OH
Birthdate: July 2, 1932
Member of the Board of Trustees
Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993).
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Treas
Treasurer of some of the Funds.
Jay S. Neuman
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 22, 1950
Secretary
Corporate Counsel, Federated Investors; prior to January, 1991, Associate Counsel,
The Boston Company Advisors, Inc.
*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 Fund's outstanding Shares.
As of July 31, 1995, Fifth Third Bank as nominee for numerous trust and agency
accounts, was the owner of record of 129,603,214 Trust Shares (100%) of the Fund.
As of July 31, 1995, no shareholders of record owned 5% or more of the outstanding
Investment Shares of the Fund:
TRUSTEES' COMPENSATION
NAME , AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*+
J. Christopher Donahue $ 0
Chairman of Board of
Trustees, President and Treasurer
Edward Burke Carey $ 7,800
Trustee
Lee A. Carter $ 7,800
Trustee
Albert E. Harris $ 7,800
Trustee
* Information is furnished for the fiscal year ended July 31, 1995. The Trust is
the only investment company in the Fund complex.
+The aggregate compensation is provided for the Trust which is comprised of ten
portfolios.
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 (the "Adviser"). 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, 1995, 1994, and 1993, the Adviser earned
$604,802, $466,283, and $414,436, respectively, of which $152,445, $152,426, and
$155,413, respectively, were voluntarily waived 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 years ended July 31, 1995, 1994, and 1993, the Fund did not pay any
commissions on brokerage transactions.
Administrative Services
Until December 1, 1995, 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, 1995,
1994, and 1993, the Fund incurred administrative fees of $166,528, $134,133, and
$128,876, respectively.
Effective December 1, 1995, BISYS Fund Services L.P., 3435 Stelzer Road, Columbus,
Ohio 43219, will provide administrative services to the Funds for the fees set forth
in the prospectus.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performs sub-administration services on behalf of
each Fund, for which it receives compensation from BISYS Fund Services L.P.
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 out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Fifth Third Bank serves as transfer agent and dividend disbursing agent for the
Funds. The fee paid to the transfer agent is based upon the size, type and number
of accounts and transactions made by shareholders.
Fifth Third Bank also maintains the Trust's accounting records. The fee paid for
this service is based upon the level of the Funds' average net assets for the period
plus out-of-pocket expenses.
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)
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 the distributor 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 Planthe distributor 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.
For the fiscal year ended July 31, 1995, distribution fees applicable to Investment
Shares paid to Federated Securities Corp. amounted to $101,919, all of which was
voluntarily waived.
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 duringthe
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 and Trust Shares were 5.34% and 5.34%, respectively,
for the seven-day period ended July 31, 1995.
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 5.48% and 5.48%,
respectively, for the seven-day period ended July 31, 1995 .
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.
</TABLE>
Cusip 350756508
Cusip 350756409
1041201B (9/95)
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
[LOGO]
FOUNTAIN SQUARE FUNDS
PROSPECTUS
[LOGO]
FIFTH THIRD BANK
INVESTMENT ADVISER
Cusip 350756102
8120101A (9/95)
65-0923
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, 1995, 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, 1995
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 3
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 6
Administrative Services 6
Custodian, Transfer Agent, and
Dividend Disbursing Agent 6
Independent Auditors 6
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN THE FUND 7
- ------------------------------------------------------
Share Purchases 7
Through Fifth Third Bank 7
Minimum Investment Required 7
What Shares Cost 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 8
EXCHANGES 8
- ------------------------------------------------------
REDEEMING SHARES 9
- ------------------------------------------------------
Through Fifth Third Bank 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
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
FINANCIAL STATEMENTS 14
- ------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 18
- ------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 20
- ------------------------------------------------------
ADDRESSES 21
- ------------------------------------------------------
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).............................................
0.29%
12b-1 Fee....................................................................
None
Other Expenses...............................................................
0.15%
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 0.55% 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.............................. $ 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,
-----------------------------------------
- -------------------------
1995 1994 1993 1992
1991 1990 1989*
------ ------ ------ ------ -
- ----- ------ ------
<S> <C> <C> <C> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $
1.00 $ 1.00 $ 1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.05 0.03 0.03 0.04
0.07 0.08 0.06
- ----------------------------------------- ------ ------ ------ ------ -
- ----- ------ ------
LESS DISTRIBUTIONS
- -----------------------------------------
Dividends to shareholders from net
investment income (0.05) (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 $ 1.00
- ----------------------------------------- ------ ------ ------ ------ -
- ----- ------ ------
TOTAL RETURN** 5.18% 3.02% 2.82% 4.32%
6.74% 8.15% 5.65%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.44% 0.44% 0.44% 0.45%
0.49% 0.54% 0.56%(b)
- -----------------------------------------
Net investment income 5.07% 2.99% 2.79% 4.18%
6.33% 7.84% 8.71%(b)
- -----------------------------------------
Expense waiver/reimbursement (a) 0.11% 0.14% 0.15% 0.15%
0.15% 0.15% 0.15%(b)
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000 omitted) $321,640 $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.
(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 $1,000 is required.
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 U.S.
government securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be
advantageous. Settlement dates may be a month or more after entering into these
transactions, and the market values of the securities purchased may vary from
the purchase prices. Accordingly, the Fund may pay more or less than the market
value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the 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. 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 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.
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, (the "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,
1995, Fifth Third Bank and its affiliates managed assets in excess of $7.8
billion on a
discretionary basis and provided custody services for additional assets in
excess of $67.2 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 $1.11 billion.
As part of their 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 FUND SHARES
Until December 1, 1995, 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., a subsidiary of Federated Investors, is
located at Federated Investors Tower, Pittsburgh, PA 15222-3779.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
distributor for the Trust. BISYS Fund Services L.P. is wholly-owned by BISYS
Group, Inc., 150 Clove Road, Little Falls, NJ 07424, a publicly owned company
engaged in information processing and recordkeeping services to and through
banking and other financial organizations.
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. Until December 1, 1995, 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
- ------------------- ------------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets 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.
Effective December 1, 1995, BISYS Fund Services L.P. will serve as the
administrator. The administrator generally assists in all aspects of the Trust's
administration and operation including providing the Fund with certain
administrative personnel and services necessary to operate the Fund, such as
legal and accounting services. BISYS Fund Services L.P. provides these at an
annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
- ------------------- ------------------------------------
<S> <C>
.10% of the first $1 billion
.08% of the next $1 billion
.07% in excess of $2 billion
</TABLE>
The administrator may periodically waive all or a portion of its administrative
fee which will cause the yield of a Fund to be higher than it would otherwise be
in the absence of such a waiver.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performs sub-administration services on behalf
of the Fund including providing certain administrative personnel and services
necessary to operate the Fund for which it receives a fee from BISYS Fund
Services L.P. computed daily and paid periodically calculated at an annual rate
of 0.025% of average daily net assets.
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.
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 at 1-800-358-2801 until December 1,
1995. Effective December 1, 1995, Texas residents must contact BISYS Fund
Services L.P. at 1-800-554-3862.
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 $1,000. Subsequent
investments must be in amounts of at least $50. 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.
The minimum investment requirements do not apply with respect to accounts that
have been established to automatically invest cash accumulations in the Fund.
Investors participating in such arrangements may be charged separate fees by the
financial institution that provides this service, and should read this
prospectus along with their financial institution's agreement or other
literature relating to this service.
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.
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, provided the Fund or its agents
have received payment for shares from the shareholder.
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 $1,000.
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, 1995, 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.
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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1995
- --------------------------------------------------------------------------------
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--36.5%
- ----------------------------------------------------------------------------------
U.S. TREASURY BILLS--26.9%
------------------------------------------------------------------
$88,000,000 8/17/1995-1/18/1996
$ 86,672,007
------------------------------------------------------------------
- ------------
U.S. TREASURY NOTES--9.6%
------------------------------------------------------------------
31,000,000 3.875%-7.50%, 8/31/1995-4/30/1996
30,882,015
------------------------------------------------------------------
- ------------
TOTAL U.S. TREASURY OBLIGATIONS
117,554,022
------------------------------------------------------------------
- ------------
*REPURCHASE AGREEMENTS--63.9%
- ----------------------------------------------------------------------------------
16,000,000 Bear, Stearns & Co., Inc., 5.80%, dated 7/31/1995, due 8/1/1995
16,000,000
------------------------------------------------------------------
16,000,000 BT Securities Corp., 5.80%, dated 7/31/1995, due 8/1/1995
16,000,000
------------------------------------------------------------------
16,000,000 Deutsche Bank Government Securities, 5.80%, dated 7/31/1995, due
8/1/1995
16,000,000
------------------------------------------------------------------
46,000,000 Nesbitt Burns, 5.82%, dated 7/31/1995, due 8/1/1995
46,000,000
------------------------------------------------------------------
46,490,000 J.P. Morgan Securities, Inc., 5.82%, dated 7/31/1995, due 8/1/1995
46,490,000
------------------------------------------------------------------
16,000,000 Sanwa Securities USA Co., LP., 5.75%, dated 7/31/1995, due
8/1/1995
16,000,000
------------------------------------------------------------------
49,000,000 UBS Securities, Inc., 5.75%, dated 7/31/1995, due 8/1/1995
49,000,000
------------------------------------------------------------------
- ------------
TOTAL REPURCHASE AGREEMENTS
205,490,000
------------------------------------------------------------------
- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST
$323,044,022+
------------------------------------------------------------------
- ------------
</TABLE>
* 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
($321,640,118) at
July 31, 1995.
(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, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
<C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $205,490,000
- ------------------------------------------------------------------
Investments in securities 117,554,022
- ------------------------------------------------------------------ ------------
Total investments, at amortized cost and value
$323,044,022
- --------------------------------------------------------------------------------
Cash
494
- --------------------------------------------------------------------------------
Income receivable
350,327
- -------------------------------------------------------------------------------- -
- -----------
Total assets
323,394,843
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Dividends payable 1,553,062
- ------------------------------------------------------------------
Payable to Adviser 135,512
- ------------------------------------------------------------------
Accrued expenses 66,151
- ------------------------------------------------------------------ ------------
Total liabilities
1,754,725
- -------------------------------------------------------------------------------- -
- -----------
NET ASSETS for 321,640,118 shares of beneficial interest outstanding
$321,640,118
- -------------------------------------------------------------------------------- -
- -----------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
($321,640,118 / 321,640,118 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, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
<C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income
$18,977,975
- ---------------------------------------------------------------------------------
EXPENSES--
- ---------------------------------------------------------------------------------
Investment advisory fee $1,377,583
- --------------------------------------------------------------------
Administrative personnel and services fee 380,685
- --------------------------------------------------------------------
Custodian fee 43,092
- --------------------------------------------------------------------
Portfolio accounting, transfer and dividend disbursing agent fees
and
expenses 58,070
- --------------------------------------------------------------------
Director's/Trustee's fees 6,914
- --------------------------------------------------------------------
Auditing fees 13,066
- --------------------------------------------------------------------
Legal fees 534
- --------------------------------------------------------------------
Fund share registration costs 9,277
- --------------------------------------------------------------------
Printing and postage 12,107
- --------------------------------------------------------------------
Insurance premiums 9,267
- --------------------------------------------------------------------
Miscellaneous 250
- -------------------------------------------------------------------- ----------
Total expenses 1,910,845
- --------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 395,440
- -------------------------------------------------------------------- ----------
Net expenses
1,515,405
- ---------------------------------------------------------------------------------
- -----------
Net investment income
$17,462,570
- ---------------------------------------------------------------------------------
- -----------
</TABLE>
(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,
---------------------
- ------------
1995
1994
--------------- -
- ------------
<S> <C>
<C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 17,462,570 $
10,016,721
- ------------------------------------------------------------ --------------- -
- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Dividends to shareholders from net investment income (17,462,570)
(10,016,721)
- ------------------------------------------------------------ --------------- -
- ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- ------------------------------------------------------------
Proceeds from sale of shares 1,029,179,974
813,333,646
- ------------------------------------------------------------
Cost of shares redeemed (1,043,768,436)
(767,513,323)
- ------------------------------------------------------------ --------------- -
- ------------
Change in net assets from Fund share transactions (14,588,462)
45,820,323
- ------------------------------------------------------------ --------------- -
- ------------
Change in net assets (14,588,462)
45,820,323
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 336,228,580
290,408,257
- ------------------------------------------------------------ --------------- -
- ------------
End of period $ 321,640,118 $
336,228,580
- ------------------------------------------------------------ --------------- -
- ------------
</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, 1995
- --------------------------------------------------------------------------------
(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 nine 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
or sub-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 under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
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 and/or
standards reviewed or 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 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
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
- --------------------------------------------------------------------------------
the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are valued 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, 1995, capital paid-in aggregated $321,640,118. Transactions in Fund shares
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31,
-------------------
- ------------
1995
1994
- -------------------------------------------------------------- --------------
- ------------
<S> <C>
<C>
Shares sold 1,029,179,974
813,333,646
- --------------------------------------------------------------
Shares redeemed (1,043,768,436)
(767,513,323)
- -------------------------------------------------------------- --------------
- ------------
Net change resulting from Fund share transactions (14,588,462)
45,820,323
- -------------------------------------------------------------- --------------
- ------------
</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. The Adviser can modify or terminate this
voluntary waiver 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 FEES AND EXPENSES, PORTFOLIO ACCOUNTING
AND CUSTODIAN FEES--Fifth Third Bank serves as transfer and dividend disbursing
agent for the Fund for which it receives a fee. Fifth Third Bank sub-contracts
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 for which it receives a
fee. Fifth Third Bank sub-contracts 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 for which it receives a fee. The fee is
based on the level of the Fund's average net assets for the period, plus
out-of-pocket expenses.
Certain of the Officers and Trustees of the Trust are Officers and 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 U.S. Treasury Obligations Fund
(one of the portfolios comprising Fountain Square Funds), as of July 31, 1995,
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, 1995, 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, 1995, 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 15, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fountain Square U.S. Treasury Fountain Square Funds
Obligations Fund c/o Fifth Third Bank
38 Fountain Square
Plaza
Cincinnati, Ohio 45263
- ------------------------------------------------------------------------------------
- -------------
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
- ------------------------------------------------------------------------------------
- -------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh,
Pennsylvania 15219
- ------------------------------------------------------------------------------------
- -------------
</TABLE>
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
Statement of Additional Information
<TABLE>
<S> <C>
This Statement of Additional Information should be read with the prospectus of
the Fund dated September 30, 1995. 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.
FOUNTAIN SQUARE FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
Statement dated September 30, 1995
FIFTH THIRD BANK
Investment Adviser
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 2
Fountain Square Funds Management 3
Officers and Trustees 3
Fund Ownership 4
Trustees' Compensation 4
Trustee Liability 4
Investment Advisory Services 4
Adviser to the Fund 4
Advisory Fees 5
Brokerage Transactions 5
Administrative Services 5
Transfer Agent and Dividend Disbursing Agent 6
Purchasing Shares 6
Conversion to Federal Funds 6
Determining Net Asset Value 6
Use of the Amortized Cost Method 6
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
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. 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.
For the 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 The Fifth Third Bank ("Fifth Third Bank"), Fifth Third
Bancorp, Federated Investors, Federated Securities Corp., or Federated
Administrative Services.
J. Christopher Donahue *+
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Chairman of the Board of Trustees, President and Treasurer
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative
Services, Federated Services Company, and Federated Shareholder Services; President
or Vice President of the Funds; Director, Trustee, or Managing General Partner of
some of the Funds.
Edward Burke Carey
394 East Town Street
Columbus, OH
Birthdate: July 2, 1945
Member of the Board of Trustees
President of Carey Leggett Realty Advisors.
Lee A. Carter +
Cincinnati Commerce Center
Suite 2020
Cincinnati, OH
Birthdate: December 17, 1938
Member of the Board of Trustees
Formerly, President, Local Marketing Corporation (retired December 31, 1993).
Albert E. Harris
5905 Graves Road
Cincinnati, OH
Birthdate: July 2, 1932
Member of the Board of Trustees
Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993).
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Treas
Treasurer of some of the Funds.
Jay S. Neuman
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 22, 1950
Secretary
Corporate Counsel, Federated Investors; prior to January, 1991, Associate Counsel,
The Boston Company Advisors, Inc.
*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 Fund's outstanding shares.
As of July 31, 1995, Fifth Third Bank as nominee for numerous trust and agency
accounts, was the owner of record of 321,635,855 Shares (100%) of the Fund.
Trustees' Compensation
NAME , AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*+
J. Christopher Donahue $ 0
Chairman of Board of
Trustees, President and Treasurer
Edward Burke Carey $ 7,800
Trustee
Lee A. Carter $ 7,800
Trustee
Albert E. Harris $ 7,800
Trustee
* Information is furnished for the fiscal year ended July 31, 1995. The Trust is
the only investment company in the Fund complex.
+The aggregate compensation is provided for the Trust which is comprised of ten
portfolios.
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 (the "Adviser"). 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, 1995, 1994, and 1993, the Adviser earned
$1,377,583, $1,341,031, and $1,238,063, respectively, of which $395,440, $473,109,
and $464,273 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, 1995, 1994, and 1993, the Fund did not pay any
commissions on brokerage transactions.
Administrative Services
Until December 1, 1995, 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, 1995, 1994, and
1993, the Fund incurred administrative service fees of $380,685, $385,743, and
$386,565, respectively.
Effective December 1, 1995, BISYS Fund Services L.P., 3435 Stelzer Road, Columbus,
Ohio 43219, will provide administrative services to the Funds for the fees set forth
in the prospectus.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performs sub-administration services on behalf of
each Fund, for which it receives compensation from BISYS Fund Services L.P.
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 out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Fifth Third Bank serves as transfer agent and dividend disbursing agent for the
Funds. The fee paid to the transfer agent is based upon the size, type and number
of accounts and transactions made by shareholders.
Fifth Third Bank also maintains the Trust's accounting records. The fee paid for
this service is based upon the level of the Funds' average net assets for the period
plus out-of-pocket expenses.
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, 1995 was 5.44%. 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, 1995 was 5.61%.
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.
</TABLE>
Cusip 350756102
8120101B (9/95)
