<PAGE> 1
1933 Act File No. 33-24848
1940 Act File No. 811-5669
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---
Pre-Effective Amendment No. ..................................
---
Post-Effective Amendment No. 18 .................................. X
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---
Amendment No. 19 ................................................. X
---
FOUNTAIN SQUARE FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219-3035
(Address of Principal Executive Offices)
(614) 470-8000
(Registrant's Telephone Number)
Robert C. Rosselot, Esquire
Howard & Howard Attorneys, P.C.
Suite 101, The Pinehurst Office Center
1400 North Woodward Avenue
Bloomfield Hills, Michigan 48304-2856
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b)
- ---
on ____________________________ pursuant to paragraph (b)
- ---
60 days after filing pursuant to paragraph (a)(i)
- ---
on ____________________________ pursuant to paragraph (a)(i)
- ---
75 days after filing pursuant to paragraph (a)(ii)
- ---
on ____________________________ pursuant to paragraph (a)(ii) of Rule 485.
- ---
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
- --- previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:
X filed the Notice required by that Rule on September 26, 1996; or
---
intends to file the Notice required by that Rule on or
--- about ___________________; or
during the most recent fiscal year did not sell any securities pursuant
--- to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant
to Rule 24f-2(b)(2), need not file the Notice.
<PAGE> 2
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of FOUNTAIN SQUARE FUNDS,
which is comprised of ten portfolios, each portfolio consisting of two separate
classes of shares (unless otherwise noted), relates to: Investment A Shares and
Investment C Shares (unless otherwise noted): (1) Fountain Square U.S.
Government Securities Fund; (2) Fountain Square Quality Bond Fund; (3) Fountain
Square Quality Growth Fund; (4) Fountain Square Mid Cap Fund; and (5) Fountain
Square Balanced Fund; (6) Fountain Square Ohio Tax Free Bond Fund; (7) Fountain
Square U.S. Treasury Obligations Fund (consisting of a single class of shares);
(8) Fountain Square Commercial Paper Fund, which consists of two classes of
shares: (a) Trust Shares and (b) Investment Shares; (9) Fountain Square
Government Cash Reserves Fund, which consists of two classes of shares: (a)
Trust Shares and (b) Investment Shares; and (10) Fountain Square International
Equity Fund and is comprised of the following:
<TABLE>
<CAPTION>
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
-----------------------------
<S> <C> <C>
Item 1. Cover Page.......................................... (1-10) Cover Page.
Item 2. Synopsis............................................ (1-6, 10) Synopsis; (7-9) Summary of Fund
Expenses; (1-6, 10) Expenses of the Funds.
Item 3. Condensed Financial Information..................... (1-10) Financial Highlights; (1-10)
Performance Information.
Item 4. General Description of Registrant................... (1-6, 10) Objective of Each Fund; (7-9)
General Information; (7-9) Investment
Information; (1-6, 10) Portfolio Investments
and Strategies; (7-9) Investment Objective;
(7-9) Investment Policies; (7-9) Investment
Limitations; (8)Regulatory Compliance.
Item 5. Management of the Fund.............................. (1-10) Fountain Square Funds Information;
(1-10) Management of the Trust; (1-10)
Administration of the Fund; (1-6, 10)
Brokerage Transactions; Expenses of the
Funds, Investment A Shares, and Investment
C Shares; (1-10) Other Payments to Financial
Institutions; (1-6, 8,10) Distribution Plan;
(1-6, 8, 10) Distribution of Shares of the
Funds; (7-9) Distribution of Fund Shares.
Item 6. Capital Stock and Other Securities................. (1-10) Shareholder Information; (1-10) Voting
Rights; (1-10) Massachusetts Law; (1-10) Effect
of Banking Laws; (1-10) Tax Information; (1-10)
Federal Income Tax; (1- 6, 10) Dividends and
Capital Gains; (7-9) Dividends; (7-10) Capital
Gains; (6) Additional Tax Information for Ohio
Tax Free Bond Fund; (10) Additional Tax
Information for International Equity Fund.
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Item 7. Purchase of Securities Being Offered................ (1-10) Net Asset Value; (1-10) Investing in the
Fund(s); (1-10) Share Purchases; (1-10) Minimum
Investment Required; (1-6, 10) Investing In
Investment A Shares; (1-10) What Shares Cost;
(1-6, 10) Purchases at Net Asset Value; (1-6, 10)
Dealer Concessions; (1-6, 10) Reducing/Eliminating
the Sales Charge; (1-6, 10) Investing in Investment
C Shares; (1-6, 10) Exchanging Securities for Fund
Shares; (1-10) Systematic Investment Program; (1-10)
Certificates and Confirmations; (1-10) Exchanges.
Item 8. Redemption or Repurchase............................ (1-10) Redeeming Shares; (1-6, 10) Systematic
Withdrawal Program; (1-10) Accounts With Low
Balances; (1-6, 10) Contingent Deferred Sales
Charge.
Item 9. Pending Legal Proceedings........................... None.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
<S> <C> <C>
Item 10. Cover Page........................................ (1-10) Cover Page.
Item 11. Table of Contents................................. (1-10) Table of Contents.
Item 12. General Information and History................... (1-6, 10) General Information About the
Trust; (7-9) General Information About the
Fund(s).
Item 13. Investment Objectives and Policies................ (1-6, 10) Investment Objective and Policies
of the Funds; (7-9) Investment Objective and
Policies.
Item 14. Management of the Funds........................... (1-10) Fountain Square Funds Management;
(1-6, 10) Trustees' Compensation.
Item 15. Control Persons and Principal
Holders of Securities............................ (1-10) Trust Ownership.
Item 16. Investment Advisory and Other
Services......................................... (1-10) Investment Advisory Services; (1-10)
Administrative Services.
Item 17. Brokerage Allocation.............................. (1-10) Brokerage Transactions.
Item 18. Capital Stock and Other Securities................ Not applicable.
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered...................... (1-10) Purchasing Shares; (1-10) Redeeming
Shares; (1-10) Determining Net Asset Value.
Item 20. Tax Status........................................ (1-10) Tax Status.
Item 21. Underwriters...................................... Not applicable.
Item 22. Calculation of Performance Data................... (1-10) Performance Comparisons; (1-6, 10)
Total Return; (1-10) Yield; (7-9) Effective
Yield; (6) Tax-Equivalent Yield.
Item 23. Financial Statements.............................. (1-6, 10) Incorporated by reference to the Annual
Report to Shareholders of the Fountain Square
Funds dated July 31, 1996 (File No. 811-5669);
(7-9) Filed in Part A.
</TABLE>
<PAGE> 5
FOUNTAIN SQUARE FUNDS
Investment A Shares
Investment C Shares
PROSPECTUS
Fountain Square Funds (the "Trust") is an open-end management investment company
(a mutual fund). This combined prospectus offers investors interests in
Investment A Shares and Investment C shares of 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, 1996, 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
1-888-799-5353.
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, 1996
<PAGE> 6
TABLE OF CONTENTS
SYNOPSIS.................................................................... 1
Risk Factors...................................................... 2
EXPENSES OF THE FUNDS
INVESTMENT A SHARES......................................................... 3
EXPENSES OF THE FUNDS
INVESTMENT A SHARES......................................................... 5
EXPENSES OF THE FUNDS
INVESTMENT C SHARES......................................................... 7
EXPENSES OF THE FUNDS
INVESTMENT C SHARES......................................................... 9
FOUNTAIN SQUARE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS........................................................ 11
OBJECTIVE OF EACH FUND...................................................... 18
Government Securities Fund................................ 18
Acceptable Investments........................... 18
Investment Limitations........................... 18
Quality Bond Fund......................................... 19
Acceptable Investments........................... 19
Collateralized Mortgage
Obligations..................................... 19
Investment Limitations........................... 20
Ohio Tax Free Bond Fund................................... 20
Acceptable Investments........................... 20
Characteristics.................................. 20
Participation Interests.......................... 20
Variable Rate Municipal Securities............... 20
Municipal Leases................................. 21
Temporary Investments............................ 21
Ohio Municipal Securities........................ 21
Investment Risks................................. 21
Non-Diversification.............................. 21
Investment Limitations........................... 22
Quality Growth Fund....................................... 22
Acceptable Investments........................... 22
Convertible Securities........................... 22
Investment Limitations........................... 23
Mid Cap Fund.............................................. 23
Acceptable Investments........................... 23
Investment Limitations........................... 23
Balanced Fund............................................. 23
Acceptable Investments........................... 23
Money Market Instruments......................... 24
Investment Limitations........................... 24
International Equity Fund................................. 24
Acceptable Investments........................... 25
Money Market Instruments......................... 25
Foreign Currency Transactions.................... 25
Forward Foreign Currency
Exchange Contracts............................... 25
Investment Limitations........................... 26
Risk Considerations.............................. 26
PORTFOLIO INVESTMENTS AND STRATEGIES........................................ 26
Borrowing Money........................................... 26
Diversification........................................... 26
Restricted and Illiquid Securities........................ 26
Repurchase Agreements..................................... 27
When-Issued and Delayed Delivery
Transactions.............................................. 27
Lending of Portfolio Securities........................... 27
Options and Futures....................................... 27
Put and Call Options............................. 27
Futures and Options on Futures................... 28
Risks............................................ 29
Equity Investment Considerations.......................... 29
Foreign Investments....................................... 30
Exchange Rates................................... 30
Foreign Companies................................ 30
U.S. Government Policies......................... 30
Emerging Markets................................. 30
Foreign Bank Instruments......................... 31
Derivative Securities..................................... 31
Bond Ratings.............................................. 31
Temporary Investments..................................... 31
Variable Rate Demand Notes....................... 32
Commercial Paper................................. 32
Bank Instruments................................. 32
FOUNTAIN SQUARE FUNDS INFORMATION.................................. 32
Management of the Trust................................... 32
Board of Trustees................................ 32
Investment Advisor............................... 32
Advisory Fees.................................... 32
Advisor's Background............................. 33
Portfolio Managers' Background................... 33
Sub-Advisor...................................... 33
Sub-Advisory Fees................................ 33
Sub-Advisor's Background......................... 33
Portfolio Managers' Background................... 34
Distribution of Shares of the Funds....................... 34
Distribution Plan......................................... 34
Administrative Services Agreement (Investment
C Shares Only)............................................ 35
Other Payments to Financial Institutions.................. 35
Administration of the Funds............................... 35
Administrative Services.......................... 35
Custodian, Transfer Agent and Dividend
Disbursing Agent.......................................... 35
Independent Auditors...................................... 35
Expenses of the Funds, Investment A Shares,
and Investment C Shares................................... 36
Brokerage Transactions.................................... 36
NET ASSET VALUE.................................................... 36
INVESTING IN THE FUNDS............................................. 37
Share Purchases........................................... 37
Minimum Investment Required............................... 37
Investing In Investment A Shares.......................... 37
Purchases at Net Asset Value..................... 38
Dealer Concessions............................... 38
Reducing/Eliminating the Sales
Charge........................................... 38
Quantity Discounts and
Accumulated Purchases........................... 38
I
<PAGE> 7
Letter of Intent................................. 38
Fifth Third Bank Club 53, One
Account Plus, One
Account Gold, One
Account Advantage and
One Account Platinum
Programs.................................... 39
Purchases with Proceeds from
Redemptions of
Unaffiliated Mutual Fund
Shares...................................... 39
Purchases with Proceeds from
Distributions of
Qualified Retirement
Plans or Other Trusts
Administered by Fifth
Third Bank.................................. 39
Concurrent Purchases............................. 39
Investing in Investment C Shares.......................... 39
Exchanging Securities for Fund Shares..................... 40
Systematic Investment Program............................. 40
Certificates and Confirmations............................ 40
Dividends and Capital Gains............................... 40
EXCHANGES.......................................................... 40
REDEEMING SHARES................................................... 41
By Telephone..................................... 41
By Mail.......................................... 42
Systematic Withdrawal Program............................. 42
Accounts with Low Balances................................ 42
Contingent Deferred Sales Charge.......................... 43
SHAREHOLDER INFORMATION............................................ 43
Voting Rights............................................. 43
Massachusetts Law......................................... 43
EFFECT OF BANKING LAWS............................................. 44
TAX INFORMATION.................................................... 44
Federal Income Tax........................................ 44
Additional Tax Information for Ohio Tax Free
Bond Fund............................................ 45
State of Ohio Income Taxes........................... 45
Other State and Local Taxes.......................... 45
Additional Tax Information for International
Equity Fund.......................................... 45
PERFORMANCE INFORMATION............................................ 45
ADDRESSES.......................................................... 47
II
<PAGE> 8
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.
Shares of 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 Bond
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 obligation; 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. Investment
A Shares of each Fund are sold at net asset value plus any applicable sales
charge, and are redeemed at net asset value. Certain investors may purchase
Investment A Shares at net asset value without the imposition of a sales charge.
Investment C Shares of each Fund are sold at net asset value, but may be subject
to a contingent deferred sales charge of 1.00% if redeemed within the first 12
months following purchase. Information on redeeming shares may be found under
"Redeeming Shares." The Funds are advised by Fifth Third Bank ( the "Advisor" ).
The International Equity Fund is sub-advised by Morgan Stanley Asset Management,
Inc. (the "Sub-Advisor").
1
<PAGE> 9
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 and may include securities considered derivative securities as
described in this prospectus, may vary inversely in response to changes in
prevailing interest rates. The foreign securities in which some Funds may invest
may include securities of companies in emerging growth countries and 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."
2
<PAGE> 10
EXPENSES OF THE FUNDS
INVESTMENT A SHARES
INVESTMENT A SHARES
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
INVESTMENT A SHARES
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)................................... 0.45% 0.51% 0.55%
12b-1 Fees (after waivers)(2)........................................ 0.00% 0.00% 0.00%
Other Expenses (after waivers and/or reimbursements)(3).............. 0.30% 0.24% 0.20%
Total Investment A Shares Operating Expenses(4)...................... 0.75% 0.75% 0.75%
</TABLE>
(1) The management fee of the Government Securities Fund and Quality Bond
Fund have been reduced to reflect the voluntary waiver of the
investment advisory fee by the investment advisor. The advisor 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 Investment A Shares are not
paying or accruing 12b-1 fees. Investment A Shares will not accrue or
pay 12b-1 fees until a separate class of shares for certain trust or
qualified plan customers of financial institutions is created or a
determination is made that such investors will be subject to the 12b-1
fees. Investment A Shares can pay up to 0.35% as a 12b-1 fee to the
distributor.
(3) Other expenses have been reduced to reflect the anticipated voluntary
waiver by the custodian.
(4) Total Investment A Shares Operating Expenses for the Government
Securities Fund and the Quality Bond Fund would have been 1.24% and
1.16%, respectively, absent the voluntary waivers by the investment
advisor and custodian, and the waiver of the 12b-1 fee. Total
Investment A Shares Operating Expenses for the Ohio Tax Free Bond Fund
would have been 1.10% absent the voluntary reimbursement by the
investment advisor, the voluntary waiver by the custodian, and the
waiver of the 12b-1 fee.
3
<PAGE> 11
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN INVESTMENT A SHARES OF 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 in
Investment A Shares assuming (1) 5% annual return; (2) redemption at the end of
each time period; and (3) payment of the maximum sales charge. Investment A
Shares 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.
4
<PAGE> 12
EXPENSES OF THE FUNDS
INVESTMENT A SHARES
<TABLE>
<CAPTION>
INVESTMENT A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases (as a Percentage of offering price)........................ 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
as a percentage of offering price)................................................................. None
Contingent Deferred Sales Charge
(as a percentage of original purchase price or redemption proceeds, as applicable)................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)................................ None
Exchange Fee....................................................................................... None
</TABLE>
INVESTMENT A SHARES
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)................... 0.80% 0.80% 0.77% 1.00%
12b-1 Fees (after waivers)(2)........................ 0.00% 0.00% 0.00% 0.00%
Other Expenses (after waivers)....................... 0.20%(3) 0.20%(3) 0.23%(3) 0.45%
Total Investment A Shares Operating
Expenses(4).......................................... 1.00% 1.00% 1.00% 1.45%
</TABLE>
(1) The management fee of the Balanced Fund has been reduced to reflect the
voluntary waiver of the investment advisory fee by the investment
advisor. The advisor 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 Investment A Shares are not
paying or accruing 12b-1 fees. Investment A Shares will not accrue or
pay 12b-1 fees until a separate class of shares for certain trust or
qualified plan customers of financial institutions is created or a
determination is made that such investors will be subject to the 12b-1
fees. Investment A Shares can pay up to 0.35% as a 12b-1 fee to the
distributor.
(3) Other expenses have been reduced to reflect the anticipated voluntary
waiver of its fees by the custodian.
(4) Total Investment A Shares Operating Expenses for the Quality Growth
Fund, the Mid Cap Fund, the Balanced Fund, and the International Equity
Fund would have been 1.35%, 1.35%, 1.40%, and 1.80%, respectively,
absent the voluntary waivers and/or reimbursements by the investment
advisor and custodian, and the waiver of the 12b-1 fees.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN INVESTMENT A SHARES OF 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.
5
<PAGE> 13
EXAMPLE
You would pay the following expenses on a 1,000 investment in
Investment A Shares assuming (1) 5% annual return; (2) redemption at the end of
each time period; and (3) payment of the maximum sales charge.
Investment A Shares 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 $ 59
3 Years............................................... $ 75 $ 75 $ 75 $ 89
5 Years............................................... $ 98 $ 98 $ 98 $121
10 Years.............................................. $162 $162 $162 $211
</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.
6
<PAGE> 14
EXPENSES OF THE FUNDS
INVESTMENT C SHARES
INVESTMENT C SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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)(1).............................................1.00%
Redemption Fees (as a percentage of amount redeemed, if applicable)............................................None
Exchange Fee...................................................................................................None
</TABLE>
INVESTMENT C SHARES
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)(2)................. 0.45% 0.51% 0.55%
12b-1 Fees (after waivers)(3)...................... 0.50% 0.50% 0.50%
Administrative Service Fee......................... 0.25% 0.25% 0.25%
Other Expenses (after waivers and/or reimbursements)(4)0.30% 0.24% 0.20%
Total Investment C Shares Operating Expenses(5)........1.50% 1.50% 1.50%
</TABLE>
(1) The contingent deferred sales charge is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed
within one year of the purchase date. (See "Contingent Deferred Sales
Charge").
(2) The management fee of the Government Securities Fund, and Quality Bond
Fund, have been reduced to reflect the voluntary waiver of a portion of
the investment advisory fee by the investment advisor. The advisor 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%.
(3) The Investment C Shares of the Funds can pay up to 0.75% as a 12b-1 fee
to the distributor.
(4) Other expenses have been reduced to reflect the anticipated voluntary
waiver by the custodian.
(5) Total Investment C Shares Operating Expenses for the Government
Securities Fund and the Quality Bond Fund would have been 1.89% and
1.81%, respectively, absent the voluntary waivers by the investment
advisor and custodian, and the waiver of a portion of the 12b-1 fee.
Total Investment C Shares Operating Expenses for the Ohio Tax Free Bond
Fund would have been 1.79% absent the voluntary reimbursement by the
investment advisor, the voluntary waiver by the custodian, and the
waiver of a portion of the 12b-1 fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN INVESTMENT C SHARES OF 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.
7
<PAGE> 15
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 in
Investment C Shares assuming (1) 5% annual return; (2) either redemption at the
end of Year 1 or no redemption; and (3) payment of the maximum sales charge.
<TABLE>
<CAPTION>
Government Quality Ohio
Securities Bond Tax Free
Fund Fund Fund
---------- ------- --------
<S> <C> <C> <C>
1 Year (assuming redemption)..........................$25 $25 $25
1 Year (assuming no redemption).......................$15 $15 $15
3 Years...............................................$47 $47 $47
5 Years...............................................$82 $82 $82
10 Years..............................................$179 $179 $179
</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.
8
<PAGE> 16
EXPENSES OF THE FUNDS
INVESTMENT C SHARES
INVESTMENT C SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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)(1).................................................1.00%
Redemption Fees (as a percentage of amount redeemed, if applicable)............................................None
Exchange Fee...................................................................................................None
</TABLE>
ANNUAL INVESTMENT C SHARES 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)(2)....................0.80% 0.80% 0.77% 1.00%
12b-1 Fees (after waivers)(3).........................0.50% 0.50% 0.50% 0.50%
Administrative Service Fee............................0.25% 0.25% 0.25% 0.25%
Other Expenses (after waivers)........................0.20%(4) 0.20%(4) 0.23%(4) 0.45%
Total Investment C Shares Operating Expenses(5).......1.75% 1.75% 1.75% 2.40%
</TABLE>
(1) The contingent deferred sales charge is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed
within one year of the purchase date. (See "Contingent Deferred Sales
Charge").
(2) The management fee of the Balanced Fund has been reduced to reflect the
voluntary waiver of the investment advisory fee by the investment
advisor. The advisor 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%.
(3) The Investment C Shares of the Funds can pay up to 0.75% as a 12b-1 fee
to the distributor.
(4) Other expenses have been reduced to reflect the anticipated voluntary
waiver of its fees by the custodian.
(5) Total Investment C Shares Operating Expenses for the Quality Growth
Fund, the Mid Cap Fund, the Balanced Fund, and the International Equity
Fund would have been 2.00%, 2.00% 2.05%, and 2.45%, respectively,
absent the voluntary waivers and/or reimbursements by the investment
advisor and custodian, and the waiver of a portion of the 12b-1 fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN INVESTMENT C SHARES OF 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.
9
<PAGE> 17
EXAMPLE
You would pay the following expenses on a $1,000 investment in Investment C
Shares assuming (1) 5% annual return; (2) either redemption at the end of Year 1
or no redemption; and (3) payment of the maximum sales charge.
<TABLE>
<CAPTION>
Quality International
Growth Mid Cap Balanced Equity
Fund Fund Fund Fund
------- ------- -------- -------------
<S> <C> <C> <C> <C>
1 Year (assuming redemption)................ $28 $28 $28 $32
1 Year (assuming no redemption)............. $18 $18 $18 $22
3 Years..................................... $55 $55 $55 $69
5 Years..................................... $95 $95 $95 $118
10 Years.................................... $206 $206 $206 $253
</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.
10
<PAGE> 18
FOUNTAIN SQUARE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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. The Financial Highlights presented below
are historical information for shares of Fountain Square U.S. Government
Securities Fund, which were the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------------
1996 1995 1994 1993*
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.77 $ 9.64 $ 10.21 $ 10.00
- --------------------------------------------------- ------- -------- -------- --------
Income from investment operations
- ---------------------------------------------------
Net investment income 0.55 0.58 0.51 0.35
- ---------------------------------------------------
Net realized and unrealized gains (losses)
on investments (0.20) 0.13 (0.49) 0.13
- --------------------------------------------------- ------- -------- -------- --------
Total from investment operations 0.35 0.71 0.02 0.48
- --------------------------------------------------- ------- -------- -------- --------
Less distributions
- ---------------------------------------------------
Dividends to shareholders from net
investment income (0.57) (0.58) (0.57) (0.27)
- ---------------------------------------------------
Distributions to shareholders from net
realized gains on investment transactions -- -- (0.02) --
- --------------------------------------------------- ------- -------- -------- --------
Total distributions (0.57) (0.58) (0.59) (0.27)
- --------------------------------------------------- ------- -------- -------- --------
Net asset value, end of period $ 9.55 $ 9.77 $ 9.64 $ 10.21
- --------------------------------------------------- ======= ======== ======== ========
Total return** 3.63% 7.66% 0.11% 4.87%(c)
- ---------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------
Expenses 0.75% 0.75% 0.75% 0.74%(b)
- ---------------------------------------------------
Net investment income 5.67% 5.98% 5.17% 5.36%(b)
- ---------------------------------------------------
Expense waiver/reimbursement(a) 0.29% 0.39% 0.18% 0.33%(b)
- ---------------------------------------------------
Supplemental data
- ---------------------------------------------------
Net assets, end of period (000 omitted) $30,754 $25,054 $29,107 $29,603
- ---------------------------------------------------
Portfolio turnover rate 103% 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.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(See Notes which are an integral part of the Financial Statements)
6
<PAGE> 19
FOUNTAIN SQUARE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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,
1996*
----------
<S> <C>
Net asset value, beginning of period $9.65
- --------------------------------------------------------------- -------
Income from investment operations
- ---------------------------------------------------------------
Net investment income 0.16
- ---------------------------------------------------------------
Net realized and unrealized losses
on investments (0.10)
- --------------------------------------------------------------- -------
Total from investment operations 0.06
- --------------------------------------------------------------- -------
Less distributions
- ---------------------------------------------------------------
Dividends to shareholders from net
investment income (0.15)
- --------------------------------------------------------------- -------
Net asset value, end of period $9.56
- --------------------------------------------------------------- =======
Total return** 3.48%(c)
- ---------------------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------------------
Expenses 1.52%(b)
- ---------------------------------------------------------------
Net investment income 4.80%(b)
- ---------------------------------------------------------------
Expense waiver(a) 0.37%(b)
- ---------------------------------------------------------------
Supplemental data
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $49
- ---------------------------------------------------------------
Portfolio turnover rate 103%
- ---------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 24, 1996 (date of commencement
of operations) to July 31, 1996.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 23, 1996 plus the total return from the Investment C Shares
for the period from April 24, 1996 to July 31, 1996.
(See Notes which are an integral part of the Financial Statements)
7
<PAGE> 20
FOUNTAIN SQUARE QUALITY BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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. The Financial Highlights presented below
are historical information for shares of Fountain Square Quality Bond Fund,
which were the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------------
1996 1995 1994 1993*
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.72 $ 9.55 $ 10.29 $ 10.00
- --------------------------------------------------- ------- -------- -------- --------
Income from investment operations
- ---------------------------------------------------
Net investment income 0.56 0.64 0.57 0.41
- ---------------------------------------------------
Net realized and unrealized gains (losses)
on investments (0.19) 0.17 (0.69) 0.26
- --------------------------------------------------- ------- -------- -------- --------
Total from investment operations 0.37 0.81 (0.12) 0.67
- --------------------------------------------------- ------- -------- -------- --------
Less distributions
- ---------------------------------------------------
Dividends to shareholders from net
investment income (0.57) (0.64) (0.59) (0.38)
- ---------------------------------------------------
Distributions to shareholders from net
realized gains on investment transactions -- -- (0.03) --
- --------------------------------------------------- ------- -------- -------- --------
Total distributions (0.57) (0.64) (0.62) (0.38)
- --------------------------------------------------- ------- -------- -------- --------
Net asset value, end of period $ 9.52 $ 9.72 $ 9.55 $ 10.29
- --------------------------------------------------- ======= ======== ======== ========
Total return** 3.86% 8.89% (1.25)% 6.78%(c)
- ---------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------
Expenses 0.75% 0.75% 0.75% 0.74%(b)
- ---------------------------------------------------
Net investment income 5.80% 6.72% 5.76% 6.07%(b)
- ---------------------------------------------------
Expense waiver/reimbursement(a) 0.06% 0.09% 0.11% 0.23%(b)
- ---------------------------------------------------
Supplemental data
- ---------------------------------------------------
Net assets, end of period (000 omitted) $83,422 $55,767 $47,272 $37,962
- ---------------------------------------------------
Portfolio turnover rate 119% 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.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(See Notes which are an integral part of the Financial Statements)
8
<PAGE> 21
FOUNTAIN SQUARE QUALITY BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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,
1996*
----------
<S> <C>
Net asset value, beginning of period $9.62
- --------------------------------------------------------------- -------
Income from investment operations
- ---------------------------------------------------------------
Net investment income 0.14
- ---------------------------------------------------------------
Net realized and unrealized losses
on investments (0.08)
- --------------------------------------------------------------- -------
Total from investment operations 0.06
- --------------------------------------------------------------- -------
Less distributions
- ---------------------------------------------------------------
Dividends to shareholders from net
investment income (0.15)
- --------------------------------------------------------------- -------
Net asset value, end of period $9.53
- --------------------------------------------------------------- =======
Total return** 3.71%(c)
- ---------------------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------------------
Expenses 1.52%(b)
- ---------------------------------------------------------------
Net investment income 5.03%(b)
- ---------------------------------------------------------------
Expense waiver(a) 0.09%(b)
- ---------------------------------------------------------------
Supplemental data
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $162
- ---------------------------------------------------------------
Portfolio turnover rate 117%
- ---------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 25, 1996 (date of commencement
of operations) to July 31, 1996.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 24, 1996 plus the total return from the Investment C Shares
for the period from April 25, 1996 to July 31, 1996.
(See Notes which are an integral part of the Financial Statements)
9
<PAGE> 22
FOUNTAIN SQUARE OHIO TAX FREE BOND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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. The Financial Highlights presented below
are historical information for shares of Fountain Square Ohio Tax Free Bond
Fund, which were the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------------
1996 1995 1994 1993*
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.99 $ 9.75 $ 9.95 $ 10.00
- --------------------------------------------------- ------- -------- -------- --------
Income from investment operations
- ---------------------------------------------------
Net investment income 0.40 0.42 0.40 0.05
- ---------------------------------------------------
Net realized and unrealized gains (losses)
on investments 0.03 0.24 (0.21) (0.05)
- --------------------------------------------------- ------- -------- -------- --------
Total from investment operations 0.43 0.66 0.19 --
- --------------------------------------------------- ------- -------- -------- --------
Less distributions
- ---------------------------------------------------
Dividends to shareholders from net
investment income (0.41) (0.42) (0.39) (0.05)
- --------------------------------------------------- ------- -------- -------- --------
Net asset value, end of period $ 10.01 $ 9.99 $ 9.75 $ 9.95
- --------------------------------------------------- ======= ======== ======== ========
Total return** 4.33% 7.02% 1.95% (0.01%)(c)
- ---------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------
Expenses 0.74% 0.35% 0.00% 0.00%(b)
- ---------------------------------------------------
Net investment income 4.01% 4.36% 4.18% 3.53%(b)
- ---------------------------------------------------
Expense waiver/reimbursement(a) 0.32% 0.77% 1.33% 2.21%(b)
- ---------------------------------------------------
Supplemental data
- ---------------------------------------------------
Net assets, end of period (000 omitted) $35,463 $28,315 $23,854 $ 8,163
- ---------------------------------------------------
Portfolio turnover rate 30% 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.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(See Notes which are an integral part of the Financial Statements)
10
<PAGE> 23
FOUNTAIN SQUARE OHIO TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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,
1996*
----------
<S> <C>
Net asset value, beginning of period $10.02
- --------------------------------------------------------------- -------
Income from investment operations
- ---------------------------------------------------------------
Net investment income 0.10
- ---------------------------------------------------------------
Net realized and unrealized losses
on investments (0.01)
- --------------------------------------------------------------- -------
Total from investment operations 0.09
- --------------------------------------------------------------- -------
Less distributions
- ---------------------------------------------------------------
Dividends to shareholders from net
investment income (0.11)
- --------------------------------------------------------------- -------
Net asset value, end of period $10.00
- --------------------------------------------------------------- =======
Total return** 3.98%(c)
- ---------------------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------------------
Expenses 1.52%(b)
- ---------------------------------------------------------------
Net investment income 3.41%(b)
- ---------------------------------------------------------------
Expense waiver(a) 0.28%(b)
- ---------------------------------------------------------------
Supplemental data
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $38
- ---------------------------------------------------------------
Portfolio turnover rate 30%
- ---------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 24, 1996 (date of commencement
of operations) to July 31, 1996.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 23, 1996 plus the total return for the Investment C Shares
for the period from April 24, 1996 to July 31, 1996.
(See Notes which are an integral part of the Financial Statements)
11
<PAGE> 24
FOUNTAIN SQUARE QUALITY GROWTH FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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. The Financial Highlights presented below
are historical information for shares of Fountain Square Quality Growth Fund,
which were the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------------
1996 1995 1994 1993*
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.79 $ 9.70 $ 9.54 $ 10.00
- --------------------------------------------------- ------- -------- -------- --------
Income from investment operations
- ---------------------------------------------------
Net investment income 0.12 0.14 0.13 0.10
- ---------------------------------------------------
Net realized and unrealized gains (losses)
on investments 1.37 2.09 0.17 (0.47)
- --------------------------------------------------- ------- -------- -------- --------
Total from investment operations 1.49 2.23 0.30 (0.37)
- --------------------------------------------------- ------- -------- -------- --------
Less distributions
- ---------------------------------------------------
Dividends to shareholders from net
investment income (0.12) (0.14) (0.13) (0.09)
- ---------------------------------------------------
Distributions to shareholders in excess of net
investment income(a) -- -- (0.01) --
- --------------------------------------------------- ------- -------- -------- --------
Total distributions (0.12) (0.14) (0.14) (0.09)
- --------------------------------------------------- ------- -------- -------- --------
Net asset value, end of period $ 13.16 $ 11.79 $ 9.70 $ 9.54
- --------------------------------------------------- ======= ======== ======== ========
Total return** 12.69% 23.21% 3.17% (3.73%)(d)
- ---------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------
Expenses 0.99% 1.00% 1.00% 0.99%(c)
- ---------------------------------------------------
Net investment income 0.98% 1.44% 1.42% 1.47%(c)
- ---------------------------------------------------
Expense waiver/reimbursement(b) 0.03% 0.05% 0.03% 0.05%(c)
- ---------------------------------------------------
Supplemental data
- ---------------------------------------------------
Net assets, end of period (000 omitted) $134,469 $82,594 $69,648 $67,681
- ---------------------------------------------------
Portfolio turnover rate 37% 34% 37% 28%
- ---------------------------------------------------
Average commission rate paid(c) $ 0.0652 -- -- --
- ---------------------------------------------------
</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.
(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) Annualized.
(d) Not annualized.
(e) Represent the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
12
<PAGE> 25
FOUNTAIN SQUARE QUALITY GROWTH FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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,
1996*
----------
<S> <C>
Net asset value, beginning of period $13.37
- --------------------------------------------------------------- -------
Loss from investment operations
- ---------------------------------------------------------------
Net realized and unrealized losses
on investments (0.21)
- --------------------------------------------------------------- -------
Net asset value, end of period $13.16
- --------------------------------------------------------------- =======
Total return** 12.50%(b)
- ---------------------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------------------
Expenses 1.77%(a)
- ---------------------------------------------------------------
Net investment income 0.26%(a)
- ---------------------------------------------------------------
Expense waiver(d) 0.06%
- ---------------------------------------------------------------
Supplemental data
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $420
- ---------------------------------------------------------------
Portfolio turnover rate 37%
- ---------------------------------------------------------------
Average commission rate paid(c) $0.0652
- ---------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 25, 1996 (date of commencement
of operations) to July 31, 1996.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) Annualized.
(b) Represents total return for Investment A Shares for the period from August
1, 1995 to April 24, 1996 plus the total return for the Investment C Shares
for the period from April 25, 1996 to July 31, 1996.
(c) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
13
<PAGE> 26
FOUNTAIN SQUARE MID CAP FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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. The Financial Highlights presented below
are historical information for shares of Fountain Square Mid Cap Fund, which
were the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------------
1996 1995 1994 1993*
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.59 $ 10.10 $ 9.68 $ 10.00
- --------------------------------------------------- ------- -------- -------- --------
Income from investment operations
- ---------------------------------------------------
Net investment income 0.06 0.08 0.06 0.06
- ---------------------------------------------------
Net realized and unrealized gains (losses)
on investments 0.11 2.48 0.43 (0.33)
- --------------------------------------------------- ------- -------- -------- --------
Total from investment operations 0.17 2.56 0.49 (0.27)
- --------------------------------------------------- ------- -------- -------- --------
Less distributions
- ---------------------------------------------------
Dividends to shareholders from net
investment income (0.07) (0.07) (0.07) (0.05)
- ---------------------------------------------------
Distributions to shareholders from net
realized gains on investment transactions (0.09) -- -- --
- --------------------------------------------------- ------- -------- -------- --------
Total distributions (0.16) (0.07) (0.07) (0.05)
- --------------------------------------------------- ------- -------- -------- --------
Net asset value, end of period $ 12.60 $ 12.59 $ 10.10 $ 9.68
- --------------------------------------------------- ======== ======== ======== ========
Total return** 1.27% 25.45% 5.07% (2.73%)(c)
- ---------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------
Expenses 1.00% 1.00% 1.00% 0.99%(b)
- ---------------------------------------------------
Net investment income 0.42% 0.77% 0.60% 0.88%(b)
- ---------------------------------------------------
Expense waiver/reimbursement(a) 0.06% 0.18% 0.33% 0.40%(b)
- ---------------------------------------------------
Supplemental data
- ---------------------------------------------------
Net assets, end of period (000 omitted) $72,663 $47,184 $30,210 $24,019
- ---------------------------------------------------
Portfolio turnover rate 54% 23% 44% 20%
- ---------------------------------------------------
Average commission rate paid(d) $0.0659 -- -- --
- ---------------------------------------------------
</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.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
14
<PAGE> 27
FOUNTAIN SQUARE MID CAP FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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,
1996*
----------
<S> <C>
Net asset value, beginning of period $13.72
- --------------------------------------------------------------- -------
Loss from investment operations
- ---------------------------------------------------------------
Net investment loss (0.01)
- ---------------------------------------------------------------
Net realized and unrealized losses
on investments (1.12)
- --------------------------------------------------------------- -------
Total from investment operations (1.13)
- --------------------------------------------------------------- -------
Net asset value, end of period $12.59
- --------------------------------------------------------------- =======
Total return** 1.11% (c)
- ---------------------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------------------
Expenses 1.78% (b)
- ---------------------------------------------------------------
Net investment loss (0.51%)(b)
- ---------------------------------------------------------------
Expense waiver(a) 0.06% (b)
- ---------------------------------------------------------------
Supplemental data
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $229
- ---------------------------------------------------------------
Portfolio turnover rate 54%
- ---------------------------------------------------------------
Average commission rate paid(d) $0.0659
- ---------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 24, 1996 (date of commencement
of operations) to July 31, 1996.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 23, 1996 plus the total return for the Investment C Shares
for the period from April 24, 1996 to July 31, 1996.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
15
<PAGE> 28
FOUNTAIN SQUARE BALANCED FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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. The Financial Highlights presented below
are historical information for shares of Fountain Square Balanced Fund, which
were the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------------------
1996 1995 1994 1993*
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.28 $ 9.70 $ 9.78 $ 10.00
- --------------------------------------------------- ------- -------- -------- --------
Income from investment operations
- ---------------------------------------------------
Net investment income 0.27 0.28 0.26 0.20
- ---------------------------------------------------
Net realized and unrealized gains (losses)
on investments 0.47 1.57 (0.06) (0.25)
- --------------------------------------------------- ------- -------- -------- --------
Total from investment operations 0.74 1.85 0.20 (0.05)
- --------------------------------------------------- ------- -------- -------- --------
Less distributions
- ---------------------------------------------------
Dividends to shareholders from net
investment income (0.27) (0.27) (0.26) (0.17)
- ---------------------------------------------------
Distributions to shareholders in excess of
net investment income(a) -- -- (0.02) --
- --------------------------------------------------- ------- -------- -------- --------
Total distributions (0.27) (0.27) (0.28) (0.17)
- --------------------------------------------------- ------- -------- -------- --------
Net asset value, end of period $ 11.75 $ 11.28 $ 9.70 $ 9.78
- --------------------------------------------------- ======= ======== ======== ========
Total return** 6.52% 19.37% 2.02% (0.51%)(d)
- ---------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------
Expenses 1.00% 1.00% 1.00% 1.00%(c)
- ---------------------------------------------------
Net investment income 2.31% 2.73% 2.64% 3.04%(c)
- ---------------------------------------------------
Expense waiver/reimbursement(b) 0.06% 0.06% 0.06% 0.08%(c)
- ---------------------------------------------------
Supplemental data
- ---------------------------------------------------
Net assets, end of period (000 omitted) $92,808 $58,075 $59,363 $60,168
- ---------------------------------------------------
Portfolio turnover rate 61% 58% 53% 30%
- ---------------------------------------------------
Average commission rate paid(c) $0.0062 -- -- --
- ---------------------------------------------------
</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.
(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) Annualized.
(d) Not annualized.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
16
<PAGE> 29
FOUNTAIN SQUARE BALANCED FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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,
1996*
----------
<S> <C>
Net asset value, beginning of period $12.13
- --------------------------------------------------------------- -------
Loss from investment operations
- ---------------------------------------------------------------
Net investment income 0.05
- ---------------------------------------------------------------
Net realized and unrealized losses
on investments (0.39)
- --------------------------------------------------------------- -------
Total from investment operations (0.34)
- --------------------------------------------------------------- -------
Less distributions
- ---------------------------------------------------------------
Dividends to shareholders from net
investment income (0.04)
- --------------------------------------------------------------- -------
Net asset value, end of period $11.75
- --------------------------------------------------------------- =======
Total return** 6.32%(c)
- ---------------------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------------------
Expenses 1.78%(b)
- ---------------------------------------------------------------
Net investment income 1.60%(b)
- ---------------------------------------------------------------
Expense waiver(a) 0.07%(b)
- ---------------------------------------------------------------
Supplemental data
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $264
- ---------------------------------------------------------------
Portfolio turnover rate 61%
- ---------------------------------------------------------------
Average commission rate paid(d) $0.0062
- ---------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 25, 1996 (date of commencement
of operations) to July 31, 1996.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 24, 1996 plus the total return for the Investment C Shares
for the period from April 25, 1996 to July 31, 1996.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
17
<PAGE> 30
FOUNTAIN SQUARE INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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. The Financial Highlights presented below
are historical information for shares of Fountain Square International Equity
Fund, which were the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
Period Period
Ended Ended
July 31, July 31,
1996* 1995*
---------- -----------
<S> <C> <C>
Net asset value, beginning of period $ 9.83 $ 10.00
- --------------------------------------------------------------- -------- -------
Income from investment operations
- ---------------------------------------------------------------
Net investment income 0.01 0.05
- ---------------------------------------------------------------
Net realized and unrealized gains (losses)
on investments 0.90 (0.22)
- --------------------------------------------------------------- -------- -------
Total from investment operations 0.91 (0.17)
- --------------------------------------------------------------- -------- -------
Net asset value, end of period $ 10.74 $ 9.83
- --------------------------------------------------------------- ======== =======
Total return** 9.26% (1.70%)(c)
- ---------------------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------------------
Expenses 1.61% 1.65%(b)
- ---------------------------------------------------------------
Net investment income 0.32% 0.62%(b)
- ---------------------------------------------------------------
Expense waiver/reimbursement(a) 0.05% 0.07%(b)
- ---------------------------------------------------------------
Supplemental data
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $120,349 $86,442
- ---------------------------------------------------------------
Portfolio turnover rate 41% 54%
- ---------------------------------------------------------------
Average commission rate paid(d) $ 0.0010 --
- ---------------------------------------------------------------
</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.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
18
<PAGE> 31
FOUNTAIN SQUARE INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
- -------------------------------------------------------------------------------
(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 11, 1996, on the Funds'
financial statements for the year ended July 31, 1996 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,
1996*
----------
<S> <C>
Net asset value, beginning of period $ 11.21
- --------------------------------------------------------------- -------
Loss from investment operations
- ---------------------------------------------------------------
Net investment income 0.01
- ---------------------------------------------------------------
Net realized and unrealized losses
on investments (0.51)
- --------------------------------------------------------------- -------
Total from investment operations (0.50)
- --------------------------------------------------------------- -------
Net asset value, end of period $ 10.71
- --------------------------------------------------------------- =======
Total return** 8.95%(c)
- ---------------------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------------------
Expenses 2.34%(b)
- ---------------------------------------------------------------
Net investment income 0.76%(b)
- ---------------------------------------------------------------
Supplemental data
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $57
- ---------------------------------------------------------------
Portfolio turnover rate 41%
- ---------------------------------------------------------------
Average commission rate paid(d) $0.0010
- ---------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 25, 1996 (date of commencement
of operations) to July 31, 1996.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 24, 1996 plus the total return for the Investment C Shares
for the period from April 25, 1996 to July 31, 1996.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
19
<PAGE> 32
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. The Government Securities Fund pursues its investment
objective consistent with its investment in a portfolio of U.S. government
securities. 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 or estimated average
lives of seven years or less. In managing the portfolio, the Advisor seeks to
minimize fluctuations in the value of the Fund's Investment A Shares and
Investment C 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.
14
<PAGE> 33
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 Quality Bond Fund pursues
its investment objectives consistent with its investment in a portfolio of
investment grade bonds. 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"), or unrated bonds that are determined by the Advisor to be of comparable
quality, 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, or unrated bonds
that are determined by the Advisor to be of comparable
quality. Downgrades will be evaluated on a case by case basis
by the Advisor. The Advisor 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 Securities Fund, as described
above; and
- collateralized mortgage obligations.
The Quality Bond Fund does not intend to invest in corporate bonds rated below
Baa by Moody's or BBB by S & P. The weighted average maturity 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.
15
<PAGE> 34
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 branches, in order to reduce the risk of prepayment for the other
branches. Prepayments may result in a capital loss to the Fund to the extent
that the prepaid mortgage securities were purchased at a market premium over
their stated principal amount. Conversely, the prepayment of mortgage securities
purchased at a market discount from their stated principal amount will
accelerate the recognition of interest income by the Fund, which would be taxed
as ordinary income when distributed to the shareholders.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
OHIO TAX FREE BOND FUND
The investment objective of the Ohio Tax Free Bond 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 Advisor 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.
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 Advisor may
choose bonds which are unrated if it judges the bonds to have the same
characteristics as the investment grade bonds described above. Downgrades will
be evaluated on a case by case basis by the Advisor. The Advisor will determine
whether or not the security continues to be an acceptable investment. If not,
the security will be sold. 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
16
<PAGE> 35
at least 65% of its assets in bonds that provide current income exempt from
federal income tax and the personal income taxes imposed by the State of Ohio
and Ohio municipalities.
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 Advisor 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 Advisor 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 Advisor
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
17
<PAGE> 36
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 Advisor, have potential
primarily for capital growth. These companies generally are leaders in their
industries ant are characterized by sound management and the ability to finance
expected growth. Among other things, the Advisor 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;
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- 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 advisor.
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 advisor'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 Advisor 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 Advisor 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 Advisor 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 $3 billion in market
capitalization which are listed on the New York or American
Stock Exchanges or
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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 Advisor, 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 Advisor. Downgrades will be
evaluated on a case by case basis by the Advisor. The Advisor
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."
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<PAGE> 39
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 Advisor, 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-Advisor 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 Advisor, the Sub-Advisor 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-Advisor, 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-Advisor, 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-Advisor
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
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between actual value and fair value as determined by the Sub-Advisor provide an
expected return for each stock market. The expected return is adjusted by
currency return expectations derived from the Sub-Advisor'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-Advisor 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 Advisor or Sub-Advisor, 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
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<PAGE> 41
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-Advisor will consider the likelihood of changes in currency values when
making investment decisions, the Sub-Advisor 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 Bond 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
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<PAGE> 42
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 Bond 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 Advisor 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 Advisor or Sub-Advisor 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 Advisor 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.
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OPTIONS AND FUTURES
The Funds (with the exception of the Ohio Tax Free Bond 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 Bond
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
Bond 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 forgoes 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 Advisor or Sub-Advisor.
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 Bond 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
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<PAGE> 44
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 Advisor or Sub-Advisor 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 Advisor or Sub- Advisor
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
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<PAGE> 45
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 Advisor's or Sub-Advisor's ability to predict pertinent
market movements, and the Advisor or Sub-Advisor 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 Advisor's or
Sub-Advisor'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 Advisor or Sub-Advisor 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.
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<PAGE> 46
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.
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<PAGE> 47
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.
DERIVATIVE SECURITIES
Several of the Funds may invest in securities that may be described as
"derivative" securities. These securities "derive" their value from changes in
the value of an underlying security, currency, commodity, or index, and may
include asset-backed securities; mortgage-backed securities (such as CMOs); or
futures, forward, option and swap contracts.
Derivative securities can be used to reduce or increase the volatility of an
investment portfolio's performance. While derivative securities may respond to
market changes differently than the securities, currencies, commodities, or
indices that underlie them, they do not necessarily present greater market risk
than the underlying investments.
The Funds that utilize investment contracts or securities that may be deemed to
be derivative securities may do so only subject to the limitations described in
this prospectus. For example, the Funds that invest in put options may do so
only as a hedge to attempt to protect securities that they hold against
decreases in value. The Funds that write call options may do so only on
securities held in their portfolios or on securities that they have a right to
obtain without payment of additional consideration. When the International
Equity Fund deals in options on foreign currencies, securities, and securities
indices, and on future contracts, it does so to manage interest rate and
currency risks. These and other investment practices are fully described above,
including limitations on the amount of assets that may be invested in these
securities and rating requirements, if applicable.
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 doings 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 U.S. government, its agencies, or
instrumentalities;
- instruments of domestic and foreign banks; and
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<PAGE> 48
- 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 ADVISOR. Pursuant to an investment advisory contract with the Trust
investment decisions for the Funds are made by Fifth Third Bank, the Funds'
Advisor, subject to direction by the Trustees. The Advisor 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
Advisor has retained the Sub-Advisor to act as sub-advisor to the Fund. As
Advisor, Fifth Third Bank will conduct a program for ongoing oversight and
evaluation of the Sub-Advisor'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-Advisor.
ADVISORY FEES. The Advisor 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 Bond 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 Advisor from time to time.
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<PAGE> 49
The Advisor has undertaken to waive up to the amount of the advisory
fee, for operating expenses, in excess of limitations established by
certain states. The Advisor 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.
ADVISOR'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, 1996, Fifth Third Bank and its affiliates
managed assets in excess of $8.9 billion on a discretionary basis and
provided custody services for additional assets in excess of $76.1
billion.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages 13 such pools with
total assets of over $1.01 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.
Roberta Tucker is Chief Fixed Income Strategist for Fifth Third Trust
and Investment Services. She is a Vice President and Trust Officer of
Fifth Third Bank. Ms. Tucker has more than 13 years of investment
experience and assumed investment management responsibility for the
Balanced, Quality Bond and Government Securities Funds in July of 1996.
Ms. Tucker is a member of AIMR and Financial Analyst Society. Prior to
joining Fifth Third Bank in June of 1996, Ms. Tucker was Head of Fixed
Income Management at Westridge Capital Management in Santa Barbara,
California from May 1994 through May 1996. Prior to that, she was a
Vice President and Senior Fund Manager with Banc One Investment
Advisors since 1987.
SUB-ADVISOR. Under the terms of a Sub-Advisory Agreement between Fifth Third
Bank and the Sub-Advisor, the Sub-Advisor will be responsible as sub-advisor 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-Advisor 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 Advisor will be responsible for compensating the
Sub-Advisor at the annual rate of 0.50% of the Fund's average daily net
assets.
SUB-ADVISOR'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
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<PAGE> 50
to customers in the United States and abroad. At June 30, 1995, the
Sub-Advisor managed investments totaling approximately $40.0 billion
under active management and $15.1 billion as Named Fiduciary or
Fiduciary Advisor.
PORTFOLIO MANAGERS' BACKGROUND. Barton M. Biggs has been Chairman and a
Director of the Sub-Advisor 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-Advisor 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-Advisor in 1984 to focus on global
asset allocation and investment strategy and now heads the
Sub-Advisor'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-Advisor as a Principal in 1993. She is
responsible for product development, portfolio management and
communication of the Sub-Advisor'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 advisor. 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-Advisor. She is a member
of the Sub-Advisor'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
BISYS Fund Services L.P. serves 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.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Investment C Shares purchased by their clients or
customers at the time of purchase. These payments will be made directly by the
distributor from its assets, and will not be made from assets of the Fund.
Financial institutions may elect to waive the initial payment described above;
such waiver will result in the waiver by the Fund of the otherwise applicable
contingent deferred sales charge.
DISTRIBUTION PLAN
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Investment A Shares and Investment C Shares may
pay a fee to the distributor in an amount computed at an annual rate of up to
.35% and .75%, respectively, of the average daily net assets of each class of
Shares to finance any activity which is principally intended to result in the
sale of Shares subject to the Distribution Plan. For Investment A Shares and
Investment C Shares, the distributor may select financial institutions such as
banks, fiduciaries, custodians for public funds, investment advisors, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers.
The Distribution Plan is a compensation type plan. As such, the Funds make no
payments to the distributor except as described above. Therefore, the Funds do
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Funds, interest,
carrying or other
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<PAGE> 51
financing charges in connection with excess amounts expended, or the
distributor's overhead expenses. However, the distributor may be able to recover
such amounts or may earn a profit from future payments made by Shares under the
Plan. The Funds will not accrue or pay distribution expenses pursuant to the
Distribution Plan with respect to Investment A Shares until a separate class of
shares has been created for certain trust or employee benefit customers of Fifth
Third Bank or a determination is made that such investors will be subject to the
distribution expenses.
ADMINISTRATIVE SERVICES AGREEMENT (INVESTMENT C SHARES ONLY)
In addition, the Funds have entered into an Administrative Services Agreement
with respect to Investment C Shares with Fifth Third Bank, under which the Funds
may make payments up to 0.25 of 1% of the average daily net asset value of
Investment C Shares to obtain certain administrative services for shareholders
and for the maintenance of shareholder accounts ("Administrative Services").
Under the Administrative Services Agreement, Fifth Third Bank will either
perform Administrative Services directly or will select certain firms to perform
Administrative Services, for which such firms may receive all or a portion of
the Administrative Services fee.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan and
Administrative Services Agreement, BISYS Fund Services and Fifth Third Bank,
from their own assets, may pay financial institutions supplemental fees for the
performance of sales services, distribution-related support services, or
shareholder and administrative services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings 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 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 laws.
ADMINISTRATION OF THE FUNDS
ADMINISTRATIVE SERVICES. BISYS Fund Services L.P. serves 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
ADMINISTRATIVE FEE NET ASSETS OF THE FUND
------------------ -----------------------
<S> <C> <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.
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.
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<PAGE> 52
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, Cincinnati, Ohio.
EXPENSES OF THE FUNDS, INVESTMENT A SHARES, AND INVESTMENT C SHARES
Holders of Investment A Shares and Investment C Shares pay their allocable
portion of Trust and Fund expenses.
The Trust expenses for which holders of Investment A Shares and Investment C
Shares pay their allocable portion include, but are not limited to: the cost of
organizing the Trust and continuing its existence; registering the Trust with
federal and state securities authorities; Trustees' fees; auditors' fees; the
cost of meetings of Trustees; legal fees of the Trust; association membership
dues; and such non-recurring and extraordinary items as may arise from time to
time.
The Fund expenses for which holders of Investment A Shares and Investment C
Shares pay their allocable portion include, but are not limited to: registering
the Fund and Investment A Shares and Investment C Shares of the Fund; investment
advisory services; taxes and commissions; custodian fees; insurance premiums;
auditors' fees; legal expenses of the Fund; organizational expenses; and such
non-recurring and extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Investment A
Shares and Investment C Shares as classes are expenses under the Trust's
Distribution Plan and fees for Administrative Services. However, the Trustees
reserve the right to allocate certain other expenses to holders of Investment A
Shares and Investment C Shares as they deem appropriate ("Class Expenses"). In
any case, Class Expenses would be limited to: distribution fees; transfer agent
fees as identified by the transfer agent as attributable to holders of
Investment A Shares and Investment C Shares; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to the
Securities and Exchange Commission and to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Investment A Shares and Investment C Shares; legal fees relating solely to
Investment A Shares or Investment C Shares; and Trustees' fees incurred as a
result of issues related solely to Investment A Shares or Investment C Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Advisor and Sub- Advisor look for prompt execution of the order
at a favorable price. In working with dealers, the Advisor and Sub- Advisor 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 Advisor and Sub-Advisor may give consideration to those firms which have
sold or are selling shares of the Fund. The Advisor and Sub-Advisor 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-advisor. 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.
34
<PAGE> 53
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each Fund fluctuates daily. The net asset value
for Shares of each Fund is determined by adding the interest of each class of
Shares in the market value of all securities and other assets of each Fund,
subtracting the interest of each class of Shares in the liabilities of such Fund
and those attributable to each class of Shares, and dividing the remainder by
the total number of each class of Shares outstanding. The net asset value for
each class of Shares may differ due to the variance in daily net income realized
by each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
The net asset value of each class of Shares of the Funds is determined as of the
close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, 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.
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
The Funds offer investors two classes of Shares that either carry sales loads or
contingent deferred sales charges in different forms and amounts and which bear
different levels of expense.
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. 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 of Fund Shares may not be
available to investors in all states.
Shares of the Funds may be purchased either through a financial institution
(such as a bank or broker-dealer that has a sales agreement with the
distributor) or by wire or check directed to the Fund. Investors may contact the
Funds toll-free at (888) 799-5353.
Purchase orders must be received by the Funds by 2:30 p.m. (Eastern time) in
order for Shares to be purchased at that day's price. Payment may be made to the
Funds' custodian either by check or federal funds. Purchases by check are
considered received after payment by check is converted into federal funds and
received by the custodian. This is normally the next business day after the
Funds receive the check. When payment is made with federal funds, the order is
considered received when federal funds are received by the Funds. Federal funds
should be wired to the Funds 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 and applicable Class of Shares). Investors not purchasing directly
from the Funds should consult their financial institutions for wiring
instructions. Orders placed through financial institutions must be received by
the financial institution and transmitted to the Funds before 2:30 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly, however,
investors should allow sufficient time for orderly processing and transmission.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares of a Fund by an investor is $1,000.
Subsequent investments must be in amounts of at least $50.
INVESTING IN INVESTMENT A SHARES
35
<PAGE> 54
Investment A 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. (Eastern 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, Jr.
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. Investment A 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; clients of Fifth Third Bank who make purchases
through the Trust and Investment Division; and registered representatives and
employees of the distributor and broker-dealers who have entered into sales
agreements with the distributor, as well as their spouses and children under 21.
Investment A Shares may also be purchased at net asset value by qualified
employee benefit plans under the Internal Revenue Code, subject to minimum
requirements with respect to number of employees or amount of purchase which may
be established by the distributor. Finally, no sales load is imposed for
Investment A Shares purchased by broker-dealers, investment advisors, or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge a management, consulting, or other fee for their
services.
DEALER CONCESSIONS. For sales of Investment A 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 Investment A 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 Investment A Shares sold.
The sales charge for Investment A Shares sold other than through registered
broker/dealers will be retained by the distributor. The distributor may pay fees
to financial institutions out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the financial institution's
customers in connection with the initiation of customer accounts and purchases
of Investment A Shares.
REDUCING/ELIMINATING THE SALES CHARGE. The sales charge can be reduced or
eliminated on the purchase of Investment A 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, One
Account Advantage, or One Account Platinum Programs;
36
<PAGE> 55
- - 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 Investment A 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 Investment A Shares of a Fund is made, the
distributor will aggregate such additional purchases with previous purchases of
Investment A Shares of the Funds provided the prior purchase is still invested
in either of these Funds. For example, if a shareholder already owns Investment
A 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 Investment A 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
Investment A 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 Investment A Shares, is not purchased. In
this event, an appropriate number of escrowed Investment A 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 Investment A
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, ONE ACCOUNT
ADVANTAGE AND ONE ACCOUNT PLATINUM PROGRAMS. All shareholders who have a Club 53
Account, One Account Plus, One Account Gold, One Account Advantage or One
Account Platinum through Fifth Third Bank are eligible for a reduced sales
charge on the purchase of Investment A Shares of the Funds. Shareholders should
consult their Fifth Third Securities Representative for details about these
account programs.
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%
</TABLE>
37
<PAGE> 56
<TABLE>
<S> <C> <C>
$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 Investment A 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 the Funds 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 Investment
A 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 Investment A Shares
of one of the Funds of the Trust with a sales charge, and $30,000 in Investment
A Shares of another Fund with a sales charge, the sales charge would be reduced
on both purchases.
To receive this sales charge reduction, the Funds 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.
INVESTING IN INVESTMENT C SHARES
Investment C Shares are sold at net asset value next determined after an order
is received. A contingent deferred sales charge of 1.00% will be charged on
assets redeemed within the first full 12 months following purchase. For a
complete description of this charge, see "Contingent Deferred Sales Charge."
Investment C Shares provide an investor the benefit of putting all of the
investor's dollars to work from the time the investment is made, but will have a
higher expense ratio and pay lower dividends than Investment A Shares of the
Funds due to the imposition of the 12b-1 fee and the Administrative Services
fee.
No orders to purchase or redeem Investment C 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.
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 the Funds.
38
<PAGE> 57
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 the Funds, plus any applicable sales charge. The minimum initial
investment requirement does not apply for those shareholders who participate in
the Systematic Investment Program. A shareholder may apply for participation in
this program on their account application or by contacting the Funds.
CERTIFICATES AND CONFIRMATIONS
The transfer agent 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.
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, the Quality Growth Fund, and the Ohio Tax Free Bond Fund, dividends are
declared and paid monthly. With respect to the Mid Cap Fund and the Balanced
Fund, dividends are declared and paid quarterly. With respect to the
International Equity Fund, dividends, if any, are declared and paid annually.
EXCHANGES
- -------------------------------------------------------------------------------
A shareholder may exchange Shares of one Fund for Shares of the same class of
any of the other Funds in the Trust by calling or sending a written request to
the Funds.
Shareholders may exchange Shares of one Fund for Shares of the same class of any
of the other Funds in the Trust by calling the Funds toll-free at (888) 799-5353
or sending a written request to the Funds. 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 the same class of any of the
other Funds will be executed by redeeming the Shares owned at net asset value
and purchasing Shares of the same class 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 2:30 p.m. (Eastern 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 2:30 p.m. (Eastern time) on any business day
will be executed at the close of the next business day.
When exchanging into and out of Investment A Shares of the Funds in the Trust,
shareholders who have paid a sales load once upon purchasing Investment A Shares
of any Fund will not have to pay a sales load again on an exchange. When
exchanging into and out of Investment C Shares of the Funds in the Trust, the
time for which the exchanged-for Shares are to be held will be added to the time
for which exchanged-from Shares were held for purposes of satisfying the
applicable holding period. For more information, see "Contingent Deferred Sales
Charge."
39
<PAGE> 58
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, less any applicable
contingent deferred sales charge, 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 a shareholder's financial representative
or directly through the Fund. Orders placed through financial institutions must
be received by the financial institution and transmitted to the Funds before
2:30 p.m. (Eastern time) in order for Shares to be redeemed at that day's price.
It is the financial institution's responsibility to transmit orders promptly,
however, investors should allow sufficient time for orderly processing and
transmission.
BY TELEPHONE
Shares may be redeemed in any amount by calling the Funds, provided the Funds
have received a properly completed authorization form. Proceeds will be mailed
in the form of a check to the shareholder's address of record or by wire
transfer to the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve System. Proceeds from redeemed Shares purchased by
check or through ACH will not be wired until that method of payment has cleared.
Telephone 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 2:30 p.m. (Eastern time), a check will be sent to the
address of record. Normally, a check for the proceeds is mailed within three
business days, 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 be
completed. Authorization forms and information on this service are available
from the Funds 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 may redeem Shares by sending a written request to:
Fifth Third Bank
Fountain Square Funds Redemptions 1090EC
38 Fountain Square Plaza
Cincinnati, OH 45263
40
<PAGE> 59
The written request should include the shareholder's name, the Fund and
applicable Class name, the account number, the Share or dollar amount requested
and the proper endorsement. Shareholders should call the Funds 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 three
business days, 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 their financial representative or by contacting the Funds. 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. A
contingent deferred sales charge may be imposed on Investment C Shares redeemed
under the 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.
CONTINGENT DEFERRED SALES CHARGE
41
<PAGE> 60
Shareholders redeeming Investment C Shares from their Fund accounts within one
full year of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of 1.00%. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net asset
value of the redeemed Investment C Shares at the time of purchase or the net
asset value of the redeemed Investment C Shares at the time of redemption.
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than one
full year from the date of purchase. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to a
contingent deferred sales charge. In computing the amount of the applicable
contingent deferred sales charge, redemptions are deemed to have occurred in the
following order: (1) Shares acquired through the reinvestment of dividends and
long-term capital gains; (2) Shares held for more than one full year from the
date of purchase; (3) Shares held for fewer than one full year from the date of
purchase, on a first-in, first-out basis. A contingent deferred sales charge is
not assessed in connection with an exchange of Fund Shares for Shares of other
funds in the Trust (see "Exchanges"). Any contingent deferred sales charge
imposed at the time the exchanged for Shares are redeemed is calculated as if
the shareholder had held the Shares from the date on which he became a
shareholder of the exchanged-from Shares.
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing distributions from an Individual
Retirement Account or other retirement plan to a shareholder; and (3)
involuntary redemptions by a Fund of Shares in shareholder accounts that do not
comply with the minimum balance requirements. No contingent deferred sales
charge will be imposed on redemptions of Shares held by Directors, employees and
registered representatives of the Fund, the distributor, or affiliates of the
Fund or distributor; employees of any financial institution that sells Shares of
a Fund pursuant to a sales agreement with the distributor; and spouses and
children under the age of 21 of the aforementioned persons. The Trustees reserve
the right to discontinue any elimination of the contingent deferred sales
charge. Shareholders will be notified of such elimination. Any Investment C
Shares purchased prior to the termination of such waiver would have the
contingent deferred sales charge eliminated as provided in the Funds' prospectus
at the time of the purchase of the Shares. If a shareholder making a redemption
qualifies for an elimination of the contingent deferred sales charge, the
shareholder must notify the transfer agent in writing that he is entitled to
such elimination.
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 September 16, 1996, 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
42
<PAGE> 61
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 advisor, transfer
agent, custodian, fund accountant, or dividend disbursing agent 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' Advisor, 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 advisors 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 advisor 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
43
<PAGE> 62
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 advisors 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 advisors 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 for each class of
Shares. In addition, the Ohio Tax Free Bond Fund may advertise tax-equivalent
yield.
44
<PAGE> 63
Total return represents the change, over a specified period of time, in the
value of an investment in each class of Shares of 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 class of Shares of a Fund is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by each class of Shares over a thirty-day period by the
maximum offering price per Share of each class 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 class of Shares and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
The tax-equivalent yield of the Ohio Tax Free Bond Fund is calculated similarly
to the yield, but is adjusted to reflect the taxable yield that would have to be
earned to equal the actual yield of each class of Shares of the Fund, assuming a
specific tax rate. The yield and tax-equivalent yield do not necessarily reflect
income actually earned by each class of Shares and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the maximum sales load or contingent deferred sales load which, if excluded,
would increase the total return, yield, and tax-equivalent yield.
From time to time, advertisements for each class of Shares of the Funds may
refer to ratings, rankings, and other information in certain financial
publications and/or compare the performance of such class of Shares to certain
indices.
45
<PAGE> 64
ADDRESSES
- -------------------------------------------------------------------------------
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 Advisor
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend Disbursing Agent, and Sub-Administrator
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------
Distributor and Administrator
BISYS Fund Services, L.P. 3435 Stelzer Road
Columbus, Ohio 43219
- -------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP 1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
- -------------------------------------------------------------------------------
46
<PAGE> 65
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.
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, 1996, 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 toll-free (888) 799-5353.
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.
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, 1996
<PAGE> 66
TABLE OF CONTENTS
- ----------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES................................................. 1
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
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
Lending of Portfolio Securities........................ 4
Investment Limitations.......................................... 4
FOUNTAIN SQUARE FUNDS INFORMATION........................................ 4
Management of the Trust......................................... 4
Board of Trustees...................................... 4
Investment Advisor..................................... 4
Distribution of Fund Shares..................................... 5
Payments to Financial Institutions..................... 5
Administration of the Fund...................................... 5
Administrative Services................................ 5
Custodian, Transfer Agent and Dividend Disbursing
Agent....................................... 6
Independent Auditors................................... 6
NET ASSET VALUE.......................................................... 6
INVESTING IN THE FUND.................................................... 6
Share Purchases................................................. 6
Minimum Investment Required..................................... 6
What Shares Cost................................................ 7
Certificates and Confirmations.................................. 7
Dividends....................................................... 7
Capital Gains................................................... 7
EXCHANGES................................................................ 7
REDEEMING SHARES......................................................... 8
By Telephone.................................................... 8
By Mail......................................................... 9
Receiving Payment............................................... 9
Accounts with Low Balances...................................... 9
SHAREHOLDER INFORMATION.................................................. 10
Voting Rights................................................... 10
Massachusetts Law............................................... 10
EFFECT OF BANKING LAWS................................................... 10
TAX INFORMATION.......................................................... 11
Federal Income Tax.............................................. 11
PERFORMANCE INFORMATION.................................................. 11
FINANCIAL STATEMENTS......................................................12
Report of Ernst & Young LLP, Independent Auditors........................ 20
ADDRESSES................................................................ 21
I
<PAGE> 67
SUMMARY OF FUND EXPENSES
- -------------------------------------------------------------------------------
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 EXPENSE
(As a percentage of average net assets)
Management Fee (after waiver)(1)........................................0.26%
12b-1 Fee...............................................................None
Other Expenses..........................................................0.16%
Total Fund Operating Expenses(2)......................................0.42%
(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 0.56% 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.......... $4 $13 $24 $53
</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.
<PAGE> 68
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,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<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 0.05 0.03 0.03 0.04
Less distributions
Dividends to shareholders
from net investment income (0.05) (0.05) (0.03) (0.03) (0.04)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
Total return 5.24% 5.18% 3.02% 2.82% 4.32%
Ratios to Average Net Assets
Expenses 0.43% 0.44% 0.44% 0.44% 0.45%
Net investment income 5.10% 5.07% 2.99% 2.79% 4.18%
Expense waiver/reimbursement (a) 0.12% 0.11% 0.14% 0.15% 0.15%
Supplemental Data
Net assets, end of period (000 omitted) $489,228 $321,640 $336,229 $290,408 $339,924
</TABLE>
(a) This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
2
<PAGE> 69
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 One Thousand Dollars ($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.
3
<PAGE> 70
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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Advisor has determined are creditworthy under
guidelines established by the Fund's Trustees and will receive collateral at all
times 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.
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 ADVISOR. 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 advisor, (the "Advisor"), subject to direction by
the Trustees. The Advisor 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 Advisor receives an annual investment advisory fee
equal to 0.40 of 1% of the Fund's average daily net assets. The Advisor
has undertaken to waive up to the amount of the advisory fee, for
operating expenses in excess of limitations established by certain
states. The Advisor 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.
ADVISOR'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, 1996, Fifth Third Bank and its affiliates
managed assets in excess of $8.9 billion on a discretionary basis and
provided
4
<PAGE> 71
custody services for additional assets in excess of $76.1 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 13 such pools with
total assets of over $1.01 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
BISYS Fund Services L.P. serves 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 Advisor, 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 Advisor 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. BISYS Fund Services L.P. serves 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.
5
<PAGE> 72
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, Cincinnati, Ohio.
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. 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 of Fund Shares may not be available to
investors in all states.
Shares of the Fund may be purchased through a financial institution (such as a
bank or broker-dealer that has a sales agreement with the distributor) or by
wire or check directed to the Fund. Investors may contact the Fund toll-free at
(888) 799-5353.
Payment for Share purchases may be made either by check or federal funds. Orders
are considered received after payment by check is converted into federal funds
and received by the custodian. This is normally the next business day after the
Fund receives the check. When payment is made with federal funds, the order is
considered received when federal funds are received by the custodian. Federal
funds should be wired to the Fund 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 from the Fund 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. An institutional investor's
minimum investment will be calculated by combining all accounts it maintains
with the Fountain Square Funds.
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
6
<PAGE> 73
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. (Eastern 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
The transfer agent for the Fund 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. Share purchase orders received by the Fund
before 11:00 a.m. (Eastern 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 may exchange shares of one Fund for shares of any of the other
funds in the Trust by calling the Fund toll-free at (888) 799-5353 or sending a
written request to the Fund. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
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.
7
<PAGE> 74
Orders for exchanges of shares of money market funds must be received by 11:00
a.m. (Eastern time). Orders for exchanges of the Government Securities Fund,
Quality Bond Fund, Ohio Tax Free Bond Fund, Quality Growth Fund, Mid Cap Fund,
Balanced Fund, and International Equity Fund must be received by 2:30 p.m.
(Eastern time). Orders for exchanges are taken on any day that the Funds are
open for business. Orders which are received prior to the cut-off times listed
above will be executed as of the close of business that day. Orders received
after the respective cut-off times will be executed at the close of the next
business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time. Shareholders would
be notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
- -------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after Fifth
Third Bank receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Telephone or written requests for
redemption must be received in proper form and can be made through Fifth Third
Bank.
BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund, provided the Fund has
received a properly completed authorization form. Proceeds will be mailed in the
form of a check to the shareholder's address of record or by wire transfer to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
For calls received by the Fund before 11:00 a.m. (Eastern time), a check will be
sent to the address of record. These Shares will not be entitled to the dividend
declared that day. For calls received by the Fund after 11:00 a.m. (Eastern
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 the Fund.
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.
8
<PAGE> 75
BY MAIL
A shareholder may redeem Fund shares by sending a written request to Fifth Third
Bank, Fountain Square Redemptions, M.D. 1090EC, 38 Fountain Square Plaza,
Cincinnati, Ohio, 45263.
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
the Fund 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 three
business days, 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.
9
<PAGE> 76
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 September 16, 1996, 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 advisor, 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 advisor, 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
10
<PAGE> 77
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 advisor 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 legal 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.
11
<PAGE> 78
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1996
- --------------------------------------------------------------------------------
The obligations listed below are issued or guaranteed by the U.S. government,
its agencies of instrumentalities or secured by such obligations.
<TABLE>
<CAPTION>
Principal Amortized
Amount Cost
--------- ----------------------------------------------------------- ---------
<C> <C> <C>
U.S. Treasury Bills-7.1%
- --------------------------------------------------------------------------------
$12,000,000 8/22/96 $ 11,966,995
-----------------------------------------------------------
5,000,000 10/17/96 4,945,352
-----------------------------------------------------------
12,000,000 11/14/96 11,832,933
-----------------------------------------------------------
6,000,000 2/6/97 5,839,980
----------------------------------------------------------- ------------
Total U.S. Treasury Bills 34,585,260
----------------------------------------------------------- ------------
U.S. Treasury Notes-18.5%
- --------------------------------------------------------------------------------
12,000,000 6.25%, 8/31/96 12,005,845
-----------------------------------------------------------
12,000,000 6.50%, 9/30/96 12,018,403
-----------------------------------------------------------
12,000,000 4.38%, 11/15/96 11,968,601
-----------------------------------------------------------
4,000,000 7.25%, 11/30/96 4,022,814
-----------------------------------------------------------
6,000,000 6.25%, 1/31/97 6,037,932
-----------------------------------------------------------
6,000,000 6.75%, 2/28/97 6,037,737
-----------------------------------------------------------
5,000,000 6.63%, 3/31/97 5,031,605
-----------------------------------------------------------
4,000,000 6.88%, 3/31/97 4,032,785
-----------------------------------------------------------
6,000,000 6.88%, 4/30/97 6,053,372
-----------------------------------------------------------
12,000,000 6.13%, 5/31/97 12,025,145
-----------------------------------------------------------
5,000,000 5.63%, 6/30/97 4,982,511
-----------------------------------------------------------
6,000,000 8.50%, 7/15/97 6,137,957
----------------------------------------------------------- ------------
Total U.S. Treasury Notes 90,354,707
-----------------------------------------------------------
*Repurchase Agreements-74.6%
- --------------------------------------------------------------------------------
77,000,000 Bear, Stearns & Co., Inc., 5.57%, dated 7/31/96, due 8/1/96 77,000,000
-----------------------------------------------------------
</TABLE>
12
<PAGE> 79
<TABLE>
<C> <C> <C>
22,000,000 BT Securities Corp., 5.50%, dated 7/31/96, due 8/1/96 22,000,000
--------------------------------------------------------------
22,000,000 Deutsche Morgan Grenfell/C.J. Lawrence, 5.55%,
dated 7/31/96, due 8/1/96 22,000,000
--------------------------------------------------------------
22,000,000 First Chicago, 5.55%, dated 7/31/96, due 8/1/96 22,000,000
--------------------------------------------------------------
22,000,000 Goldman Sachs, 5.50%, dated 7/31/96, due 8/1/96 22,000,000
--------------------------------------------------------------
79,950,000 J.P. Morgan Securities, Inc., 5.55%, dated 7/31/96, due 8/1/96 79,950,000
--------------------------------------------------------------
18,000,000 Merrill Lynch Government Securities, 5.45%, dated 7/31/96,
due 8/1/96 18,000,000
--------------------------------------------------------------
80,000,000 Nesbitt Burns, 5.55%, dated 7/31/96, due 8/1/96 80,000,000
--------------------------------------------------------------
22,000,000 UBS Securities, Inc., 5.50%, dated 7/31/96, due 8/1/96 22,000,000
-------------------------------------------------------------- ------------
Total Repurchase Agreements 364,950,000
-------------------------------------------------------------- ------------
Total Investments, at amortized cost** $489,889,967
-------------------------------------------------------------- ============
</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
($489,228,424) at July 31, 1996.
(See Notes which are an integral part of the Financial Statements.)
13
<PAGE> 80
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Amortized cost $124,939,967) $124,939,967
Repurchase agreements (Amortized cost $364,950,000) 364,950,000
------------
Total investments 489,889,967
Interest receivable 1,443,570
Other assets 499
------------
Total assets 491,334,036
------------
LIABILITIES:
Dividends payable 1,923,334
Accrued expenses and other payables:
Investment advisory fees 107,435
Administration fees 36,528
Accounting and transfer agent fees 9,174
Custodian fees 4,000
Legal and audit fees 7,816
Other 17,325
------------
Total Liabilities 2,105,612
------------
NET ASSETS
Paid-in capital $489,221,955
Accumulated net realized gains on investment transactions 1,390
Undistributed net investment income 5,079
------------
Net Assets $489,228,424
============
Outstanding units of beneficial interest (shares) $489,227,305
============
Net Asset Value
Offering and redemption prior per share $ 1.00
============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
14
<PAGE> 81
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $21,494,430
-----------
EXPENSES-
Investment advisory fees $ 1,557,358
Administrative personnel and services fee 380,505
Custodian fees 37,744
Portfolio accounting, transfer and dividend disbursing agent fees and
expenses 89,694
Director's/Trustee's fees 3,132
Audit fees 23,750
Legal fees 6,347
Fund share registration costs 222
Printing and postage 20,966
Insurance premiums 12,797
Other 15,076
-----------
Total Expenses 2,147,591
-----------
Deduct
Fee Waivers $470,081
Net Expenses $ 1,677,510
-----------
Net Investment Income 19,816,920
-----------
Realized Gains from Investments:
Net realized gains from investment transactions 1,390
-----------
Change in net assets resulting from operations $19,818,310
===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
15
<PAGE> 82
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended July 31
--------------------------------------
1996 1995
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $ 19,816,920 $ 17,462,570
Net realized gains on investment transactions 1,390 --
Change in net assets resulting from operations 19,818,310 $ 17,462,570
DISTRIBUTIONS TO SHAREHOLDERS-
Dividends to shareholders from net investment
income (19,811,841) (17,462,570)
FUND SHARE (PRINCIPAL) TRANSACTIONS-
Proceeds from sale of shares 1,423,327,002 1,029,179,974
Net asset value of shares issued to shareholders in
payment of dividends declared 2,033,312 --
Cost of shares redeemed (1,257,778,477) (1,043,768,436)
Change in net assets from Fund share transactions 167,581,837 (14,588,462)
Change in net assets 167,588,306 (14,588,462)
NET ASSETS:
Beginning of period 321,640,118 336,228,580
End of period $ 489,228,424 $ 321,640,118
=============== ===============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
16
<PAGE> 83
FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
- --------------------------------------------------------------------------------
(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. At July 31, 1996, the Trust consisted of ten separate investment
portfolios. The accompanying financial statements and notes relate only to the
Fountain Square U.S. Treasury Obligations Fund (the "Fund").
The investment objective of the Fund is to achieve stability of principal and
current income consistent with stability of principal. The Fund pursues its
objective by investing in short-term U.S. Treasury obligations.
(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. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
for the period. Actual results could differ from those estimates.
A. SECURITIES VALUATIONS-Investments of the Fund are valued at either
amortized cost, which approximates market value, or at original cost,
which combined with accrued interest approximates market value. Under
the amortized cost method, discount or premium is amortized on a
constant basis to the maturity of the security. Short-term securities
with remaining maturities of sixty days or less at the time of purchase
may be valued at amortized cost, which approximates fair market value.
In addition, the Fund may not (a) purchase any instruments with a
remaining maturity greater than thirteen months unless such instrument
is subject to a demand feature, or (b) maintain a dollar-weighted
average maturity which exceeds 90 days.
B. REPURCHASE AGREEMENTS-The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such
as broker/dealers, which are deemed by the Trust's advisor to be
creditworthy pursuant to guidelines and/or standards reviewed or
established by the Board of Trustees (the "Trustees"). 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. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement.
Accordingly, the Fund could receive less than the repurchase price on
the sale of collateral securities.
C. SECURITIES TRANSACTIONS AND RELATED INCOME-Securities transactions are
accounted for on the date the security is purchased or sold (trade
date). Interest income is recognized on the accrual basis and includes,
where applicable, the pro rata amortization of premium or discount.
Dividend income is recorded on the ex-dividend date. Gains or losses
realized on sales of securities are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
17
<PAGE> 84
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. DIVIDENDS TO SHAREHOLDERS-Dividends from net investment income are
declared daily and paid monthly and distributable net realized gains,
if any, are declared and distributed at least annually. Dividends from
net investment income and from net realized capital gains are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for expiring capital loss
carryforwards and deferrals of certain losses.
F. FEDERAL TAXES-It is the Fund's policy to comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies
and to distribute to shareholders each year substantially all of their
income. Accordingly, no provision for federal tax is necessary.
G. 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.
(3) SHARES OF BENEFICIAL INTEREST
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
U.S. TREASURY
OBLIGATIONS FUND
----------------
Year Year
Ended Ended
-------------- --------------
7/31/96 7/31/95
-------------- --------------
<S> <C> <C>
Shares sold 1,423,327,002 1,029,179,974
Shares issued to shareholders
in payment of distributions declared 2,033,312 --
Shares redeemed (1,257,778,477) (1,043,768,436)
Net change resulting from Fund share
transactions 167,581,837 (14,588,462)
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-Fifth Third Bank, the Fund's investment advisor (the
"Advisor"), receives for its services an annual investment advisory fee of
0.40%, which is based on a percentage of the Fund's average daily net assets.
The Advisor may voluntarily choose to waive a portion of its fee and reimburse
certain operating expenses of the Fund. The Advisor can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion. For the
year ended July 31, 1996, the Advisor waived $470,081 in advisory fees.
ADMINISTRATIVE FEE-Effective December 1, 19956, BISYS Fund Services ("BISYS")
became the Trust's 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. Also effective December 1, 1995, pursuant to a separate agreement with
BISYS, Fifth Third Bank performs sub-administrative
18
<PAGE> 85
ices on behalf of the Fund, for which it receives a fee from BISYS computed
daily as a percentage of the daily net assets of the Fund. Under the terms of
the administration agreement, BISYS' fees are computed daily as a percentage of
the average net assets of the Trust for the period. Administration fees are
computed at 0.10% of first $1 billion of net assets of the Trust, 0.08% of net
assets of the Trust between $1 billion and $2 billion, and 0.07% of more than $2
billion of net assets of the Trust.
Prior to December 1, 1995 Federated Administrative Services ("FAS") provided
each Fund with certain administrative personnel and services. The FAS fee was
based on the level of average aggregate net assets of the Trust for the period.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODIAN FEES-Fifth
Third Bank serves as transfer and dividend disbursing agent for the Funds 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 each 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 each 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.
19
<PAGE> 86
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, 1996,
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, 1996, 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, 1996, 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
Cincinnati, Ohio
September 11, 1996
20
<PAGE> 87
ADDRESSES
- --------------------------------------------------------------------------------
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, Dividend Disbursing Agent
and Sub-Administrator
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Distributor and Administrator
BISYS Fund Services, L.P. 3435 Stelzer Road
Columbus, Ohio 43219
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP 1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
21
<PAGE> 88
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT SHARES
TRUST SHARES
PROSPECTUS
The Investment Shares and 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.
This prospectus contains the information you should read and know before you
invest in Investment Shares or 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, 1996, 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 toll-free (888) 799-5353.
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.
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, 1996
<PAGE> 89
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES....................................... 1
FINANCIAL HIGHLIGHTS-INVESTMENT SHARES......................... 3
FINANCIAL HIGHLIGHTS-TRUST SHARES.............................. 4
GENERAL INFORMATION............................................ 5
INVESTMENT INFORMATION......................................... 5
Investment Objective..................................... 5
Investment Policies...................................... 5
Acceptable Investments............................. 5
Variable Rate Demand
Notes...................................... 6
Bank Instruments............................... 6
Short-Term Credit
Facilities................................. 6
Ratings............................................ 7
Credit Enhancement................................. 7
Demand Features.................................... 7
Repurchase Agreements.............................. 7
When-Issued and Delayed
Delivery Transactions.......................... 7
Concentration of Investments....................... 7
Investment Limitations................................... 8
Regulatory Compliance.................................... 8
FOUNTAIN SQUARE FUNDS INFORMATION.............................. 9
Management of the Trust.................................. 9
Board of Trustees.................................. 9
Investment Advisor................................. 9
Advisory Fees.................................. 9
Advisor's Background........................... 9
Distribution of Shares of the Fund....................... 9
Investment Shares Distribution
Plan........................................... 9
Other Payments to Financial
Institutions................................... 10
Administration of the Fund............................... 10
Administrative Services............................ 10
Custodian, Transfer Agent and
Dividend Disbursing
Agent.......................................... 11
Independent Auditors............................... 11
NET ASSET VALUE................................................ 11
INVESTING IN THE FUND.......................................... 11
Share Purchases.......................................... 11
Minimum Investment Required.............................. 11
What Shares Cost......................................... 12
Certificates and Confirmations........................... 12
Dividends................................................ 12
Capital Gains............................................ 12
EXCHANGES...................................................... 12
REDEEMING SHARES............................................... 13
By Telephone............................................. 13
By Mail.................................................. 13
Receiving Payment........................................ 14
Accounts with Low Balances............................... 14
SHAREHOLDER INFORMATION........................................ 14
Voting Rights............................................ 14
Massachusetts Law........................................ 15
EFFECT OF BANKING LAWS......................................... 15
TAX INFORMATION................................................ 16
Federal Income Tax....................................... 16
PERFORMANCE INFORMATION........................................ 16
Financial Statements........................................... 22
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS....................................... 25
ADDRESSES...................................................... 26
</TABLE>
I
<PAGE> 90
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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)............................................................. 0.35%
12b-1 Fee (after waiver)(2).................................................................. 0.00%
Other Expenses(3)............................................................................ 0.17%
Total Investment Shares Operating Expenses(4)....................................... 0.52%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by
the investment advisor. The advisor 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 advisor, distributor and custodian.
TRUST SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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)............................................................. 0.35%
12b-1 Fee.................................................................................... None
Other Expenses(2)............................................................................ 0.17%
Total Trust Shares Operating Expenses (3).................................................. 0.52%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by
the investment advisor. The advisor 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 advisor and custodian.
THE PURPOSE OF THESE TABLES IS TO ASSIST AN INVESTOR IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE INVESTMENT SHARES OR
TRUST SHARES WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE
1
<PAGE> 91
COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE
FUNDS INFORMATION," "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 in Investment Shares
or Trust Shares assuming (1) 5% annual
return and (2) redemption at the end of
each time period. The Fund charges no
redemption fees for Investment Shares or
Trust Shares................................ $5 $17 $29 $65
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2
<PAGE> 92
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 .
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------
1996 1995 1994 1993*
---- ---- ---- ----
<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 0.05 0.03 0.03
Less distributions
Dividends to shareholders from net
investment income (0.05) (0.05) (0.03) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total return 5.20% 5.25% 3.02% 2.70%(c)
Ratios to Average Net Assets
Expenses 0.49% 0.49% 0.49% 0.48%(b)
Net investment income 5.06% 5.12% 2.97% 2.69%(b)
Expense waiver/reimbursement(a) 0.40% 0.44% 0.45% 0.47%(b)
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $19,341 $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.
(a) This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(See Notes which are an integral part of the Financial Statements)
3
<PAGE> 93
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 .
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<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 0.05 0.03 0.03 0.04
Less distributions
Dividends to shareholders from net
investment income (0.05) (0.05) (0.03) (0.03) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return 5.20% 5.25% 3.02% 2.78% 4.27%
Ratios to Average Net Assets
Expenses 0.49% 0.49% 0.49% 0.48% 0.46%
Net investment income 5.07% 5.12% 2.97% 2.75% 4.19%
Expense waiver/reimbursement(a) 0.08% 0.09% 0.10% 0.12% 0.14%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $300,821 $223,640 $213,126 $180,065 $194,308
</TABLE>
(a) This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
4
<PAGE> 94
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 to both classes
of shares of the Fund.
The Investment Shares and Trust Shares are intended to provide 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. Trust Shares are designed for
investors who are fiduciary or agency clients of financial institutions.
Investment Shares are designed for investors who are not fiduciary or agency
clients of financial institutions. A minimum initial investment of One Thousand
Dollars ($1,000.00) 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 that are 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
5
<PAGE> 95
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 sec urity
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 by 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,
recordkeeping, and the public availability of information. These
factors will be carefully considered by the Fund's advisor 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.
6
<PAGE> 96
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 advisor
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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Advisor has determined are creditworthy under
guidelines established by the Fund's Trustees and will receive collateral at all
times 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.
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
advisor 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.
7
<PAGE> 97
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 of
the Trust's powers except those reserved for the shareholders.
INVESTMENT ADVISOR. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by The Fifth Third Bank, the Fund's
investment advisor (the "Advisor"), subject to direction by the Trustees. The
Advisor 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 Advisor receives an annual investment advisory fee
equal to 0.40 of 1% of the Fund's average daily net assets. The
Advisor has undertaken to waive up to the amount of the advisory fee,
for operating expenses in excess of limitations established by certain
states. The Advisor 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.
ADVISOR'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, 1996, Fifth Third Bank and its affiliates
managed assets in excess of $8.9 billion on a discretionary basis and
provided custody services for additional assets in excess of $76.1
billion.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages 13 such pools
with total assets of over $1.01 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 SHARES OF THE FUND
BISYS Fund Services, L.P. serves 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 institutions.
INVESTMENT SHARES 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 Investment Shares to finance any activity which is principally intended
to result in the sale of Investment Shares subject to the Plan. No such plan has
been adopted relating to the sale of Trust Shares.
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 Investment 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 advisors, and broker/dealers to provide
sales and/or administrative services as agents for their clients or customers
who beneficially own Investment 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
Investment 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.
8
<PAGE> 98
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the Advisor, 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 Advisor 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. BISYS Fund Services L.P. serves as the administrator.
The administrator generally assists in all aspects of the Trust's administration
and operation including providing the Funds with certain administrati ve
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:
9
<PAGE> 99
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE TRUST
------------------ ---------------------------
<S> <C>
0.10% of the first $1 billion
0.08% of the next $1 billion
0.07% 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.
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, Cincinnati, Ohio.
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 for each class of Shares is determined by adding the interest of the
applicable class of Shares in the value of all securities and other assets of
the Fund, subtracting the interest of those Shares in the liabilities of the
Fund and those attributable to such Shares, and dividing the remainder by the
total number of Shares in the class outstanding. The Fund cannot guarantee that
its net asset value will always remain at $1.00 per Share.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
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. In connection with the sale of
Investment Shares or Trust 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 of Fund Shares may not be
available to investors in all states.
Shares of the Funds may be purchased either through a financial institution
(such as a bank or broker-dealer that has a sales agreement with the
distributor) or by wire or check directed to the Fund. Investors may contact the
Fund toll-free at (888) 799-5353.
Payment for Share purchases 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 the custodian. This is normally the next business
day after the Fund receives the check. When payment is made with federal funds,
the order is considered received when federal funds are received by the
custodian. Federal funds should be wired to the Fund 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 or Fountain Square
Commercial Fund - Trust Shares, as the case may be. Investors not purchasing
directly from the Fund 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. An institutional investor's
minimum investment will be calculated by combining all accounts it maintains
with the Fountain Square Funds.
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
10
<PAGE> 100
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. (Eastern 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
The transfer agent for the Fund 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. Share purchase orders received by the Fund before 11:00 a.m.
(Eastern 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 may exchange Investment Shares of the Fund for Investment Shares
of any of the other Funds in the Trust by calling the Fund, toll-free at (888)
799-5353 or by sending a written request to the Fund. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by the
Funds, it 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 11:00
a.m. (Eastern time). Orders for exchanges of the Government Securities Fund,
Quality Bond Fund, Ohio Tax Free Bond Fund, Quality Growth Fund, Mid Cap Fund,
Balanced Fund, and International Equity Fund must be received by 2:30 p.m.
(Eastern 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.
11
<PAGE> 101
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form.
BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund, provided the Fund has
received a properly completed authorization form. Proceeds will be mailed in the
form of a check to the shareholder's address of record or by wire transfer to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
For calls received before 11:00 a.m. (Eastern time), 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 11:00 a.m. (Eastern time), proceeds will
normally be disbursed 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 disbursed more than seven days after a proper request for
redemption has been received. If at any time, the Fund shall determine it
necessary to terminate or modify this method of redemption, shareholders would
be promptly notified.
An authorization form permitting the Fund to accept telephone requests must be
completed. Authorization forms and information on this service are available
from the Fund.
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 may redeem Shares by sending a written request to Fifth Third
Bank, Fountain Square Funds Redemptions, M.D. 1090EC, 38 Fountain Square Plaza,
Cincinnati, Ohio 45263.
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 the Fund 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
12
<PAGE> 102
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 three
business days, 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 September 16, 1996, 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 advisor, 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 advisor, 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
13
<PAGE> 103
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 advisors and other means of continuing available investment services.
It is not expected that Fund shareholders would suffer any adverse financial
consequences (if another advisor 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 advisors 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 and Trust Shares.
The yield of Investment Shares or Trust Shares represents the annualized rate of
income earned on an investment in those 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 or 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 Investment Shares or 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 Investment Shares
and Trust 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.
14
<PAGE> 104
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
Commercial Paper-79%
<S> <C> <C>
BANKING-13.0%
$ 5,000,000 Banc One Corp., 9/20/96 $ 4,962,708
5,000,000 Banc One Corp., 10/15/96 4,943,958
2,000,000 Banc One Corp., 11/20/96 1,966,515
5,000,000 Deutsche Bank Financial, 10/29/96 4,933,003
5,000,000 J.P. Morgan, 9/12/96 4,968,325
4,000,000 Norwest Corp., 8/16/96 3,991,217
5,000,000 Norwest Corp., 9/16/96 4,965,756
3,000,000 Norwest Corp., 10/16/96 2,965,547
4,000,000 Societe Generale, 8/13/96 3,993,533
4,000,000 Societe Generale, 8/15/96 3,991,677
Total 41,682,239
CHEMICAL-3.1%
5,000,000 Air Products & Chemicals, 10/16/96 4,943,000
5,000,000 duPont (E.I.) de Nemours, 9/23/96 4,960,692
Total 9,903,692
CONSUMER PRODUCTS-9.4%
1,300,000 Hewlett Packard Co., 8/20/96 1,296,364
1,000,000 Hewlett Packard Co., 8/27/96 996,158
1,800,000 Hewlett Packard Co., 8/29/96 1,792,552
4,000,000 Hewlett Packard Co., 8/30/96 3,982,697
1,690,000 Hewlett Packard Co., 10/4/96 1,673,806
3,000,000 IBM Corp., 8/19/96 2,991,945
3,000,000 IBM Corp., 9/12/96 2,981,415
5,000,000 IBM Corp., 10/2/96 4,954,275
3,000,000 Kimberly Clark, 9/19/96 2,978,154
</TABLE>
15
<PAGE> 105
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
Commercial Paper-Continued
<S> <C> <C>
CONSUMER PRODUCTS-CONTINUED
$ 1,200,000 Proctor & Gamble, 8/29/96 $ 1,195,053
5,000,000 Xerox Corp., 10/22/96 4,938,500
Total 29,780,919
DIVERSIFIED-1.5%
5,000,000 Cargill, Inc., 10/21/96 4,939,025
EDUCATION-3.1%
5,000,000 Harvard University, 8/26/96 4,981,736
3,000,000 Stanford University, 8/14/96 2,994,367
2,000,000 Stanford University, 10/15/96 1,977,833
Total 9,953,936
FINANCE-AUTOMOTIVE-7.1%
3,000,000 Associates Corp., 8/27/96 2,988,582
4,000,000 Associates Corp., 10/17/96 3,953,458
5,000,000 Associates Corp., 10/28/96 4,933,511
3,000,000 Ford Motor Credit Corp., 9/6/96 2,984,100
4,000,000 Ford Motor Credit Corp., 9/9/96 3,976,600
4,000,000 Ford Motor Credit Corp., 10/11/96 3,957,558
Total 22,793,809
FINANCE-COMMERCIAL-10.2%
5,000,000 American Express Credit Corp., 8/21/96 4,985,278
5,000,000 American Express Credit Corp., 9/5/96 4,974,090
2,000,000 American Express Credit Corp., 10/21/96 1,975,655
3,000,000 General Electric Capital Corp., 9/19/96 2,977,991
4,000,000 General Electric Capital Corp., 10/7/96 3,960,544
3,000,000 General Electric Capital Corp., 11/8/96 2,954,872
5,000,000 Pitney Bowes Credit Corp., 8/16/96 4,989,021
3,000,000 Pitney Bowes Credit Corp., 9/10/96 2,982,034
3,000,000 Pitney Bowes Credit Corp., 10/4/96 2,973,120
Total 32,772,605
</TABLE>
16
<PAGE> 106
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
Commercial Paper-Continued
<S> <C> <C>
FINANCE-INSURANCE-12.6%
$ 5,000,000 AIG Funding, Inc., 9/11/96 $ 4,969,364
3,000,000 American General Finance Corp., 8/5/96 2,998,267
3,000,000 American General Finance Corp., 8/26/96 2,989,021
3,000,000 American General Finance Corp., 8/30/96 2,987,288
3,000,000 American General Finance Corp., 11/18/96 2,950,677
3,000,000 Metlife Funding, Inc., 8/2/96 2,999,562
1,706,000 Metlife Funding, Inc., 8/23/96 1,700,516
3,000,000 Metlife Funding, Inc., 9/18/96 2,978,520
4,000,000 Metlife Funding, Inc., 9/20/96 3,970,278
4,000,000 Prudential Funding Corp., 8/1/96 4,000,000
4,000,000 Prudential Funding Corp., 10/18/96 3,953,547
4,000,000 Prudential Funding Corp., 11/15/96 3,935,574
Total 40,432,614
FINANCE-SECURITIES BROKERS-6.5%
5,000,000 Goldman Sachs Group, 9/9/96 4,970,479
5,000,000 Goldman Sachs Group, 9/17/96 4,964,881
4,000,000 Merrill Lynch, 9/3/96 3,980,200
4,000,000 Merrill Lynch, 9/30/96 3,964,667
3,000,000 Merrill Lynch, 10/3/96 2,971,492
Total 20,851,719
FOOD & BEVERAGE-1.9%
6,000,000 Coca Cola Co., 8/20/96 5,983,343
PHARMACEUTICALS & HEALTH CARE-5.1%
5,000,000 Eli Lilly, 9/13/96 4,968,347
5,000,000 Eli Lilly, 10/21/96 4,939,475
3,600,000 Schering Corp., 8/13/96 3,593,700
3,000,000 Schering Corp., 9/24/96 2,976,375
Total 16,477,897
</TABLE>
17
<PAGE> 107
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
Commercial Paper-Continued
<S> <C>
RETAIL-0.6%
$ 1,800,000 Toys 'R' Us, 8/21/96 $ 1,794,720
TELECOMMUNICATIONS-5.8%
1,616,000 AT&T Corp., 8/6/96 1,614,799
5,000,000 AT&T Corp., 9/27/96 4,957,488
5,000,000 U.S. West Communications, Inc., 9/19/96 4,963,590
3,000,000 U.S. West Communications, Inc., 10/15/96 2,966,188
4,000,000 U.S. West Communications, Inc., 10/23/96 3,949,924
Total 18,451,989
Total Commercial Paper 255,818,507
*Repurchase Agreements-20.5%
15,000,000 Bear Stearns, 5.57%, dated 7/31/96, due 8/1/96 15,000,000
50,701,000 J.P. Morgan Securities, 5.55%, dated 7/31/96, due 8/1/96 50,701,000
Total Repurchase Agreements 65,701,000
Total Investments, at amortized cost** $321,519,507
</TABLE>
*The 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
($320,162,100) at July 31, 1996.
(See Notes which are an integral part of the Financial Statements)
18
<PAGE> 108
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Amortized cost $255,818,507) $ 255,818,507
Repurchase agreements (Amortized cost $65,701,000) 65,701,000
Total Investments $ 321,519,507
Interest receivable 10,137
Other assets 228
Total Assets 321,529,872
LIABILITIES:
Dividends payable 1,239,752
Accrued expenses and other payables:
Investment advisory fees 88,358
Administration fees 23,526
Accounting and transfer agent fees 4,626
Legal and audit fees 7,816
Other 1,367,772
NET ASSETS:
Paid-in capital 320,162,168
Accumulated net realized losses on investment transactions (5)
Distributions in excess of net investment income (63)
Net Assets $ 320,162,100
Net Assets
Trust Shares $ 300,821,493
Investment Shares 19,340,607
Total $ 320,162,100
Outstanding units of beneficial interest (shares)
Trust Shares 300,821,814
Investment Shares 19,340,607
-------------
Total 320,162,440
=============
Net asset value
Offering and redemption price per share-Trust Shares $ 1.00
=============
Offering and redemption price per share-Investment Shares $ 1.00
=============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
19
<PAGE> 109
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1996
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income $14,908,388
-----------
EXPENSES:
Investment advisory fee $ 1,073,513
Administrative personnel and services fee 262,796
Custodian fee 32,692
Distribution fees 55,852
Portfolio accounting, transfer and dividend 76,377
disbursing agent fees and expenses
Directors'/Trustees' fees 2,550
Audit fees 23,750
Legal fees 8,856
Fund share registration costs 13,863
Printing and postage expense 25,518
Insurance premiums 11,255
Other 4,624
-----------
Total expenses 1,591,646
-----------
Deduct-
Fee Waivers 271,351
-----------
Net Expenses $ 1,320,295
-----------
Net Investment Income 13,588,093
-----------
REALIZED LOSSES FROM INVESTMENTS:
Net realized losses from investment transactions (5)
-----------
Change in net assets resulting from operations $13,588,088
===========
(See Notes which are an integral part of the Financial Statements)
20
<PAGE> 110
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS
Net investment income $13,588,093 $12,352,170
Net realized losses on investment transactions (5)
-------------- --------------
Change in net assets resulting from operations 13,588,088 12,352,170
-------------- --------------
DISTRIBUTION TO SHAREHOLDERS-
Dividends to shareholders from net investment income:
Trust Shares (12,697,512) (11,852,325)
Investment Shares (890,643) (499,845)
-------------- --------------
Change in net assets from distributions to shareholders (13,588,155) (12,253,170)
--------------- --------------
FUND SHARE (PRINCIPAL) TRANSACTIONS
Proceeds from sale of shares 1,182,031,780 1,139,381,157
Net asset value of shares issued to shareholders
in payment of dividends declared 326,263 --
Cost of shares redeemed (1,906,004,620) (1,124,845,195)
-------------- --------------
Change in net assets from Fund share transactions 86,353,423 14,535,962
-------------- --------------
Change in net assets 86,353,356 14,535,962
NET ASSETS
Beginning of period 233,808,744 219,272,782
-------------- --------------
End of period $ 320,162,100 $ 233,808,744
============== ==============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
21
<PAGE> 111
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
- --------------------------------------------------------------------------------
(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. At July 31, 1996, the Trust consisted of ten separate investment
portfolios. The accompanying financial statements and notes relate only to the
Fountain Square Commercial Paper Fund (the "Fund").
The investment objective of the Fund is to achieve high current income
consistent with stability of principal and liquidity. The Fund pursues its
objective by investing in short-term U.S. government securities maturing in 13
months or less.
The Fund offers two classes of shares: Trust Shares and Investment Shares. Each
class of shares has identical rights and privileges except with respect to
distribution (12b-1) fees paid by the Investment Shares, voting rights on
matters affecting a single class of shares and the exchange privileges of each
class of 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. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
for the period. Actual results could differ from those estimates.
A. SECURITIES VALUATIONS-Investments of the Fund are valued at either
amortized cost, which approximates market value, or at original cost,
which combined with accrued interest approximates market value. Under
the amortized cost method, discount or premium is amortized on a
constant basis to the maturity of the security. Short-term securities
with remaining maturities of sixty days or less at the time of purchase
may be valued at amortized cost, which approximates fair market value.
In addition, the Fund may not (a) purchase any instruments with a
remaining maturity greater than thirteen months unless such instrument
is subject to a demand feature, or (b) maintain a dollar-weighted
average maturity which exceeds 90 days.
B. REPURCHASE AGREEMENTS-The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such
as broker/dealers, which are deemed by the Trust's advisor to be
creditworthy pursuant to guidelines and/or standards reviewed or
established by the Board of Trustees (the "Trustees"). 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. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement.
Accordingly, the Fund could receive less than the repurchase price on
the sale of collateral securities.
C. SECURITIES TRANSACTIONS AND RELATED INCOME-Securities transactions are
accounted for on the date the security is purchased or sold (trade
date). Interest income is recognized on the accrual basis and includes,
22
<PAGE> 112
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
where applicable, the pro rata amortization of premium or discount.
Divided income is recorded on the ex-dividend date. Gains or losses
realized on sales of securities are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
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. Dividends to Shareholders-- Dividends from net investment income are
declared daily and paid monthly and distributable net gains, if any, are
declared and distributed at least annually. Dividends from net
investment income and from net realized capital gains are determined
in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are
primarily due to differing treatments for expiring capital loss carry
forwards and deferrals of certain losses.
F. Federal Taxes-- It is the Fund's policy to comply with the provisions
of the Internal Revenue Code applicable to regulated investment
companies and to distribute to shareholders each year substantially all
of their income. Accordingly, no provisions for federal income tax is
necessary.
G. Deferred Expenses-- The cost 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.
(3) SHARES OF BENEFICIAL INTREST
Transactions in Fund were as follows:
<TABLE>
<CAPTION>
TRUST SHARES
Year Year
Ended Ended
7/31/96 7/31/95
------- -------
<S> <C> <C>
Shares sold 1,142,498,665 1,114,106,500
Shares issued to shareholders in 326,263 --
payment of distributions declared
Shares redeemed (1,065,643,555) (1,103,592,384)
Net change resulting from 77,181,373 10,514,116
Fund share transaction
</TABLE>
23
<PAGE> 113
FOUNTAIN SQUARE COMMERCIAL PAPER FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT SHARES
Year Year
Ended Ended
7/31/96 7/31/95
------- -------
<S> <C> <C>
Shares sold 39,353,115 25,274,657
Shares redeemed (30,361,065) (21,252,811)
Net change resulting from 9,172,050 4,021,846
Fund share transactions
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee - Fifth Third Bank, the Trust's investment advisor (the
"Advisor"), receives for its services an annual investment advisory fee of
0.40%, which is based on a percentage of the Fund's average daily net assets.
The Advisor may voluntarily choose to waive a portion of its fee and reimburse
certain operating expenses of the Fund. The Advisor can modify or terminate
this voluntary waiver and reimbursement at any time at its sole discretion. For
the year ended July 31, 1996, the Advisor waived $182,807 in advisory fees.
Administrative Fee - Effective December 1, 1995, BISYS Fund Services ("BISYS")
became the Trust's administrator. The administrator generally assists in all
respects of the Trust's administration and operation including providing the
Fund with certain administrative personnel and services necessary to operate
the Fund. Also effective December 1, 1995, pursuant to a separate agreement
with BISYS, Fifth Third Bank performs sub-administrative services on behalf of
the Fund, for which it receives a fee from BISYS computed daily as a percentage
of the daily net assets of the Fund. Under the terms of the administration
agreement, BISYS' fees are computed daily as a percentage of the average net
assets of the Trust for the period. Administration fees are computed at 0.10%
of the first $1 billion of net assets of the Trust, 0.08% of the net assets of
the Trust between $1 billion and $2 billion, and 0.07% of more than $2 billion
of net assets of the Trust.
Prior to December 1, 1995 Federated Administrative Services ("FAS") provided
each Fund with certain administrative personnel and services. The FAS fee was
based on the level of average aggregate net assets of the Trust for the period.
Distribution Services Fee - The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Effective December 1, 1995 BISYS
serves as the Trust's principal distributor. Under the terms of the Plan, the
Fund will compensate the principal distributor from the net assets of the
Fund's Investment Shares to finance activities intended to result in the sales
of the Fund's Investment Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.35% of the average daily net assets of the
Investment Shares, annually, to compensate the distributor. The distributor may
voluntarily choose to waive all or a portion of its fee. The distributor can
modify or terminate this voluntary waiver at ant time at its sole discretion.
For the year ended July 31, 1996, distribution fees in the amount of $214,512
were waived. Prior to December 1, 1995, Federal Securities Corp. acted as the
distributor of the Trust.
Transfer and Dividend Disbursing Agent, Accounting and Custody 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 agent functions to a non-affiliated entity. The fee is
based on the level of each 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 each 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.
24
<PAGE> 114
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, 1996, 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, 1996, 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, 1996, 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
Cincinnati, Ohio
September 11, 1996
25
<PAGE> 115
ADDRESSES
- --------------------------------------------------------------------------------
Fountain Square Commercial Paper Fund Fountain Square Funds
Investment Shares or Trust Shares c/o Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Investment Advisor
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend Disbursing Agent, and Sub-Administrator
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Distributor and Administrator
BISYS Fund Services L.P. 3435 Stelzer Road
Columbus, Ohio 43219
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP 1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
26
<PAGE> 116
FOUNTAIN SQUARE GOVERNMENT
CASH RESERVES FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT SHARES
TRUST SHARES
PROSPECTUS
The Investment Shares and 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.
This prospectus contains the information you should read and know before you
invest in Investment Shares or Trust Shares of the Fund. Keep this prospectus
for future reference.
The Fund has also filed a Combined Statement of Additional Information for
Investment Shares and Trust Shares, dated September 30, 1996, 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 toll-free (888) 799-5353.
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.
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, 1996
<PAGE> 117
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES................................... 1
FINANCIAL HIGHLIGHTS-INVESTMENT SHARES..................... 2
Financial Highlights-Trust Shares.......................... 3
GENERAL INFORMATION........................................ 4
INVESTMENT INFORMATION..................................... 4
Investment Objective.............................. 4
Investment Policies............................... 4
Acceptable Investments................... 4
When-Issued.............................. 5
Lending of Portfolio Securities.......... 5
Investment Limitations............................ 5
FOUNTAIN SQUARE FUNDS INFORMATION.......................... 5
Management of the Trust........................... 5
Board of Trustees........................ 5
Investment Advisor....................... 6
Advisory Fees................... 6
Advisor's Background............ 6
Distribution of Shares............................ 6
Investment Shares Distribution
Plan..................................... 6
Other Payments to Financial
Institutions............................. 7
Administration of the Fund........................ 7
Administrative Services.................. 7
Custodian, Transfer Agent and
Dividend Disbursing
Agent.................................... 7
Independent Auditors..................... 7
NET ASSET VALUE............................................ 8
INVESTING IN THE FUND...................................... 8
Share Purchases................................... 8
Minimum Investment Required....................... 8
What Shares Cost.................................. 8
Certificates and Confirmations.................... 9
Dividends......................................... 9
Capital Gains..................................... 9
EXCHANGES.................................................. 9
REDEEMING SHARES........................................... 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............................................ 12
Federal Income Tax................................ 12
State and Local Taxes............................. 13
PERFORMANCE INFORMATION.................................... 13
FINANCIAL STATEMENTS....................................... 18
REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS................................................... 22
ADDRESSES.................................................. 23
</TABLE>
<PAGE> 118
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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
Management Fee (after waiver)(1).................................................... 0.33%
12b-1 Fee (after waiver)(2)......................................................... 0.00%
Other Expenses...................................................................... 0.17%
Total Investment Shares Operating Expenses(3).............................. 0.50%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment advisor. The advisor 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 0.92% absent
the voluntary waiver by the investment advisor and the distributor.
TRUST SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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).................................................... 0.33%
12b-1 Fee (after waiver)............................................................ None
Total Other Expenses................................................................ 0.17%
Total Trust Shares Operating Expenses(2)................................... 0.50%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment advisor. The advisor 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 0.57% absent the
voluntary waiver by the investment advisor.
THE PURPOSE OF THESE TABLES IS TO ASSIST AN INVESTOR IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT SHARES OR TRUST
SHARES WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS
OF THE VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION,"
"INVESTING IN INVESTMENT SHARES" 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 in Investment Shares
or Trust Shares, assuming (1) 5% annual
return and (2) redemption at the end of
each time period. The Fund charges no
redemption fees for Investment Shares or
Trust Shares................................ $5 $16 $28 $63
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1
<PAGE> 119
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 23.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992*
---- ---- ---- ---- ----
<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 0.12 0.05 0.03 0.03 0.03
-------- -------- ------- ------- -------
Less distributions
Dividends to shareholders from net
investment income (0.12) (0.05) (0.03) (0.03) (0.03)
-------- -------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======= =======
Total return 5.11% 5.22% 3.03% 2.76% 2.61%(c)
Ratios to Average Net Assets
Expenses 0.14% 0.50% 0.50% 0.50% 0.50%(b)
Net investment income 1.45% 5.17% 2.96% 3.22% 3.68%(b)
Expense waiver/reimbursement(a) 0.66% 0.45% 0.48% 0.50% 0.50%(b)
Supplemental Data
Net assets, ends of period (000 $132,326 $45,726 $11,073 $10,923 $ 8,726
omitted)
</TABLE>
*Reflects operations for the period from November 25, 1991 (date of initial
public investment) to July 31, 1992.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(See Notes which are an integral part of the Financial Statements)
2
<PAGE> 120
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 23.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<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 0.05 0.03 0.03 0.04
-------- -------- -------- -------- --------
Less distributions
Dividends to shareholders from net
investment income (0.05) (0.05) (0.03) (0.03) (0.04)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Total return** 5.11% 5.22% 3.03% 2.76% 4.19%
Ratios to Average Net Assets
Expenses 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income 4.99% 5.17% 3.01% 3.22% 4.14%
Expense waiver/reimbursement(a) 0.07% 0.20% 0.13% 0.15% 0.15%
Supplemental Data
Net assets, ends of period (000 $132,326 $129,603 $106,632 $ 92,993 $ 82,888
omitted)
</TABLE>
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
3
<PAGE> 121
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 to both classes
of shares of the Fund.
Investment Shares and Trust Shares (the "Shares") are intended to provide a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio limited to U.S. government obligations. Trust Shares are
designed for investors who are fiduciary or agency clients of financial
institutions. Investment Shares are designed for investors who are not fiduciary
or agency clients of financial institutions. In both cases, a minimum initial
investment of One Thousand Dollars ($1,000.00) 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 advisor 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
4
<PAGE> 122
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 advisor
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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Advisor has determined are creditworthy under
guidelines established by the Fund's Trustees and will receive collateral at all
times 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.
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.
5
<PAGE> 123
INVESTMENT ADVISOR. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by The Fifth Third Bank, the Fund's
investment advisor (the "Advisor"), subject to direction by the Trustees. The
Advisor 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 Advisor receives an annual investment advisory fee
equal to 0.40 of 1% of the Fund's average daily net assets. The Advisor
has undertaken to waive up to the amount of the advisory fee, for
operating expenses in excess of limitations established by certain
states. The Advisor 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.
ADVISOR'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, 1996, Fifth Third Bank and its affiliates
managed assets in excess of $8.9 billion on a discretionary basis and
provided custody services for additional assets in excess of $76.1
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 13 such pools with
total assets of over $1.01 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 SHARES OF THE FUND
BISYS Fund Services L.P. serves 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.
INVESTMENT SHARES 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 Investment Shares to finance any activity which is principally intended
to result in the sale of Investment Shares subject to the Plan. No such plan has
been adopted relating to the sale of Trust Shares.
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 Investment 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 advisors, and broker/dealers to provide
sales and/or administrative services as agents for their clients or customers
who beneficially own Investment 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.
6
<PAGE> 124
Financial institutions will receive fees from the distributor based upon
Investment 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 Advisor, 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 Advisor 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. BISYS Fund Services L.P. serves 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
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
------------------ -----------------------
<S> <C>
0.10% of the first $1 billion
0.08% of the next $1 billion
0.07% 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.
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, Cincinnati, Ohio.
7
<PAGE> 125
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 for each class of Shares is determined by adding the interest of the
applicable class of Shares in the value of all securities and other assets of
the Fund, subtracting the interest of those Shares in liabilities of the Fund
and those attributable to such Shares, and dividing the remainder by the total
number of Shares in the class outstanding. The Fund cannot guarantee that its
net asset value will always remain at $1.00 per Share.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
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. In connection with the sale of
Investment Shares or 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 of Fund Shares may not be
available for investors in all states.
Shares of the Funds may be purchased either through a financial institution
(such as a bank or broker-dealer that has a sales agreement with the
distributor) or by wire or check directed to the Fund. Investors may contact the
Fund toll-free at (888) 799-5353.
Payment for Share purchases 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 the custodian. This is normally the next business
day after the Fund receives the check. When payment is made with federal funds,
the order is considered received when federal funds are received by the
custodian. Federal funds should be wired to the Fund 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 or Fountain
Square Government Cash Reserves Fund-Trust Shares, as the case may be. Investors
not purchasing directly from the Fund 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. An institutional investor's minimum investment
will be calculated by combining all accounts it maintains with the Fountain
Square Funds.
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.
8
<PAGE> 126
The net asset value is determined at 4:00 p.m. (Eastern 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
The transfer agent for the Fund 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. Share purchase orders received by the Fund before 11:00 a.m.
(Eastern 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 may exchange Investment Shares of the Fund for Investment Shares
of any of the other funds in the Trust by calling the Fund, toll-free at (888)
799-5353 or by sending a written request to the Fund. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
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 11:00
a.m. (Eastern time). Orders for exchanges of the Government Securities Fund,
Quality Bond Fund, Ohio Tax Free Bond Fund, Quality Growth Fund, Mid Cap Fund,
Balanced Fund, and International Equity Fund must be received by 2:30 p.m.
(Eastern 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.
9
<PAGE> 127
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time.
Shareholders would be notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form.
BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund, provided the Fund has
received a properly completed authorization form. Proceeds will be mailed in the
form of a check to the shareholder's address of record or by wire transfer to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
For calls received by Fifth Third Securities before 11:00 a.m. (Eastern time), 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 11:00 a.m. (Eastern
time), proceeds will normally be disbursed 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 disbursed more than seven
days after a proper request for redemption has been received. If at any time the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must be
completed. Authorization forms and information on this service are available
from the Fund.
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 may redeem Shares by sending a written request to Fifth Third
Bank, Fountain Square Redemptions, M.D. 1090EC, 38 Fountain Square Plaza,
Cincinnati, Ohio 45263.
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 the Fund for assistance in redeeming by mail.
10
<PAGE> 128
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 three
business days, 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 a:count 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 September 16, 1996, 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.
11
<PAGE> 129
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 advisor, 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 advisor, 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 advisors and other means of continuing available investment services.
It is not expected that Fund shareholders would suffer any adverse financial
consequences (if another advisor 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.
12
<PAGE> 130
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 Advisor 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 advisors 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 and Trust Shares. The yield of Investment Shares or Trust
Shares represents the annualized rate of income earned on an investment in those
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 or 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 Investment Shares or 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 Investment Shares
and Trust 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.
13
<PAGE> 131
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amortized
Amount Cost
- ----------- -------------------------------------------------------------------- ---------
Short-Term Obligations-100%
<C> <C> <C>
$88,040,000 *Federal Farm Credit Discount Notes, 5.35%-5.43%, 8/5/96-12/2/96 87,459,812
79,430,000 *Federal Home Loan Bank Discount Notes, 5.34%-5.49%, 8/2/96-10/24/96 78,888,633
5,000,000 **Sallie Mae Global Floating Rate Note, 5.54%, 8/8/96 4,999,964
5,000,000 *Student Loan Marketing Association Discount Note, 5.46%, 9/30/96 4,955,708
20,500,000 **Student Loan Marketing Association Master Note, 5.39%, 7/1/00 20,500,000
5,000,000 *Tennessee Valley Authority Discount Note, 5.41%, 8/20/96 4,986,040
-----------
TOTAL INVESTMENTS, AT AMORTIZED COST*** 201,790,157
===========
</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
($201,169,780) at July 31, 1996.
(See Notes which are an integral part of the Financial Statements)
14
<PAGE> 132
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments in securities, at amortized cost and value $201,790,157
Cash 15,114
Interest receivable 280,016
------------
Total assets 202,085,287
------------
LIABILITIES
Dividends payable $ 826,349
Accrued expenses and other payables:
Investment advisory fees 53,725
Administration fees 15,791
Accounting and transfer agent fees 5,112
Custodian fees 1,300
Legal and audit fees 7,816
Other 5,414
------------
Total liabilities 915,507
Net Assets
Paid-in-capital 201,169,780
Net Assets $201,169,780
Net Assets
Trust Shares $132,325,778
Investment Shares 68,844,002
------------
Total $201,169,780
============
Outstanding units of beneficial interest (shares)
Trust Shares 132,325,991
Investment Shares 68,843,789
------------
Total 201,169,780
============
Net asset value
Offering and redemption price per share-Trust Shares $1.00
=====
Offering and redemption price per share-Investment Shares $1.00
=====
</TABLE>
(See Notes which are an integral part of the Financial Statements)
15
<PAGE> 133
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $10,411,503
-----------
EXPENSES:
Investment advisory fee $ 746,543
Administrative personnel and services fee 186,483
Custodian fee 11,525
Distribution services fees 214,512
Portfolio accounting, transfer and dividend disbursing agent
fees and expenses 56,308
Director's/Trustee's fees 2,335
Audit fees 23,750
Legal fees 8,808
Fund share registration costs 22,214
Printing and postage 16,938
Insurance expense 9,151
Other 13,580
-----------
Total expenses 1,312,147
Deduct-
Fee Waivers 353,983
-----------
Net expenses 958,164
-----------
Net investment income 9,453,339
-----------
Change in net assets resulting from operations $ 9,453,339
===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
16
<PAGE> 134
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended July 31
----------------------------------
1996 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $ 9,453,339 $ 7,814,167
DISTRIBUTIONS TO SHAREHOLDERS-
Dividends to shareholders from net investment income:
Trust Shares (6,408,695) (6,273,259)
Investment Shares (3,044,644) (1,540,908)
Change in net assets from distributions to shareholders (9,453,339) (7,814,167)
FUND SHARE (PRINCIPAL) TRANSACTIONS-
Proceeds from sale of shares 295,250,564 267,323,856
Cost of shares redeemed (269,409,604) (209,700,168)
Change in net assets from Fund share transactions 25,840,960 57,623,688
Change in net assets 25,840,960 57,623,688
NET ASSETS:
Beginning of period 175,328,820 117,705,132
End of period $ 201,169,780 $ 175,328,820
</TABLE>
(See Notes which are an integral part of the Financial Statements)
17
<PAGE> 135
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
- --------------------------------------------------------------------------------
(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. At July 31, 1996, the Trust consisted of ten separate investment
portfolios. The accompanying financial statements and notes relate only to the
Fountain Square Government Cash Reserves Fund ("the "Fund").
The investment objective of the Fund is to achieve high current income
consistent with stability of principal and liquidity. The Fund pursues its
objective by investing in short-term U.S. government securities maturing in 13
months or less.
The Fund offers two classes of shares: Trust Shares and Investment Shares. Each
class of shares has identical rights and privileges except with respect to
distribution (12b-1) fees paid by the Investment Shares, voting rights on
matters affecting a single class of shares and the exchange privileges of each
class of 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. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
for the period. Actual results could differ from those estimates.
A. SECURITIES VALUATIONS-Investments of the Fund are valued at either amortized
cost, which approximates market value, or at original cost, which combined
with accrued interest approximates market value. Under the amortized cost
method,discount or premium is amortized on a constant basis to the maturity
of the security. Short-term securities with remaining maturities of sixty
days or less at the time of purchase may be valued at amortized cost, which
approximates fair market value. In addition, the Fund may not (a) purchase
any instruments with a remaining maturity greater than thirteen months
unless such instrument is subject to a demand feature, or (b) maintain a
dollar-weighted average maturity which exceeds 90 days.
B. SECURITIES TRANSACTIONS AND RELATED INCOME-Securities transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis and includes, where
applicable, the pro rata amortization of premium or discount. Dividend
income is recorded on the ex-dividend date. Gains or losses realized on
sales of securities are determined by comparing the identified cost of the
security lot sold with the net sales proceeds.
C. 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.
D. DIVIDENDS TO SHAREHOLDERS-Dividends from net investment income are declared
daily and paid monthly and distributable net realized gains, if any, are
declared and distributed at least annually. Dividends from net investment
income and from net realized capital gains are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
expiring capital loss carry forwards and deferrals of certain losses.
E. FEDERAL TAXES-It is the Fund's policy to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of their income.
Accordingly, no provision for federal income tax is necessary.
18
<PAGE> 136
F. DEFERRED EXPENSES-The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering 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.
19
<PAGE> 137
(3) SHARES OF BENEFICIAL INTEREST
Transactions in Fund shares were as follows:
TRUST SHARES
<TABLE>
<CAPTION>
Year Year
Ended Ended
7/31/96 7/31/95
- ----------------------------------------------------------------------------
<S> <C> <C>
Shares sold $ 189,014,068 $ 195,672,222
- ----------------------------------------------------------------------------
Shares redeemed (186,291,291) (172,701,456)
- ----------------------------------------------------------------------------
Net change resulting
Fund share transactions 2,722,777 $ 22,970,766
- ----------------------------------------------------------------------------
</TABLE>
INVESTMENT SHARES
<TABLE>
<CAPTION>
Year Year
Ended Ended
7/31/96 7/31/95
- ----------------------------------------------------------------------------
<S> <C> <C>
Shares sold $ 106,236,496 $ 71,651,634
- ----------------------------------------------------------------------------
Shares redeemed (83,118,313) (36,998,712)
- ----------------------------------------------------------------------------
Net change resulting
Fund share transactions 23,118,183 $ 34,652,922
- ----------------------------------------------------------------------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-Fifth Third Bank, the Fund's investment advisor (the
"Advisor"), receives for its services an annual investment advisory fee of 0.40%
which is based on a percentage of the Fund's average daily net assets.
The Advisor may voluntarily choose to waive a portion of its fee and reimburse
certain operating expenses of the Fund. The Advisor can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion. For the
year ended July 31, 1996, the Advisor waived $139,471 in advisory fees.
ADMINISTRATIVE FEE-Effective December 1, 1995, BISYS Fund Services ("BISYS")
became the Trust's 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. Also effective December 1, 1995, pursuant to a separate agreement with
BISYS, Fifth Third Bank performs sub-administrative services on behalf of the
Fund, for which it receives a fee from BISYS computed daily as a percentage of
the daily net assets of the Fund. Under the terms of the administration
agreement, BISYS' fees are computed daily as a percentage of the average net
assets of the Trust for the period. Administration fees are computed at 0.10% of
first $1 billion of net assets of the Trust, 0.08% of net assets of the Trust
between $1 billion and $2 billion, and 0.07% of more than $2 billion of net
assets of the Trust.
Prior to December 1, 1995 Federated Administrative Services ("FAS") provided
each Fund with certain administrative personnel and services. The FAS fee was
based on the level of average aggregate net assets of the Trust for the period.
DISTRIBUTION SERVICES FEE-The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Effective December 1, 1995 BISYS serves as
the Trust's principal distributor. Under the terms of the Plan, the Fund will
compensate the principal distributor from the net assets of the Fund's
Investment Shares to finance activities intended to result in the sales of the
Fund's Investment Shares. The Plan provides that the Fund may incur distribution
expenses up to 0.35% of the average daily net assets of the Investment Shares,
annually, to compensate the distributor. The distributor may voluntarily choose
to
20
<PAGE> 138
waive all or a portion of its fee. The distributor can modify or terminate this
voluntary waiver at any time at its sole discretion. For the year ended July 31,
1996, distribution fees in the amount of $214,512 were waived. Prior to December
1, 1995, Federated Securities Corp. acted as the distributor of the Trust.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES-Fifth Third
Bank serves as transfer and dividend disbursing agent for the Funds 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 each 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 each 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.
21
<PAGE> 139
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, 1996,
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, 1996, 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, 1996, 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
Cincinnati, Ohio
September 11, 1996
22
<PAGE> 140
ADDRESSES
- --------------------------------------------------------------------------------
Fountain Square Government Cash Reserves Fund Fountain Square Funds
Investment Shares or Trust Shares c/o Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Investment Advisor
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend Disbursing Agent, and Sub-Administrator
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Distributor and Administrator
BISYS Fund Services L.P. 3435 Stelzer Road
Columbus, Ohio 43219
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP 1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
23
<PAGE> 141
FOUNTAIN SQUARE FUNDS
INVESTMENT A SHARES
INVESTMENT C SHARES
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 for Investment A Shares and Investment C Shares of the Funds
dated September 30, 1996. This Statement is not a prospectus itself. To receive
a copy of the prospectus, you may write the Trust or call toll-free (888)
799-5353.
FOUNTAIN SQUARE FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
Statement dated September 30, 1996
<PAGE> 142
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
GENERAL INFORMATION ABOUT THE TRUST........................ 1
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS............. 1
Types of Investments.............................. 1
Repurchase Agreements............................. 9
Reverse Repurchase Agreements..................... 9
When-Issued and Delayed Delivery
Transactions...................................... 10
Lending of Portfolio Securities................... 10
Restricted And Illiquid Securities................ 10
Portfolio Turnover................................ 11
Investment Limitations............................ 11
Investment Risks (Ohio Tax Free Fund)............. 15
FOUNTAIN SQUARE FUNDS MANAGEMENT........................... 17
Officers and Trustees............................. 17
Trust Ownership................................... 18
Trustees' Compensation............................ 19
Trustee Liability................................. 19
INVESTMENT ADVISORY SERVICES............................... 20
Advisor to the Trust.............................. 20
Advisory Fees..................................... 20
Sub-Advisor....................................... 20
Sub-Advisory Fees................................. 21
Transfer Agent and Dividend Disbursing
Agent............................................. 22
BROKERAGE TRANSACTIONS..................................... 22
PURCHASING SHARES.......................................... 23
Distribution Plan and Administrative
Services Agreement
(Investment C Shares Only)........................ 24
Conversion to Federal Funds....................... 24
Exchanging Securities for Fund Shares............. 24
DETERMINING NET ASSET VALUE................................ 25
Determining Market Value of Securities............ 25
Valuing Municipal Bonds........................... 25
Use of Amortized Cost............................. 26
Trading in Foreign Securities..................... 26
REDEEMING SHARES........................................... 26
Redemption in Kind................................ 26
TAX STATUS................................................. 27
The Funds' Tax Status............................. 27
Shareholders' Tax Status.......................... 27
Capital Gains..................................... 27
Foreign Taxes..................................... 28
TOTAL RETURN............................................... 28
YIELD...................................................... 28
Tax Equivalency Table............................. 30
PERFORMANCE COMPARISONS.................................... 31
FINANCIAL STATEMENTS....................................... 34
APPENDIX................................................... 35
</TABLE>
<PAGE> 143
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 Investment A Shares and Investment C Shares
(individually and collectively referred to as "Shares," as the context may
require) of 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 Fund"), and Fountain Square International Equity Fund ("International
Equity Fund").
The Funds are advised by Fifth Third Bank (the "Advisor"), with the
International Equity Fund being sub-advised by Morgan Stanley Asset Management,
Inc. (the "Sub-Advisor") (collectively herein referred to as the "Advisors").
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 (the "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
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<PAGE> 144
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-Advisor 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
Advisors 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-Advisor 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.
2
<PAGE> 145
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-Advisor 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-Advisor 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
3
<PAGE> 146
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.
4
<PAGE> 147
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 Advisor'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 Advisor 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
Advisor 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
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<PAGE> 148
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
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<PAGE> 149
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 Advisor, 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 Advisors 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
Advisors believe will tend to be closely correlated with that
currency with regard to price movements. Generally,
7
<PAGE> 150
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
Advisors, 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
8
<PAGE> 151
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 Advisors, 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 Advisors 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
9
<PAGE> 152
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 Advisors, 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
10
<PAGE> 153
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>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
JULY 31, 1996 JULY 31, 1995
<S> <C> <C>
Government Securities Fund 103% 115%
Quality Bond Fund 117% 138%
Ohio Tax Free Fund 30% 27%
Quality Growth Fund 37% 34%
Mid Cap Fund 54% 23%
Balanced Fund 61% 58%
International Equity Fund 41% 54%*
</TABLE>
*For the period from August 19, 1994 (date of initial public investment) to July
31, 1995.
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.
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<PAGE> 154
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.
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<PAGE> 155
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 or 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
13
<PAGE> 156
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 Advisors 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 advisor, 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.
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<PAGE> 157
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.
15
<PAGE> 158
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.
16
<PAGE> 159
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 "Advisor"), Fifth Third
Bancorp, The BISYS Group, Inc., BISYS Fund Services, Inc., BISYS Fund Services
Ohio, Inc., or BISYS Fund Services Limited Partnership.
- -------------------------------------------------------------------------------
Albert E. Harris
5905 Graves Road
Cincinnati, OH 45243
Birthdate: July 2, 1932
Chairman of the Board of Trustees
Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993)
- -------------------------------------------------------------------------------
Edward Burke Carey
394 East Town Street
Columbus, OH 43215
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 45202
Birthdate: December 17, 1938
Member of the Board of Trustees
Formerly, President, Local Marketing Corporation (retired December 31, 1993)
17
<PAGE> 160
- -------------------------------------------------------------------------------
Stephen G. Mintos
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: February 5, 1954
President
From January 1987 to the present, employee of BISYS Fund Services, Inc.
- -------------------------------------------------------------------------------
George R. Landreth
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: July 11, 1942
Vice President
From December 1992 to present, employee of BISYS Fund Services, Inc.; from July
1991 to December 1992, employee of PNC Financial Corporation; from October 1984
to July 1991, employee of The Central Trust Co., N.A.
- -------------------------------------------------------------------------------
Jeffrey C. Cusick
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: May 19, 1959
Secretary and Treasurer
From July 1995 to present, employee of BISYS Fund Services, Inc.; from September
1993 to July 1995, Assistant Vice President, Federated Administrative Services;
from 1989 to September 1993, Manager, Client Services, Federated Administrative
Services.
- -------------------------------------------------------------------------------
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the outstanding Shares of each Fund.
As of August 31, 1996, Ms. Joan Bernard owned approximately 221,734 shares
(6.6%) of the outstanding shares of the Ohio Tax Free Bond Fund.
18
<PAGE> 161
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
August 31, 1996. The following list indicates the extent of its ownership for
each Fund.
<TABLE>
<S> <C> <C>
Government Securities Fund: 2,580,452 shares 79%
Quality Bond Fund: 7,913,882 shares 89%
Ohio Tax Free Fund: 2,011,833 shares 55%
Quality Growth Fund: 8,858,797 shares 85%
Mid Cap Fund: 4,858,460 shares 84%
Balanced Fund: 6,606,825 shares 83%
International Equity Fund 10,905,021 shares 96%
</TABLE>
TRUSTEES' COMPENSATION
<TABLE>
<CAPTION>
NAME AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*+
- -------------------------------------------------------------------------------
<S> <C>
J. Christopher Donahue $ 0
Chairman of Board of
Former Trustee, President and Treasurer@
Edward Burke Carey $ 7,800
Trustee
Lee A. Carter $ 7,800
Trustee
Albert E. Harris $ 7,800
Trustee
</TABLE>
*Information is furnished for the fiscal year ended July 31, 1996. 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.
@Mr. Donahue resigned as Trustee, President and Treasurer of the Trust effective
December 1, 1995.
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.
19
<PAGE> 162
INVESTMENT ADVISORY SERVICES
- -------------------------------------------------------------------------------
ADVISOR TO THE TRUST
The Trust's advisor 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 Advisor 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 Advisor for the fiscal years ended July 31, 1996, July
31, 1995, and July 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT YEAR ENDED AMOUNT YEAR ENDED AMOUNT
FUND NAME JULY 31, 1996 WAIVED-1996 JULY 31, 1995 WAIVED-1995 JULY 31, 1994 WAIVED-1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Government Securities
Fund $153,416 $74,182 $ 134,241 $ 83,786 $ 184,118 $ 45,402
Quality Bond Fund $402,013 $35,943 $ 265,658 $ 33,033 $ 251,563 $ 33,221
Ohio Tax Free
Fund** $177,022 $9,656 $ 142,708 $ 7,814 $ 109,659 $ 7,912
Quality Growth Fund $901,809 $953 $ 536,144 $ 18,889 $ 575,044 $ 10,880
Mid Cap Fund $528,676 $26,747 $ 287,494 $ 52,747 $ 220,198 $ 74,740
Balanced Fund $632,772 $36,873 $ 424,672 $ 18,857 $ 501,193 $ 25,861
International Equity
Fund $1,049,641 $57,525 $ 641,669* $ 45,670 $ ------- $ -------
</TABLE>
*For the period from August 19, 1994 (date of initial public investment) to July
31, 1995.
**In addition to the waivers noted, the Advisor voluntarily reimbursed certain
operating expenses of the fund during the fiscal years ended July 31, 1996,
July 31, 1995, and July 31, 1994, of $84,063, $179,400 and $244,304,
respectively.
SUB-ADVISOR
Morgan Stanley Asset Management, Inc. is the sub-advisor to International Equity
Fund under the terms of a Sub- Advisory Agreement between Fifth Third Bank and
Morgan Stanley Asset Management, Inc.
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<PAGE> 163
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-Advisor earned fees from International Equity Fund of
$320.835, of which $22,835 was waived. For the year ended July 31, 1996, the
Sub-Adviser earned fees from International Equity Fund of $524,821, of which
$28,763 was waived.
STATE EXPENSE LIMITATIONS
The Advisor and Sub-Advisor 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 Advisor 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
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Until December 1, 1995, Federated Administrative Services, which is a subsidiary
of Federated Investors, provided administrative personnel and services to the
Funds. The following shows all fees earned by Federated Administrative Services
and the amounts of those fees that were voluntarily waived for the four month
period ended December 1, 1995, and the fiscal years ended July 31, 1995, and
July 31, 1994:
<TABLE>
<CAPTION>
AMOUNT WAIVED
FUND NAME FOUR-MONTH AUGUST 1, 1995
PERIOD ENDED TO YEAR ENDED
DECEMBER 1, DECEMBER 1, JULY 31, AMOUNT YEAR ENDED AMOUNT
1995 1995 1995 WAIVED-1995 JULY 31, 1994 WAIVED-1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Government
Securities Fund $16,770 $ 0 $ 50,047 $ 0 $ 50,002 $ 4,247
Quality Bond $22,486 $ 0 $ 53,404 $ 0 $ 53,076 $ 4,247
Fund
Ohio Tax Free $16,770 $ 0 $ 50,000 $ 0 $ 50,002 $ 0
Fund
Quality Growth $33,213 $ 0 $ 74,089 $ 0 $ 82,765 $ 0
Fund
</TABLE>
21
<PAGE> 164
<TABLE>
<CAPTION>
Amount Waived
August 1, 1995
Period ended to Year ended
December 1, December 1, July 31, Amount Year ended Amount
Fund Name 1996 1996 1996 Waived-1995 July 31, 1994 Waived-1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mid Cap Fund $ 19,527 $ 0 $ 50,000 $ 0 $ 50,000 $ 4,247
Balanced Fund $ 22,915 $ 0 $ 58,741 $ 0 $ 72,146 $ 0
International
Equity Fund $ ------- $ ------- $ 142,192* $ 0 $ ------- $ 0
</TABLE>
*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, provided administrative services to the Funds for the fees
set forth in the prospectus. For the year ended July 31, 1996, BISYS Fund
Services L.P. earned the following administrative fees:
<TABLE>
<S> <C>
Government Securities Fund $ 13,327
Quality Bond Fund $ 35,961
Ohio Tax Free Fund $ 15,306
Quality Growth Fund $ 56,852
Mid Cap Fund $ 33,025
Balanced Fund $ 39,823
International Equity Fund $114,974*
<FN>
*For the entire calendar year, August 1, 1995 through July 31, 1996.
</TABLE>
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.
For the year ended July 31, 1996, Fifth Third Bank earned the following
sub-administrative fees:
<TABLE>
<S> <C>
Government Securities Fund $ 4,161
Quality Bond Fund $11,231
Ohio Tax Free Fund $ 4,802
Quality Growth Fund $17,721
Mid Cap Fund $28,558
Balanced Fund $12,428
International Equity Fund $16,694
</TABLE>
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. All fees earned by Fifth
Third Bank as the custodian were voluntarily waived for the fiscal year ended
July 31, 1996.
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 Advisor and Sub- Advisor look for prompt execution of the order
at a favorable price. In working with dealers, the Advisor and Sub- Advisor 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 Advisor and Sub-Advisor make decisions on portfolio
transactions and selects brokers and dealers subject to guidelines established
by the Trustees.
The Advisor and Sub-Advisor may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Funds or
to the Advisor and Sub-Advisor and may include:
- advice as to the advisability of investing in securities;
22
<PAGE> 165
- security analysis and reports;
- economic studies;
- industry studies;
- receipt of quotations for portfolio evaluations; and
- similar services.
The Advisor and Sub-Advisor 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 Advisor and Sub-Advisor
in advising the Funds and other accounts. To the extent that receipt of these
services may supplant services for which the Advisor and Sub-Advisor 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 Advisor and Sub-Advisor, 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 Advisor and Sub-Advisor
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 Advisor and Sub-Advisor 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, 1996, July 31, 1995, and July 31, 1994,
Quality Growth Fund, Mid Cap Fund and Balanced Fund paid $186,288, $103,341,
$164,902; and $82,652, $34,525, $47,855; and $58,123, $32,444, $43,250,
respectively, in commissions on brokerage transactions.
For the fiscal year ended July 31, 1996, and for the period from August 19, 1994
(date of initial public investment) to July 31, 1995, International Equity Fund
paid $117,663 and $320,889, respectively, in commissions on brokerage
transactions. For the same periods, Morgan Stanley & Co. Incorporated, an
affiliate of the Fund, earned $104 and $31,034, respectively, in brokerage
commissions, representing .09% and 9.67%, respectively, of the total brokerage
commissions paid by the Fund. These transactions with Morgan Stanley & Co.
Incorporated amounted to .29% and 4.91%, respectively, 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 an applicable sales
charge or contingent deferred sales charge on days the New York Stock Exchange
and the Federal Reserve Bank of Cleveland are open for business. The procedure
for purchasing Investment A Shares or Investment C Shares of the Funds is
explained in the prospectus under "Investing in the Funds."
23
<PAGE> 166
DISTRIBUTION PLAN AND ADMINISTRATIVE SERVICES AGREEMENT (INVESTMENT C SHARES
ONLY)
With respect to Investment A Shares and Investment C Shares of 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 for either Investment A Shares or Investment C
Shares. The Funds do not intend to accrue or pay 12b-1 fees with respect to
Investment A Shares until either separate classes of shares have been created
for certain fiduciary investors for the Funds or a determination is made that
such investors will be subject to the 12b-1 fees.
With respect to Investment C Shares, an Administrative Services Agreement
permits the payment of fees to financial institutions, including Fifth Third
Bank, to cause services to be provided to shareholders by a representative who
has knowledge of the shareholder's particular circumstances and goals. Benefits
to shareholders of Investment C Shares of the Funds may include: (1) providing
personal services to shareholders; (2) investing shareholder assets with a
minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
As of the date of this Statement of Additional Information, the Funds have not
accrued or paid administrative service fees with respect to Investment C Shares.
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 advisor.
24
<PAGE> 167
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.
25
<PAGE> 168
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.
Investment C Shares redeemed within one year of purchase may be subject to a
contingent deferred sales charge. The contingent deferred sales charge may be
reduced with respect to a particular shareholder where a financial institution
selling Investment C Shares elects not to receive a commission from the
distributor with respect to its sale of such Shares.
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.
26
<PAGE> 169
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.
27
<PAGE> 170
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 subject.
TOTAL RETURN
- -------------------------------------------------------------------------------
The average annual total returns for Investment A Shares of Government
Securities Fund, Quality Bond Fund, Quality Growth Fund, Mid Cap Fund and
Balanced Fund for the fiscal year ended July 31, 1996 were -1.03%, - .84%,
7.58%, -3.26%, and 1.74%, respectively.
The average annual total returns for Investment C Shares of Government
Securities Fund, Quality Bond Fund, Quality Growth Fund, Mid Cap Fund and
Balanced Fund for the fiscal year ended July 31, 1996, were 3.48%, 3.71%,
12.50%, 1.11%, and 6.32%, respectively.
The average annual total returns for Ohio Tax Free Fund for the fiscal years
ended July 31, 1996 and July 31, 1995 and for the period from May 26, 1993 (date
of initial public investment) through July 31, 1995 were -.36%, 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 fiscal year
ended July 31, 1996, and for the period from August 19, 1994 (date of initial
public investment) to July 31, 1995 was 4.37% and (6.11%), respectively, for
Investment A Shares. For the year ended July 31, 1996, the cumulative total
return for Investment C Shares of the International Equity Fund was 8.95%.
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.
YIELD
- -------------------------------------------------------------------------------
The SEC yields for Investment A Shares of 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, 1996 were
5.54%, 5.69%, 3.90%, .87%, .36%, 2.39% and N/A, respectively.
28
<PAGE> 171
The SEC yields for Investment C Shares of Government Securities Fund, Quality
Bond Fund, Ohio Tax-Free Fund, Quality Growth Fund, Mid Cap Fund, Balanced Fund,
and International Fund for the thirty-day period ended July 31, 1996 were 5.05%,
5.21%, 3.35%, .36%, N/A, 1.75%, and N/A, 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, 1996 was 6.28% for Investment A Shares and 5.39% for Investment C
Shares. 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.
29
<PAGE> 172
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.
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF OHIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50% 1.86% 2.25% 2.42% 2.65% 2.84%
2.00% 2.48% 2.99% 3.22% 3.54% 3.78%
2.50% 3.10% 3.74% 4.03% 4.42% 4.73%
3.00% 3.72% 4.49% 4.83% 5.31% 5.67%
3.50% 4.35% 5.24% 5.64% 6.19% 6.62%
4.00% 4.97% 5.99% 6.44% 7.08% 7.56%
4.50% 5.59% 6.74% 7.25% 7.96% 8.51%
5.00% 6.21% 7.49% 8.05% 8.85% 9.45%
5.50% 6.83% 8.23% 8.86% 9.73% 10.40%
6.00% 7.45% 8.98% 9.66% 10.62% 11.34%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
30
<PAGE> 173
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
31
<PAGE> 174
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
32
<PAGE> 175
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,
33
<PAGE> 176
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 nonstandardized 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, 1996 are incorporated herein by reference to the
Annual Report to Shareholders of the Fountain Square Equity and Income Mutual
Funds dated July 31, 1996. (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.
34
<PAGE> 177
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.
35
<PAGE> 178
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.
36
<PAGE> 179
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.
Cusip 350756888
Cusip 350756706
Cusip 350756862
Cusip 350756870
Cusip 350756805
Cusip 350756607
Cusip 350756854
2090403B (9/95)
37
<PAGE> 180
FOUNTAIN SQUARE U.S. TREASURY
OBLIGATIONS FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Fountain Square U.S. Treasury Obligations Fund (the "Fund") dated September 30,
1996. This Statement is not a prospectus itself. To receive a copy of the
prospectus, please write the Fund or call toll-free, (888) 799-5353.
FOUNTAIN SQUARE FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
Statement dated September 30, 1996
<PAGE> 181
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND................................. 1
INVESTMENT OBJECTIVE AND POLICIES.................................. 1
Types of Investments...................................... 1
When-Issued and Delayed Delivery
Transactions.............................................. 1
Repurchase Agreements..................................... 1
Reverse Repurchase Agreements............................. 1
Investment Limitations.................................... 2
Selling Short and Buying on Margin................... 2
Issuing Senior Securities and Borrowing Money........ 2
Pledging Assets...................................... 2
Lending Cash or Securities........................... 2
Investing in Securities of Other
Investment Companies............................... 3
FOUNTAIN SQUARE FUNDS MANAGEMENT................................... 3
Officers and Trustees..................................... 3
Fund Ownership............................................ 5
Trustees' Compensation.................................... 5
Trustee Liability......................................... 5
INVESTMENT ADVISORY SERVICES....................................... 5
Advisor to the Fund....................................... 5
Advisory Fees............................................. 6
State Expense Limitations........................ 6
BROKERAGE TRANSACTIONS............................................. 6
ADMINISTRATIVE SERVICES............................................ 7
Transfer Agent and Dividend Disbursing Agent.............. 7
PURCHASING SHARES.................................................. 7
Conversion to Federal Funds............................... 8
DETERMINING NET ASSET VALUE........................................ 8
Use of the Amortized Cost Method.......................... 8
Monitoring Procedures............................ 8
Investment Restrictions.......................... 8
REDEEMING SHARES................................................... 9
Redemption in Kind........................................ 9
TAX STATUS......................................................... 9
The Fund's Tax Status..................................... 9
Shareholders' Tax Status.................................. 10
Capital Gains.................................... 10
YIELD.............................................................. 10
EFFECTIVE YIELD.................................................... 10
PERFORMANCE COMPARISONS............................................ 11
I
<PAGE> 182
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 Advisor 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
1
<PAGE> 183
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.
2
<PAGE> 184
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.
To comply with the requirements of certain states, the Advisor has agreed to
waive its advisory fee on assets of the Fund invested in securities of other
open end investment companies.
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, or BYSYS Fund Services, L.P.
- -------------------------------------------------------------------------------
Albert E. Harris
5905 Graves Road
Cincinnati, OH
Birthdate: July 2, 1932
Chairman of the Board of Trustees
Formerly, Chairman of the Board EDB Holdings. Inc. (retired July, 1993).
- -------------------------------------------------------------------------------
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.
3
<PAGE> 185
- -------------------------------------------------------------------------------
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).
- -------------------------------------------------------------------------------
Stephen G. Mintos
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: February 5, 1954
President
From January 1987 to the present, employee of BISYS Fund Services, Inc.
- -------------------------------------------------------------------------------
George R. Landreth
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: July 11, 1942
Vice President
From December 1992 to present, employee of BISYS Fund Services, Inc.; from July
1991 to December 1992, employee of PNC Financial Corporation; from October 1984
to July 1991, employee of The Central Trust Co., N.A.
- -------------------------------------------------------------------------------
Jeffrey C. Cusick
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: May 19, 1959
Secretary and Treasurer
From July 1995 to present, employee of BISYS Fund Services, Inc.; from September
1993 to July 1995, Assistant Vice President, Federated Administrative Services;
from 1989 to September 1993, Manager, Client Services, Federated Administrative
Services.
- -------------------------------------------------------------------------------
4
<PAGE> 186
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares. As of
July 31, 1996, Fifth Third Bank as nominee for numerous trust and agency
accounts, was the owner of record of 489,228,424 Shares (100%) of the Fund.
TRUSTEES' COMPENSATION
<TABLE>
<CAPTION>
NAME, AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST +
- -------------------------------------------------------------------------------
<S> <C>
J. Christopher Donahue $ 0
Former Trustee, President
and Treasurer@
Edward Burke Carey $ 7,800
Trustee
Lee A. Carter $ 7,800
Trustee
Albert E. Harris $ 7,800
Trustee
</TABLE>
*Information is furnished for the fiscal year ended July 31, 1996. 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.
@Mr. Donahue resigned as Trustee, President and Treasurer of the Trust effective
December 1, 1995.
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
- -------------------------------------------------------------------------------
ADVISOR TO THE FUND
The Fund's investment advisor is Fifth Third Bank (the "Advisor"). It provides
investment advisory services through its Trust and Investment Division. Fifth
Third Bank is a wholly-owned subsidiary of Fifth Third Bancorp.
The Advisor 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
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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, 1996, 1995, and 1994, the Advisor earned
$1,557,358, $1,377,583, and $1,341,031, respectively, of which $470,081,
$395,440, and $473,109, were voluntarily waived, respectively, because of
undertakings to limit the Fund's expenses.
STATE EXPENSE LIMITATIONS
The Advisor 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 21/2% 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 Advisor 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
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Advisor looks for prompt execution of the order at a favorable
price. In working with dealers, the Advisor 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 Advisor makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Advisor may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Advisor
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.
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The Advisor 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 Advisor in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Advisor or its affiliates might
otherwise have paid, it would tend to reduce expenses.
For the fiscal years ended July 31, 1996, 1995, and 1994, the Fund did not pay
any commissions on brokerage transactions.
ADMINISTRATIVE SERVICES
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Until December 1, 1995, Federated Administrative Services, a subsidiary of
Federated Investors, provided administrative personnel and services to the Fund
for a fee as described in the prospectus. For the four-month period ending
December 1, 1995, and for the fiscal years ended July 31, 1995, and July 31,
1994, the Fund incurred administrative service fees of $124,224, $380,685,
and $385,743, respectively.
Effective December 1, 1995, BISYS Fund Services L.P., 3435 Stelzer Road,
Columbus, Ohio 43219, provided administrative services to the Fund for the fees
set forth in the prospectus. For the fiscal year ended July 31, 1996, BISYS Fund
Services L.P. received administrative fees of $188,213.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performed sub-administration services on behalf
of the Fund, for which it receives compensation from BISYS Fund Services L.P.
For the fiscal year ended July 31, 1996, Fifth Third Bank received
sub-administrative fees of $58,252.
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
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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."
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<PAGE> 189
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
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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
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<PAGE> 190
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 the Fund receives
the redemption request. Redemption procedures are explained in the prospectus
under "Redeeming Shares." Although the custodian 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
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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
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<PAGE> 191
- 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, 1996 was 4.96%. 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, 1996 was
5.0%. 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.
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PERFORMANCE COMPARISONS
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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.
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<PAGE> 193
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 prospectus
for Trust Shares and Investment Shares dated September 30, 1996. This Statement
is not a prospectus itself. To receive a copy of the prospectus, please write
the Fund or call toll-free, (888) 799-5353.
FOUNTAIN SQUARE FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
Statement dated September 30, 1996
<PAGE> 194
TABLE OF CONTENTS
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<TABLE>
<S> <C>
GENERAL INFORMATION ABOUT THE FUND....................... 1
INVESTMENT OBJECTIVES AND POLICIES....................... 2
Types of Investments............................ 2
When-Issued and Delayed Delivery
Transactions.................................... 3
Repurchase Agreements........................... 3
Reverse Repurchase Agreements................... 3
Investment Limitations.......................... 3
FOUNTAIN SQUARE FUNDS MANAGEMENT......................... 5
Officers and Trustees........................... 5
Fund Ownership.................................. 7
Trustees' Compensation.......................... 7
Trustee Liability............................... 8
INVESTMENT ADVISORY SERVICES............................. 8
Advisor to the Fund............................. 8
Advisory Fees................................... 8
BROKERAGE TRANSACTIONS................................... 9
ADMINISTRATIVE SERVICES.................................. 9
Transfer Agent and Dividend Disbursing
Agent........................................... 10
PURCHASING SHARES........................................ 10
Distribution Plan (Investment Shares)........... 10
Conversion to Federal Funds..................... 11
DETERMINING NET ASSET VALUE.............................. 11
Use of the Amortized Cost Method................ 11
REDEEMING SHARES......................................... 12
Redemption in Kind.............................. 12
TAX STATUS............................................... 12
The Fund's Tax Status........................... 12
Shareholders' Tax Status........................ 13
YIELD.................................................... 13
EFFECTIVE YIELD.......................................... 13
PERFORMANCE COMPARISONS.................................. 14
</TABLE>
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<PAGE> 195
GENERAL INFORMATION ABOUT THE FUND
- -------------------------------------------------------------------------------
Fountain Square Commercial Paper Fund (the "Fund") is a portfolio in the
Fountain Square Funds (the "Trust"). The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated September 15,
1988.
Shares of the Fund are offered in two classes, Trust Shares and Investment
Shares (individually and collectively referred to as "Shares"). This Combined
Statement of Additional Information relates to the above-mentioned Shares of the
Fund.
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------------------
The Fund's investment objective is to provide current income consistent with
stability of principal. The investment objective cannot be changed without
approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests in money market instruments which mature in 13 months or less.
At least 65% of the assets of the Fund will be invested in commercial paper. The
remaining portion of Fund assets will be invested in money market instruments
which include, but are not limited to, bank instruments and U.S. government
obligations.
The instruments of banks and savings and loans whose deposits are insured by
Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"),
such as certificates of deposit, demand and time deposits, and bankers'
acceptances, are not necessarily guaranteed by that organization.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury, such as U.S.
Treasury bills, notes, and bonds, and obligations issued or guaranteed
by U.S. government agencies or instrumentalities. These securities are
backed by:
- the full faith and credit of the U.S. Treasury;
- the issuer's right to borrow from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
- the credit of the agency or instrumentality issuing the
obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
- Farm Credit Banks;
- Federal Home Loan Banks;
- Federal National Mortgage Association;
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<PAGE> 196
- Student Loan Marketing Association; and
- Federal Home Loan Mortgage Corporation.
BANK INSTRUMENTS
In addition to domestic bank obligations such as certificates of
deposit, demand and time deposits, and bankers' acceptances, the Fund
may invest in:
- Eurodollar Certificates of Deposit issued by foreign branches of
U.S. or foreign banks;
- Eurodollar Time Deposits, which are U.S. dollar-denominated
deposits in foreign branches of U.S. or foreign banks; and
- Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks
and held in the United States.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. 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 Advisor to
be creditworthy, pursuant to guidelines established by the Board of Trustees
(the "Trustees").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
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<PAGE> 197
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
market to market daily and maintained until the transaction is settled.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any money market instruments short or purchase
any money market instruments on margin but may obtain such short-term
credits as may be necessary for clearance of purchases and sales of
money market instruments.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money directly or through reverse repurchase agreements as a
temporary measure for extraordinary or emergency purposes and then only
in amounts not in excess of 5% of the value of its total assets or in
an amount up to one-third of the value of its total assets, including
the amount borrowed, in order to meet redemption requests without
immediately selling portfolio instruments. Any direct borrowings need
not be collateralized.
PLEDGING SECURITIES
The Fund will not pledge securities.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE
The Fund will not invest in commodities, commodity contracts, or real
estate, except that it may purchase money market instruments issued by
companies that invest in real estate or sponsor such interests.
UNDERWRITING
The Fund will not engage in underwriting of securities issued by
others.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase
or hold money market instruments, including repurchase agreements and
variable rate demand notes, permitted by the investment objective and
policies.
ACQUIRING SECURITIES
The Fund will not acquire the voting securities of any issuer. It will
not invest in securities of a company for the purpose of exercising
control or management.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the Fund will not
purchase securities issued by any one issuer having a value of more
than 5% of the value of its total assets except repurchase agreements
and U.S. government obligations. The total amount of the remaining 25%
of the value of the Fund's total assets may be invested in a single
issuer if the investment Advisor believes such a strategy to be
prudent.
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<PAGE> 198
The Fund considers the type of bank obligations it purchases to be cash
items.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of the value of its total assets
in any one industry except commercial paper of finance companies.
However, the Fund reserves the right to invest more than 25% of its net
assets in domestic bank instruments (such as time and demand deposits
and certificates of deposit), U.S. government obligations or
instruments secured by these money market instruments, such as
repurchase agreements. The Fund will not invest more than 25% of its
net assets in instruments of foreign banks.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund can acquire up to 3% of the total outstanding securities of
other investment companies. The Fund will limit its investments in the
securities of other investment companies to those of money market funds
having investment objectives and policies similar to its own. The Fund
will purchase securities of other investment companies only in
open-market transactions involving no more than customary broker's
commissions. However, there is no limitation applicable to securities
of any investment company acquired in a merger, consolidation, or
acquisition of assets.
The above investment limitations cannot be changed without shareholder approval.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following investment limitations, however, may
be changed by Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in securities which are subject to restrictions on resale under federal
securities laws.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may purchase
the securities of issuers which invest in or sponsor such programs.
To comply with the requirements of certain states, the Advisor has agreed to
waive its advisory fee on assets of the Fund invested in securities of other
open end investment companies.
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."
In order to permit the sale of Shares in certain states, the Fund may make
commitments more restrictive than the investment limitations described above.
Accordingly, the Fund has undertaken not to invest the real estate limited
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<PAGE> 199
partnerships, oil, gas, or other mineral leases, warrants, or the securities of
any issuer if the officers, directors, or trustees of the Fund or its investment
Advisor owning beneficially more than 0.5% of the securities of such issuer
together own beneficially more than 5% of such securities. Should the Fund
determine that any such commitment is no longer in the best interest of the Fund
and its shareholders, the Fund will revoke the commitment by terminating the
sale of its shares in the state involved.
FOUNTAIN SQUARE FUNDS MANAGEMENT
- -------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, principal
occupations, and present positions. Except as listed below, none of the Trustees
or Officers are affiliated with The Fifth Third Bank ("Fifth Third Bank"), Fifth
Third Bancorp, or BISYS Fund Services, L.P.
- -------------------------------------------------------------------------------
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).
- -------------------------------------------------------------------------------
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).
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<PAGE> 200
Stephen G. Mintos
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: February 5, 1954
President
From January 1987 to the present, employee of BISYS Fund Services, Inc.
George R. Landreth
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: July 11, 1942
Vice President
From December 1992 to present, employee of BISYS Fund Services, Inc.; from July
1991 to December 1992, employee of PNC Financial Corporation; from October 1984
to July 1991, employee of The Central Trust Co., N.A.
Jeffrey C. Cusick
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: May 19, 1959
Secretary and Treasurer
From July 1995 to present, employee of BISYS Fund Services, Inc.; from September
1993 to July 1995, Assistant Vice President, Federated Administrative Services;
from 1989 to September 1993, Manager, Client Services, Federated Administrative
Services.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares.
As of July 31, 1996, Fifth Third Bank as nominee for numerous trust and agency
accounts, was the owner of record of 300,821,493 Trust Shares (100%) of the
Fund.
As of July 31, 1996, no shareholders of record owned 5% or more of the
outstanding Investment Shares of the Fund.
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<PAGE> 201
TRUSTEES' COMPENSATION
NAME, AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST *+
J. Christopher Donahue $ 0
Former Trustee, 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, 1996. 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.
@Mr. Donahue resigned as Trustee, President and Treasurer of the Trust effective
December 1, 1995.
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
ADVISOR TO THE FUND
The Fund's investment Advisor is Fifth Third Bank (the "Advisor"). It provides
investment advisory services through its Trust and Investment Division. Fifth
Third Bank is a wholly-owned subsidiary of Fifth Third Bancorp.
The Advisor shall not be liable to the Trust, the Fund or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Fifth Third Bank to restrict the
flow of non-public information, Fund investments are typically made without any
knowledge of Fifth Third Bank's or its affiliates' lending relationships with an
issuer.
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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, 1996, 1995, and 1994, the Advisor earned
$1,073,513, $958,506, and $891,943, respectively, of which $182,807, $190,170,
and $224,244, were voluntarily waived because of undertakings to limit the
Fund's expenses.
STATE EXPENSE LIMITATIONS
The Advisor 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 Advisor 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 Advisor looks for prompt execution of the order at a favorable
price. In working with dealers, the Advisor 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 Advisor makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Advisor may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Advisor
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 Advisor 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.
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Research services provided by brokers and dealers may be used by the Advisor in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Advisor or its affiliates might
otherwise have paid, it would tend to reduce expenses.
For the fiscal years ended July 31, 1996, 1995, and 1994, 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, provided administrative personnel and services to the
Fund for a fee as described in the prospectus. For the four-month period ending
December 1, 1995, and for the fiscal years ended July 31, 1995, and July 31,
1994, the Fund incurred administrative fees of $88,764, $166,528, and
$134.133, respectively.
Effective December 1, 1995, BISYS Fund Services L.P., 3435 Stelzer Road,
Columbus, Ohio 43219, provided administrative services to the Fund for the fees
set forth in the prospectus. For the fiscal year ended July 31, 1996, BISYS Fund
Services L.P. received administrative fees of $127,811.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performed sub-administration services on behalf
of the Fund, for which it received compensation from BISYS Fund Services L.P.
For the fiscal year ended July 31, 1996, Fifth Third Bank received
sub-administrative fees of $39,898.
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 prospectus
under "Investing in the Fund."
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
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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 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 purchase transactions; providing or arranging to provide
accounting support for all transactions, wiring funds and receiving funds for
Investment Share purchases and redemptions, confirming and reconciling all
transactions, reviewing the activity in Fund accounts, and providing training
and supervision of broker personnel; posting and reinvesting dividends to Fund
accounts or arranging for this service to be performed by the Fund's transfer
agent; and maintaining and distributing current copies of prospectuses and
shareholder reports to the beneficial owners of Investment Shares and
prospective shareholders.
The Board of Trustees expects that the Plan will result in the sale of
sufficient number of Investment Shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
For the fiscal year ended July 31, 1996, distribution fees applicable to
Investment Shares paid to the Fund's distributor amounted to $55,852, 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.
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The Trustees will take any steps they consider appropriate (such as
redemption in kind or shortening the average portfolio maturity) to
minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
if rated, have received the requisite rating from one or more
nationally recognized statistical rating organizations. If the
instruments are not rated, the Trustees must determine that they are of
comparable quality. Shares of investment companies purchased by the
Fund will meet these same criteria and will have investment policies
consistent with the Rule. The Rule also requires the Fund to maintain a
dollar-weighted average portfolio maturity (not more than 90 days)
appropriate to the objective of maintaining a stable net asset value of
$1.00 per share. In addition, no instruments with a remaining maturity
of more than 397 days can be purchased by the Fund.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the
Fund will invest its available cash to reduce the average maturity to
90 days or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities
to take advantage of short-term market variations. This policy may,
from time to time, result in high portfolio turnover. Under the
amortized cost method of valuation, neither the amount of daily income
nor the net asset value is affected by any unrealized appreciation or
depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of the Fund computed by dividing the annualized daily income on
the Fund's portfolio by the net asset value computed as above may tend
to be higher than a similar computation made by using a method of
valuation based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on
shares of the Fund computed the same way may tend to be lower than a
similar computation made by using a method of calculation based upon
market prices and estimates.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectuses under "Redeeming Shares." Although the custodian 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.
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Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
- derive less than 30% of its gross income from the sale of
securities held less than three months;
- invest in securities within certain statutory limits; and
- distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends and any short-term capital gains are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
YIELD
The yield for Investment Shares and Trust Shares were 4.95% and 4.95%,
respectively, for the seven-day period ended July 31, 1996.
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;
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- 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 5.07% and
5.07%, respectively, for the seven-day period ended July 31, 1996.
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
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securities and compute offering price. The financial publications land/or
indices which the Fund uses in advertising may include:
- LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund
will quote its Lipper ranking in the money market instruments
category in advertising and sales literature.
- BANK RATE MONITOR NATIONAL INDEX. Miami Beach, Florida, is a
financial reporting service which publishes weekly average rates
of 50 leading bank and thrift institution money market deposit
accounts. The rates published in the index are averages of the
personal account rates offered on the Wednesday prior to the date
of publication by ten of the largest banks and thrifts in each of
the five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered, the
lowest rate is used. Rates are subject to change at any time
specified by the institution.
- DONOGHUE'S MONEY FUND REPORT publishes annualized yields of
hundreds of money market funds on a weekly basis and through its
Money Market Insight publication reports monthly and
12-month-to-date investment results for the same money funds.
Advertisements and other sales literature for either class of shares may refer
to total return. Total return is the historic change in the value of an
investment in either class of shares based on the reinvestment of dividends over
a specified period of time.
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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 prospectus for Trust Shares and Investment Shares dated September 30,
1996. This Statement is not a prospectus itself. To receive a copy of the
prospectus, please write the Fund or call toll-free (888) 799-5353.
FOUNTAIN SQUARE FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
Statement dated September 30, 1996
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TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND..................................... 1
INVESTMENT OBJECTIVE AND POLICIES...................................... 1
Types of Investments.......................................... 1
Variable Rate U.S. Government
Securities........................................... 1
When-Issued and Delayed Delivery
Transactions.................................................. 1
Investment Limitations........................................ 2
Selling Short and Buying On
Margin............................................... 2
Issuing Senior Securities and
Borrowing Money...................................... 2
Pledging Assets...................................... 2
Lending Cash or Securities........................... 2
Investing in Securities of Other
Investment Companies................................. 2
Investing in Illiquid Securities..................... 2
FOUNTAIN SQUARE FUNDS MANAGEMENT....................................... 4
Officers and Trustees......................................... 4
Fund Ownership................................................ 5
Trustees' Compensation........................................ 6
Trustee Liability............................................. 6
INVESTMENT ADVISORY SERVICES........................................... 6
Advisor to the Fund........................................... 6
Advisory Fees................................................. 7
State Expense Limitations............................ 7
BROKERAGE TRANSACTIONS................................................. 7
ADMINISTRATIVE SERVICES................................................ 8
Transfer Agent and Dividend Disbursing
Agent......................................................... 8
PURCHASING SHARES...................................................... 8
Distribution Plan (Investment Shares)......................... 8
Conversion to Federal Funds................................... 9
DETERMINING NET ASSET VALUE............................................ 9
Use of the Amortized Cost Method.............................. 9
Monitoring Procedures................................ 9
Investment Restrictions.............................. 10
REDEEMING SHARES....................................................... 10
Redemption in Kind............................................ 10
TAX STATUS............................................................. 11
The Fund's Tax Status......................................... 11
Shareholders' Tax Status...................................... 11
State and Local Taxes......................................... 11
Capital Gains........................................ 11
YIELD.................................................................. 11
EFFECTIVE YIELD........................................................ 12
PERFORMANCE COMPARISONS................................................ 12
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GENERAL INFORMATION ABOUT THE FUND
Fountain Square Government Cash Reserves Fund (the "Fund") is a portfolio in the
Fountain Square Funds (the "Trust"). The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated September 15,
1988.
Shares of the Fund are offered in two classes, Trust Shares and Investment
Shares (individually and collectively known as "Shares"). This combined
statement of additional information relates to the above-mentioned Shares of the
Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide high current income consistent
with stability of principal and liquidity. The investment objective cannot be
changed without approval of shareholders. The Fund intends to limit its
investments to those U.S. government securities whose interest is generally
exempt from personal income tax in the various states if owned directly.
However, from time to time, the Fund may also invest in other U.S. government
securities if the adviser deems it advantageous to do so. Please see the "Tax
Status" section of this statement of additional information.
TYPES OF INVESTMENTS
The Fund invests primarily in short-term U.S. government securities.
VARIABLE RATE U.S. GOVERNMENT SECURITIES
Some of the short-term U.S. government securities the Fund may purchase
carry variable interest rates. These securities have a rate of interest
subject to adjustment at least annually. This adjusted interest rate is
ordinarily tied to some objective standard, such as the 91-day U.S.
Treasury bill rate.
Variable interest rates will reduce the changes in the market value of
such securities from their original purchase prices. Accordingly, the
potential for capital appreciation or capital depreciation should not
be greater than the potential for capital appreciation or capital
depreciation of fixed interest rate U.S. government securities having
maturities equal to the interest rate adjustment dates of the variable
rate U.S. government securities.
The Fund may purchase variable rate U.S. government securities upon the
determination by the Board of Trustees that the interest rate as
adjusted will cause the instrument to have a current market value that
approximates its par value on the adjustment date.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. 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.
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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.
To comply with the requirements of certain states, the Advisor has agreed to
waive its advisory fee on assets of the Fund invested in securities of other
open end investment companies.
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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."
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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, or BISYS Fund Services, L.P.
Albert E. Harris
5905 Graves Road
Cincinnati, OH
Birthdate: July 2, 1932
Chairman of the Board of Trustees
Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993).
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).
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Stephen G. Mintos
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: February 5, 1954
President
From January 1987 to the present, employee of BISYS Fund Services, Inc.
George R. Landreth
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: July 11, 1942
Vice President
From December 1992 to present, employee of BISYS Fund Services, Inc.; from July
1991 to December 1992, employee of PNC Financial Corporation; from October 1984
to July 1991, employee of The Central Trust Co., N.A.
Jeffrey C. Cusick
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: May 19, 1959
Secretary and Treasurer
From July 1995 to present, employee of BISYS Fund Services, Inc.; from September
1993 to July 1995, Assistant Vice President, Federated Administrative Services;
from 1989 to September 1993, Manager, Client Services, Federated Administrative
Services.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares. As of
July 31, 1996, Fifth Third Bank as nominee for numerous trust and agency
accounts, was the owner of record of 132,325,991 Trust Shares (100%) of the
Fund.
As of July 31, 1996, no shareholders of record owned 5% or more of the
outstanding Investment Shares of the Fund.
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TRUSTEES' COMPENSATION
NAME, AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST *+
J. Christopher Donahue $ 0
Chairman of Board of
Former Trustee, 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, 1996. 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.
@Mr. Donahue resigned as Trustee, President and Treasurer of the Trust effective
December 1, 1995.
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
ADVISOR TO THE FUND
The Fund's investment advisor is Fifth Third Bank (the "Advisor"). It provides
investment advisory services through its Trust and Investment Division. Fifth
Third Bank is a wholly-owned subsidiary of Fifth Third Bancorp.
The Advisor 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.
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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, 1996, 1995, and 1994, the Advisor earned
$746,543, $604,802, and $466,283, respectively, of which $139,471, $152,445, and
$152,426, respectively, were voluntarily waived because of undertakings to limit
the Fund's expenses.
STATE EXPENSE LIMITATIONS
The Advisor 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 Advisor 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 Advisor looks for prompt execution of the order at a favorable
price. In working with dealers, the Advisor 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 Advisor makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Advisor may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Advisor
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 Advisor 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.
7
<PAGE> 218
Research services provided by brokers and dealers may be used by the Advisor in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Advisor or its affiliates might
otherwise have paid, it would tend to reduce expenses.
For the fiscal years ended July 31, 1996, 1995, and 1994, 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, provided administrative personnel and services to the
Fund for a fee as described in the prospectus. For the four-month period ending
December 1, 1995, and for the fiscal years ended July 31, 1995, and 1994, the
Fund incurred administrative fees of $63,639, $166.528, and $134.133,
respectively.
Effective December 1, 1995, BISYS Fund Services L.P., 3435 Stelzer Road,
Columbus, Ohio 43219, provided administrative services to the Fund for the fees
set forth in the prospectus. For the fiscal year ended July 31, 1996, BISYS Fund
Services, L.P. received administrative fees of $89,928.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performed sub-administration services on behalf
of the Fund, for which it received compensation from BISYS Fund Services L.P.
For the fiscal year ended July 31, 1996, Fifth Third Bank received
sub-administrative fees of $28,258.
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 prospectus
under "Investing in the Fund."
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
8
<PAGE> 219
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 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, 1996, distribution fees applicable to
Investment Shares paid to the Fund's distributor amounted to $214,512, 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
9
<PAGE> 220
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 the Fund receives
the redemption request. Redemption procedures are explained in the respective
prospectuses under "Redeeming Shares." Although the Custodian 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.
10
<PAGE> 221
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- -------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
- derive less than 30% of its gross income from the sale of
securities held less than three months;
- invest in securities within certain statutory limits; and
- distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends and any short-term capital gains are taxable as ordinary income.
STATE AND LOCAL TAXES
The Fund intends to limit its investments to U.S. government securities paying
interest which, if owned directly by shareholders of the Fund, would generally
be exempt from state personal income tax. However, from time to time, the Fund
may also invest in other U.S. government securities if the Advisor 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 4.89% and 4.89%,
respectively, for the seven-day period ended July 31, 1996.
11
<PAGE> 222
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 5.01% and
5.01%, respectively, for the seven-day period ended July 31, 1996.
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.
12
<PAGE> 223
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.
13
<PAGE> 224
<TABLE>
<CAPTION>
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
<S> <C> <C> <C>
(a) Financial Statements incorporated by reference to the
Annual Report to Shareholders of the Fountain Square
Funds dated July 31, 1996 (File No. 811-5669).
(b) Exhibits:
(1) Conformed Copy of Declaration of Trust of the Registrant including
Amendments No. 1 through 7 (4);
(i) Conformed copy of Amendment No. 8 to the Declaration of Trust*;
(ii) Conformed copy of Amendment No. 9 to the Declaration of Trust+;
(2) Copy of By-Laws of the Registrant (4);
(3) Not applicable;
(4) Not applicable;
(5) (i) Conformed Copy of Investment Advisory Contract of the Registrant
through and including Exhibit J (4);
(ii) Conformed Copy of Sub-Advisory Agreement (1);
(6) (i) Conformed Copy of Distributor's Contract of the Registrant(6);
(ii) Copy of Administrative Services Agreement of the Registrant*;
(7) Not applicable;
(8) Conformed Copy of Custody Agreement of the Registrant (4);
(9) Conformed Copy of Agency Agreement of the Registrant (4);
(10) Conformed Copy of Opinion and Consent of Counsel as to legality of shares
being registered (5);
(11) (i) Conformed Copy of Consent of Independent Auditors+;
(ii) Conformed Copy of Opinion of Counsel as to status of shareholders of
Ohio Tax Free Bond Fund regarding Ohio income taxes (2);
(12) Not applicable;
(13) Conformed Copy of Initial Capital Understanding (4);
(14) Not applicable;
(15) (i) Conformed Copy of Distribution Plan through and including Exhibits
A and B (6);
(ii) Form of Rule 12b-1 Agreement (6);
</TABLE>
- -----------------------------------
* To be filed by amendment.
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 filed June 1, 1994. (File Nos. 811-5669 and 33-24848).
2. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed September 24, 1993. (File Nos.
811-5669 and 33-24848).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed February 28, 1995. (File Nos.
811-5669 and 33-24848).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed on or about September 30, 1995.
(File Nos. 811-5669 and 33-24848).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed on or about January 18, 1996. (File
Nos. 811-5669 and 33-24848).
<PAGE> 225
<TABLE>
<S> <C> <C>
(16) (i) Copy of Schedule for Computation of Fund Performance Data for
Fountain Square Balanced Fund (3);
(ii) Copy of Schedule for Computation of Fund Performance Data for
Fountain Square Commercial Paper Fund (4);
(iii) Copy of Schedule for Computation of Fund Performance Data for
Fountain Square Government Cash Reserves Fund (4);
(iv) Copy of Schedule for Computation of Fund Performance Data for
Fountain Square Mid Cap Fund (3);
(v) Copy of Schedule for Computation of Fund Performance Data for
Fountain Square Quality Bond Fund (3);
(vii) Copy of Schedule for Computation of Fund Performance Data for
Fountain Square Quality Growth Fund (3);
(viii) Copy of Schedule for Computation of Fund Performance Data for
Fountain Square Ohio Tax Free Bond Fund (2);
(ix) Copy of Schedule for Computation of Fund Performance Data for
Fountain Square U.S. Government Securities Fund (3);
(x) Copy of Schedule for Computation of Fund Performance Data for
Fountain Square U.S. Treasury Obligations Fund (4);
(xi) Copy of Schedule for Computation of Fund Performance Data for
Fountain Square International Equity Fund (4);
(17) Copy of Financial Data Schedule+;
(18) Copy of Multiple Class Plan (6);
(19) (i) Conformed copy of Power of Attorney (6);
(ii) Consent of Howard & Howard Attorneys, P.C.+;
</TABLE>
- ------------
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 filed June 1, 1994. (File Nos. 811-5669 and 33-24848).
2. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed September 24, 1993. (File Nos.
811-5669 and 33-24848).
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed March 25, 1993. (File Nos. 811-5669
and 33-24848).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed February 28, 1995. (File Nos.
811-5669 and 33-24848).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A (File Nos. 811-5669 and 33-24848).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed on or about January 18, 1996. (File
Nos. 811-5669 and 33-24848).
2
<PAGE> 226
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Shares of beneficial interest Number of Records Holders
(no par value) as of August 31, 1996
----------------------------- -------------------------
<TABLE>
<S> <C>
U.S. Government Securities Fund
Investment A Shares 551
Investment C Shares 9
Quality Bond Fund
Investment A Shares 1,430
Investment C Shares 11
Ohio Tax Free Bond Fund
Investment A Shares 416
Investment C Shares 7
Quality Growth Fund
Investment A Shares 2,939
Investment C Shares 61
Mid Cap Fund
Investment A Shares 2,233
Investment C Shares 29
Balanced Fund
Investment A Shares 1,581
Investment C Shares 33
U.S. Treasury Obligations Fund 2,237
International Equity Fund
Investment A Shares 1,798
Investment C Shares 10
Government Case Reserves Fund
Trust Shares 3,158
Investment Shares 3,501
Commercial Paper Fund
Trust Shares 3,026
Investment Shares 2,110
</TABLE>
Item 27. Indemnification: (7)
- ------------------------
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed September 27, 1991. (File Nos.
811-5669 and 33-24848).
3
<PAGE> 227
Item 28. Business and Other Connections of Investment Adviser:
<TABLE>
<CAPTION>
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Clement L. Buenger Director
- --------------------------------------------------------------------------------------------------------------------------
George A. Schaefer, Jr. President, Chief Executive Officer
and Director
- --------------------------------------------------------------------------------------------------------------------------
George W. Landry Executive Vice President and Cashier
- --------------------------------------------------------------------------------------------------------------------------
Stephen J. Schrantz Executive Vice President
- --------------------------------------------------------------------------------------------------------------------------
P. Michael Brumm Executive Vice President and Chief
Financial Officer
- --------------------------------------------------------------------------------------------------------------------------
Michael K. Keating Executive Vice President, and
Secretary
- --------------------------------------------------------------------------------------------------------------------------
Thomas B. Donnell Chairman, Fifth Third Bank of
Northwestern Ohio and Director
- --------------------------------------------------------------------------------------------------------------------------
Robert P. Niehaus Executive Vice President
- --------------------------------------------------------------------------------------------------------------------------
Michael D. Baker Executive Vice President
- --------------------------------------------------------------------------------------------------------------------------
Henry W. Hobson, III Senior Vice President
- --------------------------------------------------------------------------------------------------------------------------
J. Patrick Bell Senior Vice President
- --------------------------------------------------------------------------------------------------------------------------
Tom A. Bobenread Senior Vice President
- --------------------------------------------------------------------------------------------------------------------------
James J. Hudepohl Senior Vice President
- --------------------------------------------------------------------------------------------------------------------------
Edward H. Silva, Jr. Senior Vice President
- --------------------------------------------------------------------------------------------------------------------------
Gerald L. Wissel Senior Vice President and Director of
Audit
- --------------------------------------------------------------------------------------------------------------------------
Neal E. Arnold Senior Vice President and Director of
Audit
- --------------------------------------------------------------------------------------------------------------------------
Paul L. Reynolds Vice President, General Counsel and
Assistant Secretary
- --------------------------------------------------------------------------------------------------------------------------
John F. Barrett Director President and CEO, Western-
Southern Life Insurance Company
- --------------------------------------------------------------------------------------------------------------------------
Richard T. Farmer Director Chairman & CEO, Cintas Corp.
- --------------------------------------------------------------------------------------------------------------------------
John D. Geary Director Former President, Midland
Enterprises, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Joseph H. Head, Jr. Director Chairman & CEO, Atkins and
Pearce
- --------------------------------------------------------------------------------------------------------------------------
William G. Kagler Director Chairman, Skyline Chili, Inc.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 228
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
William J. Keating Director Retired Publisher and Chairman, The
Cincinnati Enquirer
- --------------------------------------------------------------------------------------------------------------------------
James D. Kiggen Director Chairman, CEO & President, Xtek,
Inc.
- --------------------------------------------------------------------------------------------------------------------------
Robert B. Morgan Director President and Chief Executive
Officer, Cincinnati Financial Corp.
- --------------------------------------------------------------------------------------------------------------------------
Michael H. Norris Director Former President, The Deerfield
Manufacturing Co.
- --------------------------------------------------------------------------------------------------------------------------
Brian H. Rowe Director Chairman, GE Aircraft Engines
- --------------------------------------------------------------------------------------------------------------------------
John J. Schiff, Jr. Director Chairman, John J. & Thomas R.
Schiff & Co.
- --------------------------------------------------------------------------------------------------------------------------
Dennis J. Sullivan, Jr. Director Executive Counselor, Dan Pinger
Public Relations
- --------------------------------------------------------------------------------------------------------------------------
Dudley S. Taft Director President, Taft Broadcasting Co.
- --------------------------------------------------------------------------------------------------------------------------
Joan R. Herschede Director President and CEO, The Frank
Herschede Company
- --------------------------------------------------------------------------------------------------------------------------
Ivan W. Gorr Director Retired as Chairman & CEO,
Cooper Tire & Rubber Co.
- --------------------------------------------------------------------------------------------------------------------------
Milton C. Boesel, Jr. Director Counsel, Ritter, Robinson,
McCready & James
- --------------------------------------------------------------------------------------------------------------------------
Gerald V. Dirvin Director Retired Executive Vice President,
The Proctor & Gamble Company
==========================================================================================================================
</TABLE>
Business and Other Connections of Sub-Advisers (International Equity Fund):
Listed below are the officers and Directors of Morgan Stanley Asset Management
Inc. ("MSAM"), the Sub-Adviser to the International Equity Fund. The information
as to any other business, profession, vocation, or employment of substantial
nature engaged in by the Chairman, President and Directors during the past two
fiscal years, is incorporated by reference to Schedule A and D of Form ADV filed
by MSAM pursuant to the Advisers Act (SEC File No. 801-15757).
MORGAN STANLEY ASSET MANAGEMENT
Officers (Principals and Managing Directors)
Barton M. Biggs, Chairman/Managing Director
Peter A. Nadosy, President/Managing Director
James A. Allwin, Managing Director
A. MacDonald Caputo, Managing Director
Garry B. Crowder, Managing Director
Richard B. Fisher, Managing Director
Gordon S. Gray, Managing Director
Gary Latainer, Managing Director
Donald H. McAllister, Managing Director
Dennis G. Sherva, Managing Director
Dominic Caldecott, Managing Director
5
<PAGE> 229
Ean Wah Chin, Managing Director
Michael A. Crowe, Managing Director
Madhav Dhar, Managing Director
Kurt Fauerman, Managing Director
Richard G. Woolworth, Managing Director
John R. Alkier, Principal
Robert E. Angevine, Principal
Warren J. Ackerman, III, Principal
Jeffry D. Brown, Principal
Gerald P. Barth, Principal
Francine J. Bovich, Principal
Arthur Certosimo, Principal
James Cheng, Principal
Terence Carmichael, Principal
Stephen C. Cordy, Principal
Elleen Cresham, Principal
Jacqueline A. Day, Principal
Paul Ghaffari, Principal
James A. Grisham, Principal
Perry E. Hall II, Principal
Marianne Hay, Principal
Bruce S. Ives, Principal
Margaret Kinsley Johnson, Principal
Kathryn Jonas, Principal
Debra Kushma, Principal
Marianne Lippmann, Principal
Gary J. Mangino, Principal
Paul Martin, Principal
Walter Maynard, Principal
Robert L. Meyer, Principal
Margaret P. Naylor, Principal
Warren J. Olsen, Principal
Russell Platt, Principal
Gail H. Reeke, Principal
Christine Reilly, Principal
Robert Sargent, Principal
Kiat Seng Seah, Principal
Vlnod Sethi, Principal
Stephen C. Sexauer, Principal
Harold Schaaff, Principal
Robert M. Smith, Principal
Christopher G. Petrow, Principal
Phillip W. Warner, Principal
Phillip W. Winters, Principal
Alford E. Zick, Principal
Stefano Russo, Principal
Item 29. Principal Underwriters:
(a) BISYS Fund Services Limited Partnership, formerly known as The
Winsbury Company Limited Partnership ("BISYS"), acts as
distributor and administrator for Registrant. BISYS also
distributes the securities of The Victory Portfolios, The
HighMark Group, the AmSouth Mutual Funds, The
6
<PAGE> 230
Sessions Group, the Conestoga Family of Funds, The Coventry
Group, the BB&T Mutual Funds Group, the American Performance
Funds, the ARCH Fund, Inc., the ARCH Tax-Exempt Trust, the MMA
Praxis Mutual Funds, the Market Watch Funds, the Pacific
Capital Funds, The Parkstone Group of Funds, the Qualivest
Funds, the Riverfront Funds, Inc. and the Summit Investment
Trust, each of which is an investment management company.
BISYS Administers the securities of Payden & Rygel Investment
Group.
(b) Directors, officers and partners of BISYS, as of January 12,
1996 were as follows:
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices with The Positions and Offices with
Addresses Winsbury Company Registrant
- --------------------------- ------------------------------ --------------------------
<S> <C> <C>
The BISYS Group, Inc. Sole Shareholder of BISYS Fund None
150 Clove Road Services, Inc. and Sole Limited
Little Falls, NJ 07424 Partner
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
G. Ronald Henderson Executive Officer None
3435 Stelzer Road
Columbus, Ohio 43219
J. David Huber Senior Vice President
3435 Stelzer Road Business Development
Columbus, Ohio 43219 Fund Services Division
Stephen G. Mintos Executive Vice President President
3435 Stelzer Road General Manager
Columbus, Ohio 43219 Fund Services Division
Kenneth B. Quintenz Executive Officer None
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant 3435 Stelzer Road
Columbus, Ohio 43219-3035
Fifth Third Bank 38 Fountain Square Plaza
("Transfer Agent and Dividend Cincinnati, Ohio 45263
Disbursing Agent")
BISYS 3435 Stelzer Road
("Administrator") Columbus, Ohio 43219-3035
7
<PAGE> 231
Fifth Third Bank 38 Fountain Square Plaza
("Adviser") Cincinnati, Ohio 45263
Morgan Stanley Asset 1221 Avenue of the Americas
Management Inc. New York, New York 10020
("Sub-Adviser to the Fountain
Square International Equity
Fund")
Fifth Third Bank 38 Fountain Square Plaza
("Custodian") Cincinnati, Ohio 45263
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered, a copy of the Registrant's latest
annual report to shareholders, upon request and without
charge.
8
<PAGE> 232
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FOUNTAIN SQUARE FUNDS, has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Columbus and State
of Ohio, on the 1st day of October, 1996.
FOUNTAIN SQUARE FUNDS
BY: /s/Stephen G. Mintos
Stephen G. Mintos, President
Attorney in Fact for Edward Burke Carey,
Lee A. Carter, and Albert E. Harris
October 1, 1996
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Stephen G. Mintos October 1, 1996
Stephen G. Mintos Attorney In Fact
PRESIDENT For the Persons
Listed Below
NAME TITLE
Edward Burke Carey* Trustee
Lee A. Carter* Trustee
Albert E. Harris* Trustee
*By Power of Attorney
9
<PAGE> 1
EXHIBIT 1(II) UNDER FORM N-1A
FOUNTAIN SQUARE FUNDS
AMENDMENT NO. 9
DECLARATION OF TRUST
dated September 15, 1988
This Declaration of Trust is amended as follows:
Strike the first paragraph of Section 5 of Article III from the
Declaration of Trust and substitute in its place the following:
"Section 5. Establishing and Designation of Series or Class.
Without limiting the authority of the Trustees set forth in
Article XII, Section 8, inter alia, to establish and designate
any additional Series or Class, or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes of the Trust shall be, and hereby are, established and
designated as:
Fountain Square Balanced Fund:
Investment A Shares;
Investment C Shares;
Fountain Square Commercial Paper Fund:
Investment A Shares;
Trust Shares;
Fountain Square Government Cash Reserves Fund:
Investment A Shares;
Trust Shares;
Fountain Square International Equity Fund:
Investment A Shares;
Investment C Shares;
Fountain Square Mid Cap Fund:
Investment A Shares;
Investment C Shares;
Fountain Square Ohio Tax Free Bond Fund:
Investment A Shares;
Investment C Shares;
Fountain Square Quality Bond Fund:
Investment A Shares;
Investment C Shares;
Fountain Square Quality Growth Fund:
Investment A Shares;
Investment C Shares;
<PAGE> 2
Fountain Square U.S. Government Securities Fund:
Investment A Shares;
Investment C Shares; and
Fountain Square U.S. Treasury Obligations Fund
The remainder of Section 5 of Article III of the Declaration of Trust
shall remain in effect as previously constituted.
In addition, the Resident Agent address of the Trust as provided in
Section 5 of Article XII of the Declaration of Trust has been changed to: BISYS
Fund Services, 45 Broad Street, 3rd Floor, Boston, Massachusetts 02109.
The undersigned Secretary of Fountain Square Funds hereby certifies
that the above-stated Amendment is a true and correct Amendment to the
Declaration of Trust, as adopted by the Board of Directors on the 1st day of
December, 1995.
WITNESS the due execution hereof this 23rd day of January, 1996.
/s/ Jeffrey C. Cusick
--------------------------
Jeffrey C. Cusick
Secretary
<PAGE> 1
Exhibit 11(i) under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our reports dated
September 11, 1996, in Post-Effective Number 18 to the Registration Statement
(Form N-1A No. 33-24848) and the related Prospectuses of the Fountain Square
Funds (comprising respectively, Fountain Square Commercial Paper Fund, Fountain
Square U.S. Treasury Obligations Fund, Fountain Square Government Cash Reserves
Fund, Fountain Square Ohio Tax Free Bond Fund, Fountain Square U.S. Government
Securities Fund, Fountain Square Quality Bond Fund, Fountain Square Quality
Growth Fund, Fountain Square Mid Cap Fund, Fountain Square Balanced Fund and
Fountain Square International Equity Fund) dated September 30, 1996.
/s/ Ernst & Young LLP
Cincinnati, Ohio
September 25, 1996
<PAGE> 1
Exhibit 19(ii) Under Form N-1A
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
firm under the caption "Legal Counsel" included in or made a part of the
Post-Effective Amendment No. 18 to the Registration Statement on Form N-1A, File
No. 33-24848, filed under the Securities Act of 1933, as amended, and Amendment
No. 19 to the Registration Statement on Form N-1A, File No. 811-5669), filed
under the Investment Company Act of 1940, as amended, of the Fountain Square
Funds.
Bloomfield Hills, Michigan HOWARD & HOWARD ATTORNEYS, P.C.
September 27, 1996
By: /s/ Robert C. Rosselot
---------------------------
Robert C. Rosselot
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