<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. 20 ............................. X
----- ---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---
Amendment No. 21 .......................................... 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)(1)
- -----
on ____________________________ pursuant to paragraph (a)(1)
- -----
75 days after filing pursuant to paragraph (a)(2)
- -----
on ____________________________ pursuant to paragraph (a)(2) 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 thirteen portfolios, each portfolio consisting of two
separate classes of shares (unless otherwise noted): 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; (10) Fountain Square International
Equity Fund; (11) Fountain Square Equity Income Fund; (12) Fountain Square Fixed
Income Fund; and (13) Fountain Square Municipal Bond Fund, relates only to Funds
(11), (12), and (13), and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
-----------------------------
Item 1. Cover Page Cover Page.
Item 2. Synopsis .................... Synopsis; Summary of Fund Expenses;
Expenses of the Funds.
Item 3. Condensed Financial
Information ................. Predecessor Common Trust Funds
Performance Information; Performance
Information.
Item 4. General Description of
Registrant .................. Objective of Each Fund; Portfolio
Investments and Strategies.
Item 5. Management of the Fund ...... Fountain Square Funds Information;
Management of the Trust; Administration
of the Funds; Brokerage Transactions;
Expenses of the Funds, Investment A
Shares, and Investment C Shares; Other
Payments to Financial Institutions;
Distribution Plan; Distribution of
Shares of the Funds.
Item 6. Capital Stock and Other
Securities .................. Shareholder Information; Voting Rights;
Massachusetts Law; Effect of Banking
Laws; Tax Information; Federal Income
Tax; Dividends and Capital Gains; (13)
Additional Tax Information for Municipal
Bond Fund.
<PAGE> 3
Item 7. Purchase of Securities Being
Offered ....................... Net Asset Value; Investing in the Funds;
Share Purchases; Minimum Investment
Required; Investing In Investment A
Shares; What Shares Cost; Purchases at
Net Asset Value; Dealer Concessions;
Reducing/Eliminating the Sales Charge;
Investing in Investment C Shares;
Exchanging Securities for Fund Shares;
Systematic Investment Program;
Certificates and Confirmations;
Exchanges.
Item 8. Redemption or Repurchase ...... Redeeming Shares; Systematic Withdrawal
Program; Accounts With Low Balances;
Contingent Deferred Sales Charge.
Item 9. Pending Legal Proceedings ..... None.
<PAGE> 4
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page ................. Cover Page.
Item 11. Table of Contents .......... Table of Contents.
Item 12. General Information and
History .................... General Information About the Trust.
Item 13. Investment Objectives and
Policies ................... Investment Objective and Policies of the
Funds.
Item 14. Management of the Funds .... Fountain Square Funds Management;
Trustees' Compensation.
Item 15. Control Persons and Principal
Holders of Securities ...... Trust Ownership.
Item 16. Investment Advisory and Other
Services ................... Investment Advisory Services;
Administrative Services.
Item 17. Brokerage Allocation ....... Brokerage Transactions.
Item 18. Capital Stock and Other
Securities ................. Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered .................... Purchasing Shares; Redeeming Shares;
Determining Net Asset Value.
Item 20. Tax Status Tax Status.
Item 21. Underwriters ............... Not applicable.
Item 22. Calculation of Performance
Data ....................... Performance Comparisons; Total Return;
Yield; (13) Tax-Equivalent Yield.
Item 23. Financial Statements ....... Not applicable.
<PAGE> 5
FOUNTAIN SQUARE FUNDS
Fountain Square Equity Income Fund
Fountain Square Bond Fund For Income
Fountain Square Municipal Bond Fund
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 three separate
investment portfolios (the "Funds"), each having a distinct investment objective
and policies:
-Fountain Square Equity Income Fund;
-Fountain Square Bond Fund For Income; and
-Fountain Square Municipal Bond Fund
The Trust offers other investment portfolios that pursue different objectives
and policies. These other investment opportunities are described in separate
prospectuses.
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 January 11, 1997, 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 January 11, 1997
<PAGE> 6
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
SYNOPSIS.................................................... 1
Risk Factors....................................... 1
EXPENSES OF THE FUNDS
INVESTMENT A SHARES......................................... 2
EXPENSES OF THE FUNDS
INVESTMENT C SHARES......................................... 4
PREDECESSOR COMMON TRUST FUNDS PERFORMANCE
INFORMATION................................................. 6
OBJECTIVE OF EACH FUND...................................... 6
Equity Income Fund................................. 7
Acceptable Investments.................... 7
Investment Limitations.................... 7
Bond Fund For Income............................... 7
Acceptable Investments.................... 7
Investment Limitations.................... 8
Municipal Bond Fund................................ 8
Acceptable Investments.................... 8
Characteristics........................... 8
Participation Interest.................... 9
Variable Rate Municipal
Securities....................... 9
Municipal Leases.......................... 9
Temporary Investments..................... 9
Municipal Securities...................... 9
Investment Limitations....................10
PORTFOLIO INVESTMENTS AND STRATEGIES........................10
Borrowing Money....................................10
Diversification....................................10
Restricted and Illiquid Securities.................10
Repurchase Agreements..............................11
When-Issued and Delayed Delivery
Transactions.....................11
Lending of Portfolio Securities....................11
Options and Futures................................11
Put and Call Options.............11
Futures and Options on Futures...12
Risks............................13
Equity Investment Considerations...................13
Government Securities..............................14
Foreign Investments................................14
Derivative Securities..............................15
Collateralized Mortgage Obligations................15
Bond Ratings.......................................16
Temporary Investments..............................16
Variable Rate Demand Notes.......16
Commercial Paper.................17
Bank Instruments.................17
FOUNTAIN SQUARE FUNDS INFORMATION...........................17
Management of the Trust............................17
Board of Trustees................17
Investment Advisor...............17
Advisory Fees....................17
Advisor's Background.............17
Portfolio Managers' Background...18
Distribution of Shares of the Funds................18
Distribution Plan..................................18
Administrative Services Agreement
(Investment C Shares Only).......19
Other Payments to Financial Institutions...........19
Administration of the Funds........................19
Administrative Services..........19
Custodian, Transfer Agent and Dividend
Disbursing Agent.................19
Independent Auditors...............................19
Expenses of the Funds, Investment A Shares
and Investment C Shares..........20
Brokerage Transactions.............................20
NET ASSET VALUE.............................................20
INVESTING IN THE FUNDS......................................21
Share Purchases....................................21
Minimum Investment Required........................21
Investing In Investment A Shares...................21
Purchases at Net Asset Value.....22
Dealer Concessions...............22
Reducing/Eliminating the Sales
Charge..................22
Quantity Discounts and
Accumulated Purchases...23
Letter of Intent.................23
Fifth Third Bank Club 53, One
Account Plus, One
Account Gold, One
Account Advantage and
One Account Platinum
Programs................23
Purchases with Proceeds from
Redemptions of
Unaffiliated Mutual Fund
Shares..................24
Purchases with Proceeds from
Distributions of
Qualified Retirement
Plans or Other Trusts
Administered by Fifth
Third Bank..............24
Concurrent Purchases.............24
Investing in Investment C Shares...................24
Exchanging Securities for Fund Shares..............24
Systematic Investment Program......................25
Certificates and Confirmations.....................25
Dividends and Capital Gains........................25
EXCHANGES...................................................25
</TABLE>
I
<PAGE> 7
<TABLE>
<S> <C> <C>
REDEEMING SHARES.....................................................26
By Telephone..............................26
By Mail...................................27
Systematic Withdrawal Program...............................27
Accounts with Low Balances..................................28
Contingent Deferred Sales Charge............................28
SHAREHOLDER INFORMATION..............................................29
Voting Rights...............................................29
Massachusetts Law...........................................29
EFFECT OF BANKING LAWS...............................................29
TAX INFORMATION......................................................30
Federal Income Tax..........................................30
Additional Tax Information for Municipal
Bond Fund.................................30
PERFORMANCE INFORMATION..............................................30
ADDRESSES............................................................32
</TABLE>
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 three
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 three Funds are offered in this prospectus:
- Fountain Square Equity Income Fund ("Equity Income Fund")
seeks to provide a high level of current income consistent
with capital appreciation by investing primarily in high
quality common stocks or convertible securities that have
above-average current yield;
- Fountain Square Bond Fund For Income ("Bond Fund For Income")
seeks to provide a high level of current income by investing
primarily in investment grade debt securities with remaining
maturities of ten years or less; and
- Fountain Square Municipal Bond Fund ("Municipal Bond Fund")
seeks to provide a high level of current income that is exempt
from federal regular income taxes by investing primarily in
investment grade municipal securities.
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").
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."
1
<PAGE> 9
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>
Equity Bond Fund
Income For Municipal
Fund Income Bond Fund
---- ------ ---------
<S> <C> <C> <C>
Management Fees (after waivers)........................... 0.80% 0.55% 0.55%
12b-1 Fees (after waivers)(1)............................. 0.00% 0.00% 0.00%
Other Expenses (after waivers and/or reimbursements)(2)... 0.24% 0.21% 0.25%
---- ---- ----
Total Investment A Shares Operating Expenses(3)........... 1.04% 0.76% 0.80%
<FN>
(1) 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.
(2) Other expenses have been based on estimated amounts for the current
fiscal year.
(3) Total Investment A Shares Operating Expenses for the Equity Income
Fund, the Bond Fund For Income, and the Municipal Bond Fund are
estimated to be 1.39%, 1.11%, and 1.15%, respectively, absent the
voluntary waiver of 12b-1 fees.
</TABLE>
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.
2
<PAGE> 10
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>
Equity Bond Fund
Income For Municipal
Fund Income Bond Fund
---- ------ ---------
<S> <C> <C> <C>
1 Year................................................$55 $52 $53
3 Years...............................................$77 $68 $69
</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.
3
<PAGE> 11
EXPENSES OF THE FUNDS
INVESTMENT C SHARES
<TABLE>
<CAPTION>
INVESTMENT C SHARES
SHAREHOLDER TRANSACTION EXPENSES
<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>
<TABLE>
<CAPTION>
INVESTMENT C SHARES
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Equity Bond Fund
Income For Municipal
Fund Income Bond Fund
---- ------ ---------
<S> <C> <C> <C>
Management Fees (after waivers) ....................... 0.80% 0.55% 0.55%
12b-1 Fees (after waivers)(2) ......................... 0.50% 0.50% 0.50%
Administrative Service Fee ............................ 0.25% 0.25% 0.25%
Other Expenses (after waivers and/or reimbursements)(3) 0.24% 0.21% 0.25%
---- ---- ----
Total Investment C Shares Operating Expenses(4) ....... 1.79% 1.51% 1.55%
<FN>
(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 Investment C Shares of the Funds can pay up to 0.75% as a 12b-1
fee to the distributor.
(3) Other expenses have been based on estimated amounts for the current
fiscal year.
(4) Total Investment C Shares Operating Expenses for the Equity Income
Fund, the Bond Fund For Income, and the Municipal Bond Fund are
estimated to be 2.04%, 1.76%, and 1.80%, respectively, absent the
waiver of a portion of the 12b-1 fee.
</TABLE>
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.
EXAMPLE
- -------
4
<PAGE> 12
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>
Equity Bond Fund
Income For Municipal
Fund Income Bond Fund
---- ------ ---------
<S> <C> <C> <C>
1 Year (assuming redemption) ........ $28 $25 $26
1 Year (assuming no redemption)...... $18 $15 $16
3 Years ............................. $56 $48 $49
</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.
5
<PAGE> 13
PREDECESSOR COMMON TRUST FUNDS PERFORMANCE
INFORMATION
- --------------------------------------------------------------------------------
Each of the Equity Income Fund, the Bond Fund For Income, and the Municipal Bond
Fund will serve as the vehicle for the conversion of common trust funds that
have been managed by Fifth Third Bank, the Funds' Advisor. The converting common
trust funds were not registered investment companies and, unlike the Funds, were
not subject to the provisions of the Investment Company Act of 1940, as amended.
Each of the converting common trust funds was, however, managed with the same
investment objective and substantially identical investment policies as the Fund
into which it will convert. For this reason, the historic performance of the
converting common trust funds is provided below. The gross performance of each
common trust fund has been reduced to reflect the fees that are applicable to
the Fund into which it will convert. Of course, past performance of the common
trust funds may not be indicative of future results of the Funds. In addition,
if the converting common trust funds had been registered under the Investment
Company Act of 1940, the performance of the converting common trust funds may
have been adversely affected.
<TABLE>
<CAPTION>
Annualized
Equity Income Fund Total Return*
[Successor to Equity Fund (Income)] -------------
- ----------------------------------- 1yr 3yrs 5yrs 10yrs
<S> <C> <C> <C> <C>
Investment A Shares 18.97% 11.75% 10.03% 10.95%
Investment C Shares 18.12% 10.95% 9.24% 10.16%
Bond Fund For Income
[Successor to Taxable Bond Fund]
- --------------------------------
Investment A Shares 3.96% 3.19% 5.90% 7.02%
Investment C Shares 3.19% 2.42% 5.11% 6.23%
Municipal Bond Fund
[Successor to Tax-Free Bond Fund]
- ---------------------------------
Investment A Shares 4.29% 3.36% 5.04% 5.48%
Investment C Shares 3.51% 2.59% 4.26% 4.69%
<FN>
*Annualized Total Returns are calculated based upon the last fiscal year-ends of
each predecessor common trust fund, which was prior to the effective date of the
Funds, as follows: Equity Fund (Income): November 30, 1995; Taxable Bond Fund:
March 31, 1996; and Tax Free Bond Fund: April 30, 1996.
</TABLE>
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.
6
<PAGE> 14
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.
EQUITY INCOME FUND
The investment objective of the Equity Income Fund is to provide a high level of
current income consistent with capital appreciation. The Equity Income Fund
pursues its investment objective by investing in a diversified portfolio of high
quality common stocks or convertible securities that have above-average current
yield. The Equity Income Fund focuses its investment in income producing stocks
to help moderate stock market volatility. These stocks are characterized by
relatively high dividend yields and dividend growth potential above inflation.
Under normal market conditions, the Equity Income Fund will invest at least 65%
of its assets in income producing equity securities.
ACCEPTABLE INVESTMENTS. The securities in which the Equity Income Fund invests
include, but are not limited to, the following:
- common stock of U.S. companies which are listed on the New
York or American Stock Exchanges, or traded in the
over-the-counter markets, preferred stock of such companies,
and preferred stock convertible into common stock of such
companies.
- American Depository Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in the
over-the-counter market. The Equity Income Fund may not
invest more than 25% of its assets in ADRs. (See "Foreign
Investments"); and
- Convertible securities rated in the four highest rating
categories by a nationally recognized statistical rating
organization (a "NRSRO") (e.g., at least BBB by Standard &
Poors Rating Group or Baa by Moody's Investors Service,
Inc.) 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 Equity Income Fund may borrow money; lend portfolio securities;
invest in restricted and illiquid securities and warrants; enter into repurchase
agreements; and engage in put and call options, futures, options on futures, and
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies").
INVESTMENT LIMITATIONS. The Equity Income Fund's investment limitations are
discussed under "Borrowing Money," "Diversification," and "Restricted and
Illiquid Securities."
BOND FUND FOR INCOME
The investment objective of the Bond Fund For Income is to provide a high level
of current income. The Bond Fund For Income pursues its investment objective by
investing in a diversified portfolio of investment grade debt securities with
remaining maturities of ten years or less. Under normal market conditions, the
Bond Fund For Income will invest at least 65% of its assets in fixed income debt
securities.
ACCEPTABLE INVESTMENTS. The Bond Fund For Income invests primarily in a
professionally managed, diversified portfolio of investment grade securities
which include:
- domestic issues of corporate debt obligations rated in the
four highest rating categories by a NRSRO, or unrated bonds
that are determined by the Advisor to be 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;
7
<PAGE> 15
- 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 (See "Government
Securities"); and
- collateralized mortgage obligations (See "Collateralized
Mortgage Obligations").
The Bond Fund For Income does not intend to invest in corporate bonds rated
below Baa by Moody's or BBB by S&P.
In addition, the Bond Fund For Income 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").
INVESTMENT LIMITATIONS. The Bond Fund For Income's investment limitations are
discussed below under "Borrowing Money," "Diversification," and "Restricted and
Illiquid Securities."
MUNICIPAL BOND FUND
The investment objective of the Municipal Bond Fund is to provide a high level
of current income that is exempt from federal regular income taxes. The
Municipal Bond Fund pursues its objective by investing primarily in a
diversified portfolio of investment grade municipal securities. Interest income
of the Municipal Bond Fund that is exempt from federal regular income taxes
retains its exempt status when distributed to shareholders. Income distributed
by the Municipal Bond Fund may not necessarily be exempt from state or municipal
taxes.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Municipal Bond
Fund invests are:
- 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.
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
Municipal Bond Fund's net assets will be invested in municipal securities, as
defined above.
In addition, the Municipal Bond Fund may borrow money, lend portfolio
securities, invest in restricted securities, enter into repurchase agreements,
and engage in put and call options, futures, options on futures, and when-issued
and delayed delivery transactions. (See "Portfolio Investments and Strategies")
CHARACTERISTICS. The municipal securities which the Municipal Bond 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.
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PARTICIPATION INTEREST. The Municipal Bond 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 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 municipal securities which the
Municipal Bond 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 Municipal Bond Fund normally invests its assets so
that at least 80% of its net assets are invested in obligations the interest
from which is exempt from federal regular income taxes. However, from time to
time, during periods of other than normal market conditions, the Fund may invest
in taxable temporary investments. These temporary investments include: notes
issued by or on behalf of 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 regular income tax.
MUNICIPAL SECURITIES. 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.
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
obligations" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
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INVESTMENT LIMITATIONS. The Municipal Bond Fund's investment limitations are
discussed below under "Borrowing Money" and "Restricted and Illiquid
Securities."
PORTFOLIO INVESTMENTS AND STRATEGIES
BORROWING MONEY
The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which a Fund sells a money market or other portfolio
instrument, as applicable, for a percentage of its cash value with an agreement
to buy it back on a set date) or pledge securities except, under certain
circumstances, a Fund may borrow money up to one-third of the value of its total
assets and pledge assets as necessary to secure such borrowings. This policy
cannot be changed without the approval of holders of a majority of a Fund's
Shares.
DIVERSIFICATION
With respect to 75% of the value of total assets, all of the Funds will not
invest more than 5% in securities of any one issuer or acquire more than 10% of
the outstanding voting securities of any one issuer, other than cash, cash items
or securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements collateralized by U.S.
government securities. This policy cannot be changed without the approval of
holders of a majority of a Fund's Shares.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restrictions on resale under
federal securities law. Restricted securities may be issued by new and early
stage companies which may include a high degree of business and financial risk
that can result in substantial losses. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund, or less than what may be considered the fair
value of such securities. Further, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly traded.
If such securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required to bear
the expense of registration. The Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
All of the Funds 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.
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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.
OPTIONS AND FUTURES
The Funds may engage in options and futures transactions as described below.
PUT AND CALL OPTIONS. Each 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 may
also write covered call options on all or any portion of its portfolio to
generate income. A Fund will write call options on securities either held in its
portfolio, for which it has the right to obtain without payment of further
consideration, or for which it has segregated cash or U.S. government securities
in the amount of any additional consideration.
A 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
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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.
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 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 Equity Income Fund and the Bond Fund For Income may also
purchase and sell stock index futures to hedge against changes in prices.
The Funds will not engage in futures transactions for speculative purposes.
Futures contracts call for the delivery of particular securities at a certain
time in the future. The seller of the contract agrees to make delivery of the
type of instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time.
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, 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
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terminated without the corresponding purchases of common stock. A Fund may also
invest in securities index futures contracts when the 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 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.
A Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on a Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of a Fund's total assets. When a Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contract is unleveraged. When a Fund sells futures
contracts, it will either own or have the right to receive the underlying future
or security, or will make deposits to collateralize the position as discussed
above.
RISKS. The use of futures and related options involves special considerations
and risks. For example, the ability of a Fund to utilize futures successfully
will depend on the Advisor's ability to predict pertinent market movements, and
the 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 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 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 Equity Income Fund, as with other mutual funds that invest
primarily in equity securities, the Fund is 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. Because the Equity
Income Fund may invest in small or medium capitalization stocks, there are some
additional risk factors associated with investments in this Fund.
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In particular, stocks in the small or 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, such 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 small or
medium-sized companies may, to some degree, fluctuate independently of the
stocks of large companies. That is, the stocks of such 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.
GOVERNMENT SECURITIES
The Funds may invest in securities that are either issued or guaranteed by the
U.S. government, its agencies, or instrumentalities. These securities include,
but are not limited to:
- direct obligations of the U.S. Treasury such as U.S.
Treasury bills, notes and bonds; and
- obligations of U.S. government agencies or instrumentalities
such as Federal Home Loan Banks, Federal National Mortgage
Association, Government National Mortgage Association, 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.
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.
FOREIGN INVESTMENTS
Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. A number of considerations are relevant to
the ability of the Equity Income Fund to invest in ADRs. Significant
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;
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- - 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;
- - political or financial changes which adversely affect investments in
some countries (including possible governmental seizure or
nationalization of assets); and
- - with respect to companies in emerging countries, enhanced risks of
adverse diplomatic developments, confiscatory taxation, and currency
control problems.
DERIVATIVE SECURITIES
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
assetbacked securities; mortgage-backed securities (such as collateralized
mortgage obligations, described below); 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.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Bond Fund For Income may invest in collateralized mortgage obligations
("CMO's") 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 in 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
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interest is supported by the credit of an agency or instrumentality of the U.S.
government; and (iv) privately issued securities in which each mortgage is
secured by the underlying real estate and payment is guaranteed by the
mortgagee. The mortgage-related securities provide for a periodic payment
consisting of both interest and principal. The interest portion of these
payments will be distributed by the Fund as income, and the capital portion will
be reinvested.
Because the mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium, mortgage-backed securities are generally subject to
higher prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance their mortgages to
take advantage of the more favorable rates. Depending upon market conditions,
the yield that the Fund receives from the reinvestment of such prepayments, or
any scheduled principal payments, may be lower than the yield on the original
mortgage security. As a consequence, mortgage securities may be a less effective
means of "locking in" interest rates than other types of debt securities having
the same stated maturity and may also have less potential for capital
appreciation. For certain types of asset pools, such as collateralized mortgage
obligations, prepayments may be allocated to one tranche of securities ahead of
other branches, or 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.
BOND RATINGS
Bonds rated in the fourth highest rating category by a NRSRO (e.g., "BBB" by
Standard & Poors Rating Group or "Baa" by Moody's Investors Service, Inc.) have
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than higher rated bonds. If a security's rating is reduced
below the required minimum after a Fund has purchased it, the Fund is not
required to sell the security, but may consider doing so.
TEMPORARY INVESTMENTS
For defensive purposes only, and in such amounts as the Advisor in its judgment
believes market conditions warrant, the Funds 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 rated within
the three highest rating categories by a NRSRO (e.g., "A" by
Standard & Poors Rating Group or Moody's Investors Service,
Inc.) 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
- 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
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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").
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
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders.
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.
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
Equity Income Fund - 0.80%; the Bond Fund For Income and the Municipal Bond
Fund-0.55%. The investment advisory contract provides for the voluntary waiver
of expenses by the Advisor from time to time. 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.
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<PAGE> 25
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. John B. Schmitz manages large institutional
accounts for Fifth Third Trust and Investment Services and has managed the
Equity Income Fund since its inception. 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, a division of Fifth Third Bank. Ms. Tucker has more than 14
years of investment experience and has been the portfolio manager for the Bond
Fund For Income and the Municipal Bond Fund since their inception. Ms. Tucker is
a member of AIMR and Financial Analyst Society. Prior to joining Fifth Third
Bank in June of 1996, Ms. Tucker was a Vice President 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.
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 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.
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<PAGE> 26
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>
.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.
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.
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<PAGE> 27
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 looks for prompt execution of the order at a favorable
price. In working with dealers, the 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 may give consideration to those
firms which have sold or are selling shares of the Fund. The Advisor makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each Fund fluctuates daily. 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
20
<PAGE> 28
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
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:
21
<PAGE> 29
<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;
22
<PAGE> 30
- Fifth Third Bank's Club 53, One Account Plus, One Account Gold, One
Account Advantage, or One Account Platinum Programs;
- purchases with proceeds from redemptions of unaffiliated mutual fund
shares;
- purchases with proceeds from distributions of qualified retirement
plans or other trusts administered by Fifth Third Bank; or
- concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases of a Fund's 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:
23
<PAGE> 31
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<S> <C> <C>
Less than $50,000 ...................... 3.97% 4.13%
$50,000-$99,999 ........................ 3.47% 3.59%
$100,000-$149,999 ...................... 2.47% 2.53%
$150,000-$249,999 ...................... 1.47% 1.49%
$250,000-$499,999 ...................... 0.47% 0.47%
$500,000 or more ....................... 0.00% 0.00%
</TABLE>
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED MUTUAL FUND SHARES.
Investors may purchase 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
24
<PAGE> 32
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.
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 Equity Income Fund, the Bond Fund For Income,
and the Municipal Bond Fund, dividends are declared and paid monthly.
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
25
<PAGE> 33
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."
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.
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<PAGE> 34
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
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.
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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
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.
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SHAREHOLDER INFORMATION
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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.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding Shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of a Fund. To
protect shareholders of a Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of a Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign on behalf of a Fund.
In the unlikely event a shareholder of a Fund is held personally liable for the
Trust's obligations on behalf of a Fund, the Trust is required by the
Declaration of Trust to use the property of a Fund to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of a Fund for any act or obligation of the Trust
on behalf of a Fund. Therefore, financial loss resulting from liability as a
shareholder of a Fund will occur only if the Trust cannot meet its obligations
to indemnify shareholders and pay judgments against them from the assets of a
Fund.
EFFECT OF BANKING LAWS
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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, 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
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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
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FEDERAL INCOME TAX
The Funds will pay no federal income tax because each Fund expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a Fund,
if any, will not be combined for tax purposes with those realized by any of the
other Funds.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividend earned in an IRA or qualified retirement plan until distributed.
Shareholders are urged to consult their own tax advisors regarding the status of
their accounts under state and local tax laws.
ADDITIONAL TAX INFORMATION FOR MUNICIPAL 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.
PERFORMANCE INFORMATION
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From time to time, the Funds advertise total return and yield for each class of
Shares. In addition, the Municipal Bond Fund may advertise tax-equivalent yield.
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
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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 Municipal 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.
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ADDRESSES
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Fountain Square Equity Income Fund Fountain Square Funds
Fountain Square Bond Fund For Income c/o Fifth Third Bank
Fountain Square Municipal Bond Fund 38 Fountain Square Plaza
Cincinnati, Ohio 45263
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Investment Advisor
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
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Custodian, Transfer Agent, Dividend Disbursing Agent, and Sub-Administrator
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
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Distributor and Administrator
BISYS Fund Services, L.P. 3435 Stelzer Road
Columbus, Ohio 43219
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Independent Auditors
Ernst & Young LLP 1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
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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
three portfolios (the "Funds") of Fountain Square Funds (the "Trust"):
- Fountain Square Equity Income Fund;
- Fountain Square Bond Fund For Income; and
- Fountain Square Municipal Bond 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 January 11, 1997. 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 January 11, 1997
<PAGE> 41
TABLE OF CONTENTS
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GENERAL INFORMATION ABOUT THE TRUST........................................ 1
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS............................. 1
Types of Investments.............................................. 1
Repurchase Agreements............................................. 7
Reverse Repurchase Agreements..................................... 7
When-Issued and Delayed Delivery
Transactions............................................. 7
Lending of Portfolio Securities................................... 7
Restricted And Illiquid Securities................................ 7
Portfolio Turnover................................................ 8
Investment Limitations............................................ 8
FOUNTAIN SQUARE FUNDS MANAGEMENT........................................... 13
Officers and Trustees............................................. 13
Trust Ownership................................................... 14
Trustees' Compensation............................................ 14
Trustee Liability................................................. 15
INVESTMENT ADVISORY SERVICES............................................... 15
Advisor to the Trust.............................................. 15
Advisory Fees..................................................... 15
Transfer Agent and Dividend Disbursing
Agent.................................................... 16
BROKERAGE TRANSACTIONS..................................................... 16
PURCHASING SHARES.......................................................... 17
Distribution Plan and Administrative
Services Agreement
(Investment C Shares Only)............................... 17
Conversion to Federal Funds....................................... 18
Exchanging Securities for Fund Shares............................. 18
DETERMINING NET ASSET VALUE................................................ 18
Determining Market Value of Securities............................ 18
Valuing Municipal Bonds........................................... 19
Use of Amortized Cost............................................. 19
REDEEMING SHARES........................................................... 19
Redemption in Kind................................................ 19
TAX STATUS................................................................. 20
The Funds' Tax Status............................................. 20
Shareholders' Tax Status.......................................... 20
Capital Gains..................................................... 20
TOTAL RETURN............................................................... 21
YIELD...................................................................... 21
Tax Equivalency Table............................................. 21
PERFORMANCE COMPARISONS.................................................... 22
APPENDIX................................................................... 25
<PAGE> 42
GENERAL INFORMATION ABOUT THE TRUST
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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 three Funds: Fountain Square Equity Income Fund
("Equity Income Fund"), Fountain Square Bond Fund For Income ("Bond Fund For
Income"), and Fountain Square Municipal Bond Fund ("Municipal Bond Fund").
The Funds are advised by Fifth Third Bank (the "Advisor").
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
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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 Equity Income Fund, the Bond Fund For Income, and the
Municipal Bond Fund may invest, for defensive purposes and on
a temporary basis, 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
The Equity Income Fund, Bond Fund For Income, and the
Municipal Bond Fund may engage in futures and options
transactions as described below to the extent consistent with
their investment objectives and policies.
As a means of reducing fluctuations in the net asset value of
Shares of the Funds, the Funds may attempt to hedge all or a
portion of their portfolio through the purchase of put options
on portfolio securities and put options on financial futures
contracts for portfolio securities. The Funds may attempt to
hedge all or a portion of their portfolio by buying and
selling financial futures contracts and writing call options
on futures contracts. The Funds may also write covered call
options on portfolio securities to attempt to increase current
income.
The Funds will maintain their position in securities, options,
and segregated cash subject to puts and calls until the
options are exercised, closed, or have expired. An option
position may be closed out over-the-counter or on an exchange
which provides a secondary market for options of the same
series.
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FUTURES CONTRACTS. The Equity Income Fund, the Bond Fund For
Income, and the Municipal Bond Fund 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 Equity Income Fund and
the Fixed Income Fund may also invest in securities index
futures contracts when the Advisor believes such investment is
more efficient, liquid or cost-effective than investing
directly in the securities underlying the index.
STOCK INDEX OPTIONS. The Equity Income Fund and the Bond Fund
For Income 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 Equity
Income Fund's or the Bond Fund For Income's 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 Equity Income Fund or the Bond Fund For
Income 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 Equity Income Fund or the Bond Fund For
Income of options on stock indices will be subject to the
ability of the Advisor 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 Equity Income
Fund, the Bond Fund For Income, and the Municipal Bond Fund
may purchase listed put options on financial futures
contracts. The Funds would use these options only to protect
portfolio securities against decreases in value resulting from
market factors such as anticipated increase in interest rates.
Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set
date at a specified price, the purchase of a put option on a
futures contract
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entitles (but does not obligate) its purchaser to decide on or
before a future date whether to assume a short position at the
specified price. Generally, if the hedged portfolio securities
decrease in value during the term of an option, the related
futures contracts will also decrease in value and the option
will increase in value. In such an event, a Fund will normally
close out its option by selling an identical option. If the
hedge is successful, the proceeds received by a Fund upon the
sale of the second option will be large enough to offset both
the premium paid by a Fund for the original option plus the
realized decrease in value of the hedged securities.
Alternatively, a Fund may exercise its put option to close out
the position. To do so, it would simultaneously enter into a
futures contract of the type underlying the option (for a
price less than the strike price of the option) and exercise
the option. A Fund would then deliver the futures contract in
return for payment of the strike price. If a Fund neither
closes out nor exercises an option, the option will expire on
the date provided in the option contract, and only the premium
paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Equity Income
Fund, the Bond Fund For Income, and the Municipal Bond Fund
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. 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.
LIMITATION ON OPEN FUTURES POSITIONS. The Equity Income Fund,
the Bond Fund For Income, or the Municipal Bond 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 Equity Income Fund, the Bond Fund For
Income, and the Municipal Bond Fund 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
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<PAGE> 45
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 Equity
Income Fund, the Bond Fund For Income, and the Municipal Bond
Fund 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
Equity Income Fund, the Bond Fund For Income, and the
Municipal Bond Fund 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 Equity Income Fund, the Bond
Fund For Income, and the Municipal Bond Fund may purchase and
write over-the-counter options on portfolio securities in
negotiated transactions with the buyers or writers of the
options for those options on portfolio securities held by a
Fund and not traded on an exchange.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMO"S)
The Bond Fund For Income 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 Equity Income 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
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<PAGE> 46
several of these securities. The investment characteristics of
each convertible security vary widely, which allows
convertible securities to be employed for a variety of
investment strategies. The Equity Income Fund 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 Equity Income 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.
MUNICIPAL SECURITIES
The Municipal Bond Fund may invest in 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
sell the bond from the portfolio, but will consider doing so.
If ratings made by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or Fitch
Investors Service, Inc. ("Fitch") change because of changes in
those organizations or in their rating systems, the Fund will
try to use comparable ratings as standards in accordance with
the investment policies described in the Fund's prospectus.
Examples of 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;
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<PAGE> 47
- 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 Municipal Bond Fund may invest in
participation interests. The financial institutions from which
the 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 Municipal Bond 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 Municipal Bond Fund may purchase
municipal securities in the form of participation interests
which represent undivided proportional interests in lease
payments by a governmental or non-profit entity. The lease
payments and other rights under the lease provide for and
secure the payments on the certificates. Lease obligations may
be limited by municipal charter or the nature of the
appropriation for the lease. In particular, lease obligations
may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity
cannot be compelled to make such payments. Furthermore, a
lease may provide that the certificate trustee cannot
accelerate lease obligations upon default. The trustee would
only be able to enforce lease payments as they become due. In
the event of a default or failure of appropriation, it is
unlikely that the trustee would be able to obtain an
acceptable substitute source of payment. In determining the
liquidity of municipal lease securities, the 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 Municipal Bond 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 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 municipal bonds and thereby
reduce the Fund's yield.
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<PAGE> 48
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 Advisor to be
creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, a Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future it will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable a Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that a Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on a Fund's records at the trade date. These securities are
marked to market daily and maintained until the transaction is settled.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for a Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of a Fund sufficient to
make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked-to-market daily and are
maintained until the transaction has been settled. The Funds do not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of their assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when a Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of a Fund or the borrower. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. A Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in securities issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) securities are restricted as to disposition under the federal securities
laws
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<PAGE> 49
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 Advisor, as
liquid and not subject to the investment limitation applicable to illiquid
securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange commission ("SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the Staff of the SEC has left the question of
determining the liquidity of all restricted securities to the Trustees. The
Trustees consider the following criteria in determining the liquidity of certain
restricted securities:
- the frequency of trades and quotes for the security;
- the number of dealers willing to purchase or sell the security
and the number of other potential buyers:
- dealer undertakings to make a market in the security: and
- the nature of the security and the nature of the marketplace
trades.
PORTFOLIO TURNOVER
The Funds will not attempt to set or meet portfolio turnover rates since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Funds' investment objectives. The Funds estimate that their rate of
portfolio turnover will, generally, not exceed 100%.
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 the Municipal Bond
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.
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<PAGE> 50
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 Municipal Bond 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 the Municipal Bond 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 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 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.
CONCENTRATION OF INVESTMENTS
The Equity Income Fund and the Bond Fund For Income 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 Municipal Bond 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.
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<PAGE> 51
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.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits
as are necessary for clearance of purchases and sales of
securities.
The deposit or payment by the Funds (with the exception the
Municipal Bond 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.
DEALING IN PUTS AND CALLS
The Municipal Bond Fund will not buy or sell puts, calls,
straddles, spreads, or any combination of these.
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
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<PAGE> 52
securities of closed-end investment companies only in open
market transactions involving only customary broker's
commissions. However, these limitations are not applicable if
the securities are acquired in a merger, consolidation,
reorganization, or acquisition of assets. It should be noted
that investment companies incur certain expenses such as
management fees and, therefore, any investment by a Fund in
shares of another investment company would be subject to such
expenses. The Fund will invest in other investment companies
primarily for the purpose of investing its short-term cash on
a temporary basis. The 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 Equity Income Fund and the Bond Fund For Income 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 Municipal Bond 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 Equity Income Fund may not invest more than 5% of its net
assets in warrants, including those acquired in units or
attached to other securities. To comply with certain state
restrictions, 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> 53
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 Municipal Bond 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.
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<PAGE> 54
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)
13
<PAGE> 55
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
TRUSTEES' COMPENSATION
NAME AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*+
- --------------------------------------------------------------------------------
J. Christopher Donahue $ 0
14
<PAGE> 56
Former Trustee, President and Treasurer@
<TABLE>
<CAPTION>
<S> <C>
Edward Burke Carey $ 7,800
Trustee
Lee A. Carter $ 7,800
Trustee
Albert E. Harris $ 7,800
Trustee
<FN>
*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
thirteen portfolios.
@Mr. Donahue resigned as Trustee, President and Treasurer of the Trust effective
December 1, 1995.
</TABLE>
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
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.
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<PAGE> 57
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
BISYS Fund Services L.P., 3435 Stelzer Road, Columbus, Ohio 43219, provides
administrative services to the Funds for the fees set forth in the prospectus.
Pursuant to a separate agreement with BISYS Fund Services L.P., Fifth Third Bank
performs sub-administration services on behalf of each Fund, for which it
receives compensation from BISYS Fund Services L.P.
Under the custodian agreement, Fifth Third Bank holds each Fund's portfolio
securities and keeps all necessary records and documents relating to its duties.
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.
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
guidelines established by the Trustees.
The 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 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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<PAGE> 58
Research services provided by brokers may be used by the Advisor in advising the
Funds 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 their expenses.
Although investment decisions for the Funds are made independently from those of
the other accounts managed by the 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 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 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.
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."
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
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<PAGE> 59
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.
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.
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 the
Municipal Bond 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
18
<PAGE> 60
- 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 the Municipal Bond Fund, the Fund utilizes use an independent
pricing service to value municipal bonds. The independent pricing service takes
into consideration yield, stability, risk, quality, coupon rate, maturity, type
of issue, trading characteristics, special circumstances of a security or
trading market, and any other factors or market data it considers relevant in
determining valuations for normal institutional size trading units of debt
securities, and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized to
be purchased by the Fund with remaining maturities of 60 days or less at the
time of purchase may be their amortized cost value, unless the particular
circumstances of the security indicate otherwise. Under this method, portfolio
instruments and assets are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Trustees continually assess this method of valuation and
recommend changes where necessary to assure that the Fund's portfolio
instruments are valued at their fair value as determined in good faith by the
Trustees.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at the next computed net asset value after a Fund receives
the redemption request. Redemption procedures are explained in the prospectus
under "Redeeming Shares." Although Fifth Third Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
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,
19
<PAGE> 61
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.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, each Fund must, among other
requirements:
- derive at least 90% of its gross income from dividends,
interest, and gains from the sale of securities;
- derive less than 30% of its gross income from the sale of
securities held less than three months;
- invest in securities within certain statutory limits; and
- distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
With respect to the Equity Income Fund and the Bond Fund For Income,
shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by a Fund is eligible
for the dividends received deduction available to corporations. These dividends,
and any short-term capital gains, are taxable as ordinary income.
With respect to the Municipal Bond Fund, no portion of any income dividend paid
by the Fund is eligible for the dividends received deduction available to
corporations.
CAPITAL GAINS
With respect to the Equity Income Fund and the Bond Fund For Income, long-term
capital gains distributed to shareholders will be treated as long-term capital
gains regardless of how long shareholders have held shares.
With respect to the Municipal Bond 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.
20
<PAGE> 62
Distributions of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested, and regardless of the length of time the
shareholder has owned shares. Any loss by a shareholder on shares held for less
than six months and sold after a capital distribution will be treated as a
long-term capital loss to the extent of the capital gains distribution.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Funds is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The 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 EQUIVALENCY TABLE
The Municipal Bond 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. 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
<TABLE>
<CAPTION>
Federal Tax Bracket:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
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
</TABLE>
21
<PAGE> 63
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.
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. (Bond Fund For
Income)
- 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)
- 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. (Bond Fund For Income)
22
<PAGE> 64
- 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 (Bond Fund For
Income).
- 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). (Bond Fund For Income)
- MERRILL LYNCH DOMESTIC MASTER INDEX includes issues which must
be in the form of publicly placed, nonconvertible,
coupon-bearing domestic debt and must carry a term to maturity
of at least one year. Par amounts outstanding must be no less
than $10 million at the start and at the close of the
performance measurement period. The Domestic Master Index is a
broader index than the Merrill Lynch Corporate and Government
Index and includes, for example, mortgage related securities.
The mortgage market is divided by agency, type of mortgage and
coupon and the amount outstanding in each agency/type/coupon
subdivision must be no less than $200 million at the start and
at the close of the performance measurement period. Corporate
instruments must be rated by S&P or by Moody's as investment
grade issues (i.e. BBB/Baa or better). (Bond Fund For Income)
- 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. (Equity Income Fund)
- 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. (Equity Income Fund)
- 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. (Equity Income Fund)
- 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. (Bond Fund For Income)
23
<PAGE> 65
- 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. (Municipal Bond Fund)
- 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. (Bond Fund For Income)
- 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.
(All Funds)
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.
24
<PAGE> 66
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.
25
<PAGE> 67
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.
26
<PAGE> 68
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.
27
<PAGE> 69
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(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(8);
(ii) Conformed copy of Amendment No. 9 to
the Declaration of Trust(7);
(iii) Conformed copy of Amendment No. 10
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 Service
Agreement of the Registrant(8);
(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) Not applicable;
(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);
- -----------------
+ All exhibits have been filed electronically.
* To be filed by Amendment.
1. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed June 1, 1994. (File Nos. 811-5669
and 33-24848).
2. 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).
3. 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).
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed on or about October 1, 1996 (File
No. 811-5669 and 33-24848).
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed on or about October 28, 1996 (File
Nos. 811-5669 and 33-24848).
<PAGE> 70
(16) (i) Copy of Schedule for Computation of
Fund Performance Data for Fountain
Square Balanced Fund (2);
(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 (2);
(v) Copy of Schedule for Computation of
Fund Performance Data for Fountain
Square Quality Bond Fund (2);
(vii) Copy of Schedule for Computation of
Fund Performance Data for Fountain
Square Quality Growth Fund (2);
(viii) Copy of Schedule for Computation of
Fund Performance Data for Fountain
Square Ohio Tax Free Bond Fund (3);
(ix) Copy of Schedule for Computation of
Fund Performance Data for Fountain
Square U.S. Government Securities
Fund (2);
(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(7);
(18) Copy of Multiple Class Plan (6);
(19) (i) Conformed copy of Power of Attorney
(6);
(ii) Consent of Howard & Howard
Attorneys, P.C.+;
- -------------------
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed June 1, 1994. (File Nos. 811-5669
and 33-24848).
2. 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).
3. 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 (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).
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed on or about October 1, 1996 (File
Nos. 811-5669 and 33-24848).
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed on or about October 28, 1996 (File
Nos. 811-5669 and 33-24848).
2
<PAGE> 71
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
<TABLE>
<CAPTION>
Shares of beneficial interest Number of Records Holders
(no par value) as of August 31, 1996
-------------- ---------------------
<S> <C>
U.S. Government Securities Fund 551
Investment A Shares 9
Investment C Shares
Quality Bond Fund 1430
Investment A Shares 11
Investment C Shares
Ohio Tax Free Bond Fund 416
Investment A Shares 7
Investment C Shares
Quality Growth Fund 2939
Investment A Shares 61
Investment C Shares
Mid Cap Fund 2233
Investment A Shares 29
Investment C Shares
Balanced Fund 1581
Investment A Shares 33
Investment C Shares
U.S. Treasury Obligations Fund 2237
International Equity Fund 1798
Investment A Shares 10
Investment C Shares
Government Cash Reserves Fund
Trust Shares 3158
Investment Shares 3501
Commercial Paper Fund
Trust Shares 3026
Investment Shares 2110
Item 27. Indemnification: (9)
<FN>
- -----------------
9. 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).
</TABLE>
3
<PAGE> 72
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> 73
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<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> 74
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> 75
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 October 28,
1996 were as follows:
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices with
Addresses Positions and Offices with BISYS 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
("Sub-Administrator, Transfer Cincinnati, Ohio 45263
Agent and Dividend
Disbursing Agent")
BISYS 3435 Stelzer Road
("Administrator") Columbus, Ohio 43219-3035
7
<PAGE> 76
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 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.
Registrant hereby undertakes to file a post-effective
amendment on behalf of the Fountain Square Equity Income Fund,
the Fountain Square Bond Fund For Income, and the Fountain
Square Municipal Bond Fund, using financial statements which
need not be certified, within four to six months from January
11, 1997, the effective date of Post-Effective Amendment No.
19 to the Registrant's registration statement.
8
<PAGE> 77
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 15th day of January, 1997.
FOUNTAIN SQUARE FUNDS
BY: /s/Stephen G. Mintos
Stephen G. Mintos, President
Attorney in Fact for Edward Burke Carey, Lee
A. Carter, and Alber E. Harris
January 15, 1997
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 January 15, 1997
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 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. 20 to the Registration Statement on Form N-1A, File
No. 33-24848, filed under the Securities Act of 1933, as amended, and Amendment
No. 21 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.
January 15, 1997
By: /s/ Robert C. Rosselot
--------------------------------
Robert C. Rosselot
10
