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1933 Act File No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ....................................
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Post-Effective Amendment No. .................................
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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)
Copy to:
Joseph B. Hemker, Esq. Melanie Mayo West, Esq.
Howard & Howard Attorneys, P.C. Hertz, Schram & Saretsky, P.C.
100 Portage Road, Suite 200 1760 S. Telegraph Road, Suite 300
Kalamazoo, Michigan 49007 Bloomfield Hills, Michigan 48302-01831
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: as soon as practicable after the
effective date of this Registration Statement.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effectiveness until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to such Section
8(a), shall determine.
Title of Securities Being Registered: Shares of Beneficial Interest.
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended, and
filed the Notice required by that Rule on September 25, 1997.
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FOUNTAIN SQUARE FUNDS
REGISTRATION STATEMENT ON FORM N-14
CROSS-REFERENCE SHEET
PART A. INFORMATION REQUIRED IN THE PROSPECTUS
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ITEM NO. RULE 481(a) CROSS-REFERENCE
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1. Beginning of Registration Statement and Cross-Reference Sheet; Cover Page
Outside Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Fee Table, Synopsis Information and Risk Comparative Fee Tables; Summary; Comparison of
Factors Investment Objectives, Investment Policies and Risk
Factors
4. Information About the Transaction Information Relating to the Proposed Reorganization;
Other Comparative Information
5. Information About the Registrant Other Comparative Information; Comparison of Investment
Objectives, Investment Policies and Risk Factors, Comparison
of Cardinal and FSF Investment Advisor and Other Service
Providers; Financial Statements; Incorporated by Reference
to Registrant's Annual Report dated July 31, 1998 (File No. ).
6. Information About the Company Being Other Comparative Information; Comparison of
Acquired Investment Objectives, Investment Policies and Risk
Factors, Comparison of Cardinal and FSF Investment
Advisor and Other Service Providers; Financial
Statements
7. Voting Information Summary; Information Relating to Voting Matters
8. Interest of Certain Persons and Experts Corporation of Cardinal and FSF Investment Advisor
and Other Service Providers
9. Additional Information Not Applicable
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PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information About the Registrant Incorporated by Reference to Registrant's Statement of Additional
Information dated September 30, 1997, as supplemented,
November 30, 1997, as supplemented and May ____, 1998, as
supplemented. (File No. 33-24848)
13. Additional Information About the Company Incorporated by Reference to Cardinal's Statement of
Being Acquired Additional Information dated January 30, 1998, as
supplemented. (File No. 33-59984).
14. Financial Statements Financial Statements
</TABLE>
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THE CARDINAL GROUP
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
May ____, 1998
Dear Cardinal Shareholder:
On behalf of the Board of Trustees of The Cardinal Group ("Cardinal"), we are
pleased to invite you to a special meeting of shareholders on July 10, 1998
(the "Special Meeting"), that has been called to consider matters that are
important to you. At the Special Meeting, you will be asked to consider a
proposed reorganization of the six Cardinal Funds (the "Cardinal Funds") into
six corresponding funds (the "Fountain Square Funds") of Fountain Square Funds
("FSF").
As a result of the proposed merger of a subsidiary of Fifth Third
Bancorp, the parent company of FSF's investment advisor Fifth Third Bank
("Fifth Third") and The Ohio Company, the parent company of Cardinal's
investment advisor Cardinal Management Corp. ("CMC"), representatives of Fifth
Third Bancorp and The Ohio Company recommended to the Board of Trustees of
Cardinal that the Trustees consider and approve combining the Cardinal Funds
with the Fountain Square Funds. This recommendation was made because Fifth
Third and CMC believed that combining the Cardinal Funds and the Fountain
Square Funds would offer a number of potential benefits to the shareholders of
the two mutual fund groups.
CARDINAL'S BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THE
PROPOSED REORGANIZATION.
Background. It is currently anticipated that on or about June 5, 1998, Fifth
Third M Corp. will merge with The Ohio Company (the "Ohio Company merger"). By
law, this merger will result in the automatic termination of Cardinal's then
current investment advisory agreement with CMC. At a special meeting of
shareholders held on March 20, 1998, Cardinal shareholders approved a new
investment advisory agreement with CMC effective upon the close of The Ohio
Company merger.
At the upcoming Special Meeting, you will be asked to approve a reorganization
of each of your Cardinal Funds into corresponding Fountain Square Funds. Each
Fountain Square Fund is a series of FSF, an open-end management investment
company advised by Fifth Third. If all approvals are obtained, the Cardinal
Funds are expected to be reorganized into the corresponding Fountain Square
Funds on or about July 13, 1998, when your Cardinal Funds will be exchanged for
shares of the corresponding Fountain Square Funds of equal value. The
reorganization that you are being asked to approve should benefit shareholders
by:
o facilitating investment management, administration and
marketing by combining the Cardinal Funds and the Fountain
Square Funds;
o improving efficiency, including the potential for economies
of scale;
o eliminating duplicative costs; and
o making available to shareholders a greater number of
investment portfolio options.
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In considering these matters, you should note:
o SIMILAR OBJECTIVES AND POLICIES
Two of the six Cardinal Funds will be reorganized into new Fountain
Square Funds which have been created for purposes of the fund
reorganization, and the remaining four Cardinal Funds will be
reorganized into existing Fountain Square Funds. The objectives and
policies of each of the Fountain Square Funds are generally similar to
those of its corresponding Cardinal Fund. There are some differences,
however, which are discussed in the enclosed Combined Proxy
Statement/Prospectus, and you should consider these differences
carefully.
o SIMILAR ACCESS ARRANGEMENTS
You will enjoy access to the Fountain Square Funds through
distribution and shareholder servicing arrangements that are
substantially similar to Cardinal's current arrangements. To continue
check writing access to Money Market Fund balances,
__________________.
o SAME VALUE OF SHARES
The total value of the Fountain Square Fund shares that you receive in
the reorganization will be the same as the total net asset value of
the Cardinal Fund shares that you hold immediately before the
reorganization.
o EQUAL OR BETTER OPERATING EXPENSE RATIOS
The annual fund operating expense ratios (after waivers) for each of
the corresponding Fountain Square Funds after the reorganization are
expected to be equal to or less than the annual fund operating expense
ratios of your Cardinal Fund.
The formal Notice of Special Meeting, a Combined Proxy Statement/Prospectus and
a Proxy Card are enclosed. If you own shares in more than one Cardinal Fund,
more than one Proxy Card accompanies these proxy materials.
YOUR VOTE IS VERY IMPORTANT TO US. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD(S) PROMPTLY.
The proposed reorganization and the reasons for the Cardinal Board of Trustees'
recommendation are discussed in detail in the enclosed materials, which you
should read carefully. If you have any questions about the reorganization,
please do not hesitate to call The Cardinal Group toll-free at (800) 282-9446.
Very truly yours,
Frank W. Siegel
President
2
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THE CARDINAL GROUP
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on July 10, 1998
Dear Cardinal Shareholder:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders of
The Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal Balanced Fund,
Cardinal Government Obligations Fund, Cardinal Government Securities Money
Market Fund and Cardinal Tax Exempt Money Market Fund (each a "Cardinal Fund"),
series of The Cardinal Group ("Cardinal") will be held at National City Board
Room, Third Floor, 155 East Broad Street, Columbus, Ohio on July 10, 1998, at
9:00 a.m. Eastern Time for the following purposes:
ITEM 1. With respect to each Cardinal Fund:
To consider and act upon a proposal to approve an Agreement
and Plan of Reorganization and Liquidation (the
"Reorganization Agreement") and the transactions contemplated
thereby, including the transfer of all of the assets and known
liabilities of each Cardinal Fund to a corresponding
investment portfolio of Fountain Square Funds ("FSF") in
exchange for shares of designated classes of the corresponding
Fountain Square Fund.
ITEM 2. With respect to each Cardinal Fund:
To transact such other business as may properly come before
the Special Meeting or any adjournment(s) thereof.
The proposed reorganization and related matters are described in the
attached Combined Proxy Statement/Prospectus. Appendix A to the Combined Proxy
Statement/Prospectus is a copy of the Reorganization Agreement.
Shareholders of record as of the close of business on May 1, 1998 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment(s)
thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY
CARDINAL'S BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO CARDINAL A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED
PROXY OR BY OTHERWISE GIVING NOTICE OF REVOCATION IN OPEN MEETING.
/s/ Karen J. Hipsher
-----------------------------------------
Secretary
May ____, 1998
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COMBINED PROXY STATEMENT/PROSPECTUS
DATED MAY ____, 1998
THE CARDINAL GROUP
155 East Broad Street
Columbus, Ohio 43215
Telephone Number: (800) 282-9446
FOUNTAIN SQUARE FUNDS
38 Fountain Square Plaza
Mail Drop: 1090Q6
Cincinnati, Ohio 45263
Telephone Number: (888) 799-5353
This Combined Proxy Statement/Prospectus is furnished in connection
with the solicitation of proxies by the Board of Trustees of The Cardinal Group
("Cardinal") in connection with a Special Meeting of Shareholders (the "Special
Meeting") of The Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal
Balanced Fund, Cardinal Government Obligations Fund, Cardinal Government
Securities Money Market Fund and Cardinal Tax Exempt Money Market Fund (each a
"Cardinal Fund") to be held on July 10, 1998, at 9:00 a.m. Eastern Time at
National City Board Room, Third Floor, 155 East Broad Street, Columbus Ohio. At
the Special Meeting, shareholders will be asked to consider and approve a
proposed Agreement and Plan of Reorganization and Liquidation dated as of March
23, 1998 (the "Reorganization Agreement") by and between Cardinal, Cardinal
Management Corp. ("CMC"), Fifth Third Bank ("Fifth Third") and Fountain Square
Funds ("FSF"). Appendix A to the Combined Proxy Statement/Prospectus is a copy
of the Reorganization Agreement.
Cardinal and FSF are both open-end management investment companies
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). CMC currently provides investment advisory services to Cardinal. Fifth
Third provides investment advisory services to FSF. In reviewing the proposed
reorganization (the "Reorganization"), the Cardinal Board of Trustees
considered the pending acquisition by Fifth Third Bancorp of The Ohio Company,
CMC's parent corporation; the effect of such acquisition on Cardinal; the
recommendation of CMC and Fifth Third with respect to the proposed
consolidation of Cardinal and FSF; the fact that the Reorganization would
constitute a tax-free reorganization; the fact that the interests of
shareholders would not be diluted as a result of the Reorganization; the
portfolio managers, performance records and estimated expense ratios of the
Fountain Square Funds; and other factors.
The Reorganization Agreement provides for the transfer of all of the
assets and stated liabilities of each Cardinal Fund to a corresponding
investment portfolio of FSF (each a "Fountain Square Fund" and collectively the
"Fountain Square Funds") in exchange for shares of comparable classes of the
Fountain Square Funds having equal value. As a result of the Reorganization,
shareholders of the Cardinal Funds will become shareholders of the Fountain
Square Funds as follows:
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CARDINAL FUNDS FOUNTAIN SQUARE FUNDS
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The Cardinal Fund Fountain Square Cardinal Fund*
Cardinal Aggressive Growth Fund Fountain Square Mid Cap Fund
Cardinal Balanced Fund Fountain Square Balanced Fund
Cardinal Government Obligations Fund Fountain Square Bond Fund For Income
Cardinal Government Securities Money Market Fund Fountain Square Government Cash Reserves Fund
Cardinal Tax Exempt Money Market Fund Fountain Square Tax Exempt Money Market Fund*
</TABLE>
*Fountain Square Cardinal Fund and Fountain Square Tax Exempt Money Market Fund
have been organized to facilitate the Reorganization and have not commenced
operations.
See "Information Relating to the Proposed Reorganization" for a discussion of
each Cardinal Fund and the corresponding Fountain Square Fund into which it will
be reorganized.
This Combined Proxy Statement/Prospectus sets forth concisely the
information that a shareholder of Cardinal should know before voting on the
Reorganization Agreement (and related transactions), and should be retained for
future reference.
For shareholders of the Cardinal Funds who will receive Investment A
Shares of Fountain Square Bond Fund For Income, Fountain Square Mid Cap Fund
and Fountain Square Balanced Fund as part of the Reorganization, this Combined
Proxy Statement/Prospectus is accompanied by FSF's Annual Report to
Shareholders dated July 31, 1997, FSF's Semi-Annual Report to Shareholders
dated January 31, 1998 and the Prospectus dated November 30, 1997, as
supplemented through the date hereof, relating to Investment A Shares of each
of these Fountain Square Funds. For shareholders of Cardinal Government
Securities Money Market Fund who will receive Investment A Shares or
Institutional Shares of Fountain Square Government Cash Reserves Fund as part of
the Reorganization, this Combined Proxy Statement/Prospectus is accompanied by
the Prospectus dated September 30, 1997, as supplemented through the date
hereof, relating to Investment (A) Shares and Institutional Shares (formerly
known as Trust Shares) of Fountain Square Government Cash Reserves Fund.
Fountain Square Bond Fund For Income, Fountain Square Mid Cap Fund, Fountain
Square Balanced Fund and Fountain Square Government Cash Reserves Fund are
collectively referred to as the ("Operating Fountain Square Funds.")
For shareholders of the Cardinal Funds who will receive Investment A
Shares of Fountain Square Cardinal Fund and Fountain Square Tax Exempt Money
Market Fund (the "New Fountain Square Funds"), as part of the Reorganization,
this Combined Proxy Statement/Prospectus is accompanied by one or more
Prospectuses dated May ____, 1998, as supplemented through the date hereof,
relating to Investment A Shares of each of the New Fountain Square Funds.
For shareholders of the Cardinal Funds who will receive Institutional
Shares of any of the Fountain Square Funds, except Fountain Square Government
Cash Reserves Fund as part of the Reorganization, this Combined Proxy
Statement/Prospectus is accompanied by one or more Prospectuses dated May ____,
1998, as supplemented through the date hereof, relating to Institutional Shares
of the Fountain Square Funds.
Additional information relating to this Combined Proxy
Statement/Prospectus is set forth in the Statement of Additional Information,
dated the date hereof, which is incorporated herein by reference, and in the
Prospectuses and Statement of Additional Information dated January 30, 1998, as
supplemented through the date hereof, for the Cardinal Funds. Each of these
documents is on file with the Securities and Exchange Commission (the "SEC"),
and is available without charge by writing or calling either Cardinal or FSF at
the respective addresses or telephone numbers indicated above. The information
contained in each of the Fountain Square Funds Prospectuses and Prospectuses
for the Cardinal Funds is incorporated herein by reference.
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This Combined Proxy Statement/Prospectus is Cardinal's proxy statement
for the Special Meeting, and FSF's Prospectus for the shares of the Fountain
Square Funds that have been registered with the SEC and are to be issued in
connection with the Reorganization.
This Combined Proxy Statement/Prospectus is expected to first be sent
to Cardinal shareholders on or about May __, 1998.
THE SECURITIES OF FSF HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVEN ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CARDINAL OR FSF.
SHARES OF FSF ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
FIFTH THIRD BANK OR ANY OF ITS AFFILIATES. SHARES OF FSF ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY, OR OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES OF THE
FSF, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. AN
INVESTMENT IN FSF INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
AN INVESTMENT IN ANY OF THE MONEY MARKET FUNDS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY SUCH
FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
iii
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TABLE OF CONTENTS
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PAGE
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SUMMARY................................................................................................ 1
Proposed Reorganization....................................................................... 1
Reasons for the Reorganization................................................................ 1
Federal Income Tax Consequences............................................................... 1
Comparison of Shareholder Transactions and Services........................................... 2
Voting Information............................................................................ 2
Risk Factors.................................................................................. 3
COMPARISON OF CARDINAL AND FSF INVESTMENT ADVISOR
AND OTHER SERVICE PROVIDERS............................................................................ 3
The Cardinal Funds............................................................................ 3
Fountain Square Funds......................................................................... 4
COMPARATIVE FEE TABLES................................................................................. 6
Comparative Fee Tables - Non-Money Market Funds............................................... 6
Comparative Fee Tables - Money Market Funds (Retail Investors)................................ 13
Comparative Fee Tables - Money Market Funds (Institutional Investors)......................... 15
Expense Ratios - Cardinal Funds............................................................... 17
Expense Ratios - Fountain Square Funds........................................................ 17
INFORMATION RELATING TO THE PROPOSED REORGANIZATION.................................................... 20
Description of the Reorganization Agreement................................................... 20
Capitalization................................................................................ 22
Federal Income Tax Consequences............................................................... 26
COMPARISON OF INVESTMENT OBJECTIVES, INVESTMENT POLICIES AND RISK
FACTORS................................................................................................ 26
The Cardinal Fund and Fountain Square Cardinal Fund........................................... 26
Cardinal Aggressive Growth Fund and Fountain Square Mid Cap Fund.............................. 27
Cardinal Balanced Fund and Fountain Square Balanced Fund...................................... 28
Cardinal Government Obligations Fund and Fountain Square Bond Fund For Income................. 29
Cardinal Government Securities Money Market Fund and Fountain Square Government Cash
Reserves Fund............................................................................... 30
Cardinal Tax Exempt Money Market Fund and Fountain Square Tax Exempt Money Market
Fund........................................................................................ 31
Risk Factors.................................................................................. 32
OTHER COMPARATIVE INFORMATION.......................................................................... 33
Purchase and Redemption Information, Exchange Privileges, Distribution and Pricing............ 33
Other Information............................................................................. 36
INFORMATION RELATING TO VOTING MATTERS................................................................. 37
General Information........................................................................... 37
Shareholder and Board Approvals............................................................... 38
Appraisal Rights.............................................................................. 40
Quorum........................................................................................ 40
</TABLE>
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Annual Meetings............................................................................... 40
ADDITIONAL INFORMATION ABOUT FSF....................................................................... 41
ADDITIONAL INFORMATION ABOUT CARDINAL.................................................................. 42
LITIGATION............................................................................................. 42
FINANCIAL STATEMENTS................................................................................... 42
OTHER BUSINESS......................................................................................... 43
SHAREHOLDER INQUIRIES.................................................................................. 43
</TABLE>
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SUMMARY
The following is a summary of certain information relating to the
proposed Reorganization, the parties thereto and the related transactions, and
is qualified by reference to the more complete information contained elsewhere
in this Combined Proxy Statement/Prospectus, the Prospectuses and Statements of
Additional Information of Cardinal and FSF, and the Reorganization Agreement
attached to this Combined Proxy Statement/Prospectus as Appendix A. Cardinal's
Annual Report to Shareholders may be obtained free of charge by calling or
writing Cardinal.
PROPOSED REORGANIZATION. The Reorganization Agreement provides for: (i)
the transfer of all or substantially all of the assets and stated liabilities of
each Cardinal Fund to a corresponding Fountain Square Fund in exchange for
shares of comparable classes of the corresponding Fountain Square Fund; and (ii)
the distribution of Fountain Square Fund shares so received to the shareholders
of the Cardinal Funds in liquidation of the Cardinal Funds. The Reorganization
is subject to a number of conditions with respect to each Cardinal Fund,
including shareholder approval and receipt of an exemptive order from the
Securities and Exchange Commission (the "SEC"). Following the Reorganization,
Cardinal will wind up its affairs and deregister as an investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"). Based upon
their evaluation of the relevant information presented to them, and in light of
their fiduciary duties under federal and state law, Cardinal's and FSF's Boards,
including their members who are not "interested persons" within the meaning of
the 1940 Act, have determined that the proposed Reorganization is in the best
interests of Cardinal's and FSF's shareholders, respectively, and that the
interests of existing shareholders of Cardinal and FSF, respectively, will not
be diluted as a result of such Reorganization.
The Reorganization Agreement may be terminated at any time prior to the
closing of the Reorganization (a) by mutual written consent of Cardinal and FSF
or (b) by either Cardinal or FSF if either Board of Trustees determines that
proceeding with the Reorganization is not in the best interests of its
shareholders.
REASONS FOR THE REORGANIZATION. The primary reason for the
Reorganization is the pending acquisition of The Ohio Company, CMC's parent
corporation, by Fifth Third Bancorp, Fifth Third's parent corporation. In light
of this acquisition, Fifth Third and CMC have recommended that each of the
Cardinal Funds be reorganized as described in this Combined Proxy
Statement/Prospectus shortly after the proposed acquisition of The Ohio
Company. In recognition of the fact that the Reorganization will be tax-free
and will not dilute the interests of Cardinal shareholders and for other
reasons more fully described herein, the Board of Trustees of Cardinal has
unanimously approved the Reorganization Agreement and has recommended its
approval to shareholders.
FEDERAL INCOME TAX CONSEQUENCES. Shareholders of the Cardinal Funds
will recognize no gain or loss for federal income tax purposes on their receipt
of shares of the Fountain Square Funds and shareholders of the Fountain Square
Funds will have no tax consequences from the Reorganization. The Cardinal Funds
will incur no federal tax liability as a result of the Reorganization, and the
Fountain Square Funds will recognize no gain or loss for federal tax purposes on
their issuance of shares in the Reorganization. See "Information Relating to the
Proposed Reorganization - Federal Income Tax Consequences."
OVERVIEW OF THE CARDINAL FUNDS AND THE FOUNTAIN SQUARE FUNDS. There are
no material differences between the investment objectives and policies of The
Cardinal Fund and Cardinal Tax Exempt Money Market Fund and the corresponding
New Fountain Square Funds. The investment objectives and policies of the
remaining Cardinal Funds are generally similar to those of the Operating
Fountain Square Funds.
Additional information is provided below under "Comparison of
Investment Objectives, Investment Policies and Risk Factors" and in the Cardinal
and FSF Prospectuses, which are incorporated herein by reference, relating to
the similarities and differences between the investment objectives and policies
of the Cardinal Funds and their corresponding Fountain Square Funds.
1
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As discussed more fully below under "Comparison of Cardinal and FSF -
Investment Advisor and Other Service Providers," Fifth Third currently serves as
the investment advisor to each of the Operating Fountain Square Funds, and will
serve as the investment advisor to the New Fountain Square Funds. In all cases,
the overall expense ratios of the Fountain Square Funds, after waivers, are
expected to be equal to or less than the overall expense ratios of the
corresponding Cardinal Funds. In addition, in this regard, Fifth Third and FSF
have agreed that for a period of two years after the Closing Date, FSF will not
enter into, participate in, or pay compensation in connection with any
arrangement that facilitates or is intended to facilitate the payment of direct
or indirect compensation to Fifth Third, CMC or any interested person of either
of them, or increase compensation payable to Fifth Third, CMC or any interested
person of either of them which results in an increase in the expense ratios of
any of the Fountain Square Funds described in the pro forma combined fee tables
(net of fee waivers) in this Combined Proxy Statement/Prospectus. Cardinal and
FSF have different administrators, distributors, transfer agents, independent
public accountants and trustees.
Each of the Fountain Square Funds will issue Investment A Shares and
Institutional Shares in connection with the Reorganization. Each of Fountain
Square Cardinal Fund, Fountain Square Mid Cap Fund, Fountain Square Balanced
Fund and Fountain Square Bond Fund For Income (the "Fountain Square Non-Money
Market Funds") also offer Investment C Shares. Investment A Shares of the
Fountain Square Funds are sold to the general public and are subject to
front-end sales charges and Rule 12b-1 fees. Investment C Shares are sold at net
asset value, but are subject to a contingent deferred sales charge if sold
within one year after purchase. In addition, Investment C Shares are subject to
higher Rule 12b-1 fees than Investment A Shares. Institutional Shares are
offered only to clients of Fifth Third Bank who make purchases through Fifth
Third's Trust Department, certain qualified employee benefit plans, and
broker-dealers, investment advisors, financial planners and other financial
institutions who place trades for their own accounts or the accounts of their
clients for a management, consulting or other fee. Such shares are offered at
net asset value without any front-end or contingent deferred sales charge and
are not subject to any Rule 12b-1 fees. Each of The Cardinal Fund, Cardinal
Aggressive Growth Fund, Cardinal Balanced Fund and Cardinal Government
Obligations Fund (the "Cardinal Non-Money Market Funds") offers Investor Shares
and Institutional Shares. Investor Shares of the Cardinal Funds are similar to
Investment A Shares of the Fountain Square Funds. Such shares are offered at net
asset value, subject to a front-end sales charge and Rule 12b-1 fees.
Institutional Shares of the Cardinal Funds are similar to Institutional Shares
of the Fountain Square Funds, except that Institutional Shares of the Cardinal
Funds are subject to administrative service fees and Institutional Shares of the
Fountain Square Funds are not.
COMPARISON OF SHAREHOLDER TRANSACTIONS AND SERVICES. With certain
exceptions, the purchase, redemption, dividend, exchange and other policies and
procedures for the Fountain Square Funds and the Cardinal Funds are generally
similar. None of the Fountain Square Funds offers a check-writing redemption
feature, although investors may participate in the One Account Advantage program
at Fifth Third which permits check writing against Fountain Square Money Market
Fund balances.
VOTING INFORMATION. Only shareholders of record of the Cardinal Funds
at the close of business on May 1, 1998 will be entitled to notice of and to
vote at the Special Meeting or any adjournments thereof. Each dollar of value
invested in the Cardinal Funds or fraction of a dollar invested as of the close
of business on the record date is entitled to one vote or fraction thereof and
all shares will vote separately by Fund. Shares represented by a properly
executed proxy will be voted in accordance with the specified instructions, or
if no specification is made, the persons named as proxies will vote in favor of
each proposal set forth in the Notice of Meeting. Shares represented by
proxies, unless previously revoked, will be voted at the Special Meeting in
accordance with the instructions of the shareholders. If no instructions are
given, the proxies will be voted in favor of the proposal. To revoke a proxy,
the shareholder giving such proxy must either submit to Cardinal a subsequently
dated proxy, deliver to Cardinal a written notice of revocation or otherwise
give notice of revocation in open meeting, in all cases prior to the exercise
of the authority granted in the proxy. For additional information, including a
description of the shareholder vote required for approval of the Reorganization
Agreement and related transactions, see "Information Relating to Voting
Matters."
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<PAGE> 14
RISK FACTORS. Because of the similarities of the investment objectives,
policies and restrictions of the Cardinal Funds and their corresponding Fountain
Square Funds, an investment in a Fountain Square Fund involves risks that are
similar to those of the corresponding Cardinal Fund. In the case of Fountain
Square Cardinal Fund and Fountain Square Mid Cap Fund, the investment risks, in
general, are those typically associated with investing in a portfolio of common
stocks. In the case of Fountain Square Bond Fund For Income, the investment
risks, in general, are those typically associated with investing in a portfolio
of investment grade fixed income securities. In the case of Fountain Square
Balanced Fund, the investment risks are those typically associated with
investing in a portfolio of both common stocks and investment grade fixed income
securities. Finally, with respect to Fountain Square Government Cash Reserves
Fund and Fountain Square Tax Exempt Money Market Fund, the investment risks, in
general, are those typically associated with investing in a portfolio of high
quality money market instruments. In addition, these Money Market Funds attempt
to maintain a stable net asset value of $1.00, although there is no assurance
that they will be able to do so. See "Comparison of Investment Objectives,
Investment Policies and Risk Factors."
COMPARISON OF CARDINAL AND FSF
INVESTMENT ADVISOR AND OTHER SERVICE PROVIDERS
THE CARDINAL FUNDS. CMC serves as investment advisor and manager of the
Cardinal Funds and is entitled to receive advisory and management fees
("advisory fees") from the Cardinal Funds, computed and paid monthly, at the
following annual rates, expressed as a percentage of average daily net assets:
<TABLE>
<CAPTION>
MAXIMUM ACTUAL
ADVISORY FEE ADVISORY FEE
(% OF AVERAGE IN YEAR ENDED
CARDINAL FUNDS DAILY NET WORTH) SEPTEMBER 30, 1997
-------------- ---------------- ---------------
<S> <C> <C>
The Cardinal Fund 0.60% 0.60%
Cardinal Aggressive Growth Fund 0.75% 0.75%
Cardinal Balanced Fund 0.75% 0.75%
Cardinal Government Obligations Fund 0.50% 0.50%
Cardinal Government Securities Money Market Fund 0.50% 0.50%
Cardinal Tax Exempt Money Market Fund 0.50% 0.50%
</TABLE>
Pursuant to the Cardinal Investment Advisory and Management Agreement
(the "Cardinal Advisory Agreement"), CMC conducts a continuous investment
program, including investment research and management with respect to all
securities and investments and cash equivalents in the Cardinal Funds. CMC
provides these services in accordance with the Cardinal Funds' investment
objectives, policies and restrictions. In addition, pursuant to the Cardinal
Advisory Agreement, CMC is responsible for overall management of the Cardinal
Funds' business affairs except those performed by Cardinal's custodian, transfer
agent and fund accountant.
Transfer agency services are provided to Cardinal by CMC. For services
in its capacity as transfer agent, CMC receives monthly an annual fee per
shareholder account equal to $18 for The Cardinal Fund, Cardinal Aggressive
Growth Fund and Cardinal Balanced Fund and $21 for Cardinal Government
Obligations Fund, Cardinal Government Securities Money Market Fund and Cardinal
Tax Exempt Money Market Fund, plus out-of-pocket expenses.
Custodial services are provided to Cardinal by Fifth Third Bank, for
which it receives a base fee for each Cardinal Fund, plus applicable transaction
charges. Effective January 20, 1997, Fifth Third also began providing fund
accounting services to each Cardinal Fund for a fee of 0.03% on the
3
<PAGE> 15
first $100 million of such Fund's average daily net assets, 0.02% on the next
$100 million, and 0.01% on assets above $200 million. A minimum monthly charge
of $2,500 for each Cardinal Fund applies, and there is a $7,000 surcharge for
additional classes of shares.
The Ohio Company, CMC's parent corporation, is the principal
underwriter for Cardinal. Under the distribution agreement, The Ohio Company
acts as the agent of Cardinal in connection with the offering of shares of each
Cardinal Fund.
Cardinal has adopted a Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act (the "Cardinal 12b-1 Plan"). Under the Cardinal 12b-1 Plan,
Investor Shares of The Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal
Balanced Fund and Cardinal Government Obligation Fund bear the expense of
distribution fees payable to The Ohio Company at an annual rate of up to 0.25%
of the average daily net asset value of each Fund's outstanding Investor Shares
to finance activities which are principally intended to result in the sale of
such shares. The Cardinal 12b-1 Plan allows The Ohio Company to enter into
agreements with broker-dealers and other financial institutions which provide
shareholder services as agents for their customers who beneficially own Investor
Shares of these Funds. Shareholder services provided by such financial
institutions may include, without limitation: answering shareholder questions
concerning the Cardinal Funds; providing information to shareholders on their
investments in the Cardinal Funds; providing such personnel and communication
equipment as is necessary and appropriate to accomplish such matters; and such
other services as may reasonably be requested.
The Cardinal 12b-1 Plan is a compensation type plan as opposed to a
reimbursement type plan. Accordingly, payments by Investor Shares under the
12b-1 Plan are based on the expressed fee rather than on the specific amounts
expended by The Ohio Company for shareholder services. The Ohio Company may be
able to recover such amounts or may earn a profit from payments made by Investor
Shares of these Cardinal Funds under the Cardinal 12b-1 Plan.
Cardinal has also adopted a Shareholder Service and Administrative
Services Plan (the "Cardinal Administrative Services Plan"), pursuant to which
The Ohio Company receives an annual fee of up to 0.15% of the average net assets
of the Institutional Shares of The Cardinal Fund, Cardinal Aggressive Growth
Fund, Cardinal Balanced Fund and Cardinal Government Obligation Fund for which
it provides shareholder services. Other financial institutions may also receive
fees under the Cardinal Administrative Services Plan.
FOUNTAIN SQUARE FUNDS. Fifth Third, which is a wholly-owned subsidiary
of Fifth Third Bancorp, a bank holding company organized under the laws of Ohio,
serves as investment advisor to FSF and is entitled to receive advisory fees
from FSF, computed daily and paid monthly, at the following annual rates:
<TABLE>
<CAPTION>
ACTUAL
MAXIMUM ADVISORY FEE
ADVISORY FEE IN YEAR ENDED
(% OF AVERAGE JULY 31, 1997
FOUNTAIN SQUARE FUNDS DAILY NET ASSETS) (AFTER WAIVERS)
--------------------- ----------------- ---------------
<S> <C> <C>
Fountain Square Cardinal Fund.............................. 0.60% N/A*
Fountain Square Mid Cap Fund............................... 0.80% 0.80%
Fountain Square Balanced Fund.............................. 0.80% 0.80%
Fountain Square Bond Fund for Income....................... 0.55% 0.55%
Fountain Square Government Cash Reserves Fund.............. 0.40% 0.37%
Fountain Square Tax Exempt Money Market Fund............... 0.50% N/A*
</TABLE>
* Fountain Square Cardinal Fund and Fountain Square Tax Exempt Money Market Fund
have been organized to facilitate the Reorganization and have not commenced
operations.
4
<PAGE> 16
Fifth Third serves as investment advisor to FSF pursuant to the FSF
Advisory Contract which is similar in all material respects to the Cardinal
Investment Advisory Agreement with CMC, except that administrative services
provided by Fifth Third to FSF are not covered by the FSF Advisory Contract,
but are provided to FSF by BISYS Fund Services, L.P., as described below.
Under the Cardinal Advisory Agreement, subject to the supervision of
the Cardinal Trustees, CMC has the authority and discretion to select brokers
and dealers to execute portfolio transactions for the Cardinal Funds. Similarly,
subject to the supervision of the FSF Trustees, Fifth Third has the authority
and discretion to select brokers and dealers to execute portfolio transactions
for the Fountain Square Funds. The Cardinal Advisory Agreement obligates CMC to
obtain prompt execution of orders in an effective manner at the most favorable
price. Consistent with this obligation, when the execution and price offered by
two or more brokers or dealers are comparable, CMC may, in its discretion,
purchase and sell portfolio securities to and from brokers and dealers who
provide CMC with research, advice and other services.
See "Fountain Square Funds Information - Management of the Trust -
Investment Advisor" in the FSF Prospectuses accompanying this Combined Proxy
Statement/Prospectus, which are incorporated herein by reference, for additional
information on FSF's Advisor.
Administrative services are provided to FSF by BISYS Fund Services,
L.P. ("BISYS"), 3435 Stelzer Road, Columbus, Ohio 43219. For its services, BISYS
is entitled to receive a fee, computed daily and paid monthly, at the annual
rate of 0.20% of the first $1 billion of the combined average daily net assets
of all funds offered by FSF, 0.18% of the next $1 billion of such combined
average daily net assets, and 0.17% of such combined average daily net assets
in excess of $2 billion.
Pursuant to a separate agreement with BISYS, Fifth Third performs
sub-administration services on behalf of each Fountain Square Fund including
providing certain administrative personnel and services necessary to operate the
Fountain Square Fund for which Fifth Third receives a fee from BISYS computed
daily and paid periodically calculated at an annual rate of 0.025% of average
daily net assets. Fifth Third also serves as custodian for the securities and
cash of the Fountain Square Funds, transfer agent for the shares of the Fountain
Square Funds, and dividend disbursing agent for the Fountain Square Funds.
Finally, Fifth Third provides fund accounting services to each of the Fountain
Square Funds. For each of these services, Fifth Third receives a base fee per
Fund plus applicable transaction charges.
BISYS also serves as FSF's principal underwriter for all funds. Under
the Distribution Agreement, BISYS may enter into dealer agreements on behalf of
FSF in order to sell Investment A Shares of the Fountain Square Funds.
FSF has also adopted a Distribution Plan pursuant to Rule 12b-1 of the
1940 Act (the "FSF 12b-1 Plan"). Under the FSF 12b-1 Plan, as amended,
Investment A Shares of each Fountain Square Fund bear the expense of
distribution fees payable to BISYS at an annual rate of up to 0.25% of the
average daily net asset value of such Fund's outstanding Investment A Shares to
finance activities which are principally intended to result in the sale of such
shares. The FSF 12b-1 Plan allows BISYS, as distributor, to enter into
agreements with broker-dealers and other financial institutions to provide
shareholder services similar to those described with respect to the Cardinal
12b-1 Plan as well as distribution services.
5
<PAGE> 17
Like the Cardinal 12b-1 Plan, the FSF 12b-1 Plan is a compensation type
plan as opposed to a reimbursement type plan. For the fiscal year ended July 31,
1997, FSF did not pay any fees to BISYS pursuant to the FSF 12b-1 Plan in
connection with the sale of the Investment A Shares of any of the Fountain
Square Funds. Beginning on or about July ____, 1998, each of the Fountain Square
Funds, except Fountain Square Tax Exempt Money Market Fund, expects to pay to
BISYS 0.25% of the average daily net asset value of its Investment A Shares.
Fountain Square Tax Exempt Money Market Fund only expects to pay 0.07% of the
average daily net asset value of its Investment A Shares.
See "Fountain Square Funds Information" in the FSF Prospectuses
accompanying this Combined Proxy/Prospectus, which are incorporated herein by
reference, for additional information on FSF's service providers.
COMPARATIVE FEE TABLES
COMPARATIVE FEE TABLES - NON-MONEY MARKET FUNDS. Set forth in the
tables below is (i) information regarding the fees and expenses paid by The
Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal Balanced Fund and
Cardinal Government Obligations Fund and each corresponding Fountain Square Fund
as of September 30, 1997, restated to reflect expenses the Cardinal Funds and
the Fountain Square Funds, respectively, expect to incur during the current
fiscal year and (ii) pro forma information for each combined Fund assuming the
Reorganization had taken place on September 30, 1997.
INFORMATION RELATING TO THE EXCHANGE OF
INVESTOR SHARES OF THE CARDINAL NON-MONEY MARKET FUNDS
FOR INVESTMENT A SHARES OF THE CORRESPONDING FOUNTAIN SQUARE FUNDS
COMPARATIVE FEE TABLES FOR EACH NON-MONEY MARKET FUND
<TABLE>
<CAPTION>
FOUNTAIN PRO FORMA
CARDINAL SQUARE COMBINED
FUNDS FUNDS FUNDS
INVESTOR INVESTMENT A INVESTMENT A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases................ 4.50% 4.50% 4.50%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price)......... None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable).............................. None None None
Redemption Fee (as a percentage of amount
redeemed, if applicable).............................. None None None
Exchange Fee........................................... None None None
</TABLE>
6
<PAGE> 18
<TABLE>
<CAPTION>
FOUNTAIN
THE CARDINAL SQUARE PRO FORMA
FUND CARDINAL FUND COMBINED FUND
INVESTOR INVESTMENT A INVESTMENT A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.60% 0.60% 0.60%
12b-1 Fees............................................. 0.25% 0.25% 0.25%
Other Expenses (after fee waivers)(1).................. 0.21% 0.19% 0.19%
----- ----- -----
Total Operating Expenses (after fee waivers)(2)...... 1.06% 1.04% 1.04%
===== ===== =====
</TABLE>
(1) Other expenses for the Fountain Square Cardinal Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.29%.
(2) Total Investment A Shares Operating Expenses for the Fountain Square
Cardinal Fund and Pro Forma Combined Fund would be 1.14%, absent the
voluntary waiver of a portion of the administration fee. All expenses
for the Fountain Square Cardinal Fund are based on estimates for such
Fund.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Cardinal Fund - Investor Shares.......................... $55 $77 $101 $169
=== === ==== ====
Fountain Square Cardinal Fund - Investment A Shares.......... $55 $77 $100 $166
=== === ==== ====
Pro Forma Combined Fund - Investment A Shares................ $55 $77 $100 $166
=== === ==== ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
AGGRESSIVE SQUARE PRO FORMA
GROWTH FUND MID CAP FUND COMBINED FUND
INVESTOR INVESTMENT A INVESTMENT A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.75% 0.80% 0.80%
12b-1 Fees............................................. 0.25% 0.25% 0.25%
Other Expenses (after fee waivers)(3).................. 0.86% 0.20% 0.20%
----- ----- -----
Total Operating Expenses (after fee waivers)(4)...... 1.86% 1.25% 1.25%
===== ===== =====
</TABLE>
(3) Other expenses for the Fountain Square Mid Cap Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.27%.
7
<PAGE> 19
(4) Total Investment A Shares Operating Expenses for the Fountain Square
Mid Cap Fund and Pro Forma Combined Fund would be 1.32%, absent the
voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Aggressive Growth Fund - Investor Shares............ $63 $101 $141 $253
=== ==== ==== ====
Fountain Square Mid Cap Fund - Investment A Shares........... $57 $83 $111 $189
=== === ==== ====
Pro Forma Combined Fund - Investment A Shares................ $57 $83 $111 $189
=== === ==== ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
FOUNTAIN
CARDINAL SQUARE PRO FORMA
BALANCED FUND BALANCED FUND COMBINED FUND
INVESTOR INVESTMENT A INVESTMENT A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.75% 0.80% 0.80%
12b-1 Fees............................................. 0.25% 0.25% 0.25%
Other Expenses (after fee waivers)(5).................. 0.44% 0.20% 0.20%
----- ----- -----
Total Operating Expenses (after fee waivers)(6)...... 1.44% 1.25% 1.25%
===== ===== =====
</TABLE>
(5) Other expenses for the Fountain Square Balanced Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.29%.
(6) Total Investment A Shares Operating Expenses for the Fountain Square
Balanced Fund and Pro Forma Combined Fund would be 1.34%, absent the
voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Balanced Fund - Investor Shares.......................... $59 $89 $120 $210
=== === ==== ====
Fountain Square Balanced Fund - Investment A Shares............... $57 $83 $111 $189
=== === ==== ====
Pro Forma Combined Fund - Investment A Shares..................... $57 $83 $111 $189
=== === ==== ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
8
<PAGE> 20
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE
OBLIGATIONS BOND FUND PRO FORMA
FUND FOR INCOME COMBINED FUND
INVESTOR INVESTMENT A INVESTMENT A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees....................................... 0.50% 0.55% 0.55%
12b-1 Fees............................................ 0.25% 0.25% 0.25%
Other Expenses (after fee waivers)(7)................. 0.26% 0.21% 0.26%
----- ----- -----
Total Operating Expenses (after fee waivers)(8)..... 1.01% 1.01% 1.01%
===== ===== =====
</TABLE>
(7) Other expenses for Investment A Shares of the Fountain Square Bond Fund
For Income and Pro Forma Combined Fund have been reduced to reflect the
anticipated voluntary waiver of a portion of the administration fee. In
the absence of such waiver, other expenses would be 0.27%.
(8) Total Investment A Shares Operating Expenses for the Fountain Square
Bond Fund For Income and Pro Forma Combined Fund would be 1.07%, absent
the voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Government Obligations Fund - Investor Shares $55 $76 $98 $163
=== === === ====
Fountain Square Bond Fund For Income Fund -
Investment A Shares.............................................. $55 $76 $98 $163
=== === === ====
Pro Forma Combined Fund - Investment A Shares.................... $55 $76 $98 $163
=== === === ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
9
<PAGE> 21
INFORMATION RELATING TO THE EXCHANGE OF
INSTITUTIONAL SHARES OF THE CARDINAL NON-MONEY MARKET FUNDS
FOR INSTITUTIONAL SHARES OF THE CORRESPONDING FOUNTAIN SQUARE FUNDS
COMPARATIVE FEE TABLES FOR EACH NON-MONEY MARKET FUND
<TABLE>
<CAPTION>
FOUNTAIN PRO FORMA
CARDINAL SQUARE COMBINED
FUNDS FUNDS FUNDS
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases................... None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price)............ None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable)................................. None None None
Redemption Fee (as a percentage of amount
redeemed, if applicable)................................. None None None
Exchange Fee.............................................. None None None
</TABLE>
<TABLE>
<CAPTION>
FOUNTAIN
THE CARDINAL SQUARE PRO FORMA
FUND CARDINAL FUND COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.60% 0.60% 0.60%
Administrative Service Fees............................ 0.15% 0.00% 0.00%
Other Expenses (after fee waivers)(1).................. 0.25% 0.19% 0.19%
----- ----- -----
Total Operating Expenses (after fee waivers)(2)...... 1.00% 0.79% 0.79%
===== ===== =====
</TABLE>
(1) Other expenses for the Fountain Square Cardinal Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.29%. All expenses for the Fountain
Square Cardinal Fund are based on estimates for such Fund for its
current fiscal year.
(2) Total Institutional Shares Operating Expenses for the Fountain Square
Cardinal Fund and Pro Forma Combined Fund would be 0.89%, absent the
voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
10
<PAGE> 22
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Cardinal Fund - Institutional Shares..................... $10 $32 $55 $122
=== === === ====
Fountain Square Cardinal Fund - Institutional Shares......... $ 8 $25 $44 $ 98
=== === === ====
Pro Forma Combined Fund - Institutional Shares............... $ 8 $25 $44 $ 98
=== === === ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
AGGRESSIVE SQUARE PRO FORMA
GROWTH FUND MID CAP FUND COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.75% 0.80% 0.80%
Administrative Service Fees............................ 0.15% 0.00% 0.00%
Other Expenses (after fee waivers)(3).................. 1.21% 0.20% 0.20%
----- ----- -----
Total Operating Expenses (after fee waivers)(4)...... 2.11% 1.00% 1.00%
===== ===== =====
</TABLE>
(3) Other expenses for the Fountain Square Mid Cap Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.27%.
(4) Total Institutional Shares Operating Expenses for the Fountain Square
Mid Cap Fund and Pro Forma Combined Fund would be 1.07%, absent the
voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Aggressive Growth Fund - Institutional Shares....... $21 $66 $113 $244
=== === ==== ====
Fountain Square Mid Cap Fund - Institutional Shares.......... $10 $32 $ 55 $122
=== === ==== ====
Pro Forma Combined Fund - Institutional Shares............... $10 $32 $ 55 $122
=== === ==== ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
11
<PAGE> 23
<TABLE>
<CAPTION>
FOUNTAIN
CARDINAL SQUARE PRO FORMA
BALANCED FUND BALANCED FUND COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.75% 0.80% 0.80%
Administrative Service Fees............................ 0.15% 0.00% 0.00%
Other Expenses (after fee waivers)(5).................. 0.61% 0.20% 0.20%
----- ----- -----
Total Operating Expenses (after fee waivers)(6)...... 1.51% 1.00% 1.00%
===== ===== =====
</TABLE>
(5) Other expenses for the Fountain Square Balanced Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.29%.
(6) Total Institutional Shares Operating Expenses for the Fountain Square
Balanced Fund and Pro Forma Combined Fund would be 1.09%, absent the
voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Balanced Fund - Institutional Shares................ $15 $48 $82 $180
=== === === ====
Fountain Square Balanced Fund - Institutional Shares......... $10 $32 $55 $122
=== === === ====
Pro Forma Combined Fund - Institutional Shares............... $10 $32 $55 $122
=== === === ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE
OBLIGATIONS BOND FUND PRO FORMA
FUND FOR INCOME COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.50% 0.55% 0.55%
Administrative Service Fees............................ 0.15% 0.00% 0.00%
Other Expenses (after fee waivers)(7).................. 0.28% 0.21% 0.21%
----- ----- -----
Total Operating Expenses (after fee waivers)(8)...... 0.93% 0.76% 0.76%
===== ===== =====
</TABLE>
(7) Other expenses for the Fountain Square Bond Fund For Income and Pro
Forma Combined Fund have been reduced to reflect the anticipated
voluntary waiver of a portion of the administration fee. In the absence
of such waiver, other expenses would be 0.27%.
(8) Total Institutional Shares Operating Expenses for the Fountain Square
Bond Fund For Income and Pro Forma Combined Fund would be 0.82%, absent
the voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Cardinal Government Obligations Fund -
Institutional Shares........................... $9 $30 $51 $114
Fountain Square Bond Fund For Income -
Institutional Shares........................... $8 $24 $42 $ 94
Pro Forma Combined Fund - Institutional Shares... $8 $24 $42 $ 94
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
12
<PAGE> 24
COMPARATIVE FEE TABLES - MONEY MARKET FUNDS (RETAIL INVESTORS). Set
forth in the tables below is (i) information regarding the fees and expenses
paid by certain investors holding shares of Cardinal Government Securities
Money Market Fund and Cardinal Tax Exempt Money Market Fund who are not
eligible to purchase Institutional Shares of Fountain Square Funds and
therefore will receive Investment A Shares of the corresponding Fountain Square
Fund as part of the Reorganization, and of each corresponding Fountain Square
Fund as of September 30, 1997, restated to reflect expenses the Cardinal Funds
and the Fountain Square Founds, respectively, expect to incur during the
current fiscal year and (ii) pro forma information for each combined Fund
assuming the Reorganization had taken place on September 30, 1997.
INFORMATION RELATING TO THE EXCHANGE OF
SHARES OF THE CARDINAL MONEY MARKET FUNDS
FOR INVESTMENT A SHARES OF THE CORRESPONDING FOUNTAIN SQUARE FUNDS
COMPARATIVE FEE TABLES FOR EACH MONEY MARKET FUND
<TABLE>
<CAPTION>
FOUNTAIN PRO FORMA
CARDINAL SQUARE COMBINED
FUNDS FUNDS FUNDS
RETAIL INVESTMENT A INVESTMENT A
INVESTORS(1) SHARES SHARES
------------ ------ ------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases................ None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price)......... None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable).............................. None None None
Redemption Fee (as a percentage of amount
redeemed, if applicable).............................. None None None
Exchange Fee........................................... None None None
</TABLE>
(1) The term "retail investors" of any of the Cardinal Money Market Funds is
used to refer to all investors who are ineligible to purchase Institutional
Shares of the Fountain Square Funds. Persons who are eligible to purchase
Institutional Shares are clients of Fifth Third Bank who make purchases through
the Fifth Third Trust Department, certain qualified employee benefit plans, and
broker-dealers, investment advisors, financial planners and other financial
institutions who place trades for their own accounts or the accounts of their
clients for a management, consulting or other fee.
13
<PAGE> 25
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE
SECURITIES GOVERNMENT
MONEY CASH RESERVES PRO FORMA
MARKET FUND FUND COMBINED FUND
RETAIL INVESTMENT A INVESTMENT A
INVESTORS SHARES SHARES
--------- ------ ------
<C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.50% 0.40% 0.40%
12b-1 Fees............................................. None 0.25% 0.25%
Other Expenses......................................... 0.38% 0.23% 0.23%
----- ----- -----
Total Operating Expenses............................. 0.88% 0.88% 0.88%
===== ===== =====
</TABLE>
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Government Securities Money Market Fund -
Retail Investors............................................. $9 $28 $49 $108
== === === ====
Fountain Square Government Cash Reserves Fund -
Investment A Shares.......................................... $9 $28 $49 $108
== === === ====
Pro Forma Combined Fund - Investment A Shares................ $9 $28 $49 $108
== === === ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
TAX EXEMPT SQUARE
MONEY TAX EXEMPT PRO FORMA
MARKET FUND FUND COMBINED FUND
RETAIL INVESTMENT A INVESTMENT A
INVESTORS SHARES SHARES
--------- ------ ------
<C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waivers)(2)..................... 0.50% 0.40% 0.40%
12b-1 Fees (after waivers)(3).......................... None 0.07% 0.07%
Other Expenses......................................... 0.30% 0.33% 0.33%
----- ----- -----
Total Operating Expenses (after fee waivers)(4)...... 0.80% 0.80% 0.80%
===== ===== =====
</TABLE>
(2) Management fees for the Fountain Square Tax Exempt Money Market Fund
and Pro Forma Combined Fund have been reduced to reflect the
anticipated voluntary waiver of a portion of the advisory fee. The
maximum management fee for the Fountain Square Tax Exempt Money Market
Fund is 0.50%. Subject to the terms of the Reorganization Agreement,
the advisor may terminate this voluntary waiver at any time.
(3) Rule 12b-1 fees for Investment A Shares of the Fountain Square Tax
Exempt Money Market Fund and Pro Forma Combined Fund have been reduced
to reflect the anticipated voluntary waiver of a portion of such fees.
Investment A Shares can pay up to 0.25% as Rule 12b-1 fees to the
distributor.
14
<PAGE> 26
(4) Total Investment A Shares Operating Expenses for the Fountain Square
Tax Exempt Money Market Fund and Pro Forma Combined Fund would be
1.08%, absent the voluntary waivers of a portion of the advisory fee
and Rule 12b-1 fees. All expenses for Fountain Square Tax Exempt Money
Market Fund are based on estimates for such Fund for its current fiscal
year.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Tax Exempt Money Market Fund - Retail
Investors.................................................... $8 $26 $44 $99
== === === ===
Fountain Square Tax Exempt Money Market Fund -
Investment A Shares.......................................... $8 $26 $44 $99
== === === ===
Pro Forma Combined Fund - Investment A Shares................ $8 $26 $44 $99
== === === ===
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
COMPARATIVE FEE TABLES - MONEY MARKET FUNDS (INSTITUTIONAL INVESTORS).
Set forth in the tables below is (i) information regarding the fees and expenses
paid by certain investors holding shares of Cardinal Government Securities Money
Market Fund and Cardinal Tax Exempt Money Market Fund who are eligible to
purchase Institutional Shares of Fountain Square Funds as of September 30, 1997,
restated to reflect expenses the Cardinal Funds expect to incur during the
current fiscal year and estimated expenses the Fountain Square Funds expect to
incur during the current fiscal year, and (ii) pro forma information for each
combined Fund assuming the Reorganization had taken place on September 30, 1997.
INFORMATION RELATING TO THE EXCHANGE OF
SHARES OF THE CARDINAL MONEY MARKET FUNDS
FOR INSTITUTIONAL SHARES OF THE CORRESPONDING FOUNTAIN SQUARE FUNDS
COMPARATIVE FEE TABLES FOR EACH MONEY MARKET FUND
<TABLE>
<CAPTION>
CARDINAL
FUND FOUNTAIN PRO FORMA
SHARES HELD SQUARE COMBINED
BY FUNDS FUNDS
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INVESTORS(1) SHARES SHARES
------------ ------ ------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases................ None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price)......... None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable).............................. None None None
Redemption Fee (as a percentage of amount
redeemed, if applicable).............................. None None None
Exchange Fee........................................... None None None
</TABLE>
15
<PAGE> 27
(1) The term "institutional investors" is used to refer to all clients of
Fifth Third Bank who make purchases through the Fifth Third Trust Department,
certain qualified employee benefit plans, and broker-dealers, investment
advisors, financial planners and other financial institutions who place
trades for their own accounts or the accounts of their clients for a
management, consulting or other fee.
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE
SECURITIES GOVERNMENT
MONEY CASH RESERVES PRO FORMA
MARKET FUND FUND COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INVESTORS SHARES SHARES
--------- ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.50% 0.40% 0.40%
Other Expenses......................................... 0.38% 0.23% 0.23%
----- ----- -----
Total Operating Expenses............................. 0.88% 0.63% 0.63%
===== ===== =====
</TABLE>
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Government Securities Money Market Fund -
Institutional Investors...................................... $9 $28 $49 $108
== === === ====
Fountain Square Government Cash Reserves Fund -
Institutional Shares......................................... $6 $20 $35 $ 79
== === === ====
Pro Forma Combined Fund - Institutional Shares............... $6 $20 $35 $ 79
== === === ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
TAX EXEMPT SQUARE
MONEY TAX EXEMPT PRO FORMA
MARKET FUND FUND COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INVESTORS SHARES SHARES
--------- ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waivers)(2)..................... 0.50% 0.40% 0.40%
Other Expenses......................................... 0.30% 0.33% 0.33%
----- ----- -----
Total Operating Expenses (after fee waivers)(3)...... 0.80% 0.73% 0.73%
===== ===== =====
</TABLE>
(2) Management fees for the Fountain Square Tax Exempt Money Market Fund
and Pro Forma Combined Fund have been reduced to reflect the
anticipated voluntary waiver of a portion of the advisory fee. The
maximum management fee for the Fountain Square Tax Exempt Money Market
Fund is 0.50%. Subject to the terms of the Reorganization Agreement,
the advisor may terminate this voluntary waiver at any time.
16
<PAGE> 28
(3) Total Institutional Shares Operating Expenses for the Fountain Square
Tax Exempt Money Market Fund and Pro Forma Combined Fund would be
0.83%, absent the voluntary waivers of a portion of the advisory fee.
All expenses for Fountain Square Tax Exempt Money Market Fund are based
on estimates for the Fund for its current fiscal year.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Tax Exempt Money Market Fund -
Institutional Investors...................................... $8 $26 $44 $99
== === === ===
Fountain Square Tax Exempt Money Market Fund -
Institutional Shares......................................... $7 $23 $41 $91
== === === ===
Pro Forma Combined Fund - Institutional Shares............... $7 $23 $41 $91
== === === ===
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
EXPENSE RATIOS - CARDINAL FUNDS. The following table sets forth the
ratios of operating expenses to average net assets of the Cardinal Funds for
the fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1997
--------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
THE CARDINAL GROUP NET ASSETS AFTER FEE NET ASSETS ABSENT FEE
WAIVERS AND EXPENSE WAIVERS AND EXPENSE
REIMBURSEMENTS REIMBURSEMENTS
-------------- --------------
INVESTOR INSTITUTIONAL INVESTOR INSTITUTIONAL
SHARES SHARES SHARES SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
The Cardinal Fund....................................... 1.06% 1.00% 1.12% 1.00%
Cardinal Aggressive Growth Fund......................... 1.86% 2.11% 1.93% 2.11%
Cardinal Balanced Fund.................................. 1.44% 1.51% 1.50% 1.51%
Cardinal Government Obligations......................... 1.01% 0.93% 1.08% 0.93%
Cardinal Government Securities Money Market
Fund(1)................................................. 0.88% 0.88% 0.88% 0.88%
Cardinal Tax Exempt Money Market Fund(1)................ 0.80% 0.80% 0.80% 0.80%
</TABLE>
(1) Cardinal Government Securities Money Market Fund and Cardinal Tax
Exempt Money Market Fund only issue one class of shares which is
without any class designation.
EXPENSE RATIOS - FOUNTAIN SQUARE FUNDS. The following tables set forth
(i) the ratios of operating expenses to average net assets of Investment A
Shares of Fountain Square Funds for the fiscal year ended July 31,
17
<PAGE> 29
1997 (a) after fee waivers and expense reimbursements, and (b) absent fee
waivers and expense reimbursements (ii) the annualized ratios of operating
expenses to average net assets of Investment A Shares of the Fountain Square
Funds for the six- month period ended January 31, 1998 (a) after fee waivers and
expense reimbursements, and (b) absent fee waivers and expense reimbursements
and (iii) the estimated annualized ratios of operating expenses to average net
assets of Institutional Shares of the Fountain Square Funds for the current
fiscal year (a) after fee waivers and expense reimbursements, and (b) absent fee
waivers and reimbursements.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1997
-----------------------------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
NET ASSETS AFTER NET ASSETS ABSENT
FEE WAIVERS AND FEE WAIVERS AND
EXPENSE EXPENSE
REIMBURSEMENTS REIMBURSEMENTS
-------------- --------------
FOUNTAIN SQUARE FUNDS INVESTMENT A INVESTMENT A
SHARES SHARES
------ ------
<S> <C> <C>
Fountain Square Cardinal Fund (1)............................. 1.06% 1.12%
==== ====
Fountain Square Mid Cap Fund.................................. 1.00% 1.37%
==== ====
Fountain Square Balanced Fund................................. 1.00% 1.40%
==== ====
Fountain Square Bond Fund For Income.......................... 0.79% 1.21%
==== ====
Fountain Square Government Cash Reserves Fund................. 0.51% 0.95%
==== ====
Fountain Square Tax Exempt Money Market Fund (1).............. 0.80% 0.80%
==== ====
</TABLE>
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED JANUARY 31, 1998
-----------------------------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
NET ASSETS AFTER NET ASSETS ABSENT
FEE WAIVERS AND FEE WAIVERS AND
EXPENSE EXPENSE
REIMBURSEMENTS REIMBURSEMENTS
-------------- --------------
FOUNTAIN SQUARE FUNDS INVESTMENT A INVESTMENT A
SHARES SHARES
------ ------
<S> <C> <C>
Fountain Square Cardinal Fund (1)............................. 1.06% 1.12%
==== ====
Fountain Square Mid Cap Fund.................................. 1.00% 1.40%
==== ====
Fountain Square Balanced Fund................................. 1.00% 1.42%
==== ====
Fountain Square Bond Fund For Income.......................... 0.75% 1.17%
==== ====
Fountain Square Government Cash Reserves Fund................. 0.52% 1.00%
==== ====
Fountain Square Tax Exempt Money Market Fund (1).............. 0.80% 0.80%
==== ====
</TABLE>
18
<PAGE> 30
<TABLE>
<CAPTION>
ESTIMATED
----------------------------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
NET ASSETS AFTER NET ASSETS ABSENT
FEE WAIVERS AND FEE WAIVERS AND
EXPENSE EXPENSE
REIMBURSEMENTS REIMBURSEMENTS
-------------- --------------
INSTITUTIONAL INSTITUTIONAL
FOUNTAIN SQUARE FUNDS SHARES SHARES
------ ------
<S> <C> <C>
Fountain Square Cardinal Fund (1).............................. 0.79% 0.89%
==== ====
Fountain Square Mid Cap Fund................................... 1.00% 1.07%
==== ====
Fountain Square Balanced Fund.................................. 1.00% 1.09%
==== ====
Fountain Square Bond Fund For Income........................... 0.76% 0.82%
==== ====
Fountain Square Government Cash Reserves Fund.................. 0.63% 0.63%
==== ====
Fountain Square Tax Exempt Money Market Fund (1)............... 0.73% 0.83%
==== ====
</TABLE>
(1) The Fountain Square Cardinal Fund and the Fountain Square Tax Exempt
Money Market Fund had not commenced operations as of January 31, 1998.
Figures shown represent estimated expense ratios for those Funds.
19
<PAGE> 31
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
Cardinal has entered into the Reorganization Agreement whereby its
investment portfolios are to be acquired by corresponding portfolios of FSF.
Significant provisions of this Reorganization Agreement are summarized below;
however, this summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Appendix A to this
Combined Proxy Statement/Prospectus.
DESCRIPTION OF THE REORGANIZATION AGREEMENT. There are six separate
Cardinal Funds. The assets of four of them, Cardinal Aggressive Growth Fund,
Cardinal Balanced Fund, Cardinal Government Obligations Fund and Cardinal
Government Securities Money Market Fund, are being acquired by similar
investment portfolios currently offered by FSF. Two of the Cardinal portfolios,
The Cardinal Fund and Cardinal Tax Exempt Money Market Fund, will be acquired
by two new FSF portfolios which have been organized to continue the operations
of these Cardinal Funds.
The Reorganization Agreement provides that on the Closing Date of the
Reorganization substantially all of the assets and stated liabilities of the
Cardinal Funds will be transferred to the Fountain Square Funds identified in
the table below. The holders of Investor Shares of The Cardinal Fund, Cardinal
Aggressive Growth Fund, Cardinal Balanced Fund and Cardinal Government
Obligations Fund will receive Investment A Shares of the corresponding Fountain
Square Fund which will issue Investment A Shares to such Cardinal Fund. The
holders of Institutional Shares of The Cardinal Fund, Cardinal Aggressive Growth
Fund, Cardinal Balanced Fund and Cardinal Government Obligations Fund will
receive Institutional Shares of the corresponding Fountain Square Fund which
will issue Institutional Shares to such Cardinal Fund. Holders of shares of
Cardinal Government Securities Money Market Fund and Cardinal Tax Exempt Money
Market Fund will receive either Investment A Shares or Institutional Shares, as
applicable, of the corresponding Fountain Square Fund which will issue the
appropriate shares to such Cardinal Funds. See "Information Relating to the
Exchange of Shares of the Cardinal Money Market Funds for Investment A Shares of
the Corresponding Fountain Square Funds" and "Information Relating to the
Exchange of Shares of the Cardinal Money Market Funds for Institutional Shares
of the Corresponding Fountain Square Funds" above. The series of shares to be
issued by each Fountain Square Fund will have an aggregate net asset value equal
to the aggregate net asset value of the corresponding shares of the particular
Cardinal Fund as of the regular close of the New York Stock Exchange, currently
4:00 p.m. New York time, on the last business day preceding the Closing Date.
<TABLE>
<CAPTION>
Cardinal Funds Fountain Square Funds
-------------- ---------------------
<S> <C>
The Cardinal Fund....................................................... Fountain Square Cardinal Fund
Cardinal Aggressive Growth Fund......................................... Fountain Square Mid Cap Fund
Cardinal Balanced Fund.................................................. Fountain Square Balanced Fund
Cardinal Government Obligations Fund.................................... Fountain Square Bond Fund For Income
Cardinal Government Securities
Money Market Fund....................................................... Fountain Square Government Cash Reserves Fund
Cardinal Tax Exempt Money Market Fund................................... Fountain Square Tax Exempt Money Market Fund
</TABLE>
Cardinal expects to liquidate a limited number of holdings of Cardinal
Government Securities Money Market Fund in light of the investment policies of
Fountain Square Government Cash Reserves Fund and the strategies of its
investment advisor. Similarly, in the case of Cardinal Government Obligations
Fund, Cardinal expects to liquidate some of the securities held by that Fund in
light of the investment policies of Fountain Square
20
<PAGE> 32
Bond Fund For Income and the strategies of its investment advisor. The
transaction costs that will result from such sales are expected to be minimal.
As in the case of all sales, such Cardinal Funds may realize gains or losses.
The Reorganization Agreement provides that Cardinal will declare a
dividend or dividends prior to the Closing Date of the Reorganization which,
together with all previous dividends, will have the effect of distributing to
the shareholders of each of the Cardinal Funds all of the undistributed net
investment income earned and net capital gains realized up to the Closing
Date of the Reorganization.
Following the transfer of assets and liabilities from the Cardinal
Funds to the corresponding Fountain Square Funds, and the issuance of shares by
the Fountain Square Funds to the Cardinal Funds, each of the Cardinal Funds
will distribute the shares of the Fountain Square Funds so received pro rata to
the holders of the Cardinal Funds, as described above, in complete liquidation
of the Cardinal Funds. Each holder of shares of a Cardinal Fund on the Closing
Date of the Reorganization will receive an amount of the appropriate class of
shares of the corresponding Fountain Square Fund of equal value, plus the right
to receive any dividends or distributions which were declared before the
Closing Date of the Reorganization but which remained unpaid at that time.
Following the Reorganization, the registration of Cardinal as an investment
company under the 1940 Act will be terminated, and Cardinal will be terminated
under state law. The stock transfer books of Cardinal will be permanently
closed on the Closing Date of the Reorganization.
The Reorganization is subject to a number of conditions, including
approval of the Reorganization Agreement and the transactions contemplated
thereby described in this Combined Proxy Statement/Prospectus by the
shareholders of Cardinal; the receipt of an order of exemption by the SEC; the
receipt of certain legal opinions described in the Reorganization Agreement; the
receipt of certain certificates from the parties concerning the continuing
accuracy of the representations and warranties in the Reorganization Agreement
and other matters; and the parties' performance in all material respects of
their agreements and undertakings in the Reorganization Agreement. Assuming
satisfaction of the conditions in the Reorganization Agreement, the Closing Date
of the Reorganization is expected to occur on July 13, 1998, or such other date
as is agreed to by the parties.
The expenses of FSF and Cardinal incurred in connection with the
Reorganization will be borne by Fifth Third.
The Reorganization may be abandoned at any time prior to the Closing
Date of the Reorganization by mutual written consent of Cardinal and FSF to the
Reorganization Agreement or by written notice of Cardinal or FSF if in the
opinion of the Board of Trustees of either Cardinal or FSF, proceeding with the
Reorganization is not in the best interests of that party's shareholders. The
Reorganization Agreement provides further that at any time (a) either Cardinal
or FSF may, by written agreement approved by their respective Boards of Trustees
with or without the approval of their shareholders, amend any of the provisions
of the Reorganization Agreement, provided, however, that any amendment occurring
after shareholder approval shall not substantially alter the terms of the
Reorganization Agreement; and (b) the Board of Trustees of Cardinal or FSF may
waive any breach by the other party or the failure to satisfy any of the
conditions to its obligations with or without the approval of such party's
shareholders.
The Reorganization Agreement also provides that the Reorganization will
be contingent upon the consummation of the acquisition of The Ohio Company by
Fifth Third Bancorp.
In its consideration and approval of the Reorganization at a meeting on
March 12, 1998, the Board of Trustees of Cardinal considered the pending
acquisition of The Ohio Company by Fifth Third Bancorp. In light of the
acquisition, CMC and Fifth Third recommended that each of the Cardinal Funds be
reorganized as described in this Combined Proxy Statement/Prospectus shortly
after the proposed acquisition transaction. The Board of Trustees also
considered the effect of the proposed acquisition transaction; the
recommendation of CMC and Fifth Third with respect to the proposed consolidation
of Cardinal and FSF; the portfolio managers and performance
21
<PAGE> 33
records of the Fountain Square Funds the investment objectives, policies and
restrictions of the Fountain Square Funds compared to those of the
corresponding Cardinal Funds; the different service providers; the expense
ratios of the Fountain Square Funds following the Reorganization; the expansion
of investment alternatives and other benefits of being part of FSF; the fact
that the reorganization would constitute a tax-free reorganization that the
Cardinal Funds' expenses incurred in connection with the Reorganization would
be borne by Fifth Third; and that the interests of shareholders would not be
diluted as a result of the reorganization.
Section 15(f) of the 1940 Act provides that when a change in the
control of an investment advisor occurs, the investment advisor or any of its
affiliated persons may receive any amount or benefit in connection therewith as
long as, among other things, no "unfair burden" is imposed on the investment
company as a result of the transaction relating to the change of control, or any
express or implied terms, conditions or understandings applicable thereto. The
term "unfair burden" as defined in the 1940 Act includes any arrangement during
the two-year period after the transaction whereby the investment advisor (or
predecessor or successor advisor), or any "interested person" of any such
advisor, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its security holders (other than fees
for bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from or
on behalf of the investment company (other than fees for bona fide principal
underwriting services.)
Each of Fifth Third and FSF has agreed that for a period of two years
after the Closing Date, FSF will not enter into, participate in, or pay
compensation in connection with any arrangement that facilitates or is intended
to facilitate the direct or indirect payment of compensation to Fifth Third, CMC
or any interested person of either of them proscribed by the Reorganization
Agreement, or increase compensation payable to Fifth Third, CMC or any
interested person of either of them which results in an increase in the expense
ratios of any Fountain Square Funds, as presented in the pro forma combined fee
tables (net of waivers) in this Combined Proxy Statement/Prospectus.
After consideration of all of the foregoing factors, together with
certain other factors and information considered to be relevant, Cardinal's
Board of Trustees determined that the Reorganization was in the best interests
of the shareholders and that the interests of the shareholders would not be
diluted as a result thereof, unanimously approved the Reorganization Agreement
and directed that it be submitted to shareholders of each Cardinal Fund for
approval. Cardinal's Board of Trustees unanimously recommends that shareholders
vote "FOR" approval of the Reorganization Agreement.
The Board of Trustees of Cardinal has not determined what action it
will take in the event the shareholders of any Cardinal Fund fail to approve the
Reorganization Agreement or for any reason the Reorganization is not
consummated. If the Reorganization is not consummated for any reason, the
Trustees may choose to consider approval of a new investment advisory agreement
with another investment advisor, including Fifth Third, alternative disposition
of Cardinal's assets, including the sale of assets to, or merger with, another
investment company, or the possible liquidation of any of the Cardinal Funds.
At a meeting held on March 23, 1998, the FSF Board of Trustees
considered the proposed Reorganization with respect to FSF. Based upon their
evaluation of the relevant information provided to them, and in light of their
fiduciary duties under federal and state law, the Board of Trustees unanimously
determined that the proposed Reorganization was in the best interests of the
Fountain Square Funds and their respective shareholders and that the interests
of existing shareholders of FSF would not be diluted as a result of effecting
the transaction.
CAPITALIZATION. As indicated in the tables below, the capitalization of
each of the Pro Forma Combined Funds is expected to be greater than the current
capitalizations of each of the Cardinal Funds, except with respect to The
Cardinal Fund and Cardinal Tax Exempt Money Market Fund, whose Pro Forma
Combined Fund capitalizations are expected to be identical to the
capitalizations of their corresponding Fountain Square Fund as of the Closing
Date. The following tables set forth as of January 31, 1998, (i) the unaudited
capitalizations of each of the Cardinal Funds, (ii) the unaudited
capitalizations of each of the corresponding Fountain Square Funds, and (iii)
the unaudited pro forma capitalizations of each
22
<PAGE> 34
of the Fountain Square Funds as adjusted to give the effect to the
Reorganization. If consummated, the capitalizations are likely to be different
on the Closing Date of the Reorganization as a result of daily share purchase
and redemption activity in the Funds.
<TABLE>
<CAPTION>
As of January 31, 1998
----------------------
FOUNTAIN PRO FORMA
THE CARDINAL SQUARE COMBINED
FUND CARDINAL FUND FUND
<S> <C> <C> <C>
Total Net Assets......................................... $297,785,000 $0 $297,785,000
Investor Shares/Investment A Shares............. $268,128,000 $0 $268,128,000
Investment C Shares............................. N/A $0 $0
Institutional Shares............................ $29,657,000 $0 $29,657,000
Shares Outstanding....................................... 20,736,113 0 20,736,113
Investor Shares/Investment A Shares............. 18,859,088 0 18,859,088
Investment C Shares............................. N/A 0 0
Institutional Shares............................ 1,877,025 0 1,877,025
Net Asset Value Per Share
Investor Shares/Investment A Shares............. $15.79 $0.00 $15.79
Investment C Shares............................. N/A $0.00 $0.00
Institutional Shares $15.80 $0.00 $15.80
</TABLE>
<TABLE>
<CAPTION>
FOUNTAIN
CARDINAL SQUARE PRO FORMA
AGGRESSIVE MID CAP COMBINED
GROWTH FUND FUND FUND
<S> <C> <C> <C>
Total Net Assets......................................... $12,556,000 $212,635,000 $225,191,000
Investor Shares/Investment A Shares............. $8,751,000 $211,768,000 $220,519,000
Investment C Shares............................. N/A $867,000 $867,000
Institutional Shares............................ $3,805,000 $0 $3,805,000
Shares Outstanding....................................... 15,072,551 12,942,426 13,706,638
Investor Shares/Investment A Shares............. 14,356,227 12,889,105 13,421,729
Investment C Shares............................. N/A 53,321 53,321
Institutional Shares............................ 716,324 0 231,589
Net Asset Value Per Share
Investor Shares/Investment A Shares............. $12.92 $16.43 $16.43
Investment C Shares............................. N/A $16.26 $16.26
Institutional Shares $12.93 N/A $16.43
</TABLE>
23
<PAGE> 35
<TABLE>
<CAPTION>
FOUNTAIN
SQUARE PRO FORMA
CARDINAL BALANCED COMBINED
BALANCED FUND FUND FUND
<S> <C> <C> <C>
Total Net Assets......................................... $17,949,000 $151,906,089 $169,855,089
Investor Shares/Investment A Shares............. $15,983,000 $149,223,000 $165,206,000
Investment C Shares............................. N/A $2,683,089 $2,683,089
Institutional Shares............................ $1,966,000 $0 $1,966,000
Shares Outstanding....................................... 1,417,650 10,527,345 11,770,841
Investor Shares/Investment A Shares............. 1,262,480 10,341,509 11,448,787
Investment C Shares............................. N/A 185,836 185,809
Institutional Shares............................ 155,170 0 136,244
Net Asset Value Per Share
Investor Shares/Investment A Shares............. $12.66 $14.43 $14.43
Investment C Shares............................. N/A $14.44 $14.44
Institutional Shares $12.67 N/A $14.43
</TABLE>
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE PRO FORMA
OBLIGATIONS BOND FUND COMBINED
FUND FOR INCOME FUND
<S> <C> <C> <C>
Total Net Assets......................................... $124,650,000 $170,785,000 $295,435,000
Investor Shares/Investment A Shares............. $118,726,000 $170,671,000 $289,397,000
Investment C Shares............................. N/A $114,000 $114,000
Institutional Shares............................ $5,924,000 $0 $6,038,000
Shares Outstanding....................................... 15,072,551 13,938,047 24,117,546
Investor Shares/Investment A Shares............. 14,356,227 13,928,763 23,624,245
Investment C Shares............................. N/A 9,284 9,284
Institutional Shares............................ 716,324 0 484,017
Net Asset Value Per Share
Investor Shares/Investment A Shares............. $8.27 $12.25 $12.25
Investment C Shares............................. N/A $12.24 $12.24
Institutional Shares ........................... $8.27 N/A $12.25
</TABLE>
24
<PAGE> 36
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE
SECURITIES GOVERNMENT PRO FORMA
MONEY MARKET CASH RESERVES COMBINED
FUND FUND FUND
<S> <C> <C> <C>
Total Net Assets.................................. $520,809,000 $325,208,000 $846,017,000
Shares (Retail Investors)/Investment
A Shares................................. $432,292,942 $135,014,000 $567,306,942
Shares (Institutional
Investors)/Institutional Shares (1)...... $ 88,516,058 $190,194,000 $278,710,058
Shares Outstanding................................ 520,809,000 325,208,000 846,017,000
Shares (Retail Investors)/Investment
A Shares................................. 432,292,942 135,014,000 567,306,942
Shares (Institutional
Investors)/Institutional Shares (1)...... 88,516,058 190,194,000 278,710,058
Net Asset Value Per Share
Shares (Retail Investors)/
Investment A Shares...................... $1.00 $1.00 $1.00
Shares (Institutional Investors)/
Institutional Shares (1)................. $1.00 $1.00 $1.00
</TABLE>
(1) Effective __________, 1998, Trust Shares offered by Fountain Square
Government Cash Reserves Fund have been renamed Institutional Shares.
<TABLE>
<CAPTION>
FOUNTAIN
SQUARE TAX
CARDINAL TAX EXEMPT PRO FORMA
EXEMPT MONEY MONEY COMBINED
MARKET FUND MARKET FUND FUND
<S> <C> <C> <C>
Total Net Assets......................................... $61,526,000 $0 $61,526,000
Shares (Retail Investors)/Investment A
Shares.......................................... $61,526,000 $0 $61,526,000
Shares (Institutional Investors)/
Institutional Shares............................ $ 0 $0 $0
Shares Outstanding....................................... 61,526,000 0 61,526,000
Shares (Retail Investors)/Investment A
Shares.......................................... 61,526,000 0 61,526,000
Shares (Institutional Investors)/
Institutional Shares............................ 0 0 0
Net Asset Value Per Share
Shares (Retail Investors)/Investment A
Shares.......................................... $1.00 N/A $1.00
Shares (Institutional Investors)/
Institutional Shares............................ $1.00 N/A $1.00
</TABLE>
25
<PAGE> 37
FEDERAL INCOME TAX CONSEQUENCES. Consummation of the Reorganization is
subject to the condition that Cardinal and FSF receive an opinion from Howard &
Howard Attorneys, P.C. to the effect that for federal income tax purposes: (a)
the transfer of all or substantially all of each Cardinal Fund's assets in
exchange for corresponding Fountain Square Fund shares and the distribution of
such Fountain Square Fund shares to the shareholders of the Cardinal Funds in
liquidation of the Cardinal Fund will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code; (b) no gain or loss will be
recognized by a Fountain Square Fund upon the receipt of the assets of the
applicable Cardinal Fund solely in exchange for the Fountain Square Fund
Shares; (c) no gain or loss will be recognized by a Cardinal Fund upon the
transfer of the applicable Cardinal Fund assets to the Fountain Square Fund in
exchange for the Fountain Square Fund shares or upon the distribution (whether
actual or constructive) of the Fountain Square Fund shares to Cardinal Fund
shareholders in exchange for their shares of the Cardinal Fund; (d) no gain or
loss will be recognized by the Cardinal Fund shareholders upon the exchange for
their Cardinal Fund shares for the applicable Fountain Square Fund shares; (e)
the tax basis of each Cardinal Fund's assets acquired by the applicable
Fountain Square Fund will be the same as the tax basis of such assets to the
Cardinal Fund immediately prior to the Reorganization; (f) the tax basis of the
Fountain Square Fund shares received by each of the Cardinal Fund shareholders
pursuant to the Reorganization will be the same as the tax basis of the
Cardinal Fund shares held by such shareholder immediately prior to the
Reorganization; (g) the holding period of the assets of each Cardinal Fund in
the hands of the applicable Fountain Square Fund will include the period during
which those assets were held by the Cardinal Fund; and (h) the holding period
of the Fountain Square Fund shares to be received by each Cardinal Fund's
shareholders will include the period during which the Cardinal Fund shares
exchanged thereof were held by such shareholder (provided the Cardinal Fund
shares were held as capital assets on the date of the Reorganization).
FSF and Cardinal have not sought a tax ruling from the Internal Revenue
Service (the "IRS"), but are acting in reliance upon the opinion of counsel
discussed in the previous paragraph. That opinion is not binding on the IRS and
does not preclude the IRS from adopting a contrary position. Shareholders should
consult their own advisors concerning the potential tax consequences to them,
including state and local income taxes.
COMPARISON OF INVESTMENT OBJECTIVES, INVESTMENT POLICIES AND RISK FACTORS
There are no material differences between the investment objectives and
policies of The Cardinal Fund and Cardinal Tax Exempt Money Market Fund and the
corresponding New Fountain Square Funds. The investment objectives and policies
of the remaining Cardinal Funds are similar to those of the Operating Fountain
Square Funds. Because of the similarities in the types of investments in which
the Cardinal Funds invest versus their corresponding Fountain Square Funds, the
risks associated with investment in such Funds are expected to be substantially
similar. With respect to each of the investment objectives, investment policies
and risk factors, however, there are some differences. The following discussion
summarizes some of the more significant similarities and differences in the
investment objectives, investment policies and risk factors of the Cardinal
Funds versus their corresponding Fountain Square Funds and is qualified in its
entirety by the discussion elsewhere herein, and in the Prospectuses and
Statements of Additional Information of the Cardinal Funds and the Fountain
Square Funds incorporated herein by reference.
Investment objectives, policies and limitations which are deemed
fundamental may not be changed without the vote of the holders of a majority of
the outstanding shares of the applicable Fund. Unless otherwise specified, all
investment objectives are fundamental and all policies and limitations are
non-fundamental and may be changed by the Board of Trustees without shareholder
approval.
THE CARDINAL FUND AND FOUNTAIN SQUARE CARDINAL FUND. The investment
objectives of both The Cardinal Fund and Fountain Square Cardinal Fund are to
achieve long-term growth of capital and income. Neither Fund may change its
investment objective without a vote of the holders of a majority of the
outstanding shares of the applicable Fund. The investment policies of the two
Funds, except as otherwise noted, may be changed by that Fund's Board of
Trustees without a vote of shareholders. Both Funds seek to achieve their
objectives by investing primarily in common stocks of companies having a market
capitalization of at least $10 million. Both Funds may also invest up to 25% of
their assets in American Depositary Receipts, invest in illiquid securities,
lend portfolio securities, enter into repurchase agreements or reverse
repurchase agreements, engage in options and futures transactions and, for
temporary defensive purposes, invest in cash and various money market
instruments, investment grade debt securities, U.S government securities and
securities of other investment
26
<PAGE> 38
companies. The Cardinal Fund may invest in real estate investment trusts
("REITs"), while Fountain Square Cardinal Fund does not permit such investments.
Fountain Square Cardinal Fund may invest up to 10% of its net assets in
restricted securities and engage in when-issued and delayed delivery
transactions with respect to up to 20% of the value of its total assets. These
types of transactions are not permitted for The Cardinal Fund.
The Cardinal Fund has several fundamental investment limitations which
may not be changed without a vote of the holders of a majority of the
outstanding shares of the Fund. These limitations affect the ability of The
Cardinal Fund to purchase securities of any one issuer, purchase securities of
one or more issuers in the same industry, borrow money or issue senior
securities, make loans, purchase securities on margin, underwrite securities
issued by other persons, purchase or sell real estate, or purchase or sell
commodities or commodities contracts. In addition, The Cardinal Fund has several
non-fundamental investment limitations which may be changed by the Cardinal
Board of Trustees. These limitations affect the ability of The Cardinal Fund to
invest in illiquid securities, purchase securities of other investment
companies, engage in short sales, invest in issuers whose securities are owned
by officers and Trustees/directors of Cardinal or CMC, mortgage or pledge the
Fund's assets, purchase participations or direct interests in oil, gas or other
mineral exploration or development programs, or invest in securities of issuers
which, together with any predecessors, have a record of less than three years'
continuous operations.
Fountain Square Cardinal Fund has fundamental investment limitations
which are substantially similar to those of The Cardinal Fund. Fountain Square
Cardinal Fund's limitation on borrowing money or issuing senior securities,
however, is less stringent in that it may borrow money directly or through
reverse repurchase agreements in amounts up to one-third of the value of its
total assets as opposed to the 10% imposed on The Cardinal Fund. Fountain Square
Cardinal Fund's ability to lend portfolio securities as an exception to the
prohibition on making loans is limited to one-third of the value of its total
assets, whereas The Cardinal Fund has no specific percentage limitation.
Fountain Square Cardinal Fund also categorizes its restriction on mortgaging,
pledging or hypothecating assets and its restriction on engaging in short sales
as fundamental investment limitations. Except with respect to those restrictions
and investing in unseasoned issuers, the non-fundamental investment limitations
of Fountain Square Cardinal Fund are also similar to those of The Cardinal Fund.
Investment in issuers with less than three years of continuous operations is
limited to 5% of the value of Fountain Square Cardinal Fund's total assets, as
opposed to a 10% limitation for The Cardinal Fund, and the restriction relating
to holdings of Cardinal or CMC officers and Trustees/directors applies to
Fountain Square Funds and Fifth Third. Other additional non-fundamental
investment limitations of Fountain Square Cardinal Fund include limitations on
investing in restricted securities, investing in issuers whose securities are
owned by officers and Trustees of Fountain Square Funds, engaging in
arbitrage transactions, purchasing securities for the purpose of exercising
control, and investing in warrants.
CARDINAL AGGRESSIVE GROWTH FUND AND FOUNTAIN SQUARE MID CAP FUND. The
investment objective of Cardinal Aggressive Growth Fund is to seek appreciation
of capital. The investment objective of Fountain Square Mid Cap Fund is to
provide growth of capital, with income as a secondary objective. Neither of
these investment objectives may be changed without the vote of the holders of a
majority of the outstanding shares of the applicable Fund. The investment
policies of these two Funds, except as otherwise noted, may be changed by that
Fund's Board of Trustees without a vote of shareholders. Both Funds seek to
achieve their objectives by investing primarily in common stocks and securities
convertible into common stocks. Cardinal Aggressive Growth Fund invests in
securities of companies having a market capitalization of at least $10 million
and may invest up to 10% of its net assets in non-investment grade convertible
debt securities, while Fountain Square Mid Cap Fund invests under normal market
conditions at least 65% of its assets in securities of companies with market
capitalizations between $100 million and $3 billion and is limited to investment
grade convertible securities. Both Funds may invest in medium-grade securities
(i.e., securities rated in the fourth highest rating category by a nationally
recognized statistical rating organization ("NRSRO")). Both Funds may also
invest up to 25% of their assets in American Depositary Receipts, enter into
repurchase agreements, engage in options and futures transactions and, for
temporary defensive purposes, invest in cash and various money market
instruments, investment grade short-term debt securities, U.S government
securities and securities of other investment companies. Cardinal Aggressive
Growth Fund may invest
27
<PAGE> 39
in REITs, while Fountain Square Mid Cap Fund does not permit such investments.
Fountain Square Mid Cap Fund may lend portfolio securities, invest up to 15% of
its net assets in illiquid securities invest up to 10% of its net assets in
restricted securities and engage in when-issued and delayed delivery
transactions with respect to up to 20% of the value of its total assets. These
types of transactions are not permitted for Cardinal Aggressive Growth Fund.
Cardinal Aggressive Growth Fund has several fundamental investment
limitations which may not be changed without a vote of the holders of a majority
of the outstanding shares of the Fund. These limitations affect the ability of
Cardinal Aggressive Growth Fund to purchase securities of any one issuer,
purchase securities of any one or more issuers in the same industry, borrow
money or issue senior securities, makes loans, purchase securities on margin,
underwrite the securities issued by other persons, purchase or sell real estate,
or purchase or sell commodities or commodities contracts. In addition, Cardinal
Aggressive Growth Fund has several non-fundamental investment limitations which
may be changed by the Cardinal Board of Trustees without shareholder approval.
These limitations affect the ability of Cardinal Aggressive Growth Fund to
invest in illiquid securities, purchase securities of other investment
companies, engage in short sales, invest in issuers whose securities are owned
by officers and Trustees/directors of Cardinal or CMC, mortgage or pledge the
Fund's assets, purchase participations or direct interests in oil, gas or other
mineral exploration or development programs, or invest in securities of issuers
which, together with any predecessors, have a record of less than three years'
continuous operations.
Fountain Square Mid Cap Fund has fundamental investment limitations
which are substantially similar to those of Cardinal Aggressive Growth Fund.
Fountain Square Mid Cap Fund's limitation on borrowing money or issuing senior
securities, however, is less stringent in that it may borrow directly or through
reverse repurchase agreements in amounts up to one-third of the value of its
total assets as opposed to the 10% exception imposed on Cardinal Aggressive
Growth Fund. Fountain Square Mid Cap Fund's ability to lend portfolio securities
as an exception to the prohibition on making loans is limited to one-third of
the value of its total assets, whereas Cardinal Aggressive Growth Fund has no
specific percentage limitation. Fountain Square Mid Cap Fund also categorizes
its restrictions on mortgaging, pledging or hypothecating assets and its
restriction on engaging in short sales as fundamental investment limitations.
Except with respect to those restrictions and investing in unseasoned issuers,
the non-fundamental investment limitations of Fountain Square Mid Cap Fund are
also similar to those of Cardinal Aggressive Growth Fund. Investment in issuers
with less than three years of continuous operations is limited to 5% of the
value of Fountain Square Mid Cap Fund's total assets, and the restriction
relating to holdings of Cardinal or CMC officers or Trustees/directors applies
to Fountain Square Funds and Fifth Third. Other additional non-fundamental
investment limitations of Fountain Square Mid Cap Fund include limitations on
investing in restricted securities, engaging in arbitrage transactions,
purchasing securities for the purpose of exercising control, and investing in
warrants.
CARDINAL BALANCED FUND AND FOUNTAIN SQUARE BALANCED FUND. The
investment objectives of Cardinal Balanced Fund are to seek current income and
long-term growth of both capital and income. The investment objective of
Fountain Square Balanced Fund is to pursue capital appreciation and income.
Neither of these investment objectives may be changed without the vote of the
holders of a majority of the outstanding securities of the applicable Fund. The
investment policies of the two Funds, except as otherwise noted, may be changed
by that Fund's Board of Trustees without a vote of shareholders. Both Funds seek
to achieve their objectives by investing in diversified portfolios of common
stocks, preferred stocks, securities convertible into common stocks, corporate
fixed income securities, U.S. government securities and money market
instruments. Each Fund, as a balanced fund, invests at least 25% of its assets
in fixed income senior securities. Cardinal Balanced Fund also invests in
certain foreign securities such as Yankee securities, Eurodollar securities, and
supranational agency bonds, mortgage-related securities, including
collateralized mortgage obligations ("CMOs"), and asset-backed securities.
Cardinal Balanced Fund invests in securities of companies having a market
capitalization of not less than $10 million and may invest up to 10% of its net
assets in non-investment grade convertible debt securities, while Fountain
Square Balanced Fund invests in securities of companies with market
capitalizations between $100 million and $3 billion and is limited to investment
grade convertible securities. Both Funds may also invest up to 25% of their
assets in American Depositary Receipts, invest in restricted and illiquid
securities, enter into repurchase agreements engage
28
<PAGE> 40
in options and futures transactions, engage in when-issued and delayed delivery
transactions and, for temporary defensive purposes, invest in cash and various
money market instruments, U.S government securities and securities of other
investment companies. In addition, Cardinal Balanced Fund may invest in REITs,
while Fountain Square Balanced Fund does not permit such investments. However,
Fountain Square Balanced Fund may lend portfolio securities, while Cardinal
Balanced Fund is not currently permitted to do so.
Cardinal Balanced Fund has several fundamental investment limitations
which may not be changed without a vote of the holders of a majority of the
outstanding shares of the Fund. These limitations affect the ability of
Cardinal Balanced Fund to purchase securities of any one issuer, purchase
securities of any one or more issuers in the same industry, borrow money or
issue senior securities, make loans, purchase securities on margin, underwrite
the securities issued by other persons, purchase or sell real estate, or
purchase or sell commodities or commodities contracts. In addition, Cardinal
Balanced Fund has several non-fundamental investment limitations which may be
changed by the Cardinal Board of Trustees without shareholder approval. These
limitations affect the ability of Cardinal Balanced Fund to invest in illiquid
securities, purchase securities of other investment companies, engage in short
sales, invest in restricted securities, invest in issuers whose securities are
owned by officers and Trustees/directors of Cardinal or CMC, mortgage or pledge
the Fund's assets, purchase participations or direct interests in oil, gas or
other mineral exploration or development programs, or invest in securities of
issuers which, together with any predecessors, have a record of less than three
years' continuous operations.
Fountain Square Balanced Fund has fundamental investment limitations
which are substantially similar to those of Cardinal Balanced Fund. Fountain
Square Balanced Fund's limitation on borrowing money or issuing senior
securities, however, is less stringent in that it may borrow directly or through
reverse repurchase agreements in amounts up to one-third of the value of its
total assets, as opposed to the 10% limitation imposed on Cardinal Balanced
Fund. Fountain Square Balanced Fund's ability to lend portfolio securities as an
exception to the prohibition on making loans is limited to one-third of the
value of its total assets, whereas Cardinal Balanced Fund has no specific
percentage limitations. Fountain Square Balanced Fund also categorizes its
restrictions on mortgaging, pledging or hypothecating assets and engaging in
short sales as fundamental investment limitations. Except with respect to those
restrictions and investing in unseasoned issuers, the non-fundamental investment
limitations of Fountain Square Balanced Fund are also similar to those of
Cardinal Balanced Fund. Investment in issuers with less than three years of
continuous operations is limited to 5% of the value of Fountain Square Balanced
Fund's total assets, and the restriction relating to holdings of Cardinal or CMC
officers or Trustees/directors applies to Fountain Square Funds and Fifth Third.
Other additional non-fundamental investment limitations include limitations on
engaging in arbitrage transactions, purchasing securities for the purpose of
exercising control, and investing in warrants.
CARDINAL GOVERNMENT OBLIGATIONS FUND AND FOUNTAIN SQUARE BOND FUND FOR
INCOME. The investment objectives of Cardinal Government Obligations Fund are to
maximize safety of capital and, consistent with such objective, earn the highest
available current income obtainable from government securities. The investment
objective of Fountain Square Bond Fund For Income is to provide a high level of
current income. Neither of these investment objectives may be changed without
the vote of the holders of a majority of the outstanding securities of the
applicable Fund. The investment policies of the two Funds, except as otherwise
noted, may be changed by that Fund's Board of Trustees without a vote of
shareholders. Cardinal Government Obligations Fund seeks to achieve its
objectives by investing, under normal market conditions, substantially all, but
in no event less than 65% of its total assets in obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities. Fountain
Square 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. This includes corporate debt obligations,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, U.S. dollar-denominated issues of foreign corporations,
foreign governments and foreign government agencies and CMOs. Under normal
market conditions, Fountain Square Bond Fund For Income will invest at least 65%
of its assets in fixed income debt securities rated at least Baa by Moody's
Investors Service or BBB by Standard & Poor's. Both Funds may also invest in
repurchase agreements, engage in options and futures transactions, engage in
29
<PAGE> 41
when-issued and delayed delivery transactions, and, for temporary defensive
purposes, invest in cash and various money market instruments and securities of
other investment companies. In addition, Fountain Square Bond Fund For Income
may lend portfolio securities, invest up to 15% of its net assets in illiquid
securities and invest up to 10% of its net assets in restricted securities.
These activities are not permitted for Cardinal Governmental Obligations Fund.
Cardinal Government Obligations Fund has several fundamental investment
limitations which may not be changed without a vote of the holders of a majority
of the outstanding shares of the Fund. These limitations affect the ability of
Cardinal Government Obligations Fund to purchase securities of any one issuer,
purchase securities of one or more issuers in the same industry, borrow money or
issue senior securities, make loans, purchase securities on margin, underwrite
securities issued by other persons, purchase or sell real estate, purchase or
sell commodities or commodities contracts, mortgage, pledge or hypothecate the
Fund's assets, or purchase participations or direct interests in oil, gas or
other mineral exploration or development programs. In addition, Cardinal
Government Obligations Fund has several non-fundamental investment limitations
which may be changed by the Cardinal Board of Trustees. These limitations affect
the ability of the Fund to invest in illiquid securities, purchase securities of
other investment companies, engage in short sales, and invest in issuers whose
securities are owned by officers and Trustees/directors of Cardinal or CMC.
Fountain Square Bond Fund For Income has fundamental investment
limitations which are substantially similar to those of Cardinal Government
Obligations Fund. Fountain Square Bond Fund For Income's limitation on borrowing
money or issuing senior securities, however, is less stringent in that it may
borrow money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets as opposed to the 10% exception
available to Cardinal Government Obligations Fund. Fountain Square Bond Fund For
Income also categorizes its restriction on engaging in short sales as a
fundamental investment limitation. Except with respect to that restriction,
Fountain Square Bond Fund For Income's non-fundamental investment limitations
are also similar to those of Cardinal Government Obligations Fund. The
restriction relating to holdings of Cardinal and CMC officers or
Trustees/directors applies to Fountain Square Funds and Fifth Third. Other
additional non-fundamental investment limitations of Fountain Square Bond Fund
For Income include limitations on purchasing participations or direct interests
in oil, gas or other mineral exploration or development programs, engaging in
arbitrage transactions and purchasing securities for the purpose of exercising
control.
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND AND FOUNTAIN SQUARE
GOVERNMENT CASH RESERVES FUND. The investment objectives of Cardinal Government
Securities Money Market Fund are to maximize current income while preserving
capital and maintaining liquidity. The investment objective of Fountain Square
Government Cash Reserves Fund is high current income consistent with stability
of principal and liquidity. Neither of these investment objectives may be
changed without the vote of the holders of a majority of the outstanding
securities of the applicable Fund. The investment policies of the two Funds,
except as otherwise noted, may be changed by that Fund's Board of Trustees
without a vote of shareholders. Both Funds seek to achieve their objectives by
investing primarily in a portfolio of short-term securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities. Cardinal Government
Securities Money Market Fund may also invest in repurchase agreements relating
to such obligations. Fountain Square Government Cash Reserves Fund presently
intends to limit its investments in only those U.S. government securities whose
interest is generally exempt from personal income tax in the various states if
owned directly. Both Funds may engage in when-issued and delayed delivery
transactions and invest in securities of other investment companies, although
Fountain Square Government Cash Reserves Fund may only invest in other
investment companies for temporary defensive purposes.
Cardinal Government Securities Money Market Fund has several
fundamental investment limitations which may not be changed without a vote of
the holders of a majority of the outstanding shares of the Fund. These
limitations affect the ability of Cardinal Government Securities Money Market
Fund to purchase securities of any
30
<PAGE> 42
one issuer, purchase securities of one or more issuers in the same industry,
make loans, borrow money or issue senior securities, pledge, mortgage or
hypothecate securities, underwrite securities issued by other persons, purchase
or sell real estate, purchase or sell commodities or commodities contracts,
purchase participations or other direct interests in oil, gas or other mineral
exploration or development programs, or purchase securities on margin. In
addition, Cardinal Government Securities Money Market Fund has several
non-fundamental investment limitations which may be changed by the Cardinal
Board of Trustees without shareholder approval. These limitations affect the
ability of Cardinal Government Securities Money Market Fund to invest in
illiquid securities, purchase securities of other investment companies, engage
in short sales, invest in restricted securities, or invest in issuers whose
securities are owned by officers and Trustees/directors of Cardinal or CMC.
Fountain Square Government Cash Reserves Fund has fundamental
investment limitations which are similar to those of Cardinal Government
Securities Money Market Fund. Fountain Square Government Cash Reserves Fund's
limitation on borrowing money or issuing senior securities, however, is less
stringent in that it may borrow money directly or through reverse repurchase
agreements in amounts up to one-third of the value of its total assets as
opposed to the 10% exception available to Cardinal Government Securities Money
Market Fund. Fountain Square Government Cash Reserves Fund also categorizes its
restriction on engaging in short sales as a fundamental investment limitation
and has not adopted any specific restrictions relating to investment in the
securities of any one issuer or any one industry or with respect to purchases of
sales of real estate, commodities or oil, gas or mineral exploration or
development programs. These limitations would generally not apply to the U.S.
government securities in which the Funds invest. The non-fundamental investment
limitations of Fountain Square Government Cash Reserves Fund are also similar to
those of Cardinal Government Securities Money Market Fund, except that, for the
same reasons explained above with respect to its fundamental investment
restrictions, Fountain Square Government Cash Reserves Fund has not adopted
specific restrictions on investing in restricted securities or securities owned
by officers or Trustees/directors of FSF or Fifth Third.
CARDINAL TAX EXEMPT MONEY MARKET FUND AND FOUNTAIN SQUARE TAX EXEMPT
MONEY MARKET FUND. The investment objectives of both Cardinal Tax
Exempt Money Market Fund and Fountain Square Tax Exempt Money Market Fund are to
maximize current income exempt from federal income tax while preserving capital
and maintaining liquidity. Neither Fund may change its investment objective
without a vote of the holders of a majority of the holders of the outstanding
shares of the applicable Fund. The investment policies of the two Funds, except
as otherwise noted, may be changed by that Fund's Board of Trustees without a
vote of shareholders. Both Funds seek to achieve their objectives by investing
primarily in a portfolio of high-grade short-term municipal bonds and notes,
including participation interests in such obligations, tax-exempt commercial
paper and tax-exempt short-term discount notes. Each of the Funds intends to
invest, under normal market conditions, at least 80% of its net assets in a
diversified portfolio of municipal securities, the interest on which is both
exempt from federal income tax and is not treated as a preference item for
purposes of federal alternative minimum tax. Both Funds may invest in variable
rate securities, enter into repurchase agreements, engage in when-issued and
delayed delivery transactions, and, for temporary defensive purposes, invest in
taxable money market securities. Both Funds may invest in securities of other
investment companies, although Fountain Square Tax Exempt Money Market Fund may
only do so for temporary defensive purposes.
Cardinal Tax Exempt Money Market Fund has several fundamental
investment limitations which may not be changed without a vote of the holders of
a majority of the outstanding shares of the Fund. These limitations affect the
ability of Cardinal Tax Exempt Money Market Fund to purchase securities of any
one issuer, purchase securities of one or more issuers in the same industry,
make loans, borrow money or issue senior securities, pledge, mortgage or
hypothecate securities, underwrite securities issued by other persons, purchase
or sell real estate, purchase or sell commodities or commodities contracts,
purchase securities on margin, engage in options transactions, purchase
participations or other direct interests in oil, gas or other mineral
exploration or development programs, or purchase securities which are subject to
federal income tax. In addition, Cardinal Tax Exempt Money Market Fund has
several non-fundamental investment limitations which may be changed by the
Cardinal Board of Trustees. These limitations affect the ability of Cardinal Tax
Exempt Money Market Fund to invest in illiquid securities, purchase securities
of other investment companies, engage in short sales, invest in restricted
securities, or invest in issuers whose securities are owned by officers and
Trustees/directors of Cardinal or CMC.
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Fountain Square Tax Exempt Money Market Fund has fundamental investment
limitations which are substantially similar to those of Cardinal Tax Exempt
Money Market Fund, except that Fountain Square Tax Exempt Money Market Fund has
not adopted a specific policy restricting the maximum percentage for investment
in securities subject to federal income taxation. Cardinal Tax Exempt Money
Market Fund limits its maximum investment in taxable securities to 20% of its
assets. The non-fundamental investment limitations of Fountain Square Tax Exempt
Money Market Fund are also similar to those of Cardinal Tax Exempt Money Market
Fund. An additional non-fundamental investment limitation is a limitation on
investing in issuers with less than three years of continuous operations.
Fountain Square Tax Exempt Money Market Fund's limitation on borrowing money and
issuing senior securities is less stringent than the Cardinal Tax Exempt Money
Market Fund in that it may borrow money directly or through reverse repurchase
agreements in amounts up to one-third of the value of its total assets as
opposed to the 10% exceptions for Cardinal Tax Exempt Money Market Fund.
Fountain Square Tax Exempt Money Market Fund also categorizes its restriction on
engaging in short sales as a fundamental investment limitation.
RISK FACTORS. Because of the similarities of the investment objectives,
policies and restrictions of the Cardinal Funds and their corresponding Fountain
Square Funds, an investment in a Fountain Square Fund involves risks that are
similar to those of the corresponding Cardinal Fund. In the case of Fountain
Square Cardinal Fund and Fountain Square Mid Cap Fund, the investment risks, in
general, are those typically associated with investing in a portfolio of common
stocks. Since equity markets tend to be cyclical, the possibility exists that
common stocks could decline over short or even extended periods of time. Because
these Funds invest in both small and medium capitalization stocks, there are
some additional risk factors associated with investment in the Funds. For small
or unseasoned companies, stocks tend to be more thinly traded and therefore
subject to more abrupt or erratic price movements than larger, well-established
companies. In general, stocks in the small and medium capitalization sectors of
the United States equity market tend to be more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500 Index
(the "S&P 500). Investors should expect Fountain Square Cardinal Fund and
Fountain Square Mid Cap Fund to be more volatile than, and may fluctuate
independently of, broad stock market indices such as the S&P 500.
In the case of Fountain Square Bond Fund For Income, the investment
risks, in general, are those typically associated with investing in a portfolio
of investment grade fixed income securities. Fixed income securities are subject
to credit risk and market risk. Market risk relates to changes in the value of a
security as a result of changes in interest rates. Credit risk relates to the
ability of the issuer to make payments of principal and interest. Because
Fountain Square Bond Fund For Income invests in a variety of corporate debt
obligations, in additional to government obligations and mortgage-related
securities, it will be subject to greater credit risk than Cardinal Government
Obligations Fund. The mortgage-related securities, including collateralized
mortgage obligations ("CMOs") in which both Funds invest subject them to
prepayment risk. Cardinal Government Obligations Fund invests primarily in
mortgage-related securities and therefore is subject to greater prepayment risk
than Fountain Square Bond Fund For Income.
In the case of Fountain Square Balanced Fund, the investment risks are
those typically associated with investing in a portfolio of both common stocks
and investment grade fixed income securities.
With respect to Fountain Square Government Cash Reserves Fund and
Fountain Square Tax Exempt Money Market Fund, the investment risks, in general,
are those typically associated with investing in a portfolio of high quality
money market instruments. In addition, these Money Market Funds attempt to
maintain a stable net asset value of $1.00, although there is no assurance that
they will be able to do so. For Fountain Square Tax Exempt Money Market Fund,
the characteristics of short-term municipal securities are such that the price
stability and liquidity of the Fund may not be equal to that of a money market
fund which exclusively invests in taxable money market instruments.
As discussed above, several of the Fountain Square Funds may engage in
when-issued and delayed delivery transactions. These transactions are
arrangements in which a 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. In
addition, because settlement dates may be a month or more after entering into
the transaction, a Fund may pay more or less than the market value of the
securities on the settlement date.
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<PAGE> 44
Lending portfolio securities also entails certain risks. Although the
Fountain Square Funds will only enter into loan arrangements with certain
approved broker/dealers, banks or other institutions and will receive no less
than 100% collateral on the securities loaned, there is the risk that loaned
securities may not be available to the lending 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 files for
bankruptcy or becomes insolvent, disposition of the securities may be delayed
pending court action.
The use of futures and options successfully will depend on the ability
of Fifth Third to predict pertinent market movements, and Fifth Third could be
incorrect in its expectations. In these events, a Fund could lose money on the
futures or option contract. In addition, where futures or options are
imperfectly correlated or not correlated at all with the related security, use
of futures and options for hedging purposes may not have the desired effect.
Finally, a Fund may not be able to close out a futures or options position where
no secondary market for such futures or options exists.
All of the Cardinal Funds and Fountain Square Funds may invest in
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 the Funds 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.
CMOs and other mortgage-related securities in which certain of the
Cardinal Funds and Fountain Square Funds may invest provide for a periodic
payment consisting of both principal and interest. These securities are often
subject to higher prepayment risks than most other types of debt instruments.
Prepayment risks on mortgage-related 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 a Fund receives from the reinvestment of such
prepayments, or any scheduled principal payments, may be lower than the yield
ohn the original mortgage-related security. Prepayments may result in a capital
loss to a 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 securtities purchased at a market discount from
their stated principalamount will accelerate the recognition of interest income
by a Fund, which would be taxed as ordinary income when distributed to the
shareholders.
Several of the Cardinal Funds and Fountain Square Funds may invest in
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Some obligations issued or guaranteed by 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 or other
agencies or instrumentalities, since it is not obligated to do so.
OTHER COMPARATIVE INFORMATION
PURCHASE AND REDEMPTION INFORMATION, EXCHANGE PRIVILEGES, DISTRIBUTION
AND PRICING. Investor Shares of the Cardinal Funds are sold on a continuous
basis by its principal underwriter, The Ohio Company, and may be purchased at
the public offering price through The Ohio Company and National Association of
Securities Dealers, Inc. ("NASD") member broker-dealers having sales agreements
with The Ohio Company. The public offering price of Investor Shares is the net
asset value per share next computed after receipt of an order, plus a sales
charge of 4.50%. The amount of the sales charge is reduced incrementally on
purchases of $100,000 or more, depending upon the amount of the purchase, with a
minimum sales charge of 0.50% charged for purchases of $1,000,000 or more as
follows:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF OFFERING PRICE SALES CHARGE AS A
--------------------------------- PERCENTAGE OF THE NET
AMOUNT OF SINGLE TRANSACTION SALES CHARGE DEALER'S CONCESSION AMOUNT INVESTED
- ---------------------------- ------------ ------------------- ---------------
<S> <C> <C> <C>
Less than $100,000..................... 4.50% 4.00% 4.71%
$100,000 but less than $250,000........ 3.50% 3.00% 3.63%
$250,000 but less than $500,000........ 2.50% 2.00% 2.56%
$500,000 but less than $1,000,000...... 1.50% 1.00% 1.52%
$1,000,000 or more..................... 0.50% 0.40% 0.50%
</TABLE>
Sales charges are not imposed on purchases of Investor Shares by (i)
officers, trustees and employees of Cardinal, (ii) full-time employees of The
Ohio Company or CMC who have been such for at least 90 days or by qualified
retirement plans for such persons, or (iii) accounts with respect to which The
Ohio Company serves as either trustee or as investment advisor. Any applicable
sales charge may also be substantially reduced through quantity discounts, such
as rights of accumulation, letters of intent or concurrent purchases.
Institutional Shares of the Cardinal Funds are sold on a continuous
basis through procedures established by The Ohio Company in connection with
accounts for which banks, broker-dealers, savings and loan associations, trust
companies, qualified investment advisors and certain other financial
institutions serve in a fiduciary capacity
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<PAGE> 45
on behalf of customers or beneficiaries. The public offering price of
Institutional Shares of the Cardinal Funds is the net asset value per share next
computed after receipt of an order, without a sales charge.
Shares of the Cardinal Money Market Funds are also sold on a continuous
basis by The Ohio Company without a sales charge at the net asset value next
determined after an order is received.
The minimum initial investment for Investor Shares of The Cardinal
Fund, Cardinal Aggressive Growth Fund, Cardinal Balanced Fund and Cardinal
Government Obligations Fund and for shares of the Cardinal Money Market Funds
is $1,000. Subsequent investments must be in amounts of at least $50 except for
shares of the Cardinal Money Market Funds which must be in amounts of at least
$100. Purchase orders for shares of the Cardinal Funds are effected on any
"business day," that is, a day on which the New York Stock Exchange is open for
business, (other than a day on which no shares of that Cardinal Fund are
tendered for redemption and no order to purchase shares of that Cardinal Fund
are received), and such other days on which there is a sufficient degree of
trading in a Fund's portfolio securities that such Fund's net asset value might
be materially affected by changes in the value of the portfolio securities.
Investors may purchase shares of the Cardinal Funds by Federal Funds
Wire or by mail. Cardinal also offers an Automatic Investment Plan, pursuant to
which investors may make automatic monthly or quarterly investments in any of
the Cardinal Funds. Cardinal reserves the right to reject any purchase request
in whole or in part.
Investors may redeem shares of the Cardinal Funds by mail or telephone.
In addition, Cardinal offers a Systematic Withdrawal Plan, pursuant to which
holders of Investor Shares of The Cardinal Fund, Cardinal Balanced Fund and
Cardinal Aggressive Growth Fund with accounts valued at over $10,000, holders of
Investor Shares of Cardinal Government Obligations Fund with accounts valued at
over $25,000, and holders of shares of the Cardinal Money Market Funds may make
automatic periodic withdrawals from any of their Cardinal Fund holdings. By
Automatic Withdrawal, Cardinal shareholders may elect to have the proceeds from
redemptions transmitted to an authorized bank account. The Cardinal Money Market
Funds also offer check writing redemption and expedited redemption features. The
Cardinal Funds redeem shares at their net asset value next determined after CMC
receives the redemption request. Redemptions are made on days on which the
shares of the Cardinal Funds compute their net asset value.
Shareholders may exchange Investor Shares or Institutional Shares of
any of the Cardinal Funds for shares of the same class of any of the other
Cardinal Funds. In addition, shares of the Cardinal Money Market Funds may be
exchanged for Investor Shares or, assuming the owner qualifies, for
Institutional Shares of any of the other Cardinal Funds. When exchanging into
and out of Investor Shares of the Cardinal Funds, shareholders who have paid an
equal or greater sales charge once, or have had sales charges waived, will not
have to pay a sales charge on an exchange.
Investment A Shares of the Fountain Square Funds are sold on a
continuous basis by BISYS, and may be purchased through a financial institution
or directly through BISYS. The public offering price of Investment A Shares of
the Fountain Square Non-Money Market Funds is the net asset value per share next
computed after receipt of an order, plus a maximum sales charge of 4.50%. No
sales charge is imposed upon purchases of any of the Fountain Square Money
Market Funds. The amount of any sales charge is reduced incrementally on
purchases of $50,000 or more depending upon the amount of the purchase, with no
sales charge being charged on purchases of $500,000 or more as follows:
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<PAGE> 46
<TABLE>
<CAPTION>
AS A PERCENTAGE OF OFFERING PRICE
--------------------------------- SALES CHARGE AS A
PERCENTAGE OF THE NET
AMOUNT OF SINGLE TRANSACTION SALES CHARGE DEALER'S CONCESSION AMOUNT INVESTED
- ---------------------------- ------------ ------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000...................... 4.50% 3.83% 4.71%
$50,000 but less than $100,000......... 4.00% 3.40% 4.17%
$100,000 but less than $150,000........ 3.00% 2.55% 3.09%
$150,000 but less than $250,000........ 2.00% 1.70% 2.04%
$250,000 but less than $500,000........ 1.00% 0.85% 1.01%
$500,000 or more....................... 0.00% 0.00% 0.00%
</TABLE>
Sales charges will not be applicable to: (i) reinvestment of dividends
and distributions; (ii) purchases by directors, officers and employees of FSF's
distributor and of broker-dealers having agreements with FSF's distributor
pertaining to the sale of Investment A Shares; (iii) purchases by members of
FSF's Board of Trustees; and (iv) purchases by officers, directors, employees
and retirees of Fifth Third Bancorp and their spouses and children under 21. Any
applicable sales charge may also be substantially reduced through quantity
discounts, such as rights of accumulation, letters of intent, or concurrent
purchases, as well as through participation in certain programs offered by Fifth
Third, and purchases with proceeds from redemptions of any unaffiliated mutual
fund shares. No sales charge will be imposed, however, on Investment A Shares of
the Fountain Square Funds issued in the Reorganization.
Institutional Shares of the Fountain Square Funds are sold on a
continuous basis by BISYS without a sales charge at the net asset value next
determined after an order is received. Institutional Shares are only offered to
clients of Fifth Third Bank who make purchases through Fifth Third's Trust
Department, certain qualified employee benefit plans under the Internal Revenue
Code, and broker-dealers, investment advisors, financial planners and other
financial institutions who place trades for their own accounts or the accounts
of their clients for a management, consulting or other fee.
The minimum initial investment for each of the Fountain Square Funds is
$1,000. The minimum investment for subsequent purchases is $50. Purchase orders
for shares of Fountain Square Funds are effected on any day on which the New
York Stock Exchange and the Federal Reserve Bank of Cleveland are open for
business. Investors may purchase Investment A Shares of the Fountain Square
Funds by Federal Funds Wire or by mail. In addition, FSF offers a Systematic
Investment Program, pursuant to which investors may make automatic periodic
investments in any of the Fountain Square Funds. FSF reserves the right to
reject any purchase request in whole or in part.
Investors may redeem Investment A Shares of the Fountain Square Funds
by mail and telephone. Holders of Institutional Shares may redeem all or part of
their shares in accordance with procedures governing their accounts at such
institutions. In addition, FSF offers a Systematic Withdrawal Program, pursuant
to which investors with accounts valued at over $10,000 may make automatic
period withdrawals from any of their Fountain Square Fund holdings. FSF reserves
the right to redeem accounts involuntarily, upon 30 days' written notice, if the
account's net asset value falls below $1,000 as a result of redemptions.
Redemption orders are effected at the net asset value per share next determined
after receipt and acceptance of the order by the distributor. FSF reserves the
right to send redemption proceeds within seven days after receiving the
redemption order if, in its judgment, an earlier payment could adversely affect
the Fund.
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<PAGE> 47
Shareholders may exchange Investment A Shares or Institutional Shares
of any of the Fountain Square Funds for shares of the same class of any of the
other Fountain Square Funds, including those not described in this Combined
Proxy Statement/Prospectus. When exchanging into and out of Investment A Shares
of the Fountain Square Funds, shareholders who have paid a sales charge once
upon purchasing Investment A Shares of any Fountain Square Fund will not have to
pay a sales charge again on an exchange. Exchanges of Investment A Shares of any
of the Fountain Square Non-Money Market Funds received in the Reorganization may
be exchanged for Investment A Shares of any of the other Fountain Square Funds
without the imposition of a sales charge. Any exchange must satisfy the
requirements relating to the minimum initial investment in the particular
Fountain Square Fund.
Each of The Cardinal Fund, Cardinal Aggressive Growth Fund and Cardinal
Balanced Fund declares dividends and makes distributions with such frequency and
in such amounts as Cardinal from time to time shall determine. It is the policy
of each of these Funds to distribute, at least annually, substantially all of
its net investment income and to distribute annually any net realized gains.
Cardinal Government Obligations Fund declares dividends daily consisting of net
investment income and pays such dividends monthly. Dividends consisting of
long-term capital gains normally will be distributed only once annually. Each of
the Cardinal Money Market Funds declares dividends daily consisting of
interest accrued on the portfolio plus realized net short-term capital gains or
losses due to portfolio transactions, less the accrued expenses of the Fund and
pays such dividends monthly.
Each of Fountain Square Cardinal Fund, Fountain Mid Cap Fund and
Fountain Square Balanced Fund declares and pays dividends quarterly. Fountain
Square Bond Fund For Income declares and pays dividends monthly. Each of
Fountain Square Government Cash Reserve Fund and Fountain Square Tax Exempt
Money Market Fund declare dividends daily and pay dividends monthly. In all
cases dividends are declared just prior to determining net asset value. Capital
gains realized by a Fountain Square Fund, if any, will be distributed at least
once every 12 months.
Both FSF and Cardinal determine net asset value for the Non-Money
Market Funds as of the close of regular trading on the New York Stock Exchange,
normally 4:00 p.m. (Eastern Time). For the Money Market Funds, FSF determines
net asset value as of 4:00 p.m. (Eastern time), while Cardinal determines net
asset value as of 12:00 p.m. (Eastern time). In all cases, net asset value per
share is determined on each day on which the New York Stock Exchange is open
for trading (except as noted above), currently, 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.
Net asset value per share for each class of each of the Fountain Square
Funds and the Cardinal Funds for purposes of pricing sales and redemptions is
calculated by dividing the value of all securities and other assets
attributable to the applicable class of the Fund, less the liabilities
attributable to the class of shares of that Fund, divided by the number of
outstanding shares of the Fund attributable to that class. The Non-Money Market
Funds are valued based on the market values of securities held by such Funds
determined in accordance with procedures adopted by the Board of Trustees. The
Money Market Funds are valued based on the amortized cost method provided for
under Rule 2a-7 of the 1940 Act.
OTHER INFORMATION. Financial highlights, information relating
shareholder rights and general information relating to Cardinal and FSF and
management of each of the Cardinal Funds and Fountain Square Funds is contained
in the Prospectuses for the applicable Funds incorporated by reference herein.
Management's discussion of performance for each of the Cardinal Funds and
Fountain Square Funds is contained in the Cardinal and FSF Annual Reports and
FSF Semi-Annual Report incorporated by reference herein.
FSF and Cardinal are registered as open-end management investment
companies under the 1940 Act. Currently, FSF offers sixteen investment
portfolios and Cardinal offers six investment portfolios. FSF was organized as a
Massachusetts business trust on September 15, 1988 and is subject to the
provisions of its Declaration of Trust and By-Laws. Cardinal is organized as an
Ohio business trust and is subject to Ohio law governing business trust and to
the provisions of its Declaration of Trust and By-Laws.
As discussed below, shareholders of the Cardinal Funds are entitled to
one vote for each dollar of value invested and a proportionate fractional vote
for any fraction of a dollar invested, and will vote in the aggregate and not by
series or class except as otherwise expressly required by law. Since the
Reorganization must be approved
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<PAGE> 48
individually with respect to each Cardinal Fund, shareholders will vote on a
Fund by Fund basis and not by class for purposes of approving the
Reorganization Agreement.
By contrast, shareholders of the Fountain Square Funds are each
entitled to one vote for each one share held. All shares of each Fountain Square
Fund have equal voting rights, except that in matters affecting only a
particular Fund or class, only shares of that Fund or class are entitled to
vote.
None of the shares of the Cardinal Funds or the Fountain Square Funds
have any pre-emptive or conversion rights.
Each share of a Cardinal Fund and a Fountain Square Fund represents an
equal proportionate interest in that particular Fund with other shares of the
same Fund and is entitled to cash dividends and distributions earned on such
shares as are declared.
Under Massachusetts law, shareholders of the Fountain Square Funds
could, under certain circumstances, be held personally liable for the
obligations of FSF. FSF's Declaration of Trust, however, provides
indemnification and reimbursement of expenses from FSF assets for all
shareholders against liability arising solely by reason of having been a
shareholder.
Under Section 1746.13, Ohio Revised Code, liability to third persons
for any act, omission or obligation of an Ohio business trust, such as Cardinal,
which has made its requisite filings with the Ohio Secretary of State is limited
to trust assets and no such liability shall attach to the trustees, officers,
employees, agents or shareholders of the business trust. In addition, Cardinal's
Declaration of Trust provides for indemnification of shareholders from trust
assets similar to that provided by FSF.
Trustees and officers of FSF, pursuant to FSF's Declaration of Trust,
and Trustees and officers of Cardinal, pursuant to Cardinal's Declaration of
Trust, shall only be liable for the willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee or officer, as the case may be, and for nothing else.
The foregoing is only a summary. Shareholders may obtain copies of the
Declaration of Trust and By-Laws of FSF and the Declaration of Trust and By-Laws
of Cardinal from FSF upon written request at the address shown on the cover page
of this Combined Proxy Statement/Prospectus.
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by Cardinal's Board of
Trustees in connection with the Special Meeting. It is expected that the
solicitation of proxies will be primarily by mail. Officers and service
contractors of Cardinal may also solicit proxies by telephone, electronic mail
or personal interview. The costs of this proxy solicitation are being borne by
Fifth Third.
Shares represented by proxies, unless previously revoked, will be voted
at the Special Meeting in accordance with the instructions of the shareholders.
If no instructions are given and the proxy is properly executed, dated and
returned to Cardinal, the proxy returned will be voted in favor of the
proposal. To revoke a proxy, the shareholder giving such proxy must either
submit to Cardinal a subsequently dated proxy, deliver to Cardinal a written
notice of revocation or otherwise give notice of revocation in open meeting, in
all cases prior to the exercise of the authority granted in the proxy.
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<PAGE> 49
Only shareholders of record at the close of business on May 1, 1998,
will be entitled to vote at the Special Meeting. On that date there were
outstanding and entitled to be voted _______ Investor Shares and ____
Institutional Shares of The Cardinal Fund, ___________ Investor Shares and ____
Institutional Shares of Cardinal Aggressive Growth Fund, ___________ Investor
Shares and _____ Institutional Shares of Cardinal Balanced Fund, ____________
Investor Shares and ____ Institutional Shares of Cardinal Government Obligations
Fund, ___________ shares of Cardinal Government Securities Money Market Fund,
and __________ shares of Cardinal Tax Exempt Money Market Fund. As of such time,
the net asset values of each share of the Cardinal Funds were as follows: The
Cardinal Fund, $_______ per Investor Share and $________ per Institutional
Share; Cardinal Aggressive Growth Fund, $_________ per Investor Share and
$_________ per Institutional Share; Cardinal Balanced Fund $___________ per
Investor Share and $___________ per Institutional Share; Cardinal Government
Obligations Fund, $__________ per Investor Share and $____________ per
Institutional Share; Cardinal Government Securities Money Market Fund, $1.00 per
share; and Cardinal Tax Exempt Money Market Fund, $1.00 per share. Shareholders
of the Cardinal Funds are entitled to one vote for each dollar of value invested
and a proportionate fractional vote for any fraction of a dollar invested.
Shareholders of each Cardinal Fund will vote as a Fund, and not in the
aggregate with other shareholders of Cardinal, for purposes of approving the
Reorganization Agreement with respect to that particular Fund. For information
on adjournment of the Special Meeting, see "Quorum" below.
SHAREHOLDER AND BOARD APPROVALS. The Reorganization Agreement (and the
transactions contemplated thereby) are being submitted for approval at the
Special Meeting by a majority of all votes attributable to the outstanding
shares of The Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal Balanced
Fund, Cardinal Government Obligations Fund, Cardinal Government Securities Money
Market Fund and Cardinal Tax Exempt Money Market Fund in accordance with the
provisions of Cardinal's Declaration of Trust and the requirements of the 1940
Act. The term "majority of all votes attributable to the outstanding shares" of
a Cardinal Fund as used herein means the lesser of (a) 67% of all votes
attributable to the outstanding shares of the particular Cardinal Fund present
at the Special Meeting if the holders of more than 50% of the shares of such
Cardinal Fund are present in person or by proxy, or (b) more than 50% of the
votes attributable to the outstanding shares of such Fund.
In tallying shareholder votes, abstentions and broker non-votes (i.e.,
proxies sent in by brokers and other nominees that cannot be voted on a proposal
because instructions have not been received from the beneficial owners) will be
counted for purposes of determining whether or not a quorum is present for
purposes of convening the Special Meeting. On the Reorganization proposal,
abstentions and broker non-votes will be considered to be a vote against the
Reorganization proposal.
The vote of the shareholders of the corresponding Fountain Square Funds
is not being solicited because their approval or consent is not necessary for
the Reorganization to be consummated.
The names, addresses and share ownership of the persons who owned of
record 5% or more of any class of shares of the Cardinal Funds as of May 1,
1998 and the estimated percentage of the corresponding Fountain Square Fund
shares to be owned by such persons upon consummation of the Reorganization are
as follows:
38
<PAGE> 50
<TABLE>
<CAPTION>
===============================================================================================================================
ESTIMATED
PERCENTAGE OF
PERCENTAGE FOUNTAIN
PERCENTAGE OF TOTAL SQUARE FUND TO
CARDINAL FUND AND CLASS OF OF CLASS SHARES BE OWNED AFTER
SHAREHOLDER NAME AND ADDRESS SHARES OWNED OWNED OWNED REORGANIZATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Cardinal Fund
- -------------------------------------------------------------------------------------------------------------------------------
Cardinal Aggressive Growth Fund
- -------------------------------------------------------------------------------------------------------------------------------
Cardinal Balanced Fund
- -------------------------------------------------------------------------------------------------------------------------------
Cardinal Government Obligations
Fund
- -------------------------------------------------------------------------------------------------------------------------------
Cardinal Government Securities
Money Market Fund
- -------------------------------------------------------------------------------------------------------------------------------
Cardinal Tax Exempt Money
Market Fund
===============================================================================================================================
</TABLE>
The names, addresses and share ownership of the persons who owned of
record more than 5% of any class of shares of the Fountain Square Funds, and the
estimated share ownership upon consummation of the Reorganization based upon
their holdings and outstanding shares as of May 1, 1998 are as follows:
<TABLE>
<CAPTION>
===============================================================================================================================
ESTIMATED
PERCENTAGE OF
PERCENTAGE FOUNTAIN
PERCENTAGE OF TOTAL SQUARE FUND TO
FOUNTAIN SQUARE FUND AND CLASS OF OF CLASS SHARES BE OWNED AFTER
SHAREHOLDER NAME AND ADDRESS SHARES OWNED OWNED OWNED REORGANIZATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fountain Square Mid Cap Fund
- -------------------------------------------------------------------------------------------------------------------------------
Fountain Square Balanced Fund
- -------------------------------------------------------------------------------------------------------------------------------
Fountain Square Bond Fund
For Income
- -------------------------------------------------------------------------------------------------------------------------------
Fountain Square Government Cash
Reserves Fund
===============================================================================================================================
</TABLE>
As of May 1, 1998, BISYS was the sole shareholder of Fountain Square
Cardinal Fund and Fountain Square Tax Exempt Money Market Fund and each Fund
had only nominal assets. Accordingly, the ownership interests of shareholders of
The Cardinal Fund, and the ownership interests of Cardinal Tax Exempt Money
Market Fund will not materially change upon consummation of the Reorganization.
39
<PAGE> 51
As of May 1, 1988, the names, addresses and share ownership of persons
who owned of record 5% or more of the Fountain Square Funds not involved in
the Reorganization were as follows:
PERCENTAGE OF
NAME AND ADDRESS FUND OWNERSHIP
- ---------------- ---- ---------
As of May 1, 1998, the trustees and officers of Cardinal, as a group,
owned less than 1% of the outstanding shares of each of the Cardinal Funds. As
of May 1, 1998, the trustees and officers of FSF owned less than 1% of the
outstanding shares of each of the corresponding Fountain Square Funds.
As of ______, 1998, Fifth Third Bank, a subsidiary of Fifth Third
Bancorp, may be deemed to control one or more of the Fountain Square Funds by
virtue of its record ownership of such Funds as follows:
FOUNTAIN SQUARE FUND
- --------------------
<TABLE>
Percentage of Voting Securities Owned
<S> <C>
Fountain Square Mid Cap Fund
Fountain Square Balanced Fund
Fountain Square Bond Fund for Income
Fountain Square Government Cash Reserves Fund
</TABLE>
APPRAISAL RIGHTS. Shareholders are not entitled to any rights of share
appraisal under Cardinal's Declaration of Trust or under the laws of the State
of Ohio in connection with the Reorganization. Shareholders do, however, have
the right to redeem from Cardinal their Cardinal Funds shares at net asset value
until the business day immediately preceding the Closing Date of the
Reorganization. Thereafter, shareholders may redeem from FSF the Fountain Square
Funds shares acquired by them in the Reorganization at net asset value.
QUORUM. In the event that a quorum is not present at the Special
Meeting, or in the event that a quorum is present at the Special Meeting but
sufficient votes to approve the Reorganization Agreement and the transactions
contemplated thereby are not received, the persons named as proxies may propose
one or more adjournments of the Special Meeting to permit further solicitation
of proxies. Any such adjournment will require the affirmative vote of a majority
of those shares affected by the adjournment that are represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies which they are entitled to vote FOR the Reorganization Agreement in
favor of such adjournments, and will vote those proxies required to be voted
AGAINST such proposal against any adjournment. A shareholder vote may be taken
with respect to one or more Cardinal Funds (but not all Cardinal Funds) before
any such adjournments if sufficient votes have been received for approval. A
quorum is constituted with respect to a Cardinal Fund by the presence in person
or by proxy of the holders of more than 50% of the votes attributable to the
outstanding shares of the Fund entitled to vote at the Meeting. Cardinal proxies
properly executed and marked with a negative vote or an abstention will be
considered to be present at the Special Meeting for the purposes of determining
the existence of a quorum for the transaction of business.
ANNUAL MEETINGS. Neither Cardinal nor FSF presently intends to hold
annual meetings of shareholders for the election of trustees and other business
unless required by the 1940 Act or other applicable law. Shareholders have the
right to call
40
<PAGE> 52
a meeting of shareholders to consider the removal of one or more trustees or for
other matters. Such meetings will be called when requested in writing by the
holders of record of 10% or more of outstanding shares entitled to vote.
ADDITIONAL INFORMATION ABOUT FSF
Information about the Fountain Square Funds is included in the
Prospectuses accompanying this Combined Proxy Statement/Prospectus, which are
incorporated by reference herein. Additional information about the Fountain
Square Funds is included in their Statements of Additional Information dated
September 30, 1997, as supplemented to the date hereof, and dated November 30,
1997, as supplemented to the date hereof, which have been filed with the SEC.
Copies of the Statements of Additional Information may be obtained without
charge by writing to FSF at 38 Fountain Square Plaza, Mail Drop 1090Q6,
Cincinnati, Ohio 45263, or by calling FSF at (888) 799-5353. FSF is subject to
the informational requirements of the Securities Exchange Act of 1934 and the
1940 Act, as applicable, and, in accordance with such requirements, files proxy
materials, reports and other information with the SEC. These materials can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the offices listed above
and at the SEC's Regional Offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington D.C. 20549, at prescribed rates.
In addition, these materials and other information regarding companies that file
electronically with the SEC are available on the SEC's Internet Web Site at
http:\\www.sec.gov.
The current trustees and officers of FSF will continue as trustees and
officers following the Reorganization. The names, addresses and birth dates of
each of the trustees as well as information concerning their principal
occupation during the past five years are as follows:
<TABLE>
<CAPTION>
======================================================================================================================
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION
AND BIRTH DATE WITH FSF DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Albert E. Harris Chairman and Trustee Formerly, Chairman of the Board of
5905 Graves Road EDB Holdings, Inc.
Cincinnati, OH 45263 (Retired July, 1993)
July 2, 1932
- ----------------------------------------------------------------------------------------------------------------------
Edward Burke Carey Trustee President of Carey Leggett Realty
394 East Town Street Advisors
Columbus, OH 43215
July 2, 1945
- ----------------------------------------------------------------------------------------------------------------------
Lee A. Carter Trustee Formerly, President of Local Marketing
425 Walnut Street Corporation
Cincinnati, OH 45202 (Retired December 31, 1993)
December 17, 1938
- ----------------------------------------------------------------------------------------------------------------------
Stephen G. Mintos President From January 1987 to present, employee
3435 Stelzer Road of BISYS Fund Services, Inc.
Columbus, OH 43219
February 5, 1954
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 53
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
George R. Landreth Vice President From December 1992 to present,
3435 Stelzer Road employee of BISYS Fund Services, Inc.
Columbus, OH 43219
July 11, 1942
- ----------------------------------------------------------------------------------------------------------------------
Jeffrey C. Cusick Secretary and Treasurer From July 1995 to present, employee of
3435 Stelzer Road BISYS Fund Services, Inc.; from
Columbus, OH 43219 September 1993 to July 1995, Assistant
May 19, 1959 Vice President of Federated
Administrative Services; from 1989 to
September 1993, Manager of Client
Services, Federated Administrative
Services
======================================================================================================================
</TABLE>
ADDITIONAL INFORMATION ABOUT CARDINAL
Information about Cardinal is incorporated herein by reference from its
Prospectuses and Statements of Additional Information, dated January 30, 1998,
copies of which may be obtained without charge by writing or calling Cardinal at
the address and telephone number shown on the cover page of this Combined Proxy
Statement/Prospectus. Cardinal is subject to the informational requirements of
the Securities Exchange Act of 1934 and the 1940 Act, and, in accordance with
such requirements, files proxy materials reports and other information with
the SEC. Reports and other information filed by Cardinal can be inspected and
copied at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of such material can be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Serves, Securities and Exchange Commission, Washington, D.C. 20549,
at prescribed rates.
LITIGATION
Neither Cardinal nor FSF is involved in any litigation that would have
any material adverse financial effect upon either the Cardinal Funds or the
Fountain Square Funds.
FINANCIAL STATEMENTS
The financial statements and financial highlights for Investment A
Shares of Fountain Square Mid Cap Fund, Fountain Square Balanced Fund and
Fountain Square Bond Fund For Income for the fiscal year ended July 31, 1997,
are in FSF's Annual Report to Shareholders dated the same date. The financial
statements and financial highlights for Investment A Shares and Institutional
Shares (formerly Trust Shares) of Fountain Square Government Cash Reserves Fund
for the fiscal year ended July 31, 1997 are contained in that Fund's Statement
of Additional Information dated September 30, 1997. The financial statements and
financial highlights for shares of the Cardinal Funds for the fiscal year ended
September 30, 1997, are included in Cardinal's Annual Report to Shareholders
dated the same date.
The statements of assets and liabilities of the Fountain Square Funds,
including the portfolios of investments as of July 31, 1997, and the related
statements of operations, statements of changes in net assets and financial
highlights for the periods indicated in the financial statements included in
FSF's Annual Report to Shareholders and Money Market Funds Prospectuses and
incorporated by reference in FSF's Statements of Additional Information, are
incorporated by reference in this Combined Proxy Statement/Prospectus reliance
on the reports of Ernst & Young LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
42
<PAGE> 54
The statements of assets and liabilities of the Cardinal Funds,
including the portfolios of investments as of September 30, 1997, and the
related statements of operations, statements of changes in net assets and
financial highlights for the periods indicated in the financial statements
included in Cardinal's Annual Report to Shareholders and included in
Cardinal's Statement of Additional Information, are incorporated by in this
Combined Proxy Statement/Prospectus, have been incorporated herein in reliance
on the report of KPMG Peat Marwick LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
OTHER BUSINESS
Cardinal's Board knows of no other business to be brought before the
Meeting. However, if any other matters come before the Meeting, it is the
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Cardinal in writing at the
address on the cover page of this Combined Proxy Statement/Prospectus or by
telephoning (800) 282-9446.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
43
<PAGE> 55
THE CARDINAL GROUP
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
[Name and Address of Shareholder]
Account Number:
Shares:
Control No:
TO VOTE, MARK BLOCKS BELOW IN BLUE INK AS FOLLOWS: X
KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
THE CARDINAL GROUP
This Proxy is Solicited on Behalf of
the Board of Trustees of the Group
The undersigned hereby appoints H. Keith
Allen, Frank W. Siegel and James M
Schrack II, and each of them, with full
power of substitution, proxies to vote
and act with respect to all Shares of
[Name of Applicable Fund]
(the "Fund") of THE CARDINAL GROUP (the "Group"),
which the undersigned is entitled to vote, at the
Special Meeting of Shareholders of the Group to be
held Friday, July 10, 1998, at the National City
Bank Board Room, 3rd Floor, 155 East Broad Street,
Columbus, Ohio, at 9:00 A.M. (Eastern Time) and at
any and all adjournments thereof, on the following
proposal and any other matters that may properly
come before the meeting.
PLEASE DATE, SIGN AND MAIL PROMPTLY
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder, but
if no instructions are given, and this proxy is properly executed and returned
to the Group, this proxy will be voted FOR the proposal and in accordance with
the best judgment of the proxies on any other matter which properly comes before
the Meeting.
VOTE ON PROPOSAL
1 Approval of the Agreement and Plan of Reorganization and Liquidation by
and between Fountain Square Funds, Fifth Third Bank, The Cardinal Group
and Cardinal Management Corp.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated May 1, 1998, and the Proxy Statement attached
thereto.
(Please sign legibly exactly as the name is printed above or as it
appears on your account statement.)
- ----------------------------------- ----------------------------------
Signature Date Signature (Joint Owner) Date
<PAGE> 56
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of April
2, 1998 (the "Agreement"), by and between FOUNTAIN SQUARE FUNDS, a
Massachusetts business trust ("Fountain Square"), on behalf of certain of its
portfolios now in existence or to be created, Fountain Square Government Cash
Reserves Fund, Fountain Square Tax Exempt Money Market Fund, Fountain Square
Cardinal Fund, Fountain Square Balanced Fund, Fountain Square Mid Cap Fund, and
Fountain Square Bond Fund For Income (the "Fountain Square Portfolios"), FIFTH
THIRD BANK, an Ohio state-chartered bank ("Fifth Third"), THE CARDINAL GROUP, an
Ohio business trust ("Cardinal"), on behalf of its portfolios, Cardinal
Government Securities Money Market Fund, Cardinal Tax Exempt Money Market Fund,
The Cardinal Fund, Cardinal Balanced Fund, Cardinal Aggressive Growth Fund, and
Cardinal Government Obligations Fund (the "Cardinal Portfolios"), and CARDINAL
MANAGEMENT CORP., an Ohio corporation ("CMC").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all of the
Fund Assets and Stated Liabilities as hereinafter defined of Investor A Shares
of The Cardinal Fund, Cardinal Balanced Fund, Cardinal Aggressive Growth Fund,
and Cardinal Government Obligations Fund, and shares of Cardinal Government
Securities Money Market Fund and Cardinal Tax Exempt Money Market Fund held by
investors who are not eligible to invest in Institutional Shares of the Fountain
Square Portfolios, in exchange for Investment A Shares of the corresponding
Fountain Square Portfolios and of Investor Y Shares of The Cardinal Fund,
Cardinal Balanced Fund, Cardinal Aggressive Growth Fund, and Cardinal Government
Obligations Fund, and shares of Cardinal Government Securities Money Market Fund
and Cardinal Tax Exempt Money Market Fund held by investors who are eligible to
invest in Institutional Shares of the Fountain Square Portfolios, in exchange
for Institutional Shares of the corresponding Fountain Square Portfolios (as
described in Schedule A hereto) (all shares of the Fountain Square Portfolios
being collectively referred to as the "Acquiring Fund Shares") and the
distribution, after the Closing Date as hereinafter defined, of such shares of
the Fountain Square Portfolios to the shareholders of the corresponding
Cardinal Portfolios in liquidation of the Cardinal Portfolios as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, Cardinal and Fountain Square are registered open-end,
management investment companies and the Cardinal Portfolios own securities which
generally are assets of the character in which the Fountain Square Portfolios
are permitted to invest;
WHEREAS, Fountain Square is authorized to issue the Acquiring Fund
Shares and Cardinal is authorized to issue its shares of beneficial interest;
WHEREAS, Fifth Third serves as investment adviser to the Fountain
Square Portfolios;
<PAGE> 57
WHEREAS, CMC, an investment adviser registered as such under the
Investment Advisers Act of 1940, as amended, serves as investment adviser to the
Cardinal Portfolios;
WHEREAS, the parties intend that two of the Fountain Square Portfolios,
the Fountain Square Tax Exempt Fund, and the Fountain Square Cardinal Fund, will
have nominal assets and liabilities before the Reorganization and will continue
investment operations of the Cardinal Tax Exempt Money Market Fund, and The
Cardinal Fund, respectively, after the Reorganization;
WHEREAS, the Board of Trustees of Fountain Square, including a majority
of the Trustees who are not "interested persons" of Fountain Square as defined
under the Investment Company Act of 1940, as amended (the "1940 Act"), has
determined that the exchange of all of the Fund Assets (as defined below) and
assumption of all of the Stated Liabilities (as defined below) of the Cardinal
Portfolios for Acquiring Fund Shares is in the best interests of Fountain Square
and the Fountain Square Portfolios' shareholders and that the interests of the
existing shareholders of Fountain Square and the Fountain Square Portfolios
would not be diluted as a result of the Reorganization; and
WHEREAS, the Board of Trustees of Cardinal, including a majority of the
Trustees who are not "interested persons" (as defined under the 1940 Act) of
Cardinal, has determined that the exchange of all of the Fund Assets (as defined
below) and assumption of the Stated Liabilities of the Cardinal Portfolios for
the Acquiring Fund Shares is in the best interests of the Cardinal Portfolios'
shareholders, that the interests of the shareholders of the Cardinal Portfolios
would not be diluted as a result of the Reorganization and determined that,
subsequent to the Reorganization, the Cardinal Portfolios will cease operations;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES OF THE
CARDINAL PORTFOLIOS IN EXCHANGE FOR THE ACQUIRING FUND SHARES
AND LIQUIDATION OF CARDINAL.
1.1 Subject to the terms and conditions contained herein, and
on the basis of the representations and warranties contained herein,
each Cardinal Portfolio shall assign, transfer, and convey to its
corresponding Fountain Square Portfolio identified in Schedule A (each,
an "Acquiring Fund"), all of the Fund Assets (as defined in paragraph
1.2) and Stated Liabilities (as defined in paragraph 1.3) of each of
the Cardinal Funds (each, an "Acquired Fund") at the time of the
Closing (defined below), and Fountain Square agrees in exchange
therefor to assume such Stated Liabilities and deliver to CMC, as
transfer agent for the benefit of Cardinal, the number of Acquiring
Fund Shares, including fractional Acquiring Fund Shares, determined as
set forth in paragraph 2.3 of this Agreement. Such transactions shall
take place at the closing (the "Closing") on the closing date (the
"Closing Date"), as provided in paragraph 3.1 of this Agreement. In
lieu of delivering certificates for the Acquiring Fund Shares, the
2
<PAGE> 58
Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired
Fund's account on the stock record books of the Acquiring Fund's
transfer agent and shall deliver a confirmation thereof to the
applicable Acquired Fund.
1.2 With respect to each Acquired Fund, the Fund Assets shall
consist of all property and assets of any nature whatsoever, including,
without limitation, all cash, except an amount necessary to pay any
unpaid dividends and distributions as provided in paragraph 5.6, cash
equivalents, securities, claims (whether absolute or contingent, known
or unknown, accrued or unaccrued) and receivables (including dividend
and interest receivables) owned by each Acquired Fund, and any deferred
or prepaid expenses shown as an asset on each Acquired Fund's books on
the Closing Date, all other intangible property and all books and
records belonging to the Acquired Funds.
1.3 With respect to each Acquired Fund, the Stated Liabilities
shall consist of all liabilities and obligations disclosed on an
unaudited statement of assets and liabilities for the Acquired Fund
prepared by or on behalf of Cardinal as of the Valuation Date (as
defined in paragraph 2.1), in accordance with generally accepted
accounting principles consistently applied from the prior audited
period. The Acquiring Fund shall assume only the Stated Liabilities of
its corresponding Acquired Fund, and no other liabilities or
obligations, whether absolute or contingent, known or unknown, accrued
or unaccrued. Notwithstanding the foregoing, unamortized organizational
expenses of each of the Acquired Funds shall not be transferred or
assumed hereunder. The parties have been advised that such expenses
will be paid to such Acquired Funds by one or more third parties and
will be eliminated from the balance sheets of such Acquired Funds prior
to the Closing. Each Acquired Fund will endeavor to discharge all of
its known liabilities and obligations prior to the Closing Date.
1.4 Delivery of the Fund Assets of each Acquired Fund to be
transferred shall be made on the Closing Date (defined below) and shall
be delivered to Fifth Third Bank, Cincinnati, Ohio, Fountain Square's
custodian (the "Custodian"), for the account of the corresponding
Acquiring Fund, together with proper instructions and all documents
necessary to transfer such assets to the account of the Acquiring Fund,
free and clear of all liens, encumbrances, rights, restrictions and
claims, except as may be indicated in a schedule delivered by the
Acquired Fund to the Acquiring Fund immediately prior to the Closing.
All cash delivered shall be in the form of currency or immediately
available funds payable to the order of the Custodian.
1.5 At least 15 business days prior to the Closing Date, each
Acquired Fund will provide the corresponding Acquiring Fund with a
schedule of its Fund Assets and its Stated Liabilities, and each
Acquiring Fund will provide the corresponding Acquired Fund with a copy
of its current investment objective and policies. Each Acquired Fund
reserves the right to sell any of the securities or other assets shown
on the schedule of Fund Assets prior to the Closing Date but will not,
without the prior approval of the corresponding Acquiring Fund, acquire
any additional securities other than securities
3
<PAGE> 59
which the Acquiring Fund is permitted to purchase in accordance with
its stated investment objective and policies. At least 10 business days
prior to the Closing Date, the Acquiring Fund will advise the
corresponding Acquired Fund of any investments shown on the schedule
provided by the Acquired Fund which the Acquiring Fund would not be
permitted to hold, pursuant to its stated investment objective and
policies or otherwise. In the event that the Acquired Fund holds any
investments that its corresponding Acquiring Fund would not be
permitted to hold under its stated investment objective or policies,
the Acquired Fund, if requested by the Acquiring Fund and, to the
extent permissible and consistent with the Acquired Fund's own
investment objective and policies, will dispose of such securities
prior to the Closing Date. In addition, if it is determined that the
holdings of the Acquired Fund and the Acquiring Fund, when aggregated,
would contain investments exceeding certain percentage limitations to
which the Acquiring Fund is or will be subject with respect to such
investments, the Acquired Fund, if requested by the Acquiring Fund and,
to the extent permissible and consistent with the Acquired Fund's own
investment objective and policies, will dispose of and/or reinvest a
sufficient amount of such investments as may be necessary to avoid
violating such limitations as of the Closing Date.
1.6 Each Acquired Fund will pay or cause to be paid to its
corresponding Acquiring Fund any dividends or interest received on or
after the Closing Date with respect to Fund Assets transferred to the
Acquiring Fund hereunder. Each Acquired Fund will transfer to the
Acquiring Fund any distributions, rights, or other assets received by
the Acquired Fund after the Closing Date as distributions on, or with
respect to, the Fund Assets transferred. Such distributions, rights or
other assets shall be deemed included in Fund Assets transferred to the
Acquiring Fund on the Closing Date and shall not be separately valued.
1.7 As soon after the Closing Date as is practicable (the
"Liquidation Date"), each Acquired Fund will liquidate and distribute
pro rata to such Acquired Fund's shareholders of record, determined as
of the close of business on the Closing Date (the "Acquired Fund
Shareholders"), the Acquiring Fund Shares received by the Acquired Fund
pursuant to paragraph 1.1. Such liquidation and distribution will be
accomplished by the Acquiring Fund or its transfer agent transferring
the Acquiring Fund Shares to an account for each shareholder on the
books of the Acquiring Fund's transfer agent in the name of each
Acquired Fund Shareholder and representing the pro rata number of the
Acquiring Fund Shares due each Acquired Fund Shareholder. All issued
and outstanding shares of each Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund.
1.8 Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Acquired
Fund shares on the books of the Acquired Fund as of the Closing Date
shall, as a condition of such issuance and transfer, be paid by the
person to whom such Acquiring Fund Shares are to be issued and
transferred.
4
<PAGE> 60
1.9 Following the transfer of Fund Assets by each Acquired
Fund to its corresponding Acquiring Fund, the assumption of the
Acquired Fund's Stated Liabilities by the Acquiring Fund, and the
distribution by the Acquired Fund of the Acquiring Fund Shares received
by it pursuant to paragraph 1.7, Cardinal shall terminate the
registration of such Acquired Fund and its shares at all appropriate
federal and state agencies. Upon the transfer of Fund Assets by all of
the Acquired Funds to their corresponding Acquiring Funds, the
assumption of all of the Acquired Funds' Stated Liabilities by the
Acquiring Funds, and the distribution by all of the Acquired Funds of
the Acquiring Fund Shares received, Cardinal shall dissolve the trust.
Any reporting responsibility of an Acquired Fund is and shall remain
the exclusive responsibility of the Acquired Fund up to and including
the date on which the particular Acquired Fund is terminated, dissolved
and deregistered with federal and state securities or "blue sky"
authorities.
1.10 The failure of one Acquired Fund to consummate the
transactions contemplated hereby shall not affect the consummation or
validity of the distribution of Acquiring Fund Shares to the
shareholders of any other Acquired Fund in liquidation of such Acquired
Fund, and the provisions of this Agreement shall be construed to effect
this intent.
2. VALUATION.
2.1 The value of the Fund Assets of each Acquired Fund to be
acquired by an Acquiring Fund hereunder shall be the current market
value of such Fund Assets computed as of the close of business on the
last business day preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation
procedures set forth in the Acquiring Fund's then-current prospectus or
statement of additional information.
2.2 The net asset value of an Acquiring Fund Share shall be
the net asset value per share computed as of the close of business on
the Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then-current prospectus or statement of additional
information, provided that if the Acquiring Fund has no assets or
liabilities as of the Valuation Date, the net asset value of an
Acquiring Fund Share shall equal the net asset value per share of the
corresponding Acquired Fund on the Valuation Date.
2.3 The number of Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for each Acquired
Fund's assets shall be determined by dividing the value of the Fund
Assets attributable to the Acquired Fund, net of all known liabilities,
determined using the same valuation procedures referred to in paragraph
2.1, by the net asset value of one Acquiring Fund Share of the
corresponding Acquiring Fund, determined in accordance with
paragraph 2.2.
2.4 All computations of value contemplated by this Section 2
shall be made by Fifth Third in accordance with its regular practice
and shall be reviewed by its
5
<PAGE> 61
independent accountants. Fifth Third shall deliver a copy of a
valuation report reviewed by its independent accountants to Cardinal at
the Closing.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be July 13, 1998, or such later
date as the parties may mutually agree. All acts taking place at the
Closing Date shall be deemed to take place simultaneously as of 9:00
a.m. on the Closing Date unless otherwise provided. The Closing shall
be held at 9:00 a.m. at the offices of Fifth Third, Cincinnati, Ohio,
or such other time and/or place as the parties may mutually agree.
3.2 If on the Valuation Date: (a) the primary trading market
for portfolio securities of an Acquiring Fund or the applicable
Acquired Fund shall be closed to trading or trading thereon shall be
restricted; or (b) trading or the reporting of trading shall be
disrupted so that accurate appraisal of the value of the net assets of
the Acquiring Fund or the Acquired Fund is impracticable, the Closing
Date shall be postponed with respect to the affected Acquired Fund
until the first business day after the day when trading shall have been
fully resumed and reporting shall have been restored, or such other
time as the parties may mutually agree.
3.3 Cardinal, on behalf of each Acquired Fund, shall instruct
CMC, as transfer agent for the Acquired Fund, to deliver to Fountain
Square at the Closing, a certificate of an authorized officer stating
that its records contain the names, addresses and taxpayer
identification numbers of the Acquired Fund Shareholders and the number
of outstanding shares owned by each such shareholder as of the close of
business on the Valuation Date. With respect to each Acquired Fund,
Cardinal shall provide Fountain Square and its transfer agent with
immediate access from and after the Closing Date to all documentation,
including computer, electronic or other similar forms, of such records.
Each Acquiring Fund shall issue and deliver on the Closing Date to the
Secretary of Cardinal a confirmation evidencing the Acquiring Fund
Shares to be credited, and that such Acquiring Fund Shares have been
credited to the respective accounts of the Acquired Fund Shareholders
on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party
or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 Each of Cardinal and CMC represents and warrants to
Fountain Square as follows:
(a) Cardinal is a validly existing business trust,
duly organized under the laws of the State of Ohio and has the
power to carry on its business as it is now being conducted
and to carry out its obligations under this Agreement.
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Cardinal has qualified as a foreign business trust in each
jurisdiction where the ownership of its property or the
conduct of its business requires such qualification.
(b) Cardinal is registered under the 1940 Act as an
open-end, management investment company, and such registration
has not been revoked or rescinded and is in full force and
effect as of the date of this Agreement.
(c) Cardinal is not in material breach or violation
of, and the execution, delivery, and performance of this
Agreement, subject to approval by Cardinal's shareholders,
will not result in a material breach or violation of, its
Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease, or other undertaking
to which Cardinal is a party or by which it is bound.
(d) Cardinal has no contracts or other commitments
outstanding which will result in liability to it after the
Closing Date not reflected on the Acquired Funds' balance
sheets other than liabilities in the ordinary course of
business or otherwise disclosed to Fifth Third and Fountain
Square.
(e) No material litigation, administrative proceeding
or investigation of or before any court or governmental body
is currently pending or, to Cardinal's knowledge, threatened
against any Cardinal or Acquired Fund, or any of Cardinal's or
the Acquired Funds' properties or assets which, if adversely
determined, would materially and adversely affect Cardinal's
or the Acquired Fund's financial condition or the conduct of
its business. Neither CMC nor Cardinal knows of any facts
which might form the basis for the institution of such
proceedings, and neither Cardinal nor any Acquired Fund is a
party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially
and adversely affects an Acquired Fund's business or
Cardinal's ability to consummate the transactions herein
contemplated.
(f) The Statement of Assets and Liabilities,
Statement of Operations and Statement of Changes in Net Assets
of each Acquired Fund as of and for the year ended September
30, 1997, have been audited by KPMG Peat Marwick LLP,
independent auditors, and have been prepared in accordance
with generally accepted accounting principles, consistently
applied, and such statements (copies of which have been or
will be furnished to Fountain Square) fairly reflect the
financial condition of each Acquired Fund as of such date, and
there are no liabilities of the Acquired Funds, known to
Cardinal or to CMC, contingent or otherwise, as of such date
not disclosed therein.
(g) Since September 30, 1997, there has not been any
material adverse change in any Acquired Fund's financial
condition, assets, liabilities, or business
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other than changes occurring in the ordinary course of
business, or any incurrence by any Acquired Fund of any
indebtedness for borrowed money, except indebtedness pursuant
to a line of credit established with Fifth Third or as
otherwise disclosed in writing to Fifth Third and Fountain
Square and accepted by the corresponding Acquiring Fund.
(h) At the Closing Date, all federal and other tax
returns and reports of each Acquired Fund required by law (or
permitted extensions thereto) will have been filed, and
related taxes will have been paid or provision will have been
made for the payment thereof for all periods ending on or
before the Closing Date, and to the best of Cardinal's
knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns. All
tax liabilities of Cardinal and each Acquired Fund have been
adequately provided for on its books, and no tax deficiency or
liability of Cardinal or each Acquired Fund has been asserted,
and no question with respect thereto has been raised, by the
Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid.
(i) For each fiscal year (or part thereof) of its
operation, each Acquired Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a
regulated investment company and has taken and will take all
necessary and required actions to maintain such status.
(j) All issued and outstanding shares of each
Acquired Fund are, and at the Closing Date will be, duly
authorized, validly issued and outstanding, and fully paid and
non-assessable. All of the issued and outstanding shares of
each Acquired Fund will, at the time of the Closing, be held
by the persons and in the amounts set forth in the records of
its transfer agent as provided in paragraph 3.3 of this
Agreement. No Acquired Fund has outstanding any options,
warrants or other rights to subscribe for or purchase any
Acquired Fund shares, nor is there outstanding any security
convertible into Acquired Fund shares.
(k) All of the issued and outstanding shares of each
Acquired Fund have been, and as of the Closing Date will be,
duly registered under the Securities Act of 1933, as amended
(the "1933 Act"), and all appropriate notices, or exemptions
from registration, to the extent required thereby under each
state securities or "blue sky" law of every state in which
such Acquired Fund has offered or sold its shares, have been,
and as of the Closing Date, will be filed and maintained.
(l) At the Closing Date, each Acquired Fund will have
good and marketable title to its Fund Assets with full right,
power, and authority to sell, assign, transfer, and deliver
the Fund Assets and Stated Liabilities to be transferred by it
pursuant to this Agreement.
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<PAGE> 64
(m) The execution, delivery, and performance of this
Agreement has been duly authorized by all necessary action on
the part of Cardinal's Board of Trustees and, subject to the
approval of each Acquired Fund's shareholders, this Agreement
constitutes the valid and legally binding obligation of
Cardinal enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and other similar laws
relating to or affecting creditors' rights generally and court
decisions with respect thereto, and to general principles of
equity and the discretion of the court before which a
proceeding is brought (regardless of whether the
enforceability is considered in a proceeding in equity or at
law).
(n) No consent, approval, authorization or order of
any court or governmental authority is required for the
consummation by Cardinal or any Acquired Fund of the
transactions contemplated by this Agreement, except such as
have been or will be obtained under the 1933 Act, the 1934 Act
and the 1940 Act and such as may be required under state
securities or "blue sky" laws.
(o) Materials and information provided by Cardinal,
in connection with the preparation of, or contained in the
Registration Statement (as defined in paragraph 5.5) will not,
on the effective date of the Registration Statement and on the
Closing Date, contain any untrue statement of material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which such statements were made, not
misleading.
4.2 Each of Fountain Square and Fifth Third represents and warrants to
Cardinal as follows:
(a) Fountain Square is a validly existing business
trust, duly organized and in good standing under the laws of
the Commonwealth of Massachusetts and has the power to carry
on its business as it is now being conducted and to carry out
its obligations under this Agreement. Fountain Square has
qualified as a foreign business trust in each jurisdiction
where the ownership of its property or the conduct of its
business requires such qualification.
(b) Fountain Square is registered under the 1940 Act
as an open-end management investment company, and such
registration has not been revoked or rescinded and is in full
force and effect as of the date of this Agreement.
(c) Fountain Square is not in material breach or
violation of, and the execution, delivery, and performance of
this Agreement will not result in a material breach or
violation of, its Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease, or other
undertaking to which Fountain Square is a party or by which it
is bound.
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(d) Fountain Square has no contracts or other
commitments outstanding which will result in liability to it
after the Closing Date not reflected in the Acquiring Funds'
balance sheets other than liabilities in the ordinary course
of business or otherwise disclosed to CMC and Cardinal.
(e) No material litigation, administrative proceeding
or investigation of or before any court or governmental body
is currently pending or, to Fountain Square's knowledge,
threatened against Fountain Square or any Acquiring Fund, or
any of Fountain Square's or the Acquiring Funds' properties or
assets which, if adversely determined, would materially and
adversely affect Fountain Square's or the Acquiring Fund's
financial condition or the conduct of its business. Neither
Fifth Third nor Fountain Square knows of any facts which might
form the basis for the institution of such proceedings, and
neither Fountain Square nor any Acquiring Fund is a party to
or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and
adversely affects its business or its ability to consummate
the transactions herein contemplated.
(f) The Statement of Assets and Liabilities,
Statement of Operations and Statement of Changes in Net Assets
of each Acquiring Fund as of and for the year ended July 31,
1997, have been audited by Ernst & Young, LLP, independent
auditors, and have been prepared in accordance with generally
accepted accounting principles, consistently applied, and such
statements (copies of which have been or will be furnished to
Cardinal) fairly reflect the financial condition of each
Acquiring Fund as of such date, and there are no liabilities
of the Acquiring Funds, known to Fountain Square or Fifth
Third, contingent or otherwise, as of such date not disclosed
therein.
(g) Since July 31, 1997, there has not been any
material adverse change in any Acquiring Fund's financial
condition, assets, liabilities, or business other than changes
occurring in the ordinary course of business, or any
incurrence by any Acquiring Fund of any indebtedness for
borrowed money, except as disclosed in writing to CMC and
Cardinal and accepted by the corresponding Acquired Fund.
(h) The unaudited Statements of Assets and
Liabilities, Statement of Operations and Statements of Changes
in Net Assets for each Acquiring Funds for the six months
ended January 31, 1998 will be prepared in accordance with
generally accepted accounting principles and furnished to
Cardinal promptly upon completion thereof. Such statements
will fairly reflect the financial condition of each Acquiring
Fund as of such date.
(i) At the Closing Date, all federal and other tax
returns and reports of each Acquiring Fund required by law (or
permitted extensions thereto) will
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<PAGE> 66
have been filed and related taxes will have been paid or
provision will have been made for the payment thereof for all
periods ending on or before the Closing Date, and to the best
of Fountain Square's knowledge, no federal or other tax return
is currently under audit and no assessment has been asserted
with respect to such returns. All tax liabilities of Fountain
Square and each Acquiring Fund have been adequately provided
for on its books, and no tax deficiency or liability of
Fountain Square or each Acquiring Fund has been asserted, and
no question with respect thereto has been raised, by the
Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid.
(j) For each fiscal year (or part thereof) of its
operation, each Acquiring Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a
regulated investment company and has taken and will take all
necessary and required actions to maintain such status.
(k) All issued and outstanding shares of each
Acquiring Fund are, including the Acquiring Fund Shares to be
issued to the Acquired Fund Shareholders pursuant hereto, and
at the Closing Date will be, duly authorized, validly issued
and outstanding, and fully paid and non-assessable. No
Acquiring Fund has outstanding any options, warrants or other
rights to subscribe for or purchase any Acquiring Fund Shares,
nor is there outstanding any security convertible into
Acquiring Fund Shares.
(l) All of the issued and outstanding shares of each
Acquiring Fund are, and as of the Closing Date will be, duly
registered under the 1933 Act and all appropriate notices, or
exemptions from registration, to the extent required thereby
under each state securities or "blue sky" law of every state
in which such Acquiring Fund has offered or sold its shares,
have been, and as of the Closing Date, will be filed and
maintained.
(m) At the Closing Date, each Acquiring Fund will
have good and marketable title to its assets with full right,
power, and authority to purchase the Fund Assets and assume
the Stated Liabilities of each Acquired Fund to be transferred
to it pursuant to this Agreement.
(n) The execution, delivery, and performance of this
Agreement has been duly authorized by all necessary action on
the part of Fountain Square's Board of Trustees, and, subject
to the approval by each Acquired Fund's shareholders, this
Agreement constitutes the valid and legally binding obligation
of Fountain Square enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other
similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto, and to
general principles of equity and the
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<PAGE> 67
discretion of the court before which a proceeding is brought
(regardless of whether the enforceability is considered in a
proceeding in equity or at law).
(o) No consent, approval, authorization or order of
any court or governmental authority is required for the
consummation by Fountain Square or any Acquiring Fund of the
transactions contemplated by this Agreement, except such as
have been or will be obtained under the 1933 Act, the 1934 Act
and the 1940 Act and such as may be required under state
securities or "blue sky" laws.
(p) The Registration Statement (as defined in
paragraph 5.5), except with respect to materials and
information provided by Cardinal and contained therein, will,
on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which such statements were made,
not misleading.
(q) The current prospectuses and statements of
additional information of each Acquiring Fund set forth in
Post-Effective Amendments to the Trust's registration
statement on Form N-1A, as supplemented, (collectively, the
"Acquiring Fund Prospectuses"), will as of their date conform
in all material respects to the applicable requirements of the
1933 Act and the 1940 Act and the rules and regulations of the
Securities and Exchange Commission (the "SEC") thereunder and
will not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(r) Fifth Third will assume all of Fountain Square's
expenses of the Reorganization, including legal fees of
Fountain Square.
(s) Fifth Third will assume all of Cardinal's
expenses of the Reorganization, including legal fees of
Cardinal, and the costs of preparing, printing, copying, and
mailing proxy solicitation materials to each Acquired Fund's
shareholders.
5. COVENANTS OF FOUNTAIN SQUARE, FIFTH THIRD, CARDINAL AND CMC.
5.1 Fountain Square and Cardinal each will operate its
business in the ordinary course between the date hereof and the Closing
Date, it being understood that such ordinary course of business will
include the customary payment of dividends and distributions.
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<PAGE> 68
5.2 Subject to the provisions of this Agreement, Fountain
Square and Cardinal will each take, or cause to be taken, all action,
and do or cause to be done, all things reasonably necessary, proper, or
advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.3 As promptly as practicable, but in any case within sixty
days after the Closing Date, Cardinal, on behalf of each Acquired Fund,
shall furnish its corresponding Acquiring Fund, in such form as is
reasonably satisfactory to Fountain Square, a statement of the earnings
and profits of each Acquired Fund for federal income tax purposes which
will be carried over to the applicable Acquiring Fund as a result of
Section 381 of the Code and which will be certified by an authorized
officer of Cardinal and an authorized officer of CMC.
5.4 On the Closing Date, Cardinal, on behalf of each Acquired
Fund, shall furnish to its corresponding Acquiring Fund, a final
statement of the total amount of Fund Assets and Stated Liabilities of
each Acquired Fund as of the Closing Date, which statement shall be
certified by an officer of Cardinal as being determined in accordance
with generally accepted accounting principles consistently applied and
as being valued in accordance with Section 2 hereof.
5.5 As promptly as practicable after the date hereof, Cardinal
will call a meeting of each Acquired Fund's shareholders to consider
and act upon this Agreement and to take all other action necessary and
appropriate to obtain approval of the transactions contemplated herein.
Fountain Square shall prepare and file with the SEC a Registration
Statement on Form N-14 complying in all material respects with the
requirements of the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act, and applicable rules and
regulations thereunder (the "Registration Statement"), relating to such
meeting of the shareholders of each Acquired Fund. Fountain Square
shall take all necessary and reasonable actions to have such
Registration Statement declared effective by the SEC. Cardinal agrees
to provide Fountain Square with information relating to each Acquired
Fund which Fountain Square deems necessary, proper or advisable in the
preparation of the Registration Statement or consummation of the
transactions contemplated herein.
5.6 Prior to the Closing, each Acquired Fund shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders
all of its investment company taxable income for its taxable year ended
September 30, 1997 and the short taxable year beginning on October 1,
1997 and ending on the Closing Date (computed without regard to any
deduction for dividends paid), and all of its net capital gain realized
in its taxable year beginning on October 1, 1997 and ending on the
Closing Date (after reduction for any capital loss carryover).
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<PAGE> 69
5.7 As soon after the Closing Date as is reasonably
practicable, Cardinal, on behalf of each Acquired Fund shall (i)
prepare and file all federal and other tax returns and reports of each
Acquired Fund required by law to be filed with respect to all periods
ending on or before the Closing Date but not previously filed, and (ii)
pay all federal and other taxes shown as due and/or all federal and
other taxes that were unpaid as of the Closing Date.
5.8 As soon after the Closing Date as is reasonably
practicable, Cardinal will file any final regulatory reports,
including, but not limited to, any Form N-SAR and Rule 24f-2 filings
with respect to the Acquired Funds, and will take all other steps as
are necessary and proper to effect the termination or declassification
of such Acquired Funds in accordance with the laws of the state of Ohio
and other applicable requirements.
5.9 For a period of three years after the Closing Date, at
least 75 percent of the Trustees of Fountain Square shall not be
"interested persons" (as defined in the 1940 Act) of Fifth Third or
CMC.
5.10 For a period of two years after the Closing Date no
unfair burden shall be imposed upon Fountain Square or an Acquiring
Fund as a result of the transactions contemplated herein; in
furtherance of such covenant, during such two-year period, Fountain
Square will not (a) pay, directly or indirectly, any compensation to
Fifth Third, CMC or any interested person of either of them (i) for
other than bona fide investment advisory or other services, which other
bona fide services may include, without limitation, serving as
administrator, sub-administrator, custodian, transfer agent, fund
accountant or a dealer under a Rule 12b-1 related agreement, or (ii)
for the purchase or sale of securities or other property to, from or on
behalf of Fountain Square, other than where such sales are permitted by
Section 15(f)(1)(B) of the 1940 Act, (b) enter into, participate in, or
pay compensation in connection with any arrangement that facilitates or
is intended to facilitate the payment of compensation proscribed by (a)
herein, or (c) increase compensation payable to Fifth Third, CMC or any
interested person of either of them which results in an increase in the
expense ratios of any of the Acquiring Funds, as presented to the
shareholders of the Acquired Funds in the Registration Statement.
5.11 Fountain Square agrees to use all best efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940
Act, and all applicable state securities or "blue sky" laws in order to
continue its operations after the Closing Date.
5.12 Cardinal, on behalf of each Acquired Fund, covenants that
the corresponding Acquiring Fund Shares to be issued hereunder are not
being acquired for the purpose of making any distribution thereof,
other than in accordance with the terms of this Agreement.
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6. CONDITIONS PRECEDENT TO OBLIGATIONS OF FOUNTAIN SQUARE.
The obligations of Fountain Square to consummate the transactions
provided for herein shall be subject to the performance by Cardinal and CMC of
all the obligations to be performed by them hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of Cardinal and CMC
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing
Date.
6.2 Cardinal shall have delivered to Fountain Square a
statement of the Fund Assets and Stated Liabilities of each Acquired
Fund, together with a list of each Acquired Fund's portfolio securities
showing the tax costs of such securities by lot and the holding periods
of such securities, as of the Closing Date, certified by an authorized
officer of Cardinal.
6.3 Cardinal and CMC shall have delivered to Fountain Square
on the Closing Date a certificate executed in their names by two of
their respective officers, in form and substance reasonably
satisfactory to Fountain Square, to the effect that the representations
and warranties of Cardinal and CMC made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such
other matters as Fountain Square shall reasonably request.
6.4 On or before the Closing Date, all conditions to the
closing of the Agreement and Plan of Merger among The Ohio Company,
Fifth Third Bancorp and Fifth Third M Corp. dated December 22, 1997,
shall have been satisfied or waived and such closing shall have
occurred.
6.5 Fountain Square shall have received an opinion of Baker &
Hostetler LLP, in form reasonably satisfactory to Fountain Square and
its counsel and dated the Closing Date, to the effect that (i) Cardinal
is a validly existing business trust, duly organized under the laws of
the state of Ohio, its Report of Operation of Business Trust is in full
force and effect and Cardinal has the power to carry on its business as
it is now being conducted and to carry out its obligations under this
Agreement, (ii) this Agreement has been duly authorized, executed, and
delivered by Cardinal and, assuming due authorization, execution and
delivery of this Agreement by Fountain Square, CMC and Fifth Third, is
a valid and legally binding obligation of Cardinal, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto,
and to general principles of equity and the discretion of the court
before
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<PAGE> 71
which a proceeding is brought (regardless of whether the enforceability
is considered in a proceeding in equity or at law), (iii) each Acquired
Fund has the full right, power and authority to sell, assign, transfer
and deliver the Fund Assets and Stated Liabilities, and, in accordance
with the terms of this Agreement, each Acquired Fund will have duly
sold, assigned, conveyed, transferred and delivered such assets and
liabilities to Fountain Square, (iv) the execution, delivery and
performance of this Agreement will not result in a material breach or
violation of Cardinal's Declaration of Trust or By-Laws, or any
agreement, indenture, instrument, contract, lease, or other undertaking
known to such counsel, to which Cardinal is a party or by which it is
bound; provided that, such counsel may rely upon a certificate of an
officer of Cardinal whose responsibility it is to advise Cardinal with
respect to such matters, (v) no consent, approval, authorization or
order of any court or governmental authority is required for the
consummation by Cardinal or any Acquired Fund of the transactions
contemplated by this Agreement, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required
under state securities or "blue sky" laws; provided that such opinion
shall not be deemed to apply to Fountain Square's compliance
obligations under the 1933 Act, 1934 Act, 1940 Act, or state securities
or "blue sky" laws, and (vi) no material litigation, administrative
proceeding or investigation of or before any court or governmental body
is currently pending or, to such counsel's knowledge, threatened
against Cardinal or any Acquired Fund, or any of Cardinal's or the
Acquired Funds' properties or assets which, if adversely determined,
would materially and adversely affect the Acquired Fund's financial
condition or the conduct of its business.
6.6 With respect to each Acquired Fund, Cardinal's Board of
Trustees, including a majority of Trustees who are not "interested
persons" as defined under the 1940 Act, has determined that the
Reorganization is in the best interests of each Acquired Fund and that
the interests of the existing shareholders of each Acquired Fund would
not be diluted as a result of the Reorganization.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF CARDINAL.
The obligations of Cardinal to consummate the transactions provided for
herein shall be subject to the performance by Fountain Square and Fifth Third of
all the obligations to be performed by them hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Fountain Square and
Fifth Third contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the
Closing Date with the same force and effect as if made on and as of the
Closing Date.
7.2 Fountain Square and Fifth Third shall have delivered to
Cardinal on the Closing Date a certificate executed in their names by
two of their respective authorized
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<PAGE> 72
officers, in form and substance reasonably satisfactory to Cardinal, to
the effect that the representations and warranties of Fountain Square
and Fifth Third made in this Agreement are true and correct at and as
of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as
Cardinal shall reasonably request.
7.3 On or before the Closing Date, all conditions to the
closing of the Agreement and Plan of Merger among The Ohio Company,
Fifth Third Bancorp and Fifth Third M Corp. dated December 22, 1997,
shall have been satisfied or waived and such closing shall have
occurred.
7.4 Cardinal shall have received an opinion of Howard & Howard
Attorneys, P.C., counsel to Fountain Square in a form reasonably
satisfactory to Cardinal and its counsel and dated the Closing Date, to
the effect that (i) Fountain Square is a validly existing business
trust, duly organized and in good standing under the laws of the
Commonwealth of Massachusetts and has the power to carry on its
business as it is now being conducted and to carry out this Agreement,
(ii) the Acquiring Fund Shares to be issued to the Acquired Fund
Shareholders pursuant to this Agreement are duly authorized, validly
issued and outstanding, and fully paid and non-assessable and no
Acquiring Fund has outstanding any options, warrants or other rights to
subscribe for or purchase any Acquiring Fund Shares, nor is there
outstanding any security convertible into Acquiring Fund Shares, (iii)
this Agreement has been duly authorized, executed and delivered by
Fountain Square and, assuming due authorization, execution and delivery
of this Agreement by Cardinal, CMC and Fifth Third, is a valid and
legally binding obligation of Fountain Square, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws relating to or affecting the
enforcement of creditors' rights generally and court decisions with
respect thereto and to general principles of equity and the discretion
of the court before which a proceeding is brought (regardless of
whether the enforceability is considered in a proceeding in equity or
at law), (iv) the execution, delivery and performance of this Agreement
will not result in a material breach or violation of Fountain Square's
Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease, or other undertaking known to such counsel
to which Fountain Square or any Acquiring Fund is a party or by which
it is bound; provided that, such counsel may rely upon a certificate of
an officer of Fountain Square whose responsibility it is to advise
Fountain Square with respect to such matters, (v) no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by Fountain Square or any Acquiring Fund
of the transactions contemplated by this Agreement, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act and
such as may be required under state securities or "blue sky" laws;
provided that, such opinion shall not be deemed to apply to Cardinal's
compliance obligations under the 1933 Act, 1934 Act, 1940 Act, or state
securities or "blue sky" laws, and (vi) no material litigation,
administrative proceeding or investigation of or before any court or
governmental body is currently pending or, to such counsel's knowledge,
17
<PAGE> 73
threatened against Fountain Square or any Acquiring Fund, or any of
Fountain Square's or the Acquiring Funds' properties or assets which,
if adversely determined, would materially and adversely affect the
Acquiring Fund's financial condition or the conduct of its business.
7.5 With respect to each Acquiring Fund, Fountain Square's
Board of Trustees, including a majority of Trustees who are not
"interested persons" as defined under the 1940 Act, has determined that
the Reorganization is in the best interests of each Acquiring Fund and
that the interests of the existing shareholders of each Acquiring Fund
would not be diluted as a result of the Reorganization.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FOUNTAIN SQUARE AND
CARDINAL.
If any of the conditions set forth below are not satisfied on or before
the Closing Date with respect to Cardinal or Fountain Square, the other party to
this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein
shall have been approved by the requisite vote of the holders of
beneficial interest of each Acquired Fund in accordance with the laws
of the state of Ohio and Cardinal's Declaration of Trust and By-Laws.
8.2 On the Closing Date no action, suit or other proceeding
shall be pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated
herein.
8.3 All consents, orders, permits, and exemptions of federal,
state, and local regulatory authorities (including those of the SEC and
of state "blue sky" securities authorities) deemed necessary by
Fountain Square or Cardinal to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order, or
permit would not involve a risk of a material adverse effect on the
assets or properties of Fountain Square or Cardinal.
8.4 The Registration Statement shall have been declared
effective under the 1933 Act by the SEC and no stop orders suspending
the effectiveness thereof shall have been issued and, to the best
knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened, or
contemplated under the 1933 Act.
8.5 For each Acquiring Fund and corresponding Acquired Fund,
Fountain Square and Cardinal shall have received an opinion of Howard &
Howard Attorneys,
18
<PAGE> 74
P.C., substantially to the effect that, on the basis of written
representations made by Cardinal and Fountain Square, the existing
provisions of the Code, current administrative rules, and court
decisions, for federal income tax purposes:
(a) The transfer of all or substantially all of the
Acquired Fund's assets in exchange for shares of the
applicable Acquiring Fund and the distribution of such shares
to the shareholders of the Acquired Fund in liquidation of the
Acquired Fund will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code; (b) no gain or loss
will be recognized by an Acquiring Fund upon the receipt of
the assets of the applicable Acquired Fund solely in exchange
for the Acquiring Fund Shares; (c) no gain or loss will be
recognized by an Acquired Fund upon the transfer of the
applicable Acquired Fund assets to the Acquiring Fund in
exchange for the Acquiring Fund Shares or upon the
distribution (whether actual or constructive) of the Acquiring
Fund Shares to Acquired Fund shareholders in exchange for
their shares of the Acquired Fund; (d) no gain or loss will be
recognized by the Acquired Fund shareholders upon the exchange
of their Acquired Fund shares for the applicable Acquiring
Fund Shares; (e) the tax basis of each Acquired Fund's assets
acquired by the applicable Acquiring Fund will be the same as
the tax basis of such assets to the Acquired Fund immediately
prior to the Reorganization; (f) the tax basis of the
Acquiring Fund Shares received by each of the Acquired Fund
shareholders pursuant to the Reorganization will be the same
as the tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization; (g) the
holding period of the assets of each Acquired Fund in the
hands of the applicable Acquiring Fund will include the period
during which those assets were held by the Acquired Fund; and
(h) the holding period of the Acquiring Fund Shares to be
received by each Acquired Fund's shareholders will include the
period during which the Acquired Fund shares exchanged
therefor were held by such shareholder (provided the Acquired
Fund shares were held as capital assets on the date of the
Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing
Date (a) by mutual written consent of Cardinal and Fountain Square or
(b) by either Cardinal or Fountain Square by written notice to the
other, without liability on the part of either party hereto, if
circumstances should develop that, in the opinion of either such Board
of Trustees, proceeding with the Reorganization is not in the best
interests of that party's shareholders.
9.2 If this Agreement is terminated and the transaction
contemplated hereby are abandoned pursuant to the provisions of this
Section 9, this Agreement shall become void and have no effect, without
any liability on the part of any party hereto or the
19
<PAGE> 75
Trustees, officers or shareholders of Cardinal or of Fountain Square,
in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Trustees of Cardinal or the Board of Trustees of
Fountain Square if, in the judgment of both Boards of Trustees, such waiver will
not alter the shares to be received by shareholders of Cardinal or otherwise
have a material adverse effect on the benefits intended under this Agreement to
the shareholders of Cardinal or of Fountain Square, as the case may be.
11. AMENDMENT.
This Agreement may be amended, modified or supplemented at any time in
such manner as may be mutually agreed upon in writing by Cardinal and Fountain
Square, authorized by their respective Boards of Trustees and notwithstanding
approval thereof by each Acquired Fund's shareholders; provided, that if so
approved by an Acquired Fund's shareholders, no amendment shall be made which
substantially changes the terms hereof.
12. NO BROKER'S OR FINDER'S FEE.
Cardinal and Fountain Square each represents that there is no person
with whom it has dealt who by reason of such dealings is entitled to any
broker's or finder's or other similar fee or commission arising out of the
transactions contemplated by this Agreement.
13. INDEMNIFICATION.
13.1
(a) Each Acquired Fund will indemnify and hold
harmless, out of its own assets and no others, the
corresponding Acquiring Fund and Fountain Square's Trustees
and officers (for purposes of this paragraph, the "Indemnified
Parties") against any and all expenses, losses, claims,
damages and liabilities at any time imposed upon or reasonably
incurred by any one or more of the Indemnified Parties in
connection with, arising out of, or resulting from any claim,
action, suit or proceeding in which any one or more of the
Indemnified Parties may be involved or with which any one or
more of the Indemnified Parties may be threatened by reason of
any untrue statement or alleged untrue statement of a material
fact relating to Cardinal or any Acquired Fund contained in
the Registration Statement, any Acquired Fund Prospectus or
related Statement of Additional Information, or any amendment
or supplement to any of the foregoing, or arising out of or
based upon the omission or alleged omission to state in any of
the foregoing a material fact relating to Cardinal or any
Acquired Fund
20
<PAGE> 76
required to be stated therein or necessary to make the
statements relating to Cardinal or any Acquired Fund therein
not misleading, including, without limitation, any amounts
paid by any one or more of the Indemnified Parties in a
reasonable compromise or settlement of any such claim, action,
suit or proceeding, or threatened claim, action, suit or
proceeding made with the prior consent of Cardinal.
(b) The Indemnified Parties will notify Cardinal in
writing within ten days after the receipt by any one or more
of the Indemnified Parties of any notice of legal process or
any suit brought against or claim made against such
Indemnified Party as to any matters covered by this
paragraph 13.1. Cardinal shall be entitled to participate at
its own expense in the defense of any claim, action, suit or
proceeding covered by this paragraph 13.1, or, if it so
elects, to assume at its expense by counsel satisfactory to
the Indemnified Parties the defense of any such claim, action,
suit or proceeding, and if Cardinal elects to assume such
defense, the Indemnified Parties shall be entitled to
participate in the defense of any such claim, action, suit or
proceeding at their own expense. The obligation of each of the
Acquired Funds under this paragraph 13.1 to indemnify and hold
harmless the Indemnified Parties shall constitute a guarantee
of any expenses, losses, claims, damages and liabilities
required to be paid by it under paragraph 13.1 without the
necessity of the Indemnified Parties' first paying the same.
13.2
(a) Each Acquiring Fund will indemnify and hold
harmless, out of its own assets and no others, the
corresponding Acquired Fund and Cardinal's Trustees and
officers (for purposes of this paragraph, the "Indemnified
Parties") against any and all expenses, losses, claims,
damages and liabilities at any time imposed upon or reasonably
incurred by any one or more of the Indemnified Parties in
connection with, arising out of, or resulting from any claim,
action, suit or proceeding in which any one or more of the
Indemnified Parties may be involved or with which any one or
more of the Indemnified Parties may be threatened by reason of
any untrue statement or alleged untrue statement of a material
fact relating to Fountain Square or any Acquiring Fund
contained in the Registration Statement, any Acquiring Fund
Prospectus or related Statement of Additional Information, or
any amendment or supplement to any of the foregoing, or
arising out of or based upon the omission or alleged omission
to state in any of the foregoing a material fact relating to
Fountain Square or any Acquiring Fund required to be stated
therein or necessary to make the statements relating to
Fountain Square or any Acquiring Fund therein not misleading,
including, without limitation, any amounts paid by any one or
more of the Indemnified Parties in a reasonable compromise or
settlement of any such claim, action, suit
21
<PAGE> 77
or proceeding, or threatened claim, action, suit or proceeding
made with the prior consent of Fountain Square.
(b) The Indemnified Parties will notify Fountain
Square in writing within ten days after the receipt by any one
or more of the Indemnified Parties of any notice of legal
process or any suit brought against or claim made against such
Indemnified Party as to any matters covered by this
paragraph 13.2. Fountain Square shall be entitled to
participate at its own expense in the defense of any claim,
action, suit or proceeding covered by this paragraph 13.2, or,
if it so elects, the assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any
such claim, action, suit or proceeding, and, if Fountain
Square elects to assume such defense, the Indemnified Parties
shall be entitled to participate in the defense of any such
claim, action, suit or proceeding at their own expense. The
obligation of each of the Acquiring Funds under this
paragraph 13.2 to indemnify and hold harmless the Indemnified
Parties shall constitute a guarantee of payment so that the
Acquiring Funds will pay in the first instance any expenses,
losses, claims, damages and liabilities required to be paid by
it under this paragraph 13.2 without the necessity of the
Indemnified Parties' first paying the same.
14. MISCELLANEOUS.
14.1 The representations, warranties and covenants included or
provided for herein shall survive consummation of the transactions
contemplated hereby.
14.2 This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject
matter hereof, and merges and supersedes all prior discussions,
agreements, and understandings of every kind and nature between them
relating to the subject matter hereof. Neither party shall be bound by
any condition, definition, warranty, or representation, other than as
set forth or provided in this Agreement or as may be set forth in a
later writing signed by the party to be bound thereby.
14.3 This Agreement shall be governed and construed in
accordance with the internal laws of the state of Ohio, without giving
effect to such jurisdiction's conflicts of laws principles.
14.4 This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be
deemed to be an original.
14.5 The article and paragraph headings contained herein are
for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
22
<PAGE> 78
14.6 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations hereunder
shall be made by any party without the written consent of the other
parties. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm, or corporation,
other than the parties hereto and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
14.7 Cardinal and CMC are hereby expressly put on notice of
the limitation of liability as set forth in the Declaration of Trust of
Fountain Square and agrees that the obligations assumed by Fountain
Square pursuant to this Agreement shall be limited in any case to
Fountain Square and its assets and Cardinal shall not seek satisfaction
of any such obligation from the shareholders of Fountain Square, the
Trustees, officers, or employees of Fountain Square or any of them.
14.8 Fountain Square and Fifth Third are hereby expressly put
on notice of the limitation of liability as set forth in the
Declaration of Trust of Cardinal, which is on file with the Secretary
of State of Ohio, and agrees that the obligations assumed by Cardinal
pursuant to this Agreement shall be limited in any case to Cardinal and
its assets and Fountain Square shall not seek satisfaction of any such
obligation from the shareholders of Cardinal, the Trustees, officers,
or employees of Cardinal or any of them.
14.9 If the transactions contemplated by this Agreement and
Plan of Reorganization have not been completed by December 31, 1998,
the Agreement shall automatically terminate on that date unless a later
date is agreed to in writing by all parties to this Agreement.
IN WITNESS WHEREOF, each of Cardinal, CMC, Fountain Square, and Fifth
Third have caused this Agreement and Plan of Reorganization and Liquidation to
be executed and attested on its behalf by its duly authorized representatives as
of the date first above written.
Attest Cardinal:
THE CARDINAL GROUP
By:
- --------------------------------- ---------------------------------
Secretary Name:
-------------------------------
Title:
------------------------------
23
<PAGE> 79
Attest CMC:
CARDINAL MANAGEMENT GROUP
By:
- --------------------------------- ---------------------------------
Secretary Name:
-------------------------------
Title:
------------------------------
Attest Foundation Square:
FOUNDATION SQUARE FUNDS
By:
- --------------------------------- ---------------------------------
Secretary Name:
-------------------------------
Title:
------------------------------
Attest Fifth Third:
FIFTH THIRD BANK
By:
- --------------------------------- ---------------------------------
Secretary Name:
-------------------------------
Title:
------------------------------
24
<PAGE> 80
SCHEDULE A
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
<TABLE>
<CAPTION>
Acquired Fund Acquiring Fund
------------- --------------
<S> <C> <C> <C>
1. Cardinal Government Securities Money 1. Fountain Square Government Cash Reserves
Market Fund Fund
Retail Portion of Shares(1) Investment A Shares
Institutional Portion of Shares(2) Institutional Shares(3)
2. Cardinal Tax Exempt Money Market Fund 2. Fountain Square Tax Exempt Money Market
Retail Portion of Shares(1) Fund(4)
Institutional Portion of Shares(2) Investment A Shares(4)
Institutional Shares(4)
3. The Cardinal Fund 3. Fountain Square Cardinal Fund(4)
Investor A Shares Investment A Shares(4)
Investor Y Shares Institutional Shares(4)
4. Cardinal Government Obligations Fund 4. Fountain Square Bond Fund for Income
Investor A Shares Investment A Shares
Investor Y Shares Institutional Shares(4)
5. Cardinal Aggressive Growth Fund 5. Fountain Square Mid Cap Fund
Investor A Shares Investment A Shares
Investor Y Shares Institutional Shares(4)
6. Cardinal Balanced Fund 6. Fountain Square Balanced Fund
Investor A Shares Investment A Shares
Investor Y Shares Institutional Shares(4)
</TABLE>
(1) Holders of shares of Cardinal Government Securities Money Market Fund and
Cardinal Tax Exempt Money Market Fund who are not eligible to invest in
Institutional Shares of the Fountain Square Funds as of the Closing Date will
receive Investment A Shares.
(2) Holders of shares of Cardinal Government Securities Money Market Fund and
Cardinal Tax Exempt Money Market Fund who are eligible to invest in
Institutional Shares of the Fountain Square Funds as of the Closing Date will
receive Institutional Shares.
(3) Existing Trust Shares of Fountain Square Government Cash Reserves Fund will
be renamed Institutional Shares prior to the Closing Date.
(4) To be created prior to the Closing Date.
Note: Investment A Shares of the Funds are subject to Rule 12b-1 fees of 25 b.p.
and a front-end sales charge of 4.50%. Investment A Shares are sold to retail
customers.
Institutional Shares of the Funds are not subject to any Rule 12b-1 fees or
sales charges of any kind. Institutional Shares are sold only to clients of
Fifth Third Bank who make purchases through the Fifth Third Trust Department,
qualified employee benefit plans, and broker-dealers, investment advisors,
financial planners and certain other financial institutions who place trades for
their own accounts or the accounts of their clients for a management, consulting
or other fee.
<PAGE> 81
STATEMENT OF ADDITIONAL INFORMATION
May ____, 1998
THE CARDINAL GROUP
155 East Broad Street
Columbus, Ohio 43215
Telephone Number: (800) 282-9446
FOUNTAIN SQUARE FUNDS
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Telephone Number: (888) 799-5353
Relating to
Special Meeting of Shareholders
of
The Cardinal Group
July 10, 1998
This Statement of Additional Information is not a prospectus. A
Combined Proxy Statement/Prospectus, dated May ____, 1998, related to the
above-referenced matter may be obtained by writing to or calling The Cardinal
Group or Fountain Square Funds at the addresses and telephone numbers shown
above. This Statement of Additional Information should be read in conjunction
with such Combined Proxy Statement/Prospectus.
<PAGE> 82
TABLE OF CONTENTS
INFORMATION INCORPORATED BY REFERENCE..............................B-1
GENERAL INFORMATION................................................B-2
INTRODUCTORY NOTE TO PRO FORMA FINANCIAL STATEMENTS................B-2
2
<PAGE> 83
INFORMATION INCORPORATED BY REFERENCE
1. The information relating to Investment A Shares of Fountain Square
Mid Cap Fund, Fountain Square Balanced Fund, and Fountain Square Bond Fund For
Income, portfolios of Fountain Square Funds, contained in the Combined Statement
of Additional Information of Fountain Square Funds, dated November 30, 1997, as
supplemented, is incorporated by reference to Fountain Square's Post-Effective
Amendment No. 25 to its Registration Statement on Form N-1A (File No. 33-24848)
which was filed with the Securities and Exchange Commission on November 28,
1997.
2. The information relating to Investment A Shares and Institutional
Shares (formerly known as Trust Shares) of Fountain Square Government Cash
Reserves Fund, a portfolio of Fountain Square Funds, contained in the Combined
Statement of Additional Information of Fountain Square Government Cash Reserves
Fund, dated September 30, 1997, as supplemented, is incorporated by reference to
Fountain Square's Post-Effective Amendment No. 23 to its Registration Statement
on Form N-1A (File No. 33-24848) which was filed with the Securities and
Exchange Commission on September 30, 1997.
3. The information relating to each of the portfolios of The Cardinal
Group contained in the Statement of Additional Information of The
Cardinal Group, dated January 30, 1998, as supplemented, is incorporated by
reference to Cardinal's Post-Effective Amendment No. 10 to its Registration
Statement on Form N-1A (File No. 33-59984) which was filed with the Securities
and Exchange Commission on January 28, 1998.
4. The information relating to Investment A Shares of Fountain Square
Mid Cap Fund, Fountain Square Balanced Fund, and Fountain Square Bond Fund For
Income contained in the audited financial statements of Fountain Square, dated
July 31, 1997, is incorporated by reference to Fountain Square's Annual Report
to Shareholders which was filed with the Securities and Exchange Commission on
or about October 9, 1997 (File No. 811-05669).
5. The information relating to Investment A Shares and Institutional
Shares (formerly known as Trust Shares) of Fountain Square Government Cash
Reserves Fund contained in the audited financial statements of Fountain Square
Cash Reserves Fund, dated July 31, 1997, is incorporated by reference to
Fountain Square's Post-Effective Amendment No. 23 to its Registration Statement
on Form N-1A (File No. 33-24848) which was filed with the Securities and
Exchange Commission on September 30, 1997.
6. The information relating to Investment A Shares of Fountain Square
Mid Cap Fund, Fountain Square Balanced Fund, and Fountain Square Bond Fund For
Income, and Investment A Shares and Institutional Shares (formerly known as
Trust Shares) of Fountain Square Government Cash Reserves Fund contained in the
unaudited financial statements of Fountain Square, dated January 31, 1998, are
incorporated by reference to Fountain Square's Semi-Annual Report to
Shareholders which was filed with the Securities and Exchange Commission on or
about April __, 1998 (File No. 811-05699).
B-1
<PAGE> 84
7. The information relating to each of the portfolios of The Cardinal
Group contained in the audited financial statements of The Cardinal Group, dated
September 30, 1997, is incorporated by reference to Cardinal's Annual Report to
Shareholders which was filed with the Securities and Exchange Commission on or
about December 10, 1997 (File No. 811-07588).
GENERAL INFORMATION
The proposed Reorganization contemplates: (i) the transfer of all of
the assets and stated liabilities of each of the Cardinal Funds to a
corresponding Fountain Square Fund in exchange for shares of comparable classes
of such corresponding Fountain Square Fund; and (ii) the distribution pro rata
of Fountain Square Fund shares to the shareholders of the Cardinal Funds in
complete liquidation of the Cardinal Funds. The Reorganization is subject to a
number of conditions with respect to each Cardinal Fund, including shareholder
approval. Following the Reorganization, The Cardinal Group will wind up its
affairs and deregister as an investment company under the 1940 Act.
As a result of the proposed Reorganization, a Cardinal Fund shareholder
will become a shareholder of its corresponding Fountain Square Fund and will
hold, immediately after the Reorganization, shares of the comparable class of
the corresponding Fountain Square Fund having a total dollar value equal to the
total dollar value of the shares of the Cardinal Fund that the shareholder held
immediately before the Reorganization.
INTRODUCTORY NOTE TO PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma information gives effect to the
proposed transfer of the assets and stated liabilities of the Cardinal Funds to
their corresponding Fountain Square Funds, accounted for as if the
Reorganization had occurred as of January 31, 1998 and as if the Fountain Square
Funds had operated for the periods then ended. In addition, each pro forma
combining statement has been prepared based upon the structure of the proposed
fee and expense structure of the applicable surviving Fountain Square Fund. Pro
forma financial information is not provided with respect to Fountain Square
Cardinal Fund and Fountain Square Tax Exempt Money Market Fund, as such Funds
have been organized to facilitate the Reorganization, have not commended
operations and will have only nominal assets as of the date of the
Reorganization.
Pro forma financial information is not provided with respect to
Fountain Square Mid Cap Fund, as the assets of Cardinal Aggressive Growth Fund
amount to less than 10% of the assets of Fountain Square Mid Cap Fund.
The pro forma financial information should be read in conjunction with
the historical financial statements and notes thereto of the Cardinal Funds and
Fountain Square Funds incorporated by reference in this Statement of Additional
Information. Each combination of the above Cardinal Funds and Fountain Square
Funds will be accounted for as a tax-free reorganization.
B-2
<PAGE> 85
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Common Stocks (62.2%):
Banking (5.6%):
4,000 4,000 Ahmanson (HF) & Co. $233,250 $233,250
3,300 3,300 AmSouth Bancorp 178,200 178,200
2,000 2,000 Bank of Boston Corp. 179,000 179,000
3,500 55,000 58,500 Bank of New York Co., Inc. 189,655 $2,980,313 3,169,968
1,000 1,000 Citicorp 119,000 119,000
35,000 35,000 First Tennessee National Corp. 2,060,625 2,060,625
3,000 13,000 16,000 Mellon Bank Corp. 181,120 784,880 966,000
70,000 70,000 Norwest Corp. 2,555,000 2,555,000
--------- --------- ----------
1,080,225 8,380,818 9,461,043
--------- --------- ----------
Beverages (0.3%):
3,000 3,000 Coca Cola Co. 194,250 194,250
4,000 4,000 Pepsio, Inc. 144,250 144,250
3,000 3,000 Robert Mondavi, Class A (a) 108,563 108,563
--------- --------- ----------
447,063 447,063
--------- --------- ----------
Business Services (0.2%):
10,000 10,000 Cintas Corp. 417,500 417,500
--------- --------- ----------
Chemicals (1.9%):
2,000 2,000 Dupont de Nemours and Co. 113,250 113,250
4,500 4,500 Monsanto Co. 213,469 213,469
70,000 70,000 Praxair, Inc. 2,900,625 2,900,625
--------- --------- ----------
326,719 2,900,625 3,227,344
--------- --------- ----------
Computer Software & Services (5.8%):
2,000 2,000 Computer Sciences (a) 169,750 169,750
35,000 35,000 Electronics for Imaging, Inc. 586,250 586,250
65,000 65,000 First Data Corp. 1,990,625 1,990,625
50,000 50,000 Fiserv, Inc. (a) 2,593,749 2,593,749
4,000 4,000 HBO & Company 209,250 209,250
1,500 4,800 6,300 Microsoft Corp. (a) 223,781 716,100 939,881
84,000 84,000 Oracle Corp. (a) 1,953,000 1,953,000
25,000 25,000 Reynolds & Reynolds Co., Class A 496,875 496,875
20,000 20,000 Sun Microsystems, Inc. (a) 958,750 958,750
--------- --------- ----------
602,781 9,295,349 9,898,130
--------- --------- ----------
Computer Systems & Equipment (3.4%):
5,000 5,000 Applied Materials (a) 164,063 164,063
3,000 52,500 55,500 Cisco Systems (a) 189,187 3,310,781 3,499,968
6,000 6,000 Compaq Computer Corp. 180,375 180,375
16,000 16,000 Diebold, Inc. 796,000 796,000
</TABLE>
<PAGE> 86
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
3,000 16,000 19,000 Hewlett-Packard Co. 180,000 960,000 1,140,000
--------- ---------- ----------
713,625 5,066,781 5,780,406
--------- ---------- ----------
Construction (0.2%):
4,500 4,500 Crane Co. 194,344 194,344
3,000 3,000 Deere & Co. 158,250 158,250
--------- ---------- ----------
352,594 352,594
--------- ---------- ----------
Consumer Cyclicals (0.3%):
4,500 4,500 Avery Dennison Corp. 201,938 201,938
3,000 3,000 Kohls Corp. (a) 208,125 208,125
3,000 3,000 Service Corporation Intl. 117,000 117,000
--------- ---------- ----------
527,063 527,063
--------- ---------- ----------
Consumer Products (3.2%):
29,000 29,000 Conagra, Inc. 917,125 917,125
38,000 38,000 Crown Cork & Seal Co., Inc. 1,881,000 1,881,000
40,000 40,000 Newell Co. 1,642,500 1,642,500
2,000 4,000 6,000 Procter & Gamble Co. 156,750 313,500 470,250
20,000 20,000 Sherwin Williams Co. 570,000 570,000
--------- ---------- ----------
156,750 5,324,125 5,480,875
--------- ---------- ----------
Distributors (0.3%):
12,000 12,000 Fastenal Co. 527,250 527,250
--------- ---------- ----------
Eating & Drinking Places
(0.1%):
7,000 7,000 Wendy's Intl. 156,188 156,188
--------- ---------- ----------
Electrical Equipment (2.3%):
20,000 20,000 Belden, Inc. 762,500 762,500
3,000 25,000 28,000 Emerson Electric Co. 181,500 1,512,500 1,694,000
4,000 14,000 18,000 General Electric Co. 310,000 1,085,000 1,395,000
--------- ---------- ----------
491,500 3,360,000 3,851,500
--------- ---------- ----------
Electronics (6.7%):
105,000 105,000 Adaptec, Inc. (a) 2,342,813 2,342,813
60,000 60,000 Computer Products, Inc. (a) 1,447,500 1,447,500
20,000 20,000 Flextronics, International (a) 712,500 712,500
2,600 50,000 52,600 Intel Corp. 210,600 4,049,999 4,260,599
2,500 2,500 Lucent Technologies 221,250 221,250
50,000 50,000 Molex, Inc. 1,362,500 1,362,500
15,000 15,000 QLogic Corp. (a) 485,625 485,625
27,562 27,562 Vishay Intertechnology, Inc. (a) 578,802 578,802
--------- ---------- ----------
431,850 10,979,739 11,411,589
--------- ---------- ----------
Entertainment & Leisure (0.1%):
1,900 1,900 The Walt Disney Co. 202,469 202,469
--------- ---------- ----------
</TABLE>
<PAGE> 87
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Financial (2.2%):
2,000 2,000 Am. Express 167,375 167,375
77,000 77,000 Federal Home Loan Mortgage Corp. 3,426,500 3,426,500
2,500 2,500 Federal National Mortage Assn. 154,375 154,375
--------- ---------- ----------
321,750 3,426,500 3,748,250
--------- ---------- ----------
General Building Contractors (0.4%):
45,000 45,000 Clayton Homes Inc. 753,750 753,750
--------- ---------- ----------
Healthcare (1.5%):
17,000 17,000 First Health Group Corp. 809,624 809,624
9,000 9,000 Healthsouth Corp. (a) 201,938 201,938
5,000 5,000 Medtronic, Inc. 255,313 255,313
2,000 2,000 Merck & Company, Inc. 234,500 234,500
4,500 4,500 Quorum Health Group (a) 112,500 112,500
15,000 15,000 STERIS Corp. (a) 785,625 785,625
4,000 4,000 Tenet Healthcare Corporation 138,000 138,000
--------- ---------- ----------
942,251 1,595,249 2,537,500
--------- ---------- ----------
Holding & Other Investment
Offices (0.1%): 4,000 4,000 Am. General Hospitality 110,250 110,250
--------- ---------- ----------
Insurance (4.1%):
10,000 10,000 Allstate Corp. 885,000 885,000
40,000 40,000 American Bankers Insurance
Group, Inc. 2,209,999 2,209,999
1,500 1,500 American International
Group, Inc. 165,469 165,469
8,000 8,000 Cincinnati Financial Corp. 1,020,000 1,020,000
36,000 36,000 MGIC Investment Corp. 2,434,499 2,434,499
3,999 3,999 Traveler's Group 197,951 197,951
--------- ---------- ----------
363,420 6,549,498 6,912,918
--------- ---------- ----------
Manufacturing (2.5%):
40,000 40,000 Federal Signal Corp. 897,500 897,500
35,000 35,000 Illinois Tool Works 1,949,063 1,949,063
50,000 50,000 Zebra Technologies Corp.,
Class A (a) 1,387,500 1,387,500
---------- ----------
4,234,063 4,234,063
--------- ---------- ----------
Media/Publishing (1.2%):
42,000 42,000 Interpublic Group of Cos., Inc. 2,060,625 2,060,625
--------- ---------- ----------
Medical Devices (1.4%):
38,000 38,000 Guidant Corp. 2,441,500 2,441,500
--------- ---------- ----------
Medical Distribution (0.6%):
2,000 2,000 Bergen Brunswig Corp. 91,125 91,125
2,000 9,000 11,000 Cardinal Health, Inc. 154,875 696,938 851,813
--------- ---------- ----------
246,000 696,938 942,938
--------- ---------- ---------
</TABLE>
<PAGE> 88
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Miscellaneous Manufacturing
Industries (0.1%): 5,000 5,000 Tyco International Ltd. 221,875 221,875
--------- ---------- ----------
Oil & Gas (2.7%):
8,000 8,000 Chevron Corp. 598,500 598,500
18,000 18,000 ENSCO International 488,250 488,250
3,000 3,000 Exxon Corp. 177,938 177,938
25,000 25,000 Global Marine 573,438 573,438
2,000 22,000 24,000 Mobil Corp. 136,250 1,498,749 1,634,999
2,000 2,000 Schlumberger Ltd. 147,375 147,375
4,000 4,000 Transocean Offshore, Incorporated 159,000 159,000
40,000 40,000 Varco International, Inc. (a) 820,000 820,000
--------- ---------- ----------
620,563 3,978,937 4,599,500
--------- ---------- ----------
Pharmaceuticals (8.2%):
27,000 27,000 American Home Products 2,576,813 2,576,813
2,000 8,000 10,000 Amgen, Inc. 100,000 400,000 500,000
3,000 3,000 Colgate-Palmolive Co. 219,750 219,750
2,500 2,500 Gillette Co. 246,875 246,875
3,000 47,000 50,000 Johnson & Johnson 200,813 3,146,061 3,346,874
2,000 20,000 22,000 Pfizer, Inc. 163,875 1,638,750 1,802,625
40,000 40,000 Schering - Plough Corp. 2,895,000 2,895,000
14,000 14,000 Warner Lambert, Inc. 2,107,000 2,107,000
--------- ---------- ----------
931,313 12,763,624 13,694,937
--------- ---------- ----------
Printing & Publishing
(0.3%): 3,500 3,500 New York Times Co., Class A 227,719 227,719
4,000 4,000 Tribune Co. 243,000 243,000
--------- ---------- ----------
470,719 470,719
--------- ---------- ----------
Retail (3.1%):
4,000 60,000 64,000 Consolidated Stores Corp. (a) 164,500 2,467,500 2,632,000
20,000 20,000 Dollar General 727,500 727,500
33,000 33,000 Home Depot, Inc. 1,990,313 1,990,313
--------- ---------- ----------
164,500 5,185,313 5,349,813
--------- ---------- ----------
Security & Commodity Brokers
(0.3%): 4,600 4,600 Ben Franklin Resources 206,138 206,138
3,500 3,500 T. Rowe Price Association 226,625 226,625
--------- ---------- ----------
432,763 432,763
--------- ---------- ----------
Telecommunications (1.4%):
15,000 15,000 Century Telephone Enterprises 791,250 791,250
32,000 32,000 Cincinnati Bell 1,148,000 1,148,000
5,100 5,100 MCI Communications Corp. 236,831 236,831
</TABLE>
<PAGE> 89
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
7,000 7,000 Worldcom, Inc. (a) 250,688 250,688
--------- ---------- ----------
487,519 1,939,250 2,426,769
--------- ---------- ----------
Transportation (1.5%)
1,500 1,500 Burlington Northern Santa Fe 130,125 130,125
80,000 80,000 Comair Holdings, Inc. 2,255,000 2,255,000
2,500 2,500 Federal Express (a) 162,656 162,656
--------- ---------- ----------
292,781 2,255,000 2,547,781
--------- ---------- ----------
Transportation Equipment
(0.1%) 2,400 2,400 Textron, Inc. 143,550 143,550
--------- ---------- ----------
Utility (0.1%):
6,000 6,000 Williams Cos. 171,000 171,000
--------- ---------- ----------
Total Common Stocks 11,409,081 94,132,434 105,541,515
---------- ---------- -----------
Preferred Stocks (0.1%):
Banking (0.1%):
3,000 3,000 Glendale Federal Bank 8.750%
Preferred Series E 238,500 238,500
---------- ---------- ----------
Total Preferred Stocks 238,500 238,500
---------- ---------- ----------
Asset Backed Securities
(1.4%):
Financial (1.4%):
$1,500,000 $1,500,000 Cityscape, Series, 1996-3,
7.15%, 8/25/11 1,547,299 1,547,299
750,000 750,000 GE Capital Management, 6.94%,
3/25/27 763,500 763,500
---------- ---------- ----------
Total Asset Backed Securities 2,310,799 2,310,799
---------- ---------- ----------
Corporate Bonds (6.6%):
Beverages (0.2%):
$250,000 250,000 Anheuser Busch Co., 7.00%,
9/01/05 261,250 261,250
---------- ---------- ----------
Consumer Products (0.1%):
200,000 200,000 Dole Foods Company, 7.00%,
5/15/03 207,000 207,000
---------- ---------- ----------
Financial (3.9%):
46,000 46,000 Bankers Trust New York Corp.,
9.20%, 7/15/99 48,040 48,040
1,500,000 1,500,000 CIT Group Holdings, 6.25%, 3/28/01 1,517,382 1,517,382
2,000,000 2,000,000 First Union Corp., 7.00%, 3/15/06 2,076,147 2,076,147
500,000 500,000 Ford Motor Credit, Floating Rate
Note, 11/9/98 (5.65%, 2/9/98)(b) 499,518 499,518
200,000 200,000 General Motors Acceptance Corp.,
7.00%, 9/15/02 208,500 208,500
1,000,000 1,000,000 General Motors Acceptance Corp.,
6.63%, 10/1/02 1,026,027 1,026,027
250,000 250,000 Kemper Corporation, 6.875%,
9/15/03 260,000 260,000
1,000,000 1,000,000 Sears Roebuck, 6.54%, 2/20/03 1,024,002 1,024,002
---------- --------- ----------
468,500 6,191,116 6,659,616
---------- --------- ----------
</TABLE>
<PAGE> 90
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing (0.9%):
500,000 500,000 IBP, Inc., 6.13%, 2/1/06 499,679 499,679
1,000,000 1,000,000 Texas Instruments, 6.88%, 1,026,119 1,026,119
-------- --------- ---------
7/15/00 1,525,798 1,525,798
-------- --------- ---------
Retail (0.3%):
250,000 250,000 Limited Inc., 7.50%, 3/15/23 249,375 249,375
250,000 250,000 Nordstrom Inc., 6.70%, 7/01/05 258,438 258,438
-------- --------- ---------
507,813 507,813
-------- --------- ---------
Transportation (0.3%):
250,000 250,000 American Airlines, 10.18%,
1/02/13 318,365 318,365
250,000 250,000 CSX Transportation, 6.72%,
6/01/06 259,375 259,375
-------- --------- --------
577,740 577,740
-------- --------- ---------
Utility (0.9%):
300,000 300,000 Consumers Power, 7.50%, 6/01/02 304,875 304,875
1,000,000 1,000,000 Georgia Power, 6.88%, 9/1/02 1,016,669 1,016,669
150,000 150,000 United States Filter Corp.,
4.50%, 12/15/01 162,562 162,562
--------- ---------- ----------
467,439 1,016,667 1,484,106
--------- ---------- ----------
2,489,740 8,733,583 11,223,323
Total Corporate Bonds --------- ---------- ----------
Mortgage Backed Securities (0.4%):
U.S. Government Agencies (0.4%):
5,177 5,177 Federal Home Loan Mortgage Corp.,
9.50%, 10/1/02, Pool #38-0009 5,352 5,352
11,117 11,117 Federal Home Loan Mortgage Corp.,
8.00%, 8/1/08, Pool #27-2525 11,528 11,528
653,243 653,243 Federal National Mortgage Assn.,
6.00%, 4/1/11, Dwarf Pool 344185 647,396 647,396
--------- ---------- ----------
664,276 664,276
--------- ---------- ----------
Total Mortgage Backed Securities
U.S. Government Securities (17.0%):
U.S. Government Agencies (8.1%):
250,000 250,000 Federal National Mortgage
Assn., 7.00%, 9/03/03 254,388 254,388
250,000 250,000 Federal National Mortgage
Assn., 7.03%, 10/25/06 264,343 264,343
250,000 250,000 Federal National Mortgage
Assn., 7.50%, 11/15/06 256,650 256,650
250,000 250,000 Federal National Mortgage
Assn., 7.09%, 3/13/07 260,388 260,388
250,000 250,000 Federal National Mortgage
Assn., 6.99%, 7/09/07 262,165 262,165
500,000 500,000 Federal National Mortgage
Assn., 6.94%, 3/14/11 504,665 504,665
2,000,000 2,000,000 Federal National Mortgage
Assn., 6.80%, 8/27/12 2,113,167 2,113,167
1,939,700 1,939,700 Federal National Mortgage
Assn., 7.00%, 7/18/27 1,963,248 1,963,248
1,244,595 1,244,595 Government National Mortgage
Assn., 7.50%, 8/15/27,
Pool #449006 1,282,182 1,282,182
6,457,081 6,457,081 Government National Mortgage
Assn., 7.50%, 9/15/27,
Pool #451459 6,652,084 6,652,084
--------- ---------- ----------
1,802,599 12,010,681 13,813,280
--------- ---------- ----------
</TABLE>
<PAGE> 91
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Bonds (5.2%):
8,750,000 8,750,000 6.00%, 2/15/26, 6.00%, 2/15/26 8,892,188 8,892,188
--------- ---------- ----------
U.S. Treasury Notes (3.4%):
5,000,000 5,000,000 6.5%, 8/31/01 5,178,125 5,178,125
500,000 500,000 5.875%, 2/15/04 512,020 512,020
--------- ---------- ----------
512,020 5,178,125 5,690,145
--------- ---------- ----------
U.S. Treasury Strips (0.3%):
1,000,000 1,000,000 11.25%, 2/15/09 533,190 533,190
--------- ---------- ----------
Total U.S. Government Securities 2,847,808 26,080,995 28,928,803
--------- ---------- ----------
Repurchase Agreement (14.3%):
811,804 811,804 Fifth Third 811,804 811,804
23,444,000 23,444,000 UBS Securities 23,444,000 23,444,000
Total Repurchase Agreement 811,804 23,444,000 24,255,804
Total Investments (Cost
$14,338,007, $128,997,043,
and $143,335,050, respectively) (a)
(a) - 102.0% $17,796,933 $155,366,087 $173,163,020
=========== ============ ============
(b) Current rate and next reset date shown.
</TABLE>
<PAGE> 92
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Market Value
- ------------------------------------------------------ ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- ----------------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Asset Backed Securities
(1.7%):
Financial (1.7%):
$5,000,000 $5,000,000 GE Capital Management, 6.94%, $5,090,000 $5,090,000
3/25/27 --------- --------- ----------
Total Asset Backed Securities 5,090,000 5,090,000
--------- --------- ----------
Corporate Bonds (26.0%):
Chemicals (1.8%):
5,000,000 5,000,000 Engelhard Corp., 7.00%, 8/1/01 5,178,535 5,178,535
--------- --------- ----------
Financial (17.2%):
5,000,000 5,000,000 American General Finance Corp.,
7.25%, 4/15/00 5,139,135 5,139,135
5,000,000 5,000,000 Bear Stearns, Inc., 7.25%, 10/15/06 5,264,825 5,264,825
5,000,000 5,000,000 Chrysler Corp., Medium Term Note,
6.37%, 6/21/99 5,038,120 5,038,120
5,000,000 5,000,000 CIT Group Holdings, 6.25%, 3/28/01 5,057,940 5,057,940
5,000,000 5,000,000 DLJ, Medium Term Note, 6.38%, 5/26/00 5,059,050 5,059,050
5,000,000 5,000,000 IBM, 6.45%, 8/1/07 5,043,340 5,043,340
5,000,000 5,000,000 Metropolitan Life, 6.30%, 11/1/03 5,004,150 5,004,150
5,000,000 5,000,000 Morgan Stanley, 6.38%, 8/1/02 5,069,105 5,069,105
5,000,000 5,000,000 Paine Webber Group, 6.68%, 2/10/04 5,068,145 5,068,145
5,000,000 5,000,000 Southern National Corp.,
7.05%, 5/23/03 5,237,515 5,237,515
--------- --------- ----------
50,981,325 50,981,325
--------- --------- ----------
Manufacturing (4.8%):
5,000,000 5,000,000 Amgen, Inc., 6.50%, 12/1/07 5,101,200 5,101,200
4,000,000 4,000,000 Archers Danial Midland Co.,
6.25%, 5/15/03 4,057,496 4,057,496
5,000,000 5,000,000 Tyco International, Ltd.,
6.38%, 1/15/04 5,102,010 5,102,010
--------- --------- ----------
14,260,706 14,260,706
--------- --------- ----------
Telecommunications (1.8%):
5,000,000 5,000,000 British Telecommunications, Inc.,
9.38%, 2/15/99 5,198,515 5,198,515
Utilities (0.4%):
1,000,000 1,000,000 Southern New England, 8.00%, 1,074,509 1,074,509
11/20/01 --------- --------- ----------
Total Corporate Bonds 76,693,590 76,693,590
--------- --------- ----------
U.S. Government Securities
(69.9%):
U.S. Government Agencies
(47.4%):
126 126 Federal Home Loan Mortgage Corp.,
7.50%, 2/1/02 129 129
$2,970,000 2,970,000 Federal Home Loan Mortgage Corp.
#574, 7.00% Due 12/01/27 $3,015,471 3,015,471
12,500,000 12,500,000 Federal National Mortgage Assoc.,
6.85%, 7/2/02 12,568,563 12,568,563
5,000,000 5,000,000 Federal National Mortgage Assoc.,
7.33%, 6/19/07 5,171,635 5,171,635
122,003 122,003 Government National Mortgage
Association, 10.00%, 12/20/21,
Pool #1742 132,868 132,868
774,126 774,126 Government National Mortgage
Association, 9.00%, 03/15/33,
Pool #362593 842,582 842,582
370,759 370,759 Government National Mortgage
Association, 7.375%, 07/15/98,
Pool #419389 381,878 381,878
</TABLE>
<PAGE> 93
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
PrincipAL Amount Market Value
- ---------------------------------------------- ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- --------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
2,241,841 2,241,841 Government National Mortgage Association,
7.35%, 07/15/98, Pool #419389 2,309,074 2,309,074
165,384 165,384 Government National Mortgage Association,
8.00%, 10/15/98, Pool #419426 176,134 176,134
2,470,232 2,470,232 Government National Mortgage Association,
8.00%, 10/15/98, Pool #419426 2,630,797 2,630,797
142,512 142,512 Government National Mortgage Association,
7.75%, 12/15/98, Pool #419398 150,839 150,839
417,432 417,432 Government National Mortgage Association,
8.125%, 05/15/99, Pool #425872 441,693 441,693
3,384,748 3,384,748 Government National Mortgage Association,
8.125%, 05/15/99, Pool #425672 3,581,470 3,581,470
63,726 63,726 Government National Mortgage Association,
10.00%, 01/20/14, Pool #107928 69,401 69,401
60,016 60,016 Government National Mortgage Association,
10.00%, 05/20/14, Pool #112459 65,361 65,361
991,779 991,779 Government National Mortgage Association,
10.50%, 7/15/14, Pool #321016 1,038,254 1,038,254
112,304 112,304 Government National Mortgage Association,
10.00%, 03/20/15, Pool #125173 122,305 122,305
75,035 75,035 Government National Mortgage Association,
10.00%, 03/20/16, Pool #147588 81,718 81,718
85,762 85,762 Government National Mortgage Association,
10.00%, 04/20/16, Pool #529 93,401 93,401
36,268 36,268 Government National Mortgage Association,
8.50%, 05/15/16, Pool #139537 38,750 38,750
350,763 350,763 Government National Mortgage Association,
9.00%, 05/15/16, Pool #159879 382,219 382,219
177,945 177,945 Government National Mortgage Association,
8.50%, 6/15/16, Pool #164477 190,122 190,122
206,924 206,924 Government National Mortgage Association,
8.50%, 06/15/16, Pool #161999 221,084 221,084
185,001 185,001 Government National Mortgage Association,
8.50%, 06/15/16, Pool #160405 197,661 197,661
410,592 410,592 Government National Mortgage Association,
9.00%, 06/15/16, Pool #153293 447,414 447,414
124,475 124,475 Government National Mortgage Association,
10.00%, 06/20/16, Pool #152054 135,560 135,560
768,636 768,636 Government National Mortgage Association,
8.50%, 7/15/16, Pool #164894 821,233 821,233
489,160 489,160 Government National Mortgage Association,
9.00%, 7/15/16, Pool #166416 533,028 533,028
369,872 369,872 Government National Mortgage Association,
9.00%, 07/15/16, Pool #146518 403,042 403,042
333,430 333,430 Government National Mortgage Association,
9.00%, 07/15/16, Pool #160341 363,332 363,332
228,198 228,198 Government National Mortgage Association,
9.00%, 8/15/16, Pool #169792 248,663 248,663
932,810 932,810 Government National Mortgage Association,
9.00%, 8/15/16, Pool #164699 1,016,464 1,016,464
1,186,997 1,186,997 Government National Mortgage Association,
9.00%, 8/15/16, Pool #179713 1,293,447 1,293,447
287,001 287,001 Government National Mortgage Association,
8.50%, 09/15/16, Pool #156438 306,641 306,641
387,258 387,258 Government National Mortgage Association,
8.50%, 9/15/16, Pool #175882 413,758 413,758
87,326 87,326 Government National Mortgage Association,
9.00%, 9/15/16, Pool #174976 95,157 95,157
116,689 116,689 Government National Mortgage Association,
9.00%, 10/15/16, Pool #193400 127,153 127,153
321,052 321,052 Government National Mortgage Association,
9.00%, 10/15/16, Pool #176776 349,844 349,844
139,052 139,052 Government National Mortgage Association,
9.00%, 10/15/16, Pool #163761 151,522 151,522
1,365,997 1,365,997 Government National Mortgage Association,
9.00%, 10/15/16, Pool #164652 1,488,500 1,488,500
44,556 44,556 Government National Mortgage Association,
9.00%, 10/15/16, Pool #186431 48,552 48,552
56,964 56,964 Government National Mortgage Association,
10.00%, 10/20/16, Pool #190434 62,037 62,037
106,899 106,899 Government National Mortgage Association,
10.00%, 10/20/16, Pool #182759 116,419 116,419
315,134 315,134 Government National Mortgage Association,
8.50%, 11/15/16, Pool #174441 336,699 336,699
143,828 143,828 Government National Mortgage Association,
9.00%, 11/15/16, Pool #190624 156,726 156,726
281,442 281,442 Government National Mortgage Association,
9.00%, 11/15/16, Pool #192560 306,681 306,681
361,451 361,451 Government National Mortgage Association,
9.00%, 11/15/16, Pool #181604 393,866 393,866
</TABLE>
<PAGE> 94
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Market Value
- ---------------------------------------------- ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- --------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
251,135 251,135 Government National Mortgage Association,
9.00%, 11/15/16, Pool #152872 273,657 273,657
293,624 293,624 Government National Mortgage Association,
10.00%, 1/20/16, Pool #662 319,775 319,775
200,217 200,217 Government National Mortgage Association,
9.00%, 12/15/16, Pool #192257 218,172 218,172
124,779 124,779 Government National Mortgage Association,
9.00%, 12/15/16, Pool #183880 135,969 135,969
313,169 313,169 Government National Mortgage Association,
8.50%, 1/15/17, Pool #196004 334,599 334,599
119,411 119,411 Government National Mortgage Association,
8.50%, 1/15/17, Pool #194021 127,582 127,582
194,353 194,353 Government National Mortgage Association,
8.50%, 1/15/17, Pool #194160 207,653 207,653
187,596 187,596 Government National Mortgage Association,
8.50%, 1/15/17, Pool #198032 200,433 200,433
344,693 344,693 Government National Mortgage Association,
8.50%, 1/15/17, Pool #190648 368,281 368,281
232,931 232,931 Government National Mortgage Association,
8.50%, 1/15/17, Pool #186456 248,870 248,870
113,271 113,271 Government National Mortgage Association,
9.00%, 1/15/17, Pool #195250 123,429 123,429
89,995 89,995 Government National Mortgage Association,
9.00%, 1/15/17, Pool #174479 98,066 98,066
173,090 173,090 Government National Mortgage Association,
9.00%, 1/15/17, Pool #173118 188,613 188,613
134,764 134,764 Government National Mortgage Association,
8.50%, 2/15/17, Pool #201264 143,986 143,986
88,006 88,006 Government National Mortgage Association,
8.50%, 2/15/17, Pool #195882 94,028 94,028
597,928 597,928 Government National Mortgage Association,
8.50%, 2/15/17, Pool #195618 638,845 638,845
228,039 228,039 Government National Mortgage Association,
8.50%, 2/15/17, Pool #197425 243,643 243,643
123,970 123,970 Government National Mortgage Association,
8.50%, 2/15/17, Pool #186814 132,453 132,453
240,757 240,757 Government National Mortgage Association,
9.00%, 2/15/17, Pool #208070 262,348 262,348
194,375 194,375 Government National Mortgage Association,
9.00%, 2/15/17, Pool #200724 211,807 211,807
232,758 232,758 Government National Mortgage Association,
9.00%, 2/15/17, Pool #200847 253,632 253,632
124,161 124,161 Government National Mortgage Association,
9.00%, 2/15/17, Pool #181754 135,296 135,296
353,826 353,826 Government National Mortgage Association,
9.00%, 3/15/17, Pool #191314 385,557 385,557
214,206 214,206 Government National Mortgage Association,
8.50%, 4/15/17, Pool #205815 228,864 228,864
182,105 182,105 Government National Mortgage Association,
9.00%, 4/15/17, Pool #211288 198,436 198,436
103,484 103,484 Government National Mortgage Association,
8.50%, 5/15/17, Pool #189313 110,565 110,565
148,362 148,362 Government National Mortgage Association,
8.50%, 5/15/17, Pool #184722 158,514 158,514
216,985 216,985 Government National Mortgage Association,
9.00%, 5/15/17, Pool #214259 236,444 236,444
231,163 231,163 Government National Mortgage Association,
9.00%, 5/15/17, Pool #204622 251,894 251,894
343,380 343,380 Government National Mortgage Association,
8.50%, 6/15/17, Pool #192269 366,877 366,877
414,805 414,805 Government National Mortgage Association,
8.50%, 6/15/17, Pool #224868 443,191 443,191
215,595 215,595 Government National Mortgage Association,
8.50%, 6/15/17, Pool #214028 230,348 230,348
233,008 233,008 Government National Mortgage Association,
8.50%, 6/15/17, Pool #225776 248,953 248,953
153,153 153,153 Government National Mortgage Association,
9.00%, 6/15/17, Pool #206523 166,887 166,887
138,104 138,104 Government National Mortgage Association,
9.00%, 6/15/17, Pool #204594 150,489 150,489
164,823 164,823 Government National Mortgage Association,
9.00%, 6/15/17, Pool #205962 179,605 179,605
416,154 416,154 Government National Mortgage Association,
8.50%, 7/15/17, Pool #218605 444,632 444,632
263,881 263,881 Government National Mortgage Association,
8.50%, 8/15/17, Pool #232813 281,938 281,938
205,760 205,760 Government National Mortgage Association,
9.00%, 8/15/17, Pool #226935 224,212 224,212
119,053 119,053 Government National Mortgage Association,
9.00%, 9/15/17, Pool #221595 129,729 129,729
</TABLE>
<PAGE> 95
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Market Value
- ---------------------------------------------- ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- --------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
251,135 251,135 Government National Mortgage Association,
9.00%, 11/15/16, Pool #152872 273,657 273,657
119,419 119,419 Government National Mortgage Association,
10.00%, 9/20/17, Pool #837 130,054 130,054
103,906 103,906 Government National Mortgage Association,
10.00%, 11/20/17, Pool #872 113,160 113,160
204,088 204,088 Government National Mortgage Association,
9.00% 12/15/17, Pool, #234549 222,391 222,391
122,953 122,953 Government National Mortgage Association,
10.00% 12/20/17, Pool #246373 133,903 133,903
118,490 118,490 Government National Mortgage Association,
10.00%, 1/20/18, Pool #227354 129,042 129,042
149,187 149,187 Government National Mortgage Association,
10.00%, 1/20/18, Pool #227352 162,474 162,474
244,599 244,599 Government National Mortgage Association,
10.00%, 1/20/18, Pool #247511 266,383 266,383
310,045 310,045 Government National Mortgage Association,
10.00%, 01/20/18, Pool #908 337,658 337,658
61,009 61,009 Government National Mortgage Association,
10.00%, 2/20/18, Pool #227356 66,442 66,442
139,016 139,016 Government National Mortgage Association,
10.00%, 3/20/18, Pool #250752 151,397 151,397
704,940 704,940 Government National Mortgage Association,
10.00%, 3/20/18, Pool #237233 767,722 767,722
231,691 231,691 Government National Mortgage Association,
10.00%, 3/20/18, Pool #237233 252,325 252,325
141,260 141,260 Government National Mortgage Association,
10.00%, 3/20/17, Pool #216068 153,841 153,841
34,042 34,042 Government National Mortgage Association,
9.00%, 4/15/18, Pool #246622 37,094 37,094
103,254 103,254 Government National Mortgage Association,
9.00%, 5/15/18, Pool #253054 112,514 112,514
81,292 81,292 Government National Mortgage Association,
9.00%, 5/15/18, Pool #235318 88,582 88,582
78,129 78,129 Government National Mortgage Association,
9.00%, 5/15/18, Pool #216072 85,135 85,135
95,478 95,478 Government National Mortgage Association,
9.00%, 7/15/18, Pool #255277 104,041 104,041
141,476 141,476 Government National Mortgage Association,
9.00%, 8/15/18, Pool #248940 154,163 154,163
169,418 169,418 Government National Mortgage Association,
10.00%, 10/20/18, Pool #249978 184,506 184,506
184,737 184,737 Government National Mortgage Association,
9.00%, 11/15/18, Pool #266921 201,304 201,304
183,964 183,964 Government National Mortgage Association,
9.50%, 1/15/19, Pool #268159 194,082 194,082
87,532 87,532 Government National Mortgage Association,
10.00%, 1/20/19, Pool #26988 95,328 95,328
340,987 340,987 Government National Mortgage Association,
10.00%, 02/20/19, Pool #1138 371,355 371,355
120,708 120,708 Government National Mortgage Association,
10.00%, 03/20/19, Pool #1154 131,458 131,458
2,325,594 2,325,594 Government National Mortgage Association,
8.00%, 06/15/19, Pool #413902 2 ,487,642 2,487,642
153,763 153,763 Government National Mortgage Association,
9.00%, 10/15/19, Pool #277461 167,553 167,553
491,314 491,314 Government National Mortgage Association,
10.00%, 10/20/19, Pool #1274 535,071 535,071
17,371 17,371 Government National Mortgage Association,
10.00%, 11/20/19, Pool #1292 18,919 18,919
132,553 132,553 Government National Mortgage Association,
9.00%, 12/15/2019, Pool #202664 144,440 144,440
242,284 242,284 Government National Mortgage Association,
9.00%, 12/15/19, Pool #278194 264,012 264,012
219,998 219,998 Government National Mortgage Association,
10.00%, 01/20/20, Pool #1328 239,591 239,591
105,867 105,867 Government National Mortgage Association,
10.00%, 02/20/20, Pool #1346 115,295 115,295
118,290 118,290 Government National Mortgage Association,
10.00%, 03/20/20, Pool #1364 128,825 128,825
201,406 201,406 Government National Mortgage Association,
10.00%, 04/20/20, Pool #1382 219,343 219,343
60,745 60,745 Government National Mortgage Association,
10.00%, 7/20/20, Pool #195423 66,155 66,155
58,108 58,108 Government National Mortgage Association,
10.00%, 07/20/20, Pool #1436 63,283 63,283
51,961 51,961 Government National Mortgage Association,
10.00%, 09/20/20, Pool #1472 56,588 56,588
51,375 51,375 Government National Mortgage Association,
10.00%, 12/20/20, Pool #1526 55,951 55,951
75,886 75,886 Government National Mortgage Association,
10.00%, 02/20/21, Pool #1562 82,645 82,645
</TABLE>
<PAGE> 96
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Market Value
- ---------------------------------------------- ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- --------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
179,317 179,317 Government National Mortgage Association,
10.00%, 03/20/21, Pool #1580 195,287 195,287
225,480 225,480 Government National Mortgage Association,
9.00%, 4/15/21, Pool #305932 245,701 245,701
87,787 87,787 Government National Mortgage Association,
10.00%, 04/20/21, Pool #1598 95,605 95,605
3,335,682 3,335,682 Government National Mortgage Association,
8.00%, 05/15/21, Pool #422982 3,568,112 3,568,112
19,593 19,593 Government National Mortgage Association,
10.00%, 9/20/21, Pool #266 21,338 21,338
1,751,876 1,751,876 Government National Mortgage Association,
9.00%, 10/15/21, Pool #168090 1,825,770 1,825,770
237,095 237,095 Government National Mortgage Association,
10.00%, 10/20/21, Pool #1706 258,210 258,210
182,008 182,008 Government National Mortgage Association,
10.00%, 11/20/21, Pool #45 198,217 198,217
281,555 281,555 Government National Mortgage Association,
10.00%, 11/20/21, Pool #1724 306,630 306,630
918,243 918,243 Government National Mortgage Association,
8.25%, 3/15/22, Pool #20824 948,371 948,371
924,743 924,743 Government National Mortgage Association,
8.50%, 6/15/22, Pool #220207 981,670 981,670
1,615,973 1,615,973 Government National Mortgage Association,
10.25%, 12/15/22, Pool #246963 1,711,816 1,711,816
5,218,710 5,218,710 Government National Mortgage Association,
8.50%, 1/15/23, Pool #249895 5,539,975 5,539,975
613,608 613,608 Government National Mortgage Associatio n ,
9.50%, 02/15/23, Pool #250803 647,927 647,927
1,470,657 1,470,657 Government National Mortgage Association,
9.00%, 08/15/24, Pool #389588 1,586,927 1,586,927
1,066,321 1,066,321 Government National Mortgage Association,
9.00%, 08/15/24, Pool #403527 1,150,624 1,150,624
546,631 546,631 Government National Mortgage Association,
9.00%, 06/15/25, Pool #410533 589,848 589,848
1,824,274 1,824,274 Government National Mortgage Association,
7.50%, 10/15/25, Pool #412507 1,882,414 1,882,414
1,903,613 1,903,613 Government National Mortgage Association,
7.50%, 11/15/26, Pool #436723 1,964,281 1,964,281
1,862,541 1,862,541 Government National Mortgage Association,
7.50%, 11/15/26, Pool #437107 1,921,900 1,921,900
934,610 934,610 Government National Mortgage Association,
7.50%, 12/15/26, Pool #423689 964,396 964,396
989,321 989,321 Government National Mortgage Association,
7.50%, 12/15/26, Pool #436821 1,020,851 1,020,851
981,175 981,175 Government National Mortgage Association,
7.50%, 02/15/27, Pool #429857 1,012,445 1,012,445
1,978,794 1,978,794 Government National Mortgage Association,
7.50%, 02/15/97, Pool #440209 2,041,858 2,041,858
2,761,551 2,761,551 Government National Mortgage Association,
8.25%, 7/15/27, Pool #396628 2,874,581 2,874,581
5,975,702 5,975,702 Government National Mortgage Association,
7.50%, 10/15/27 6,166,149 6,166,149
9,900,000 9,900,000 Government National Mortgage Association,
7.00%, 01/15/28, Pool #449506 10,048,501 10,048,501
4,040,000 4,040,000 Government National Mortgage Association,
7.00%, 01/15/28, Pool #427237 4,100,600 4,100,600
2,019,913 2,019,913 Government National Mortgage Association,
7.00%, 01/15/28, Pool #463389 2,050,212 2,050,212
2,145,275 2,145,275 Government National Mortgage Association,
8.50%, 09/15/29, Pool #394093 2,322,925 2,322,925
1,756,367 1,756,367 Government National Mortgage Association,
8.50%, 03/15/30, Pool #362585 1,799,714 1,799,714
812,934 812,934 Government National Mortgage Association,
9.25%, 03/15/30, Pool #361587 885,585 885,585
1,196,125 1,196,125 Government National Mortgage Association,
8.00%, 08/15/31, Pool #415672 1,279,471 1,279,471
1,969,356 1,969,356 Government National Mortgage Association,
7.75%, 05/15/32 2,029,047 2,029,047
831,072 831,072 Government National Mortgage Association,
9.25%, 5/15/33, Pool #165345 905,869 905,869
753,605 753,605 Government National Mortgage Association,
9.00%, 03/15/33, Pool #363408 820,247 820,247
1,978,493 1,978,493 Government National Mortgage Association,
8.25%, 11/15/34, Pool #394098 2,128,720 2,128,720
3,267,829 3,267,829 Government National Mortgage Association,
8.00%, 8/15/35, Pool #3333 3,475,107 3,475,107
2,421,168 2,421,168 Government National Mortgage Association,
8.25%, 10/15/36, Pool #406703 2,605,008 2,605,008
1,022,729 1,022,729 Government National Mortgage Association,
8.00%, 04/15/37 1,088,245 1,088,245
</TABLE>
<PAGE> 97
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Market Value
- ---------------------------------------------- ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- --------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
2,725,156 2,725,156 Government National Mortgage Association,
8.00%, 11/15/37, Pool #419429 2,898,012 2,898,012
------------ ------------ ------------
122,626,925 17,740,327 140,367,252
------------ ------------ ------------
U.S. Treasury Notes
(22.5%):
2,500,000 2,500,000 9.00%, 5/15/98 2,525,000 2,525,000
2,580,000 2,580,000 9.25%, 8/15/98 2,631,600 2,631,600
1,750,000 1,750,000 7.13%, 10/15/98 1,770,781 1,770,781
2,000,000 2,000,000 8.00%, 8/15/99 2,076,876 2,076,876
8,500,000 8,500,000 5.63%, 11/30/99 8,537,188 8,537,188
6,000,000 6,000,000 6.13%, 7/31/00 6,106,878 6,106,878
4,000,000 4,000,000 7.75%, 2/15/01 4,265,000 4,265,000
11,500,000 11,500,000 6.13%, 12/31/01 11,787,500 11,787,500
17,000,000 17,000,000 5.88%, 9/30/02 17,313,446 17,313,446
5,000,000 5,000,000 5.75%, 8/15/03 5,070,315 5,070,315
4,000,000 4,000,000 6.50%, 10/15/06 4,252,500 4,252,500
66,337,084 66,337,084
------------ ------------ ------------
Total U.S. Government
Securities 122,626,925 84,077,411 206,704,336
------------ ------------ ------------
Repurchase Agreement (2.7%):
2,943,551 2,943,551 Fifth Third 2,943,551 2,943,551
4,922,000 4,922,000 UBS Securities 4,922,000 4,922,000
------------ ------------ ------------
Total Repurchase Agreement 2,943,551 4,922,000 7,865,551
============ ============ ============
Total Investments (Cost $122,423,420,
$167,472,033, and $289,895,453,
respectively) 100.3% $125,570,476 $170,783,001 $296,353,477
============ ============ ============
</TABLE>
<PAGE> 98
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND/CARDINAL GOVERNMENT SECURITIES
MONEY MARKET FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Amortized Cost
- ----------------------------------------------------- -------------------------------------
Fountain
Cardinal Fountain Square Cardinal Square
Government Government Pro Forma Security Government Government Pro Forma
Securities Cash Reserves Combined Description Securities Cash Reserves Combined
- ----------------------- ------------- --------- ----------------------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Agencies
(86.7%):
Federal Farm Credit Bank
(22.1%):
$25,000,000 $25,000,000 Discount Note, 2/2/98 $25,000,000 $25,000,000
7,500,000 7,500,000 Discount Note, 2/2/98 7,500,000 7,500,000
$5,991,000 5,991,000 Discount Note, 2/18/98 $5,975,440 5,975,440
4,000,000 4,000,000 Discount Note, 2/20/98 3,988,368 3,988,368
5,000,000 5,000,000 Discount Note, 2/23/98 4,983,408 4,983,408
25,000,000 25,000,000 Discount Note, 3/2/97 25,000,000 25,000,000
9,000,000 9,000,000 Discount Note, 3/23/98 8,932,875 8,932,875
5,000,000 5,000,000 Discount Note, 4/1/98 5,000,000 5,000,000
10,000,000 10,000,000 Discount Note, 4/15/98 9,891,919 9,891,919
5,000,000 5,000,000 Discount Note, 5/1/98 5,000,000 5,000,000
6,000,000 6,000,000 Discount Note, 5/15/98 5,906,441 5,906,441
10,000,000 10,000,000 Discount Note, 6/2/98 10,010,928 10,010,928
30,000,000 30,000,000 Discount Note, 7/1/98 30,000,000 30,000,000
30,000,000 30,000,000 Discount Note, 8/3/98 30,000,000 30,000,000
10,000,000 10,000,000 Discount Note, 8/18/98 10,000,000 10,000,000
------------ ---------- -----------
147,510,928 39,678,451 187,189,379
------------ ---------- -----------
Federal Home Loan Bank
(39.5%):
20,000,000 20000000 Discount Note, 2/4/98 19,991,067 19,991,067
15,248,000 15248000 Discount Note, 2/6/98 15,236,412 15,236,412
5,000,000 5000000 Discount Note, 2/10/98 4,993,213 4,993,213
12,000,000 12000000 Discount Note, 2/13/98 11,978,553 11,978,553
10,000,000 10,000,000 Discount Note, 2/13/98 10,000,000 10,000,000
15,000,000 15,000,000 Discount Note, 2/18/97 14,960,817 14,960,817
11,000,000 11,000,000 Discount Note, 2/20/98 10,968,666 10,968,666
7,250,000 7,250,000 Discount Note, 2/25/97 7,223,054 7,223,054
10,000,000 10,000,000 Discount Note, 3/4/98 10,000,000 10,000,000
10,000,000 10,000,000 Discount Note, 3/5/98 9,951,378 9,951,378
10,000,000 10,000,000 Discount Note, 3/10/98 9,944,808 9,944,808
4,000,000 4,000,000 Discount Note, 3/11/98 3,977,411 3,977,411
10,000,000 10,000,000 Discount Note, 3/13/98 9,998,868 9,998,868
10,000,000 10,000,000 Discount Note, 3/18/98 9,931,875 9,931,875
</TABLE>
<PAGE> 99
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND/CARDINAL GOVERNMENT SECURITIES
MONEY MARKET FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Amortized Cost
- ----------------------------------------------------- -------------------------------------
Fountain
Cardinal Fountain Square Cardinal Square
Government Government Pro Forma Security Government Government Pro Forma
Securities Cash Reserves Combined Description Securities Cash Reserves Combined
- ----------------------- ------------- --------- ----------------------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
10,000,000 10,000,000 Discount Note, 3/19/98 9,929,850 9,929,850
13,000,000 13,000,000 Discount Note, 3/20/98 12,907,658 12,907,658
15,455,000 15,455,000 Discount Note, 3/25/98 15,335,502 15,335,502
5,000,000 5,000,000 Discount Note, 4/1/98 4,956,037 4,956,037
10,000,000 10,000,000 Discount Note, 4/8/98 9,901,550 9,901,550
4,000,000 4,000,000 Discount Note, 4/15/98 3,956,524 3,956,524
4,000,000 4,000,000 Discount Note, 4/17/98 3,954,750 3,954,750
5,000,000 5,000,000 Floating Rate Note, 5.61%, 2/4/98(a) 5,000,000 5,000,000
10,000,000 10,000,000 Discount Note, 4/23/98 9,875,688 9,875,688
10,000,000 10,000,000 Discount Note, 4/29/98 9,870,225 9,870,225
10,000,000 10,000,000 Discount Note, 6/5/98 9,810,211 9,810,211
5,000,000 5,000,000 Discount Note, 6/10/98 4,901,817 4,901,817
10,000,000 10,000,000 Discount Note, 6/16/98 10,000,000 10,000,000
10,000,000 10,000,000 Discount Note, 6/17/98 9,793,356 9,793,356
10,000,000 10,000,000 Discount Note, 6/30/98 9,995,182 9,995,182
20,000,000 20,000,000 Discount Note, 9/2/98 19,999,999 19,999,999
5,000,000 5,000,000 Discount Note, 9/16/98 5,000,000 5,000,000
15,000,000 15,000,000 Discount Note, 9/18/98 15,006,377 15,006,377
15,000,000 15,000,000 Discount Note, 12/23/98 15,000,000 15,000,000
------------ ----------- -----------
105,000,426 229,350,422 334,350,848
------------ ----------- -----------
Student Loan Marketing
Association (24.5%):
3,000,000 3000000 Floating Rate Note, 5.41%, 2/3/98(a) 2,997,210 2997210
30,000,000 10,000,000 40,000,000 Floating Rate Note, 5.42%, 2/3/98(a) 30,000,000 10,000,000 40,000,000
20,000,000 20,000,000 Floating Rate Note, 5.47%, 2/3/98(a) 20,000,000 20,000,000
5,000,000 10,000,000 15,000,000 Floating Rate Note, 5.56%, 2/3/98(a) 5,000,000 10,000,000 15,000,000
30,000,000 30,000,000 Floating Rate Note, 5.56%, 2/3/98(a) 30,000,000 30,000,000
30,000,000 30,000,000 Floating Rate Note, 5.61%, 2/3/98(a) 30,000,000 30,000,000
30,000,000 30,000,000 Floating Rate Note, 5.52%, 2/3/98(a) 30,000,000 30,000,000
5,000,000 5,000,000 Master Note, 5.90%, 12/10/98(b) 5,000,000 5,000,000
5,000,000 5,000,000 Master Note, 5.56%, 01/27/99(b) 5,000,000 5,000,000
29,050,000 29,050,000 Master Note, 5.46%, 7/1/00(b) 29,050,000 29,050,000
------------ ----------- ------------
155,000,000 52,047,210 207,047,210
------------ ----------- ------------
</TABLE>
<PAGE> 100
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND/CARDINAL GOVERNMENT SECURITIES
MONEY MARKET FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Amortized Cost
- ----------------------------------------------------- -------------------------------------
Fountain
Cardinal Fountain Square Cardinal Square
Government Government Pro Forma Security Government Government Pro Forma
Securities Cash Reserves Combined Description Securities Cash Reserves Combined
- ----------------------- ------------- --------- ----------------------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tennesse Valley
Authority (0.6%):
5,000,000 5000000 Discount Note, 2/13/98 4,990,700 4,990,700
----------- ----------- -----------
Total U.S. Government
Agencies 407,511,354 326,066,783 733,578,137
----------- ----------- -----------
Repurchase
Agreements (16.8%):
2,892,699 2,892,699 Fifth Third 2,892,669 2,892,669
33,000,000 33,000,000 Merril Lynch 33,000,000 33,000,000
48,000,000 48,000,000 Paine Webber 48,000,000 48,000,000
30,000,000 30,000,000 Prudential 30,000,000 30,000,000
28,000,000 28,000,000 Smith Barney 28,000,000 28,000,000
----------- ----------- -----------
Total Repurchase Agreements Prudential 141,892,669 141,892,669
----------- ----------- -----------
Total Investments (Amortized
Cost $549,404,023,
$326,066,783, and $875,470,806,
respectively) 103.5% $549,404,023 $326,066,783 $875,470,806
------------ ------------ ------------
(a) Current rate and next demand date shown.
(b) Current rate shown
</TABLE>
<PAGE> 101
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Assets and Liabilities
<TABLE>
<CAPTION>
January 31, 1998 Pro Forma
(Unaudited) Combined
Fountain Square Cardinal Fountain Square
Balanced Balanced Pro Forma Balanced
Fund Fund Adjustments Fund
--------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Assets:
Investments, at value (Cost $105,553,043; $13,526,203;) $131,922,087 $ 16,985,129 $ $148,907,216
Repurchase agreements (Cost $23,444,000; $811,804;) 23,444,000 811,804 24,255,804
------------ ------------ --------- ------------
Total Investments 155,366,087 17,796,933 173,163,020
Cash 928 -- 928
Interest and dividends receivable 747,061 100,184 847,245
Receivable for investments sold 82 67,858 67,940
Receivable for Fund shares sold 243,087 -- -- 243,087
Unamortized organizational costs -- 5,458 (5,458) --
Prepaid expenses and other assets 6,847 32,418 39,265
------------ ------------ --------- ------------
Total Assets 156,364,092 18,002,851 (5,458) 174,361,485
------------ ------------ --------- ------------
Liabilities:
Payable for investments purchased 4,246,647 -- 4,246,647
Payable for Fund shares redeemed 55,742 2,685 -- 58,427
Accrued expenses and other payables:
Investment advisory fees 98,943 10,558 109,501
Administration fees 12,738 1,393 14,131
Distribution Services - Investment C Shares 7,512 3,912 11,424
Shareholder Servicing - Investment C Shares 3,302 -- 3,302
Accounting and transfer agent fees 7,357 -- 7,357
Custodian fees 900 8,176 9,076
Legal and audit fees 5,519 2,098 7,617
Printing fees 3,828 8,191 12,019
Registration & Filing 8,231 -- 8,231
Other 7,216 16,889 24,105
------------ ------------ --------- ------------
Total Liabilities 4,457,935 53,902 -- 4,511,837
------------ ------------ --------- ------------
Net Assets :
Paid-in capital 122,601,467 14,496,388 (5,458) 137,092,397
Net unrealized appreciation (depreciation)
on investments and foreign currency 26,369,044 3,458,926 -- 29,827,970
Accumulated net realized gains (losses)
on investment and foreign currency transactions 2,716,946 35,312 -- 2,752,258
Undistributed net investment income(loss) 218,700 (41,677) -- 177,023
------------ ------------ --------- ------------
Net Assets $151,906,157 $ 17,948,949 $ (5,458) $169,849,648
============ ============ ========= ============
Net Assets
Investment A Shares $149,223,068 $ 15,982,908 $ (5,458) $165,200,518
Investment C Shares 2,683,089 -- -- 2,683,089
Institutional Class -- 1,966,041 -- 1,966,041
------------ ------------ --------- ------------
Total $151,906,157 $ 17,948,949 $ (5,458) $169,849,648
============ ============ ========= ============
Outstanding units of beneficial interest (shares)
Investment A Shares 10,341,510 1,262,751 (155,513) 11,448,748
Investment C Shares 185,836 -- -- 185,836
Institutional Class -- 155,202 (18,955) 136,247
------------ ------------ --------- ------------
Total 10,527,346 1,417,953 (174,468) 11,770,831
============ ============ ========= ============
Net asset value
Redemption price per share-Investment A Shares $ 14.43 $ 12.66 $ 14.43
============ ============ ========= ============
Offering price per shares-Investment C Shares* $ 14.44 $ -- $ 14.44
============ ============ ========= ============
Redemption price per share-Institutional $ 14.43 $ 12.67 $ 14.43
============ ============ ========= ============
Maximum Sales Charge 4.50% $ 4.00% 4.50%
============ ============ ========= ============
Maximum Offering Price (100%/(100%-Maximum Sales Charge)
of net asset value adjusted to nearest cent)
per share (Investment A Shares) $ 15.11 $ 13.19 $ 15.11
============ ============ ========= ============
</TABLE>
* Redemption price per share varies by length of time shares are held.
(See Notes which are an integral part of the Financial Statements)
<PAGE> 102
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Assets and Liabilities
<TABLE>
<CAPTION>
January 31, 1998 Pro Forma
(Unaudited) Combined
Fountain Square Fountain Square
Bond Fund Cardinal Bond Fund
For Gov't Obligations Pro Forma For
Income Fund Adjustments Income
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Assets:
Investments, at value (Cost $162,549,040; $119,478,876;) $ 165,861,001 $ 122,626,925 $- $ 288,487,926
Repurchase agreements (Cost $4,922,000; $2,943,551;) 4,922,000 2,943,551 -- 7,865,551
------------- ------------- ----------- -------------
Total Investments 170,783,001 125,570,476 -- 296,353,477
Cash 561 -- -- 561
Interest and dividends receivable 3,222,647 789,254 -- 4,011,901
Receivable for investments sold 7,259,005 7,417,929 -- 14,676,934
Receivable for Fund shares sold -- 53,202 -- 53,202
Unamortized organizational costs 7,197 27,993 (27,993) 7,197
Prepaid expenses and other assets 8,011 131,426 -- 139,437
------------- ------------- ----------- -------------
Total Assets 181,280,422 133,990,280 (27,993) 315,242,709
------------- ------------- ----------- -------------
Liabilities:
Payable for investments purchased 10,166,434 8,505,358 -- 18,671,792
Payable for Fund shares redeemed 2,500 -- -- 2,500
Interest Payable 214,244 687,386 -- 901,630
Accrued expenses and other payables:
Investment advisory fees 78,681 53,515 -- 132,196
Administration fees 17,579 3,693 -- 21,272
Distribution Services - Investment C Shares 233 28,373 -- 28,606
Shareholder Servicing - Investment C Shares 97 -- -- 97
Accounting and transfer agent fees 3,141 16,111 -- 19,252
Custodian fees 725 16,025 -- 16,750
Legal and audit fees 5,519 6,611 -- 12,130
Printing fees 2,704 8,954 -- 11,658
Registration & Filing 3,012 -- -- 3,012
Other 1,223 16,236 -- 17,459
------------- ------------- ----------- -------------
Total Liabilities 10,496,092 9,342,262 -- 19,838,354
------------- ------------- ----------- -------------
Net Assets :
Paid-in capital 166,628,408 144,757,349 (27,993) 311,357,764
Net unrealized appreciation (depreciation)
on investments and foreign currency 3,311,961 3,147,056 -- 6,459,017
Accumulated net realized gains (losses) on investment
and foreign currency transactions 850,765 (23,321,461) -- (22,470,696)
Undistributed net investment income(loss) (6,804) 65,074 -- 58,270
------------- ------------- ----------- -------------
Net Assets $ 170,784,330 $ 124,648,018 $ (27,993) $ 295,404,355
============= ============= =========== =============
Net Assets
Investment A Shares $ 170,670,669 $ 118,723,858 $ (27,993) $ 289,366,534
Investment C Shares 113,661 -- -- 113,661
Institutional Class -- 5,924,160 -- 5,924,160
------------- ------------- ----------- -------------
Total $ 170,784,330 $ 124,648,018 $ (27,993) $ 295,404,355
============= ============= =========== =============
Outstanding units of beneficial interest (shares)
Investment A Shares 13,928,763 14,363,251 (4,673,793) 23,618,221
Investment C Shares 9,284 -- -- 9,284
Institutional Class -- 716,706 (233,101) 483,605
------------- ------------- ----------- -------------
Total 13,938,047 15,079,957 (4,906,894) 24,111,110
============= ============= =========== =============
Net asset value
Redemption price per share-Investment A Shares $ 12.25 $ 8.27 $ 12.25
============= ============= =========== =============
Offering price per shares-Investment C Shares* $ 12.24 $ -- $ 12.24
============= ============= =========== =============
Redemption price per share-Institutional Shares $ $ 8.27 $ 12.25
============= ============= =========== =============
Maximum Sales Charge 4.50% 4.00% 4.50%
============= ============= =========== =============
Maximum Offering Price (100%/(100%-Maximum Sales Charge)
of net asset value adjusted to nearest cent)
per share (Investment A Shares) $ 12.83 $ 8.61 $ 12.83
============= ============= =========== =============
</TABLE>
* Redemption price per share varies by length of time shares are held.
(See Notes which are an integral part of the Financial Statements)
<PAGE> 103
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Assets and Liabilities
<TABLE>
<CAPTION>
January 31, 1998 Pro Forma
(Unaudited) Combined
Fountain Square Cardinal Fountain Square
Gov't Cash Gov't Securities Gov't Cash
Reserves Money Market Pro Forma Reserves
Fund Fund Adjustments Fund
-------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Assets:
Investments, at value
(Amortized Cost $326,066,783; $407,511,354;) $326,066,783 $ 407,511,354 $- $ 733,578,137
Repurchase agreements
(Amortized Cost $0; $141,892,669;) -- 141,892,669 -- 141,892,669
------------ ------------- --------- -------------
Total Investments 326,066,783 549,404,023 -- 875,470,806
Cash 3,517 31 -- 3,548
Interest and dividends receivable 691,560 6,132,741 -- 6,824,301
Receivable for investments sold -- -- -- --
Receivable for Fund shares sold -- 239,509 -- 239,509
Unamortized organizational costs -- 113,365 (113,365) --
Prepaid expenses and other assets 8,521 352,690 -- 361,211
------------ ------------- --------- -------------
Total Assets 326,770,381 556,242,359 (113,365) 882,899,375
------------ ------------- --------- -------------
--
Liabilities: --
Interest and dividends Payable 1,388,282 -- -- 1,388,282
Payable for investments purchased -- 35,053,318 -- 35,053,318
Payable for Fund shares redeemed -- -- -- --
Accrued expenses and other payables: --
Investment advisory fees 103,993 227,180 -- 331,173
Administration fees 22,677 -- -- 22,677
Distribution Services - Investment C Shares -- -- -- --
Shareholder Servicing - Investment C Shares -- -- -- --
Accounting and transfer agent fees 7,200 99,409 -- 106,609
Custodian fees 1,688 12,149 -- 13,837
Legal and audit fees 5,519 27,129 -- 32,648
Printing fees 3,908 13,526 -- 17,434
Registration & Filing 15,320 12,378 -- 27,698
Other 13,749 58,194 -- 71,943
------------ ------------- --------- -------------
Total Liabilities 1,562,336 35,503,283 -- 37,065,619
------------ ------------- --------- -------------
-------------
-------------
Net Assets : --
Paid-in capital 325,206,515 521,954,727 (113,365) 847,047,877
Net unrealized appreciation (depreciation)
on investments and foreign currency -- -- -- --
Accumulated net realized gains (losses)
on investment and foreign currency transactions 1,530 (1,553,942) -- (1,552,412)
Undistributed net investment income(loss) -- 338,291 -- 338,291
------------ ------------- --------- -------------
Net Assets 325,208,045 $ 520,739,076 $(113,365) $ 845,833,756
============ ============= ========= =============
Net Assets
Investment A Shares 190,194,107 $ 520,739,076 $(113,365) $ 710,819,818
Investment C Shares 135,013,938 -- -- 135,013,938
------------ ------------- --------- -------------
Total 325,208,045 $ 520,739,076 $(113,365) $ 845,833,756
============ ============= ========= =============
-------------
Outstanding units of beneficial interest (shares) --
Investment A Shares 190,193,410 520,809,044 (113,365) 710,889,089
Investment C Shares 135,013,100 -- -- 135,013,100
------------ ------------- --------- -------------
Total 325,206,510 520,809,044 (113,365) 845,902,189
============ ============= ========= =============
Net asset value
Redemption price per share-Investment A Shares $ 1.00 $ 1.00 $ 1.00
============ ============= ========= =============
Offering price per shares-Investment C Shares* $ 1.00 $ #DIV/0! $ 1.00
============ ============= ========= =============
Maximum Sales Charge 0.00% 0.00% 0.00%
============ ============= ========= =============
Maximum Offering Price (100%/(100%-Maximum Sales Charge)
of net asset value adjusted to nearest cent)
per share (Investment A Shares) $ 1.00 $ 1.00 $ 1.00
============ ============= ========= =============
</TABLE>
* Redemption price per share varies by length of time shares are held.
(See Notes which are an integral part of the Financial Statements)
<PAGE> 104
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Operations
For the year ended January 31, 1998
<TABLE>
<CAPTION>
(Unaudited) Pro Forma
Combined
Fountain Square Cardinal Fountain Square
Balanced Balanced Pro Forma Balanced
Fund Fund Adjustments Fund
-------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 2,877,796 $ 378,469 $ -- $ 3,256,265
Dividend income 792,924 147,004 -- 939,928
----------- ---------- -------- -----------
Total Income 3,670,720 525,473 -- 4,196,193
----------- ---------- -------- -----------
EXPENSES:
Investment advisory fees 986,064 120,256 9,896 1,116,216
Administrative fees 209,194 -- (68,629) 140,565
Distribution & service fees - Investment A 424,772 36,315 17,273 478,360
Distribution & service fees - Investment C 10,847 -- -- 10,847
Shareholder servicing - Investment C 3,616 1,590 (1,590) 3,616
Organization expense 3,270 10,585 (10,585) 3,270
Custodian fees 10,036 8,896 (8,182) 10,750
Portfolio accounting fees 42,551 17,937 (23,768) 36,720
Transfer and dividend disbursing
agent fees and expenses 17,569 16,748 1,750 36,067
Directors'/Trustees' fees 1,204 2,102 (2,006) 1,300
Audit fees 8,779 64 657 9,500
Legal fees 7,725 697 1,328 9,750
Fund share registration costs 11,099 9,514 (3,209) 17,404
Printing and postage expense 7,075 -- 946 8,021
Insurance expense 896 1,095 1,002 2,993
Other 1,366 1,228 (500) 2,094
----------- ---------- -------- -----------
Total Expenses 1,746,063 227,027 (85,617) 1,887,473
----------- ---------- -------- -----------
Less fees voluntarily reduced (509,332) -- -- (509,332)
----------- ---------- -------- -----------
Net Expenses 1,236,731 227,027 (85,617) 1,378,141
----------- ---------- -------- -----------
Net Investment Income (Loss) 2,433,989 298,446 85,617 2,818,052
----------- ---------- -------- -----------
Realized and Unrealized Gains
(Losses) from Investments and
Foreign Currency Transactions:
Net realized gains(losses) from investments
and foreign currency transactions 13,660,190 486,645 -- 14,146,835
Net change in unrealized appreciation (depreciation)
from investments and translation of assets
and liabilities in foreign securities 7,155,154 3,458,926 -- 10,614,080
----------- ---------- -------- -----------
Net realized and unrealized gains(losses)
from investments and foreign currency 20,815,344 3,945,571 -- 24,760,915
----------- ---------- -------- -----------
Change in net assets resulting
from operations $23,249,333 $4,244,017 $ 85,617 $27,578,967
=========== ========== ======== ===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE> 105
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Operations
For the year ended January 31, 1998
<TABLE>
<CAPTION>
(Unaudited) Pro Forma
Combined
Fountain Square Cardinal Fountain Square
Bond Fund Gov't Obligations Pro Forma Bond Fund
For Income Fund Adjustments For Income
--------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $10,274,593 $10,144,635 $ -- $20,419,228
Dividend income (3,946) -- -- (3,946)
----------- ----------- -------- -----------
Total Income 10,270,647 10,144,635 -- 20,415,282
----------- ----------- -------- -----------
EXPENSES:
Investment advisory fees 851,218 640,945 62,116 1,554,279
Administrative fees 262,971 -- 85,754 348,725
Distribution & service fees - Investment A 541,536 279,289 147,503 968,328
Distribution & service fees - Investment C 437 3,694 (437) 3,694
Shareholder servicing - Investment C 116 -- 159 275
Organization expense 1,830 8,395 (8,395) 1,830
Custodian fees 8,652 34,281 (34,033) 8,900
Portfolio accounting fees 42,080 50,133 (14,113) 78,100
Transfer and dividend disbursing
agent fees and expenses 19,586 106,500 (71,939) 54,147
Directors'/Trustees' fees 3,031 20,421 (21,071) 2,381
Audit fees 14,020 12,119 (16,639) 9,500
Legal fees 9,539 22,020 (21,809) 9,750
Fund share registration costs 64,207 24,829 (40,518) 48,518
Printing and postage expense 19,314 24,759 (36,052) 8,021
Insurance expense 2,882 8,307 (4,792) 6,397
Other 60 25,274 (23,053) 2,281
----------- ----------- -------- -----------
Total Expenses 1,841,479 1,260,966 2,681 3,105,126
----------- ----------- -------- -----------
Less fees voluntarily reduced (650,208) -- -- (650,208)
----------- ----------- -------- -----------
Net Expenses 1,191,271 1,260,966 2,681 2,454,918
----------- ----------- -------- -----------
Net Investment Income (Loss) 9,079,376 8,883,669 (2,681) 17,960,364
----------- ----------- -------- -----------
Realized and Unrealized Gains
(Losses) from Investments and
Foreign Currency Transactions:
Net realized gains(losses) from investments
and foreign currency transactions 1,686,155 604,849 -- 2,291,004
Net change in unrealized appreciation(depreciation)
from investments and translation of assets and
liabilities in foreign securities 1,256,890 3,147,056 -- 4,403,946
----------- ----------- -------- -----------
Net realized and unrealized gains(losses)
from investments and foreign currency 2,943,045 3,751,905 -- 6,694,950
----------- ----------- -------- -----------
Change in net assets resulting
from operations $12,022,421 $12,635,574 $ (2,681) $24,655,314
=========== =========== ======== ===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE> 106
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Operations
For the year ended January 31, 1998
<TABLE>
<CAPTION>
(Unaudited) Pro Forma
Cardinal Combined
Fountain Square Gov't Securities Fountain Square
Gov't Cash Money Market Pro Forma Gov't Cash
Reserves Fund Fund Adjustments Reserves Fund
--------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $15,214,437 $28,264,156 $ -- $43,478,593
Dividend income -- -- -- --
----------- ----------- ---------- -----------
Total Income 15,214,437 28,264,156 -- 43,478,593
----------- ----------- ---------- -----------
EXPENSES:
Investment advisory fees 1,104,723 2,639,807 (582,271) 3,162,259
Administrative fees 468,052 -- 208,547 676,599
Distribution & service fees - Investment A 400,037 -- 1,290,779 1,690,816
Distribution & service fees - Investment C -- -- -- --
Shareholder servicing - Investment C -- -- -- --
Organization expense -- 34,675 (34,675) --
Custodian fees 14,834 26,497 (23,131) 18,200
Portfolio accounting fees 56,504 63,832 (9,935) 110,401
Transfer and dividend disbursing
agent fees and expenses 23,018 1,072,372 (657,774) 437,616
Directors'/Trustees' fees 2,598 54,107 (49,754) 6,951
Audit fees 8,600 68,566 (67,666) 9,500
Legal fees 7,725 62,787 (60,762) 9,750
Fund share registration costs 48,199 9,801 74,224 132,224
Printing and postage expense 14,866 112,898 (115,826) 11,938
Insurance expense 2,337 43,475 (32,137) 13,675
Other 352 327,461 (327,012) 801
----------- ----------- ---------- -----------
Total Expenses 2,151,845 4,516,278 (387,393) 6,280,730
----------- ----------- ---------- -----------
Less fees voluntarily reduced (729,406) -- -- (729,406)
----------- ----------- ---------- -----------
Net Expenses 1,422,439 4,516,278 (387,393) 5,551,324
----------- ----------- ---------- -----------
Net Investment Income (Loss) 13,791,998 23,747,878 387,393 37,927,269
----------- ----------- ---------- -----------
Realized and Unrealized Gains
(Losses) from Investments and
Foreign Currency Transactions:
Net realized gains(losses) from investments
and foreign currency transactions 961 (91,324) -- (90,363)
Net change in unrealized appreciation(depreciation)
from investments and translation of assets and
liabilities in foreign securities -- -- -- --
----------- ----------- ---------- -----------
Net realized and unrealized gains(losses)
from investments and foreign currency 961 (91,324) -- (90,363)
----------- ----------- ---------- -----------
Change in net assets resulting
from operations $13,792,959 $23,656,554 $ 387,393 $37,836,906
=========== =========== ========== ===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE> 107
FOUNTAIN SQUARE FUNDS/THE CARDINAL GROUP
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
-------
1. BASIS OF COMBINATION:
The unaudited Pro Forma Combining Statements of Assets and Liabilities,
Statements of Operations, and Schedules of Portfolio Investments reflect the
accounts of three investment portfolios offered by Fountain Square Funds (the
"Company"): the Balanced Fund, the Bond Fund For Income and the Government Cash
Reserves Fund and three investment portfolios offered by The Cardinal Group: the
Balanced Fund, the Government Obligations Fund and the Government Securities
Money Market Fund (collectively, "Funds") as if the proposed reorganization
occurred as of and for the year ended January 31, 1998. These statements have
been derived from books and records utilized in calculating daily net asset
value at January 31, 1998.
The Reorganization Agreement provides that on the Closing Date of the
Reorganization, all of the assets and liabilities will be transferred as follows
such that at and after the Reorganization, the assets and liabilities of the
applicable Cardinal Fund will become the assets and liabilities of the
corresponding Fountain Square Fund: the Cardinal Balanced Fund assets and
liabilities will be transferred to the Fountain Square Balanced Fund, the
Cardinal Government Obligations Fund assets and liabilities will be transferred
to the Fountain Square Bond Fund For Income and the Cardinal Government
Securities Money Market Fund assets and liabilities will be transferred to the
Fountain Square Government Cash Reserves Fund. In exchange for the transfer of
assets and liabilities,FSF will issue to the Cardinal Funds full and fractional
shares of the corresponding Fountain Square Funds, and the Cardinal Funds will
make a liquidating distribution of such shares to its shareholders. The number
of shares of the Fountain Square Funds so issued will be equal in value to the
full and fractional shares of the Cardinal Funds that are outstanding
immediately prior to the Reorganization. At and after the Reorganization, all
debts, liabilities and obligations of the Cardinal Funds will attach to the
Fountain Square Funds and may thereafter be enforced against the Fountain Square
Funds to the same extent as if they had been incurred by such Funds. The pro
forma statements give effect to the proposed transfer described above.
Under the purchase method of accounting for business combinations under
generally accepted accounting principles, the basis on the part of the Fountain
Square Funds, of the assets of the Cardinal Funds will be the fair market value
of such assets on the Closing Date of the Reorganization. The Fountain Square
Funds will recognize no gain or loss for federal tax purposes on its issuance of
shares in the reorganization, and the basis to the Fountain Square Money Market
Funds of the assets of the Cardinal Funds received pursuant to the
Reorganization will equal the fair market value of the consideration furnished,
and costs incurred, by the Fountain Square Funds in the reorganization -- i.e.,
the sum of the
(CONTINUED)
<PAGE> 108
FOUNTAIN SQUARE FUNDS/THE CARDINAL GROUP
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
-------
liabilities assumed, the fair market value of the Fountain Square Funds shares
issued, and such costs. For accounting purposes, the Fountain Square Funds are
the surviving Funds of this Reorganization. The pro forma statements reflect the
combined results of operations of the Cardinal Funds and the Fountain Square
Funds. However, should such Reorganization be effected, the statements of
operations of the Fountain Square Funds will not be restated for precombination
period results of the corresponding Cardinal Funds.
The Pro Forma Combining Statements of Assets and Liabilities, Statements
of Operations, and Schedules of Portfolio Investments should be read in
conjunction with the historical financial statements of the Funds incorporated
by reference in the Statement of Additional Information.
The Cardinal Funds and the Fountain Square Funds are each separate
portfolios of The Cardinal Group and the Fountain Square Funds respectively,
which are registered as an open-end management investment companies under the
Investment Company Act of 1940 (the "1940 Act"). The investment objective of the
Cardinal Balanced Fund is to seek current income and long-term growth of both
capital and income. The investment objective of the Fountain Square Balanced
Fund is to pursue capital appreciation and income. The investment objective of
the Cardinal Government Obligations is to maximize safety of capital and,
consistent with such objective, earn the highest available current income
obtainable from government securities. The investment objective of the Fountain
Square Bond Fund For Income is to provide a high level of current income. The
investment objective of the Cardinal Government Securities Money Market Fund is
to maximize current income while preserving capital and maintaining liquidity.
The investment objective of Fountain Square Government Cash Reserves Fund is
high current income consistent with stability of principal and liquidity.
EXPENSES
Fifth Third Bank (the "Advisor"), serves as the Fountain Square Funds'
investment advisor. BISYS Fund Services L.P. (the "Administrator"), an
indirect, wholly-owned subsidiary of The BISYS Group, Inc. (BISYS) serves as
the administrator and distributor to the Fountain Square Funds. Fifth Third
Bank serves as transfer and dividend disbursing agent, fund accountant and
custodian for the Fountain Square Funds.
Cardinal Funds:
Cardinal Balanced Fund and Cardinal Government Obligations Fund each
issues two classes of shares. The Investor Shares of these Funds have rights
and privileges analogous to those of Investment A Shares of the corresponding
Fountain Square Funds. The Institutional Shares of these Cardinal Funds
(CONTINUED)
<PAGE> 109
FOUNTAIN SQUARE FUNDS/THE CARDINAL GROUP
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
-------
have rights and privileges analogous to those of the Institutional Shares of
the corresponding Fountain Square Funds. Shares of the Government Securities
Money Market Fund have rights and privileges analogous to those of
Institutional Shares (formerly known as Trust Shares) of Fountain Square
Governmental Cash Reserves Fund.
Under the terms of the investment advisory agreement between the Cardinal Group
and Cardinal Management Corp. (the "Advisor"), the Advisor is entitled to
receive fees computed at the annual rate of 0.75% for the Balanced Fund, 0.50%
for the Government Obligations Fund and 0.50% of Government Securities Fund.
Such fees are accrued daily and paid monthly. For the year ended January 31,
1998, total investment advisory fees incurred by these Funds were as follows:
<TABLE>
<CAPTION>
Total Fees
----------
<S> <C>
Balanced Fund 120,256
Government Obligations 640,945
Government Securities 2,639,807
</TABLE>
Fountain Square Funds:
The Fountain Square Balanced Fund and Bond Fund For Income issue three
class of shares: Investment A Shares, Investment C Shares and Institutional
Shares. The Government Cash Reserves Fund issues two classes of shares:
Investment A Shares and Institutional Shares (formerly Trust Shares). Each
class of shares has identical rights and privileges except with respect to fees
paid under shareholder servicing or distribution plans, expenses allocable
exclusively to each class of shares, voting rights on matters affecting a
single class of shares, and the exchange privilege of each class of shares.
Investment A Shares are subject to an initial sales charge upon purchase.
Investment C Shares are subject to a contingent deferred sales change (CDSC).
Under the terms of the investment advisory agreement between Fountain Square
Funds and Fifth Third Bank (the "Advisor"), the Advisor is entitled to receive
fees computed at the annual rate of 0.80% for the Balanced Fund, 0.55% for the
Bond Fund For Income and 0.40% of Government Cash Reserves Fund. Such fees are
accrued daily and paid monthly. For the year ended January 31, 1998, total
investment advisory fees incurred by these Funds were as follows:
(CONTINUED)
<PAGE> 110
FOUNTAIN SQUARE FUNDS/THE CARDINAL GROUP
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
-------
<TABLE>
<CAPTION>
Total Fees
----------
<S> <C>
Balanced Fund 1,116,216
Bond Fund For Income 1,554,279
Government Cash Reserves Fund 3,162,259
</TABLE>
Under the terms of the administration agreement the Administrator's fees are
computed, at the annual rate of 0.20% of first $1 billion of net assets of the
Trust, 0.18% of net assets of the Trust between $1 billion and $2 billion, and
0.17% of more than $2 billion of the net assets of the Trust. For the year ended
January 31, 1998, the Administrator's fees earned from these Funds were as
follows:
<TABLE>
<CAPTION>
Total Fees
----------
<S> <C>
Balanced Fund 149,569
Bond Fund For Income 348,725
Government Cash Reserves Fund 676,599
</TABLE>
PRO FORMA ADJUSTMENTS AND PRO FORMA COMBINED COLUMNS
The pro forma adjustments and pro forma combined columns of the
statements of operations reflect the adjustments necessary to show expenses at
the rates which would have been in effect if the Cardinal Funds were included
in the Fountain Square Funds for the year ended January 31, 1998. Investment
advisory and shareholder service and 12b-1 fees in the pro forma combined
column are calculated at the rates in effect for the Fountain Square Funds
based upon the combined net assets of the Cardinal Funds and the Fountain
Square Funds. Certain pro forma adjustments were made to estimate the benefit
of combining operations of separate funds into one survivor fund.
The pro forma schedules of portfolio investments give effect to the
proposed transfer of such assets as if the reorganization had occurred at
January 31, 1998.
(CONTINUED)
<PAGE> 111
FOUNTAIN SQUARE FUNDS/THE CARDINAL GROUP
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
-------
2. PORTFOLIO VALUATION, SECURITIES TRANSACTIONS AND RELATED INCOME:
Investments in equity securities are determined on the basis of the mean between
the latest available bid and asked prices in the principal market (last sales
price on a national securities exchange). For unlisted securities, value is
determined on the basis of the latest bid prices. Investments in other open-end
investment companies are valued at net asset value. Bonds and other fixed income
securities are valued at prices provided by an independent pricing service.
Value of all other securities is determined at fair value in good faith in
accordance with procedures adopted by the Board of Trustees.
Securities transactions are accounted for on the date the security is purchased
or sold (trade date). Interest income is recognized on the accrual basis and
includes, where applicable, the pro rata amortization of premium or discount.
Dividend income is recorded on the ex-dividend date. Gains or losses realized on
sales of securities are determined by comparing the identified cost of the
security lot sold with the net sales proceeds.
3. CAPITAL SHARES:
The pro forma net asset values per share assume the issuance of shares
of the Fountain Square Funds which would have occurred at January 31, 1998 in
connection with the proposed reorganization. The pro forma number of shares
outstanding consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------- -------------------- ------------------------ ---------------------
Additional Shares
Shares outstanding Assumed in the
at January 31, 1998 Reorganization Proforma Shares at
(000) (000) January 31, 1998
- ----------------------------------------- -------------------- ------------------------ ---------------------
<S> <C> <C> <C>
Balanced Fund 10,528 1,243 11,771
- ----------------------------------------- -------------------- ------------------------ ---------------------
Bond Fund For Income 13,938 10,173 24,111
- ----------------------------------------- -------------------- ------------------------ ---------------------
Government Cash Reserves 325,207 520,695 845,902
- ----------------------------------------- -------------------- ------------------------ ---------------------
</TABLE>
(CONTINUED)
<PAGE> 112
PART C. OTHER INFORMATION
Item 15. Indemnification
Indemnification is provided to Officers and Trustees of the Registrant
pursuant to Article IX of Registrant's By-Laws. The Investment Advisory
Contracts between the Registrant and Fifth Third Bank ("Fifth Third") (with
respect to all of the Fountain Square Funds except Fountain Square Pinnacle
Fund) and Heartland Capital Management, Inc. ("Heartland") (with respect to the
Fountain Square Pinnacle Fund) (Fifth Third and Heartland, each the "Adviser")
each provide that, in the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties under the
Investment Advisory Contracts on the part of the Adviser, the Adviser shall not
be liable to the Registrant or to any shareholder for any act or omission in the
course of or connected in any way with rendering services or for any losses that
may be sustained in the purchase, holding, or sale of any security. Registrant's
Trustees and Officers are covered by an Errors and Omissions Policy.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to Trustees, Officers, and
controlling persons of the Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is aware that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by Trustees, Officers, or
controlling persons of the Registrant in connection with the successful defense
of any act, suit, or proceeding) is asserted by such Trustees, Officers, or
controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Insofar as indemnification for liabilities may be permitted pursuant to
Section 17 of the Investment Company Act of 1940, as amended, for Trustees,
Officers, and controlling persons of the Registrant by the Registrant pursuant
to its Declaration of Trust and By-Laws, or otherwise, the Registrant is aware
of the position of the Securities and Exchange Commission as set forth in
Investment Company Act Release No. IC-11330. Therefore, the Registrant
undertakes that in addition to complying with the applicable provisions of its
Declaration of Trust and ByLaws, or otherwise, in the absence of a final
decision on the merits by a court or other body before which the proceeding was
brought, that an indemnification payment will not be made unless in the absence
of such a decision, a reasonable determination based upon factual review has
been made: (i) by a majority vote of a quorum of non-party Trustees who are not
interested persons of the Registrant, or (ii) by independent legal counsel for
an act of willful misfeasance, bad faith, gross negligence, or reckless
disregard of duties. The Registrant further undertakes that advancement of
expenses incurred in the defense of a proceeding (upon undertaking for repayment
unless it is ultimately determined that indemnification is appropriate) against
an Officer, Trustee, or controlling person of the Registrant will not be made
absent the
<PAGE> 113
fulfillment of at least one of the following conditions: (i) the indemnitee
provides security for his undertaking; (ii) the Registrant is insured against
losses arising by reason of any lawful advances; or (iii) a majority of a quorum
of disinterested non-party Trustees or independent legal counsel in a written
opinion makes a factual determination that there is reason to believe the
indemnitee will be entitled to indemnification.
Item 16. Exhibits
(1) Conformed Copy of Declaration of Trust of the Registrant
including Amendments No. 1 through 7.(1)
(i) Conformed Copy of Amendment No. 8 to the Declaration
of Trust.(2)
(ii) Conformed Copy of Amendment No. 9 to the Declaration
of Trust.(3)
(iii) Conformed Copy of Amendment No. 10 to the Declaration
of Trust.(4)
(iv) Conformed Copy of Amendment No. 11 to the Declaration
of Trust.(5)
(v) Conformed Copy of Amendment No. 12 to the Declaration
of Trust.(10)
(2) Copy of By-Laws of the Registrant.(1)
(3) Not Applicable.
(4) Agreement and Plan of Reorganization and Liquidation, dated as
of March 23, 1997, by and among Fountain Square Funds, Fifth
Third Bank, The Cardinal Group and Cardinal Management Corp.
is included as Exhibit A to the Combined Proxy
Statement/Prospectus forming a part of this Registration
Statement.*
(5) The instruments defining the rights of holders of shares of
the Fountain Square Funds are the Registrant's Declaration of
Trust and By-Laws. See Exhibits (1) and (2), above.
(6) (i) Conformed Copy of Investment Advisory Contract of the
Registrant through and including Exhibit J.(1)
(a) Conformed Copy of Exhibits K-M to Investment
Advisory Contract of Registrant.(4)
(b) Conformed Copy of Exhibits N-O to Investment
Advisory Contract of Registrant.(10)
(ii) Conformed Copy of Sub-Advisory Agreement.(6)
(iii) Conformed Copy of Investment Advisory Contract of the
Registrant with respect to Fountain Square Pinnacle
Fund.(10)
(7) (i) Conformed Copy of Distribution Agreement of the
Registrant.(7)
(a) Conformed Copy of amended Schedules A-C to
Distribution Agreement.(10)
(ii) Copy of Administrative Service Agreement of the
Registrant.(2)
(a) Conformed Copy of amended Exhibit A to
Administrative Service Agreement.(10)
<PAGE> 114
(8) Not Applicable.
(9) (i) Conformed Copy of Custody Agreement of the
Registrant(8).
(a) Conformed Copy of amended Exhibit B to Custody
Agreement.(4)
(ii) Conformed Copy of (Sub-)Custody Agreement.(1)
(10) (i) Conformed Copy of Rule 12b-1 Plan through and including
Exhibits A and B.(7)
(a) Conformed Copy of amended Exhibits A and B to
Rule 12b-1 Plan.(10)
(ii) Form of Rule 12b-1 Agreement.(7)
(a) Copy of amended Exhibit A to Rule 12b-1
Agreement.(10)
(iii) Conformed Copy of Amended and Restated Multiple Class
Plan.(10)
(11) Conformed Copy of Opinion and Consent of Hertz, Schram &
Saretsky, P.C. as to legality of shares being registered.*
(12) Form of Opinion and Consent of Howard & Howard Attorneys, P.C.
as to tax matters.*
(13) (i) Conformed Copy of Transfer Agency and Accounting
Services Agreement of the Registrant.(1)
(a) Conformed Copy of amended Schedule A to Transfer
Agency and Accounting Services Agreement.(10)
(ii) Conformed Copy of Management and Administration
Agreement of the Registrant.(4)
(a) Conformed Copy of amended Schedule A to
Management and Administration Agreement.(10)
(iii) Conformed Copy of Sub-Administration Agreement.(4)
(a) Conformed Copy of amended Schedule A to
Sub-Administration Agreement.(10)
(14) (i) Conformed Copy of Consent of KPMG Peat Marwick LLP,
independent auditors of Cardinal.*
(ii) Conformed Copy of Consent of Ernst & Young LLP.*
(15) Not Applicable.
(16) Conformed Copy of Power of Attorney.(7)
(17) (i) Prospectus dated November 30, 1997 for Investment A
Shares and Investment C Shares of Fountain Square
Funds.*
(ii) Prospectus dated September 30, 1997 for Fountain Square
Government Cash Reserves Fund.*
(iii) Prospectuses dated May __, 1998 for Institutional
Shares of Fountain Square Funds, Investment A Shares
and Institutional Shares of Fountain Square Cardinal
Fund and Investment A Shares and Institutional Shares
of Fountain Square Tax Exempt Money Market Fund.(11)
(iv) Prospectuses dated January 30, 1998 for Investor Shares
and Institutional Shares of each of the Funds of The
Cardinal Group.*
(v) Combined Statement of Additional Information dated
November 30, 1997 for Fountain Square Funds.*
(vi) Combined Statement of Additional Information dated
September 30, 1997 for Fountain Square Government
Cash Reserves Fund.*
(vii) Statements of Additional Information dated May __, 1998
for Institutional Shares of Fountain Square Funds,
Investment A Shares and Institutional Shares of
Fountain Square Cardinal Fund and Investment A Shares
and Institutional Shares of Fountain Square Tax Exempt
Money Market Fund.(11)
(viii) Statement of Additional Information dated January 30,
1998 for The Cardinal Group.*
(ix) Annual Report dated July 31, 1997 for Fountain Square
Funds.*
(x) Semi-Annual Report dated January 31, 1998 for Fountain
Square Funds.(11)
(xi) Annual Report dated September 30, 1997 for The
Cardinal Group.*
(xii) Financial Data Schedules.(12)
*Filed electronically herewith.
(1) 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).
<PAGE> 115
(2) 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).
(3) 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).
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed on or about September 30, 1997
(File Nos. 811-5669 and 33-24848).
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed on or about January 21, 1998 (File
Nos. 811-5669 and 33-24898).
(6) 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).
(7) 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).
(8) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed on or about November 26, 1997.
(9) 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).
(10) To be filed by post-effective amendment to Registrant's Registration
Statement on Form N-1A.
(11) To be filed by amendment.
(12) Response is incorporated by reference to Registrant's Post-Effective
Amendment Nos. 23 and 25 on Form N-1A filed on or about September 30,
1997 and November 26, 1997 (File Nos. 811-5669 and 33-24848) and The
Cardinal Group's Post-Effective Amendment No. 10 on Form N-1A filed on
or about January 28, 1998 (File Nos. 811-07588 and 33-59984).
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
part of this Registration Statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, as amended, the reoffering prospectus will
contain the information called for by the applicable registration form
for the reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is
effective, and that in determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment shall be deemed
to be a new Registration Statement for the securities offered therein;
and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant, FOUNTAIN SQUARE FUNDS, certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Form
N-14 under the Securities Act of 1933 and has duly caused this 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 6th day of April,
1998.
FOUNTAIN SQUARE FUNDS
By: /s/ Stephen G. Mintos*
----------------------
Stephen G. Mintos
President
Pursuant to the requirements of the Securities Act of 1933, this
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 President April 6, 1998
--------------------- (Principal Executive
Stephen G. Mintos Officer); Attorney-In-Fact
For the Persons Listed
Below
Name Title
---- -----
/s/ Jeffrey C. Cusick Treasurer and Secretary April 6, 1998
- --------------------- (Principal Financial and
Jeffrey C. Cusick Accounting Officer)
Edward Burke Carey* Trustee
Lee A. Carter* Trustee
Albert E. Harris* Trustee
- -----------------------------------------------
*By Power of Attorney
<PAGE> 117
EXHIBIT LIST
11 Conformed Copy of Opinion and Consent of Hertz, Schram &
Saretsky, P.C. as to legality of shares being registered.
12 Form of Opinion and Consent of Howard & Howard Attorneys, P.C.
as to tax matters.
14 (i) Conformed Copy of Consent of KPMG Peat Marwick LLP
14 (ii) Conformed Copy of Consent of Ernst & Young LLP
17 (i) Prospectus dated November 30, 1997 for Investment A
Shares and Investment C Shares of Fountain Square
Funds.
(ii) Prospectus dated September 30, 1997 for Fountain Square
Government Cash Reserves Fund.
(iv) Prospectuses dated January 30, 1998 for Investor Shares
and Institutional Shares of each of the Funds of The
Cardinal Group.
(v) Combined Statement of Additional Information dated
November 30, 1997 for Fountain Square Funds.
(vi) Combined Statement of Additional Information dated
September 30, 1997 for Fountain Square Government Cash
Reserves Fund.
(viii) Statement of Additional Information dated January 30,
1998 for The Cardinal Group.
(ix) Annual Report dated July 31, 1997 for Fountain Square
Funds.
(xi) Annual Report dated September 30, 1997 for The Cardinal
Group.
<PAGE> 1
Exhibit 11
[Letterhead]
April 6, 1998
FOUNTAIN SQUARE FUNDS
38 Fountain Square Plaza
Cincinnati, Ohio 45263
RE: SHARES TO BE ISSUED PURSUANT TO AGREEMENT AND PLAN OF
REORGANIZATION AND LIQUIDATION DATED AS OF APRIL 2, 1998
Greetings:
We have acted as counsel to Fountain Square Funds (the "Trust") in
connection with the Trust's authorization and proposed issuance of its
Investment A Shares and Institutional Shares of Fountain Square Cardinal Fund,
Fountain Square Mid Cap Fund, Fountain Square Balanced Fund, Fountain Square
Bond Fund For Income, Fountain Square Government Cash Reserves Fund and
Fountain Square Tax Exempt Money Market Fund (the "Shares"). The Shares are to
be issued pursuant to an Agreement and Plan or Reorganization and Liquidation
(the "Agreement"), by and between the Trust, Fifth Third Bank, The Cardinal
Group and Cardinal Management Corp., the form of which Agreement is included
as Appendix A to the Combined Proxy Statement/Prospectus relating to Form N-14
filed with the Securities and Exchange Commission (the "Registration
Statement").
In rendering the opinions hereinafter expressed, we have reviewed the
corporate proceedings taken by the Trust in connection with the authorization
and issuance of the Shares, and we have reviewed such questions of law and
examined copies of such corporate records of the Trust, and other documents as
we have deemed necessary as a basis for such opinion. In connection with such
review and examination, we have assumed that all copies of documents provided
to us conform to the originals; that all signatures are genuine, and that
prior to the consummation of the transactions contemplated thereby, the
Agreement will have been duly and validly executed and delivered on behalf of
each of the parties thereto in substantially the form included in the
Registration Statement.
<PAGE> 2
FOUNTAIN SQUARE FUNDS
APRIL 6, 1998
PAGE 2
Based on the foregoing, it is our opinion that the Shares, when issued
and delivered by each Acquiring Fund pursuant to, and upon satisfaction of the
conditions contained in, the Agreement, will be duly authorized, validly
issued, fully paid and non-assessable.
We understand that this opinion is to be used in connection with the
filing of the Registration Statement. We consent to the filing of this opinion
with and as part of your Registration Statement.
VERY TRULY YOURS,
/s/ HERTZ, SCHRAM & SARETSKY, P.C.
<PAGE> 1
Exhibit 12
July ___, 1998
FOUNTAIN SQUARE FUNDS THE CARDINAL GROUP
38 Fountain Square Plaza 155 East Broad Street
Cincinnati, Ohio 45263 Columbus, Ohio 43215
[Acquiring Fund] [Acquired Fund]
Greetings:
We have acted as special tax counsel in connection with, and you have
requested our opinion concerning the federal income tax consequences of, a
transaction in which all or substantially all of the assets of [Cardinal Fund],
a portfolio of The Cardinal Group (the "Acquired Fund"), will be acquired by
Fountain Square Funds, on behalf of its portfolio, [Fountain Square Fund] (the
"Acquiring Fund"), in exchange for voting shares of beneficial interest in the
Acquiring Fund. The terms and conditions of this transaction are set forth in an
Agreement and Plan or Reorganization and Liquidation dated as of April 2, 1998,
by and between the Fountain Square Fund, Fifth Third Bank, The Cardinal Group
and Cardinal Management Corp. (the "Reorganization Agreement"). This opinion is
rendered to you pursuant to paragraph 8.5 of the Reorganization Agreement, and
all capitalized terms used herein have the meanings assigned to them in the
Reorganization Agreement.
In rendering this opinion, we have assumed, with your consent, (a) the
authenticity, due execution and continued validly of the copy of the
reorganization Agreement delivered to us for review; (b) that all transactions
contemplated by the Reorganization Agreement have been duly and validly
completed to effect the results set forth in the Reorganization Agreement; (c)
<PAGE> 2
FOUNTAIN SQUARE FUNDS
THE CARDINAL GROUP
JULY ___, 1998
PAGE 2
the good standing in their respective jurisdictions of formation of all entities
party to such transactions; and (d) that no proceedings to set aside or
invalidate such transactions are pending or contemplated or will hereafter be
instituted. As to questions of fact material to our opinion, we have relied
upon the veracity of the warranties and representations set forth in Section 4
of the Reorganization Agreement and its subsections.
We are qualified to practice law in the State of Michigan. We do not
purport to express any opinon on the laws of the State of Massachusetts, the
State of Ohio or the laws of any other jurisdiction other than the federal laws
of the United States.
Without limiting the generality of the foregoing, we understand that
the transactions contemplated by the Reorganization Agreement include the
following:
1. The Acquiring Fund and the Acquired Fund are organized as portfolios
of business trusts and are treated as corporation for federal tax purposes. Both
the Acquired Fund and the Acquiring Fund are series or portfolios of open-end
management investment companies which qualify as regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Both the Acquiring Fund and the Acquired fund are engaged in the
business of investing in a professionally managed portfolio [insert
applicable information].
2. On the Closing Date under the Reorganization Agreement, the
Acquired Fund will transfer all or substantially all of its assets to the
Acquiring Fund. In exchange, the Acquiring Fund will transfer to the Acquired
Fund shares of beneficial interest in the Acquiring Fund in an amount
approximately equal to the value of the assets transferred by the Acquired Fund
to the Acquiring Fund net of liabilities assumed by the Acquiring Fund. The
Acquired Fund will thereupon liquidate and distribute its Acquiring Fund Shares
pro rata to its shareholders.
3. We have reviewed and relied upon the representations contained in
the Reorganization Agreement and in certificates of Fountain Square Funds and
The Cardinal Group both of even date and on such other documents instruments as
we have deemed necessary for the purposes of this opinion, and have reviewed the
applicable provisions of the Code, current regulations and administrative rules
thereunder and pertinent case law.
Based upon the foregoing, we are of the opinion, based on the
existing provisions of the Code, current administrative rules and court
decisions, that, for Federal income tax purposes:
<PAGE> 3
FOUNTAIN SQUARE FUNDS
THE CARDINAL GROUP
JULY __, 1998
PAGE 3
(a) The transfer of all or substantially all of the Acquired Fund
assets to the Acquiring Fund in exchange for the Acquiring Fund Shares and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in liquidation of the Acquired Fund will constitute a "reorganization"
with the meaning of Section 368(a)(1) of the Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the Acquiring
Fund Shares;
(c) No gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares or upon the distribution (whether actual or constructive)
of the Acquiring Fund Shares to the Acquired Fund Shareholders in exchange for
their shares of the Acquired Fund;
(d) No gain or loss will be recognized by the Acquired Fund
Shareholders upon the exchange of their Acquired Fund shares for the Acquiring
Fund Shares;
(e) The tax basis of the Acquired Fund Assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Acquired Fund
immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the same as
the tax basis of the Acquired Fund Shares held by such shareholder immediately
prior to the Reorganization;
(g) The holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will include the period during which those assets were
held by the Acquired Fund; and
(h) The holding period of the Acquiring Fund Shares to be received by
each Acquired Fund Shareholder will include the period during which the
Acquired Fund Shares exchanged therefore were held by such shareholder
(provided the Acquired Fund Shares were held as capital assets on the date of
the Reorganization).
We hereby consent to the filing of a copy of this opinion with the
Securities and Exchange Commission as an exhibit to the Registration Statement
on Form N-14 filed by the Acquiring Fund in connection with the Reorganization,
and to the references to this firm as this opinion in the Prospectus/Proxy
Statement which is contained in such Registration Statement.
This opinon is rendered solely for the benefit of Fountain Square Funds
and The Cardinal Group in connection with the transaction described in the
Reorganization Agreement.
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees of
The Cardinal Group:
We consent to the use of our report incorporated by reference dated November 14,
1997 for The Cardinal Group as of September 30, 1997 and for the periods
indicated therein and to the reference to our firm under the heading "Financial
Statements" in the Combined Proxy Statement/Prospectus.
/s/ KPMG Peat Marwick LLP
Columbus, Ohio
April 6, 1998
<PAGE> 1
Exhibit 14(ii)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Financial
Statements" in the Combined Proxy Statement/Prospectus and to the use of our
reports contained in the Annual Report to Shareholders of Fountain Square Funds
dated July 31, 1997 and contained in the Prospectus of Fountain Square
Government Cash Reserves Funds dated September 30, 1997 on the statements of
assets and liabilities of the Fountain Square Funds as of July 31, 1997,
including the portfolios of investments as of such date, and the related
statements of operations, statements of changes in net assets and financial
highlights for the periods indicated in the financial statements, incorporated
by reference in the Registration Statement on Form N-14 of Fountain Square
Funds.
/s/ Ernst & Young L.L.P.
Cincinnti, Ohio
April 2, 1998
<PAGE> 1
Exhibit 17(i)
FOUNTAIN SQUARE FUNDS
INVESTMENT A SHARES
INVESTMENT C SHARES
PROSPECTUS
Fountain Square Funds (the "Trust") is an open-end management investment company
(a mutual fund). This combined prospectus offers investors interests in
Investment A Shares and Investment C Shares of the following ten separate
investment portfolios (the "Funds"), each having a distinct investment objective
and policies:
- Fountain Square U.S. Government Securities Fund;
- Fountain Square Quality Bond Fund;
- Fountain Square Ohio Tax Free Bond Fund;
- Fountain Square Quality Growth Fund;
- Fountain Square Mid Cap Fund;
- Fountain Square Balanced Fund;
- Fountain Square International Equity Fund;
- Fountain Square Equity Income Fund;
- Fountain Square Bond Fund For Income; and
- Fountain Square Municipal Bond Fund
This combined prospectus contains the information you should read and know
before you invest in any of the Funds. Keep this prospectus for future
reference.
Additional information about the Funds is contained in the Funds' Combined
Statement of Additional Information, dated November 30, 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 November 30, 1997
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SYNOPSIS ........................................................ 1
Risk Factors .......................................... 2
EXPENSES OF THE FUNDS
INVESTMENT A SHARES ............................................. 3
EXPENSES OF THE FUNDS
INVESTMENT A SHARES ............................................. 5
EXPENSES OF THE FUNDS
INVESTMENT C SHARES ............................................. 7
EXPENSES OF THE FUNDS
INVESTMENT C SHARES ............................................. 9
FOUNTAIN SQUARE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES ...................... 11
FOUNTAIN SQUARE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES ...................... 12
FOUNTAIN SQUARE QUALITY BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES ...................... 13
FOUNTAIN SQUARE QUALITY BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES ...................... 14
FOUNTAIN SQUARE OHIO TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES ...................... 15
FOUNTAIN SQUARE OHIO TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES ...................... 16
FOUNTAIN SQUARE QUALITY GROWTH FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES ...................... 17
FOUNTAIN SQUARE QUALITY GROWTH FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES ...................... 18
FOUNTAIN SQUARE MID CAP FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES ...................... 19
FOUNTAIN SQUARE MID CAP FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES ...................... 20
FOUNTAIN SQUARE BALANCED FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES ...................... 21
FOUNTAIN SQUARE BALANCED FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES ...................... 22
FOUNTAIN SQUARE INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES ...................... 23
FOUNTAIN SQUARE INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES ...................... 24
FOUNTAIN SQUARE EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES ...................... 25
FOUNTAIN SQUARE EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES ...................... 26
FOUNTAIN SQUARE BOND FUND FOR INCOME
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES ...................... 27
FOUNTAIN SQUARE BOND FUND FOR INCOME
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES ...................... 28
FOUNTAIN SQUARE MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES ...................... 29
FOUNTAIN SQUARE MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES ...................... 30
PREDECESSOR COMMON TRUST FUNDS PERFORMANCE
INFORMATION ..................................................... 31
</TABLE>
<TABLE>
<S> <C>
OBJECTIVE OF EACH FUND ........................................ 32
Government Securities Fund ........................... 32
Acceptable Investments ...................... 32
Investment Limitations ...................... 32
Quality Bond Fund .................................... 33
Acceptable Investments ...................... 33
Collateralized Mortgage
Obligations ................................. 33
Investment Limitations ...................... 34
Ohio Tax Free Bond Fund .............................. 34
Acceptable Investments ...................... 34
Characteristics ............................. 34
Participation Interests ..................... 34
Variable Rate Municipal Securities .......... 34
Municipal Leases ............................ 34
Temporary Investments ....................... 34
Ohio Municipal Securities ................... 35
Investment Risks ............................ 35
Non-Diversification ......................... 35
Investment Limitations ...................... 35
Quality Growth Fund .................................. 36
Acceptable Investments ...................... 36
Convertible Securities ...................... 36
Investment Limitations ...................... 36
Mid Cap Fund ......................................... 37
Acceptable Investments ...................... 37
Investment Limitations ...................... 37
Balanced Fund ........................................ 37
Acceptable Investments ...................... 37
Money Market Instruments .................... 37
Investment Limitations ...................... 38
International Equity Fund ............................ 38
Acceptable Investments ...................... 39
Money Market Instruments .................... 39
Foreign Currency Transactions ............... 39
Forward Foreign Currency
Exchange Contracts .......................... 39
Investment Limitations ...................... 40
Risk Considerations ......................... 40
Equity Income Fund ................................... 40
Acceptable Investments ...................... 40
Investment Limitations ...................... 40
Bond Fund For Income ................................. 40
Acceptable Investments ...................... 40
Investment Limitations ...................... 41
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Municipal Bond Fund ............................ 41
Acceptable Investments ................ 41
Characteristics ....................... 41
Temporary Investments ................. 41
Municipal Securities .................. 42
Investment Limitations ................ 42
PORTFOLIO INVESTMENTS AND STRATEGIES .................... 42
Borrowing Money ................................ 42
Diversification ................................ 42
Restricted and Illiquid Securities ............. 42
Repurchase Agreements .......................... 43
When-Issued and Delayed Delivery
Transactions ................................... 43
Lending of Portfolio Securities ................ 43
Options and Futures ............................ 43
Put and Call Options .................. 43
Futures and Options on Futures ........ 44
Risks ................................. 45
Equity Investment Considerations ............... 45
Foreign Investments ............................ 46
Exchange Rates ........................ 46
Foreign Companies ..................... 46
U.S. Government Policies .............. 46
Emerging Markets ...................... 46
Foreign Bank Instruments .............. 47
Derivative Securities .......................... 47
Bond Ratings ................................... 47
Temporary Investments .......................... 47
Variable Rate Demand Notes ............ 48
Commercial Paper ...................... 48
Bank Instruments ...................... 48
FOUNTAIN SQUARE FUNDS INFORMATION ....................... 48
Management of the Trust ........................ 48
Board of Trustees ..................... 48
Investment Advisor .................... 48
Advisory Fees ......................... 48
Advisor's Background .................. 48
Portfolio Managers' Background ........ 49
Sub-Advisor ........................... 49
Sub-Advisory Fees ..................... 49
Sub-Advisor's Background .............. 49
Portfolio Managers' Background ........ 49
Distribution of Shares of the Funds ............ 50
Distribution Plan .............................. 50
Administrative Services Agreement (Investment
C Shares Only) ................................. 50
Other Payments to Financial Institutions ....... 51
Administration of the Funds .................... 51
Administrative Services ............... 51
Custodian, Transfer Agent and Dividend
Disbursing Agent ............................... 51
Independent Auditors ........................... 51
Expenses of the Funds, Investment A Shares,
and Investment C Shares ........................ 51
Brokerage Transactions ......................... 52
NET ASSET VALUE ......................................... 52
INVESTING IN THE FUNDS .................................. 52
Share Purchases ................................ 52
Minimum Investment Required .................... 53
Investing In Investment A Shares ............... 53
Purchases at Net Asset Value .......... 53
Dealer Concessions .................... 54
Reducing/Eliminating the Sales
Charge ................................ 54
Quantity Discounts and
Accumulated Purchases ................. 54
Letter of Intent ...................... 54
Fifth Third Bank Club 53, One
Account Plus, One
Account Gold, One
Account Advantage and
One Account Platinum
Programs .............................. 55
Purchases with Proceeds from
Redemptions of
Unaffiliated Mutual Fund
Shares ................................ 55
Purchases with Proceeds from
Distributions of
Qualified Retirement
Plans or Other Trusts
Administered by Fifth
Third Bank ............................ 55
Concurrent Purchases .................. 55
Investing in Investment C Shares ............... 55
Exchanging Securities for Fund Shares .......... 56
Systematic Investment Program .................. 56
Certificates and Confirmations ................. 56
Dividends and Capital Gains .................... 56
EXCHANGES ............................................... 56
REDEEMING SHARES ........................................ 57
By Telephone ................................... 57
By Mail ........................................ 57
Systematic Withdrawal Program .................. 58
Accounts with Low Balances ..................... 58
Contingent Deferred Sales Charge ............... 58
SHAREHOLDER INFORMATION ................................. 59
Voting Rights .................................. 59
Massachusetts Law .............................. 59
EFFECT OF BANKING LAWS .................................. 59
TAX INFORMATION ......................................... 60
Federal Income Tax ............................. 60
Additional Tax Information for Ohio Tax Free
Bond Fund ...................................... 60
State of Ohio Income Taxes ............ 60
Other State and Local Taxes ........... 60
Additional Tax Information for Municipal
Bond Fund ...................................... 60
Additional Tax Information for International
Equity Fund .................................... 61
PERFORMANCE INFORMATION ................................. 61
ADDRESSES ............................................... 62
</TABLE>
ii
<PAGE> 4
NOTICE OF DELIVERY OF
PROSPECTUSES, SEMI-ANNUAL REPORTS, AND ANNUAL REPORTS
In order to reduce expenses of the Fountain Square Funds incurred in
connection with the mailing of prospectuses, semi-annual reports and annual
reports to multiple shareholders at the same address, Fountain Square Funds may
in the future deliver one copy of a prospectus, semi-annual report, or annual
report to a single investor sharing a street address or post office box with
other investors, provided that all such investors have the same last name or
are believed to be members of the same family. If you share an address with
another investor and wish to receive your own prospectuses, semi-annual reports
and annual reports, please call the Trust toll-free at 1-888-799-5353.
<PAGE> 5
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 ten 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 ten Funds are offered in this prospectus:
- Fountain Square U.S. Government Securities Fund ("Government
Securities Fund")-seeks to provide a high level of current
income by investing primarily in U.S. government securities,
including U.S. Treasury and government agency issues;
- Fountain Square Quality Bond Fund ("Quality Bond Fund")-seeks
to provide a high level of current income with capital growth
as a secondary objective by investing in investment grade debt
securities of U.S. corporations, U.S. dollar-denominated
issues of foreign corporations, U.S. government securities,
and collateralized mortgage obligations;
- Fountain Square Ohio Tax Free Bond Fund ("Ohio Tax Free Bond
Fund")-seeks to provide current income exempt from federal
income tax and the personal income taxes imposed by the state
of Ohio and Ohio municipalities by investing primarily in Ohio
municipal securities. The Fund is not likely to be a suitable
investment for non-Ohio taxpayers or retirement plans since it
intends to invest in Ohio municipal securities;
- Fountain Square Quality Growth Fund ("Quality Growth
Fund")-seeks to provide growth of capital by investing
primarily in common stocks of high-quality companies,
generally leaders in their industries, with minimum market
capitalization of $100 million;
- Fountain Square Mid Cap Fund ("Mid Cap Fund")-seeks to provide
growth of capital with income as a secondary objective by
investing primarily in common stocks of companies with
superior long-term growth opportunities and maximum market
capitalizations of approximately $3 billion;
- Fountain Square Balanced Fund ("Balanced Fund")-seeks to
provide capital appreciation and income by investing primarily
in common stocks of high quality companies, generally leaders
in their industries, and in investment grade debt securities
of U.S. corporations, U.S. dollar- denominated issues of
foreign corporations, U.S. government securities, and
collateralized mortgage obligation;
- Fountain Square International Equity Fund ("International
Equity Fund")-seeks to provide long-term capital appreciation
by investing primarily in equity securities of non-U.S.
issuers;
- 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.
1
<PAGE> 6
For information on how to purchase shares of any of the Funds, please refer to
"Investing in the Funds." A minimum initial investment of $1,000 is required for
each Fund. Subsequent investments must be in amounts of at least $50. Investment
A Shares of each Fund are sold at net asset value plus any applicable sales
charge, and are redeemed at net asset value. Certain investors may purchase
Investment A Shares at net asset value without the imposition of a sales charge.
Investment C Shares of each Fund are sold at net asset value, but may be subject
to a contingent deferred sales charge of 1.00% if redeemed within the first 12
months following purchase. Information on redeeming shares may be found under
"Redeeming Shares." The Funds are advised by Fifth Third Bank (the "Advisor").
The International Equity Fund is sub-advised by Morgan Stanley Asset Management,
Inc. (the "Sub-Advisor").
RISK FACTORS
Investors should be aware of the following general considerations: market values
of fixed-income securities, which constitute a major part of the investments of
some Funds and may include securities considered derivative securities as
described in this prospectus, may vary inversely in response to changes in
prevailing interest rates. The foreign securities in which some Funds may invest
may include securities of companies in emerging growth countries and may be
subject to certain risks in addition to those inherent in U.S. investments. One
or more Funds may make certain investments and employ certain investment
techniques that involve other risks, including entering into repurchase
agreements, lending portfolio securities and entering into financial futures
contracts and related options as hedges. These risks and those associated with
investing in mortgage-backed securities, when-issued securities, options and
variable rate securities are described under "Objective of Each Fund" and
"Portfolio Investments and Strategies."
2
<PAGE> 7
EXPENSES OF THE FUNDS
INVESTMENT A SHARES
INVESTMENT A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............. 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable).......................... None
Redemption Fees (as a percentage of amount redeemed, if applicable)...................... None
Exchange Fee............................................................................. None
</TABLE>
INVESTMENT A SHARES
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Ohio Bond
Government Quality Tax Free Fund Municipal
Securities Bond Bond For Bond
Fund Fund Fund Income Fund
---- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Management Fees (after waivers)(1).................. 0.47% 0.55% 0.55% 0.55% 0.55%
12b-1 Fees (after waivers)(2)....................... 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (after waivers)(3)................... 0.28% 0.20% 0.20% 0.20% 0.23%
Total Investment A Shares Operating Expenses(4)..... 0.75% 0.75% 0.75% 0.75% 0.78%
</TABLE>
(1) The management fees of the Government Securities Fund and Quality Bond
Fund have been reduced to reflect voluntary waivers of investment
advisory fees by the investment advisor. The investment advisor can
terminate this voluntary waiver at any time at its sole discretion.
With respect to each of the above-mentioned Funds, the maximum
management fee is 0.55%.
(2) As of the date of this prospectus, the Investment A Shares are not
paying or accruing 12b-1 fees. Investment A Shares will not accrue or
pay 12b-1 fees until a separate class of shares for certain trust or
qualified plan customers of financial institutions is created or a
determination is made that such investors will be subject to the 12b-1
fees. Investment A Shares can pay up to 0.35% as a 12b-1 fee to the
distributor.
(3) Other expenses have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. With respect to the Bond
Fund For Income and the Municipal Bond Fund, other expenses are based
on estimated amounts for the current fiscal year.
(4) Total Investment A Shares Operating Expenses for the Government
Securities Fund would have been 1.18% absent the voluntary waivers by
the investment advisor and the administrator, and the waiver of the
12b-1 fee. Total Investment A Shares Operating Expenses for the Quality
Bond Fund and the Ohio Tax Free Bond Fund would have been 1.10% and
1.10%, respectively, absent the voluntary waiver by the administrator,
and the waiver of the 12b-1 fee. Total Investment A Shares Operating
Expenses for the Bond Fund For Income and the Municipal Bond Fund are
estimated to be 1.10% and 1.10%, respectively, absent the voluntary
waiver by the administrator and the waiver of 12b-1 fees.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN INVESTMENT A SHARES OF EACH
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS
3
<PAGE> 8
OF THE VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND
"INVESTING IN THE FUNDS." Wire-transferred redemptions of less than $5,000 may
be subject to additional fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
You would pay the following expenses on a $1,000 investment in
Investment A Shares assuming (1) 5% annual return; (2) redemption at the end of
each time period; and (3) payment of the maximum sales charge. Investment A
Shares charge no redemption fees.
<TABLE>
<CAPTION>
Government Ohio Bond Fund
Securities Quality Tax Free For Municipal
Fund Bond Fund Bond Fund Income Bond Fund
---- --------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
1 Year............................... $ 52 $ 52 $ 52 $ 52 $ 53
3 Years.............................. $ 68 $ 68 $ 68 $ 68 $ 68
5 Years.............................. $ 85 $ 85 $ 85 N/A N/A
10 Years.............................. $134 $134 $134 N/A N/A
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE> 9
EXPENSES OF THE FUNDS
INVESTMENT A SHARES
INVESTMENT A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................ 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)........................ None
Exchange Fee............................................................................... None
</TABLE>
INVESTMENT A SHARES
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Quality International Equity
Growth Mid Cap Balanced Equity Income
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Management Fees (after waivers)(1).............. 0.80% 0.80% 0.80% 1.00% 0.80%
12b-1 Fees (after waivers)(2)................... 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (after waivers)(3)............... 0.20% 0.20% 0.20% 0.47% 0.20%
Total Investment A Shares Operating Expenses(4). 1.00% 1.00% 1.00% 1.47% 1.00%
</TABLE>
(1) The management fee of the Balanced Fund has been reduced to reflect the
voluntary waiver of the investment advisory fee by the investment
advisor. The investment advisor can terminate this voluntary waiver at
any time at its sole discretion. With respect to each of the
above-mentioned Funds, the maximum management fee is 0.80%, except for
the International Equity Fund which is 1.00%.
(2) As of the date of this prospectus, the Investment A Shares are not
paying or accruing 12b-1 fees. Investment A Shares will not accrue or
pay 12b-1 fees until a separate class of shares for certain trust or
qualified plan customers of financial institutions is created or a
determination is made that such investors will be subject to the 12b-1
fees. Investment A Shares can pay up to 0.35% as a 12b-1 fee to the
distributor.
(3) Other expenses for all of the Funds except the Equity Income Fund have
been reduced to reflect the anticipated voluntary waiver of a portion
of the administration fee. Other expenses for the Equity Income Fund
are based on estimated amounts for the current fiscal year.
(4) Total Investment A Shares Operating Expenses for the Quality Growth
Fund, the Mid Cap Fund, the Balanced Fund, and the International Equity
Fund would have been 1.39%, 1.39%, 1.41%, and 1.82%, respectively,
absent the voluntary waiver by the administrator and the waiver of the
12b-1 fees. Total Investment A Shares Operating Expenses for the Equity
Income Fund are estimated to be 1.44% absent the voluntary waiver by
the administrator and the waiver of 12b-1 fees.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN INVESTMENT A SHARES OF EACH
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND
"INVESTING IN THE FUNDS." Wire-transferred redemptions of less than $5,000 may
be subject to additional fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
5
<PAGE> 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>
Quality International Equity
Growth Mid Cap Balanced Equity Income
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1 Year................. $ 55 $ 55 $ 55 $ 59 $ 55
3 Years................ $ 75 $ 75 $ 75 $ 89 $ 75
5 Years................ $ 98 $ 98 $ 98 $121 N/A
10 Years............... $162 $162 $162 $212 N/A
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE> 11
EXPENSES OF THE FUNDS
INVESTMENT C SHARES
INVESTMENT C SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1).......................... 1.00%
Redemption Fees (as a percentage of amount redeemed, if applicable)......................... None
Exchange Fee................................................................................ None
</TABLE>
INVESTMENT C SHARES
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Ohio
Government Quality Tax Free Bond Municipal
Securities Bond Bond Fund For Bond
Fund Fund Fund Income Fund
---- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Management Fees (after waivers)(2)............... 0.47% 0.55% 0.55% 0.55% 0.55%
12b-1 Fees (after waivers)(3).................... 0.50% 0.50% 0.50% 0.50% 0.50%
Administrative Service Fee....................... 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after waivers)(4)................ 0.28% 0.20% 0.20% 0.20% 0.23%
Total Investment C Shares Operating Expenses(5).. 1.50% 1.50% 1.50% 1.50% 1.53%
</TABLE>
(1) The contingent deferred sales charge is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed
within one year of the purchase date. (See "Contingent Deferred Sales
Charge").
(2) The management fee of the Government Securities Fund and Quality Bond
Fund have been reduced to reflect the voluntary waiver of a portion of
the investment advisory fee by the investment advisor. The advisor can
terminate this voluntary waiver at any time at its sole discretion.
With respect to each of the above-mentioned Funds, the maximum
management fee is 0.55%.
(3) The Investment C Shares of the Funds can pay up to 0.75% as a 12b-1 fee
to the distributor.
(4) With respect to the Government Securities Fund, the Quality Bond Fund,
and the Ohio Tax Free Bond Fund, other expenses have been reduced to
reflect the anticipated voluntary waiver by the administrator. With
respect to the Bond Fund For Income and the Municipal Bond Fund, other
expenses are based on estimated amounts for the current fiscal year.
(5) Total Investment C Shares Operating Expenses for the Government
Securities Fund would have been 1.93% absent the voluntary waivers by
the investment advisor and the administrator, and the waiver of a
portion of the 12b-1 fee. Total Investment C Shares Operating Expenses
for the Quality Bond Fund and the Ohio Tax Free Bond Fund would have
been 1.85% and 1.79%, respectively, absent the voluntary waiver by the
administrator and the waiver of a portion of the 12b-1 fee. Total
Investment C Operating Expenses for the Bond Fund For Income and the
Municipal Bond Fund are estimated to be 1.82% and 1.88%, respectively,
absent the voluntary waiver by the administrator and the waiver of a
portion of the 12b-1 fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN INVESTMENT C SHARES OF EACH
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND
"INVESTING IN THE FUNDS." Wire-transferred redemptions of less than $5,000 may
be subject to additional fees.
7
<PAGE> 12
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
You would pay the following expenses on a $1,000 investment in
Investment C Shares assuming (1) 5% annual return; (2) either redemption at the
end of Year 1 or no redemption; and (3) payment of the maximum sales charge.
<TABLE>
<CAPTION>
Ohio Bond
Government Quality Tax Free Fund Municipal
Securities Bond Bond For Bond
Fund Fund Fund Income Fund
---- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
1 Year (assuming no redemption) $ 25 $ 25 $ 25 $25 $26
3 Years ....................... $ 15 $ 15 $ 15 $15 $16
5 Years ....................... $ 47 $ 47 $ 47 $47 $48
10 Years ...................... $ 82 $ 82 $ 82 N/A N/A
$179 $179 $179 N/A N/A
</TABLE>
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
8
<PAGE> 13
EXPENSES OF THE FUNDS
INVESTMENT C SHARES
INVESTMENT C SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).......................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1).................... 1.00%
Redemption Fees (as a percentage of amount redeemed, if applicable)................... None
Exchange Fee.......................................................................... None
</TABLE>
ANNUAL INVESTMENT C SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Quality Mid International Equity
Growth Cap Balanced Equity Income
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Management Fees (after waivers)(2)............... 0.80% 0.80% 0.80% 1.00% 0.80%
12b-1 Fees (after waivers)(3).................... 0.50% 0.50% 0.50% 0.50% 0.50%
Administrative Service Fee....................... 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses (after waivers)(4)................ 0.20% 0.20% 0.20% 0.47% 0.20%
Total Investment C Shares Operating Expenses(5).. 1.75% 1.75% 1.75% 2.22% 1.75%
</TABLE>
(1) The contingent deferred sales charge is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed
within one year of the purchase date. (See "Contingent Deferred Sales
Charge").
(2) The management fee of the Balanced Fund has been reduced to reflect the
voluntary waiver of the investment advisory fee by the investment
advisor. The advisor can terminate this voluntary waiver at any time at
its sole discretion. With respect to each of the above-mentioned Funds,
the maximum management fee is 0.80%, except for the International
Equity Fund which is 1.00%.
(3) The Investment C Shares of the Funds can pay up to 0.75% as a 12b-1 fee
to the distributor.
(4) Other expenses for all of the Funds have been reduced to reflect the
anticipated voluntary waiver of a portion of the administration fee.
Other expenses for the Equity Income Fund are based on estimated
amounts for the current fiscal year.
(5) Total Investment C Shares Operating Expenses for the Quality Growth
Fund, the Mid Cap Fund, the Balanced Fund, and the International Equity
Fund would have been 2.02%, 2.04% 2.06%, and 2.47%, respectively,
absent the voluntary waiver by the administrator and the waiver of a
portion of the 12b-1 fee. Total Investment C Shares Operating Expenses
for the Equity Income Fund are estimated to be 2.09% absent the wavier
by the administrator and the waiver of a portion of the 12b-1 fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN INVESTMENT C SHARES OF EACH
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND
"INVESTING IN THE FUNDS." Wire transferred redemptions of less than $5,000 may
be subject to additional fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
9
<PAGE> 14
EXAMPLE
You would pay the following expenses on a $1,000 investment in
Investment C Shares assuming (1) 5% annual return; (2) either redemption at the
end of Year 1 or no redemption; and (3) payment of the maximum sales charge.
<TABLE>
<CAPTION>
Quality International Equity
Growth Mid Cap Balanced Equity Income
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1 Year (assuming redemption)................ $ 28 $ 28 $ 28 $ 32 $ 28
1 Year (assuming no redemption)............. $ 18 $ 18 $ 18 $ 22 $ 18
3 Years..................................... $ 55 $ 55 $ 55 $ 69 $ 56
5 Years..................................... $ 95 $ 95 $ 95 $118 N/A
10 Years.................................... $206 $206 $206 $253 N/A
</TABLE>
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
10
<PAGE> 15
FOUNTAIN SQUARE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust. The Financial Highlights presented below
include historical information for a class of shares of Fountain Square U.S.
Government Securities Fund which was the predecessor to Investment A Shares of
the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993*
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.55 $ 9.77 $ 9.64 $ 10.21 $ 10.00
---------- ---------- ---------- ---------- ----------
Income from investment operations
Net investment income (loss) 0.54 0.55 0.58 0.51 0.35
Net realized and unrealized gains (losses) on
investments 0.19 (0.20) 0.13 (0.49) 0.13
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.73 0.35 0.71 0.02 0.48
---------- ---------- ---------- ---------- ----------
Less distributions
Dividends to shareholders from net
investment income (0.53) (0.57) (0.58) (0.57) (0.27)
Distributions to shareholders from net realized
gains on investment transactions -- -- -- (0.02) --
---------- ---------- ---------- ---------- ----------
Total distributions (0.53) (0.57) (0.58) (0.59) (0.27)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.75 $ 9.55 $ 9.77 $ 9.64 $ 10.21
========== ========== ========== ========== ==========
TOTAL RETURN** 7.83% 3.63% 7.66% 0.11% 4.87%(c)
Ratios to Average Net Assets
Expenses 0.75% 0.75% 0.75% 0.75% 0.74%(b)
Net investment income (loss) 5.56% 5.67% 5.98% 5.17% 5.36%(b)
Expense waiver/reimbursement (a) 0.50% 0.29% 0.39% 0.18% 0.33%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 42,414 $ 30,754 $ 25,054 $ 29,107 $ 29,603
Portfolio turnover rate (d) 169% 103% 115% 55% 23%
</TABLE>
*Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
**Based on net asset value, which does not
reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
11
<PAGE> 16
FOUNTAIN SQUARE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------
1997 1996*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.56 $ 9.65
-------- --------
Income from investment operations
Net investment income (loss) 0.46 0.16
Net realized and unrealized gains (losses) on
investments 0.19 (0.10)
-------- --------
Total from investment operations 0.65 0.06
-------- --------
Less distributions
Dividends to shareholders from net
investment income (0.46) (0.15)
-------- --------
NET ASSET VALUE, END OF PERIOD $ 9.75 $ 9.56
======== ========
TOTAL RETURN** 6.92% 3.48%(c)
Ratios to Average Net Assets
Expenses 1.50% 1.52%(b)
Net investment income (loss) 4.82% 4.80%(b)
Expense waiver/reimbursement (a) 0.40% 0.37%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 75 $ 49
Portfolio turnover rate (d) 169% 103%
</TABLE>
*Reflects operations for the period from April 24, 1996 (date of commencement of
operations) to July 31, 1996.
**Based on net asset value, which does not reflect the contingent deferred sales
charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 23, 1996, plus the total return for the Investment C Shares for
the period from April 24, 1996 to July 31, 1996.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
12
<PAGE> 17
FOUNTAIN SQUARE QUALITY BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust. The Financial Highlights presented below
include historical information for a class of shares of Fountain Square Quality
Bond Fund which was the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.52 $ 9.72 $ 9.55 $ 10.29 $ 10.00
---------- ---------- ---------- ---------- ----------
Income from investment operations
Net investment income (loss) 0.55 0.56 0.64 0.57 0.41
Net realized and unrealized gains (losses) on
investments 0.32 (0.19) 0.17 (0.69) 0.26
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.87 0.37 0.81 (0.12) 0.67
---------- ---------- ---------- ---------- ----------
Less distributions
Dividends to shareholders from net
investment income (0.54) (0.57) (0.64) (0.59) (0.38)
Distributions to shareholders from net realized
gains on investment transactions -- -- -- (0.03) --
---------- ---------- ---------- ---------- ----------
Total distributions (0.54) (0.57) (0.64) (0.62) (0.38)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.85 $ 9.52 $ 9.72 $ 9.55 $ 10.29
========== ========== ========== ========== ==========
TOTAL RETURN** 9.43% 3.86% 8.89% (1.25%) 6.78%(c)
Ratios to Average Net Assets
Expenses 0.75% 0.75% 0.75% 0.75% 0.74%(b)
Net investment income (loss) 5.71% 5.80% 6.72% 5.76% 6.07%(b)
Expense waiver/reimbursement (a) 0.41% 0.06% 0.09% 0.11% 0.23%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 91,789 $ 83,422 $ 55,767 $ 47,272 $ 37,962
Portfolio turnover rate (d) 182% 117% 138% 112% 19%
</TABLE>
*Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
**Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
13
<PAGE> 18
FOUNTAIN SQUARE QUALITY BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------
1997 1996*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.53 $ 9.62
-------- --------
Income from investment operations
Net investment income (loss) 0.49 0.14
Net realized and unrealized gains (losses) on
investments 0.32 (0.08)
-------- --------
Total from investment operations 0.81 0.06
-------- --------
Less distributions
Dividends to shareholders from net
investment income (0.48) (0.15)
-------- --------
NET ASSET VALUE, END OF PERIOD $ 9.86 $ 9.53
======== ========
TOTAL RETURN** 8.68% 3.71%(c)
Ratios to Average Net Assets
Expenses 1.50% 1.52%(b)
Net investment income (loss) 4.97% 5.03%(b)
Expense waiver/reimbursement (a) 0.31% 0.09%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 204 $ 162
Portfolio turnover rate (d) 182% 117%
</TABLE>
*Reflects operations for the period from April 25, 1996 (date of commencement of
operations) to July 31, 1996.
**Based on net asset value, which does not reflect
the contingent deferred sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 24, 1996, plus the total return for the Investment C Shares for
the period from April 25, 1996 to July 31, 1996.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
14
<PAGE> 19
FOUNTAIN SQUARE OHIO TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust. The Financial Highlights presented below
include historical information for a class of shares of Fountain Square Ohio Tax
Free Bond Fund which was the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993*
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.01 $ 9.99 $ 9.75 $ 9.95 $ 10.00
----------- ----------- ----------- --------- ---------
Income from investment operations
Net investment income (loss) 0.43 0.40 0.42 0.40 0.05
Net realized and unrealized gains (losses) on
investments 0.30 0.03 0.24 (0.21) (0.05)
----------- ----------- ----------- --------- ---------
Total from investment operations 0.73 0.43 0.66 0.19 --
----------- ----------- ----------- --------- ---------
Less distributions
Dividends to shareholders from net
investment income (0.43) (0.41) (0.42) (0.39) (0.05)
----------- ----------- ----------- --------- ---------
Total distributions (0.43) (0.41) (0.42) (0.39) (0.05)
----------- ----------- ----------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.31 $ 10.01 $ 9.99 $ 9.75 $ 9.95
=========== =========== =========== ========= =========
TOTAL RETURN** 7.49% 4.33% 7.02% 1.95% (0.01%)(c)
Ratios to Average Net Assets
Expenses 0.75% 0.74% 0.35% 0.00% 0.00%(b)
Net investment income (loss) 4.27% 4.01% 4.36% 4.18% 3.53%(b)
Expense waiver/reimbursement (a) 0.37% 0.32% 0.77% 1.33% 2.21%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 168,800 $ 35,463 $ 28,315 $ 23,854 $ 8,163
Portfolio turnover rate (d) 49% 30% 27% 94% 31%
</TABLE>
*Reflects operations for the period from May 27, 1993 (date of initial public
investment) to July 31, 1993.
**Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
15
<PAGE> 20
FOUNTAIN SQUARE OHIO TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------
1997 1996*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.02
-------- --------
Income from investment operations
Net investment income (loss) 0.36 0.10
Net realized and unrealized gains (losses)
on investments 0.31 (0.01)
-------- --------
Total from investment operations 0.67 0.09
-------- --------
Less distributions
Dividends to shareholders from net
investment income (0.35) (0.11)
Dividends to shareholders in excess of net
investment income (0.01) --
-------- --------
Total distributions (0.36) (0.11)
-------- --------
NET ASSET VALUE, END OF PERIOD $ 10.31 $ 10.00
======== ========
TOTAL RETURN** 6.84% 3.98%(c)
Ratios to Average Net Assets
Expenses 1.50% 1.52%(b)
Net investment income (loss) 3.51% 3.41%(b)
Expense waiver/reimbursement (a) 0.27% 0.28%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 248 $ 38
Portfolio turnover rate (d) 49% 30%
</TABLE>
*Reflects operations for the period from April 24, 1996 (date of commencement of
operations) to July 31, 1996.
**Based on net asset value, which does not reflect the contingent deferred sales
charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 23, 1996, plus the total return for the Investment C Shares for
the period from April 24, 1996 to July 31, 1996.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
16
<PAGE> 21
FOUNTAIN SQUARE QUALITY GROWTH FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust. The Financial Highlights presented below
include historical information for a class of shares of Fountain Square Quality
Growth Fund which was the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993*
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.16 $ 11.79 $ 9.70 $ 9.54 $ 10.00
--------- --------- --------- --------- ---------
Income from investment operations
Net investment income (loss) 0.08 0.12 0.14 0.13 0.10
Net realized and unrealized gains (losses) on
investments 6.75 1.37 2.09 0.17 (0.47)
--------- --------- --------- --------- ---------
Total from investment operations 6.83 1.49 2.23 0.30 (0.37)
--------- --------- --------- --------- ---------
Less distributions
Dividends to shareholders from net
investment income (0.09) (0.12) (0.14) (0.13) (0.09)
Distributions to shareholders from net realized
gains on investment transactions (0.67) -- -- -- --
Distributions to shareholders in excess of net
investment income (a) -- -- -- (0.01) --
--------- --------- --------- --------- ---------
Total distributions (0.76) (0.12) (0.14) (0.14) (0.09)
NET ASSET VALUE, END OF PERIOD $ 19.23 $ 13.16 $ 11.79 $ 9.70 $ 9.54
========= ========= ========= ========= =========
TOTAL RETURN** 54.02% 12.69% 23.21% 3.17% (3.73%)(d)
Ratios to Average Net Assets
Expenses 1.00% 0.99% 1.00% 1.00% 0.99%(c)
Net investment income (loss) 0.45% 0.98% 1.44% 1.42% 1.47%(c)
Expense waiver/reimbursement (b) 0.36% 0.03% 0.05% 0.03% 0.05%(c)
Supplemental data
Net assets, end of period (000 omitted) $ 399,683 $ 134,469 $ 82,594 $ 69,648 $ 67,681
Portfolio turnover rate (e) 37% 37% 34% 37% 28%
Average commission rate paid (f) $ 0.0622 $ 0.0652 -- -- --
</TABLE>
*Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
**Based on net asset value, which does not reflect the sales load.
(a) These distributions did not represent a return of capital for federal tax
purposes for the year ended July 31, 1994.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Annualized.
(d) Not annualized.
(e) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(f) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the Fund
for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
17
<PAGE> 22
FOUNTAIN SQUARE QUALITY GROWTH FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1996 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------
1997 1996*
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.16 $ 13.37
-------- --------
Income from investment operations
Net investment income (loss) (0.03) --
Net realized and unrealized gains (losses)
on investments 6.72 (0.21)
-------- --------
Total from investment operations 6.69 (0.21)
-------- --------
Less distributions
Distributions to shareholders from net realized
gains on investment transactions (0.67) --
-------- --------
Net asset value, end of period $ 19.18 $ 13.16
======== ========
TOTAL RETURN** 52.79% 12.50%(c)
Ratios to Average Net Assets
Expenses 1.75% 1.77%(b)
Net investment income (loss) (0.32%) 0.26%(b)
Expense waiver/reimbursement (a) 0.26% 0.06%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 3,146 $ 420
Portfolio turnover rate (d) 37% 37%
Average commission rate paid (e) $ 0.0622 $ 0.0652
</TABLE>
*Reflects operations for the period from April 25, 1996 (date of commencement of
operations) to July 31, 1996.
**Based on net asset value, which does not reflect the contingent deferred sales
charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 24, 1996 plus the total return for the Investment C Shares for
the period from April 25, 1996 to July 31, 1996.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the Fund
for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
18
<PAGE> 23
FOUNTAIN SQUARE MID CAP FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust. The Financial Highlights presented below
include historical information for a class of shares of Fountain Square Mid Cap
Fund which was the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993*
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.60 $ 12.59 $ 10.10 $ 9.68 $ 10.00
-------- -------- -------- -------- --------
Income from investment operations
Net investment income (loss) 0.02 0.06 0.08 0.06 0.06
Net realized and unrealized gains (losses) on
investments 5.55 0.11 2.48 0.43 (0.33)
-------- -------- -------- -------- --------
Total from investment operations 5.57 0.17 2.56 0.49 (0.27)
-------- -------- -------- -------- --------
Less distributions
Dividends to shareholders from net
investment income (0.02) (0.07) (0.07) (0.07) (0.05)
Dividends to shareholders in excess of net
investment income (0.02) -- -- -- --
Distributions to shareholders from net realized
gains on investment transactions (1.15) (0.09) -- -- --
-------- -------- -------- -------- --------
Total distributions (1.19) (0.16) (0.07) (0.07) (0.05)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 16.98 $ 12.60 $ 12.59 $ 10.10 $ 9.68
======== ======== ======== ======== ========
TOTAL RETURN** 47.17% 1.27% 25.45% 5.07% (2.73%)(c)
Ratios to Average Net Assets
Expenses 1.00% 1.00% 1.00% 1.00% 0.99%(b)
Net investment income (loss) 0.10% 0.42% 0.77% 0.60% 0.88%(b)
Expense waiver/reimbursement (a) 0.37% 0.06% 0.18% 0.33% 0.40%(b)
Supplemental data
Net assets, end of period (000 omitted) $186,066 $ 72,663 $ 47,184 $ 30,210 $ 24,019
Portfolio turnover rate (d) 52% 54% 23% 44% 20%
Average commission rate paid (e) $ 0.0635 $ 0.0659 -- -- --
</TABLE>
*Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
**Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the Fund
for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
19
<PAGE> 24
FOUNTAIN SQUARE MID CAP FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------
1997 1996*
---------- ----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.59 $ 13.72
---------- ----------
Loss from investment operations
Net investment income (loss) (0.07) (0.01)
Net realized and unrealized gains (losses) on
investments 5.51 (1.12)
---------- ----------
Total from investment operations 5.44 (1.13)
---------- ----------
Less distributions
Distributions to shareholders from net realized
gains on investment transactions (1.15) --
---------- ----------
Net asset value, end of period $ 16.88 $ 12.59
========== ==========
TOTAL RETURN** 46.05% 1.11%(c)
Ratios to Average Net Assets
Expenses 1.75% 1.78%(b)
Net investment income (loss) (0.62%) (0.51%)(b)
Expense waiver/reimbursement (a) 0.27% 0.06%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 439 $ 229
Portfolio turnover rate (d) 52% 54%
Average commission rate paid (e) $ 0.0635 $ 0.0659
</TABLE>
*Reflects operations for the period from April 24, 1996 (date of commencement of
operations) to July 31, 1996.
**Based on net asset value, which does not reflect
the contingent deferred sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 23, 1996 plus the total return for the Investment C Shares for
the period from April 24, 1996 to July 31, 1996.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the Fund
for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
20
<PAGE> 25
FOUNTAIN SQUARE BALANCED FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust. The Financial Highlights presented below
include historical information for a class of shares of Fountain Square Balanced
Fund which was the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993*
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.75 $ 11.28 $ 9.70 $ 9.78 $ 10.00
-------- -------- -------- -------- --------
Income from investment operations
Net investment income (loss) 0.27 0.27 0.28 0.26 0.20
Net realized and unrealized gains (losses) on
investments 4.06 0.47 1.57 (0.06) (0.25)
-------- -------- -------- -------- --------
Total from investment operations 4.33 0.74 1.85 0.20 (0.05)
-------- -------- -------- -------- --------
Less distributions
Dividends to shareholders from net
investment income (0.26) (0.27) (0.27) (0.26) (0.17)
Distributions to shareholders from net realized
gains on investment transactions (0.49) -- -- -- --
Distributions to shareholders in excess of net
investment income (a) -- -- -- (0.02) --
-------- -------- -------- -------- --------
Total distributions (0.75) (0.27) (0.27) (0.28) (0.17)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 15.33 $ 11.75 $ 11.28 $ 9.70 $ 9.78
======== ======== ======== ======== ========
TOTAL RETURN** 38.45% 6.52% 19.37% 2.02% (0.51%)(d)
Ratios to Average Net Assets
Expenses 1.00% 1.00% 1.00% 1.00% 1.00%(c)
Net investment income (loss) 2.05% 2.31% 2.73% 2.64% 3.04%(c)
Expense waiver/reimbursement (b) 0.40% 0.06% 0.06% 0.06% 0.08%(c)
Supplemental data
Net assets, end of period (000 omitted) $122,765 $ 92,808 $ 58,075 $ 59,363 $ 60,168
Portfolio turnover rate (e) 101% 61% 58% 53% 30%
Average commission rate paid (f) $ 0.0240 $ 0.0062 -- -- --
</TABLE>
*Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
**Based on net asset value, which does not reflect the sales load.
(a) These distributions did not represent a return of capital for federal tax
purposes for the year ended July 31, 1994.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Annualized.
(d) Not annualized.
(e) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(f) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the Fund
for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
21
<PAGE> 26
FOUNTAIN SQUARE BALANCED FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------
1997 1996*
----------- -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.75 $ 12.13
----------- -----------
Loss from investment operations
Net investment income (loss) 0.16 0.05
Net realized and unrealized losses on
investments 4.08 (0.39)
----------- -----------
Total from investment operations 4.24 (0.34)
----------- -----------
Less distributions
Dividends to shareholders from net
investment income (0.16) (0.04)
----------- -----------
Distributions to shareholders from net realized
gains on investment transactions (0.49) --
----------- -----------
Total distributions (0.65) (0.04)
----------- -----------
Net asset value, end of period $ 15.34 $ 11.75
=========== ===========
TOTAL RETURN** 37.52% 6.32%(c)
Ratios to Average Net Assets
Expenses 1.75% 1.78%(b)
Net investment income (loss) 1.30% 1.60%(b)
Expense waiver (a) 0.30% 0.07%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 1,155 $ 264
Portfolio turnover rate (d) 101% 61%
Average commission rate paid (e) $ 0.0240 $ 0.0062
</TABLE>
*Reflects operations for the period from April 25, 1996 (date of commencement of
operations) to July 31, 1996.
**Based on net asset value, which does not reflect the contingent deferred sales
charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 24, 1996 plus the total return for the Investment C Shares for
the period from April 25, 1996 to July 31, 1996.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the Fund
for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
22
<PAGE> 27
FOUNTAIN SQUARE INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young, LLP the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust. The Financial Highlights presented below
include historical information for a class of shares of Fountain Square
International Equity Fund which was the predecessor to Investment A Shares of
the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------
1997 1996 1995*
---------- ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.74 $ 9.83 $ 10.00
---------- ---------- ----------
Income from investment operations
Net investment income (loss) 0.04 0.01 0.05
Net realized and unrealized gains (losses) on
investments 2.15 0.90 (0.22)
---------- ---------- ----------
Total from investment operations 2.19 0.91 (0.17)
---------- ---------- ----------
Less distributions
Dividends to shareholders from net
investment income (0.66) -- --
Distributions to shareholders in excess of net
investment income (0.16)
Distributions to shareholders in excess of net
investment income (0.06) -- --
---------- ---------- ----------
Total distributions (0.88) -- --
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 12.05 $ 10.74 $ 9.83
========== ========== ==========
TOTAL RETURN** 21.78% 9.26% (1.70%)(c)
Ratios to Average Net Assets
Expenses 1.38% 1.61% 1.65%(b)
Net investment income (loss) 0.51% 0.32% 0.62%(b)
Expense waiver/reimbursement (a) 0.35% 0.05% 0.07%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 151,728 $ 120,349 $ 86,442
Portfolio turnover rate (d) 60% 41% 54%
Average commission rate paid (e) $ 0.0028 $ 0.0010 --
</TABLE>
*Reflects operations for the period from August 19, 1994 (date of initial public
investment) to July 31, 1995.
**Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the Fund
for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
23
<PAGE> 28
FOUNTAIN SQUARE INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------
1997 1996*
---------- ----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.71 $ 11.21
---------- ----------
Loss from investment operations
Net investment income (loss) (0.02) 0.01
Net realized and unrealized gains (losses)
on investments 2.16 (0.51)
---------- ----------
Total from investment operations 2.14 (0.50)
---------- ----------
Less distributions
Dividends to shareholders from net
investment income (0.46) --
Distributions to shareholders in excess of net
investment income (0.32) --
Distributions to shareholders from net realized
gains on investment transactions (0.06) --
---------- ----------
Total distributions (0.84) --
---------- ----------
Net asset value, end of period $ 12.01 $ 10.71
========== ==========
TOTAL RETURN** 21.25% 8.95%(c)
Ratios to Average Net Assets
Expenses 2.13% 2.34%(b)
Net investment income (loss) (0.28%) 0.76%(b)
Expense waiver/reimbursement (a) 0.25% --
Supplemental data
Net assets, end of period (000 omitted) $ 210 $ 57
Portfolio turnover rate (d) 60% 41%
Average commission rate paid (e) $ 0.0028 $ 0.0010
</TABLE>
*Reflects operations for the period from April 25, 1996 (date of commencement of
operations) to July 31, 1996.
**Based on net asset value, which does not reflect the contingent deferred sales
charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Represents total return for Investment A Shares for the period from August
1, 1995 to April 24, 1996 plus the total return for the Investment C Shares for
the period from April 25, 1996 to July 31, 1996.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the Fund
for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
24
<PAGE> 29
FOUNTAIN SQUARE EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
Period
Ended
July 31,
1997*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00
--------
Income from investment operations
Net investment income (loss) 0.15
Net realized and unrealized gains (losses) on
investments 2.43
--------
Total from investment operations 2.58
--------
Less distributions
Dividends to shareholders from net
investment income (0.14)
--------
Net asset value, end of period $ 14.44
========
TOTAL RETURN** 21.65%(c)
Ratios to Average Net Assets
Expenses 1.06%(b)
Net investment income (loss) 2.32%(b)
Expense waiver/reimbursement (a) 0.42%(b)
Supplemental data
Net assets, end of period (000 omitted) $120,324
Portfolio turnover rate (d) 28%(b)
Average commission rate paid (e) $ 0.0665
</TABLE>
*Reflects operations for the period from January 27, 1997 (date of commencement
of operations) to July 31, 1997.
**Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the Fund
for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
25
<PAGE> 30
FOUNTAIN SQUARE EQUITY INCOME FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
Period
Ended
July 31,
1997*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00
--------
Income from investment operations
Net investment income (loss) 0.10
Net realized and unrealized gains (losses) on
investments 2.45
--------
Total from investment operations 2.55
--------
Less distributions
Dividends to shareholders from net
investment income (0.10)
--------
Net asset value, end of period $ 14.45
========
TOTAL RETURN** 21.30%(c)
Ratios to Average Net Assets
Expenses 1.81%(b)
Net investment income (loss) 1.56%(b)
Expense waiver/reimbursement (a) 0.26%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 92
Portfolio turnover rate (d) 28%(b)
Average commission rate paid (e) $ 0.0665
</TABLE>
*Reflects operations for the period from January 27, 1997 (date of commencement
of operations) to July 31, 1997.
**Based on net asset value, which does not reflect the contingent deferred sales
charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the Fund
for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
26
<PAGE> 31
FOUNTAIN SQUARE BOND FUND FOR INCOME
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
Period
Ended
July 31,
1997*
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00
--------
Income from investment operations
Net investment income (loss) 0.37
Net realized and unrealized gains (losses) on
investments 0.18
--------
Total from investment operations 0.55
--------
Less distributions
Dividends to shareholders from net
investment income (0.36)
--------
Net asset value, end of period $ 12.19
========
TOTAL RETURN 4.64%(c)
Ratios to Average Net Assets
Expenses 0.79%(b)
Net investment income (loss) 6.08%(b)
Expense waiver/reimbursement (a) 0.42%(b)
Supplemental data
Net assets, end of period (000 omitted) $157,108
Portfolio turnover rate (d) 157%(b)
</TABLE>
*Reflects operations for the period from January 27, 1997 (date of commencement
of operations) to July 31, 1997.
**Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
27
<PAGE> 32
FOUNTAIN SQUARE BOND FUND FOR INCOME
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
Period
Ended
July 31,
1997*
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00
-------
Income from investment operations
Net investment income (loss) (0.01)
Net realized and unrealized gains (losses) on
investments 0.50
-------
Total from investment operations 0.49
-------
Less distributions
Dividends to shareholders from net
investment income (0.22)
Dividends to shareholders in excess of net
investment income (0.09)
-------
Total distributions (0.31)
-------
Net asset value, end of period $ 12.18
=======
TOTAL RETURN** 4.18%(c)
Ratios to Average Net Assets
Expenses 1.54%(b)
Net investment income (loss) 4.20%(b)
Expense waiver/reimbursement (a) 0.26%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 6
Portfolio turnover rate (d) 157%(b)
</TABLE>
*Reflects operations for the period from January 27, 1997 (date of commencement
of operations) to July 31, 1997.
**Based on net asset value, which does not reflect the contingent deferred sales
charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
28
<PAGE> 33
FOUNTAIN SQUARE MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
Period
Ended
July 31,
1997*
---------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00
---------
Income from investment operations
Net investment income (loss) 0.28
Net realized and unrealized gains (losses) on
investments 0.32
---------
Total from investment operations 0.60
---------
Less distributions
Dividends to shareholders from net
investment income (0.27)
---------
Net asset value, end of period $ 12.33
=========
TOTAL RETURN** 5.04%(c)
Ratios to Average Net Assets
Expenses 0.81%(b)
Net investment income (loss) 4.44%(b)
Expense waiver/reimbursement (a) 0.42%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 101,616
Portfolio turnover rate (d) 63%
</TABLE>
*Reflects operations for the period from January 27, 1997 (date of commencement
of operations) to July 31, 1997.
**Based on net asset value, which does not
reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
29
<PAGE> 34
FOUNTAIN SQUARE MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS - INVESTMENT C SHARES
(For a share outstanding throughout each period)
The following table has been audited by Ernst & Young LLP, the Trust's
independent auditors. Their report dated September 12, 1997, on the Funds'
financial statements for the year ended July 31, 1997 is included in the
Combined Annual Report, which is incorporated by reference. This table should be
read in conjunction with the Funds' financial statements and notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
Period
Ended
July 31,
1997*
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.00
---------
Income from investment operations
Net investment income (loss) (0.20)
Net realized and unrealized gains (losses) on
investments 0.75
---------
Total from investment operations 0.55
---------
Less distributions
Dividends to shareholders from net
investment income (0.16)
Dividends to shareholders in excess of net
investment income (0.06)
---------
Total distribution (0.22)
---------
Net asset value, end of period $ 12.33
=========
TOTAL RETURN** 4.65%(c)
Ratios to Average Net Assets
Expenses 1.56%(b)
Net investment income (loss) 3.09%(b)
Expense waiver/reimbursement (a) 0.26%(b)
Supplemental data
Net assets, end of period (000 omitted) $ 11
Portfolio turnover rate 63%(b)
</TABLE>
*Reflects operations for the period from January 27, 1997 (date of commencement
of operations) to July 31, 1997.
**Based on net asset value, which does not reflect the contingent deferred sales
charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
30
<PAGE> 35
PREDECESSOR COMMON TRUST FUNDS PERFORMANCE
INFORMATION
During 1997, each of the Equity Income Fund, the Bond Fund For Income, and the
Municipal Bond Fund was formed to serve as the vehicle for the conversion of
common trust funds that had 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. The investment policies, objectives,
guidelines and restrictions of each newly created Fund are in all material
respects equivalent to those of the common trust fund from which it was
converted. For this reason, the historic performance of the converting common
trust funds combined with the actual performance of the Funds into which they
converted beginning on January 27, 1997 is provided below. The gross performance
of each common trust fund has been reduced to reflect the fees (without waivers
or reimbursements) that are applicable to the Fund into which it converted,
except that 12b-1 fees were not deducted for Investment A Shares, in light of
the fact that no such fees will be charged for that class 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. As described above under the caption "Expenses of the
Funds," voluntary waivers of certain fees are anticipated for each of the Funds.
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 Total Returns*
--------------------------------------------------------------------
Since
1 Year 3 Years 5 Years 10 Years Inception**
------ ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Equity Income Fund
[Successor to Equity Fund (Income)]
Investment A Shares 36.29% 21.99% 13.01% 11.15% 14.80%
Investment C Shares 41.58% 22.76% 13.04% 10.62% 14.09%
Bond Fund For Income
[Successor to Taxable Bond Fund]
Investment A Shares 3.09% 5.54% 4.26% 6.92% 8.38%
Investment C Shares 6.67% 6.14% 4.20% 6.36% 7.64%
Municipal Bond Fund
[Successor to Tax-Free Bond Fund]
Investment A Shares 2.31% 3.80% 3.62% 5.29% 6.98%
Investment C Shares 6.12% 4.42% 3.56% 4.73% 6.26%
</TABLE>
*Annualized Total Returns are calculated based upon the fiscal year ended July
31, 1997.
**Each of the predecessor common trust funds to the Equity Income Fund, the Bond
Fund For Income, and the Municipal Bond Fund commenced operations on January 1,
1983.
All of the Funds quote total returns that include performance of certain
collective trust fund accounts (the "Commingled Accounts") advised by Fifth
Third Bank, the Funds' Advisor, for periods dating back to January 1, 1983, and
prior to the Funds' commencement of operations, as adjusted to reflect the
expenses associated with the Funds (without waivers or reimbursements). The
Commingled Accounts were not registered with the Securities and Exchange
Commission and, therefore, were not subject to the investment restrictions
imposed by law on registered mutual funds. If the Commingled Accounts had been
registered, the Commingled Accounts' performance may have been adversely
affected. Performance of the Funds reflects the deduction of fees associated
with a mutual fund, such as investment management and accounting fees.
Performance also reflects the reinvestment of all dividends and capital gains
distributions.
31
<PAGE> 36
OBJECTIVE OF EACH FUND
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
Unless indicated otherwise, the investment policies and limitations of a Fund
may be changed by the Board of Trustees ("Trustees") without approval of
shareholders. Shareholders will be notified before any material change in these
policies becomes effective.
Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below, appears in
the "Portfolio Investments and Strategies" section of this combined prospectus
and in the Combined Statement of Additional Information.
GOVERNMENT SECURITIES FUND
The investment objective of the Government Securities Fund is to provide a high
level of current income. The Government Securities Fund pursues its investment
objective consistent with its investment in a portfolio of U.S. government
securities. Capital growth is a secondary objective. The Fund pursues its
investment objectives by investing in a diversified portfolio of U.S. government
securities, including both U.S. Treasury and government agency issues. The Fund
will purchase only securities with remaining maturities or estimated average
lives of seven years or less. In managing the portfolio, the Advisor seeks to
minimize fluctuations in the value of the Fund's Investment A Shares and
Investment C Shares.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund invests
are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. The prices of fixed income securities fluctuate inversely to
the direction of interest rates. These securities include, but are not limited
to:
- direct obligations of the U.S. Treasury such as U.S. Treasury
bills, notes and bonds; and
- obligations of U.S. government agencies or instrumentalities
such as Federal Home Loan Banks, Federal National Mortgage
Association, Government National Mortgage Association, Farm
Credit System, including the National Bank for Cooperatives,
Farm Credit Banks, and Banks for Cooperatives, Tennessee
Valley Authority, Export-Import Bank of the United States,
Farmers Home Administration, Housing and Urban Development,
Private Export Funding Corporation, Commodity Credit
Corporation, Federal Financing Bank, Student Loan Marketing
Association, Federal Home Loan Mortgage Corporation, or
National Credit Union Administration. Some of these
obligations may be in the form of collateralized mortgage
obligations, which are generally described below for the
Quality Bond Fund.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so. The
instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific
line of credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase
certain obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities, enter into repurchase agreements, and engage
in put and call options, futures and options on futures, and when-issued and
delayed delivery transactions. (See "Portfolio Investments and Strategies.")
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Restricted and Illiquid Securities," and
"Diversification."
32
<PAGE> 37
QUALITY BOND FUND
The investment objective of the Quality Bond Fund is to achieve high current
income. Capital growth is a secondary objective. The Quality Bond Fund pursues
its investment objectives consistent with its investment in a portfolio of
investment grade bonds. The Fund pursues its investment objectives by investing
in the bonds and other instruments described below. Under normal market
conditions, the Fund will invest at least 65% of its assets in quality bonds. As
used herein, the Fund considers bonds rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's Ratings Group
("S&P"), or unrated bonds that are determined by the Advisor to be of comparable
quality, to be quality bonds.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in a professionally managed,
diversified portfolio of investment grade securities which include:
- domestic issues of corporate debt obligations rated Baa or
higher by Moody's or BBB or higher by S&P, or unrated bonds
that are determined by the Advisor to be of comparable
quality. Downgrades will be evaluated on a case by case basis
by the Advisor. The Advisor will determine whether or not the
security continues to be an acceptable investment. If not, the
security will be sold;
- U.S. dollar denominated issues of foreign corporations,
governments and government agencies that meet the same quality
standards as stated for domestic issuers. The Fund may not
invest more than 25% of its assets in foreign investments.
(See "Foreign Investments");
- obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, of the types eligible for
purchase by the Government Securities Fund, as described
above; and
- collateralized mortgage obligations.
The Quality Bond Fund does not intend to invest in corporate bonds rated below
Baa by Moody's or BBB by S & P. The weighted average maturity will be less than
15 years.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities, invest in repurchase agreements, engage in
options and futures transactions and participate in when-issued and delayed
delivery transactions. (See "Portfolio Investments and Strategies.")
COLLATERALIZED MORTGAGE OBLIGATIONS. The Fund may invest in collateralized
mortgage obligations ("CMOs") which are rated Baa or better by Moody's or BBB or
higher by S&P and which are issued by private entities such as investment
banking firms and companies related to the construction industry. The CMOs in
which the Fund may invest may be: (i) privately issued securities which are
collateralized by pools of mortgages in which each mortgage is guaranteed as to
payment of principal and interest by an agency or instrumentality of the U.S.
government; (ii) privately issued securities which are collateralized by pools
of mortgages in which payment of principal and interest is guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities; (iii)
other privately issued securities in which the proceeds of the issuance are
invested in mortgage-backed securities and payment of the principal and interest
is supported by the credit of an agency or instrumentality of the U.S.
government; and (iv) privately issued securities in which each mortgage is
secured by the underlying real estate and payment is guaranteed by the
mortgagee. The mortgage-related securities provide for a periodic payment
consisting of both interest and principal. The interest portion of these
payments will be distributed by the Fund as income, and the capital portion will
be reinvested.
Because the mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium, mortgage-backed securities are generally subject to
higher prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance their mortgages to
take advantage of the more favorable rates. Depending upon market conditions,
the yield that the Fund receives from the reinvestment of such prepayments, or
any scheduled principal payments, may be lower than the yield on the original
mortgage security. As a consequence, mortgage securities may be a less effective
means of `locking in' interest rates than other types of debt securities having
the same stated maturity and may also have less potential for capital
appreciation. For certain types of asset pools, such as collateralized mortgage
obligations, prepayments may be allocated to one tranche of securities ahead of
other branches, in order to reduce the risk of prepayment for the other
branches. Prepayments may result in a capital loss to the Fund to the extent
that the prepaid mortgage securities were purchased at a market premium over
their stated principal amount. Conversely, the prepayment of mortgage securities
purchased at a market discount from their stated principal amount will
accelerate the recognition of interest income by the Fund, which would be taxed
as ordinary income when distributed to the shareholders.
33
<PAGE> 38
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
OHIO TAX FREE BOND FUND
The investment objective of the Ohio Tax Free Bond Fund is to provide current
income exempt from federal income tax and the personal income taxes imposed by
the state of Ohio and Ohio municipalities. The Fund pursues its investment
objective by investing primarily in Ohio municipal securities. Interest income
of the Fund that is exempt from the income taxes described above retains its
exempt status when distributed to the Fund's shareholders. Income distributed by
the Fund may not necessarily be exempt from state or municipal taxes in states
other than Ohio. In addition, interest income from certain types of municipal
securities may be subject to federal alternative minimum tax. To the extent the
Municipal Bond Fund invests in these bonds, individual shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Municipal Bond Fund's distributions derived from these bonds.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are:
- obligations issued by or on behalf of the state of Ohio, its
political subdivisions, or agencies;
- debt obligations of any state, territory, or possession of the
United States, including the District of Columbia, or any
political subdivision of any of these; and
- participation interests, as described below, in any of the
above obligations,
the interest from which is, in the opinion of bond counsel for the issuers or in
the opinion of officers of the Fund and/or the Advisor to the Fund, exempt from
both federal income tax and the personal income tax imposed by the state of Ohio
and Ohio municipalities. As a matter of investment policy, which may not be
changed without shareholder approval, under normal market conditions at least
80% of the value of the Fund's net assets will be invested in Ohio municipal
securities, as defined above.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted securities, enter into repurchase agreements, and engage in
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies.")
CHARACTERISTICS. The Ohio municipal securities which the Fund buys are
investment grade bonds rated Aaa, Aa, A or Baa by Moody's, or AAA, AA, A or BBB
by S&P or Fitch Investors Service, Inc. In certain cases, the Fund's Advisor may
choose bonds which are unrated if it judges the bonds to have the same
characteristics as the investment grade bonds described above. Downgrades will
be evaluated on a case by case basis by the Advisor. The Advisor will determine
whether or not the security continues to be an acceptable investment. If not,
the security will be sold. A description of the rating categories is contained
in the Appendix to the Combined Statement of Additional Information. As a matter
of investment policy, under normal market conditions, the Fund will invest at
least 65% of its assets in bonds that provide current income exempt from federal
income tax and the personal income taxes imposed by the State of Ohio and Ohio
municipalities.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings and loan associations,
and insurance companies. These participation interests give the Fund an
undivided interest in Ohio municipal securities. The financial institutions from
which the Fund purchases participation interests frequently provide or secure
irrevocable letters of credit or guarantees to assure that the participation
interests are of high quality.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the Ohio municipal securities which
the Fund purchases may have variable interest rates. Variable interest rates are
normally based on a published interest rate or interest rate index or a similar
standard, such as the 91-day U.S. Treasury bill rate. Many variable rate
municipal securities are subject to payment of principal on demand by the Fund
in not more than seven days. All variable rate municipal securities will meet
the quality standards for the Fund. The Fund's Advisor has been instructed by
the Trustees to monitor the pricing, quality, and liquidity of the variable rate
municipal securities, including participation interests held by the Fund on the
basis of published financial information and reports of the rating agencies and
other analytical services.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities. They may take the form of a lease, an installment purchase contract,
a conditional sales contract, or a participation certificate on any of the
above.
TEMPORARY INVESTMENTS. The Fund normally invests its assets so that at least 80%
of its annual interest income is exempt from federal income tax and the personal
income taxes imposed by the state of Ohio and Ohio municipalities, or at least
80% of its
34
<PAGE> 39
net assets are invested in obligations the interest from which is exempt from
such taxes. However, from time to time, during periods of other than normal
market conditions, the Fund may invest up to 100% of its assets in non-Ohio
municipal tax-exempt obligations or taxable temporary investments. These
temporary investments include: notes issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements.
There are no rating requirements applicable to temporary investments. However,
the Advisor will limit temporary investments to those rated within the
investment grade categories described under "Acceptable
Investments--Characteristics" if rated, or if unrated, those which the Advisor
judges to have the same characteristics as such investment grade securities.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal income tax or
personal income taxes imposed by the state of Ohio or Ohio municipalities.
OHIO MUNICIPAL SECURITIES. Ohio municipal securities are generally issued to
finance public works, such as airports, bridges, highways, housing, hospitals,
mass transportation projects, schools, streets, and water and sewer works. They
are also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Ohio municipal securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations. The
availability of this financing encourages these corporations to locate within
the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS. Yields on Ohio municipal securities depend on a variety of
factors, including: the general conditions of the municipal bond market; the
size of the particular offering; the maturity of the obligations; and the rating
of the issue. Further, any adverse economic conditions or developments affecting
the state of Ohio or its municipalities could impact the Fund's portfolio. The
state of Ohio and certain underlying municipalities face potential economic
problems over the longer term. The state economy has grown more slowly than that
of the nation as a whole, resulting in a gradual erosion of its relative
economic affluence. The causes of this relative decline are varied and complex,
involving in many cases national and international demographic and economic
trends beyond the influence of the state. The ability of the Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
Ohio municipal securities and participation interests, or the guarantors of
either, to meet their obligations for the payment of interest and principal when
due. Investing in Ohio municipal securities which meet the Fund's quality
standards may not be possible if the state of Ohio or its municipalities do not
maintain their current credit ratings. In addition, certain Ohio constitutional
amendments, legislative measures, executive orders, administrative regulations,
and voter initiatives could result in adverse consequences affecting Ohio
municipal securities.
NON-DIVERSIFICATION. The Fund is a non-diversified investment portfolio. As
such, there is no limit on the percentage of assets which can be invested in any
single issuer. An investment in the Fund, therefore, will entail greater risk
than would exist in a diversified portfolio of securities because the higher
percentage of investments among fewer issuers may result in greater fluctuation
in the total market value of the Fund's portfolio. Any economic, political, or
regulatory developments affecting the value of the securities in the Fund's
portfolio will have a greater impact on the total value of the portfolio than
would be the case if the portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year: (a)
with regard to at least 50% of the Fund's total assets, no more than 5% of its
total assets are invested in the securities of a single issuer and (b) no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money" and "Restricted and Illiquid Securities."
QUALITY GROWTH FUND
35
<PAGE> 40
The investment objective of the Quality Growth Fund is to provide growth of
capital. Income is a secondary objective. The Fund pursues its investment
objectives by investing primarily in a professionally managed and diversified
portfolio of common stocks of high-quality companies. The Fund intends to invest
in industries and companies which, in the opinion of the Advisor, have potential
primarily for capital growth. These companies generally are leaders in their
industries ant are characterized by sound management and the ability to finance
expected growth. Among other things, the Advisor would look for strength in the
following areas: historical and five year projected dividend growth and earnings
growth, debt to capital ratio, and quality of management. The Fund's investment
approach is based on the conviction that over the long term the economy will
continue to expand and develop, which will be reflected in the growth of the
revenues and earnings of major corporations. Under normal market conditions, at
least 65% of the Fund's assets will be invested in the types of quality common
stocks as described above.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to the following:
- common stock of U.S. companies with at least $100 million in
market capitalization which are listed on the New York or
American Stock Exchanges or traded in over-the-counter markets
and preferred stock which is convertible into common stock of
such companies;
- American Depositary Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in the
over-the-counter market. The Fund may not invest more than 25%
of its assets in ADRs. (See "Foreign Investments."); and
- convertible bonds rated at least BBB by S&P, or at least Baa
by Moody's, or if not rated, are determined to be of
comparable quality by the advisor.
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities, warrants,
and engage in put and call options, futures and options on futures, and
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies.")
CONVERTIBLE SECURITIES. Convertible securities are securities which may be
exchanged or converted into a predetermined number of the issuer's underlying
common stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible bonds, convertible
preferred stock or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives.
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which entitle the holder to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bonds' maturity. Convertible securities are senior to equity securities, and
therefore have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stocks when, in the advisor's opinion, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objectives. Otherwise, the Fund will hold or trade
the convertible securities. In selecting convertible securities for the Fund,
the Fund's Advisor evaluates the investment characteristics of the convertible
security as a fixed income instrument, and the investment potential of the
underlying equity security for capital appreciation. In evaluating these matters
with respect to a particular convertible security, the Advisor considers
numerous factors, including the economic and political outlook, the value of the
security relative to other investment alternatives, trends in the determinants
of the issuer's profits, and the issuer's management capability and practices.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed under
"Borrowing Money," "Diversification," and "Restricted and Illiquid Securities."
MID CAP FUND
The investment objective of the Mid Cap Fund is to provide growth of capital.
Income is a secondary objective. The Fund invests primarily in equity securities
of companies selected by the Advisor on the basis of traditional research
techniques,
36
<PAGE> 41
including assessment of earnings and dividend growth prospects and the risk and
volatility of the company's business. Under normal market conditions, at least
65% of the Fund's assets will be invested in common stocks of companies meeting
the market capitalization criteria set forth below.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to the following:
- common stock of U.S. companies with at least $100 million in
market capitalization and a maximum of $3 billion in market
capitalization which are listed on the New York or American
Stock Exchanges or traded in over-the-counter markets,
preferred stock of such companies, and preferred stock
convertible into common stock of such companies. The Fund
intends to invest in industries and companies which, in the
opinion of the Advisor, have potential primarily for capital
growth and secondarily for income;
- American Depositary Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in the
over-the-counter market. The Fund may not invest more than 25%
of its assets in ADRs. (See "Foreign Investments."); and
- Convertible securities rated at least BBB by S&P, or at least
Baa by Moody's, or if not rated are determined to be of
comparable quality by the Advisor. Downgrades will be
evaluated on a case by case basis by the Advisor. The Advisor
will determine whether or not the security continues to be an
acceptable investment. If not, the security will be sold.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities, warrants, enter into repurchase agreements,
and engage in put and call options, futures and options on futures, and
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies.")
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed under
"Borrowing Money," "Diversification," and "Restricted and Illiquid Securities."
BALANCED FUND
The investment objective of the Balanced Fund is to pursue capital appreciation
and income. The Fund invests primarily in a diversified portfolio of common and
preferred stocks, U.S. government securities, convertible securities, investment
grade corporate bonds, and prime money market instruments.
ACCEPTABLE INVESTMENTS. Those income and equity securities acceptable for
investment in this Fund are outlined under the "Acceptable Investments" sections
of the Quality Bond Fund, the Quality Growth Fund, and the Mid Cap Fund. In
addition, the Balanced Fund may invest in money market instruments that are
either rated in the highest short-term rating category by a nationally
recognized statistical rating organization or are of comparable quality to
securities having such ratings.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities, warrants, repurchase agreements, and engage
in put and call options, futures and options on futures, and when-issued and
delayed delivery transactions. (See "Portfolio Investments and Strategies.")
The asset mix of the Fund will normally range between 40-75 percent in common
stock and convertible securities, 25-50 percent in preferred stock and bonds,
and 0-25 percent in money market instruments. Moderate shifts between assets
classes are made in order to maximize returns or reduce risk. The Fund will
maintain at least 25% of its assets in fixed income senior securities (including
the value of convertible senior securities attributable to their fixed income
characteristics).
MONEY MARKET INSTRUMENTS. The money market instruments in which the Fund invests
include but are not limited to:
- prime commercial paper including master demand notes;
- securities issued and/or guaranteed as to payment of principal
and interest by the U.S. government, its agencies, or
instrumentalities; and
- repurchase agreements.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
37
<PAGE> 42
INTERNATIONAL EQUITY FUND
The investment objective of the International Equity Fund is to seek long-term
capital appreciation. The Fund invests primarily in equity securities of
non-U.S. issuers. The objective is based on the premise that investing in
non-U.S. securities provides three potential benefits over investing solely in
U.S. securities:
- the opportunity to take advantage of investment opportunities
in countries outside the U.S. which may arise because of
differing economic and political cycles;
- the opportunity to invest in financial markets of foreign
countries, some of which are believed to have superior growth
potential; and
- the opportunity to reduce the overall volatility compared to a
portfolio of investments solely in domestic issuers by
combining domestic and international investments and thereby
diversifying across a wide range of countries and currencies.
The Fund will invest at least 65%, and under normal market conditions
substantially all, of its total assets in equity securities of issuers located
in at least three countries outside of the United States.
The Fund pursues its objective by investing in accordance with country
weightings determined by the Advisor, Fifth Third Bank, in consultation with
Morgan Stanley Asset Management, Inc., in common stocks of non-U.S. issuers
which, in the aggregate, generally replicate broad country indices. The
Sub-Advisor utilizes a top-down approach in selecting investments for the Fund
that emphasizes country selection and weighting rather than individual stock
selection. This approach reflects the philosophy that a diversified selection of
securities representing exposure to world markets based upon the economic
outlook and current valuation levels (as discussed below) for each country is an
effective way to maximize the return and minimize the risk associated with
international investment. (Although, of course there can be no assurance that
these goals will be achieved.)
In consultation with the Advisor, the Sub-Advisor determines country allocations
for the Fund on an ongoing basis within policy ranges dictated by each country's
market capitalization and liquidity. The Fund will invest substantially in
industrialized countries throughout the world that comprise the Morgan Stanley
Capital International EAFE (Europe, Australia and the Far East) Index. In
addition, the Fund may invest in emerging country equity securities. As used in
this prospectus, the term "emerging country" applies to any country which, in
the opinion of the Sub-Advisor, is generally considered to be an emerging or
developing country by the international financial community, including the
International Bank for Reconstruction and Development (more commonly known as
the World Bank) and the International Finance Corporation. There are currently
over 130 countries which, in the opinion of the Sub-Advisor, are generally
considered to be emerging or developing countries by the international financial
community, approximately 40 of which currently have stock markets. These
countries generally include every nation in the world except the United States,
Canada, Japan, Australia, New Zealand, and most nations located in Western
Europe. Currently, investing in many emerging countries is not feasible or may
involve unacceptable political risks. The Fund will focus its investments on
those emerging market countries in which it believes the economies are
developing strongly and in which the markets are becoming more sophisticated. As
markets in other countries develop, the Fund expects to expand and further
diversify the emerging countries in which it invests. The Fund does not intend
to invest in any security in a country where the currency is not freely
convertible to U.S. dollars, unless the Fund has obtained the necessary
governmental licensing to convert such currency or other appropriately licensed
or sanctioned contractual guarantee to protect such investment against loss of
that currency's external value, or the Fund has a reasonable expectation at the
time the investment is made that such governmental licensing or other
appropriately licensed or sanctioned guarantee would be obtained or that the
currency in which the security is quoted would be freely convertible at the time
of any proposed sale of the security by the Fund.
By analyzing a variety of macroeconomic and political factors, the Sub-Advisor
develops fundamental projections on interest rates, currencies, corporate
profits and economic growth for each country. These country projections are then
used to determine what is believed to be a fair value for the stock market of
each country. Discrepancies between actual value and fair value as determined by
the Sub-Advisor provide an expected return for each stock market. The expected
return is adjusted by currency return expectations derived from the
Sub-Advisor's purchasing-power parity exchange rate model to arrive at an
expected total return in U.S. dollars. The final country allocation decision is
then arrived at by considering the expected total return in light of various
country specific considerations such as market size, volatility, liquidity and
country risk.
Within a particular country, investments generally are made through the purchase
of common stocks which, in aggregate, replicate a broad market index, which in
most cases will be the Morgan Stanley Capital International Index for the given
country. The Sub-Advisor may overweight or underweight an industry segment of a
particular index if it concludes this would be
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advantageous to the Fund. Stock selection by the Fund in this manner helps
reduce stock-specific risk through diversification and minimizes transaction
costs, which can be substantial in foreign markets.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to the following:
- common stocks of non-U.S issuers;
- common stock equivalents (such as rights, warrants, securities
that are not convertible into common stocks and American
Depositary Receipts ("ADRs")); and
- corporate and government fixed income securities dominated in
currencies other than U.S. dollars.
In addition, the Fund may enter into repurchase agreements, invest in restricted
and illiquid securities, engage in options and futures contracts, participate in
when-issued and delayed delivery transactions, and lend portfolio securities.
(See "Portfolio Investments and Strategies.") The Fund may also make the
following investments.
MONEY MARKET INSTRUMENTS. The Fund may acquire money market instruments rated in
one of the two highest rating categories by a Nationally Recognized Statistical
Rating Organization or which, in the opinion of the Advisor or Sub-Advisor, are
of commensurate quality. The Fund may invest in U.S. and foreign short-term
money market instruments, including interest-bearing call deposits with banks,
government obligations, certificates of deposit, bankers' acceptances,
commercial paper, short-term corporate debt securities, and repurchase
agreements. These investments may be used to temporarily invest cash received
from the sale of Fund Shares, to establish and maintain reserves for temporary
defensive purposes, or to take advantage of market opportunities.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. (Please
see Foreign Currency Transactions in the Combined Statement of Additional
Information for further information about the risks.)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract ("forward contract") is an obligation to purchase or sell an amount of
a particular currency at a specific price and on a future date agreed upon by
the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). This includes using foreign exchange contracts in conjunction
with futures contracts to achieve a currency exposure similar to that of holding
securities denominated in that currency. The period between trade date and
settlement date will vary between 24 hours and 60 days, depending upon local
custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the
Sub-Advisor will consider the likelihood of changes in currency values when
making investment decisions, the Sub-Advisor believes that it is important to be
able to enter into forward contracts when it believes the interests of the Fund
will be served. The Fund will not enter into forward contracts for hedging
purposes in a particular currency in an amount in excess of the Fund's assets
denominated in that currency, but, as consistent with its other investment
policies, is not otherwise limited in its ability to use this strategy.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities.
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RISK CONSIDERATIONS. Risk considerations relating to investing in non-U.S.
securities are discussed below under "Foreign Investments.
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;
- 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, as described above; and
- collateralized mortgage obligations (See "Collateralized
Mortgage Obligations").
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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. In addition, interest income from certain types of municipal securities
may be subject to federal alternative minimum tax. To the extent the Municipal
Bond Fund invests in these bonds, individual shareholders, depending on their
own tax status, may be subject to alternative minimum tax on that part of the
Municipal Bond Fund's distributions derived from these bonds.
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.
The income securities acceptable for investment in the Municipal Bond Fund are
outlined under the following subsections of the "Acceptable Investments" section
of the Ohio Tax Free Bond Fund: "Participation Interests," "Variable Rate
Municipal Securities," and "Municipal Leases."
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.
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 up to 100% of its assets 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.
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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.
INVESTMENT LIMITATIONS. The Municipal Bond Fund's investment limitations are
discussed below under "Borrowing Money," "Diversification," and "Restricted and
Illiquid Securities."
PORTFOLIO INVESTMENTS AND STRATEGIES
BORROWING MONEY
The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which a Fund sells a money market or other portfolio
instrument, as applicable, for a percentage of its cash value with an agreement
to buy it back on a set date) or pledge securities except, under certain
circumstances, a Fund may borrow money up to one-third of the value of its total
assets and pledge assets as necessary to secure such borrowings. This policy
cannot be changed without the approval of holders of a majority of a Fund's
Shares.
DIVERSIFICATION
With respect to 75% of the value of total assets, all of the Funds (with the
exception of the Ohio Tax Free Bond Fund) will not invest more than 5% in
securities of any one issuer or acquire more than 10% of the outstanding voting
securities of any one issuer, other than cash, cash items or securities issued
or guaranteed by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by U.S. government
securities. This policy cannot be changed without the approval of holders of a
majority of a Fund's Shares.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restrictions on resale under
federal securities law. Restricted securities may be issued by new and early
stage companies which may include a high degree of business and financial risk
that can result in substantial losses. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund, or less than what may be considered the fair
value of such securities. Further, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly traded.
If such securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required to bear
the expense of registration. The Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
All of the Funds (with the exception of the Ohio Tax Free Bond Fund) may invest
in commercial paper issued in reliance on the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933. Section 4(2) commercial
paper is restricted as to disposition under federal securities law, and is
generally sold to institutional investors, such as one of these Funds, who agree
that they are purchasing the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional
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investors through or with the assistance of the issuer or investment dealers who
make a market in Section 4(2) commercial paper, thus providing liquidity. The
Funds believe that Section 4(2) commercial paper and certain other restricted
securities, which meet the criteria for liquidity established by the Trustees,
are quite liquid. Therefore, the Funds intend to treat these securities as
liquid and not subject to the investment limitation applicable to illiquid
securities. In addition, because these securities are liquid, the Funds will not
subject such securities to the limitation otherwise applicable to restricted
securities.
REPURCHASE AGREEMENTS
The securities in which each Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to a Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from a Fund, that Fund could
receive less than the repurchase price on any sale of such securities. The Funds
will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Advisor to
be creditworthy pursuant to guidelines established by the Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause a Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may vary
from the purchase prices. Accordingly, a Fund may pay more/less than the market
value of the securities on the settlement date. A Fund may dispose of a
commitment prior to settlement if the Advisor or Sub-Advisor deems it
appropriate to do so. In addition, a Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. A Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Funds may lend portfolio securities
on a short-term or long-term basis, up to one-third of the value of their total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Funds will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Advisor has determined are creditworthy under
guidelines established by the Trustees and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned. There is the risk that when lending portfolio securities, the
securities may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable price. In
addition, in the event that a borrower of securities would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending court
action.
OPTIONS AND FUTURES
The Funds (with the exception of the Ohio Tax Free Bond Fund) may engage in
options and futures transactions as described below.
PUT AND CALL OPTIONS. Each Fund (with the exception of the Ohio Tax Free Bond
Fund) may purchase put options on their portfolio securities. These options will
be used as a hedge to attempt to protect securities which a Fund holds against
decreases in value. Each of the Funds (with the exception of the Ohio Tax Free
Bond Fund) may also write covered call options on all or any portion of its
portfolio to generate income. A Fund will write call options on securities
either held in its portfolio, for which it has the right to obtain without
payment of further consideration, or for which it has segregated cash or U.S.
government securities in the amount of any additional consideration.
The International Equity Fund may deal in options on foreign currencies,
securities, and securities indices, and on futures contracts involving these
items, which options may be listed for trading on an international securities
exchange or traded over-the-counter. The Fund may use options to manage interest
rate and currency risks. The Fund may also write covered call options and
secured put options to generate income or lock in gains. The Fund may write
covered call options and secured put options on up to 25% of its net assets and
may purchase put and call options provided that no more than 5% of the fair
market value of its net assets may be invested in premiums on such options.
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A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund forgoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.
A Fund may purchase and write over-the-counter options ("OTC Options") on
portfolio securities in negotiated transactions with the buyers or writers of
the options when options on the portfolio securities held by the Fund are not
traded on an exchange. A Fund purchases and writes options only with investment
dealers and other financial institutions (such as commercial banks or savings
and loan associations) deemed creditworthy by the Advisor or Sub-Advisor.
OTC options are two party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid market
while over-the-counter options may not.
OTC options differ from exchange traded options in several respects. They are
transacted directly with dealers and not with a clearing corporation, and there
is a risk of nonperformance by the dealer as a result of the insolvency of such
dealer or otherwise, in which event the Fund may experience material losses.
However, in writing options, the premium is paid in advance by the dealer. OTC
options, which may not be continuously liquid, are available for a greater
variety of assets, and with a wider range of expiration dates and exercise
prices, than are exchange traded options.
FUTURES AND OPTIONS ON FUTURES. The Funds (with the exception of the Ohio Tax
Free Bond Fund) may purchase and sell financial futures contracts to hedge
against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions. The Quality Growth
Fund, the Mid Cap Fund, the Balanced Fund, 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.
The International Equity Fund may enter into futures contracts involving foreign
currency, securities and securities indices, or options thereon, for bona fide
hedging purposes. The Fund may also enter into such futures contracts or related
options for purposes other than bona fide hedging if the aggregate amount of
initial margin deposits on the Fund's futures and related options positions
would not exceed 5% of the net liquidation value of the Fund's assets, provided
further that in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
A Fund may not sell futures contracts if the value of such futures contracts
exceeds the total market value of the Fund's portfolio securities. Futures
contracts and options thereon sold by a Fund are generally subject to
segregation and coverage requirements established by either the Commodity
Futures Trading Commission ("CFTC") or the SEC, with the result that, if the
Fund does not hold the instrument underlying the futures contract or option, the
Fund will be required to segregate on an ongoing basis with its custodian cash,
U.S. government securities, or other liquid high grade debt obligations in an
amount at least equal to the Fund's obligations with respect to such
instruments.
The Funds may enter into securities index futures contracts and purchase and
write put and call options on securities index futures contracts that are traded
on regulated exchanges, (in the case of the International Equity Fund, including
non-U.S. exchanges) to the extent permitted by the CFTC. Securities index
futures contracts are based on indexes that reflect the market value of
securities of the firms included in the indexes. An index futures contract is an
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
The Funds may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When a Fund is not fully invested and anticipates a significant market
advance, it may enter into futures contracts to purchase the index in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that it intends to purchase. In many of these transactions, a
Fund will purchase such securities upon termination of the futures position but,
depending on market conditions, a futures position may be terminated without the
corresponding purchases of common stock. A Fund may
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also invest in securities index futures contracts when the Advisor or
Sub-Advisor believes such investment is more efficient, liquid or cost-effective
than investing directly in the securities underlying the index.
A Fund may also write call options and purchase put options on futures contracts
as a hedge to attempt to protect securities in its portfolio against decreases
in value. When a Fund writes a call option on a futures contract, it is
undertaking the obligation of selling a futures contract at a fixed price at any
time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, a Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option. An option on a securities index futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a securities
index futures contract. A Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. A Fund may also invest in
options on securities index futures contracts when the Advisor or Sub-Advisor
believes such investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or in the securities underlying the
index, or when the futures contract or underlying securities are not available
for investment upon favorable terms.
Except as indicated above with respect to the International Equity Fund, a Fund
may not purchase or sell futures contracts or related options if immediately
thereafter the sum of the amount of margin deposits on a Fund's existing futures
positions and premiums paid for related options would exceed 5% of the market
value of a Fund's total assets. When a Fund purchases futures contracts, an
amount of cash and cash equivalents, equal to the underlying commodity value of
the futures contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian (or the broker, if legally
permitted) to collateralize the position and thereby insure that the use of such
futures contract is unleveraged. When a Fund sells futures contracts, it will
either own or have the right to receive the underlying future or security, or
will make deposits to collateralize the position as discussed above.
RISKS. The use of futures and related options involves special considerations
and risks. For example, the ability of a Fund to utilize futures successfully
will depend on the Advisor's or Sub-Advisor's ability to predict pertinent
market movements, and the Advisor or Sub-Advisor could be incorrect in its
expectations about the direction or extent of market factors such as stock price
movement. In these events, the Fund may lose money on the future contract or
option. Also, there might be imperfect correlation, or even no correlation,
between the change in market value of the securities held by Fund and the prices
of the futures and options thereon relating to the securities purchased or sold
by Fund. This may cause the futures contract and any related options to react
differently than the portfolio securities to market changes. The use of futures
and related options may reduce risk of loss by wholly or partially offsetting
the negative effect of unfavorable price movements but they can also reduce the
opportunity for gain by offsetting the positive effect of favorable price
movements in positions. No assurance can be given that the Advisor's or
Sub-Advisor's judgment in this respect will be correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Advisor or Sub-Advisor will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. A Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
EQUITY INVESTMENT CONSIDERATIONS
With respect to the Quality Growth, Mid Cap, Balanced, International Equity and
Equity Income Funds, as with other mutual funds that invest primarily in equity
securities, the Funds are subject to market risks. Since equity markets tend to
be cyclical, the possibility exists that common stocks could decline over short
or even extended periods of time. With respect to the Mid Cap Fund and the
Equity Income Fund, because these Funds invest in medium capitalization stocks,
there are some additional risk factors associated with investments in these
Funds. In particular, stocks in the medium capitalization sector of the United
States equity market tend to be slightly more volatile in price than larger
capitalization stocks, such as those included in the S&P 500 Index. This is
because, among other things, medium-sized companies have less certain growth
prospects than larger companies, have a lower degree of liquidity in the equity
market, and tend to have a greater sensitivity to changing economic conditions.
Further, in addition to exhibiting slightly higher volatility, the stocks of
medium-sized companies may, to some degree, fluctuate independently of the
stocks of large companies. That is, the stocks of medium-sized companies may
decline in price as the price of large company stocks rises or vice versa.
Therefore, investors should expect that the Fund will be slightly more volatile
than, and may fluctuate independently of, broad stock market indices such as the
Standard & Poor's 500 Index.
FOREIGN INVESTMENTS
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Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. While a number of the considerations noted
below under "Foreign Companies" are relevant to the ability of several funds to
invest in ADRs, the following is of particular interest with respect to the
International Equity Fund. In an attempt to reduce some of these risks, the
International Equity Fund diversifies its investments broadly among foreign
countries, which may include both developed and emerging countries. At least
three different countries will always be represented in that portfolio.
EXCHANGE RATES. Foreign securities are denominated in foreign currencies.
Therefore, the value in U.S. dollars of the Fund's assets and income may be
affected by changes in exchange rates and regulations. Although the Fund values
its assets daily in U.S. dollars, it will not convert its holding of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers realize a
profit on the difference between the prices at which they buy and sell
currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
- - less publicly available information about foreign companies;
- - the lack of uniform financial accounting standards applicable to
foreign companies;
- - less readily available market quotations on foreign companies;
- - differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
- - differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
- - generally lower foreign stock market volume and possible delays in
settlement of foreign transactions (which could adversely affect
shareholder equity);
- - the likelihood that foreign securities may be less liquid or more
volatile;
- - foreign brokerage commissions may be higher;
- - unreliable mail service between countries; and
- - political or financial changes which adversely affect investments in
some countries (including possible governmental seizure or
nationalization of assets).
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have discouraged
or restricted certain investments abroad by investors such as the Fund. Although
the Fund is unaware of any current restrictions, investors are advised that
these policies could be reinstituted.
EMERGING MARKETS. The International Equity Fund may take advantage of the
unusual opportunities for higher returns available from investing in emerging
countries. These investments, however, carry considerably more volatility and
risk because they generally are associated with less mature economies and less
stable political systems. The economies of individual emerging countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject to
limitation in other emerging countries. Foreign ownership limitations also may
be imposed by the charters of individual companies in emerging countries to
prevent, among other concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some emerging
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
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With respect to any emerging country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the U.S.
FOREIGN BANK INSTRUMENTS. Different risks may also exist for Eurodollar
Certificates of Deposit ("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee
Certificates of Deposit ("Yankee CDs") because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks, such as
reserve requirements, loan limitations, examinations, accounting, auditing,
recordkeeping and the public availability of information.
DERIVATIVE SECURITIES
Several of the Funds may invest in securities that may be described as
"derivative" securities. These securities "derive" their value from changes in
the value of an underlying security, currency, commodity, or index, and may
include asset-backed securities; mortgage-backed securities (such as CMOs); or
futures, forward, option and swap contracts.
Derivative securities can be used to reduce or increase the volatility of an
investment portfolio's performance. While derivative securities may respond to
market changes differently than the securities, currencies, commodities, or
indices that underlie them, they do not necessarily present greater market risk
than the underlying investments.
The Funds that utilize investment contracts or securities that may be deemed to
be derivative securities may do so only subject to the limitations described in
this prospectus. For example, the Funds that invest in put options may do so
only as a hedge to attempt to protect securities that they hold against
decreases in value. The Funds that write call options may do so only on
securities held in their portfolios or on securities that they have a right to
obtain without payment of additional consideration. When the International
Equity Fund deals in options on foreign currencies, securities, and securities
indices, and on future contracts, it does so to manage interest rate and
currency risks. These and other investment practices are fully described above,
including limitations on the amount of assets that may be invested in these
securities and rating requirements, if applicable.
BOND RATINGS
Bonds rated in the fourth highest rating category by a NRSRO (e.g., "BBB" by S&P
or "Baa" by Moody's) have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than higher rated bonds. If a security's
rating is reduced below the required minimum after a Fund has purchased it, the
Fund is not required to sell the security, but may consider doing so.
TEMPORARY INVESTMENTS
For defensive purposes only, and in such amounts as the Advisor in its judgment
believes market conditions warrant, the Government Securities Fund, Quality Bond
Fund, Quality Growth Fund, Mid Cap Fund, Balanced Fund, Equity Income Fund and
Bond Fund For Income may also invest temporarily in cash and money market
instruments during times of unusual market conditions and to maintain liquidity
as described below. Temporary investments may include obligations such as:
- domestic issues of corporate debt obligations including
variable rate demand notes;
- commercial paper and other money market instruments;
- securities issued and/or guaranteed as to payment of principal
and interest by U.S. government, its agencies, or
instrumentalities;
- instruments of domestic and foreign banks; and
- repurchase agreements.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term corporate
debt instruments that have variable or floating interest rates and provide the
Funds with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at par. The interest
rate may float or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on published
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<PAGE> 52
interest rate or interest rate index. Most variable rate demand notes allow a
Fund to demand the repurchase of the security on not more than seven days prior
notice. Other notes only permit a Fund to tender the security at the time of
each interest rate adjustment or at other fixed intervals. A Fund treats
variable rate demand notes as maturing on the later of the date of the next
interest adjustment or the date on which a Fund may next tender the security for
repurchase.
COMMERCIAL PAPER. The Funds may acquire commercial paper rated A-1 by S&P,
Prime-1 by Moody's, or F-1 by Fitch Investors Service, and money market
instruments (including commercial paper) which are not rated but are determined
by the Trustees to be of comparable quality to other bank or corporate
obligations.
BANK INSTRUMENTS. The Funds may acquire instruments of domestic banks and
foreign banks (such as certificates of deposit, demand and time deposits, saving
shares, and bankers' acceptances) if those banks have capital, surplus, and
undivided profits of over $100,000,000 and/or if their deposits are insured by
the Federal Deposit Insurance Corporation ("FDIC"). These instruments may
include ECDs, Yankee CDs, and ETDs which are subject to the same risks as
detailed previously under "Foreign Investments."
In addition, all of the Funds may purchase shares of other investment companies,
primarily for the purpose of investing short-term cash on a temporary basis.
FOUNTAIN SQUARE FUNDS INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders.
INVESTMENT ADVISOR. Pursuant to an investment advisory contract with the Trust
investment decisions for the Funds are made by Fifth Third Bank, the Funds'
Advisor, subject to direction by the Trustees. The Advisor continually conducts
investment research and supervision for the Funds and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the assets of each Fund.
With respect to the International Equity Fund, as discussed further below, the
Advisor has retained the Sub-Advisor to act as sub-advisor to the Fund. As
Advisor, Fifth Third Bank will conduct a program for ongoing oversight and
evaluation of the Sub-Advisor's services to this Fund, and will regularly report
to the Trustees on these matters. Fifth Third Bank will also assist in the
formulation of, and will continue to monitor, the structure and strategies of
this Fund's portfolio to meet the needs of shareholders. As part of the above,
Fifth Third Bank will review the portfolio daily and will monitor the Fund's
expenses, as well as the brokerage and research services provided to the Fund
and selection of brokers by the Sub-Advisor.
ADVISORY FEES. The Advisor receives an investment advisory fee at
annual rates equal to percentages of the relevant Fund's average net
assets as follows: the Government Securities Fund, the Quality Bond
Fund, the Ohio Tax Free Bond Fund, the Bond Fund For Income, and the
Municipal Bond Fund-0.55%; the Quality Growth Fund, the Mid Cap Fund,
the Balanced Fund, and the Equity Income Fund-0.80%; the International
Equity Fund-1.00%. The fees paid by the Quality Growth, the Mid Cap,
the Balanced, and the International Equity Funds while higher than the
advisory fee paid by other mutual funds in general, are comparable to
fees paid by many mutual funds with similar objectives and policies.
The investment advisory contract provides for the voluntary waiver of
expenses by the Advisor from time to time. 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, 1997, Fifth Third Bank and its affiliates
managed assets in excess of $11.1 billion on a discretionary basis and
provided custody services for additional assets in excess of $108.3
billion.
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Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, Fifth Third Investment Advisors, a division of Fifth Third
Bank, manages 6 such pools with total assets of over $509.7 million.
Fifth Third Bank has managed mutual funds since 1988.
As part of its regular banking operations, Fifth Third Bank may make
loans to public companies. Thus, it may be possible from time to time,
for the Funds to hold or acquire the securities of issuers which are
also lending clients of Fifth Third Bank. The lending relationship will
not be a factor in the selection of securities.
PORTFOLIO MANAGERS' BACKGROUND. Steven E. Folker is the Chief Equity
Strategist for Fifth Third Investment Advisors and is a Chartered
Financial Analyst. He is a Vice President and Trust Officer of Fifth
Third Bank. Mr. Folker has over 16 years of investment experience and
has been the portfolio manager for the Growth and Balanced Funds since
February of 1993 and manager of the Mid Cap Fund since June 1993. He
earned a B.B.A. in Finance and Accounting and an M.S. in Finance,
Investments, and Banking from the University of Wisconsin. He is also a
member of the Cincinnati Society of Financial Analysts. Prior to
joining Fifth Third Bank in July 1992 as an individual portfolio
manager, Mr. Folker was Director of Research with Central Trust
Bank/PNC Bank in Cincinnati for six years.
John B. Schmitz has over 12 years of investment experience and manages
large institutional accounts, the International Equity Fund, and the
Equity Income Fund for Fifth Third Investment Advisors. Since joining
Fifth Third Investment Advisors in 1988, he has also managed a variety
of individual accounts. 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.
Roberta Tucker is Chief Fixed Income Strategist for Fifth Third
Investment Advisors. She is a Vice President and Trust Officer of Fifth
Third Bank. Ms. Tucker has more than 13 years of investment experience
and assumed investment management responsibility for the Balanced and
Quality Bond in July of 1996. She has managed the Bond Fund For Income
since its inception in January of 1997. Ms. Tucker is a member of AIMR
and Financial Analyst Society. Prior to joining Fifth Third Bank in
June of 1996, Ms. Tucker was Head of Fixed Income Management at
Westridge Capital Management in Santa Barbara, California from May 1994
through May 1996. Prior to that, she was a Vice President and Senior
Fund Manager with Banc One Investment Advisors since 1987.
Carla C. McGuire is a fixed income portfolio manager for Fifth Third
Investment Advisors. She is an Assistant Vice President and Senior
Trust Officer of Fifth Third Bank. Ms. McGuire has over 12 years of
investment experience and has been the portfolio manager of the U.S.
Government Securities Fund since September of 1996, and of the Ohio Tax
Free Bond Fund and the Municipal Bond Fund since March of 1997. Prior
to September of 1996, Ms. McGuire managed a variety of individual fixed
income accounts for Fifth Third Investment Advisors. She earned a B.S.
in Information Systems from Maryville University and an M.B.A. in
Finance from St. Louis University. Ms. McGuire is a member of AIMR and
the Cincinnati Society of Financial Analysts.
SUB-ADVISOR. Under the terms of a Sub-Advisory Agreement between Fifth Third
Bank and the Sub-Advisor, the Sub-Advisor will be responsible as sub-advisor for
managing the International Equity Fund's portfolio, selecting investments for
purchase or sale, along with the countries in which the Fund will invest, and
the dealers in these securities. In addition, the Sub-Advisor will furnish to
Fifth Third Bank such investment advice and statistical and other factual
information as may from time to time be reasonably requested by Fifth Third
Bank.
SUB-ADVISORY FEES. The Advisor will be responsible for compensating the
Sub-Advisor at the annual rate of 0.50% of the Fund's average daily net
assets.
SUB-ADVISOR'S BACKGROUND. Morgan Stanley Asset Management Inc., with
principal offices at 1221 Avenue of the Americas, New York, NY 10020,
is a wholly-owned subsidiary of Morgan Stanley Group Inc. It conducts a
worldwide portfolio management business, providing a broad range of
portfolio management services to customers in the United States and
abroad. At June 30, 1995, the Sub-Advisor managed investments totaling
approximately $40.0 billion under active management and $15.1 billion
as Named Fiduciary or Fiduciary Advisor.
PORTFOLIO MANAGERS' BACKGROUND. Barton M. Biggs has been Chairman and a
Director of the Sub-Advisor since 1980 and Managing Director of Morgan
Stanley & Co. Incorporated since 1975. He is also a Director of Morgan
Stanley Group, Inc. and a Director and Officer of six registered
investment companies to which the Sub-Advisor and certain
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of its affiliates provides investment advisory services. Mr. Biggs
holds a B.A. from Yale University and an M.B.A. from New York
University.
Madhav Dhar is a Managing Director of Morgan Stanley & Co.
Incorporated. He joined the Sub-Advisor in 1984 to focus on global
asset allocation and investment strategy and now heads the
Sub-Advisor's emerging markets group and serves as the group's
principal portfolio manager. He holds a B.S. (honors) from St. Stephens
College, Delhi University (India), and an M.B.A. from Carnegie-Mellon
University.
Francine Bovich joined the Sub-Advisor as a Principal in 1993. She is
responsible for product development, portfolio management and
communication of the Sub-Advisor's asset allocation strategy to
institutional investor clients. Previously, Ms. Bovich was a principal
and Executive Vice President of Westwood Management Corp., a registered
investment advisor. Before joining Westwood Management Corp., she was a
Managing Director of Citicorp Investment Management, Inc. (now
Chancellor Capital Management), where she was responsible for the
Institutional Investment Management Group. Ms. Bovich began her
investment career with Banker's Trust Company. She holds a B.A. in
Economics from Connecticut College and an M.B.A. from New York
University.
Ann Thivierge is a Vice President of the Sub-Advisor. She is a member
of the Sub-Advisor's asset allocation committee, primarily representing
the Total Fund Management Team since its inception in 1991. Ms.
Thivierge holds a B.A. in International Relations from James Madison
College, Michigan State University, and an M.B.A. in Finance from New
York University.
DISTRIBUTION OF SHARES OF THE FUNDS
BISYS Fund Services L.P. serves as the distributor for the Trust. BISYS Fund
Services L.P. is wholly-owned by BISYS Group, Inc., 150 Clove Road, Little
Falls, NJ 07424, a publicly owned company engaged in information processing and
recordkeeping services to and through banking and other financial organizations.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Investment C Shares purchased by their clients or
customers at the time of purchase. These payments will be made directly by the
distributor from its assets, and will not be made from assets of the Fund.
Financial institutions may elect to waive the initial payment described above;
such waiver will result in the waiver by the Fund of the otherwise applicable
contingent deferred sales charge.
DISTRIBUTION PLAN
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Investment A Shares and Investment C Shares may
pay a fee to the distributor in an amount computed at an annual rate of up to
0.35% and 0.75%, 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.
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
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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:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FUND
------------------ ----------------------
0.20% of the first $1 billion
0.18% of the next $1 billion
0.17% in excess of $2 billion
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.
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.
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At present, the only expenses which are allocated specifically to Investment A
Shares and Investment C Shares as classes are expenses under the Trust's
Distribution Plan and fees for Administrative Services. However, the Trustees
reserve the right to allocate certain other expenses to holders of Investment A
Shares and Investment C Shares as they deem appropriate ("Class Expenses"). In
any case, Class Expenses would be limited to: distribution fees; transfer agent
fees as identified by the transfer agent as attributable to holders of
Investment A Shares and Investment C Shares; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to the
Securities and Exchange Commission and to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Investment A Shares and Investment C Shares; legal fees relating solely to
Investment A Shares or Investment C Shares; and Trustees' fees incurred as a
result of issues related solely to Investment A Shares or Investment C Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Advisor and Sub-Advisor look for prompt execution of the order
at a favorable price. In working with dealers, the Advisor and Sub-Advisor will
generally utilize those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can be
obtained elsewhere. In selecting among firms believed to meet these criteria,
the Advisor and Sub-Advisor may give consideration to those firms which have
sold or are selling shares of the Fund. The Advisor and Sub-Advisor make
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
Subject to the overriding objective of obtaining the best possible execution of
orders, a portion of International Equity Fund's portfolio brokerage
transactions may be allocated to broker affiliates of the sub-advisor. In order
for such affiliates to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration they receive must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time.
Furthermore, the Trustees of the Fund, including a majority of the Trustees who
are not "interested persons," have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
such affiliates are consistent with the foregoing standard.
NET ASSET VALUE
The net asset value per share of each Fund fluctuates daily. The net asset value
for Shares of each Fund is determined by adding the interest of each class of
Shares in the market value of all securities and other assets of each Fund,
subtracting the interest of each class of Shares in the liabilities of such Fund
and those attributable to each class of Shares, and dividing the remainder by
the total number of each class of Shares outstanding. The net asset value for
each class of Shares may differ due to the variance in daily net income realized
by each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
The net asset value of each class of Shares of the Funds is determined as of the
close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on days on which there are not
sufficient changes in the value of a Fund's portfolio securities that its net
asset value might be materially affected and days during which no Shares are
tendered for redemption and no orders to purchase Shares are received.
INVESTING IN THE FUNDS
The Funds offer investors two classes of Shares that either carry sales loads or
contingent deferred sales charges in different forms and amounts and which bear
different levels of expense.
SHARE PURCHASES
Shares of the Funds are sold on days on which the New York Stock Exchange and
the Federal Reserve Bank of Cleveland are open for business. In connection with
the sale of Shares of the Funds, the distributor may from time to time offer
certain items of nominal value to any shareholder or investor. The Funds reserve
the right to reject any purchase request. Purchases of Fund Shares may not be
available to investors in all states.
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<PAGE> 57
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.
From time to time, shares of the Funds may be purchased by the Advisor, the
Distributor, or the Administrator in connection with various promotions of the
Fountain Square Funds. In these cases, the Advisor, the Distributor, or the
Administrator will distribute Fund shares to existing or potential investors as
an incentive to purchase the Funds. As of the date of this prospectus, the
Funds' administrator is participating in a promotion sponsored by the Cincinnati
Enquirer which will entitle one or more persons to receive Fund Investment A
Shares purchased by the Administrator. In addition, through April 15, 1997, the
Advisor is offering a special $50 investment bonus to individuals who purchase
shares of a Fountain Square Stock or Bond Mutual Fund through Fifth Third
Securities, Inc. The minimum investment required to receive the $50 investment
bonus, payable in shares of Fountain Square Funds, is $5,000 and the minimum
holding period is six months. For more information regarding the $50 investment
bonus, you should call a Fifth Third Securities Investment Consultant or the
Funds at 1-888-799-5353.
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:
<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 Fifth Third
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<PAGE> 58
Investment Advisors; 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. Such payments may take the form of cash or
promotional incentives, such as reimbursement of certain expenses of qualified
employees and their spouses to attend informational meetings about the Funds or
other special events at recreational-type facilities, or items of material
value. In some instances, these incentives will be made available only to
dealers whose employees have sold or may sell a significant amount of Fund
shares.
The sales charge for Investment A Shares sold other than through registered
broker/dealers will be retained by the distributor. The distributor may pay fees
to financial institutions out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the financial institution's
customers in connection with the initiation of customer accounts and purchases
of Investment A Shares.
REDUCING/ELIMINATING THE SALES CHARGE. The sales charge can be reduced or
eliminated on the purchase of Investment A Shares through:
- quantity discounts and accumulated purchases;
- signing a 13-month letter of intent;
- Fifth Third Bank's Club 53, One Account Plus, One Account
Gold, One Account Advantage, or One Account Platinum Programs;
- 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.
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<PAGE> 59
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent,
which must be $50,000 or more of Fund Investment A Shares, is not purchased. In
this event, an appropriate number of escrowed Investment A Shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase Investment A
Shares, but if he does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. The letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.
FIFTH THIRD BANK CLUB 53, ONE ACCOUNT PLUS, ONE ACCOUNT GOLD, ONE ACCOUNT
ADVANTAGE AND ONE ACCOUNT PLATINUM PROGRAMS. All shareholders who have a Club 53
Account, One Account Plus, One Account Gold, One Account Advantage or One
Account Platinum through Fifth Third Bank are eligible for a reduced sales
charge on the purchase of Investment A Shares of the Funds. Shareholders should
consult their Fifth Third Securities Representative for details about these
account programs.
The reduced sales charges applicable to the accounts are as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
<S> <C> <C> <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 an
unaffiliated mutual fund that is not a money market or stable net asset value
fund. If the purchase of Investment A Shares is made with proceeds from the
redemption of mutual fund shares that were not sold with a sales charge or
commission, the investor must have held such mutual fund shares for at least 90
days to be eligible for the purchase of Investment A Shares at net asset value.
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.
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<PAGE> 60
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain securities
and cash for Fund Shares. The securities and any cash must have a market value
of at least $25,000. The Funds reserve the right to determine the acceptability
of securities to be exchanged. On the day securities are accepted by a Fund,
they are valued in the same manner as a Fund values its assets.
Investors wishing to exchange securities should first contact the Funds.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $50. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund Shares at the net asset value next determined after an order is
received by the Funds, plus any applicable sales charge. The minimum initial
investment requirement does not apply for those shareholders who participate in
the Systematic Investment Program. A shareholder may apply for participation in
this program on their account application or by contacting the Funds.
CERTIFICATES AND CONFIRMATIONS
The transfer agent maintains a Share account for each shareholder of record.
Share certificates are not issued. Detailed statements that include account
balances, information on each purchase or redemption, and a report of dividends
paid are sent to shareholders.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared just prior to determining net asset value. Capital gains
realized by a Fund, if any, will be distributed at least once every 12 months.
Dividends and capital gains will be reinvested in additional Shares on payment
dates at the ex-dividend date net asset value without a sales charge unless cash
payments are requested by shareholders by writing to the appropriate Fund.
Dividends are paid to all shareholders who are invested in a Fund on that Fund's
record date. With respect to the Government Securities Fund, the Quality Bond
Fund, the Quality Growth Fund, the Ohio Tax Free Bond Fund, the Equity Income
Fund, the Bond Fund For Income, and the Municipal Bond Fund, dividends are
declared and paid monthly. With respect to the Mid Cap Fund and the Balanced
Fund, dividends are declared and paid quarterly. With respect to the
International Equity Fund, dividends, if any, are declared and paid annually.
EXCHANGES
A shareholder may exchange Shares of one Fund for Shares of the same class of
any of the other Funds in the Trust by calling or sending a written request to
the Funds.
Shareholders may exchange Shares of one Fund for Shares of the same class of any
of the other Funds in the Trust by calling the Funds toll-free at (888) 799-5353
or sending a written request to the Funds. Telephone exchange instructions may
be recorded. If reasonable procedures are not followed by the Funds, they may be
liable for losses due to unauthorized or fraudulent telephone instructions.
Orders to exchange Shares of one Fund for Shares of the same class of any of the
other Funds will be executed by redeeming the Shares owned at net asset value
and purchasing Shares of the same class of any of the other Funds at the net
asset value determined after the exchange request is received. Orders for
exchanges received by a Fund prior to 2:30 p.m. (Eastern time) on any day that
Fund is open for business will be executed as of the close of business that day.
Orders for exchanges received after 2:30 p.m. (Eastern time) on any business day
will be executed at the close of the next business day.
When exchanging into and out of Investment A Shares of the Funds in the Trust,
shareholders who have paid a sales load once upon purchasing Investment A Shares
of any Fund will not have to pay a sales load again on an exchange. When
exchanging into and out of Investment C Shares of the Funds in the Trust, the
time for which the exchanged-for Shares are to be held will be added to the time
for which exchanged-from Shares were held for purposes of satisfying the
applicable holding period. For more information, see "Contingent Deferred Sales
Charge."
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<PAGE> 61
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time. Shareholders would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of Shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where Shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
Each Fund redeems Shares at their net asset value, less any applicable
contingent deferred sales charge, next determined after the Fund receives the
redemption request. Redemptions will be made on days on which the New York Stock
Exchange and the Federal Reserve Bank of Cleveland are open for business.
Telephone or written requests for redemption must be received in proper form as
described below and can be made through a shareholder's financial representative
or directly through the Fund. Orders placed through financial institutions must
be received by the financial institution and transmitted to the Funds before
2:30 p.m. (Eastern time) in order for Shares to be redeemed at that day's price.
It is the financial institution's responsibility to transmit orders promptly,
however, investors should allow sufficient time for orderly processing and
transmission.
BY TELEPHONE
Shares may be redeemed in any amount by calling the Funds, provided the Funds
have received a properly completed authorization form. Proceeds will be mailed
in the form of a check to the shareholder's address of record or by wire
transfer to the shareholder's account at a domestic commercial bank that is a
member of the Federal Reserve System. Proceeds from redeemed Shares purchased by
check or through ACH will not be wired until that method of payment has cleared.
Telephone instructions may be recorded. If reasonable procedures are not
followed by the Funds, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.
For calls received before 2:30 p.m. (Eastern time), a check will be sent to the
address of record. Normally, a check for the proceeds is mailed within three
business days, but in no event more than seven days after receipt of a proper
request for redemption has been received provided the Fund or its agents have
received payment for Shares from the shareholder. If at any time a Fund shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting a Fund to accept telephone requests must be
completed. Authorization forms and information on this service are available
from the Funds or the distributor.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL
A shareholder may redeem Shares by sending a written request to:
Fifth Third Bank
Fountain Square Funds Redemptions 1090EC
38 Fountain Square Plaza
Cincinnati, OH 45263
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:
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<PAGE> 62
- a trust company or commercial bank whose deposits are insured
by the FDIC;
- a member of the New York, American, Boston, Midwest, or
Pacific Stock Exchange;
- a savings and loan association or a savings bank whose
deposits are insured by the Savings Association Insurance
Fund, which is administered by the FDIC; or
- any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Funds and their transfer agent reserve the
right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed to the shareholder within three
business days, but in no event more than seven days, after receipt of a proper
written redemption request, provided the Fund or its agents have received
payment for Shares from the shareholder.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund Shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Fund
Shares, and the fluctuation of the net asset value of Fund Shares redeemed under
this program, redemptions may reduce, and eventually exhaust, the shareholder's
investment in a Fund. For this reason, payments under this program should not be
considered as yield or income on the shareholder's investment in a Fund. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through their financial representative or by contacting the Funds. Due
to the fact that Shares are sold with a sales charge, it is not advisable for
shareholders to be purchasing Shares while participating in this program. A
contingent deferred sales charge may be imposed on Investment C Shares redeemed
under the Program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000.
Before redeeming shares to close an account, a Fund will notify the shareholder
in writing and allow the shareholder 30 days to purchase additional Shares to
meet the minimum requirement.
CONTINGENT DEFERRED SALES CHARGE
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.
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<PAGE> 63
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing distributions from an Individual
Retirement Account or other retirement plan to a shareholder; and (3)
involuntary redemptions by a Fund of Shares in shareholder accounts that do not
comply with the minimum balance requirements. No contingent deferred sales
charge will be imposed on redemptions of Shares held by Directors, employees and
registered representatives of the Fund, the distributor, or affiliates of the
Fund or distributor; employees of any financial institution that sells Shares of
a Fund pursuant to a sales agreement with the distributor; and spouses and
children under the age of 21 of the aforementioned persons. The Trustees reserve
the right to discontinue any elimination of the contingent deferred sales
charge. Shareholders will be notified of such elimination. Any Investment C
Shares purchased prior to the termination of such waiver would have the
contingent deferred sales charge eliminated as provided in the Funds' prospectus
at the time of the purchase of the Shares. If a shareholder making a redemption
qualifies for an elimination of the contingent deferred sales charge, the
shareholder must notify the transfer agent in writing that he is entitled to
such elimination.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each Share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of each Fund in the
Trust have equal voting rights, except that in matters affecting only a
particular Fund, only Shares of that Fund are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or a Fund's operation and for the election of Trustees
under certain circumstances.
As of November 14, 1997, Fifth Third Bank may for certain purposes be deemed to
control the Funds because it is owner of record of certain shares of the Funds.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding Shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of a Fund. To
protect shareholders of a Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of a Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign on behalf of a Fund.
In the unlikely event a shareholder of a Fund is held personally liable for the
Trust's obligations on behalf of a Fund, the Trust is required by the
Declaration of Trust to use the property of a Fund to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of a Fund for any act or obligation of the Trust
on behalf of a Fund. Therefore, financial loss resulting from liability as a
shareholder of a Fund will occur only if the Trust cannot meet its obligations
to indemnify shareholders and pay judgments against them from the assets of a
Fund.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956, as amended, or any affiliate thereof from sponsoring, organizing or
controlling a registered, open-end investment company continuously engaged in
the issuance of its shares, and from issuing, underwriting, selling or
distributing securities in general. Such laws and regulations do not prohibit
such a holding company or affiliate from acting as investment 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.
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Fifth Third Bank believes that it may perform the investment advisory services
for any Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or a Fund. In such event, changes in the operation of a
Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment or redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisors and other means of continuing available investment services.
It is not expected that an existing Fund's shareholders would suffer any adverse
financial consequences (if another advisor with equivalent abilities to Fifth
Third Bank is found) as a result of any of these occurrences.
TAX INFORMATION
FEDERAL INCOME TAX
The Funds will pay no federal income tax because each Fund expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a Fund,
if any, will not be combined for tax purposes with those realized by any of the
other Funds.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividend earned in an IRA or qualified retirement plan until distributed.
Shareholders are urged to consult their own tax advisors regarding the status of
their accounts under state and local tax laws.
ADDITIONAL TAX INFORMATION FOR OHIO TAX FREE BOND FUND
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
Distributions representing net long-term capital gains realized by the Fund, if
any, will be taxable as long-term capital gains regardless of the length of time
shareholders have held their Shares.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
STATE OF OHIO INCOME TAXES. Dividends of the Fund representing interest from
obligations held by the Fund which are issued by the state of Ohio or its
subdivisions, which interest is exempt from federal income tax when received by
a shareholder, should also be exempt from the Ohio individual income tax.
Dividends of the Fund representing interest from obligations held by the Fund
which are issued by the state of Ohio or its subdivisions should also be exempt
from any Ohio municipal income tax even if the municipality is permitted under
current Ohio law to levy a tax on intangible income.
OTHER STATE AND LOCAL TAXES. Income from the Fund is not necessarily free from
state income taxes in states other than Ohio or from personal property taxes.
State laws differ on this issue, and shareholders are urged to consult their own
tax advisors regarding the status of their accounts under state and local tax
laws.
ADDITIONAL TAX INFORMATION FOR 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.
60
<PAGE> 65
ADDITIONAL TAX INFORMATION FOR INTERNATIONAL EQUITY FUND
The Fund may invest in the stock of certain foreign corporations which would
constitute a Passive Foreign Investment Company (PFIC). Federal income taxes may
be imposed on the Fund upon disposition of PFIC investments.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemption on this income. The effective rate of foreign tax
cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Internal Revenue Code stipulations that would allow
shareholders to claim a foreign tax credit or deduction on their U.S. income tax
returns. The Internal Revenue Code, as amended, may limit a shareholder's
ability to claim a foreign tax credit. Furthermore, shareholders who elect to
deduct their portion of the Fund's foreign taxes rather than take the foreign
tax credit must itemize deductions on their income tax returns.
PERFORMANCE INFORMATION
From time to time, the Funds advertise total return and yield for each class of
Shares. In addition, the Ohio Tax Free Bond Fund and 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 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 yields of the Ohio Tax Free Bond Fund and the Municipal Bond
Fund are calculated similarly to the yield, but are adjusted to reflect the
taxable yield that would have to be earned to equal the actual yield of each
class of Shares of the Funds, 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.
61
<PAGE> 66
ADDRESSES
Fountain Square U.S. Government Fountain Square Funds
Securities Fund c/o Fifth Third Bank
Fountain Square Quality Bond Fund 38 Fountain Square Plaza
Fountain Square Ohio Tax Free Bond Fund Cincinnati, Ohio 45263
Fountain Square Quality Growth Fund
Fountain Square Mid Cap Fund
Fountain Square Balanced Fund
Fountain Square International Equity Fund
Fountain Square Equity Income Fund
Fountain Square Bond Fund For Income
Fountain Square Municipal Bond Fund
Investment Advisor
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Custodian, Transfer Agent, Dividend Disbursing Agent, and Sub-Administrator
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Distributor and Administrator
BISYS Fund Services, L.P.
3435 Stelzer Road
Columbus, Ohio 43219
Independent Auditors
Ernst & Young LLP
1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
62
<PAGE> 1
Exhibit 17(ii)
FOUNTAIN SQUARE GOVERNMENT
CASH RESERVES FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT SHARES
TRUST SHARES
PROSPECTUS
The Investment Shares and Trust Shares of Fountain Square Government Cash
Reserves Fund (the "Fund") offered by this prospectus represent interests in a
diversified portfolio of securities which is one of a series of investment
portfolios in Fountain Square Funds (the "Trust"), an open-end management
investment company (a mutual fund).
The Fund is a money market fund which invests in short-term U.S. government
securities to achieve high current income consistent with stability of
principal and liquidity. The Fund intends to limit its investments to those
U.S. government securities whose interest is generally exempt from personal
income tax in the various states if owned directly. Please see the "Tax
Information" section of this prospectus.
This prospectus contains the information you should read and know before you
invest in Investment Shares or Trust Shares of the Fund. Keep this prospectus
for future reference.
The Fund has also filed a Combined Statement of Additional Information for
Investment Shares and Trust Shares, dated September 30, 1997, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge, obtain other information or make inquiries about
the Fund by writing to the Fund or calling toll-free (888) 799-5353.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. THE FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO DO SO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Prospectus dated September 30, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES .......................................................... 1
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES ........................................... 3
FINANCIAL HIGHLIGHTS--TRUST SHARES ................................................ 4
GENERAL INFORMATION ............................................................... 5
INVESTMENT INFORMATION ............................................................ 5
Investment Objective ...................................................... 5
Investment Policies ....................................................... 5
Acceptable Investments ........................................... 5
When-Issued and Delayed Delivery Transactions .................... 6
Lending of Portfolio Securities .................................. 6
Investment Limitations .................................................... 6
FOUNTAIN SQUARE FUNDS INFORMATION ................................................. 6
Management of the Trust ................................................... 6
Board of Trustees ................................................ 6
Investment Advisor ............................................... 7
Advisory Fees ............................................ 7
Advisor's Background ..................................... 7
Distribution of Shares of the Fund ........................................ 7
Investment Shares Distribution Plan .............................. 7
Other Payments to Financial Institutions ......................... 8
Administration of the Fund ............................................... 8
Administrative Services .......................................... 8
Custodian, Transfer Agent and Dividend Disbursing Agent .......... 8
Independent Auditors ............................................. 8
NET ASSET VALUE ................................................................... 9
INVESTING IN THE FUND ............................................................. 9
Share Purchases ........................................................... 9
Minimum Investment Required ............................................... 9
What Shares Cost .......................................................... 9
Certificates and Confirmations ............................................ 10
Dividends ................................................................. 10
Capital Gains ............................................................. 10
EXCHANGES ......................................................................... 10
REDEEMING SHARES .................................................................. 11
By Telephone .............................................................. 11
By Mail ................................................................... 11
Receiving Payment ......................................................... 12
Accounts with Low Balances ................................................ 12
SHAREHOLDER INFORMATION ........................................................... 12
Voting Rights ............................................................. 12
Massachusetts Law ......................................................... 13
EFFECT OF BANKING LAWS ............................................................ 13
TAX INFORMATION ................................................................... 13
Federal Income Tax ........................................................ 13
State and Local Taxes ..................................................... 14
PERFORMANCE INFORMATION ........................................................... 14
PORTFOLIO OF INVESTMENTS .......................................................... 15
STATEMENT OF ASSETS AND LIABILITIES ............................................... 17
STATEMENT OF OPERATIONS ........................................................... 18
STATEMENT OF CHANGES IN NET ASSETS ................................................ 19
NOTES TO FINANCIAL STATEMENTS ..................................................... 20
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS ................................. 23
ADDRESSES ........................................................................ 24
</TABLE>
i
<PAGE> 3
SUMMARY OF FUND EXPENSES
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) ... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) ........................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) ........................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable) ............ None
Exchange Fee .................................................................. None
</TABLE>
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
<TABLE>
<S> <C>
Management Fee (after waiver)(1) .............................................. 0.37%
12b-1 Fee (after waiver)(2) .................................................... 0.00%
Other Expenses (after waiver)(3) .............................................. 0.15%
Total Investment Shares Operating Expenses(4) ................................. 0.52%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by
the investment advisor. The advisor can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) The 12b-1 has been reduced to reflect the voluntary waiver by the
distributor. The distributor can terminate this voluntary waiver at any
time at its sole discretion. The maximum 12b-1 fee is 0.35%.
(3) Other expenses have been reduced to reflect the voluntary waiver of fees
by the administrator.
(4) Total Investment Shares operating expenses would be 0.90% absent the
voluntary waivers by the investment advisor, the distributor and the
administrator.
TRUST SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) ... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) ........................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) ........................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable) ............ None
Exchange Fee .................................................................. None
</TABLE>
ANNUAL TRUST SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver)(1) .............................................. 0.37%
12b-1 Fee ..................................................................... None
Total Other Expenses (after waiver)(2) ........................................ 0.15%
Total Trust Shares Operating Expenses(3) ...................................... 0.52%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by
the investment advisor. The advisor can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) Other expenses have been reduced to reflect the voluntary waiver of fees
by the administrator.
(3) Total Trust Shares operating expenses would be 0.55% absent the voluntary
waivers by the investment advisor and the administrator.
1
<PAGE> 4
THE PURPOSE OF THE EXPENSE TABLES IS TO ASSIST AN INVESTOR IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT
SHARES OR TRUST SHARES WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE
COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE
FUNDS INFORMATION," "INVESTING IN INVESTMENT SHARES" AND "INVESTING IN TRUST
SHARES." Wire-transferred redemptions of less than $10,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the
following expenses
on a $1,000
investment in
Investment Shares
or Trust Shares,
assuming (1) 5%
annual return and
(2) redemption at
the end of each
time period. The
Fund charges no
redemption fees for
Investment Shares
or Trust Shares..... $5 $16 $28 $63
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2
<PAGE> 5
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 25.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------
1997 1996 1995 1994 1993 1992*
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- -----
Income from investment operations
Net investment income 0.05 0.05 0.05 0.03 0.03 0.03
----- ----- ----- ----- ----- -----
Less distributions
Dividends to shareholders from net
investment income 0.05 (0.05) (0.05) (0.03) (0.03) (0.03)
----- ----- ----- ----- ----- -----
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== =====
Total return 5.00% 5.11% 5.22% 3.03% 2.76% 2.61%(c)
Ratios to Average Net Assets
Expenses 0.51% 0.51% 0.50% 0.50% 0.50% 0.50%(b)
Net investment income 4.90% 4.97% 5.17% 2.96% 3.22% 3.68%(b)
Expense waiver/reimbursement(a) 0.44% 0.42% 0.45% 0.48% 0.50% 0.50%(b)
Supplemental Data
Net assets, ends of period (000
omitted) $110,578 $68,884 $45,726 $11,073 $10,923 $8,726
</TABLE>
*Reflects operations for the period from November 25, 1991 (date of initial
public investment) to July 31, 1992.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(See Notes which are an integral part of the Financial Statements)
3
<PAGE> 6
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
FINANCIAL HIGHLIGHTS TRUST SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 25.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------
1997 1996 1995 1994 1993 1992
--------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------ -------- -------- -------- -------- ------- -------
Income from investment operations
Net investment income 0.05 0.05 0.05 0.03 0.03 0.04
-------- -------- -------- -------- ------- -------
Less distributions
Dividends to shareholders from net
investment income (0.05) (0.05) (0.05) (0.03) (0.03) (0.04)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ======= =======
Total return** 5.01% 5.11% 5.22% 3.03% 2.76% 4.19%
Ratios to Average Net Assets
Expenses 0.51% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income 4.90% 4.99% 5.17% 3.01% 3.22% 4.14%
Expense waiver/reimbursement(a) 0.09% 0.07% 0.20% 0.13% 0.15% 0.15%
Supplemental Data
Net assets, ends of period (000
omitted) $162,543 $132,326 $129,603 $106,632 $92,993 $82,888
</TABLE>
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
4
<PAGE> 7
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust
to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one
portfolio may be offered in separate classes. As of the date of this
prospectus, the Board of Trustees ("Trustees") have established two classes of
shares of the Fund, known as Trust Shares and Investment Shares. This
prospectus relates to both classes of shares of the Fund.
Investment Shares and Trust Shares (the "Shares") are intended to provide a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio limited to U.S. government obligations. Trust Shares are
designed for investors who are fiduciary or agency clients of financial
institutions. Investment Shares are designed for investors who are not
fiduciary or agency clients of financial institutions. In both cases, a
minimum initial investment of One Thousand Dollars ($1,000.00) is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is high current income consistent with
stability of principal and liquidity. This investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
short-term U.S. government securities maturing in 13 months or less. The
average maturity of U.S. government securities in the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less. Unless indicated
otherwise, the investment policies may be changed by the Trustees without
approval of shareholders. Shareholders will be notified before any material
changes in these policies become effective.
The Fund intends to limit its investments to those U.S. government securities
whose interest is generally exempt from personal income tax in the various
states if owned directly. However, from time to time, the Fund may also invest
in other U.S. government securities if the advisor deems it advantageous to do
so. Please see the "Tax Information" section of this prospectus.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund
invests are either issued or guaranteed by the U.S. government, its agencies,
or instrumentalities. These securities include, but are not limited to:
o direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
o notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit Banks Federal Home
Loan Banks; and Student Loan Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government are backed by the full faith and credit of the U.S. Treasury.
No assurances can be given that the U S. government will provide
5
<PAGE> 8
financial support to other agencies or instrumentalities since it is not
obligated to do so. These agencies and instrumentalities are supported by:
o the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
o discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
o the credit of the agency or instrumentality.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase U.S.
government securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay
more or less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's advisor
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Advisor has determined are creditworthy under
guidelines established by the Fund's Trustees and will receive collateral at
all times equal to at least 100% of the value of the securities loaned. There
is the risk that when lending portfolio securities, the securities may not be
available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or pledge securities except, under
certain circumstances, the Fund may borrow up to one-third of the value of its
total assets and pledge up to 10% of the value of its total assets to secure
such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not commit more than 10% of its net assets to illiquid
obligations.
FOUNTAIN SQUARE FUNDS INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders.
6
<PAGE> 9
INVESTMENT ADVISOR. Pursuant to an investment advisory contract with the
Trust, investment decisions for the Fund are made by The Fifth Third Bank, the
Fund's investment advisor (the "Advisor"), subject to direction by the
Trustees. The Advisor continually conducts investment research and supervision
for the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Advisor receives an annual investment advisory fee
equal to 0.40 of 1% of the Fund's average daily net assets. The Advisor
has undertaken to waive up to the amount of the advisory fee, for
operating expenses in excess of limitations established by certain
states. The Advisor may voluntarily choose to waive a portion of its fee
or reimburse other expenses of the Fund, but reserves the right to
terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISOR'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank, is
a wholly-owned subsidiary of Fifth Third Bancorp, a bank holding company
organized under the laws of Ohio. Fifth Third Bank is a commercial bank
offering a wide range of banking services to its customers. As of July
31, 1997, Fifth Third Bank and its affiliates managed assets in excess of
$11.1 billion on a discretionary basis and provided custody services for
additional assets in excess of $108.3 billion. Fifth Third Bank has
managed mutual funds since 1988.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages 6 such pools with
total assets of over $509.7 million.
As part of their regular banking operations, Fifth Third Bank may make
loans to public companies. Thus, it may be possible, from time to time,
for the Fund to hold or acquire the securities of issuers which are also
lending clients of Fifth Third Bank. The lending relationship will not
be a factor in the selection of securities.
DISTRIBUTION OF SHARES OF THE FUND
BISYS Fund Services L.P. serves as the distributor for the Trust. BISYS Fund
Services L.P. is wholly-owned by BISYS Group, Inc., 150 Clove Road, Little
Falls, NJ 07424, a publicly owned company engaged in information processing
and record keeping services to and through banking and other financial
organizations.
INVESTMENT SHARES DISTRIBUTION PLAN. Pursuant to the provisions of a
distribution plan adopted in accordance with Rule 12b-1 (the "Plan") under the
Investment Company Act of 1940, the Fund will pay to the distributor an amount
computed at an annual rate of up to 0.35% of the average daily net asset value
of the Investment Shares to finance any activity which is principally intended
to result in the sale of Investment Shares subject to the Plan. No such plan
has been adopted relating to the sale of Trust Shares.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the Investment Shares exceed such lower expense
limitation as the distributor may, by notice to the Trust, voluntarily declare
to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisors, and broker/dealers to provide
sales and/or administrative services as agents for their clients or customers
who beneficially own Investment Shares. Administrative services may include,
but are not limited to, the following functions: providing office space,
equipment, telephone facilities, and various personnel including clerical,
supervisory, and computer as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Fund; assisting clients in
changing dividend options; account designations, and addresses; and providing
such other services as the Fund reasonably requests.
7
<PAGE> 10
Financial institutions will receive fees from the distributor based upon
Investment Shares owned by their clients or customers. The schedules of such
fees and the basis upon which such fees will be paid will be determined from
time to time by the distributor.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the Advisor, or
their affiliates may also offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include initiating customer accounts, providing
sales literature, or participating in sales, educational and training seminars
(including those held at recreational facilities). Such assistance will be
predicated upon the amount of shares the financial institution sells or may
sell and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Advisor or its affiliates.
The Glass-Steagall Act limits the ability of a depository institution (such as
a commercial bank or a savings and loan association) to become an underwriter
or distributor of most securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the capacities
described above or should Congress relax current restrictions on depository
institutions, the Trustees will consider appropriate changes in the
administrative services.
State securities laws governing the ability of depository institutions to act
as underwriters or distributors of securities may differ from interpretations
given to the Glass-Steagall Act and, therefore, banks and financial
institutions may be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. BISYS Fund Services L.P. serves as the administrator.
The administrator generally assists in all aspects of the Trust's
administration and operation including providing the Fund with certain
administrative personnel and services necessary to operate the Fund, such as
legal and accounting services. BISYS Fund Services L.P. provides these at an
annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- ------------------ -----------------------
<S> <C>
0.20% of the first $1 billion
0.18% of the next $1 billion
0.17% 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-administrative services on behalf of the Fund including
providing certain administrative personnel and services necessary to operate
the Fund for which it receives a fee from BISYS Fund Services L.P. computed
daily and paid periodically calculated at an annual rate of 0.025% of average
daily net assets.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Fund,
transfer agent for the Shares of the Fund, and dividend disbursing agent for
the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young
LLP, Cincinnati, Ohio.
8
<PAGE> 11
NET ASSET VALUE
The Fund attempts to stabilize the net asset value of Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per Share for each class of Shares is determined by adding the
interest of the applicable class of Shares in the value of all securities and
other assets of the Fund, subtracting the interest of those Shares in
liabilities of the Fund and those attributable to such Shares, and dividing the
remainder by the total number of Shares in the class outstanding. The Fund
cannot guarantee that its net asset value will always remain at $1.00 per
Share.
INVESTING IN THE FUND
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Bank of Cleveland are open for business. In connection with the sale
of Investment Shares or Trust Shares, the distributor may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. Purchases of Fund Shares
may not be available for investors in all states.
Shares of the Funds may be purchased either through a financial institution
(such as a bank or broker-dealer that has a sales agreement with the
distributor) or by wire or check directed to the Fund. Investors may contact
the Fund toll-free at (888) 799-5353.
Payment for Share purchases may be made to the Fund either by check or federal
funds. Orders are considered received after payment by check is converted into
federal funds and received by the custodian. This is normally the next
business day after the Fund receives the check. When payment is made with
federal funds, the order is considered received when federal funds are received
by the custodian. Federal funds should be wired to the Fund as follows: ABA
No. 042 000 314 Fifth Third Cincinnati; Attention: Fountain Square Funds
Department; For Credit to: (shareholder name and account number); For Further
Credit to: Fountain Square Government Cash Reserves Fund-Investment Shares or
Fountain Square Government Cash Reserves Fund-Trust Shares, as the case may be.
Investors not purchasing directly from the Fund should consult their financial
institution for wiring instructions.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,000. Subsequent investments
must be in amounts of at least $50. An institutional investor's minimum
investment will be calculated by combining all accounts it maintains with the
Fountain Square Funds.
The minimum investment requirements do not apply with respect to accounts that
have been established to automatically invest cash accumulations in the Fund.
Investors participating in such arrangements may be charged separate fees by
the financial institution that provides this service, and should read this
prospectus along with their financial institution's agreement or other
literature relating to this service.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. The Fund does not impose a sales charge.
9
<PAGE> 12
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
The transfer agent for the Fund maintains a share account for each shareholder
of record. Share certificates are not issued.
Detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends paid during the month are sent to each
shareholder monthly and will serve as confirmations of all transactions in the
shareholder's account for the statement period.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested on
payment dates in additional Shares unless cash payments are requested by
writing to the Fund. Share purchase orders received by the Fund before 11:00
a.m. (Eastern time) earn dividends that day.
CAPITAL GAINS
If the Fund experiences capital gains, it could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for
some extraordinary reason, the Fund realizes net long-term capital gains, it
will distribute them at least once every 12 months.
EXCHANGES
A shareholder may exchange Investment Shares of the Fund for Investment Shares
of any of the other funds in the Trust by calling the Fund, toll-free at (888)
799-5353 or by sending a written request to the Fund. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Shares of Funds with a sales charge may be exchanged at net asset value for
shares of other Funds with an equal sales charge or no sales charge. Shares of
Funds with no sales charge acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for shares of Funds with a sales
charge at net asset value plus the applicable sales charge. When exchanging
into and out of Shares of the Funds in the Trust, shareholders who have paid a
sales load once upon purchasing Shares of any Fund will not have to pay a sales
load again on an exchange.
Orders for exchanges of shares of money market funds must be received by 11:00
a.m. (Eastern time). Orders for exchanges of the U.S. Government Securities
Fund, Quality Bond Fund, Ohio Tax Free Bond Fund, Quality Growth Fund, Mid Cap
Fund, Balanced Fund, International Equity Fund, Equity Income Fund, Bond Fund
For Income, and Municipal Bond Fund must be received by 2:30 p.m. (Eastern
time). Orders for exchanges are taken on any day that the Funds are open for
business. Orders which are received prior to the cut-off times listed above
will be executed as of the close of business that day. Orders received after
the respective cut-off times will be executed at the close of the next business
day.
10
<PAGE> 13
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore the Trust, in addition to its right to reject any exchange, reserves
the right to modify or terminate the exchange privilege at any time.
Shareholders would be notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for
redemption must be received in proper form.
BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund, provided the Fund has
received a properly completed authorization form. Proceeds will be mailed in
the form of a check to the shareholder's address of record or by wire transfer
to the shareholder's account at a domestic commercial bank that is a member of
the Federal Reserve System. Proceeds from redeemed Shares purchased by check
or through ACH will not be wired until that method of payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
For calls received by Fifth Third Securities before 11:00 a.m. (Eastern time),
a check will be sent to the address of record. Those Shares will not be
entitled to the dividend declared that day. For calls received after 11:00
a.m. (Eastern time), proceeds will normally be disbursed the following business
day. Those Shares will be entitled to the dividend declared on the day the
redemption request was received. In no event will proceeds be disbursed more
than seven days after a proper request for redemption has been received. If at
any time the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must be
completed. Authorization forms and information on this service are available
from the Fund.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption, such as "By Mail," should be considered.
BY MAIL
A shareholder may redeem Shares by sending a written request to Fifth Third
Bank, Fountain Square Redemptions, M.D. 1090EC, 38 Fountain Square Plaza,
Cincinnati, Ohio 45263.
The written request should include the shareholder's name, the Fund name and
class of shares, the account number, and the share or dollar amount requested.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
11
<PAGE> 14
Shareholders requesting a redemption of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record must have signatures
on written redemption requests guaranteed by:
o a trust company or commercial bank whose deposits are insured by the
Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
o a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
o 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
o any other "eligible guarantor institution," as defined by the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT
Normally, a check for the proceeds is mailed to the shareholder within three
business days, but in no event more than seven days, after receipt of a proper
written redemption request, provided the Fund or its agents have received
payment for shares from the distributor.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any a:count and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000.
Before redeeming Shares to close an account, the Fund will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each Fund in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class
are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust or the Fund's operation and for
the election of Trustees under certain circumstances. As of September 15,
1997, Fifth Third Bank may for certain purposes be deemed to control the Funds
because it is owner of record of certain shares of the Funds.
12
<PAGE> 15
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares
of all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund.
To protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of the Fund
for such acts or obligations of the Trust. These documents require inclusion
of this disclaimer to be given in each agreement, obligation, or instrument the
Trust or its Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or to
compensate the shareholder. On request, the Trust will defend any claim made
and pay any judgment against a shareholder of the Fund for any act or
obligation of the Trust on behalf of the Fund. Therefore, financial loss
resulting from liability as a shareholder of the Fund will occur only if the
Trust cannot meet its obligations to indemnify shareholders and to pay
judgments against them from the assets of the Fund.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or any affiliate thereof from sponsoring, organizing or
controlling a registered, open-end investment company continuously engaged in
the issuance of its shares, and from issuing, underwriting, selling or
distributing securities in general. Such laws and regulations do not prohibit
such a holding company or affiliate from acting as investment advisor, transfer
agent or custodian to such an investment company or from purchasing shares of
such a company as agent for and upon the order of their customer. The Fund's
investment advisor, Fifth Third Bank, is subject to such banking laws and
regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for the Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or the Fund. In such event, changes in the operation of
the Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment and redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisors and other means of continuing available investment
services. It is not expected that Fund shareholders would suffer any adverse
financial consequences (if another advisor with equivalent abilities to Fifth
Third Bank is found) as a result of any of these occurrences.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and
to receive the special tax treatment afforded to such companies.
13
<PAGE> 16
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
The Fund intends to limit its investments to U.S. government securities paying
interest which, if owned directly by shareholders of the Fund, would generally
be exempt from state personal income tax. However, from time to time, the Fund
may also invest in other U.S. government securities if the Advisor deems it
advantageous to do so. Moreover, under the laws of some states, the net
investment income generally distributed by the Fund may be taxable to
shareholders. State laws differ on this issue, and shareholders are urged to
consult their own tax advisors regarding the status of their accounts under
state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield and effective yield for
Investment Shares and Trust Shares. The yield of Investment Shares or Trust
Shares represents the annualized rate of income earned on an investment in
those Shares over a seven-day period. It is the annualized dividends earned
during the period on the investment, shown as a percentage of the investment.
The effective yield is calculated similarly to the yield, but, when annualized,
the income earned by an investment in Investment Shares or Trust Shares is
assumed to be reinvested daily. The effective yield will be slightly higher
than the yield because of the compounding effect of this assumed reinvestment.
Advertisements and other sales literature may also refer to total return.
Total return represents the change, over a specified period of time, in the
value of an investment in Investment Shares or Trust Shares after reinvesting
all income distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
Yield and effective yield will be calculated separately for Investment Shares
and Trust Shares. Because Investment Shares are subject to 12b-1 fees, the
yield and effective yield of Trust Shares, for the same period, will exceed
that of Investment Shares.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
14
<PAGE> 17
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
PORTFOLIO OF INVESTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
Principal Amortized
Amount Security Description Cost
--------- -------------------- ---------
<S> <C> <C>
U.S. GOVERNMENT AGENCIES (100.3%)
FEDERAL FARM CREDIT BANK (27.9%)
$ 7,000,000
7,000,000 5.55%, 8/1/97 4,996,933
5,000,000 Discount Note, 8/5/97 5,988,701
6,000,000 Discount Note, 8/14/97 6,982,976
7,000,000 Discount Note, 8/18/97 3,988,000
4,000,000 Discount Note, 8/21/97 5,978,160
6,000,000 Discount Note, 8/25/97 7,969,666
8,000,000 Discount Note, 8/26/97 5,976,340
6,000,000 Discount Note, 8/27/97 5,855,833
5,880,000 Discount Note, 8/28/97 5,760,633
5,800,000 Discount Note, 9/15/97 4,952,471
5,000,000 Discount Note, 10/1/97 4,953,100
5,000,000 Discount Note, 10/3/97 5,913,867
6,000,000 Discount Note, 11/4/97 ------------
Total 76,316,680
------------
FEDERAL HOME LOAN BANK (51.7%)
11,416,463
11,425,000 Discount Note, 8/6/97 7,992,620
8,000,000 Discount Note, 8/7/97 9,989,461
10,000,000 Discount Note, 8/8/97 6,971,388
7,000,000 Discount Note, 8/28/97 4,999,802
5,000,000 Floating Rate Note, 5.49%, 8/28/97** 13,929,178
14,000,000 Discount Note, 9/3/97 5,961,150
6,000,000 Discount Note, 9/12/97 5,956,600
6,000,000 Discount Note, 9/18/97 5,948,758
6,000,000 Discount Note, 9/25/97 7,932,551
8,000,000 Discount Note, 9/26/97 13,576,473
13,700,000 Discount Note, 9/30/97 7,921,240
8,000,000 Discount Note, 10/6/97 7,918,929
8,000,000 Discount Note, 10/8/97 7,916,778
8,000,000 Discount Note, 10/10/97 12,837,472
13,000,000 Discount Note, 10/24/97 3,946,798
4,000,000 Discount Note, 10/29/97 5,861,680
6,000,000 Discount Note, 12/31/97 ------------
Total 141,077,341
------------
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
Principal Amortized
Amount Security Description Cost
--------- -------------------- ------------
<S> <C> <C>
STUDENT LOAN MARKETING ASSOCIATION (11.6%)
5,000,000
5,000,000 Floating Rate Note, 5.44%, 8/21/97** 7,886,678
8,000,000 Discount Note, 9/22/97 18,900,000
18,900,000 Master Note, 5.46%, 7/1/00* ------------
Total 31,786,678
------------
TENNESSEE VALLEY AUTHORITY (9.1%)
7,974,567
8,000,000 Discount Note, 8/22/97 9,938,158
10,000,000 Discount Note, 9/11/97 6,915,895
7,000,000 Discount Note, 10/2/97 ------------
Total 24,828,620
------------
TOTAL U.S. GOVERNMENT AGENCIES 274,009,319
------------
TOTAL INVESTMENTS (AMORTIZED COST $274,009,319)*** (100.3%) 274,009,319
LIABILITIES IN EXCESS OF OTHER ASSETS (0.3%) (887,939)
------------
TOTAL NET ASSETS (100.0%) $273,121,380
============
</TABLE>
Percentages indicated are based on net assets of $273,121,380.
*Current rate shown.
**Current rate and next demand date shown.
***Also represents cost for federal tax purposes.
(See Notes which are an integral part of the Financial Statements)
16
<PAGE> 19
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Amortized cost $274,009,319) $274,009,319
------------
Cash 9,732
Interest receivable 408,000
Prepaid expenses and other assets 416
------------
Total Assets 274,427,467
------------
LIABILITIES:
Dividends payable 1,140,549
Accrued expenses and other payables:
Investment advisory fees 81,879
Administration fees 19,297
Accounting and transfer agent fees 8,010
Custodian fees 2,276
Legal and audit fees 8,328
Printing 17,302
Registration and Filing 22,303
Other 6,143
------------
Total Liabilities 1,306,087
------------
NET ASSETS:
Paid-in capital 273,120,811
Accumulated net realized gains on investment transactions 569
------------
Net Assets $273,121,380
============
Net Assets
Trust Shares $162,542,701
Investment Shares 110,578,679
------------
Total $273,121,380
============
Outstanding units of beneficial interest (shares)
Trust Shares 162,542,539
Investment Shares 110,578,267
------------
Total 273,120,806
============
Net asset value
Offering and redemption price per share-Trust Shares $1.00
============
Offering and redemption price per share-Investment Shares $1.00
============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
17
<PAGE> 20
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $13,334,084
-----------
Total Income 13,334,084
EXPENSES:
Investment advisory fees $985,974
Administrative fees 301,449
Distribution fees - Investment Shares 338,716
Portfolio accounting fees 53,808
Transfer and dividend disbursing agent fees and expenses 16,150
Directors' Trustees' fees 3,753
Audit fees 11,000
Custodian 14,714
Legal fees 8,417
Fund share registration costs 41,612
Printing and postage expense 30,447
Insurance expense 5,517
Other 1,195
-----------
Total expenses 1,812,752
Less expenses voluntarily reduced (558,240)
-----------
Net Expenses 1,254,512
-----------
Net Investment Income 12,079,572
-----------
REALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net realized gains (losses) from investment transactions 569
-----------
Change in net assets resulting from operations $12,080,141
===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
18
<PAGE> 21
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $12,079,572 $9,453,339
Net realized gains (losses) on investment transactions 569 --
------------- -------------
Change in net assets resulting from operations 12,080,141 9,453,339
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
Dividends to shareholders from net investment income:
Trust Shares (7,338,297) (6,408,695)
Investment Shares (4,741,275) (3,044,644)
------------- -------------
Change in net assets from distributions to shareholders (12,079,572) (9,453,339)
------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
Proceeds from sale of shares 390,115,033 295,250,564
Cost of shares redeemed (318,164,002) (269,409,604)
------------- -------------
Change in net assets from Fund share transactions 71,951,031 25,840,960
------------- -------------
Change in net assets 71,951,600 25,840,960
NET ASSETS:
Beginning of period 201,169,780 175,328,820
------------- -------------
End of period $273,121,380 $201,169,780
============= =============
(See Notes which are an integral part of the Financial Statements)
</TABLE>
19
<PAGE> 22
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
(1) ORGANIZATION
Fountain Square Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company. At July 31, 1997, the Trust consisted of thirteen separate investment
portfolios. The accompanying financial statements and notes relate only to the
Fountain Square Government Cash Reserves Fund ("the "Fund").
The investment objective of the Fund is to achieve high current income
consistent with stability of principal and liquidity. The Fund pursues its
objective by investing in short-term U.S. government securities maturing in 13
months or less.
The Fund offers two classes of shares: Trust Shares and Investment Shares.
Each class of shares has identical rights and privileges except with respect to
distribution (12b-1) fees paid by the Investment Shares, voting rights on
matters affecting a single class of shares and the exchange privileges of each
class of shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and
expenses for the period. Actual results could differ from those estimates.
A. SECURITIES VALUATIONS--Investments of the Fund are valued at either
amortized cost, which approximates market value, or at original cost,
which combined with accrued interest approximates market value. Under the
amortized cost method,discount or premium is amortized on a constant basis
to the maturity of the security. Short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value. In addition, the
Fund may not (a) purchase any instruments with a remaining maturity
greater than thirteen months unless such instrument is subject to a demand
feature, or (b) maintain a dollar-weighted average maturity which exceeds
90 days.
B. REPURCHASE AGREEMENTS--The Fund will only enter into repurchase agreements
with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Trust's Advisor to be creditworthy
pursuant to guidelines and/or standards reviewed or established by the
Board of Trustees (the "Trustees"). It is the policy of the Fund to
require the custodian or sub-custodian bank to take possession, to have
legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as
collateral under repurchase agreement transactions. Additionally,
procedures have been established by the Fund to monitor, on a daily basis,
the market value of each repurchase agreement's collateral to ensure that
the value of collateral at least equals the repurchase price to be paid
under the repurchase agreement transaction. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
20
<PAGE> 23
C. SECURITIES TRANSACTIONS AND RELATED INCOME--Securities transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis and includes, where
applicable, the pro rata amortization of premium or discount. Dividend
income is recorded on the ex-dividend date. Gains or losses realized on
sales of securities are determined by comparing the identified cost of the
security lot sold with the net sales proceeds.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records
when-issued securities on the trade date and maintains security positions
such that sufficient liquid assets will be available to make payment for
the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are valued daily and begin earning interest on the
settlement date.
E. DIVIDENDS TO SHAREHOLDERS--Dividends from net investment income are
declared daily and paid monthly and distributable net realized gains, if
any, are declared and distributed at least annually. Dividends from net
investment income and from net realized capital gains are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for expiring capital loss carry forwards and
deferrals of certain losses.
F. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies and
to distribute to shareholders each year substantially all of their income.
Accordingly, no provision for federal income tax is necessary.
(3) SHARES OF BENEFICIAL INTEREST
Transactions in Fund shares were as follows:
TRUST SHARES
<TABLE>
<CAPTION>
Year Year
Ended Ended
7/31/97 7/31/96
------------- -------------
<S> <C> <C>
Shares sold 263,396,399 189,014,068
Shares redeemed (233,179,851) (186,291,291)
------------- -------------
Net change resulting
Fund share transactions 30,216,548 2,722,777
============= =============
</TABLE>
INVESTMENT SHARES
<TABLE>
<CAPTION>
Year Year
Ended Ended
7/31/97 7/31/96
------------ ------------
<S> <C> <C>
Shares sold 126,718,634 106,236,496
Shares redeemed (84,984,156) (83,118,313)
------------ ------------
Net change resulting
Fund share transactions 41,734,478 23,118,183
============ ============
</TABLE>
21
<PAGE> 24
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Fifth Third Bank, the Fund's investment advisor (the
"Advisor"), receives for its services an annual investment advisory fee of
0.40% which is based on a percentage of the Fund's average daily net assets.
The Advisor may voluntarily choose to waive a portion of its fee and reimburse
certain operating expenses of the Fund. The Advisor can modify or terminate
this voluntary waiver and reimbursement at any time at its sole discretion.
For the year ended July 31, 1997, the Advisor waived $135,083 in advisory fees.
ADMINISTRATIVE FEE--Effective December 1, 1995, BISYS Fund Services ("BISYS")
became the Trust's administrator. The administrator generally assists in all
aspects of the Trust's administration and operation including providing the
Fund with certain administrative personnel and services necessary to operate
the Fund. Also effective December 1, 1995, pursuant to a separate agreement
with BISYS, Fifth Third Bank performs sub-administrative services on behalf of
the Fund, for which it receives a fee from BISYS computed daily as a percentage
of the daily net assets of the Fund. Under the terms of the administration
agreement, BISYS' fees are computed daily as a percentage of the average net
assets of the Trust for the period. Administrative fees are computed at 0.20%
of first $1 billion of net assets of the Trust, 0.18% of net assets of the
Trust between $1 billion and $2 billion, and 0.17% of more than $2 billion of
net assets of the Trust. For the year ended July 31, 1997, BISYS waived
$84,441 in administrative fees.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Effective December 1, 1995 BISYS serves
as the Trust's principal distributor. Under the terms of the Plan, the Fund
will compensate the principal distributor from the net assets of the Fund's
Investment Shares to finance activities intended to result in the sales of the
Fund's Investment Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.35% of the average daily net assets of the
Investment Shares, annually, to compensate the distributor. The distributor
may voluntarily choose to waive all or a portion of its fee. The distributor
can modify or terminate this voluntary waiver at any time at its sole
discretion. For the year ended July 31, 1997, the distributor waived $338,716
in distribution fees.
TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING AND CUSTODY FEES--Fifth Third
Bank serves as transfer and dividend disbursing agent for the Funds for which
it receives a fee. The fee is based on the level of each Fund's average net
assets for the period, plus out-of-pocket expenses. For the year ended July
31, 1997, Fifth Third Bank received transfer and dividend disbursing agent fees
of $3,735.
Fifth Third Bank is the Fund's custodian and portfolio accountant for which it
receives a fee. The fee is based on the level of each Fund's average net
assets for the period, plus out-of-pocket expenses. For the year ended July
31, 1997, Fifth Third received fees of $14,714 and $53,808 for custodian and
portfolio accounting services, respectively.
Certain of the Officers and Trustees of the Trust are Officers and Trustees of
the above companies.
22
<PAGE> 25
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
FOUNTAIN SQUARE FUNDS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Fountain Square Government Cash Reserves Fund
(one of the portfolios comprising Fountain Square Funds), as of July 31, 1997,
and the related statement of operations for the year then ended, and statement
of changes in net assets and financial highlights for the periods presented
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of July 31, 1997, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fountain Square Government Cash Reserves Fund at July 31, 1997, the results of
its operations for the year then ended, and the changes in its net assets and
financial highlights for the periods presented therein in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Cincinnati, Ohio
September 12, 1997
23
<PAGE> 26
ADDRESSES
Fountain Square Government Cash Reserves Fund Fountain Square Funds
Investment Shares or Trust Shares c/o Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Investment Advisor
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
Custodian, Transfer Agent, Dividend Disbursing Agent, and Sub-Administrator
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
Distributor and Administrator
BISYS Fund Services L.P. 3435 Stelzer Road
Columbus, Ohio 43219
Independent Auditors
Ernst & Young LLP 1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
24
<PAGE> 1
Exhibit 17(iv)
PROSPECTUS
LOGO
THE CARDINAL FUND
CARDINAL BALANCED FUND
CARDINAL AGGRESSIVE GROWTH FUND
INVESTOR SHARES
The Cardinal Fund, Cardinal Balanced Fund (the "Balanced Fund") and Cardinal
Aggressive Growth Fund (the "Aggressive Growth Fund") (together called the
"Funds" or individually a "Fund") are three separate diversified investment
funds of The Cardinal Group (the "Group"), an open-end, management investment
company. The Trustees of the Group have divided each Fund's beneficial ownership
into an unlimited number of transferable units called shares (the "Shares").
Each Fund offers multiple classes of Shares.
The Cardinal Fund's investment objectives are long-term growth of capital and
income. Current income is a secondary objective. The Cardinal Fund seeks to
achieve its objectives through selective participation in the long-term progress
of businesses and industries. The policy of The Cardinal Fund is generally to
invest in equity securities.
The Balanced Fund's investment objectives are current income and long-term
growth of both capital and income.
The Aggressive Growth Fund's investment objective is appreciation of capital.
The Aggressive Growth Fund intends to invest primarily in common stocks and
securities convertible into common stocks.
There can be no assurance that any of the Funds' investment objectives will be
achieved.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES CERTAIN
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
FOR FURTHER INFORMATION REGARDING THE FUNDS OR FOR ASSISTANCE
IN OPENING AN ACCOUNT OR REDEEMING SHARES, PLEASE CALL (800) 282-9446 TOLL FREE.
INQUIRIES MAY ALSO BE MADE BY MAIL ADDRESSED
TO THE GROUP AT ITS PRINCIPAL OFFICE:
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
- --------------------------------------------------------------------------------
This Prospectus relates only to one class of Shares of The Cardinal Fund, the
Balanced Fund and the Aggressive Growth Fund -- Investor Shares. Investor Shares
of each of the Funds are offered to the public. Each Fund also offers
Institutional Shares to certain qualified institutions. Interested persons who
wish to obtain prospectuses of Cardinal Government Obligations Fund, Cardinal
Government Securities Money Market Fund or Cardinal Tax Exempt Money Market
Fund, the other funds of the Group, or of the Institutional Shares of the Funds
should contact The Ohio Company. Additional information about the Funds,
contained in a Statement of Additional Information dated January 30, 1998, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. Such Statement is available upon request without charge
from the Group at the above address or by calling the phone number provided
above.
This Prospectus sets forth concisely the information about the Investor Shares
of the Funds that a prospective investor ought to know before investing in any
of the Funds. This Prospectus should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Ohio Company
The date of this Prospectus is January 30, 1998.
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
PROSPECTUS HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES.......... THE CARDINAL FUND seeks long-term growth of capital and
income. Current income is a secondary objective. (See
page 9.)
THE BALANCED FUND seeks current income and long-term
growth of both capital and income. (See page 10.)
THE AGGRESSIVE GROWTH FUND seeks appreciation of capital.
(See page 10.)
INVESTMENT POLICIES............ THE CARDINAL FUND generally invests in equity securities
which are growth oriented. (See page 10.)
Under normal market conditions, the BALANCED FUND will
invest in common stocks, preferred stocks, fixed income
securities and securities convertible into common stocks.
At least 25% of the value of the Balanced Fund's assets
will be invested in fixed income senior securities. (See
pages 10 through 13.)
The AGGRESSIVE GROWTH FUND will invest primarily in
common stocks and securities convertible into common
stocks of growth-oriented companies. (See page 13.)
DIVIDENDS...................... Dividends and capital gains distributions are made with
such frequency as the Group shall determine. Generally,
dividends are declared quarterly and long-term capital
gains, if any, are declared annually. Such dividends and
distributions may be invested in additional Shares of
such Fund at no charge. (See page 21.)
RISK FACTORS AND SPECIAL
CONSIDERATIONS............... An investment in a mutual fund such as any of the Funds
involves a certain amount of risk and may not be suitable
for all investors. Some investment policies of the Funds
may entail certain risks. (See "WHAT ARE THE INVESTMENT
OBJECTIVES AND POLICIES OF THE FUNDS? -- Risk Factors and
Investment Techniques" on pages 13 through 17.)
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
PURCHASES...................... There is a minimum initial investment of $1,000 with
subsequent minimums of $50. (See page 18.) Purchases are
made at the public offering price which is equal to net
asset value per share plus a sales charge. This charge is
equal to 4.50% of the public offering price (4.71% of net
amount invested) reduced on investments of $100,000 or
more (See pages 18 and 19).
REDEMPTIONS.................... Shares can be redeemed at net asset value per share
without charge if redeemed through the Funds'
distributor, The Ohio Company. (See page 21.)
INVESTMENT ADVISER AND
MANAGER...................... Cardinal Management Corp. (the "Adviser"), a wholly-owned
subsidiary of The Ohio Company, is the Funds' investment
adviser. The Adviser also serves as investment adviser
for Cardinal Government Obligations Fund, Cardinal
Government Securities Money Market Fund and Cardinal Tax
Exempt Money Market Fund (collectively, with the Funds,
the "Cardinal Funds"), each a separate diversified
investment fund of the Group. (See page 26.)
</TABLE>
3
<PAGE> 4
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTOR SHARES OF
-----------------------------------
THE AGGRESSIVE
CARDINAL BALANCED GROWTH
FUND FUND FUND
-------- ----------- ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)(1)...................................... 4.50% 4.50% 4.50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............................................ .60% .75% .75%
12b-1 Fees................................................. .25 .25 .25
Other Expenses............................................. .21 .44 .86
---- ---- ----
Total Fund Operating Expenses...................... 1.06% 1.44% 1.86%
==== ==== ====
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment in Investor Shares,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
The Cardinal Fund....................... $ 55 $ 77 $101 $169
Balanced Fund........................... $ 59 $ 89 $120 $210
Aggressive Growth Fund.................. $ 63 $101 $141 $253
</TABLE>
(1) The sales charge may be eliminated or reduced under certain circumstances.
See "HOW DO I PURCHASE INVESTOR SHARES OF THE FUNDS?" below.
The information set forth in the foregoing Fee Table and Example relates only to
Investor Shares of the Funds. Each of the Funds also offers another class of
Shares known as Institutional Shares. The two classes of Shares of the Funds are
subject to the same expenses except that Institutional Shares are not subject to
a Rule 12b-1 fee and are not sold with a sales charge but are subject to an
administrative services fee.
The purpose of the above table is to assist a potential purchaser of a Fund's
Investor Shares in understanding the various costs and expenses that an investor
in the Fund will bear directly or indirectly. See "WHO MANAGES MY INVESTMENT IN
THE FUNDS?" for a more complete discussion of the shareholder transaction
expenses and annual operating expenses of the Funds. The example and expenses
above reflect current fees. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
4
<PAGE> 5
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following Financial Highlights with respect to each of the years in the ten
year period ended September 30, 1997, with respect to The Cardinal Fund, and
each of the years in the four year period ended September 30, 1997, and the
period from June 24, 1993, through September 30, 1993, with respect to the
Balanced Fund and the Aggressive Growth Fund, have been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon, insofar as it relates
to each of the years and/or periods in the five year period ended September 30,
1997, is contained in the Funds' Statement of Additional Information and may be
obtained by shareholders and prospective investors.
The following Financial Highlights for The Cardinal Fund reflect the operations
of The Cardinal Fund Inc. ("TCFI"), The Cardinal Fund's predecessor, through
April 30, 1996. On May 1, 1996, The Cardinal Fund acquired all of the assets and
liabilities of TCFI and is deemed to have succeeded to the financial and
performance history of TCFI.
Effective January 2, 1997, the Board of Trustees of the Group reclassified each
Fund's outstanding Shares into Investor Shares. The financial information
provided below and in the Statement of Additional Information includes periods
prior to such reclassification.
FINANCIAL HIGHLIGHTS FOR EACH INVESTOR SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH PERIOD
THE CARDINAL FUND
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning............................. $ 13.13 $ 13.23 $ 12.73 $ 12.91 $ 12.95
Investment Activities:
Net investment income................................ .14 .25 .36 .31 .32
Net gains or losses on securities
(both realized and unrealized)..................... 4.64 1.95 1.32 .12 .55
-------- -------- -------- -------- --------
Total from Investment Activities..................... 4.78 2.20 1.68 .43 .87
-------- -------- -------- -------- --------
Distributions:
From net investment income........................... (0.13) (.26) (.35) (.33) (.29)
From net realized gains.............................. (1.13) (2.04) (.83) (.28) (.62)
Returns of capital................................... -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions.................................. (1.26) (2.30) (1.18) (.61) (.91)
Net Asset Value, ending................................ $ 16.65 $ 13.13 $ 13.23 $ 12.73 $ 12.91
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Total Return (without sales load)...................... 39.17% 17.96% 14.84% 3.38% 6.98%
Net assets at end of period (000).................... $267,908 $229,042 $226,181 $246,581 $282,125
Ratio of expenses to average net assets.............. 1.06% 0.75% 0.70% 0.72% 0.68%
Ratio of net investment income after expenses to
average net assets................................. 0.97% 1.90% 2.89% 2.40% 2.46%
Ratio of incurred expenses to average net
assets(a).......................................... 1.12% 0.85% 0.70% 0.72% 0.68%
Ratio of net investment income after incurred
expenses to average net assets(a).................. 0.91% 1.80% 2.89% 2.40% 2.46%
Portfolio turnover rate.............................. 12.73% 57.93% 19.78% 23.20% 11.11%
Average commission rate paid(b)...................... $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------
1992 1991 1990* 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning............................. $ 11.88 $ 9.28 $ 11.75 $ 10.38 $ 11.73
Investment Activities:
Net investment income................................ .35 .35 .42 .41 .37
Net gains or losses on securities (both realized and
unrealized)........................................ 1.37 2.70 (1.87) 1.73 (.82)
-------- -------- -------- -------- --------
Total from Investment Activities..................... 1.72 3.05 (1.45) 2.14 (.45)
-------- -------- -------- -------- --------
Distributions:
From net investment income........................... (.36) (.38) (.53) (.39) (.47)
From net realized gains.............................. (.29) (.07) (.49) (.38) (.43)
Returns of capital................................... -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions.................................. (.65) (.45) (1.02) (.77) (.90)
Net Asset Value, ending................................ $ 12.95 $ 11.88 $ 9.28 $ 11.75 $ 10.38
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Total Return (without sales load)...................... 15.05% 33.54% (13.42)% 22.04% (3.46)%
Net assets at end of period (000).................... $261,392 $221,428 $168,184 $174,156 $130,978
Ratio of expenses to average net assets.............. 0.67% 0.67% 0.74% 0.70% 0.73%
Ratio of net investment income after expenses to
average net assets................................. 2.83% 3.15% 3.98% 3.93% 3.77%
Ratio of incurred expenses to average net
assets(a).......................................... 0.67% 0.67% 0.74% 0.70% 0.73%
Ratio of net investment income after incurred
expenses to average net assets(a).................. 2.83% 3.15% 3.98% 3.93% 3.77%
Portfolio turnover rate.............................. 6.22% 33.27% 27.10% 23.20% 12.3%
Average commission rate paid(b)...................... $ 0.08 N/A N/A N/A N/A
</TABLE>
- ---------------
* The Information included in the Financial Highlights for the Cardinal Fund has
been restated to reflect a three-for-two stock split made on January 11, 1990.
(a) During the period certain fees were voluntarily waived. Had the fees been
charged, the effective ratio would reflect the incurred expenses as
indicated above.
(b) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
N/A -- Not available
6
<PAGE> 7
THE BALANCED FUND
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 24, 1993
(DATE OF COMMENCEMENT
YEARS ENDED SEPTEMBER 30, OF OPERATIONS)
------------------------------------------------- THROUGH
1997 1996 1995 1994 SEPTEMBER 30, 1993*
------- ------- ------- ------- ---------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning........... $ 11.86 $ 11.52 $ 9.90 $ 10.13 $ 10.00
------- ------- ------- ------- -------
Investment Activities:
Net investment income.............. 0.27 0.41 0.34 0.23 0.02
Net realized and unrealized gain
(loss) on investments............ 2.40 0.73 1.67 (0.20) 0.12
------- ------- ------- ------- -------
Total from Investment Activities... 2.67 1.14 2.01 0.03 0.14
------- ------- ------- ------- -------
Distributions:
From net investment income......... (0.24) (0.41) (0.35) (0.23) (0.01)
From net realized gains............ (1.06) (0.39) (0.04) (0.03) --
Returns of capital................. -- -- -- -- --
------- ------- ------- ------- -------
Total Distributions................ (1.30) (0.80) (0.39) (0.26) (0.01)
------- ------- ------- ------- -------
Net Asset Value, ending.............. $ 13.23 $ 11.86 $ 11.52 $ 9.90 $ 10.13
======= ======= ======= ======= =======
Ratios/Supplemental Data:
Total Return (without sales load).... 24.71% 10.26% 20.76% 0.37% 1.40%**
Net assets at end of period
(000)............................ $15,616 $14,345 $14,535 $13,973 $10,811
Ratio of expenses to average net
assets........................... 1.44% 1.64% 1.94% 2.07% 0.70%
Ratio of net investment income
after expenses to average net
assets........................... 2.23% 3.54% 3.24% 2.44% 0.35%
Ratio of incurred expenses to
average net assets(a)............ 1.50% 1.86% 1.95% 2.07% 0.70%
Ratio of net investment income
after incurred expenses to
average net assets(a)............ 2.17% 3.32% 3.23% 2.44% 0.35%
Portfolio turnover rate............ 61.23% 18.34% 37.62% 59.09% 60.67%
Average commission rate paid(b).... $ 0.09 $ 0.09 $ 0.09 $ 0.10 $ 0.10
</TABLE>
- ---------------
* Commencement of operations.
** This total return figure reflects aggregate total return. Aggregate total
return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of
annualized.
(a) During the period certain fees were voluntarily waived. Had the fees been
charged, the effective ratio would reflect the incurred expenses as
indicated above.
(b) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
7
<PAGE> 8
THE AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 24, 1993
(DATE OF COMMENCEMENT
YEARS ENDED SEPTEMBER 30, OF OPERATIONS)
------------------------------------------- THROUGH
1997 1996 1995 1994 SEPTEMBER 30, 1993*
------- ------- ------- ------- ---------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning............... $ 11.31 $ 12.37 $ 9.94 $ 10.47 $ 10.00
------- ------- ------- ------- -------
Investment Activities:
Net investment loss.................... (0.20) (0.17) (0.10) (0.13) (0.03)
Net realized and unrealized gain (loss)
on investments....................... 3.86 (0.01) 2.53 (0.36) 0.50
------- ------- ------- ------- -------
Total from Investment Activities....... 3.66 (0.16) 2.43 (0.49) 0.47
------- ------- ------- ------- -------
Distributions:
From net investment income............. -- -- -- -- --
From net realized gains................ (0.27) (0.90) -- (0.04) --
Returns of capital..................... -- -- -- -- --
------- ------- ------- ------- -------
Total Distributions.................... (0.27) (0.90) 0 (0.04) 0
------- ------- ------- ------- -------
Net Asset Value, ending.................. $ 14.70 $ 11.31 $ 12.37 $ 9.94 $ 10.47
======= ======= ======= ======= =======
Ratios/Supplemental Data:
Total Return (without sales load)........ 32.95% (1.13%) 24.35% (4.74%) 4.70%**
Net assets at end of period (000)...... $ 9,792 $ 9,669 $10,434 $ 9,460 $ 6,320
Ratio of expenses to average net
assets............................... 1.86% 1.95% 2.24% 2.51% 0 .91%
Ratio of net investment loss after
expenses to average net assets....... (1.50%) (1.52%) (0.92%) (1.50%) (0.53%)
Ratio of incurred expenses to average
net assets(a)........................ 1.93% 2.17% 2.25% 2.51% 0.91%
Ratio of net investment loss after
incurred expenses to average net
assets(a)............................ (1.57%) (1.75%) (0.93%) (1.50%) (0.53%)
Portfolio turnover rate................ 34.43% 48.60% 80.35% 95.70% 31.15%
Average commission rate paid(b)........ $ 0.07 $ 0.07 $ 0.07 $ 0.09 $ 0.08
</TABLE>
- ---------------
* Commencement of operations.
** This total return figure reflects aggregate total return. Aggregate total
return is calculated similarly to average annual total return except that the
return figure is aggregated over the relevant period instead of annualized.
(a) During the period certain fees were voluntarily waived. Had the fees been
charged, the effective ratio would reflect the incurred expenses as
indicated above.
(b) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements appearing in the Funds' Statement of
Additional Information.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time each Fund may advertise its average annual total return,
cumulative total return and/or yield. SUCH TOTAL RETURN FIGURES AND YIELD
FIGURES ARE BASED UPON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The average annual total return advertised by a Fund refers
to the return generated by an investment in that Fund over certain specified
periods since the establishment of such Fund (including any predecessor
thereof). The average annual total return over a period equates the amount of an
initial investment in the Fund to the amount redeemable at the end of that
period assuming that any dividends and distributions earned by an investment in
the Fund are immediately reinvested and the maximum applicable sales charge, if
any, is deducted from the initial investment at the time of investment. Such
figure is then annualized. The cumulative total return advertised refers to the
total return on a hypothetical investment over the relevant period and equates
the amount of an initial investment in the Fund to the amount redeemable at the
end of
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that period assuming that any dividends and distributions are immediately
reinvested and the maximum sales charge, if any, is deducted from the initial
investment. Yield will be computed by dividing a Fund's net investment income
per share earned during a recent one-month period by such Fund's per share
maximum offering price (reduced by any undeclared earned income expected to be
paid shortly as a dividend) on the last day of the period and annualizing the
result. If the sales charge were not deducted, the average annual total return,
cumulative total return and yield advertised would be higher.
In addition, from time to time the Balanced Fund may include in its sales
literature and shareholder reports a quote of the current "distribution" rate
for such Fund. A distribution rate is simply a measure of the level of dividends
distributed for a specified period and is computed by dividing the total amount
of dividends per share paid by the Balanced Fund during the past 12 months by a
current maximum offering price. It differs from yield, which is a measure of the
income actually earned by the Balanced Fund's investments, and from total
return, which is a measure of the income actually earned by, plus the effect of
any realized and unrealized appreciation or depreciation of, such investments
during a stated period. A distribution rate is, therefore, not intended to be a
complete measure of performance. A distribution rate may sometimes be greater
than yield since, for instance, it may include short-term and possibly long-term
gains (which may be non-recurring), may not include the effect of amortization
of bond premiums and does not reflect unrealized gains or losses.
Investors may also judge the performance of a Fund by comparing or referencing
its performance to the performance of other mutual funds or mutual fund
portfolios with comparable investment objectives and policies through various
mutual fund or market indices such as those prepared by Dow Jones & Co., Inc.
and Standard & Poor's Corporation, and to data prepared by Lipper Analytical
Services, Inc. and Morningstar, Inc. Comparisons may also be made to indices or
data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The
New York Times, The Columbus Dispatch, Business Week, U.S.A. Today and Consumer
Reports. In addition to performance information, general information about a
Fund that appears in a publication such as those mentioned above may be included
in advertisements and in reports to shareholders.
Further information about the performance of each Fund is contained in that
Fund's Annual Report to Shareholders which may be obtained without charge by
contacting the Group at the telephone number set forth on the cover page of this
Prospectus. Performance quotations will be computed separately for Investor and
Institutional Shares. Because of differences in the fees and/or expenses borne
by Institutional and Investor Shares, the net yield and total return on each
class can be expected, at any given time, to differ from the net yield and total
return of the other class.
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WHAT ARE THE FUNDS?
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Each Fund is one separate diversified investment fund of the Group, which was
organized on March 23, 1993, as an Ohio business trust. The Group is registered
and operates as an open-end management investment company as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The Cardinal Fund
was organized for the purposes of acquiring all of the assets and liabilities of
TCFI to effect a reorganization of TCFI from a stand alone investment company to
a separate series of the Group (the "Reorganization"). The Reorganization was
effected as of May 1, 1996.
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WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
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IN GENERAL
The investment objectives of The Cardinal Fund are to achieve long-term growth
of capital and income. Current income is a secondary objective. The Cardinal
Fund seeks to achieve its objectives through selective participation in the
long-term progress of businesses and industries.
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The investment objectives of the Balanced Fund are to seek current income and
long-term growth of both capital and income. The Balanced Fund intends to invest
based on combined considerations of risk, income and capital enhancement.
The investment objective of the Aggressive Growth Fund is to seek appreciation
of capital. The Aggressive Growth Fund will invest primarily in common stocks
and securities convertible into common stocks of growth oriented companies.
The investment objectives of each Fund are fundamental policies and as such may
not be changed without a vote of the holders of a majority of the outstanding
Shares of that Fund (as defined below under "WHAT ARE MY RIGHTS AS A
SHAREHOLDER?"). No Fund is intended to provide a complete and balanced
investment program for an investor. There can be no assurance that the
investment objectives of any Fund will be achieved.
THE CARDINAL FUND
The policy of The Cardinal Fund is generally to invest in equity securities of
companies which, in the opinion of the Adviser, are growth oriented. The
securities purchased by The Cardinal Fund are traded in either established
over-the-counter markets or on national exchanges and are issued by companies
having a market capitalization of at least $10 million. This policy of normally
investing in equity securities believed to have a potential for long-term
capital appreciation means that the assets of The Cardinal Fund will generally
be subject to greater risk than may be involved in securities which do not have
such growth characteristics. It is recognized, however, that there may be times
when, as a temporary, defensive measure, The Cardinal Fund's equity position
should be reduced. At such times, and otherwise for cash management purposes,
The Cardinal Fund may hold its assets in cash or invest its assets in investment
grade debt securities, U.S. Government securities, securities of other
investment companies, repurchase agreements and preferred stock.
THE BALANCED FUND
Under normal market conditions the Balanced Fund will invest in common stocks,
preferred stocks, fixed income securities and securities convertible into common
stocks (i.e., warrants, rights, convertible preferred stock, fixed rate
preferred stock and convertible fixed-income securities). At least 25% of the
value of the Balanced Fund's assets will be invested in fixed income senior
securities. For purposes of compliance with such 25% limitation, only that
portion of the value of any convertible senior security attributable to its
fixed income characteristics will be used. By investing primarily in common
stocks the Balanced Fund will pursue its objectives of long-term growth of both
capital and income. However, the Balanced Fund, through its fixed-income and
convertible securities as well as the dividend attributes of certain of its
common and preferred stock holdings, will place considerable emphasis on
generating current income.
The common and preferred stocks and securities convertible into common stocks
will be selected if the Adviser believes that such securities can contribute to
the Balanced Fund's objectives of providing current income and growth in income
and/or long-term growth of capital. The Balanced Fund will invest in the common
and preferred stocks and securities convertible into common stocks of domestic
issuers and foreign issuers (subject to the limitations described below), with
market capitalizations of not less than $10 million and which are generally
traded either in established over-the-counter markets or on national exchanges.
As described below, however, the Balanced Fund may invest in privately placed or
restricted securities.
The Adviser will select convertible securities based primarily upon its
determination that the underlying common stocks meet the criteria for selection
of common stocks as described above. The Balanced Fund may invest up to 10% of
its net assets in non-investment grade convertible debt securities rated no
lower than "B" by an appropriate nationally recognized statistical rating
organization (an "NRSRO") or in unrated securities which are deemed by the
Adviser to be of comparable quality. Non-investment grade
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<PAGE> 11
securities are commonly referred to as high yield or high risk securities. High
yield, high risk securities are generally riskier than higher quality securities
and are subject to more credit risk, including risk of default, and volatility
than higher quality securities. In addition, such securities have less liquidity
and experience more price fluctuation than higher quality securities.
Convertible debt securities which are rated "B" by Moody's Investor Services
("Moody's") generally lack characteristics of a desirable investment, since the
assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small. Debt rated "B" by
Standard & Poor's Corporation ("S&P") is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. In the event
that a convertible debt security's rating falls below a "B" by the appropriate
NRSROs, the Adviser will reevaluate the security in order to determine whether
to sell or convert, if possible, such security. In such an event, however, the
Balanced Fund would not be required to liquidate such security if it would
suffer a loss on the sale of such security.
The Balanced Fund's fixed income senior securities consist of bonds, debentures,
notes, zero-coupon securities, mortgage-related securities, obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits, high quality commercial paper and
bankers' acceptances. The Balanced Fund may also invest in repurchase
agreements.
The Balanced Fund expects to invest in a variety of bills, notes and bonds
issued by the U.S. Treasury, differing in their interest rates, maturities, and
times of issuance, as well as "stripped" U.S. Treasury obligations such as
Treasury Receipts issued by the U.S. Treasury representing either future
interest or principal payments, and other obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. Stripped securities
are issued at a discount to their "face value" and may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors. Certain of such U.S.
Government obligations may have variable or floating rates of interest, whose
value on the adjustment of its interest rate can reasonably be expected to
approximate its par value. However, in the event the interest rate of such
security is tied to an index or interest rate that may from time to time lag
behind other market interest rates, there is the risk that such security's
market value, upon adjustment of its interest rate, will not approximate its par
value. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Federal Farm Credit
Banks or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law. The Balanced Fund
will invest in the obligations of such agencies or instrumentalities only when
the Adviser believes that the credit risk with respect thereto is minimal.
The Balanced Fund also expects to invest in bonds, notes and debentures of a
wide range of U.S. corporate issuers. Such obligations may be secured or
unsecured promises to pay and will in most cases differ in their interest rates,
maturities and times of issuance.
The Balanced Fund will invest only in corporate fixed income senior securities
which are rated at the time of purchase within the four highest rating groups
assigned by an appropriate NRSRO (which are considered to be investment grade)
or, if unrated, which the Adviser deems to be of comparable quality. For a
description of the rating symbols of the NRSROs, see the Appendix to the
Statement of Additional Information. For a discussion of debt securities rated
within the fourth highest rating group assigned by an NRSRO, see "Risk Factors
and Investment Techniques -- General" below.
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Under normal market conditions, the Balanced Fund may hold up to 10% of the
value of its total assets in short-term obligations (with maturities of 12
months or less) consisting of domestic commercial paper, bankers' acceptances,
certificates of deposit and time deposits of U.S. banks and repurchase
agreements. The Balanced Fund may also invest in securities of other investment
companies, as further described below, and in income participation loans.
The Balanced Fund may invest in obligations of the Export-Import Bank of the
United States, in U.S. dollar denominated international securities for which the
primary trading market is in the United States ("Yankee Securities"), or for
which the primary trading market is abroad ("Eurodollar Securities"), and in
Canadian Bonds and bonds issued by institutions organized for a specific
purpose, such as the World Bank and the European Economic Community, by two or
more sovereign governments ("Supranational Agency Bonds").
The Balanced Fund may also invest in mortgage-related securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities or by
nongovernmental entities which are rated, at the time of purchase, within the
four highest bond rating categories assigned by an appropriate NRSRO, or, if
unrated, which the Adviser deems to be of comparable quality. Under normal
market conditions, the Balanced Fund's investment in mortgage-related securities
will not exceed 25% of the value of its total assets. Such mortgage-related
securities have mortgage obligations backing such securities, including among
others, conventional thirty year fixed rate mortgage obligations, graduated
payment mortgage obligations, fifteen year mortgage obligations and adjustable
rate mortgage obligations. All of these mortgage obligations can be used to
create pass-through securities. A pass-through security is created when mortgage
obligations are pooled together and undivided interests in the pool or pools are
sold. The cash flow from the mortgage obligations is passed through to the
holders of the securities in the form of periodic payments of interest,
principal and prepayments (net of a service fee). Prepayments occur when the
holder of an individual mortgage obligation prepays the remaining principal
before the mortgage obligation's scheduled maturity date. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Because the prepayment
characteristics of the underlying mortgage obligations vary, it is not possible
to predict accurately the realized yield or average life of a particular issue
of pass-through certificates. Prepayment rates are important because of their
effect on the yield and price of the securities. Accelerated prepayments have an
adverse impact on yields for pass-throughs purchased at a premium (i.e., a price
in excess of principal amount) and may involve additional risk of loss of
principal because the premium may not have been fully amortized at the time the
obligations are repaid. The opposite is true for pass-throughs purchased at a
discount. The Balanced Fund may purchase mortgage-related securities at a
premium or a discount. Reinvestment of principal payments may occur at higher or
lower rates than the original yield on such securities. Due to the prepayment
feature and the need to reinvest payments and prepayments of principal at
current rates, mortgage-related securities can be less effective than typical
bonds of similar maturities at maintaining yields during periods of declining
interest rates.
Also included among the mortgage-related securities that the Balanced Fund may
purchase are collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs"). CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association, and their income streams. Certain CMOs and REMICs are
issued by private issuers. Such securities may be eligible for purchase by the
Balanced Fund if (1) the issuer has obtained an exemptive order from the
Securities and Exchange Commission regarding purchases by investment companies
of equity interests of other investment companies or (2) such purchase is within
the limitations imposed by Section 12 of the 1940 Act.
The Balanced Fund may also invest in asset-backed securities such as
Certificates of Automobile Receivables ("CARS") and Certificates of Amortized
Revolving Debts ("CARDS"), each of which must be
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rated at the time of purchase within the four highest rating groups assigned by
Moody's or S&P. For a description of the fourth highest rating group, see "Risk
Factors and Investment Techniques" below.
The amount invested in stocks, bonds and short-term obligations may be varied
from time to time, depending upon the Adviser's assessment of business, economic
and market conditions, including any potential advantage of price shifts between
the stock market and the bond market. The Balanced Fund reserves the right to
hold short-term securities in whatever proportion deemed desirable for temporary
defensive periods during adverse market conditions as determined by the Adviser.
However, to the extent that the Balanced Fund is so invested, its investment
objectives may not be achieved during that time.
THE AGGRESSIVE GROWTH FUND
In determining the securities to be purchased by the Aggressive Growth Fund,
emphasis will be placed on securities of companies which, in the opinion of the
Adviser, are growth oriented and exhibit the potential for above-average growth
in earnings. The securities to be purchased by the Aggressive Growth Fund are
traded either in established over-the-counter markets or on national exchanges
and are issued by companies having a market capitalization of at least $10
million.
The Adviser will select convertible securities primarily upon its evaluation
that the underlying common stocks meet the criteria for selection of common
stocks as described above. The Aggressive Growth Fund may invest up to 10% of
its net assets in non-investment grade convertible debt securities rated no
lower than B by an appropriate NRSRO or in unrated securities which are deemed
by the Adviser to be of comparable quality. Non-investment grade securities are
commonly referred to as high yield or high risk securities. The characteristics
and risks associated with such high risk securities are discussed more fully
above under "The Balanced Fund." In the event that a convertible debt security's
rating falls below a "B" by an NRSRO, the Adviser will reevaluate the security
in order to determine whether to sell or convert, if possible, such security. In
such an event, however, the Aggressive Growth Fund would not be required to
liquidate such security if it would suffer a loss on the sale of such security.
The Aggressive Growth Fund will, under normal market conditions, be invested
fully in common stocks and securities convertible into common stocks and may
engage in the investment techniques more fully described below. However, for
cash management purposes the Adviser may invest a portion of the Aggressive
Growth Fund's assets in short-term fixed income securities, consisting of
commercial paper, bankers' acceptances, certificates of deposit, obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, demand and time deposits of domestic banks, repurchase
agreements and securities of other investment companies, as described below.
During temporary defensive periods, as determined by the Adviser, the Aggressive
Growth Fund may hold up to 100% of its total assets in such short-term, fixed
income securities. However, to the extent that the Aggressive Growth Fund is so
invested, the Aggressive Growth Fund is not pursuing and may not achieve its
investment objective.
RISK FACTORS AND INVESTMENT TECHNIQUES
GENERAL. Like any investment program, an investment in any of the Funds entails
certain risks. As funds investing primarily in common stocks, each Fund is
subject to stock market risk, i.e., the possibility that stock prices in general
will decline over short or even extended periods.
Since the Funds, to different degrees, also invest or may invest in bonds,
investors in a Fund, to the extent so invested, are also exposed to bond market
risk, i.e., fluctuations in the market value of bonds. Bond prices are
influenced primarily by changes in the level of interest rates. When interest
rates rise, the prices of bonds generally fall; conversely, when interest rates
fall, bond prices generally rise. While bonds normally fluctuate less in price
than stock, there have been in the recent past extended periods of cyclical
increases in interest rates that have caused significant declines in bond prices
and that have caused the effective maturity of securities with prepayment
features to be extended, thus effectively converting short-or intermediate-term
securities (which tend to be less volatile in price) into longer-term securities
(which tend to be more volatile in price).
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Current income by its nature always contributes positively to total return.
Therefore, the current income expected to be generated from an investment in the
Balanced Fund will counterbalance to some degree any adverse price fluctuations
of the securities held by the Balanced Fund. The effective result should
therefore be lower total return volatility for the Balanced Fund than a fund
which does not provide such current income.
The Aggressive Growth Fund is intended for investors who can accept the higher
risks involved in seeking potentially higher capital appreciation through
investments in growth oriented companies. A growth oriented company typically
invests most of its net income in its enterprise and does not pay out much, if
any, in dividends. Accordingly, the Aggressive Growth Fund does not anticipate
any significant distributions to shareholders from net investment income, and
potential investors should be in a financial position to forego current income
from their investment in the Aggressive Growth Fund. The securities of less
seasoned companies may have limited marketability and may be subject to more
abrupt or erratic market movements over time than securities of more seasoned
companies or the market as a whole.
The Balanced Fund may invest in certain variable or floating rate government
securities and, as described below, each Fund may invest in put and call options
and futures. Such instruments are considered to be "derivatives." A derivative
is generally defined as an instrument whose value is based upon, or derived
from, some underlying index, reference rate (e.g., interest rates), security,
commodity or other asset. No Fund will invest more than 10% of its total assets
in any such derivatives at any one time.
REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to repurchase
agreements. Under the terms of the repurchase agreement, a Fund would acquire
securities from a financial institution, such as a well-established securities
dealer or a bank which is a member of the Federal Reserve System, which the
Adviser deems creditworthy under guidelines approved by the Group's Board of
Trustees. At the time of purchase, the bank or securities dealer agrees to
repurchase the underlying securities from that Fund at a specified time and
price. The resale price reflects the purchase price plus an agreed upon market
rate of interest which is unrelated to the coupon rate or maturity of the
underlying security. A Fund will only enter into a repurchase agreement where
(i) the underlying securities are of the type which such Fund's investment
policies would allow it to purchase directly, (ii) the market value of the
underlying security, including interest accrued, will at all times be equal to
or exceed the value of the repurchase agreement, and (iii) payment for the
underlying securities is made only upon physical delivery or evidence of book-
entry transfer to the account of such Fund's custodian or a bank acting as
agent. The Adviser will be responsible for continuously monitoring such
requirements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Balanced Fund may also
purchase securities on a when-issued or delayed-delivery basis. The Balanced
Fund will engage in when-issued and delayed-delivery transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objectives and policies, not for investment leverage, although such transactions
represent a form of leveraging. When-issued securities are securities purchased
for delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than the yield available in the market when delivery takes place. The Balanced
Fund will not pay for such securities or start earning interest on them until
they are received. When the Balanced Fund agrees to purchase such securities,
its custodian will set aside cash or liquid securities equal to the amount of
the commitment in a separate account. Securities purchased on a when-issued
basis are recorded as an asset and are subject to changes in the value based
upon changes in the general level of interest rates. In when-issued and
delayed-delivery transactions, the Balanced Fund relies on the seller to
complete the transaction; the seller's failure to do so may cause the Balanced
Fund to miss a price or yield considered to be advantageous.
The Balanced Fund's commitments to purchase when-issued securities will not
exceed 25% of the value of its total assets absent unusual market conditions. In
the event that its commitments to purchase when-issued securities ever exceed
25% of the value of its assets, the Balanced Fund's liquidity and the ability of
the Adviser to manage it might be adversely affected.
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MEDIUM-GRADE SECURITIES. As described above, the Balanced Fund and the
Aggressive Growth Fund may each invest in securities within the fourth highest
rating group assigned by an NRSRO (e.g., BBB or Baa by S&P and Moody's,
respectively) and comparable unrated securities. These types of debt securities
are considered by Moody's to have speculative characteristics and to be more
vulnerable to changes in economic conditions, higher interest rates or adverse
issuer-specific developments which are more likely to lead to a weaker capacity
to make principal and interest payments than comparable higher rated debt
securities.
Should subsequent events cause the rating of a security purchased by the
Balanced Fund or the Aggressive Growth Fund to fall below BBB or Baa, as the
case may be, the Adviser will consider such an event in determining whether that
Fund should continue to hold that security. In no event, however, would such
Funds be required to liquidate any such portfolio security where the Fund would
suffer a loss on the sale of such security.
FOREIGN SECURITIES. Each Fund may also invest up to 25% of its net assets in
foreign securities through the purchase of sponsored and unsponsored American
Depositary Receipts ("ADRs"). ADRs are receipts typically issued by a United
States bank or trust company evidencing ownership of the underlying foreign
securities and are denominated in U.S. dollars. Institutions issuing ADRs may
not be sponsored by the issuer. Unsponsored ADRs may be less liquid than
sponsored ADRs, and there may be less information available regarding the
underlying foreign issuer for unsponsored ADRs since a non-sponsored institution
is not required to provide the same shareholder information that a sponsored
institution is required to provide under its contractual arrangements with the
issuer. Investment in foreign securities, including ADRs, is subject to special
investment risks that differ in some respects from those related to investments
in securities of U.S. domestic issuers. Such risks include trade balances and
imbalances, and related economic policies, future adverse political, economic
and social developments, the possible imposition of withholding taxes on
interest income, possible seizure, nationalization, or expropriation of foreign
investments or deposits, less stringent disclosure requirements, the possible
establishment of exchange controls or taxation at the source, or the adoption of
other foreign governmental restrictions. In addition, foreign issuers may be
subject to different accounting, auditing, reporting, and recordkeeping
standards than those applicable to U.S. domestic issuers, and securities markets
in foreign countries may be structured differently from and may not be as liquid
as the U.S. markets. A Fund will acquire securities issued by foreign issuers
only when the Adviser believes that the risks associated with such investments
are minimal.
RESTRICTED SECURITIES. Securities in which the Balanced Fund may invest include
securities issued by corporations without registration under the Securities Act
of 1933, as amended (the "1933 Act"), including securities issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2)
securities are restricted as to disposition under the Federal securities laws,
and generally are sold to institutional investors such as the Balanced Fund who
agree that they are purchasing the securities for investment and not with a view
to public distribution. Any resale must also generally be made in an exempt
transaction. Section 4(2) securities are normally resold to other institutional
investors through or with the assistance of the issuer or investment dealers who
assist in the placement of such Section 4(2) securities, thus providing some
liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group, the
Adviser may determine Section 4(2) securities to be liquid if such securities
are eligible for resale under Rule 144A under the 1933 Act and are readily
saleable. Rule 144A permits the Balanced Fund to purchase securities which have
been privately placed and resell such securities to certain qualified
institutional buyers without restriction. For purposes of determining whether a
Rule 144A security is readily saleable, and therefore liquid, the Adviser must
consider, among other things, the frequency of trades and quotes for the
security, the number of dealers willing to purchase or sell the security and the
number of potential purchasers, dealer undertakings to make a market in the
security, and the nature of the security and marketplace trades of such
security. However, investing in Rule 144A securities, even if such securities
are initially determined to be liquid, could have the effect of increasing the
level of the Balanced Fund's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
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REITS. Each of the Funds may also invest in securities of equity real estate
investment trusts ("REITs"). REITs pool investors' funds for investment
primarily in commercial real estate properties. Investment in REITs may subject
a Fund to certain risks. REITs may be affected by changes in the value of the
property they own. REITs are dependent upon specialized management skill, may
not be diversified and are subject to the risks of financing projects. REITs are
also subject to heavy cash flow dependency, defaults by borrowers, self
liquidation and the possibility of failing to qualify for the beneficial tax
treatment available to REITs under the Internal Revenue Code and to maintain
their exemption from the 1940 Act. As a shareholder in a REIT, a Fund would
bear, along with other shareholders, its pro rata portion of the REIT's
operating expenses. These expenses would be in addition to the advisory and
other expenses that the Fund bears directly in connection with its own
operations.
PUT AND CALL OPTIONS. Subject to its investment policies and for purposes of
hedging against market risks related to its portfolio securities, each Fund may
purchase exchange-traded put and call options on securities. Purchasing options
is a specialized investment technique that entails a substantial risk of a
complete loss of the amounts paid as premiums to writers of options. A Fund will
purchase put and call options only on securities in which the Fund may otherwise
invest. Each Fund may also engage in selling (writing) exchange-traded options
from time to time as the Adviser deems appropriate for purposes of gaining
additional income in the form of premiums paid by the purchaser of the option
and/or for hedging purposes. Each Fund will write only covered call options
(options on securities owned by that Fund). In order to close out a call option
it has written, a Fund will enter into a "closing purchase transaction" -- the
purchase of a call option on the same security with the same exercise price and
expiration date as the call option which the Fund previously had written. When a
portfolio security subject to a call option is sold, such Fund will effect a
closing purchase transaction to close out any existing call option on that
security. If the Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the option expires or the
Fund delivers the underlying security upon exercise.
Each Fund, as part of its option transactions, also may purchase exchange-traded
index put and call options and write exchange-traded index options. Through the
writing or purchase of index options a Fund can achieve many of the same
objectives as through the use of options on individual securities. Options on
securities indices are similar to options on a security except that, rather than
the right to take or make delivery of a security at a specified price, an option
on a securities index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund will be
required to segregate assets and/or provide an initial margin to cover index
options that would require it to pay cash upon exercise. Under normal market
conditions, it is not expected that the underlying value of portfolio securities
and/or cash subject to such options written by a Fund (including any assets
segregated in connection therewith), when added to the greater of the market
value or the cost of any options purchased by that Fund, will exceed 10% of the
net assets of that Fund at any one time.
FUTURES CONTRACTS. Each Fund may also enter into contracts for the future
delivery of securities and futures contracts based on a specific security, class
of securities or an index, purchase or sell options on any such futures
contracts and engage in related closing transactions. A futures contract on a
securities index is an agreement obligating either party to pay, and entitling
the other party to receive, while the contract is outstanding, cash payments
based on the level of a specified securities index.
Each Fund may engage in such futures contracts in an effort to hedge against
market risks. For example, when interest rates are expected to rise or market
values of portfolio securities are expected to fall, a Fund
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<PAGE> 17
can seek through the sale of futures contracts to offset a decline in the value
of its portfolio securities. When interest rates are expected to fall or market
values are expected to rise, a Fund, through the purchase of such contracts, can
attempt to secure better rates or prices for such Fund than might later be
available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed one-third of the market value of a Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities. A Fund
may lose the expected benefit of futures transactions if interest rates or
securities prices move in an unanticipated manner. Such unanticipated changes
may also result in poorer overall performance than if the Fund had not entered
into any futures transactions. In addition, the value of a Fund's futures
positions may not prove to be perfectly or even highly correlated with the value
of its portfolio securities, limiting such Fund's ability to hedge effectively
against interest rate and/or market risk and giving rise to additional risks.
There is no assurance of liquidity in the secondary market for purposes of
closing out futures positions.
INVESTMENT COMPANY SECURITIES. Each Fund may also invest up to 10% of the value
of its total assets in the securities of other investment companies subject to
the limitations set forth in the 1940 Act. Each Fund intends to invest in the
securities of other investment companies which, in the opinion of the Adviser,
will assist such Fund in achieving its objectives and in money market mutual
funds for purposes of short-term cash management. A Fund's investment in such
other investment companies may result in the duplication of fees and expenses,
particularly investment advisory fees. For a further discussion of the
limitations on each Fund's investments in other investment companies, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Securities of Other Investment Companies" in the Group's
Statement of Additional Information.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding Shares of that Fund (as defined
below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
Each Fund will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
if, immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in such issuer, or the Fund would
hold more than 10% of the outstanding voting securities of the issuer,
except that up to 25% of the value of the Fund's total assets may be
invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes,
or other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and repurchase
agreements secured by obligations of the U.S. Government or its agencies
or instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities
are primarily related to financing the activities of their parents; and
(c)
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<PAGE> 18
utilities will be divided according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
3. Borrow money or issue senior securities, except that the Fund may borrow
from banks or enter into reverse repurchase agreements or dollar roll
agreements for temporary purposes in amounts up to 10% of the value of
its total assets at the time of such borrowing and except as permitted
pursuant to an exemption from the 1940 Act. The Fund will not purchase
securities while its borrowings (including reverse repurchase agreements
and dollar roll agreements) exceed 5% of its total assets.
4. Make loans, except that the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment
objectives and policies, make time deposits with financial institutions
and enter into repurchase agreements.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding Shares of a Fund.
Each Fund will not:
1. Purchase or otherwise acquire any securities, if as a result, more than
15% of the Fund's net assets would be invested in securities that are
illiquid.
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HOW DO I PURCHASE INVESTOR SHARES OF THE FUNDS?
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GENERAL
Each Fund's Investor Shares may be purchased at the public offering price, as
described below under "Public Offering Price," through The Ohio Company,
principal underwriter of the Funds' Shares, at its address and telephone number
set forth on the cover page of this Prospectus, and through other broker-dealers
who are members of the National Association of Securities Dealers, Inc. and have
sales agreements with The Ohio Company.
Subsequent purchases of Investor Shares of a Fund may be made by ACH processing
as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -- ACH
Processing" below. In addition, if an Account Information Form has previously
been received by The Ohio Company, Investor Shares may also be purchased by
wiring funds to the Funds' custodian. Prior to wiring any such funds and in
order to ensure that wire orders are invested properly, you must call The Ohio
Company to obtain the necessary instructions and information.
The minimum initial investment for individuals is $1,000, except the initial
investment for an applicant investing by means of the Automatic Investment Plan,
as described below, must be at least $50. Subsequent investments must be in
amounts of at least $50.
The Group reserves the right to reject any order for the purchase of Investor
Shares in whole or in part. You will receive a confirmation of each new
transaction in your account, which will also show the total number of Investor
Shares owned by you and the number of Investor Shares being held in safekeeping
by Cardinal Management Corp., as the Funds' transfer agent (the "Transfer
Agent"), for your account. Certificates representing Investor Shares will not be
issued.
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<PAGE> 19
PUBLIC OFFERING PRICE
The public offering price of Investor Shares of each Fund is the net asset value
per share (see "HOW IS NET ASSET VALUE CALCULATED?") next determined after
receipt by The Ohio Company, its agents or broker-dealers with whom it has an
agreement, of an order and payment, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE
AS A OF OFFERING PRICE
PERCENTAGE ------------------------
AMOUNT OF OF THE NET SALES DEALER'S
SINGLE TRANSACTION AMOUNT INVESTED CHARGE CONCESSION
--------------------------------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000................................. 4.71% 4.50% 4.00%
$100,000 but less than $250,000.................... 3.63 3.50 3.00
$250,000 but less than $500,000.................... 2.56 2.50 2.00
$500,000 but less than $1,000,000.................. 1.52 1.50 1.00
$1,000,000 or more................................. 0.50 0.50 0.40
</TABLE>
(See "HOW IS NET ASSET VALUE CALCULATED?" for a description of the computation
of net asset value per share.)
The above charges on investments of $100,000 or more are applicable to purchases
made at one time by an individual, or an individual, his or her spouse and their
children not of legal age, or a trustee, guardian or other like fiduciary of
certain single trust estates or certain single fiduciary accounts.
No sales charge is imposed on purchases of Shares by (1) officers, trustees, and
employees of the Group, (2) full-time employees of The Ohio Company or the
Adviser who have been such for at least 90 days or by qualified retirement plans
for such persons, or (3) accounts with respect to which The Ohio Company serves
either as a trustee or as investment adviser. The Ohio Company may change or
eliminate the foregoing waivers at any time. The Ohio Company may also
periodically waive all or a portion of the sales charge for all investors with
respect to a Fund.
From time to time, The Ohio Company, from its own resources, may also provide
additional compensation to securities dealers in connection with sales of shares
of the Cardinal Funds. Such compensation will include financial assistance to
securities dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising, sales campaigns
and/or shareholder services and programs regarding one or more of the Cardinal
Funds and other dealer-sponsored programs or events. In some instances, this
compensation may be made available only to certain securities dealers whose
representatives have sold or are expected to sell significant amounts of shares
of the Cardinal Funds. Compensation will include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Securities
dealers may not use sales of a Fund's Shares to qualify for this compensation to
the extent such may be prohibited by the laws of any state or any
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. In addition, The Ohio Company may make ongoing payments to brokerage firms,
financial institutions (including banks) and others to facilitate the
administration and servicing of shareholder accounts. None of the aforementioned
additional compensation is paid for by any Fund or its shareholders.
AUTOMATIC INVESTMENT PLAN
The Funds have made arrangements to enable you to make automatic monthly or
quarterly investments, in the minimum amount of $50 per transaction, from your
checking account. Assuming the cooperation of your financial institution, your
checking account therein will be debited to purchase Investor Shares of the Fund
specified by you on the periodic basis you select. Confirmation of your purchase
of such Fund's Investor Shares will be provided by the Transfer Agent. The debit
of your checking account will be reflected
19
<PAGE> 20
in the checking account statement you receive from your financial institution.
Please contact The Ohio Company for the appropriate form.
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HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?
- --------------------------------------------------------------------------------
LETTER OF INTENTION
If you (including your spouse and children not of legal age) intend to purchase
$100,000 or more of Investor Shares of a Fund and of Investor Shares of any
other Cardinal Fund sold with a sales charge (a "Cardinal Load Fund") during any
13-month period you may sign a letter of intention to that effect obtained from
The Ohio Company and pay the reduced sales charge applicable to the total amount
of Investor Shares to be so purchased. The 13-month period during which the
Letter of Intention is in effect will begin on the date of the earliest purchase
to be included. In addition, trustees, guardians or other like fiduciaries of
single trust estates or certain single fiduciary accounts may take advantage of
the quantity discounts pursuant to a letter of intention.
A letter of intention is not a binding obligation upon you to purchase the full
amount indicated. Investor Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in your name) to secure
payment of the higher sales charge applicable to the Investor Shares actually
purchased. If the full amount indicated is not purchased, such escrowed Investor
Shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed Investor Shares, whether paid in cash or
reinvested in additional Investor Shares of the applicable Cardinal Load Fund,
are not subject to escrow. The escrowed Investor Shares will not be available
for disposal by you until all purchases pursuant to the Letter of Intention have
been made or the higher sales charge has been paid. When the full amount
indicated has been purchased, the escrow will be released. To the extent that
you purchase more than the dollar amount indicated on the Letter of Intention
and qualify for a further reduced sales charge, the sales charge will be
adjusted for the entire amount purchased at the end of the 13-month period. The
difference in sales charge will be, as you instruct, either delivered to you in
cash or used to purchase additional Investor Shares of the Cardinal Load Fund
designated by you subject to the rate of sales charge applicable to the actual
amount of the aggregate purchases. This program, however, may be modified or
eliminated at any time or from time to time by the Group without notice.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, you have the privilege of
combining "concurrent purchases" of Investor Shares of a Fund and of one or more
of the other Cardinal Load Funds. For example, if you concurrently purchase
Investor Shares of the Balanced Fund at the total public offering price of
$50,000 and Investor Shares of another Cardinal Load Fund at the total public
offering price of $50,000, the sales charge paid by you would be that applicable
to a $100,000 purchase as shown in the table above. "Concurrent purchases," as
described above, shall include the combined purchases of Investor Shares of you,
your spouse and your children not of legal age. To receive the applicable public
offering price pursuant to this privilege, you must, at the time of purchase,
give The Ohio Company sufficient information to permit confirmation of
qualification. This privilege, however, may be modified or eliminated at any
time or from time to time by the Group without notice thereof.
RIGHTS OF ACCUMULATION
After your initial purchase of Investor Shares you may also be eligible to pay a
reduced sales charge for your subsequent purchases of Investor Shares where the
total public offering price of Investor Shares then being purchased plus the
then aggregate current net asset value of Investor Shares of such Fund and of
Investor Shares of any Cardinal Load Fund held in your account equals $100,000
or more. You would be able to purchase Investor Shares at the public offering
price applicable to the total of (a) the total public offering price of the
Investor Shares of the Fund then being purchased plus (b) the then current net
asset value of Investor Shares of such Fund and of Investor Shares of any other
Cardinal Load Fund held in your account.
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<PAGE> 21
For purposes of determining the aggregate current net asset value of Investor
Shares held in your account, you may include Investor Shares then owned by your
spouse and children not of legal age.
You may obtain additional information about the foregoing special purchase
method from The Ohio Company. You are responsible for notifying The Ohio Company
at the time of purchase when purchases may be accumulated to take advantage of
the reduced sales charge. This program, however, may be modified or eliminated
at any time or from time to time by the Group without notice thereof.
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WHAT DISTRIBUTIONS WILL I RECEIVE?
- --------------------------------------------------------------------------------
Dividends and distributions shall be made with such frequency (long term capital
gains normally will be distributed only once annually) and in such amounts as
the Group from time to time shall determine and shall be paid from net income
and net realized capital gains of the Funds. It is the policy of each Fund to
distribute, at least annually, substantially all of its net investment income
and to distribute annually any net realized capital gains. Unless a shareholder
specifically requests otherwise in writing to the Transfer Agent, dividends and
distributions will be made only in additional full and fractional Investor
Shares of a Fund and not in cash. Dividends are paid in cash not later than
seven days after a shareholder's complete redemption of his Investor Shares in a
Fund.
Each Fund's net investment income available for distribution to the holders of
Investor Shares will be reduced by the amount of Rule 12b-1 fees paid out under
the Plan described below.
Shareholders may also elect to receive dividends and distributions in cash by
using ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? -- ACH Processing" below.
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HOW MAY I REDEEM MY INVESTOR SHARES?
- --------------------------------------------------------------------------------
Investors may redeem Investor Shares of a Fund on any Business Day at the net
asset value per Investor Share next determined following receipt by the Transfer
Agent, 215 East Capital Street, Columbus, Ohio 43215, of written or telephonic
notice to redeem, as described more fully below. See "HOW IS NET ASSET VALUE
CALCULATED?", below, for a description of when net asset value is determined.
As requested, The Ohio Company, on behalf of a shareholder, will forward the
foregoing notice to redeem to the Transfer Agent without charge. Other
broker-dealers may assist a shareholder in redeeming his Investor Shares and may
charge a fee for such services.
The Group will make payment for redeemed Investor Shares as promptly as
practicable but in no event more than seven days after receipt by the Transfer
Agent of the foregoing notice. The Group reserves the right to delay payment for
the redemption of Investor Shares where such Investor Shares were purchased with
other than immediately available funds, but only until the purchase payment has
cleared (which may take fifteen or more days from the date the purchase payment
is received by the applicable Fund). The purchase of Investor Shares by wire
transfer of federal funds would avoid any such delay.
The Group intends to pay cash for all Investor Shares redeemed, but, under
abnormal conditions which make payment in cash unwise, the Group may make
payment wholly or partly in readily marketable portfolio securities at their
then market value equal to the redemption price. In such cases, an investor may
incur brokerage costs in converting such securities to cash.
The Group may suspend the right of redemption or may delay payment during any
period the determination of net asset value is suspended. See "HOW IS NET ASSET
VALUE CALCULATED?."
Due to the high cost of maintaining accounts, the Group reserves the right to
redeem involuntarily Shares in any account at the then current net asset value
if at any time redemptions (but not as a result of a decrease in the market
price of such Shares or the deduction of any sales charge) have reduced a
shareholder's total investment in a Fund to a net asset value below $500. A
shareholder will be notified in writing that the
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<PAGE> 22
value of Fund Shares in the account is less than $500 and allowed not less than
30 days to increase his investment in such Fund to at least $500 before the
redemption is processed. Proceeds of redemptions so processed, including
dividends declared to the date of redemption, will be promptly paid to the
shareholder.
REDEMPTION BY MAIL
Shareholders may redeem Investor Shares of a Fund by submitting a written
request therefor to the Transfer Agent, at 215 East Capital Street, Columbus,
Ohio 43215. The Transfer Agent will request a signature guarantee by an eligible
guarantor institution as described below. However, a signature guarantee will
not be required if (1) the redemption check is payable to the shareholder(s) of
record, and (2) the redemption check is mailed to the shareholder(s) at the
address of record, provided, however, that the address of record has not been
changed within the preceding 15 days. For purposes of this policy, an "eligible
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations as those terms are defined in the Securities Exchange Act of 1934.
The Transfer Agent reserves the right to reject any signature guarantee if (1)
it has reason to believe that the signature is not genuine or (2) it has reason
to believe that the transaction would otherwise be improper.
REDEMPTION BY TELEPHONE
Shareholders may redeem Investor Shares of a Fund by calling the Group at the
telephone number set forth on the front of this Prospectus. The shareholder may
direct that the redemption proceeds be mailed to the address of record.
Neither the Group, the Funds nor their service providers will be liable for any
loss, damages, expense or cost arising out of any telephone redemption effected
in accordance with the Group's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Group will employ procedures
designed to provide reasonable assurances that instructions by telephone are
genuine; if these procedures are not followed, the Group, the Funds or their
service providers may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures may include recording all phone conversations,
sending confirmations to shareholders within 72 hours of the telephone
transaction, and verification of account name and account number or tax
identification number. If, due to temporary adverse conditions, investors are
unable to effect telephone transactions, shareholders may also redeem their
Investor Shares by mail as described above.
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Investor Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? -- ACH Processing" below.
SYSTEMATIC WITHDRAWAL PLAN
If you are the owner of Investor Shares of a Fund having a total value of
$10,000 or more at the current net asset value, you may elect to redeem your
Investor Shares monthly or quarterly in amounts of $50 or more, pursuant to the
Group's Systematic Withdrawal Plan. Please contact The Ohio Company for the
appropriate form. Purchase of additional Investor Shares, using the Automatic
Investment Plan described above, concurrent with withdrawals may be
disadvantageous to certain shareholders because of tax liabilities and sales
charges.
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<PAGE> 23
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WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
- --------------------------------------------------------------------------------
ACH PROCESSING
The Group offers ACH privileges. Investors may use ACH processing to make
subsequent purchases, redeem Shares and/or electronically transfer distributions
paid on Shares, in addition to the other methods described in this Prospectus.
ACH provides a method by which funds may be automatically transferred to or from
an authorized bank account at a Federal Reserve member bank that is an ACH
member. Please contact your representative if you are interested in ACH
processing.
EXCHANGE PRIVILEGE
Holders of Investor Shares of a Fund may, provided the amount to be exchanged
meets the applicable minimum investment requirements and the exchange is made in
states where it is legally authorized, exchange at respective net asset values,
Investor Shares of any Fund for Investor Shares of another Fund (upon the
payment of the appropriate sales charge) or for:
Investor Shares of
Cardinal Government Obligations Fund,
a fund investing in securities issued
or guaranteed by the U.S. Government
(upon the payment of the appropriate
sales charge);
Shares of Cardinal Government Securities Money Market Fund,
a U.S. Government securities money market fund
(without payment of any sales charge); or
Shares of Cardinal Tax Exempt Money Market Fund,
a tax-free money market fund
(without payment of any sales charge).
Notwithstanding the foregoing and subject to the limitations contained in the
following paragraph, (i) exchanges by holders of Investor Shares, for whom the
sales charge has been waived, for Investor Shares of a Cardinal Load Fund may be
completed without the payment of a sales charge, and (ii) exchanges of Investor
Shares by all other shareholders for Investor Shares of a Cardinal Load Fund may
be completed upon the payment of a sales charge equal to the difference, if any,
between the sales charge payable upon purchase of Investor Shares of such
Cardinal Load Fund and the sales charge previously paid on the Investor Shares
to be exchanged.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange requested is
within the same account or into an existing account of the shareholder held in
the same name or names and in the same capacity as the account from which the
exchange is to be made. Shareholders may also authorize an exchange of Shares of
a Fund by telephone. Neither the Group, the Funds nor any of their service
providers will be liable for any loss, damages, expense or cost arising out of
any telephone exchange authorization to the extent and subject to the
requirements set forth under "HOW MAY I REDEEM MY SHARES? -- Redemption by
telephone" above.
For tax purposes, an exchange is treated as a redemption and a new purchase.
However, a shareholder may not include any sales charge on Investor Shares of a
Fund for purposes of calculating the gain or loss realized upon an exchange of
those Investor Shares within 90 days of their purchase.
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<PAGE> 24
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Funds 60 days'
advance written notice of any such modification or termination.
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HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
The net asset value of each Fund is determined once daily as of 4:00 P.M.,
Eastern Time, on each Business Day. A "Business Day" is a day on which the New
York Stock Exchange is open for business and any other day (other than a day on
which no Shares of such Fund are tendered for redemption and no order to
purchase any Shares of that Fund is received) during which there is a sufficient
degree of trading in a Fund's portfolio securities that the net asset value
might be materially affected by changes in the value of the portfolio
securities. The net asset value per share of each class of shares of a Fund is
computed by dividing the sum of the value of that Fund's portfolio securities
plus any cash and other assets (including interest and dividends accrued but not
received) allocable to such class minus all liabilities (including estimated
accrued expenses) allocable to such class by the total number of Shares of that
class of such Fund then outstanding.
The net asset value per share will fluctuate as the value of the investment
portfolio of a Fund changes.
Portfolio securities which are traded on United States stock exchanges are
valued at the last sale price on such an exchange as of the time of valuation on
the day the securities are being valued. Securities traded in the
over-the-counter market are valued at either the mean between the bid and ask
prices or the last sale price as one or the other may be quoted by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") as of
the time of valuation on the day the securities are being valued. The Group uses
one or more pricing services to provide such market quotations. Securities and
other assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Trustees of the Group.
Determination of the net asset value may be suspended at times when (a) trading
on the New York Stock Exchange is restricted by applicable rules and regulations
of the Commission, (b) the New York Stock Exchange is closed for other than
customary weekend and holiday closings, (c) an emergency exists as a result of
which disposal by the Group of portfolio securities owned by the Fund or
valuation of net assets of the Fund is not reasonably practicable, or (d) the
Commission has by order permitted such suspension.
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DO THE FUNDS PAY FEDERAL INCOME TAX?
- --------------------------------------------------------------------------------
Each of the funds of the Group, including the Funds, is treated as a separate
entity for federal income tax purposes and intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), for so long as such qualification is in the best interest of that
fund's shareholders. Qualification as a regulated investment company under the
Code requires, among other things, that the regulated investment company
distribute to its shareholders at least 90% of its investment company taxable
income. Each Fund contemplates declaring as dividends all or substantially all
of such Fund's investment company taxable income (before deduction of dividends
paid).
A non-deductible 4% excise tax is imposed on regulated investment companies that
do not distribute in each calendar year(regardless of whether they otherwise
have a non-calendar taxable year) an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gain net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. If distributions
during a calendar year were less than the required amount, the Fund would be
subject to a nondeductible excise tax equal to 4% of the deficiency.
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WHAT ABOUT MY TAXES?
- --------------------------------------------------------------------------------
It is expected that each Fund will distribute annually to shareholders all or
substantially all of that Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and
24
<PAGE> 25
distributed net realized capital gains will be taxable income to shareholders
for federal income tax purposes, even if paid in additional Shares of the Fund
and not in cash. The dividends received deduction for corporations will apply to
the aggregate of such ordinary income distributions in the same proportion as
the aggregate dividends eligible for the dividends received deduction, if any,
received by a Fund bear to its gross income.
Distribution by a Fund of the excess of net mid-term or net long-term capital
gain over net short-term capital loss is taxable to shareholders as mid-term or
long-term capital gain, respectively, in the year in which it is received,
regardless of how long the shareholder has held the Shares. Such distributions
are not eligible for the dividends received deduction.
If the net asset value of a Share is reduced below the shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution is a return of invested principal, although taxable
as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
Foreign taxes may be imposed on a Fund by foreign countries with respect to its
income from foreign securities. Since less than 50% in value of each Fund's
total assets at the end of its fiscal year are expected to be invested in
securities of foreign corporations, no Fund will be entitled under the Code to
pass through to its shareholders their pro rata share of the foreign taxes paid
by such Fund. These taxes will be taken as a deduction by that Fund.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders. Potential
investors in the Funds are urged to consult their tax advisers concerning the
application of federal, state and local taxes as such laws and regulations
affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the amount and
nature of such income and capital gains.
- --------------------------------------------------------------------------------
WHO MANAGES MY INVESTMENT IN THE FUNDS?
- --------------------------------------------------------------------------------
Except where shareholder action is required by law, all of the authority of the
Group is exercised under the direction of the Group's Trustees. Unless so
required by the Group's Declaration of Trust or By-Laws or by Ohio law, at any
given time all of the Trustees may not have been elected by the shareholders of
the Group. The Trustees are empowered to elect officers and contract with and
provide for the compensation of agents, consultants and other professionals to
assist and advise in its day-to-day operations. The Group will be managed in
accordance with its Declaration of Trust and the laws of Ohio governing business
trusts.
The Trustees of the Group receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. However, no
officer or employee of the Adviser or The Ohio Company receives any compensation
from the Group for acting as a Trustee of the Group. The officers of the Group
receive no compensation directly from the Group for performing the duties of
their offices. The Adviser receives fees from the Group for acting as investment
adviser and manager and as dividend and transfer agent. The Ohio Company
receives no fees under its Distribution Agreement with the Group but, with
respect to Investor Shares only, may retain all or a portion of the sales charge
and receives fees under the Distribution Plan discussed below.
25
<PAGE> 26
INVESTMENT ADVISER AND MANAGER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street, Columbus, Ohio
43215, a wholly owned subsidiary of The Ohio Company, is the investment adviser
and manager of each of the Funds. The Adviser is also the investment adviser and
manager of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a member of
the New York and Chicago Stock Exchanges, other regional stock exchanges and the
National Association of Securities Dealers, Inc. Descendants of H.P. and R.F.
Wolfe, deceased, and members of their families, through their possession of a
majority of voting stock, may be considered controlling persons of The Ohio
Company. The Ohio Company serves as the principal underwriter for each of the
Cardinal Funds.
In its capacity as investment adviser, and subject to the ultimate authority of
the Group's Board of Trustees, the Adviser, in accordance with the Funds'
investment objectives and policies, manages each Fund, and makes decisions with
respect to and places orders for all purchases and sales of its portfolio
securities. Since the Reorganization with respect to The Cardinal Fund and since
December 22, 1995, with respect to TCFI, The Cardinal Fund's predecessor, John
Bevilacqua has been primarily responsible for the day-to-day management of the
portfolio of such Funds. Mr. Bevilacqua has been a Vice President and Portfolio
Manager for The Ohio Company since October, 1994. Prior thereto, and since
February, 1984, Mr. Bevilacqua served as Second Vice President -- Investments
for Midland Mutual Life Insurance Company, Columbus, Ohio. Since October 1,
1996, David C. Will and Joseph A. Miner have been responsible jointly for the
day-to-day management of the Balanced Fund's portfolio. Mr. Will has been a Vice
President of the Adviser and The Ohio Company since 1990 and has more than 25
years of investment management experience. Mr. Miner has been a Vice President
and Senior Portfolio Manager of the Adviser and/or The Ohio Company since
August, 1995. Prior thereto and since 1992, Mr. Miner was a Vice President and
Portfolio Manager with Key Trust Company of Ohio. From 1987 to 1992, Mr. Miner
was an investment strategist and an Assistant Vice President of Citizens
Fidelity Capital Management Company, Louisville, Kentucky. Since August 12,
1996, Mr. Harold C. Elliott has been primarily responsible for the day-to-day
management of the Aggressive Growth Fund's portfolio. Mr. Elliott has been a
Vice President and Chief Investment Officer of The Ohio Company since March
1996. Prior thereto, from May, 1993 to March 1996, Mr. Elliott was Vice
President and Chief Investment Officer of The Bank of Tokyo Trust Company (New
York City), a wholly-owned subsidiary of The Bank of Tokyo Limited, Tokyo,
Japan. Prior thereto, from December, 1994 to May, 1993, Mr. Elliott was employed
by First Fidelity Bank, Philadelphia, Pennsylvania.
In addition, pursuant to the Investment Advisory and Management Agreement, the
Adviser generally assists in all aspects of each Fund's administration and
operation.
For the services provided and expenses assumed pursuant to its Investment
Advisory and Management Agreement with the Group with respect to the Funds, the
Adviser receives a fee from the Funds, computed daily and paid monthly at the
following annual rates: with respect to The Cardinal Fund, 0.60% of such Fund's
average daily net assets; and with respect to both the Balanced Fund and the
Aggressive Growth Fund, 0.75% of such Funds' average daily net assets. While in
the opinion of the staff of the Commission such fees with respect to the
Balanced Fund and the Aggressive Growth Fund are higher than the advisory fee
paid by most mutual funds, the Group's Board of Trustees believes them to be
comparable to advisory fees paid by many funds having similar objectives and
policies.
The Adviser may periodically waive all or a portion of its advisory fee with
respect to a Fund to increase the net income of such Fund available for
distribution as dividends. The waiver of such fee will cause the return and/or
yield of such Fund to be higher than it would otherwise be in the absence of
such a waiver.
On December 22, 1997, The Ohio Company, Fifth Third Bankcorp., and its wholly
owned subsidiary, Fifth Third M Corp., entered into an Agreement and Plan of
Merger pursuant to which The Ohio Company will be acquired by Fifth Third M
Corp. The acquisition is subject to a number of conditions, including the
approval by Trustees and shareholders of the Group of a "new" investment
advisory and management agreement with the Adviser, identical in all material
respects to the Group's current Investment Advisory and Management Agreement
with the Adviser, to become effective on the effective date of The Ohio
26
<PAGE> 27
Company's acquisition. On such effective date, it is also expected that the
Group will have entered into an underwriting agreement with a new principal
underwriter. In addition, it is expected that Fountain Square Funds, a regulated
investment company with net assets of approximately $3.1 billion as of December
31, 1997, advised by Fifth Third Bank, a subsidiary of Fifth Third Bankcorp.,
will propose the combination of the Group and Fountain Square Funds in a
transaction which, if approved by the Group's Trustees, would be submitted to
the Group's shareholders for consideration and approval.
On January 16, 1998, the Board of Trustees of the Group approved such a new
investment advisory and management agreement and have called a Special Meeting
of Shareholders to be held in March, 1998 to vote on such agreement.
DIVIDEND AND TRANSFER AGENT
The Group has entered into a Transfer Agency Agreement with the Transfer Agent,
215 East Capital Street, Columbus, Ohio 43215, pursuant to which the Transfer
Agent has agreed to act as the Funds' transfer agent and dividend disbursing
agent. In consideration of such services, each Fund has agreed to pay the
Transfer Agent an annual fee, paid monthly, equal to $18 per shareholder account
plus out-of-pocket expenses.
DISTRIBUTOR
The Group has entered into a Distribution Agreement with The Ohio Company, 155
East Broad Street, Columbus, Ohio 43215, pursuant to which Shares of the Funds
will be offered continuously on a best efforts basis by The Ohio Company and
dealers selected by The Ohio Company. H. Keith Allen is an officer and trustee
of the Group and an officer and director of The Ohio Company. Frank W. Siegel is
an officer and trustee of the Group and an officer of The Ohio Company. James M.
Schrack II is an officer of both the Group and The Ohio Company.
EXPENSES
The Adviser bears all expenses in connection with the performance of its
services as investment adviser, manager and transfer agent other than the cost
of securities (including brokerage commissions, if any) purchased for the Funds.
The Trustees reserve the right to allocate certain other expenses, which can
reasonably be identified as relating to a particular class, solely to such
class, including Investor Shares, as they deem appropriate ("Class Expenses").
Such expenses include (a) transfer agency fees identified as being attributable
to a specific class; (b) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxy
statements to current shareholders of a specific class; (c) Blue Sky
registration fees incurred by a class of shares; (d) SEC registration fees
incurred by a class; (e) expenses of administrative personnel and services as
required to support the shareholders of a specific class; (f) litigation or
other legal expenses and audit or other accounting expenses relating solely to
one class; (g) trustees' fees or expenses incurred as a result of issues
relating to one class; and (h) shareholder meeting costs that relate to a
specific class.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a Distribution
and Shareholder Service Plan with respect to its Investor Shares (the "Plan"),
under which each Fund is authorized to pay The Ohio Company, as such Fund's
principal underwriter, a periodic amount calculated at an annual rate not to
exceed twenty-five one-hundredths of one percent (.25%) of the average daily net
asset value of the Investor Shares of that Fund. Such amount may be used by The
Ohio Company to pay broker-dealers (including The Ohio Company), banks and other
institutions (a "Participating Organization") for distribution and/or
shareholder service assistance pursuant to an agreement between The Ohio Company
and the Participating Organization or for distribution assistance and/or
shareholder service provided by The Ohio Company pursuant to an agreement
between The Ohio Company and the Group. Under the Plan, a Participating
Organization may include The Ohio Company, its subsidiaries, and its affiliates.
The Ohio
27
<PAGE> 28
Company may from time to time waive all or a portion of the fees payable to it
pursuant to the Plan. Any such waiver will cause the total return and yield of
the Investor Shares of a Fund to be higher than they would otherwise be absent
such a waiver.
As authorized by the Plan, The Ohio Company has entered into a Rule 12b-1
Agreement with the Group pursuant to which The Ohio Company has agreed to
provide certain shareholder services in connection with Investor Shares of the
Funds purchased and held by The Ohio Company for the accounts of its customers
and Investor Shares of the Funds purchased and held by customers of The Ohio
Company directly, including, but not limited to, answering shareholder questions
concerning the Funds, providing information to shareholders on their investments
in Investor Shares of a Fund and providing such personnel and communication
equipment as is necessary and appropriate to accomplish such matters. In
consideration of such services the Group has agreed to pay The Ohio Company a
monthly fee, computed at the annual rate of .25% of the average aggregate net
asset value of Investor Shares held during the period in customer accounts for
which The Ohio Company has provided services under this Agreement. Such fees
paid by the Group will be borne solely by the Investor Shares of the applicable
Fund. Such fee may exceed the actual costs incurred by The Ohio Company in
providing such services.
In addition, The Ohio Company may enter into, from time to time, other Rule
12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain shareholder services such as those described above.
CUSTODIAN AND FUND ACCOUNTANT
The Group has appointed The Fifth Third Bank ("Fifth Third"), 38 Fountain Square
Plaza, Cincinnati, Ohio 45263, as the Funds' custodian. In such capacity, Fifth
Third will hold or arrange for the holding of all portfolio securities and other
assets acquired and owned by the Funds. In addition, Fifth Third, pursuant to a
Fund Accounting and Services Agreement, has agreed with the Group to provide
certain fund accounting services to each of the Funds.
- --------------------------------------------------------------------------------
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
- --------------------------------------------------------------------------------
The Group was organized as an Ohio business trust on March 23, 1993. The Group
currently consists of six funds. The shares of each of the funds of the Group,
other than the two money market funds, Cardinal Government Securities Money
Market Fund ("CGSMMF") and Cardinal Tax Exempt Money Market Fund ("CTEMMF"), are
currently offered in two separate classes: Investor A Shares, otherwise referred
to as Investor Shares, and Investor Y Shares, otherwise referred to as
Institutional Shares. CGSMMF and CTEMMF each only have one class of shares. Each
share represents an equal proportional interest in a fund with other shares of
the same fund, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to that fund as are declared at the
discretion of the Trustees.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by series or class except as otherwise expressly
required by law. For example, shareholders of The Cardinal Fund will vote in the
aggregate with other shareholders of the Group with respect to the election of
trustees and ratification of the selection of independent accountants. However,
shareholders of The Cardinal Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of amendments to
the investment advisory agreement as it relates to The Cardinal Fund or any of
The Cardinal Fund's fundamental policies.
Overall responsibility for the management of the Funds is vested in the Board of
Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUNDS?" Individual
Trustees are elected by the shareholders of the Group, although Trustees may
under certain circumstances fill vacancies, including vacancies created by
expanding the size of the Board. Trustees may be removed by the Board of
Trustees or shareholders in accordance with the provisions of the Declaration of
Trust and By-Laws of the Group and
28
<PAGE> 29
Ohio law. See "ADDITIONAL INFORMATION -- Miscellaneous" in the Statement of
Additional Information for further information.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve the investment advisory agreement and to satisfy certain other
requirements. To the extent that such a meeting is not required, the Group does
not intend to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c) of
the 1940 Act. At such meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a fund" means the consideration received by the fund upon
the issuance or sale of shares in that fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular fund
that are allocated to the fund by the Group's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Group as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding shares" of a Fund means the affirmative
vote, at a meeting of shareholders duly called, of the lesser of (a) 67% or more
of the votes of shareholders of that Fund present at a meeting at which the
holders of more than 50% of the votes attributable to shareholders of record of
the Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of shareholders of the Fund.
Shareholders should direct all inquiries concerning such matters to the Transfer
Agent in writing to 215 East Capital Street, Columbus, Ohio 43215, or by calling
(800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Funds and annual financial reports audited by
independent auditors.
29
<PAGE> 30
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 31
Investment Adviser and Manager
Cardinal Management Corp.
155 East Broad Street
Columbus, Ohio 43215
Distributor
The Ohio Company
155 East Broad Street
Columbus, Ohio 43215
Transfer Agent and Dividend Paying
Agent
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
Custodian
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Legal Counsel
Baker & Hostetler LLP
65 East State Street
Columbus, Ohio 43215
Independent Auditors
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
<PAGE> 32
- ----------------------------------------------------------
- ---------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PROSPECTUS HIGHLIGHTS....................... 2
FEE TABLE................................... 4
FINANCIAL HIGHLIGHTS........................ 5
PERFORMANCE INFORMATION..................... 8
WHAT ARE THE FUNDS?......................... 9
WHAT ARE THE INVESTMENT OBJECTIVES AND
POLICIES OF THE FUNDS?.................... 9
HOW DO I PURCHASE INVESTOR SHARES OF THE
FUNDS?.................................... 18
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?... 20
WHAT DISTRIBUTIONS WILL I RECEIVE?.......... 21
HOW MAY I REDEEM MY INVESTOR SHARES?........ 21
WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED?................................. 23
HOW IS NET ASSET VALUE CALCULATED?.......... 24
DO THE FUNDS PAY FEDERAL INCOME TAX?........ 24
WHAT ABOUT MY TAXES?........................ 24
WHO MANAGES MY INVESTMENT IN THE FUNDS?..... 25
WHAT ARE MY RIGHTS AS A SHAREHOLDER?........ 28
</TABLE>
------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDS, THE ADVISER, OR THE OHIO COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUNDS OR BY THE OHIO COMPANY TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUNDS TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
- ---------------------------------------------------------
==========================================================
- ---------------------------------------------------------
----------------------
PROSPECTUS
----------------------
January 30, 1998
The Ohio Company
THE
CARDINAL
FUND
CARDINAL
BALANCED
FUND
CARDINAL
AGGRESSIVE
GROWTH FUND
INVESTOR SHARES
CARDINAL LOGO
CARDINAL GROUP
- ---------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 33
PROSPECTUS----------------------------------------------------------------------
[CARDINAL LOGO]
CARDINAL GOVERNMENT OBLIGATIONS FUND
INVESTOR SHARES
Cardinal Government Obligations Fund (the "Fund") is a diversified investment
fund of The Cardinal Group (the "Group"), an open-end, management investment
company. The Trustees of the Group have divided the Fund's beneficial ownership
into an unlimited number of transferable units called shares (the "Shares"). The
Fund offers multiple classes of Shares.
The Fund's investment objectives are to maximize safety of capital and,
consistent with such objective, earn the highest available current income
obtainable from government securities. The current income earned from such
government securities may not be as great as the current income earned on lower
quality securities which have less liquidity and greater risk of nonpayment.
There can be no assurance that the Fund's investment objectives will be
achieved.
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
FOR FURTHER INFORMATION REGARDING THE
FUND OR FOR ASSISTANCE IN OPENING AN
ACCOUNT OR REDEEMING SHARES, PLEASE CALL
(800) 282-9446 TOLL FREE.
INQUIRIES MAY ALSO BE MADE BY MAIL ADDRESSED
TO THE FUND AT ITS PRINCIPAL OFFICE:
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
- --------------------------------------------------------------------------------
The Prospectus relates only to one class of Shares of Cardinal Government
Obligations Fund -- Investor Shares. Investor Shares of the Fund are offered to
the public. The Fund also offers Institutional Shares to certain qualified
institutions. Interested persons who wish to obtain prospectuses of The Cardinal
Fund, Cardinal Balanced Fund, Cardinal Aggressive Growth Fund, Cardinal
Government Securities Money Market Fund or Cardinal Tax Exempt Money Market
Fund, the other funds of the Group, or of the Institutional Shares of the Fund
should contact The Ohio Company. Additional information about the Fund,
contained in a Statement Of Additional Information dated January 30, 1998, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. Such Statement is available upon request without charge
from the Fund at the above address or by calling the phone number provided
above.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing in the Fund. This Prospectus
should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[THE OHIO COMPANY LOGO]
The date of this Prospectus is January 30, 1998.
- --------------------------------------------------------------------------------
<PAGE> 34
- --------------------------------------------------------------------------------
PROSPECTUS HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES.......... The Fund seeks to maximize safety of capital and,
consistent with such objective, earn the highest
available current income obtainable from government
securities. (See page 6.)
INVESTMENT POLICIES............ Under normal market conditions, the Fund invests
substantially all but in no event less than 65% of its
total assets in obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and
repurchase agreements secured by securities of the U.S.
Government. Under present market conditions, the Fund
expects to invest a substantial amount of its portfolio
in Ginnie Mae certificates. These investments entail
certain risks. (See pages 6 through 8.)
CURRENT INCOME................. Dividends are declared daily and distributions are
generally made monthly as the Group shall determine.
Long-term capital gains, if any, are distributed
annually. (See page 14.)
RISK FACTORS AND SPECIAL
CONSIDERATIONS............... An investment in a mutual fund such as the Fund involves
a certain amount of risk and may not be suitable for all
investors. Some investment policies of the Fund may
entail certain risks. (See "WHAT ARE THE INVESTMENT
OBJECTIVES AND POLICIES OF THE FUND? -- Risk Factors and
Investment Techniques" on pages 8 through 10.)
PURCHASES...................... There is a minimum initial investment of $1,000 with
subsequent minimums of $50. (See page 11.) Purchases are
made at the public offering price which is equal to net
asset value per share plus a sales charge. This charge is
equal to 4.50% of the public offering price (4.71% of net
amount invested) reduced on investments of $100,000 or
more (See page 12).
REDEMPTIONS.................... Shares can be redeemed at net asset value per share
without charge if redeemed through the Fund's
distributor, The Ohio Company. (See page 14.)
INVESTMENT ADVISER AND
MANAGER...................... Cardinal Management Corp. (the "Adviser"), a wholly-owned
subsidiary of The Ohio Company, is the Fund's investment
adviser. The Adviser also serves as investment adviser
for The Cardinal Fund, Cardinal Government Securities
Money Market Fund, Cardinal Tax Exempt Money Market Fund,
Cardinal Balanced Fund and Cardinal Aggressive Growth
Fund (collectively, with the Fund, the "Cardinal Funds"),
each a separate diversified investment fund of the Group.
(See pages 18 and 19.)
</TABLE>
2
<PAGE> 35
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTOR SHARES
-----------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)(1).......................................................... 4.50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees..................................................... .50%
12b-1 Fees.......................................................... .25
Other Expenses...................................................... .26
----
Total Fund Operating Expenses.................................. 1.01%
====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period:................ $ 55 $ 76 $ 98 $163
</TABLE>
(1) The sales charge may be eliminated or reduced under certain circumstances.
See "HOW DO I PURCHASE INVESTOR SHARES OF THE FUND?" below.
The information set forth in the foregoing Fee Table and Example relates only to
Investor Shares of the Fund. The Fund also offers another class of Shares known
as Institutional Shares. The two classes of Shares of the Fund are subject to
the same expenses except that Institutional Shares are not subject to a Rule
12b-1 fee and are not sold with a sales charge but are subject to an
administrative services fee.
The purpose of the above table is to assist a potential purchaser of the Fund's
Investor Shares in understanding the various costs and expenses that an investor
in the Fund will bear directly or indirectly. See "WHO MANAGES MY INVESTMENT IN
THE FUND?" for a more complete discussion of the shareholder transaction
expenses and annual operating expenses of the Fund. The example and expenses
above reflect current fees. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
3
<PAGE> 36
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following Financial Highlights with respect to each of the years in the ten
year period ended September 30, 1997, have been audited by KPMG Peat Marwick
LLP, independent auditors, whose report thereon, insofar as it relates to each
of the years in the five-year period ended September 30, 1997, is contained in
the Fund's statement of Additional Information and which may be obtained by
shareholders and prospective investors.
The following Financial Highlights reflect the operations of Cardinal Government
Obligations Fund ("CGOF"), the Fund's predecessor, through April 30, 1996. On
May 1, 1996, the Fund acquired all of the assets and liabilities of CGOF and is
deemed to have succeeded to the financial and performance history of CGOF.
Effective January 2, 1997, the Board of Trustees of the Group reclassified the
Fund's outstanding Shares into Investor Shares. The financial information
provided below and in the Statement of Additional Information includes periods
prior to such reclassification.
FINANCIAL HIGHLIGHTS FOR EACH INVESTOR SHARE OF BENEFICIAL
INTEREST OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning................................ $ 8.05 $ 8.18 $ 7.96 $ 8.63 $ 8.95
Investment Activities:
Net investment income................................... .61 .60 .64 .66 .74
Net realized and unrealized gain (loss) on
investments........................................... .11 (.12) .22 (.68) (.32)
-------- -------- -------- -------- --------
Total from Investment Activities........................ .72 .48 .86 (.02) .42
-------- -------- -------- -------- --------
Distributions:
From net investment income.............................. (.57) (.60) (.64) (.65) (.74)
From capital gains...................................... -- -- -- -- --
Tax return of capital................................... -- (.01) -- -- --
-------- -------- -------- -------- --------
Total Distributions..................................... (.57) (.61) (.64) (.65) (.74)
Net Asset Value, ending................................... $ 8.20 $ 8.05 $ 8.18 $ 7.96 $ 8.63
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Total Return (without sales load)....................... 9.28% 6.04% 11.27% (0.27%) 4.83%
Net assets at end of period (000)....................... $120,342 $133,298 $151,711 $169,529 $208,883
Ratio of expenses to average net assets................. 1.01% 0.78% 0.76% 0.75% 0.73%
Ratio of net investment income after charged expenses to
average net assets.................................... 7.06% 7.39% 7.93% 7.88% 8.32%
Ratio of incurred expenses to average net assets (a).... 1.08% 0.88% 0.76% 0.75% 0.73%
Ratio of net investment income after incurred expenses
to average net assets (a)............................. 6.99% 7.29% 7.93% 7.88% 8.32%
Portfolio Turnover Rate................................. 34.53% 33.58% 36.71% 21.95% 24.94%
</TABLE>
4
<PAGE> 37
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning................................ $ 8.99 $ 8.71 $ 8.71 $ 8.82 $ 8.60
Investment Activities:
Net investment income................................... .80 .81 .84 .84 .86
Net realized and unrealized gain (loss) on
investments........................................... (.04) .28 -- (.11) .22
-------- -------- -------- -------- --------
Total from Investment Activities........................ .76 1.09 .84 .73 1.08
-------- -------- -------- -------- --------
Distributions:
From net investment income.............................. (.80) (.81) (.84) (.84) (.86)
From capital gains...................................... -- -- -- -- --
Tax return of capital................................... -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions..................................... (.80) (.81) (.84) (.84) (.86)
Net Asset Value, ending................................... $ 8.95 $ 8.99 $ 8.71 $ 8.71 $ 8.82
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Total Return (without sales load)....................... 8.87% 13.07% 10.03% 8.81% 12.94%
Net assets at end of period (000)....................... $172,139 $128,569 $114,890 $118,958 $146,745
Ratio of expenses to average net assets................. 0.76% 0.76% 0.76% 0.73% 0.74%
Ratio of net investment income after charged expenses to
average net assets.................................... 8.89% 9.20% 9.55% 9.73% 9.64%
Ratio of incurred expenses to average net assets(a)..... 0.76% 0.76% 0.76% 0.73% 0.74%
Ratio of net investment income after incurred expenses
to average net assets(a).............................. 8.89% 9.20% 9.55% 9.73% 9.64%
Portfolio Turnover Rate................................. 17.15% 34.81% 30.90% .92% 5.76%
</TABLE>
- ---------------
(a) During the period certain fees were voluntarily waived. Had the fees been
charged, the effective ratio would reflect the incurred expenses as
indicated above.
See notes to financial statements appearing in the Fund's Statement Of
Additional Information.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its average annual total return,
cumulative return and/or yield. SUCH RETURN AND YIELD FIGURES ARE BASED UPON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
average annual total return advertised by the Fund refers to the return
generated by an investment in the Fund over certain specified periods since the
establishment of the Fund (including the term of CGOF's operations). The average
annual total return over a period equates the amount of an initial investment in
the Fund to the amount redeemable at the end of that period assuming that any
dividends and distributions earned by an investment in the Fund are immediately
reinvested and the maximum applicable sales charge, if any, is deducted from the
initial investment at the time of investment. Such figure is then annualized.
The cumulative return advertised refers to the total return on a hypothetical
investment over the relevant period and equates the amount of an initial
investment in the Fund to the amount redeemable at the end of that period
assuming that any dividends and distributions are immediately reinvested and the
maximum sales charge, if any, is deducted from the initial investment. Yield
will be computed by dividing the Fund's net investment income per share earned
during a recent one-month period by the Fund's per share maximum offering price
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result. If the sales
charge were not deducted, the average annual total return, cumulative return and
yield advertised would be higher.
In addition, from time to time the Fund may include in its sales literature and
shareholder reports a quote of the current "distribution" rate for the Fund. A
distribution rate is simply a measure of the level of dividends distributed for
a specified period and is computed by dividing the total amount of dividends per
share paid by the Fund during the past 12 months by a current maximum offering
price. It differs from yield, which is a measure of the income actually earned
by the Fund's investments, and from total return, which is a measure of
5
<PAGE> 38
the income actually earned by, plus the effect of any realized and unrealized
appreciation or depreciation of, such investments during a stated period. A
distribution rate is, therefore, not intended to be a complete measure of
performance. A distribution rate may sometimes be greater than yield since, for
instance, it may include short-term and possibly long-term gains (which may be
non-recurring), may not include the effect of amortization of bond premiums and
does not reflect unrealized gains or losses.
Investors may also judge the performance of the Fund by comparing or referencing
its performance to the performance of other mutual funds or mutual fund
portfolios with comparable investment objectives and policies through various
mutual fund or market indices such as those prepared by Dow Jones & Co., Inc.
and Standard & Poor's Corporation, and to data prepared by Lipper Analytical
Services, Inc. and Morningstar, Inc. Comparisons may also be made to indices or
data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The
New York Times, The Columbus Dispatch, Business Week, U.S.A. Today and Consumer
Reports. In addition to performance information, general information about the
Fund that appears in a publication such as those mentioned above may be included
in advertisements and in reports to shareholders.
Further information about the performance of the Fund is contained in an Annual
Report to Shareholders which may be obtained without charge by contacting the
Group at the telephone number set forth on the cover page of this Prospectus.
Performance quotations will be computed separately for Investor and
Institutional Shares. Because of differences in the fees and/or expenses borne
by Investor and Institutional Shares, the net yield and total return on each
class can be expected, at any given time, to differ from the net yield and total
return of the other class.
- --------------------------------------------------------------------------------
WHAT IS THE FUND?
- --------------------------------------------------------------------------------
The Fund is one separate diversified investment fund of the Group, which was
organized on March 23, 1993, as an Ohio business trust. The Group is registered
and operates as an open-end management investment company as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund was
organized for the purpose of acquiring all of the assets and liabilities of CGOF
to effect a reorganization of CGOF from a stand-alone investment company to a
separate series of the Group (the "Reorganization"). The Reorganization was
effected as of May 1, 1996.
The Fund is designed for individuals, corporations, fiduciaries, and
institutions who wish to invest for current income in a diversified,
professionally managed portfolio of securities issued by the U.S. Government and
securities directly guaranteed by the full faith and credit of the U.S.
Government -- without having to become involved in the detailed accounting and
safekeeping procedures normally associated with direct investment in these
securities.
- --------------------------------------------------------------------------------
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUND?
- --------------------------------------------------------------------------------
IN GENERAL
The Fund's investment objectives are to maximize safety of capital and,
consistent with such objective, earn the highest available current income
obtainable from government securities. The current income earned from such
government securities may not be as great as the current income earned on lower
quality securities which have less liquidity and greater risk of nonpayment.
The Fund's investment objectives are a fundamental policy of the Fund, which
means that they may be changed only with the approval of a majority of the
outstanding Shares of the Fund (as defined below under "WHAT ARE MY RIGHTS AS A
SHAREHOLDER?"). There can be no assurance that the investment objectives of the
Fund will be achieved.
Under normal market conditions, the Fund will invest substantially all, but in
no event less than 65%, of its total assets in obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities ("U.S. Government
Securities"). The Fund may also invest, under normal market conditions, in the
fixed income
6
<PAGE> 39
instruments described below and in repurchase agreements. It may also engage in
the options transactions described below.
The Fund may, for daily cash management purposes, invest in high quality money
market securities and in repurchase agreements. In addition, the Fund may
invest, without limit, in any combination of U.S. Government Securities, money
market securities and repurchase agreements when, in the opinion of the Adviser,
it is determined that a temporary defensive position is warranted based upon
current market conditions. The Fund may also invest in securities of other
investment companies, as described more fully below.
The types of U.S. Government Securities invested in by the Fund will include
obligations issued by or guaranteed as to payment of principal and interest by
the full faith and credit of the U.S. Treasury, such as Treasury bills, notes,
bonds and certificates of indebtedness, and obligations issued or guaranteed by
the agencies or instrumentalities of the U.S. Government, but not supported by
such full faith and credit. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association ("Ginnie Mae") and the Export-Import Bank of the United
States, are supported by the full faith and credit of the U.S. Treasury; others,
such as those of the Federal National Mortgage Association, are supported by the
right of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government sponsored agencies or
instrumentalities if it is not obligated to do so by law. The Fund will invest
in the obligations of such agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal.
Certain securities held by the Fund may have mortgage obligations backing such
securities, including among others, conventional thirty year fixed rate mortgage
obligations, graduated payment mortgage obligations, fifteen year mortgage
obligations and adjustable rate mortgage obligations. All of these mortgage
obligations can be used to create pass-through securities. A pass-through
security is created when mortgage obligations are pooled together and undivided
interests in the pool or pools are sold. The cash flow from the mortgage
obligations is passed through to the holders of the securities in the form of
periodic payments of interest, principal and prepayments (net of a service fee).
Prepayments occur when the holder of an individual mortgage obligation prepays
the remaining principal before the mortgage obligation's scheduled maturity
date. As a result of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate. Because
the prepayment characteristics of the underlying mortgage obligations vary, it
is not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayment rates are important
because of their effect on the yield and price of the securities. Accelerated
prepayments have an adverse impact on yields for pass-through certificates
purchased at a premium (i.e., a price in excess of principal amount) and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligation is repaid. The opposite is true
for pass-through certificates purchased at a discount. The Fund may purchase
mortgage-related securities at a premium or at a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield on
such securities. Due to the prepayment feature and the need to reinvest payments
and prepayments of principal at current rates, mortgage-related securities can
be less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates.
Certain debt securities such as, but not limited to, mortgage backed securities,
as well as other securities subject to prepayment of principal prior to the
stated maturity date, are expected to be repaid prior to their stated maturity
dates. As a result, the effective maturity of these securities is expected to be
shorter than the stated maturity. For purposes of calculating the Fund's
weighted average portfolio maturity, the effective maturity of such securities
will be used.
Under present market conditions, the Fund expects to invest a substantial amount
of its portfolio in Ginnie Mae certificates, which are mortgage-backed
securities representing part ownership in a specific pool of mortgage loans
insured by the Federal Housing Administration or Farmers Home Administration or
guaranteed by the
7
<PAGE> 40
Veterans Administration. Should market or economic conditions warrant, this
practice may be changed at the discretion of the Adviser. Ginnie Mae guarantees
the timely payment of monthly installments of principal and interest on its
certificates, when due, whether or not payments are received on the underlying
mortgage loans, and the full faith and credit of the United States is pledged to
the timely payment by Ginnie Mae of such principal and interest.
Although the mortgage loans in the pool underlying a Ginnie Mae certificate will
have maturities of up to thirty years, the actual average life of the Ginnie Mae
certificates typically will be substantially less because the mortgage loans
will be subject to normal principal amortization and may be prepaid prior to
maturity. Prepayment rates vary widely and may be affected by changes in market
interest rates and general economic conditions. In periods of falling interest
rates, the rate of prepayment tends to increase, thereby shortening the actual
average life of the Ginnie Mae certificates and shortening the period of time
over which income at the higher rate is received. Conversely, when interest
rates are rising, the rate of prepayment tends to decrease, thereby lengthening
the actual average life of the Ginnie Mae certificates and extending the period
of time over which income at the lower rates is received. Accordingly, it is not
possible to accurately predict the average life of a particular pool. Standard
practice is to treat Ginnie Mae certificates as having effective maturities of
twelve years. Reinvestment of principal payments may occur at higher or lower
rates than the original yield on the certificates.
RISK FACTORS AND INVESTMENT TECHNIQUES
GENERAL. Like any investment program, an investment in the Fund entails certain
risks. The value of the Fund's portfolio securities, and therefore the Fund's
net asset value per share, may increase or decrease due to various factors,
principally changes in prevailing interest rates. Since the Fund invests in
bonds, investors in the Fund are exposed to bond market risk, i.e., fluctuations
in the market value of bonds. Bond prices are influenced primarily by changes in
the level of interest rates. When interest rates rise, the prices of bonds
generally fall; conversely, when interest rates fall, bond prices generally rise
although certain types of bonds are subject to the risks of prepayment as
described above when interest rates fall. There have been in the recent past
extended periods of cyclical increases in interest rates that have caused
significant declines in bond prices and have caused the effective maturity of
securities with prepayment features to be extended, thus effectively converting
short or intermediate term securities (which tend to be less volatile in price)
into longer term securities (which tend to be more volatile in price).
The Fund may invest in put and call options and futures, as described below.
Such instruments are considered to be "derivatives." A derivative is generally
defined as an instrument whose value is based upon, or derived from, some
underlying index, reference rate (e.g., interest rates), security, commodity or
other asset. The Fund will not invest more than 10% of its total assets in such
derivatives at any one time.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to repurchase
agreements. Under the terms of the repurchase agreement, the Fund would acquire
securities from a financial institution such as a well-established securities
dealer or a bank which is a member of the Federal Reserve System which the
Adviser deems creditworthy under guidelines approved by the Group's Board of
Trustees. At the time of purchase, the bank or securities dealer agrees to
repurchase the underlying securities from the Fund at a specified time and
price. The resale price reflects the purchase price plus an agreed upon market
rate of interest which is unrelated to the coupon rate or maturity of the
underlying security. The Fund will only enter into a repurchase agreement where
(i) the underlying securities are of the type which the Fund's investment
policies would allow it to purchase directly, (ii) the market value of the
underlying security, including interest accrued, will be at all times equal to
or exceed the value of the repurchase agreement, and (iii) payment for the
underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the Fund's custodian or a bank acting as
agent. The Adviser will be responsible for continuously monitoring such
requirements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Fund may also purchase
securities on a when-issued or delayed-delivery basis. The Fund will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objectives and policies, not
for invest-
8
<PAGE> 41
ment leverage, although such transactions represent a form of leveraging.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve a risk that the
yield obtained in the transaction will be less than those available in the
market when delivery takes place. The Fund will not pay for such securities or
start earning interest on them until they are received. When the Fund agrees to
purchase such securities, its custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in the value based upon changes in the general level of interest rates.
In when-issued and delayed-delivery transactions, the Fund relies on the seller
to complete the transaction; the seller's failure to do so may cause the Fund to
miss a price or yield considered to be advantageous.
The Fund's commitments to purchase when-issued securities will not exceed 25% of
the value of its total assets absent unusual market conditions. In the event
that its commitments to purchase when-issued securities ever exceed 25% of the
value of its assets, the Fund's liquidity and the ability of the Adviser to
manage it might be adversely affected.
PUT AND CALL OPTIONS. Subject to its investment policies and for purposes of
hedging against market risks related to its portfolio securities, the Fund may
purchase exchange-traded put and call options on securities. Purchasing options
is a specialized investment technique that entails a substantial risk of a
complete loss of the amounts paid as premiums to writers of options. The Fund
will purchase put and call options only on securities in which the Fund may
otherwise invest. The Fund may also engage in selling (writing) exchange-traded
call options from time to time as the Adviser deems appropriate for purposes of
gaining additional income in the form of premiums paid by the purchaser of the
option and/or for hedging purposes. The Fund will write only covered call
options (options on securities owned by the Fund). In order to close out a call
option it has written, the Fund will enter into a "closing purchase transaction"
- -- the purchase of a call option on the same security with the same exercise
price and expiration date as the call option which the Fund previously had
written. When a portfolio security subject to a call option is sold, the Fund
will effect a closing purchase transaction to close out any existing call option
on that security. If the Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise.
The Fund, as part of its option transactions, also may purchase exchange-traded
index put and call options and write exchange-traded index options. Through the
writing or purchase of index options the Fund can achieve many of the same
objectives as through the use of options on individual securities. Options on
securities indices are similar to options on a security except that, rather than
the right to take or make delivery of a security at a specified price, an option
on a securities index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option.
Price movements in securities which the Fund owns or intends to purchase
probably will not correlate perfectly with movements in the level of an index
and, therefore, the Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. The Fund will be
required to segregate assets and/or provide an initial margin to cover index
options that would require it to pay cash upon exercise. Under normal market
conditions, it is not expected that the underlying value of portfolio securities
and/or cash subject to such options written by the Fund (including any assets
segregated in connection therewith), when added to the greater of the market
value or the cost of any options purchased by the Fund, will exceed 10% of the
net assets of the Fund at any one time.
FUTURES CONTRACTS. The Fund may also enter into contracts for the future
delivery of securities and futures contracts based on a specific security, class
of securities or an index, purchase or sell options on any such futures
contracts and engage in related closing transactions. A futures contract on a
securities index is an agreement obligating either party to pay, and entitling
the other party to receive, while the contract is outstanding, cash payments
based on the level of a specified securities index.
9
<PAGE> 42
The Fund may engage in such futures contracts in an effort to hedge against
market risks. For example, when interest rates are expected to rise or market
values of portfolio securities are expected to fall, the Fund can seek through
the sale of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, the Fund, through the purchase of such contracts, can attempt
to secure better rates or prices for the Fund than might later be available in
the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give the Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of the Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed one-third of the market value of the Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain the Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Fund to segregate
assets to cover contracts that would require it to purchase securities. The Fund
may lose the expected benefit of futures transactions if interest rates or
securities prices move in an unanticipated manner. Such unanticipated changes
may also result in poorer overall performance than if the Fund had not entered
into any futures transactions. In addition, the value of the Fund's futures
positions may not prove to be perfectly or even highly correlated with the value
of its portfolio securities, limiting the Fund's ability to hedge effectively
against interest rate and/or market risk and giving rise to additional risks.
There is no assurance of liquidity in the secondary market for purposes of
closing out futures positions.
INVESTMENT COMPANY SECURITIES. The Fund may also invest up to 10% of the value
of its total assets in the securities of other investment companies subject to
the limitations set forth in the 1940 Act. The Fund intends to invest in the
securities of other investment companies which, in the opinion of the Adviser,
will assist the Fund in achieving its objectives and in money market mutual
funds for purposes of short-term cash management. The Fund's investment in such
other investment companies may result in the duplication of fees and expenses,
particularly investment advisory fees. For a further discussion of the
limitations on the Fund's investments in other investment companies, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Securities of Other Investment Companies" in the Fund's Statement
of Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding Shares of the Fund (as defined
below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
The Fund will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
if, immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in such issuer, or the Fund would
hold more than 10% of the outstanding voting securities of the issuer,
except that up to 25% of the value of the Fund's total assets may be
invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes,
or other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and repurchase
agreements
10
<PAGE> 43
secured by obligations of the U.S. Government or its agencies or
instrumentalities; (b) wholly owned finance companies will be considered
to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (c)
utilities will be divided according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry.
3. Borrow money or issue senior securities, except that the Fund may borrow
from banks or enter into reverse repurchase agreements or dollar roll
agreements for temporary purposes in amounts up to 10% of the value of
its total assets at the time of such borrowing and except as permitted
pursuant to an exemption from the 1940 Act. The Fund will not purchase
securities while its borrowings (including reverse repurchase agreements
and dollar roll agreements) exceed 5% of its total assets.
4. Make loans, except that the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment
objectives and policies, make time deposits with financial institutions
and enter into repurchase agreements.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding Shares of the Fund. The Fund shall not:
1. Purchase or otherwise acquire any securities, if as a result, more than
15% of the Fund's net assets would be invested in securities that are illiquid.
- --------------------------------------------------------------------------------
HOW DO I PURCHASE INVESTOR SHARES OF THE FUND?
- --------------------------------------------------------------------------------
GENERAL
The Fund's Investor Shares may be purchased at the public offering price, as
described below under "Public Offering Price," through The Ohio Company,
principal underwriter of the Fund's Shares, at its address and telephone number
set forth on the cover page of this Prospectus, and through other broker-dealers
who are members of the National Association of Securities Dealers, Inc. and have
sales agreements with The Ohio Company.
Subsequent purchases of Investor Shares of the Fund may be made by ACH
processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -
ACH Processing" below. In addition, if an Account Information Form has
previously been received by The Ohio Company, Investor Shares may also be
purchased by wiring funds to the Fund's custodian. Prior to wiring any such
funds and in order to ensure that wire orders are invested properly, you must
call The Ohio Company to obtain the necessary instructions and information.
The minimum initial investment for individuals is $1,000, except the initial
investment for an applicant investing by means of the Automatic Investment Plan,
as described below, must be at least $50. Subsequent investments must be in
amounts of at least $50.
The Group reserves the right to reject any order for the purchase of Investor
Shares in whole or in part. You will receive a confirmation of each new
transaction in your account, which will also show the total number of Investor
Shares owned by you and the number of Investor Shares being held in safekeeping
by Cardinal Management Corp., as the Fund's transfer agent (the "Transfer
Agent"), for your account. Certificates representing Investor Shares will not be
issued.
11
<PAGE> 44
PUBLIC OFFERING PRICE
The public offering price of Investor Shares of the Fund is the net asset value
per share (see "HOW IS NET ASSET VALUE CALCULATED?") next determined after
receipt by The Ohio Company, its agents or broker-dealers with whom it has an
agreement, of an order and payment, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE
AS A OF OFFERING PRICE
PERCENTAGE ------------------------
AMOUNT OF OF THE NET SALES DEALER'S
SINGLE TRANSACTION AMOUNT INVESTED CHARGE CONCESSION
--------------------------------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000................................. 4.71% 4.50% 4.00%
$100,000 but less than $250,000.................... 3.63 3.50 3.00
$250,000 but less than $500,000.................... 2.56 2.50 2.00
$500,000 but less than $1,000,000.................. 1.52 1.50 1.00
$1,000,000 or more................................. 0.50 0.50 0.40
</TABLE>
(See "HOW IS NET ASSET VALUE CALCULATED?" for a description of the computation
of net asset value per share.)
The above charges on investments of $100,000 or more are applicable to purchases
made at one time by an individual, or an individual, his spouse and their
children not of legal age, or a trustee, guardian or other like fiduciary of
certain single trust estates or certain single fiduciary accounts.
No sales charge is imposed on purchases of Shares by (1) officers, trustees, and
employees of the Group, (2) full-time employees of The Ohio Company or the
Adviser who have been such for at least 90 days or by qualified retirement plans
for such persons, or (3) accounts with respect to which The Ohio Company serves
either as a trustee or as investment adviser. The Ohio Company may change or
eliminate the foregoing waivers at any time. The Ohio Company may also
periodically waive all or a portion of the sales charge for all investors with
respect to the Fund.
From time to time, The Ohio Company, from its own resources, may also provide
additional compensation to securities dealers in connection with sales of shares
of the Cardinal Funds. Such compensation will include financial assistance to
securities dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising, sales campaigns
and/or shareholder services and programs regarding one or more of the Cardinal
Funds and other dealer-sponsored programs or events. In some instances, this
compensation may be made available only to certain securities dealers whose
representatives have sold or are expected to sell significant amounts of shares
of the Cardinal Funds. Compensation will include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Securities
dealers may not use sales of the Fund's Shares to qualify for this compensation
to the extent such may be prohibited by the laws of any state or any
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. In addition, The Ohio Company may make ongoing payments to brokerage firms,
financial institutions (including banks) and others to facilitate the
administration and servicing of shareholder accounts. None of the aforementioned
additional compensation is paid for by the Fund or its shareholders.
AUTOMATIC INVESTMENT PLAN
The Fund has made arrangements to enable you to make automatic monthly or
quarterly investments, in the minimum amount of $50 per transaction, from your
checking account. Assuming the cooperation of your financial institution, your
checking account therein will be debited to purchase Investor Shares of the Fund
on the periodic basis you select. Confirmation of your purchase of the Fund's
Investor Shares will be provided by
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<PAGE> 45
the Transfer Agent. The debit of your checking account will be reflected in the
checking account statement you receive from your financial institution. Please
contact The Ohio Company for the appropriate form.
- --------------------------------------------------------------------------------
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?
- --------------------------------------------------------------------------------
LETTER OF INTENTION
If you (including your spouse and children not of legal age) intend to purchase
$100,000 or more of Investor Shares of the Fund and of Investor Shares of any
other Cardinal Fund sold with a sales charge (a "Cardinal Load Fund") during any
13-month period you may sign a letter of intention to that effect obtained from
The Ohio Company and pay the reduced sales charge applicable to the total amount
of Investor Shares to be so purchased. The 13-month period during which the
Letter of Intention is in effect will begin on the date of the earliest purchase
to be included. In addition, trustees, guardians or other like fiduciaries of
single trust estates or certain single fiduciary accounts may take advantage of
the quantity discounts pursuant to a letter of intention.
A letter of intention is not a binding obligation upon you to purchase the full
amount indicated. Investor Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in your name) to secure
payment of the higher sales charge applicable to the Investor Shares actually
purchased. If the full amount indicated is not purchased, such escrowed Investor
Shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed Investor Shares, whether paid in cash or
reinvested in additional Investor Shares of the applicable Cardinal Load Fund,
are not subject to escrow. The escrowed Investor Shares will not be available
for disposal by you until all purchases pursuant to the Letter of Intention have
been made or the higher sales charge has been paid. When the full amount
indicated has been purchased, the escrow will be released. To the extent that
you purchase more than the dollar amount indicated on the Letter of Intention
and qualify for a further reduced sales charge, the sales charge will be
adjusted for the entire amount purchased at the end of the 13-month period. The
difference in sales charge will be, as you instruct, either delivered to you in
cash or used to purchase additional Investor Shares of the Cardinal Load Fund
designated by you subject to the rate of sales charge applicable to the actual
amount of the aggregate purchases. This program, however, may be modified or
eliminated at any time or from time to time by the Group without notice.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, you have the privilege of
combining "concurrent purchases" of Investor Shares of the Fund and of one or
more of the other Cardinal Load Funds. For example, if you concurrently purchase
Investor Shares of the Fund at the total public offering price of $50,000 and
Investor Shares of another Cardinal Load Fund at the total public offering price
of $50,000, the sales charge paid by you would be that applicable to a $100,000
purchase as shown in the table above. "Concurrent purchases," as described
above, shall include the combined purchases of Investor Shares of you, your
spouse and your children not of legal age. To receive the applicable public
offering price pursuant to this privilege, you must, at the time of purchase,
give The Ohio Company sufficient information to permit confirmation of
qualification. This privilege, however, may be modified or eliminated at any
time or from time to time by the Group without notice thereof.
RIGHTS OF ACCUMULATION
After your initial purchase of Investor Shares you may also be eligible to pay a
reduced sales charge for your subsequent purchases of Investor Shares where the
total public offering price of Investor Shares then being purchased plus the
then aggregate current net asset value of Investor Shares of the Fund and of
Investor Shares of any Cardinal Load Fund held in your account equals $100,000
or more. You would be able to purchase Investor Shares at the public offering
price applicable to the total of (a) the total public offering price of the
Investor Shares of the Fund then being purchased plus (b) the then current net
asset value of Investor Shares of the Fund and of Investor Shares of any other
Cardinal Load Fund held in your account. For purposes of determining the
aggregate current net asset value of Investor Shares held in your account, you
may include Investor Shares then owned by your spouse and children not of legal
age.
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<PAGE> 46
You may obtain additional information about the foregoing special purchase
method from The Ohio Company. You are responsible for notifying The Ohio Company
at the time of purchase when purchases may be accumulated to take advantage of
the reduced sales charge. This program, however, may be modified or eliminated
at any time or from time to time by the Group without notice thereof.
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WHAT DISTRIBUTIONS WILL I RECEIVE?
- --------------------------------------------------------------------------------
A dividend consisting of net income is declared daily to Shareholders of the
Fund at the close of business on the day of declaration, and such dividends are
generally paid monthly. Dividends consisting of long-term capital gains normally
will be distributed only once annually. Dividends and distributions will be paid
only in additional Investor Shares and not in cash; except, however, that for
dividends and distributions of $10 or more, a shareholder may specifically
request that such amounts be paid to him in cash. Dividends are paid in cash not
later than seven days after a shareholder's complete redemption of his Investor
Shares in the Fund.
The Fund's net investment income available for distribution to the holders of
Investor Shares will be reduced by the amount of Rule 12b-1 fees paid out under
the Plan described below.
Shareholders may also elect to receive dividends and distributions in cash by
using ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? - ACH Processing" below.
- --------------------------------------------------------------------------------
HOW MAY I REDEEM MY INVESTOR SHARES?
- --------------------------------------------------------------------------------
Investors may redeem Investor Shares of the Fund on any Business Day at the net
asset value per Investor Share next determined following the receipt by the
Transfer Agent, 215 East Capital Street, Columbus, Ohio 43215, of written or
telephonic notice to redeem, as described more fully below. See "HOW IS NET
ASSET VALUE CALCULATED?", below, for a description of when net asset value is
determined.
As requested, The Ohio Company, on behalf of a shareholder, will forward the
foregoing notice to redeem to the Transfer Agent without charge. Other
broker-dealers may assist a shareholder in redeeming his or her Investor Shares
and may charge a fee for such services.
The Group will make payment for redeemed Investor Shares as promptly as
practicable but in no event more than seven days after receipt by the Transfer
Agent of the foregoing notice. The Group reserves the right to delay payment for
the redemption of Investor Shares where such Investor Shares were purchased with
other than immediately available funds, but only until the purchase payment has
cleared (which may take fifteen or more days from the date the purchase payment
is received by the Fund). The purchase of Investor Shares by wire transfer of
federal funds would avoid any such delay.
The Group intends to pay cash for all Investor Shares redeemed, but, under
abnormal conditions which make payment in cash unwise, the Group may make
payment wholly or partly in readily marketable portfolio securities at their
then market value equal to the redemption price. In such cases, an investor may
incur brokerage costs in converting such securities to cash.
The Group may suspend the right of redemption or may delay payment during any
period in which the determination of net asset value is suspended. See "HOW IS
NET ASSET VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Group reserves the right to
redeem involuntarily Shares in any account at the then current net asset value
if at any time redemptions (but not as a result of a decrease in the market
price of such Shares or the deduction of any sales charge) have reduced a
shareholder's total investment in the Fund to a net asset value below $500. A
shareholder will be notified in writing that the value of Fund Shares in the
account is less than $500 and allowed not less than 30 days to increase his
investment in the Fund to at least $500 before the redemption is processed.
Proceeds of redemptions so processed, including dividends declared to the date
of redemption, will be promptly paid to the shareholder.
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<PAGE> 47
REDEMPTION BY MAIL
Shareholders may redeem Investor Shares of the Fund by submitting a written
request therefor to the Transfer Agent, at 215 East Capital Street, Columbus,
Ohio 43215. The Transfer Agent will request a signature guarantee by an eligible
guarantor institution as described below. However, a signature guarantee will
not be required if (1) the redemption check is payable to the shareholder(s) of
record, and (2) the redemption check is mailed to the shareholder(s) at the
address of record, provided, however, that the address of record has not been
changed within the preceding 15 days. For purposes of this policy, an "eligible
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations as those terms are defined in the Securities Exchange Act of 1934.
The Transfer Agent reserves the right to reject any signature guarantee if (1)
it has reason to believe that the signature is not genuine or (2) it has reason
to believe that the transaction would otherwise be improper.
REDEMPTION BY TELEPHONE
Shareholders may redeem Investor Shares of the Fund by calling the Group at the
telephone number set forth on the front of this Prospectus. The shareholder may
direct that the redemption proceeds be mailed to the address of record.
Neither the Group, the Fund nor its service providers will be liable for any
loss, damages, expense or cost arising out of any telephone redemption effected
in accordance with the Group's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Group will employ procedures
designed to provide reasonable assurances that instructions by telephone are
genuine; if these procedures are not followed, the Group, the Fund or its
service providers may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures may include recording all phone conversations,
sending confirmations to shareholders within 72 hours of the telephone
transaction, and verification of account name and account number or tax
identification number. If, due to temporary adverse conditions, investors are
unable to effect telephone transactions, shareholders may also redeem their
Investor Shares by mail as described above.
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? - ACH Processing" below.
SYSTEMATIC WITHDRAWAL PLAN
If you are the owner of Investor Shares of the Fund having a total value of
$25,000 or more at the current net asset value, you may elect to redeem your
Investor Shares monthly or quarterly in amounts of $50 or more, pursuant to the
Fund's Systematic Withdrawal Plan. Please contact The Ohio Company for the
appropriate form. Purchase of additional Investor Shares, using the Automatic
Investment Plan described above, concurrent with withdrawals may be
disadvantageous to certain shareholders because of tax liabilities and sales
charges.
- --------------------------------------------------------------------------------
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
- --------------------------------------------------------------------------------
ACH PROCESSING
The Fund offers ACH privileges. Investors may use ACH processing to make
subsequent purchases, redeem Shares and/or electronically transfer distributions
paid on Shares, in addition to the other methods described in this Prospectus.
ACH provides a method by which funds may be automatically transferred to or from
an authorized bank account at a Federal Reserve member bank that is an ACH
member. Please contact your representative if you are interested in ACH
processing.
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<PAGE> 48
EXCHANGE PRIVILEGE
Holders of Investor Shares of the Fund may, provided the amount to be exchanged
meets the applicable minimum investment requirements and the exchange is made in
states where it is legally authorized, exchange, at respective net asset values,
Investor Shares of the Fund for:
Investor Shares of Cardinal Aggressive Growth Fund,
an equity fund seeking appreciation of
capital (upon the payment of the applicable sales charge);
Investor Shares of Cardinal Balanced Fund,
a fund seeking current income and long-term
growth of both capital and income (upon
the payment of the applicable sales charge);
Investor Shares of The Cardinal Fund,
an equity fund seeking long-term growth
of capital and income (upon the payment of
the applicable sales charge);
Shares of Cardinal Government Securities Money Market Fund,
a U.S. Government securities money market fund
(without payment of any sales charge); or
Shares of Cardinal Tax Exempt Money Market Fund,
a tax-free money market fund
(without payment of any sales charge).
Notwithstanding the foregoing and subject to the limitations contained in the
following paragraph, (i) exchanges by holders of Investor Shares, for whom the
sales charge has been waived, for Investor Shares of a Cardinal Load Fund may be
completed without the payment of a sales charge, and (ii) exchanges of Investor
Shares by all other shareholders for Investor Shares of a Cardinal Load Fund may
be completed upon the payment of a sales charge equal to the difference, if any,
between the sales charge payable upon purchase of Investor Shares of such
Cardinal Load Fund and the sales charge previously paid on the Investor Shares
to be exchanged.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange requested is
within the same account or into an existing account of the shareholder held in
the same name or names and in the same capacity as the account from which the
exchange is to be made. Shareholders may also authorize an exchange of Shares of
the Fund by telephone. Neither the Group, the Fund nor any of its service
providers will be liable for any loss, damages, expense or cost arising out of
any telephone exchange authorization to the extent and subject to the
requirements set forth under "HOW MAY I REDEEM MY SHARES? -- Redemption by
telephone" above.
For tax purposes, an exchange is treated as a redemption and a new purchase.
However, a shareholder may not include any sales charge on Investor Shares of
the Fund for purposes of calculating the gain or loss realized upon an exchange
of those Investor Shares within 90 days of their purchase.
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Fund 60 days'
advance written notice of any such modification or termination.
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<PAGE> 49
- --------------------------------------------------------------------------------
HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
The net asset value of the Fund is determined once daily as of 4:00 P.M. Eastern
Time, on each Business Day. A "Business Day" is a day on which the New York
Stock Exchange is open for business and any other day (other than a day on which
no Shares of the Fund are tendered for redemption and no order to purchase any
Shares of the Fund is received) during which there is a sufficient degree of
trading in the Fund's portfolio securities that the net asset value might be
materially affected by changes in the value of the portfolio securities. The net
asset value per share of each class of the Fund is computed by dividing the sum
of the value of the Fund's portfolio securities plus any cash and other assets
(including interest and dividends accrued but not received) allocable to such
class minus all liabilities (including estimated accrued expenses) allocable to
such class by the total number of Shares of that class then outstanding.
The net asset value per share will fluctuate as the value of the investment
portfolio of the Fund changes.
Portfolio securities for which over-the-counter market quotations are readily
available are valued at the bid price. The Fund uses one or more pricing
services to provide such market quotations. Securities and other assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Group.
Determination of the net asset value may be suspended at times when (a) trading
on the New York Stock Exchange is restricted by applicable rules and regulations
of the Commission, (b) the New York Stock Exchange is closed for other than
customary weekend and holiday closings, (c) an emergency exists as a result of
which disposal by the Group of portfolio securities owned by the Fund or
valuation of net assets of the Fund is not reasonably practicable, or (d) the
Commission has by order permitted such suspension.
- --------------------------------------------------------------------------------
DOES THE FUND PAY FEDERAL INCOME TAX?
- --------------------------------------------------------------------------------
Each of the funds of the Group, including the Fund, is treated as a separate
entity for federal income tax purposes and intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), for so long as such qualification is in the best interest of that
fund's shareholders. Qualification as a regulated investment company under the
Code requires, among other things, that the regulated investment company
distribute to its shareholders at least 90% of its investment company taxable
income. The Fund contemplates declaring as dividends all or substantially all of
the Fund's investment company taxable income (before deduction of dividends
paid).
A non-deductible 4% excise tax is imposed on regulated investment companies that
do not distribute in each calendar year (regardless of whether they otherwise
have a non-calendar taxable year) an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gain net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. If distributions
during a calendar year were less than the required amount, the Fund would be
subject to a nondeductible excise tax equal to 4% of the deficiency.
- --------------------------------------------------------------------------------
WHAT ABOUT MY TAXES?
- --------------------------------------------------------------------------------
It is expected that the Fund will distribute annually to shareholders all or
substantially all of the Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to shareholders for federal income tax
purposes, even if paid in additional Shares of the Fund and not in cash. Since
all of the Fund's net investment income is expected to be derived from earned
interest and short-term capital gains, it is anticipated that no part of any
distribution will be eligible for the dividends received deduction for
corporations.
Distribution by the Fund of the excess of net mid-term or net long-term capital
gain over net short-term capital loss is taxable to shareholders as mid-term or
long-term capital gain, respectively, in the year in which it is
17
<PAGE> 50
received, regardless of how long the shareholder has held the Shares. Such
distributions are not eligible for the dividends received deduction.
If the net asset value of a Share is reduced below the shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution is a return of invested principal, although taxable
as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Fund and its shareholders. Potential
investors in the Fund are urged to consult their tax advisers concerning the
application of federal, state and local taxes as such laws and regulations
affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the amount and
nature of such income and capital gains.
- --------------------------------------------------------------------------------
WHO MANAGES MY INVESTMENT IN THE FUND?
- --------------------------------------------------------------------------------
Except where shareholder action is required by law, all of the authority of the
Group is exercised under the direction of the Group's Trustees. Unless so
required by the Group's Declaration of Trust or By-Laws or by Ohio law, at any
given time all of the Trustees may not have been elected by the shareholders of
the Group. The Trustees are empowered to elect officers and contract with and
provide for the compensation of agents, consultants and other professionals to
assist and advise it in its day-to-day operations. The Group will be managed in
accordance with its Declaration of Trust and the laws of Ohio governing business
trusts.
The Trustees of the Group receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. However, no
officer or employee of the Adviser or The Ohio Company receives any compensation
from the Group for acting as a Trustee of the Group. The officers of the Group
receive no compensation directly from the Group for performing the duties of
their offices. The Adviser receives fees from the Group for acting as investment
adviser and manager and as dividend and transfer agent. The Ohio Company
receives no fees under its Distribution Agreement with the Group but, with
respect to Investor Shares only, may retain all or a portion of the sales charge
and receives fees under the Distribution Plan discussed below.
INVESTMENT ADVISER AND MANAGER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street, Columbus, Ohio
43215, a wholly owned subsidiary of The Ohio Company, is the investment adviser
and manager of the Fund. The Adviser is also the investment adviser and manager
of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a member of
the New York and Chicago Stock Exchanges, other regional stock exchanges and the
National Association of Securities Dealers, Inc. Descendants of H.P. and R.F.
Wolfe, deceased, and members of their families, through their possession of a
majority of voting stock, may be considered controlling persons of The Ohio
Company. The Ohio Company serves as principal underwriter for each of the
Cardinal Funds.
In its capacity as investment adviser, and subject to the ultimate authority of
the Group's Board of Trustees, the Adviser, in accordance with the Fund's
investment objectives and policies, manages the Fund, and makes decisions with
respect to and places orders for all purchases and sales of its portfolio
securities. Since the inception of CGOF (the Fund's predecessor) and since the
Reorganization with respect to the Fund, John R. Carle has been primarily
responsible for the day-to-day management of such Funds' portfolios. Mr. Carle
has
18
<PAGE> 51
been a portfolio manager with the Adviser and/or The Ohio Company since 1971. In
addition, pursuant to the Investment Advisory and Management Agreement, the
Adviser generally assists in all aspects of the Fund's administration and
operation.
For the services provided and expenses assumed pursuant to its Investment
Advisory and Management Agreement with the Group with respect to the Fund, the
Adviser receives a fee from the Fund, computed daily and paid monthly at the
annual rate of .50% of average net daily assets of the Fund. The Adviser may,
however, periodically waive all or a portion of its advisory fee with respect to
the Fund to increase the net income of the Fund available for distribution as
dividends. The waiver of such fee will cause the yield of the Fund to be higher
than it would otherwise be in the absence of such a waiver.
On December 22, 1997, The Ohio Company, Fifth Third Bankcorp., and its wholly
owned subsidiary, Fifth Third M Corp., entered into an Agreement and Plan of
Merger pursuant to which The Ohio Company will be acquired by Fifth Third M
Corp. The acquisition is subject to a number of conditions, including the
approval by Trustees and shareholders of the Group of a "new" investment
advisory and management agreement with the Adviser, identical in all material
respects to the Group's current Investment Advisory and Management Agreement
with the Adviser, to become effective on the effective date of The Ohio
Company's acquisition. On such effective date, it is also expected that the
Group will have entered into an underwriting agreement with a new principal
underwriter. In addition, it is expected that Fountain Square Funds, a regulated
investment company with net assets of approximately $3.1 billion as of December
31, 1997, advised by Fifth Third Bank, a subsidiary of Fifth Third Bankcorp.,
will propose the combination of the Group and Fountain Square Funds in a
transaction which, if approved by the Group's Trustees, would be submitted to
the Group's shareholders for consideration and approval.
On January 16, 1998, the Board of Trustees of the Group approved such a new
investment advisory and management agreement and have called a Special Meeting
of Shareholders to be held in March, 1998 to vote on such agreement.
DIVIDEND AND TRANSFER AGENT
The Group has entered into a Transfer Agency Agreement with the Transfer Agent,
215 East Capital Street, Columbus, Ohio 43215, pursuant to which the Transfer
Agent has agreed to act as the Fund's transfer agent and dividend disbursing
agent. In consideration of such services, the Fund has agreed to pay the
Transfer Agent an annual fee, paid monthly, equal to $21 per shareholder account
plus out-of-pocket expenses.
DISTRIBUTOR
The Group has entered into a Distribution Agreement with The Ohio Company, 155
East Broad Street, Columbus, Ohio 43215, pursuant to which Shares of the Fund
will be offered continuously on a best efforts basis by The Ohio Company and
dealers selected by The Ohio Company. H. Keith Allen is an officer and trustee
of the Group and an officer and director of The Ohio Company. Frank W. Siegel is
an officer and trustee of the Group and an officer of The Ohio Company. James M.
Schrack II is an officer of both the Group and The Ohio Company.
EXPENSES
The Adviser bears all expenses in connection with the performance of its
services as investment adviser, manager and transfer agent other than the cost
of securities (including brokerage commissions, if any) purchased for the Fund.
The Trustees reserve the right to allocate certain other expenses, which can
reasonably be identified as relating to a particular class, solely to such
class, including Investor Shares, as they deem appropriate ("Class Expenses").
Such expenses include (a) transfer agency fees identified as being attributable
to a specific class; (b) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxy
statements to current shareholders of a specific class; (c) Blue Sky
registration fees incurred by a class of shares; (d) SEC registration fees
incurred by a class; (e) expenses of administrative personnel and services as
required to support the shareholders of a specific class; (f) litigation or
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<PAGE> 52
other legal expenses and audit or other accounting expenses relating solely to
one class; (g) trustees' fees or expenses incurred as a result of issues
relating to one class; and (h) shareholder meeting costs that relate to a
specific class.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a Distribution
and Shareholder Service Plan with respect to its Investor Shares (the "Plan"),
under which the Fund is authorized to pay The Ohio Company, as the Fund's
principal underwriter, a periodic amount calculated at an annual rate not to
exceed twenty-five one-hundredths of one percent (.25%) of the average daily net
asset value of the Investor Shares of the Fund. Such amount may be used by The
Ohio Company to pay broker-dealers (including The Ohio Company), banks and other
institutions (a "Participating Organization") for distribution and/or
shareholder service assistance pursuant to an agreement between The Ohio Company
and the Participating Organization or for distribution assistance and/or
shareholder service provided by The Ohio Company pursuant to an agreement
between The Ohio Company and the Group. Under the Plan, a Participating
Organization may include The Ohio Company, its subsidiaries, and its affiliates.
The Ohio Company may from time to time waive all or a portion of the fees
payable to it pursuant to the Plan. Any such waiver will cause the total return
and yield of the Investor Shares of the Fund to be higher than it would
otherwise be absent such a waiver.
As authorized by the Plan, The Ohio Company has entered into a Rule 12b-1
Agreement with the Group pursuant to which The Ohio Company has agreed to
provide certain shareholder services in connection with Investor Shares of the
Fund purchased and held by The Ohio Company for the accounts of its customers
and Investor Shares of the Fund purchased and held by customers of The Ohio
Company directly, including, but not limited to, answering shareholder questions
concerning the Fund, providing information to shareholders on their investments
in the Investor Shares of the Fund and providing such personnel and
communication equipment as is necessary and appropriate to accomplish such
matters. In consideration of such services the Group has agreed to pay The Ohio
Company a monthly fee, computed at the annual rate of .25% of the average
aggregate net asset value of Investor Shares held during the period in customer
accounts for which The Ohio Company has provided services under this Agreement.
Such fees paid by the Group will be borne solely by the Investor Shares of the
Fund. Such fee may exceed the actual costs incurred by The Ohio Company in
providing such services.
In addition, The Ohio Company may enter into, from time to time, other Rule
12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain shareholder services such as those described above.
CUSTODIAN AND FUND ACCOUNTANT
The Group has appointed The Fifth Third Bank ("Fifth Third"), 38 Fountain Square
Plaza, Cincinnati, Ohio 45263, as the Fund's custodian. In such capacity, Fifth
Third will hold or arrange for the holding of all portfolio securities and other
assets acquired and owned by the Fund. In addition, Fifth Third, pursuant to a
Fund Accounting and Services Agreement, has agreed with the Group to provide
certain fund accounting services to the Fund.
- --------------------------------------------------------------------------------
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
- --------------------------------------------------------------------------------
The Group was organized as an Ohio business trust on March 23, 1993. The Group
currently consists of six funds. The shares of each of the funds of the Group,
other than the two money market funds, Cardinal Government Securities Money
Market Fund ("CGSMMF") and Cardinal Tax Exempt Money Market Fund ("CTEMMF"), are
currently offered in two separate classes: Investor A Shares, otherwise referred
to as Investor Shares, and Investor Y Shares, otherwise referred to as
Institutional Shares. CGSMMF and CTEMMF each have only one class of shares. Each
share represents an equal proportional interest in a fund with other shares of
the same fund, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to that fund as are declared at the
discretion of the Trustees.
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<PAGE> 53
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by series or class except as otherwise expressly
required by law. For example, shareholders of the Fund will vote in the
aggregate with other shareholders of the Group with respect to the election of
trustees and ratification of the selection of independent accountants. However,
shareholders of the Fund will vote as a fund, and not in the aggregate with
other shareholders of the Group, for purposes of approval of amendments to the
investment advisory agreement as it relates to the Fund or any of the Fund's
fundamental policies.
Overall responsibility for the management of the Fund is vested in the Board of
Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUND?" Individual
Trustees are elected by the shareholders of the Group, although Trustees may
under certain circumstances fill vacancies, including vacancies created by
expanding the size of the Board. Trustees may be removed by the Board of
Trustees or shareholders in accordance with the provisions of the Declaration of
Trust and By-Laws of the Group and Ohio law. See "ADDITIONAL INFORMATION -
Miscellaneous" in the Statement of Additional Information for further
information.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve the investment advisory agreement and to satisfy certain other
requirements. To the extent that such a meeting is not required, the Group does
not intend to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c) of
the 1940 Act. At such meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a fund" means the consideration received by the fund upon
the issuance or sale of shares in that fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular fund
that are allocated to the fund by the Group's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Group as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to the Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Fund means the affirmative
vote, at a meeting of shareholders duly called, of the lesser of (a) 67% or more
of the votes of shareholders of the Fund present at a meeting at which the
holders of more than 50% of the votes attributable to shareholders of record of
the Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of shareholders of the Fund.
Shareholders should direct all inquiries concerning such matters to the Transfer
Agent in writing to 215 East Capital Street, Columbus, Ohio 43215, or by calling
(800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Fund and annual financial reports audited by
independent auditors.
21
<PAGE> 54
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 55
Investment Adviser and Manager
Cardinal Management Corp.
155 East Broad Street
Columbus, Ohio 43215
Distributor
The Ohio Company
155 East Broad Street
Columbus, Ohio 43215
Transfer Agent and Dividend Paying
Agent
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
Custodian
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Legal Counsel
Baker & Hostetler LLP
65 East State Street
Columbus, Ohio 43215
Independent Auditors
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
<PAGE> 56
- ----------------------------------------------------------
- ---------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PROSPECTUS HIGHLIGHTS....................... 2
FEE TABLE................................... 3
FINANCIAL HIGHLIGHTS........................ 4
PERFORMANCE INFORMATION..................... 5
WHAT IS THE FUND?........................... 6
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND?................. 6
HOW DO I PURCHASE INVESTOR SHARES
OF THE FUND?.............................. 11
HOW MAY I QUALIFY FOR QUANTITY DIS-
COUNTS?................................... 13
WHAT DISTRIBUTIONS WILL I RECEIVE?.......... 14
HOW MAY I REDEEM MY INVESTOR SHARES?........ 14
WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED?................................. 15
HOW IS NET ASSET VALUE CALCULATED?.......... 17
DOES THE FUND PAY FEDERAL INCOME TAX?....... 17
WHAT ABOUT MY TAXES?........................ 17
WHO MANAGES MY INVESTMENT IN THE FUND?...... 18
WHAT ARE MY RIGHTS AS A
SHAREHOLDER?.............................. 20
</TABLE>
------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR THE OHIO COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE OHIO COMPANY TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
- ---------------------------------------------------------
==========================================================
- ---------------------------------------------------------
----------------------
PROSPECTUS
----------------------
January 30, 1998
The Ohio Company
CARDINAL
GOVERNMENT
OBLIGATIONS FUND
INVESTOR SHARES
CARDINAL LOGO
CARDINAL GROUP
- ---------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 57
PROSPECTUS----------------------------------------------------------------------
CARDINAL LOGO
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
CARDINAL TAX EXEMPT MONEY MARKET FUND
Cardinal Government Securities Money Market Fund (the "Government Securities
Fund") and Cardinal Tax Exempt Money Market Fund (the "Tax Exempt Fund")
(together called the "Funds" or individually a "Fund") are two separate
diversified investment funds of The Cardinal Group (the "Group"), an open-end,
management investment company. The Trustees of the Group have divided each
Fund's beneficial ownership into an unlimited number of transferable units
called shares (the "Shares").
The Government Securities Fund's investment objectives are maximizing current
income while preserving capital and maintaining liquidity. The Government
Securities Fund seeks to attain its objectives by investing as fully as
possible, but in no event less than 80% of its total assets, in U.S. Treasury
bills, notes and bonds, other obligations issued or guaranteed by the United
States, its agencies or instrumentalities, and repurchase agreements relating to
such obligations.
The Tax Exempt Fund's investment objectives are maximizing current income exempt
from federal income tax while preserving capital and maintaining liquidity. The
Tax Exempt Fund seeks to attain its objectives through professional management
of a high-grade portfolio of short-term municipal bonds and notes, tax-exempt
commercial paper and tax-exempt short-term discount notes.
All obligations purchased by each of the Funds will mature, or be deemed to
mature, in 397 calendar days or less. There can be no assurance that any Fund's
investment objectives will be achieved.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED OR GUARANTEED BY THE
UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES
CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. EACH FUND
INTENDS TO MAINTAIN A CONSTANT NET ASSET VALUE OF $1.00 PER SHARE, BUT THERE CAN
BE NO ASSURANCE THAT NET ASSET VALUE WILL NOT VARY.
- --------------------------------------------------------------------------------
FOR FURTHER INFORMATION REGARDING THE FUNDS OR FOR ASSISTANCE
IN OPENING AN ACCOUNT OR REDEEMING SHARES, PLEASE CALL (800) 282-9446 TOLL FREE.
INQUIRIES MAY ALSO BE MADE BY MAIL ADDRESSED
TO THE GROUP AT ITS PRINCIPAL OFFICE:
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
- --------------------------------------------------------------------------------
The Prospectus relates only to the Government Securities Fund and the Tax Exempt
Fund, currently two of six funds of the Group. Interested persons who wish to
obtain prospectuses of Cardinal Balanced Fund, Cardinal Aggressive Growth Fund,
The Cardinal Fund or Cardinal Government Obligations Fund should contact The
Ohio Company. Additional information about the Funds, contained in a Statement
Of Additional Information dated January 30, 1998, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. Such
Statement is available upon request without charge from the Group at the above
address or by calling the phone number provided above.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing in either of the Funds. This
Prospectus should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Ohio Company
The date of this Prospectus is January 30, 1998.
- --------------------------------------------------------------------------------
<PAGE> 58
- --------------------------------------------------------------------------------
PROSPECTUS HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES.......... The GOVERNMENT SECURITIES FUND seeks to maximize current
income while preserving capital and maintaining
liquidity. (See page 6.)
The TAX EXEMPT FUND seeks to maximize current income, ex-
empt from federal income tax, while preserving capital
and maintaining liquidity. (See page 6.)
INVESTMENT POLICIES............ The GOVERNMENT SECURITIES FUND invests as fully as
possible, but in no event less than 80% of its total
assets, in short-term obligations issued or guaranteed by
the U.S. Government and its agencies and
instrumentalities, and repurchase agreements secured by
such obligations. (See pages 6 and 7.)
The TAX EXEMPT FUND invests in short-term tax exempt
securities including, but not limited to, bond
anticipation notes, construction loan notes, project
notes, revenue anticipation notes and tax anticipation
notes as well as municipal bonds. (See pages 7 and 8.)
CURRENT INCOME................. Dividends are generally credited daily and paid monthly.
Such distributions are automatically reinvested in
additional Shares of the applicable Fund without charge.
Dividends may also be received in cash. (See page 13.)
LIQUIDITY...................... Through the free check writing privilege or telephone
transfer, Shares may be redeemed on any Business Day at
the net asset value without charge. (See page 15.)
PURCHASES...................... There is a minimum initial investment of $1,000 with
subsequent minimums of $100. Such minimums may be waived
under certain circumstances. (See page 11.)
INVESTMENT ADVISER............. Cardinal Management Corp. (the "Adviser"), a wholly-owned
subsidiary of The Ohio Company, is the Funds' investment
adviser. The Adviser also serves as investment adviser
for The Cardinal Fund, Cardinal Government Obligations
Fund, Cardinal Balanced Fund and Cardinal Aggressive
Growth Fund (collectively, with the Funds, the "Cardinal
Funds"), each a separate diversified investment fund of
the Group. (See page 19.)
</TABLE>
2
<PAGE> 59
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT
SECURITIES TAX EXEMPT
FUND FUND
----------------- -----------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..... 0% 0%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................... .50% .50%
12b-1 Fees................................ None None
Other Expenses............................ .38 .30
-------- --------
Total Fund Operating Expenses............. .88% .80%
================= =================
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Government Securities Fund.............. $9 $ 28 $ 49 $108
Tax Exempt Fund......................... $8 $ 26 $ 44 $ 99
</TABLE>
The purpose of the above table is to assist a potential purchaser of a Fund's
Shares in understanding the various costs and expenses that an investor in that
Fund will bear directly or indirectly. See "WHO MANAGES MY INVESTMENT IN THE
FUNDS?" for a more complete discussion of the shareholder transaction expenses
and annual operating expenses of the Funds. THE FOREGOING EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
3
<PAGE> 60
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following Financial Highlights with respect to each of the years in the ten
year period ended September 30, 1997, have been audited by KPMG Peat Marwick
LLP, independent auditors, whose report thereon, insofar as it relates to each
of the years in the five-year period ended September 30, 1997, is contained in
the Funds' Statement of Additional Information and which may be obtained by
shareholders and prospective investors.
The following Financial Highlights for the Funds reflect the operations of
Cardinal Government Securities Trust ("CGST") and Cardinal Tax Exempt Money
Trust ("CTEMT"), the Government Securities Fund's and Tax Exempt Fund's
predecessors, respectively, through April 30, 1996. On May 1, 1996, the
Government Securities Fund and the Tax Exempt Fund acquired all of the assets
and liabilities of CGST and CTEMT, respectively, and are deemed to have
succeeded to the financial and performance history of CGST and CTEMT,
respectively.
FINANCIAL HIGHLIGHTS FOR EACH SHARE OF BENEFICIAL
INTEREST OUTSTANDING THROUGHOUT EACH PERIOD:
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment Activities:
Net investment income................................. .05 .05 .05 .03 .02
Net gains or losses on securities (both realized and
unrealized)......................................... -- -- -- -- --
-------- -------- -------- -------- --------
Total from Investment Activities...................... .05 .05 .05 .03 .02
-------- -------- -------- -------- --------
Distributions:
From net investment income............................ (.05) (.05) (.05) (.03) (.02)
From capital gains.................................... -- -- -- -- --
Returns of capital.................................... -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions................................... (.05) (.05) (.05) (.03) (.02)
Net Asset Value, Ending................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Total Return............................................ 4.67% 4.70% 4.98% 2.84%(1) 2.41%
Net assets at end of period (000)....................... $504,264 $477,875 $445,374 $367,516 $402,758
Ratio of expenses to average net assets............... 0.88% 0.81% 0.81% 0.85% 0.79%
Ratio of net investment income to average net
assets.............................................. 4.57% 4.74% 4.92% 2.94% 2.38%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment Activities:
Net investment income................................. .04 .06 .08 .09 .07
Net gains or losses on securities (both realized and
unrealized)......................................... -- -- -- -- --
-------- -------- -------- -------- --------
Total from Investment Activities...................... .04 .06 .08 .09 .07
-------- -------- -------- -------- --------
Distributions:
From net investment income............................ (.04) (.06) (.08) (.09) (.07)
From capital gains.................................... -- -- -- -- --
Returns of capital.................................... -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions................................... (.04) (.06) (.08) (.09) (.07)
Net Asset Value, Ending................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Total Return............................................ 3.58% 6.20% 7.97% 8.88% 6.81%
Net assets at end of period (000)....................... $472,521 $567,841 $592,343 $533,266 $411,887
Ratio of expenses to average net assets............... 0.76% 0.72% 0.73% 0.72% 0.73%
Ratio of net investment income to average net
assets.............................................. 3.52% 6.03% 7.69% 8.54% 6.61%
</TABLE>
- ---------------
(1) During the year ended September 30, 1994, the Adviser contributed $1,151,186
to CGST, the Fund's predecessor, to offset losses incurred by the
predecessor. Without the capital contribution, the 1994 total return would
have been 2.55%.
4
<PAGE> 61
CARDINAL TAX EXEMPT MONEY MARKET FUND
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment Activities:
Net investment income...................................... .03 .03 .03 .02 .02
Net gains or losses on securities (both realized
and unrealized).......................................... -- -- -- -- --
------- ------- ------- ------- -------
Total from Investment Activities........................... .03 .03 .03 .02 .02
------- ------- ------- ------- -------
Distributions:
From net investment income................................. (.03) (.03) (.03) (.02) (.02)
From capital gains......................................... -- -- -- -- --
Returns of capital......................................... -- -- -- -- --
------- ------- ------- ------- -------
Total Distributions........................................ (.03) (.03) (.03) (.02) (.02)
Net Asset Value, Ending...................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return................................................. 2.72% 2.67% 3.02% 1.78% 1.81%
Ratios/Supplemental Data:
Net assets at end of period (000)............................ $60,284 $59,915 $64,780 $80,531 $91,159
Ratio of expenses to average net assets.................... 0.80% 0.89% 0.81% 0.76% 0.77%
Ratio of net investment income to average net assets....... 2.79% 2.66% 2.99% 1.78% 1.80%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------
1992 1991 1990 1989 1988
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment Activities:
Net investment income...................................... .03 .04 .05 .06 .04
Net gains or losses on securities (both realized
and unrealized).......................................... -- -- -- -- --
------- ------- ------- ------- -------
Total from Investment Activities........................... .03 .04 .05 .06 .04
------- ------- ------- ------- -------
Distributions:
From net investment income................................. (.03) (.04) (.05) (.06) (.04)
From capital gains......................................... -- -- -- -- --
Returns of capital......................................... -- -- -- -- --
------- ------- ------- ------- -------
Total Distributions........................................ (.03) (.04) (.05) (.06) (.04)
Net Asset Value, Ending...................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return................................................. 2.62% 4.40% 5.41% 5.95% 4.53%
Ratios/Supplemental Data:
Net assets at end of period (000)............................ $70,054 $85,488 $82,988 $82,031 $61,771
Ratio of expenses to average net assets.................... 0.76% 0.72% 0.76% 0.72% 0.75%
Ratio of net investment income to average net
assets................................................... 2.59% 4.31% 5.26% 5.79% 4.44%
</TABLE>
See notes to financial statements appearing in the Funds' Statement of
Additional Information.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time each of the Funds may advertise its "yield" or "annualized
yield" and its "effective yield." In addition, the Tax Exempt Fund may advertise
its "tax equivalent yield" and its "tax equivalent effective yield." ALL YIELD
FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. The "yield" or "annualized yield" of a Fund refers to the income
generated by an investment in the Fund over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" or "annualized yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" demonstrates the taxable yield necessary to
5
<PAGE> 62
produce an after-tax yield equivalent to that of the Tax Exempt Fund. The
"tax-equivalent effective yield" is calculated similarly to the "tax-equivalent
yield" but, when annualized, the income earned by an investment in the Tax
Exempt Fund is assumed to be reinvested. The "tax-equivalent effective yield"
will be slightly higher than the "tax-equivalent yield" because of the
compounding effect of this assumed reinvestment.
Investors may also judge the performance of a Fund by comparing or referencing
its performance to the performance of other mutual funds or mutual fund
portfolios with comparable investment objectives and policies through various
mutual fund or market indices such as those prepared by Dow Jones & Co., Inc.,
Morningstar, Inc. and Standard & Poor's Corporation and to data prepared by
Lipper Analytical Services, Inc. Comparisons may also be made to indices or data
published in Donoghue's MONEY FUND REPORT of Holliston, Massachusetts, a
nationally recognized money market fund reporting service, Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, The Columbus
Dispatch, Business Week, Consumer Reports and U.S.A. Today. In addition to
performance information, general information about the Funds that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
- --------------------------------------------------------------------------------
WHAT ARE THE FUNDS?
- --------------------------------------------------------------------------------
Each Fund is one separate diversified investment fund of the Group, which was
organized on March 23, 1993, as an Ohio business trust. The Group is registered
and operates as an open-end management investment company as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The Government
Securities Fund and the Tax Exempt Fund were organized for the purposes of
acquiring all of the assets and liabilities of CGST and CTEMT, respectively, to
effect a reorganization of CGST and CTEMT from separate stand alone investment
companies to separate series of the Group (the "Reorganization").
- --------------------------------------------------------------------------------
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
- --------------------------------------------------------------------------------
IN GENERAL
The investment objectives of the Government Securities Fund are to maximize
current income while preserving capital and maintaining liquidity. The
investment objectives of the Tax Exempt Fund are to maximize current income
exempt from federal income tax while preserving capital and maintaining
liquidity. The investment objectives with respect to each Fund are fundamental
policies and as such may not be changed without a vote of the holders of a
majority of the outstanding Shares of that Fund (as defined below under "WHAT
ARE MY RIGHTS AS A SHAREHOLDER?"). There can be no assurance that the objectives
of any Fund will be achieved.
Each of the Funds, as a money market fund subject to Rule 2a-7 of the 1940 Act,
must invest exclusively in United States dollar-denominated instruments which
the Trustees of the Group and the Adviser determine present minimal credit risks
and which at the time of acquisition are rated by one or more appropriate
nationally recognized statistical rating organizations ("NRSROs") (e.g. Standard
& Poor's Corporation and Moody's Investors Service, Inc.) in one of the two
highest rating categories for short-term debt obligations or, if unrated, are of
comparable quality. In addition, the dollar-weighted average maturity of the
obligations in a Fund may not exceed 90 days.
THE GOVERNMENT SECURITIES FUND
The Government Securities Fund seeks to attain its investment objectives by
investing as fully as possible, but in no event less than 80% of its total
assets, in U.S. Treasury bills, notes and bonds, other obligations issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements relating to such obligations. The Government Securities
Fund will purchase only obligations which have, or are deemed to have,
maturities, from the date of purchase, of 397 calendar days or less. Current
income earned on such securities may not be as great as current income that
could be earned on lower quality securities that have less liquidity and/or a
greater risk of non-payment or securities that have a longer term.
6
<PAGE> 63
Subject to the foregoing limitations and in order to achieve its investment
objectives, the Government Securities Fund expects to invest in the following
types of securities.
Direct obligations issued by the U.S. Treasury include bills, notes and bonds
which differ from each other only in interest rates, maturities and times of
issuance: Treasury bills have original maturities of one year or less; Treasury
notes have original maturities of one to ten years and Treasury bonds generally
have original maturities of greater than ten years.
Examples of obligations issued by agencies or instrumentalities of the U.S.
Government include, among others, securities issued by the General Services
Administration, Federal Housing Administration, Farmers Home Administration,
Government National Mortgage Association, Federal Home Loan Banks, Federal
Intermediate Credit Banks, Federal Land Banks, Federal Home Loan Mortgage
Corporation, Central Bank for Cooperatives, Maritime Administration, The
Tennessee Valley Authority, Washington, D.C. Armory Board, Export-Import Bank of
the United States, Federal National Mortgage Association and Student Loan
Marketing Association.
Certain of such U.S. Government obligations may have variable or floating rates
of interest. The Government Securities Fund intends to invest in variable and
floating rate instruments whose market value, upon reset of the interest rate,
will approximate amortized cost because their interest rates will be tied to
short-term market rates. Some obligations issued or guaranteed by U.S.
Government agencies or instrumentalities are supported by the full faith and
credit of the U.S. Treasury; others by U.S. Treasury guarantees; and others,
such as those issued by Federal Home Loan Banks, by the right of the issuer to
borrow from the Treasury. In addition, some obligations of U.S. Government
agencies or instrumentalities, such as those issued by the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality, and
others, such as those issued by the Student Loan Marketing Association, are
supported solely by the credit of the issuing agency or instrumentality itself.
No assurance can be given that the U.S. Government will provide financial
support to such U.S. Government sponsored agencies or instrumentalities in the
future, since it is not obligated to do so by law. The Government Securities
Fund will invest in such securities only when it is satisfied that the credit
risk with respect to the issuer is minimal.
THE TAX EXEMPT FUND
As a matter of policy, under normal market conditions, the Tax Exempt Fund will
invest at least 80% of its net assets in a diversified portfolio of Municipal
Securities (as defined below), the interest on which is both exempt from federal
income tax and not treated as a preference item for purposes of the federal
alternative minimum tax. Subject to the foregoing limitations and in order to
achieve its investment objectives, the Tax Exempt Fund expects to invest in the
following types of securities (collectively, "Municipal Securities"): bond
anticipation notes, construction loan notes, project notes, revenue anticipation
notes and tax anticipation notes which, in each case (1) are backed by the full
faith and credit of the United States, (2) are rated in one of the two highest
rating categories by an appropriate NRSRO for short-term tax-exempt securities
(e.g., MIG-1 or MIG-2 by Moody's Investors Service, Inc.) or (3) if the notes
are not rated, are, as determined by the Adviser in accordance with guidelines
established by the Group's Board of Trustees, of a quality equivalent to
securities so rated. The Tax Exempt Fund may also invest in municipal bonds and
participation interests therein, including industrial development revenue bonds
and pollution control revenue bonds, which have, or are deemed to have,
remaining maturities of 397 calendar days or less and (1) are rated in one of
the two highest rating categories by an appropriate NRSRO for short-term
tax-exempt securities, or (2) if not rated, are, as determined by the Adviser in
accordance with guidelines established by the Group's Board of Trustees, of a
quality equivalent to securities so rated. In addition, the Tax Exempt Fund may
purchase other types of tax-exempt Municipal Securities such as short-term
discount notes. These investments must (1) be rated in one of the two highest
rating categories by an appropriate NRSRO for short-term tax exempt securities,
or (2) if not rated, possess equivalent characteristics and quality to
securities so rated in the opinion of the Adviser as determined in accordance
with guidelines established by the Board of Trustees. For further information
regarding the rating categories of the NRSROs, please see the Appendix to the
Funds' Statement of Additional Information.
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Current income earned on such Municipal Securities may not be as great as
current income that could be earned on lower quality securities that have less
liquidity and/or a greater risk of nonpayment or securities that have a longer
term.
RISK FACTORS AND INVESTMENT TECHNIQUES
VARIABLE RATE SECURITIES. The Tax Exempt Fund has and intends to continue to
invest more than 25% of its assets in certain variable or floating rate demand
Municipal Securities, including participation interests therein. The value of
such securities may change with changes in interest rates generally. However,
the variable or floating rate nature of such securities should reduce, to the
extent the Tax Exempt Fund is invested in such securities, the degree of
fluctuation in the value of portfolio investments. Accordingly, as interest
rates decrease or increase, the potential for capital appreciation and the risk
of potential capital depreciation is less than would be the case with a
portfolio composed entirely of fixed income securities. The Tax Exempt Fund's
portfolio may contain variable or floating rate demand securities on which
stated minimum or maximum rates set by state law limit the degree to which
interest on such securities may fluctuate; to the extent it does, increases or
decreases in value may be somewhat greater than would be the case without such
limits. Because the adjustment of interest rates on the variable or floating
rate demand securities is made in relation to movements of the applicable
indexes (e.g., the prime rate), such securities are not comparable to
longer-term fixed rate securities. Accordingly, interest rates on such
securities may be higher or lower than current market rates for fixed rate
obligations of comparable quality with similar maturities. The Tax Exempt Fund,
however, will only acquire variable or floating rate securities the interest
rates on which are determined by reference to other short-term market rates of
interest. The Tax Exempt Fund will attempt to achieve a balance of variable or
floating and fixed rate securities such that under normal circumstances the net
asset value of the Tax Exempt Fund can be maintained at $1.00 per share while
the highest possible yield can be returned to investors. To the extent the Tax
Exempt Fund's portfolio is invested in variable or floating rate securities,
yield can be expected to decline in periods of falling interest rates more
rapidly than if the Tax Exempt Fund's portfolio is invested solely in
longer-term fixed rate securities. Conversely, yield, under the same
circumstances, can be expected to increase more rapidly in periods of rising
interest rates. Such instruments may be considered to be derivatives. A
derivative is generally defined as an instrument whose value is based upon, or
derived from, some underlying index, reference rate (e.g., interest rates),
security, commodity or other asset. As stated above, the Tax Exempt Fund has no
limit as to the percentage of its total assets that may be invested in such
variable or floating rate securities.
Variable rate demand Municipal Securities in which the Tax Exempt Fund invests
may be supported by bank letters of credit or comparable guarantees of financial
institutions. To the extent that 25% or more of the Tax Exempt Fund's assets are
invested in variable rate demand Municipal Securities supported by such letters
of credit or guarantees, the Tax Exempt Fund may be deemed to be concentrated in
the banking industry. (See "Certain Factors" below.)
REPURCHASE AGREEMENTS. Securities held by each of the Funds may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities from a financial institution such as a well-established
securities dealer or a bank which is a member of the Federal Reserve System
which the Adviser deems creditworthy under guidelines approved by the Group's
Board of Trustees. At the time of purchase, the bank or securities dealer agrees
to repurchase the underlying securities from the Fund at a specified time and
price. The resale price reflects the purchase price plus an agreed upon market
rate of interest which is unrelated to the coupon rate or maturity of the
underlying security. The Funds will only enter into a repurchase agreement where
(i) the underlying securities are of the type which that Fund's investment
policies would allow it to purchase directly, (ii) the market value of the
underlying security, including interest accrued, will at all times be equal to
or exceed the value of the repurchase agreement, and (iii) payment for the
underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the Funds' custodian or a bank acting as
agent. The Adviser will be responsible for continuously monitoring such
requirements. Use of repurchase agreements may cause the Tax Exempt Fund to earn
income which would be taxable to its shareholders.
INVESTMENT COMPANY SECURITIES. Each Fund may also invest up to 10% of the value
of its total assets in the securities of other investment companies subject to
the limitations set forth in the 1940 Act. The Funds intend to
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invest in the securities of other money market mutual funds for purposes of
short-term cash management. A Fund's investment in such other investment
companies may result in the duplication of fees and expenses, particularly
investment advisory fees. For a further discussion of the limitations on the
Funds' investments in other investment companies, see "INVESTMENT OBJECTIVES AND
POLICIES -- Additional Information on Portfolio Instruments -- Securities of
Other Investment Companies" in the Funds' Statement of Additional Information.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. Each Fund may also purchase
securities on a when-issued or delayed-delivery basis. A Fund will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objectives and policies, not
for investment leverage, although such transactions represent a form of
leveraging. When-issued securities are securities purchased for delivery beyond
the normal settlement date at a stated price and yield and thereby involve a
risk that the yield obtained in the transaction will be less than those
available in the market when delivery takes place. A Fund will not pay for such
securities or start earning interest on them until they are received, although
the payment obligation and the coupon rate have been established before the time
the Fund enters into the commitment. When a Fund agrees to purchase such
securities, its custodian will set aside cash or liquid securities equal to the
amount of the commitment in a separate account. Securities purchased on a
when-issued basis are recorded as an asset and are subject to changes in the
value based upon changes in the general level of interest rates. In when-issued
and delayed-delivery transactions, a Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause the Fund to miss a price or
yield considered to be advantageous.
Each Fund's commitments to purchase when-issued securities will not exceed 25%
of the value of its total assets absent unusual market conditions. In the event
that its commitments to purchase when-issued securities ever exceed 25% of the
value of its assets, such Fund's liquidity and the ability of the Adviser to
manage it might be adversely affected.
TAXABLE MONEY MARKET SECURITIES. Under normal market conditions, the assets of
the Tax Exempt Fund will be managed with a view towards producing only income
that is exempt from federal income taxation and that is not treated as a
preference item for purposes of the federal alternative minimum tax. However,
the Tax Exempt Fund may invest up to 20% of its assets in "temporary
investments," that is, money market instruments consisting of marketable
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, deposit obligations of banks and savings and loans which are
members of the Federal Deposit Insurance Corporation, bankers' acceptances,
high-grade commercial paper guaranteed or issued by domestic corporations and
repurchase agreements secured by such obligations.
CERTAIN FACTORS. Naturally, there can be no assurance that any Fund will achieve
its investment objectives or be able continuously to maintain a net asset value
per share of $1.00. Specifically, with respect to the Tax Exempt Fund, the
characteristics of short-term Municipal Securities are such that the price
stability and liquidity of the Tax Exempt Fund may not be equal to that of a
money market fund which exclusively invests in short-term taxable money market
securities.
In addition, the Tax Exempt Fund expects that substantially all the demand
rights of the Tax Exempt Fund with respect to variable rate demand Municipal
Securities will be supported by letters of credit of major commercial banks.
Fund investors should be aware that banks are subject to extensive governmental
regulation which may limit both the amount and type of loans and other financial
commitments which may be made and interest rates and fees which may be charged.
The profitability of this industry is largely dependent upon the availability
and cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations under a letter of credit.
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INVESTMENT RESTRICTIONS
Each of the Funds is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of that Fund (as
defined below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
The Government Securities Fund will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
if, immediately after such purchase, more than 5% of the value of such
Fund's total assets would be invested in such issuer, or the Fund would
hold more than 10% of the outstanding voting securities of the issuer,
except that up to 25% of the value of the Fund's total assets may be
invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes,
or other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the value of
such Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and repurchase
agreements secured by obligations of the U.S. Government or its agencies
or instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities
are primarily related to financing the activities of their parents; and
(c) utilities will be divided according to their services. For example,
gas, gas transmission, electric and gas, electric, and telephone will
each be considered a separate industry.
3. Make loans, other than by entering into repurchase agreements to the
extent allowed herein and through the purchase of other obligations in
accordance with its investment objectives and policies.
The Tax Exempt Fund will not:
1. Purchase securities, if as a result of such purchase more than 5% of its
total assets would be invested in the securities of any one issuer
(other than securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, which securities include project notes
for purposes of this restriction), except that up to 25% of the value of
such Fund's assets may be invested without regard to this 5% limitation
(for purposes of this test, the non-governmental user of facilities
financed by industrial development or pollution control revenue bonds
and a bank issuing a letter of credit or comparable guarantee supporting
a variable rate demand municipal security is considered to be the
issuer).
2. Purchase the securities of issuers conducting their principal business
activity in the same industry if as a result of such purchase more than
25% of its total assets would be invested in the securities of issuers
in that industry; provided that such limitation shall not apply to the
purchase of Municipal Securities, securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, or securities issued
by domestic branches of domestic banks (the only securities issued by
domestic branches of domestic banks that such Fund contemplates
investing in are variable rate demand Municipal Securities supported by
letters of credit or guarantees issued by domestic branches of domestic
banks).
3. Make loans, other than by entering into repurchase agreements and
through the purchase of participations in privately negotiated loans and
portions of publicly issued debt obligations that are in accordance with
its investment objectives and policies; provided, however, that such
Fund may not enter into a repurchase agreement if, as a result thereof,
more than 10% of its total assets would be subject to repurchase
agreements maturing in more than seven days.
In addition, each of the Funds may not borrow money or issue senior securities,
except that a Fund may borrow from banks or enter into reverse repurchase
agreements or dollar roll agreements for temporary purposes in amounts up to 10%
of the value of such Fund's total assets at the time of such borrowing and
except as
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<PAGE> 67
permitted pursuant to an exemption from the 1940 Act. Each Fund will not
purchase securities while its borrowings (including reverse repurchase
agreements and dollar roll agreements) exceed 5% of its total assets.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding Shares of a Fund.
Each Fund may not:
1. Purchase or otherwise acquire any securities, if as a result, more than
10% of the Fund's net assets would be invested in securities that are
illiquid.
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HOW DO I PURCHASE SHARES OF THE FUNDS?
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GENERAL
Shares of the Funds are sold on a continuing basis without a sales charge at the
net asset value next determined after an order is received by The Ohio Company,
155 East Broad Street, Columbus, Ohio 43215, the Funds' principal underwriter,
and federal funds (monies credited to a member bank's account in a Federal
Reserve Bank) are received by The Ohio Company as hereinafter provided. The
minimum initial investment for individuals is $1,000 and subsequent investments
must be in amounts of at least $100. The Group may, at its discretion, waive the
subsequent investment minimum for purchases effected through the automatic
reinvestment of distributions from unit investment trusts sponsored by The Ohio
Company, and may waive both the initial and subsequent investment minimums for
purchases effected with cash balances in brokerage accounts of customers of The
Ohio Company. Institutions may place orders for any number of individual
accounts with a minimum initial purchase of $1,000 for each individual account.
Subsequent purchases may be made in minimum amounts of $100 for each individual
account. Shares of the Funds may be purchased through a securities dealer,
investment adviser, agent or other fiduciary which may charge a fee for its
services in connection with the purchase. No sales charge is imposed by the
Group or by The Ohio Company.
Subsequent purchases of Shares of the Funds may be made by ACH processing as
described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -- ACH
Processing" below. In addition, if an Account Information Form has previously
been received by The Ohio Company, Shares may also be purchased by wiring funds
to the Funds as described below under "Purchase by Federal Funds Wire."
All Shares purchased will be credited to shareholder accounts after receipt of
an order and federal funds by The Ohio Company, at the net asset value next
determined. Each Fund currently determines net asset value and enters purchases
and redemptions of its Shares as of 12:00 noon, Eastern Time, on each day that
the New York Stock Exchange is open for business and on such other days on which
there is a sufficient degree of trading in that Fund's portfolio securities that
such Fund's net asset value might be materially affected by changes in the value
of the portfolio securities ("Business Day"). If a properly completed order and
federal funds (or other immediately available funds) are received at or prior to
12:00 noon, Eastern Time, on a Business Day, then the purchase will be entered
as of 12:00 noon, Eastern Time, on that day and dividends will commence on that
day. If either federal funds (or other immediately available funds) or the
completed purchase order are received after 12:00 noon, Eastern Time, Shares
will be credited to the shareholder's account as of 12:00 noon, Eastern Time, on
the next Business Day and will begin earning dividends on such day.
The Group reserves the right to reject any order for the purchase of Shares in
whole or in part. You will receive a confirmation of each transaction in your
account, which will also show the total number of Shares being held in
safekeeping by Cardinal Management Corp., the Funds' transfer agent (the
"Transfer Agent"), for your account. Certificates representing Shares will not
be issued.
From time to time, The Ohio Company, from its own resources, may also provide
additional compensation to securities dealers in connection with sales of shares
of the Cardinal Funds. Such compensation will include financial assistance to
securities dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising, sales campaigns
and/or shareholder services and programs
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regarding one or more of the Cardinal Funds and other dealer-sponsored programs
or events. In some instances, this compensation may be made available only to
certain securities dealers whose representatives have sold or are expected to
sell significant amounts of shares of the Cardinal Funds. Compensation will
include payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Securities dealers may not use sales of a Fund's
Shares to qualify for this compensation to the extent such may be prohibited by
the laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. In addition, The Ohio Company may make
ongoing payments to brokerage firms, financial institutions (including banks)
and others to facilitate the administration and servicing of shareholder
accounts. None of the aforementioned additional compensation is paid for by the
Funds or their shareholders.
PURCHASE BY FEDERAL FUNDS WIRE
Investments in Shares of the Funds may be made by wire transfer of federal
funds, avoiding delays of the mail and the normal check clearance process
described below. An investor may telephone the Group at (800) 282-9446, toll
free, prior to wire transfer of his or her investment to advise the Group of the
investment and, if a new investor, to obtain an account number. If an investor
does not telephone the Group for wire instructions and the investor's wire
transfer does not include sufficient information, such purchase will be delayed
until the proper information is received. An investor must instruct its bank to
"wire transfer" the investment immediately to:
The Fifth Third Bank
Account Number 728-76677
Routing Number 042000314
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attn: [Name of Applicable Fund]
[Include Fund Account Number and Name of Account Holder]
Funds transmitted by wire will be invested in Shares of the appropriate Fund at
the net asset value next computed after receipt thereof as described above under
"General." A bank may charge for its services in effecting wire transfers of
funds. If you have questions regarding the status of a wire transfer of funds,
please call The Fifth Third Bank at (513) 579-5385.
PURCHASE BY MAIL
Investment in Shares of the Funds may be made by mail by sending a check payable
to the order of the appropriate Fund together with, in the case of an initial
purchase, an Application Form to:
The Cardinal Group c/o [Name of Applicable Fund]
155 East Broad Street
Columbus, Ohio 43215
Money transmitted by check drawn on a member of the Federal Reserve System will
normally be converted to federal funds and invested in Shares of the applicable
Fund within one Business Day following receipt by The Ohio Company. Checks drawn
on non-member banks may take considerably longer. THE GROUP STRONGLY RECOMMENDS
THAT INVESTORS OF SUBSTANTIAL AMOUNTS USE FEDERAL FUNDS TO PURCHASE SHARES.
AUTOMATIC INVESTMENT PLAN
The Group has made arrangements to enable you to make automatic monthly or
quarterly investments, in the minimum amount of $50 per transaction, from your
checking account. Assuming the cooperation of your financial institution, your
checking account therein will be debited to purchase Shares of a Fund on the
periodic basis you select. Confirmation of your purchase of Fund Shares will be
provided by the Transfer Agent. The debit
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<PAGE> 69
of your checking account will be reflected in the checking account statement you
receive from your financial institution. Please contact The Ohio Company for the
appropriate form.
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WHAT DISTRIBUTIONS WILL I RECEIVE?
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Each Fund's net income is declared as a dividend and accrued on each Business
Day immediately prior to the determination of such Fund's net asset value at
12:00 noon, Eastern Time. Net investment income (from the time of the
immediately preceding declaration) consists of interest accrued on the portfolio
of the Fund (including accretion of discount and amortization of premium), plus
realized net short-term capital gains (losses) due to portfolio transactions (if
any), less the accrued expenses of that Fund applicable to that dividend period.
The Funds do not expect to realize any long-term capital gains due to their
policy of investing in securities maturing in 397 calendar days or less.
All dividends of net income are credited to each shareholder's account daily and
automatically reinvested in additional Shares of the applicable Fund at the net
asset value on the last Business Day of each month. Shareholders, however, may
elect to receive monthly dividends of $10 or more declared on their Shares in
cash by checking the appropriate box on the Account Information Form or by
otherwise notifying the Transfer Agent. In addition, investors may obtain cash
at any time without charge by redeeming Shares at net asset value. If the entire
account of a shareholder is withdrawn, all dividends accrued to the time of
withdrawal will be paid at that time.
Shareholders may also elect to receive dividends and distributions in cash by
using ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? -- ACH Processing" below.
Should a Fund incur or anticipate any extraordinary expense, loss or
depreciation which would adversely affect its net asset value per share or
income for a particular period, the Trustees would at that time consider whether
to adhere to the present dividend policy described above or to revise it in
light of the then-prevailing circumstances. For example, if a Fund's net asset
value per share were reduced, or expected to be reduced, below $1.00, the
Trustees might suspend further dividend declarations until the net asset value
returned to $1.00. Thus, extraordinary expenses, losses or depreciation may
result in no dividends being declared for the period during which an investor
holds Shares as well as a redemption price lower than the purchase price for
such Shares.
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HOW MAY I REDEEM MY SHARES?
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Investors may redeem Shares of a Fund on any Business Day at the net asset value
per share next determined following receipt by the Transfer Agent, 215 East
Capital Street, Columbus, Ohio 43215, of a written or telephonic notice to
redeem, or by check, each as more fully described below. See "HOW IS NET ASSET
VALUE CALCULATED?" below for a description of when net asset value is
determined.
As requested, The Ohio Company, on behalf of a shareholder, will forward the
foregoing notice to redeem to the Transfer Agent without charge. Other
broker-dealers may assist a shareholder in redeeming his or her Shares and may
charge a fee for such services.
Proceeds of redemption requests received by the Transfer Agent in proper form
before 12:00 noon, Eastern Time, on a Business Day will be sent by mail on that
Business Day or, if the expedited redemption option is available, by federal
funds wire on that Business Day for use on that day.
The Group reserves the right to delay payment for the redemption of Shares where
such Shares were purchased with other than immediately available funds, but only
until the purchase payment has cleared (which may take fifteen or more days from
the date the purchase payment is received by the Fund). The purchase of Fund
Shares by wire transfer of federal funds would avoid any such delay.
The Group may suspend the right of redemption or may delay payment during any
period in which the determination of net asset value is suspended. See "HOW IS
NET ASSET VALUE CALCULATED?".
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<PAGE> 70
Due to the high cost of maintaining accounts, the Group reserves the right to
redeem involuntarily Shares in any account at the then current net asset value
if at any time redemptions have reduced a shareholder's total investment in a
Fund to a net asset value below $500. A shareholder will be notified in writing
that the value of Fund Shares in the account is less than $500 and allowed not
less than 30 days to increase his or her investment in that Fund to at least
$500 before the redemption is processed. Proceeds of redemptions so processed,
including dividends declared to the date of redemption, will be promptly paid to
the shareholder.
REDEMPTION BY MAIL
Shareholders may redeem Shares of a Fund by submitting a written request
therefor to the Transfer Agent, at 215 East Capital Street, Columbus, Ohio
43215. The Transfer Agent will request a signature guarantee by an eligible
guarantor institution as described below. However, a signature guarantee will
not be required if (1) the redemption check is payable to the shareholder(s) of
record, and (2) the redemption check is mailed to the shareholder(s) at the
address of record, provided, however, that the address of record has not been
changed within the preceding 15 days. For purposes of this policy, an "eligible
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations as those terms are defined in the Securities Exchange Act of 1934.
The Transfer Agent reserves the right to reject any signature guarantee if (1)
it has reason to believe that the signature is not genuine or (2) it has reason
to believe that the transaction would otherwise be improper.
REDEMPTION BY TELEPHONE
Shareholders may redeem Shares of a Fund by calling the Group at the telephone
number set forth on the front of this Prospectus. The shareholder may direct
that the redemption proceeds be mailed to the address of record.
Neither the Group, the Funds nor their service providers will be liable for any
loss, damages, expense or cost arising out of any telephone redemption effected
in accordance with the Group's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Group will employ procedures
designed to provide reasonable assurances that instructions by telephone are
genuine; if these procedures are not followed, the Group, the Funds or their
service providers may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures may include recording all phone conversations,
sending confirmations to shareholders within 72 hours of the telephone
transaction, and verification of account name and account number or tax
identification number. If, due to temporary adverse conditions, investors are
unable to effect telephone transactions, shareholders may also redeem their
Shares by mail as described above.
EXPEDITED REDEMPTION
Any investor may elect to use the expedited redemption procedure by designating
on the Account Information Form submitted at the time of initial investment the
name of a commercial bank and account number to receive proceeds of redemption.
If this election is made, requests for redemption may be made by mail or by
telephone as described above.
An investor may elect to have redemption proceeds sent by federal funds wire to
the designated U.S. bank account if the proceeds are $1,000 or more. Otherwise,
proceeds will be sent by mail. No signature guarantee will be required of
investors electing this procedure. Requests to change bank or account
designations may only be made in writing to the Group with the type of signature
guarantee and other documentation specified under "Redemption by Mail" above. To
participate in this procedure, an investor must complete the expedited
redemption portion of the Account Information Form or notify the Group at any
time after making an initial investment.
An investor may also elect to have redemption proceeds sent by federal funds
wire to The Ohio Company, the Funds' distributor, if the proceeds are $500 or
more. If the investor elects to have federal funds so wired, the investor may
pick up a check at The Ohio Company's main office at 155 East Broad Street,
Columbus, Ohio or The Ohio Company will mail a check to the investor's address
of record. The Group may, at its discretion, waive
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<PAGE> 71
the minimum redemption requirement for redemptions effected to cover debit
balances in brokerage accounts of customers of The Ohio Company.
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? - ACH Processing" below.
SYSTEMATIC WITHDRAWAL PLAN
As a shareholder, you may elect to redeem your Shares monthly or quarterly in
amounts of $50 or more, pursuant to the Group's Systematic Withdrawal Plan.
Please contact The Ohio Company for the appropriate form.
CHECK-WRITING REDEMPTION PROCEDURE
The Transfer Agent will provide any shareholder who so requests with a supply of
checks, imprinted with the shareholder's name, which may be drawn against the
appropriate Fund's account maintained by The Fifth Third Bank (the "Bank"), for
redemption of Fund Shares. These checks may be made payable to the order of any
person in any amount. To participate in this procedure, an investor must
complete the Check-Writing Redemption Form available from the Transfer Agent.
When a check is presented to the Bank for payment, the Transfer Agent (as your
agent) will cause such Fund to redeem sufficient Shares in your account to cover
the amount of the check. Shares continue earning daily dividends until the day
on which the check is presented to the Bank for payment. Cancelled checks will
be returned to you. Due to the delay caused by the requirement that redemptions
be priced at the next computed net asset value, the Bank will only accept for
payment checks presented through normal bank clearing channels. Shareholders
should not attempt to withdraw the full amount of an account or to close out an
account by using this procedure.
No charge will be made to a shareholder for participation in the check-writing
redemption procedure or for the clearance of any checks. However, charges for
copies ($5 each), returned checks ($15 each) and returned items of deposit ($15
each) will be deducted from a shareholder's account.
In order to stop payment on a check, the shareholder must notify the Group in
writing before the check has been presented to the Bank for payment. A charge of
$15 will be deducted from the shareholder's account for each stop payment order.
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WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
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ACH PROCESSING
The Funds offer ACH privileges. Investors may use ACH processing to make
subsequent purchases, redeem Shares and/or electronically transfer distributions
paid on Fund Shares, in addition to the other methods described in this
Prospectus. ACH provides a method by which funds may be automatically
transferred to or from an authorized bank account at a Federal Reserve member
bank that is an ACH member. Please contact your representative if you are
interested in ACH processing.
EXCHANGE PRIVILEGE
Shareholders of a Fund may, provided the amount to be exchanged meets the
applicable minimum investment requirements and the exchange is made in states
where it is legally authorized, exchange Shares of a Fund for Shares of the
other Fund (without payment of any sales charge) or for Investor shares (upon
the payment of the applicable sales charge) or Institutional shares (if the
investor is otherwise eligible to acquire Institutional shares) of:
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<PAGE> 72
Cardinal Aggressive Growth Fund,
an equity fund seeking appreciation of
capital;
Cardinal Balanced Fund,
a fund seeking current income and long-term
growth of both capital and income;
The Cardinal Fund,
an equity fund seeking long-term growth
of capital and income; or
Cardinal Government Obligations Fund,
a fund investing in securities issued
or guaranteed by the U.S. Government.
Notwithstanding the foregoing and subject to the limitations contained in the
following paragraph, exchanges of Fund Shares for Investor shares of The
Cardinal Fund, Cardinal Government Obligations Fund, Cardinal Balanced Fund or
Cardinal Aggressive Growth Fund (individually, a "Cardinal Load Fund") generally
may be completed upon the payment of a sales charge equal to the sales charge
payable upon purchase of Investor shares of that Cardinal Load Fund. If,
however, the Shares of a Fund to be exchanged were acquired as a result of an
exchange of shares of a Cardinal Load Fund, the sales charge to be paid on the
present exchange may be reduced by the sales charge previously paid.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange is requested
to be made within the same account or into an existing account of the
shareholder held in the same name or names and in the same capacity as the
account from which the exchange is to be made. Shareholders may also authorize
an exchange of Shares of a Fund by telephone. Neither the Group, the Funds nor
any of their service providers will be liable for any loss, damages, expense or
cost arising out of any telephone exchange authorization to the extent and
subject to the requirements set forth under "HOW MAY I REDEEM MY SHARES? --
Redemption by telephone" above.
For tax purposes, an exchange is treated as a redemption and a new purchase.
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Funds 60 days'
advance written notice of any such modification or termination.
- --------------------------------------------------------------------------------
HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
The Funds' net asset value per share is currently determined as of 12:00 noon
Eastern Time on each Business Day. Net asset value per share is computed by
dividing the total value of the assets of a Fund, less its liabilities, by the
total number of Shares outstanding. Expenses and fees of the Funds, including
the management fee, are accrued daily and taken into account for the purpose of
determining the net asset value.
The Board of Trustees has adopted a policy requiring each Fund to use its best
efforts, under normal circumstances, to maintain a constant net asset value of
$1.00 per share. Each Fund values its portfolio securities by the amortized cost
method which involves valuing a security at its cost and thereafter accruing any
discount or premium at a constant rate to maturity. A Fund will normally include
any accrued discount or premium in its daily dividend and will thereby keep
constant the value of the Fund's assets and, consequently, its net asset value
per share. This method does not take into account unrealized capital gains or
losses or the effect of fluctuating interest rates.
16
<PAGE> 73
- --------------------------------------------------------------------------------
DO THE FUNDS PAY FEDERAL INCOME TAX?
- --------------------------------------------------------------------------------
Each of the funds of the Group, including the Funds, is treated as a separate
entity for federal income tax purposes and each intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), for so long as such qualification is in the best interest
of that fund's shareholders. Qualification as a regulated investment company
under the Code requires, among other things, that the regulated investment
company distribute to its shareholders at least 90% of its investment company
taxable income. Each Fund contemplates declaring as dividends all or
substantially all of that Fund's investment company taxable income (before
deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment companies that
do not distribute in each calendar year (regardless of whether they otherwise
have a non-calendar taxable year) an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gain net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. If distributions
during a calendar year were less than the required amount, the Fund would be
subject to a nondeductible excise tax equal to 4% of the deficiency.
- --------------------------------------------------------------------------------
WHAT ABOUT MY TAXES?
- --------------------------------------------------------------------------------
THE GOVERNMENT SECURITIES FUND
It is expected that the Government Securities Fund will distribute annually to
shareholders all or substantially all of that Fund's net ordinary income and net
realized capital gains and that such distributed net ordinary income and
distributed net realized capital gains will be taxable income to shareholders
for federal income tax purposes, even if paid in additional Shares of the
Government Securities Fund and not in cash. Since all of the Government
Securities Fund's net investment income is expected to be derived from earned
interest and short-term capital gains, it is anticipated that no part of any
distribution will be eligible for the dividends received deduction for
corporations. The Government Securities Fund does not expect to realize any
mid-term or long-term capital gains and, therefore, does not foresee paying any
"capital gains dividends" as described in the Code. However, if the Government
Securities Fund were to realize any mid-term or long-term capital gains,
distribution by such Fund of the excess of any such net mid-term or net
long-term capital gain over net short-term capital loss is taxable to
shareholders as mid-term or long-term capital gain, respectively, in the year in
which it is received, regardless of how long the shareholder has held the
Shares. Such distributions are not eligible for the dividends received
deduction.
Even though a substantial portion of distributions of net income will be
attributable to interest on U.S. Government obligations, which may be exempt
from state or local tax if received directly by a shareholder, shareholders of
the Government Securities Fund may be subject to state and local taxes with
respect to their ownership of that Fund's Shares or distributions from the
Government Securities Fund.
THE TAX EXEMPT FUND
FEDERAL TAXES. The Tax Exempt Fund will distribute substantially all of its net
investment income and net capital gains to shareholders. Dividends derived from
interest earned on Municipal Securities the interest on which is excluded from
gross income for federal income tax purposes, including insurance proceeds
representing maturing interest on defaulted Municipal Securities the interest on
which would be so excluded, constitute "exempt-interest dividends" when
designated as such by the Tax Exempt Fund and will be excluded from gross income
for federal income tax purposes. However, interest excluded from gross income
for federal income tax purposes that is received by individuals and corporations
on certain municipal obligations issued on or after August 8, 1986, to finance
certain private activities will be treated as a tax preference item in computing
the alternative minimum tax. It is likely that exempt-interest dividends
received by shareholders from the Tax Exempt Fund will also be treated as tax
preference items in computing the alternative minimum tax to the extent, if any,
that distributions by the Tax Exempt Fund are attributable to interest earned by
the Tax Exempt Fund on such
17
<PAGE> 74
obligations. Also, a portion of all other interest excluded from gross income
for federal income tax purposes earned by a corporation may be subject to the
alternative minimum tax as a result of the inclusion in alternative minimum
taxable income of 75% of the excess of adjusted current earnings over adjusted
net book income.
Distributions, if any, derived from capital gains will generally be taxable to
shareholders as capital gains for federal income tax purposes to the extent so
designated by the Tax Exempt Fund. Dividends, if any, derived from sources other
than interest excluded from gross income for federal income tax purposes and
capital gains will be taxable to shareholders as ordinary income for federal
income tax purposes whether or not reinvested in additional Shares. Shareholders
not subject to federal income tax on their income will not, of course, be
required to pay federal income tax on any amounts distributed to them. The Tax
Exempt Fund anticipates that substantially all of its dividends will be excluded
from gross income for federal income tax purposes and will not be a preference
item for individuals for purposes of the federal alternative minimum tax.
If a shareholder receives an exempt-interest dividend with respect to any Share
and such Share is held by the shareholder for six months or less, any loss on
the sale or exchange of such Share will be disallowed to the extent of the
amount of such exempt-interest dividend. In certain limited instances, the
portion of Social Security benefits that may be subject to federal income
taxation may be affected by the amount of tax-exempt interest income, including
exempt-interest dividends, received by a shareholder.
STATE AND LOCAL TAXES. Under state or local law, distributions of net investment
income may be taxable to shareholders as dividend income even though a
substantial portion of such distribution may be derived from interest excluded
from gross income for federal income tax purposes that, if received directly,
would be exempt from such income taxes. The Tax Exempt Fund will report to its
shareholders annually after the close of its taxable year the percentage and
source, on a state-by-state basis, of interest income earned on Municipal
Securities held by the Tax Exempt Fund during the preceding year.
GENERAL
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders. Potential
investors in a Fund are urged to consult their tax advisers concerning the
application of federal, state and local taxes as such laws and regulations
affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the amount and
nature of such income and capital gains.
- --------------------------------------------------------------------------------
WHO MANAGES MY INVESTMENT IN THE FUNDS?
- --------------------------------------------------------------------------------
Except where shareholder action is required by law, all of the authority of the
Group is exercised under the direction of the Group's Trustees. Unless so
required by the Group's Declaration of Trust or By-Laws or by Ohio law, at any
given time all of the Trustees may not have been elected by the shareholders of
the Group. The Trustees are empowered to elect officers and contract with and
provide for the compensation of agents, consultants and other professionals to
assist and advise it in its day-to-day operations. The Group will be managed in
accordance with its Declaration of Trust and the laws of Ohio governing business
trusts.
The Trustees of the Group receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. However, no
officer or employee of the Adviser or The Ohio Company receives any compensation
from the Group for acting as a Trustee of the Group. The officers of the Group
receive no compensation directly from the Group for performing the duties of
their offices. The Adviser receives fees from the Group for acting as investment
adviser and manager and as dividend and transfer agent. The Ohio Company
receives no fees under its Distribution Agreement with the Group from the Funds.
18
<PAGE> 75
INVESTMENT ADVISER AND MANAGER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street, Columbus, Ohio
43215, a wholly owned subsidiary of The Ohio Company, is the investment adviser
and manager of each of the Funds. The Adviser is also the investment adviser and
manager of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a member of
the New York and Chicago Stock Exchanges, other regional stock exchanges and the
National Association of Securities Dealers, Inc. Descendants of H.P. and R.F.
Wolfe, deceased, and members of their families, through their possession of a
majority of voting stock, may be considered controlling persons of The Ohio
Company. The Ohio Company serves as principal underwriter for each of the
Cardinal Funds.
In its capacity as investment adviser, and subject to the ultimate authority of
the Group's Board of Trustees, the Adviser, in accordance with the Funds'
investment objectives and policies, manages each Fund, and makes decisions with
respect to and places orders for all purchases and sales of its portfolio
securities. John R. Carle has been primarily responsible for the day-to-day
management of the portfolio of the Government Securities Fund since the date of
the Reorganization. Prior to the Reorganization and since December 22, 1995, Mr.
Carle was primarily responsible for the day-to-day management of the portfolio
of CGST, the Government Securities Fund's predecessor. Mr. Carle has been a
portfolio manager with the Adviser and/or The Ohio Company since 1971 and has
more than 28 years of management experience.
David C. Will has been primarily responsible for the day-to-day management of
the portfolio of the Tax Exempt Fund since the date of the Reorganization. Prior
to the Reorganization and since December 22, 1995, Mr. Will was primarily
responsible for the day-to-day management of the portfolio of CTEMT, the Tax
Exempt Fund's predecessor. Mr. Will has been a Vice President of the Adviser and
The Ohio Company since 1990 and has more than 25 years of investment management
experience.
In addition, pursuant to the Investment Advisory and Management Agreement, the
Adviser generally assists in all aspects of the Funds' administration and
operation.
For the services provided and expenses assumed pursuant to its Investment
Advisory and Management Agreement with the Group with respect to the Funds, the
Adviser receives a fee from each Fund, computed daily and paid monthly at the
annual rate of .50% of average net daily assets of that Fund. The Adviser may
periodically waive all or a portion of its advisory fee with respect to a Fund
to increase the net income of that Fund available for distributions as
dividends. The waiver of such fee will cause the yield of such Fund to be higher
than it would otherwise be in the absence of such waiver.
On December 22, 1997, The Ohio Company, Fifth Third Bankcorp., and its wholly
owned subsidiary, Fifth Third M Corp., entered into an Agreement and Plan of
Merger pursuant to which The Ohio Company will be acquired by Fifth Third M
Corp. The acquisition is subject to a number of conditions, including the
approval by Trustees and shareholders of the Group of a "new" investment
advisory and management agreement with Adviser, identical in all material
respects to the Group's current Investment Advisory and Management Agreement
with Adviser, to become effective on the effective date of The Ohio Company's
acquisition. On such effective date, it is also expected that the Group will
have entered into an underwriting agreement with a new principal underwriter. In
addition, it is expected that Fountain Square Funds, a regulated investment
company with net assets of approximately $3.1 billion as of December 31, 1997,
advised by Fifth Third Bank, a subsidiary of Fifth Third Bankcorp., will propose
the combination of the Group and Fountain Square Funds in a transaction which,
if approved by the Group's Trustees, would be submitted to the Group's
shareholders for consideration and approval.
On January 16, 1998, the Board of Trustees of the Group approved such a new
investment advisory and management agreement and have called a Special Meeting
of Shareholders to be held in March, 1998 to vote on such agreement.
19
<PAGE> 76
DIVIDEND AND TRANSFER AGENT
The Group has entered into a Transfer Agency Agreement with Cardinal Management
Corp. (the "Transfer Agent"), 215 East Capital Street, Columbus, Ohio 43215,
pursuant to which the Transfer Agent has agreed to act as the Funds' transfer
agent and dividend disbursing agent. In consideration of such services, each
Fund has agreed to pay the Transfer Agent an annual fee, paid monthly, equal to
$21 per shareholder account plus out-of-pocket expenses.
DISTRIBUTOR
The Group has entered into a Distribution Agreement with The Ohio Company, 155
East Broad Street, Columbus, Ohio 43215, pursuant to which Shares of the Funds
will be offered continuously on a best efforts basis by The Ohio Company and
dealers selected by The Ohio Company. H. Keith Allen is an officer and trustee
of the Group and an officer and director of The Ohio Company. Frank W. Siegel is
an officer and trustee of the Group and an officer of The Ohio Company. James M.
Schrack II is an officer of both the Group and The Ohio Company.
EXPENSES
The Adviser bears all expenses in connection with the performance of its
services as investment adviser, manager, transfer agent and fund accountant
other than the cost of securities (including brokerage commissions, if any)
purchased for the Funds.
CUSTODIAN AND FUND ACCOUNTANT
The Group has appointed The Fifth Third Bank ("Fifth Third"), 38 Fountain Square
Plaza, Cincinnati, Ohio 45263, as the Funds' custodian. In such capacity, Fifth
Third will hold or arrange for the holding of all portfolio securities and other
assets acquired and owned by the Funds. In addition, Fifth Third, pursuant to a
Fund Accounting and Services Agreement, has agreed with the Group to provide
certain fund accounting services to each of the Funds.
- --------------------------------------------------------------------------------
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
- --------------------------------------------------------------------------------
The Group was organized as an Ohio business trust on March 23, 1993. The Group
currently consists of six funds. The other funds of the Group are The Cardinal
Fund, Cardinal Government Obligations Fund, Cardinal Balanced Fund and Cardinal
Aggressive Growth Fund. The shares of each fund of the Group, other than the
Funds, are currently offered in two separate classes: Investor A shares,
otherwise referred to as Investor Shares, and Investor Y shares, otherwise
referred to as Institutional Shares. The Funds each have only one class of
shares. Each share represents an equal proportional interest in a fund with
other shares of the same fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that fund as
are declared at the discretion of the Trustees.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by series except as otherwise expressly required
by law. For example, shareholders of the Government Securities Fund will vote in
the aggregate with other shareholders of the Group with respect to the election
of trustees and ratification of the selection of independent accountants.
However, shareholders of the Government Securities Fund will vote as a fund, and
not in the aggregate with other shareholders of the Group, for purposes of
approval of amendments to the investment advisory agreement as it relates to the
Government Securities Fund or any of the Government Securities Fund's
fundamental policies.
Overall responsibility for the management of the Funds is vested in the Board of
Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUNDS?" Individual
Trustees are elected by the shareholders of the Group, although Trustees may
under certain circumstances fill vacancies, including vacancies created by
expanding the size of the Board. Trustees may be removed by the Board of
Trustees or shareholders in accordance with the provisions of the Declaration of
Trust and By-Laws of the Group and Ohio law. See
20
<PAGE> 77
"ADDITIONAL INFORMATION -- Miscellaneous" in the Statement of Additional
Information for further information.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve the investment advisory agreement and to satisfy certain other
requirements. To the extent that such a meeting is not required, the Group does
not intend to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c) of
the 1940 Act. At such meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a fund" means the consideration received by the fund upon
the issuance or sale of shares in that fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular fund
that are allocated to the fund by the Group's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Group as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of shareholders duly called, of the lesser of (a) 67% or more
of the votes of shareholders of the Fund present at a meeting at which the
holders of more than 50% of the votes attributable to shareholders of record of
that Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of shareholders of the Fund.
Shareholders should direct all inquiries concerning such matters to the Transfer
Agent in writing to 215 East Capital Street, Columbus, Ohio 43215, or by calling
(800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Funds and annual financial reports audited by
independent auditors.
21
<PAGE> 78
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 79
Investment Adviser and Manager
Cardinal Management Corp.
155 East Broad Street
Columbus, Ohio 43215
Distributor
The Ohio Company
155 East Broad Street
Columbus, Ohio 43215
Transfer Agent and Dividend Paying
Agent
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
Custodian
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Legal Counsel
Baker & Hostetler LLP
65 East State Street
Columbus, Ohio 43215
Independent Auditors
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
<PAGE> 80
- ----------------------------------------------------------
- ---------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PROSPECTUS HIGHLIGHTS....................... 2
FEE TABLE................................... 3
FINANCIAL HIGHLIGHTS........................ 4
PERFORMANCE INFORMATION..................... 5
WHAT ARE THE FUNDS?......................... 6
WHAT ARE THE INVESTMENT OBJECTIVES AND
POLICIES OF THE FUNDS?.................... 6
HOW DO I PURCHASE SHARES OF THE FUNDS?...... 11
WHAT DISTRIBUTIONS WILL I RECEIVE?.......... 13
HOW MAY I REDEEM MY SHARES?................. 13
WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED?................................. 15
HOW IS NET ASSET VALUE CALCULATED?.......... 16
DO THE FUNDS PAY FEDERAL INCOME TAX?........ 17
WHAT ABOUT MY TAXES?........................ 17
WHO MANAGES MY INVESTMENT IN THE FUNDS?..... 18
WHAT ARE MY RIGHTS AS A SHAREHOLDER?........ 20
</TABLE>
------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDS, THE ADVISER, OR THE OHIO COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE OHIO COMPANY TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUNDS TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
- ---------------------------------------------------------
==========================================================
- ---------------------------------------------------------
----------------------
PROSPECTUS
----------------------
January 30, 1998
The Ohio Company
CARDINAL
GOVERNMENT
SECURITIES
MONEY MARKET
FUND
CARDINAL
TAX EXEMPT
MONEY MARKET
FUND
CARDINAL LOGO
CARDINAL GROUP
- ---------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 81
Rule 497(c)
File No. 033-59984
811-07588
PROSPECTUS
CARDINAL GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SHARES
Cardinal Government Obligations Fund (the "Fund") is a diversified
investment fund of The Cardinal Group (the "Group"), an open-end, management
investment company. The Trustees of the Group have divided the Fund's beneficial
ownership into an unlimited number of transferable units called shares (the
"Shares"). The Fund offers multiple classes of Shares.
The Fund's investment objectives are to maximize safety of capital and,
consistent with such objective, earn the highest available current income
obtainable from government securities. The current income earned from such
government securities may not be as great as the current income earned on lower
quality securities which have less liquidity and greater risk of nonpayment.
There can be no assurance that the Fund's investment objectives will be
achieved.
This Prospectus relates only to one class of Shares of the Fund -
Institutional Shares. Institutional Shares of the Fund are offered to banks,
broker-dealers, savings and loan associations, trust companies (including The
Ohio Company), qualified investment advisers and certain other financial
institutions acting in a fiduciary capacity on behalf of their customers or
beneficiaries. The Fund also offers Investor Shares to the public. Interested
persons who wish to obtain prospectuses of The Cardinal Fund, Cardinal Balanced
Fund, Cardinal Aggressive Growth Fund, Cardinal Government Securities Money
Market Fund or Cardinal Tax Exempt Money Market Fund, the other funds of the
Group, or of the Investor Shares of the Fund, should contact The Ohio Company.
Additional information about the Fund, contained in a Statement Of Additional
Information dated January 30, 1998, has been filed with the Securities and
Exchange Commission and is incorporated herein by reference. Such Statement is
available upon request without charge from the Fund at the below address or by
calling the phone number provided below.
This Prospectus sets forth concisely the information about the
Institutional Shares of the Fund that a prospective investor ought to know
before investing in the Fund. This Prospectus should be retained for future
reference.
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The Ohio Company
The date of this Prospectus is January 30, 1998.
- --------------------------------------------------------------------------------
For further information regarding the Fund or for assistance in opening an
accountor redeeming Shares, please call (800) 282-9446 toll free.
Inquiries may also be made by mail addressed to the Fund at its principal
office:
155 East Broad Street, Columbus, Ohio 43215
- --------------------------------------------------------------------------------
<PAGE> 82
PROSPECTUS HIGHLIGHTS
INVESTMENT OBJECTIVES.............. The Fund seeks to maximize safety of
capital and, consistent with such
objective, earn the highest available
current income obtainable from government
securities. (See page 6.)
INVESTMENT POLICIES................ Under normal market conditions, the Fund
invests substantially all, but in no event
less than 65%, of its total assets in
obligations issued or guaranteed by the
U.S. Government, its agencies or
instrumentalities and repurchase
agreements secured by securities of the
U.S. Government. Under present market
conditions, the Fund expects to invest a
substantial amount of its portfolio in
Ginnie Mae certificates. These investments
entail certain risks. (See pages 6 and 7.)
CURRENT INCOME..................... Dividends are declared daily and
distributions are generally made monthly
as the Group shall determine. Long-term
capital gains, if any, are distributed
annually. (See page 12.)
RISK FACTORS AND SPECIAL
CONSIDERATIONS................. An investment in a mutual fund such as the
Fund involves a certain amount of risk and
may not be suitable for all investors.
Some investment policies of the Fund may
entail certain risks. (See "WHAT ARE THE
INVESTMENT OBJECTIVES AND POLICIES OF THE
FUND? -- Risk Factors and Investment
Techniques" on pages 8 through 10.)
PURCHASES.......................... Purchases are made at the public offering
price which is equal to net asset value
per share. (See page 11.)
REDEMPTIONS........................ Shares can be redeemed at net asset value
per share without charge if redeemed
through the Fund's distributor, The Ohio
Company. (See page 12.)
INVESTMENT ADVISER AND
MANAGER....................... Cardinal Management Corp. (the "Adviser"),
a wholly-owned subsidiary of The Ohio
Company, is the Fund's investment adviser.
The Adviser also serves as investment
adviser for The Cardinal Fund, Cardinal
Government Securities Money Market Fund,
Cardinal Tax Exempt Money Market Fund,
Cardinal Balanced Fund and Cardinal
Aggressive Growth Fund (collectively, with
the Fund, the "Cardinal Funds"), each a
separate diversified investment fund of
the Group. (See page 16.)
-1-
<PAGE> 83
FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Institutional Shares
--------------------
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 0%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .50%
12b-1 Fees None
Other Expenses .43
----
Total Fund Operating Expenses .93%
----
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period: $ 9 $30 $51 $114
</TABLE>
The information set forth in the foregoing Fee Table and Example
relates only to Institutional Shares of the Fund. The Fund also offers another
class of Shares known as Investor Shares. The two classes of Shares of the Fund
are subject to the same expenses except that the Investor Shares are not subject
to an administrative services fee but are subject to a Rule 12b-1 fee and are
generally sold with a front-end sales charge.
The purpose of the above table is to assist a potential purchaser of
the Fund's Institutional Shares in understanding the various costs and expenses
that an investor in the Fund will bear directly or indirectly. See "WHO MANAGES
MY INVESTMENT IN THE FUND?" for a more complete discussion of the shareholder
transaction expenses and annual operating expenses of the Fund. The example and
expenses above reflect current fees. THE FOREGOING EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following Financial Highlights with respect to the period from
January 2, 1997 through September 30, 1997 (Institutional Shares), and with
respect to each of the years in the ten year period ended September 30, 1997
(Investor Shares), have been audited by KPMG Peat Marwick LLP, independent
auditors, whose report thereon, insofar as it relates to each of the years in
the five year period ended September 30, 1997, is contained in the Fund's
Statement Of Additional Information and which may be obtained by shareholders
and prospective investors.
The following Financial Highlights reflect the operations of Cardinal
Government Obligations Fund ("CGOF"), the Fund's predecessor, through April 30,
1996. On May 1, 1996, the Fund acquired all of the assets and liabilities of
CGOF and is deemed to have succeeded to the financial and performance history of
CGOF.
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<PAGE> 84
FINANCIAL HIGHLIGHTS FOR EACH SHARE OF BENEFICIAL
INTEREST OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------
<TABLE>
<CAPTION>
(Institutional
Shares)
For the period
from January 2, Years Ended September 30,
1997 through -------------------------
September 30,
1997(a) 1997(a) 1996 1995 1994 1993
------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $8.09 $8.05 $8.18 $7.96 $8.63 $8.95
BEGINNING
Investment Activities:
Net investment income .42 .61 .60 .64 .66 .74
Net realized
and unrealized gain (loss)
on investments .12 .11 (.12) .22 (.68) (.32)
--- --- --- --- --- ---
Total from Investment
Activities .54 .72 .48 .86 (.02) .42
--- --- --- --- --- ---
Distributions:
From net
investment income (.43) (.57) (.60) (.64) (.65) (.74)
From capital gains -- -- -- -- -- --
Tax return of capital -- -- (.01) -- -- --
----- ----- ----- ----- ----- -----
Total Distributions (.43) (.57) (.61) (.64) (.65) (.74)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, ENDING $8.20 $8.20 $8.05 $8.18 $7.96 $8.63
==== ==== ==== ==== ==== ====
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales load) 6.86%* 9.28% 6.04% 11.27% (0.27%) 4.83%
Net assets at end of
period (000) $5,803 $120,342 $133,298 $151,711 $169,529 $208,883
Ratio of expenses to
average net assets 0.93% 1.01% 0.78% 0.76% 0.75% 0.73%
Ratio of net investment
income after charged expenses
to average net assets 7.00% 7.06% 7.39% 7.93% 7.88% 8.32%
Ratio of incurred expenses to
average net assets (b) 0.93% 1.08% 0.88% 0.76% 0.75% 0.73%
Ratio of net investment income
after incurred expenses to
average net assets (b) 7.00% 6.99% 7.29% 7.93% 7.88% 8.32%
Portfolio Turnover Rate 34.53% 34.53% 33.58% 36.71% 21.95% 24.94%
</TABLE>
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<PAGE> 85
<TABLE>
Years Ended September 30,
-------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, $8.99 $8.71 $8.71 $8.82 $8.60
BEGINNING
Investment Activities:
Net investment income .80 .81 .84 .84 .86
Net realized
and unrealized gain (loss)
on investments (.04) .28 -- (.11) .22
--- --- --- --- ---
Total from Investment
Activities .76 1.09 .84 .73 1.08
--- ---- --- --- ----
Distributions:
From net
investment income (.80) (.81) (.84) (.84) (.86)
From capital gains -- -- -- -- --
Tax return of capital -- -- -- -- --
----- ---- ---- ---- ----
Total Distributions (.80) (.81) (.84) (.84) (.86)
----- ----- ----- ----- -----
NET ASSET VALUE, ENDING $8.95 $8.99 $8.71 $8.71 $8.82
==== ==== ==== ==== ====
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales
load) 8.87% 13.07% 10.03% 8.81% 12.94%
Net assets at end of
period (000) $172,139 $128,569 $114,890 $118,958 $146,745
Ratio of expenses to
average net assets 0.76% 0.76% 0.76% 0.73% 0.74%
Ratio of net investment
income after charged expenses
to average net assets 8.89% 9.20% 9.55% 9.73% 9.64%
Ratio of incurred expenses to
average net assets (a) 0.76% 0.76% 0.76% 0.73% 0.74%
Ratio of net investment income
after incurred expenses to
average net assets (a) 8.89% 9.20% 9.55% 9.73% 9.64%
Portfolio Turnover Rate 17.15% 34.81% 30.90% .92% 5.76%
<FN>
* This total return figure reflects aggregate total return. Aggregate
total return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of annualized.
(a) Effective January 2, 1997, the Board of Trustees of the Group
reclassified the Fund's outstanding Shares into Investor A Shares (also known as
Investor Shares) and authorized the issuance of Investor Y Shares (also known as
Institutional Shares). The Financial Highlights presented for each of the
periods prior to January 2, 1997 and for the one-year period ended September 30,
1997 represent the financial highlights of what are now known as the Investor
Shares.
(b) During the period certain fees were voluntarily waived. Had the
fees been charged, the effective ratio would reflect the incurred expenses as
indicated above.
</TABLE>
See notes to financial statements appearing in the Fund's Statement Of
Additional Information.
----------------------------------
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<PAGE> 86
PERFORMANCE INFORMATION
From time to time the Fund may advertise its average annual total
return, cumulative return and/or yield. SUCH RETURN AND YIELD FIGURES ARE BASED
UPON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
The average annual total return advertised by the Fund refers to the return
generated by an investment in the Fund over certain specified periods since the
establishment of the Fund (including the term of CGOF's operations). The average
annual total return over a period equates the amount of an initial investment in
the Fund to the amount redeemable at the end of that period assuming that any
dividends and distributions earned by an investment in the Fund are immediately
reinvested and the maximum applicable sales charge, if any, is deducted from the
initial investment at the time of investment. Such figure is then annualized.
The cumulative return advertised refers to the total return on a hypothetical
investment over the relevant period and equates the amount of an initial
investment in the Fund to the amount redeemable at the end of that period
assuming that any dividends and distributions are immediately reinvested and the
maximum sales charge, if any, is deducted from the initial investment. Yield
will be computed by dividing the Fund's net investment income per share earned
during a recent one-month period by the Fund's per share maximum offering price
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result.
In addition, from time to time the Fund may include in its sales
literature and shareholder reports a quote of the current "distribution" rate
for the Fund. A distribution rate is simply a measure of the level of dividends
distributed for a specified period and is computed by dividing the total amount
of dividends per share paid by the Fund during the past 12 months by a current
maximum offering price. It differs from yield, which is a measure of the income
actually earned by the Fund's investments, and from total return, which is a
measure of the income actually earned by, plus the effect of any realized and
unrealized appreciation or depreciation of, such investments during a stated
period. A distribution rate is, therefore, not intended to be a complete measure
of performance. A distribution rate may sometimes be greater than yield since,
for instance, it may include short-term and possibly long-term gains (which may
be non-recurring), may not include the effect of amortization of bond premiums
and does not reflect unrealized gains or losses.
Investors may also judge the performance of the Fund by comparing or
referencing its performance to the performance of other mutual funds or mutual
fund portfolios with comparable investment objectives and policies through
various mutual fund or market indices such as those prepared by Dow Jones & Co.,
Inc. and Standard & Poor's Corporation, and to data prepared by Lipper
Analytical Services, Inc., Morningstar, Inc. and CDA Investment Technologies,
Inc. Comparisons may also be made to indices or data published in Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, The
Columbus Dispatch, Business Week, U.S.A. Today and Consumer Reports. In addition
to performance information, general information about the Fund that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
Further information about the performance of the Fund is contained in
an Annual Report to Shareholders which may be obtained without charge by
contacting the Group at the telephone number set forth on the cover page of this
Prospectus. Performance quotations will be computed separately for Investor and
Institutional Shares. Because of differences in the fees and/or expenses borne
by Investor and Institutional Shares, the net yield and total return on each
such class can be expected, at any given time, to differ from the net yield and
total return of such other class.
WHAT IS THE FUND?
The Fund is one separate diversified investment fund of the Group,
which was organized on March 23, 1993, as an Ohio business trust. The Group is
registered and operates as an open-end management investment company as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund was
-5-
<PAGE> 87
organized for the purpose of acquiring all of the assets and liabilities of CGOF
to effect a reorganization of CGOF from a stand-alone investment company to a
separate series of the Group (the "Reorganization"). The Reorganization was
effected as of May 1, 1996.
The Fund is designed for individuals, corporations, fiduciaries, and
institutions who wish to invest for current income in a diversified,
professionally managed portfolio of securities issued by the U.S. Government and
securities directly guaranteed by the full faith and credit of the U.S.
Government -- without having to become involved in the detailed accounting and
safekeeping procedures normally associated with direct investment in these
securities.
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND?
IN GENERAL
The Fund's investment objectives are to maximize safety of capital and,
consistent with such objective, earn the highest available current income
obtainable from government securities. The current income earned from such
government securities may not be as great as the current income earned on lower
quality securities which have less liquidity and greater risk of nonpayment.
The Fund's investment objectives are a fundamental policy of the Fund,
which means that they may be changed only with the approval of a majority of the
outstanding Shares of the Fund (as defined below under "WHAT ARE MY RIGHTS AS A
SHAREHOLDER?"). There can be no assurance that the investment objectives of the
Fund will be achieved.
Under normal market conditions, the Fund will invest substantially all,
but in no event less than 65%, of its total assets in obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities ("U.S.
Government Securities"). The Fund may also invest, under normal market
conditions, in the fixed income instruments described below and in repurchase
agreements. It may also engage in the options transactions described below.
The Fund may, for daily cash management purposes, invest in high
quality money market securities and in repurchase agreements. In addition, the
Fund may invest, without limit, in any combination of U.S. Government
Securities, money market securities and repurchase agreements when, in the
opinion of the Adviser, it is determined that a temporary defensive position is
warranted based upon current market conditions. The Fund may also invest in
securities of other investment companies, as described more fully below.
The types of U.S. Government Securities invested in by the Fund will
include obligations issued by or guaranteed as to payment of principal and
interest by the full faith and credit of the U.S. Treasury, such as Treasury
bills, notes, bonds and certificates of indebtedness, and obligations issued or
guaranteed by the agencies or instrumentalities of the U.S. Government, but not
supported by such full faith and credit. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association ("Ginnie Mae") and the Export-Import Bank of the United
States, are supported by the full faith and credit of the U.S. Treasury; others,
such as those of the Federal National Mortgage Association, are supported by the
right of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government sponsored agencies or
instrumentalities if it is not obligated to do so by law. The Fund will invest
in the obligations of such agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal.
-6-
<PAGE> 88
Certain securities held by the Fund may have mortgage obligations
backing such securities, including among others, conventional thirty year fixed
rate mortgage obligations, graduated payment mortgage obligations, fifteen year
mortgage obligations and adjustable rate mortgage obligations. All of these
mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. Accelerated prepayments have an adverse impact on yields for
pass-through certificates purchased at a premium (i.e., a price in excess of
principal amount) and may involve additional risk of loss of principal because
the premium may not have been fully amortized at the time the obligation is
repaid. The opposite is true for pass-through certificates purchased at a
discount. The Fund may purchase mortgage-related securities at a premium or at a
discount. Reinvestment of principal payments may occur at higher or lower rates
than the original yield on such securities. Due to the prepayment feature and
the need to reinvest payments and prepayments of principal at current rates,
mortgage-related securities can be less effective than typical bonds of similar
maturities at maintaining yields during periods of declining interest rates.
Certain debt securities such as, but not limited to, mortgage backed
securities, as well as other securities subject to prepayment of principal prior
to the stated maturity date, are expected to be repaid prior to their stated
maturity dates. As a result, the effective maturity of these securities is
expected to be shorter than the stated maturity. For purposes of calculating the
Fund's weighted average portfolio maturity, the effective maturity of such
securities will be used.
Under present market conditions, the Fund expects to invest a
substantial amount of its portfolio in Ginnie Mae certificates, which are
mortgage-backed securities representing part ownership in a specific pool of
mortgage loans insured by the Federal Housing Administration or Farmers Home
Administration or guaranteed by the Veterans Administration. Should market or
economic conditions warrant, this practice may be changed at the discretion of
the Adviser. Ginnie Mae guarantees the timely payment of monthly installments of
principal and interest on its certificates, when due, whether or not payments
are received on the underlying mortgage loans, and the full faith and credit of
the United States is pledged to the timely payment by Ginnie Mae of such
principal and interest.
Although the mortgage loans in the pool underlying a Ginnie Mae
certificate will have maturities of up to thirty years, the actual average life
of the Ginnie Mae certificates typically will be substantially less because the
mortgage loans will be subject to normal principal amortization and may be
prepaid prior to maturity. Prepayment rates vary widely and may be affected by
changes in market interest rates and general economic conditions. In periods of
falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the Ginnie Mae certificates and shortening
the period of time over which income at the higher rate is received. Conversely,
when interest rates are rising, the rate of prepayment tends to decrease,
thereby lengthening the actual average life of the Ginnie Mae certificates and
extending the period of time over which income at the lower rates is received.
Accordingly, it is not possible to accurately predict the average life of a
particular pool. Standard practice is to treat Ginnie Mae certificates as having
effective maturities of twelve years. Reinvestment of principal payments may
occur at higher or lower rates than the original yield on the certificates.
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<PAGE> 89
RISK FACTORS AND INVESTMENT TECHNIQUES
GENERAL. Like any investment program, an investment in the Fund entails
certain risks. The value of the Fund's portfolio securities, and therefore the
Fund's net asset value per share, may increase or decrease due to various
factors, principally changes in prevailing interest rates. Since the Fund
invests in bonds, investors in the Fund are exposed to bond market risk, i.e.,
fluctuations in the market value of bonds. Bond prices are influenced primarily
by changes in the level of interest rates. When interest rates rise, the prices
of bonds generally fall; conversely, when interest rates fall, bond prices
generally rise although certain types of bonds are subject to the risks of
prepayment as described above when interest rates fall. There have been in the
recent past extended periods of cyclical increases in interest rates that have
caused significant declines in bond prices and have caused the effective
maturity of securities with prepayment features to be extended, thus effectively
converting short or intermediate term securities (which tend to be less volatile
in price) into longer term securities (which tend to be more volatile in price).
The Fund may invest in put and call options and futures, as described
below. Such instruments are considered to be "derivatives." A derivative is
generally defined as an instrument whose value is based upon, or derived from,
some underlying index, reference rate (e.g., interest rates), security,
commodity or other asset. The Fund will not invest more than 10% of its total
assets in such derivatives at any one time.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of the repurchase agreement, the Fund
would acquire securities from a financial institution such as a well-established
securities dealer or a bank which is a member of the Federal Reserve System
which the Adviser deems creditworthy under guidelines approved by the Group's
Board of Trustees. At the time of purchase, the bank or securities dealer agrees
to repurchase the underlying securities from the Fund at a specified time and
price. The resale price reflects the purchase price plus an agreed upon market
rate of interest which is unrelated to the coupon rate or maturity of the
underlying security. The Fund will only enter into a repurchase agreement where
(i) the underlying securities are of the type which the Fund's investment
policies would allow it to purchase directly, (ii) the market value of the
underlying security, including interest accrued, will be at all times equal to
or exceed the value of the repurchase agreement, and (iii) payment for the
underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the Fund's custodian or a bank acting as
agent. The Adviser will be responsible for continuously monitoring such
requirements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Fund may also
purchase securities on a when- issued or delayed-delivery basis. The Fund will
engage in when-issued and delayed-delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objectives and
policies, not for investment leverage, although such transactions represent a
form of leveraging. When-issued securities are securities purchased for delivery
beyond the normal settlement date at a stated price and yield and thereby
involve a risk that the yield obtained in the transaction will be less than
those available in the market when delivery takes place. The Fund will not pay
for such securities or start earning interest on them until they are received.
When the Fund agrees to purchase such securities, its custodian will set aside
cash or liquid securities equal to the amount of the commitment in a separate
account. Securities purchased on a when-issued basis are recorded as an asset
and are subject to changes in the value based upon changes in the general level
of interest rates. In when-issued and delayed-delivery transactions, the Fund
relies on the seller to complete the transaction; the seller's failure to do so
may cause the Fund to miss a price or yield considered to be advantageous.
The Fund's commitments to purchase when-issued securities will not
exceed 25% of the value of its total assets absent unusual market conditions. In
the event that its commitments to purchase when-issued securities ever exceed
25% of the value of its assets, the Fund's liquidity and the ability of the
Adviser to manage it might be adversely affected.
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<PAGE> 90
PUT AND CALL OPTIONS. Subject to its investment policies and for
purposes of hedging against market risks related to its portfolio securities,
the Fund may purchase exchange-traded put and call options on securities.
Purchasing options is a specialized investment technique that entails a
substantial risk of a complete loss of the amounts paid as premiums to writers
of options. The Fund will purchase put and call options only on securities in
which the Fund may otherwise invest. The Fund may also engage in selling
(writing) exchange-traded call options from time to time as the Adviser deems
appropriate for purposes of gaining additional income in the form of premiums
paid by the purchaser of the option and/or for hedging purposes. The Fund will
write only covered call options (options on securities owned by the Fund). In
order to close out a call option it has written, the Fund will enter into a
"closing purchase transaction" -- the purchase of a call option on the same
security with the same exercise price and expiration date as the call option
which the Fund previously had written. When a portfolio security subject to a
call option is sold, the Fund will effect a closing purchase transaction to
close out any existing call option on that security. If the Fund is unable to
effect a closing purchase transaction, it will not be able to sell the
underlying security until the option expires or the Fund delivers the underlying
security upon exercise.
The Fund, as part of its option transactions, also may purchase
exchange-traded index put and call options and write exchange-traded index
options. Through the writing or purchase of index options the Fund can achieve
many of the same objectives as through the use of options on individual
securities. Options on securities indices are similar to options on a security
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
Price movements in securities which the Fund owns or intends to
purchase probably will not correlate perfectly with movements in the level of an
index and, therefore, the Fund bears the risk of a loss on an index option that
is not completely offset by movements in the price of such securities. Because
index options are settled in cash, a call writer cannot determine the amount of
its settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. The Fund will be
required to segregate assets and/or provide an initial margin to cover index
options that would require it to pay cash upon exercise. Under normal market
conditions, it is not expected that the underlying value of portfolio securities
and/or cash subject to such options written by the Fund (including any assets
segregated in connection therewith), when added to the greater of the market
value or the cost of any options purchased by the Fund, will exceed 10% of the
net assets of the Fund at any one time.
FUTURES CONTRACTS. The Fund may also enter into contracts for the
future delivery of securities and futures contracts based on a specific
security, class of securities or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index is an agreement obligating either party to pay, and
entitling the other party to receive, while the contract is outstanding, cash
payments based on the level of a specified securities index.
The Fund may engage in such futures contracts in an effort to hedge
against market risks. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, the Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market values
are expected to rise, the Fund, through the purchase of such contracts, can
attempt to secure better rates or prices for the Fund than might later be
available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
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<PAGE> 91
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed five percent of the Fund's total
assets, and the value of securities that are the subject of such futures and
options (both for receipt and delivery) may not exceed one-third of the market
value of the Fund's total assets. Futures transactions will be limited to the
extent necessary to maintain the Fund's qualification as a regulated investment
company.
Futures transactions involve brokerage costs and require the Fund to
segregate assets to cover contracts that would require it to purchase
securities. The Fund may lose the expected benefit of futures transactions if
interest rates or securities prices move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of
the Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities, limiting the Fund's
ability to hedge effectively against interest rate and/or market risk and giving
rise to additional risks. There is no assurance of liquidity in the secondary
market for purposes of closing out futures positions.
INVESTMENT COMPANY SECURITIES. The Fund may also invest up to 10% of
the value of its total assets in the securities of other investment companies
subject to the limitations set forth in the 1940 Act. The Fund intends to invest
in the securities of other investment companies which, in the opinion of the
Adviser, will assist the Fund in achieving its objectives and in money market
mutual funds for purposes of short-term cash management. The Fund's investment
in such other investment companies may result in the duplication of fees and
expenses, particularly investment advisory fees. For a further discussion of the
limitations on the Fund's investments in other investment companies, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Securities of Other Investment Companies" in the Fund's Statement
of Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of the Fund (as
defined below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
The Fund will not:
1. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if, immediately after such purchase, more than 5%
of the value of the Fund's total assets would be invested in such
issuer, or the Fund would hold more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such limitations.
There is no limit to the percentage of assets that may be invested in
U.S. Treasury bills, notes, or other obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of
the value of the Fund's total assets at the time of purchase to be
invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided that: (a)
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities; (b) wholly owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry.
-10-
<PAGE> 92
3. Borrow money or issue senior securities, except that the
Fund may borrow from banks or enter into reverse repurchase agreements
or dollar roll agreements for temporary purposes in amounts up to 10%
of the value of its total assets at the time of such borrowing and
except as permitted pursuant to an exemption from the 1940 Act. The
Fund will not purchase securities while its borrowings (including
reverse repurchase agreements and dollar roll agreements) exceed 5% of
its total assets.
4. Make loans, except that the Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its
investment objectives and policies, make time deposits with financial
institutions and enter into repurchase agreements.
The following additional investment restriction may be changed without
the vote of a majority of the outstanding Shares of the Fund. The Fund will not:
1. Purchase or otherwise acquire any securities, if as a
result, more than 15% of the Fund's net assets would be invested in
securities that are illiquid.
HOW DO I PURCHASE INSTITUTIONAL SHARES OF THE FUND?
GENERAL
The Fund's Institutional Shares are continuously offered and may be
purchased through procedures established by The Ohio Company, principal
underwriter of the Fund's Shares, in connection with accounts for which banks,
broker-dealers, savings and loan associations, trust companies (including The
Ohio Company), qualified investment advisers and certain other financial
institutions serve in a fiduciary capacity on behalf of customers or
beneficiaries (collectively, "Financial Institutions"). Normally, Financial
Institutions will hold Institutional Shares of record for their customers or
beneficiaries. With respect to Institutional Shares so sold, it is the
responsibility of the holder of record to transmit purchase or redemption orders
to The Ohio Company and to deliver funds for the purchase thereof on a timely
basis. Beneficial ownership of Institutional Shares of the Fund may be recorded
by the Institutions and reflected in the account statements provided to their
customers or beneficiaries.
The Group reserves the right to reject any order for the purchase of
Institutional Shares in whole or in part. The applicable Financial Institution
will receive a confirmation of each new transaction in its account. Certificates
representing Institutional Shares will not be issued.
Institutional Shares are purchased at the net asset value per share
(see "HOW IS NET ASSET VALUE CALCULATED?") next determined after receipt by The
Ohio Company or its agents of an order and payment. There is no sales charge
imposed in connection with the purchase of Institutional Shares of the Fund.
Depending upon the terms of a particular account, a Financial Institution may
charge customer account fees for services provided in connection with an
investment in the Fund. Information concerning these services and any charges
may be obtained from such Financial Institution. This Prospectus should be read
in conjunction with any such information so received.
From time to time, The Ohio Company, from its own resources, may
provide compensation to securities dealers in connection with sales of shares of
the Cardinal Funds. Such compensation will include financial assistance to
securities dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising, sales campaigns
and/or shareholder services and programs regarding one or more of the Cardinal
Funds and other dealer-sponsored programs or events. In some instances, this
compensation may be made available only to certain securities dealers whose
representatives have sold or are expected to sell significant amounts of shares
of the Cardinal Funds. Compensation will include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their
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families to locations within or outside of the United States for meetings or
seminars of a business nature. Securities dealers may not use sales of the
Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. In addition, The Ohio Company
may make ongoing payments to brokerage firms, financial institutions (including
banks) and others to facilitate the administration and servicing of shareholder
accounts. None of the aforementioned additional compensation is paid for by the
Fund or its shareholders.
WHAT DISTRIBUTIONS WILL I RECEIVE?
A dividend consisting of net income is declared daily to shareholders
of the Fund at the close of business on the day of declaration, and such
dividends are generally paid monthly. Dividends consisting of long-term capital
gains normally will be distributed only once annually. Dividends and
distributions will be paid only in additional Institutional Shares and not in
cash; except, however, that for dividends and distributions of $10 or more, a
shareholder may specifically request that such amounts be paid to him in cash.
Dividends are paid in cash not later than seven days after a shareholder's
complete redemption of his Institutional Shares in the Fund.
The Fund's net investment income available for distribution to the
holders of Institutional Shares will be reduced by the amount of administrative
services fees paid under the Services Plan described below.
HOW MAY I REDEEM MY INSTITUTIONAL SHARES?
Investors may redeem Institutional Shares of the Fund on any Business
Day at the net asset value per Institutional Share next determined following the
receipt by Cardinal Management Corp., the Fund's transfer agent (the "Transfer
Agent"), 215 East Capital Street, Columbus, Ohio 43215, of written or telephonic
notice to redeem, as described more fully below. See "HOW IS NET ASSET VALUE
CALCULATED?", below, for a description of when net asset value is determined.
As requested, The Ohio Company, on behalf of a shareholder, will
forward the foregoing notice to redeem to the Transfer Agent without charge.
Other broker-dealers may assist a shareholder in redeeming his or her
Institutional Shares and may charge a fee for such services.
The Group will make payment for redeemed Institutional Shares as
promptly as practicable but in no event more than seven days after receipt by
the Transfer Agent of the foregoing notice. The Group reserves the right to
delay payment for the redemption of Institutional Shares where such
Institutional Shares were purchased with other than immediately available funds,
but only until the purchase payment has cleared (which may take fifteen or more
days from the date the purchase payment is received by the Fund). The purchase
of Fund Institutional Shares by wire transfer of federal funds would avoid any
such delay.
The Group intends to pay cash for all Institutional Shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Group may
make payment wholly or partly in readily marketable portfolio securities at
their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
The Group may suspend the right of redemption or may delay payment
during any period in which the determination of net asset value is suspended.
See "HOW IS NET ASSET VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Group reserves the
right to redeem involuntarily Shares in any account at the then current net
asset value if at any time redemptions (but not as a result of a decrease in the
market price of such Shares) have reduced a shareholder's total investment in
the Fund to a net asset value below $500. A shareholder will be notified in
writing that the value of Fund Shares in the account is less than $500 and
allowed not less than 30 days to increase his investment in the Fund to at least
$500 before the redemption is
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<PAGE> 94
processed. Proceeds of redemptions so processed, including dividends declared to
the date of redemption, will be promptly paid to the shareholder.
REDEMPTION BY MAIL
Shareholders may redeem Institutional Shares of the Fund by submitting
a written request therefor to the Transfer Agent, at 215 East Capital Street,
Columbus, Ohio 43215. The Transfer Agent will request a signature guarantee by
an eligible guarantor institution as described below. However, a signature
guarantee will not be required if (1) the redemption check is payable to the
shareholder(s) of record, and (2) the redemption check is mailed to the
shareholder(s) at the address of record, provided, however, that the address of
record has not been changed within the preceding 15 days. For purposes of this
policy, an "eligible guarantor institution" shall include banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations as those terms are defined in the Securities Exchange
Act of 1934. The Transfer Agent reserves the right to reject any signature
guarantee if (1) it has reason to believe that the signature is not genuine or
(2) it has reason to believe that the transaction would otherwise be improper.
REDEMPTION BY TELEPHONE
Shareholders may redeem Institutional Shares of the Fund by calling the
Group at the telephone number set forth on the front of this Prospectus. The
shareholder may direct that the redemption proceeds be mailed to the address of
record.
Neither the Group, the Fund nor its service providers will be liable
for any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Group's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. The Group will employ
procedures designed to provide reasonable assurances that instructions by
telephone are genuine; if these procedures are not followed, the Group, the Fund
or its service providers may be liable for any losses due to unauthorized or
fraudulent instructions. These procedures may include recording all phone
conversations, sending confirmations to shareholders within 72 hours of the
telephone transaction, and verification of account name and account number or
tax identification number. If, due to temporary adverse conditions, investors
are unable to effect telephone transactions, shareholders may also redeem their
Institutional Shares by mail as described above.
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
ACH PROCESSING
The Fund offers ACH privileges. Investors may use ACH processing to
make subsequent purchases, redeem Shares and/or electronically transfer
distributions paid on Shares, in addition to the other methods described in this
Prospectus. ACH provides a method by which funds may be automatically
transferred to or from an authorized bank account at a Federal Reserve member
bank that is an ACH member. Please contact your representative if you are
interested in ACH processing.
EXCHANGE PRIVILEGE
Holders of Institutional Shares of the Fund may, provided the amount to
be exchanged meets the applicable minimum investment requirements and the
exchange is made in states where it is legally authorized, exchange, at
respective net asset values, Institutional Shares of the Fund for:
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Institutional Shares of Cardinal Aggressive Growth Fund,
an equity fund seeking appreciation of capital;
Institutional Shares of Cardinal Balanced Fund, a fund seeking current
income and long-term growth of both capital and income;
Institutional Shares of The Cardinal Fund, an equity fund seeking
long-term growth of capital and income;
Shares of Cardinal Government Securities Money Market Fund,
a U.S. Government securities money market fund; or
Shares of Cardinal Tax Exempt Money Market Fund, a tax-free money
market fund.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange requested is
within the same account or into an existing account of the shareholder held in
the same name or names and in the same capacity as the account from which the
exchange is to be made. Shareholders may also authorize an exchange of Shares of
the Fund by telephone. Neither the Group, the Fund nor any of its service
providers will be liable for any loss, damages, expense or cost arising out of
any telephone exchange authorization to the extent and subject to the
requirements set forth under "HOW MAY I REDEEM MY SHARES? -- Redemption by
telephone" above.
For tax purposes, an exchange is treated as a redemption and a new
purchase.
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Fund 60 days'
advance written notice of any such modification or termination.
HOW IS NET ASSET VALUE CALCULATED?
The net asset value of the Fund is determined once daily as of 4:00
P.M., Eastern Time, on each Business Day. A "Business Day" is a day on which the
New York Stock Exchange is open for business and any other day (other than a day
on which no Shares of the Fund are tendered for redemption and no order to
purchase any Shares of the Fund is received) during which there is a sufficient
degree of trading in the Fund's portfolio securities that the net asset value
might be materially affected by changes in the value of the portfolio
securities. The net asset value per share of each class of Shares of the Fund is
computed by dividing the sum of the value of the Fund's portfolio securities
plus any cash and other assets (including interest and dividends accrued but not
received) allocable to such class minus all liabilities (including estimated
accrued expenses) allocable to such class by the total number of Shares of that
class then outstanding.
The net asset value per share will fluctuate as the value of the
investment portfolio of the Fund changes.
Portfolio securities for which over-the-counter market quotations are
readily available are valued at the bid price. The Fund uses one or more pricing
services to provide such market quotations. Securities and other assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Group.
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<PAGE> 96
Determination of the net asset value may be suspended at times when (a)
trading on the New York Stock Exchange is restricted by applicable rules and
regulations of the Commission, (b) the New York Stock Exchange is closed for
other than customary weekend and holiday closings, (c) an emergency exists as a
result of which disposal by the Group of portfolio securities owned by the Fund
or valuation of net assets of the Fund is not reasonably practicable, or (d) the
Commission has by order permitted such suspension.
DOES THE FUND PAY FEDERAL INCOME TAX?
Each of the funds of the Group, including the Fund, is treated as a
separate entity for federal income tax purposes and intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code") for so long as such qualification is in the best interest
of that fund's shareholders. Qualification as a regulated investment company
under the Code requires, among other things, that the regulated investment
company distribute to its shareholders at least 90% of its investment company
taxable income. The Fund contemplates declaring as dividends all or
substantially all of the Fund's investment company taxable income (before
deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a nondeductible excise tax equal to 4% of the
deficiency.
WHAT ABOUT MY TAXES?
It is expected that the Fund will distribute annually to shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash.
Since all of the Fund's net investment income is expected to be derived from
earned interest and short-term capital gains, it is anticipated that no part of
any distribution will be eligible for the dividends received deduction for
corporations.
Distribution by the Fund of the excess of net mid-term or net
long-term capital gain over net short-term capital loss is taxable to
shareholders as mid-term or long-term capital gain, respectively, in the year
in which it is received, regardless of how long the shareholder has held the
Shares. Such distributions are not eligible for the dividends received
deduction.
If the net asset value of a Share is reduced below the shareholder's
cost of that Share by the distribution of income or gain realized on the sale of
securities, the distribution is a return of invested principal, although taxable
as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
The foregoing is intended only as a brief summary of some of the
important tax considerations generally affecting the Fund and its shareholders.
Potential investors in the Fund are urged to consult their tax advisers
concerning the application of federal, state and local taxes as such laws and
regulations affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the
amount and nature of such income and capital gains.
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<PAGE> 97
WHO MANAGES MY INVESTMENT IN THE FUND?
Except where shareholder action is required by law, all of the
authority of the Group is exercised under the direction of the Group's Trustees.
Unless so required by the Group's Declaration of Trust or By-Laws or by Ohio
law, at any given time all of the Trustees may not have been elected by the
shareholders of the Group. The Trustees are empowered to elect officers and
contract with and provide for the compensation of agents, consultants and other
professionals to assist and advise it in its day-to-day operations. The Group
will be managed in accordance with its Declaration of Trust and the laws of Ohio
governing business trusts.
The Trustees of the Group receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of the Adviser or The Ohio Company receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. The Adviser receives fees from the Group for acting as
investment adviser and manager and as dividend and transfer agent. The Ohio
Company receives no fees under its Distribution Agreement with the Group with
respect to Institutional Shares of the Fund but may receive fees under the
Administrative Services Plan discussed below.
INVESTMENT ADVISER AND MANAGER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street,
Columbus, Ohio 43215, a wholly owned subsidiary of The Ohio Company, is the
investment adviser and manager of the Fund. The Adviser is also the investment
adviser and manager of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a
member of the New York and Chicago Stock Exchanges, other regional stock
exchanges and the National Association of Securities Dealers, Inc. Descendants
of H.P. and R.F. Wolfe, deceased, and members of their families, through their
possession of a majority of voting stock, may be considered controlling persons
of The Ohio Company. The Ohio Company serves as principal underwriter for each
of the Cardinal Funds.
In its capacity as investment adviser, and subject to the ultimate
authority of the Group's Board of Trustees, the Adviser, in accordance with the
Fund's investment objectives and policies, manages the Fund, and makes decisions
with respect to and places orders for all purchases and sales of its portfolio
securities. Since the inception of CGOF (the Fund's predecessor) and since the
Reorganization with respect to the Fund, John R. Carle has been primarily
responsible for the day-to-day management of such Funds' portfolios. Mr. Carle
has been a portfolio manager with the Adviser and/or The Ohio Company since
1971. In addition, pursuant to the Investment Advisory and Management Agreement,
the Adviser generally assists in all aspects of the Fund's administration and
operation.
For the services provided and expenses assumed pursuant to its
Investment Advisory and Management Agreement with the Group with respect to the
Fund, the Adviser receives a fee from the Fund, computed daily and paid monthly
at the annual rate of .50% of average net daily assets of the Fund. The Adviser
may, however, periodically waive all or a portion of its advisory fee with
respect to the Fund to increase the net income of the Fund available for
distribution as dividends. The waiver of such fee will cause the yield of the
Fund to be higher than it would otherwise be in the absence of such a waiver.
On December 22, 1997, The Ohio Company, Fifth Third Bankcorp., and its
wholly owned subsidiary, Fifth Third M Corp., entered into an Agreement and
Plan of Merger pursuant to which The Ohio Company will be acquired by
Fifth Third M Corp. The acquisition is subject to a number of conditions,
including the approval by Trustees and shareholders of the Group of a "new"
investment advisory and management agreement with Adviser, identical in all
material respects to the Group's current Investment Advisory and Management
Agreement with Adviser, to become effective on the effective date of The Ohio
Company's acquisition. On such effective date, it also expected that the Group
will have entered into an underwriting agreement with a new principal
underwriter. In addition, it is expected that Fountain Square Funds, a regulated
investment company with net assets of
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approximately $3.1 billion as of December 31, 1997, advised by Fifth Third
Bank, a subsidiary of Fifth Third Bankcorp., will propose the combination of the
Group and Fountain Square Funds in a transaction which, if approved by the
Group's Trustees, would be submitted to the Group's shareholders for
consideration and approval.
On January 16, 1998, the Board of Trustees of the Group approved such
a new investment advisory and management agreement and have called a Special
Meeting of Shareholders to be held in March, 1998 to vote on such agreement.
DIVIDEND AND TRANSFER AGENT
The Group has entered into a Transfer Agency Agreement with the
Transfer Agent, 215 East Capital Street, Columbus, Ohio 43215, pursuant to which
the Transfer Agent has agreed to act as the Fund's transfer agent and dividend
disbursing agent. In consideration of such services, the Fund has agreed to pay
the Transfer Agent an annual fee, paid monthly, equal to $21 per shareholder
account plus out-of-pocket expenses.
DISTRIBUTOR
The Group has entered into a Distribution Agreement with The Ohio
Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to which Shares
of the Fund will be offered continuously on a best efforts basis by The Ohio
Company and dealers selected by The Ohio Company. H. Keith Allen is an officer
and trustee of the Group and an officer and director of The Ohio Company. Frank
W. Siegel is an officer and trustee of the Group and an officer of The Ohio
Company. James M. Schrack II is an officer of both the Group and The Ohio
Company. The Ohio Company receives no compensation under the Distribution
Agreement with respect to distribution of the Institutional Shares of the Fund.
EXPENSES
The Adviser bears all expenses in connection with the performance of
its services as investment adviser, manager and transfer agent other than the
cost of securities (including brokerage commissions, if any) purchased for the
Fund. The Trustees reserve the right to allocate certain other expenses, which
can reasonably be identified as relating to a particular class, solely to such
class, including Institutional Shares, as they deem appropriate ("Class
Expenses"). Such expenses include (a) transfer agency fees identified as
being attributable to a specific class; (b) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(c) Blue Sky registration fees incurred by a class of shares; (d) SEC
registration fees incurred by a class; (e) expenses of administrative personnel
and services as required to support the shareholders of a specific class; (f)
litigation or other legal expenses and audit or other accounting expenses
relating solely to one class; (g) trustees' fees or expenses incurred as a
result of issues relating to one class; and (h) shareholder meeting costs that
relate to a specific class.
ADMINISTRATIVE SERVICES PLAN
The Group has adopted an Administrative Services Plan with respect to
the Fund's Institutional Shares (the "Services Plan") pursuant to which the Fund
is authorized to pay compensation to Financial Institutions, which may include
The Ohio Company, which agree to provide certain ministerial, record keeping
and/or administrative support services for their customers, account holders or
beneficiaries (collectively, "customers") who are the beneficial or record owner
of Institutional Shares of the Fund. In consideration for such services, a
Financial Institution receives a fee from the Fund, computed daily and paid
monthly, at an annual rate of up to .15% of the average daily net asset value of
Institutional Shares of the Fund owned beneficially or of record by such
Financial Institution's customers for whom the Financial Institution provides
such services.
The servicing agreements adopted under the Services Plan (the
"Servicing Agreements") require the Financial Institutions receiving such
compensation to perform certain ministerial, record keeping and/or
administrative support services with respect to the beneficial or record owners
of Institutional Shares of the Fund, such as processing dividend and
distribution payments from the Fund on behalf of customers, providing periodic
statements to customers showing their positions in the Institutional Shares of
the Fund, providing sub-accounting
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with respect to Institutional Shares beneficially owned by such customers and
providing customers with a service that invests the assets of their accounts in
Institutional Shares of the Fund pursuant to specific or pre-authorized
instructions.
As authorized by the Services Plan, the Group has entered into a
Servicing Agreement with The Ohio Company pursuant to which The Ohio Company has
agreed to provide certain administrative support services in connection with
Institutional Shares of the Fund owned of record or beneficially by its
customers for whom The Ohio Company provides fiduciary or trust services. Such
administrative support services may include, but are not limited to, (i)
processing dividend and distribution payments from the Fund on behalf of
customers; (ii) providing periodic statements to its customers showing their
positions in the Institutional Shares; (iii) arranging for bank wires; (iv)
responding to routine customer inquiries relating to services performed by The
Ohio Company; (v) providing sub-accounting with respect to the Institutional
Shares beneficially owned by The Ohio Company's customers or the information
necessary for sub-accounting; (vi) if required by law, forwarding shareholder
communications from the Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
its customers; (vii) aggregating and processing purchase, exchange, and
redemption requests from customers and placing net purchase, exchange, and
redemption orders for customers; and (viii) providing customers with a service
that invests the assets of their account in the Institutional Shares pursuant to
specific or pre-authorized instructions. In consideration of such services, the
Group, on behalf of the Fund, has agreed to pay The Ohio Company a monthly fee,
computed at the annual rate of .15% of the average aggregate net asset value of
Institutional Shares of the Fund held during the period by customers for whom
The Ohio Company has provided services under the Servicing Agreement. Any fees
paid by the Fund to Financial Institutions under the Services Plan will be borne
solely by the Institutional Shares of the Fund.
CUSTODIAN AND FUND ACCOUNTANT
The Group has appointed The Fifth Third Bank ("Fifth Third"), 38
Fountain Square Plaza, Cincinnati, Ohio 45263, as the Fund's custodian. In such
capacity, Fifth Third will hold or arrange for the holding of all portfolio
securities and other assets acquired and owned by the Fund. In addition, Fifth
Third, pursuant to a Fund Accounting and Services Agreement, has agreed with
the Group to provide certain fund accounting services to the Fund.
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
The Group was organized as an Ohio business trust on March 23, 1993.
The Group currently consists of six funds. The shares of each of the funds of
the Group, other than the two money market funds, Cardinal Government Securities
Money Market Fund ("CGSMMF") and Cardinal Tax Exempt Money Market Fund
("CTEMMF"), are currently offered in two separate classes: Investor A Shares,
otherwise referred to as Investor Shares, and Investor Y Shares, otherwise
referred to as Institutional Shares. CGSMMF and CTEMMF each only have one class
of shares. Each share represents an equal proportional interest in a fund with
other shares of the same fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that fund as
are declared at the discretion of the Trustees.
In the event the status of a shareholder or the capacity in which a
shareholder holds Institutional Shares changes such that the shareholder is no
longer eligible to purchase or hold Institutional Shares of the Fund, then such
Institutional Shares will be automatically converted into Investor Shares of the
Fund at respective net asset value per share. Such conversion of Institutional
Shares into Investor Shares will not result in gain or loss to the shareholder
for federal income tax purposes, and the basis and holding period of the Shares
so converted will not be affected.
Shareholders are entitled to one vote for each dollar of value invested
and a proportionate fractional vote for any fraction of a dollar invested, and
will vote in the aggregate and not by series or class except as otherwise
expressly required by law. For example, shareholders of the Fund will vote in
the aggregate with other shareholders of the Group with respect to the election
of trustees and ratification of the selection of independent accountants.
However, shareholders of the Fund will vote as a fund, and not in the aggregate
with other
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shareholders of the Group, for purposes of approval of amendments to the
investment advisory agreement as it relates to the Fund or any of the Fund's
fundamental policies.
Overall responsibility for the management of the Fund is vested in the
Board of Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUND?"
Individual Trustees are elected by the shareholders of the Group, although
Trustees may under certain circumstances fill vacancies, including vacancies
created by expanding the size of the Board. Trustees may be removed by the Board
of Trustees or shareholders in accordance with the provisions of the Declaration
of Trust and By-Laws of the Group and Ohio law. See "ADDITIONAL INFORMATION -
Miscellaneous" in the Statement of Additional Information for further
information.
An annual or special meeting of shareholders to conduct necessary
business is not required by the Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances, to elect Trustees, amend the
Declaration of Trust, approve the investment advisory agreement and to satisfy
certain other requirements. To the extent that such a meeting is not required,
the Group does not intend to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call
a special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c) of
the 1940 Act. At such meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to a fund" means the consideration received by
the fund upon the issuance or sale of shares in that fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or amounts derived from any reinvestment of such
proceeds, and any general assets of the Group not readily identified as
belonging to a particular fund that are allocated to the fund by the Group's
Board of Trustees. The Board of Trustees may allocate such general assets in any
manner it deems fair and equitable. Determinations by the Board of Trustees of
the Group as to the timing of the allocation of general liabilities and expenses
and as to the timing and allocable portion of any general assets with respect to
the Fund are conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of the Fund means
the affirmative vote, at a meeting of shareholders duly called, of the lesser of
(a) 67% or more of the votes of shareholders of the Fund present at a meeting at
which the holders of more than 50% of the votes attributable to shareholders of
record of the Fund are represented in person or by proxy, or (b) the holders of
more than 50% of the outstanding votes of shareholders of the Fund.
Shareholders should direct all inquiries concerning such matters to the
Transfer Agent in writing to 215 East Capital Street, Columbus, Ohio 43215, or
by calling (800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Fund and annual financial reports audited by
independent auditors.
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Investment Adviser and Manager
Cardinal Management Corp.
155 East Broad Street
Columbus, Ohio 43215
Distributor
The Ohio Company
155 East Broad Street
Columbus, Ohio 43215
Transfer Agent and Dividend Paying Agent
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
Custodian
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Legal Counsel
Baker & Hostetler LLP
65 East State Street
Columbus, Ohio 43215
Independent Auditors
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
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TABLE OF CONTENTS
Page
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PROSPECTUS HIGHLIGHTS..................................................... 1
FEE TABLE................................................................. 2
FINANCIAL HIGHLIGHTS...................................................... 2
PERFORMANCE INFORMATION................................................... 5
WHAT IS THE FUND?......................................................... 5
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND?................................................. 6
HOW DO I PURCHASE INSTITUTIONAL SHARES OF THE FUND?....................... 11
WHAT DISTRIBUTIONS WILL I RECEIVE?........................................ 12
HOW MAY I REDEEM MY INSTITUTIONAL SHARES?................................. 12
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?............................. 13
HOW IS NET ASSET VALUE CALCULATED?........................................ 14
DOES THE FUND PAY FEDERAL INCOME TAX?..................................... 15
WHAT ABOUT MY TAXES?...................................................... 15
WHO MANAGES MY INVESTMENT IN THE FUND?.................................... 16
WHAT ARE MY RIGHTS AS A SHAREHOLDER?...................................... 18
----------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Adviser, or The Ohio Company. This
Prospectus does not constitute an offer by the Fund or by The Ohio Company to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful for the Fund to make
such an offer in such jurisdiction.
------------
PROSPECTUS
------------
January 30, 1998
THE OHIO COMPANY
CARDINAL
GOVERNMENT
OBLIGATIONS FUND
INSTITUTIONAL SHARES
THE CARDINAL GROUP
<PAGE> 103
Rule 497(c)
File No. 033-59984
811-07588
PROSPECTUS
THE CARDINAL FUND
CARDINAL BALANCED FUND
CARDINAL AGGRESSIVE GROWTH FUND
INSTITUTIONAL SHARES
The Cardinal Fund, Cardinal Balanced Fund (the "Balanced Fund") and
Cardinal Aggressive Growth Fund (the "Aggressive Growth Fund") (together called
the "Funds" or individually a "Fund") are three separate diversified investment
funds of The Cardinal Group (the "Group"), an open-end, management investment
company. The Trustees of the Group have divided each Fund's beneficial ownership
into an unlimited number of transferable units called shares (the "Shares").
Each Fund offers multiple classes of Shares.
This Prospectus relates only to one class of Shares of The Cardinal
Fund, the Balanced Fund and the Aggressive Growth Fund - Institutional Shares.
Institutional Shares of each Fund are offered to banks, broker-dealers, savings
and loan associations, trust companies (including The Ohio Company), qualified
investment advisers and certain other financial institutions acting in a
fiduciary capacity on behalf of their customers or beneficiaries. Each Fund also
offers Investor Shares to the public. Interested persons who wish to obtain
prospectuses of Cardinal Government Obligations Fund, Cardinal Government
Securities Money Market Fund or Cardinal Tax Exempt Money Market Fund, the other
funds of the Group, or of the Investor Shares of the Funds, should contact The
Ohio Company. Additional information about the Funds, contained in a Statement
Of Additional Information dated January 30, 1998, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. Such
Statement is available upon request without charge from the Group at the address
below or by calling the phone number provided below.
This Prospectus sets forth concisely the information about the
Institutional Shares of the Funds that a prospective investor ought to know
before investing in any of the Funds. This Prospectus should be retained for
future reference.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN A FUND INVOLVES
CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The Ohio Company
The date of this Prospectus is January 30, 1998.
(Continued on the next page)
<PAGE> 104
The Cardinal Fund's investment objectives are long-term growth of
capital and income. Current income is a secondary objective. The Cardinal Fund
seeks to achieve its objectives through selective participation in the long-term
progress of businesses and industries. The policy of The Cardinal Fund is
generally to invest in equity securities.
The Balanced Fund's investment objectives are current income and
long-term growth of both capital and income.
The Aggressive Growth Fund's investment objective is appreciation of
capital. The Aggressive Growth Fund intends to invest primarily in common stocks
and securities convertible into common stocks.
There can be no assurance that any of the Funds' investment objectives
will be achieved.
- --------------------------------------------------------------------------------
For further information regarding the Funds or
for assistance in opening an account or redeeming
Shares, please call (800) 282-9446 toll free.
Inquiries may also be made by mail addressed
to the Group at its principal office:
155 East Broad Street
Columbus, Ohio 43215
- --------------------------------------------------------------------------------
<PAGE> 105
PROSPECTUS HIGHLIGHTS
INVESTMENT OBJECTIVES.......... THE CARDINAL FUND seeks long-term growth of
capital and income. Current income is a
secondary objective. (See page 11.)
THE BALANCED FUND seeks current income and
long-term growth of both capital and income.
(See page 11.)
THE AGGRESSIVE GROWTH FUND seeks
appreciation of capital. (See page 11.)
INVESTMENT POLICIES............ THE CARDINAL FUND generally invests in
equity securities which are growth oriented.
(See page 11.)
Under normal market conditions, the BALANCED
FUND will invest in common stocks, preferred
stocks, fixed income securities and
securities convertible into common stocks.
At least 25% of the value of the Balanced
Fund's assets will be invested in fixed
income senior securities. (See pages 11
through 14.)
The AGGRESSIVE GROWTH FUND will invest
primarily in common stocks and securities
convertible into common stocks of
growth-oriented companies. (See page 14.)
DIVIDENDS...................... Dividends and capital gains distributions
are made with such frequency as the Group
shall determine. Generally, dividends are
declared quarterly and long-term capital
gains, if any, are declared annually. Such
dividends and distributions may be invested
in additional Institutional Shares of such
Fund at no charge. (See page 20.)
RISK FACTORS AND SPECIAL
CONSIDERATIONS........ An investment in a mutual fund such as any
of the Funds involves a certain amount of
risk and may not be suitable for all
investors. Some investment policies of the
Funds may entail certain risks. (See "WHAT
ARE THE INVESTMENT OBJECTIVES AND POLICIES
OF THE FUNDS? -- Risk Factors and Investment
Techniques" on pages 15 through 19.)
PURCHASES...................... Purchases are made at the public offering
price which is equal to net asset value per
share. (See page 20.)
REDEMPTIONS.................... Shares can be redeemed at net asset value
per share without charge if redeemed through
the Funds' distributor, The Ohio Company.
(See page 21.)
-1-
<PAGE> 106
INVESTMENT ADVISER AND
MANAGER............... Cardinal Management Corp. (the "Adviser"), a
wholly-owned subsidiary of The Ohio Company,
is the Funds' investment adviser. The
Adviser also serves as investment adviser
for Cardinal Government Obligations Fund,
Cardinal Government Securities Money Market
Fund and Cardinal Tax Exempt Money Market
Fund (collectively, with the Funds, the
"Cardinal Funds"), each a separate
diversified investment fund of the Group.
(See page 25.)
-2-
<PAGE> 107
FEE TABLE
<TABLE>
<CAPTION>
Institutional Shares of
The Aggressive
Cardinal Balanced Growth
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases (as a percentage of offering
price) 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .60% .75% .75%
12b-1 Fees None None None
Other Expenses .40% .66% 1.01%
---- ---- ----
Total Fund Operating Expenses 1.00% 1.41% 1.76%
==== ==== ====
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Cardinal Fund $10 $32 $55 $122
Balanced Fund $14 $45 $77 $169
Aggressive Growth Fund $18 $55 $95 $207
</TABLE>
The information set forth in the foregoing Fee Table and Example
relates only to Institutional Shares of the Funds. Each of the Funds also offers
another class of Shares known as Investor Shares. The two classes of Shares of
the Funds are subject to the same expenses except that the Investor Shares are
not subject to an administrative services fee but are subject to a Rule 12b-1
fee and are generally sold with a front-end sales charge.
The purpose of the above table is to assist a potential purchaser of a
Fund's Institutional Shares in understanding the various costs and expenses that
an investor in the Fund will bear directly or indirectly. See "WHO MANAGES MY
INVESTMENT IN THE FUNDS?" for a more complete discussion of the shareholder
transaction expenses and annual operating expenses of the Funds. The example
and expenses above reflect current fees. THE FOREGOING EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
-3-
<PAGE> 108
FINANCIAL HIGHLIGHTS
The following Financial Highlights have been audited by KPMG Peat
Marwick LLP, independent auditors, for the following periods: (1) from January
2, 1997 through September 30, 1997, with respect to the Institutional Shares of
The Cardinal Fund, the Balanced Fund, and the Aggressive Growth Fund, (2) each
of the years in the ten year period ended September 30, 1997, with respect to
the Investor Shares of The Cardinal Fund, and (3) each of the years in the four
year period ended September 30, 1997 and the period from June 24, 1993 through
September 30, 1993, with respect to the Investor Shares of the Balanced Fund and
the Aggressive Growth Fund. The report of KPMG Peat Marwick LLP on these
Financial Highlights, insofar as it relates to each of the years and/or periods
in the five year period ended September 30, 1997, is contained in the Funds'
Statement of Additional Information, which may be obtained by shareholders and
prospective investors.
The following Financial Highlights for The Cardinal Fund reflect the
operations of The Cardinal Fund Inc. ("TCFI"), The Cardinal Fund's predecessor,
through April 30, 1996. On May 1, 1996, The Cardinal Fund acquired all of the
assets and liabilities of TCFI and is deemed to have succeeded to the financial
and performance history of TCFI.
-4-
<PAGE> 109
Financial Highlights for Each Share of Beneficial Interest
Outstanding Throughout Each Period
- ----------------------------------
<TABLE>
<CAPTION>
THE CARDINAL FUND
(Institutional
Shares)
For the period Years Ended September 30,
From January 2,
1997 through
September 30,
1997(a) 1997(a) 1996 1995 1994 1993 1992
------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING $12.92 $13.13 $13.23 $12.73 $12.91 $12.95 $11.88
Investment Activities:
Net investment income .12 .14 .25 .36 .31 .32 .35
Net realized and
unrealized gain (loss)
on investments 3.70 4.64 1.95 1.32 .12 .55 1.37
-------- -------- -------- -------- -------- --------
Total from Investment
Activities 3.82 4.78 2.20 1.68 .43 .87 1.72
------- -------- -------- -------- -------- -------- --------
Distributions:
From net investment
income (.10) (.13) (.26) (.35) (.33) (.29) (.36)
From net realized gains -- (1.13) (2.04) (.83) (.28) (.62) (.29)
Returns of capital -- -- -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Total Distributions (.10) (1.26) (2.30) (1.18) (.61) (.91) (.65)
------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE ENDING $16.64 $16.65 $13.13 $13.23 $12.73 $12.91 $12.95
======= ======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Total Return (without
sales load) 29.77%** 39.17% 17.96% 14.84% 3.38% 6.98% 15.05%
Net assets at end
of period (000) $26,881 $267,908 $229,042 $226,181 $246,581 $282,125 $261,392
Ratio of expenses to average
net assets 1.00% 1.06% 0.75% 0.70% 0.72% 0.68% 0.67%
Ratio of net investment
income after expenses
to average net assets 1.04% .97% 1.90% 2.89% 2.40% 2.46% 2.83%
Ratio of incurred expenses
to average net assets (b) 1.00% 1.12% 0.85% 0.70% 0.72% 0.68% 0.67%
Ratio of net investment
income after incurred
expenses to average net
assets (b) 1.04% .91% 1.80% 2.89% 2.40% 2.46% 2.83%
Portfolio turnover rate 12.73% 12.73% 57.93% 19.78% 23.20% 11.11% 6.22%
Average commission rate
paid (c) $0.08 $0.08 $0.08 $0.08 $0.08 $0.08 $0.08
</TABLE>
-5-
<PAGE> 110
<TABLE>
<CAPTION>
Years Ended September 30,
1991 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING $9.28 $11.75 $10.38 $11.73
Investment Activities:
Net investment income .35 .42 .41 .37
Net realized and
unrealized gain (loss)
on investments 2.70 (1.87) 1.73 (.82)
----------- ----------- ----------- -----------
Total from Investment Activities 3.05 (1.45) 2.14 (.45)
----------- ----------- ----------- -----------
Distributions:
From net investment income (.38) (.53) (.39) (.47)
From net realized gains (.07) (.49) (.38) (.43)
Returns of capital -- -- -- --
----------- ----------- ----------- -----------
Total Distributions (.45) (1.02) (.77) (.90)
----------- ----------- ----------- -----------
NET ASSET VALUE ENDING $11.88 $9.28 $11.75 $10.38
=========== =========== =========== ===========
RATIOS/SUPPLEMENTAL DATA:
Total Return (without
sales load) 33.54% (13.42)% 22.04% (3.46)%
Net assets at end
of period (000) $221,428 $168,184 $174,156 $130,978
Ratio of expenses to
average net assets 0.67% 0.74% 0.70% 0.73%
Ratio of net investment
income after expenses to
average net assets 3.15% 3.98% 3.93% 3.77%
Ratio of incurred expenses
to average net assets (b) 0.67% 0.74% 0.70% 0.73%
Ratio of net investment
income after incurred
expenses to average net
assets (b) 3.15% 3.98% 3.93% 3.77%
Portfolio turnover rate 33.27% 27.10% 23.20% 12.3%
Average commission rate
paid (c) N/A N/A N/A N/A
<FN>
* The Information included in the Financial Highlights for The Cardinal Fund
has been restated to reflect a three-for-two stock split made on January 11,
1990.
** This total return figure reflects aggregate total return. Aggregate total
return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of
annualized.
(a) Effective January 2, 1997, the Board of Trustees of the Group reclassified
each Fund's outstanding Shares into Investor A Shares (also known as
Investor Shares) and authorized the issuance of Investor Y Shares (also
known as Institutional Shares). The Financial Highlights presented for each
of the periods prior to January 2, 1997 and for the one-year period ended
September 30, 1997 represent the financial highlights of what are now known
as the Investor Shares.
(b) During the period certain fees were voluntarily waived. Had the fees been
charged, the effective ratio would reflect the incurred expenses as
indicated above.
</TABLE>
-6-
<PAGE> 111
(c) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
N/A Not available.
-7-
<PAGE> 112
<TABLE>
<CAPTION>
THE BALANCED FUND
Period from
June 24, 1993
(Institutional (date of
Shares) commencement
For the period of operations)
from January 2, Years Ended September 30, through
1997 through
September 30, September 30,
1997(a) 1997(a) 1996 1995 1994 1993*
------- ------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING $11.16 $11.86 $11.52 $9.90 $10.13 $10.00
Investment Activities:
Net investment income 0.16 0.27 0.41 0.34 0.23 0.02
Net realized and unrealized
gain (loss) on investments 2.08 2.40 0.73 1.67 (0.20) 0.12
---- ---- ---- ---- ------ ----
Total from Investment Activities 2.24 2.67 1.14 2.01 0.03 0.14
---- ---- ---- ---- ---- ----
Distributions:
From net investment income (.17) (0.24) (0.41) (0.35) (0.23) (0.01)
From net realized gains -- (1.06) (0.39) (0.04) (0.03) --
Returns of capital -- -- -- -- -- --
------ ------ ------- ------- ------ -----
Total Distributions (0.17) (1.30) (0.80) (0.39) (0.26) (0.01)
------ ------ ------- ------- ------ -----
NET ASSET VALUE ENDING $13.23 $13.23 $11.86 $11.52 $9.90 $10.13
======= ======= ======= ======= ====== =======
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales load) 20.17%** 24.71% 10.26% 20.76% 0.37% 1.40%**
Net assets at end of period (000) $1,708 $15,616 $14,345 $14,535 $13,973 $10,811
Ratio of expenses to average net
assets 1.51% 1.44% 1.64% 1.94% 2.07% 0.70%
Ratio of net investment income after
expenses to average net assets 1.99% 2.23% 3.54% 3.24% 2.44% 0.35%
Ratio of incurred expenses to
average net assets (b) 1.51% 1.50% 1.86% 1.95% 2.07% 0.70%
Ratio of net investment income after
incurred expenses to average net
assets (b) 1.99% 2.17% 3.32% 3.23% 2.44% 0.35%
Portfolio turnover rate 61.23% 61.23% 18.34% 37.62% 59.09% 60.67%
Average commission rate paid (c) $0.09 $0.09 $0.09 $0.09 $0.10 $0.10
<FN>
* Commencement of operations.
** This total return figure reflects aggregate total return. Aggregate
total return is calculated similarly to average annual total return
except that the return figure is aggregated over the relevant period
instead of annualized.
</TABLE>
-8-
<PAGE> 113
(a) Effective January 2, 1997, the Board of Trustees of the Group reclassified
each Fund's outstanding Shares into Investor A Shares (also known as
Investor Shares) and authorized the issuance of Investor Y Shares (also
known as Institutional Shares). The Financial Highlights presented for each
of the periods prior to January 2, 1997 and for the one-year period ended
September 30, 1997 represent the financial highlights of what are now known
as the Investor Shares.
(b) During the period certain fees were voluntarily waived. Had the fees been
charged, the effective ratio would reflect the incurred expenses as
indicated above.
(c) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
-9-
<PAGE> 114
THE AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
Period from
(Institutional June 24, 1993
Shares) (date of
For the period commencement
from January of operations)
2,1997 Years Ended September 30, through
through
September 30, September 30,
1997(a) 1997(a) 1996 1995 1994 1993*
------- ------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING $11.62 $11.31 $12.37 $9.94 $10.47 $10.00
Investment Activities:
Net investment loss (0.15) (0.20) (0.17) (0.10) (0.13) (0.03)
Net realized and unrealized
gain (loss) on investments 3.24 3.86 0.01 2.53 (0.36) 0.50
---- ---- ---- ---- ------ ----
Total from Investment Activities 3.09 3.66 (0.16) 2.43 (0.49) 0.47
---- ---- ------ ---- ------ ----
Distributions:
From net investment income -- -- -- -- -- --
From net realized gains 0.00 0.27 (0.90) -- (0.04) --
Returns of capital -- -- -- -- -- --
------ ------- ------ ------ -----
Total Distributions 0.00 (0.27) (0.90) 0.00 (0.04) 0.00
---- ------ ------ ---- ------ ----
NET ASSET VALUE ENDING $14.71 $14.70 $11.31 $12.37 $9.94 $10.47
====== ====== ====== ====== ===== ======
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales load) 26.59%** 32.95% (1.13%) 24.35% (4.74%) 4.70%**
Net assets at end of period (000) $4,062 $9,792 $9,669 $10,434 $9,460 $6,320
Ratio of expenses to average net
assets 2.11% 1.86% 1.95% 2.24% 2.51% 0.91%
Ratio of net investment income
after expenses to average net
assets (1.71%) (1.50%) (1.52%) (0.92%) (1.50%) (0.53%)
Ratio of incurred expenses to
average net assets (b) 2.11% 1.93% 2.17% 2.25% 2.51% 0.91%
Ratio of net investment income
after incurred expenses to
average net assets (b) (1.71%) (1.57%) (1.75)% (0.93)% (1.50%) (0.53%)
Portfolio turnover rate 34.43% 34.43% 48.60% 80.35% 95.70% 31.15%
Average commission rate paid (c) $0.07 $0.07 $0.07 $0.07 $0.09 $0.08
<FN>
* Commencement of operations.
** This total return figure reflects aggregate total return. Aggregate total
return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of
annualized.
(a) Effective January 2, 1997, the Board of Trustees of the Group reclassified
each Fund's outstanding Shares into Investor A Shares (also known as
Investor Shares) and authorized the issuance of Investor Y Shares
</TABLE>
-10-
<PAGE> 115
(also known as Institutional Shares). The Financial Highlights presented for
each of the periods prior to January 2, 1997 and for the one-year period
ended September 30, 1997 represent the financial highlights of what are now
known as the Investor Shares.
(b) During the period certain fees were voluntarily waived. Had the fees been
charged, the effective ratio would reflect the incurred expenses as
indicated above.
(c) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements appearing in the Funds' Statement of
Additional Information.
-11-
<PAGE> 116
PERFORMANCE INFORMATION
From time to time each Fund may advertise its average annual total
return, cumulative total return and/or yield. SUCH TOTAL RETURN FIGURES AND
YIELD FIGURES ARE BASED UPON HISTORICAL EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The average annual total return advertised by a
Fund refers to the return generated by an investment in that Fund over certain
specified periods since the establishment of such Fund (including any
predecessor thereof). The average annual total return over a period equates the
amount of an initial investment in the Fund to the amount redeemable at the end
of that period assuming that any dividends and distributions earned by an
investment in the Fund are immediately reinvested and the maximum applicable
sales charge, if any, is deducted from the initial investment at the time of
investment. Such figure is then annualized. The cumulative total return
advertised refers to the total return on a hypothetical investment over the
relevant period and equates the amount of an initial investment in the Fund to
the amount redeemable at the end of that period assuming that any dividends and
distributions are immediately reinvested and the maximum sales charge, if any,
is deducted from the initial investment. Yield will be computed by dividing a
Fund's net investment income per share earned during a recent one-month period
by such Fund's per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result.
In addition, from time to time the Balanced Fund may include in its
sales literature and shareholder reports a quote of the current "distribution"
rate for such Fund. A distribution rate is simply a measure of the level of
dividends distributed for a specified period and is computed by dividing the
total amount of dividends per share paid by the Balanced Fund during the past 12
months by a current maximum offering price. It differs from yield, which is a
measure of the income actually earned by the Balanced Fund's investments, and
from total return, which is a measure of the income actually earned by, plus the
effect of any realized and unrealized appreciation or depreciation of, such
investments during a stated period. A distribution rate is, therefore, not
intended to be a complete measure of performance. A distribution rate may
sometimes be greater than yield since, for instance, it may include short-term
and possibly long-term gains (which may be non-recurring), may not include the
effect of amortization of bond premiums and does not reflect unrealized gains or
losses.
Investors may also judge the performance of a Fund by comparing or
referencing its performance to the performance of other mutual funds or mutual
fund portfolios with comparable investment objectives and policies through
various mutual fund or market indices such as those prepared by Dow Jones & Co.,
Inc. and Standard & Poor's Corporation, and to data prepared by Lipper
Analytical Services, Inc., Morningstar, Inc. and CDA Investment Technologies,
Inc. Comparisons may also be made to indices or data published in Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, The
Columbus Dispatch, Business Week, U.S.A. Today and Consumer Reports. In addition
to performance information, general information about a Fund that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
Further information about the performance of each Fund is contained in
the Funds' Annual Report to Shareholders which may be obtained without charge by
contacting the Group at the telephone number set forth on the cover page of this
Prospectus. Performance quotations are computed separately for Investor and
Institutional Shares. Because of differences in the fees and/or expenses borne
by Investor and Institutional Shares, the net yield and total return on each
such class can be expected, at any given time, to differ from the net yield and
total return of such other class.
WHAT ARE THE FUNDS?
Each Fund is one separate diversified investment fund of the Group,
which was organized on March 23, 1993, as an Ohio business trust. The Group is
registered and operates as an open-end management investment company as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). The Cardinal
Fund was
-12-
<PAGE> 117
organized for the purposes of acquiring all of the assets and liabilities of
TCFI to effect a reorganization of TCFI from a stand alone investment company to
a separate series of the Group (the "Reorganization"). The Reorganization was
effected as of May 1, 1996.
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUNDS?
IN GENERAL
The investment objectives of The Cardinal Fund are to achieve long-term
growth of capital and income. Current income is a secondary objective. The
Cardinal Fund seeks to achieve its objectives through selective participation in
the long-term progress of businesses and industries.
The investment objectives of the Balanced Fund are to seek current
income and long-term growth of both capital and income. The Balanced Fund
intends to invest based on combined considerations of risk, income and capital
enhancement.
The investment objective of the Aggressive Growth Fund is to seek
appreciation of capital. The Aggressive Growth Fund will invest primarily in
common stocks and securities convertible into common stocks of growth oriented
companies.
The investment objectives of each Fund are fundamental policies and as
such may not be changed without a vote of the holders of a majority of the
outstanding Shares of that Fund (as defined below under "WHAT ARE MY RIGHTS AS A
SHAREHOLDER?"). No Fund is intended to provide a complete and balanced
investment program for an investor. There can be no assurance that the
investment objectives of any Fund will be achieved.
THE CARDINAL FUND
The policy of The Cardinal Fund is generally to invest in equity
securities of companies which, in the opinion of the Adviser, are growth
oriented. The securities purchased by The Cardinal Fund are traded in either
established over-the-counter markets or on national exchanges and are issued by
companies having a market capitalization of at least $10 million. This policy of
normally investing in equity securities believed to have a potential for
long-term capital appreciation means that the assets of The Cardinal Fund will
generally be subject to greater risk than may be involved in securities which do
not have such growth characteristics. It is recognized, however, that there may
be times when, as a temporary, defensive measure, The Cardinal Fund's equity
position should be reduced. At such times, and otherwise for cash management
purposes, The Cardinal Fund may hold its assets in cash or invest its assets in
investment grade debt securities, U.S. Government securities, securities of
other investment companies, repurchase agreements and preferred stock.
THE BALANCED FUND
Under normal market conditions the Balanced Fund will invest in common
stocks, preferred stocks, fixed income securities and securities convertible
into common stocks (i.e., warrants, rights, convertible preferred stock, fixed
rate preferred stock and convertible fixed-income securities). At least 25% of
the value of the Balanced Fund's assets will be invested in fixed income senior
securities. For purposes of compliance with such 25% limitation, only that
portion of the value of any convertible senior security attributable to its
fixed income characteristics will be used. By investing primarily in common
stocks the Balanced Fund will pursue its objectives of long-term growth of both
capital and income. However, the Balanced Fund, through its fixed-income and
convertible securities as well as the dividend attributes of certain of its
common and preferred stock holdings, will place considerable emphasis on
generating current income.
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The common and preferred stocks and securities convertible into common
stocks will be selected if the Adviser believes that such securities can
contribute to the Balanced Fund's objectives of providing current income and
growth in income and/or long-term growth of capital. The Balanced Fund will
invest in the common and preferred stocks and securities convertible into common
stocks of domestic issuers and foreign issuers (subject to the limitations
described below), with market capitalizations of not less than $10 million and
which generally are traded either in established over-the-counter markets or on
national exchanges. As described below, however, the Balanced Fund may invest in
privately placed or restricted securities.
The Adviser will select convertible securities based primarily upon its
determination that the underlying common stocks meet the criteria for selection
of common stocks as described above. The Balanced Fund may invest up to 10% of
its net assets in non-investment grade convertible debt securities rated no
lower than B by an appropriate nationally recognized statistical rating
organization (an "NRSRO") or in unrated securities which are deemed by the
Adviser to be of comparable quality. Non-investment grade securities are
commonly referred to as high yield or high risk securities. High yield, high
risk securities are generally riskier than higher quality securities and are
subject to more credit risk, including risk of default, and volatility than
higher quality securities. In addition, such securities have less liquidity and
experience more price fluctuation than higher quality securities.
Convertible debt securities which are rated B by Moody's Investor
Services ("Moody's") generally lack characteristics of a desirable investment,
since the assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small. Debt rated B by
Standard & Poor's Corporation ("S&P") is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. In the event
that a convertible debt security's rating falls below a "B" by the appropriate
NRSROs, the Adviser will reevaluate the security in order to determine whether
to sell or convert, if possible, such security. In such an event, however, the
Balanced Fund would not be required to liquidate such security if it would
suffer a loss on the sale of such security.
The Balanced Fund's fixed income senior securities consist of bonds,
debentures, notes, zero-coupon securities, mortgage-related securities,
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits, high quality
commercial paper and bankers' acceptances.
The Balanced Fund may also invest in repurchase agreements.
The Balanced Fund expects to invest in a variety of bills, notes and
bonds issued by the U.S. Treasury, differing in their interest rates,
maturities, and times of issuance, as well as "stripped" U.S. Treasury
obligations such as Treasury Receipts issued by the U.S. Treasury representing
either future interest or principal payments, and other obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. Stripped
securities are issued at a discount to their "face value" and may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and interest are returned to investors. Certain of such
U.S. Government obligations may have variable or floating rates of interest,
whose value on the adjustment of its interest rate can reasonably be expected to
approximate its par value. However, in the event the interest rate of such
security is tied to an index or interest rate that may from time to time lag
behind other market interest rates, there is the risk that such security's
market value, upon adjustment of its interest rate, will not approximate its par
value. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Federal Farm Credit
Banks or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
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The Balanced Fund will invest in the obligations of such agencies or
instrumentalities only when the Adviser believes that the credit risk with
respect thereto is minimal.
The Balanced Fund also expects to invest in bonds, notes and debentures
of a wide range of U.S. corporate issuers. Such obligations may be secured or
unsecured promises to pay and will in most cases differ in their interest rates,
maturities and times of issuance.
The Balanced Fund will invest only in corporate fixed income senior
securities which are rated at the time of purchase within the four highest
rating groups assigned by an appropriate NRSRO (which are considered to be
investment grade) or, if unrated, which the Adviser deems to be of comparable
quality. For a description of the rating symbols of the NRSROs, see the Appendix
to the Statement of Additional Information. For a discussion of debt securities
rated within the fourth highest rating group assigned by an NRSRO, see "Risk
Factors and Investment Techniques -- General" below.
Under normal market conditions, the Balanced Fund may hold up to 10% of
the value of its total assets in short-term obligations (with maturities of 12
months or less) consisting of domestic commercial paper, bankers' acceptances,
certificates of deposit and time deposits of U.S. banks and repurchase
agreements. The Balanced Fund may also invest in securities of other investment
companies, as further described below, and in income participation loans.
The Balanced Fund may invest in obligations of the Export-Import Bank
of the United States, in U.S. dollar denominated international securities for
which the primary trading market is in the United States ("Yankee Securities"),
or for which the primary trading market is abroad ("Eurodollar Securities"), and
in Canadian Bonds and bonds issued by institutions organized for a specific
purpose, such as the World Bank and the European Economic Community, by two or
more sovereign governments ("Supranational Agency Bonds").
The Balanced Fund may also invest in mortgage-related securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities or by
nongovernmental entities which are rated, at the time of purchase, within the
four highest bond rating categories assigned by an appropriate NRSRO, or, if
unrated, which the Adviser deems to be of comparable quality. Under normal
market conditions, the Balanced Fund's investment in mortgage-related securities
will not exceed 25% of the value of its total assets. Such mortgage-related
securities have mortgage obligations backing such securities, including among
others, conventional thirty year fixed rate mortgage obligations, graduated
payment mortgage obligations, fifteen year mortgage obligations and adjustable
rate mortgage obligations. All of these mortgage obligations can be used to
create pass-through securities. A pass-through security is created when mortgage
obligations are pooled together and undivided interests in the pool or pools are
sold. The cash flow from the mortgage obligations is passed through to the
holders of the securities in the form of periodic payments of interest,
principal and prepayments (net of a service fee). Prepayments occur when the
holder of an individual mortgage obligation prepays the remaining principal
before the mortgage obligation's scheduled maturity date. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Because the prepayment
characteristics of the underlying mortgage obligations vary, it is not possible
to predict accurately the realized yield or average life of a particular issue
of pass-through certificates. Prepayment rates are important because of their
effect on the yield and price of the securities. Accelerated prepayments have an
adverse impact on yields for pass-throughs purchased at a premium (i.e., a price
in excess of principal amount) and may involve additional risk of loss of
principal because the premium may not have been fully amortized at the time the
obligations are repaid. The opposite is true for pass-throughs purchased at a
discount. The Balanced Fund may purchase mortgage-related securities at a
premium or a discount. Reinvestment of principal payments may occur at higher or
lower rates than the original yield on such securities. Due to the prepayment
feature and the need to reinvest payments and prepayments of principal at
current rates, mortgage-related securities can be less effective than typical
bonds of similar maturities at maintaining yields during periods of declining
interest rates.
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Also included among the mortgage-related securities that the Balanced
Fund may purchase are collateralized mortgage obligations ("CMOs") and real
estate mortgage investment conduits ("REMICs"). CMOs may be collateralized by
whole mortgage loans but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association, and their income streams. Certain CMOs and REMICs are
issued by private issuers. Such securities may be eligible for purchase by the
Balanced Fund if (1) the issuer has obtained an exemptive order from the
Securities and Exchange Commission regarding purchases by investment companies
of equity interests of other investment companies or (2) such purchase is within
the limitations imposed by Section 12 of the 1940 Act.
The Balanced Fund may also invest in asset-backed securities such as
Certificates of Automobile Receivables ("CARS") and Certificates of Amortized
Revolving Debts ("CARDS"), each of which must be rated at the time of purchase
within the four highest rating groups assigned by Moody's or S&P. For a
description of the fourth highest rating group, see "Risk Factors and Investment
Techniques" below.
The amount invested in stocks, bonds and short-term obligations may be
varied from time to time, depending upon the Adviser's assessment of business,
economic and market conditions, including any potential advantage of price
shifts between the stock market and the bond market. The Balanced Fund reserves
the right to hold short-term securities in whatever proportion deemed desirable
for temporary defensive periods during adverse market conditions as determined
by the Adviser. However, to the extent that the Balanced Fund is so invested,
its investment objectives may not be achieved during that time.
THE AGGRESSIVE GROWTH FUND
In determining the securities to be purchased by the Aggressive Growth
Fund, emphasis will be placed on securities of companies which, in the opinion
of the Adviser, are growth oriented and exhibit the potential for above-average
growth in earnings. The securities to be purchased by the Aggressive Growth Fund
are traded either in established over-the-counter markets or on national
exchanges and are issued by companies having a market capitalization of at least
$10 million.
The Adviser will select convertible securities primarily upon its
evaluation that the underlying common stocks meet the criteria for selection of
common stocks as described above. The Aggressive Growth Fund may invest up to
10% of its net assets in non-investment grade convertible debt securities rated
no lower than B by an appropriate NRSRO or in unrated securities which are
deemed by the Adviser to be of comparable quality. Non-investment grade
securities are commonly referred to as high yield or high risk securities. The
characteristics and risks associated with such high risk securities are
discussed more fully above under "The Balanced Fund." In the event that a
convertible debt security's rating falls below a "B" by an NRSRO, the Adviser
will reevaluate the security in order to determine whether to sell or convert,
if possible, such security. In such an event, however, the Aggressive Growth
Fund would not be required to liquidate such security if it would suffer a loss
on the sale of such security.
The Aggressive Growth Fund will, under normal market conditions, be
invested fully in common stocks and securities convertible into common stocks
and may engage in the investment techniques more fully described below. However,
for cash management purposes the Adviser may invest a portion of the Aggressive
Growth Fund's assets in short-term fixed income securities, consisting of
commercial paper, bankers' acceptances, certificates of deposit, obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, demand and time deposits of domestic banks, repurchase
agreements and securities of other investment companies, as described below.
During temporary defensive periods, as determined by the Adviser, the Aggressive
Growth Fund may hold up to 100% of its total assets in such short-term, fixed
income securities. However, to the extent that the Aggressive Growth Fund is so
invested, the Aggressive Growth Fund is not pursuing and may not achieve its
investment objective.
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RISK FACTORS AND INVESTMENT TECHNIQUES
GENERAL. Like any investment program, an investment in any of the Funds
entails certain risks. As funds investing primarily in common stocks, each Fund
is subject to stock market risk, i.e., the possibility that stock prices in
general will decline over short or even extended periods.
Since the Funds, to different degrees, also invest or may invest in
bonds, investors in a Fund, to the extent so invested, are also exposed to bond
market risk, i.e., fluctuations in the market value of bonds. Bond prices are
influenced primarily by changes in the level of interest rates. When interest
rates rise, the prices of bonds generally fall; conversely, when interest rates
fall, bond prices generally rise. While bonds normally fluctuate less in price
than stock, there have been in the recent past extended periods of cyclical
increases in interest rates that have caused significant declines in bond prices
and that have caused the effective maturity of securities with prepayment
features to be extended, thus effectively converting short or intermediate term
securities (which tend to be less volatile in price) into longer-term securities
(which tend to be more volatile in price).
Current income by its nature always contributes positively to total
return. Therefore, the current income expected to be generated from an
investment in the Balanced Fund will counterbalance to some degree any adverse
price fluctuations of the securities held by the Balanced Fund. The effective
result should therefore be lower total return volatility for the Balanced Fund
than a fund which does not provide such current income.
The Aggressive Growth Fund is intended for investors who can accept the
higher risks involved in seeking potentially higher capital appreciation through
investments in growth oriented companies. A growth oriented company typically
invests most of its net income in its enterprise and does not pay out much, if
any, in dividends. Accordingly, the Aggressive Growth Fund does not anticipate
any significant distributions to shareholders from net investment income, and
potential investors should be in a financial position to forego current income
from their investment in the Aggressive Growth Fund. The securities of less
seasoned companies may have limited marketability and may be subject to more
abrupt or erratic market movements over time than securities of more seasoned
companies or the market as a whole.
The Balanced Fund may invest in certain variable or floating rate
government securities and, as described below, each Fund may invest in put and
call options and futures. Such instruments are considered to be "derivatives." A
derivative is generally defined as an instrument whose value is based upon, or
derived from, some underlying index, reference rate (e.g., interest rates),
security, commodity or other asset. No Fund will invest more than 10% of its
total assets in any such derivatives at any one time.
REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of the repurchase agreement, a Fund would
acquire securities from a financial institution, such as a well-established
securities dealer or a bank which is a member of the Federal Reserve System,
which the Adviser deems creditworthy under guidelines approved by the Group's
Board of Trustees. At the time of purchase, the bank or securities dealer agrees
to repurchase the underlying securities from that Fund at a specified time and
price. The resale price reflects the purchase price plus an agreed upon market
rate of interest which is unrelated to the coupon rate or maturity of the
underlying security. A Fund will only enter into a repurchase agreement where
(i) the underlying securities are of the type which such Fund's investment
policies would allow it to purchase directly, (ii) the market value of the
underlying security, including interest accrued, will at all times be equal to
or exceed the value of the repurchase agreement, and (iii) payment for the
underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of such Fund's custodian or a bank acting as
agent. The Adviser will be responsible for continuously monitoring such
requirements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Balanced Fund may
also purchase securities on a when-issued or delayed-delivery basis. The
Balanced Fund will engage in when-issued and delayed-delivery transactions only
for the purpose of acquiring portfolio securities consistent with its investment
objectives and
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policies, not for investment leverage, although such transactions represent a
form of leveraging. When-issued securities are securities purchased for delivery
beyond the normal settlement date at a stated price and yield and thereby
involve a risk that the yield obtained in the transaction will be less than the
yield available in the market when delivery takes place. The Balanced Fund will
not pay for such securities or start earning interest on them until they are
received. When the Balanced Fund agrees to purchase such securities, its
custodian will set aside cash or liquid securities equal to the amount of the
commitment in a separate account. Securities purchased on a when-issued basis
are recorded as an asset and are subject to changes in the value based upon
changes in the general level of interest rates. In when-issued and
delayed-delivery transactions, the Balanced Fund relies on the seller to
complete the transaction; the seller's failure to do so may cause the Balanced
Fund to miss a price or yield considered to be advantageous.
The Balanced Fund's commitments to purchase when-issued securities will
not exceed 25% of the value of its total assets absent unusual market
conditions. In the event that its commitments to purchase when-issued securities
ever exceed 25% of the value of its assets, the Balanced Fund's liquidity and
the ability of the Adviser to manage it might be adversely affected.
MEDIUM-GRADE SECURITIES. As described above, the Balanced Fund and the
Aggressive Growth Fund may each invest in securities within the fourth highest
rating group assigned by an NRSRO (e.g., BBB or Baa by S&P and Moody's,
respectively) and comparable unrated securities. These types of debt securities
are considered by Moody's to have speculative characteristics and to be more
vulnerable to changes in economic conditions, higher interest rates or adverse
issuer-specific developments which are more likely to lead to a weaker capacity
to make principal and interest payments than comparable higher rated debt
securities.
Should subsequent events cause the rating of a debt security purchased
by the Balanced Fund or the Aggressive Growth Fund to fall below BBB or Baa, as
the case may be, the Adviser will consider such an event in determining whether
that Fund should continue to hold that security. In no event, however, would
such Funds be required to liquidate any such portfolio security where the Fund
would suffer a loss on the sale of such security.
FOREIGN SECURITIES. Each Fund may also invest up to 25% of its net
assets in foreign securities through the purchase of sponsored and unsponsored
American Depositary Receipts ("ADRs"). ADRs are receipts typically issued by a
United States bank or trust company evidencing ownership of the underlying
foreign securities and are denominated in U.S. dollars. Institutions issuing
ADRs may not be sponsored by the issuer. Unsponsored ADRs may be less liquid
than sponsored ADRS, and there may be less information available regarding the
underlying foreign issuer for unsponsored ADRs since a non-sponsored institution
is not required to provide the same shareholder information that a sponsored
institution is required to provide under its contractual arrangements with the
issuer.
Investment in foreign securities, including ADRs, is subject to special
investment risks that differ in some respects from those related to investments
in securities of U.S. domestic issuers. Such risks include trade balances and
imbalances, and related economic policies, future adverse political, economic
and social developments, the possible imposition of withholding taxes or
interest income, possible seizure, nationalization, or expropriation of foreign
investments or deposits, less stringent disclosure requirements, the possible
establishment of exchange controls or taxation at the source, or the adoption of
other foreign governmental restrictions. In addition, foreign issuers may be
subject to different accounting, auditing, reporting, and recordkeeping
standards than those applicable to U.S. domestic issuers, and securities markets
in foreign countries may be structured differently from and may not be as liquid
as the U.S. markets. A Fund will acquire securities issued by foreign issuers
only when the Adviser believes that the risks associated with such investments
are minimal.
RESTRICTED SECURITIES. Securities in which the Balanced Fund may invest
include securities issued by corporations without registration under the
Securities Act of 1933, as amended (the "1933 Act"), including securities issued
in reliance on the so-called "private placement" exemption from registration
which is afforded by Section
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4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2) securities are
restricted as to disposition under the Federal securities laws, and generally
are sold to institutional investors such as the Balanced Fund who agree that
they are purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who assist in
the placement of such Section 4(2) securities, thus providing some liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group,
the Adviser may determine Section 4(2) securities to be liquid if such
securities are eligible for resale under Rule 144A under the 1933 Act and are
readily saleable. Rule 144A permits the Balanced Fund to purchase securities
which have been privately placed and resell such securities to certain qualified
institutional buyers without restriction. For purposes of determining whether a
Rule 144A security is readily saleable, and therefore liquid, the Adviser must
consider, among other things, the frequency of trades and quotes for the
security, the number of dealers willing to purchase or sell the security and the
number of potential purchasers, dealer undertakings to make a market in the
security, and the nature of the security and marketplace trades of such
security. However, investing in Rule 144A securities, even if such securities
are initially determined to be liquid, could have the effect of increasing the
level of the Balanced Fund's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
REITS. Each of the Funds may also invest in securities of equity real
estate investment trusts ("REITs"). REITs pool investors' funds for investment
primarily in commercial real estate properties. Investment in REITs may subject
a Fund to certain risks. REITs may be affected by changes in the value of the
property they own. REITs are dependent upon specialized management skill, may
not be diversified and are subject to the risks of financing projects. REITs are
also subject to heavy cash flow dependency, defaults by borrowers, self
liquidation and the possibility of failing to qualify for the beneficial tax
treatment available to REITs under the Internal Revenue Code and to maintain
their exemption from the 1940 Act. As a shareholder in a REIT, a Fund would
bear, along with other shareholders, its pro rata portion of the REIT's
operating expenses. These expenses would be in addition to the advisory and
other expenses that the Fund bears directly in connection with its own
operations.
PUT AND CALL OPTIONS. Subject to its investment policies and for
purposes of hedging against market risks related to its portfolio securities,
each Fund may purchase exchange-traded put and call options on securities.
Purchasing options is a specialized investment technique that entails a
substantial risk of a complete loss of the amounts paid as premiums to writers
of options. A Fund will purchase put and call options only on securities in
which the Fund may otherwise invest. Each Fund may also engage in selling
(writing) exchange-traded options from time to time as the Adviser deems
appropriate for purposes of gaining additional income in the form of premiums
paid by the purchaser of the option and/or for hedging purposes. Each Fund will
write only covered call options (options on securities owned by that Fund). In
order to close out a call option it has written, a Fund will enter into a
"closing purchase transaction" -- the purchase of a call option on the same
security with the same exercise price and expiration date as the call option
which the Fund previously had written. When a portfolio security subject to a
call option is sold, such Fund will effect a closing purchase transaction to
close out any existing call option on that security. If the Fund is unable to
effect a closing purchase transaction, it will not be able to sell the
underlying security until the option expires or the Fund delivers the underlying
security upon exercise.
Each Fund, as part of its option transactions, also may purchase
exchange-traded index put and call options and write exchange-traded index
options. Through the writing or purchase of index options a Fund can achieve
many of the same objectives as through the use of options on individual
securities. Options on securities indices are similar to options on a security
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
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Price movements in securities which a Fund owns or intends to purchase
probably will not correlate perfectly with movements in the level of an index
and, therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund will be
required to segregate assets and/or provide an initial margin to cover index
options that would require it to pay cash upon exercise. Under normal market
conditions, it is not expected that the underlying value of portfolio securities
and/or cash subject to such options written by a Fund (including any assets
segregated in connection therewith), when added to the greater of the market
value or the cost of any options purchased by that Fund, will exceed 10% of the
net assets of that Fund at any one time.
FUTURES CONTRACTS. Each Fund may also enter into contracts for the
future delivery of securities and futures contracts based on a specific
security, class of securities or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index is an agreement obligating either party to pay, and
entitling the other party to receive, while the contract is outstanding, cash
payments based on the level of a specified securities index.
Each Fund may engage in such futures contracts in an effort to hedge
against market risks. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, a Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market values
are expected to rise, a Fund, through the purchase of such contracts, can
attempt to secure better rates or prices for such Fund than might later be
available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed five percent of a Fund's total assets,
and the value of securities that are the subject of such futures and options
(both for receipt and delivery) may not exceed one-third of the market value of
a Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain each Fund's qualification as a regulated investment
company.
Futures transactions involve brokerage costs and require a Fund to
segregate assets to cover contracts that would require it to purchase
securities. A Fund may lose the expected benefit of futures transactions if
interest rates or securities prices move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of a
Fund's futures positions may not prove to be perfectly or even highly correlated
with the value of its portfolio securities, limiting such Fund's ability to
hedge effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
INVESTMENT COMPANY SECURITIES. Each Fund may also invest up to 10% of
the value of its total assets in the securities of other investment companies
subject to the limitations set forth in the 1940 Act. Each Fund intends to
invest in the securities of other investment companies which, in the opinion of
the Adviser, will assist such Fund in achieving its objectives and in money
market mutual funds for purposes of short-term cash management. A Fund's
investment in such other investment companies may result in the duplication of
fees and expenses, particularly investment advisory fees. For a further
discussion of the limitations on each Fund's investments in other investment
companies, see "INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on
Portfolio Instruments -- Securities of Other Investment Companies" in the
Group's Statement of Additional Information.
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INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of that Fund (as
defined below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
Each Fund will not:
1. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if, immediately after such purchase, more than 5%
of the value of the Fund's total assets would be invested in such
issuer, or the Fund would hold more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such limitations.
There is no limit to the percentage of assets that may be invested in
U.S. Treasury bills, notes, or other obligations issued or guaranteed
by the U.S.
Government or its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of
the value of the Fund's total assets at the time of purchase to be
invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided that: (a)
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities; (b) wholly owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry.
3. Borrow money or issue senior securities, except that the
Fund may borrow from banks or enter into reverse repurchase agreements
or dollar roll agreements for temporary purposes in amounts up to 10%
of the value of its total assets at the time of such borrowing and
except as permitted pursuant to an exemption from the 1940 Act. The
Fund will not purchase securities while its borrowings (including
reverse repurchase agreements and dollar roll agreements) exceed 5% of
its total assets.
4. Make loans, except that the Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its
investment objectives and policies, make time deposits with financial
institutions and enter into repurchase agreements.
The following additional investment restriction may be changed without
the vote of a majority of the outstanding Shares of a Fund.
Each Fund will not:
1. Purchase or otherwise acquire any securities, if as a
result, more than 15% of the Fund's net assets would be invested in
securities that are illiquid.
HOW DO I PURCHASE INSTITUTIONAL SHARES OF THE FUNDS?
GENERAL
Each Fund's Institutional Shares are continuously offered and may be
purchased through procedures established by The Ohio Company, principal
underwriter of the Funds' Shares, in connection with accounts for which banks,
broker-dealers, savings and loan associations, trust companies (including The
Ohio Company),
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qualified investment advisers and certain other financial institutions serve in
a fiduciary capacity on behalf of customers or beneficiaries (collectively,
"Financial Institutions"). Normally, Financial Institutions will hold
Institutional Shares of record for their customers or beneficiaries. With
respect to Institutional Shares so sold, it is the responsibility of the holder
of record to transmit purchase or redemption orders to The Ohio Company and to
deliver funds for the purchase thereof on a timely basis. Beneficial ownership
of Institutional Shares of the Funds may be recorded by the Financial
Institutions and reflected in the account statements provided to their customers
or beneficiaries.
The Group reserves the right to reject any order for the purchase of
Institutional Shares in whole or in part. The applicable Financial Institution
will receive a confirmation of each new transaction in its account. Certificates
representing Institutional Shares will not be issued.
Institutional Shares are purchased at the net asset value per share
(see "HOW IS NET ASSET VALUE CALCULATED?") next determined after receipt by The
Ohio Company or its agents of an order and payment. There is no sales charge
imposed in connection with the purchase of Institutional Shares of any Fund.
Depending upon the terms of a particular account, a Financial Institution may
charge customer account fees for services provided in connection with an
investment in a Fund. Information concerning these services and any charges may
be obtained from such Financial Institution. This Prospectus should be read in
conjunction with any such information so received.
From time to time, The Ohio Company, from its own resources, may
provide compensation to securities dealers in connection with sales of shares of
the Cardinal Funds. Such compensation will include financial assistance to
securities dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising, sales campaigns
and/or shareholder services and programs regarding one or more of the Cardinal
Funds and other dealer-sponsored programs or events. In some instances, this
compensation may be made available only to certain securities dealers whose
representatives have sold or are expected to sell significant amounts of shares
of the Cardinal Funds. Compensation will include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Securities
dealers may not use sales of a Fund's Shares to qualify for this compensation to
the extent such may be prohibited by the laws of any state or any self
regulatory agency, such as the National Association of Securities Dealers, Inc.
In addition, The Ohio Company may make ongoing payments to brokerage firms,
financial institutions (including banks) and others to facilitate the
administration and servicing of shareholder accounts. None of the aforementioned
additional compensation is paid for by any Fund or its shareholders.
WHAT DISTRIBUTIONS WILL I RECEIVE?
Dividends and distributions shall be made with such frequency (long
term capital gains normally will be distributed only once annually) and in such
amounts as the Group from time to time shall determine and shall be paid from
net income and net realized capital gains of the Funds. It is the policy of each
Fund to distribute, at least annually, substantially all of its net investment
income and to distribute annually any net realized capital gains. Unless a
shareholder specifically requests otherwise in writing to Cardinal Management
Corp., the Funds' transfer agent (the "Transfer Agent"), dividends and
distributions will be made only in additional full and fractional Institutional
Shares of a Fund and not in cash. Dividends are paid in cash not later than
seven days after a shareholder's complete redemption of his Institutional Shares
in a Fund.
Each Fund's net investment income available for distribution to the
holders of Institutional Shares will be reduced by the amount of administrative
services fees paid under the Services Plan described below.
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HOW MAY I REDEEM MY INSTITUTIONAL SHARES?
Investors may redeem Institutional Shares of a Fund on any Business Day
at the net asset value per Institutional Share next determined following receipt
by the Transfer Agent, 215 East Capital Street, Columbus, Ohio 43215, of written
or telephonic notice to redeem, as described more fully below. See "HOW IS NET
ASSET VALUE CALCULATED?", below, for a description of when net asset value is
determined.
As requested, The Ohio Company, on behalf of a shareholder, will
forward the foregoing notice to redeem to the Transfer Agent without charge.
Other broker-dealers may assist a shareholder in redeeming his Institutional
Shares and may charge a fee for such services.
The Group will make payment for redeemed Institutional Shares as
promptly as practicable but in no event more than seven days after receipt by
the Transfer Agent of the foregoing notice. The Group reserves the right to
delay payment for the redemption of Institutional Shares where such
Institutional Shares were purchased with other than immediately available funds,
but only until the purchase payment has cleared (which may take fifteen or more
days from the date the purchase payment is received by the applicable Fund). The
purchase of Institutional Shares by wire transfer of federal funds would avoid
any such delay.
The Group intends to pay cash for all Institutional Shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Group may
make payment wholly or partly in readily marketable portfolio securities at
their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
The Group may suspend the right of redemption or may delay payment
during any period the determination of net asset value is suspended. See "HOW IS
NET ASSET VALUE CALCULATED?."
Due to the high cost of maintaining accounts, the Group reserves the
right to redeem involuntarily Shares in any account at the then current net
asset value if at any time redemptions (but not as a result of a decrease in the
market price of such Shares or the deduction of any sales charge) have reduced a
shareholder's total investment in a Fund to a net asset value below $500. A
shareholder will be notified in writing that the value of Fund Shares in the
account is less than $500 and allowed not less than 30 days to increase his
investment in such Fund to at least $500 before the redemption is processed.
Proceeds of redemptions so processed, including dividends declared to the date
of redemption, will be promptly paid to the shareholder.
REDEMPTION BY MAIL
Shareholders may redeem Institutional Shares of a Fund by submitting a
written request therefor to the Transfer Agent, at 215 East Capital Street,
Columbus, Ohio 43215. The Transfer Agent will request a signature guarantee by
an eligible guarantor institution as described below. However, a signature
guarantee will not be required if (1) the redemption check is payable to the
shareholder(s) of record, and (2) the redemption check is mailed to the
shareholder(s) at the address of record, provided, however, that the address of
record has not been changed within the preceding 15 days. For purposes of this
policy, an "eligible guarantor institution" shall include banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations as those terms are defined in the Securities Exchange
Act of 1934. The Transfer Agent reserves the right to reject any signature
guarantee if (1) it has reason to believe that the signature is not genuine or
(2) it has reason to believe that the transaction would otherwise be improper.
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REDEMPTION BY TELEPHONE
Shareholders may redeem Institutional Shares of a Fund by calling the
Group at the telephone number set forth on the front of this Prospectus. The
shareholder may direct that the redemption proceeds be mailed to the address of
record.
Neither the Group, the Funds nor their service providers will be liable
for any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Group's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. The Group will employ
procedures designed to provide reasonable assurances that instructions by
telephone are genuine; if these procedures are not followed, the Group, the
Funds or their service providers may be liable for any losses due to
unauthorized or fraudulent instructions. These procedures may include recording
all phone conversations, sending confirmations to shareholders within 72 hours
of the telephone transaction, and verification of account name and account
number or tax identification number. If, due to temporary adverse conditions,
investors are unable to effect telephone transactions, shareholders may also
redeem their Institutional Shares by mail as described above.
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
ACH PROCESSING
The Group offers ACH privileges. Investors may use ACH processing to
make subsequent purchases, redeem Shares and/or electronically transfer
distributions paid on Shares, in addition to the other methods described in this
Prospectus. ACH provides a method by which funds may be automatically
transferred to or from an authorized bank account at a Federal Reserve member
bank that is an ACH member. Please contact your representative if you are
interested in ACH processing.
EXCHANGE PRIVILEGE
Holders of Institutional Shares of a Fund may, provided the amount to
be exchanged meets the applicable minimum investment requirements and the
exchange is made in states where it is legally authorized, exchange, at
respective net asset values, Institutional Shares of any Fund for Institutional
Shares of another Fund or for:
Institutional Shares of Cardinal
Government Obligations Fund, a fund
investing in securities issued or
guaranteed by the U.S. Government;
Shares of Cardinal Government Securities
Money Market Fund, a U.S. Government securities
money market fund; or
Shares of Cardinal Tax Exempt Money Market Fund, a tax-free money
market fund.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange requested is
within the same account or into an existing account of the shareholder held in
the same name or names and in the same capacity as the account from which the
exchange is to be made. Shareholders may also
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authorize an exchange of Shares of a Fund by telephone. Neither the Group, the
Funds nor any of their service providers will be liable for any loss, damages,
expense or cost arising out of any telephone exchange authorization to the
extent and subject to the requirements set forth under "HOW MAY I REDEEM MY
SHARES? -- Redemption by telephone" above.
For tax purposes, an exchange is treated as a redemption and a new
purchase.
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Funds 60 days'
advance written notice of any such modification or termination.
HOW IS NET ASSET VALUE CALCULATED?
The net asset value of each Fund is determined once daily as of 4:00
P.M., Eastern Time, on each Business Day. A "Business Day" is a day on which the
New York Stock Exchange is open for business and any other day (other than a day
on which no Shares of such Fund are tendered for redemption and no order to
purchase any Shares of that Fund is received) during which there is a sufficient
degree of trading in a Fund's portfolio securities that the net asset value
might be materially affected by changes in the value of the portfolio
securities. The net asset value per share of each class of shares of a Fund is
computed by dividing the sum of the value of that Fund's portfolio securities
plus any cash and other assets (including interest and dividends accrued but not
received) allocable to such class minus all liabilities (including estimated
accrued expenses) allocable to such class by the total number of Shares of that
class of such Fund then outstanding.
The net asset value per share will fluctuate as the value of the
investment portfolio of a Fund changes.
Portfolio securities which are traded on United States stock exchanges
are valued at the last sale price on such an exchange as of the time of
valuation on the day the securities are being valued. Securities traded in the
over-the-counter market are valued at either the mean between the bid and ask
prices or the last sale price as one or the other may be quoted by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") as of
the time of valuation on the day the securities are being valued. The Group uses
one or more pricing services to provide such market quotations. Securities and
other assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Trustees of the Group.
Determination of the net asset value may be suspended at times when (a)
trading on the New York Stock Exchange is restricted by applicable rules and
regulations of the Commission, (b) the New York Stock Exchange is closed for
other than customary weekend and holiday closings, (c) an emergency exists as a
result of which disposal by the Group of portfolio securities owned by a Fund or
valuation of net assets of a Fund is not reasonably practicable, or (d) the
Commission has by order permitted such suspension.
DO THE FUNDS PAY FEDERAL INCOME TAX?
Each of the funds of the Group, including the Funds, is treated as a
separate entity for federal income tax purposes and intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code") for so long as such qualification is in the best interest
of that fund's shareholders. Qualification as a regulated investment company
under the Code requires, among other things, that the regulated investment
company distribute to its shareholders at least 90% of its investment company
taxable income. Each Fund contemplates declaring as dividends all or
substantially all of such Fund's investment company taxable income (before
deduction of dividends paid).
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A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a nondeductible excise tax equal to 4% of the
deficiency.
WHAT ABOUT MY TAXES?
It is expected that each Fund will distribute annually to shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash. The
dividends received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends received deduction, if any, received by a
Fund bear to its gross income.
Distribution by a Fund of the excess of net mid-term or net long-term
capital gain over net short-term capital loss is taxable to shareholders as
mid-term or long-term capital gain, respectively, in the year in which it is
received, regardless of how long the shareholder has held the Shares. Such
distributions are not eligible for the dividends received deduction.
If the net asset value of a Share is reduced below the shareholder's
cost of that Share by the distribution of income or gain realized on the sale of
securities, the distribution is a return of invested principal, although taxable
as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities. Since less than 50% in value of
each Fund's total assets at the end of its fiscal year are expected to be
invested in securities of foreign corporations, no Fund will be entitled under
the Code to pass through to its shareholders their pro rata share of the foreign
taxes paid by such Fund. These taxes will be taken as a deduction by that Fund.
The foregoing is intended only as a brief summary of some of the
important tax considerations generally affecting the Funds and their
shareholders. Potential investors in the Funds are urged to consult their tax
advisers concerning the application of federal, state and local taxes as such
laws and regulations affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the
amount and nature of such income and capital gains.
WHO MANAGES MY INVESTMENT IN THE FUNDS?
Except where shareholder action is required by law, all of the
authority of the Group is exercised under the direction of the Group's Trustees.
Unless so required by the Group's Declaration of Trust or By-Laws or by Ohio
law, at any given time all of the Trustees may not have been elected by the
shareholders of the Group. The Trustees are empowered to elect officers and
contract with and provide for the compensation of agents, consultants
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and other professionals to assist and advise in its day-to-day operations. The
Group will be managed in accordance with its Declaration of Trust and the laws
of Ohio governing business trusts.
The Trustees of the Group receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of the Adviser or The Ohio Company receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. The Adviser receives fees from the Group for acting as
investment adviser and manager and as dividend and transfer agent. The Ohio
Company receives no fees under its Distribution Agreement with the Group with
respect to Institutional Shares of the Funds, but may receive fees under the
Administrative Services Plan discussed below.
INVESTMENT ADVISER AND MANAGER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street,
Columbus, Ohio 43215, a wholly owned subsidiary of The Ohio Company, is the
investment adviser and manager of each of the Funds. The Adviser is also the
investment adviser and manager of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a
member of the New York and Chicago Stock Exchanges, other regional stock
exchanges and the National Association of Securities Dealers, Inc. Descendants
of H. P. and R. F. Wolfe, deceased, and members of their families, through their
possession of a majority of voting stock, may be considered controlling persons
of The Ohio Company. The Ohio Company serves as the principal underwriter for
each of the Cardinal Funds.
In its capacity as investment adviser, and subject to the ultimate
authority of the Group's Board of Trustees, the Adviser, in accordance with the
Funds' investment objectives and policies, manages each Fund, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since the Reorganization with respect to The Cardinal Fund
and since December 22, 1995, with respect to TCFI, The Cardinal Fund's
predecessor, John Bevilacqua has been primarily responsible for the day-to-day
management of the portfolio of such Funds. Mr. Bevilacqua has been a Vice
President and Portfolio Manager for The Ohio Company since October, 1994. Prior
thereto, and since February, 1984, Mr. Bevilacqua served as Second Vice
President/Investments for Midland Mutual Life Insurance Company, Columbus, Ohio.
Since October 1, 1996, David C. Will and Joseph A. Miner have been responsible
jointly for the day-to-day management of the Balanced Fund's portfolio. Mr. Will
has been a Vice President of the Adviser and The Ohio Company since 1990 and has
more than 25 years of investment management experience. Mr. Miner has been a
Vice President and Senior Portfolio Manager of the Adviser and/or The Ohio
Company since August, 1995. Prior thereto and since 1992, Mr. Miner was a Vice
President and Portfolio Manager with Key Trust Company of Ohio. From 1987 to
1992, Mr. Miner was an investment strategist and an Assistant Vice President of
Citizens Fidelity Capital Management Company, Louisville, Kentucky. Since August
12, 1996, Mr. Harold C. Elliott has been primarily responsible for the
day-to-day management of the Aggressive Growth Fund's portfolio. Mr. Elliott has
been a Vice President and Chief Investment Officer of The Ohio Company since
March, 1996. Prior thereto, from May, 1993 to March, 1996, Mr. Elliott was Vice
President and Chief Investment Officer of The Bank of Tokyo Trust Company (New
York City), a wholly-owned subsidiary of The Bank of Tokyo Limited, Tokyo,
Japan. Prior thereto, from December, 1984 to May, 1993, Mr. Elliott was employed
by First Fidelity Bank, Philadelphia, Pennsylvania.
In addition, pursuant to the Investment Advisory and Management
Agreement, the Adviser generally assists in all aspects of each Fund's
administration and operation.
For the services provided and expenses assumed pursuant to its
Investment Advisory and Management Agreement with the Group with respect to the
Funds, the Adviser receives a fee from the Funds, computed daily and paid
monthly at the following annual rates: with respect to The Cardinal Fund, 0.60%
of such Fund's average daily net assets; and with respect to both the Balanced
Fund and the Aggressive Growth Fund, 0.75% of such
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Funds' average daily net assets. While in the opinion of the staff of the
Commission such fees with respect to the Balanced Fund and the Aggressive Growth
Fund are higher than the advisory fee paid by most mutual funds, the Group's
Board of Trustees believes them to be comparable to advisory fees paid by many
funds having similar objectives and policies.
The Adviser may periodically waive all or a portion of its advisory fee
with respect to a Fund to increase the net income of such Fund available for
distribution as dividends. The waiver of such fee will cause the return and/or
yield of such Fund to be higher than it would otherwise be in the absence of
such a waiver.
On December 22, 1997, The Ohio Company, Fifth Third Bankcorp., and its
wholly owned subsidiary, Fifth Third M Corp., entered into an Agreement and Plan
of Merger pursuant to which The Ohio Company will be acquired by Fifth Third M
Corp. The acquisition is subject to a number of conditions, including the
approval by Trustees and shareholders of the Group of a "new" investment
advisory and management agreement with the Adviser, identical in all material
respects to the Group's current Investment Advisory and Management Agreement
with the Adviser, to become effective on the effective date of The Ohio
Company's acquisition. On such effective date, it is also expected that the
Group will have entered into an underwriting agreement with a new principal
underwriter. In addition, it is expected that Fountain Square Funds, a regulated
investment company with net assets of approximately $3.1 billion as of December
31, 1997, advised by Fifth Third Bank, a subsidiary of Fifth Third Bankcorp.,
will propose the combination of the Group and Fountain Square Funds in a
transaction which, if approved by the Group's Trustees, would be submitted to
the Group's shareholders for consideration and approval.
On January 16, 1998 the Board of Trustees of the Group approved such a
new investment advisory and management agreement and have called a Special
Meeting of Shareholders to be held in March, 1998 to vote on such agreement.
DIVIDEND AND TRANSFER AGENT
The Group has entered into a Transfer Agency Agreement with the
Transfer Agent, 215 East Capital Street, Columbus, Ohio 43215, pursuant to which
the Transfer Agent has agreed to act as the Funds' transfer agent and dividend
disbursing agent. In consideration of such services, each Fund has agreed to pay
the Transfer Agent an annual fee, paid monthly, equal to $18 per shareholder
account plus out-of-pocket expenses.
DISTRIBUTOR
The Group has entered into a Distribution Agreement with The Ohio
Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to which Shares
of the Funds will be offered continuously on a best efforts basis by The Ohio
Company and dealers selected by The Ohio Company. H. Keith Allen is an officer
and trustee of the Group and an officer and director of The Ohio Company. Frank
W. Siegel is an officer and trustee of the Group and an officer of The Ohio
Company. James M. Schrack II is an officer of both the Group and The Ohio
Company. The Ohio Company receives no compensation under the Distribution
Agreement with respect to distribution of the Institutional Shares of the Funds.
EXPENSES
The Adviser bears all expenses in connection with the performance of
its services as investment adviser, manager and transfer agent other than the
cost of securities (including brokerage commissions, if any) purchased for the
Funds. The Trustees reserve the right to allocate certain other expenses, which
can reasonably be identified as relating to a particular class, solely to such
class, including Institutional Shares, as they deem appropriate ("Class
Expenses"). Such expenses include (a) transfer agency fees identified as being
attributable to a specific class; (b) printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxy statements to current shareholders of a specific class; (c) Blue Sky
registration fees incurred by a class of shares; (d) SEC registration fees
incurred by a class; (e) expenses of administrative personnel and services as
required to support the shareholders of a specific class; (f) litigation or
other legal expenses and audit or other accounting expenses relating solely to
one class; (g) trustees' fees or expenses incurred as a result of issues
relating to one class; and (h) shareholder meeting costs that relate to a
specific class.
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ADMINISTRATIVE SERVICES PLAN
The Group has adopted an Administrative Services Plan with respect to
each Fund's Institutional Shares (the "Services Plan") pursuant to which each
Fund is authorized to pay compensation to Financial Institutions, which may
include The Ohio Company, which agree to provide certain ministerial, record
keeping and/or administrative support services for their customers, account
holders or beneficiaries (collectively, "customers") who are the beneficial or
record owner of Institutional Shares of a Fund. In consideration for such
services, a Financial Institution receives a fee from such Fund, computed daily
and paid monthly, at an annual rate of up to .15% of the average daily net asset
value of Institutional Shares of that Fund owned beneficially or of record by
such Financial Institution's customers for whom the Financial Institution
provides such services.
The servicing agreements adopted under the Services Plan (the
"Servicing Agreements") require the Financial Institutions receiving such
compensation to perform certain ministerial, record keeping and/or
administrative support services with respect to the beneficial or record owners
of Institutional Shares of the Funds, such as processing dividend and
distribution payments from the Fund on behalf of customers, providing periodic
statements to customers showing their positions in the Institutional Shares of
that Fund, providing sub-accounting with respect to Institutional Shares
beneficially owned by such customers and providing customers with a service that
invests the assets of their accounts in Institutional Shares of a Fund pursuant
to specific or preauthorized instructions.
As authorized by the Services Plan, the Group has entered into a
Servicing Agreement with The Ohio Company pursuant to which The Ohio Company has
agreed to provide certain administrative support services in connection with
Institutional Shares of the Funds owned of record or beneficially by its
customers for whom The Ohio Company provides fiduciary or trust services. Such
administrative support services may include, but are not limited to, (i)
processing dividend and distribution payments from the Funds on behalf of
customers; (ii) providing periodic statements to its customers showing their
positions in the Institutional Shares; (iii) arranging for bank wires; (iv)
responding to routine customer inquiries relating to services performed by The
Ohio Company; (v) providing sub-accounting with respect to the Institutional
Shares beneficially owned by The Ohio Company's customers or the information
necessary for sub-accounting; (vi) if required by law, forwarding shareholder
communications from a Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
its customers; (vii) aggregating and processing purchase, exchange, and
redemption requests from customers and placing net purchase, exchange, and
redemption orders for customers; and (viii) providing customers with a service
that invests the assets of their account in the Institutional Shares pursuant to
specific or pre-authorized instructions. In consideration of such services, the
Group, on behalf of each Fund, has agreed to pay The Ohio Company a monthly fee,
computed at the annual rate of .15% of the average aggregate net asset value of
Institutional Shares of that Fund held during the period by customers for whom
The Ohio Company has provided services under the Servicing Agreement. Any fees
paid by a Fund to Financial Institutions under the Services Plan will be borne
solely by the Institutional Shares of that Fund.
CUSTODIAN AND FUND ACCOUNTANT
The Group has appointed The Fifth Third Bank ("Fifth Third"), 38
Fountain Square Plaza, Cincinnati, Ohio 45263, as the Funds' custodian. In such
capacity, Fifth Third will hold or arrange for the holding of all portfolio
securities and other assets acquired and owned by the Funds. In addition, Fifth
Third, pursuant to a Fund Accounting and Services Agreement, has agreed with
the Group to provide certain fund accounting services to each of the Funds.
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
The Group was organized as an Ohio business trust on March 23, 1993.
The Group currently consists of six funds. The shares of each of the funds of
the Group, other than the two money market funds, Cardinal Government Securities
Money Market Fund ("CGSMMF") and Cardinal Tax Exempt Money Market Fund
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("CTEMMF"), are currently offered in two separate classes: Investor A Shares,
otherwise referred to as Investor Shares, and Investor Y Shares, otherwise
referred to as Institutional Shares. CGSMMF and CTEMMF each only have one class
of shares. Each share represents an equal proportional interest in a fund with
other shares of the same fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that fund as
are declared at the discretion of the Trustees.
In the event the status of a shareholder or the capacity in which a
shareholder holds Institutional Shares changes such that the shareholder is no
longer eligible to purchase or hold Institutional Shares of a Fund, then such
Institutional Shares will be automatically converted into Investor Shares of
such Fund at respective net asset values. Such conversion of Institutional
Shares into Investor Shares will not result in gain or loss to the shareholder
for federal income tax purposes, and the basis and holding period of the Shares
so converted will not be affected.
Shareholders are entitled to one vote for each dollar of value invested
and a proportionate fractional vote for any fraction of a dollar invested, and
will vote in the aggregate and not by series or class except as otherwise
expressly required by law. For example, shareholders of The Cardinal Fund will
vote in the aggregate with other shareholders of the Group with respect to the
election of trustees and ratification of the selection of independent
accountants. However, shareholders of The Cardinal Fund will vote as a fund, and
not in the aggregate with other shareholders of the Group, for purposes of
approval of amendments to the investment advisory agreement as it relates to The
Cardinal Fund or any of The Cardinal Fund's fundamental policies.
Overall responsibility for the management of the Funds is vested in the
Board of Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUNDS?"
Individual Trustees are elected by the shareholders of the Group, although
Trustees may under certain circumstances fill vacancies, including vacancies
created by expanding the size of the Board. Trustees may be removed by the Board
of Trustees or shareholders in accordance with the provisions of the Declaration
of Trust and By-Laws of the Group and Ohio law. See "ADDITIONAL INFORMATION -
Miscellaneous" in the Statement of Additional Information for further
information.
An annual or special meeting of shareholders to conduct necessary
business is not required by the Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances, to elect Trustees, amend the
Declaration of Trust, approve the investment advisory agreement and to satisfy
certain other requirements. To the extent that such a meeting is not required,
the Group does not intend to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call
a special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c) of
the 1940 Act. At such meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to a fund" means the consideration received by
the fund upon the issuance or sale of shares in that fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or amounts derived from any reinvestment of such
proceeds, and any general assets of the Group not readily identified as
belonging to a particular fund that are allocated to the fund by the Group's
Board of Trustees. The Board of Trustees may allocate such general assets in any
manner it deems fair and equitable. Determinations by the Board of Trustees of
the Group as to the timing of the allocation of general liabilities and expenses
and as to the timing and allocable portion of any general assets with respect to
a Fund are conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding shares" of a Fund means
the affirmative vote, at a meeting of shareholders duly called, of the lesser
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<PAGE> 135
of (a) 67% or more of the votes of shareholders of that Fund present at a
meeting at which the holders of more than 50% of the votes attributable to
shareholders of record of the Fund are represented in person or by proxy, or (b)
the holders of more than 50% of the outstanding votes of shareholders of the
Fund.
Shareholders should direct all inquiries concerning such matters to the
Transfer Agent in writing to 215 East Capital Street, Columbus, Ohio 43215, or
by calling (800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Funds and annual financial reports audited by
independent auditors.
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<PAGE> 136
Investment Adviser and Manager
Cardinal Management Corp.
155 East Broad Street
Columbus, Ohio 43215
Distributor
The Ohio Company
155 East Broad Street
Columbus, Ohio 43215
Transfer Agent and Dividend Paying Agent
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
Custodian
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Legal Counsel
Baker & Hostetler LLP
65 East State Street
Columbus, Ohio 43215
Independent Auditors
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
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<PAGE> 137
TABLE OF CONTENTS
Page
----
PROSPECTUS HIGHLIGHTS............................................... 1
FEE TABLE........................................................... 3
FINANCIAL HIGHLIGHTS................................................ 4
PERFORMANCE INFORMATION............................................. 12
WHAT ARE THE FUNDS?................................................. 12
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUNDS?................................. 13
HOW DO I PURCHASE INSTITUTIONAL SHARES OF THE
FUNDS?..................................................... 21
WHAT DISTRIBUTIONS WILL I RECEIVE?.................................. 22
HOW MAY I REDEEM MY INSTITUTIONAL SHARES?........................... 23
WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED?.................................................. 24
HOW IS NET ASSET VALUE CALCULATED?.................................. 25
DO THE FUNDS PAY FEDERAL INCOME TAX?................................ 25
WHAT ABOUT MY TAXES?................................................ 26
WHO MANAGES MY INVESTMENT IN THE FUNDS?............................. 26
WHAT ARE MY RIGHTS AS A SHAREHOLDER?................................ 29
----------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Funds, the Adviser, or The Ohio Company. This
Prospectus does not constitute an offer by the Funds or by The Ohio Company to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful for the Funds to make
such an offer in such jurisdiction.
PROSPECTUS
January 30, 1998
The Ohio Company
THE CARDINAL FUND
CARDINAL
BALANCED FUND
CARDINAL
AGGRESSIVE
GROWTH FUND
INSTITUTIONAL
SHARES
THE CARDINAL GROUP
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<PAGE> 1
Exhibit 17 (v)
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
ten portfolios (the "Funds") of Fountain Square Funds (the "Trust"):
- Fountain Square U.S. Government Securities Fund;
- Fountain Square Quality Bond Fund;
- Fountain Square Ohio Tax Free Bond Fund;
- Fountain Square Quality Growth Fund;
- Fountain Square Mid Cap Fund;
- Fountain Square Balanced Fund;
- Fountain Square International Equity Fund;
- 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 November 30, 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 November 30, 1997
<PAGE> 2
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE TRUST...................................... 1
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS........................... 1
Types of Investments............................................ 1
When-Issued and Delayed Delivery
Transactions.................................................... 9
Repurchase Agreements........................................... 9
Reverse Repurchase Agreements................................... 10
Lending of Portfolio Securities................................. 10
Restricted And Illiquid Securities.............................. 10
Portfolio Turnover.............................................. 11
Investment Limitations.......................................... 11
Investment Risks (Ohio Tax Free Fund)........................... 15
FOUNTAIN SQUARE FUNDS MANAGEMENT......................................... 16
Officers and Trustees........................................... 16
Trust Ownership................................................. 17
Trustees' Compensation.......................................... 18
Trustee Liability............................................... 18
INVESTMENT ADVISORY SERVICES............................................. 19
Advisor to the Trust............................................ 19
Advisory Fees................................................... 19
Sub-Advisor..................................................... 20
Sub-Advisory Fees............................................... 20
ADMINISTRATIVE SERVICES.................................................. 20
Transfer Agent and Dividend Disbursing
Agent........................................................... 22
BROKERAGE TRANSACTIONS................................................... 22
PURCHASING SHARES........................................................ 23
Distribution Plan and Administrative
Services Agreement
(Investment C Shares Only)...................................... 23
Conversion to Federal Funds..................................... 24
Exchanging Securities for Fund Shares........................... 24
DETERMINING NET ASSET VALUE.............................................. 24
Determining Market Value of Securities.......................... 24
Valuing Municipal Bonds......................................... 25
Use of Amortized Cost........................................... 25
Trading in Foreign Securities................................... 25
REDEEMING SHARES......................................................... 26
Redemption in Kind.............................................. 26
TAX STATUS............................................................... 26
The Funds' Tax Status........................................... 26
Shareholders' Tax Status........................................ 26
Capital Gains................................................... 27
Foreign Taxes................................................... 27
TOTAL RETURN............................................................. 27
YIELD.................................................................... 28
TAX-EQUIVALENT YIELD..................................................... 29
Tax Equivalency Table........................................... 29
PERFORMANCE COMPARISONS.................................................. 31
FINANCIAL STATEMENTS..................................................... 34
APPENDIX................................................................. 35
i
<PAGE> 3
GENERAL INFORMATION ABOUT THE TRUST
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. This Combined Statement of Additional
Information relates only to Investment A Shares and Investment C Shares
(individually and collectively referred to as "Shares," as the context may
require) of the following ten Funds: Fountain Square U.S. Government Securities
Fund ("Government Securities Fund"), Fountain Square Quality Bond Fund ("Quality
Bond Fund"), Fountain Square Ohio Tax Free Bond Fund ("Ohio Tax Free Fund"),
Fountain Square Quality Growth Fund ("Quality Growth Fund"), Fountain Square Mid
Cap Fund ("Mid Cap Fund"), Fountain Square Balanced Fund ("Balanced Fund"),
Fountain Square International Equity Fund ("International Equity Fund"),
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"), with the
International Equity Fund being sub-advised by Morgan Stanley Asset Management,
Inc. (the "Sub-Advisor") (collectively herein referred to as the "Advisors").
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
The combined prospectus discusses the objective of each Fund and the policies
employed to achieve those objectives. The following discussion supplements the
description of the Funds' investment policies in the prospectus. The Funds'
respective investment objectives cannot be changed without approval of
shareholders. Unless otherwise indicated, the investment policies described
below may be changed by the Board of Trustees (the "Trustees") without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
TYPES OF INVESTMENTS
BANK INSTRUMENTS
The Quality Bond Fund, the Quality Growth Fund, the Mid Cap
Fund, the Balanced Fund, the Equity Income Fund, the Bond Fund
For Income, and the Municipal Bond Fund may invest in the
instruments of banks and savings and loans whose deposits are
insured by the Bank Insurance Fund or the Savings Association
Insurance Fund, both of which are administered by the Federal
Deposit Insurance Corporation, such as certificates of
deposit, demand and time deposits, savings shares, and
bankers' acceptances. However, these instruments are not
necessarily guaranteed by those organizations.
FUTURES AND OPTIONS TRANSACTIONS
All of the Funds may engage in futures and options
transactions as described below to the extent consistent with
their investment objectives and policies.
As a means of reducing fluctuations in the net asset value of
Shares of the Funds, the Funds may attempt to hedge all or a
portion of their portfolio through the purchase of put options
on portfolio securities and put options on financial futures
contracts for portfolio securities. The Funds may attempt to
hedge all or a portion of their portfolio by buying and
selling financial futures contracts and writing call options
on futures contracts. The Funds may also write covered call
options on portfolio securities to attempt to increase current
income.
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<PAGE> 4
The Funds will maintain their position in securities, options,
and segregated cash subject to puts and calls until the
options are exercised, closed, or have expired. An option
position may be closed out over-the-counter or on an exchange
which provides a secondary market for options of the same
series.
FUTURES CONTRACTS. The Funds may enter into futures contracts.
A futures contract is a firm commitment by two parties, the
seller who agrees to make delivery of the specific type of
security called for in the contract ("going short") and the
buyer who agrees to take delivery of the security ("going
long") at a certain time in the future. However, a securities
index futures contract is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash
equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index was originally written. No physical delivery
of the underlying security in the index is made.
Financial futures contracts call for the delivery of
particular debt instruments issued or guaranteed by the U.S.
Treasury or by specified agencies or instrumentalities of the
U.S. government at a certain time in the future.
The purpose of the acquisition or sale of a futures contract
by a Fund is to protect it from fluctuations in the value of
securities caused by unanticipated changes in interest rates
or stock prices without necessarily buying or selling
securities. For example, in the fixed income securities
market, price moves inversely to interest rates. A rise in
rates means a drop in price. Conversely, a drop in rates means
a rise in price. In order to hedge its holdings of fixed
income securities against a rise in market interest rates, a
Fund could enter into contracts to "go short" to protect
itself against the possibility that the prices of its fixed
income securities may decline during the Fund's anticipated
holding period. The Fund would "go long" to hedge against a
decline in market interest rates. The International Equity
Fund may also invest in securities index futures contracts
when the Sub-Advisor believes such investment is more
efficient, liquid or cost-effective than investing directly in
the securities underlying the index.
STOCK INDEX OPTIONS. The Funds may purchase put options on
stock indices listed on national securities exchanges or
traded in the over-the-counter market. A stock index
fluctuates with changes in the market values of the stocks
included in the index.
The effectiveness of purchasing stock index options will
depend upon the extent to which price movements in the Funds'
portfolio correlate with price movements of the stock index
selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a
particular stock, whether the Funds will realize a gain or
loss from the purchase of options on an index depends upon
movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry
or market segment, rather than movements in the price of a
particular stock. Accordingly, successful use by the Funds of
options on stock indices will be subject to the ability of the
Advisors to predict correctly movements in the direction of
the stock market generally or of a particular industry. This
requires different skills and techniques than predicting
changes in the price of individual stocks.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Funds may
purchase listed (and, in the case of International Equity
Fund, over-the-counter) put options on financial futures
contracts. The Funds would use these options only to protect
portfolio securities against decreases in value resulting from
market factors such as anticipated increase in interest rates,
or in the case of the International Equity Fund when the
Sub-Advisor believes such investment is more efficient, liquid
2
<PAGE> 5
or cost-effective than investing directly in the futures
contract or the underlying securities or when such futures
contracts or securities are unavailable for investment upon
favorable terms.
Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set
date at a specified price, the purchase of a put option on a
futures contract entitles (but does not obligate) its
purchaser to decide on or before a future date whether to
assume a short position at the specified price. Generally, if
the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In
such an event, a Fund will normally close out its option by
selling an identical option. If the hedge is successful, the
proceeds received by a Fund upon the sale of the second option
will be large enough to offset both the premium paid by a Fund
for the original option plus the realized decrease in value of
the hedged securities.
Alternatively, a Fund may exercise its put option to close out
the position. To do so, it would simultaneously enter into a
futures contract of the type underlying the option (for a
price less than the strike price of the option) and exercise
the option. A Fund would then deliver the futures contract in
return for payment of the strike price. If a Fund neither
closes out nor exercises an option, the option will expire on
the date provided in the option contract, and only the premium
paid for the contract will be lost.
The International Equity Fund may write listed put options on
financial futures contracts to hedge its portfolio or when the
Sub-Advisor believes such investment is more efficient, liquid
or cost-effective than investing directly in the futures
contract or the underlying securities or when such futures
contracts or securities are unavailable for investment upon
favorable terms. When the Fund writes a put option on a
futures contract, it receives a premium for undertaking the
obligation to assume a long futures position (buying a futures
contract) at a fixed price at any time during the life of the
option.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Funds may
write listed call options or over-the-counter call options on
futures contracts, to hedge their portfolios against an
increase in market interest rates, or in the case of
International Equity Fund, when the Sub-Advisor believes such
investment is more efficient, liquid or cost-effective than
investing directly in the futures contract or the underlying
securities or when such futures contracts or securities are
unavailable for investment upon favorable terms. When a Fund
writes a call option on a futures contract, it is undertaking
the obligation of assuming a short futures position (selling a
futures contract) at the fixed strike price at any time during
the life of the option if the option is exercised. As market
interest rates rise and cause the price of futures to
decrease, a Fund's obligation under a call option on a future
(to sell a futures contract) costs less to fulfill, causing
the value of a Fund's call option position to increase.
In other words, as the underlying future's price goes down
below the strike price, the buyer of the option has no reason
to exercise the call, so that a Fund keeps the premium
received for the option. This premium can help substantially
offset the drop in value of a Fund's portfolio securities.
Prior to the expiration of a call written by a Fund, or
exercise of it by the buyer, a Fund may close out the option
by buying an identical option. If the hedge is successful, the
cost of the second option will be less than the premium
received by a Fund for the initial option. The net premium
income of a Fund will then substantially offset the realized
decrease in value of the hedged securities.
3
<PAGE> 6
The International Equity Fund may buy listed call options on
financial futures contracts to hedge its portfolio. When the
Fund purchases a call option on a futures contract, it is
purchasing the right (not the obligation) to assume a long
futures position (buy a futures contract) at a fixed price at
any time during the life of the option.
LIMITATION ON OPEN FUTURES POSITIONS. A Fund will not maintain
open positions in futures contracts it has sold or options it
has written on futures contracts if, in the aggregate, the
value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus
the unrealized gain or loss on those open positions, adjusted
for the correlation of volatility between the securities or
securities index underlying the futures contract and the
futures contracts. If a Fund exceeds this limitation at any
time, it will take prompt action to close out a sufficient
number of open contracts to bring its open futures and options
positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS. Unlike the purchase or sale
of a security, the Funds do not pay or receive money upon the
purchase or sale of a futures contract. Rather, the Funds are
required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that a futures contract's initial margin does
not involve the borrowing by a Fund to finance the
transactions. Initial margin is in the nature of a performance
bond or good faith deposit on the contract which is returned
to a Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day a Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to
market." Variation margin does not represent a borrowing or
loan by a Fund but is instead settlement between a Fund and
the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset
value, a Fund will mark to market its open futures positions.
The Funds are also required to deposit and maintain margin
when they write call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES. The Funds may
purchase put options on portfolio securities to protect
against price movements in particular securities in their
respective portfolios. A put option gives a Fund, in return
for a premium, the right to sell the underlying security to
the writer (seller) at a specified price during the term of
the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES. The
Funds may also write covered call options to generate income.
As the writer of a call option, a Fund has the obligation,
upon exercise of the option during the option period, to
deliver the underlying security upon payment of the exercise
price. A Fund may sell call options either on securities held
in its portfolio or on securities which it has the right to
obtain without payment of further consideration (or securities
for which it has segregated cash in the amount of any
additional consideration).
OVER-THE-COUNTER OPTIONS. The Funds may purchase and write
over-the-counter options on portfolio securities in negotiated
transactions with the buyers or writers of the options for
those options on portfolio securities held by a Fund and not
traded on an exchange.
4
<PAGE> 7
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
The Government Securities Fund, the Quality Bond Fund, the
Balanced Fund and 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 Quality Growth Fund, the Mid Cap Fund, the Balanced Fund,
the International Equity Fund and 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 several of these securities.
The investment characteristics of each convertible security
vary widely, which allows convertible securities to be
employed for a variety of investment strategies. Each of these
Funds will exchange or convert the convertible securities held
in its portfolio into shares of the underlying common stock
when, in the Advisor's opinion, the investment characteristics
of the underlying common shares will assist the Fund in
achieving its investment objectives. Otherwise the Fund may
hold or trade convertible securities. In selecting convertible
securities for the Fund, the Advisor evaluates the investment
characteristics of the convertible security as a fixed income
instrument and the investment potential of the underlying
equity security for capital appreciation. In evaluating these
matters with respect to a particular convertible security, the
Advisor considers numerous factors, including the economic and
political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and
practices.
WARRANTS
The Quality Growth Fund, the Mid Cap Fund, the Balanced Fund,
the International Equity Fund, and 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 Ohio Tax Free Fund may invest in Ohio municipal securities
which have the characteristics set forth in the prospectus.
The Municipal Bond Fund may invest in municipal securities of
any state which have the characteristics set forth in the
prospectus. If a high-rated bond loses its
5
<PAGE> 8
ratings or has its rating reduced after the Fund has purchased
it, the Fund is not required to drop the bond from the
portfolio, but will consider doing so. If ratings made by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch") change because of changes in those organizations or
in their rating systems, the Funds will try to use comparable
ratings as standards in accordance with the investment
policies described in the Funds' 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;
- pre-refunded municipal bonds whose timely payment of
interest and principal is ensured by an escrow of
U.S. government obligations; and
- general obligation bonds.
PARTICIPATION INTERESTS. The Ohio Tax Free Fund and the
Municipal Bond Fund may invest in participation interests. The
financial institutions from which the Ohio Tax Free Fund and
the Municipal Bond Fund purchase participation interests
frequently provide or secure from another financial
institution irrevocable letters of credit or guarantees and
give the Funds the right to demand payment of the principal
amounts of the participation interests plus accrued interest
on short notice (usually within seven days).
VARIABLE RATE MUNICIPAL SECURITIES. The Ohio Tax Free Fund and
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 Funds are
subject to repayment of principal (usually within seven days)
on the Funds' demand. The terms of these variable-rate demand
instruments require payment of principal and accrued interest
from the issuer of the municipal obligations, the issuer of
the participation interests, or a guarantor of either issuer.
MUNICIPAL LEASES. The Ohio Tax Free Fund and 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,
6
<PAGE> 9
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 Ohio Tax Free Fund and 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 Funds may invest a portion of their assets
in cash. Any portion of a Fund's assets maintained in cash
will reduce the amount of assets in municipal bonds and
thereby reduce the Fund's yield.
FOREIGN CURRENCY TRANSACTIONS
The International Equity Fund may engage in foreign currency
transactions.
CURRENCY RISKS. The exchange rates between the U.S. dollar and
foreign currencies are a function of such factors as supply
and demand in the currency exchange markets, international
balances of payments, governmental intervention, speculation
and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not
convert its holdings of foreign currencies to U.S. dollars
daily. The Fund may incur conversion costs when it converts
its holdings to another currency. Foreign exchange dealers may
realize a profit on the difference between the price at which
the Fund buys and sells currencies.
The Fund will engage in foreign currency exchange transactions
in connection with its portfolio investments. The Fund will
conduct its foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through forward contracts
to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may
enter into forward foreign currency exchange contracts in
order to protect against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and
a foreign currency involved in an underlying transaction.
However, forward foreign currency exchange contracts may limit
potential gains which could result from a positive change in
such currency relationships. The Advisors believe that it is
important to have the flexibility to enter into forward
foreign currency exchange contracts whenever it determines
that it is in the Fund's best interest to do so. The Fund will
not speculate in foreign currency exchange.
The Fund will not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts when it
would be obligated to deliver an amount of foreign currency
7
<PAGE> 10
in excess of the value of its portfolio securities or other
assets denominated in that currency or, in the case of a
"cross-hedge" denominated in a currency or currencies that the
Advisors believe will tend to be closely correlated with that
currency with regard to price movements. Generally, the Fund
will not enter into a forward foreign currency exchange
contract with a term longer than one year.
FOREIGN CURRENCY OPTIONS. A foreign currency option provides
the option buyer with the right to buy or sell a stated amount
of foreign currency at the exercise price on a specified date
or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency.
Conversely, the owner of a put option has the right, but not
the obligation, to sell the currency.
When the option is exercised, the seller (i.e., writer) of the
option is obligated to fulfill the terms of the sold option.
However, either the seller or the buyer may, in the secondary
market, close its position during the option period at any
time prior to expiration.
A call option on foreign currency generally rises in value if
the underlying currency appreciates in value, and a put option
on foreign currency generally rises in value if the underlying
currency depreciates in value. Although purchasing a foreign
currency option can protect the Fund against an adverse
movement in the value of a foreign currency, the option will
not limit the movement in the value of such currency. For
example, if the Fund was holding securities denominated in a
foreign currency that was appreciating and had purchased a
foreign currency put to hedge against a decline in the value
of the currency, the Fund would not have to exercise their put
option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in
conjunction with that purchase, were to purchase a foreign
currency call option to hedge against a rise in value of the
currency, and if the value of the currency instead depreciated
between the date of purchase and the settlement date, the Fund
would not have to exercise its call. Instead, the Fund could
acquire in the spot market the amount of foreign currency
needed for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS. Buyers
and sellers of foreign currency options are subject to the
same risks that apply to options generally. In addition, there
are certain additional risks associated with foreign currency
options. The markets in foreign currency options are
relatively new, and the Fund's ability to establish and close
out positions on such options is subject to the maintenance of
a liquid secondary market. Although the Fund will not purchase
or write such options unless and until, in the opinion of the
Advisors, the market for them has developed sufficiently to
ensure that the risks in connection with such options are not
greater than the risks in connection with the underlying
currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific
time.
In addition, options on foreign currencies are affected by all
of those factors that influence foreign exchange rates and
investments generally.
The value of a foreign currency option depends upon the value
of the underlying currency relative to the U.S. dollar. As a
result, the price of the option position may vary with changes
in the value of either or both currencies and may have no
relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency
options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
8
<PAGE> 11
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirement that
quotations available through dealers or other market sources
be firm or revised on a timely basis. Available quotation
information is generally representative of very large
transactions in the interbank market and thus may not reflect
relatively smaller transactions (i.e., less than $1 million)
where rates may be less favorable. The interbank market in
foreign currencies is a global, around-the-clock market. To
the extent that the U.S. option markets are closed while the
markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying
markets that cannot be reflected in the options markets until
they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS. By using foreign
currency futures contracts and options on such contracts, the
Fund may be able to achieve many of the same objectives as it
would through the use of forward foreign currency exchange
contracts. The Fund may be able to achieve these objectives
possibly more effectively and at a lower cost by using futures
transactions instead of forward foreign currency exchange
contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES
CONTRACTS AND RELATED OPTIONS. Buyers and sellers of foreign
currency futures contracts are subject to the same risks that
apply to the use of futures generally. In addition, there are
risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with
options on currencies, as described above.
Options on foreign currency futures contracts may involve
certain additional risks. Trading options on foreign currency
futures contracts is relatively new. The ability to establish
and close out positions on such options is subject to the
maintenance of a liquid secondary market. To reduce this risk,
the Fund will not purchase or write options on foreign
currency futures contracts unless and until, in the opinion of
the Advisors, the market for such options has developed
sufficiently that the risks in connection with such options
are not greater than the risks in connection with transactions
in the underlying foreign currency futures contracts. Compared
to the purchase or sale of foreign currency futures contracts,
the purchase of call or put options on futures contracts
involves less potential risk to the Fund because the maximum
amount at risk is the premium paid for the option (plus
transaction costs). However, there may be circumstances when
the purchase of a call or put option on a futures contract
would result in a loss, such as when there is no movement in
the price of the underlying currency or futures contract.
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.
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
9
<PAGE> 12
of a Fund's portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of a Fund and allow retention or
disposition of such securities. The Funds will only enter into repurchase
agreements with banks and other recognized financial institutions such as
broker/dealers which are deemed by the Advisors to be creditworthy pursuant to
guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, a Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future it will repurchase the portfolio instrument by remitting the original
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.
LENDING OF PORTFOLIO SECURITIES
The collateral received when a Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of a Fund or the borrower. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. A Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in securities issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) securities are restricted as to disposition under the federal securities
laws and are generally sold to institutional investors, such as the Funds, who
agree that they are purchasing such securities for investment purposes and not
with a view to public distributions. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) securities are normally resold to other
institutional investors like the Funds through or with the assistance of the
issuer or investment dealers who make a market in such securities, thus
providing liquidity. The Funds believe that Section 4(2) securities and possibly
certain other restricted securities which meet the criteria for liquidity
established by the Trustees are quite liquid. The Funds intend, therefore, to
treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) securities, as determined by
the Advisors, as liquid and not subject to the investment limitation applicable
to illiquid securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange commission ("SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A.
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<PAGE> 13
The Fund believes that the Staff of the SEC has left the question of determining
the liquidity of all restricted securities to the Trustees. The Trustees
consider the following criteria in determining the liquidity of certain
restricted securities:
- the frequency of trades and quotes for the security;
- the number of dealers willing to purchase or sell the security
and the number of other potential buyers;
- dealer undertakings to make a market in the security; and
- the nature of the security and the nature of the marketplace
trades.
PORTFOLIO TURNOVER
The Funds will not attempt to set or meet portfolio turnover rates since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Funds' investment objectives. The following is a list of the portfolio
turnover rates for the Funds:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
JULY 31, 1997 JULY 31, 1996
<S> <C> <C>
Government Securities Fund 169% 103%
Quality Bond Fund 182% 117%
Ohio Tax Free Fund 49% 30%
Quality Growth Fund 37% 37%
Mid Cap Fund 52% 54%
Balanced Fund 101% 61%
International Equity Fund 60% 41%
Equity Income Fund(1) 14% --
Bond Fund For Income(1) 80% --
Municipal Bond Fund(1) 31% --
</TABLE>
(1)Information for the fiscal year ended July 31, 1997 reflects the period from
January 27, 1997 (date of initial public investment) to July 31, 1997.
The increases in portfolio turnover for each of the Government Securities Fund,
the Quality Bond Fund, the Ohio Tax Free Fund and the Balanced Fund were
principally due to the unusually high level of volatility in the interest rate
markets which produced increased trading opportunities. The increase in
portfolio turnover for the International Equity Fund was principally due the
Fund's adherence to its strategy of taking advantage of fluctuations in the
overseas equities market, which was subject to greater volatility than usual.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that a Fund
may borrow money directly or through reverse repurchase
agreements in amounts up to one-third of the value of its
total assets, including the amount borrowed; and except to the
extent that a Fund (with the exception of Ohio Tax Free Fund
and 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,
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<PAGE> 14
but rather as a temporary, extraordinary, or emergency measure
or to facilitate management of the portfolio by enabling a
Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or
disadvantageous. A Fund will not purchase any securities while
any borrowings in excess of 5% of its total assets are
outstanding.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits
as are necessary for clearance of purchases and sales of
securities.
The deposit or payment by the Funds (with the exception of
Ohio Tax Free Fund and 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.
LENDING CASH OR SECURITIES
The Funds will not lend any of their respective assets except
portfolio securities up to one-third of the value of total
assets. This shall not prevent a Fund from purchasing or
holding U.S. government obligations, money market instruments,
publicly or non-publicly issued municipal bonds, variable rate
demand notes, bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where
permitted by a Fund's investment objective, policies, and
limitations or the Trust's Declaration of Trust.
The Ohio Tax Free Fund and the Municipal Bond Fund may,
however, acquire temporary investments or enter into
repurchase agreements in accordance with their respective
investment objective, policies and limitations or the Trust's
Declaration of Trust.
INVESTING IN COMMODITIES
None of the Funds will purchase or sell commodities, commodity
contracts, or commodity futures contracts except to the extent
that the Funds (with the exception of Ohio Tax Free Fund,
Government Securities Fund and 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 (with the
exception of Government Securities Fund) may invest in
securities of issuers whose business involves the purchase or
sale of real estate or in securities which are secured by real
estate or interests in real estate.
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<PAGE> 15
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of their respective total
assets, a Fund (with the exception of Ohio Tax Free Fund) will
not purchase securities issued by any one issuer (other than
cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by
such securities), if as a result more than 5% of the value of
their total assets would be invested in the securities of that
issuer. A Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer.
DEALING IN PUTS AND CALLS
The Ohio Tax Free Fund and the Municipal Bond Fund will not
buy or sell puts, calls, straddles, spreads, or any
combination of these.
CONCENTRATION OF INVESTMENTS
The Government Securities Fund, Quality Bond Fund, Quality
Growth Fund, Mid Cap Fund, Balanced Fund and International
Equity Fund will not invest 25% or more of the value of their
respective total assets in any one industry, except that these
Funds may invest more than 25% of the value of its total
assets in securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities and repurchase
agreements collateralized by such securities.
The Ohio Tax Free Fund and the Municipal Bond Fund will not
purchase securities if, as a result of such purchase, 25% or
more of the value of their respective 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 Funds
may invest as temporary investments more than 25% of the value
of their respective assets in cash or cash items, securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money
market instruments, i.e., repurchase agreements.
UNDERWRITING
A Fund will not underwrite any issue of securities, except as
a Fund may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in
accordance with its investment objective, policies, and
limitations.
The above limitations cannot be changed with respect to a Fund without approval
of the holders or a majority of that Fund's Shares. The following limitations
may be changed by the Trustees without shareholder approval. Shareholders will
be notified before any material change in these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Funds will not invest more than 10% of the value of their
respective net assets in securities that are subject to
restrictions on resale under federal securities law.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of the value of their
respective net assets in illiquid securities, including, as
applicable, repurchase agreements providing for settlement
more than seven days after notice, over-the-counter options,
certain restricted securities not determined by the Trustees
to be liquid, and non-negotiable time deposits with maturities
over seven days.
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<PAGE> 16
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their respective investments in other
investment companies to no more than 3% of the total
outstanding voting stock of any investment company, invest no
more than 5% of their respective total assets in any one
investment company, and will invest no more than 10% of their
respective total assets in investment companies in general.
The Funds will purchase securities of closed-end investment
companies only in open market transactions involving only
customary broker's commissions. However, these limitations are
not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. It
should be noted that investment companies incur certain
expenses such as management fees and, therefore, any
investment by a Fund in shares of another investment company
would be subject to such expenses.
INVESTING IN NEW ISSUERS
The Government Securities Fund, Quality Bond Fund, Quality
Growth Fund, Mid Cap Fund, Balanced Fund and International
Equity Fund will not invest more than 5% of the value of their
respective total assets in securities of issuers which have
records of less than three years of continuous operations,
including the operation of any predecessor.
The Ohio Tax Free Fund and the Municipal Bond Fund will not
invest more that 5% of the value of their respective total
assets in industrial development bonds where the principal and
interest are the responsibility of companies (or guarantors,
where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
TRUSTEES OF THE TRUST
A Fund will not purchase or retain the securities of any
issuer if the officers and Trustees of the Trust or its
investment advisor, owning individually more than 1/2 of 1% of
the issuer's securities, together own more than 5% of the
issuer's securities.
INVESTING IN MINERALS
A Fund will not purchase interests in oil, gas, or other
mineral exploration or development programs or leases, except
they may purchase the securities of issuers which invest in or
sponsor such programs.
ARBITRAGE TRANSACTIONS
A Fund will not enter into transactions for the purpose of
engaging in arbitrage.
PURCHASING SECURITIES TO EXERCISE CONTROL
A Fund will not purchase securities of a company for the
purpose of exercising control or management.
INVESTING IN WARRANTS
The Quality Growth Fund, Mid Cap Fund, Balanced Fund,
International Equity Fund, and Equity Income Fund may not
invest more than 5% of their net assets in warrants, including
those acquired in units or attached to other securities. To
comply with certain state restrictions, a Fund will limit its
investment in such warrants not listed on the New York or
American Stock
14
<PAGE> 17
Exchanges to 2% of its net assets. (If state restrictions
change, this latter restriction may be revised without notice
to shareholders.) For purposes of this investment restriction,
warrants will be valued at the lower of cost or market, except
that warrants acquired by a Fund in units with or attached to
securities may be deemed to be without value.
INVESTING IN PUT OPTIONS
The International Equity Fund will not purchase put options on
securities or futures contracts, unless the securities or
futures contracts are held in the Fund's portfolio or unless
the Fund in entitled to them in deliverable form without
further payment or after segregating cash in the amount of any
further payment.
WRITING COVERED CALL OPTIONS
The International Equity Fund will not write call options on
securities or futures contracts unless the securities of
futures contracts are held in the Fund's portfolio or unless
the Fund is entitled to them in deliverable form without
further payment or after segregating cash in the amount of any
further payment.
Except with respect to the Funds' policy of borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not result
in a violation of such restriction. For purposes of its policies and
limitations, the Funds consider certificates of deposit and demand and time
deposits issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
The Ohio Tax Free Fund and the Municipal Bond Fund do not expect to borrow money
or pledge securities in excess of 5% of the value of their respective net assets
during the coming fiscal year.
INVESTMENT RISKS (OHIO TAX FREE FUND)
The economy of the state of Ohio is reliant in part on durable goods
manufacturing, largely concentrated in motor vehicles and equipment, steel,
rubber products and household appliances. During the past decade, competition in
various industries in the state of Ohio has changed from being domestic to
international in nature. In addition, these industries may be characterized as
having excess capacity in particular product segments. The steel industry, in
particular, and the automobile industry, to a lesser extent, share these
characteristics. Because the state of Ohio and certain underlying municipalities
have large exposure to these industries and their respective aftermarkets,
trends in these industries may, over the long term, impact the demographic and
financial position of the state of Ohio and its municipalities. To the degree
that domestic manufacturers in industries to which Ohio municipalities have
exposure fail to make competitive adjustments, employment statistics and
disposable income of residents in Ohio may deteriorate, possibly leading to
population declines and erosion of municipality tax bases.
Both the economic trends above and the political climate in various
municipalities may have contributed to the decisions of various businesses and
individuals to relocate outside the state. A municipality's political climate in
particular may affect its own credit standing. For both the state of Ohio and
underlying Ohio municipalities, adjustment of credit ratings by the rating
agencies may affect the ability to issue securities and thereby affect the
supply of obligations meeting the quality standards for investment by the Fund.
The state ended fiscal year 1993 with a positive budgetary fund balance of over
$100 million. The 1994-1995 biennial budget was formulated with reasonable
revenue assumptions. The state implemented a revenue enhancement package in
January of 1993 that increased the cigarette tax and the income tax bracket for
incomes over $200,000, broadened the sales tax base and capped tax distributions
to local governments. These and other
15
<PAGE> 18
minor revenue enhancements are budgeted to add $912 million of additional
revenue to the 1994-1995 biennial budget. The state's fund balance reserve
levels continue to be minimal but the state has demonstrated its ability to
manage with limited financial flexibility.
The state has established procedures for municipal fiscal emergencies under
which joint state/local commissions are established to monitor the fiscal
affairs of a financially troubled municipality. When these procedures are
invoked, the municipality must develop a financial plan to eliminate deficits
and cure any defaults. Since their adoption in 1979, these procedures have been
applied to approximately twenty-two cities and villages, including the city of
Cleveland; in sixteen of these communities, the fiscal situation has been
resolved and the procedures terminated.
The foregoing discussion only highlights some of the significant financial
trends and problems affecting the state of Ohio and underlying municipalities.
FOUNTAIN SQUARE FUNDS MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, principal
occupations, and present positions. Except as listed below, none of the Trustees
or officers are affiliated with Fifth Third Bank (the "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
425 Walnut Street
Cincinnati, OH 45202
Birthdate: December 17, 1938
16
<PAGE> 19
Member of the Board of Trustees
Formerly, President, Local Marketing Corporation (retired December 31, 1993)
Stephen G. Mintos
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: February 5, 1954
President
From January 1987 to the present, employee of BISYS Fund Services, Inc.
George R. Landreth
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: July 11, 1942
Vice President
From December 1992 to present, employee of BISYS Fund Services, Inc.; from July
1991 to December 1992, employee of PNC Financial Corporation.
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.
17
<PAGE> 20
Fifth Third Bank, as nominee for numerous trust and agency accounts, was the
owner of record of more than 5% of the outstanding Shares of each Fund as of
August 31, 1997. The following list indicates the extent of its ownership for
each Fund.
Government Securities Fund: 4,248,460 shares 90.0%
Quality Bond Fund: 9,384,589 shares 91.5%
Ohio Tax Free Fund: 16,355,277 shares 88.1%
Quality Growth Fund: 21,055,927 shares 87.2%
Mid Cap Fund: 10,951,897 shares 90.0%
Balanced Fund: 8,174,429 shares 78.7%
International Equity Fund: 12,583,485 shares 96.9%
Equity Income Fund: 8,280,345 shares 98.5%
Bond Fund For Income: 12,995,082 shares 99.5%
Municipal Bond Fund: 8,340,794 shares 99.4%
TRUSTEES' COMPENSATION
NAME AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*+
Edward Burke Carey
Trustee $7,800
Lee A. Carter
Trustee $6,600
Albert E. Harris
Trustee, Chairman of the Board $9,800
*Information is furnished for the fiscal year ended July 31, 1997. 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.
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.
18
<PAGE> 21
INVESTMENT ADVISORY SERVICES
ADVISOR TO THE TRUST
The Trust's advisor is Fifth Third Bank. It provides investment advisory
services through its Trust and Investment Division. Fifth Third Bank is a
wholly-owned subsidiary of Fifth Third Bancorp.
The Advisor shall not be liable to the Trust, a Fund, or any shareholder of any
of the Funds for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Fifth Third Bank to restrict the
flow of non-public information, a Fund's investments are typically made without
any knowledge of Fifth Third Bank's or affiliates' lending relationship with an
issuer.
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the prospectus. The following shows all investment
advisory fees incurred by the Funds and the amounts of those fees that were
voluntarily waived by the Advisor for the fiscal years ended July 31, 1997, July
31, 1996, and July 31, 1995:
<TABLE>
<CAPTION>
====================================================================================================================================
YEAR ENDED AMOUNT YEAR ENDED AMOUNT YEAR ENDED AMOUNT
FUND NAME JULY 31, 1997 WAIVED-1997 JULY 31, 1996 WAIVED-1996 JULY 31, 1995 WAIVED-1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Government Securities
Fund $233,799 $45,748 $153,416 $74,182 $ 134,241 $ 83,786
- ------------------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $483,167 $17,650 $402,013 $35,943 $ 265,658 $ 33,033
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio Tax Free Fund(1) $813,101 $0 $177,022 $9,656 $ 142,708 $ 7,814
- ------------------------------------------------------------------------------------------------------------------------------------
Quality Growth Fund $2,328,245 $0 $901,809 $953 $ 536,144 $ 18,889
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $1,146,430 $4,161 $528,676 $26,747 $ 287,494 $ 52,747
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $861,073 $17,327 $632,772 $36,873 $ 424,672 $ 18,857
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity
Fund $1,360,967 $0 $1,049,641 $57,525 $ 641,669(2) $ 45,670
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $441,829(3) $0 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Bond Fund For
Income $410,755(3) $0 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund $282,200(3) $0 -- -- -- --
====================================================================================================================================
</TABLE>
(1) In addition to the waivers noted, the Advisor voluntarily reimbursed certain
operating expenses of the Ohio Tax Free Bond Fund during the fiscal years ended
July 31, 1997, July 31, 1996, and July 31, 1995, of $11,621, $84,063, and
$179,400, respectively.
(2) For the period from August 19, 1994 (date of initial public investment) to
July 31, 1995.
(3) For the period from January 27, 1997 (date of commencement of operations) to
July 31, 1997.
19
<PAGE> 22
SUB-ADVISOR
Morgan Stanley Asset Management, Inc. is the sub-advisor to International Equity
Fund under the terms of a Sub- Advisory Agreement between Fifth Third Bank and
Morgan Stanley Asset Management, Inc.
SUB-ADVISORY FEES
For its sub-advisory services, Morgan Stanley Asset Management, Inc. receives an
annual sub-advisory fee paid by the Advisor as described in the prospectus.
For the period from August 19, 1994 (date of initial public investment) through
July 31, 1995, the Sub-Advisor earned fees from International Equity Fund of
$320,835, of which $22,835 was waived. For the year ended July 31, 1996, the
Sub-Advisor earned fees from International Equity Fund of $524,821, of which
$28,763 was waived. For the year ended July 31, 1997, the Sub-Advisor earned
fees from International Equity Fund of $680,483, of which $0.00 was waived.
ADMINISTRATIVE SERVICES
Until December 1, 1995, Federated Administrative Services, which is a subsidiary
of Federated Investors, provided administrative personnel and services to the
Funds. The following shows all fees earned by Federated Administrative Services
and the amounts of those fees that were voluntarily waived for the four-month
period ended December 1, 1995, and the fiscal year ended July 31, 1995:
<TABLE>
<CAPTION>
================================================================================================================================
FOUR-MONTH AMOUNT WAIVED
FUND NAME PERIOD ENDED DECEMBER AUGUST 1, 1995 TO YEAR ENDED AMOUNT
1, 1995 DECEMBER 1, 1995 JULY 31, 1995 WAIVED-1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government Securities
Fund $16,770 $ 0 $ 50,047 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $22,486 $ 0 $ 53,404 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Ohio Tax Free Fund $16,770 $ 0 $ 50,000 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Quality Growth Fund $33,213 $ 0 $ 74,089 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $19,527 $ 0 $ 50,000 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $19,760 $ 0 $ 58,741 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
International Equity Fund
$ ------- $ 0 $ 142,192* $ 0
================================================================================================================================
</TABLE>
*For the period from August 19, 1994 (date of initial public investment) to July
31, 1995.
Effective December 1, 1995, BISYS Fund Services L.P., 3435 Stelzer Road,
Columbus, Ohio 43219, provided administrative personnel and services to the
Funds for the fees set forth in the prospectus. The following shows all fees
earned by BISYS and the amounts of those fees that were voluntarily waived. For
the year ended July 31, 1997, and the eight-month period ended July 31, 1996:
20
<PAGE> 23
<TABLE>
<CAPTION>
================================================================================================================================
YEAR ENDED AMOUNT EIGHT-MONTH PERIOD AMOUNT WAIVED
JULY 31, 1997 WAIVED-1997 ENDED JULY 31, 1996 DECEMBER 1, 1995
TO JULY 1, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government Securities Fund $55,179 $14,275 $13,327 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $114,352 $29,728 $35,961 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Ohio Tax Free Fund $197,989 $11,017 $15,306 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Quality Growth Fund $396,610 $16,801 $56,852 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $191,888 $16,294 $33,025 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $141,253 $30,357 $39,823 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $166,482 $ 0 $114,974(1) $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $84,693 $36,958(2) -- $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Bond Fund for Income $114,052 $50,011(2) -- $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund $77,342 $33,330(2) -- $ 0
================================================================================================================================
</TABLE>
(1) For the entire fiscal year, August 1, 1995 through July 31, 1996.
(2) For the period from January 27, 1997 (date of commencement of operations) to
July 31, 1997.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performs sub-administration services on behalf
of each Fund, for which it receives compensation from BISYS Fund Services L.P.
For the year ended July 31, 1997, and eight-month period ended July 31, 1996,
Fifth Third Bank earned the following sub-administrative fees:
<TABLE>
<CAPTION>
==========================================================================================================================
YEAR ENDED EIGHT-MONTH PERIOD ENDED
JULY 31, 1997 JULY 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Government Securities Fund $10,627 $4,161
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $21,962 $11,231
- --------------------------------------------------------------------------------------------------------------------------
Ohio Tax Free Fund $36,959 $4,802
- --------------------------------------------------------------------------------------------------------------------------
Quality Growth Fund $72,758 $17,721
- --------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $35,827 $28,558
- --------------------------------------------------------------------------------------------------------------------------
Balanced Fund $26,909 $12,428
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund $34,046 $16,694
- --------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $13,918 --
- --------------------------------------------------------------------------------------------------------------------------
Bond Fund for Income $18,671 --
- --------------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund $12,827 --
==========================================================================================================================
</TABLE>
Under the custodian agreement, Fifth Third Bank holds each Fund's portfolio
securities and keeps all necessary records and documents relating to its duties.
Pursuant to an agreement with Fifth Third Bank, Morgan Stanley Trust
21
<PAGE> 24
Company, Brooklyn, NY, acts as the International Equity Fund's sub-custodian for
foreign assets held outside the United States and employs sub-custodians in
accordance with regulations of the SEC. Morgan Stanley Trust Company is an
affiliate of Morgan Stanley Asset Management, Inc. Fees for custody services are
based upon the market value of Fund securities held in custody plus
out-of-pocket expenses. All fees earned by Fifth Third Bank as the custodian
were voluntarily waived for the fiscal year ended July 31, 1997.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Fifth Third Bank serves as transfer agent and dividend disbursing agent for the
Funds. The fee paid to the transfer agent is based upon the size, type and
number of accounts and transactions made by shareholders.
Fifth Third Bank also maintains the Trust's accounting records. The fee paid for
this service is based upon the level of the Funds' average net assets for the
period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Advisor and Sub-Advisor look for prompt execution of the order
at a favorable price. In working with dealers, the Advisor and Sub-Advisor will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can be
obtained elsewhere. The Advisor and Sub-Advisor make decisions on portfolio
transactions and selects brokers and dealers subject to guidelines established
by the Trustees.
The Advisor and Sub-Advisor may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the Funds or
to the Advisor and Sub-Advisor and may include:
- advice as to the advisability of investing in securities;
- security analysis and reports;
- economic studies;
- industry studies;
- receipt of quotations for portfolio evaluations; and
- similar services.
The Advisor and Sub-Advisor and their affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided. For the fiscal year ended July 31,
1997, the Funds paid brokerage commissions in exchange for brokerage and
research services described above in the following amounts: Quality Growth Fund,
$90,186 of $229,134 total brokerage commissions paid; Mid Cap Fund, $53,745 of
$134,532 total brokerage commissions paid; Balanced Fund, $31,402 of $75,158
total brokerage commissions paid; U.S. Government Securities Fund, all $188 of
total brokerage commissions paid; Quality Bond Fund, all $12,422 of total
brokerage commissions paid; Ohio Tax Free Bond Fund, all $18,995 of total
brokerage commissions paid; Equity Income Fund, $23,290 of $61,251 total
brokerage commissions paid; and International Equity Fund, $33,171 of $178,270
total brokerage commissions paid.
22
<PAGE> 25
Research services provided by brokers may be used by the Advisor and Sub-Advisor
in advising the Funds and other accounts. To the extent that receipt of these
services may supplant services for which the Advisor and Sub-Advisor or their
affiliates might otherwise have paid, it would tend to reduce their expenses.
Although investment decisions for the Funds are made independently from those of
the other accounts managed by the Advisor and Sub-Advisor, investments of the
type the Funds may make may also be made by those other accounts. When one of
the Funds and one or more other accounts managed by the Advisor and Sub-Advisor
are prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner believed by
the Advisor and Sub-Advisor to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Funds or the
size of the position obtained or disposed of by the Funds. In other cases,
however, it is believed that coordination and the ability to participate in
volume transactions will be to the benefit of the Funds.
For the fiscal years ended July 31, 1997, July 31, 1996, and for the period from
August 19, 1994 (date of initial public investment) to July 31, 1995, Morgan
Stanley & Co. Incorporated, an affiliate of the International Equity Fund,
earned $0, $104 and $31,034, respectively, in brokerage commissions,
representing 0.00%, 0.09% and 9.67%, respectively, of the total brokerage
commissions paid by the Fund. These transactions with Morgan Stanley & Co.
Incorporated amounted to 0.00%, 0.29% and 4.91%, respectively, of the value of
the Fund's securities transactions on which commissions were paid. Morgan
Stanley & Co. Incorporated executed trades for the Fund in Indonesia which, in
general, involve higher transaction costs than trades done in such other markets
as Japan or the European countries, which accounts for the differences in these
percentages.
During the fiscal year ended July 31, 1997, some of the Funds acquired
securities of the Funds' regular brokers or dealers or their parents as follows:
Quality Growth Fund held securities issued by UBS Securities and held $19,460 of
securities issued by UBS Securities as of year end; Equity Income Fund purchased
securities issued by UBS Securities and held $952,000 of securities issued by
UBS Securities at year end; Balanced Fund purchased securities issued by UBS
Securities and held $3,922,000 of securities issued by UBS Securities at year
end; Mid Cap Fund purchased securities issued by UBS Securities and held
$10,184,000 in securities issued by UBS Securities at year end; International
Equity Fund purchased securities issued by UBS Securities and held $10,172,000
in securities issued by UBS Securities at year end; Bond Fund For Income
purchased securities issued by Bear Stearns, Inc., Donaldson, Lufkin & Jenrette,
Merrill Lynch, Morgan Stanley, PaineWebber and UBS Securities and held
$5,162,909 in securities issued by Bear Stearns, Inc., $5,020,000 in securities
issued by Donaldson, Lufkin & Jenrette, $3,015,000 in securities issued by
Merrill Lynch, $5,007,000 in securities issued by Morgan Stanley, $4,996,635 in
securities issued by PaineWebber and $22,323,000 in securities issued by UBS
Securities, each at year end; Quality Bond Fund purchased securities issued by
Merrill Lynch and UBS Securities and held $4,020,000 in securities issued by
Merrill Lynch and $15,771,000 in securities issued by UBS Securities, each at
year end; U.S. Government Securities Fund purchased securities issued by UBS
Securities and held $843,000 in securities issued by UBS Securities at year end.
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.
23
<PAGE> 26
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
enter into agreements to pay fees to brokers for distribution and administrative
support services and to other participating financial institutions and persons
for distribution assistance and support services to the Funds and their
shareholders. 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.
Pursuant to the Plan, with respect to Investment A Shares, the Funds are
authorized to pay the distributor a monthly distribution fee computed at the
annual rate of up to 0.35% of the average aggregate net asset value of the
Invesment A Shares of each applicable Fund held during the month. As of the date
of this Statement of Additional Information, the Funds are not accruing or
paying 12b-1 fees for Investment A 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.
Pursuant to the Plan, with respect to Invesment C Shares, the Funds are
authorized to pay the distributor a monthly distribution fee computed at the
annual rate of up to 0.75% of the average aggregate net asset value of the
Invesment C Shares of each applicable Fund held during the month. For the fiscal
year ended July 31, 1997, the distributor received $12,909 pursuant to the Plan,
all of which was paid to BHC Securities, Inc. for its distribution services with
respect to the sale of Investment C Shares under a 12b-1 Agreement with the
Trust.
With respect to Investment C Shares, the Trust may enter into an Administrative
Service Agreement to permit the payment of fees to financial institutions,
including Fifth Third Bank, to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. Benefits to shareholders of Investment C Shares of the Funds may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended July 31, 1997, the Funds paid $3,885 to Fifth Third
Bank to compensate BHC Securities, Inc. for providing administrative services to
Investment C Shares of the Funds.
24
<PAGE> 27
<PAGE> 28
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 Ohio
Tax Free Fund and 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
25
<PAGE> 29
- for all other securities, at fair value as determined in good
faith by the Board of Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Funds will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges unless the Trustees determine in good faith
that another method of valuing option positions is necessary to appraise their
fair value.
VALUING MUNICIPAL BONDS
With respect to Ohio Tax Free Fund and Municipal Bond Fund, the Trustees use an
independent pricing service to value municipal bonds. The independent pricing
service takes into consideration yield, stability, risk, quality, coupon rate,
maturity, type of issue, trading characteristics, special circumstances of a
security or trading market, and any other factors or market data it considers
relevant in determining valuations for normal institutional size trading units
of debt securities, and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized to
be purchased by the Fund with remaining maturities of 60 days or less at the
time of purchase may be their amortized cost value, unless the particular
circumstances of the security indicate otherwise. Under this method, portfolio
instruments and assets are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Executive Committee continually assesses this method of
valuation and recommends changes where necessary to assure that the Fund's
portfolio instruments are valued at their fair value as determined in good faith
by the Trustees.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value,
International Equity Fund values foreign securities at the latest closing price
on the exchange on which they are traded immediately prior to the closing of the
New York Stock Exchange. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are translated into
U.S. dollars at current rates. Occasionally, events that affect these values and
exchange rates may occur between the times at which they are determined and the
closing of the New York Stock Exchange. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Trustees, although the actual
calculation may be done by others.
REDEEMING SHARES
Shares are redeemed at the next computed net asset value after a Fund receives
the redemption request. Redemption procedures are explained in the prospectus
under "Redeeming Shares." Although Fifth Third Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
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
26
<PAGE> 30
institution selling Investment C Shares elects not to receive a commission from
the distributor with respect to its sale of such Shares.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of a Fund's net
asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
TAX STATUS
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, each Fund must, among other
requirements:
- derive at least 90% of its gross income from dividends,
interest, and gains from the sale of securities;
- derive less than 30% of its gross income from the sale of
securities held less than three months;
- invest in securities within certain statutory limits; and
- distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
With respect to Government Securities Fund, Quality Bond Fund, Quality Growth
Fund, Mid Cap Fund, Balanced Fund, International Equity Fund, Equity Income
Fund, and 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 Ohio Tax Free Fund and Municipal Bond Fund, no portion of any
income dividend paid by a Fund is eligible for the dividends received deduction
available to corporations.
CAPITAL GAINS
With respect to Government Securities Fund, Quality Bond Fund, Quality Growth
Fund, Mid Cap Fund, Balanced Fund, International Equity Fund, Equity Income
Fund, and 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.
27
<PAGE> 31
With respect to Ohio Tax Free Fund and Municipal Bond Fund, capital gains or
losses may be realized by a Fund on the sale of portfolio securities and as a
result of discounts from par value on securities held to maturity. Sales would
generally be made because of:
- the availability of higher relative yields;
- differentials in market values;
- new investment opportunities;
- changes in creditworthiness of an issuer; or
- an attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested, and regardless of the length of time the
shareholder has owned Shares. Any loss by a shareholder on Shares held for less
than six months and sold after a capital distribution will be treated as a
long-term capital loss to the extent of the capital gains distribution.
FOREIGN TAXES
Investment income on certain foreign securities in which International Equity
Fund may invest may be subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax treaties between the United States
and foreign countries, however, may reduce or eliminate the amount of foreign
taxes to which the Fund would subject.
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.
For the one-year period ended July 31, 1997 and the five-year period ended July
31, 1997, the average annual total returns for Investment A Shares of the
following Funds, assuming the imposition of the maximum sales load, were:
Government Securities Fund, 2.98% and 4.01%, respectively; Quality Bond Fund,
4.49% and 4.60%, respectively; Ohio Tax Free Bond Fund, 2.67% and 3.95%,
respectively; Quality Growth Fund, 47.09% and 16.31%, respectively; Mid Cap
Fund, 40.58% and 14.24%, respectively; and Balanced Fund, 32.26% and 12.18%,
respectively. For the one-year period ended July 31, 1997, the annual total
return for Investment A Shares of the International Equity Fund, assuming the
imposition of the maximum sales load, was 16.26%.
For the one-year period ended July 31, 1997 and the five-year period ended July
31, 1997, the average annual total returns for Investment C Shares of the
following Funds, assuming the imposition of the maximum sales load, were:
Government Securities Fund, 6.92% and 4.74%, respectively; Quality Bond Fund,
8.68% and 5.37%, respectively; Ohio Tax Free Bond Fund, 6.84% and 4.63%,
respectively; Quality Growth Fund, 52.79% and 17.14%, respectively; Mid Cap
Fund, 46.05% and 15.05%, respectively; and Balanced Fund,
28
<PAGE> 32
37.52% and 12.99%, respectively. For the fiscal year ended July 31, 1997, the
annual total return for Investment C Shares of the International Equity Fund,
assuming the imposition of the maximum sales load, was 21.25%.
For the one-year period ended July 31, 1997 and the five-year period ended July
31, 1997, the average annual total returns for the Equity Income Fund, Bond Fund
For Income and Municipal Bond Fund including performance of their predecessor
common trust funds, adjusted to reflect the maximum sales load imposed for
Investment A Shares, were: 36.29% and 13.01%, respectively; 3.09% and 4.26%,
respectively; and 2.31% and 3.62%, respectively.
For the one-year period ended July 31, 1997 and the five-year period ended July
31, 1997, the average annual total returns for the Equity Income Fund, Bond Fund
For Income and Municipal Bond Fund including performance of their predecessor
common trust funds, adjusted to reflect the maximum sales load imposed for
Investment C Shares, were: 41.58% and 13.04%, respectively; 6.97% and 4.20%,
respectively; and 6.12% and 3.56%, respectively.
Cumulative total returns for Investment A Shares of the following Funds,
assuming the imposition of the maximum sales load, were: Government Securities
Fund, 91.11%; Quality Bond Fund, 214.46%; Ohio Tax Free Bond Fund, 65.35%;
Quality Growth Fund, 856.74%; Mid Cap Fund, 543.28%; Balanced Fund, 793.56%; and
International Equity Fund, 24.92%. Cumulative total returns for the Equity
Income Fund, Bond Fund For Income and Municipal Bond Fund including performance
of their predecessor common trust funds, adjusted to reflect the maximum sales
load imposed for Investment A Shares, were: 648.57%, 223.62% and 167.61%,
respectively.
Cumulative total returns for Investment C Shares of the following Funds,
assuming the imposition of the maximum sales load, were: Government Securities
Fund, 91.37%; Quality Bond Fund, 213.58%; Ohio Tax Free Bond Fund, 65.44%;
Quality Growth Fund, 851.76%; Mid Cap Fund, 535.84%; Balanced Fund, 789.69%; and
International Equity Fund, 29.86%. Cumulative total returns for the Equity
Income Fund, Bond Fund For Income and Municipal Bond Fund including performance
of their predecessor common trust funds, adjusted to reflect the maximum sales
load imposed for Investment C Shares, were: 584.39%, 192.70% and 142.48%,
respectively.
YIELD
The SEC yields for Investment A Shares of Government Securities Fund, Quality
Bond Fund, Ohio Tax Free Fund, Quality Growth Fund, Mid Cap Fund and Balanced
Fund for the thirty-day period ended July 31, 1997 were 6.07%, 5.43%, 3.67%,
0.31%, 0.01%, and 1.70%, respectively.
The SEC yields for Investment C Shares of Government Securities Fund, Quality
Bond Fund, Ohio Tax-Free Fund, Quality Growth Fund, Mid Cap Fund and Balanced
Fund the thirty-day period ended July 31, 1997 were 5.62%, 4.93%, 3.09%,
(0.33)%, (0.70)%, and 1.17%, respectively.
The yield for the Funds is determined by dividing the net investment income per
share (as defined by the SEC) earned by the Fund over a thirty-day period by the
maximum offering price per share of the Fund on the last day of the period. This
value is then annualized using semi-annual compounding. This means that the
amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because
29
<PAGE> 33
of certain adjustments required by the SEC and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
the performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
The tax-equivalent yield for Ohio Tax Free Fund for the thirty-day period ended
July 31, 1997 was 6.08% for Investment A Shares and 5.12% for Investment C
Shares. The tax-equivalent yield of the Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a 37.90% tax rate and assuming that
income is 100% tax-exempt.
TAX EQUIVALENCY TABLE
The Ohio Tax Free Fund and Municipal Bond Fund may also use a tax-equivalency
table in advertising and sales literature. The interest earned by the municipal
obligations in the Ohio Tax Free Fund's portfolio generally remains free from
federal regular income tax and is free from income taxes imposed by the state of
Ohio. The interest earned by the Municipal Bond Fund's portfolio is generally
free from federal regular income tax. As the tables below indicates, a
"tax-free" investment in the Ohio Tax Free Fund is an attractive choice for
investors, particularly in times of narrow spreads between "tax-free" and
taxable yields.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF OHIO
- -----------------------------------------------------------------------------------------------------------------------------------
FEDERAL TAX BRACKET:
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX
BRACKET:
19.457% 33.201% 37.900% 43.500% 47.100%
- -----------------------------------------------------------------------------------------------------------------------------------
SINGLE $1- $23,351- $56,551- $117,951- OVER
RETURN 23,350 56,550 117,950 256,500 256,500
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Tax-Exempt Taxable Yield Equivalent
Yield
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50% 1.86% 2.25% 2.42% 2.65% 2.84%
2.00% 2.48% 2.99% 3.22% 3.54% 3.78%
2.50% 3.10% 3.74% 4.03% 4.42% 4.73%
3.00% 3.72% 4.49% 4.83% 5.31% 5.67%
3.50% 4.35% 5.24% 5.64% 6.19% 6.62%
4.00% 4.97% 5.99% 6.44% 7.08% 7.56%
4.50% 5.59% 6.74% 7.25% 7.96% 8.51%
5.00% 6.21% 7.49% 8.05% 8.85% 9.45%
5.50% 6.83% 8.23% 8.86% 9.73% 10.40%
6.00% 7.45% 8.98% 9.66% 10.62% 11.34%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 34
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Ohio Tax Free Bond Fund
Shares.
* Some portion of Ohio Tax Free Fund's and Municipal Bond Fund's
income may be subject to the federal alternative minimum tax
and state and local income taxes.
PERFORMANCE COMPARISONS
Each Fund's performance depends upon such variables as:
- portfolio quality;
- average portfolio maturity;
- type of instruments in which the portfolio is invested;
- changes in interest rates and market value of portfolio
securities;
- changes in each Fund's expenses; and
- various other factors
Each Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of yield and total return as
described above.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Funds use in advertising may include:
- DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices
of selected blue-chip industrial corporations. The DJIA
indicates daily changes in the average price of stock of these
corporations. Because it represents the top corporations of
America, the DJIA index is a leading economic indicator for
the stock market as a whole. (Quality Growth, Balanced, Mid
Cap, and Equity Income Funds)
- EUROPE, AUSTRALIA, AND FAR EAST (EAFE) is a market
capitalization weighted foreign securities index, which is
widely used to measure the performance of European,
Australian, New Zealand, and Far Eastern stock markets. The
index covers approximately 1,020 companies drawn from 18
countries in the above regions. The index values its
securities daily in both U.S. dollars and local currency and
calculates total returns monthly. EAFE U.S. dollar total
return is a net dividend figure less Luxembourg withholding
tax. The EAFE is monitored by Capital International, S.A.,
Geneva, Switzerland. (International Equity Fund)
31
<PAGE> 35
- LEHMAN BROTHERS AGGREGATE BOND INDEX is a total return index
measuring both the capital price changes and income provided
by the underlying universe of securities, weighted by market
value outstanding. The Aggregate Bond Index is comprised of
the Lehman Brothers Government Bond Index, Corporate Bond
Index, Mortgage-Backed Securities Index and the Yankee Bond
Index. These indices include: U.S. Treasury obligations,
including bonds and notes; U.S. agency obligations, including
those of the Federal Farm Credit Bank, Federal Land Bank and
the Bank for Co-Operatives; foreign obligations, U.S.
investment-grade corporate debt and mortgage-backed
obligations. All corporate debt included in the Aggregate Bond
Index has a minimum S&P rating of BBB, a minimum Moody's
rating of Baa, or a Fitch rating of BBB. (Balanced, Quality
Bond and Bond Fund For Income)
- LEHMAN BROTHERS 5-YEAR MUNICIPAL BOND INDEX includes
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, are investment grade and are
selected from issues larger than $50 million dated since 1984.
(Ohio Tax Free and Municipal Bond 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. (Government Securities, Balanced,
Quality Bond, and Bond Fund For Income)
- LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is
comprised of approximately 5,000 issues which include
non-convertible bonds publicly issued by the U.S. government
or its agencies; corporate bonds guaranteed by the U.S.
government and quasi-federal corporations; and publicly
issued, fixed rate, non-convertible domestic bonds of
companies in industry, public utilities and finance. The
average maturity of these bonds approximates nine years.
Tracked by Shearson Lehman Brothers, Inc., the index
calculates total returns for one month, three month, twelve
month and ten year periods and year-to-date. (Government
Securities, Balanced, Quality Bond, and Bond Fund For Income)
- LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX:
An unmanaged index comprised of all the bonds issued by the
Lehman Brothers Government/Corporate Bond Index with
maturities between 1 and 9.99 years. Total return is based on
price appreciation/depreciation and income as a percentage of
the original investment. Indices are rebalanced monthly by
market capitalization. (Balanced, Quality Bond, Government
Securities, and Bond Fund For Income)
- LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND INDEX includes
fixed-rate debt obligations of state and local government
entities. The securities have maturities between seven and
eight years, are investment grade and are selected from issues
larger than $50 million dated since 1984. (Ohio Tax Free Bond
and Municipal Bond Funds)
- LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total
return. Total return assumes the reinvestment of all capital
gains distributions and income dividends and takes into
account any change in net asset value over a specific period
of time. From time to time, the Fund will quote its Lipper
ranking in the applicable funds category in advertising and
sales literature. (All of the Funds)
- MERRILL LYNCH COMPOSITE 1-5 YEAR TREASURY INDEX is comprised
of approximately 66 issues of U.S. Treasury securities
maturing between 1 and 4.99 years, with coupon rates of 4.25%
or more. These total return figures are calculated for one,
three, six, and twelve month periods and
32
<PAGE> 36
year-to-date and include the value of the bond plus income and
any price appreciation or depreciation. (Government Securities
Fund)
- MERRILL LYNCH CORPORATE AND GOVERNMENT INDEX includes issues
which must be in the form of publicly placed, nonconvertible,
coupon-bearing domestic debt and must carry a term of maturity
of at least one year. Par amounts outstanding must be no less
than $10 million at the start and at the close of the
performance measurement period. Corporate instruments must be
rated by S&P or by Moody's as investment grade issues (i.e.,
BBB/Baa or better). (Balanced, Quality Bond, and 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). (Balanced, Quality Bond
and Bond Fund For Income)
- MERRILL LYNCH 3-YEAR TREASURY YIELD CURVE INDEX is an
unmanaged index comprised of the most recently issued 3-year
U.S. Treasury notes. Index returns are calculated as total
returns for periods of one, three, six, and twelve months as
well as year-to-date. (Government Securities Fund)
- MERRILL LYNCH 3-5 YEAR TREASURY INDEX is comprised of
approximately 24 issues of intermediate- term U.S. government
and U.S. Treasury securities with maturities between 3 and
4.99 years and coupon rates above 4.25%. Index returns are
calculated as total returns for periods of one, three, six and
twelve months as well as year-to-date. (Government Securities
Fund)
- 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)
- SALOMON BROTHERS AAA-AA CORPORATE INDEX calculates total
returns of approximately 775 issues which include long-term,
high-grade domestic corporate taxable bonds, rated AAA-AA with
maturities of twelve years or more and companies in industry,
public utilities, and finance. (Balanced, Quality Bond, and
Bond Fund For Income)
- SALOMON BROTHERS 3-5 YEAR GOVERNMENT INDEX quotes total
returns for U.S. Treasury issues (excluding flower bonds)
which have maturities of three to five years. These total
returns are year-to-date figures which are calculated each
month following January 1. (Government Securities Fund)
- 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. (Quality Growth,
Balanced, Mid Cap, and Equity Income Funds)
33
<PAGE> 37
- S&P MID CAP 400 INDEX is comprised of the 400 common stocks
issued by medium-sized domestic companies whose market
capitalizations range from $200 million to $5 billion. The
stocks are selected on the basis of the issuer's market size,
liquidity and industry group representation. (Mid Cap 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. (Quality Growth, Balanced, Mid Cap, and Equity
Income Funds)
- WILSHIRE MID CAP 750 INDEX is a subset of the Wilshire 5000
index of common stocks. The Mid Cap 750 index consists of
those Wilshire 5000 companies ranked between 501 and 1,250
according to market capitalization. The index ranges in market
capitalization from $400 million to $1.7 billion. (Mid Cap
Fund)
Advertisements and other sales literature for the Funds may quote total returns
which are calculated on nonstandardized base periods. These total returns also
represent the historic change in the value of an investment in the Funds based
on monthly/quarterly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
FINANCIAL STATEMENTS
The financial statements for Fountain Square U.S. Government Securities Fund,
Fountain Square Quality Bond Fund, Fountain Square Ohio Tax Free Bond Fund,
Fountain Square Quality Growth Fund, Fountain Square Mid Cap Fund, Fountain
Square Balanced Fund, Fountain Square International Equity Fund, Fountain Square
Equity Income Fund, Fountain Square Bond Fund For Income, and Fountain Square
Municipal Bond Fund for the fiscal year ended July 31, 1997 are incorporated
herein by reference to the Annual Report to Shareholders of the Fountain Square
Equity and Income Mutual Funds dated July 31, 1997. (File Nos. 33-24848 and
811-5669.) A copy of the Annual Report may be obtained without charge by
contacting the Trust at the address located on the back cover of the prospectus.
34
<PAGE> 38
APPENDIX
STANDARD AND POOR'S RATINGS GROUP CORPORATE AND MUNICIPAL BOND RATING
DEFINITIONS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P may apply a plus (+) or
minus (-) to the above rating classifications to show relative standing within
the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE AND MUNICIPAL BOND RATING DEFINITIONS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
35
<PAGE> 39
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATING DEFINITIONS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
SP-3--Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE SHORT-TERM LOAN RATING DEFINITIONS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus (+) sign.
36
<PAGE> 40
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.
37
<PAGE> 1
Exhibit 17 (vi)
FOUNTAIN SQUARE GOVERNMENT
CASH RESERVES FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT SHARES
TRUST SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
The Trust Shares and Investment Shares of Fountain Square Government Cash
Reserves Fund (the "Fund") represent interests in a diversified portfolio of
securities. This Combined Statement of Additional Information should be read
with the prospectus for Trust Shares and Investment Shares dated September 30,
1997. This Statement is not a prospectus itself. To receive a copy of the
prospectus, please write the Fund or call toll-free (888) 799-5353.
FOUNTAIN SQUARE FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
Statement dated September 30, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION ABOUT THE FUND............................................... 1
INVESTMENT OBJECTIVE AND POLICIES................................................ 1
Types of Investments...................................................... 1
Variable Rate U.S. Government Securities.......................... 1
When-Issued and Delayed Delivery Transactions............................. 1
Investment Limitations.................................................... 2
Selling Short and Buying On Margin................................ 2
Issuing Senior Securities and Borrowing Money..................... 2
Pledging Assets................................................... 2
Lending Cash or Securities........................................ 2
Investing in Securities of Other Investment Companies............. 2
Investing in Illiquid Securities.................................. 2
FOUNTAIN SQUARE FUNDS MANAGEMENT................................................. 3
Officers and Trustees..................................................... 3
Fund Ownership............................................................ 4
Trustees' Compensation.................................................... 5
Trustee Liability......................................................... 5
INVESTMENT ADVISORY SERVICES..................................................... 5
Advisor to the Fund....................................................... 5
Advisory Fees............................................................. 6
BROKERAGE TRANSACTIONS........................................................... 6
ADMINISTRATIVE SERVICES.......................................................... 6
Transfer Agent and Dividend Disbursing Agent.............................. 7
PURCHASING SHARES................................................................ 7
Distribution Plan (Investment Shares)..................................... 7
Conversion to Federal Funds............................................... 8
DETERMINING NET ASSET VALUE...................................................... 8
Use of the Amortized Cost Method.......................................... 8
Monitoring Procedures............................................. 8
Investment Restrictions........................................... 8
REDEEMING SHARES................................................................. 9
Redemption in Kind........................................................ 9
TAX STATUS....................................................................... 9
The Fund's Tax Status..................................................... 9
Shareholders' Tax Status.................................................. 9
Capital Gains..................................................... 10
State and Local Taxes..................................................... 10
YIELD............................................................................ 10
EFFECTIVE YIELD.................................................................. 11
PERFORMANCE COMPARISONS.......................................................... 11
</TABLE>
i
<PAGE> 3
GENERAL INFORMATION ABOUT THE FUND
Fountain Square Government Cash Reserves Fund (the "Fund") is a portfolio in
the Fountain Square Funds (the "Trust"). The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated September 15,
1988.
Shares of the Fund are offered in two classes, Trust Shares and Investment
Shares (individually and collectively known as "Shares"). This combined
statement of additional information relates to the above-mentioned Shares of
the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide high current income consistent
with stability of principal and liquidity. The investment objective cannot be
changed without approval of shareholders. The Fund intends to limit its
investments to those U.S. government securities whose interest is generally
exempt from personal income tax in the various states if owned directly.
However, from time to time, the Fund may also invest in other U.S. government
securities if the adviser deems it advantageous to do so. Please see the "Tax
Status" section of this statement of additional information.
TYPES OF INVESTMENTS
The Fund invests primarily in short-term U.S. government securities.
VARIABLE RATE U.S. GOVERNMENT SECURITIES
Some of the short-term U.S. government securities the Fund may purchase
carry variable interest rates. These securities have a rate of interest
subject to adjustment at least annually. This adjusted interest rate is
ordinarily tied to some objective standard, such as the 91-day U.S.
Treasury bill rate.
Variable interest rates will reduce the changes in the market value of
such securities from their original purchase prices. Accordingly, the
potential for capital appreciation or capital depreciation should not be
greater than the potential for capital appreciation or capital
depreciation of fixed interest rate U.S. government securities having
maturities equal to the interest rate adjustment dates of the variable
rate U.S. government securities.
The Fund may purchase variable rate U.S. government securities upon the
determination by the Board of Trustees that the interest rate as adjusted
will cause the instrument to have a current market value that
approximates its par value on the adjustment date.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
1
<PAGE> 4
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money except as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while borrowings in excess of
5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or
hold U.S. government securities permitted by its investment objective,
policies and limitations.
The above investment limitations cannot be changed without shareholder
approval. The Fund does not consider the issuance of separate classes of
shares to involve the issuance of "senior securities" within the meaning of the
investment limitation set forth above. The following limitations, however, may
be changed by the Board of Trustees (the "Trustees") without shareholder
approval. Shareholders will be notified before any material change in those
limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund can acquire up to 3% of the total outstanding securities of
other investment companies. The Fund will limit its investments in the
securities of other investment companies to those money market funds
having investment objectives and policies similar to its own. The Fund
will purchase securities of other investment companies only in
open-market transactions involving no more than customary broker's
commissions. However, there is no limitation applicable to securities of
any investment company acquired in a merger, consolidation, or
acquisition of assets. It should be noted that investment companies
incur certain expenses such as management fees, and, therefore, any
investment by the Fund in such shares would be subject to customary
expenses.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities.
2
<PAGE> 5
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
For the purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
FOUNTAIN SQUARE FUNDS MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions. Except as listed below, none of the Trustees or
Officers are affiliated with The Fifth Third Bank ("Fifth Third Bank"), Fifth
Third Bancorp, or BISYS Fund Services, L.P.
Albert E. Harris
5905 Graves Road
Cincinnati, OH
Birthdate: July 2, 1932
Chairman of the Board of Trustees
Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993).
Edward Burke Carey
394 East Town Street
Columbus, OH
Birthdate: July 2, 1945
Member of the Board of Trustees
President of Carey Leggett Realty Advisors.
Lee A. Carter
2120 Star Bank Center
425 Walnut Street
Cincinnati, OH
Birthdate: December 17, 1938
Member of the Board of Trustees
Formerly, President, Local Marketing Corporation (retired December 31, 1993).
3
<PAGE> 6
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.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares. As of
July 31, 1997, Fifth Third Bank as nominee for numerous trust and agency
accounts, was the owner of record of $162,542,539 Trust Shares (100%) of the
Fund.
As of July 31, 1997, no shareholders of record owned 5% or more of the
outstanding Investment Shares of the Fund.
4
<PAGE> 7
TRUSTEES' COMPENSATION
<TABLE>
<CAPTION>
NAME, AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST *+
<S> <C>
Edward Burke Carey $7,800
Trustee
Lee A. Carter $6,600
Trustee
Albert E. Harris $9,800
Trustee
</TABLE>
*Information is furnished for the fiscal year ended July 31, 1997. 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.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISOR TO THE FUND
The Fund's investment advisor is Fifth Third Bank (the "Advisor"). It provides
investment advisory services through its Trust and Investment Division. Fifth
Third Bank is a wholly-owned subsidiary of Fifth Third Bancorp.
The Advisor shall not be liable to the Trust, the Fund or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
5
<PAGE> 8
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the prospectus.
For the fiscal years ended July 31, 1997, 1996, and 1995, the Advisor earned
$985,974, $746,543 and $604,802, respectively, of which $135,083, $139,471 and
$152,445, respectively, were voluntarily waived because of undertakings to
limit the Fund's 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
review by the Trustees.
The Advisor may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Advisor and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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.
Research services provided by brokers and dealers may be used by the Advisor in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Advisor or its affiliates might
otherwise have paid, it would tend to reduce expenses.
For the fiscal years ended July 31, 1997, 1996 and 1995, the Fund did not pay
any commissions on brokerage transactions.
ADMINISTRATIVE SERVICES
Until December 1, 1995, Federated Administrative Services ("FAS"), a subsidiary
of Federated Investors, provided administrative personnel and services to the
Fund for a fee as described in the prospectus. For the four-month
6
<PAGE> 9
period ending December 1, 1995, and for the fiscal year ended July 31, 1995,
the Fund incurred administrative fees of $63,639 and $166,528, respectively.
Effective December 1, 1995, BISYS Fund Services L.P., 3435 Stelzer Road,
Columbus, Ohio 43219, provided administrative services to the Fund for the fees
set forth in the prospectus. For the fiscal years ended July 31, 1997 and
1996, BISYS Fund Services, L.P. earned administrative fees of $301,449 and
$89,928, respectively, of which $84,441 and $0 were voluntarily waived.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performed sub-administrative services on behalf
of the Fund, for which it received compensation from BISYS Fund Services L.P.
For the fiscal years ended July 31, 1997 and 1996, Fifth Third Bank received
sub-administrative fees of $61,623 and $28,258, respectively.
Under the custodian agreement, Fifth Third Bank holds the Fund's portfolio
securities and keeps all necessary records and documents relating to its
duties. Fifth Third Bank's fees for custody services are based upon the market
value of Fund securities held in custody plus out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Fifth Third Bank serves as transfer agent and dividend disbursing agent for the
Funds. The fee paid to the transfer agent is based upon the size, type and
number of accounts and transactions made by shareholders.
Fifth Third Bank also maintains the Trust's accounting records. The fee paid
for this service is based upon the level of the Funds' average net assets for
the period plus out-of-pocket expenses.
PURCHASING SHARES
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Bank of Cleveland are open for
business. The procedure for purchasing Shares is explained in the prospectus
under "Investing in the Fund."
DISTRIBUTION PLAN (INVESTMENT SHARES)
With respect to the Investment Shares class of the Fund, the Trust has adopted
a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940. The Plan
provides for payment of fees to the distributor to finance any activity which
is principally intended to result in the sale of Investment Shares of the Fund
subject to the Plan. Such activities may include the advertising and marketing
of Investment Shares; preparing, printing, and distributing prospectuses and
sales literature to prospective shareholders, brokers, or administrators; and
implementing and operating the Plan. Pursuant to the Plan the distributor may
pay fees to brokers for distribution and administrative services and to
administrators for administrative services as to Investment Shares. The
administrative services are provided by a representative who has knowledge of
the shareholder's particular circumstances and goals, and include, but are not
limited to: communicating account openings; communicating account closings;
entering purchase transactions; entering redemption transactions; providing or
arranging to provide accounting support for all transactions, wiring funds and
receiving funds for Investment Share purchases and redemptions, confirming and
reconciling all transactions, reviewing the activity in Fund accounts, and
providing training and supervision of broker personnel; posting and reinvesting
dividends to Fund accounts or arranging for this service to be performed by the
Fund's transfer agent; and maintaining and distributing current copies of
prospectuses and shareholder reports to the beneficial owners of Investment
Shares and prospective shareholders.
7
<PAGE> 10
The Trustees expect that the adoption of the Plan will result in the sale of
sufficient number of Investment Shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
For the fiscal years ended July 31, 1997 and 1996, distribution fees applicable
to Investment Shares paid to the Fund's distributor amounted to $338,716 and
$214,512, all of which were voluntarily waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Fifth Third Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
The Fund attempts to stabilize the value of a share at $1.00. The days on
which net asset value is calculated by the Fund are described in the
prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into
account current market conditions and the Fund's investment objective.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.50 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and if
rated, have received the requisite rating from one or more nationally
recognized statistical rating organizations. If the instruments are not
rated, the Trustees must determine that they are of comparable quality.
Shares of investment companies purchased by the Fund will meet these same
criteria and will have investment policies consistent with the Rule. The
Rule also requires the Fund to maintain a dollar-weighted average
portfolio maturity (not more than 90 days) appropriate to the objective
of maintaining a stable net asset value of $1.00 per share. In addition,
no instruments with a remaining maturity of more than 397 days can be
purchased by the Fund.
8
<PAGE> 11
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to
take advantage of short-term market variations. This policy may, from
time to time, result in high portfolio turnover. Under the amortized
cost method of valuation, neither the amount of daily income nor the net
asset value is affected by any unrealized appreciation or depreciation of
the portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of the Fund computed by dividing the annualized daily income on
the Fund's portfolio by the net asset value computed as above may tend to
be higher than a similar computation made by using a method of valuation
based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on shares
of the Fund computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market
prices and estimates.
REDEEMING SHARES
Shares are redeemed at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectuses under "Redeeming Shares." Although the Custodian does
not charge for telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $10,000.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash up to the lesser of $250,000 or 1% of a Fund's net asset
value during any 90-day period. Any redemption beyond this amount will also be
in cash unless the Trustees determine that payments should be in kind. In such
a case, the Trust will pay all or a portion of the remainder of the redemption
in portfolio instruments, valued in the same way as the Fund determines net
asset value. The portfolio instruments will be selected in a manner that the
Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their securities
and could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
9
<PAGE> 12
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends and any short-term capital gains are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
STATE AND LOCAL TAXES
The Fund intends to limit its investments to U.S. government securities paying
interest which, if owned directly by shareholders of the Fund, would generally
be exempt from state personal income tax. However, from time to time, the Fund
may also invest in other U.S. government securities if the Advisor deems it
advantageous to do so. Moreover, under the laws of some states, the net
investment income generally distributed by the Fund may be taxable to
shareholders. State laws differ on this issue, and shareholders are urged to
consult their own tax advisers regarding the status of their accounts under
state and local tax laws.
YIELD
The yield for Investment Shares and Trust Shares were 5.05% and 5.03%,
respectively, for the seven-day period ended July 31, 1997.
The Fund calculates the yield for both classes of shares daily, based upon the
seven days ending on the day of the calculation, called the "base period."
This yield is computed by:
o determining the net change in the value of a hypothetical account with
a balance of one Share at the beginning of the base period, with the
net change excluding capital changes but including the value of any
additional Shares purchased with dividends earned from the original
one Share and all dividends declared on the original and any purchased
Shares;
o dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
10
<PAGE> 13
EFFECTIVE YIELD
The effective yield for Investment Shares and Trust Shares were 5.05% and 5.05%
respectively, for the seven-day period ended July 31, 1997.
The Fund's effective yield for both classes of shares is computed by
compounding the unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
PERFORMANCE COMPARISONS
The performance of both classes of shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in expenses of the Fund or of either class of shares; and
o the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute offering price.
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund will
quote its Lipper ranking for either class of shares in the "short-term
U.S. government funds" category in advertising and sales literature.
o SALOMON 30 DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities issued by the U.S.
Treasury, maturing in 30 days.
o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds
of money market funds on a weekly basis and through its Money Market
Insight publication reports monthly and 12-month-to-date investment
results for the same money funds.
11
<PAGE> 14
Advertisements and other sales literature for either class of shares may refer
to total return. Total return is the historic change in the value of an
investment in either class of shares based on the reinvestment of dividends
over a specified period of time.
12
<PAGE> 1
Exhibit 17(viii)
STATEMENT OF ADDITIONAL INFORMATION
THE CARDINAL FUND
CARDINAL GOVERNMENT OBLIGATIONS FUND
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
CARDINAL TAX EXEMPT MONEY MARKET FUND
CARDINAL BALANCED FUND
CARDINAL AGGRESSIVE GROWTH FUND
SIX INVESTMENT PORTFOLIOS OF
THE CARDINAL GROUP
The Cardinal Fund ("TCF"), Cardinal Government Obligations Fund
("CGOF"), Cardinal Government Securities Money Market Fund ("CGSMMF"), Cardinal
Tax Exempt Money Market Fund ("CTEMMF"), Cardinal Balanced Fund ("CBF") and
Cardinal Aggressive Growth Fund ("CAGF") (collectively, the "Funds" and
individually a "Fund") are each a separate diversified, investment portfolio of
The Cardinal Group, an open-end, management investment company (the "Group").
-------------------------------------------------------
For further information regarding the Funds or for assistance
in opening an account or redeeming Shares, please call (800)
282-9446 toll free.
Inquiries may also be made by mail addressed to the Group at
its principal office:
155 East Broad Street
Columbus, Ohio 43215
This Statement Of Additional Information is not a prospectus and should
be read in conjunction with the Prospectuses of the respective Funds, each dated
as of January 30, 1998, which have been filed with the Securities and Exchange
Commission. This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectuses. The Prospectuses are available
upon request without charge from the Group at the above address or by calling
the phone number provided above.
The investment objectives of TCF are long-term growth of capital and
income. Current income is a secondary objective. The investment objectives of
CGOF are to maximize safety of capital and, consistent with such objective, earn
the highest available current income obtainable from government securities. The
investment objectives of CGSMMF are to maximize current income while preserving
capital and maintaining liquidity. The investment objectives of CTEMMF are to
maximize current income exempt from federal income tax while preserving capital
and maintaining liquidity. The investment objectives of CBF are current income
and long-term growth of both capital and income. The investment objective of
CAGF is appreciation of capital.
JANUARY 30, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE CARDINAL GROUP............................................................................................ B-1
INVESTMENT OBJECTIVES AND POLICIES............................................................................ B-1
Additional Information on Portfolio Instruments...................................................... B-1
Investment Restrictions.............................................................................. B-15
Portfolio Turnover................................................................................... B-18
MANAGEMENT OF THE GROUP....................................................................................... B-19
PRINCIPAL SHAREHOLDERS OF THE GROUP........................................................................... B-22
THE ADVISER................................................................................................... B-23
PORTFOLIO TRANSACTIONS........................................................................................ B-25
TRANSFER AND DIVIDEND AGENT................................................................................... B-27
FUND ACCOUNTANT............................................................................................... B-29
THE DISTRIBUTOR............................................................................................... B-31
CUSTODIAN..................................................................................................... B-33
LEGAL COUNSEL AND INDEPENDENT AUDITORS........................................................................ B-34
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................................................ B-34
Determination of Net Asset Value..................................................................... B-36
TAXES......................................................................................................... B-37
ADDITIONAL INFORMATION........................................................................................ B-41
Description of Shares................................................................................ B-41
Vote of a Majority of the Outstanding Shares......................................................... B-42
Miscellaneous........................................................................................ B-42
PERFORMANCE INFORMATION....................................................................................... B-43
Yields............................................................................................... B-43
Calculation of Total Return.......................................................................... B-44
Performance Comparisons.............................................................................. B-46
FINANCIAL STATEMENTS.......................................................................................... B-47
APPENDIX ..................................................................................................... A-1
</TABLE>
<PAGE> 3
STATEMENT OF ADDITIONAL INFORMATION
THE CARDINAL GROUP
The Cardinal Group (the "Group") is an open-end management investment
company which currently offers six separate diversified investment portfolios,
each with different investment objectives.
This Statement of Additional Information contains information about The
Cardinal Fund ("TCF"), Cardinal Government Obligations Fund ("CGOF"), Cardinal
Government Securities Money Market Fund ("CGSMMF"), Cardinal Tax Exempt Money
Market Fund ("CTEMMF"), Cardinal Balanced Fund ("CBF") and Cardinal Aggressive
Growth Fund ("CAGF") (collectively, the "Funds" and individually a "Fund").
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of the respective
Fund. Capitalized terms not defined herein are defined in the Prospectuses. No
investment in Shares of a Fund should be made without first reading the
Prospectus of that Fund.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
The following policies supplement the investment objectives and
policies of the Funds as set forth in their respective Prospectuses.
Bank Obligations. As described in its respective Prospectus, CTEMMF,
CBF and CAGF may each invest in bank obligations consisting of bankers'
acceptances, certificates of deposit and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by such Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, assets in excess
of $100,000,000 (as of the date of their most recently published financial
statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and time deposits will be those of domestic banks and savings and loan
associations, if at the time of investment the depository institution has assets
in excess of $100,000,000 (as of the date of its most recently published
B-1
<PAGE> 4
financial statements), or (b) the principal amount of the instrument is insured
in full by the Federal Deposit Insurance Corporation.
Commercial Paper. Commercial paper in which each of the Funds, other
than CGSMMF, may invest consists of unsecured promissory notes issued by
corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Such Funds will invest only in commercial paper which is rated at the
time of purchase within the two highest rating groups assigned by one or more
appropriate NRSROs, or if unrated, which the Adviser determines to be of
comparable quality. For a description of the rating symbols of the NRSROs, see
the Appendix.
U.S. Government Obligations. CGOF and CGSMMF invest in, and TCF,
CTEMMF, CBF and CAGF may invest in, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Obligations of certain agencies
and instrumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the issuer to
borrow from the Treasury; others are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law.
Municipal Securities. Municipal Securities which may be purchased by
CTEMMF currently can be divided into two basic groups: Municipal Notes and
Municipal Bonds.
Municipal Notes generally provide capital for short-term needs and have
maturities of one year or less. They include:
1. Project Notes. Project notes are sold through the
Department of Housing and Urban Development to raise funds for
federally sponsored urban renewal, neighborhood development and housing
programs. In low-income housing, proceeds from project notes are
chiefly used for construction financing prior to permanent financing.
In urban renewal the funds have generally been used for land
acquisition and site improvements. (No new urban renewal projects are
currently being undertaken as that program has been superseded by the
Community Block Grant Program contained in the Housing and Community
Development Act of 1974.) Project notes are issued by public bodies
created under the laws of one of the states, territories or U.S.
possessions and are referred to as Local Issuing Agencies. Project
Notes generally range in maturity
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from three months to one year. While they are the primary obligations
of the public housing agencies or the local urban renewal agencies
which have issued them, they are also secured by the full faith and
credit of the U.S. Government. Payment by the United States pursuant to
its full faith and credit obligation does not impair the tax-exempt
character of the income from project notes.
2. Tax Anticipation Notes. Tax anticipation notes are issued
by state and local governments in anticipation of collection of taxes
to finance the current operations of such governments. The notes are
generally payable only from tax collections and often only from the
proceeds of the specific tax levy whose collection they anticipate.
3. Revenue Anticipation Notes. Revenue anticipation notes are
issued by governmental entities in anticipation of revenues to be
received later in the then current fiscal year.
4. Bond Anticipation Notes. Bond anticipation notes are issued
in anticipation of a later issuance of bonds and are usually payable
from the proceeds of the sale of the bonds anticipated or of renewal
notes.
5. Construction Loan Notes. Construction loan notes, issued to
provide construction financing for specific projects, are often
redeemed after the projects are completed and accepted with funds
obtained from the Federal Housing Administration under "Fannie Mae"
(Federal National Mortgage Association) or "Ginnie Mae" (Government
National Mortgage Association).
6. Tax-Exempt Commercial Paper. Tax-exempt commercial paper is
issued by state and local governments and agencies thereof to finance
seasonal working capital needs or in anticipation of longer term
financing. The stated maturity is 365 days or less.
Municipal Bonds are usually issued to obtain funds for various public
purposes, to refund outstanding obligations, to meet general operating expenses
or to obtain funds to lend to other public institutions and facilities. They are
generally classified as either "general obligation" or "revenue" bonds and
frequently have maturities in excess of one year at the time of issuance,
although issues having variable interest rates with demand features may permit
CTEMMF to treat them as having maturities of less than 397 days. See "ADDITIONAL
PURCHASE AND REDEMPTION INFORMATION --Determination of Net Asset Value" herein
and "HOW IS NET ASSET VALUE CALCULATED?" in CTEMMF's Prospectus.
1. General Obligation Bonds. General obligation bonds are
issued by states, counties, regional districts, cities,
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towns and school districts for a variety of purposes including mass
transportation, highway, bridge, school, road, and water and sewer
system construction, repair or improvement. Payment of these bonds is
secured by a pledge of the issuer's full faith and credit and taxing
(usually property tax) power.
2. Revenue Bonds. Revenue bonds are payable solely from the
revenues generated from the operations of the facility or facilities
being financed or from other non-tax sources. These bonds are often
secured by debt service reserve funds, rent subsidies and/or mortgage
collateral to finance the construction of housing, highways, bridges,
tunnels, hospitals, university and college buildings, port and airport
facilities, and electric, water, gas and sewer systems.
3. Industrial Development Revenue and Private Activity Bonds.
Industrial development revenue bonds and private activity bonds are
usually issued by local government bodies or their authorities to
provide funding for industrial facilities, privately operated housing,
health care facilities, airports, docks and mass commuting facilities,
certain water and sewage facilities, qualified hazardous waste
facilities and high speed innercity rail facilities. Under prior law,
these bonds also were issued to finance commercial facilities, sports
facilities, convention and trade show facilities and pollution control
facilities. Payment of principal and interest on such bonds is not
secured by the taxing power of the governmental body. Rather, payment
is dependent solely upon the ability of the users of the facilities
financed by the bonds to meet their financial obligations and the
pledge, if any, of the real and personal property financed by such
bonds as security for payment.
Legislation to restrict or eliminate the federal income tax exemption
for interest on certain Municipal Securities has been enacted periodically in
the recent past and additional legislation may be enacted in the future. This
legislation may adversely affect the availability of Municipal Securities for
CTEMMF's portfolio. If any such legislation has a materially adverse effect on
CTEMMF's ability to achieve its investment objectives, CTEMMF will re-evaluate
its investment objectives and submit to its shareholders for approval necessary
changes in the objectives and policies of CTEMMF.
The Municipal Securities described above represent those which CTEMMF
currently expects to purchase. However, several new types of municipal bonds and
notes, particularly those with shorter maturities, have been introduced in
recent years and the Adviser believes that other types of municipal bonds and
notes may be offered in the future. Therefore, in order to preserve maximum
flexibility in seeking to attain its investment objectives, CTEMMF
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has determined not to limit its purchase to the types of Municipal Securities
described herein, although it will purchase only municipal obligations which
have the credit characteristics described herein. In addition, CTEMMF may not
purchase any municipal bonds or notes having characteristics or terms that are
inconsistent with the investment objectives or investment policies of CTEMMF.
Subsequent to CTEMMF's purchase of a security, it may be assigned a
lower rating or cease to be rated. In such an event the Adviser is required to
promptly reassess the credit quality of such security. If such security no
longer presents minimal credit risks or if the security is deemed to be an
"Unrated Security" or a "Second-Tier Security," within the meaning of Rule 2a-7
of the 1940 Act, and receives a rating by any NRSRO below the second highest
rating category, the Adviser is generally required to sell such security within
five business days of becoming aware of such an event.
Variable Rate Demand Municipal Securities. Variable rate demand
Municipal Securities are tax-exempt obligations that provide for a periodic
adjustment in the interest rate paid on the securities and permit the holder to
demand payment of the unpaid principal balance plus accrued interest upon a
specified number of days' notice either from the issuer or by drawing on a bank
letter of credit or comparable guarantee issued with respect to such security.
The issuer of a variable rate demand security may have a corresponding right to
prepay in its discretion the outstanding principal of the instrument plus
accrued interest upon notice comparable to that required for the holder to
demand payment.
The terms of the securities must provide that interest rates are
adjustable at intervals ranging from weekly up to semi-annually. The adjustments
are based upon the prime rate of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. The variable rate
demand securities purchased by CTEMMF are subject to the quality characteristics
for Municipal Securities described above. While these securities are expected to
have maturities in excess of one year, the Adviser will determine at least
monthly that such securities are of high quality. The Trustees have instructed
the Adviser to exercise its right to demand payment of principal and accrued
interest thereon, if a variable rate demand security held by CTEMMF no longer
meets the quality standards of CTEMMF, unless, of course, the security can be
sold for a greater amount in the market.
The principal and accrued interest payable to CTEMMF on demand will be
supported by an irrevocable letter of credit or comparable guarantee of a
financial institution (generally a commercial bank) whose short-term taxable
debt meets the quality criteria for investment by CTEMMF in Municipal
Securities, except in cases where the security itself meets the credit criteria
of CTEMMF without
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such letter of credit or comparable guarantee. Thus, although a variable rate
demand security may be unrated, CTEMMF will have at all times an alternate high
quality credit source to draw upon for payment with respect to such security.
The variable rate demand securities which CTEMMF may purchase include
participation interests in variable rate securities. Such participation
interests will have, as part of the participation agreement between CTEMMF and
the selling financial institution, a demand feature which permits CTEMMF to
demand payment from the seller of the principal amount of CTEMMF's participation
plus accrued interest thereon. This demand feature always will be supported by a
letter of credit or comparable guarantee provided by the selling financial
institution. Such financial institution will retain a service and a letter of
credit fee, and a fee for issuing commitments to purchase on demand, in an
amount equal to the excess of the interest paid on the variable rate security in
which CTEMMF has a participation interest over the negotiated yield at which the
participation interest was purchased by CTEMMF. Accordingly, CTEMMF will
purchase such participation interests only when the yield to CTEMMF, net of such
fees, is equal to or greater than the yield then available on other variable
rate demand securities or short-term fixed rate tax exempt securities of
comparable quality and where the fees are reasonable in relation to the services
provided by the financial institution and the security and liquidity provided by
the letter of credit or guarantee.
Concentration. CTEMMF may invest more than 25% of its net assets in (i)
Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities, the interest upon which is paid solely from revenues of similar
projects and (iii) industrial development and pollution control revenue bonds
which are not variable rate demand Municipal Securities, i.e., Municipal
Securities which are related in such a way that an economic, business or
political development or change affecting one such Municipal Security would also
affect the other Municipal Securities; for example, Municipal Securities the
interest on which is paid from revenues of similar type projects or Municipal
Securities whose issuers are located in the same state. Provided, however, that
prior to CTEMMF's so investing its net assets CTEMMF will amend its Prospectus
to disclose such practice. The District of Columbia, each state, each of its
political subdivisions, agencies, instrumentalities and authorities, and each
multi-state agency of which a state is a member, is a separate "issuer" as that
term is used in this Statement of Additional Information and in CTEMMF's
investment restrictions contained in its Prospectus. The identification of the
"issuer" depends on the terms and conditions of the security. When the assets
and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the subdivision
and the security is supported only by the assets and revenues of the
subdivision, such subdivision would be deemed to be the sole
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"issuer." Similarly, in the case of an industrial development or pollution
control revenue bond, if that bond is supported only by the assets and revenues
of the nongovernmental user, then such nongovernmental user would be deemed to
be the sole "issuer." If, however, in either case, the creating government or
some other entity guarantees a security, such a guarantee would be considered a
separate security and must be separately valued.
When-Issued and Delayed-Delivery Securities. CGOF, CGSMMF, CTEMMF and
CBF may each purchase securities on a "when-issued" or "delayed-delivery" basis
(i.e., for delivery beyond the normal settlement date at a stated price and
yield). When a Fund agrees to purchase securities on a "when-issued" or
"delayed-delivery" basis, such Fund's custodian will set aside in a separate
account cash or liquid portfolio securities equal to the amount of the
commitment. Normally, the custodian will set aside portfolio securities to
satisfy the purchase commitment, and in such a case, the Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of such Fund's
commitment. It may be expected that a Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above, such Fund's liquidity and the ability of the Adviser
to manage it might be affected in the event its commitments to purchase
"when-issued" or "delayed-delivery" securities ever exceeded 25% of the value of
its assets. Under normal market conditions, however, neither CGOF's, CGSMMF's,
CTEMMF's nor CBF's commitments to purchase "when-issued" or "delayed-delivery"
securities will exceed 25% of the value of its assets.
When such a Fund engages in "when-issued" or "delayed-delivery"
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in that Fund's incurring a loss or missing the
opportunity to obtain a price considered to be advantageous. CGOF, CGSMMF,
CTEMMF and CBF will engage in "when-issued" or "delayed-delivery" transactions
only for the purpose of acquiring portfolio securities consistent with such
Fund's investment objectives and policies and not for investment leverage.
Mortgage-related Securities. CBF may, consistent with its investment
objectives and policies, invest in mortgage-related securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. CBF may,
in addition, invest in mortgage-related securities issued by nongovernmental
entities; provided, however, that to the extent CBF purchases mortgage-related
securities from such issuers which may, solely for purposes of Section 12 of the
1940 Act, be deemed to be investment companies, CBF's investment in such
securities will be subject to
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the limitations on its investment in investment company securities set forth
below in its investment restrictions.
Mortgage-related securities, for purposes of CBF's Prospectus and this
Statement of Additional Information, represent pools of mortgage loans assembled
for sale to investors by various governmental agencies such as the Government
National Mortgage Association and government-related organizations such as the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured. If CBF purchases a mortgage-related
security at a premium, that portion may be lost if there is a decline in the
market value of the security whether resulting from changes in interest rates or
prepayments in the underlying mortgage collateral. As with other
interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security and shortening the period of time over which income
at the higher rate is received. Conversely, when interest rates are rising, the
rate of prepayment tends to decrease, thereby lengthening the period of time
over which income at the lower rate is received. For these and other reasons, a
mortgage-related security's average maturity may be shortened or lengthened as a
result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return to CBF. In addition, regular payments
received in respect of mortgage-related securities include both interest and
principal. No assurance can be given as to the return CBF will receive when
these amounts are reinvested.
CBF may invest in mortgage-related securities which are collateralized
mortgage obligations structured on pools of mortgage pass-through certificates
or mortgage loans. Collateralized mortgage obligations will be purchased only if
rated in the four highest bond rating categories assigned by an appropriate
NRSRO or, if unrated, which the Adviser deems to present attractive
opportunities and are of comparable quality.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within
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the Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of FNMA and are not backed by or entitled to the full faith and
credit of the United States. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-related securities
issued by the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC
Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs").
FHLMC is a corporate instrumentality of the United States, created pursuant to
an Act of Congress, which is owned entirely by Federal Home Loan Banks. Freddie
Macs are not guaranteed by the United States or by any Federal Home Loan Banks
and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of
interest, which is guaranteed by FHLMC. FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When FHLMC does not guarantee timely payment of principal, FHLMC
may remit the amount due on account of its guarantee of ultimate payment of
principal at any time after default on an underlying mortgage, but in no event
later than one year after it becomes payable.
Other Asset-Backed Securities. CBF may also invest in interests in
pools of receivables, such as motor vehicle installment purchase obligations
(known as Certificates of Automobile Receivables or CARS) and credit card
receivables (known as Certificates of Amortizing Revolving Debts or CARDS). Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities may also be debt instruments which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities are not issued or guaranteed by the U.S. Government or
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
(such as a bank or insurance company) unaffiliated with the issuers of such
securities. Non-mortgage backed securities will be purchased by CBF only when
rated in one of the four highest rating categories by an appropriate NRSRO at
the time of purchase.
The development of these asset-backed securities is at an early state
compared to mortgage backed securities. While the
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market for asset-backed securities is becoming increasingly liquid, the market
for mortgage backed securities issued by certain private organization and
non-mortgage backed securities is not as well developed. The Adviser will limit
purchases of asset-backed securities to securities that are deemed to be readily
marketable by the Adviser at the time of purchase.
Asset-backed securities held by CBF arise through the grouping by
governmental, government-related and private organizations of loans, receivables
and other assets originated by various lenders. Interests in pools of these
assets differ from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal paid at maturity or
specified call dates. Instead, asset-backed securities provide periodic payments
which generally consist of both interest and principal payments.
The estimated life of an asset-backed security may vary with the
prepayment experience with respect to the underlying debt instruments. The rate
of such prepayments, and hence the life of an asset-backed security, will be a
function of current market interest rates and other economic and demographic
factors. Since prepayment experience can vary, asset-backed securities may be a
less effective vehicle for locking in high long-term yields.
Securities of Other Investment Companies. Each Fund may invest in
securities issued by other investment companies. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by such Fund. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of that company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that such Fund bears directly in connection with its own operations.
Investment companies in which TCF, CGOF, CBF and CAGF may invest may also impose
a sales or distribution charge in connection with the purchase or redemption of
their shares and other types of commissions or charges. Such charges will be
payable by such Fund and, therefore, will be borne directly by shareholders.
Income Participation Loans. CBF may make or acquire participation in
privately negotiated loans to borrowers. Frequently, such loans have variable
interest rates and may be backed by a bank letter of credit; in other cases they
may be unsecured. Such transactions may provide an opportunity to achieve higher
yields than those that may be available from other securities offered and sold
to the general public.
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Privately arranged loans, however, will generally not be rated by a
credit rating agency and will normally be liquid, if at all, only through a
provision requiring repayment following demand by the lender. Such loans made by
CBF may have a demand provision permitting such Fund to require repayment within
seven days. Participation in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are not readily marketable, they will be subject to CBF's 15% limitation on
investments in illiquid securities. Recovery of an investment in any such loan
that is illiquid and payable on demand will depend on the ability of the
borrower to meet an obligation for full repayment of principal and payment of
accrued interest within the demand period, normally seven days or less (unless
such Fund determines that a particular loan issue, unlike most such loans, has a
readily available market). As it deems appropriate, the Group's Board of
Trustees will establish procedures to monitor the credit standing of each such
borrower, including its ability to honor contractual payment obligations.
CBF will purchase income participation loans only if such instruments
are, in the opinion of the Adviser, of comparable quality to securities rated
within the four highest rating groups assigned by an applicable NRSRO.
Repurchase Agreements. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from member banks of the Federal Reserve System
and registered broker-dealers which the Adviser deems creditworthy under
guidelines approved by the Group's Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain at all times the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses, including: (a)
possible decline in the value of the underlying securities during the period
while the Fund seeks to enforce its rights thereto; (b) possible subnormal
levels of income and lack of access to income during this period; and (c)
expenses of enforcing its rights. Additionally, there is no controlling legal
precedent confirming that the Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Board of Trustees of the Group believes that, under the
regular procedures normally in effect for custody of the Fund's securities
subject to repurchase agreements and under federal laws, a court of competent
jurisdiction would rule in favor of the Group
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if presented with the question. Securities subject to repurchase agreements will
be held by the Group's custodian or another qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the 1940 Act.
Reverse Repurchase Agreements. CTEMMF is permitted to enter into
reverse repurchase agreements for temporary or emergency non-investment purposes
in an amount not exceeding (together with other borrowings) 5% of the value of
CTEMMF's assets at the time of entering into the agreement. CTEMMF, however, has
not entered into such agreements in the past and does not intend to enter into
such agreements in the foreseeable future.
Foreign Investment. Investment in foreign securities, including ADRs,
is subject to special investment risks that differ in some respects from those
related to investments in securities of U.S. domestic issuers. Since investments
in the securities of foreign issuers may involve currencies of foreign
countries, a Fund may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.
Since foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies, there may be less publicly available
information about a foreign company than about a U.S. company. Securities of
many foreign companies are less liquid and more volatile than securities of
comparable U.S. companies.
In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect a Fund's investments
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
TCF, CBF and CAGF will acquire such securities only when the Adviser
believes the risks associated with such investments are minimal.
Options Trading. Each of TCF, CGOF, CBF and CAGF may purchase put and
call options. A call option gives the purchaser of the option the right to buy,
and a writer has the obligation to sell, the underlying security at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is
consideration for undertaking the obligations under the option contract. A put
option gives the purchaser the right to sell the
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underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the traded
option is the average of the closing bid and asked prices. If an option expires
on the stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or a loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option is
exercised, the Fund may deliver the underlying security in the open market. In
either event, the proceeds of the sale will be increased by the net premium
originally received and the Fund will realize a gain or loss.
TCF, CBF, CAGF and CGOF may also purchase or sell index options. Index
options (or options on securities indices) are similar in many respects to
options on securities except that an index option gives the holder the right to
receive, upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
Medium-Grade Debt Securities. As stated in the Prospectuses for CBF and
CAGF, CBF and CAGF may invest in securities within the four highest rating
groups assigned by an appropriate NRSRO (e.g. S&P and Moody's), including
securities rated BBB by S&P or Baa by Moody's or, if unrated, judged by the
Adviser to be of comparable quality ("Medium-Grade Securities").
As with other fixed-income securities, Medium-Grade Securities are
subject to credit risk and market risk. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit risk relates
to the ability of the issuer to make payments of principal and interest.
Medium-Grade Securities are considered by Moody's to have speculative
characteristics.
Medium-Grade Securities are generally subject to greater credit risk
than comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of Medium-Grade Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
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Because certain Medium-Grade Securities are traded only in markets
where the number of potential purchasers and sellers, if any, is limited, the
ability of a Fund to sell such securities at their fair value either to meet
redemption requests or to respond to changes in the financial markets may be
limited.
Particular types of Medium-Grade Securities may present special
concerns. The prices of payment-in-kind or zero-coupon securities may react more
strongly to changes in interest rates than the prices of other Medium-Grade
Securities. Some Medium-Grade Securities in which CBF and CAGF may invest may be
subject to redemption or call provisions that may limit increases in market
value that might otherwise result from lower interest rates while increasing the
risk that such Fund may be required to reinvest redemption or call proceeds
during a period of relatively low interest rates.
The credit ratings issued by NRSROs are subject to various limitations.
For example, while such ratings evaluate credit risk, they ordinarily do not
evaluate the market risk of Medium-Grade Securities. In certain circumstances,
the ratings may not reflect in a timely fashion adverse developments affecting
an issuer. For these reasons, the Adviser conducts its own independent credit
analysis of Medium-Grade Securities.
Futures Contracts. As discussed in the Prospectuses of the TCF, CGOF,
CBF and CAGF, each of those Funds may enter into futures contracts. This
investment technique is designed primarily to hedge against anticipated future
changes in market conditions which otherwise might adversely affect the value of
securities which a Fund holds or intends to purchase. For example, when interest
rates are expected to rise or market values of portfolio securities are expected
to fall, a Fund can seek through the sale of futures contracts to offset a
decline in the value of its portfolio securities. When interest rates are
expected to fall or market values are expected to rise, a Fund, through the
purchase of such contracts, can attempt to secure better rates or prices for the
Fund than might later be available in the market when it effects anticipated
purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. Government securities or other
liquid high grade debt obligations, to cover its performance under such
contracts. A Fund may lose the expected benefit of futures transactions if
interest rates, securities prices or foreign exchange rates move in an
unanticipated manner.
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<PAGE> 17
Such unanticipated changes may also result in poorer overall performance than if
the Fund had not entered into any futures transactions. In addition, the value
of a Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities, limiting the Fund's
ability to hedge effectively against interest rate and/or market risk and giving
rise to additional risks. There is no assurance of liquidity in the secondary
market for purposes of closing out futures positions.
Regulatory Restrictions. To the extent required to comply with
Securities and Exchange Commission Release No. IC-10666, when purchasing a
futures contract or writing a put option, a Fund will maintain in a segregated
account cash or liquid high-grade securities equal to the value of such
contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of such Fund's total assets. A Fund will not engage in
transactions in financial futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting the
values of securities which such Fund holds or intends to purchase. When other
futures contracts or options thereon are purchased, the underlying value of such
contracts will at all times not exceed the sum of: (1) accrued profit on such
contracts held by the broker; (2) cash or high quality money market instruments
set aside in an identifiable manner; and (3) cash proceeds from investments due
in 30 days.
Investment Restrictions
Each Fund's investment objectives are fundamental policies and as such
may not be changed without a vote of the holders of a majority of that Fund's
outstanding Shares. In addition, the following investment restrictions of the
Funds may be changed only by a vote of a majority of the outstanding Shares of a
Fund (as defined under "ADDITIONAL INFORMATION - Vote of a Majority of the
Outstanding Shares" in this Statement of Additional Information).
In addition to the investment restrictions set forth in their
respective Prospectuses, each of TCF, CGOF, CBF and CAGF may not:
1. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities and except as may
be necessary to make margin payments in connection with derivative securities
transactions;
B-15
<PAGE> 18
2. Underwrite the securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
3. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction); or
4. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Fund.
In addition, CGOF may not:
1. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; or
2. Mortgage, pledge, hypothecate or, in any other manner, transfer as
security for indebtedness any security owned by a Fund, except as may be
necessary in connection with permissible borrowings, in which event such
mortgaging, pledging or hypothecating may not exceed 5% of the Fund's assets,
valued at cost and except that the deposit of assets in escrow in connection
with writing covered call options will not be deemed to be the mortgage, pledge,
hypothecation or transfer of assets as security described above.
CGSMMF will not:
1. Pledge, mortgage or hypothecate its assets, except that to secure
borrowings permitted for temporary or emergency non-investment purposes, the
Trust may pledge securities having a market value at the time of pledge not
exceeding 15% of its total assets (so long as certain state law restrictions are
applicable, the market value of securities subject to any such pledge will not
exceed 10% of the market value of the Trust's total assets);
2. Underwrite the securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
3. Purchase or sell real estate or real estate mortgage loans;
4. Purchase commodities or commodities contracts;
5. Purchase participations or other direct interests in oil, gas or
other mineral exploration or development programs; or
B-16
<PAGE> 19
6. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities.
CTEMMF will not:
1. Pledge, mortgage or hypothecate its assets, except that to secure
permitted borrowings it may pledge securities having a market value at the time
of pledge not exceeding 15% of the Trust's total assets; provided, however, so
long as certain state law restrictions are applicable, the market value of
securities subject to any such pledge will not exceed 10% of the market value of
the Trust's total assets;
2. Underwrite the securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
3. Purchase or sell real estate, although the Trust may invest in
Municipal Securities or temporary investments secured by interests in real
estate;
4. Purchase or sell commodities or commodity contracts;
5. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities;
6. Write, purchase or sell put or call options, except to the extent
that securities subject to a demand obligation or stand- by commitment may be
acquired;
7. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; or
8. Purchase securities which are not Municipal Securities and the
income from which is subject to federal income tax, if such purchase would cause
more than 20% of the Trust's total assets to be invested in such securities.
The following additional investment restrictions may be changed without
the majority vote of the outstanding Shares of any of the Funds. Each Fund may
not:
1. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
to the extent permitted by the 1940 Act or pursuant to any exemptions therefrom;
2. Engage in any short sales;
B-17
<PAGE> 20
3. Invest more than 15% of the Fund's total assets in securities which
are restricted as to disposition; or
4. Purchase or retain securities of any issuer if the officers and
trustees of the Group and the officers and directors of its investment adviser,
who each owns beneficially more than 1/2 of 1% of the outstanding securities of
such issuer, together own beneficially more than 5% of such securities.
In addition, each of TCF, CBF and CAGF has the following nonfundamental
investment restrictions: each such Fund may not (1) mortgage or hypothecate the
Fund's assets in excess of one-third of the Fund's total assets, (2) purchase
participations or direct interests in oil, gas or other mineral exploration or
development programs (although investments by the Fund in marketable securities
of companies engaged in such activities are not prohibited by this restriction),
or (3) invest more than 10% of the Fund's total assets in securities of issuers
which, together with any predecessors, have a record of less than three years'
continuous operation.
If a percentage restriction or requirement set forth above is met at
the time of investment, a later increase or decrease in such percentage
resulting from a change in net asset value will not be considered a violation of
the policy. However, should a change in net asset value or other external events
cause a Fund's investments in illiquid securities to exceed the limitation in
its non-fundamental policy as set forth in its Prospectus, the Fund will act to
cause the aggregate amount of illiquid securities to come within such limit as
soon as reasonably practicable. In such an event, however, the Fund would not be
required to liquidate any portfolio securities where the Fund would suffer a
loss on the sale of such securities.
Portfolio Turnover
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of that Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The Commission requires
that the calculation exclude all securities whose remaining maturities at the
time of acquisition were one year or less.
Because CGSMMF and CTEMMF intend to invest entirely in securities with
maturities of less than one year and because the Commission requires such
securities to be excluded from the calculation of portfolio turnover rate, the
portfolio turnover with respect to each of CGSMMF and CTEMMF is expected to be
zero percent for regulatory purposes. For each of the other Funds, the portfolio
turnover rates for the fiscal years ended September 30, 1997 and 1996 were as
follows:
B-18
<PAGE> 21
Fiscal Year Ended September 30,
<TABLE>
<CAPTION>
Fund 1997 1996
- ---- ---- ----
<S> <C> <C>
TCF 12.73% 57.93%(1)
CGOF 34.53% 33.58%(1)
CBF 61.23% 18.34%
CAGF 34.43% 48.60%
</TABLE>
- -----------
(1) Includes periods prior to the effective date of the Reorganization.
For such Funds, the portfolio turnover rate may vary greatly from year
to year as well as within a particular year, and may also be affected by cash
requirements for redemptions of Shares. Portfolio turnover will not be a
limiting factor in making investment decisions.
MANAGEMENT OF THE GROUP
The trustees and officers of the Group, together with their addresses
and principal business occupations and other affiliations during the last five
years, are shown below. Each trustee who is an "interested person" of the Group,
as that term is defined in the 1940 Act, is indicated by an asterisk.
Name, Business Position(s) Held Principal Occupation(s)
Address and Age with the Group During Past 5 Years
- --------------- ---------------- -----------------------
*H. Keith Allen Chairman and Chief Operating Officer,
155 East Broad Street Trustee, Member of Secretary, Treasurer and
Columbus, Ohio 43215 Executive, a Director of The Ohio
Age: 56 Nominating and Company (investment
Investment Com- banking); formerly Senior
mittees Executive Vice President
of The Ohio Company.
Gordon B. Carson Trustee, Member of Principal, Whitfield
5413 Gardenbrook Drive Executive and Robert Associates (con-
Midland, Michigan 48642 Contract Committees struction consulting
Age: 86 firm).
Michael J. Knilans Trustee, Member of From November, 1989 to
1119 Kingsdale Terrace Executive and August, 1995, Member of
Columbus, Ohio 43220 Contract Committees the Ohio Bureau of
Age: 70 Workers' Compensation and
Chairman from 1992
through August, 1995.
James I. Luck Trustee President, The Columbus
1234 East Broad Street Foundation (philanthropic
Columbus, Ohio 43205 public foundation).
Age: 52
B-19
<PAGE> 22
David L. Nelson Trustee, Member of Chairman of the Board of
295 Whispering Way Audit and Nominat- Directors of Herman
Holland, Michigan ing Committees Miller, Inc. (furniture
49424-6635 manufacturer); former
Age: 67 Vice President, Customer
Support, Americas Region,
and Vice President,
Customer Satisfaction,
Industry Segment, of Asea
Brown Boveri, Inc. (de-
signer and manufacturer
of process automation
systems for basic indus-
tries).
*C. A. Peterson Trustee and Member of Chartered Financial
150 E. Wilson Bridge Rd. Contract Committee Analyst, former Senior
Suite 230 Executive Vice President
Worthington, Ohio 43085 and Director of The Ohio
Age: 71 Company (investment
banking).
Lawrence H. Rogers II Trustee and Member of Self-employed author;
4600 Drake Road Audit Committee former Vice Chairman,
Cincinnati, Ohio 45243 Motor Sports Enterprises,
Age: 76 Inc.
*Frank W. Siegel President and Chartered Financial
155 East Broad Street Trustee, Member of Analyst and Senior Vice
Columbus, Ohio 43215 Executive and President, The Ohio
Age: 45 Nominating Commit- Company (investment
tees banking); former Vice
President, Keystone Group
(mutual fund
management/adminis-
tration); former Senior
Vice President, Trust
Advisory Group (mutual
fund consulting).
Joseph H. Stegmayer Trustee, Member of President of Champion
724 Hampton Roads Dr. Audit and Nomi- Homes, Inc. (manufactured
Knoxville, TN 37922-4071 nating Committees homes); former President
Age: 46 and a Director of Clayton
Homes, Inc. (manufactured
homes); former Vice
President, Treasurer,
Chief Financial Officer
and a Director of
Worthington Industries,
Inc. (specialty steel and
plastics manufacturer).
Karen J. Hipsher Secretary Executive Secretary, The
155 East Broad Street Ohio Company (investment
Columbus, Ohio 43215 banking).
Age: 52
James M. Schrack II Treasurer Vice President of The
155 East Broad Street Ohio Company (investment
Columbus, Ohio 43215 banking).
Age: 39
Anthony W. Howard Assistant Employee of The Ohio
155 East Broad Street Treasurer Company (investment
Columbus, Ohio 43215 banking).
Age: 33
B-20
<PAGE> 23
As of January 22, 1998, all trustees and officers of the Group as a
group owned fewer than one percent of the Shares of each Fund then outstanding.
Pursuant to the ultimate authority of the Board of Trustees of the
Group, the Executive Committee is responsible for the general management of the
affairs of the Group. This Committee's actions are reported to and reviewed by
the Board of Trustees.
Messrs. Allen and Siegel are President, Secretary and a director, and
Vice President and a director, respectively, of the Adviser, and Mr. Schrack is
a Vice President of the Adviser. The compensation of trustees and officers of
the Group who are employed by The Ohio Company is paid by The Ohio Company.
Trustees' fees plus expenses are paid by the Group, except that Messrs. Allen
and Siegel receive no fees from the Group.
The following table sets forth information regarding all compensation
paid by the Group to its Trustees for their services as trustees during the
fiscal year ended September 30, 1997. The Group has no pension or retirement
plans.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Total Compensation
Name and Position Compensation From the Group and
With the Group* From the Group the Fund Complex**
- --------------- -------------- ------------------
<S> <C> <C>
H. Keith Allen $ 0 $ 0
Chairman, Trustee and
Member of Executive,
Nominating and
Investment Committees
Gordon B. Carson $ 7,500 $ 7,500
Trustee and Member of
Executive and Contract
Committees
Michael J. Knilans $12,500 $12,500
Trustee and Member of
Executive and Contract
Committees
James I. Luck $12,500 $12,500
Trustee
</TABLE>
B-21
<PAGE> 24
<TABLE>
<S> <C> <C>
David L. Nelson $10,500 $10,500
Trustee and Member of
Audit and Nominating
Committees
C.A. Peterson $12,500 $12,500
Trustee and Member of
Contract Committee
Lawrence H. Rogers, II $13,000 $13,000
Trustee and Member of
Audit Committee
Frank W. Siegel $ 0 $ 0
Trustee, President and
Member of Executive and
Nominating Committees
Joseph H. Stegmayer $13,500 $13,500
Trustee and Member of
Audit and Nominating
Committees
</TABLE>
- ----------------
*During the fiscal year ended September 30, 1997, John B. Gerlach served
as a trustee of the Group but no longer does so as of the date hereof. During
the fiscal year ended September 30, 1997, Mr. Gerlach received $8,000
compensation from the Group and $8,000 compensation from the Fund Complex for
his service as a trustee.
**For purposes of this Table, Fund Complex means one or more mutual
funds, including the Group, which have a common investment adviser or affiliated
investment advisers or which hold themselves out to the public as being related.
PRINCIPAL SHAREHOLDERS OF THE GROUP
As of January 22, 1998, the following are the only persons known to the
Group who own 5% or more of any of the Funds' shares:
<TABLE>
<CAPTION>
Name and Address of 5%
Fund or more Beneficial Owner Percentage Owned
- ---- ------------------------ ----------------
<S> <C> <C>
TCF The Ohio Company(1) 74.49%
(Institutional 155 East Broad Street
Shares) Columbus, Ohio 43215
</TABLE>
B-22
<PAGE> 25
<TABLE>
<S> <C> <C>
CBF The Ohio Company(1) 92.76%
(Institutional 155 East Broad Street
Shares) Columbus, Ohio 43215
CAGF The Ohio Company(1) 91.39%
(Institutional 155 East Broad Street
Shares) Columbus, Ohio 43215
COGF The Ohio Company(1) 76.59%
(Institutional 155 East Broad Street
Shares) Columbus, Ohio 43215
</TABLE>
- -------------
(1) Either directly, indirectly through the Adviser, or in its capacity as a
trustee of certain plans or trusts.
There were no other persons known to the Group to be the beneficial
owner of 5% or more of any other Fund's Investor Shares or Institutional Shares
or of the total number of the Group's Shares outstanding as of January 22, 1998.
THE ADVISER
The Group has entered into an Investment Advisory and Management
Agreement dated as of June 18, 1993, as amended January 10, 1996 (the
"Investment Advisory Agreement"), with Cardinal Management Corp. (the
"Adviser"). Pursuant to the Investment Advisory Agreement, the Adviser has
agreed to provide investment advisory and management services as described in
the Prospectuses of the Funds. As compensation for such services, facilities and
expenses, the Adviser receives a fee (1) from each of CGOF, CGSMMF and CTEMMF,
computed and accrued daily and paid monthly, based on an annual rate of .50% of
the daily net asset value of that Fund; (2) from TCF, computed and accrued daily
and paid monthly, based on an annual rate of 0.60% of the daily net asset value
of TCF; and (3) from each of CBF and CAGF, computed and accrued daily and paid
monthly, based on an annual rate of .75% of the daily net asset value of that
Fund.
Prior to the effective date of the Reorganization, the Adviser provided
investment advisory and management services to Cardinal Government Obligations
Fund, CGST and CTEMT and received a fee at the same annual rate for such
services as described above for CGOF, CGSMMF and CTEMMF, respectively. The Ohio
Company, prior to the effective date of the Reorganization, provided investment
advisory services to TCFI, and received a fee for such services based on an
annual rate of .50% of the daily net value of such Fund.
B-23
<PAGE> 26
For the fiscal years ended September 30, 1997, 1996, and 1995, the
investment advisory fees incurred by each of the Funds (including their
respective predecessors prior to the Reorganization) were as follows:
Fees Incurred for Year Ended September 30,
<TABLE>
<CAPTION>
Fund 1997 1996 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
TCF $1,563,425 $1,247,921 $1,158,534
CGOF 654,206 715,946 783,803
CGSMMF 2,583,453 2,407,624 2,031,367
CTEMMF 326,321 337,669 344,000
CBF 112,981 109,021 101,585
CAGF 85,746 74,235 71,508
</TABLE>
The Adviser is a wholly owned subsidiary of The Ohio Company, an
investment banking firm organized in 1925. Descendants of H. P. and R. F. Wolfe,
deceased, and members of their families, through their possession of a majority
of the voting stock, may be considered controlling persons of The Ohio Company.
H. Keith Allen is an officer and director of The Ohio Company. Frank W. Siegel
and James M. Schrack II are each officers of The Ohio Company.
Unless sooner terminated, the Investment Advisory Agreement with respect
to a Fund continues for successive one-year periods ending June 18 of each year
if such continuance is approved at least annually by the Group's Board of
Trustees or by vote of a majority of the outstanding Shares of that Fund (as
defined under "ADDITIONAL INFORMATION -- Vote of a Majority of the Outstanding
Shares" below), and a majority of the Trustees who are not parties to the
Investment Advisory Agreement or interested persons (as defined in the 1940 Act)
of any party to the Investment Advisory Agreement by votes cast in person at a
meeting called for such purpose. The Investment Advisory Agreement is terminable
as to a Fund at any time on 60 days' written notice without penalty by the
Trustees, by vote of a majority of the outstanding Shares of that Fund, or by
the Adviser. The Investment Advisory Agreement also terminates automatically in
the event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Group in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or negligence on the part of the
B-24
<PAGE> 27
Adviser in the performance of its duties, or from negligent disregard by the
Adviser of its duties and obligations thereunder.
On December 22, 1997, The Ohio Company, Fifth Third Bankcorp., and its
wholly owned subsidiary, Fifth Third M Corp., entered into an Agreement and Plan
of Merger pursuant to which The Ohio Company will be acquired by Fifth Third M
Corp. The acquisition is subject to a number of conditions, including the
approval by Trustees and shareholders of the Group of a "new" investment
advisory and management agreement with Adviser, identical in all material
respects to the Group's current Investment Advisory and Management Agreement
with the Adviser, to become effective on the effective date of The Ohio
Company's acquisition. On such effective date, it also expected that the Group
will have entered into an underwriting agreement with a new principal
underwriter. In addition, it is expected that Fountain Square Funds, a regulated
investment company with net assets of approximately $3.1 billion as of December
31, 1997, advised by Fifth Third Bank, a subsidiary of Fifth Third Bankcorp.,
will propose the combination of the Group and Fountain Square Funds in a
transaction which, if approved by the Group's Trustees, would be submitted to
the Group's shareholders for consideration and approval.
On January 16, 1998, the Board of Trustees of the Group approved such a
new investment advisory and management agreement and have called a Special
Meeting of Shareholders to be held in March 1998 to vote on such agreement.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser, subject to
the policies established by the Board of Trustees of the Group and in accordance
with the Funds' investment restrictions and policies, is responsible for each
Fund's portfolio decisions and the placing of the Funds' portfolio transactions.
Purchases and sales of portfolio securities which are debt securities usually
are principal transactions in which such portfolio securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Group, where possible, will deal directly with
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere.
For the fiscal years ended September 30, 1997, 1996, and 1995 the
brokerage fees incurred by each of TCF (including its predecessor, TCFI, prior
to the Reorganization), CBF and CAGF are set forth in the following table. None
of those commissions were paid to The Ohio Company, and during such periods,
none of CGOF, CGSMMF or CTEMMF (nor any of their predecessors prior to the
Reorganization) incurred any brokerage commissions.
B-25
<PAGE> 28
Brokerage Commissions Incurred
for Year Ended September 30,
<TABLE>
<CAPTION>
Fund 1997 1996 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
TCF $312,417 $382,627 $215,180
CBF 12,560 8,670 20,490
CAGF 21,574 19,440 22,011
</TABLE>
In executing such transactions, the Adviser seeks to obtain the best net
results for a Fund taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulties
of execution and operational facilities of the firm involved and the firm's risk
in positioning a block of securities. While the Adviser generally seeks
reasonably competitive commission rates, for the reasons stated in the prior
sentence, a Fund will not necessarily be paying the lowest commission or spread
available.
The Adviser may consider provision of research, statistical and other
information to the Group, a Fund or the Adviser in the selection of qualified
broker-dealers who effect portfolio transactions for a Fund so long as the
Adviser's ability to obtain the best net results for portfolio transactions of
that Fund is not diminished. Such research services include supplemental
research, securities and economic analyses, and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Such research services may also be useful to the Adviser
in connection with its services to other clients. Similarly, research services
provided by brokers serving such other clients may be useful to the Adviser in
connection with its services to a Fund. Although this information is useful to a
Fund and the Adviser, except as described below, it is not possible to place a
dollar value on it. It is the opinion of the Board of Trustees and the Adviser
that the review and study of this information will not reduce the overall cost
to the Adviser of performing its duties to the Funds under the Investment
Advisory Agreement. The Group is not authorized to pay brokerage commissions
which are in excess of those which another qualified broker would charge solely
by reason of brokerage and research services provided.
During the fiscal year ended September 30, 1997, the Group had
authorized the Adviser to place brokerage transactions through Pershing and
Company, a division of Donaldson, Lufkin & Jenrette, in return for Lipper Data
information prepared for the Group's Trustees relating to information on fees
and expenses of other mutual funds. Such brokerage transactions are subject to
the requirements as to execution and price described above. However, Lipper Data
for the Group is no longer acquired in this manner.
B-26
<PAGE> 29
Investment decisions for a Fund are made independently from those for
another Fund of the Group or any other investment company or account managed by
the Adviser. Any such other Funds, investment company or account may also invest
in the same securities as a Fund. When a purchase or sale of the same security
is made at substantially the same time on behalf of one Fund and another Fund,
investment company or account, the transaction will be averaged as to price and
available investments will be allocated as to amount in a manner which the
Adviser believes to be equitable to the Fund and such other Fund, investment
company or account. In some instances, this investment procedure may adversely
affect the price paid or received by a Fund or the size of the position obtained
by that Fund. To the extent permitted by law, the Adviser may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for other funds or for other investment companies or accounts in order to obtain
best execution. As provided by the Investment Advisory Agreement, in making
investment recommendations for the Group, the Adviser will not inquire or take
into consideration whether an issuer of securities proposed for purchase or sale
by the Group is a customer of the Adviser, its parent or its subsidiaries or
affiliates and, in dealing with its customers, the Adviser, its parent,
subsidiaries and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Group.
During the fiscal year ended September 30, 1997, each of the Funds
except CTEMMF held securities of one or more of the following brokers or
dealers (or companies affiliated with such brokers or dealers), each of which
is a regular broker or dealer of the Group as defined in Rule 10b-1 of the 1940
Act: Paine Webber Inc., Smith Barney Shearson, Hambrecht & Quist Group Inc.,
Daiwa Securities America Inc., The Nikko Securities Co., Intl., Inc., Merrill
Lynch Government Securities Inc., The Fifth Third Bank, and AG Edwards, Inc. As
of September 30, 1997, CGSMMF was a party to a $22,000,000 repurchase agreement
with Merrill Lynch Government Securities Inc., a $12,000,000 repurchase
agreement with The Nikko Securities Co., Intl., Inc., a $7,000,000 repurchase
agreement with Paine Webber Inc., and a $39,000,000 repurchase agreement with
Smith Barney Shearson; TCF was a party to a $1,206,000 repurchase agreement
with The Fifth Third Bank and an $18,700,000 repurchase agreement with Paine
Webber Inc; CAGF was a party to a $214,000 repurchase agreement with The Fifth
Third Bank; CBF was a party to a $778,000 repurchase agreement with The Fifth
Third Bank; and CGOF was a party to a $2,402,000 repurchase agreement with The
Fifth Third Bank. In addition, as of September 30, 1997, CAGF owned common
stock of AG Edwards, Inc. and Paine Webber Group valued at $51,000 and $70,000,
respectively, and CBF owned common stock of Traveler's Group valued at $182,000.
Pursuant to the Investment Advisory Agreement, the Adviser also serves
as general manager and administrator to each of the Funds. The Adviser assists
in supervising all operations of each Fund (other than those performed by The
Fifth Third Bank under the Custodian and Fund Accounting and Services Agreements
and by the Adviser under the Transfer Agency Agreement).
The Adviser has agreed to maintain office facilities; furnish
statistical and research data, clerical, certain bookkeeping services and
stationery and office supplies; prepare the periodic reports to the Commission
on Form N-SAR or any replacement forms therefor; compile data for, prepare for
execution by each Fund and file all of a Fund's federal and state tax returns
and required tax filings other than those required to be made by each Fund's
custodian and Transfer Agent; prepare compliance filings pursuant to state
securities laws with the advice of the Group's counsel; assist to the extent
requested by the Group with the Group's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statement (on Form N-1A
or any replacement therefor); compile data for, prepare and file timely Notices
to the Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and
maintain the financial accounts and records of each Fund, including calculation
of daily expense accruals; and generally assist in all aspects of each Fund's
operations.
B-27
<PAGE> 30
TRANSFER AND DIVIDEND AGENT
The Group has entered into a Transfer Agency Agreement dated as of
January 22, 1997 (the "Transfer Agency Agreement") with the Transfer Agent,
pursuant to which the Transfer Agent has agreed to act as the transfer agent and
dividend disbursing agent for each Fund. Pursuant to the Transfer Agency
Agreement, the Transfer Agent, among other things, performs the following
services in connection with each Fund's shareholders of record: maintenance of
shareholder records for the Fund's shareholders of record; processing
shareholder purchase and redemption orders; processing transfers and exchanges
of shares of the Group on the shareholder files and records; processing dividend
payments and reinvestment; and assistance in the mailing of shareholder reports
and proxy solicitation materials. In consideration of such services each Fund
has agreed to pay the Transfer Agent monthly an annual fee equal to $18 (for
TCF, CBF and CAGF) or $21 (for CGOF, CGSMMF and CTEMMF) per shareholder account
plus out-of-pocket expenses.
In addition, pursuant to a Transfer Agency and Fund Accounting Agreement
dated as of June 18, 1993, as amended as of January 10, 1996 (the "Transfer
Agency and Fund Accounting Agreement"), with the Transfer Agent, the Transfer
Agent provided certain fund accounting services to each of the Funds until
January 22, 1997, when the Group entered into a new Fund Accounting and Services
Agreement (described below) with The Fifth Third Bank. Such fund accounting
services included maintaining the accounting books and records for each Fund,
including journals containing an itemized daily record of all purchases and
sales of portfolio securities, all receipts and disbursements of cash and all
other debits and credits, general and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts, including interest
accrued and interest received, and other required separate ledger accounts;
maintaining a monthly trial balance of all ledger accounts; performing certain
accounting services for each Fund, including calculation of the net asset value
per share, calculation of the dividend and capital gain distributions, if any,
and of yield, reconciliation of cash movements with such Fund's custodian,
affirmation to that Fund's custodian of all portfolio trades and cash
settlements, verification and reconciliation with that Fund's custodian of all
daily trade activity; providing certain reports; obtaining dealer quotations,
prices from a pricing service or matrix prices on all portfolio securities in
order to mark the portfolio to the market; and preparing an interim balance
sheet, statement of income and expense, and statement of changes in net assets
for each Fund. In consideration for such services, each Fund agreed to pay the
Transfer Agent a fee, computed daily and paid periodically at an annual rate of
.03% of such Fund's average daily net assets of up to $100 million and .01% of
such Fund's average daily net assets in excess of $100 million.
For the fiscal years ended September 30, 1997, 1996, and 1995, the fees
and expenses incurred by each of the Funds (including their respective
predecessors prior to the Reorganization) for
B-28
<PAGE> 31
transfer agency and fund accounting services provided by the Transfer Agent
under the Transfer Agency Agreement and the Transfer Agency and Fund Accounting
Agreement were as follows:
Year Ended September 30,
<TABLE>
<CAPTION>
Fund 1997 1996 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
TCF $222,167 $241,047 $255,882(1)
CGOF 139,470 191,505 215,273
CGSMMF 1,261,339 1,060,106 895,470
CTEMMF 83,219 92,904 79,777
CBF 22,479 27,697 25,950
CAGF 24,978 27,955 25,079
</TABLE>
- ---------------
(1) TCFI, as predecessor to TCF, did not incur any fund accounting fees.
FUND ACCOUNTANT
The Group has entered into a Fund Accounting and Services Agreement
dated as of January 22, 1997 (the "Fund Accounting Agreement") with The Fifth
Third Bank, pursuant to which The Fifth Third Bank has agreed to provide fund
accounting and other services to each of the Funds. Such services include but
are not limited to maintaining accounting books and records for each Fund,
recording investment, capital share, and income and expense activities of each
Fund, maintaining individual ledgers for the investment securities of each Fund,
reconciling cash and investment balances with each Fund's custodian, preparing
financial statements for each Fund, preparing the Group's federal and state tax
returns, assisting in the preparation of the Group's annual and semi-annual
reports to shareholders, registration statements, and other documents required
to be filed with the Securities and Exchange Commission, obtaining daily market
quotations from independent pricing services for the securities portfolio of
each Fund (other than the money market Funds), and calculating the daily net
asset value per share for each class of shares within a Fund.
In consideration for the services provided by The Fifth Third Bank under
the Fund Accounting Agreement, each Fund has agreed to pay The Fifth Third Bank
an annual fee, calculated daily and paid monthly, at an annual rate of 0.03% of
the first $100 million of such Fund's average daily net assets, 0.02% of the
next $100 million of such Fund's average daily net assets, and 0.01% of such
Fund's average daily net assets in excess of $200 million. At a minimum,
however, each Fund is required to pay The Fifth Third Bank $2,500 per month. In
addition, each Fund is required to pay an annual fee of $7,000 for each
additional class of shares and to pay a $500 monthly surcharge if more than 10%
of its securities portfolio consists of international securities.
B-29
<PAGE> 32
For the fiscal year ended September 30, 1997, the fees and expenses
incurred by each of the Funds under the Fund Accounting Agreement were as
follows:
Fund Year Ended September 30, 1997
---- -----------------------------
TCF $24,140
CGOF 37,225
CGSMMF 47,124
CTEMMF 13,040
CBF 10,230
CAGF 16,412
ADMINISTRATIVE SERVICES PLAN
As described in the Prospectuses of TCF, CGOF, CBF and CAGF with respect
to their Institutional Shares, the Group has also adopted an Administrative
Services Plan with respect to Institutional Shares (the "Services Plan") under
which each such Fund is authorized to pay banks, broker-dealers, savings and
loan associations, trust companies (including The Ohio Company), qualified
investment advisers and certain other financial institutions which serve in a
fiduciary capacity on behalf of customers or beneficiaries (collectively,
"Financial Institutions"), to provide certain ministerial, record keeping, and
administrative support services to their customers who own of record or
beneficially Institutional Shares in a Fund. Payments to such Financial
Institutions are made pursuant to Servicing Agreements between the Group and the
Financial Institution. The Services Plan authorizes each of TCF, CGOF, CBF and
CAGF to make payments to Service Organizations in an amount, on an annual basis,
of up to 0.15% of the average daily net asset value of the Institutional Shares
that Fund. The Services Plan has been approved by the Board of Trustees of the
Group, including a majority of the Trustees who are not interested persons of
the Group (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Services Plan or in any Servicing
Agreements thereunder (the "Disinterested Trustees"). The Services Plan may be
terminated as to a Fund by a vote of a majority of the Disinterested Trustees.
The Trustees review quarterly a written report of the amounts expended pursuant
to the Services Plan and the purposes for which such expenditures were made. The
Services Plan may be amended by a vote of the Trustees, provided that any
material amendments also require the vote of a majority of the Disinterested
Trustees. For so long as the Services Plan is in effect, selection and
nomination of those Disinterested Trustees shall be committed to the discretion
of the Group's Disinterested Trustees. All Servicing Agreements may be
terminated at any time without the payment of any penalty by a vote of a
majority of the Disinterested Trustees. The Services Plan
B-30
<PAGE> 33
will continue in effect for successive one-year periods, provided that each such
continuance is specifically approved by a majority of the Board of Trustees,
including a majority of the Disinterested Trustees.
As authorized by the Services Plan, the Group has entered into a
Servicing Agreement with The Ohio Company pursuant to which The Ohio Company has
agreed to provide certain administrative support services in connection with
Institutional Shares of the Funds owned of record or beneficially by its
customers for whom The Ohio Company serves as a fiduciary. Such administrative
support services may include, but are not limited to, (i) processing dividend
and distribution payments from a Fund on behalf of customers; (ii) providing
periodic statements to its customers showing their positions in the
Institutional Shares; (iii) arranging for bank wires; (iv) responding to routine
customer inquiries relating to services performed by The Ohio Company; (v)
providing sub-accounting with respect to the Institutional Shares beneficially
owned by The Ohio Company's customers or the information necessary for
sub-accounting; (vi) if required by law, forwarding shareholder communications
from a Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to its
customers; (vii) aggregating and processing purchase, exchange, and redemption
requests from customers and placing net purchase, exchange, and redemption
orders for customers; and (viii) providing customers with a service that invests
the assets of their account in the Institutional Shares pursuant to specific or
pre-authorized instructions. In consideration of such services, the Group, on
behalf of each of TCF, CGOF, CBF and CAGF, has agreed to pay The Ohio Company a
monthly fee, computed at the annual rate of .15% of the average aggregate net
asset value of Institutional Shares of that Fund held during the period by
customers for whom The Ohio Company has provided services under the Servicing
Agreement. For the fiscal year ended September 30, 1997, amounts paid to The
Ohio Company under the Servicing Agreement on behalf of TCF, CGOF, CBF, and CAGF
were $28,412, $5,877, $2,021, and $4,031, respectively.
THE DISTRIBUTOR
The Ohio Company serves as agent for the Funds in the distribution of
their Shares pursuant to a Distribution Agreement dated June 18, 1993, as
amended as of January 2, 1997 (the "Distribution Agreement"). Unless otherwise
terminated, the Distribution Agreement remains in effect for successive annual
periods ending on June 18 if approved at least annually (i) by the Group's Board
of Trustees or by the vote of a majority of the outstanding shares of the Group,
and (ii) by the vote of a majority of the Trustees of the Group who are not
parties to the Distribution Agreement or interested persons (as defined in the
1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement may be terminated in the event of any assignment, as defined in the
1940 Act.
B-31
<PAGE> 34
In its capacity as Distributor, The Ohio Company solicits orders for the
sale of Shares, advertises and pays the costs of advertising, office space and
the personnel involved in such activities. The Distributor receives no
compensation from the Group under the Distribution Agreement, but may receive
compensation under the Distribution and Shareholder Service Plan described below
with respect to sales of Investor Shares of TCF, CGOF, CBF and CAGF and retain
all or a portion of the sales charges with respect to its sales of Shares of
TCF, CGOF, CBF and CAGF.
For the fiscal years ended September 30, 1997, 1996, and 1995,
commissions paid to The Ohio Company with respect to the sale of Shares of TCF,
CGOF (and their respective predecessors), CBF and CAGF, after discounts to
dealers, were $1,144,205 (Investor Shares only), $377,963, and $439,190,
respectively.
As described in the Prospectus, the Group has adopted a Distribution and
Shareholder Service Plan with respect to Investor Shares (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act under which each of TCF, CGOF, CBF and
CAGF (collectively, the "12b-1 Funds" and individually a "12b-1 Fund") is
authorized to pay The Ohio Company, with respect to such Fund's Investor Shares,
for payments The Ohio Company makes to broker-dealers, including The Ohio
Company, banks and other institutions (with all of the foregoing organizations
being referred to as "Participating Organizations") for providing distribution
or shareholder service assistance or for distribution assistance and/or
shareholder service provided by The Ohio Company pursuant to an agreement
between The Ohio Company and the Group. Payments to such Participating
Organizations may be made pursuant to agreements entered into with The Ohio
Company. The 12b-1 Plan authorizes each 12b-1 Fund to make payments to The Ohio
Company in an amount not in excess, on an annual basis, of 0.25% of the average
daily net asset value of the Investor Shares of that 12b-1 Fund.
As required by Rule 12b-1, the 12b-1 Plan was approved by the initial
sole shareholder of each 12b-1 Fund and by the Board of Trustees, including a
majority of the Trustees who are not interested persons of that 12b-1 Fund and
who have no direct or indirect financial interest in the operation of the 12b-1
Plan (the "Independent Trustees"). The 12b-1 Plan may be terminated as to a
12b-1 Fund by vote of a majority of the Independent Trustees, or by vote of
majority of the outstanding Investor Shares of that 12b-1 Fund. Any change in
the 12b-1 Plan that would materially increase the distribution cost to a 12b-1
Fund requires Investor shareholder approval. The Trustees review quarterly a
written report of such costs and the purposes for which such costs have been
incurred. The 12b-1 Plan may be amended by vote of the Trustees, including a
majority of the Independent Trustees, cast in person at a meeting called for
that purpose. For so long as the 12b-1 Plan is in effect, selection and
nomination of those Trustees who are not interested persons of the Group shall
be committed to the discretion of such disinterested persons. All agreements
with any person relating to the implementation of the 12b-1 Plan with respect to
a 12b-1 Fund may be terminated at any time on 60 days'
B-32
<PAGE> 35
written notice without payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of the majority of the outstanding Investor
Shares of such 12b-1 Fund.
The 12b-1 Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees, and (ii) by a vote of a majority of the
entire Board of Trustees cast in person at a meeting called for that purpose.
The Board of Trustees has a duty to request and evaluate such information as may
be reasonably necessary for them to make an informed determination of whether
the 12b-1 Plan should be implemented or continued. In addition the Trustees in
approving the 12b-1 Plan must determine that there is a reasonable likelihood
that the 12b-1 Plan will benefit the 12b-1 Funds and their Investor
Shareholders.
The Board of Trustees of the Group believes that the 12b-1 Plan is in
the best interests of the 12b-1 Funds since it encourages Fund growth and
retention of Fund assets. As a 12b-1 Fund grows in size, certain expenses, and
therefore total expenses per Share, may be reduced and overall performance per
Share may be improved.
As authorized by the 12b-1 Plan, the Group has entered into a Rule 12b-1
Agreement with The Ohio Company pursuant to which The Ohio Company has agreed to
provide certain shareholder services in connection with Investor Shares of a
12b-1 Fund purchased and held by The Ohio Company for the accounts of its
customers and Investor Shares of a 12b-1 Fund purchased and held by customers of
The Ohio Company directly, including, but not limited to, answering Shareholder
questions concerning the 12b-1 Funds, providing information to Shareholders on
their investments in the 12b-1 Funds and providing such personnel and
communication equipment as is necessary and appropriate to accomplish such
matters. In consideration of such services the Group, on behalf of each 12b-1
Fund, has agreed to pay The Ohio Company a monthly fee, computed at the annual
rate of .25% of the average aggregate net asset value of Investor Shares of that
12b-1 Fund held during the period in customer accounts for which The Ohio
Company has provided services under this Agreement. For the fiscal year ended
September 30, 1997, fees earned by The Ohio Company under this Rule 12b-1
Agreement prior to any fee waiver, with respect to CBF were $43,215, with
respect to CAGF were $33,069, with respect to TCF were $756,425, and, with
respect to CGOF, were $391,397. The Ohio Company waived all such fees earned
during the period from October 1, 1996 through December 31, 1996. The amount of
fees waived during this period was as follows: $9,478, with respect to CBF;
$5,962, with respect to CAGF; $147,315, with respect to TCF; and $83,627 with
respect to CGOF. Payments made under the 12b-1 Plan by a 12b-1 Fund are borne
solely by the Investor Shareholders of that Fund.
In addition, The Ohio Company may enter into, from time to time, Rule
12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain Shareholder services including, but not limited to, those
discussed above.
B-33
<PAGE> 36
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263,
has been selected to serve as the Funds' custodian pursuant to the Custody
Agreement dated June 18, 1993, as amended as of January 10, 1996. In such
capacity the custodian will hold or arrange for the holding of all portfolio
securities and other assets of the Funds.
LEGAL COUNSEL AND INDEPENDENT AUDITORS
Baker & Hostetler LLP, 65 East State Street, Columbus, Ohio 43215, is
counsel to the Group and will pass upon the legality of the Shares offered
thereby. The Group has selected KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, as independent auditors for the Funds. The financial
statements of the Funds included in this Statement of Additional Information
have been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, given upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
As of January 2, 1997, the Board of Trustees of the Group reclassified
the issued and outstanding Shares of TCF, CGOF, CBF and CAGF as Investor A
Shares, otherwise known as Investor Shares. The Board of Trustees also
authorized the issuance of Investor Y Shares, otherwise referred to as
Institutional Shares. Investor Shares and Institutional Shares of a Fund
represent the same interest in the underlying portfolio securities of that Fund
and are subject to the same expenses and fees, except that Investor Shares are
sold subject to a front-end sales charge and subject to fees payable under the
Rule 12b-1 Plan described above. Institutional Shares are sold at net asset
value without any front-end sales charge and are not subject to a Rule 12b-1 fee
but are subject to fees payable under the Administrative Services Plan described
above.
The Funds' Shares are sold on a continuous basis through The Ohio
Company, principal underwriter of the Funds' Shares, at its address and number
set forth on the cover page of this Statement of Additional Information.
Investor Shares of each of TCF, CGOF, CBF and CAGF and shares of CGSMMF and
CTEMMF may also be purchased through other broker-dealers who are members of the
National Association of Securities Dealers, Inc. and have sales agreements with
The Ohio Company. Institutional Shares of TCF, CGOF, CBF and CAGF, may also be
purchased at net asset value through procedures established by The Ohio Company
in connection with the requirements of accounts for which banks, broker-dealers,
savings and loan associations, trust companies (including The Ohio Company),
qualified investment advisers and certain other financial institutions serve in
a fiduciary capacity on behalf of customers or beneficiaries (collectively,
"Financial Institutions").
B-34
<PAGE> 37
Based upon the value of TCF's portfolio securities and other assets and
the number of outstanding shares as of the fiscal year ended September 30, 1997,
the net asset values and redemption prices per Investor A Share and Investor Y
Share were $16.65 and $16.64, respectively. The total offering price per
Investor A Share was $17.43 per share (net asset value / .9550, assuming the
then current maximum sales charge of 4.5% of the offering price); the total
offering price per Investor Y Share was $16.64 (no sales charge is imposed on
the purchase of Investor Y Shares).
Based upon the value of CGOF's portfolio securities and other assets and
the number of outstanding Shares as of the fiscal period ended September 30,
1997, the net asset values and redemption prices per Investor A Share and
Investor Y Share were each $8.20. The total offering price per Investor A Share
was $8.59 per share (net asset value / .9550, assuming the then current maximum
sales charge of 4.50% of the offering price); the total offering price per
Investor Y Share was $8.20 (no sales charge is imposed on the purchase of
Investor Y Shares).
Based upon the value of CBF's portfolio securities and other assets and
the number of outstanding Shares as of the fiscal period ended September 30,
1997, the net asset values and redemption prices per Investor A Share and
Investor Y Share were each $13.23. The total offering price per Investor A Share
was $13.85 per share (net asset value / .955, assuming the then current maximum
sales charge of 4.50% of the offering price); the total offering price per
Investor Y Share was $13.23 (no sales charge is imposed on the purchase of
Investor Y Shares).
Based upon the value of CAGF's portfolio securities and other assets and
the number of outstanding Shares as of the fiscal period ended September 30,
1997, the net asset values and redemption prices per Investor A Share and
Investor Y Share were $14.70 and $14.71, respectively. The total offering price
per Investor A Share was $15.39 per share (net asset value / .955, assuming the
then current maximum sales charge of 4.50% of the offering price); the total
offering price per Investor Y Share was $14.71 (no sales charge is imposed on
the purchase of Investor Y Shares).
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension, or
(d) an emergency exists as a result of which (i) disposal by the Group of
securities owned by it is not reasonably practical or (ii) it is not reasonably
practical for the Group to determine the fair value of its net assets.
Use of the check-writing redemption procedure by shareholders of CGSMMF
and CTEMMF will be subject to the rules and regulations of The Fifth Third Bank
(the "Bank") governing checking accounts. Neither the Bank nor the Group shall
incur any liability to a
B-35
<PAGE> 38
participating shareholder under this procedure for not honoring a check that
exceeds the value of Shares in a shareholder's account, for honoring checks
properly drafted, for effecting redemptions pursuant to payment thereof or for
returning checks not accepted for payment. This procedure may be terminated at
any time by the Group, the Bank or the participating shareholder. A shareholder
participating in the check-writing redemption procedure has not established a
checking or other account with the Bank for the purposes of Federal Deposit
Insurance or otherwise.
Determination of Net Asset Value
The Group values the portfolio securities of CGSMMF and CTEMMF
(collectively, the "Money Market Funds" and individually a "Money Market Fund")
using the amortized cost valuation method. This method involves valuing a
security at its cost and thereafter accruing any discount or premium at a
constant rate to maturity. By declaring these accruals to the Money Market
Funds' shareholders in the daily dividend, the value of a Money Market Fund's
assets, and, thus, its net asset value per share, will generally remain
constant. Although this method provides certainty in valuation, it may result in
periods during which the value of a Money Market Fund's securities, as
determined by amortized cost, is higher or lower than the price the Money Market
Fund would receive if it sold the securities. During such periods, the yield on
Shares of the Money Market Fund may differ somewhat from that obtained in a
similar fund with identical investments utilizing a method of valuation based
upon market prices and estimates of market prices for all of its portfolio
securities. For example, if the use of amortized cost by a Money Market Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Money Market Fund would be able to obtain a somewhat higher
yield than would result from investment in a similar fund utilizing solely
market values, and existing investors in the Money Market Fund would receive
less investment income.
The valuation of the Money Market Funds' portfolio securities based upon
their amortized cost and the maintenance of the Money Market Funds' per share
net asset value of $1.00 is permitted based on the Money Market Funds' adherence
to certain conditions, including maintaining a dollar-weighted average portfolio
maturity of 90 days or less and purchasing only portfolio securities having
remaining maturities of 397 days or less. The Board of Trustees has also
established procedures designed to stabilize, to the extent reasonably possible,
the Money Market Funds' net asset value per share, as computed for the purpose
of sales and redemptions, at $1.00. Such procedures include review of the Money
Market Funds' portfolio holdings by the Board of Trustees at such intervals as
it may deem appropriate to determine whether the Money Market Funds' net asset
value calculated by using available market quotations deviates from $1.00 per
Share and, if so, whether such deviation may result in material dilution or may
be otherwise unfair to existing shareholders. These procedures also include a
review by the Adviser in accordance with policies established by the Board of
Trustees not less frequently than monthly of the quality of certain
B-36
<PAGE> 39
Municipal Securities having variable interest rates and demand features that
permit CTEMMF to calculate the maturity of such obligations to a point in time
prior to their stated maturity. In the event the Board of Trustees determines
that deviation in net asset value exists, the Board of Trustees will take such
corrective action as it deems necessary and appropriate, which action might
include redemption of Shares in kind, selling portfolio securities prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, reduction of the number of Shares outstanding
(i.e. the declaration of a negative dividend) or establishing a net asset value
per share by using available market quotations.
TAXES
General. Each Fund intends to qualify as a "regulated investment
company" under the Code for so long as such qualification is in the best
interest of that Fund's shareholders. In order to qualify as a regulated
investment company, a Fund must, among other things: derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to its business of investing in
such stocks, securities, or currencies; and diversify its investments within
certain prescribed limits. In addition, to utilize the tax provisions specially
applicable to regulated investment companies, a Fund must distribute to its
shareholders at least 90% of its investment company taxable income for the year.
In general, a Fund's investment company taxable income will be its taxable
income subject to certain adjustments and excluding the excess of any net
mid-term or long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, such
Fund would be subject to a non-deductible excise tax equal to 4% of the
deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if for
any taxable year a Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
federal tax at regular
B-37
<PAGE> 40
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions would be taxable to shareholders to the
extent of earnings and profits, and would be eligible for the dividends received
deduction for corporations.
It is expected that each Fund will distribute annually to shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash.
Distribution by a Fund of the excess of net mid-term or long-term
capital gain over net short-term capital loss is taxable to shareholders as
mid-term or long-term capital gain, respectively, in the year in which it is
received, regardless of how long the shareholder has held the Shares. Such
distributions are not eligible for the dividends-received deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be in excess
of 39.6%, because adjustments reduce or eliminate the benefit of the personal
exemption and itemized deductions for individuals with gross income in excess of
certain threshold amounts.
Long-term capital gains of individuals are subject to a maximum tax rate
of 20% (or 10% for individuals in the 15% ordinary income tax bracket). Mid-term
capital gains of individuals are subject to tax at the same rates applicable to
ordinary income; however, the tax rate on mid-term capital gains of individuals
cannot exceed 28%. Capital losses may be used to offset capital gains. In
addition, individuals may deduct up to $3,000 of net capital loss each year to
offset ordinary income. Excess net capital loss may be carried forward to future
years. The holding period for mid-term capital gains is more than one year but
not more than eighteen months; the holding period for long-term capital gains is
more than eighteen months.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is subject to an
additional tax equal to 3% of taxable income over $15 million, but not more than
$100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.
B-38
<PAGE> 41
Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by that
Fund for its taxable year that qualifies for the dividends received deduction.
A Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends paid to any shareholder who has
provided either an incorrect tax identification number or no number at all, or
who is subject to withholding by the Internal Revenue Service for failure
properly to include on his return payments of interest or dividends.
Information set forth in the Prospectuses and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of Shares of a Fund. No attempt has been made to present a detailed explanation
of the federal income tax treatment of a Fund or its shareholders and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation. In addition,
the tax discussion in the Prospectuses and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the date
of the Prospectuses and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.
Specific Information Regarding CTEMMF. An exempt-interest dividend is
any dividend or part thereof (other than a capital gain dividend) paid by CTEMMF
that is derived from interest received by CTEMMF that is excluded from gross
income for federal income tax purposes, net of certain deductions, provided the
dividend is designated as an exempt-interest dividend in a written notice mailed
to shareholders not later than sixty days after the close of CTEMMF's taxable
year. The percentage of the total dividends paid by CTEMMF during any taxable
year that qualifies as exempt-interest dividends will be the same for all
shareholders receiving dividends during such year. Exempt-interest dividends
shall be treated by CTEMMF's shareholders as items of interest excludable from
their gross income for Federal income tax purposes under Section 103(a) of the
Code. However, a shareholder is advised to consult his tax adviser with respect
to whether exempt-interest dividends retain the exclusion under Section 103(a)
of the Code if such shareholder is a "substantial user" or a "related person" to
such user under Section 147(a) of the Code with respect to any of the Municipal
Securities held by CTEMMF. If a shareholder receives an exempt-interest dividend
with respect to any Share and such Share is held by the shareholder for six
months or less, any loss on the sale or exchange of such Share shall be
disallowed to the extent of the amount of such exempt-interest dividend.
In general, interest on indebtedness incurred or continued by a
shareholder to purchase or carry Shares of CTEMMF is not de-
B-39
<PAGE> 42
ductible for federal income tax purposes if CTEMMF distributes exempt-interest
dividends during the shareholder's taxable year. A shareholder of CTEMMF that is
a financial institution may not deduct interest expense attributable to
indebtedness incurred or continued to purchase or carry Shares of CTEMMF if
CTEMMF distributes exempt-interest dividends during the shareholder's taxable
year (except that 80% in the case of interest expense attributable to tax-exempt
obligations acquired after December 31, 1982, and prior to August 7, 1986 may be
deducted). Certain federal income tax deductions of property and casualty
insurance companies holding Shares of CTEMMF and receiving exempt-interest
dividends may also be adversely affected. In certain limited instances, the
portion of Social Security benefits received by a shareholder which may be
subject to federal income tax may be affected by the amount of tax-exempt
interest income, including exempt-interest dividends received by shareholders of
CTEMMF.
In the unlikely event CTEMMF realizes long-term capital gains, CTEMMF
intends to distribute any realized net long-term capital gains annually. If
CTEMMF distributes such gains, CTEMMF will have no tax liability with respect to
such gains, and the distributions will be taxable to shareholders as long-term
capital gains regardless of how long the shareholders have held the Shares. Any
such distributions will be designated as a capital gain dividend in a written
notice mailed by CTEMMF to the shareholders not later than sixty days after the
close of CTEMMF's taxable year. It should be noted, however, that capital gains
are taxed like ordinary income except that net capital gains of individuals are
subject to a maximum federal income tax rate of 28%. Net capital gains are the
excess of net long-term capital gains over net short-term capital losses. Any
net short-term capital gains are taxed at ordinary income tax rates. If a
shareholder receives a capital gain dividend with respect to any Share and then
sells the Share before he has held it for more than six months, any loss on the
sale of the Share is treated as long-term capital loss to the extent of the
capital gain dividend received.
Interest earned by individuals and corporations on certain municipal
obligations issued on or after August 8, 1986, to finance certain private
activities will be treated as a tax preference item in computing the alternative
minimum tax. It is likely that exempt-interest dividends received by
shareholders from CTEMMF will also be treated as tax preference items in
computing the alternative minimum tax to the extent that distributions by CTEMMF
are attributable to such obligations. Also, a portion of all other interest
excluded from gross income for federal income tax purposes earned by a
corporation may be subject to the alternative minimum tax as a result of the
inclusion in alternative minimum taxable income of 75% of the excess of adjusted
current earnings and profits over pre-book alternative minimum taxable income.
Adjusted current earnings and profits would include exempt-interest dividends
distributed by CTEMMF to corporate shareholders.
For taxable years of corporations beginning before 1996, the Superfund
Revenue Act of 1986 imposes an additional tax (which is
B-40
<PAGE> 43
deductible for federal income tax purposes) on a corporation at a rate of 0.12
of one percent on the excess over $2,000,000 of such corporation's "modified
alternative minimum taxable income," which would include a portion of the
exempt-interest dividends distributed by CTEMMF to such corporation, and
exempt-interest dividends distributed to certain foreign corporations doing
business in the United States could be subject to a branch profits tax imposed
by Section 884 of the Code.
Distributions of exempt-interest dividends by CTEMMF may be subject to
state and local taxes even though a substantial portion of such distributions
may be derived from interest on obligations which, if received directly, would
be exempt from such taxes. CTEMMF will report to its shareholders annually after
the close of its taxable year the percentage and source, on a state-by-state
basis, of interest income earned on municipal obligations held by CTEMMF during
the preceding year. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes.
ADDITIONAL INFORMATION
Description of Shares
The Group is an Ohio business trust. The Group was organized on March
23, 1993, and the Group's Declaration of Trust was filed with the Secretary of
State of Ohio on March 23, 1993. The Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of Shares, which are units of
beneficial interest, without par value. The Group presently has six series of
Shares, which represent interests in each series of the Group. The Shares of
each of the Funds of the Group, other than the Money Market Funds, are divided
into four separate classes: Investor A Shares, Investor B Shares, Investor C
Shares and Investor Y Shares, which are otherwise referred to as Institutional
Shares, although currently Investor B and C Shares are not being offered. Shares
of the Money Market Funds are being offered only in one class. The Group's
Declaration of Trust authorizes the Board of Trustees to divide or redivide any
unissued Shares of the Group into one or more additional series by setting or
changing in any one or more respects their respective preferences, conversion or
other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the respective Prospectus
and this Statement of Additional Information, a Fund's Shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Fund, of any general assets not
belonging to any particular Fund which are available for distribution.
B-41
<PAGE> 44
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a series will be required in
connection with a matter, a series will be deemed to be affected by a matter
unless it is clear that the interests of each series in the matter are
identical, or that the matter does not affect any interest of the series. Under
Rule 18f-2, the approval of any amendment to the Investment Advisory Agreement
or any change in investment policy submitted to shareholders would be
effectively acted upon with respect to a series only if approved by a majority
of the outstanding shares of such series. However, Rule 18f-2 also provides that
the ratification of independent public accountants and the election of Trustees
may be effectively acted upon by shareholders of the Group voting without regard
to series.
Vote of a Majority of the Outstanding Shares
As used in the Prospectuses and this Statement of Additional
Information, "vote of a majority of the outstanding Shares" of the Group or a
Fund, means the affirmative vote, at an annual or special meeting of
shareholders duly called, of the lesser of (a) 67% or more of the votes of
shareholders of the Group or that Fund present at such meeting at which the
holders of more than 50% of the votes attributable to the shareholders of record
of the Group or that Fund are represented in person or by proxy, or (b) the
holders of more than 50% of the outstanding votes of shareholders of the Group
or such Fund.
Miscellaneous
Individual Trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals. Generally,
shareholders owning not less than 20% of the outstanding shares of the Group
entitled to vote may cause the Trustees to call a special meeting. However, the
Group has represented to the Commission that the Trustees will call a special
meeting for the purpose of considering the removal of one or more Trustees upon
written request therefor from shareholders owning not less than 10% of the
outstanding votes of the Group entitled to vote and that the Group will assist
in communications with other shareholders as required by ss.16(c) of the 1940
Act. At such a meeting, a quorum of shareholders (constituting a majority of
votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of the Group.
B-42
<PAGE> 45
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectuses and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectuses and this Statement of Additional Information.
PERFORMANCE INFORMATION
The following performance information as of September 30, 1997, for the
Funds includes the performance of their respective predecessor funds for periods
prior to the effective date of the Reorganization. TCF and CGOF are subject to
certain additional fees that, if such fees had been imposed prior to the
Reorganization, would have affected such Funds' performance.
Yields
For the 30-day period ended September 30, 1997, the yields of the
Investor Shares of CGOF and CBF were 6.18% and 1.41%, respectively. For this
same period, the yields of the Institutional Shares of CGOF and CBF were 6.82%
and 1.69%, respectively. The yields of the Investor Shares and Institutional
Shares of CGOF and CBF are computed by annualizing net investment income per
share for a recent 30-day period and dividing that amount by a Share's maximum
offering price (as of the date hereof, 4.5%) (reduced by any undeclared earned
income expected to be paid shortly as a dividend) on the last trading day of
that period. Net investment income will reflect amortization of any market value
premium or discount of fixed income securities (except for obligations backed by
mortgages or other assets) and may include recognition of a pro rata portion of
the stated dividend rate of dividend paying portfolio securities. The yields of
the Investor Shares and Institutional Shares of CGOF and CBF will vary from time
to time depending upon market conditions, the composition of such Fund's
portfolio and operating expenses of the Group allocated to that Fund. These
factors and possible differences in the methods used in calculating yield should
be considered when comparing such a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of the Investor Shares and
Institutional Shares of CGOF and CBF and to the relative risks associated with
the investment objectives and policies of those Funds.
For the seven-day period ended September 30, 1997, the current yields
for CGSMMF and CTEMMF were 4.72% and 3.06%, respectively, and their effective
yields were 4.82% and 3.11%, respectively. The current (average annualized)
yield of CGSMMF and CTEMMF for any
B-43
<PAGE> 46
seven-day period is calculated by dividing the average daily net income per
Share earned by that Fund during the seven-day calendar period by such Fund's
average price per Share over the same period and annualizing this quotient on a
365 day basis. For purposes of this calculation, the daily net income reflects
dividends declared on the original Share and dividends declared on any Shares
purchased with dividends on that Share. Capital changes that are excluded from
the calculation are realized gains and losses from the sale of securities as
well as unrealized appreciation and depreciation with respect to the Fund's
portfolio.
The effective or compounded yield of CGSMMF and CTEMMF for any seven-day
period is computed by adding the number one to the daily net income per Share
earned by such Fund during the seven-day calendar period, raising the sum to a
power equal to 365 divided by seven, and subtracting the number one from the
result.
For the seven-day period ended September 30, 1997, the tax equivalent
yield and the tax equivalent effective yield for CTEMMF were 2.58% and 4.28%,
respectively. CTEMMF's tax-equivalent yield is computed by dividing that portion
of CTEMMF's yield which is tax-exempt by 1 minus the stated income tax rate and
adding the result to that portion, if any, of CTEMMF's yield that is not
tax-exempt. CTEMMF's tax-equivalent effective yield is computed by dividing that
portion of the effective yield which is tax-exempt by 1 minus the stated income
tax rate and adding to that result the portion, if any, of CTEMMF's effective
yield that is not tax-exempt.
Calculation of Total Return
For the one year, five year and ten year periods ended September 30,
1997, and the respective periods from commencement of operations to September
30, 1997, the average annual returns and cumulative total returns for the
Investor A Shares of TCF, CGOF, CBF and CAGF, CGSMMF and CTEMMF were as follows:
<TABLE>
<CAPTION>
Average Annual Cumulative
-------------- ----------
Since Since
Fund 1 Year 5 Year 10 Year Inception 1 Year 5 Year 10 Year Inception
---- ------ ------ ------- --------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TCF(1) 32.90% 14.80% 12.10% 15.47% 32.90% 99.12% 212.03% 2388.57%
CGOF(2) 4.40% 5.20% 7.90% 7.33% 4.40% 28.73% 114.27% 128.17%
CBF(3) 19.10% -- -- 11.30% 19.10% -- -- 60.70%
CAGF(3) 27.00% -- -- 11.00% 27.00% -- -- 55.68%
CGSMMF(4) 4.67% 3.97% 5.32% 7.20% 4.67% 21.50% 67.92% 227.52%
CTEMMF(5) 2.72% 2.41% 3.46% 3.79% 2.72% 12.64% 40.54% 68.83%
</TABLE>
(1) Commenced operations May 30, 1975.
(2) Commenced operations February 3, 1986.
(3) Commenced operations June 23, 1993.
(4) Commenced operations September 11, 1980.
(5) Commenced operations September 7, 1983.
B-44
<PAGE> 47
For the period from January 2, 19971 through September 30, 1997, the
aggregate total return for the Investor Y Shares of TCF, CGOF, CBF, and CAGF
was as follows:
Fund For the Period From
---- January 2, 1997 through
September 30, 1997
------------------
TCF 29.77%
CGOF 6.86%
CBF 20.17%
CAGF 26.59%
Each quotation of average annual total return will be computed by
finding the average annual compounded rate of return over that period which
would equate the value of an initial amount of $1,000 invested in a Fund equal
to the ending redeemable value, according to the following formula:
n
P(T + 1) = ERV
Where: P = a hypothetical initial payment of $1,000, T = average annual
total return, n = number of years, and ERV = ending redeemable value of a
hypothetical $1,000 payment at the beginning of the period at the end of the
period for which average annual total return is being calculated assuming a
complete redemption. The calculation of average annual total return assumes the
deduction of the maximum sales charge from the initial investment of $1,000,
assumes the reinvestment of all dividends and distributions at the price stated
in the then effective Prospectus on the reinvestment dates during the period and
includes all recurring fees that are charged to all shareholder accounts
assuming such Fund's average account size. Cumulative return is computed by
using average annual total return, as calculated above, for each year of the
relevant period to determine the total return on a hypothetical initial
investment of $1,000 over such period.
In addition, as described in their respective Prospectuses, from time to
time CGOF and CBF may include in their sales literature and shareholder reports
a quote of a current "distribution" rate. For the 12-month period ended
September 30, 1997, the distribution rates of the Investor Shares of CGOF and
CBF were 6.58% and 2.01%, respectively. For this same period, the distribution
rates of the Institutional Shares of CGOF and CBF were 6.98% and 2.19%,
respectively. The current distribution rate is computed by dividing the total
amount of dividends per share paid by the Fund during the past twelve months by
a current maximum offering price. Under certain circumstances, such as when
there has been a change in the amount of dividend payout, or a fundamental
change in investment policies, it might be appropriate to annualize the
dividends paid over the period such changed
- --------
(1) Commencement of operations.
B-45
<PAGE> 48
policies were in effect, rather than using the dividends during the past twelve
months. The current distribution rate differs from the current yield computation
because it may include distributions to shareholders from sources other than
dividends and interest, such as premium income from option writing, short-term
capital gains and net equalization credits and is calculated over a different
period of time.
At any time in the future, yields and total return may be higher or
lower than past yields and total return and there can be no assurance that any
historical results will continue. Investors in the Funds are specifically
advised that Share prices of TCF, CGOF, CBF and CAGF expressed as the net asset
values per share, will vary just as yields and total return will vary.
Performance Comparisons
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc., Lehman
Brothers, The Frank Russell Group, and, Standard & Poor's Corporation and to
data prepared by Lipper Analytical Services, Inc., Morningstar, Inc. and CDA
Investment Technologies, Inc. Comparisons may also be made to indices or data
published in Donoghue's MONEY FUND REPORT of Holliston, Massachusetts, a
nationally recognized money market fund reporting service, Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, The Columbus
Dispatch, Business Week, U.S.A. Today and Consumer Reports. In addition to
performance information, general information about the Funds that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
B-46
<PAGE> 49
- ------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
B-47
<PAGE> 50
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
The Cardinal Group:
We have audited the accompanying statements of assets and liabilities of The
Cardinal Group -- Cardinal Government Securities Money Market Fund, Cardinal Tax
Exempt Money Market Fund, The Cardinal Fund, Cardinal Aggressive Growth Fund,
Cardinal Balanced Fund, and Cardinal Government Obligations Fund, including the
statements of investments, as of September 30, 1997, and the related statements
of operations for the year then ended, the statements of changes in net assets
for each of the years in the two-year period then ended and the financial
highlights for each of the periods indicated herein. These financial statements
and financial highlights are the responsibility of The Cardinal Group's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
September 30, 1997, by confirmation with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Cardinal Group at September 30, 1997,
the results of their operations, the changes in their net assets and their
financial highlights for each of the periods indicated herein, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
November 14, 1997
B-48
<PAGE> 51
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL
GOVERNMENT CARDINAL
SECURITIES TAX EXEMPT
MONEY MARKET MONEY MARKET
FUND FUND
------------ ------------
<S> <C> <C>
ASSETS:
Investments in securities at amortized cost....................... $417,475 $ 60,736
Repurchase agreements, at cost.................................... 116,899 0
--------- ---------
Total investments..................................... 534,374 60,736
Cash.............................................................. 0 301
Interest receivable............................................... 4,929 345
Receivable for Fund shares sold................................... 30 0
Other assets (note 5)............................................. 450 70
--------- ---------
Total assets.......................................... 539,783 61,452
--------- ---------
LIABILITIES:
Payable for investment securities purchased....................... 35,000 1,100
Payable for Fund shares redeemed.................................. 43 7
Payable for shareholder distributions............................. 0 0
Accrued investment management and transfer agent fees (note 4).... 341 35
Other accrued expenses............................................ 135 26
--------- ---------
Total liabilities..................................... 35,519 1,168
--------- ---------
Commitments and contingencies (note 5)
NET ASSETS:
Paid in capital................................................... 504,282 60,284
Accumulated net realized loss on investments...................... (404) 0
Undistributed net investment income............................... 386 0
--------- ---------
Total net assets...................................... $504,264 $ 60,284
========= =========
Outstanding shares of beneficial interest......................... 504,282 60,284
========= =========
NET ASSET VALUE PER SHARE......................................... $1.00 $1.00
========= =========
</TABLE>
See accompanying notes to financial statements.
B-49
<PAGE> 52
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL CARDINAL
AGGRESSIVE CARDINAL GOVERNMENT
THE CARDINAL GROWTH BALANCED OBLIGATIONS
FUND FUND FUND FUND
------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (cost
$154,248, $8,643, $13,409, and $123,417)..... $275,108 $ 13,805 $16,525 $126,397
Repurchase agreements, at cost................. 19,906 214 778 2,402
--------- -------- -------- ---------
Total investments..................... 295,014 14,019 17,303 128,799
--------- -------- -------- ---------
Dividends and interest receivable.............. 481 5 70 818
Receivable for investment securities sold...... 0 258 0 8,307
Receivable for Fund shares sold................ 13 4 2 7
Other assets (note 5).......................... 210 7 30 99
Deferred organizational cost................... 0 5 5 0
--------- -------- -------- ---------
Total assets.......................... 295,718 14,298 17,410 138,030
--------- -------- -------- ---------
LIABILITIES:
Payable for investment securities purchased.... 0 328 0 10,889
Payable for Fund shares redeemed............... 23 6 0 17
Payable for shareholder distributions.......... 0 0 0 726
Accrued investment management and transfer
agent fees (note 4).......................... 175 11 10 69
Call options written, at market................ 368 61 31 0
Other accrued expenses......................... 364 38 45 184
--------- -------- -------- ---------
Total liabilities..................... 930 444 86 11,885
--------- -------- -------- ---------
Commitments and contingencies (note 5)
NET ASSETS:
Paid in capital................................ 153,546 9,503 13,149 142,346
Accumulated net realized gain (loss) on
investments.................................. 19,707 (840) 969 (19,250)
Undistributed net investment income (loss)..... 186 0 46 69
Unrealized gain on investments................. 121,350 5,191 3,160 2,980
--------- -------- -------- ---------
Total net assets...................... $294,789 $ 13,854 $17,324 $126,145
========= ======== ======== =========
NET ASSETS:
Investor shares................................ $267,908 $ 9,792 $15,616 $120,342
Institutional shares........................... 26,881 4,062 1,708 5,803
--------- -------- -------- ---------
Total................................. $294,789 $ 13,854 $17,324 $126,145
========= ======== ======== =========
OUTSTANDING SHARES OF BENEFICIAL INTEREST
Investor shares................................ 16,094 666 1,180 14,679
Institutional shares........................... 1,615 276 129 708
--------- -------- -------- ---------
Total................................. 17,709 942 1,309 15,387
========= ======== ======== =========
NET ASSET VALUE
Investor shares................................ $ 16.65 $ 14.70 $ 13.23 $ 8.20
Institutional shares........................... $ 16.64 $ 14.71 $ 13.23 $ 8.20
========= ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
B-50
<PAGE> 53
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL
GOVERNMENT CARDINAL
SECURITIES TAX EXEMPT
MONEY MARKET MONEY MARKET
FUND FUND
--------------------- -----------------
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................ $27,592 $ 2,293
-------- -------
EXPENSES:
Investment management fees (note 4)................. 2,583 326
Transfer agent fees and expenses (note 4)........... 1,245 79
-------- -------
Total affiliated expenses................. 3,828 405
-------- -------
Custodian fees...................................... 31 6
Accounting fees..................................... 66 17
Professional fees................................... 140 27
Reports to shareholders............................. 122 5
Trustees' fees...................................... 55 8
Registration fees................................... 45 23
Other expenses...................................... 97 13
Amortization of deferred organizational cost........ 35 6
-------- -------
Total non-affiliated expenses............. 591 105
-------- -------
Total expenses............................ 4,419 510
-------- -------
Net investment income..................... $23,173 $ 1,783
-------- -------
Net realized loss from security
transactions............................ (92) 0
-------- -------
Net increase in net assets from
operations.............................. 23,081 1,783
======== =======
</TABLE>
See accompanying notes to financial statements.
B-51
<PAGE> 54
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL CARDINAL
AGGRESSIVE CARDINAL GOVERNMENT
THE CARDINAL GROWTH BALANCED OBLIGATIONS
FUND FUND FUND FUND
------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................... $ 4,274 $ 26 $ 171 $ 0
Interest.................................... 1,010 16 391 10,542
-------- ------- ------- --------
Total income...................... 5,284 42 562 10,542
-------- ------- ------- --------
EXPENSES:
Investment management fees (note 4)......... 1,563 86 113 654
Distribution fees (note 4).................. 756 33 43 391
Administrative service fees (note 4)........ 28 4 2 6
Transfer agent fees and expenses (note 4)... 214 19 18 126
Expenses voluntarily waived (note 4)........ (147) (6) (9) (84)
-------- ------- ------- --------
Total affiliated expenses......... 2,414 136 167 1,093
-------- ------- ------- --------
Custodian fees.............................. 36 9 10 37
Accounting fees............................. 32 23 14 51
Professional fees........................... 69 9 2 37
Reports to shareholders..................... 57 4 1 26
Trustees' fees.............................. 33 6 2 20
Registration fees........................... 25 16 11 27
Other expenses.............................. 65 3 4 23
Amortization of deferred organizational
cost...................................... 14 10 11 8
-------- ------- ------- --------
Total non-affiliated expenses..... 331 80 55 229
-------- ------- ------- --------
Total expenses.................... 2,745 216 222 1,322
-------- ------- ------- --------
Net investment income (loss)...... 2,539 (174) 340 9,220
-------- ------- ------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) from security
transactions.............................. 19,070 (809) 1,440 (155)
Increase in unrealized gain on
investments............................... 63,545 4,242 1,687 2,682
-------- ------- ------- --------
Net realized gain (loss) and
increase in unrealized gain on
investments..................... 82,615 3,433 3,127 2,527
-------- ------- ------- --------
Net increase in net assets from
operations...................... $ 85,154 $3,259 $3,467 $ 11,747
======== ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
B-52
<PAGE> 55
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
CARDINAL
GOVERNMENT CARDINAL
SECURITIES TAX EXEMPT
MONEY MARKET MONEY MARKET
FUND FUND
-------------------------- ---------------------
1997 1996 1997 1996
----------- ---------- -------- --------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income......................... $ 23,173 $ 22,576 $ 1,783 $ 1,801
Net realized loss from security
transactions................................ (92) 0 0 0
----------- ----------- --------- ---------
Net increase in net assets from
operations........................ 23,081 22,576 1,783 1,801
----------- ----------- --------- ---------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Total distributions to shareholders........... (23,099) (22,576) (1,783) (1,801)
----------- ----------- --------- ---------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from sale of fund shares............. 1,330,914 1,272,767 155,053 159,477
Reinvestment of distributions to
shareholders................................ 22,599 22,143 1,668 1,700
Cost of fund shares redeemed.................. (1,327,106) (1,262,409) (156,352) (166,042)
----------- ----------- --------- ---------
Increase (decrease) in net assets from
capital share transactions............. 26,407 32,501 369 (4,865)
----------- ----------- --------- ---------
Net increase (decrease) in net assets.... 26,389 32,501 369 (4,865)
NET ASSETS -- beginning of period............. 477,875 445,374 59,915 64,780
----------- ----------- --------- ---------
NET ASSETS -- end of period................... $ 504,264 $ 477,875 $ 60,284 $ 59,915
=========== =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
B-53
<PAGE> 56
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
CARDINAL AGGRESSIVE
THE CARDINAL FUND GROWTH FUND
--------------------- -------------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss)......................... $ 2,539 $ 4,370 $ (174) $ (152)
Net realized gain (loss) from security
transactions....................................... 19,070 35,032 (809) 77
Increase (decrease) in unrealized gain on
investments........................................ 63,545 (1,098) 4,242 (63)
--------- --------- -------- --------
Net increase (decrease) in net assets from
operations...................................... 85,154 38,304 3,259 (138)
--------- --------- -------- --------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income -- Investor
shares............................................. (2,179) (4,551) 0 0
Distributions of net investment
income -- Institutional shares..................... (174) 0 0 0
Tax return of capital distribution................... 0 0 (192) 0
Distribution of net realized gains from security
transactions....................................... (19,080) (34,597) (31) (766)
--------- --------- -------- --------
Total distributions to shareholders................ (21,433) (39,148) (223) (766)
--------- --------- -------- --------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):
INVESTOR SHARES:
Proceeds from sale of fund shares.................... 12,835 8,454 1,736 2,503
Reinvestment of distributions to shareholders........ 19,793 36,392 218 743
Cost of fund shares redeemed......................... (51,330) (41,141) (4,087) (3,107)
--------- --------- -------- --------
Increase (decrease) in net assets from Investor
share transactions.............................. (18,702) 3,705 (2,133) 139
--------- --------- -------- --------
INSTITUTIONAL SHARES:
Proceeds from sale of fund shares.................... 24,912 0 3,720 0
Reinvestment of distributions to shareholders........ 174 0 0 0
Cost of fund shares redeemed......................... (4,358) 0 (438) 0
--------- --------- -------- --------
Increase in net assets from Institutional share
transactions....................................... 20,728 0 3,282 0
--------- --------- -------- --------
Net increase (decrease) in net assets.............. 65,747 2,861 4,185 (765)
NET ASSETS -- beginning of period.................... 229,042 226,181 9,669 10,434
--------- --------- -------- --------
NET ASSETS -- end of period.......................... $294,789 $229,042 $13,854 $ 9,669
========= ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
B-54
<PAGE> 57
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
CARDINAL CARDINAL GOVERNMENT
BALANCED FUND OBLIGATIONS FUND
------------------- ---------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income................................ $ 340 $ 515 $ 9,220 $ 10,596
Net realized gain (loss) from security
transactions....................................... 1,440 856 (155) (1,240)
Increase (decrease) in unrealized gain on
investments........................................ 1,687 47 2,682 (826)
-------- -------- --------- ---------
Net increase in net assets from operations......... 3,467 1,418 11,747 8,530
-------- -------- --------- ---------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income -- Investor
shares............................................. (274) (519) (8,849) (10,496)
Distributions of net investment
income -- Institutional shares..................... (20) 0 (301) 0
Tax return of capital distribution................... 0 0 0 (214)
Distribution of net realized gains from security
transactions....................................... (1,235) (483) 0 0
-------- -------- --------- ---------
Total distributions to shareholders................ (1,529) (1,002) (9,150) (10,710)
-------- -------- --------- ---------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):
INVESTOR SHARES:
Proceeds from sale of fund shares.................... 1,191 2,334 8,628 5,062
Reinvestment of distributions to shareholders........ 1,413 927 4,918 6,056
Cost of fund shares redeemed......................... (3,029) (3,867) (28,973) (27,351)
-------- -------- --------- ---------
Decrease in net assets from Investor share
transactions.................................... (425) (606) (15,427) (16,233)
-------- -------- --------- ---------
INSTITUTIONAL SHARES:
Proceeds from sale of fund shares.................... 2,004 0 6,374 0
Reinvestment of distributions to shareholders........ 20 0 301 0
Cost of fund shares redeemed......................... (558) 0 (998) 0
-------- -------- --------- ---------
Increase in net assets from Institutional share
transactions....................................... 1,466 0 5,677 0
-------- -------- --------- ---------
Net increase (decrease) in net assets.............. 2,979 (190) (7,153) (18,413)
NET ASSETS -- beginning of period.................... 14,345 14,535 133,298 151,711
-------- -------- --------- ---------
NET ASSETS -- end of period.......................... $17,324 $14,345 $126,145 $133,298
======== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
B-55
<PAGE> 58
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS) --
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
AMORTIZED
MATURITY FACE COST
DATE AMOUNT (NOTE 2)
--------- --------- ---------
<S> <C> <C> <C>
U.S. GOVERNMENT-SPONSORED ENTERPRISES AND FEDERAL AGENCY OBLIGATIONS 83%
Federal Farm Credit Bank Note
5.50%.......................... 11-03-97 $ 20,000 $ 20,000
Federal Farm Credit Bank Note
5.53%.......................... 02-02-98 7,500 7,500
Federal Farm Credit Bank Note
5.51%.......................... 12-01-97 25,000 25,000
Federal Farm Credit Bank Note
5.50%.......................... 01-02-98 25,000 25,000
Federal Farm Credit Bank Note
5.47%.......................... 04-02-98 5,000 5,000
Federal Farm Credit Bank Note
5.71%.......................... 03-13-98 10,000 9,995
Federal Farm Credit Bank Note
5.77%.......................... 08-18-98 10,000 10,000
Federal Farm Credit Bank Note
5.69%.......................... 10-01-97 35,000 35,000
Federal Farm Credit Bank Note
5.63%.......................... 01-02-98 10,000 10,000
Federal Home Loan Bank Note
5.53%.......................... 12-16-97 10,000 10,000
Federal Home Loan Bank Note
5.52%.......................... 02-02-98 10,000 9,982
Federal Home Loan Bank Note
5.81%.......................... 02-13-98 10,000 10,000
Federal Home Loan Bank Note
5.70%.......................... 03-04-98 10,000 10,000
Federal Home Loan Bank Note
5.91%.......................... 04-02-98 10,000 9,997
Federal Home Loan Bank Note
5.82%.......................... 06-16-98 10,000 10,000
Federal Home Loan Bank Note
5.72%.......................... 06-30-98 10,000 9,991
Federal Home Loan Bank Note
5.88%.......................... 08-12-98 5,000 5,000
Federal Home Loan Bank Note
5.86%.......................... 09-02-98 20,000 20,000
Federal Home Loan Bank Note
5.90%.......................... 09-16-98 5,000 5,000
Federal Home Loan Bank Note
5.80%.......................... 09-18-98 15,000 15,010
Federal Home Loan Bank Note
5.84%.......................... 10-14-98 5,000 5,000
Student Loan Marketing
Association Note 5.63%......... 12-12-97 5,000 5,000
Student Loan Marketing
Association Note 5.26%*........ 12-18-97 60,000 60,000
Student Loan Marketing
Association Note 5.17%*........ 10-16-97 5,000 5,000
<CAPTION>
AMORTIZED
MATURITY FACE COST
DATE AMOUNT (NOTE 2)
--------- --------- ---------
<S> <C> <C> <C>
U.S. GOVERNMENT-SPONSORED ENTERPRISES AND FEDERAL AGENCY OBLIGATIONS 83%
(CONTINUED)
Student Loan Marketing
Association Note 5.17%*........ 11-20-97 $ 25,000 $ 25,000
Student Loan Marketing
Association Note 5.26%*........ 01-15-98 5,000 5,000
Student Loan Marketing
Association Note 5.27%*........ 02-19-98 30,000 30,000
Student Loan Marketing
Association Note 5.32%*........ 03-19-98 20,000 20,000
---------
TOTAL U.S. GOVERNMENT-SPONSORED
ENTERPRISES AND FEDERAL AGENCY
OBLIGATIONS.................... 417,475
---------
REPURCHASE AGREEMENTS 23%
Daiwa Securities America Inc.
5.50%
(collateralized by $31,495,000
U.S. Treasury notes, 6.75%,
05-31-99, value $32,640,545.... 10-03-97 32,000 32,000
Fifth Third Bank 6.00%
(collateralized by $4,886,000
FNMA Notes, 6.00%, 06-01-15 ,
value $5,047,141).............. 10-01-97 4,899 4,899
Merrill Lynch Gov't. Securities
Inc. 5.56%
(collateralized by $28,277,035
U.S. Federal Agency notes,
6.50%-7.50%, 4-1-08 through
4-1-24, value $22,442,698)..... 10-02-97 22,000 22,000
The Nikko Securities Co. Int'l,
Inc. 5.62%
(collateralized by $16,035,000
GNMA Notes, 6.00% through
7.575%, 5-20-24 through
7-20-27, value $12,577,068).... 10-06-97 12,000 12,000
Paine Webber Inc. 5.50%
(collateralized by $36,055,000
FNMA Notes, 0.00%, 04-01-23 ,
value $7,140,850).............. 10-07-97 7,000 7,000
Smith Barney Shearson 5.54%
(collateralized by $39,500,683
U.S. Federal Agency notes,
5.75% through 9.9375%, 3-15-04
through 2-25-31 , value
$39,780,001)................... 10-01-97 39,000 39,000
---------
TOTAL REPURCHASE AGREEMENTS...... 116,899
---------
TOTAL INVESTMENTS AT AMORTIZED
COST 106%...................... $534,374
=========
</TABLE>
Percentages indicated are based on net assets.
Cost also represents cost for Federal income tax purposes.
* Rule 2a-7, of the Investment Company Act of 1940, defines maturity as the
longer of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered
through demand. The 2a-7 maturity for the indicated Bonds is October 7, 1997.
See accompanying notes to financial statements.
B-56
<PAGE> 59
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS) --
CARDINAL TAX EXEMPT MONEY MARKET FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FINAL FACE AMORTIZED
2a-7* MATURITY AMOUNT/ COST
MATURITY DATE SHARES (NOTE 2)
--------- -------- ------- ---------
<S> <C> <C> <C> <C>
GENERAL OBLIGATION BONDS 24%
District of Columbia Refunding Series B currently 7.70%................ 6-01-98 6-01-04 1,000 $ 1,045
Indiana Secondary Market Educational Loans Inc. currently 4.10%........ 10-07-97 12-01-14 1,000 1,000
Mason, Ohio City School District Bond Anticipation currently 4.45%..... 3-20-98 3-20-98 1,000 1,003
Columbus, Ohio Adjustable Series 1 currently 3.90%..................... 10-07-97 12-01-17 3,100 3,100
Ohio School District Cash Flow Borrowing Program currently 4.47%....... 6-30-98 6-30-98 2,000 2,008
Ohio State Public Facilities currently 7.00%........................... 6-01-98 6-01-00 1,000 1,040
Cincinnati, Ohio City School District Tax currently 3.75%.............. 12-01-97 12-01-97 1,500 1,500
Summit County, Ohio Bond Anticipation currently 4.50%.................. 6-04-98 6-04-98 1,000 1,004
Texas State Refunding currently 4.10%.................................. 10-07-97 12-01-16 2,900 2,900
-------
14,600
-------
REVENUE BONDS 72%
Alaska Industrial Development Authority currently 3.60%................ 10-07-97 6-01-10 2,055 2,055
Connecticut State Development Authority currently 4.00%................ 10-07-97 9-01-28 3,400 3,400
Kentucky Development Financial Authority currently 4.05%............... 10-07-97 12-01-15 900 900
Clark County, Kentucky Pollution Control currently 3.75%............... 10-15-97 10-15-14 2,300 2,300
Louisiana Public Facilities Authority Refunding currently 4.05%........ 10-07-97 10-01-22 2,000 2,000
Howard County, Maryland Multifamily Housing currently 4.00%............ 10-07-97 6-15-26 2,300 2,300
Cornell Township, Michigan Economic Development currently 3.55%........ 1-15-98 3-01-15 3,100 3,100
Buffalo County, Nebraska Hospital Authority currently 3.95%............ 10-07-97 5-01-18 1,970 1,970
North Carolina Medical Care Community Hospital currently 4.05%......... 10-07-97 9-01-02 1,600 1,600
Albuquerque, New Mexico Hospitals currently 4.05%...................... 10-07-97 5-15-22 2,500 2,500
Ohio State Higher Education Facilities Commission currently 3.95%...... 10-07-97 12-01-06 1,115 1,115
Ashtabula County, Ohio Industrial Development currently 3.95%.......... 10-07-97 12-01-16 2,400 2,400
Clackamas County, Oregon Hospital Facilities Authority currently
3.55%................................................................ 4-01-98 4-01-14 1,100 1,100
Pennsylvania State Higher Education Assistance currently 4.10%......... 10-07-97 7-01-18 1,500 1,500
York County, South Carolina Pollution Control currently 3.64%.......... 11-01-97 8-15-14 980 980
York County, South Carolina Pollution Control currently 3.64%.......... 11-01-97 8-15-14 1,955 1,955
Lower Neches Valley Authority, Texas currently 3.75%................... 2-17-98 2-15-17 1,000 1,000
Grand Prairie, Texas Housing -- Refunding currently 4.10%.............. 10-07-97 6-01-10 1,800 1,800
Hockley County, Texas Industrial Development currently 3.75%........... 11-01-97 3-01-14 1,750 1,752
Utah State Board of Regents currently 4.10%............................ 10-07-97 11-01-31 1,500 1,500
Peninsula Ports Authority, Virginia, Revenue currently 3.80%........... 11-01-97 12-01-05 2,000 2,000
Marion County, West Virginia Common Solid Waste currently 4.25%........ 10-07-97 10-01-17 1,000 1,000
Uinta County, Wyoming Pollution Control currently 3.75%................ 10-01-97 8-15-20 2,900 2,900
-------
43,127
-------
REGULATED INVESTMENT COMPANY 5%
Goldman Sacs Financial Square Tax Exempt Fund currently 3.25%.......... 10-01-97 3,009 3,009
-------
TOTAL INVESTMENTS AT AMORTIZED COST 101%............................... $60,736
=======
</TABLE>
* Rule 2a-7, of the Investment Company Act of 1940, defines maturity as the
longer of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered
through demand.
Percentages indicated are based on net assets.
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-57
<PAGE> 60
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS) --
THE CARDINAL FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- --------
<S> <C> <C>
COMMON STOCK 92%
BASIC MATERIALS 6%
Aluminum Co. of America.......... 25,000 $ 2,050
Boise Cascade Corp............... 30,000 1,262
Dow Chemical Company............. 35,000 3,173
Dupont de Nemours and Co......... 51,400 3,164
International Paper.............. 40,000 2,203
Monsanto Company................. 25,000 975
Potash Corp. Saskatchewan........ 25,000 1,963
Solutia Incorporated*............ 5,000 100
Willamete Industries............. 40,000 1,530
Worthington Industries Inc....... 30,000 608
--------
17,028
--------
CONSUMER CYCLICALS 5%
Dun & Bradstreet................. 30,000 851
Gannett Company, Inc............. 30,000 3,238
Gucci Group ADR.................. 10,000 469
Kohl's Corp.*.................... 20,000 1,420
Limited Inc...................... 50,000 1,222
Lowe's Companies................. 35,000 1,361
New York Times Company Cl 'A'.... 40,000 2,100
Nike Incorporated................ 15,000 795
Saks Holdings, Inc.*............. 25,000 522
Service Corporation
International.................. 30,000 966
Tribune Company.................. 40,000 2,132
--------
15,076
--------
CAPITAL GOODS 11%
ASEA AB ADR...................... 10,000 1,415
Boeing Company................... 20,000 1,089
Caterpillar, Inc................. 30,000 1,618
Deere & Company.................. 25,000 1,344
General Electric Company......... 170,000 11,571
Johnson Controls Inc............. 25,000 1,239
Minnesota Mining & Manufacturing
Co............................. 50,000 4,625
Textron, Incorporated............ 120,000 7,800
Tyco International Ltd........... 12,000 985
U.S. Filter Corporation*......... 35,000 1,506
--------
33,192
--------
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
COMMUNICATIONS 4%
Cellular Technical Services*..... 25,000 $ 145
GTE Corp......................... 100,000 4,538
LCI International, Inc.*......... 50,000 1,331
Pacific Gateway Exchange*........ 15,000 587
Sprint Corporation............... 40,000 2,000
WorldCom, Inc*................... 70,000 2,476
--------
11,077
--------
ENERGY 11%
Exxon Corp....................... 40,000 2,563
Global Marine*................... 30,000 998
Mobil Corp....................... 116,000 8,584
Royal Dutch Petroleum............ 150,000 8,325
Schlumberger Ltd................. 40,000 3,368
Texaco, Incorporated............. 100,000 6,144
Transocean Offshore,
Incorporated................... 20,000 957
--------
30,939
--------
FINANCIAL SERVICES 16%
American International Group,
Inc............................ 45,000 4,643
Banc One Corporation............. 100,000 5,581
Bank of New York Co. Inc......... 15,000 720
Bankers Trust NY................. 15,000 1,838
Beneficial Corporation........... 50,000 3,809
Charter One Financial Corp....... 105,000 6,208
Cincinnati Financial Corp........ 75,000 6,150
Citicorp......................... 12,000 1,607
Federal National Mortgage........ 20,000 940
Huntington Bancshares............ 60,000 2,164
Key Corp......................... 100,000 6,363
Marsh & McLennan, Inc............ 90,000 6,896
T. Rowe Price Associates Inc..... 10,000 673
--------
47,592
--------
</TABLE>
* Non-income producing (continued)
B-58
<PAGE> 61
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) --
THE CARDINAL FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
HEALTHCARE 10%
American Home Products........... 80,000 $ 5,840
Amgen, Incorporated*............. 15,000 719
Biomet, Inc...................... 60,000 1,440
Boston Scientific*............... 20,000 1,104
Cardinal Health Inc.............. 15,000 1,065
HEALTHSOUTH Corporation*......... 50,000 1,334
Johnson & Johnson................ 80,000 4,610
Medtronic, Inc................... 70,000 3,290
Merck & Company, Inc............. 50,000 4,997
Pfizer, Inc...................... 70,000 4,204
Tenet Healthcare Corporation..... 40,000 1,165
Warner Lambert Inc............... 10,000 1,349
--------
31,117
--------
CONSUMER STAPLES 10%
Anheuser Busch Cos., Inc......... 50,000 2,256
Coca Cola Company................ 100,000 6,094
Gillette Company................. 25,000 2,158
Imax Inc.*....................... 20,000 523
Kimberly-Clark Corp.............. 30,000 1,468
McDonald's Corporation........... 30,000 1,429
PepsiCo Incorporated............. 50,000 2,028
Philip Morris Companies, Inc..... 150,000 6,234
Playtex Incorporated*............ 75,000 759
Proctor & Gamble Company......... 70,000 4,834
The Walt Disney Company.......... 25,000 2,016
--------
29,799
--------
FACE/ MARKET
SHARES VALUE
--------- --------
COMMON STOCK (CONTINUED)
TECHNOLOGY 17%
3Com Corp.*...................... 20,000 $ 1,025
Applied Materials*............... 25,000 2,381
Atmel Corporation*............... 40,000 1,458
Cisco Systems*................... 25,000 1,827
Compaq Computer Corp............. 75,000 5,606
Dell Computer Corp.*............. 10,000 969
Gateway 2000*.................... 30,000 943
Hewlett Packard.................. 40,000 2,783
Intel Corp....................... 90,000 8,308
International Business Machines
Corp........................... 30,000 3,178
Kent Electronics*................ 25,000 988
Lucent Technologies.............. 40,000 3,255
Microsoft Corp.*................. 55,000 7,277
Motorola Inc..................... 40,000 2,875
Oracle Corp.*.................... 15,000 547
Tektronix, Incorporated.......... 30,000 2,023
Tellabs, Incorporated*........... 30,000 1,545
Texas Instruments, Inc........... 25,000 3,377
--------
50,365
--------
UTILITIES 2%
Western Resources................ 60,000 2,059
Williams Companies, Inc.......... 60,000 2,809
--------
4,868
--------
TOTAL COMMON STOCK............... 271,053
--------
(cost $150,081,175)
INDEX OPTIONS 1%
Standard and Poor's Index 500
December 940 puts.............. 200 638
Standard and Poor's Index 500
December 950 puts.............. 400 1,445
--------
TOTAL INDEX OPTIONS.............. 2,083
--------
(cost $2,194,300)
</TABLE>
* Non-income producing (continued)
B-59
<PAGE> 62
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) --
THE CARDINAL FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- --------
<S> <C> <C>
REPURCHASE AGREEMENTS 6%
Fifth Third Bank 6.00%
due 10/1/97 (collateralized by
$1,203,000 FNMA, 6.00%, 6/1/15,
value $1,242,474).............. 1,206,176 $ 1,206
Paine Webber Inc. 6.10%
due 10/1/97 (collateralized by
$49,177,401 U.S. Federal Agency
notes, 0.00%, 3/1/20 through
6/1/29, value $19,074,854)..... 18,700,000 18,700
--------
TOTAL REPURCHASE AGREEMENTS.... 19,906
--------
(cost $19,906,176)
U.S. TREASURY OBLIGATIONS 1%
U.S. Treasury Bill 5.04%, due
1/8/98......................... 2,000,000 1,972
--------
TOTAL U.S. TREASURY
OBLIGATIONS.................. 1,972
--------
(cost $1,971,988)
TOTAL INVESTMENTS 100%......... $295,014
========
(cost $174,153,639)(a)
</TABLE>
<TABLE>
<CAPTION>
MARKET
CONTRACTS VALUE
--------- ------
<S> <C> <C>
OPTIONS WRITTEN
Standard and Poor's Index 500
December 1050 calls............... (600) $(368)
------
TOTAL OPTIONS WRITTEN (premium
received $858,191)(a)......... (600) $(368)
=======
</TABLE>
Percentages indicated are based on net assets.
(a) Represents cost for Federal income tax purposes. Cost differs from market
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation (including unrealized appreciation on
options written)................................................. $ 122,716
Unrealized depreciation............................................ (1,366)
-----------
Net unrealized appreciation........................................ $ 121,350
===========
</TABLE>
See accompanying notes to financial statements.
B-60
<PAGE> 63
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS) --
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
COMMON STOCK 97%
BASIC MATERIALS 1%
Buckeye Cellulose*................ 2,000 $ 81
CONSUMER CYCLICALS 7%
Cort Business Services*........... 4,000 160
Gartner Group 'A'*................ 2,000 60
Kohl's Corp.*..................... 2,000 142
La Quinta Inns.................... 3,000 71
Little Fuse*...................... 5,000 174
New York Times Company Cl 'A'..... 3,000 158
Personal Group of America*........ 4,000 137
Pierce Leahy*..................... 3,500 94
-------
996
-------
CAPITAL GOODS 2%
Lancer Corp.*..................... 7,500 120
U.S. Filter*...................... 3,000 129
Westinghouse Elec................. 3,000 81
-------
330
COMMUNICATIONS 5%
AirTouch Communications*.......... 7,000 248
Pacific Gateway Exchange*......... 4,000 157
WorldCom inc*..................... 10,000 353
-------
758
-------
FINANCIAL SERVICES 15%
Amer Capital Strategies*.......... 10,000 200
AmSouth Bancorp................... 2,500 121
Bear Stearns Cos.................. 1,550 68
CMAC Investment................... 3,000 161
Corestates Financial.............. 1,000 66
Crestar Financial................. 2,500 117
Edwards (AG) Inc.................. 1,000 51
First Tenn Natl................... 3,000 171
Fleet Financial Group............. 1,500 98
Legg Mason Inc.................... 1,333 70
McDonald & Co. Invest............. 2,000 58
Mellon Bank Corp.................. 1,500 82
Nationwide Finl Svcs. 'A'......... 5,000 139
Paine Webber Group................ 1,500 70
PNC Bank Corp..................... 2,000 98
Raymond James Finl................ 2,500 90
Salomon Inc....................... 2,000 150
Summit Bancorp.................... 1,500 67
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
COMMON STOCK (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
Union BanCal Corp................. 1,500 $ 130
Union Planters.................... 2,000 113
-------
2,120
-------
HEALTHCARE 10%
Alkermes Inc.*.................... 5,000 103
Biomet, Inc....................... 10,000 240
Centecor Inc.*.................... 2,000 95
Cygnus Inc.*...................... 4,000 79
Dentsply International............ 2,000 112
Genzyme Corp. -- Genl Div*........ 3,000 89
Genzyme spin off -- Tissue
Repair*......................... 90 1
Hfs Inc.*......................... 1,000 74
Maxicare Health Plans*............ 10,000 186
Teva Pharm Inds ADR............... 4,000 224
Vertex Pharmaceuticals Inc.*...... 5,000 189
-------
1,392
-------
CONSUMER STAPLES 5%
Chancelor Media Corp 'A'*......... 3,000 158
Emmis Broadcasting 'A'*........... 2,000 96
Imax Inc.*........................ 6,000 157
Philip Morris Companies, Inc...... 3,000 125
Pixar*............................ 4,000 93
-------
629
-------
TECHNOLOGY -- SEMICONDUCTORS 24%
Analog Devices*................... 8,667 290
Applied Materials*................ 4,000 381
Atmel Corporation*................ 7,000 255
CFM Technologies*................. 3,500 137
Cymer Inc.*....................... 2,000 55
DuPont Photomasks*................ 2,500 180
Intel Corp........................ 5,500 508
KLA-Tencor Corp.*................. 5,000 338
Lam Research*..................... 1,500 70
Lattice Semiconductor*............ 3,000 195
National Semiconductors*.......... 4,000 164
PRI Automation*................... 5,000 293
Texas Instruments................. 3,000 405
-------
3,271
-------
</TABLE>
* Non-income producing (continued)
B-61
<PAGE> 64
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) --
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
COMMON STOCK (CONTINUED)
TECHNOLOGY -- SOFTWARE 6%
Computer Science*................. 4,500 $ 318
Microsoft Corp.*.................. 3,000 397
Netscape Communications*.......... 2,000 72
-------
787
-------
TECHNOLOGY -- HARDWARE/NETWORKING
22%
3Com Corp.*....................... 3,000 154
Asyst Technologies*............... 4,000 178
CHS Electronics*.................. 3,000 82
Compaq Computer Corp.............. 5,000 374
Dell Computer Corp.*.............. 3,000 291
EMC Corp*......................... 7,000 409
GenRad, Inc.*..................... 13,000 375
Hewlett-Packard................... 3,000 209
Lecroy Corp....................... 5,000 221
Motorola, Inc..................... 4,000 288
Photon Dynamics, Inc.*............ 9,000 67
Silicon Graphics*................. 7,000 184
Tellabs, Inc*..................... 5,500 283
-------
3,115
-------
TOTAL COMMON STOCK.............. 13,479
(cost $8,321,463) -------
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
INDEX OPTIONS 2%
Morgan Stanley High Tech Index
Dec. 490 Puts................... 55 $ 95
Russell 2000 Index Options Dec.
415 Calls....................... 50 231
-------
TOTAL INDEX OPTIONS............. 326
(cost $320,815) -------
REPURCHASE AGREEMENT 2%
Fifth Third Bank, 6.00% due 10/1/97,
collateralized by $214,000 FNMA,
6.00%, 6/1/15, value $221,022).... 214,320 214
-------
TOTAL REPURCHASE AGREEMENTS
(cost $214,320) 214
-------
TOTAL INVESTMENTS 101%.......... $14,019
(cost $8,856,589)(a) ========
OPTION WRITTEN
Morgan Stanley High Tech Index
Dec. 575 call................... (55) $ (61)
(premium received $89,898)(a) ========
</TABLE>
Percentages indicated are based on net assets.
(a) Represents cost for Federal income tax purposes. Cost differs from market
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................................................... $ 5,470
Unrealized depreciation (including unrealized depreciation on options written).............. (279)
-----------
Net unrealized appreciation................................................................. $ 5,191
==========
</TABLE>
* Non-income producing
See accompanying notes to financial statements.
B-62
<PAGE> 65
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS) --
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
COMMON STOCK 63%
BASIC MATERIALS 2%
DuPont de Nemours and Co.......... 2,000 $ 123
Monsanto Co....................... 3,500 137
Solutia Inc.*..................... 700 14
-------
274
-------
CONSUMER CYCLICALS 4%
Consolidated Stores*.............. 3,000 126
New York Times Co. Cl 'A'......... 3,500 184
Nike Inc. Cl 'B'.................. 2,000.. 106
Service Corporation Intl.......... 3,000 97
Tribune Co........................ 4,000 212
-------
725
-------
CAPITAL GOODS 7%
Avery Dennison Corp............... 4,500 180
Crane Co.......................... 4,500 185
Deere & Co........................ 3,000 161
Emerson Electric.................. 2,000 115
General Electric.................. 4,000 272
Textron, Inc...................... 2,400 156
Tyco International Limited........ 2,500 206
-------
1,275
-------
COMMUNICATIONS 1%
Worldcom, Inc.*................... 7,000 248
-------
ENERGY 5%
Amoco Corp........................ 1,500 145
Exxon Corp........................ 3,000 192
Mobil Corp........................ 2,000 148
Schlumberger Ltd.................. 2,000 168
Transocean Offshore,
Incorporated.................... 6,000 288
-------
941
-------
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
FINANCIAL SERVICES 14%
Ahmanson (H F) & Co............... 4,000 $ 227
AmSouth Bancorp................... 2,200 107
Am. Express....................... 2,000 164
Am. General Hospitality........... 4,000 117
Am. Intl Group.................... 1,500 155
Bank of Boston Corp............... 1,200 106
Bank of New York Co., Inc......... 3,500 168
Bay Apartment Communities......... 2,500 100
Ben Franklin Resources............ 2,300 214
Citicorp.......................... 1,000 134
Federal National Mortgage Assn.... 2,500 118
Inmc Mortgage Holdings, Inc....... 7,000 175
Mellon Bank Corp.................. 3,000 164
Traveler's Group.................. 2,667 182
T. Rowe Price Assocation.......... 3,500 234
-------
2,365
-------
HEALTHCARE 8%
Amgen, Inc.*...................... 2,000 96
Cardinal Health, Inc.............. 2,000 142
HealthSource Corp.*............... 9,000 240
Johnson & Johnson................. 3,000 173
Medtronic, Inc.................... 5,000 235
Merck & Company, Inc.............. 2,000 200
Pfizer Inc........................ 2,000 120
Quorum Health Group*.............. 4,500 110
Tenet Healthcare Corporation...... 4,000 116
-------
1,432
-------
CONSUMER STAPLES 9%
Coca Cola Co...................... 3,000 183
Colgate-Palmolive................. 3,000 209
Disney (Walt) Co.................. 1,900 153
Gillette Co....................... 2,500 216
McDonald's Corp................... 2,000 95
Pepsico Inc....................... 3,000 122
Philip Morris Company, Inc........ 3,000 125
Procter & Gamble Company.......... 2,000 138
Robert Mondavi Cl 'A'*............ 3,000 164
Wendy's Intl...................... 5,000 106
-------
1,511
-------
</TABLE>
* Non-income producing (continued)
B-63
<PAGE> 66
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) --
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
TECHNOLOGY 10%
Applied Materials*................ 3,000 $ 286
Cisco Systems*.................... 2,000 146
Compaq Computer Corp.............. 2,000 150
Computer Sciences*................ 2,000 142
Hewlett-Packard................... 3,000 209
Intel Corp........................ 2,600 240
Lucent Technologies............... 3,500 285
Microsoft Corp.*.................. 1,000 131
-------
1,589
-------
TRANSPORTATION 2%
Burlington Northern Santa Fe...... 1,500 145
Federal Express*.................. 2,500 200
-------
345
-------
UTILITIES 1%
Williams Cos...................... 3,000 140
-------
TOTAL COMMON STOCK.............. 10,845
(Cost $8,016,209) -------
INDEX OPTION 1%
Standard and Poor index 500
December 940 puts............... 50 181
-------
TOTAL INDEX OPTIONS............. 181
(Cost $202,650) -------
PREFERRED STOCK 2%
Glendale Federal Bank 8.750%
preferred series E.............. 4,000 297
-------
TOTAL PREFERRED STOCK........... 297
(Cost $170,400) -------
FACE/ MARKET
SHARES VALUE
------- -------
CORPORATE BONDS 14%
AMR Corp. 10.18%, 1-2-13.......... 250,000 $ 309
Anheuser-Busch Co. 7.00%, 9-1-05.. 250,000 254
Consumers Power 7.50%, 6-1-02..... 300,000 305
CSX Transportation 6.72%,
6-1-06.......................... 250,000 251
Dole Foods Company 7.00%, 5-15-
03.............................. 200,000 203
G.M. Acceptance 7.00%, 9-15-02.... 200,000 205
Kemper Corp. 6.875%, 9-15-03...... 250,000 253
Limited Incorporated 7.50%,
3-15-23......................... 250,000 237
Nordstrom Inc. 6.70%, 7-1-05...... 250,000 250
United States Filter Corp. 4.50%,
12-15-01........................ 150,000 185
-------
TOTAL CORPORATE BONDS........... 2,452
(Cost $2,298,373) -------
U.S. GOVERNMENT-SPONSORED ENTERPRISES
AND FEDERAL AGENCY OBLIGATIONS 10%
Federal National Mortgage
Association 7.09%, 3-13-07 250,000 254
Federal National Mortgage
Association 6.99%, 7-9-07....... 250,000 253
Federal National Mortgage
Association 6.94%, 3-14-11...... 500,000 497
Federal National Mortgage
Association 7.00%, 9-3-03....... 250,000 252
Federal National Mortgage
Association 7.03%, 10-25-06..... 250,000 255
Federal National Mortgage
Association 7.50%, 11-15-06..... 250,000 254
-------
TOTAL U.S. GOVERNMENT-SPONSORED
ENTERPRISES AND FEDERAL AGENCY
OBLIGATIONS (Cost
$1,751,077)................... 1,765
-------
U.S. GOVERNMENT OBLIGATIONS 6%
U.S. Treasury Note 5.875%,
Due 2-15-04..................... 500,000 494
U.S. Treasury Strips 11.25%,
Due 2-15-09, principal only..... 1,000,000 491
-------
TOTAL U.S. GOVERNMENT
OBLIGATIONS................... 985
(Cost $895,882) -------
</TABLE>
* Non-income producing (continued)
B-64
<PAGE> 67
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) --
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
REPURCHASE AGREEMENT 4%
Fifth Third Bank 6.00%, due
10-1-97
(collateralized by $6.00% FNMA
notes, 6.00%, 6-1-15, value
$801,463)....................... 777,532 $ 778
-------
TOTAL REPURCHASE AGREEMENTS..... 778
(Cost $777,532) -------
TOTAL INVESTMENTS 100%.......... $17,303
(Cost $14,187,122)(a) ========
OPTIONS WRITTEN
Standard and Poor Index 500, Dec
1050 calls...................... (50) $ (31)
-------
TOTAL OPTIONS WRITTEN (premium
received $74,850)(a).......... $ (31)
========
</TABLE>
Percentages indicated are based on net assets.
(a) Represents cost for Federal income tax purposes. Cost differs from market
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................................................... $ 3,265
Unrealized depreciation..................................................................... (105)
-----------
Net unrealized appreciation................................................................. $ 3,160
==========
</TABLE>
See accompanying notes to financial statements.
B-65
<PAGE> 68
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (PRINCIPAL AMOUNTS AND MARKET VALUE IN THOUSANDS) --
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 2)
-------- --------
<S> <C> <C>
U. S. GOVERNMENT AGENCY OBLIGATIONS 99%
GNMA CLC Notes, 7.375%, stated
maturity 01-15-98................... $ 443 $ 447
GNMA CLC Notes, 7.75%, stated maturity
12-15-98............................ 143 147
GNMA CLC Notes, 8.00%, maturing
06-15-98 through 10-15-98........... 500 522
GNMA CLC Notes, 8.125%, stated
maturity 05-15-99................... 1,307 1,372
GNMA PL Notes, 8.00% stated maturity
11-15-24............................ 1,658 1,723
GNMA PL Notes, 8.125% stated maturity
6-15-29............................. 491 514
GNMA PL Notes, 8.25% stated maturity
7-15-27............................. 2,768 2,862
GNMA PL Notes, 8.50% stated maturity
9-15-29............................. 2,149 2,281
GNMA PL Notes, 9.00% stated maturities
5-15-16 through 10-15-21............ 2,415 2,529
GNMA PL Notes, 9.00% stated maturity
10-15-16+........................... 1,607 1,739
GNMA I Note, 7.35% stated maturity
01-15-98............................ 2,169 2,185
GNMA I Notes, 7.50% stated maturities
from 10-15-25 through 03-15-27...... 14,582 14,846
GNMA I Note, 7.75% stated maturity
02-15-98............................ 2,008 2,081
GNMA I Notes, 8.00% stated maturities
from 06-15-98 through 04-15-37...... 21,400 22,355
GNMA I Notes, 8.125% stated maturity
05-15-99............................ 2,495 2,620
GNMA I Notes, 8.25% stated maturities
from 03-15-22 through 10-15-36...... 5,327 5,628
GNMA I Notes, 8.50% stated maturities
from 05-15-16 through 03-15-30...... 15,816 16,714
GNMA I Note, 8.875% stated maturity
05-15-35............................ 1,258 1,352
<CAPTION>
MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 2)
-------- --------
<S> <C> <C>
U. S. GOVERNMENT AGENCY OBLIGATIONS
(CONTINUED)
GNMA I Notes, 9.00% stated maturities
from 06-15-16 through 03-15-33...... $ 16,251 $ 17,547
GNMA I Notes, 9.25% stated maturities
from 03-15-30 through 02-15-33...... 1,646 1,786
GNMA I Notes, 9.50% stated maturities
from 01-15-19 through 02-15-23...... 800 843
GNMA I Note, 10.25% stated maturity
12-15-22............................ 1,620 1,710
GNMA I Note, 10.50% stated maturity
06-15-14............................ 999 1,047
GNMA II Notes, 7.50% stated maturities
from 07-20-27 through 08-20-27...... 8,930 9,075
GNMA II Notes, 8.00% stated maturities
from 05-20-22 through 12-20-26...... 3,493 3,602
GNMA II Notes, 10.00% stated
maturities from 01-20-14 through 12-
20-21............................... 7,213 7,875
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (COST -------- --------
$122,422,184)................... 119,488 125,402
-------- --------
U.S. TREASURY OBLIGATIONS 1%
U.S. Treasury Note 5.875%, 09-30-02
(cost $994,660)....................... 1,000 995
--------
REPURCHASE AGREEMENT 2%
Fifth Third Bank 6.00%, Due 10-1-97
(collateralized by $2,396,006 FNMA
6.00%, 6-1-15, value $2,474,620, cost
$2,401,996) 2,402 2,402
--------
TOTAL INVESTMENTS (COST
$125,818,840) (a) 102%.......... $128,799
========
</TABLE>
Percentages indicated are based on net assets.
CLC -- Construction Loan Contract
GNMA -- Government National Mortgage Association
PL -- Project Loan
+ Security is segregated as collateral for construction loans
(a) Represents cost for Federal income tax purposes. Cost differs from market
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................................................... $ 3,029
Unrealized depreciation......................................................................... (49)
-------
Net unrealized appreciation..................................................................... $ 2,980
======
</TABLE>
See accompanying notes to financial statements.
B-66
<PAGE> 69
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
1. ORGANIZATION
The Cardinal Group (the "Group") is an open-end management investment company,
sponsored by The Ohio Company ("TOC"), established as an Ohio Business Trust on
March 23, 1993. The Group is authorized to issue an unlimited number of shares
which are units of beneficial interest without par value. Before June 24, 1993
the Group had no operations other than those relating to organizational matters,
including the issuance of 5,000 shares of beneficial interest in each of
Cardinal Balanced Fund and Cardinal Aggressive Growth Fund (the "Original
Portfolios") for cash at $10.00 per share on June 4, 1993 to Cardinal Management
Corp. ("CMC"), the Group's Investment Adviser and a wholly owned subsidiary of
TOC.
Effective May 1, 1996 the Group acquired the assets and assumed the liabilities
of four open-end management investment companies also sponsored by TOC in
exchange for shares of corresponding portfolios of the Group. Cardinal
Government Securities Trust, Cardinal Tax Exempt Money Trust, The Cardinal Fund
Inc., and Cardinal Government Obligations Fund (collectively the "Acquired
Funds") were acquired by portfolios of the Group as follows:
Cardinal Government Securities Trust was acquired by Cardinal Government
Securities Money Market Fund
Cardinal Tax Exempt Money Trust was acquired by Cardinal Tax Exempt Money
Market Fund
The Cardinal Fund Inc. was acquired by The Cardinal Fund
Cardinal Government Obligations Fund was acquired by Cardinal Government
Obligations Fund
The new portfolios retained the basic investment objectives and assumed the
historical performance of the Acquired Funds.
Effective January 1, 1997, as authorized by the Board of Trustees, the Group
began to issue shares of two classes, Investor and Institutional, of units of
beneficial interest of The Cardinal Fund, Cardinal Government Obligations Fund,
Cardinal Balanced Fund and Cardinal Aggressive Growth Fund portfolios Qualifying
Shareholder Accounts.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies that the Group
follows in the preparation of its financial statements and the calculation of
daily net asset values. The policies are in conformity with generally accepted
accounting principles and the Investment Company Act of 1940 (the "Act"), as
amended. The preparation of these financial statements requires the management
of the Group to make estimates and assumptions which affect the reported amounts
of assets and liabilities as of September 30, 1997 and the income and expenses
reported for the period. Actual results could differ significantly from those
estimates.
(continued)
B-67
<PAGE> 70
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
SECURITIES VALUATION Investments in Cardinal Government Securities Money Market
Fund and Cardinal Tax Exempt Money Market Fund (the "money market funds") are
valued at amortized cost, which approximates the market value. Any premiums and
discounts are amortized on a straight-line method to the maturity of the
particular security. The use of the amortized cost method requires that the
money market funds purchase only securities with a remaining maturity of 397
calendar days or less (longer if certain maturity shortening provisions in Rule
2a-7, of the Act, apply) and maintain a dollar weighted portfolio maturity of 90
days or less.
Investments in The Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal
Balanced Fund and Cardinal Government Obligations Fund (collectively the
"non-money market funds") listed or traded on a national securities exchange are
valued at the last sale price. Investments traded in the over-the-counter market
are valued at either the mean between the bid and ask prices or the last sale
price as may be quoted by the National Association of Securities Dealers
Automated Quotation System. If no quotations are available the portfolio
securities are valued in good faith using methods approved by the Board of
Trustees.
SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are recorded
on the trade date, which is the date they are purchased or sold. Interest income
is recognized on the accrual basis. Dividend income, if any, is recognized on
the ex-dividend date. Realized gains or losses are calculated using the
First-In/First-Out (FIFO) basis.
REPURCHASE AGREEMENTS It is the policy of the Group for its Custodian, Fifth
Third Bank of Cincinnati, or a third-party bank reporting to the Custodian, to
take possession of all securities pledged to the Group as collateral for the
funds loaned in repurchase agreements. Repurchase agreements entered into by the
Group must mature in seven days or less and be fully collateralized by
securities eligible for purchase by the participating portfolio. The Group may
only participate in repurchase transactions with those banks and securities
broker/dealers that meet the credit criteria established by the Board of
Trustees and monitored by CMC.
DEFERRED ORGANIZATIONAL COST Costs incurred with the initial organization of
Cardinal Aggressive Growth Fund and Cardinal Balanced Fund have been deferred
and are being amortized on a straight-line basis over the 60 month period from
the commencement of operations on June 24, 1993.
FEDERAL INCOME TAXES The Group has made no provision for Federal income taxes.
It is the intention of the management of the Group to comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies and to
make sufficient distributions of taxable income and gains within the required
time, to relieve it from all, or substantially all, Federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS The money market funds and Cardinal Government
Obligations Fund declare dividends from net investment income daily and pay them
to shareholders monthly. The Cardinal Fund, Cardinal Aggressive Growth Fund and
Cardinal Balanced Fund declare and pay dividends from net
(continued)
B-68
<PAGE> 71
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
investment income, if any, quarterly. Realized capital gains, if any, are
declared and paid annually by the Group. Distributions of net investment income
and realized capital gains are determined in accordance with the Internal
Revenue Code and may differ from those calculated in accordance with generally
accepted accounting principles. Dividends and distributions which exceed net
investment income and net realized gains for tax purposes are reported as
distributions of capital. In the current year, the Cardinal Aggressive Growth
Fund distributed capital gains which exceeded net realized gains by
approximately $192,000, therefore qualifying as a distribution of capital.
OPTION WRITING When a portfolio of the Group writes an option, an amount equal
to the premium received is recorded as a liability and is subsequently adjusted
to the current market value of the option written. Premiums received from
options written that expire unexercised are recognized as realized gains by the
portfolio on the expiration date. The difference, if any, between the premium
received and the amount paid in a closing transaction is also treated as a
realized gain or loss. If a written option is exercised, the premium received is
added to proceeds from sales of the underlying securities for call options
written or deducted from the cost basis of securities purchased for put options
written. The portfolios making use of option writing bear the market risk of an
unfavorable change in the price of any security/index underlying the written
option.
Written option activity for the year ended September 30, 1997 was as follows:
<TABLE>
<CAPTION>
THE CARDINAL AGGRESSIVE THE CARDINAL BALANCED
THE CARDINAL FUND GROWTH FUND FUND
----------------------- ----------------------- -----------------------
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
OPTIONS PREMIUM OPTIONS PREMIUM OPTIONS PREMIUM
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
September 30, 1996........ 500 $ 462,665 90 $ 49,459 0 $ 0
Options written............. 800 1,197,591 635 1,071,392 65 88,117
Options canceled in closing
purchase transactions..... (500) (635,991) (600) (875,286) 0 0
Options expired prior to
exercise.................. (200) (166,074) (270) (155,667) (15) (13,267)
---- --------- ---- --------- --- -------
Options outstanding at
September 30, 1997........ 600 $ 858,191 55 $ 89,898 50 $74,850
==== ========= ==== ========= === =======
</TABLE>
EXPENSE ALLOCATION Expenses directly related to one of the Group's portfolios
or classes are charged to that portfolio or class. Other operating expenses are
allocated to the portfolios of the Group based on their relative net assets.
(continued)
B-69
<PAGE> 72
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
3. PURCHASES AND SALES OF SECURITIES
The purchases and sales of investment securities (excluding short-term
securities) for the year ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -------
<S> <C> <C>
The Cardinal Fund.......................................... $ 30,510 $40,159
Cardinal Aggressive Growth Fund............................ 7,618 3,781
Cardinal Balanced Fund..................................... 14,144 8,798
Cardinal Government Obligations Fund....................... 46,055 61,624
</TABLE>
4. TRANSACTIONS WITH AFFILIATES
CMC, an affiliated company, acts as the Investment Adviser and Transfer Agent
for the Group under contracts monitored and annually approved by the Board of
Trustees. CMC receives a fee based on the average net assets of each portfolio,
plus reimbursement of out-of-pocket costs, for these services as outlined below
as of September 30, 1997:
<TABLE>
<CAPTION>
INVESTMENT ADVISER TRANSFER AGENT
FEE AS A PERCENT OF FEE -- ANNUAL
AVERAGE NET ASSETS PER ACCOUNT CHARGE
-------------------- ------------------
<S> <C> <C>
Money market funds......................... 0.50% $21.00
The Cardinal Fund*......................... 0.60% 18.00
Cardinal Aggressive Growth Fund............ 0.75% 18.00
Cardinal Balanced Fund..................... 0.75% 18.00
Cardinal Government Obligations Fund....... 0.50% 21.00
</TABLE>
- ---------------
* Prior to May 1, 1996, TOC served as Investment Adviser to The Cardinal Fund's
predecessor, The Cardinal Fund, Inc., and was paid an investment adviser fee
of 0.50% of average net assets.
TOC serves as the Group's distributor. TOC receives fees from the Fund for
providing services under the Distribution and Shareholder Service Plan, pursuant
to Rule 12b-1 of the Investment Company Act of 1940, and the Administrative
Service Plan. Under the Plan, the non-money market funds pay TOC an annual fee
not to exceed .25% of the average net assets of the Investor shares of those
funds for providing distribution and shareholder services. Under the
Administrative Services Plan, TOC receives .15% of the average net assets of the
Institutional shares of those funds for providing shareholder services. For the
period from October 1, 1996 through December 31, 1996, The Ohio Company waived
the fees under the Distribution and Shareholder Service and Administrative
Services Plans.
CMC also acted as the Fund Accountant for the Group until January 20, 1997 when
Fifth Third Bank, the Custodian for the Group, assumed that function.
(continued)
B-70
<PAGE> 73
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
TOC reported to the Group that it received the following commissions (loads),
after discounts to dealers, from the sale of shares of the portfolios of the
Group for the year ended September 30, 1997:
<TABLE>
<S> <C>
The Cardinal Fund --Investor Shares................................. $ 732,412
Cardinal Aggressive Growth Fund --Investor Shares................... 60,397
Cardinal Balanced Fund --Investor Shares............................ 53,812
Cardinal Government Obligations Fund --Investor Shares.............. 297,584
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The portfolios of the Group have available lines of credit with Fifth Third Bank
of Cincinnati, the Custodian, which were unused at September 30, 1997. When
used, borrowings under this arrangement are secured by investment securities and
can be used only for short-term needs of the borrowing portfolio. Compensating
balances are not required and the interest is calculated at 106% of the
Custodian's prime lending rate. The amounts available under this arrangement are
as follows:
<TABLE>
<S> <C>
Cardinal Government Securities Money Market Fund................. $ 25,000,000
Cardinal Tax Exempt Money Market Fund............................ 10,000,000
The Cardinal Fund................................................ 25,000,000
Cardinal Aggressive Growth Fund.................................. 2,000,000
Cardinal Balanced Fund........................................... 2,000,000
Cardinal Government Obligations Fund............................. 25,000,000
</TABLE>
The aggregate limit on borrowing for the Group under this arrangement is
$25,000,000.
(continued)
B-71
<PAGE> 74
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
Fidelity Bond and Errors/Omissions insurance coverage for the Group and its
officers and Trustees has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Certain portfolios
include in other assets deposits made for the initial capital and certificates
of deposits that collateralize standby letters of credit supporting potential
capital needs of ICI Mutual. In addition, these portfolios are also committed to
provide additional capital should ICI Mutual experience unusual losses arising
from its insurance underwriting. The following table details the deposits,
certificates of deposit and additional capital commitments of the Group:
<TABLE>
<CAPTION>
CERTIFICATES
OF ADDITIONAL
DEPOSITS DEPOSIT COMMITMENTS
-------- --------- ---------
<S> <C> <C> <C>
Cardinal Government Securities Money Market Fund....... $ 87,459 $ 175,000 $ 262,377
Cardinal Tax Exempt Money Market Fund.................. 13,291 27,000 39,873
The Cardinal Fund...................................... 28,588 56,600 85,764
Cardinal Government Obligations Fund................... 30,644 61,000 91,932
</TABLE>
6. FEDERAL INCOME TAXES
For Federal income tax purposes, at September 30, 1997 Cardinal Government
Obligations Fund had a capital loss carryforward available to offset future
capital gains, if any, that will expire over the next eight years. Approximately
$2,000,000 of the capital loss carryforward expired during the year ended
September 30, 1997.
At September 30, 1997, the following Funds have capital loss carryforwards which
are available to offset future capital gains, if any. The amount of the capital
loss carryforward and the years they expire are as follows:
<TABLE>
<CAPTION>
CARDINAL
GOVERNMENT
CARDINAL GOVERNMENT SECURITIES CARDINAL AGGRESSIVE
YEAR OBLIGATIONS FUND MONEY MARKET FUND GROWTH FUND
------------------------------ ------------------- ----------------- -------------------
<S> <C> <C> <C>
1998.......................... $ 1,867,822 -- --
1999.......................... 194,311 -- --
2001.......................... 1,489,408 -- --
2002.......................... 4,601,711 -- --
Thereafter.................... 10,979,417 404,405 809,788
----------- -------- --------
$19,132,669 $ 404,405 $ 809,788
=========== ======== ========
</TABLE>
(continued)
B-72
<PAGE> 75
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
7. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Group for the years ended September 30,
1996 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
CARDINAL GOVERNMENT CARDINAL TAX EXEMPT
SECURITIES MONEY MARKET FUND MONEY MARKET FUND
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares outstanding:
Beginning of period.................... 477,875 445,374 59,915 64,780
---------- ---------- -------- --------
Share Transactions:
Issued................................. 1,330,914 1,272,768 155,053 159,477
Reinvested............................. 22,599 22,143 1,668 1,701
Redeemed............................... (1,327,106) (1,262,409) (156,352) (166,043)
---------- ---------- -------- --------
Net change in shares................... 26,407 32,502 369 (4,865)
---------- ---------- -------- --------
End of period.......................... 504,282 477,875 60,284 59,915
========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CARDINAL AGGRESSIVE GROWTH FUND
THE CARDINAL FUND
INVESTOR SHARES INVESTOR SHARES
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares outstanding:
Beginning of period.................... 17,438 17,099 855 844
---------- ---------- -------- --------
Share Transactions:
Issued................................. 989 650 140 218
Reinvested............................. 1,512 2,835 19 66
Redeemed............................... (3,845) (3,146) (348) (273)
---------- ---------- -------- --------
Net change in shares................... 1,344 339 (189) 11
---------- ---------- -------- --------
End of period.......................... 16,094 17,438 666 855
========== ========== ======== ========
</TABLE>
(continued)
B-73
<PAGE> 76
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL GOVERNMENT
CARDINAL BALANCED FUND OBLIGATIONS FUND
INVESTOR SHARES INVESTOR SHARES
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares outstanding:
Beginning of period.................... 1,210 1,262 16,557 18,544
------ ------ ------- -------
Share Transactions:
Issued................................. 105 202 1,050 623
Reinvested............................. 126 81 606 745
Redeemed............................... (261) (335) (3,534) (3,355)
------ ------ ------- -------
Net change in shares................... (30) (52) (1,878) (1,987)
------ ------ ------- -------
End of period.......................... 1,180 1,210 14,679 16,557
====== ====== ======= =======
</TABLE>
B-74
<PAGE> 77
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL AGGRESSIVE
THE CARDINAL FUND GROWTH FUND
INSTITUTIONAL SHARES INSTITUTIONAL SHARES
----------------------- -----------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
JANUARY 2, 1997 THROUGH JANUARY 2, 1997 THROUGH
SEPT. 30, 1997 SEPT. 30, 1997
----------------------- -----------------------
<S> <C> <C>
Shares outstanding:
Beginning of period...................................... 0 0
------ ------
Share Transactions:
Issued................................................... 1,894 308
Reinvested............................................... 12 0
Redeemed................................................. (291) (32)
------ ------
Net change in shares..................................... 1,615 276
------ ------
End of period............................................ 1,615 276
====== ======
</TABLE>
<TABLE>
<CAPTION>
CARDINAL CARDINAL GOVERNMENT
BALANCED FUND OBLIGATIONS FUND
INSTITUTIONAL SHARES INSTITUTIONAL SHARES
----------------------- -----------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
JANUARY 2, 1997 THROUGH JANUARY 2, 1997 THROUGH
SEPT. 30, 1997 SEPT. 30, 1997
----------------------- -----------------------
<S> <C> <C>
Shares outstanding:
Beginning of period...................................... 0 0
------- -------
Share Transactions:
Issued................................................... 172 793
Reinvested............................................... 2 37
Redeemed................................................. (45) (122)
------- -------
Net change in shares..................................... 129 708
------- -------
End of period............................................ 129 708
================== ==================
</TABLE>
B-75
<PAGE> 78
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INVESTMENT ACTIVITIES:
Net investment income............................ 0.05 0.05 0.05 0.03 0.02
------- ------- ------- ------- -------
Total from Investment Activities............. 0.05 0.05 0.05 0.03 0.02
------- ------- ------- ------- -------
DISTRIBUTIONS:
From net investment income....................... (0.05) (0.05) (0.05) (0.03) (0.02)
------- ------- ------- ------- -------
Total Distributions.......................... (0.05) (0.05) (0.05) (0.03) (0.02)
------- ------- ------- ------- -------
NET ASSET VALUE, ENDING............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Total return..................................... 4.67% 4.70% 4.98% 2.84%* 2.41%
Net Assets at end of period (000)................ 504,264 477,875 445,374 367,516 402,758
Ratio of expenses to average net assets.......... 0.88% 0.81% 0.81% 0.85% 0.79%
Ratio of net investment income to average
net assets..................................... 4.57% 4.74% 4.92% 2.94% 2.38%
</TABLE>
- ---------------
* During the year ended September 30, 1994, CMC contributed $1,151,186 to
Cardinal Government Securities Trust, the fund's predecessor, to offset losses
incurred by the predecessor. Without the capital contribution, the 1994 total
return would have been 2.55%.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CARDINAL TAX EXEMPT MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INVESTMENT ACTIVITIES:
Net investment income............................ 0.03 0.03 0.03 0.02 0.02
------- ------- ------- ------- -------
Total from Investment Activities............. 0.03 0.03 0.03 0.02 0.02
------- ------- ------- ------- -------
DISTRIBUTIONS:
From net investment income....................... (0.03) (0.03) (0.03) (0.02) (0.02)
------- ------- ------- ------- -------
Total Distributions.......................... (0.03) (0.03) (0.03) (0.02) (0.02)
------- ------- ------- ------- -------
NET ASSET VALUE, ENDING............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Total Return..................................... 2.72% 2.67% 3.02% 1.78% 1.81%
Net Assets at end of period (000)................ 60,284 59,915 64,780 80,531 91,159
Ratio of expenses to average net assets.......... 0.80% 0.89% 0.81% 0.76% 0.77%
Ratio of net investment income to average
net assets..................................... 2.79% 2.66% 2.99% 1.78% 1.80%
</TABLE>
See notes to financial statements.
B-76
<PAGE> 79
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- THE CARDINAL FUND INVESTOR SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING................... $ 13.13 $ 13.23 $ 12.73 $ 12.91 $ 12.95
INVESTMENT ACTIVITIES:
Net investment income...................... 0.14 0.25 0.36 0.31 0.32
Net realized and unrealized gain on
investments.............................. 4.64 1.95 1.32 0.12 0.55
-------- -------- -------- -------- --------
Total from Investment Activities......... 4.78 2.20 1.68 0.43 0.87
-------- -------- -------- -------- --------
DISTRIBUTIONS:
From net investment income................. (0.13) (0.26) (0.35) (0.33) (0.29)
From net realized gains.................... (1.13) (2.04) (0.83) (0.28) (0.62)
-------- -------- -------- -------- --------
Total Distributions...................... (1.26) (2.30) (1.18) (0.61) (0.91)
-------- -------- -------- -------- --------
NET ASSET VALUE, ENDING...................... $ 16.65 $ 13.13 $ 13.23 $ 12.73 $ 12.91
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales load).......... 39.17% 17.96% 14.84% 3.38% 6.98%
Net Assets at end of period (000).......... $267,908 $229,042 $226,181 $246,581 $282,125
Ratio of expenses to average net assets.... 1.06% 0.75% 0.70% 0.72% 0.68%
Ratio of net investment income after
expenses to average net assets........... 0.97% 1.90% 2.89% 2.40% 2.46%
Ratio of incurred expenses to average net
assets (a)............................... 1.12% 0.85% 0.70% 0.72% 0.68%
Ratio of net investment income after
incurred expenses to average net assets
(a)...................................... 0.91% 1.80% 2.89% 2.40% 2.46%
Portfolio turnover rate.................... 12.73% 57.93% 19.78% 23.20% 11.11%
Average commission rate paid (b)........... $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) During the period certain fees were voluntarily waived. Had the fees been charged, the effective ratio would reflect the
incurred expenses as indicated above.
(b) Represents the total amount of commissions paid in portfolio equity transactions divided by the total number of shares
purchased and sold by the fund for which commissions were charged.
</TABLE>
See notes to financial statements.
B-77
<PAGE> 80
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- THE CARDINAL FUND INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 2, 1997*
THROUGH
SEPT. 30, 1997
-----------------------
<S> <C>
NET ASSET VALUE, BEGINNING.............................................................. $ 12.92
INVESTMENT ACTIVITIES:
Net investment income................................................................. 0.12
Net realized and unrealized gain on investments....................................... 3.70
--------
Total from Investment Activities.................................................... 3.82
--------
DISTRIBUTIONS:
From net investment income............................................................ (0.10)
From net realized gains............................................................... 0
--------
Total Distributions................................................................. (0.10)
--------
NET ASSET VALUE, ENDING................................................................. $ 16.64
========
RATIOS/SUPPLEMENTAL DATA:
Total Return.......................................................................... 29.77%
Net Assets at end of period (000)..................................................... $26,881
--------
Ratio of expenses to average net assets............................................... 1.00%
Ratio of net investment income after expenses to average net assets................... 1.04%
Portfolio turnover rate............................................................... 12.73%
Average commission rate paid (a)...................................................... $ 0.08
========
</TABLE>
- ---------------
(a) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
fund for which commissions were charged.
* Commencement of operations.
See notes to financial statements.
B-78
<PAGE> 81
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL AGGRESSIVE GROWTH FUND INVESTOR SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, JUNE 24, 1993*
------------------------------------------ THROUGH
1997 1996 1995 1994 SEPTEMBER 30, 1993
------ ------ ------ ------ ------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING.................... $11.31 $12.37 $ 9.94 $10.47 $10.00
INVESTMENT ACTIVITIES:
Net investment loss......................... (0.20) (0.17) (0.10) (0.13) (0.03)
Net realized and unrealized gain (loss)
on investments............................ 3.86 0.01 2.53 (0.36) 0.50
------- ------- ------- ------- -------
Total from Investment Activities........ 3.66 (0.16) 2.43 (0.49) 0.47
------- ------- ------- ------- -------
DISTRIBUTIONS:
From net realized gains..................... (0.27) (0.90) 0.00 (0.04) 0.00
------- ------- ------- ------- -------
Total Distributions..................... (0.27) (0.90) 0.00 (0.04) 0.00
------- ------- ------- ------- -------
NET ASSET VALUE, ENDING....................... $14.70 $11.31 $12.37 $ 9.94 $10.47
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales load)........... 32.95% (1.13)% 24.35% (4.74)% 4.70%
Net Assets at end of period (000)........... $9,792 $9,669 $10,434 $9,460 $6,320
Ratio of expenses to average net assets..... 1.86% 1.95% 2.24% 2.51% 0.91%
Ratio of net investment loss after
expenses to average net assets............ (1.50)% (1.52)% (0.92)% (1.50)% (0.53)%
Ratio of incurred expenses to average net
assets (a)................................ 1.93% 2.17% 2.25% 2.51% 0.91%
Ratio of net investment loss after incurred
expenses to average net assets (a)........ (1.57)% (1.75)% (0.93)% (1.50)% (0.53)%
Portfolio turnover rate..................... 34.43% 48.60% 80.35% 95.70% 31.15%
Average commission rate paid (b)............ $ 0.07 $ 0.07 $ 0.07 $ 0.09 $ 0.08
</TABLE>
- ---------------
* Commencement of operations.
(a) During the period certain fees were voluntarily waived. Had the fees been
charged, the effective ratio would reflect the incurred expenses as
indicated above.
(b) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
fund for which commissions were charged.
See notes to financial statements.
B-79
<PAGE> 82
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL AGGRESSIVE GROWTH FUND INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 2, 1997*
THROUGH
SEPT. 30, 1997
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING............................................................ $11.62
INVESTMENT ACTIVITIES:
Net investment loss................................................................. (0.15)
Net realized and unrealized gain (loss)
on investments.................................................................... 3.24
-------
Total from Investment Activities................................................ 3.09
-------
DISTRIBUTIONS:
From net realized gains............................................................. 0.00
-------
Total Distributions............................................................. 0.00
-------
NET ASSET VALUE, ENDING............................................................... $14.71
=======
RATIOS/SUPPLEMENTAL DATA:
Total Return........................................................................ 26.59%
Net Assets at end of period (000)................................................... $4,062
Ratio of expenses to average net assets............................................. 2.11%
Ratio of net investment loss after
expenses to average net assets.................................................... (1.71)%
Portfolio turnover rate............................................................. 34.43%
Average commission rate paid (a).................................................... $ 0.07
</TABLE>
- ---------------
* Commencement of operations.
(a) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
fund for which commissions were charged.
See notes to financial statements.
B-80
<PAGE> 83
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL BALANCED FUND INVESTOR SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, JUNE 24, 1993*
---------------------------------------------- THROUGH
1997 1996 1995 1994 SEPTEMBER 30, 1993
------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING................ $ 11.86 $ 11.52 $ 9.90 $ 10.13 $ 10.00
INVESTMENT ACTIVITIES:
Net investment income................... 0.27 0.41 0.34 0.23 0.02
Net realized and unrealized gain (loss)
on investments........................ 2.40 0.73 1.67 (0.20) 0.12
-------- -------- -------- -------- --------
Total from Investment Activities.... 2.67 1.14 2.01 0.03 0.14
-------- -------- -------- -------- --------
DISTRIBUTIONS:
From net investment income.............. (0.24) (0.41) (0.35) (0.23) (0.01)
From net realized gains................. (1.06) (0.39) (0.04) (0.03) 0.00
-------- -------- -------- -------- --------
Total Distributions................. (1.30) (0.80) (0.39) (0.26) (0.01)
-------- -------- -------- -------- --------
NET ASSET VALUE, ENDING................... $ 13.23 $ 11.86 $ 11.52 $ 9.90 $ 10.13
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales load)....... 24.71% 10.26% 20.76% 0.37% 1.40%
Net Assets at end of period (000)....... $15,616 $14,345 $14,535 $13,973 $ 10,811
Ratio of expenses to average net
assets................................ 1.44% 1.64% 1.94% 2.07% 0.70%
Ratio of net investment income after
expenses to average net assets........ 2.23% 3.54% 3.24% 2.44% 0.35%
Ratio of incurred expenses to average
net assets (a)........................ 1.50% 1.86% 1.95% 2.07% 0.70%
Ratio of net investment income after
incurred expenses to average net
assets (a)............................ 2.17% 3.32% 3.23% 2.44% 0.35%
Portfolio turnover rate................. 61.23% 18.34% 37.62% 59.09% 60.67%
Average commission rate paid (b)........ $ 0.09 $ 0.09 $ 0.09 $ 0.10 $ 0.10
</TABLE>
- ---------------
* Commencement of operations.
(a) During the period certain fees were voluntarily waived. Had the fees been
charged, the effective ratio would reflect the incurred expenses as
indicated above.
(b) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements.
B-81
<PAGE> 84
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CARDINAL BALANCED FUND INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 2, 1997*
THROUGH
SEPT. 30, 1997
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING............................................................ $ 11.16
INVESTMENT ACTIVITIES:
Net investment income............................................................... 0.16
Net realized and unrealized gain (loss) on investments.............................. 2.08
--------
Total from Investment Activities................................................ 2.24
--------
DISTRIBUTIONS:
From net investment income.......................................................... (0.17)
--------
Total Distributions............................................................. (0.17)
--------
NET ASSET VALUE, ENDING............................................................... $ 13.23
========
RATIOS/SUPPLEMENTAL DATA:
Total Return........................................................................ 20.17%
Net Assets at end of period (000)................................................... $ 1,708
Ratio of expenses to average net assets............................................. 1.51%
Ratio of net investment income after expenses to average net assets................. 1.99%
Portfolio turnover rate............................................................. 61.23%
Average commission rate paid (a).................................................... $ 0.09
</TABLE>
- ---------------
* Commencement of operations.
(a) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements.
B-82
<PAGE> 85
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL GOVERNMENT OBLIGATIONS FUND INVESTOR SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING................... $ 8.05 $ 8.18 $ 7.96 $ 8.63 $ 8.95
INVESTMENT ACTIVITIES:
Net investment income...................... 0.61 0.60 0.64 0.66 0.74
Net realized and unrealized gain (loss) on
investments.............................. 0.11 (0.12) 0.22 (0.68) (0.32)
-------- -------- -------- -------- --------
Total from Investment Activities......... 0.72 0.48 0.86 (0.02) 0.42
-------- -------- -------- -------- --------
DISTRIBUTIONS:
From net investment income................. (0.57) (0.60) (0.64) (0.65) (0.74)
Tax return of capital...................... 0.00 (0.01) 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total Distributions...................... (0.57) (0.61) (0.64) (0.65) (0.74)
-------- -------- -------- -------- --------
NET ASSET VALUE, ENDING...................... $ 8.20 $ 8.05 $ 8.18 $ 7.96 $ 8.63
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales load).......... 9.28% 6.04% 11.27% (0.27)% 4.83%
Net Assets at end of period (000).......... $120,342 $133,298 $151,711 $169,529 $208,883
Ratio of expenses to average net assets.... 1.01% 0.78% 0.76% 0.75% 0.73%
Ratio of net investment income after
charged expenses to average net assets... 7.06% 7.39% 7.93% 7.88% 8.32%
Ratio of incurred expenses to average net
assets (a)............................... 1.08% 0.88% 0.76% 0.75% 0.73%
Ratio of net investment income after
incurred expenses to average net assets
(a)...................................... 6.99% 7.29% 7.93% 7.88% 8.32%
Portfolio turnover rate.................... 34.53% 33.58% 36.71% 21.95% 24.94%
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) During the period certain fees were voluntarily waived. Had the fees been charged, the effective ratio would reflect the
incurred expenses as indicated above.
</TABLE>
See notes to financial statements.
B-83
<PAGE> 86
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL GOVERNMENT OBLIGATIONS FUND INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 2, 1997*
THROUGH
SEPT. 30, 1997
-----------------------
<S> <C>
NET ASSET VALUE, BEGINNING........................................................... $ 8.09
INVESTMENT ACTIVITIES:
Net investment income.............................................................. 0.42
Net realized and unrealized gain (loss) on investments............................. 0.12
-------
Total from Investment Activities................................................. 0.54
-------
DISTRIBUTIONS: 0.43
From net investment income......................................................... 0.00
-------
Total Distributions.............................................................. 0.43
-------
NET ASSET VALUE, ENDING.............................................................. $ 8.20
=======
RATIOS/SUPPLEMENTAL DATA:
Total Return....................................................................... 6.86%
Net Assets at end of period (000).................................................. $ 5,803
Ratio of expenses to average net assets............................................ 0.93%
Ratio of net investment income after charged expenses to average net assets........ 7.00%
Portfolio turnover rate............................................................ 34.53%
</TABLE>
- ---------------
* Commencement of operations.
See notes to financial statements.
B-84
<PAGE> 87
APPENDIX
Commercial Paper Ratings. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debts having original maturities of no more than 365 days. Commercial paper
rated A-1 by S&P indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted A-1+. Commercial paper rated A-2
by S&P indicates that capacity for timely payment on issues is strong. However,
the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of Prime-1 rated issuers, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variations.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.
Commercial paper rated F-1 by Fitch Investors Service ("Fitch") is
regarded as having the strongest degree of assurance for timely payments.
Commercial paper rated F-2 by Fitch is regarded as having an assurance of timely
payment only slightly less than the strongest rating, i.e., F-1.
The plus (+) sign is used after a rating symbol to designate the
relative position of an issuer within the rating category.
Corporate Debt Ratings. A S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree. Debt rated A has a strong capacity to
pay interest and repay principal although it is somewhat more susceptible to
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. 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. Debt
rated BB and
A-1
<PAGE> 88
B is regard as having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the lease degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions. Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
The following summarizes the six highest ratings used by Moody's for
corporate debt. Bonds that are rated Aaa by Moody's 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. Bonds
that 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. Bonds that are
rated A by Moody's 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 some time in the future. Bonds that
are rated Baa by Moody's 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. Bonds that are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. Bonds which are rated
A-2
<PAGE> 89
B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Moody's applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa through B. The modifier 1 indicates that the bond being rated 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 bond ranks in the lower
end of its generic rating category.
The following summarizes the six highest long-term debt ratings by Duff.
Debt rated AAA has the highest credit quality. The risk factors are negligible
being only slightly more than for risk-free U.S. Treasury debt. Debt rated AA
has a high credit quality and protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions. Debt rated A
has protection factors that are average but adequate. However, risk factors are
more variable and greater in periods of economic stress. Debt rated BBB has
below average protection factors but is still considered sufficient for prudent
investment. However, there is considerable variability in risk during economic
cycles. Debt rated BB is below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category. Debt rated B is below
investment grade and possesses risk that obligations will not be met when due.
Financial protection factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists for frequent
changes in the rating within this category or into a higher or lower rating
grade.
To provide more detailed indications of credit quality, the ratings from
AA to B may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the six highest long-term debt ratings by Fitch
(except for AAA ratings, plus or minus signs are used with a rating symbol to
indicate the relative position of the credit within the rating category). Bonds
rated AAA are 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. Bonds rated AA are considered to be investment grade and of very high
credit 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 issues is generally
A-3
<PAGE> 90
rated "F-1+." Bonds rated as A are 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. Bonds
rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore,
impair timely payment. The likelihood that the ratings for these bonds will fall
below investment grade is higher than for bonds with higher ratings. Bonds rated
BB are considered speculative. The obligor's ability to pay interest and repay
principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements. Bonds rated B are
considered highly speculative. While bonds in this class are currently meeting
debt service requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of safety and the
need for reasonable business and economic activity throughout the life of the
issue.
The following summarizes IBCA's six highest long-term debt ratings.
Obligations rated AAA are those for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly. Obligations
rated AA are those for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may increase investment
risk albeit not very significantly. Obligations rated A are those for which
there is a low expectation of investment risk. Capacity for timely repayment of
principal and interest is strong, although adverse changes in business, economic
or financial conditions may lead to increased investment risk. Obligations rated
BBB are those for which there is currently a low expectation of investment risk.
Capacity for timely repayment of principal and interest is adequate, although
adverse changes in business, economic, or financial conditions are more likely
to lead to increased investment risk than for obligations in other categories.
Obligations rated BB are those for which there is a possibility of investment
risk developing. Capacity for timely repayment of principal and interest exists,
but is susceptible over time to adverse changes in business, economic or
financial conditions. Obligations rated B are those for which investment risk
exists. Timely repayment of principal and interest is not sufficiently protected
against adverse changes in business, economic or financial conditions.
A-4
<PAGE> 91
The following summarizes Thomson's description of its six highest
long-term debt ratings (Thomson may include a plus (+) or minus (-) designation
to indicate where within the respective category the issue is placed). AAA is
the highest category and indicates that the ability to repay principal and
interest on a timely basis is very high. AA is the second highest category and
indicates a superior ability to repay principal and interest on a timely basis
with limited incremental risk versus issues rated in the highest category. A is
the third highest category and indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB is the lowest investment grade category and indicates an acceptable capacity
to repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than obligations
with higher ratings. While not investment grade, the BB rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations. Issuer rated B show a higher degree of uncertainty and
therefore greater likelihood of default that higher-rated issuers. Adverse
developments could well negatively affect the payment of interest and principal
on a timely basis.
Definitions of Certain Money Market Instruments
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include
A-5
<PAGE> 92
Treasury bills, notes and bonds, and issues of agencies and instrumentalities of
the U.S. Government, provided such obligations are guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates
of indebtedness, notes and bonds, and issues of agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
the Export-Import Bank of the United States, the Tennessee Valley Authority, the
Farmers Home Administration, the Federal Home Loan Banks, the Federal
Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal Land
Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks, are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
A-6
<PAGE> 1
Exhibit 17(ix)
FOUNTAIN SQUARE FUNDS
ANNUAL REPORT TO SHAREHOLDERS
JULY 31, 1997
INFORMATION RELATING TO INVESTMENT A SHARES OF FOUNTAIN SQUARE MID CAP FUND,
FOUNTAIN SQUARE BALANCED FUND AND FOUNTAIN SQUARE BOND FUND FOR INCOME
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus, which contains facts
concerning the objectives and policies, management fees, expenses and other
information.
For more complete information on the Fountain Square Funds, including fees,
expenses and sales charges, please call 1-888-799-5353 for a prospectus, which
you should read carefully before you invest or send money. The Fountain Square
Funds are distributed by BISYS Fund Services.
Fifth Third Bank serves as Investment Advisor to the Funds and receives a fee
for its services.
Fountain Square Funds, like all mutual funds:
. are NOT FDIC insured
. have no bank guarantee
. may lose value
<PAGE> 2
Shareholder's Letter
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present the Fountain Square Funds' Annual Report to
Shareholders for the year ended July 31, 1997. This letter offers us an
opportunity to review some of the principles that have continued to guide our
investment strategy in recent months and to comment on the market conditions of
the past fiscal year. It also gives us a chance to explain our outlook for the
months ahead, as well as our strategy going forward based on that outlook.
A strong period for stocks and bonds
It's been an extraordinary year in the financial markets, far exceeding even the
most optimistic expectations of a year ago. During the past 12 months, the
Standard & Poor's 500 Index gained 52%. In fact, it's hard to imagine a better
stock-and-bond market than the one we experienced over the past year.
The gains were the result of good news on a number of fronts. First, continued
economic growth, low inflation and low interest rates were all key factors. The
market also was driven by good corporate earnings. Liquidity in the stock market
also played a role, with high levels of cash flowing into mutual funds during
the year. Finally, investor sentiment was strong throughout the period.
Interest rates fell during the 12-month period as well. The yield on the 30-year
Treasury declined from 7% to 6.3% by July 31, 1997. At times during the past
year, investors became concerned about renewed inflationary pressures. For
example, many investors were worried about the potential for upward pressure on
wages. Fortunately, higher inflation never materialized. In addition, the
Federal Reserve Board was diligent in their watch against inflation, raising
short-term interest rates in March to help slow economic growth.
Focus on long-term goals
We are focusing on the long-term implications of the market's spectacular
performance. We emphasize that shareholders should not become overly caught up
in day-to-day news--whether it's good or bad. Instead, our investment philosophy
calls for investing in quality growth companies at attractive valuations. That
approach has worked especially well for us in the past 12 months. During that
period, technology and financial services stocks performed particularly well for
funds.
We maintained our long-term approach to investing in the bond market as well,
avoiding significant bets on the short-term direction of interest rates.
Instead, we added value by shifting assets among sectors of the fixed-income
market to take advantage of opportunities to boost incremental returns.
Looking forward
Clearly, stocks are more expensive than they were even a year ago. However, we
believe that stocks still are not as expensive as they were in October of 1987,
when we experienced a significant temporary market correction. It is our belief
that corporate earnings supported the valuations of stocks over the past year.
But corporate earnings must continue to advance if the stock market is to
deliver further gains.
That said, we discourage investors from trying to "time the market." Many market
timers thought that stocks were overvalued when the Dow Jones Industrial Average
stood at 4000. If they sold their stock investments then, they would have missed
out on the next 4000-point gain. Investors should instead maintain a long-term
perspective on both the stock and bond markets, holding investment portfolios
that suit their goals and risk tolerance without regard to temporary market
fluctuations.
1
<PAGE> 3
Fountain Square Balanced Fund
The Fund posted a 38.45% total return on Investment A Shares (before the
deduction of the sales charge) during the 12 months ended July 31, 1997. That
compares to a return of 52.11% for the Standard & Poor's 500 Index, 56.50% for
the Standard & Poor's BARRA Growth Index, 10.76% for the Lehman Brothers
Aggregate Bond Index and 29.46% for the Lipper Balanced Funds Average. We are
including the Standard & Poor's 500 Index for the first time as a comparable
benchmark, because it is widely used as an industry standard and is regarded as
being representative of the U.S. stock market as a whole.
5
<PAGE> 4
- --------------------------------------------------------------------------------
When stocks and bonds appear to offer similar trade-offs between risk and
potential reward, the Fund invests 65% of its assets in stocks, with the rest in
bonds. During the recent period, we maintained that neutral weighting. The
Fund's equity holdings emphasized large, high-quality growth companies and fast-
growing mid-cap companies in a variety of industries. We favored the technology,
health-care and financial sectors because these areas offered the best
combination of attractive valuations and strong growth prospects.
During the period, we increased the Fund's exposure to shares of medium-sized,
high-quality companies that have good growth potential. Valuations of mid-cap
stocks appear to be more attractive than those of large-company stocks at this
time. The Fund started the period with 25% of its equity holdings in mid-caps
and 75% in large-company shares. As of July 31, 1997, that allocation had
changed to 65% in large-cap shares and 35% in mid-cap shares./3/
The Fund's fixed-income holdings included a mix of corporate bonds (7.0% of net
assets), asset-backed securities (1.9%), mortgage-backed securities (3.9%) and
U.S. Government securities (19.1%), with the remainder in cash equivalents
(3.2%)./3/
Going forward, we anticipate that the Fund will maintain a neutral mix of 65%
equities and 35% bonds. A favorable inflation and interest-rate environment
would likely be positive for stocks. Other positive factors for the markets
include favorable cash flows into equities, strong corporate earnings, merger
and acquisition activity, share repurchasing and favorable investor sentiment.
Thus, we will continue to emphasize equities, while keeping a careful eye on
valuations of individual companies.
As of July 31, 1997, the Fund's top five holdings were Intel (4.1% of net
assets), Adaptec (3.2%), First Data Corp. (2.5%), Oracle (2.4%) and Federal Home
Loan Mortgage Corp. (2.2%)./3/
Growth of $10,000 Invested in Fountain Square Balanced Fund
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Investment A Investment C S&P BARRA Lehman Bros. Lipper Balanced
Shares * Shares * S&P 500 Growth Index Aggregate Bond Funds Average
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/01/83 $9,550 $10,000 $10,000 $10,000 $10,000 $10,000
07/31/83 $11,000 $11,498 $11,863 $11,594 $10,243 $10,872
07/31/84 $11,550 $12,021 $11,510 $10,756 $11,133 $10,748
07/31/85 $15,750 $16,337 $15,241 $13,839 $13,796 $13,957
07/31/86 $20,700 $21,333 $19,571 $18,048 $16,761 $17,593
07/31/87 $25,300 $25,993 $27,261 $24,941 $17,518 $21,152
07/31/88 $24,350 $24,917 $24,057 $20,927 $18,844 $20,084
07/31/89 $30,600 $31,163 $31,729 $27,893 $21,709 $24,494
07/31/90 $34,450 $34,914 $33,781 $31,198 $23,244 $25,349
07/31/91 $40,700 $41,090 $38,082 $36,028 $25,732 $28,506
07/31/92 $48,050 $48,314 $42,945 $40,453 $29,534 $32,370
07/31/93 $49,747 $49,961 $46,685 $41,051 $32,537 $35,950
07/31/94 $50,754 $50,972 $49,090 $43,138 $32,567 $37,057
07/31/95 $60,587 $60,847 $61,888 $56,393 $35,860 $42,768
07/31/96 $64,539 $64,693 $72,133 $66,347 $37,846 $47,404
07/31/97 $89,356 $88,969 $109,721 $103,837 $41,920 $62,066
</TABLE>
AVERAGE ANNUAL TOTAL RETURN FOR
THE PERIOD ENDED JULY 31, 1997* **
<TABLE>
<CAPTION>
Investment A Investment C
------------ ------------
<S> <C> <C>
1 Year.................................................32.26%........37.52%
5 Year.................................................12.18%........12.99%
10 Year................................................12.92%........13.09%
Start of Performance (1/1/83)..........................16.19%........16.16%
</TABLE>
/3/ The composition of the Fund's portfolio is subject to change.
Investment C Shares were initially offered April 19, 1996. The performance
figures for Investment C Shares for periods prior to such date represent the
performance for Investment A Shares of the Fund. Investment C Shareholders that
redeem within one year of purchase are subject to a contingent deferred sales
charge of 1.00%. Investment C Shares are also subject to administrative service
fees at a maximum rate of 0.25 of 1% of the average daily net asset value of
Investment C Shares. The maximum sales charge for Investment A Shares is 4.50%.
6
<PAGE> 5
- --------------------------------------------------------------------------------
* Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
The Fund's performance is measured against the Standard & Poor's 500 Index and
the Standard and Poor's BARRA Growth Index, unmanaged indices generally
representative of the stock market; the Lehman Brothers Aggregate Bond Index, an
unmanaged index generally representative of the bond market as a whole; and the
Lipper Balanced Funds Average, representative of the average of the total
returns reported by all of the mutual funds designated by Lipper Analytical
Services, Inc. as falling into this category. The Standard & Poor's 500 Index,
the Standard and Poor's BARRA Growth Index and the Lehman Brothers Aggregate
Bond Index do not reflect the deduction of fees associated with a mutual fund,
such as investment management and fund accounting fees. However, the Lipper
Balanced Funds Average and the Fund's performance do reflect the deduction of
fees for these value-added services. Past performance is not indicative of
future results. The investment return and NAV will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
** The quoted performance of the Balanced Fund includes performance of certain
collective trust fund ("Commingled") accounts advised by Fifth Third Bank, for
periods dating back to 1/1/83 and prior to the Balanced Fund's commencement of
operations on 11/20/92, as adjusted to reflect the expenses associated with the
Fund. The Commingled accounts were not registered with the Securities and
Exchange Commission and, therefore, were not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
accounts had been registered, the Commingled accounts' performance may have been
adversely affected. The performance shown reflects the deduction of fees for
value-added services associated with a mutual fund, such as investment
management and accounting fees. The performance also reflects reinvestment of
all dividends and capital-gains distributions.
Fountain Square Mid Cap Fund
The Fund posted a total return of 47.17% on Investment A Shares (before the
deduction of the sales charge) during the 12-month period that ended July 31,
1997. That compares to a 45.38% return for the Standard & Poor's MidCap 400
Index and a 35.01% return for the Lipper MidCap Funds Average. Stock market
conditions favored large-company stocks over mid-cap shares for the period. As a
result, we focused on shares of larger mid-cap companies.
Our strategy has remained consistent. We look for mid-cap companies with
profitable market niches and above-average growth prospects and purchase their
shares when they are neglected by other investors. The Fund's holdings are
overweighted in the technology, health-care, financial and capital goods
sectors. For example, the Fund's investments during the recent period included
shares of Flextronics International, Ballard Medical Products, Cincinnati
Financial Corp. and Federal Signal.
The outlook is favorable for mid-cap stocks, which have underperformed relative
to large company stocks and are thus trading at relatively attractive
valuations. We will continue to take advantage of valuation discrepancies,
buying more shares of companies at the smaller end of the mid-cap spectrum.
As of July 31, 1997, the Fund's top five holdings were Adaptec (6.3% of net
assets), American Bankers Insurance (4.8%), Comair (4.8%), Zebra Technologies
(4.5%) and Cardinal Health, Inc. (4.4%)./4/
7
<PAGE> 6
Growth of $10,000 Invested in Fountain Square Mid Cap Fund
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Standard
& Poor's
Investment Investment Midcap Lipper MidCap
A Shares* C Shares* 400 Index Funds Average
- - -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/85 $9,562 $10,000 $10,000 $10,000
07/31/85 $11,313 $11,805 $12,190 $11,669
07/31/86 $14,108 $14,668 $15,854 $14,494
07/31/87 $17,172 $17,659 $19,421 $18,479
07/31/88 $16,599 $16,867 $17,912 $16,306
07/31/89 $20,842 $21,091 $23,819 $20,430
07/31/90 $22,694 $22,843 $25,360 $22,195
07/31/91 $28,216 $28,304 $31,047 $26,626
07/31/92 $31,583 $31,550 $36,443 $29,666
07/31/93 $32,751 $32,670 $42,515 $34,997
07/31/94 $34,410 $34,325 $44,014 $34,731
07/31/95 $43,166 $43,060 $54,794 $47,117
07/31/96 $43,714 $43,537 $59,044 $49,700
07/31/97 $64,328 $63,584 $85,837 $67,074
</TABLE>
AVERAGE ANNUAL TOTAL RETURN FOR
THE PERIOD ENDED JULY 31, 1997* **
<TABLE>
<CAPTION>
Investment A Investment C
------------ ------------
<S> <C> <C>
1 Year..............................................40.58%..........46.05%
5 Year..............................................14.24%..........15.05%
10 Year.............................................13.60%..........13.67%
Start of Performance (1/1/85).......................15.93%..........15.83%
</TABLE>
/4/ The composition of the Fund's portfolio is subject to change.
Investment C Shares were initially offered April 19, 1996. The performance
figures for Investment C Shares for periods prior to such date represent the
performance for Investment A Shares of the Fund. Investment C Shareholders that
redeem within one year of purchase are subject to a contingent deferred sales
charge of 1.00%. Investment C Shares are also subject to administrative service
fees at a maximum rate of 0.25 of 1% of the average daily net asset value of
Investment C Shares. The maximum sales charge for Investment A Shares is 4.50%.
* Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
The Fund's performance is measured against the Standard & Poor's MidCap 400
Index, an unmanaged index generally representative of the mid-cap sector of the
U.S. stock market, and the Lipper MidCap Funds Average, representative of the
average of the total returns reported by all of the mutual funds designated by
Lipper Analytical Services, Inc. as falling into this category. The Standard &
Poor's MidCap 400 Index does not reflect the deduction of fees associated with a
mutual fund, such as investment management and fund accounting fees. However,
the Lipper MidCap Funds Average and the Fund's performance do reflect the
deduction of fees for these value-added services. Past performance is not
indicative of future results. The investment return and NAV will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than their
original cost.
** The quoted performance of the Mid Cap Fund includes performance of certain
collective trust fund ("Commingled") accounts advised by Fifth Third Bank, for
periods dating back to 1/1/85 and prior to the Mid Cap Fund's commencement of
operations on 11/20/92, as adjusted to reflect the expenses associated with the
Fund. The Commingled accounts were not registered with the Securities and
Exchange Commission and, therefore, were not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
accounts had been registered, the Commingled accounts' performance may have been
adversely affected. The performance shown reflects the deduction of fees for
value-added services associated with a mutual fund, such as investment
management and accounting fees. The performance also reflects reinvestment of
all dividends and capital-gains distributions.
8
<PAGE> 7
Fountain Square Bond Fund For Income
The Fund delivered a total return of 8.03%** on Investment A Shares (before the
deduction of the sales charge) during the 12-month period ended July 31, 1997.
That return reflected an income distribution of $0.37 per share and an increase
in the Fund's net asset value from $12.00 to $12.19. The Fund's benchmark, the
Lehman Brothers Intermediate Government Corporate Index, returned 9.07%, while
the Lipper Short-Intermediate Investment Grade Bond Funds Average, posted a
total return of 8.01% during the period.
Interest rates rose in the first quarter of 1997, due to strong economic growth
and the threat of rising inflation. Rates declined later in the period as
economic growth slowed and inflation remained in check. Some investors are
coming to believe that increases in workers' productivity will allow the economy
to continue to grow at a moderate pace without triggering inflation.
The Fund seeks to provide shareholders with stable current income and therefore
takes a somewhat cautious approach. The average maturity of the Fund stood at
4.5 years at its inception and fell to around 4 years by July 31, 1997. The Fund
maintained a roughly neutral average maturity to its benchmark, as there was not
enough clear evidence about the direction of interest rates, economic growth and
inflation to take a more aggressive stance.
The Fund benefited from its investments in securities that mature in around 10
years or less, which performed better than comparable 30-year issues. We found
opportunities in new securities issued by corporations. These new issues offered
better yields than comparable issues available in the secondary market, which
offered relatively low yield advantages over government issues. Corporate
securities made up 51.5% of the Fund's net assets on July 31, 1997./6/
The Fund's holdings in callable government agency securities also helped boost
its performance. These securities featured attractive yields relative to many
corporate issues, coupled with strong credit quality. The overall credit quality
of the Fund's holdings was high, at AA2./6/
Looking ahead, we expect the economy to grow at a moderate pace and inflation to
remain under control. We will continue to hold roughly half of the Fund's
portfolio in corporate issues, with the remaining half consisting of high-
quality, AAA-rated U.S. Government securities, as well as cash equivalents. We
also will look for opportunities in the mortgage market as selected issues
become attractive. We will not make large bets based on the direction of
interest rates, as such an approach would conflict with the Fund's emphasis on
providing shareholders with stable current income.
10
<PAGE> 8
Growth of $10,000 Invested in Fountain Square Bond Fund For Income
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper Short Term
Investment Grade
Lehman Brothers Debt Funds Average/
Intermediate Lipper Short-
Government Intermediate
Investment Investmente Corporate Investment Grade
A Shares* C Shares* Index Bond Fund Average
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/83 $9,556 $10,000 $10,000 $10,000
07/31/83 $9,922 $10,344 $10,329 $10,372
07/31/84 $10,653 $11,021 $11,256 $10,951
07/31/85 $12,924 $13,271 $13,579 $12,786
07/31/86 $15,379 $15,663 $15,943 $15,136
07/31/87 $15,875 $16,053 $16,701 $15,827
07/31/88 $16,945 $17,012 $17,900 $16,652
07/31/89 $19,112 $19,034 $20,178 $18,444
07/31/90 $20,183 $19,963 $21,614 $19,597
07/31/91 $22,167 $21,747 $23,824 $21,358
07/31/92 $25,300 $24,636 $27,193 $24,169
07/31/93 $27,546 $26,642 $29,533 $26,059
07/31/94 $26,554 $25,481 $29,810 $25,874
07/31/95 $29,034 $27,661 $32,439 $27,673
07/31/96 $30,340 $28,687 $34,161 $29,061
07/31/97 $32,784 $30,740 $37,260 $30,929
</TABLE>
AVERAGE ANNUAL TOTAL RETURN FOR
THE PERIOD ENDED JULY 31, 1997* **
<TABLE>
<CAPTION>
Investment A Investment C
------------ ------------
<S> <C> <C>
1 Year............................................3.17%..............7.16%
5 Year............................................4.35%..............4.53%
10 Year...........................................7.02%..............6.71%
Start of Performance (1/1/83).....................8.48%..............8.00%
</TABLE>
/6/ The composition of the Fund's portfolio is subject to change.
Investment C Shareholders that redeem within one year of purchase are subject to
a contingent deferred sales charge of 1.00%. Investment C Shares are also
subject to administrative service fees at a maximum rate of 0.25 of 1% of the
average daily net asset value of Investment C Shares. The maximum sales charge
for Investment A Shares is 4.50%.
* Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
The Fund's performance is measured against the Lehman Brothers Intermediate
Government Corporate Index, an unmanaged index generally representative of the
performance of the bond market as a whole. The Fund's performance is also
measured against the Lipper Short Term Investment Grade Debt Funds Average from
1/1/83 to 7/31/83, prior to the creation of the Lipper Short-Intermediate
Investment Grade Bond Funds Average, against which the performance is measured.
The Lipper averages are representative of the average of the total returns
reported by all of the mutual funds designated by Lipper Analytical Services,
Inc. as falling into the same bond market category. The Lehman Brothers
Intermediate Government Corporate Index does not reflect the deduction of fees
associated with a mutual fund, such as investment management and fund accounting
fees. However, Lipper Short Term Investment Grade Debt Funds Average, the Lipper
Short-Intermediate Investment Grade Bond Funds Average and the Fund's
performance do reflect the deduction of fees for these value-added services.
Past performance is not indicative of future results. The investment return and
NAV will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
** The quoted performance of the Bond Fund For Income includes performance of
certain collective trust fund ("Commingled") accounts advised by Fifth Third
Bank, for periods dating back to 1/1/83 and prior to the Bond Fund For Income's
commencement of operations on 1/27/97, as adjusted to reflect the expenses
associated with the Fund. The Commingled accounts were not registered with the
Securities and Exchange Commission and, therefore, were not subject to the
investment restrictions imposed by law on registered mutual funds. If the
Commingled accounts had been registered, the Commingled accounts' performance
may have been adversely affected. The performance shown reflects the deduction
of fees for value-added services associated with a mutual fund, such as
investment management and accounting fees. The performance also reflects
reinvestment of all dividends and capital-gains distributions.
11
<PAGE> 9
Fountain Square Balanced Fund
Schedule of Investments
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
--------- -------------------------------------------------- ----------
<S> <C> <C>
Common Stocks--(65.1%)
----------------------------------------------------------------
Banking--(5.6%)
--------------------------------------------------
55,000 Bank of New York Co., Inc. $2,670,937
--------------------------------------------------
25,000 First Tennessee National Corp. 1,300,000
--------------------------------------------------
16,000 Mellon Bank Corp. 807,000
--------------------------------------------------
35,000 Norwest Corp. 2,207,188
-------------------------------------------------- ----------
Total 6,985,125
-------------------------------------------------- ----------
Beverages--(0.6%)
--------------------------------------------------
20,000 PepsiCo, Inc. 766,250
-------------------------------------------------- ----------
Business Services--(0.4%)
--------------------------------------------------
8,000 Cintas Corp. 524,000
-------------------------------------------------- ----------
Chemicals--(2.2%)
--------------------------------------------------
50,000 Praxair, Inc. 2,756,250
-------------------------------------------------- ----------
Computer Software & Services--(7.2%)
--------------------------------------------------
15,000 Electronics for Imaging, Inc. 825,000
--------------------------------------------------
70,000 First Data Corp. 3,053,749
--------------------------------------------------
10,000 Fiserv, Inc.* 480,000
--------------------------------------------------
4,800 Microsoft Corp.* 679,200
--------------------------------------------------
55,000 Oracle Corp.* 2,994,063
--------------------------------------------------
45,000 Reynolds & Reynolds Co., Class A 871,875
-------------------------------------------------- ----------
Total 8,903,887
-------------------------------------------------- ----------
Computer Systems & Equipment--(4.0%)
--------------------------------------------------
35,000 Cisco Systems* 2,784,688
--------------------------------------------------
15,000 Diebold, Inc. 753,750
--------------------------------------------------
20,000 Hewlett-Packard Co. 1,401,250
-------------------------------------------------- ----------
Total 4,939,688
-------------------------------------------------- ----------
Consumer Products--(3.1%)
--------------------------------------------------
38,000 Crown Cork & Seal Co., Inc. 1,921,375
--------------------------------------------------
40,000 Newell Co. 1,677,500
--------------------------------------------------
2,000 Procter & Gamble Co. 304,250
-------------------------------------------------- ----------
Total 3,903,125
-------------------------------------------------- ----------
Electrical Equipment--(2.6%)
--------------------------------------------------
15,000 Belden, Inc. 581,250
--------------------------------------------------
25,000 Emerson Electric Co. 1,475,000
--------------------------------------------------
16,000 General Electric Co. 1,123,000
-------------------------------------------------- ----------
Total 3,179,250
-------------------------------------------------- ----------
</TABLE>
-- Continued --
24
<PAGE> 10
Fountain Square Balanced Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- ---------- --------------------------------------------------- -----------
Common Stocks--Continued
- - ----------------------------------------------------------------
<S> <C> <C>
Electronics--(9.7%)
---------------------------------------------------
95,000 Adaptec, Inc.* $4,001,874
---------------------------------------------------
20,000 Computer Products, Inc.* 537,500
---------------------------------------------------
29,000 Flextronics, International* 909,875
---------------------------------------------------
55,000 Intel Corp. 5,049,687
---------------------------------------------------
20,000 Molex, Inc. 778,750
---------------------------------------------------
27,562 Vishay Intertechnology, Inc.* 737,297
--------------------------------------------------- ----------
Total 12,014,983
--------------------------------------------------- ----------
Entertainment & Leisure--(0.4%)
---------------------------------------------------
6,000 The Walt Disney Co. 484,875
--------------------------------------------------- ----------
Financial--(2.9%)
---------------------------------------------------
77,000 Federal Home Loan Mortgage Corporation 2,776,813
---------------------------------------------------
16,000 Federal National Mortgage Stock 757,000
--------------------------------------------------- ----------
Total 3,533,813
--------------------------------------------------- ----------
General Building Contractors--(0.3%)
---------------------------------------------------
25,000 Clayton Homes Inc. 396,875
--------------------------------------------------- ----------
Healthcare--(0.8%)
---------------------------------------------------
7,000 Medtronic, Inc. 610,750
---------------------------------------------------
10,000 STERIS Corp.* 385,000
--------------------------------------------------- ----------
Total 995,750
--------------------------------------------------- ----------
Insurance--(4.2%)
---------------------------------------------------
10,000 Allstate Corp. 790,000
---------------------------------------------------
25,000 American Bankers Insurance Group, Inc. 1,692,188
---------------------------------------------------
10,000 Cincinnati Financial Corp. 826,250
---------------------------------------------------
36,000 MGIC Investment Corp. 1,892,250
--------------------------------------------------- ----------
Total 5,200,688
--------------------------------------------------- ----------
Manufacturing--(3.3%)
---------------------------------------------------
55,000 Federal Signal Corp. 1,433,438
---------------------------------------------------
18,000 Illinois Tool Works 933,750
---------------------------------------------------
55,000 Zebra Technologies Corp., Class A* 1,715,312
--------------------------------------------------- ----------
Total 4,082,500
--------------------------------------------------- ----------
Media/Publishing--(1.9%)
---------------------------------------------------
52,000 Interpublic Group of Cos., Inc. 2,327,000
--------------------------------------------------- ----------
Medical Distribution--(0.8%)
---------------------------------------------------
15,000 Cardinal Health, Inc. 933,750
--------------------------------------------------- ----------
</TABLE>
-- Continued --
25
<PAGE> 11
Fountain Square Balanced Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- --------- ---------------------------------------------------- ----------
Common Stocks--Continued
- -----------------------------------------------------------------
<S> <C> <C>
Oil & Gas--(2.4%)
----------------------------------------------------
8,000 Chevron Corp. $ 633,000
----------------------------------------------------
30,000 Mobil Corp. 2,295,000
---------------------------------------------------- ----------
Total 2,928,000
---------------------------------------------------- ----------
Pharmaceuticals--(7.1%)
----------------------------------------------------
30,000 American Home Products 2,473,125
----------------------------------------------------
47,000 Johnson & Johnson 2,928,687
----------------------------------------------------
20,000 Pfizer, Inc. 1,192,500
----------------------------------------------------
40,000 Schering - Plough Corp. 2,182,500
---------------------------------------------------- ----------
Total 8,776,812
---------------------------------------------------- ----------
Retail--(3.3%)
----------------------------------------------------
30,000 Consolidated Stores Corp.* 1,207,500
----------------------------------------------------
15,000 Dollar General 660,000
----------------------------------------------------
45,000 Home Depot, Inc. 2,244,375
---------------------------------------------------- ----------
Total 4,111,875
---------------------------------------------------- ----------
Telecommunications--(0.7%)
----------------------------------------------------
25,000 Century Telephone Enterprises 918,750
---------------------------------------------------- ----------
Transportation--(1.6%)
----------------------------------------------------
75,000 Comair Holdings, Inc. 2,020,313
---------------------------------------------------- ----------
Total Common Stocks 80,683,559
---------------------------------------------------- ----------
Asset Backed Securities--(1.9%)
- -----------------------------------------------------------------
Financial--(1.9%)
----------------------------------------------------
1,500,000 Cityscape, Series 1996-3, 7.15%, 8/25/11 1,535,565
----------------------------------------------------
750,000 GE Capital Management, 6.94%, 3/25/27 761,280
---------------------------------------------------- ----------
Total Asset Backed Securities 2,296,845
---------------------------------------------------- ----------
Corporate Bonds--(7.0%)
- -----------------------------------------------------------------
Financial--(4.5%)
----------------------------------------------------
46,000 Bankers Trust New York Corp., 9.20%, 7/15/99 48,555
----------------------------------------------------
1,500,000 Chrysler Medium Term Note, 6.28%, 6/21/99 1,508,236
----------------------------------------------------
1,500,000 CIT Group Holdings, 6.25%, 3/28/01 1,507,030
----------------------------------------------------
500,000 Ford Motor Credit, Floating Rate
----------------------------------------------------
Note, 11/9/98 (6.33%, 8/8/97)(a) 499,898
----------------------------------------------------
1,000,000 General Motors Acceptance Corp., 6.63%, 10/1/02 1,011,595
----------------------------------------------------
1,000,000 Sears Roebuck, 6.54%, 2/20/03 1,005,827
---------------------------------------------------- ----------
Total 5,581,141
---------------------------------------------------- ----------
Manufacturing--(1.2%)
----------------------------------------------------
500,000 IBP, Inc., 6.13%, 2/1/06 486,731
----------------------------------------------------
1,000,000 Texas Instruments, 6.88%, 7/15/00 1,021,883
---------------------------------------------------- ----------
Total 1,508,614
---------------------------------------------------- ----------
</TABLE>
-- Continued --
26
<PAGE> 12
Fountain Square Balanced Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- - --------- ----------------------------------------------------- ------------
Corporate Bonds--Continued
- - -----------------------------------------------------------------
<S> <C> <C>
Transportation--(0.5%)
-----------------------------------------------------
600,000 American President Cos. Ltd., 7.13%, 11/15/03 $ 600,592
-----------------------------------------------------
Utility--(0.8%)
-----------------------------------------------------
1,000,000 Georgia Power, 6.88%, 9/01/02 1,005,426
----------------------------------------------------- ---------
Total Corporate Bonds 8,695,773
----------------------------------------------------- ---------
Mortgage Backed Securities--(3.9%)
- - -----------------------------------------------------------------
U.S. Government Agencies--(3.9%)
-----------------------------------------------------
5,959 Federal Home Loan Mortgage Corp., 9.50%, 10/1/02,
Pool #38-0009 6,179
-----------------------------------------------------
12,639 Federal Home Loan Mortgage Corp., 8.00%, 8/1/08,
Pool #27-2525 13,080
-----------------------------------------------------
698,651 Federal National Mortgage Association, 6.00%, 4/1/11,
Dwarf Pool 344185 684,168
-----------------------------------------------------
3,996,093 Government National Mortgage Association, 8.00%,
6/20/27, G2 Pool 2445 4,111,060
----------------------------------------------------- ----------
Total Mortgage Backed Securities 4,814,487
----------------------------------------------------- ----------
U.S. Government Securities--(19.1%)
- - -----------------------------------------------------------------
U.S. Government Agencies--(10.4%)
-----------------------------------------------------
3,000,000 Federal Home Loan Bank Coupon Bond, 6.19%, 1/29/01 2,987,813
-----------------------------------------------------
2,000,000 Federal Home Loan Bank Coupon Bond, 6.03%, 9/4/01 1,983,125
-----------------------------------------------------
5,000,000 Federal National Mortgage Association, 7.49%, 5/22/00 5,147,025
-----------------------------------------------------
2,750,000 Federal National Mortgage Association, 6.64%, 7/2/07 2,826,862
----------------------------------------------------- ----------
Total 12,944,825
----------------------------------------------------- ----------
U.S. Treasury Bonds--(4.2%)
-----------------------------------------------------
2,750,000 6.00%, 2/15/26 2,625,392
-----------------------------------------------------
2,500,000 6.50%, 11/15/26 2,555,470
----------------------------------------------------- ----------
Total 5,180,862
----------------------------------------------------- ----------
U.S. Treasury Notes--(4.5%)
-----------------------------------------------------
5,500,000 6.25%, 2/15/07 5,580,781
----------------------------------------------------- ----------
Total U.S. Government Securities 23,706,468
----------------------------------------------------- ----------
Repurchase Agreement--(3.2%)
- - -----------------------------------------------------------------
3,922,000 UBS Securities, 5.76%, dated 7/31/97, due 8/1/97
(at amortized cost), collateralized by U.S.
Treasury Bills due 10/23/97 with a value of
$4,001,522. 3,922,000
----------------------------------------------------- ----------
Total Repurchase Agreement 3,922,000
----------------------------------------------------- ----------
Total Investments (Cost $94,965,047)**--100.2% 124,119,132
----------------------------------------------------- -----------
Liabilities in excess of other assets--(0.2)% (198,381)
----------------------------------------------------- ----------
TOTAL NET ASSETS--100.0% $123,920,751
===================================================== ===========
</TABLE>
-- Continued --
27
<PAGE> 13
Fountain Square Balanced Fund
- --------------------------------------------------------------------------------
Percentages indicated are based on net assets of $123,920,751.
*Non-income producing security
**The cost of investments for federal tax purposes amounts to $94,965,047. The
net unrealized appreciation of investments on federal tax basis amounts to
$29,154,085, which is composed of $29,556,660 appreciation and $402,575
depreciation at July 31, 1997.
(a) Current rate and next reset date shown.
See notes to financial statements.
28
<PAGE> 14
Fountain Square Mid Cap Fund
Schedule of Investments
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- -----------
Common Stocks--(96.5%)
- -----------------------------------------------------------------
<C> <S> <C>
Banking--(6.9%)
-------------------------------------------------------
145,000 First Tennessee National Corp. $ 7,540,000
-------------------------------------------------------
100,000 Firstar Corp. 3,481,250
-------------------------------------------------------
52,000 Regions Financial Corp. 1,810,250
------------------------------------------------------- -----------
Total 12,831,500
------------------------------------------------------- -----------
Business Services--(6.4%)
-------------------------------------------------------
70,000 Cintas Corp. 4,585,000
-------------------------------------------------------
105,000 Omnicom Group 7,330,313
------------------------------------------------------- -----------
Total 11,915,313
------------------------------------------------------- -----------
Chemicals--(0.6%)
-------------------------------------------------------
55,000 RPM, Inc. 1,120,625
------------------------------------------------------- -----------
Computer Software & Services--(8.6%)
-------------------------------------------------------
102,000 Electronics for Imaging, Inc. 5,610,000
-------------------------------------------------------
115,000 Fiserv, Inc.* 5,520,000
-------------------------------------------------------
250,000 Reynolds & Reynolds Co., Class A 4,843,750
------------------------------------------------------- -----------
Total 15,973,750
------------------------------------------------------- -----------
Computer Systems & Equipment--(4.4%)
-------------------------------------------------------
163,000 Diebold, Inc. 8,190,750
------------------------------------------------------- -----------
Consumer Products--(1.6%)
-------------------------------------------------------
72,000 Newell Co. 3,019,500
------------------------------------------------------- -----------
Electrical Equipment--(3.1%)
-------------------------------------------------------
148,000 Belden, Inc. 5,735,000
------------------------------------------------------- -----------
Electronics--(18.2%)
-------------------------------------------------------
280,000 Adaptec, Inc.* 11,794,999
-------------------------------------------------------
220,000 Computer Products, Inc.* 5,912,500
-------------------------------------------------------
204,000 Flextronics, International* 6,400,499
-------------------------------------------------------
87,000 Molex, Inc. 3,387,563
-------------------------------------------------------
235,725 Vishay Intertechnology, Inc.* 6,305,644
------------------------------------------------------- -----------
Total 33,801,205
------------------------------------------------------- -----------
General Building Contractors--(0.7%)
-------------------------------------------------------
80,000 Clayton Homes Inc. 1,270,000
------------------------------------------------------- -----------
</TABLE>
-- Continued --
29
<PAGE> 15
Fountain Square Mid Cap Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- -----------
Common Stocks--Continued
- -----------------------------------------------------------------
<C> <S> <C>
Healthcare--(4.2%)
-------------------------------------------------------
290,000 Ballard Medical Products $ 6,144,375
-------------------------------------------------------
45,000 STERIS Corp.* 1,732,500
------------------------------------------------------- -----------
Total 7,876,875
------------------------------------------------------- -----------
Insurance--(12.7%)
-------------------------------------------------------
133,200 American Bankers Insurance Group, Inc. 9,015,974
-------------------------------------------------------
60,000 Cincinnati Financial Corp. 4,957,500
-------------------------------------------------------
115,000 MGIC Investment Corp. 6,044,688
-------------------------------------------------------
75,000 Mutual Risk Management, Limited 3,684,375
------------------------------------------------------- -----------
Total 23,702,537
------------------------------------------------------- -----------
Manufacturing--(8.8%)
-------------------------------------------------------
40,000 Applied Industrial Technologies, Inc. 1,470,000
-------------------------------------------------------
187,000 Federal Signal Corp. 4,873,688
-------------------------------------------------------
50,000 OM Group, Inc. 1,710,590
-------------------------------------------------------
270,000 Zebra Technologies Corp., Class A* 8,420,625
------------------------------------------------------- -----------
Total 16,474,903
------------------------------------------------------- -----------
Medical Distribution--(4.4%)
-------------------------------------------------------
133,000 Cardinal Health, Inc. 8,279,250
------------------------------------------------------- -----------
Natural Gas--(0.9%)
-------------------------------------------------------
40,000 Questar Corp. 1,637,500
------------------------------------------------------- -----------
Retail--(7.1%)
-------------------------------------------------------
135,000 Casey's General Stores 3,054,375
-------------------------------------------------------
135,000 Consolidated Stores Corp.* 5,433,750
-------------------------------------------------------
110,000 Dollar General 4,840,000
------------------------------------------------------- -----------
Total 13,328,125
------------------------------------------------------- -----------
Telecommunications--(2.1%)
-------------------------------------------------------
107,000 Century Telephone Enterprises 3,932,250
------------------------------------------------------- -----------
Transportation--(5.8%)
-------------------------------------------------------
335,000 Comair Holdings, Inc. 9,024,063
-------------------------------------------------------
30,000 GATX Corp. 1,846,875
------------------------------------------------------- -----------
Total 10,870,938
------------------------------------------------------- -----------
Total Common Stocks 179,960,021
------------------------------------------------------- -----------
</TABLE>
-- Continued --
30
<PAGE> 16
Fountain Square Mid Cap Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- --------- ----------------------------------------------------- ------------
Repurchase Agreements--(5.5%)
- -----------------------------------------------------------------
<C> <S> <C>
10,184,000 UBS Securities, 5.76%, dated 7/31/97, due 8/01/97
(at amortized cost), collateralized by U.S. Treasury
Bills due 10/23/97 with a value of $10,389,136. $ 10,184,000
----------------------------------------------------- ------------
Total Repurchase Agreements 10,184,000
----------------------------------------------------- ------------
Total Investments (Cost $133,520,820)**--102.0% 190,144,021
----------------------------------------------------- ------------
Liabilities in excess of other assets--(2.0)% (3,639,569)
----------------------------------------------------- ------------
TOTAL NET ASSETS--100.0% $186,504,452
===================================================== ============
</TABLE>
Percentages indicated are based on net assets of $186,504,452.
* Non-income producing security
** The cost of investments for federal tax purposes amounts to $133,520,820. The
net unrealized appreciation of investments on federal tax basis amounts to
$56,623,201, which is composed of $57,991,712 appreciation and $1,368,511
depreciation at July 31, 1997.
See notes to financial statements.
31
<PAGE> 17
Fountain Square Bond Fund For Income
Schedule of Investments
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- -------------- ------------------------------------------------------------------ -----------
<C> <S> <C>
Asset Backed Securities--(3.2%)
- -----------------------------------------------------------------------------------
Financial--(3.2%)
------------------------------------------------------------------
5,000,000 GE Capital Managment, 6.94%, 3/25/27 $ 5,075,200
------------------------------------------------------------------ -----------
Total Asset Backed Securities 5,075,200
------------------------------------------------------------------ -----------
Corporate Bonds--(48.3%)
- -----------------------------------------------------------------------------------
Banking--(0.7%)
------------------------------------------------------------------
1,000,000 Deutsche Bank Financial, Medium Term Note, 9.28%, 5/31/99 $ 1,055,590
------------------------------------------------------------------ -----------
Chemicals--(3.3%)
------------------------------------------------------------------
5,000,000 Engelhard Corp., 7.00%, 8/1/01 5,124,695
------------------------------------------------------------------ -----------
Financial--(34.6%)
------------------------------------------------------------------
5,000,000 American General Finance Corp., 7.25%, 4/15/00 5,141,389
------------------------------------------------------------------
5,000,000 Bear Stearns, Inc., 7.25%, 10/15/06 5,162,909
------------------------------------------------------------------
5,000,000 Chrysler Corp., Medium Term Note, 6.37%, 6/21/99 5,035,345
------------------------------------------------------------------
5,000,000 CIT Group Holdings, 6.25%, 3/28/01 5,023,434
------------------------------------------------------------------
5,000,000 DLJ, Medium Term Note, 6.38%, 5/26/00 5,020,000
------------------------------------------------------------------
3,000,000 First USA Bank, 5.85%, 2/22/01 2,965,173
------------------------------------------------------------------
3,000,000 Merrill Lynch Notes, 6.55%, 8/01/04 3,015,000
------------------------------------------------------------------
5,000,000 Metropolitan Life, 6.30%, 11/1/03 4,913,664
------------------------------------------------------------------
5,000,000 Morgan Stanley, 6.38%, 8/01/02 5,007,000
------------------------------------------------------------------
5,000,000 Paine Webber Group, 6.68%, 2/10/04 4,996,635
------------------------------------------------------------------
2,500,000 RBSG Capital Corp., 10.13%, 3/1/04 2,944,615
------------------------------------------------------------------
5,000,000 Southern National Corp., 7.05%, 5/23/03 5,132,500
------------------------------------------------------------------ -----------
Total 54,357,664
------------------------------------------------------------------ -----------
Manufacturing--(5.7%)
------------------------------------------------------------------
4,000,000 Archer-Daniels-Midland Co., 6.25%, 5/15/03 3,989,524
------------------------------------------------------------------
5,000,000 Tyco International, Ltd., 6.38%, 1/15/04 4,984,940
------------------------------------------------------------------ ------------
Total 8,974,464
------------------------------------------------------------------ ------------
Telecommunications--(3.3%)
------------------------------------------------------------------
5,000,000 British Telecommunications, Inc., 9.38%, 2/15/99 5,258,355
------------------------------------------------------------------ ------------
Utilities--(0.7%)
------------------------------------------------------------------
1,000,000 Southern New England, 8.00%, 11/20/01 1,065,579
------------------------------------------------------------------ ------------
Total Corporate Bonds 75,836,347
------------------------------------------------------------------ ------------
</TABLE>
-- Continued --
50
<PAGE> 18
Fountain Square Bond Fund For Income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Security Market
Amount Description Value
- -------------- ------------------------------------------------------------------ -----------
<S> <C> <C>
U.S. Government Securities--(34.8%)
- -----------------------------------------------------------------------------------
U.S. Government Agencies--(17.5%)
------------------------------------------------------------------
5,000,000 Federal Home Loan Bank, 7.87%, 12/15/97 $5,039,335
------------------------------------------------------------------
4,750,000 Federal Home Loan Bank, 6.45%, 9/13/01 4,735,156
------------------------------------------------------------------
3,250,000 Federal Home Loan Bank, 7.31%, 6/16/04 3,457,216
------------------------------------------------------------------
152 Federal Home Loan Mortgage Corp., 7.50%, 2/1/02 155
------------------------------------------------------------------
5,000,000 Federal National Mortgage Assoc., 7.33%, 6/19/07 5,151,650
------------------------------------------------------------------
4,000,000 Federal National Mortgage Assoc., 6.64%, 7/2/07 4,111,800
------------------------------------------------------------------
5,000,000 Federal National Mortgage Assoc., 6.50%, 7/16/07 5,000,000
------------------------------------------------------------------ -----------
Total 27,495,312
------------------------------------------------------------------ -----------
U.S. Treasury Notes--(17.3%)
------------------------------------------------------------------
1,000,000 U.S. Treasury Note, 8.63%, 8/15/97 1,001,250
------------------------------------------------------------------
2,500,000 U.S. Treasury Note, 9.00%, 5/15/98 2,564,845
------------------------------------------------------------------
2,580,000 U.S. Treasury Note, 9.25%, 8/15/98 2,671,913
------------------------------------------------------------------
1,750,000 U.S. Treasury Note, 7.13%, 10/15/98 1,778,985
------------------------------------------------------------------
2,000,000 U.S. Treasury Note, 8.00%, 8/15/99 2,085,626
------------------------------------------------------------------
4,000,000 U.S. Treasury Note, 7.75%, 2/15/01 4,241,252
------------------------------------------------------------------
7,250,000 U.S. Treasury Note, 7.50%, 11/15/01 7,682,738
------------------------------------------------------------------
750,000 U.S. Treasury Note, 6.13%, 12/31/01 756,328
------------------------------------------------------------------
4,200,000 U.S. Treasury Note, 6.88%, 5/15/06 4,429,689
------------------------------------------------------------------ -----------
Total 27,212,626
------------------------------------------------------------------ -----------
Total U.S. Government Securities 54,707,938
------------------------------------------------------------------ -----------
Repurchase Agreement--(14.2%)
- -----------------------------------------------------------------------------------
22,323,000 UBS Securities, 5.76%, dated 7/31/97, due 8/1/97 (at amortized
cost), collateralized by U.S. Treasury Bills due 10/23/97
with a value of $22,774,092. 22,323,000
------------------------------------------------------------------ -----------
Total Repurchase Agreement 22,323,000
------------------------------------------------------------------ -----------
Total Investments (Cost $154,874,300)*--100.5% 157,942,485
------------------------------------------------------------------ -----------
Liabilities in excess of other assets--(0.5)% (828,084)
------------------------------------------------------------------ -----------
Total Net Assets--100.0% $157,114,401
------------------------------------------------------------------ ===========
</TABLE>
Percentages indicated are based on net assets of $157,114,401.
*The cost of investments for federal tax purposes amounts to $154,874,300. The
net unrealized appreciation of investments on federal tax basis amounts to
$3,068,185, which is composed of $3,144,242 appreciation and $76,057
depreciation at July 31, 1997.
See notes to financial statements.
51
<PAGE> 19
Fountain Square Funds
Statements of Assets and Liabilities
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced Mid Cap
Fund Fund
------------ ------------
<S> <C> <C>
Assets:
- -------------------------------------------
Investments, at value (Cost $246,028,151;
$78,280,419; $91,043,047; $123,336,820;
and $118,020,720, respectively) $120,197,132 $179,960,021
- -------------------------------------------
Repurchase agreements (Cost $19,460,000;
$952,000; $3,922,000; $10,184,000; and
$10,172,000 respectively) 3,922,000 10,184,000
- ------------------------------------------- ------------ ------------
Total Investments 124,119,132 190,144,021
- -------------------------------------------
Cash -- --
- -------------------------------------------
Foreign currency -- --
- -------------------------------------------
Interest and dividends receivable 633,503 46,779
- -------------------------------------------
Receivable for investments sold 3,384,112 558,369
- -------------------------------------------
Receivable for Fund shares sold 195,050 9,529
- -------------------------------------------
Unrealized foreign currency gains -- --
- -------------------------------------------
Reclaim Receivable -- --
- -------------------------------------------
Unamortized organizational costs 409 386
- -------------------------------------------
Prepaid expenses and other assets 334 284
- ------------------------------------------- ------------ ------------
Total Assets 128,332,540 190,759,368
- ------------------------------------------- ------------ ------------
Liabilities:
- -------------------------------------------
Cash Overdraft -- 5,383
- -------------------------------------------
Payable for investments purchased 4,262,116 4,040,848
- -------------------------------------------
Payable for Fund shares redeemed 8,991 9,000
- -------------------------------------------
Accrued expenses and other payables:
- -------------------------------------------
Investment advisory fees 81,734 122,373
- -------------------------------------------
Administration fees 10,711 23,685
- -------------------------------------------
Distribution Services-Class C 2,785 1,843
- -------------------------------------------
Shareholder Administration
Services -- Class C 1,392 921
- -------------------------------------------
Accounting and transfer agent fees 5,962 6,404
- -------------------------------------------
Custodian fees 1,033 1,554
- -------------------------------------------
Legal and audit fees 8,328 8,328
- -------------------------------------------
Printing fees 3,819 5,745
- -------------------------------------------
Registration & Filing 2,551 18,324
- -------------------------------------------
Other Payables -- --
- -------------------------------------------
Other 22,367 10,508
- ------------------------------------------- ------------ ------------
Total Liabilities 4,411,789 4,254,916
- ------------------------------------------- ------------ ------------
</TABLE>
-- Continued --
67
<PAGE> 20
Fountain Square Funds
Statements of Assets and Liabilities, continued
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced Mid Cap
Fund Fund
----------- ------------
<S> <C> <C>
Net Assets:
- --------------------------------------------------
Paid-in capital $ 86,787,689 $118,694,142
- --------------------------------------------------
Net unrealized appreciation (depreciation)
on investments and foreign currency 29,154,085 56,623,201
- --------------------------------------------------
Accumulated net realized gains (losses)
on investment and foreign currency
transactions 7,724,131 11,405,541
- --------------------------------------------------
Undistributed net investment income (loss) 254,846 (218,432)
- -------------------------------------------------- ------------ ------------
Net Assets $123,920,751 $186,504,452
- -------------------------------------------------- ============ ============
Net Assets
- --------------------------------------------------
Investment A Shares $122,765,441 $186,065,755
- --------------------------------------------------
Investment C Shares 1,155,310 438,697
- -------------------------------------------------- ------------ ------------
Total $123,920,751 $186,504,452
- -------------------------------------------------- ============ ============
Outstanding units of beneficial interest (shares)
- --------------------------------------------------
Investment A Shares 8,008,751 10,959,382
- --------------------------------------------------
Investment C Shares 75,338 25,987
- -------------------------------------------------- ------------ ------------
Total 8,084,089 10,985,369
- -------------------------------------------------- ============ ============
Net asset value
- --------------------------------------------------
Redemption price per share-Investment A
Shares $15.33 $16.98
- -------------------------------------------------- ============ ============
Offering price per shares-Investment C Shares* $15.34 $16.88
- -------------------------------------------------- ============ ============
Maximum Sales Charge 4.50% 4.50%
- -------------------------------------------------- ============ ============
Maximum Offering Price
(100%/(100%-Maximum Sales Charge) of
net asset value adjusted to nearest cent)
per share (Investment A Shares) $16.05 $17.78
- -------------------------------------------------- ============ ============
</TABLE>
*Redemption price per share varies by length of time shares are held.
(See Notes which are an integral part of the Financial Statements)
68
<PAGE> 21
Fountain Square Funds
Statements of Assets and Liabilities, continued
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond Fund
For
Income
------------
<S> <C>
Assets:
- -----------------------------------------------
Investments, at value (Cost $132,551,300;
$77,362,800; $40,623,034; $101,678,730;
and $160,197,626, respectively) $135,619,485
- -----------------------------------------------
Repurchase agreements (Cost $22,323,000;
$15,771,000; $843,000; $0; and $0,
respectively) 22,323,000
- ----------------------------------------------- ------------
Total Investments 157,942,485
- -----------------------------------------------
Interest receivable 2,310,012
- -----------------------------------------------
Receivable for investments sold --
- -----------------------------------------------
Receivable for Fund shares sold --
- -----------------------------------------------
Unamortized organizational costs 8,106
- -----------------------------------------------
Prepaid expenses and other assets 458
- ----------------------------------------------- ------------
Total Assets 160,261,061
- ----------------------------------------------- ------------
Liabilities:
- -----------------------------------------------
Payable for investments purchased 3,000,000
- -----------------------------------------------
Payable for Fund shares redeemed --
- -----------------------------------------------
Accrued expenses and other payables:
- -----------------------------------------------
Investment advisory fees 72,178
- -----------------------------------------------
Administration fees 11,133
- -----------------------------------------------
Distribution Services -- Class C 39
- -----------------------------------------------
Shareholder Administration
Services -- Class C 19
- -----------------------------------------------
Accounting and transfer agent fees 5,140
- -----------------------------------------------
Custodian fees 1,309
- -----------------------------------------------
Legal and audit fees 8,328
- -----------------------------------------------
Printing 4,840
- -----------------------------------------------
Registration & Filing 43,493
- -----------------------------------------------
Other 181
- ----------------------------------------------- ------------
Total Liabilities 3,146,660
- ----------------------------------------------- ------------
</TABLE>
-- Continued --
69
<PAGE> 22
Fountain Square Funds
Statements of Assets and Liabilities, continued
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond Fund
For
Income
------------
<S> <C>
Net Assets:
- -----------------------------------------------
Paid-in capital $153,820,641
- -----------------------------------------------
Net unrealized appreciation (depreciation)
on investments 3,068,185
- -----------------------------------------------
Accumulated net realized gains (losses)
on investment transactions 55,662
- -----------------------------------------------
Undistributed net investment income (loss) 169,913
- ----------------------------------------------- ------------
Total Net Assets $157,114,401
- ----------------------------------------------- ============
Net Assets
- -----------------------------------------------
Investment A Shares $157,108,141
- -----------------------------------------------
Investment C Shares 6,260
- ----------------------------------------------- ------------
Total $157,114,401
- ----------------------------------------------- ============
Outstanding units of beneficial interest
(shares)
- -----------------------------------------------
Investment A Shares 12,884,100
- -----------------------------------------------
Investment C Shares 514
- ----------------------------------------------- ------------
Total 12,884,614
- ----------------------------------------------- ============
Net asset value
- -----------------------------------------------
Redemption price per share-Investment A
Shares $12.19
- ----------------------------------------------- ============
Offering price per share-Investment C Shares* $12.18
- ----------------------------------------------- ============
Maximum Sales Charge 4.50%
- ----------------------------------------------- ============
Maximum Offering Price
(100%/(100%-Maximum Sales Charge) of
net asset value adjusted to nearest cent)
per share (Investment A Shares) $12.76
- ----------------------------------------------- ============
</TABLE>
*Redemption price per share varies by length of time shares are held.
(See Notes which are an integral part of the Financial Statements)
70
<PAGE> 23
Fountain Square Funds
Statements of Operations
For the year ended July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced Mid Cap
Fund Fund
------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------
Interest income $ 2,454,237 $ 263,787
- --------------------------------------
Dividend income 825,837 1,308,488
- --------------------------------------
Foreign tax withholding -- --
- -------------------------------------- ------------- -------------
Total Income 3,280,074 1,572,275
- -------------------------------------- ------------- -------------
EXPENSES:
- --------------------------------------
Investment advisory fees 861,073 1,146,430
- --------------------------------------
Administrative fees 141,253 191,888
- --------------------------------------
Distribution Services-Investment A 375,377 500,922
- --------------------------------------
Distribution Services-Investment C 3,756 2,450
- --------------------------------------
Shareholder Administration
Services-Investment C 1,252 817
- --------------------------------------
Organization expense 4,904 4,632
- --------------------------------------
Custodian fees 10,695 11,053
- --------------------------------------
Portfolio accounting fees 29,889 33,346
- --------------------------------------
Transfer and dividend disbursing
agent fees and expenses 17,569 18,992
- --------------------------------------
Directors'/Trustees' fees 2,265 2,489
- --------------------------------------
Audit fees 11,000 11,000
- --------------------------------------
Legal fees 8,417 8,417
- --------------------------------------
Fund share registration costs 24,929 19,396
- --------------------------------------
Printing and postage expense 8,731 12,569
- --------------------------------------
Insurance expense 2,523 2,026
- --------------------------------------
Other 3,876 --
- -------------------------------------- ------------- -------------
Total Expenses 1,507,509 1,966,427
- -------------------------------------- ------------- -------------
Less fees voluntarily reduced (431,441) (529,562)
- -------------------------------------- ------------- -------------
Net Expenses 1,076,068 1,436,865
- -------------------------------------- ------------- -------------
Net Investment Income 2,204,006 135,410
- -------------------------------------- ------------- -------------
Realized and Unrealized Gains
(Losses) from Investments and
Foreign Currency Transactions:
- --------------------------------------
Net realized gains (losses) from
investments and foreign currency
transactions 8,348,906 12,065,319
- --------------------------------------
Net change in unrealized appreciation
(depreciation) from investments and
translation of assets and liabilities
in foreign securities 24,552,465 40,393,443
- -------------------------------------- ------------- -------------
*Net realized and unrealized gains
(losses) from investments and
foreign currency 32,901,371 52,458,762
- -------------------------------------- ------------- -------------
Change in net assets resulting
from operations $35,105,377 $52,594,172
- -------------------------------------- ============= =============
</TABLE>
*Commencement of operations of the Fund began January 27, 1997.
(See Notes which are an integral part of the Financial Statements)
71
<PAGE> 24
Fountain Square Funds
Statements of Operations, continued
For the year ended July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond Fund
For
Income*
----------
<S> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------
Interest income $5,127,706
- ----------------------------------------------------------- ----------
Total Income 5,127,706
- ----------------------------------------------------------- ----------
EXPENSES:
- -----------------------------------------------------------
Investment advisory fees 410,755
- -----------------------------------------------------------
Administrative fees 114,052
- -----------------------------------------------------------
Distribution Services-Investment A 261,410
- -----------------------------------------------------------
Distribution Services-Investment C 146
- -----------------------------------------------------------
Shareholder Administration Services-
Investment C 19
- -----------------------------------------------------------
Organizational expense 921
- -----------------------------------------------------------
Custodian 4,437
- -----------------------------------------------------------
Portfolio accounting fees 20,207
- -----------------------------------------------------------
Transfer and dividend disbursing
agent fees and expenses 7,210
- -----------------------------------------------------------
Directors'/Trustees' fees 1,426
- -----------------------------------------------------------
Audit fees 9,500
- -----------------------------------------------------------
Legal fees 5,917
- -----------------------------------------------------------
Fund share registration costs 54,464
- -----------------------------------------------------------
Printing and postage expense 11,991
- -----------------------------------------------------------
Insurance expense --
- -----------------------------------------------------------
Other 460
- ----------------------------------------------------------- ----------
Total Expenses 902,915
- ----------------------------------------------------------- ----------
Less fees voluntarily reduced/reimbursed (312,996)
- ----------------------------------------------------------- ----------
Net Expenses 589,919
- ----------------------------------------------------------- ----------
Net Investment Income 4,537,787
- ----------------------------------------------------------- ----------
Realized and Unrealized Gains
(Losses) from Investments:
- -----------------------------------------------------------
Net realized gains (losses) from investments 55,662
- -----------------------------------------------------------
Net change in unrealized appreciation
(depreciation) from investments 2,305,299
- ----------------------------------------------------------- ----------
Net realized/unrealized gains (losses)
from investments 2,360,961
- ----------------------------------------------------------- ----------
Change in net assets resulting
from operations $6,898,748
- ----------------------------------------------------------- ==========
</TABLE>
*Commencement of operations of the fund began January 27, 1997.
(See Notes which are an integral part of the Financial Statements)
72
<PAGE> 25
Fountain Square Funds
Statements of Changes in Net Assets,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Increase (Decrease) in Net Assets:
- -------------------------------------------------
Operations--
- -------------------------------------------------
Net investment income
- -------------------------------------------------
Net realized gains (losses) on investment
transactions
- -------------------------------------------------
Change in unrealized appreciation (depreciation)
of investments
- -------------------------------------------------
Change in net assets resulting from operations
- -------------------------------------------------
Distributions to Shareholders--
- -------------------------------------------------
Dividends to shareholders from net
investment income
- -------------------------------------------------
Total
- -------------------------------------------------
Class A
- -------------------------------------------------
Class C
- -------------------------------------------------
Distributions in excess of net investment income
- -------------------------------------------------
Class A
- -------------------------------------------------
Class C
- -------------------------------------------------
Distributions to shareholders from net realized
gains on investment transactions
- -------------------------------------------------
Total
- -------------------------------------------------
Class A
- -------------------------------------------------
Class C
- -------------------------------------------------
Change in net assets resulting from
distributions to shareholders
- -------------------------------------------------
Fund Share (Principal) Transactions--
- -------------------------------------------------
Proceeds from sale of shares
- -------------------------------------------------
Net asset value of shares issued to
shareholders in payment of
dividends declared
- -------------------------------------------------
Cost of shares redeemed
- -------------------------------------------------
Change in net assets from Fund
share transactions
- -------------------------------------------------
Change in net assets
- -------------------------------------------------
Net Assets:
- -------------------------------------------------
Beginning of period
- -------------------------------------------------
End of period
- -------------------------------------------------
</TABLE>
* Commencement of operations began January 27, 1997.
** See Note 7.
(See Notes which are an integral part of the Financial Statements)
74
<PAGE> 26
Fountain Square Funds
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced Fund Mid Cap Fund
----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
July 31, July 31, July 31, July 31,
1997 1996 1997 1996
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
- ---------------------------------------------------
Operations--
- ---------------------------------------------------
Net investment income $ 2,204,006 $ 1,828,018 $ 135,410 $ 276,462
- ---------------------------------------------------
Net realized gains (losses) on investment
transactions 8,348,906 5,250,744 12,065,319 6,886,447
- ---------------------------------------------------
Change in unrealized appreciation (depreciation)
of investments 24,552,465 (2,997,492) 40,393,443 (7,269,804)
- --------------------------------------------------- ------------- ------------ ------------- -------------
Change in net assets resulting from operations 35,105,377 4,081,270 52,594,172 (106,895)
- --------------------------------------------------- ------------- ------------ ------------- -------------
Distributions to Shareholders--
- ---------------------------------------------------
Dividends to shareholders from net
investment income
- ---------------------------------------------------
Total -- (1,770,121) -- (318,956)
- ---------------------------------------------------
Class A (2,116,372) -- (136,536) --
- ---------------------------------------------------
Class C (6,021) -- -- --
- ---------------------------------------------------
Distributions in excess of net investment income
- ---------------------------------------------------
Class A -- -- (216,171) --
- ---------------------------------------------------
Class C -- -- -- --
- ---------------------------------------------------
Distributions to shareholders from net realized
gains on investment transactions
- ---------------------------------------------------
Total -- -- -- (426,106)
- ---------------------------------------------------
Class A (3,941,823) -- (6,692,368) --
- ---------------------------------------------------
Class C (11,819) -- (22,049) --
- --------------------------------------------------- ------------- ------------ ------------- -------------
Change in net assets resulting from
distributions to shareholders (6,076,035) (1,770,121) (7,067,124) (745,062)
- --------------------------------------------------- ------------- ------------ ------------- -------------
Fund Share (Principal) Transactions--
- ---------------------------------------------------
Proceeds from sale of shares 27,076,472 45,799,084 84,402,432** 36,279,555
- ---------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 5,683,213 1,672,911 5,620,179 605,387
- ---------------------------------------------------
Cost of shares redeemed (30,940,765) (14,785,158) (21,937,233) (10,324,706)
- --------------------------------------------------- ------------- ------------ ------------- -------------
Change in net assets from Fund share transactions 1,818,920 32,686,837 68,085,378 26,560,236
- --------------------------------------------------- ------------- ------------ ------------- -------------
Change in net assets 30,848,262 34,997,986 113,612,426 25,708,279
- ---------------------------------------------------
Net Assets:
- ---------------------------------------------------
Beginning of period 93,072,489 58,074,503 72,892,026 47,183,747
- --------------------------------------------------- ------------- ------------ ------------- -------------
End of period $123,920,751 $93,072,489 $186,504,452 $ 72,892,026
- --------------------------------------------------- ============= ============ ============= =============
</TABLE>
*Commencement of operations began January 27, 1997.
**See Note 7.
(See Notes which are an integral part of the Financial Statements)
75
<PAGE> 27
Fountain Square Funds
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond Fund For Income
---------------------------------
Period Ended
July 31,
1997*
---------------------------------
<S> <C>
Increase (Decrease) in Net Assets:
- -------------------------------------------------
Operations--
- -------------------------------------------------
Net investment income $ 4,537,787
- -------------------------------------------------
Net realized gains (losses) on investment
transactions 55,662
- -------------------------------------------------
Change in unrealized appreciation
of investments 2,305,299
- ------------------------------------------------- --------------
Change in net assets resulting from operations 6,898,748
- ------------------------------------------------- --------------
Distributions to Shareholders--
- -------------------------------------------------
Dividends to shareholders from net
investment income
- -------------------------------------------------
Total --
- -------------------------------------------------
Class A (4,367,295)
- -------------------------------------------------
Class C (417)
- -------------------------------------------------
Distributions in excess of net investment income
- -------------------------------------------------
Class A --
- -------------------------------------------------
Class C (162)
- -------------------------------------------------
Distributions to shareholders from net realized
gain on investment transactions
- -------------------------------------------------
Class A --
- -------------------------------------------------
Class C --
- ------------------------------------------------- --------------
Change in net assets from
distributions to shareholders (4,367,874)
- ------------------------------------------------- --------------
Fund Share (Principal) Transactions--
- -------------------------------------------------
Proceeds from sale of shares 161,008,922**
- -------------------------------------------------
Net asset value of shares issued to
shareholders in payment of
dividends declared 31,616
- -------------------------------------------------
Cost of shares redeemed (6,457,011)
- ------------------------------------------------- --------------
Change in net assets from Fund
share transactions 154,583,527
- ------------------------------------------------- --------------
Change in net assets 157,114,401
- -------------------------------------------------
Net Assets:
- -------------------------------------------------
Beginning of period --
- ------------------------------------------------- --------------
End of period $157,114,401
- ------------------------------------------------- --------------
</TABLE>
*Commencement of operations of the Fund began January 27, 1997.
**See Note 7.
(See Notes which are an integral part of the Financial Statements)
76
<PAGE> 28
Fountain Square Funds
Notes to Financial Statements
July 31, 1997
- --------------------------------------------------------------------------------
(1) Organization
Fountain Square Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company. At July 31, 1997, the Trust consisted of thirteen separate investment
portfolios.
The accompanying financial statements relate only to the following Funds:
Portfolio Name
- ---------------------------------------------------------------------------
Fountain Square Quality Growth Fund ("Quality Growth Fund")
Fountain Square Equity Income Fund ("Equity Income Fund")
Fountain Square Balanced Fund ("Balanced Fund")
Fountain Square Mid Cap Fund ("Mid Cap Fund")
Fountain Square International Equity Fund ("International Equity Fund")
Fountain Square Bond Fund For Income ("Bond Fund For Income")
Fountain Square Quality Bond Fund ("Quality Bond Fund")
Fountain Square U.S. Government Securities Fund ("Government Securities Fund")
Fountain Square Municipal Bond Fund ("Municipal Bond Fund")
Fountain Square Ohio Tax Free Bond Fund ("Ohio Tax Free Fund")
The Funds each issue two classes of shares: Investment A Shares and Investment C
Shares. The Investment A Shares are subject to initial sales charges imposed at
the time of purchase, in accordance with the Funds' prospectus. Certain
redemptions of Investment C Shares made within one year of purchase are subject
to contingent deferred sales charges in accordance with the Funds' prospectus.
Each class of shares for each Fund has identical rights and privileges except
with respect to Administrative Services fees paid by Investment C Shares, voting
rights on matters affecting a single class of shares and the exchange privileges
of each class of shares.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
for the period. Actual results could differ from those estimates.
A. Securities Valuations--Investments in equity securities are determined on the
basis of the mean between the latest available bid and asked prices in the
principal market (last sales price on a national securities exchange). For
unlisted securities, value is determine on the basis of the latest bid prices.
Investments in other open-end investment companies are valued at net asset
value. Bonds and other fixed income securities are valued at prices provided by
an independent pricing service. Value of all other securities is determined at
fair value in good faith by the Board of Trustees.
B. Repurchase Agreements--The Funds will only enter into repurchase agreements
with banks and other recognized financial institutions, such as broker/dealers,
which are deemed by the Trust's
78
<PAGE> 29
Fountain Square Funds
- --------------------------------------------------------------------------------
Advisor to be creditworthy pursuant to guidelines and/or standards reviewed or
established by the Board of Trustees (the "Trustees"). It is the policy of the
Funds to require the custodian or sub-custodian bank to take possession, to have
legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Funds to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction. Risks may arise from the potential inability of counterparties to
honor the terms of the repurchase agreement. Accordingly, the Funds could
receive less than the repurchase price on the sale of collateral securities.
C. Securities Transactions and Related Income--Securities transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis and includes, where
applicable, the pro rata amortization of premium or discount. Dividend income is
recorded on the ex-dividend date. Gains or losses realized on sales of
securities are determined by comparing the identified cost of the security lot
sold with the net sales proceeds.
D. Foreign Currency Translation--The accounting records of the International
Equity Fund are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars based on the
rate of exchange of such currencies against the U.S. dollar on the date of
valuation. Purchases and sales of securities, income and expenses are translated
at the rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expenses are translated at the rate of
exchange quoted on the respective date that such transactions are recorded.
Differences between income and expense amounts recorded and collected or paid
are adjusted when reported by the custodian bank. The International Equity Fund
does not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gains or losses from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, the difference between the amount of dividends, interest, and
foreign withholding taxes recorded on the International Equity Fund's books, and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate.
E. Forward Commitments--The International Equity Fund may enter into forward
commitments for forward foreign currency exchange contracts which are based upon
financial indices at an exchange rate at a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in foreign
exchange rates. The forward foreign currency exchange contracts are adjusted by
the daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date.
At July 31, 1997, the International Equity Fund had outstanding forward foreign
currency exchange contracts as set forth below.
79
<PAGE> 30
Fountain Square Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contracts Unrealized
Delivery To Deliver In Exchange Appreciation
Date (Local Currency) For (Depreciation)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
French Franc
Long Contracts
9/15/97 19,022,986 $ 3,268,071 $ (195,874)
Short Contracts
9/15/97 33,687,993 5,941,445 500,860
10/20/97 7,532,875 1,250,000 30,791
German Deutsche Mark
Long Contracts
8/29/97 6,124,207 3,568,053 (236,860)
Short Contracts
8/29/97 6,124,207 3,579,314 248,121
Italian Lira
Long Contracts
8/18/97 2,233,812,500 1,250,000 (6,043)
Short Contracts
8/1/97 10,798,038 6,038 12
8/4/97 26,964,587 15,025 (17)
8/18/97 5,492,000,000 3,137,031 78,668
10/20/97 1,095,093,750 625,000 17,104
Japanese Yen
Long Contracts
8/25/97 1,283,423,000 11,302,912 (433,339)
Short Contracts
8/25/97 1,283,423,000 11,500,000 630,428
Netherland Guilder
Long Contracts
8/18/97 1,014,269 525,000 (34,768)
Short Contracts
8/18/97 2,956,506 1,558,517 129,532
Spanish Peseta
Short Contracts
9/26/97 214,467,950 1,475,000 94,755
Swiss Franc
Long Contracts
8/18/97 5,675,771 4,002,779 (245,951)
Short Contracts
8/18/97 5,675,771 3,997,021 240,194
Thailand
Long Contracts
8/18/97 14,130,452 486,093 (45,224)
8/19/97 51,137,024 1,751,574 (156,592)
9/16/97 42,389,312 1,376,452 (64,064)
Short Contracts
8/18/97 17,918,360 670,000 110,948
8/19/97 38,729,517 1,334,916 126,930
9/16/97 39,308,800 1,485,806 268,792
----------
Net Unrealized Appreciation of Forward Commitments $1,058,403
==========
</TABLE>
80
<PAGE> 31
Fountain Square Funds
- --------------------------------------------------------------------------------
F. Foreign Currency Commitments--The International Equity Fund may enter into
foreign currency commitments for the delayed delivery of securities of foreign
currency exchange transactions. Risks may arise upon entering into these
transactions from the potential inability of counterparties to meet the terms of
their commitments and from unanticipated movements in security prices or foreign
exchange rates. The foreign currency transactions are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
for financial statement purposes as unrealized until the settlement date.
G. Option Contracts--The Quality Growth Fund, Balanced Fund, and International
Equity Fund may write or purchase option contracts. A written option obligates
the Fund to deliver (a call), or to receive (a put), the contract amount of
foreign currency upon exercise by the holder of the option. The value of the
option contract is recorded as a liability, and unrealized gain or loss is
measured by the difference between the current value and the premium received.
The Fund had no written options outstanding at July 31, 1997.
H. When-Issued and Delayed Delivery Transactions--The Funds may engage in when-
issued or delayed delivery transactions. The Funds record when-issued securities
on the trade date and maintain security positions such that sufficient liquid
assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are valued daily
and begin earning interest on the settlement date.
I. Dividends to Shareholders--Dividends from net investment income are declared
and paid monthly for the Equity Income Fund, the Bond Fund For Income, the
Quality Bond Fund, Government Securities Fund, the Municipal Bond Fund, and the
Ohio Tax Free Fund. Dividends from net investment income are declared and paid
quarterly for the Quality Growth Fund, the Mid Cap Fund and the Balanced Fund.
Dividends from net investment income are declared and paid annually for
International Equity Fund. Distributable net realized gains, if any, are
declared and distributed at least annually.
Dividends from net investment income and from net realized capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for mortgage-backed securities, foreign currency
transactions, expiring capital loss carryforwards and deferrals of certain
losses.
J. Federal Taxes--It is the Funds' policy to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of their income.
Accordingly, no provision for federal income tax is necessary. However, federal
taxes may be imposed on the International Equity Fund upon the disposition of
certain investments in passive foreign investment companies. Withholding taxes
on foreign dividends have been provided for in accordance with the International
Equity Fund's understanding of the applicable country's tax rules and rates.
K. Deferred Expenses--The costs incurred by each Fund with respect to
registration of their shares in their first fiscal year, excluding the initial
expense of registering their shares, have been deferred and are being amortized
using the straight-line method not to exceed a period of five years from each
Fund's commencement date.
L. During the period ended July 31, 1997 permanent book and tax differences were
reclassified to paid-in capital of the International Equity Fund due to
Statement of Position 93-2. These differences are primarily due to differing
treatments for foreign currency transactions and disposition of certain
investments in passive foreign investments companies. Amounts as of July 31,
1997 have been reclassified to reflect an increase in undistributed net
investment income, paid-in capital and a decrease in net realized gains. Net
investment income, net realized gains, and net assets were not affected by this
change. No other funds were affected by this change.
81
<PAGE> 32
Fountain Square Funds
- --------------------------------------------------------------------------------
(3) Shares of Beneficial Interest
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Quality Growth Fund
---------------------------------------------------
Year Ended Year Ended
July 31, 1997 July 31, 1996
----------------------- -----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 12,743,633 $185,256,357 4,293,819 $54,745,108
Reinvestment of dividends 451,069 6,282,507 67,561 864,887
Redeemed (2,633,003) (41,371,155) (1,148,889) (14,836,411)
- ------------------------------- ---------- ------------ ---------- -----------
Net increase (decrease) -
Investment A Shares 10,561,699 150,167,709 3,212,491 40,773,584
- ------------------------------- ---------- ------------ ---------- -----------
Investment C Shares
Sold 145,512 2,361,235 32,107 430,218
Reinvestment of dividends 2,080 28,676 -- --
Redeemed (15,534) (251,539) (151) (2,000)
- ------------------------------- ---------- ------------ ---------- -----------
Net increase (decrease) -
Investment C Shares 132,058 2,138,372 31,956 428,218
- ------------------------------- ---------- ------------ ---------- -----------
Net increase (decrease) in Fund 10,693,757 $152,306,081 3,244,447 $41,201,802
- ------------------------------- ========== ============ ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Equity Income Fund
----------------------
Period Ended
July 31, 1997
----------------------
Shares Amount
------ ------
<S> <C> <C>
Investment A Shares
Sold 8,821,577 $106,096,267
Reinvestment of dividends 484 6,461
Redeemed (488,057) (6,300,505)
- ------------------------------- ---------- ------------
Net increase (decrease) -
Investment A Shares 8,334,004 99,802,223
- ------------------------------- ---------- ------------
Investment C Shares
Sold 6,330 82,572
Reinvestment of dividends 28 359
Redeemed -- --
- ------------------------------- ---------- ------------
Net increase (decrease) -
Investment C Shares 6,358 82,931
- ------------------------------- ---------- ------------
Net increase (decrease) in Fund 8,340,362 $99,885,154
- ------------------------------- ========== ============
</TABLE>
82
<PAGE> 33
Fountain Square Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced Fund
-------------------------------------------------
Year Ended Year Ended
July 31, 1997 July 31, 1996
--------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 1,989,624 $ 26,278,552 3,843,429 $ 45,424,374
Reinvestment of dividends 454,771 5,665,373 141,068 1,672,081
Redeemed (2,333,372) (30,860,103) (1,233,992) (14,683,107)
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease) -
Investment A Shares 111,023 1,083,822 2,750,505 32,413,348
- --------------------------- ---------- ------------ ---------- ------------
Investment C Shares
Sold 57,113 797,920 30,723 374,710
Reinvestment of dividends 1,425 17,840 68 830
Redeemed (5,707) (80,662) (8,284) (102,051)
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease) -
Investment C Shares 52,831 735,098 22,507 273,489
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease)
in Fund 163,854 $ 1,818,920 2,773,012 $ 32,686,837
- --------------------------- ========== ============ ========== ============
<CAPTION>
Mid Cap Fund
-------------------------------------------------
Year Ended Year Ended
July 31, 1997 July 31, 1996
--------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 6,315,189 $ 84,164,198 2,746,262 $ 36,026,334
Reinvestment of dividends 438,494 5,598,130 46,895 605,387
Redeemed (1,559,545) (21,785,247) (774,971) (10,324,706)
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease) -
Investment A Shares 5,194,138 67,977,081 2,018,186 26,307,015
- --------------------------- ---------- ------------ ---------- ------------
Investment C Shares
Sold 17,037 238,234 18,226 253,221
Reinvestment of dividends 1,737 22,049 -- --
Redeemed (11,013) (151,986) -- --
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease) -
Investment C Shares 7,761 108,297 18,226 253,221
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease)
in Fund 5,201,899 $ 68,085,378 2,036,412 $ 26,560,236
- --------------------------- ========== ============ ========== ============
<CAPTION>
International Equity Fund
-------------------------------------------------
Year Ended Year Ended
July 31, 1997 July 31, 1996
--------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 2,956,166 $ 32,508,734 3,176,488 $ 33,602,757
Reinvestment of dividends 687,514 7,083,876 -- --
Redeemed (2,257,739) (24,295,240) (762,356) (8,021,101)
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease) -
Investment A Shares 1,385,941 15,297,370 2,414,132 25,581,656
- --------------------------- ---------- ------------ ---------- ------------
Investment C Shares
Sold 28,683 306,089 5,354 60,019
Reinvestment of dividends 580 5,968 -- --
Redeemed (17,099) (178,913) -- --
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease) -
Investment C Shares 12,164 133,144 5,354 60,019
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease)
in Fund 1,398,105 $ 15,430,514 2,419,486 $ 25,641,675
- --------------------------- ========== ============ ========== ============
</TABLE>
83
<PAGE> 34
Fountain Square Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond For Income Fund
---------------------
Period Ended
July 31, 1997
---------------------
Shares Amount
------ ------
<S> <C> <C>
Investment A Shares
Sold 13,407,383 $160,901,750
Reinvestment of dividends 2,588 31,037
Redeemed (525,871) (6,355,414)
- --------------------------- ---------- ------------
Net increase (decrease) -
Investment A Shares 12,884,100 154,577,373
- --------------------------- ---------- ------------
Investment C Shares
Sold 8,938 107,172
Reinvestment of dividends 48 579
Redeemed (8,472) (101,597)
- --------------------------- ---------- ------------
Net increase (decrease) -
Investment C Shares 514 6,154
- --------------------------- ---------- ------------
Net increase (decrease)
in Fund 12,884,614 $154,583,527
- --------------------------- ========== ============
<CAPTION>
Quality Bond Fund
-------------------------------------------------
Year Ended Year Ended
July 31, 1997 July 31, 1996
--------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 2,642,247 $ 25,418,923 4,008,865 $ 39,270,763
Reinvestment of dividends 294,612 2,837,676 288,326 2,810,484
Redeemed (2,382,151) (22,952,488) (1,276,978) (12,481,439)
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease) -
Investment A Shares 554,708 5,304,111 3,020,213 29,599,808
- --------------------------- ---------- ------------ ---------- ------------
Investment C Shares
Sold 5,487 53,536 16,819 160,634
Reinvestment of dividends 978 9,427 209 1,992
Redeemed (2,758) (26,564) (67) (636)
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease) -
Investment C Shares 3,707 36,399 16,961 161,990
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease)
in Fund 558,415 $ 5,340,510 3,037,174 $ 29,761,798
- --------------------------- ========== ============ ========== ============
<CAPTION>
Government Securities Fund
-------------------------------------------------
Year Ended Year Ended
July 31, 1997 July 31, 1996
--------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 2,689,563 $ 25,865,573 1,207,864 $ 11,764,813
Reinvestment of dividends 128,488 1,236,000 139,029 1,353,429
Redeemed (1,685,808) (16,263,648) (693,178) (6,756,433)
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease) -
Investment A Shares 1,132,243 10,837,925 653,715 6,361,809
- --------------------------- ---------- ------------ ---------- ------------
Investment C Shares
Sold 5,308 51,806 7,148 68,486
Reinvestment of dividends 350 3,373 51 489
Redeemed (3,045) (29,441) (2,081) (19,873)
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease) -
Investment C Shares 2,613 25,738 5,118 49,102
- --------------------------- ---------- ------------ ---------- ------------
Net increase (decrease)
in Fund 1,134,856 $ 10,863,663 658,833 $ 6,410,911
- --------------------------- ========== ============ ========== ============
</TABLE>
84
<PAGE> 35
Fountain Square Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Municipal Bond Fund
-------------------------
Period Ended
July 31, 1997
-------------------------
Shares Amount
---------- ------------
<S> <C> <C>
Investment A Shares
Sold 9,250,564 $111,100,626
Reinvestment of dividends 322 3,914
Redeemed (1,011,275) (12,155,917)
- -------------------------------- ---------- ------------
Net increase (decrease) -
Investment A Shares 8,239,611 98,948,623
- -------------------------------- ---------- ------------
Investment C Shares
Sold 33,017 398,029
Reinvestment of dividends 115 1,376
Redeemed (32,223) (388,123)
- -------------------------------- ---------- ------------
Net increase (decrease) -
Investment C Shares 909 11,282
- -------------------------------- ---------- ------------
Net increase (decrease) in Fund 8,240,520 $ 98,959,905
- -------------------------------- ========== ============
</TABLE>
<TABLE>
<CAPTION>
Ohio Tax Free Fund
-----------------------------------------------------
Year Ended Year Ended
July 31, 1997 July 31, 1996
------------------------ ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 15,859,540 $158,671,462 1,434,711 $14,455,027
Reinvestment of dividends 80,121 806,973 67,106 674,604
Redeemed (3,116,779) (31,423,698) (793,921) (8,012,194)
- ------------------------------- ---------- ------------ --------- -----------
Net increase (decrease) -
Investment A Shares 12,822,882 128,054,737 707,896 7,117,437
- ------------------------------- ---------- ------------ --------- -----------
Investment C Shares
Sold 21,215 214,790 3,778 37,546
Reinvestment of dividends 253 2,559 29 286
Redeemed (1,260) (12,824) (6) (56)
- ------------------------------- ---------- ------------ --------- -----------
Net increase (decrease) -
Investment C Shares 20,208 204,525 3,801 37,776
- ------------------------------- ---------- ------------ --------- -----------
Net increase (decrease) in Fund 12,843,090 $128,259,262 711,697 $ 7,155,213
- ------------------------------- ========== ============ ========= ===========
</TABLE>
(4) Investment Advisory Fee and Other Transactions with Affiliates
Investment Advisory Fee--Fifth Third Bank, the Trust's investment advisor (the
"Advisor"), receives for its services an annual investment advisory fee based on
a percentage of each Fund's average daily net assets (see below).
<TABLE>
<CAPTION>
Fund Annual Rate
---- -----------
<S> <C>
Quality Growth Fund 0.80%
Equity Income Fund 0.80%
Balanced Fund 0.80%
Mid Cap Fund 0.80%
International Equity Fund 1.00%
Bond Fund For Income 0.55%
Quality Bond Fund 0.55%
Government Securities Fund 0.55%
Municipal Bond Fund 0.55%
Ohio Tax Free Fund 0.55%
</TABLE>
85
<PAGE> 36
Fountain Square Funds
- --------------------------------------------------------------------------------
The Advisor may voluntarily choose to waive a portion of its fee and reimburse
certain operating expenses of each Fund. The Advisor can modify or terminate
this voluntary waiver and reimbursement at any time at its sole discretion. For
the year ended July 31, 1997, the Advisor waived fees in the following amounts:
<TABLE>
<CAPTION>
Fund Fees Waived
---- -----------
<S> <C>
Quality Growth Fund $ 0
Equity Income Fund 0
Balanced Fund 17,327
Mid Cap Fund 4,161
International Equity Fund 0
Bond Fund For Income 0
Quality Bond Fund 17,650
Government Securities Fund 45,748
Municipal Bond Fund 0
Ohio Tax Free Fund 2,290
</TABLE>
In addition, for the year ended July 31, 1997, the Advisor reimbursed operating
expenses in the amount of $11,621 to the Ohio Tax Free Fund.
Morgan Stanley Asset Management, Inc. is the International Equity Fund's sub-
advisor (the "Sub-Advisor"). The Advisor compensates the Sub-Advisor at the
annual rate of 0.50% of the International Equity Fund's average daily net
assets.
Administrative Fee--Effective December 1, 1995 BISYS Fund Services ("BISYS")
became the Trust's administrator. The administrator generally assists in all
aspects of the Trust's administration and operation including providing the
Funds with certain administrative personnel and services necessary to operate
the Fund. Also effective December 1, 1995, pursuant to a separate agreement with
BISYS, Fifth Third Bank performs sub-administrative services on behalf of the
Funds including providing certain administrative personnel and services
necessary to operate the Funds, for which it receives a fee from BISYS computed
daily as a percentage of the daily net assets of the Funds. Under the terms of
the administration agreement, BISYS' fees are computed daily as a percentage of
the average net assets of the Trust for the period. Administration fees are
computed at 0.10% of first $1 billion of net assets of the Trust, 0.08% of net
assets of the Trust between $1 billion and $2 billion, and 0.07% of more than $2
billion of net assets of the Trust. Effective April 1, 1997 the administration
fees are computed at 0.20% of first $1 billion of net assets of the Trust, 0.18%
of net assets of the Trust between $1 billion and $2 billion, and 0.17% of more
than $2 billion of net assets of the Trust. For the year ended July 31, 1997,
the administrator waived fees in the following amounts:
<TABLE>
<CAPTION>
Fund Fees Waived
---- -----------
<S> <C>
Quality Growth Fund $16,801
Equity Income Fund 36,958
Balanced Fund 30,357
Mid Cap Fund 16,294
International Equity Fund 0
Bond Fund For Income 50,011
Quality Bond Fund 29,728
Government Securities Fund 14,275
Municipal Bond Fund 33,330
Ohio Tax Free Fund 11,017
</TABLE>
Distribution Services Fee--Effective December 1, 1995, BISYS serves as the
Trust's principal distributor (the "Distributor"). Effective April 23, 1996, the
Trust entered into a Distribution Plan with the Distributor with respect to
Investment A Shares and Investment C Shares. This Plan is in accordance with
Rule 12b-1 under the 1940 Act. Under the Distribution Plan, the Funds may pay a
fee to the Distributor in an amount computed at an annual rate of up to 0.35%
for Investment A Shares and up to
86
<PAGE> 37
Fountain Square Funds
- --------------------------------------------------------------------------------
0.75% for Investment C Shares. The Distributor may voluntarily choose to waive
all or a portion of its fee. The Distributor can modify or terminate this
voluntary waiver at any time at its sole discretion. For the year ended July 31,
1997, the distributor waived fees in the following amounts:
<TABLE>
<CAPTION>
Fund Fees Waived
---- -----------
<S> <C>
Quality Growth Fund $1,015,046
Equity Income Fund 194,818
Balanced Fund 375,377
Mid Cap Fund 500,922
International Equity Fund 476,786
Bond Fund For Income 261,410
Quality Bond Fund 307,146
Government Securities Fund 148,706
Municipal Bond Fund 179,473
Ohio Tax Free Fund 517,679
</TABLE>
Administrative Services Fee--Effective April 23, 1996, the Trust entered into an
Administrative Services Agreement with Fifth Third Bank with respect to
Investment C Shares. Under the Plan, the Funds may make payments up to 0.0025%
of the average daily net asset value of Investment C Shares in exchange for
certain administrative services for shareholders and for the maintenance of
shareholder accounts. For the year ended July 31, 1997, Fifth Third Bank waived
fees in the following amounts:
<TABLE>
<CAPTION>
Fund Fees Waived
---- -----------
<S> <C>
Quality Growth Fund $3,191
Equity Income Fund 47
Balanced Fund 1,252
Mid Cap Fund 817
International Equity Fund 268
Bond Fund For Income 19
Quality Bond Fund 482
Government Securities Fund 173
Municipal Bond Fund 62
Ohio Tax Free Fund 171
</TABLE>
Transfer and Dividend Disbursing Agent, Fund Accounting and Custody Fees--Fifth
Third Bank serves as transfer and dividend disbursing agent for the Funds for
which it receives a fee. Fifth Third Bank sub-contracts the execution of the
transfer and dividend disbursing agent functions to a non-affiliated entity. The
fee is based on the level of each Fund's average net assets for the period, plus
out-of-pocket expenses.
Fifth Third Bank also maintains the Funds' portfolio accounting records for
which it receives a fee except with respect to the International Equity Fund.
The fee is based on the level of each Fund's average net assets for the period,
plus out-of-pocket expenses. BISYS Fund Services provides portfolio accounting
services for the International Equity Fund for a fee based on average net assets
for the period.
Fifth Third Bank is the Funds' custodian (except the International Equity Fund,
for which Morgan Stanley serves as custodian) for which it receives a fee. The
fee is based on the level of each Fund's average net assets for the period, plus
out-of-pocket expenses. For the year ended July 31, 1997, Fifth Third Bank
waived the following custodian fees:
<TABLE>
<CAPTION>
Fund Fees Waived
---- -----------
<S> <C>
Quality Growth Fund $9,776
Equity Income Fund 1,102
Balanced Fund 7,128
Mid Cap Fund 7,368
International Equity Fund 0
Bond Fund For Income 1,556
Quality Bond Fund 5,136
Government Securities Fund 2,584
Municipal Bond Fund 1,446
Ohio Tax Free Fund 7,696
</TABLE>
Certain Officers and Trustees of the Trust are Officers and Trustees of the
above companies.
87
<PAGE> 38
Fountain Square Funds
- --------------------------------------------------------------------------------
(5) Investment Transactions
Purchases and sales of investments, excluding short-term securities for the year
ended July 31, 1997, were as follows:
<TABLE>
<CAPTION>
Quality Equity Mid International
Growth Income Balanced Cap Equity
Fund Fund Fund Fund Fund
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
- -----------
Purchases $137,562,473 $14,855,353 $106,866,260 $75,495,591 $82,491,119
- -----------
Sales $105,006,916 $16,869,110 $102,828,869 $71,219,154 $77,563,486
- -----------
<CAPTION>
Bond Fund Quality Government Municipal Ohio
For Bond Securities Bond Tax Free
Income Fund Fund Fund Fund
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
- -----------
Purchases $109,699,314 $155,213,090 $ 68,525,470 $30,272,563 $69,786,554
- -----------
Sales $101,203,588 $144,840,700 $ 72,982,587 $33,143,066 $81,797,055
- -----------
</TABLE>
(6) Concentration of Credit Risk
The Ohio Tax Free Fund invests a substantial proportion of its assets in debt
obligations issued by the State of Ohio and its political subdivisions, agencies
and public authorities. The Fund is more susceptible to factors adversely
affecting issuers of Ohio municipal securities than a fund that is not
concentrated in these issuers to the same extent.
The International Equity Fund invests in equity and fixed income securities of
non-U.S. issuers. Although the Fund maintains a diversified investment
portfolio, the political or economic developments within a particular country or
region may have an adverse effect on the ability of domiciled issuers to meet
their obligations. Additionally, political or economic developments may have an
effect on the liquidity and volatility of portfolio securities and currency
holdings. The International Equity Fund has a relatively large concentration of
securities invested in companies domiciled in Japan. The Fund may be more
susceptible to the political, social and economic events adversely affecting the
Japanese companies than funds not so concentrated.
(7) Acquisition of Common Trust Funds
On January 27, 1997, the Equity Income Fund, Bond Fund For Income, and Municipal
Bond Fund commenced operations by acquiring all of the assets in a tax-free
exchange of the Fifth Third Bank Equity Fund, Fifth Third Bank Taxable Bond
Fund, and the Fifth Third Bank Tax Free Bond Fund, respectively which were are
all common trust funds maintained by affiliates of Fifth Third Bancorp. The
following is a summary of shares issued, net assets acquired, net asset value
per shares and unrealized appreciation as of the dates acquired:
<TABLE>
<CAPTION>
Equity Municipal
Income Bond Fund Bond
Fund For Income Fund
------------ ------------ ------------
<S> <C> <C> <C>
Shares Issued 8,607,970 11,494,610 8,339,644
Net Assets Acquired $103,295,647 $137,938,291 $100,075,733
Net Asset Value $ 12.00 $ 12.00 $ 12.00
Unrealized Appreciation
Acquired $ 29,473,455 $ 762,886 $ 1,440,477
Net Assets Before
Acquisition $ 0 $ 0 $ 0
</TABLE>
On September 27, 1997, the Quality Growth Fund, Mid Cap Fund, Government
Securities Fund, and Ohio Tax Free Fund acquired all of the assets in a tax-free
exchange of the Fifth Third Bank Equity Fund,
88
<PAGE> 39
Fountain Square Funds
- --------------------------------------------------------------------------------
Fifth Third Bank Mid Cap Fund, Fifth Third Bank Government Securities Fund and
the Fifth Third Bank Ohio Tax Free Fund, respectively which were all common
trust funds maintained by affiliates of Fifth Third Bancorp. The following is a
summary of shares issued, net assets acquired, net asset value per shares and
unrealized appreciation as of the dates acquired:
<TABLE>
<CAPTION>
Quality Government Ohio
Growth Mid Cap Securities Tax Free
Fund Fund Fund Fund
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Shares Issued 8,307,224 4,685,876 1,643,960 13,375,705
Net Assets Acquired $115,390,218 $61,446,305 $15,781,925 $133,624,123
Net Asset Value $ 13.89 $ 13.10 $ 9.60 $ 9.99
Unrealized Appreciation Acquired $ 32,538,671 $14,216,710 $ 40,514 $ 1,446,196
Net Assets Before Acquisition $152,798,380 $82,081,264 $32,098,865 $ 36,147,313
</TABLE>
(8) Federal Income Tax Information (Unaudited)
The Trust designates the following eligible distributions for the dividends
received deduction for corporations for the taxable year ended July 31, 1997:
<TABLE>
<CAPTION>
Distributions from
Dividend Dividend Income
Income per Share
------------ ------------------
<S> <C> <C>
Quality Growth Fund
Investment A Shares $3,575,354 $ .086
Investment C Shares 15,351 .004
Equity Income Fund
Investment A Shares 1,819,077 .140
Investment C Shares 755 .095
Balanced Fund
Investment A Shares 822,034 .096
Investment C Shares 6,525 .069
Mid Cap Fund
Investment A Shares 1,305,448 .037
Investment C Shares 3,040 --
</TABLE>
The Trust designates the following exempt-interest dividends for the year ended
July 31, 1997:
<TABLE>
<CAPTION>
Municipal Bond Ohio Tax Free
Fund Fund
-------------- -------------
<S> <C> <C>
Exempt-interest dividends:
Investment A Shares $2,217,602 $6,309,126
Investment C Shares 1,376 2,559
Exempt-interest dividends per share:
Investment A Shares .266 .431
Investment C Shares .221 .359
</TABLE>
For the year ended July 31, 1997, 100% of the exempt-interest income for the
Ohio Tax Free Bond Fund was generated from Ohio municipal securities.
As of July 31, 1997, for federal income purposes, the following Funds have
capital loss carryforwards available to offset future capital gains, if any:
<TABLE>
<CAPTION>
Amount Expires
---------- -------
<S> <C> <C>
Government Securities Fund $1,100,088 2003
948,699 2004
Quality Bond Fund 162,755 2002
</TABLE>
89
<PAGE> 40
Fountain Square Balanced Fund
Financial Highlights - Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------
1997 1996 1995 1994 1993*
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $11.75 $11.28 $ 9.70 $ 9.78 $10.00
- ----------------------------------- ------ ------ ------ ------ ------
Income from investment operations
- -----------------------------------
Net investment income (loss) 0.27 0.27 0.28 0.26 0.20
- -----------------------------------
Net realized and unrealized gains
(losses) on investments 4.06 0.47 1.57 (0.06) (0.25)
- ----------------------------------- ------ ------ ------ ------ ------
Total from investment operations 4.33 0.74 1.85 0.20 (0.05)
- ----------------------------------- ------ ------ ------ ------ ------
Less distributions
- -----------------------------------
Dividends to shareholders from net
investment income (0.26) (0.27) (0.27) (0.26) (0.17)
- -----------------------------------
Distributions to shareholders from
net realized gains on investment
transactions (0.49) -- -- -- --
- -----------------------------------
Distributions to shareholders in
excess of net investment
income (a) -- -- -- (0.02) --
- ----------------------------------- ------ ------ ------ ------ ------
Total distributions (0.75) (0.27) (0.27) (0.28) (0.17)
- ----------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $15.33 $11.75 $11.28 $9.70 $9.78
- ----------------------------------- ====== ====== ====== ====== ======
Total return** 38.45% 6.52% 19.37% 2.02% (0.51%)(d)
- -----------------------------------
Ratios to Average Net Assets
- -----------------------------------
Expenses 1.00% 1.00% 1.00% 1.00% 1.00%(c)
- -----------------------------------
Net investment income (loss) 2.05% 2.31% 2.73% 2.64% 3.04%(c)
- -----------------------------------
Expense waiver/reimbursement (b) 0.40% 0.06% 0.06% 0.06% 0.08%(c)
- -----------------------------------
Supplemental data
- -----------------------------------
Net assets, end of period
(000 omitted) $122,765 $92,808 $58,075 $59,363 $60,168
- -----------------------------------
Portfolio turnover rate (e) 101% 61% 58% 53% 30%
- -----------------------------------
Average commission rate paid (f) $0.0240 $0.0062 -- -- --
- -----------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
** Based on net asset value, which does not reflect the sales load.
(a) These distributions did not represent a return of capital for federal tax
purposes for the year ended July 31, 1994.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Annualized.
(d) Not annualized.
(e) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(f) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
94
<PAGE> 41
Fountain Square Mid Cap Fund
Financial Highlights - Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------
1997 1996 1995 1994 1993*
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $12.60 $12.59 $10.10 $9.68 $10.00
- ---------------------------------- ------ ------ ------ ------ ------
Income from investment operations
- ----------------------------------
Net investment income (loss) 0.02 0.06 0.08 0.06 0.06
- ----------------------------------
Net realized and unrealized gains
(losses) on investments 5.55 0.11 2.48 0.43 (0.33)
- ---------------------------------- ------ ------ ------ ------ ------
Total from investment operations 5.57 0.17 2.56 0.49 (0.27)
- ---------------------------------- ------ ------ ------ ------ ------
Less distributions
- ----------------------------------
Dividends to shareholders from
net investment income (0.02) (0.07) (0.07) (0.07) (0.05)
- ----------------------------------
Dividends to shareholders in
excess of net investment income (0.02) -- -- -- --
- ---------------------------------- ------ ------ ------ ------ ------
Distributions to shareholders
from net realized gains on
investment transactions (1.15) (0.09) -- -- --
- ---------------------------------- ------ ------ ------ ------ ------
Total distributions (1.19) (0.16) (0.07) (0.07) (0.05)
- ---------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $16.98 $12.60 $12.59 $10.10 $9.68
- ---------------------------------- ====== ====== ====== ====== ======
Total return** 47.17% 1.27% 25.45% 5.07% (2.73%)(c)
- ----------------------------------
Ratios to Average Net Assets
- ----------------------------------
Expenses 1.00% 1.00% 1.00% 1.00% 0.99%(b)
- ----------------------------------
Net investment income (loss) 0.10% 0.42% 0.77% 0.60% 0.88%(b)
- ----------------------------------
Expense waiver/reimbursement (a) 0.37% 0.06% 0.18% 0.33% 0.40%(b)
- ----------------------------------
Supplemental data
- ----------------------------------
Net assets, end of period
(000 omitted) $186,066 $72,663 $47,184 $30,210 $24,019
- ----------------------------------
Portfolio turnover rate (d) 52% 54% 23% 44% 20%
- ----------------------------------
Average commission rate paid (e) $0.0635 $0.0659 -- -- --
- ----------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
** Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
96
<PAGE> 42
Fountain Square Bond For Income Fund
Financial Highlights -- Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period
Ended
July 31,
1997*
--------
<S> <C>
Net asset value, beginning of period $12.00
- --------------------------------------------- --------
Income from investment operations
- ---------------------------------------------
Net investment income (loss) 0.37
- ---------------------------------------------
Net realized and unrealized gains (losses)
on investments 0.18
- --------------------------------------------- --------
Total from investment operations 0.55
- --------------------------------------------- --------
Less distributions
- ---------------------------------------------
Dividends to shareholders from net
investment income (0.36)
- --------------------------------------------- --------
Net asset value, end of period $12.19
- --------------------------------------------- --------
Total return** 4.64%(c)
- ---------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------
Expenses 0.79%(b)
- ---------------------------------------------
Net investment income (loss) 6.08%(b)
- ---------------------------------------------
Expense waiver/reimbursement(a) 0.42%(b)
- ---------------------------------------------
Supplemental data
- ---------------------------------------------
Net assets, end of period (000 omitted) $157,108
- ---------------------------------------------
Portfolio turnover rate(d) 157%(b)
- ---------------------------------------------
</TABLE>
*Reflects operations for the period from January 27, 1997 (date of commencement
of operations) to July 31, 1997.
**Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
100
<PAGE> 43
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
FOUNTAIN SQUARE FUNDS
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of Fountain Square Funds (comprising
respectively, Fountain Square Ohio Tax Free Bond Fund, Fountain Square U.S.
Government Securities Fund, Fountain Square Quality Bond Fund, Fountain Square
Quality Growth Fund, Fountain Square Mid Cap Fund, Fountain Square Balanced
Fund, Fountain Square Equity Income Fund, Fountain Square Bond Fund for Income,
Fountain Square Municipal Bond Fund and Fountain Square International Equity
Fund) as of July 31, 1997, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended of the Fountain Square Ohio Tax Free Bond Fund, Fountain
Square U.S. Government Securities Fund, Fountain Square Quality Bond Fund,
Fountain Square Quality Growth Fund, Fountain Square Mid Cap Fund, Fountain
Square Balanced Fund, and Fountain Square International Equity Fund, and for the
period ended July 31, 1997 of the Fountain Square Equity Income Fund, Fountain
Square Bond Fund for Income, Fountain Square Municipal Bond Fund and the
financial highlights for the periods presented herein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1997, by correspondence with the custodians and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios of the Fountain Square Funds as of July 31, 1997,
the results of their operations for the period then ended, the changes in their
net assets and the financial highlights for the periods presented herein, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Cincinnati, Ohio
September 12, 1997
110
<PAGE> 1
Exhibit 17(xi)
[Cardinal Group Logo]
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
CARDINAL TAX EXEMPT MONEY MARKET FUND
THE CARDINAL FUND
CARDINAL AGGRESSIVE GROWTH FUND
CARDINAL BALANCED FUND
CARDINAL GOVERNMENT OBLIGATIONS FUND
[The Ohio Company Logo]
155 E. Broad St. Columbus, Ohio 43215
New Accounts and
General Information:
(614) 464-5511
(800) 282-9446
<PAGE> 2
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Message from the Chairman and the President
Page 1
Message from the Chief Investment Officer
Page 2
Portfolio Managers' Discussion of Fund Performance
Page 4
Independent Auditors' Report
Page 15
Statements of Assets and Liabilities
Page 16
Statements of Operations
Page 18
Statements of Changes in Net Assets
Page 20
Statements of Investments
Page 23
Notes to Financial Statements
Page 34
Financial Highlights
Page 43
<PAGE> 3
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
MESSAGE FROM THE CHAIRMAN AND THE PRESIDENT
- --------------------------------------------------------------------------------
DEAR CARDINAL SHAREHOLDERS:
We are pleased to provide you with this Cardinal Group Annual Report for the
fiscal year ended September 30, 1997. Please take a moment to review the
portfolio managers' comments and related financial information.
The past twelve months were eventful for The Cardinal Group. We enjoyed a
vibrant stock market and strong bond prices thanks to declining interest rates
and low levels of inflation. The U.S. economy continued to expand as marked by
moderate growth in Gross Domestic Product (GDP) and rising corporate profits.
Against this backdrop, investment performance of The Cardinal Group was good and
has translated into higher rankings by various national rating services. Thanks
to a combination of strong investment performance and influx of new
shareholders, assets in The Cardinal Group finished the fiscal year above the $1
billion level! We are proud of these achievements and look forward to providing
you with quality investment management in the years ahead.
Earlier this year, we enhanced the attractiveness of the Cardinal money market
funds by making two significant improvements. First, we implemented a 'same-day'
settlement procedure. This means that upon meeting certain time deadlines,
monies can be more easily invested in or liquidated from Cardinal Government
Securities or Tax Exempt Money Market Funds. In addition, we eliminated the $250
minimum on Cardinal money market checks. Unlike most other money market funds,
Cardinal money market shareholders can now write checks for any dollar amount.
We hope you are taking advantage of these enhancements. If you are not, and
would like to do so, please contact your Investment Executive or us for more
details.
Finally, in August the Taxpayers Relief Act of 1997 was signed into law. This is
a major piece of legislation which could have an impact on mutual fund investors
due to provisions which can reduce capital gains taxes, repeal excess
accumulation/distribution taxes and provide new opportunities with Individual
Retirement Accounts. We urge you to consult with your financial advisor to
determine how the Act may impact you.
Thank you for your investment with The Cardinal Group. We appreciate your
continued support and confidence as we strive to help you reach your financial
goals.
Sincerely,
<TABLE>
<S> <C>
/s/ H. Keith Allen /s/ Frank W. Seigel
H. Keith Allen Frank W. Siegel, CFA
Chairman President
</TABLE>
1
<PAGE> 4
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
MESSAGE FROM THE CHIEF INVESTMENT OFFICER
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
The fiscal year ended September 30, 1997 was another very good year for most
investors. The economic environment of moderate GDP growth, low inflation,
growing corporate profits, modestly declining interest rates and a
"disappearing" budget deficit created a foundation which allowed financial
assets to again achieve attractive returns. As an example, during the past
twelve months the Dow Jones Industrial Average provided a total return of 34.6%
while the S&P 500 returned 40.4% and the Russell 2000 index of smaller companies
returned 33.2%. Bonds too achieved attractive returns for their owners as the
benchmark 30-year US Treasury Bond returned 13.9% and the 10 year issue returned
10.5%.
INTEREST RATES, THE FED AND THE BOND MARKET
While the trend in bond prices (up) and interest rates (down) was quite positive
during the past twelve months these patterns were not smooth during that entire
period. Interest rates declined from September, 1996 through the end of the year
but then rose sharply between February and April of this year. The sharp rise
during the first half of 1997 was due to the fact that the economy appeared to
be growing very rapidly and thus the Fed took action to slow it by increasing
short-term interest rates by approximately one-quarter of one percent.
During the balance of the past twelve months evidence appeared quite clear that
the economy was indeed slowing, that inflation was benign and that liquidity was
not excessive. The Fed took additional action during the remainder of the year
and, as described above, interest rates declined rather significantly from their
April highs (rates on ten-year US Treasury Notes declined from approximately
6.85% to 6.10%).
INTEREST RATES, THE FED AND THE STOCK MARKET
Like the bond market, the trend in stock prices was decidedly up again during
the fiscal year ended September 30, 1997, but it too was not a smooth ride. For
example, between the beginning of the Cardinal Funds' fiscal year (October 1,
1996) and the end of February, 1997 the Standard & Poor's 500 index increased by
more than 16%, then as The Fed tightened and interest rates rose, the index
declined by roughly 7%. From its low in April however, the index rose again by
28% ending the fiscal year (September 30, 1997) up 40.4%.
The renewed strength at the end of the fiscal year was a result of interest
rates declining, inflation proving to be benign and investors regaining
confidence in the resiliency and continuity of the US economy. The performance
leaders in the stock market were large capitalization companies in general (GE,
Microsoft, Coca Cola) but more specifically companies involved in the
Technology, Interest Rate Sensitive and Healthcare industries specifically.
2
<PAGE> 5
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
MESSAGE FROM THE CHIEF INVESTMENT OFFICER (CONTINUED)
- --------------------------------------------------------------------------------
THE FUTURE -- OUR EXPECTATIONS
From an economic scenario standpoint, our expectations for 1998 and the
foreseeable future are not a great deal different from our expectations for
1995, '96 and '97. Now, as then, we anticipate that the fundamentals of
continued economic and corporate profit growth (but at a somewhat slower rate),
low inflation, and declining interest rates will continue. All of these factors,
occurring in concert, are critical to maintaining stock valuations, which are
near historic highs. We anticipate that they will.
In general we continue to believe that the strong fundamentals described above,
combined with the "shrinkage" in the number of shares of stocks (and bonds)
available creates a very good environment for investors. While quite positive
about the rationale for owning stocks and bonds, we are not unrealistically
bullish because we realize that the road to continued success is never an easy
one as can be seen from the problems in Southeast Asia.
HAROLD C. ELLIOTT
SENIOR VICE PRESIDENT & CHIEF INVESTMENT OFFICER
THE OHIO COMPANY
3
<PAGE> 6
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
- --------------------------------------------------------------------------------
For the year ended September 30, 1997, Cardinal Government Securities Money
Market Fund earned a total return of 4.67%. The fund, which invests in
repurchase agreements and other short-term obligations of the U.S. Government
and its agencies, is designed to provide monthly income from a high quality and
liquid investment portfolio.
WHAT WAS THE MONEY MARKET ENVIRONMENT OVER THE PAST 12 MONTHS?
In spite of the Federal Reserve's move to increase the Federal Funds Rate in
March, money market rates were remarkably stable and traded in a narrow range
during the fund's fiscal year.
WHAT IS THE OUTLOOK FOR THE COMING YEAR?
The outlook for the coming year is for more of the same experience as the past
year. So unless inflation becomes a greater concern than it has been in recent
months, money market rates should continue to experience little volatility.
As portfolio manager of Cardinal Government Securities Money Market Fund, John
R. Carle, CFA, is responsible for the day-to-day management of the Fund's
portfolio. Mr. Carle has 30 years of investment experience and has been
portfolio manager for the Fund since January 1, 1996.
- --------------------------------------------------------------------------------
CARDINAL TAX EXEMPT MONEY MARKET FUND
- --------------------------------------------------------------------------------
For the year ended September 30, 1997, Cardinal Tax Exempt Money Fund produced a
total return of 2.72%. The fund had a current average maturity of 41 days as of
September 30, 1997. Many of the bonds in the portfolio are credit enhanced,
meaning they are insured or backed by an irrevocable bank letter of credit.
Tax Exempt Money Market rates have been flat for the better part of the fiscal
year as all short term rates have held steady.
Since January 1, 1996, Cardinal Tax Exempt Money Market Fund has been managed by
David C. Will, who holds a bachelor's degree in Finance from Franklin University
and has 25 years of experience in portfolio management.
4
<PAGE> 7
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
THE CARDINAL FUND
- --------------------------------------------------------------------------------
The fiscal year ended September 30, 1997, found both the markets and The
Cardinal Fund, starting strong and continuing their upward momentum through most
of the twelve month period. Although not without the usual peaks and declines,
the market pursued its forward path, finishing our fiscal year at record high
levels. The most pronounced rise occurred during the May through August period,
while the two most notable pullbacks were during the March-April decline and the
mid August through mid September period.
HOW WOULD YOU ASSESS YOUR PERFORMANCE FOR THE YEAR?
We are pleased to report a double digit investment return in The Cardinal Fund
for the THIRD CONSECUTIVE YEAR. Our strategies, which resulted in a total
return, exclusive of the sales charge, of 39.17% enabled The Cardinal Fund to be
ranked in the upper 30% of comparable funds by the Lipper Analytical Services,
for the period ended September 30, 1997. This return was quite favorable from
both an absolute and relative basis. Our goal continues to be consistently
ranked above the majority of similar investment funds.
WHAT IS YOUR STRATEGY FOR STOCK SELECTION?
The Cardinal Fund's strategy has been one of continued participation in the
advance by maintaining a near fully invested position throughout the year. We
have pursued an investment theme of acquiring stocks of companies with strong
management teams, valued products/services, superior distribution avenues and,
where possible, global acceptance of product primarily through brand name
recognition and a top tier market share. Also, the portfolio is positioned in
stocks of companies that are or will be beneficiaries of re-engineering efforts
occurring on a world wide basis by many of today's top corporations.
WHAT AREAS OF THE MARKET PERFORMED WELL, AND WHERE DO YOU CURRENTLY SEE VALUE?
In viewing the portfolio one should note that The Cardinal Fund has significant
exposure in the TECHNOLOGY sector of the market. Companies such as Intel,
Microsoft, Compaq Computers, Gateway 2000 and Tellabs are but a few of the
companies that are participants in technological advancements and beneficiaries
of corporate productivity enhancements. This is an ongoing process in today's
global business environment. Also, the HEALTH CARE sector of the market we
believe will be of value to investors, as the demographics of our society move
toward a more mature age group and have a need for more health care products and
medication. Participation in companies such as Merck, Pfizer, Johnson & Johnson,
Medtronic and Boston Scientific are some of the issues we have invested in to
generate focus in this area of the market.
5
<PAGE> 8
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
THE CARDINAL FUND (CONTINUED)
- --------------------------------------------------------------------------------
Finally, the FINANCIAL SERVICES sector has been an area of primary focus for our
fund and one that has given above market performance for the year. Issues such
as Citicorp, Barnett Banks, American International Group and Banc One, are among
the many companies owned in this group, which have contributed to the Fund's
superior performance. The lower interest rate environment, which we have been
espousing, combined with further consolidation in the industry, has made for
attractive returns in this group with very moderate levels of risk.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Our outlook moving forward continues to be positive. We expect interest rates to
remain stable with a strong possibility of heading lower as we move into next
year. Lower rates should provide an opportunity for well managed companies to
continue to enhance earnings and create an environment to maintain or expand
their respective market share positions. Barring signs of prolonged economic
weakness, and/or rising interest rates, we expect to remain fully invested in
diversified sectors of the economy which meet the standards we have adopted and
implemented as a part of our overall strategy.
As of September 30, 1997, the fund's top five holdings were General Electric
(4.27%), Mobil (3.17%), Royal Dutch (3.07%), Intel (3.07%) and Textron (2.88%).
John Bevilacqua assumed the management of The Cardinal Fund on January 1, 1996.
He has in excess of 22 years of investment experience. He received his MBA from
Xavier University and Bachelors of Science from Franklin University.
6
<PAGE> 9
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
THE CARDINAL FUND (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Measurement Period The Cardinal Fund(R) S&P 500
(Fiscal Year Covered) Investor Shares Stock Index
<S> <C> <C>
9/87 9550 10000
9/88 9219 11,650
9/89 11251 15483
9/90 9,741 14,043
9/91 13008 18410
9/92 14965 20435
9/93 16010 23092
9/94 16551 23946
9/95 19007 31035
9/96 22421 37304
9/97 31203 52374
<CAPTION>
The Cardinal Fund
Investor Shares
Average Annual
Total Return as of 9/30/97*
<S> <C>
One Year 32.9%
Five Year 14.8%
Ten Year 12.1%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period The Cardinal Fund S&P 500
(Fiscal Year Covered) Institutional Shares Stock Index
<S> <C> <C>
1/97 10,000 10,000
9/97 12,977 12,960
</TABLE>
Total Return for the Period
Jan. 2, 1997 through Sept. 30, 1997
was 29.77%
The performance of The Cardinal Fund is measured against the S&P 500
Stock Index, an unmanaged index generally considered to be
representative of the U.S. stock market. The index does not reflect
the deduction of expenses associated with a mutual fund, such as
investment management and fund accounting fees. However, the Fund's
performance reflects these value-added services. Past performance is
not predictive of future results.
- ---------------
* Reflects 4.50% sales charge.
7
<PAGE> 10
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
For the year ended September 30, 1997, Cardinal Aggressive Growth Fund produced
a total return exclusive of the sales charge of 33.0%. As a basis of comparison,
the Russell 2000 index of smaller capitalization companies achieved a total
return of 31.4% and the median return for companies in the Lipper Analytical
Services universe of similar funds achieved a return of 27.5%.
The Cardinal Aggressive Growth Fund is managed by Harold C. Elliott, who took
over the management of this fund in July of last year, holds an MBA from Xavier
University and a bachelor's degree in Finance and Marketing from The University
of Cincinnati, has more than 20 years of experience in the investment management
business and is currently the Chief Investment Officer of The Ohio Company.
As described above, the Fund has meaningfully outperformed its peers and it's
relevant benchmark during the past twelve months. This strong absolute and
relative performance can be attributed to several factors. First, the Fund has
had a large investment in the stocks of a broad array of technology companies
whose stocks have increased dramatically in price as the companies report rapid
revenue and earnings growth; secondly, the Fund capitalized on the trend toward
consolidation in several industries such as banking, brokerage and broadcasting
by owning shares of a number of companies in each industry; and lastly by having
a meaningful commitment to companies with smaller capitalizations. Stocks in
companies of this last group had been lagging in their investment performance
when compared to larger company stocks. This trend reversed itself during the
past quarter when investors began to broaden the diversity of their equity
portfolios.
While the stocks of Technology companies are historically more volatile than the
market as a whole, and thus add volatility to the Fund, we continue to believe
that these companies along with the stocks of Healthcare and Financial Service
companies offer excellent prospects for future above average appreciation.
Expectations for above average growth are based upon the knowledge that both
domestic and non-US businesses are spending large amounts of money on
productivity enhancing (technology) machinery, equipment and software to improve
productivity and the company's ability to maintain and/or improve market share.
Interest in Financial Service and Healthcare companies stem from the fact that
the largest and fastest growing segment of the U.S. population is the 35 to 55
year-old age group, which has the ability and need to save and invest. As we
have seen through the growth in mutual funds, these trends, which we expect to
continue, offer tremendous opportunities for new products and services to the
financial service industry. This same demographic group is and will continue to
demand more and better healthcare as they live longer and better.
The three themes, changing demographics, growth in the demand for technology and
industry consolidation will remain important elements of the Cardinal Aggressive
Growth Fund strategy.
8
<PAGE> 11
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
CARDINAL AGGRESSIVE GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
WHAT IS THE PHILOSOPHY AND STRATEGY EMPLOYED IN THE MANAGEMENT OF THE CARDINAL
AGGRESSIVE GROWTH FUND?
The objective of the Cardinal Aggressive Growth Fund is to achieve superior
relative and absolute investment returns through investment in a portfolio of
companies chosen for their participation in rapidly growing industries, for
their unique products or services, or because of industry consolidation.
Company selection is further refined by additional fundamental and growth
criteria used to identify characteristics of quality and consistency. These
criteria include an analysis of revenue and earnings growth, return on equity,
operating margins and the use of debt. Companies that meet the prescribed
hurdles are considered for investment with the idea of building a reasonably
diversified portfolio.
At the end of September the largest equity holdings in the portfolio were: Intel
Corp., EMC Corp., Texas Instruments, Microsoft Inc., and Applied Materials Corp.
WHAT IS THE OUTLOOK FOR THE U.S. ECONOMY AND THE FINANCIAL MARKETS?
We continue to forecast positive but moderate growth for the U.S. economy (GDP)
as 1997 ends and we enter a new year. As a result, we continue to expect that
corporate earnings will grow, that the federal deficit will "disappear" and that
inflation will remain benign. The combination of these factors should result in
a positive foundation on which to build a case for continued positive returns
from both stocks and bonds -- which we expect.
The factors that could cause a re-evaluation of this forecast would be further
turmoil in Southeast Asia and the eventual exportation of significant
disinflation from that region. That event could lead to a significant global
slowdown. At this time we anticipate that investors will hear further negative
news from that region of the world but that with patience and determination the
countries will grow out of their problems and not cause a financial crisis
throughout the world.
9
<PAGE> 12
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
CARDINAL AGGRESSIVE GROWTH FUND (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Measurement Period Cardinal Aggressive
(Fiscal Year Covered) Growth Fund(R) Investor Shares Russell 2000
<S> <C> <C>
6/93 9550 10000
9/93 9999 11,020
9/94 9525 11318
9/95 11844 13966
9/96 11710 15795
9/97 15568 21039
<CAPTION>
Cardinal Aggressive
Investor Shares
Growth Fund Average
Annual Total Return as of 9/30/97*
<S> <C>
One Year 27.0%
Since Inception
(6/24/93) 11.0%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period Cardinal Aggressive
(Fiscal Year Covered) Growth Fund Institutional Shares Russell 2000
<S> <C> <C>
1/97 10,000 12,660
9/97 10,000 12,659
</TABLE>
Total Return for the Period
Jan. 2, 1997 through Sept. 30, 1997
was 26.59%
The performance of Cardinal Aggressive Growth Fund is measured against the
Russell 2000 Stock Index, an unmanaged index generally considered to be
representative of the U.S. smaller capitalization stock market. The index does
not reflect the deduction of expenses associated with a mutual fund, such as
investment management and fund accounting fees. However, the Fund's performance
reflects these value-added services. Past performance is not predictive of
future results.
- ---------------
* Reflects 4.50% sales charge.
10
<PAGE> 13
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
For the year ended September 30, 1997, The Cardinal Balanced Fund produced a
total return of 24.7% versus the 24.0% return for the median return in the
Lipper Analytical Service Universe of 333 balanced mutual funds. Since October
1, 1996 The Cardinal Balanced Fund has been managed by Joseph A. Miner, C.F.A.
and David C. Will who have 15 and 25 years of investment management experience
respectively.
The returns generated by the Balanced Fund have improved dramatically when
compared to the Lipper Balanced Fund Universe. Your Fund has gone from
performing well below median to above median over the last twelve months. This
improvement is a result of our positive outlook for the stock market which led
to increased exposure to stocks and increased emphasis on the Capital Goods,
Healthcare, Financial Services and Technology groups. These are groups that for
the following reasons we expect will be strong performers through the end of the
decade.
1.) Demographic - aging of the population. The need for more healthcare and
financial services.
2.) World wide growth in the need for technology.
3.) Increased expenditures for improved productivity.
It is important to note that the managers of Cardinal Balanced Fund believe
that industry and company diversification are very important to the continued
success of your Fund.
WHAT IS THE PHILOSOPHY AND STRATEGY EMPLOYED IN THE MANAGEMENT OF CARDINAL
BALANCED FUND?
For purposes of compliance at least 25% of the portfolios will be invested in
senior fixed income securities. The balance of the portfolio will be in common
stock or preferred stocks convertible into common stock. By investing primarily
in common stocks, the Balanced Fund will pursue its objectives of long-term
growth of capital and income.
As previously mentioned, the fund will maintain a diversified portfolio and
major sector bets will be avoided. The strategy in the common stock portfolio
will be to invest in a core group of stocks that we believe will be able to
consistently increase their earnings and dividends. Examples would be - General
Electric, Merck, Monsanto, Gillette, Coca Cola, Proctor and Gamble, Citicorp and
Intel.
As a value added strategy we also invest in a modest amount of smaller companies
that we believe will be able to achieve consistent earnings and dividend growth.
Examples would be - Avery Dennison, Crane, Worldcom, Tribune, Cardinal Health,
Transocean Offshore, H.F. Ahmanson, Medtronic and HBO & Company.
WHAT IS THE OUTLOOK FOR THE U.S. ECONOMY AND THE FINANCIAL MARKETS?
We continue to forecast positive but moderate growth for the U.S. economy (GDP)
as 1997 ends and we enter a new year. As a result, we continue to expect that
corporate earnings will grow, that the federal deficit will "disappear" and that
inflation will remain benign. The combination of these factors should result in
a positive foundation on which to build a case for continued positive returns
from both stocks and bonds.
The factors that could cause a re-evaluation of this forecast would be further
turmoil in Southeast Asia and the eventual exportation of significant
disinflation from that region. That event could lead to a significant global
slowdown. At this time we anticipate that investors will hear further negative
news from that region of the world but that with patience and determination the
countries will grow out of their problems and not cause a financial crisis
throughout the world.
11
<PAGE> 14
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
CARDINAL BALANCED FUND (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Measurement Period Cardinal Balanced Fund(R) S&P 500 Lehman Brothers Govt/Corp.
(Fiscal Year Covered) Investor Shares Stock Index Bond Index
<S> <C> <C> <C>
6/24/93 9550 10000 10000
9/93 9684 10310 10330
9/94 9719 10691 9906
9/95 11737 13856 11333
9/96 12941 16655 11843
9/97 16070 23384 12980
<CAPTION>
Cardinal Balanced Fund
Investor Shares
Average Annual
Total Return as of 9/30/97*
<S> <C>
One Year 19.10%
Since Inception
(6/24/93) 11.3%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period Cardinal Balanced Fund S&P 500 Lehman Brothers Govt/Corp.
(Fiscal Year Covered) Institutional Shares Stock Index Bond Index
<S> <C> <C> <C>
1/97 10,000 10,000 10,000
9/97 12,270 12,960 12,017
</TABLE>
Total Return for the Period
Jan. 2, 1997 through Sept. 30, 1997
was 20.17%
The performance of Cardinal Balanced Fund is measured against the S&P 500 Stock
Index, an unmanaged index generally considered to be representative of the U.S.
stock market, and the Lehman Brothers Govt./Corp. Bond Index, an unmanaged
broad-based index generally considered to be representative of the bond market
as a whole. These indices do not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees.
However, the Fund's performance reflects these value-added services. Past
performance is not predictive of future results.
- ---------------
* Reflects 4.50% sales charge.
12
<PAGE> 15
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
For the year ended September 30, 1997, Cardinal Government Obligations Fund,
which invests in a portfolio of U.S. Government agency securities, earned a
total return, exclusive of the sales charge, of 9.28%.
The Fund is managed by John R. Carle, CFA, who has 30 years of securities
investment experience and has managed the Fund since its inception in February,
1986.
HOW WOULD YOU ASSESS THE FUND'S PERFORMANCE?
The Fund produced a total return for the past 12 months of 9.28% which on an
absolute basis is very good. However, that return trailed the return of the
Lipper universe of GNMA funds [mutual funds investing primarily in securities
issued by the Government National Mortgage Association (GNMA)] which was 9.40%.
Since our goal is to consistently rank in the top 50% of our peer group, we are
working constantly to attain that position.
WHAT WAS YOUR STRATEGY DURING THE PAST 12 MONTHS?
Our strategy during the past 12 months was moderately to extend the average life
of the Fund's portfolio to take advantage of the improving market environment
we've experienced during the second half of our fiscal year.
WHAT IS YOUR OUTLOOK FOR THE COMING YEAR?
We are expecting a moderate slow down in economic activity during the early
months of the new year and feel the steps we've taken to extend the life of the
Fund's portfolio should allow the portfolio to perform well in a continually
improving market.
13
<PAGE> 16
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
CARDINAL GOVERNMENT OBLIGATIONS FUND (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Measurement Period Cardinal Government Obligations
(Fiscal Year Covered) Fund(R) Investor Shares Salomon Mortgage Index
<S> <C> <C>
9/87 9550 10000
9/88 10786 10880
9/89 11736 12077
9/90 12913 13272
9/91 14601 15436
9/92 15896 17165
9/93 16664 18349
9/94 16610 18165
9/95 18491 20618
9/96 19608 21834
9/97 21427 23974
<CAPTION>
Government Obligations Fund
Investor Shares
Average Annual
Total Return as of 9/30/97*
<S> <C>
One Year 4.4%
Five Year 5.2%
Ten Year 7.9%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period Cardinal Government Obligations
(Fiscal Year Covered) Fund Institutional Shares Salomon Mortgage Index
<S> <C> <C>
1/97 10,000 10,000
9/97 10,686 10,680
</TABLE>
Total Return for the Period
Jan. 2, 1997 through Sept. 30, 1997
was 6.86%
The performance of Cardinal Government Obligations Fund is measured against the
Salomon Mortgage Index, an unmanaged broad-based index generally considered to
be representative of GNMA/mortgage-backed securities. The index does not reflect
the deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. However, the Fund's performance reflects
these value-added services. Past performance is not predictive of future
results.
- ---------------
* Reflects 4.50% sales charge.
<PAGE> 17
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
The Cardinal Group:
We have audited the accompanying statements of assets and liabilities of The
Cardinal Group -- Cardinal Government Securities Money Market Fund, Cardinal Tax
Exempt Money Market Fund, The Cardinal Fund, Cardinal Aggressive Growth Fund,
Cardinal Balanced Fund, and Cardinal Government Obligations Fund, including the
statements of investments, as of September 30, 1997, and the related statements
of operations for the year then ended, the statements of changes in net assets
for each of the years in the two-year period then ended and the financial
highlights for each of the periods indicated herein. These financial statements
and financial highlights are the responsibility of The Cardinal Group's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
September 30, 1997, by confirmation with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds comprising The Cardinal Group at September 30, 1997,
the results of their operations, the changes in their net assets and their
financial highlights for each of the periods indicated herein, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
November 14, 1997
15
<PAGE> 18
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL
GOVERNMENT CARDINAL
SECURITIES TAX EXEMPT
MONEY MARKET MONEY MARKET
FUND FUND
------------ ------------
<S> <C> <C>
ASSETS:
Investments in securities at amortized cost....................... $417,475 $ 60,736
Repurchase agreements, at cost.................................... 116,899 0
--------- ---------
Total investments..................................... 534,374 60,736
Cash.............................................................. 0 301
Interest receivable............................................... 4,929 345
Receivable for Fund shares sold................................... 30 0
Other assets (note 5)............................................. 450 70
--------- ---------
Total assets.......................................... 539,783 61,452
--------- ---------
LIABILITIES:
Payable for investment securities purchased....................... 35,000 1,100
Payable for Fund shares redeemed.................................. 43 7
Payable for shareholder distributions............................. 0 0
Accrued investment management and transfer agent fees (note 4).... 341 35
Other accrued expenses............................................ 135 26
--------- ---------
Total liabilities..................................... 35,519 1,168
--------- ---------
Commitments and contingencies (note 5)
NET ASSETS:
Paid in capital................................................... 504,282 60,284
Accumulated net realized loss on investments...................... (404) 0
Undistributed net investment income............................... 386 0
--------- ---------
Total net assets...................................... $504,264 $ 60,284
========= =========
Outstanding shares of beneficial interest......................... 504,282 60,284
========= =========
NET ASSET VALUE PER SHARE......................................... $1.00 $1.00
========= =========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 19
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL CARDINAL
AGGRESSIVE CARDINAL GOVERNMENT
THE CARDINAL GROWTH BALANCED OBLIGATIONS
FUND FUND FUND FUND
------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value (cost
$154,248, $8,643, $13,409, and $123,417)..... $275,108 $ 13,805 $16,525 $126,397
Repurchase agreements, at cost................. 19,906 214 778 2,402
--------- -------- -------- ---------
Total investments..................... 295,014 14,019 17,303 128,799
--------- -------- -------- ---------
Dividends and interest receivable.............. 481 5 70 818
Receivable for investment securities sold...... 0 258 0 8,307
Receivable for Fund shares sold................ 13 4 2 7
Other assets (note 5).......................... 210 7 30 99
Deferred organizational cost................... 0 5 5 0
--------- -------- -------- ---------
Total assets.......................... 295,718 14,298 17,410 138,030
--------- -------- -------- ---------
LIABILITIES:
Payable for investment securities purchased.... 0 328 0 10,889
Payable for Fund shares redeemed............... 23 6 0 17
Payable for shareholder distributions.......... 0 0 0 726
Accrued investment management and transfer
agent fees (note 4).......................... 175 11 10 69
Call options written, at market................ 368 61 31 0
Other accrued expenses......................... 364 38 45 184
--------- -------- -------- ---------
Total liabilities..................... 930 444 86 11,885
--------- -------- -------- ---------
Commitments and contingencies (note 5)
NET ASSETS:
Paid in capital................................ 153,546 9,503 13,149 142,346
Accumulated net realized gain (loss) on
investments.................................. 19,707 (840) 969 (19,250)
Undistributed net investment income (loss)..... 186 0 46 69
Unrealized gain on investments................. 121,350 5,191 3,160 2,980
--------- -------- -------- ---------
Total net assets...................... $294,789 $ 13,854 $17,324 $126,145
========= ======== ======== =========
NET ASSETS:
Investor shares................................ $267,908 $ 9,792 $15,616 $120,342
Institutional shares........................... 26,881 4,062 1,708 5,803
--------- -------- -------- ---------
Total................................. $294,789 $ 13,854 $17,324 $126,145
========= ======== ======== =========
OUTSTANDING SHARES OF BENEFICIAL INTEREST
Investor shares................................ 16,094 666 1,180 14,679
Institutional shares........................... 1,615 276 129 708
--------- -------- -------- ---------
Total................................. 17,709 942 1,309 15,387
========= ======== ======== =========
NET ASSET VALUE
Investor shares................................ $ 16.65 $ 14.70 $ 13.23 $ 8.20
Institutional shares........................... $ 16.64 $ 14.71 $ 13.23 $ 8.20
========= ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 20
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL
GOVERNMENT CARDINAL
SECURITIES TAX EXEMPT
MONEY MARKET MONEY MARKET
FUND FUND
--------------------- -----------------
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................ $27,592 $ 2,293
-------- -------
EXPENSES:
Investment management fees (note 4)................. 2,583 326
Transfer agent fees and expenses (note 4)........... 1,245 79
-------- -------
Total affiliated expenses................. 3,828 405
-------- -------
Custodian fees...................................... 31 6
Accounting fees..................................... 66 17
Professional fees................................... 140 27
Reports to shareholders............................. 122 5
Trustees' fees...................................... 55 8
Registration fees................................... 45 23
Other expenses...................................... 97 13
Amortization of deferred organizational cost........ 35 6
-------- -------
Total non-affiliated expenses............. 591 105
-------- -------
Total expenses............................ 4,419 510
-------- -------
Net investment income..................... $23,173 $ 1,783
-------- -------
Net realized loss from security
transactions............................ (92) 0
-------- -------
Net increase in net assets from
operations.............................. 23,081 1,783
======== =======
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 21
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL CARDINAL
AGGRESSIVE CARDINAL GOVERNMENT
THE CARDINAL GROWTH BALANCED OBLIGATIONS
FUND FUND FUND FUND
------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................... $ 4,274 $ 26 $ 171 $ 0
Interest.................................... 1,010 16 391 10,542
-------- ------- ------- --------
Total income...................... 5,284 42 562 10,542
-------- ------- ------- --------
EXPENSES:
Investment management fees (note 4)......... 1,563 86 113 654
Distribution fees (note 4).................. 756 33 43 391
Administrative service fees (note 4)........ 28 4 2 6
Transfer agent fees and expenses (note 4)... 214 19 18 126
Expenses voluntarily waived (note 4)........ (147) (6) (9) (84)
-------- ------- ------- --------
Total affiliated expenses......... 2,414 136 167 1,093
-------- ------- ------- --------
Custodian fees.............................. 36 9 10 37
Accounting fees............................. 32 23 14 51
Professional fees........................... 69 9 2 37
Reports to shareholders..................... 57 4 1 26
Trustees' fees.............................. 33 6 2 20
Registration fees........................... 25 16 11 27
Other expenses.............................. 65 3 4 23
Amortization of deferred organizational
cost...................................... 14 10 11 8
-------- ------- ------- --------
Total non-affiliated expenses..... 331 80 55 229
-------- ------- ------- --------
Total expenses.................... 2,745 216 222 1,322
-------- ------- ------- --------
Net investment income (loss)...... 2,539 (174) 340 9,220
-------- ------- ------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) from security
transactions.............................. 19,070 (809) 1,440 (155)
Increase in unrealized gain on
investments............................... 63,545 4,242 1,687 2,682
-------- ------- ------- --------
Net realized gain (loss) and
increase in unrealized gain on
investments..................... 82,615 3,433 3,127 2,527
-------- ------- ------- --------
Net increase in net assets from
operations...................... $ 85,154 $3,259 $3,467 $ 11,747
======== ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 22
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
CARDINAL
GOVERNMENT CARDINAL
SECURITIES TAX EXEMPT
MONEY MARKET MONEY MARKET
FUND FUND
-------------------------- ---------------------
1997 1996 1997 1996
----------- ---------- -------- --------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income......................... $ 23,173 $ 22,576 $ 1,783 $ 1,801
Net realized loss from security
transactions................................ (92) 0 0 0
----------- ----------- --------- ---------
Net increase in net assets from
operations........................ 23,081 22,576 1,783 1,801
----------- ----------- --------- ---------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Total distributions to shareholders........... (23,099) (22,576) (1,783) (1,801)
----------- ----------- --------- ---------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from sale of fund shares............. 1,330,914 1,272,767 155,053 159,477
Reinvestment of distributions to
shareholders................................ 22,599 22,143 1,668 1,700
Cost of fund shares redeemed.................. (1,327,106) (1,262,409) (156,352) (166,042)
----------- ----------- --------- ---------
Increase (decrease) in net assets from
capital share transactions............. 26,407 32,501 369 (4,865)
----------- ----------- --------- ---------
Net increase (decrease) in net assets.... 26,389 32,501 369 (4,865)
NET ASSETS -- beginning of period............. 477,875 445,374 59,915 64,780
----------- ----------- --------- ---------
NET ASSETS -- end of period................... $ 504,264 $ 477,875 $ 60,284 $ 59,915
=========== =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 23
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
CARDINAL AGGRESSIVE
THE CARDINAL FUND GROWTH FUND
--------------------- -------------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss)......................... $ 2,539 $ 4,370 $ (174) $ (152)
Net realized gain (loss) from security
transactions....................................... 19,070 35,032 (809) 77
Increase (decrease) in unrealized gain on
investments........................................ 63,545 (1,098) 4,242 (63)
--------- --------- -------- --------
Net increase (decrease) in net assets from
operations...................................... 85,154 38,304 3,259 (138)
--------- --------- -------- --------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income -- Investor
shares............................................. (2,179) (4,551) 0 0
Distributions of net investment
income -- Institutional shares..................... (174) 0 0 0
Tax return of capital distribution................... 0 0 (192) 0
Distribution of net realized gains from security
transactions....................................... (19,080) (34,597) (31) (766)
--------- --------- -------- --------
Total distributions to shareholders................ (21,433) (39,148) (223) (766)
--------- --------- -------- --------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):
INVESTOR SHARES:
Proceeds from sale of fund shares.................... 12,835 8,454 1,736 2,503
Reinvestment of distributions to shareholders........ 19,793 36,392 218 743
Cost of fund shares redeemed......................... (51,330) (41,141) (4,087) (3,107)
--------- --------- -------- --------
Increase (decrease) in net assets from Investor
share transactions.............................. (18,702) 3,705 (2,133) 139
--------- --------- -------- --------
INSTITUTIONAL SHARES:
Proceeds from sale of fund shares.................... 24,912 0 3,720 0
Reinvestment of distributions to shareholders........ 174 0 0 0
Cost of fund shares redeemed......................... (4,358) 0 (438) 0
--------- --------- -------- --------
Increase in net assets from Institutional share
transactions....................................... 20,728 0 3,282 0
--------- --------- -------- --------
Net increase (decrease) in net assets.............. 65,747 2,861 4,185 (765)
NET ASSETS -- beginning of period.................... 229,042 226,181 9,669 10,434
--------- --------- -------- --------
NET ASSETS -- end of period.......................... $294,789 $229,042 $13,854 $ 9,669
========= ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 24
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
CARDINAL CARDINAL GOVERNMENT
BALANCED FUND OBLIGATIONS FUND
------------------- ---------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income................................ $ 340 $ 515 $ 9,220 $ 10,596
Net realized gain (loss) from security
transactions....................................... 1,440 856 (155) (1,240)
Increase (decrease) in unrealized gain on
investments........................................ 1,687 47 2,682 (826)
-------- -------- --------- ---------
Net increase in net assets from operations......... 3,467 1,418 11,747 8,530
-------- -------- --------- ---------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income -- Investor
shares............................................. (274) (519) (8,849) (10,496)
Distributions of net investment
income -- Institutional shares..................... (20) 0 (301) 0
Tax return of capital distribution................... 0 0 0 (214)
Distribution of net realized gains from security
transactions....................................... (1,235) (483) 0 0
-------- -------- --------- ---------
Total distributions to shareholders................ (1,529) (1,002) (9,150) (10,710)
-------- -------- --------- ---------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):
INVESTOR SHARES:
Proceeds from sale of fund shares.................... 1,191 2,334 8,628 5,062
Reinvestment of distributions to shareholders........ 1,413 927 4,918 6,056
Cost of fund shares redeemed......................... (3,029) (3,867) (28,973) (27,351)
-------- -------- --------- ---------
Decrease in net assets from Investor share
transactions.................................... (425) (606) (15,427) (16,233)
-------- -------- --------- ---------
INSTITUTIONAL SHARES:
Proceeds from sale of fund shares.................... 2,004 0 6,374 0
Reinvestment of distributions to shareholders........ 20 0 301 0
Cost of fund shares redeemed......................... (558) 0 (998) 0
-------- -------- --------- ---------
Increase in net assets from Institutional share
transactions....................................... 1,466 0 5,677 0
-------- -------- --------- ---------
Net increase (decrease) in net assets.............. 2,979 (190) (7,153) (18,413)
NET ASSETS -- beginning of period.................... 14,345 14,535 133,298 151,711
-------- -------- --------- ---------
NET ASSETS -- end of period.......................... $17,324 $14,345 $126,145 $133,298
======== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 25
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS) --
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
AMORTIZED
MATURITY FACE COST
DATE AMOUNT (NOTE 2)
--------- --------- ---------
<S> <C> <C> <C>
U.S. GOVERNMENT-SPONSORED ENTERPRISES AND FEDERAL AGENCY OBLIGATIONS 83%
Federal Farm Credit Bank Note
5.50%.......................... 11-03-97 $ 20,000 $ 20,000
Federal Farm Credit Bank Note
5.53%.......................... 02-02-98 7,500 7,500
Federal Farm Credit Bank Note
5.51%.......................... 12-01-97 25,000 25,000
Federal Farm Credit Bank Note
5.50%.......................... 01-02-98 25,000 25,000
Federal Farm Credit Bank Note
5.47%.......................... 04-02-98 5,000 5,000
Federal Farm Credit Bank Note
5.71%.......................... 03-13-98 10,000 9,995
Federal Farm Credit Bank Note
5.77%.......................... 08-18-98 10,000 10,000
Federal Farm Credit Bank Note
5.69%.......................... 10-01-97 35,000 35,000
Federal Farm Credit Bank Note
5.63%.......................... 01-02-98 10,000 10,000
Federal Home Loan Bank Note
5.53%.......................... 12-16-97 10,000 10,000
Federal Home Loan Bank Note
5.52%.......................... 02-02-98 10,000 9,982
Federal Home Loan Bank Note
5.81%.......................... 02-13-98 10,000 10,000
Federal Home Loan Bank Note
5.70%.......................... 03-04-98 10,000 10,000
Federal Home Loan Bank Note
5.91%.......................... 04-02-98 10,000 9,997
Federal Home Loan Bank Note
5.82%.......................... 06-16-98 10,000 10,000
Federal Home Loan Bank Note
5.72%.......................... 06-30-98 10,000 9,991
Federal Home Loan Bank Note
5.88%.......................... 08-12-98 5,000 5,000
Federal Home Loan Bank Note
5.86%.......................... 09-02-98 20,000 20,000
Federal Home Loan Bank Note
5.90%.......................... 09-16-98 5,000 5,000
Federal Home Loan Bank Note
5.80%.......................... 09-18-98 15,000 15,010
Federal Home Loan Bank Note
5.84%.......................... 10-14-98 5,000 5,000
Student Loan Marketing
Association Note 5.63%......... 12-12-97 5,000 5,000
Student Loan Marketing
Association Note 5.26%*........ 12-18-97 60,000 60,000
Student Loan Marketing
Association Note 5.17%*........ 10-16-97 5,000 5,000
<CAPTION>
AMORTIZED
MATURITY FACE COST
DATE AMOUNT (NOTE 2)
--------- --------- ---------
<S> <C> <C> <C>
U.S. GOVERNMENT-SPONSORED ENTERPRISES AND FEDERAL AGENCY OBLIGATIONS 83%
(CONTINUED)
Student Loan Marketing
Association Note 5.17%*........ 11-20-97 $ 25,000 $ 25,000
Student Loan Marketing
Association Note 5.26%*........ 01-15-98 5,000 5,000
Student Loan Marketing
Association Note 5.27%*........ 02-19-98 30,000 30,000
Student Loan Marketing
Association Note 5.32%*........ 03-19-98 20,000 20,000
---------
TOTAL U.S. GOVERNMENT-SPONSORED
ENTERPRISES AND FEDERAL AGENCY
OBLIGATIONS.................... 417,475
---------
REPURCHASE AGREEMENTS 23%
Daiwa Securities America Inc.
5.50%
(collateralized by $31,495,000
U.S. Treasury notes, 6.75%,
05-31-99, value $32,640,545.... 10-03-97 32,000 32,000
Fifth Third Bank 6.00%
(collateralized by $4,886,000
FNMA Notes, 6.00%, 06-01-15 ,
value $5,047,141).............. 10-01-97 4,899 4,899
Merrill Lynch Gov't. Securities
Inc. 5.56%
(collateralized by $28,277,035
U.S. Federal Agency notes,
6.50%-7.50%, 4-1-08 through
4-1-24, value $22,442,698)..... 10-02-97 22,000 22,000
The Nikko Securities Co. Int'l,
Inc. 5.62%
(collateralized by $16,035,000
GNMA Notes, 6.00% through
7.575%, 5-20-24 through
7-20-27, value $12,577,068).... 10-06-97 12,000 12,000
Paine Webber Inc. 5.50%
(collateralized by $36,055,000
FNMA Notes, 0.00%, 04-01-23 ,
value $7,140,850).............. 10-07-97 7,000 7,000
Smith Barney Shearson 5.54%
(collateralized by $39,500,683
U.S. Federal Agency notes,
5.75% through 9.9375%, 3-15-04
through 2-25-31 , value
$39,780,001)................... 10-01-97 39,000 39,000
---------
TOTAL REPURCHASE AGREEMENTS...... 116,899
---------
TOTAL INVESTMENTS AT AMORTIZED
COST 106%...................... $534,374
=========
</TABLE>
Percentages indicated are based on net assets.
Cost also represents cost for Federal income tax purposes.
* Rule 2a-7, of the Investment Company Act of 1940, defines maturity as the
longer of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered
through demand. The 2a-7 maturity for the indicated Bonds is October 7, 1997.
See accompanying notes to financial statements.
23
<PAGE> 26
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS) --
CARDINAL TAX EXEMPT MONEY MARKET FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FINAL FACE AMORTIZED
2a-7* MATURITY AMOUNT/ COST
MATURITY DATE SHARES (NOTE 2)
--------- -------- ------- ---------
<S> <C> <C> <C> <C>
GENERAL OBLIGATION BONDS 24%
District of Columbia Refunding Series B currently 7.70%................ 6-01-98 6-01-04 1,000 $ 1,045
Indiana Secondary Market Educational Loans Inc. currently 4.10%........ 10-07-97 12-01-14 1,000 1,000
Mason, Ohio City School District Bond Anticipation currently 4.45%..... 3-20-98 3-20-98 1,000 1,003
Columbus, Ohio Adjustable Series 1 currently 3.90%..................... 10-07-97 12-01-17 3,100 3,100
Ohio School District Cash Flow Borrowing Program currently 4.47%....... 6-30-98 6-30-98 2,000 2,008
Ohio State Public Facilities currently 7.00%........................... 6-01-98 6-01-00 1,000 1,040
Cincinnati, Ohio City School District Tax currently 3.75%.............. 12-01-97 12-01-97 1,500 1,500
Summit County, Ohio Bond Anticipation currently 4.50%.................. 6-04-98 6-04-98 1,000 1,004
Texas State Refunding currently 4.10%.................................. 10-07-97 12-01-16 2,900 2,900
-------
14,600
-------
REVENUE BONDS 72%
Alaska Industrial Development Authority currently 3.60%................ 10-07-97 6-01-10 2,055 2,055
Connecticut State Development Authority currently 4.00%................ 10-07-97 9-01-28 3,400 3,400
Kentucky Development Financial Authority currently 4.05%............... 10-07-97 12-01-15 900 900
Clark County, Kentucky Pollution Control currently 3.75%............... 10-15-97 10-15-14 2,300 2,300
Louisiana Public Facilities Authority Refunding currently 4.05%........ 10-07-97 10-01-22 2,000 2,000
Howard County, Maryland Multifamily Housing currently 4.00%............ 10-07-97 6-15-26 2,300 2,300
Cornell Township, Michigan Economic Development currently 3.55%........ 1-15-98 3-01-15 3,100 3,100
Buffalo County, Nebraska Hospital Authority currently 3.95%............ 10-07-97 5-01-18 1,970 1,970
North Carolina Medical Care Community Hospital currently 4.05%......... 10-07-97 9-01-02 1,600 1,600
Albuquerque, New Mexico Hospitals currently 4.05%...................... 10-07-97 5-15-22 2,500 2,500
Ohio State Higher Education Facilities Commission currently 3.95%...... 10-07-97 12-01-06 1,115 1,115
Ashtabula County, Ohio Industrial Development currently 3.95%.......... 10-07-97 12-01-16 2,400 2,400
Clackamas County, Oregon Hospital Facilities Authority currently
3.55%................................................................ 4-01-98 4-01-14 1,100 1,100
Pennsylvania State Higher Education Assistance currently 4.10%......... 10-07-97 7-01-18 1,500 1,500
York County, South Carolina Pollution Control currently 3.64%.......... 11-01-97 8-15-14 980 980
York County, South Carolina Pollution Control currently 3.64%.......... 11-01-97 8-15-14 1,955 1,955
Lower Neches Valley Authority, Texas currently 3.75%................... 2-17-98 2-15-17 1,000 1,000
Grand Prairie, Texas Housing -- Refunding currently 4.10%.............. 10-07-97 6-01-10 1,800 1,800
Hockley County, Texas Industrial Development currently 3.75%........... 11-01-97 3-01-14 1,750 1,752
Utah State Board of Regents currently 4.10%............................ 10-07-97 11-01-31 1,500 1,500
Peninsula Ports Authority, Virginia, Revenue currently 3.80%........... 11-01-97 12-01-05 2,000 2,000
Marion County, West Virginia Common Solid Waste currently 4.25%........ 10-07-97 10-01-17 1,000 1,000
Uinta County, Wyoming Pollution Control currently 3.75%................ 10-01-97 8-15-20 2,900 2,900
-------
43,127
-------
REGULATED INVESTMENT COMPANY 5%
Goldman Sacs Financial Square Tax Exempt Fund currently 3.25%.......... 10-01-97 3,009 3,009
-------
TOTAL INVESTMENTS AT AMORTIZED COST 101%............................... $60,736
=======
</TABLE>
* Rule 2a-7, of the Investment Company Act of 1940, defines maturity as the
longer of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered
through demand.
Percentages indicated are based on net assets.
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
24
<PAGE> 27
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS) --
THE CARDINAL FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- --------
<S> <C> <C>
COMMON STOCK 92%
BASIC MATERIALS 6%
Aluminum Co. of America.......... 25,000 $ 2,050
Boise Cascade Corp............... 30,000 1,262
Dow Chemical Company............. 35,000 3,173
Dupont de Nemours and Co......... 51,400 3,164
International Paper.............. 40,000 2,203
Monsanto Company................. 25,000 975
Potash Corp. Saskatchewan........ 25,000 1,963
Solutia Incorporated*............ 5,000 100
Willamete Industries............. 40,000 1,530
Worthington Industries Inc....... 30,000 608
--------
17,028
--------
CONSUMER CYCLICALS 5%
Dun & Bradstreet................. 30,000 851
Gannett Company, Inc............. 30,000 3,238
Gucci Group ADR.................. 10,000 469
Kohl's Corp.*.................... 20,000 1,420
Limited Inc...................... 50,000 1,222
Lowe's Companies................. 35,000 1,361
New York Times Company Cl 'A'.... 40,000 2,100
Nike Incorporated................ 15,000 795
Saks Holdings, Inc.*............. 25,000 522
Service Corporation
International.................. 30,000 966
Tribune Company.................. 40,000 2,132
--------
15,076
--------
CAPITAL GOODS 11%
ASEA AB ADR...................... 10,000 1,415
Boeing Company................... 20,000 1,089
Caterpillar, Inc................. 30,000 1,618
Deere & Company.................. 25,000 1,344
General Electric Company......... 170,000 11,571
Johnson Controls Inc............. 25,000 1,239
Minnesota Mining & Manufacturing
Co............................. 50,000 4,625
Textron, Incorporated............ 120,000 7,800
Tyco International Ltd........... 12,000 985
U.S. Filter Corporation*......... 35,000 1,506
--------
33,192
--------
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
COMMUNICATIONS 4%
Cellular Technical Services*..... 25,000 $ 145
GTE Corp......................... 100,000 4,538
LCI International, Inc.*......... 50,000 1,331
Pacific Gateway Exchange*........ 15,000 587
Sprint Corporation............... 40,000 2,000
WorldCom, Inc*................... 70,000 2,476
--------
11,077
--------
ENERGY 11%
Exxon Corp....................... 40,000 2,563
Global Marine*................... 30,000 998
Mobil Corp....................... 116,000 8,584
Royal Dutch Petroleum............ 150,000 8,325
Schlumberger Ltd................. 40,000 3,368
Texaco, Incorporated............. 100,000 6,144
Transocean Offshore,
Incorporated................... 20,000 957
--------
30,939
--------
FINANCIAL SERVICES 16%
American International Group,
Inc............................ 45,000 4,643
Banc One Corporation............. 100,000 5,581
Bank of New York Co. Inc......... 15,000 720
Bankers Trust NY................. 15,000 1,838
Beneficial Corporation........... 50,000 3,809
Charter One Financial Corp....... 105,000 6,208
Cincinnati Financial Corp........ 75,000 6,150
Citicorp......................... 12,000 1,607
Federal National Mortgage........ 20,000 940
Huntington Bancshares............ 60,000 2,164
Key Corp......................... 100,000 6,363
Marsh & McLennan, Inc............ 90,000 6,896
T. Rowe Price Associates Inc..... 10,000 673
--------
47,592
--------
</TABLE>
* Non-income producing (continued)
25
<PAGE> 28
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) --
THE CARDINAL FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
HEALTHCARE 10%
American Home Products........... 80,000 $ 5,840
Amgen, Incorporated*............. 15,000 719
Biomet, Inc...................... 60,000 1,440
Boston Scientific*............... 20,000 1,104
Cardinal Health Inc.............. 15,000 1,065
HEALTHSOUTH Corporation*......... 50,000 1,334
Johnson & Johnson................ 80,000 4,610
Medtronic, Inc................... 70,000 3,290
Merck & Company, Inc............. 50,000 4,997
Pfizer, Inc...................... 70,000 4,204
Tenet Healthcare Corporation..... 40,000 1,165
Warner Lambert Inc............... 10,000 1,349
--------
31,117
--------
CONSUMER STAPLES 10%
Anheuser Busch Cos., Inc......... 50,000 2,256
Coca Cola Company................ 100,000 6,094
Gillette Company................. 25,000 2,158
Imax Inc.*....................... 20,000 523
Kimberly-Clark Corp.............. 30,000 1,468
McDonald's Corporation........... 30,000 1,429
PepsiCo Incorporated............. 50,000 2,028
Philip Morris Companies, Inc..... 150,000 6,234
Playtex Incorporated*............ 75,000 759
Proctor & Gamble Company......... 70,000 4,834
The Walt Disney Company.......... 25,000 2,016
--------
29,799
--------
FACE/ MARKET
SHARES VALUE
--------- --------
COMMON STOCK (CONTINUED)
TECHNOLOGY 17%
3Com Corp.*...................... 20,000 $ 1,025
Applied Materials*............... 25,000 2,381
Atmel Corporation*............... 40,000 1,458
Cisco Systems*................... 25,000 1,827
Compaq Computer Corp............. 75,000 5,606
Dell Computer Corp.*............. 10,000 969
Gateway 2000*.................... 30,000 943
Hewlett Packard.................. 40,000 2,783
Intel Corp....................... 90,000 8,308
International Business Machines
Corp........................... 30,000 3,178
Kent Electronics*................ 25,000 988
Lucent Technologies.............. 40,000 3,255
Microsoft Corp.*................. 55,000 7,277
Motorola Inc..................... 40,000 2,875
Oracle Corp.*.................... 15,000 547
Tektronix, Incorporated.......... 30,000 2,023
Tellabs, Incorporated*........... 30,000 1,545
Texas Instruments, Inc........... 25,000 3,377
--------
50,365
--------
UTILITIES 2%
Western Resources................ 60,000 2,059
Williams Companies, Inc.......... 60,000 2,809
--------
4,868
--------
TOTAL COMMON STOCK............... 271,053
--------
(cost $150,081,175)
INDEX OPTIONS 1%
Standard and Poor's Index 500
December 940 puts.............. 200 638
Standard and Poor's Index 500
December 950 puts.............. 400 1,445
--------
TOTAL INDEX OPTIONS.............. 2,083
--------
(cost $2,194,300)
</TABLE>
* Non-income producing (continued)
26
<PAGE> 29
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) --
THE CARDINAL FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- --------
<S> <C> <C>
REPURCHASE AGREEMENTS 6%
Fifth Third Bank 6.00%
due 10/1/97 (collateralized by
$1,203,000 FNMA, 6.00%, 6/1/15,
value $1,242,474).............. 1,206,176 $ 1,206
Paine Webber Inc. 6.10%
due 10/1/97 (collateralized by
$49,177,401 U.S. Federal Agency
notes, 0.00%, 3/1/20 through
6/1/29, value $19,074,854)..... 18,700,000 18,700
--------
TOTAL REPURCHASE AGREEMENTS.... 19,906
--------
(cost $19,906,176)
U.S. TREASURY OBLIGATIONS 1%
U.S. Treasury Bill 5.04%, due
1/8/98......................... 2,000,000 1,972
--------
TOTAL U.S. TREASURY
OBLIGATIONS.................. 1,972
--------
(cost $1,971,988)
TOTAL INVESTMENTS 100%......... $295,014
========
(cost $174,153,639)(a)
</TABLE>
<TABLE>
<CAPTION>
MARKET
CONTRACTS VALUE
--------- ------
<S> <C> <C>
OPTIONS WRITTEN
Standard and Poor's Index 500
December 1050 calls............... (600) $(368)
------
TOTAL OPTIONS WRITTEN (premium
received $858,191)(a)......... (600) $(368)
=======
</TABLE>
Percentages indicated are based on net assets.
(a) Represents cost for Federal income tax purposes. Cost differs from market
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation (including unrealized appreciation on
options written)................................................. $ 122,716
Unrealized depreciation............................................ (1,366)
-----------
Net unrealized appreciation........................................ $ 121,350
===========
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 30
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS) --
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
COMMON STOCK 97%
BASIC MATERIALS 1%
Buckeye Cellulose*................ 2,000 $ 81
CONSUMER CYCLICALS 7%
Cort Business Services*........... 4,000 160
Gartner Group 'A'*................ 2,000 60
Kohl's Corp.*..................... 2,000 142
La Quinta Inns.................... 3,000 71
Little Fuse*...................... 5,000 174
New York Times Company Cl 'A'..... 3,000 158
Personal Group of America*........ 4,000 137
Pierce Leahy*..................... 3,500 94
-------
996
-------
CAPITAL GOODS 2%
Lancer Corp.*..................... 7,500 120
U.S. Filter*...................... 3,000 129
Westinghouse Elec................. 3,000 81
-------
330
COMMUNICATIONS 5%
AirTouch Communications*.......... 7,000 248
Pacific Gateway Exchange*......... 4,000 157
WorldCom inc*..................... 10,000 353
-------
758
-------
FINANCIAL SERVICES 15%
Amer Capital Strategies*.......... 10,000 200
AmSouth Bancorp................... 2,500 121
Bear Stearns Cos.................. 1,550 68
CMAC Investment................... 3,000 161
Corestates Financial.............. 1,000 66
Crestar Financial................. 2,500 117
Edwards (AG) Inc.................. 1,000 51
First Tenn Natl................... 3,000 171
Fleet Financial Group............. 1,500 98
Legg Mason Inc.................... 1,333 70
McDonald & Co. Invest............. 2,000 58
Mellon Bank Corp.................. 1,500 82
Nationwide Finl Svcs. 'A'......... 5,000 139
Paine Webber Group................ 1,500 70
PNC Bank Corp..................... 2,000 98
Raymond James Finl................ 2,500 90
Salomon Inc....................... 2,000 150
Summit Bancorp.................... 1,500 67
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
COMMON STOCK (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
Union BanCal Corp................. 1,500 $ 130
Union Planters.................... 2,000 113
-------
2,120
-------
HEALTHCARE 10%
Alkermes Inc.*.................... 5,000 103
Biomet, Inc....................... 10,000 240
Centecor Inc.*.................... 2,000 95
Cygnus Inc.*...................... 4,000 79
Dentsply International............ 2,000 112
Genzyme Corp. -- Genl Div*........ 3,000 89
Genzyme spin off -- Tissue
Repair*......................... 90 1
Hfs Inc.*......................... 1,000 74
Maxicare Health Plans*............ 10,000 186
Teva Pharm Inds ADR............... 4,000 224
Vertex Pharmaceuticals Inc.*...... 5,000 189
-------
1,392
-------
CONSUMER STAPLES 5%
Chancelor Media Corp 'A'*......... 3,000 158
Emmis Broadcasting 'A'*........... 2,000 96
Imax Inc.*........................ 6,000 157
Philip Morris Companies, Inc...... 3,000 125
Pixar*............................ 4,000 93
-------
629
-------
TECHNOLOGY -- SEMICONDUCTORS 24%
Analog Devices*................... 8,667 290
Applied Materials*................ 4,000 381
Atmel Corporation*................ 7,000 255
CFM Technologies*................. 3,500 137
Cymer Inc.*....................... 2,000 55
DuPont Photomasks*................ 2,500 180
Intel Corp........................ 5,500 508
KLA-Tencor Corp.*................. 5,000 338
Lam Research*..................... 1,500 70
Lattice Semiconductor*............ 3,000 195
National Semiconductors*.......... 4,000 164
PRI Automation*................... 5,000 293
Texas Instruments................. 3,000 405
-------
3,271
-------
</TABLE>
* Non-income producing (continued)
28
<PAGE> 31
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) --
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
COMMON STOCK (CONTINUED)
TECHNOLOGY -- SOFTWARE 6%
Computer Science*................. 4,500 $ 318
Microsoft Corp.*.................. 3,000 397
Netscape Communications*.......... 2,000 72
-------
787
-------
TECHNOLOGY -- HARDWARE/NETWORKING
22%
3Com Corp.*....................... 3,000 154
Asyst Technologies*............... 4,000 178
CHS Electronics*.................. 3,000 82
Compaq Computer Corp.............. 5,000 374
Dell Computer Corp.*.............. 3,000 291
EMC Corp*......................... 7,000 409
GenRad, Inc.*..................... 13,000 375
Hewlett-Packard................... 3,000 209
Lecroy Corp....................... 5,000 221
Motorola, Inc..................... 4,000 288
Photon Dynamics, Inc.*............ 9,000 67
Silicon Graphics*................. 7,000 184
Tellabs, Inc*..................... 5,500 283
-------
3,115
-------
TOTAL COMMON STOCK.............. 13,479
(cost $8,321,463) -------
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
INDEX OPTIONS 2%
Morgan Stanley High Tech Index
Dec. 490 Puts................... 55 $ 95
Russell 2000 Index Options Dec.
415 Calls....................... 50 231
-------
TOTAL INDEX OPTIONS............. 326
(cost $320,815) -------
REPURCHASE AGREEMENT 2%
Fifth Third Bank, 6.00% due 10/1/97,
collateralized by $214,000 FNMA,
6.00%, 6/1/15, value $221,022).... 214,320 214
-------
TOTAL REPURCHASE AGREEMENTS
(cost $214,320) 214
-------
TOTAL INVESTMENTS 101%.......... $14,019
(cost $8,856,589)(a) ========
OPTION WRITTEN
Morgan Stanley High Tech Index
Dec. 575 call................... (55) $ (61)
(premium received $89,898)(a) ========
</TABLE>
Percentages indicated are based on net assets.
(a) Represents cost for Federal income tax purposes. Cost differs from market
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................................................... $ 5,470
Unrealized depreciation (including unrealized depreciation on options written).............. (279)
-----------
Net unrealized appreciation................................................................. $ 5,191
==========
</TABLE>
* Non-income producing
See accompanying notes to financial statements.
29
<PAGE> 32
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS) --
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
COMMON STOCK 63%
BASIC MATERIALS 2%
DuPont de Nemours and Co.......... 2,000 $ 123
Monsanto Co....................... 3,500 137
Solutia Inc.*..................... 700 14
-------
274
-------
CONSUMER CYCLICALS 4%
Consolidated Stores*.............. 3,000 126
New York Times Co. Cl 'A'......... 3,500 184
Nike Inc. Cl 'B'.................. 2,000.. 106
Service Corporation Intl.......... 3,000 97
Tribune Co........................ 4,000 212
-------
725
-------
CAPITAL GOODS 7%
Avery Dennison Corp............... 4,500 180
Crane Co.......................... 4,500 185
Deere & Co........................ 3,000 161
Emerson Electric.................. 2,000 115
General Electric.................. 4,000 272
Textron, Inc...................... 2,400 156
Tyco International Limited........ 2,500 206
-------
1,275
-------
COMMUNICATIONS 1%
Worldcom, Inc.*................... 7,000 248
-------
ENERGY 5%
Amoco Corp........................ 1,500 145
Exxon Corp........................ 3,000 192
Mobil Corp........................ 2,000 148
Schlumberger Ltd.................. 2,000 168
Transocean Offshore,
Incorporated.................... 6,000 288
-------
941
-------
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
FINANCIAL SERVICES 14%
Ahmanson (H F) & Co............... 4,000 $ 227
AmSouth Bancorp................... 2,200 107
Am. Express....................... 2,000 164
Am. General Hospitality........... 4,000 117
Am. Intl Group.................... 1,500 155
Bank of Boston Corp............... 1,200 106
Bank of New York Co., Inc......... 3,500 168
Bay Apartment Communities......... 2,500 100
Ben Franklin Resources............ 2,300 214
Citicorp.......................... 1,000 134
Federal National Mortgage Assn.... 2,500 118
Inmc Mortgage Holdings, Inc....... 7,000 175
Mellon Bank Corp.................. 3,000 164
Traveler's Group.................. 2,667 182
T. Rowe Price Assocation.......... 3,500 234
-------
2,365
-------
HEALTHCARE 8%
Amgen, Inc.*...................... 2,000 96
Cardinal Health, Inc.............. 2,000 142
HealthSource Corp.*............... 9,000 240
Johnson & Johnson................. 3,000 173
Medtronic, Inc.................... 5,000 235
Merck & Company, Inc.............. 2,000 200
Pfizer Inc........................ 2,000 120
Quorum Health Group*.............. 4,500 110
Tenet Healthcare Corporation...... 4,000 116
-------
1,432
-------
CONSUMER STAPLES 9%
Coca Cola Co...................... 3,000 183
Colgate-Palmolive................. 3,000 209
Disney (Walt) Co.................. 1,900 153
Gillette Co....................... 2,500 216
McDonald's Corp................... 2,000 95
Pepsico Inc....................... 3,000 122
Philip Morris Company, Inc........ 3,000 125
Procter & Gamble Company.......... 2,000 138
Robert Mondavi Cl 'A'*............ 3,000 164
Wendy's Intl...................... 5,000 106
-------
1,511
-------
</TABLE>
* Non-income producing (continued)
30
<PAGE> 33
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) --
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
TECHNOLOGY 10%
Applied Materials*................ 3,000 $ 286
Cisco Systems*.................... 2,000 146
Compaq Computer Corp.............. 2,000 150
Computer Sciences*................ 2,000 142
Hewlett-Parckard.................. 3,000 209
Intel Corp........................ 2,600 240
Lucent Technologies............... 3,500 285
Microsoft Corp.*.................. 1,000 131
-------
1,589
-------
TRANSPORTATION 2%
Burlington Northern Santa Fe...... 1,500 145
Federal Express*.................. 2,500 200
-------
345
-------
UTILITIES 1%
Williams Cos...................... 3,000 140
-------
TOTAL COMMON STOCK.............. 10,845
(Cost $8,016,209) -------
INDEX OPTION 1%
Standard and Poor index 500
December 940 puts............... 50 181
-------
TOTAL INDEX OPTIONS............. 181
(Cost $202,650) -------
PREFERRED STOCK 2%
Glendale Federal Bank 8.750%
preferred series E.............. 4,000 297
-------
TOTAL PREFERRED STOCK........... 297
(Cost $170,400) -------
FACE/ MARKET
SHARES VALUE
------- -------
CORPORATE BONDS 14%
AMR Corp. 10.18%, 1-2-13.......... 250,000 $ 309
Anheuser-Busch Co. 7.00%, 9-1-05.. 250,000 254
Consumers Power 7.50%, 6-1-02..... 300,000 305
CSX Transportation 6.72%,
6-1-06.......................... 250,000 251
Dole Foods Company 7.00%, 5-15-
03.............................. 200,000 203
G.M. Acceptance 7.00%, 9-15-02.... 200,000 205
Kemper Corp. 6.875%, 9-15-03...... 250,000 253
Limited Incorporated 7.50%,
3-15-23......................... 250,000 237
Nordstrom Inc. 6.70%, 7-1-05...... 250,000 250
United States Filter Corp. 4.50%,
12-15-01........................ 150,000 185
-------
TOTAL CORPORATE BONDS........... 2,452
(Cost $2,298,373) -------
U.S. GOVERNMENT-SPONSORED ENTERPRISES
AND FEDERAL AGENCY OBLIGATIONS 10%
Federal National Mortgage
Association 7.09%, 3-13-07 250,000 254
Federal National Mortgage
Association 6.99%, 7-9-07....... 250,000 253
Federal National Mortgage
Association 6.94%, 3-14-11...... 500,000 497
Federal National Mortgage
Association 7.00%, 9-3-03....... 250,000 252
Federal National Mortgage
Association 7.03%, 10-25-06..... 250,000 255
Federal National Mortgage
Association 7.50%, 11-15-06..... 250,000 254
-------
TOTAL U.S. GOVERNMENT-SPONSORED
ENTERPRISES AND FEDERAL AGENCY
OBLIGATIONS (Cost
$1,751,077)................... 1,765
-------
U.S. GOVERNMENT OBLIGATIONS 6%
U.S. Treasury Note 5.875%,
Due 2-15-04..................... 500,000 494
U.S. Treasury Strips 11.25%,
Due 2-15-09, principal only..... 1,000,000 491
-------
TOTAL U.S. GOVERNMENT
OBLIGATIONS................... 985
(Cost $895,882) -------
</TABLE>
* Non-income producing (continued)
31
<PAGE> 34
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED) --
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
REPURCHASE AGREEMENT 4%
Fifth Third Bank 6.00%, due
10-1-97
(collateralized by $6.00% FNMA
notes, 6.00%, 6-1-15, value
$801,463)....................... 777,532 $ 778
-------
TOTAL REPURCHASE AGREEMENTS..... 778
(Cost $777,532) -------
TOTAL INVESTMENTS 100%.......... $17,303
(Cost $14,187,122)(a) ========
OPTIONS WRITTEN
Standard and Poor Index 500, Dec
1050 calls...................... (50) $ (31)
-------
TOTAL OPTIONS WRITTEN (premium
received $74,850)(a).......... $ (31)
========
</TABLE>
Percentages indicated are based on net assets.
(a) Represents cost for Federal income tax purposes. Cost differs from market
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................................................... $ 3,265
Unrealized depreciation..................................................................... (105)
-----------
Net unrealized appreciation................................................................. $ 3,160
==========
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 35
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (PRINCIPAL AMOUNTS AND MARKET VALUE IN THOUSANDS) --
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 2)
-------- --------
<S> <C> <C>
U. S. GOVERNMENT AGENCY OBLIGATIONS 99%
GNMA CLC Notes, 7.375%, stated
maturity 01-15-98................... $ 443 $ 447
GNMA CLC Notes, 7.75%, stated maturity
12-15-98............................ 143 147
GNMA CLC Notes, 8.00%, maturing
06-15-98 through 10-15-98........... 500 522
GNMA CLC Notes, 8.125%, stated
maturity 05-15-99................... 1,307 1,372
GNMA PL Notes, 8.00% stated maturity
11-15-24............................ 1,658 1,723
GNMA PL Notes, 8.125% stated maturity
6-15-29............................. 491 514
GNMA PL Notes, 8.25% stated maturity
7-15-27............................. 2,768 2,862
GNMA PL Notes, 8.50% stated maturity
9-15-29............................. 2,149 2,281
GNMA PL Notes, 9.00% stated maturities
5-15-16 through 10-15-21............ 2,415 2,529
GNMA PL Notes, 9.00% stated maturity
10-15-16+........................... 1,607 1,739
GNMA I Note, 7.35% stated maturity
01-15-98............................ 2,169 2,185
GNMA I Notes, 7.50% stated maturities
from 10-15-25 through 03-15-27...... 14,582 14,846
GNMA I Note, 7.75% stated maturity
02-15-98............................ 2,008 2,081
GNMA I Notes, 8.00% stated maturities
from 06-15-98 through 04-15-37...... 21,400 22,355
GNMA I Notes, 8.125% stated maturity
05-15-99............................ 2,495 2,620
GNMA I Notes, 8.25% stated maturities
from 03-15-22 through 10-15-36...... 5,327 5,628
GNMA I Notes, 8.50% stated maturities
from 05-15-16 through 03-15-30...... 15,816 16,714
GNMA I Note, 8.875% stated maturity
05-15-35............................ 1,258 1,352
<CAPTION>
MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 2)
-------- --------
<S> <C> <C>
U. S. GOVERNMENT AGENCY OBLIGATIONS
(CONTINUED)
GNMA I Notes, 9.00% stated maturities
from 06-15-16 through 03-15-33...... $ 16,251 $ 17,547
GNMA I Notes, 9.25% stated maturities
from 03-15-30 through 02-15-33...... 1,646 1,786
GNMA I Notes, 9.50% stated maturities
from 01-15-19 through 02-15-23...... 800 843
GNMA I Note, 10.25% stated maturity
12-15-22............................ 1,620 1,710
GNMA I Note, 10.50% stated maturity
06-15-14............................ 999 1,047
GNMA II Notes, 7.50% stated maturities
from 07-20-27 through 08-20-27...... 8,930 9,075
GNMA II Notes, 8.00% stated maturities
from 05-20-22 through 12-20-26...... 3,493 3,602
GNMA II Notes, 10.00% stated
maturities from 01-20-14 through 12-
20-21............................... 7,213 7,875
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (COST -------- --------
$122,422,184)................... 119,488 125,402
-------- --------
U.S. TREASURY OBLIGATIONS 1%
U.S. Treasury Note 5.875%, 09-30-02
(cost $994,660)....................... 1,000 995
--------
REPURCHASE AGREEMENT 2%
Fifth Third Bank 6.00%, Due 10-1-97
(collateralized by $2,396,006 FNMA
6.00%, 6-1-15, value $2,474,620, cost
$2,401,996) 2,402 2,402
--------
TOTAL INVESTMENTS (COST
$125,818,840) (a) 102%.......... $128,799
========
</TABLE>
Percentages indicated are based on net assets.
CLC -- Construction Loan Contract
GNMA -- Government National Mortgage Association
PL -- Project Loan
+ Security is segregated as collateral for construction loans
(a) Represents cost for Federal income tax purposes. Cost differs from market
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................................................... $ 3,029
Unrealized depreciation......................................................................... (49)
-------
Net unrealized appreciation..................................................................... $ 2,980
======
</TABLE>
See accompanying notes to financial statements.
33
<PAGE> 36
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997 (UNAUDITED)
1. ORGANIZATION
The Cardinal Group (the "Group") is an open-end management investment company,
sponsored by The Ohio Company ("TOC"), established as an Ohio Business Trust on
March 23, 1993. The Group is authorized to issue an unlimited number of shares
which are units of beneficial interest without par value. Before June 24, 1993
the Group had no operations other than those relating to organizational matters,
including the issuance of 5,000 shares of beneficial interest in each of
Cardinal Balanced Fund and Cardinal Aggressive Growth Fund (the "Original
Portfolios") for cash at $10.00 per share on June 4, 1993 to Cardinal Management
Corp. ("CMC"), the Group's Investment Adviser and a wholly owned subsidiary of
TOC.
Effective May 1, 1996 the Group acquired the assets and assumed the liabilities
of four open-end management investment companies also sponsored by TOC in
exchange for shares of corresponding portfolios of the Group. Cardinal
Government Securities Trust, Cardinal Tax Exempt Money Trust, The Cardinal Fund
Inc., and Cardinal Government Obligations Fund (collectively the "Acquired
Funds") were acquired by portfolios of the Group as follows:
Cardinal Government Securities Trust was acquired by Cardinal Government
Securities Money Market Fund
Cardinal Tax Exempt Money Trust was acquired by Cardinal Tax Exempt Money
Market Fund
The Cardinal Fund Inc. was acquired by The Cardinal Fund
Cardinal Government Obligations Fund was acquired by Cardinal Government
Obligations Fund
The new portfolios retained the basic investment objectives and assumed the
historical performance of the Acquired Funds.
Effective January 1, 1997, as authorized by the Board of Trustees, the Group
began to issue shares of two classes, Investor and Institutional, of units of
beneficial interest of The Cardinal Fund, Cardinal Government Obligations Fund,
Cardinal Balanced Fund and Cardinal Aggressive Growth Fund portfolios Qualifying
Shareholder Accounts.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies that the Group
follows in the preparation of its financial statements and the calculation of
daily net asset values. The policies are in conformity with generally accepted
accounting principles and the Investment Company Act of 1940 (the "Act"), as
amended. The preparation of these financial statements requires the management
of the Group to make estimates and assumptions which affect the reported amounts
of assets and liabilities as of September 30, 1997 and the income and expenses
reported for the period. Actual results could differ significantly from those
estimates.
(continued)
34
<PAGE> 37
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
SECURITIES VALUATION Investments in Cardinal Government Securities Money Market
Fund and Cardinal Tax Exempt Money Market Fund (the "money market funds") are
valued at amortized cost, which approximates the market value. Any premiums and
discounts are amortized on a straight-line method to the maturity of the
particular security. The use of the amortized cost method requires that the
money market funds purchase only securities with a remaining maturity of 397
calendar days or less (longer if certain maturity shortening provisions in Rule
2a-7, of the Act, apply) and maintain a dollar weighted portfolio maturity of 90
days or less.
Investments in The Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal
Balanced Fund and Cardinal Government Obligations Fund (collectively the
"non-money market funds") listed or traded on a national securities exchange are
valued at the last sale price. Investments traded in the over-the-counter market
are valued at either the mean between the bid and ask prices or the last sale
price as may be quoted by the National Association of Securities Dealers
Automated Quotation System. If no quotations are available the portfolio
securities are valued in good faith using methods approved by the Board of
Trustees.
SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are recorded
on the trade date, which is the date they are purchased or sold. Interest income
is recognized on the accrual basis. Dividend income, if any, is recognized on
the ex-dividend date. Realized gains or losses are calculated using the
First-In/First-Out (FIFO) basis.
REPURCHASE AGREEMENTS It is the policy of the Group for its Custodian, Fifth
Third Bank of Cincinnati, or a third-party bank reporting to the Custodian, to
take possession of all securities pledged to the Group as collateral for the
funds loaned in repurchase agreements. Repurchase agreements entered into by the
Group must mature in seven days or less and be fully collateralized by
securities eligible for purchase by the participating portfolio. The Group may
only participate in repurchase transactions with those banks and securities
broker/dealers that meet the credit criteria established by the Board of
Trustees and monitored by CMC.
DEFERRED ORGANIZATIONAL COST Costs incurred with the initial organization of
Cardinal Aggressive Growth Fund and Cardinal Balanced Fund have been deferred
and are being amortized on a straight-line basis over the 60 month period from
the commencement of operations on June 24, 1993.
FEDERAL INCOME TAXES The Group has made no provision for Federal income taxes.
It is the intention of the management of the Group to comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies and to
make sufficient distributions of taxable income and gains within the required
time, to relieve it from all, or substantially all, Federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS The money market funds and Cardinal Government
Obligations Fund declare dividends from net investment income daily and pay them
to shareholders monthly. The Cardinal Fund, Cardinal Aggressive Growth Fund and
Cardinal Balanced Fund declare and pay dividends from net
(continued)
35
<PAGE> 38
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
investment income, if any, quarterly. Realized capital gains, if any, are
declared and paid annually by the Group. Distributions of net investment income
and realized capital gains are determined in accordance with the Internal
Revenue Code and may differ from those calculated in accordance with generally
accepted accounting principles. Dividends and distributions which exceed net
investment income and net realized gains for tax purposes are reported as
distributions of capital. In the current year, the Cardinal Aggressive Growth
Fund distributed capital gains which exceeded net realized gains by
approximately $192,000, therefore qualifying as a distribution of capital.
OPTION WRITING When a portfolio of the Group writes an option, an amount equal
to the premium received is recorded as a liability and is subsequently adjusted
to the current market value of the option written. Premiums received from
options written that expire unexercised are recognized as realized gains by the
portfolio on the expiration date. The difference, if any, between the premium
received and the amount paid in a closing transaction is also treated as a
realized gain or loss. If a written option is exercised, the premium received is
added to proceeds from sales of the underlying securities for call options
written or deducted from the cost basis of securities purchased for put options
written. The portfolios making use of option writing bear the market risk of an
unfavorable change in the price of any security/index underlying the written
option.
Written option activity for the year ended September 30, 1997 was as follows:
<TABLE>
<CAPTION>
THE CARDINAL AGGRESSIVE THE CARDINAL BALANCED
THE CARDINAL FUND GROWTH FUND FUND
----------------------- ----------------------- -----------------------
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
OPTIONS PREMIUM OPTIONS PREMIUM OPTIONS PREMIUM
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
September 30, 1996........ 500 $ 462,665 90 $ 49,459 0 $ 0
Options written............. 800 1,197,591 635 1,071,392 65 88,117
Options canceled in closing
purchase transactions..... (500) (635,991) (600) (875,286) 0 0
Options expired prior to
exercise.................. (200) (166,074) (270) (155,667) (15) (13,267)
---- --------- ---- --------- --- -------
Options outstanding at
September 30, 1997........ 600 $ 858,191 55 $ 89,898 50 $74,850
==== ========= ==== ========= === =======
</TABLE>
EXPENSE ALLOCATION Expenses directly related to one of the Group's portfolios
or classes are charged to that portfolio or class. Other operating expenses are
allocated to the portfolios of the Group based on their relative net assets.
(continued)
36
<PAGE> 39
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
3. PURCHASES AND SALES OF SECURITIES
The purchases and sales of investment securities (excluding short-term
securities) for the year ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -------
<S> <C> <C>
The Cardinal Fund.......................................... $ 30,510 $40,159
Cardinal Aggressive Growth Fund............................ 7,618 3,781
Cardinal Balanced Fund..................................... 14,144 8,798
Cardinal Government Obligations Fund....................... 46,055 61,624
</TABLE>
4. TRANSACTIONS WITH AFFILIATES
CMC, an affiliated company, acts as the Investment Adviser and Transfer Agent
for the Group under contracts monitored and annually approved by the Board of
Trustees. CMC receives a fee based on the average net assets of each portfolio,
plus reimbursement of out-of-pocket costs, for these services as outlined below
as of September 30, 1997:
<TABLE>
<CAPTION>
INVESTMENT ADVISER TRANSFER AGENT
FEE AS A PERCENT OF FEE -- ANNUAL
AVERAGE NET ASSETS PER ACCOUNT CHARGE
-------------------- ------------------
<S> <C> <C>
Money market funds......................... 0.50% $21.00
The Cardinal Fund*......................... 0.60% 18.00
Cardinal Aggressive Growth Fund............ 0.75% 18.00
Cardinal Balanced Fund..................... 0.75% 18.00
Cardinal Government Obligations Fund....... 0.50% 21.00
</TABLE>
- ---------------
* Prior to May 1, 1996, TOC served as Investment Adviser to The Cardinal Fund's
predecessor, The Cardinal Fund, Inc., and was paid an investment adviser fee
of 0.50% of average net assets.
TOC serves as the Group's distributor. TOC receives fees from the Fund for
providing services under the Distribution and Shareholder Service Plan, pursuant
to Rule 12b-1 of the Investment Company Act of 1940, and the Administrative
Service Plan. Under the Plan, the non-money market funds pay TOC an annual fee
not to exceed .25% of the average net assets of the Investor shares of those
funds for providing distribution and shareholder services. Under the
Administrative Services Plan, TOC receives .15% of the average net assets of the
Institutional shares of those funds for providing shareholder services. For the
period from October 1, 1996 through December 31, 1996, The Ohio Company waived
the fees under the Distribution and Shareholder Service and Administrative
Services Plans.
CMC also acted as the Fund Accountant for the Group until January 20, 1997 when
Fifth Third Bank, the Custodian for the Group, assumed that function.
(continued)
37
<PAGE> 40
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
TOC reported to the Group that it received the following commissions (loads),
after discounts to dealers, from the sale of shares of the portfolios of the
Group for the year ended September 30, 1997:
<TABLE>
<S> <C>
The Cardinal Fund --Investor Shares................................. $ 732,412
Cardinal Aggressive Growth Fund --Investor Shares................... 60,397
Cardinal Balanced Fund --Investor Shares............................ 53,812
Cardinal Government Obligations Fund --Investor Shares.............. 297,584
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The portfolios of the Group have available lines of credit with Fifth Third Bank
of Cincinnati, the Custodian, which were unused at September 30, 1997. When
used, borrowings under this arrangement are secured by investment securities and
can be used only for short-term needs of the borrowing portfolio. Compensating
balances are not required and the interest is calculated at 106% of the
Custodian's prime lending rate. The amounts available under this arrangement are
as follows:
<TABLE>
<S> <C>
Cardinal Government Securities Money Market Fund................. $ 25,000,000
Cardinal Tax Exempt Money Market Fund............................ 10,000,000
The Cardinal Fund................................................ 25,000,000
Cardinal Aggressive Growth Fund.................................. 2,000,000
Cardinal Balanced Fund........................................... 2,000,000
Cardinal Government Obligations Fund............................. 25,000,000
</TABLE>
The aggregate limit on borrowing for the Group under this arrangement is
$25,000,000.
(continued)
38
<PAGE> 41
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
Fidelity Bond and Errors/Omissions insurance coverage for the Group and its
officers and Trustees has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Certain portfolios
include in other assets deposits made for the initial capital and certificates
of deposits that collateralize standby letters of credit supporting potential
capital needs of ICI Mutual. In addition, these portfolios are also committed to
provide additional capital should ICI Mutual experience unusual losses arising
from its insurance underwriting. The following table details the deposits,
certificates of deposit and additional capital commitments of the Group:
<TABLE>
<CAPTION>
CERTIFICATES
OF ADDITIONAL
DEPOSITS DEPOSIT COMMITMENTS
-------- --------- ---------
<S> <C> <C> <C>
Cardinal Government Securities Money Market Fund....... $ 87,459 $ 175,000 $ 262,377
Cardinal Tax Exempt Money Market Fund.................. 13,291 27,000 39,873
The Cardinal Fund...................................... 28,588 56,600 85,764
Cardinal Government Obligations Fund................... 30,644 61,000 91,932
</TABLE>
6. FEDERAL INCOME TAXES
For Federal income tax purposes, at September 30, 1997 Cardinal Government
Obligations Fund had a capital loss carryforward available to offset future
capital gains, if any, that will expire over the next eight years. Approximately
$2,000,000 of the capital loss carryforward expired during the year ended
September 30, 1997.
At September 30, 1997, the following Funds have capital loss carryforwards which
are available to offset future capital gains, if any. The amount of the capital
loss carryforward and the years they expire are as follows:
<TABLE>
<CAPTION>
CARDINAL
GOVERNMENT
CARDINAL GOVERNMENT SECURITIES CARDINAL AGGRESSIVE
YEAR OBLIGATIONS FUND MONEY MARKET FUND GROWTH FUND
------------------------------ ------------------- ----------------- -------------------
<S> <C> <C> <C>
1998.......................... $ 1,867,822 -- --
1999.......................... 194,311 -- --
2001.......................... 1,489,408 -- --
2002.......................... 4,601,711 -- --
Thereafter.................... 10,979,417 404,405 809,788
----------- -------- --------
$19,132,669 $ 404,405 $ 809,788
=========== ======== ========
</TABLE>
(continued)
39
<PAGE> 42
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
7. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Group for the years ended September 30,
1996 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
CARDINAL GOVERNMENT CARDINAL TAX EXEMPT
SECURITIES MONEY MARKET FUND MONEY MARKET FUND
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares outstanding:
Beginning of period.................... 477,875 445,374 59,915 64,780
---------- ---------- -------- --------
Share Transactions:
Issued................................. 1,330,914 1,272,768 155,053 159,477
Reinvested............................. 22,599 22,143 1,668 1,701
Redeemed............................... (1,327,106) (1,262,409) (156,352) (166,043)
---------- ---------- -------- --------
Net change in shares................... 26,407 32,502 369 (4,865)
---------- ---------- -------- --------
End of period.......................... 504,282 477,875 60,284 59,915
========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CARDINAL AGGRESSIVE GROWTH FUND
THE CARDINAL FUND
INVESTOR SHARES INVESTOR SHARES
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares outstanding:
Beginning of period.................... 17,438 17,099 855 844
---------- ---------- -------- --------
Share Transactions:
Issued................................. 989 650 140 218
Reinvested............................. 1,512 2,835 19 66
Redeemed............................... (3,845) (3,146) (348) (273)
---------- ---------- -------- --------
Net change in shares................... 1,344 339 (189) 11
---------- ---------- -------- --------
End of period.......................... 16,094 17,438 666 855
========== ========== ======== ========
</TABLE>
(continued)
40
<PAGE> 43
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL GOVERNMENT
CARDINAL BALANCED FUND OBLIGATIONS FUND
INVESTOR SHARES INVESTOR SHARES
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Shares outstanding:
Beginning of period.................... 1,210 1,262 16,557 18,544
------ ------ ------- -------
Share Transactions:
Issued................................. 105 202 1,050 623
Reinvested............................. 126 81 606 745
Redeemed............................... (261) (335) (3,534) (3,355)
------ ------ ------- -------
Net change in shares................... (30) (52) (1,878) (1,987)
------ ------ ------- -------
End of period.......................... 1,180 1,210 14,679 16,557
====== ====== ======= =======
</TABLE>
41
<PAGE> 44
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CARDINAL AGGRESSIVE
THE CARDINAL FUND GROWTH FUND
INSTITUTIONAL SHARES INSTITUTIONAL SHARES
----------------------- -----------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
JANUARY 2, 1997 THROUGH JANUARY 2, 1997 THROUGH
SEPT. 30, 1997 SEPT. 30, 1997
----------------------- -----------------------
<S> <C> <C>
Shares outstanding:
Beginning of period...................................... 0 0
------ ------
Share Transactions:
Issued................................................... 1,894 308
Reinvested............................................... 12 0
Redeemed................................................. (291) (32)
------ ------
Net change in shares..................................... 1,615 276
------ ------
End of period............................................ 1,615 276
====== ======
</TABLE>
<TABLE>
<CAPTION>
CARDINAL CARDINAL GOVERNMENT
BALANCED FUND OBLIGATIONS FUND
INSTITUTIONAL SHARES INSTITUTIONAL SHARES
----------------------- -----------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
JANUARY 2, 1997 THROUGH JANUARY 2, 1997 THROUGH
SEPT. 30, 1997 SEPT. 30, 1997
----------------------- -----------------------
<S> <C> <C>
Shares outstanding:
Beginning of period...................................... 0 0
------- -------
Share Transactions:
Issued................................................... 172 793
Reinvested............................................... 2 37
Redeemed................................................. (45) (122)
------- -------
Net change in shares..................................... 129 708
------- -------
End of period............................................ 129 708
================== ==================
</TABLE>
42
<PAGE> 45
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INVESTMENT ACTIVITIES:
Net investment income............................ 0.05 0.05 0.05 0.03 0.02
------- ------- ------- ------- -------
Total from Investment Activities............. 0.05 0.05 0.05 0.03 0.02
------- ------- ------- ------- -------
DISTRIBUTIONS:
From net investment income....................... (0.05) (0.05) (0.05) (0.03) (0.02)
------- ------- ------- ------- -------
Total Distributions.......................... (0.05) (0.05) (0.05) (0.03) (0.02)
------- ------- ------- ------- -------
NET ASSET VALUE, ENDING............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Total return..................................... 4.67% 4.70% 4.98% 2.84%* 2.41%
Net Assets at end of period (000)................ 504,264 477,875 445,374 367,516 402,758
Ratio of expenses to average net assets.......... 0.88% 0.81% 0.81% 0.85% 0.79%
Ratio of net investment income to average
net assets..................................... 4.57% 4.74% 4.92% 2.94% 2.38%
</TABLE>
- ---------------
* During the year ended September 30, 1994, CMC contributed $1,151,186 to
Cardinal Government Securities Trust, the fund's predecessor, to offset losses
incurred by the predecessor. Without the capital contribution, the 1994 total
return would have been 2.55%.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CARDINAL TAX EXEMPT MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INVESTMENT ACTIVITIES:
Net investment income............................ 0.03 0.03 0.03 0.02 0.02
------- ------- ------- ------- -------
Total from Investment Activities............. 0.03 0.03 0.03 0.02 0.02
------- ------- ------- ------- -------
DISTRIBUTIONS:
From net investment income....................... (0.03) (0.03) (0.03) (0.02) (0.02)
------- ------- ------- ------- -------
Total Distributions.......................... (0.03) (0.03) (0.03) (0.02) (0.02)
------- ------- ------- ------- -------
NET ASSET VALUE, ENDING............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Total Return..................................... 2.72% 2.67% 3.02% 1.78% 1.81%
Net Assets at end of period (000)................ 60,284 59,915 64,780 80,531 91,159
Ratio of expenses to average net assets.......... 0.80% 0.89% 0.81% 0.76% 0.77%
Ratio of net investment income to average
net assets..................................... 2.79% 2.66% 2.99% 1.78% 1.80%
</TABLE>
See notes to financial statements.
43
<PAGE> 46
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- THE CARDINAL FUND INVESTOR SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING................... $ 13.13 $ 13.23 $ 12.73 $ 12.91 $ 12.95
INVESTMENT ACTIVITIES:
Net investment income...................... 0.14 0.25 0.36 0.31 0.32
Net realized and unrealized gain on
investments.............................. 4.64 1.95 1.32 0.12 0.55
-------- -------- -------- -------- --------
Total from Investment Activities......... 4.78 2.20 1.68 0.43 0.87
-------- -------- -------- -------- --------
DISTRIBUTIONS:
From net investment income................. (0.13) (0.26) (0.35) (0.33) (0.29)
From net realized gains.................... (1.13) (2.04) (0.83) (0.28) (0.62)
-------- -------- -------- -------- --------
Total Distributions...................... (1.26) (2.30) (1.18) (0.61) (0.91)
-------- -------- -------- -------- --------
NET ASSET VALUE, ENDING...................... $ 16.65 $ 13.13 $ 13.23 $ 12.73 $ 12.91
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales load).......... 39.17% 17.96% 14.84% 3.38% 6.98%
Net Assets at end of period (000).......... $267,908 $229,042 $226,181 $246,581 $282,125
Ratio of expenses to average net assets.... 1.06% 0.75% 0.70% 0.72% 0.68%
Ratio of net investment income after
expenses to average net assets........... 0.97% 1.90% 2.89% 2.40% 2.46%
Ratio of incurred expenses to average net
assets (a)............................... 1.12% 0.85% 0.70% 0.72% 0.68%
Ratio of net investment income after
incurred expenses to average net assets
(a)...................................... 0.91% 1.80% 2.89% 2.40% 2.46%
Portfolio turnover rate.................... 12.73% 57.93% 19.78% 23.20% 11.11%
Average commission rate paid (b)........... $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) During the period certain fees were voluntarily waived. Had the fees been charged, the effective ratio would reflect the
incurred expenses as indicated above.
(b) Represents the total amount of commissions paid in portfolio equity transactions divided by the total number of shares
purchased and sold by the fund for which commissions were charged.
</TABLE>
See notes to financial statements.
44
<PAGE> 47
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- THE CARDINAL FUND INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 2, 1997*
THROUGH
SEPT. 30, 1997
-----------------------
<S> <C>
NET ASSET VALUE, BEGINNING.............................................................. $ 12.92
INVESTMENT ACTIVITIES:
Net investment income................................................................. 0.12
Net realized and unrealized gain on investments....................................... 3.70
--------
Total from Investment Activities.................................................... 3.82
--------
DISTRIBUTIONS:
From net investment income............................................................ (0.10)
From net realized gains............................................................... 0
--------
Total Distributions................................................................. (0.10)
--------
NET ASSET VALUE, ENDING................................................................. $ 16.64
========
RATIOS/SUPPLEMENTAL DATA:
Total Return.......................................................................... 29.77%
Net Assets at end of period (000)..................................................... $26,881
--------
Ratio of expenses to average net assets............................................... 1.00%
Ratio of net investment income after expenses to average net assets................... 1.04%
Portfolio turnover rate............................................................... 12.73%
Average commission rate paid (a)...................................................... $ 0.08
========
</TABLE>
- ---------------
(a) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
fund for which commissions were charged.
* Commencement of operations.
See notes to financial statements.
45
<PAGE> 48
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL AGGRESSIVE GROWTH FUND INVESTOR SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, JUNE 24, 1993*
------------------------------------------ THROUGH
1997 1996 1995 1994 SEPTEMBER 30, 1993
------ ------ ------ ------ ------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING.................... $11.31 $12.37 $ 9.94 $10.47 $10.00
INVESTMENT ACTIVITIES:
Net investment loss......................... (0.20) (0.17) (0.10) (0.13) (0.03)
Net realized and unrealized gain (loss)
on investments............................ 3.86 0.01 2.53 (0.36) 0.50
------- ------- ------- ------- -------
Total from Investment Activities........ 3.66 (0.16) 2.43 (0.49) 0.47
------- ------- ------- ------- -------
DISTRIBUTIONS:
From net realized gains..................... (0.27) (0.90) 0.00 (0.04) 0.00
------- ------- ------- ------- -------
Total Distributions..................... (0.27) (0.90) 0.00 (0.04) 0.00
------- ------- ------- ------- -------
NET ASSET VALUE, ENDING....................... $14.70 $11.31 $12.37 $ 9.94 $10.47
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales load)........... 32.95% (1.13)% 24.35% (4.74)% 4.70%
Net Assets at end of period (000)........... $9,792 $9,669 $10,434 $9,460 $6,320
Ratio of expenses to average net assets..... 1.86% 1.95% 2.24% 2.51% 0.91%
Ratio of net investment loss after
expenses to average net assets............ (1.50)% (1.52)% (0.92)% (1.50)% (0.53)%
Ratio of incurred expenses to average net
assets (a)................................ 1.93% 2.17% 2.25% 2.51% 0.91%
Ratio of net investment loss after incurred
expenses to average net assets (a)........ (1.57)% (1.75)% (0.93)% (1.50)% (0.53)%
Portfolio turnover rate..................... 34.43% 48.60% 80.35% 95.70% 31.15%
Average commission rate paid (b)............ $ 0.07 $ 0.07 $ 0.07 $ 0.09 $ 0.08
</TABLE>
- ---------------
* Commencement of operations.
(a) During the period certain fees were voluntarily waived. Had the fees been
charged, the effective ratio would reflect the incurred expenses as
indicated above.
(b) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
fund for which commissions were charged.
See notes to financial statements.
46
<PAGE> 49
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL AGGRESSIVE GROWTH FUND INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 2, 1997*
THROUGH
SEPT. 30, 1997
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING............................................................ $11.62
INVESTMENT ACTIVITIES:
Net investment loss................................................................. (0.15)
Net realized and unrealized gain (loss)
on investments.................................................................... 3.24
-------
Total from Investment Activities................................................ 3.09
-------
DISTRIBUTIONS:
From net realized gains............................................................. 0.00
-------
Total Distributions............................................................. 0.00
-------
NET ASSET VALUE, ENDING............................................................... $14.71
=======
RATIOS/SUPPLEMENTAL DATA:
Total Return........................................................................ 26.59%
Net Assets at end of period (000)................................................... $4,062
Ratio of expenses to average net assets............................................. 2.11%
Ratio of net investment loss after
expenses to average net assets.................................................... (1.71)%
Portfolio turnover rate............................................................. 34.43%
Average commission rate paid (a).................................................... $ 0.07
</TABLE>
- ---------------
* Commencement of operations.
(a) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
fund for which commissions were charged.
See notes to financial statements.
47
<PAGE> 50
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL BALANCED FUND INVESTOR SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, JUNE 24, 1993*
---------------------------------------------- THROUGH
1997 1996 1995 1994 SEPTEMBER 30, 1993
------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING................ $ 11.86 $ 11.52 $ 9.90 $ 10.13 $ 10.00
INVESTMENT ACTIVITIES:
Net investment income................... 0.27 0.41 0.34 0.23 0.02
Net realized and unrealized gain (loss)
on investments........................ 2.40 0.73 1.67 (0.20) 0.12
-------- -------- -------- -------- --------
Total from Investment Activities.... 2.67 1.14 2.01 0.03 0.14
-------- -------- -------- -------- --------
DISTRIBUTIONS:
From net investment income.............. (0.24) (0.41) (0.35) (0.23) (0.01)
From net realized gains................. (1.06) (0.39) (0.04) (0.03) 0.00
-------- -------- -------- -------- --------
Total Distributions................. (1.30) (0.80) (0.39) (0.26) (0.01)
-------- -------- -------- -------- --------
NET ASSET VALUE, ENDING................... $ 13.23 $ 11.86 $ 11.52 $ 9.90 $ 10.13
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales load)....... 24.71% 10.26% 20.76% 0.37% 1.40%
Net Assets at end of period (000)....... $15,616 $14,345 $14,535 $13,973 $ 10,811
Ratio of expenses to average net
assets................................ 1.44% 1.64% 1.94% 2.07% 0.70%
Ratio of net investment income after
expenses to average net assets........ 2.23% 3.54% 3.24% 2.44% 0.35%
Ratio of incurred expenses to average
net assets (a)........................ 1.50% 1.86% 1.95% 2.07% 0.70%
Ratio of net investment income after
incurred expenses to average net
assets (a)............................ 2.17% 3.32% 3.23% 2.44% 0.35%
Portfolio turnover rate................. 61.23% 18.34% 37.62% 59.09% 60.67%
Average commission rate paid (b)........ $ 0.09 $ 0.09 $ 0.09 $ 0.10 $ 0.10
</TABLE>
- ---------------
* Commencement of operations.
(a) During the period certain fees were voluntarily waived. Had the fees been
charged, the effective ratio would reflect the incurred expenses as
indicated above.
(b) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements.
48
<PAGE> 51
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CARDINAL BALANCED FUND INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 2, 1997*
THROUGH
SEPT. 30, 1997
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING............................................................ $ 11.16
INVESTMENT ACTIVITIES:
Net investment income............................................................... 0.16
Net realized and unrealized gain (loss) on investments.............................. 2.08
--------
Total from Investment Activities................................................ 2.24
--------
DISTRIBUTIONS:
From net investment income.......................................................... (0.17)
--------
Total Distributions............................................................. (0.17)
--------
NET ASSET VALUE, ENDING............................................................... $ 13.23
========
RATIOS/SUPPLEMENTAL DATA:
Total Return........................................................................ 20.17%
Net Assets at end of period (000)................................................... $ 1,708
Ratio of expenses to average net assets............................................. 1.51%
Ratio of net investment income after expenses to average net assets................. 1.99%
Portfolio turnover rate............................................................. 61.23%
Average commission rate paid (a).................................................... $ 0.09
</TABLE>
- ---------------
* Commencement of operations.
(a) Represents the total amount of commissions paid in portfolio equity
transactions divided by the total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements.
49
<PAGE> 52
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL GOVERNMENT OBLIGATIONS FUND INVESTOR SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING................... $ 8.05 $ 8.18 $ 7.96 $ 8.63 $ 8.95
INVESTMENT ACTIVITIES:
Net investment income...................... 0.61 0.60 0.64 0.66 0.74
Net realized and unrealized gain (loss) on
investments.............................. 0.11 (0.12) 0.22 (0.68) (0.32)
-------- -------- -------- -------- --------
Total from Investment Activities......... 0.72 0.48 0.86 (0.02) 0.42
-------- -------- -------- -------- --------
DISTRIBUTIONS:
From net investment income................. (0.57) (0.60) (0.64) (0.65) (0.74)
Tax return of capital...................... 0.00 (0.01) 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total Distributions...................... (0.57) (0.61) (0.64) (0.65) (0.74)
-------- -------- -------- -------- --------
NET ASSET VALUE, ENDING...................... $ 8.20 $ 8.05 $ 8.18 $ 7.96 $ 8.63
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Total Return (without sales load).......... 9.28% 6.04% 11.27% (0.27)% 4.83%
Net Assets at end of period (000).......... $120,342 $133,298 $151,711 $169,529 $208,883
Ratio of expenses to average net assets.... 1.01% 0.78% 0.76% 0.75% 0.73%
Ratio of net investment income after
charged expenses to average net assets... 7.06% 7.39% 7.93% 7.88% 8.32%
Ratio of incurred expenses to average net
assets (a)............................... 1.08% 0.88% 0.76% 0.75% 0.73%
Ratio of net investment income after
incurred expenses to average net assets
(a)...................................... 6.99% 7.29% 7.93% 7.88% 8.32%
Portfolio turnover rate.................... 34.53% 33.58% 36.71% 21.95% 24.94%
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) During the period certain fees were voluntarily waived. Had the fees been charged, the effective ratio would reflect the
incurred expenses as indicated above.
</TABLE>
See notes to financial statements.
50
<PAGE> 53
THE CARDINAL GROUP
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS --
CARDINAL GOVERNMENT OBLIGATIONS FUND INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 2, 1997*
THROUGH
SEPT. 30, 1997
-----------------------
<S> <C>
NET ASSET VALUE, BEGINNING........................................................... $ 8.09
INVESTMENT ACTIVITIES:
Net investment income.............................................................. 0.42
Net realized and unrealized gain (loss) on investments............................. 0.12
-------
Total from Investment Activities................................................. 0.54
-------
DISTRIBUTIONS: 0.43
From net investment income......................................................... 0.00
-------
Total Distributions.............................................................. 0.43
-------
NET ASSET VALUE, ENDING.............................................................. $ 8.20
=======
RATIOS/SUPPLEMENTAL DATA:
Total Return....................................................................... 6.86%
Net Assets at end of period (000).................................................. $ 5,803
Ratio of expenses to average net assets............................................ 0.93%
Ratio of net investment income after charged expenses to average net assets........ 7.00%
Portfolio turnover rate............................................................ 34.53%
</TABLE>
- ---------------
* Commencement of operations.
See notes to financial statements.
51
<PAGE> 54
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 55
- ---------------------------------------------------------
- ---------------------------------------------------------
INVESTMENT ADVISER
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
DISTRIBUTOR
The Ohio Company
155 East Broad Street
Columbus, Ohio 43215
CUSTODIAN
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
LEGAL COUNSEL
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
------------------------
This report has been prepared for the information of shareholders of The
Cardinal Group and is not authorized for distribution to prospective investors
unless preceded or accompanied by an effective Prospectus.
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
[CARDINAL GROUP LOGO]
-------------------------
ANNUAL REPORT
-------------------------
SEPTEMBER 30, 1997
CARDINAL GOVERNMENT SECURITIES
MONEY MARKET FUND
CARDINAL TAX EXEMPT
MONEY MARKET FUND
THE CARDINAL FUND
CARDINAL AGGRESSIVE GROWTH FUND
CARDINAL BALANCED FUND
CARDINAL GOVERNMENT
OBLIGATIONS FUND
[THE OHIO COMPANY LOGO]
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