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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, as restated January 17, 1997.
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TABLE OF CONTENTS
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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
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
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SUMMARY OF FUND EXPENSES
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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.
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FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
FINANCIAL HIGHLIGHTS
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(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,
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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)
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GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. 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
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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.
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The Fund may dispose of a commitment prior to settlement if the Fund's adviser
deems it appropriate to do so. In addition, the Fund may enter into transactions
to sell its Purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
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
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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
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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.
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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
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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
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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
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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
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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.
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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
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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.
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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.
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<PAGE> 12
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
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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
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<PAGE> 13
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> 14
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> 15
<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> 16
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> 17
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> 18
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> 19
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> 20
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> 21
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> 22
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> 23
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
