<PAGE> 1
As filed with the Securities and Exchange Commission on October 30, 1998
Registration Nos. 33-24848, 811-5669
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 28 [X]
and
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29 [X]
FIFTH THIRD FUNDS
(Formerly Fountain Square Funds)
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Office)
(614) 470-8000
(Registrant's Telephone Number)
Melanie Mayo West, Esquire
Dykema Gossett PLLC
1577 North Woodward Avenue, Suite 300
Bloomfield Hills, Michigan 48304-2820
Fax: (248) 203-0763
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective (check appropriate box):
[ ] 60 days after filing pursuant to Rule 485(a)(1), or
[ ] On , 199__, pursuant to Rule 485(a)(1), or
[ ] 75 days after filing pursuant to Rule 485(a)(2), or
[ ] On , 199__, pursuant to Rule 485(a)(2).
[ ] Immediately upon filing pursuant to Rule 485(b), or
[ X ] On, November 2, 1998, pursuant to Rule 485(b)
If appropriate, check this box:
[ ] This post-effective amendment designates a new effective date
for a previously-filed post-effective amendment.
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<PAGE> 2
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of FIFTH THIRD FUNDS (formerly
Fountain Square Funds), relates to the Investment A Shares, Investment C Shares,
and Institutional Shares of: Fifth Third Quality Growth Fund; Fifth Third Equity
Income Fund; Fifth Third Cardinal Fund; Fifth Third Pinnacle Fund; Fifth Third
Balanced Fund; Fifth Third Mid Cap Fund; Fifth Third International Equity Fund;
Fifth Third Bond Fund for Income; Fifth Third Quality Bond Fund; Fifth Third
U.S. Government Securities Fund; Fifth Third Municipal Bond Fund; and Fifth
Third Ohio Tax Free Bond Fund; Investment A Shares and Institutional Shares of:
Fifth Third Government Cash Reserves Fund; Fifth Third Commercial Paper Fund;
and Fifth Third Tax Exempt Money Market Fund; and Institutional Shares of Fifth
Third U.S. Treasury Obligations Fund.
FORM N-1A PART A ITEM LOCATION IN PROSPECTUS
- --------------------- ----------------------
Item 1. Cover Page............................ Cover Page.
Item 2. Synopsis.............................. Synopsis; Expenses of the
Funds; Summary of Fund
Expenses.
Item 3. Condensed Financial Information....... Financial Highlights;
(Predecessor) Common Trust Fund
Performance Information.
Item 4. General Description of Registrant..... Synopsis; Objectives of the
Funds; Portfolio Investments
and Strategies; Voting Rights.
Item 5. Management of the Fund................ Fifth Third Funds Information;
Management of the Trust;
Distribution of Shares;
Distribution Plan; Payments to
Financial Institutions;
Administration of the Trust;
Expenses of the Fund,
(Investment A Shares,
Investment C Shares,
Institutional Shares);
Brokerage Transactions.
Item 5a. Management's Discussion of Fund
Performance.................................... Incorporated by reference to
Annual Report to Shareholders
of the Fountain Square Funds
dated July 31, 1998 and the
Annual Report to Shareholders
of the Fountain Square Cardinal
Fund and Tax Exempt Money
Market Fund dated September 30,
1998.
Item 6. Capital Stock and Other Securities.... Dividends and Capital Gains;
Shareholder Information;
Voting Rights; Massachusetts
Law; Effect of Banking Laws;
Tax Information; Federal Income
Tax.
Item 7. Purchase of Securities Being
Offered....................................... Net Asset Value; Investing in
the Funds; Share Purchases;
Additional Information; Minimum
Investment Required; Investing
In Investment A Shares; What
Shares Cost; Dealer
Concessions;
Reducing/Eliminating the Sales
Charge; Quantity Discounts and
Accumulated Purchases; Letter
of Intent; Fifth Third Bank
Club 53, One Account Plus, One
Account Gold, One Account
Advantage and 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; Concurrent
Purchases; Investing in
Investment C Shares; Exchanging
Securities for Fund Shares;
Systematic Investment Program;
Certificates and Confirmations;
Exchanges.
Item 8. Redemption of Repurchase.............. Redeeming Shares; By Telephone;
By Mail; Receiving Payment;
Systematic Withdrawal Program;
Accounts With Low Balances;
Contingent Deferred Sales
Charge.
Item 9. Pending Legal Proceedings............. None.
LOCATION IN STATEMENT OF
FORM N-1A PART B ITEM ADDITIONAL INFORMATION
- --------------------- -------------------------
Item 10. Cover Page........................... Cover Page.
Item 11. Table of Contents.................... Table of Contents.
Item 12. General Information and History...... General Information About the
Trust.
<PAGE> 3
Item 13. Investment Objectives and
Policies...................................... Investment Objective and
Policies (of the Funds).
Item 14. Management of the Fund............... Fifth Third Funds Management;
Officers and Trustees;
Trustees' Compensation.
Item 15. Control Persons and Principal
Holders of Securities.......................... Fund(Trust) Ownership.
Item 16. Investment Advisory and Other
Services....................................... Investment Advisory Services;
Advisor(s) to the Fund(Trust);
Advisory Fees; Sub-Advisor;
Sub-Advisory Fees;
Administrative Services;
(Custodian) Transfer Agent and
Dividend Disbursing Agent;
Distribution Plan (Investment A
Shares).
Item 17. Brokerage Allocation and Other
Practices...................................... Brokerage Transactions.
Item 18. Capital Stock and Other
Securities..................................... Not applicable.
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered....................... Purchasing Shares; Redeeming
Shares; Determining Net Asset
Value.
Item 20. Tax Status........................... Tax Status; The Fund's Tax
Status; Shareholders' Tax
Status; Capital Gains; Foreign
Taxes; State and Local Taxes.
Item 21. Underwriters......................... Distribution Plan (Investment A
Shares).
Item 22. Calculation of Performance
Data.......................................... Total Return; Yield; Effective
Yield; Tax-Equivalent Yield;
Performance Comparisons.
Item 23. Financial Statements................. Financial Statements.
FORM N-1A PART C
- ----------------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Post-Effective Amendment to the
Registration Statement.
<PAGE> 4
FIFTH THIRD FUNDS
(formerly Fountain Square Funds)
Investment A Shares
Investment C Shares
Quality Growth Fund
Equity Income Fund
Cardinal Fund
Pinnacle Fund
Balanced Fund
Mid Cap Fund
[Artwork]
International Equity Fund
Bond Fund For Income
Quality Bond Fund
U.S. Government Securities Fund
Municipal Bond Fund
Ohio Tax Free Bond Fund
Stock and Bond Mutual Funds
Prospectus
November 2, 1998
[Fifth Third Logo]
<PAGE> 5
FIFTH THIRD FUNDS
(formerly Fountain Square Funds)
INVESTMENT A SHARES
INVESTMENT C SHARES
PROSPECTUS
Fifth Third Funds (the "Trust") is an open-end management investment company (a
mutual fund). This Prospectus offers investors interests in Investment A Shares
and Investment C Shares of the following separate investment portfolios
(the "Funds"), each having distinct investment objectives and policies:
o Fifth Third Quality Growth Fund;
o Fifth Third Equity Income Fund;
o Fifth Third Cardinal Fund;
o Fifth Third Pinnacle Fund;
o Fifth Third Balanced Fund;
o Fifth Third Mid Cap Fund;
o Fifth Third International Equity Fund;
o Fifth Third Bond Fund For Income;
o Fifth Third Quality Bond Fund;
o Fifth Third U.S. Government Securities Fund;
o Fifth Third Municipal Bond Fund; and
o Fifth Third Ohio Tax Free Bond Fund
This Prospectus contains the information you should read and know before you
invest in Investment A Shares or Investment C Shares of any of the above Funds.
Keep this Prospectus for future reference.
Additional information about Funds is contained in their Combined Statement of
Additional Information, dated November 2, 1998, 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 these Funds by writing to or calling the Trust toll-free at (888)
799-5353. The Securities and Exchange Commission maintains an Internet Website
(http://www.sec.gov) that contains the Combined Statement of Additional
Information, materials incorporated by reference into this Prospectus and into
the Combined Statement of Additional Information, and other information
regarding companies that file electronically with the Securities and Exchange
Commission.
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. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated November 2, 1998
<PAGE> 6
NOTICE OF DELIVERY OF PROSPECTUSES,
SEMI-ANNUAL REPORTS AND ANNUAL REPORTS
In order to reduce expenses of the Fifth Third Funds incurred in connection with
the mailing of prospectuses, prospectus supplements, semi-annual reports and
annual reports to multiple shareholders at the same address, Fifth Third Funds
may in the future deliver one copy of a prospectus, prospectus supplement,
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, prospectus supplements, semi-annual reports and annual
reports, please call the Trust toll-free at (888) 799-5353.
<PAGE> 7
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C>
Synopsis.......................................................................1
Risk Factors..............................................................2
Expenses of the Funds..........................................................3
Investment A Shares.......................................................3
Investment C Shares.......................................................4
Financial Highlights...........................................................6
Fifth Third Quality Growth Fund - Investment A Shares.....................6
Fifth Third Quality Growth Fund - Investment C Shares.....................7
Fifth Third Equity Income Fund - Investment A Shares......................8
Fifth Third Equity Income Fund - Investment C Shares......................9
Fifth Third Cardinal Fund - Investment A Shares..........................10
Fifth Third Pinnacle Fund - Investment A Shares..........................11
Fifth Third Pinnacle Fund - Investment C Shares..........................12
Fifth Third Balanced Fund - Investment A Shares.........................13
Fifth Third Balanced Fund - Investment C Shares..........................14
Fifth Third Mid Cap Fund - Investment A Shares...........................15
Fifth Third Mid Cap Fund - Investment C Shares...........................16
Fifth Third International Equity Fund - Investment A Shares..............17
Fifth Third International Equity Fund - Investment C Shares..............18
Fifth Third Quality Bond Fund - Investment A Shares......................19
Fifth Third Quality Bond Fund - Investment C Shares......................20
Fifth Third Bond Fund For Income - Investment A Shares...................21
Fifth Third Bond Fund For Income - Investment C Shares...................22
Fifth Third U.S. Government Securities Fund - Investment
A Shares.................................................................23
Fifth Third U.S. Government Securities Fund - Investment
C Shares.................................................................24
Fifth Third Municipal Bond Fund - Investment A Shares....................25
Fifth Third Municipal Bond Fund - Investment C Shares....................26
Fifth Third Ohio Tax Free Bond Fund - Investment A Shares................27
Fifth Third Ohio Tax Free Bond Fund - Investment C Shares................28
Predecessor Common Trust Funds Performance Information...................29
Objectives of the Funds.......................................................30
Quality Growth Fund......................................................30
Equity Income Fund.......................................................31
Cardinal Fund............................................................32
Pinnacle Fund............................................................32
Balanced Fund............................................................33
Mid Cap Fund.............................................................33
International Equity Fund................................................34
Bond Fund For Income.....................................................36
Quality Bond Fund........................................................37
U.S. Government Securities Fund..........................................38
Municipal Bond Fund......................................................39
Ohio Tax Free Bond Fund..................................................40
Portfolio Investments and Strategies..........................................42
Borrowing Money..........................................................43
Diversification..........................................................43
Restricted and Illiquid Securities.......................................43
Repurchase Agreements....................................................43
When-Issued and Delayed Delivery Transactions............................44
Lending of Portfolio Securities..........................................44
Options and Futures......................................................44
Foreign Investments......................................................47
Derivative Securities....................................................48
Bond Ratings.............................................................49
Temporary Investments....................................................49
Equity Investment Risks..................................................50
Fifth Third Funds Information.................................................50
Management of the Trust..................................................50
Distribution of Shares...................................................53
Distribution Plan........................................................53
Administrative Services Agreement (Investment C Shares
Only)....................................................................54
Payments to Financial Institutions.......................................54
Administration of the Trust..............................................54
Expenses of the Funds, Investment A Shares and Investment
C Shares.................................................................55
Brokerage Transactions...................................................55
Net Asset Value...............................................................56
Investing in the Funds........................................................56
Share Purchases..........................................................56
Additional Information...................................................57
Minimum Investment Required..............................................57
Investing In Investment A Shares.........................................57
Investing in Investment C Shares.........................................60
Exchanging Securities for Fund Shares....................................61
Systematic Investment Program............................................61
Certificates and Confirmations...........................................61
Dividends and Capital Gains..............................................61
Exchanges.....................................................................61
Redeeming Shares..............................................................62
By Telephone.............................................................63
By Mail..................................................................63
Receiving Payment........................................................64
Systematic Withdrawal Program............................................64
Accounts with Low Balances...............................................64
Shareholder Information.......................................................64
Voting Rights............................................................65
Massachusetts Law........................................................65
Effect of Banking Laws........................................................65
Tax Information...............................................................66
Federal Income Tax.......................................................66
Additional Tax Information for International Equity Fund.................66
Additional Tax Information for Municipal Bond Fund.......................66
Additional Tax Information for Ohio Tax Free Bond Fund...................67
Performance Information.......................................................67
Addresses.....................................................................69
</TABLE>
i
<PAGE> 8
SYNOPSIS
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. This Prospectus relates only to Investment A
Shares and Investment C Shares of the Funds described herein. These Funds are
intended to provide a convenient means of accumulating interests in
professionally managed portfolios.
Investment A Shares and Investment C Shares of the following Funds are offered
in this Prospectus:
o Fifth Third 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;
o Fifth Third 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;
o Fifth Third Cardinal Fund ("Cardinal Fund") seeks to provide
long-term growth of capital and income by investing primarily in
common stocks of exchange-listed or over-the-counter securities of
companies having a market capitalization of at least $10 million;
o Fifth Third Pinnacle Fund ("Pinnacle Fund") seeks to provide
long-term capital appreciation by investing primarily in common
stocks which offer opportunities for long-term capital
appreciation;
o Fifth Third 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;
o Fifth Third 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;
o Fifth Third International Equity Fund ("International Equity
Fund") seeks to provide long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers;
o Fifth Third 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;
o Fifth Third 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;
o Fifth Third 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;
1
<PAGE> 9
o Fifth Third 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; and
o Fifth Third 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.
For information on how to purchase Investment A Shares or Investment C Shares of
any of the Funds offered by this Prospectus, please refer to "Investing in the
Funds." Investment A Shares and Investment C Shares are designed for investors
who are not fiduciary or agency clients of financial institutions. A minimum
initial investment of $1,000 is required for each Fund offered by this
Prospectus. 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. See "Investing In Investment A Shares". 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. Certain investors may redeem Investment C Shares within 12 months of
their purchase without the imposition of a contingent deferred sales charge.
Information on redeeming shares may be found under "Redeeming Shares."
Each of the Funds offered by this Prospectus, except the Pinnacle Fund, is
advised by Fifth Third Bank. The Pinnacle Fund is advised by Heartland Capital
Management, Inc. ("Heartland"), a wholly-owned subsidiary of Fifth Third
Bancorp. The International Equity Fund is sub-advised by Morgan Stanley Asset
Management, Inc. ("MSAM"). Each of Fifth Third Bank, Heartland and MSAM may be
referred to individually as the "Advisor" for the Fund or Funds for which it
provides advisory services, or may be collectively referred to as the
"Advisors."
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 "Objectives of the Funds" and
"Portfolio Investments and Strategies."
Investors should also be aware that, like other mutual funds and financial and
business organizations around the world, each of the Funds offered by this
Prospectus could be adversely impacted if the computer systems used by Fifth
Third Bank, BISYS Fund Services L.P. ("BISYS") or other service providers and
entities with computer systems that are linked to Fund records do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as "Year 2000 Risk." Fifth Third Bank and BISYS
are taking steps that they believe are reasonably designed to address Year 2000
Risk with respect to their computer systems and to obtain satisfactory
assurances that comparable steps are being taken by each of the Trust's other
service providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Funds.
2
<PAGE> 10
EXPENSES OF THE FUNDS
- -------------------------------------------------------------------------------
INVESTMENT A SHARES
INVESTMENT A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<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>
MANAGEMENT OTHER TOTAL OPERATING
FEES (1) 12b-1 FEES(2) EXPENSES(3) EXPENSES(4)
-------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Quality Growth Fund................. 0.80% 0.25% 0.20% 1.25%
Equity Income Fund.................. 0.80% 0.25% 0.20% 1.25%
Cardinal Fund....................... 0.60% 0.25% 0.19% 1.04%
Pinnacle Fund....................... 0.80% 0.25% 0.65% 1.70%
Balanced Fund....................... 0.80% 0.25% 0.20% 1.25%
Mid Cap Fund........................ 0.80% 0.25% 0.20% 1.25%
International Equity Fund........... 1.00% 0.25% 0.50% 1.75%
Bond Fund for Income................ 0.55% 0.25% 0.20% 1.00%
Quality Bond Fund................... 0.55% 0.25% 0.20% 1.00%
U.S. Government Securities Fund..... 0.47% 0.25% 0.28% 1.00%
Municipal Bond Fund................. 0.55% 0.25% 0.20% 1.00%
Ohio Tax Free Bond Fund............. 0.55% 0.25% 0.20% 1.00%
</TABLE>
- --------
(1) The management fee of the U.S. Government Securities Fund has been reduced
to reflect the voluntary waiver of a portion of the investment advisory fee
by the investment advisor. The investment advisor can terminate this
voluntary waiver at any time in its sole discretion. The maximum management
fee for the U.S. Government Securities Fund is 0.55%.
(2) Beginning on March 23, 1998, the maximum 12b-1 fees which may be charged on
Investment A Shares was reduced to 0.25% from 0.35%. On August 11, 1998,
the distributor terminated its voluntary waiver of 12b-1 fees on Investment
A Shares of the all of these Funds which had previously been in effect.
(3) For all Funds other than the International Equity Fund, Other Expenses have
been reduced to reflect the voluntary waiver of fees by the administrator.
In the absence of such waiver, other expenses for these Funds would have
been: Quality Growth Fund--0.22%, Equity Income Fund--0.28%, Cardinal
Fund--0.29%, Pinnacle Fund--0.75%, Balanced Fund--0.28%, Mid Cap Fund--
0.26%, Bond Fund For Income--0.26%, Quality Bond Fund--0.30%, U.S.
Government Securities Fund--0.38%, Municipal Bond Fund--0.30% and Ohio Tax
Free Fund--0.30%.
(4) Absent the voluntary waivers described above, Total Investment A Shares
Operating Expenses for these Funds would have been: Quality Growth
Fund--1.27%, Equity Income Fund--1.33%, Cardinal Fund--1.14%, Pinnacle
Fund--1.80%, Balanced Fund--1.33%, Mid Cap Fund--1.31%, Bond Fund For
Income--1.06%, Quality Bond Fund--1.10%, U.S. Government Securities Fund--
1.10%, Municipal Bond Fund--1.10% and Ohio Tax Free Fund--1.18%. Expense
information for these Funds has been restated to reflect current fees,
except that expense information for the Cardinal Fund and the Pinnacle Fund
is based on estimates for the current fiscal year.
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 "FIFTH THIRD FUNDS INFORMATION" AND
"INVESTING IN THE FUNDS." Wire-transferred redemptions of less than $5,000 may
be subject to additional fees.
3
<PAGE> 11
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.
EXPENSE EXAMPLES
You would pay the following expenses on a $1,000 investment in
Investment A Shares assuming (1) 5% annual return; (2) redemption at the end of
each time period; and (3) payment of the maximum sales charge. Investment A
Shares charge no redemption fees.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Quality Growth Fund......................$ 57 $ 83 $111 $189
Equity Income Fund.......................$ 57 $ 83 $111 $189
Cardinal Fund............................$ 55 $ 77 $100 $166
Pinnacle Fund............................$ 62 $ 96 $133 $237
Balanced Fund............................$ 57 $ 83 $111 $189
Mid Cap Fund.............................$ 57 $ 83 $111 $189
International Equity Fund................$ 62 $ 98 $136 $242
Bond Fund for Income.....................$ 55 $ 75 $ 98 $162
Quality Bond Fund........................$ 55 $ 75 $ 98 $162
U.S. Government Securities Fund..........$ 55 $ 75 $ 98 $162
Municipal Bond Fund......................$ 55 $ 75 $ 98 $162
Ohio Tax Free Bond Fund..................$ 55 $ 75 $ 98 $162
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
INVESTMENT C SHARES
INVESTMENT C SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<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)*...............................................1.00%
Redemption Fees (as a percentage of amount redeemed, if applicable)............................................None
Exchange Fee...................................................................................................None
</TABLE>
- ------
* The contingent deferred sales charge is 1.00% of the lesser of the original
purchase price or the net asset value of Investment C Shares redeemed
within one year of the purchase date (see "Investing in Investment C
Shares--Contingent Deferred Sales Charge").
INVESTMENT C SHARES
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL OPERATING
FEES (1) 12b-1 FEES(2) EXPENSES(3) EXPENSES(4)
-------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Quality Growth Fund....................0.80% 0.50% 0.45% 1.75%
Equity Income Fund.....................0.80% 0.50% 0.45% 1.75%
Cardinal Fund..........................0.60% 0.50% 0.44% 1.54%
Pinnacle Fund..........................0.80% 0.50% 0.90% 2.20%
Balanced Fund..........................0.80% 0.50% 0.45% 1.75%
Mid Cap Fund...........................0.80% 0.50% 0.45% 1.75%
</TABLE>
4
<PAGE> 12
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL OPERATING
FEES (1) 12b-1 FEES(2) EXPENSES(3) EXPENSES(4)
-------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
International Equity Fund..............1.00% 0.50% 0.75% 2.25%
Quality Bond Fund......................0.55% 0.50% 0.45% 1.50%
Bond Fund for Income...................0.55% 0.50% 0.45% 1.50%
U.S. Government Securities Fund........0.47% 0.50% 0.53% 1.50%
Municipal Bond Fund....................0.55% 0.50% 0.45% 1.50%
Ohio Tax Free Bond Fund................0.55% 0.50% 0.45% 1.50%
</TABLE>
- --------
(1) The management fee of the U.S. Government Securities Fund has been reduced
to reflect the voluntary waiver of a portion of the investment advisory fee
by the investment advisor. The investment advisor can terminate this
voluntary waiver at any time in its sole discretion. The maximum management
fee for the U.S. Government Securities Fund is 0.55%.
(2) 12b-1 fees have been reduced to reflect the voluntary waiver by the
distributor of a portion of such fees. The distributor can terminate this
voluntary waiver at any time in its sole discretion. The maximum 12b-1 fee
which may be charged on Investment C Shares of the Funds is 0.75%.
(3) Includes a 0.25% administrative service fee. For all Funds other than the
International Equity Fund, Other Expenses have been reduced to reflect the
voluntary waiver of fees by the administrator. In the absence of such
waiver, other expenses for these Funds would have been: Quality Growth
Fund--0.47%, Equity Income Fund--0.53%, Cardinal Fund--0.54%, Pinnacle
Fund-- 1.00%, Balanced Fund--0.53%, Mid Cap Fund--0.51%, Bond Fund For
Income--0.51%, Quality Bond Fund--0.55%, U.S. Government Securities
Fund--0.63%, Municipal Bond Fund--0.55% and Ohio Tax Free Fund--0.55%.
(4) Absent the voluntary waivers described above, Total Investment C Shares
Operating Expenses for these Funds would be: Quality Growth Fund--2.02%,
Equity Income Fund--2.08%, Cardinal Fund--1.89%, Pinnacle Fund--2.55%,
Balanced Fund-- 2.08%, Mid Cap Fund--2.06%, International Equity
Fund--2.50%, Bond Fund For Income--1.81%, Quality Bond Fund--1.85%, U.S.
Government Securities Fund--1.93%, Municipal Bond Fund--1.85% and Ohio Tax
Free Fund--1.85%. Expense information for the Cardinal Fund and the
Pinnacle Fund is based on estimates for the current fiscal year.
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 "FIFTH THIRD 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.
EXPENSE EXAMPLES
You would pay the following expenses on a $1,000 investment in
Investment C Shares assuming (1) 5% annual return; and (2) either redemption at
the end of Year 1 or no redemption.
<TABLE>
<CAPTION>
1 YEAR--WITH 1 YEAR--NO
REDEMPTION REDEMPTION 3 YEARS 5 YEARS 10 YEARS
---------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Quality Growth Fund.........................$28 $18 $55 $95 $206
Equity Income Fund...........................28 18 55 95 206
Cardinal Fund................................26 16 49 84 183
Pinnacle Fund................................32 22 69 118 253
Balanced Fund................................28 18 55 95 206
Mid Cap Fund.................................28 18 55 95 206
International Equity Fund....................33 23 70 120 258
Bond Fund for Income.........................25 15 47 82 179
Quality Bond Fund............................25 15 47 82 179
Government Securities Fund...................25 15 47 82 179
Municipal Bond Fund..........................25 15 47 82 179
Ohio Tax Free Bond Fund......................25 15 47 82 179
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE> 13
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD QUALITY GROWTH FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998, is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's 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 Fifth
Third Quality Growth Fund which was the predecessor to Investment A Shares of
the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994 1993*
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $19.23 $13.16 $11.79 $9.70 $9.54 $10.00
------ ------ ------ ----- ----- ------
Income from investment operations:
Net investment income.................... 0.03 0.08 0.12 0.14 0.13 0.10
Net realized and unrealized gains
(losses) on investments............... 2.49 6.75 1.37 2.09 0.17 (0.47)
---- ---- ---- ---- ---- ------
Total from investment operations.. 2.52 6.83 1.49 2.23 0.30 (0.37)
---- ---- ---- ---- ---- ------
Less distributions:
Dividends to shareholders from net
investment income..................... (0.03) (0.09) (0.12) (0.14) (0.13) (0.09)
Distributions to shareholders from net
realized gains on investment
transactions.......................... (1.46) (0.67) ---- ---- ---- ----
Distributions to shareholders in excess
of net investment income (a).......... ---- ---- ---- ---- (0.01) ----
------ ------ ------ ------ ------ ------
Total distributions............... (1.49) (0.76) (0.12) (0.14) (0.14) (0.09)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD........... $20.26 $19.23 $13.16 $11.79 $9.70 $9.54
====== ====== ====== ====== ===== =====
TOTAL RETURN**........................... 14.12% 54.02% 12.69% 23.21% 3.17% (3.73%)(d)
Ratios to Average Net Assets:
Expenses.............................. 1.00% 1.00% 0.99% 1.00% 1.00% 0.99%(c)
Net investment income (loss).......... 0.10% 0.45% 0.98% 1.44% 1.42% 1.47%(c)
Expense waiver/reimbursement (b)...... 0.37% 0.36% 0.03% 0.05% 0.03% 0.05%(c)
Supplemental data:
Net assets, end of period (000)....... $520,068 $399,683 $134,469 $82,594 $69,648 $67,681
Portfolio turnover rate (e)........... 45% 37% 37% 34% 37% 28%(c)
Average commission rate paid (f)...... n/a $0.062 $0.065 ---- ---- ----
</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).
6
<PAGE> 14
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD QUALITY GROWTH FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998, is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------
1998 1997 1996*
---- ---- -----
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $19.18 $13.16 $13.37
------ ------ ------
Income from investment operations:
Net investment income (loss)...................... (0.07) (0.03) ----
Net realized and unrealized gains
(losses) on investments........................ 2.45 6.72 (0.21)
---- ---- ------
Total from investment operations............... 2.38 6.69 (0.21)
---- ---- ------
Less distributions:
Distributions to shareholders from net
realized gains on investment transactions...... (1.46) (0.67) ----
------ ------ ------
NET ASSET VALUE, END OF PERIOD.................... $20.10 $19.18 $13.16
====== ====== ======
TOTAL RETURN**.................................... 13.41% 52.79% 12.50%(c)
Ratios to Average Net Assets:
Expenses....................................... 1.63% 1.75% 1.77%(b)
Net investment income (loss)................... (0.54%) (0.32%) 0.26%(b)
Expense waiver/reimbursement (a)............... 0.39% 0.26% 0.06%(b)
Supplemental data:
Net assets, end of period (000)................ $8,357 $3,146 $420
Portfolio turnover rate (d).................... 45% 37% 37%(b)
Average commission rate paid (e)............... n/a $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)
7
<PAGE> 15
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD EQUITY INCOME FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998, is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
YEAR ENDED JULY 31,
-------------------
1998 1997*
---- -----
Net asset value, beginning of period.................. $14.44 $12.00
------ ------
Income from investment operations:
Net investment income................................. 0.26 0.15
Net realized and unrealized gains on investments...... 2.43 2.43
---- ----
Total from investment operations................... 2.69 2.58
Less distributions:
Dividends to shareholders from net investment income.. (0.27) (0.14)
Distributions to shareholders from net
realized gains on investment transactions.......... (1.48) ----
------ ------
Total distributions................................ (1.75) (0.14)
------ ------
NET ASSET VALUE, END OF PERIOD........................ $15.38 $14.44
====== ======
TOTAL RETURN**........................................ 19.57% 21.64%(c)
Ratios to Average Net Assets:
Expenses........................................... 1.01% 1.06%(b)
Net investment income.............................. 1.73% 2.32%(b)
Expense waiver/reimbursement (a)................... 0.43% 0.42%(b)
Supplemental data:
Net assets, end of period (000)....................$150,404 $120,324
Portfolio turnover rate (d)........................ 41% 28%(b)
Average commission rate paid (e)................... n/a $0.067
- ---------
* 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)
8
<PAGE> 16
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD EQUITY INCOME FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998, is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------
1998 1997*
---- -----
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $14.45 $12.00
------ ------
Income from investment operations:
Net investment income............................. 0.17 0.10
Net realized and unrealized gains on investments.. 2.41 2.45
---- ----
Total from investment operations........... 2.58 2.55
Less distributions:
Dividends to shareholders from net
investment income.............................. (0.16) (0.10)
Distributions to shareholders from net
realized gains on investment transactions...... (1.48) ----
------ ------
Total distributions........................ (1.64) (0.10)
------ ------
NET ASSET VALUE, END OF PERIOD.................... $15.39 $14.45
====== ======
TOTAL RETURN**.................................... 18.72% 21.30%(c)
Ratios to Average Net Assets:
Expenses....................................... 1.57% 1.81%(b)
Net investment income.......................... 1.21% 1.56%(b)
Expense waiver/reimbursement (a)............... 0.52% 0.26%(b)
Supplemental data:
Net assets, end of period (000)................ $968 $92
Portfolio turnover rate (d).................... 41% 28%(b)
Average commission rate paid (e)............... n/a $0.067
</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)
9
<PAGE> 17
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD CARDINAL FUND - INVESTMENT A SHARES
(For a share outstanding throughout each period)
On September 21, 1998, holders of Investor Shares of The Cardinal Fund exchanged
their shares for Investment A Shares of the Fifth Third Cardinal Fund. The
following table illustrating the historical performance of The Cardinal Fund has
been audited by Ernst & Young LLP, the Trust's independent auditors for the year
ended September 30, 1998. Prior periods were audited by KPMG Peat Marwick LLP.
The report of Ernst & Young LLP dated October 28, 1998, on the financial
statements for the Fifth Third Cardinal Fund for the year ended September 30,
1998, is included in the Combined Statement of Additional Information, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Trust.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $16.65 $13.13 $13.23 $12.73 $12.91 $12.95
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income.............................. 0.14 0.14 0.25 0.36 0.31 0.32
Net realized and unrealized gains on investments... 0.27 4.64 1.95 1.32 0.12 0.55
---- ---- ---- ---- ---- ----
Total from investment operations............ 0.41 4.78 2.20 1.68 0.43 0.87
---- ---- ---- ---- ---- ----
Less distributions:
Dividends to shareholders from net
investment income............................... (0.18) (0.13) (0.26) (0.35) (0.33) (0.29)
Distributions to shareholders from net
realized gains on investment transactions....... (2.01) (1.13) (2.04) (0.83) (0.28) (0.62)
------ ------ ------ ------ ------ ------
Total distributions......................... (2.19) (1.26) (2.30) (1.18) (0.61) (0.91)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD..................... $14.87 $16.65 $13.13 $13.23 $12.73 $12.91
====== ====== ====== ====== ====== ======
TOTAL RETURN**..................................... 2.50% 39.17% 17.96% 14.84% 3.38% 6.98%(c)
Ratios to Average Net Assets:
Expenses........................................ 0.92% 1.06% 0.75% 0.70% 0.72% 0.68%(b)
Net investment income........................... 0.76% 0.97% 1.90% 2.89% 2.40% 2.46%(b)
Expense waiver/reimbursement (a)................ 0.09% 0.06% 0.10% ---- ---- ----
Supplemental data:
Net assets, end of period (000).................$232,903 $267,908 $229,042 $226,181 $246,581 $282,125
Portfolio turnover rate (d)..................... 14.67% 12.73% 57.93% 19.78% 23.20% 11.11%(b)
Average commission rate paid (e)................ n/a $0.08 $0.08 $0.08 $0.08 $0.08
</TABLE>
- ---------
* 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)
10
<PAGE> 18
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD PINNACLE FUND - INVESTMENT A SHARES
(For a share outstanding throughout each period)
On March 6, 1998, holders of shares of The Pinnacle Fund exchanged their shares
for Investment A Shares of the Fifth Third Pinnacle Fund. Information for the
period prior to such date is for the Pinnacle Fund, the predecessor fund of the
Fifth Third Pinnacle Fund. The following table illustrating the historical
performance of The Pinnacle Fund has been audited by Ernst & Young LLP, the
Trust's independent auditors for the period ended July 31, 1998. Prior periods
were audited by the previous auditors for The Pinnacle Fund. The report of Ernst
& Young LLP dated September 24, 1998, is included in the Fountain Square Funds
Annual Report, which is incorporated by reference. This table should be read in
conjunction with the Trust's financial statements and notes thereto, which may
be obtained from the Trust.
<TABLE>
<CAPTION>
PERIOD
ENDED YEAR ENDED DECEMBER 31,
JULY 31, --------------------------------------------------------------------------
1998* 1997 1996 1995 1994 1993 1992 1991 1990 1989
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD ........................... $27.71 $23.96 $22.47 $18.83 $21.15 $21.83 $22.14 $16.87 $18.23 $14.53
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss).......... (0.02) 0.13 0.05 0.11 0.09 0.10 0.13 0.25 0.36 0.25
Net realized and unrealized gains
(losses) on investments........... 5.13 8.25 5.04 6.54 (0.34) 0.62 (0.29) 6.48 (0.94) 4.25
---- ---- ---- ---- ------ ---- ------ ---- ------ ----
Total from investment
operations................. 5.11 8.38 5.09 6.65 (0.25) 0.72 (0.16) 6.73 (0.58) 4.50
---- ---- ---- ---- ------ ---- ------ ---- ------ ----
Less distributions:
Dividends to shareholders from net
investment income................. ---- (0.13) (0.05) (0.11) (0.09) (0.10) (0.13) (0.25) (0.35) (0.25)
Distributions to shareholders from
net realized gains on
investment transactions........... (0.47) (4.50) (3.55) (2.90) (1.98) (1.30) (0.02) (1.21) (0.43) (0.55)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions............ (0.47) (4.63) (3.60) (3.01) (2.07) (1.40) (0.15) (1.46) (0.78) (0.80)
NET ASSET VALUE, END OF PERIOD........ $32.25 $27.71 $23.96 $22.47 $18.83 $21.15 $21.83 $22.14 $16.87 $18.23
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN**........................ 18.6%(b) 35.4% 22.5% 35.4% (1.1%) 3.3% (0.7%) 39.9% (3.1%) 31.0%
Ratios to Average Net Assets:
Expenses........................... 1.28%(c) 1.12% 1.16% 1.14% 1.15% 1.17% 1.18% 1.27% 1.40% 1.50%
Net investment income (loss)....... (0.12%)(c) 0.46% 0.18% 0.44% 0.41% 0.46% 0.67% 1.33% 2.05% 1.52%
Expense waiver/reimbursement (a)... 0.30%(c) ---- ---- ---- ---- ---- ---- ---- ---- ----
Supplemental data:
Net assets, end of period (000).... $35,549 $22,272 $16,491 $14,673 $13,014 $15,135 $14,721 $12,116 $7,338 $6,337
Portfolio turnover rate (d)........ 38%(c) 50% 44% 68% 91% 85% 33% 55% 53% 45%
Average commission rate paid (e)... n/a $0.060 $0.061 $0.059 ---- ---- ---- ---- ---- ----
</TABLE>
- ---------
* Reflects operations for the period from January 1, 1998, to July 31,1998.
** 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) Not annualized.
(c) 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)
11
<PAGE> 19
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD PINNACLE FUND - 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 for the period ended July 31, 1998. Their report dated
September 24, 1998, on the Trust's financial statements for the year ended July
31, 1998, is included in the Fountain Square Funds Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Trust's financial statements and notes thereto, which may be obtained from the
Trust.
<TABLE>
<CAPTION>
PERIOD ENDED
JULY 31,1998*
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $30.16
------
Income from investment operations:
Net investment income (loss)..................... (0.04)
Net realized and unrealized gains
(losses) on investments....................... 2.16
------
Total from investment operations.......... 2.12
------
Less distributions:
Dividends to shareholders from net
investment income............................. ----
Distributions to shareholders from net
realized gains on investment transactions..... ----
Total distributions....................... ----
------
NET ASSET VALUE, END OF PERIOD................... $32.28
======
TOTAL RETURN**................................... 7.07%(b)
Ratios to Average Net Assets:
Expenses...................................... 2.17%(c)
Net investment income (loss).................. (0.84%)(c)
Expense waiver/reimbursement (a).............. 0.42%(c)
Supplemental data:
Net assets, end of period (000)............... $922
Portfolio turnover rate (d)................... 38%(c)
Average commission rate paid (e).............. n/a
</TABLE>
- ---------
* Reflects operations for the period from March 9, 1998 (commencement of
operations) to July 31,1998.
** 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) Not annualized.
(c) 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)
12
<PAGE> 20
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD BALANCED FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998, is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's 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 Fifth
Third Balanced Fund which was the predecessor to Investment A Shares of the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------------------
1998 1997 1996 1995 1994 1993*
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................... $15.33 $11.75 $11.28 $9.70 $9.78 $10.00
------ ------ ------ ----- ----- ------
Income from investment operations:
Net investment income.................................. 0.27 0.27 0.27 0.28 0.26 0.20
Net realized and unrealized gains (losses)
on investments...................................... 0.92 4.06 0.47 1.57 (0.06) (0.25)
---- ---- ---- ---- ------ ------
Total from investment operations................ 1.19 4.33 0.74 1.85 0.20 (0.05)
Less distributions:
Dividends to shareholders from net investment income... (0.28) (0.26) (0.27) (0.27) (0.26) (0.17)
Distributions to shareholders from net realized gains
on investment transactions.......................... (1.25) (0.49) ---- ---- ---- ----
Distributions to shareholders in excess of net
investment income (a)............................... ---- ---- ---- ---- (0.02) ----
---- ---- ---- ---- ------ ----
Total distributions............................. (1.53) (0.75) (0.27) (0.27) (0.28) (0.17)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD......................... $14.99 $15.33 $11.75 $11.28 $9.70 $9.78
====== ====== ====== ====== ===== =====
TOTAL RETURN**......................................... 8.41% 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% 1.00%(c)
Net investment income (loss)........................ 1.84% 2.05% 2.31% 2.73% 2.64% 3.04%(c)
Expense waiver/reimbursement (b).................... 0.43% 0.40% 0.06% 0.06% 0.06% 0.08%(c)
Supplemental data:
Net assets, end of period (000)..................... $173,177 $122,765 $92,808 $58,075 $59,363 $60,168
Portfolio turnover rate (e)......................... 135% 101% 61% 58% 53% 30%
Average commission rate paid (f).................... n/a $0.024 $0.006 ---- ---- ----
</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)
13
<PAGE> 21
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD BALANCED FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998, is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
YEAR ENDED JULY 31,
----------------------------
1998 1997 1996*
---- ---- -----
NET ASSET VALUE, BEGINNING OF PERIOD...... $15.34 $11.75 $12.13
------ ------ ------
Income from investment operations:
Net investment income..................... 0.17 0.16 0.05
Net realized and unrealized gains
(losses) on investments................ 0.92 4.08 (0.39)
------ ------ ------
Total from investment operations... 1.09 4.24 (0.34)
Less distributions:
Dividends to shareholders from net
investment income...................... (0.17) (0.16) (0.04)
Distributions to shareholders from net
realized gains on investment
transactions........................... (1.25) (0.49) ----
------ ------ ------
Total distributions................ (1.42) (0.65) (0.04)
------ ------ ------
NET ASSET VALUE, END OF PERIOD............ $15.01 $15.34 $11.75
====== ====== ======
TOTAL RETURN**............................ 7.67% 37.52% 6.32%(c)
Ratios to Average Net Assets:
Expenses............................... 1.58% 1.75% 1.78%(b)
Net investment income (loss)........... 1.24% 1.30% 1.60%(b)
Expense waiver (a)..................... 0.49% 0.30% 0.07%(b)
Supplemental data:
Net assets, end of period (000)........ $4,796 $1,155 $264
Portfolio turnover rate (d)............ 135% 101% 61%(b)
Average commission rate paid (e)....... n/a $0.0240 $0.0062
- ---------
* 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)
14
<PAGE> 22
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD MID CAP FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998, is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's 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 Fifth
Third Mid Cap Fund which was the predecessor to Investment A Shares of the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------
1998 1997 1996 1995 1994 1993*
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $16.98 $12.60 $12.59 $10.10 $9.68 $10.00
------ ------ ------ ------ ----- ------
Income from investment operations:
Net investment income (loss)............... (0.03) 0.02 0.06 0.08 0.06 0.06
Net realized and unrealized gains
(losses) on investments................. 0.98 5.55 0.11 2.48 0.43 (0.33)
---- ---- ---- ---- ---- ------
Total from investment operations.... 0.95 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)
Distributions to shareholders in excess
of net investment income................ (1.74) (0.02) ---- ---- ---- ----
Distributions to shareholders from net
realized gains on investment
transactions............................ ---- (1.15) (0.09) ---- ---- ----
------ ------ ------ ------ ------ ------
Total distributions................. (1.74) (1.19) (0.16) (0.07) (0.07) (0.05)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............. $16.19 $16.98 $12.60 $12.59 $10.10 $9.68
====== ====== ====== ====== ====== =====
TOTAL RETURN**............................. 5.69% 47.17% 1.27% 25.45% 5.07% (2.73%)(c)
Ratios to Average Net Assets:
Expenses................................ 1.01% 1.00% 1.00% 1.00% 1.00% 0.99%(b)
Net investment income (loss)............ (0.19%) 0.10% 0.42% 0.77% 0.60% 0.88%(b)
Expense waiver/reimbursement (a)........ 0.40% 0.37% 0.06% 0.18% 0.33% 0.40%(b)
Supplemental data:
Net assets, end of period (000)......... $217,547 $186,066 $72,663 $47,184 $30,210 $24,019
Portfolio turnover rate (d)............. 44% 52% 54% 23% 44% 20%(b)
Average commission rate paid............ n/a $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)
15
<PAGE> 23
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD MID CAP FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998, is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
YEAR ENDED JULY 31,
---------------------------
1998 1997 1996*
---- ---- -----
NET ASSET VALUE, BEGINNING OF PERIOD...... $16.88 $12.59 $13.72
------ ------ ------
Income from investment operations:
Net investment income (loss).............. (0.05) (0.07) (0.01)
Net realized and unrealized gains
(losses) on investments................ 0.89 5.51 (1.12)
---- ---- ------
Total from investment operations... 0.84 5.44 (1.13)
Less distributions:
Distributions to shareholders from net
realized gains on investment
transactions........................... (1.74) (1.15) ----
------ ------ ------
NET ASSET VALUE, END OF PERIOD............ $15.98 $16.88 $12.59
====== ====== ======
Total return**............................ 5.03% 46.05% 1.11%(c)
Ratios to Average Net Assets:
Expenses............................... 1.61% 1.75% 1.78%(b)
Net investment income (loss)........... (0.81%) (0.62%) (0.51%)(b)
Expense waiver/reimbursement (a)....... 0.44% 0.27% 0.06%(b)
Supplemental data:
Net assets, end of period (000)........ $1,049 $439 $229
Portfolio turnover rate (d)............ 44% 52% 54%(b)
Average commission rate paid (e)....... n/a $0.0635 $0.0659
- ---------
* 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)
16
<PAGE> 24
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD INTERNATIONAL EQUITY FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998, is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's 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 Fifth
Third International Equity Fund which was the predecessor to Investment A Shares
of the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------
1998 1997 1996 1995*
---- ---- ---- -----
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $12.05 $10.74 $9.83 $10.00
------ ------ ----- ------
Income from investment operations:
Net investment income.................... 0.09 0.04 0.01 0.05
Net realized and unrealized gains
(losses) on investments............... 1.31 2.15 0.90 (0.22)
---- ---- ---- ------
Total from investment operations.. 1.40 2.19 0.91 (0.17)
Less distributions:
Dividends to shareholders from net
investment income..................... (0.59) (0.66) ---- ----
Distributions to shareholders in excess
of net investment income.............. ---- (0.16) ---- ----
Distributions to shareholders from net
realized gains on investment
transactions.......................... (0.30) (0.06) ---- ----
------ ------ ------ ------
Total distributions............... (0.89) (0.88) ---- ----
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD........... $12.56 $12.05 $10.74 $9.83
====== ====== ====== =====
TOTAL RETURN**........................... 13.29% 21.78% 9.26% (1.70%)(c)
Ratios to Average Net Assets:
Expenses.............................. 1.47% 1.38% 1.61% 1.65%(b)
Net investment income (loss).......... 0.66% 0.39% 0.32% 0.62%(b)
Expense waiver/reimbursement (a)...... 0.35% 0.35% 0.05% 0.07%(b)
Supplemental data:
Net assets, end of period (000)....... $163,297 $151,728 $120,349 $86,442
Portfolio turnover rate (d)........... 39% 60% 41% 54%(b)
Average commission rate paid.......... n/a $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)
17
<PAGE> 25
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD INTERNATIONAL EQUITY FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1998 1997 1996*
---- ---- -----
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $12.01 $10.71 $11.21
------ ------ ------
Income from investment operations:
Net investment income (loss)..................... (0.06) (0.02) 0.01
Net realized and unrealized gains
(losses) on investments....................... 1.39 2.16 (0.51)
---- ---- ------
Total from investment operations.......... 1.33 2.14 (0.50)
Less distributions:
Dividends to shareholders from net
investment income............................. (0.53) (0.46) ----
Distributions to shareholders in excess
of net investment income...................... ---- (0.32) ----
Distributions to shareholders from net
realized gains on investment transactions..... (0.30) (0.06) ----
------ ------ ------
Total distributions....................... (0.83) (0.84) ----
------ ------ ------
NET ASSET VALUE, END OF PERIOD................... $12.51 $12.01 $10.71
====== ====== ======
TOTAL RETURN**................................... 12.57% 21.25% 8.95%(c)
Ratios to Average Net Assets:
Expenses...................................... 2.22% 2.13% 2.34%(b)
Net investment income (loss).................. (0.09%) (0.28%) 0.76%(b)
Expense waiver/reimbursement (a).............. 0.25% 0.25% ----
Supplemental data:
Net assets, end of period (000)............... $291 $210 $57
Portfolio turnover rate (d)................... 39% 60% 41%(b)
Average commission rate paid (e).............. n/a $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) 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)
18
<PAGE> 26
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD QUALITY BOND FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's 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 Fifth
Third Quality Bond Fund which was the predecessor to Investment A Shares of the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $9.85 $9.52 $9.72 $9.55 $10.29 $10.00
Income from investment operations:
Net investment income............................ 0.54 0.55 0.56 0.64 0.57 0.41
Net realized and unrealized gains
(losses) on investments....................... 0.12 0.32 (0.19) 0.17 (0.69) 0.26
Total from investment operations.......... 0.66 0.87 0.37 0.81 (0.12) 0.67
Less distributions:
Dividends to shareholders from net
investment income............................. (0.55) (0.54) (0.57) (0.64) (0.59) (0.38)
Distributions to shareholders from net
realized gains on investment transactions..... ---- ---- ---- ---- (0.03) ----
Total distributions....................... (0.55) (0.54) (0.57) (0.64) (0.62) (0.38)
NET ASSET VALUE, END OF PERIOD................... $9.96 $9.85 $9.52 $9.72 $9.55 $10.29
===== ===== ===== ===== ===== ======
TOTAL RETURN**................................... 6.91% 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% 0.75% 0.74%(b)
Net investment income (loss).................. 5.50% 5.71% 5.80% 6.72% 5.76% 6.07%(b)
Expense waiver/reimbursement (a).............. 0.45% 0.41% 0.06% 0.09% 0.11% 0.23%(b)
Supplemental data:
Net assets, end of period (000)............... $107,794 $91,789 $83,422 $55,767 $47,272 $37,962
Portfolio turnover rate (d)................... 279% 181% 117% 138% 112% 19%(b)
</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)
19
<PAGE> 27
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD QUALITY BOND FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------
1998 1997 1996*
---- ---- -----
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $9.86 $9.53 $9.62
----- ----- -----
Income from investment operations:
Net investment income............................. 0.48 0.49 0.14
Net realized and unrealized gains
(losses) on investments........................ 0.09 0.32 (0.08)
---- ---- -----
Total from investment operations........... 0.57 0.81 0.06
Less distributions:
Dividends to shareholders from net
investment income.............................. (0.48) (0.48) (0.15)
----- ----- -----
NET ASSET VALUE, END OF PERIOD.................... $9.95 $9.86 $9.53
===== ===== =====
TOTAL RETURN**.................................... 5.92% 8.68% 3.71%(c)
Ratios to Average Net Assets:
Expenses....................................... 1.50% 1.50% 1.52%(b)
Net investment income (loss)................... 4.76% 4.97% 5.03%(b)
Expense waiver/reimbursement (a)............... 0.35% 0.31% 0.09%(b)
Supplemental data:
Net assets, end of period (000)................ $399 $204 $162
Portfolio turnover rate (d).................... 279% 181% 117%(b)
</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)
20
<PAGE> 28
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD BOND FUND FOR INCOME - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------
1998 1997*
---- -----
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $12.19 $12.00
------ ------
Income from investment operations:
Net investment income.................................... 0.68 0.37
Net realized and unrealized gains on investments........ 0.06 0.18
---- ----
Total from investment operations.................. 0.74 0.55
Less distributions:
Dividends to shareholders from net
investment income..................................... (0.69) (0.36)
Distributions to shareholders from net
realized gains on investment transactions............. (0.05) ----
----- -----
Total distributions............................... (0.74) (0.36)
----- -----
NET ASSET VALUE, END OF PERIOD........................... $12.19 $12.19
====== ======
TOTAL RETURN**........................................... 6.23% 4.64%(c)
Ratios to Average Net Assets:
Expenses.............................................. 0.75% 0.79%(b)
Net investment income (loss).......................... 5.54% 6.08%(b)
Expense waiver/reimbursement (a)...................... 0.42% 0.42%(b)
Supplemental data:
Net assets, end of period (000)....................... $188,071 $157,108
Portfolio turnover rate (d)........................... 127% 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)
21
<PAGE> 29
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD BOND FUND FOR INCOME - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
YEAR ENDED JULY 31,
-------------------
1998 1997*
---- -----
NET ASSET VALUE, BEGINNING OF PERIOD............... $12.18 $12.00
------ ------
Income from investment operations:
Net investment income (loss)....................... 0.60 (0.01)
Net realized and unrealized gains
(losses) on investments......................... (0.05) 0.50
----- ----
Total from investment operations............ 0.65 0.49
Less distributions:
Dividends to shareholders from net
investment income............................... (0.59) (0.22)
Distributions to shareholders from net
realized gains on investment transactions....... (0.05) ----
Distributions to shareholders in excess
of net investment income........................ ---- (0.09)
------ ------
Total distributions......................... (0.64) (0.31)
------ ------
NET ASSET VALUE, END OF PERIOD..................... $12.19 $12.18
====== ======
TOTAL RETURN**..................................... 5.50% 4.18%(c)
Ratios to Average Net Assets:
Expenses........................................ 1.34% 1.54%(b)
Net investment income (loss).................... 4.89% 4.20%(b)
Expense waiver/reimbursement (a)................ 0.32% 0.26%(b)
Supplemental data:
Net assets, end of period (000)................. $230 $6
Portfolio turnover rate (d)..................... 127% 157%(b)
- ---------
* 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)
22
<PAGE> 30
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD U.S. GOVERNMENT SECURITIES FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's 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 Fifth
Third U.S. Government Securities Fund which was the predecessor to Investment A
Shares of the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994 1993*
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $9.75 $9.55 $9.77 $9.64 $10.21 $10.00
----- ----- ----- ----- ------ ------
Income from investment operations:
Net investment income............................. 0.52 0.54 0.55 0.58 0.51 0.35
Net realized and unrealized gains
(losses) on investments........................ 0.07 0.19 (0.20) 0.13 (0.49) 0.13
---- ---- ------ ---- ------ ----
Total from investment operations........... 0.59 0.73 0.35 0.71 (0.02) 0.48
Less distributions:
Dividends to shareholders from net
investment income.............................. (0.52) (0.53) (0.57) (0.58) (0.57) (0.27)
Distributions to shareholders from net
realized gains on investment transactions...... ---- ---- ---- ---- (0.02) ----
------ ------ ------ ------ ------ ------
Total distributions............................ (0.52) (0.53) (0.57) (0.58) (0.59) (0.27)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.................... $9.82 $9.75 $9.55 $9.77 $9.64 $10.21
===== ===== ===== ===== ===== ======
TOTAL RETURN**.................................... 6.17% 7.83% 3.63% 7.66% 0.11% 4.78%(c)
Ratios to Average Net Assets:
Expenses....................................... 0.75% 0.75% 0.75% 0.75% 0.75% 0.74%(b)
Net investment income (loss)................... 5.30% 5.56% 5.67% 5.98% 5.17% 5.36%(b)
Expense waiver/reimbursement (a)............... 0.53% 0.50% 0.29% 0.39% 0.18% 0.33%(b)
Supplemental data:
Net assets, end of period (000)................ $41,550 $42,414 $30,754 $25,054 $29,107 $29,603
Portfolio turnover rate (d).................... 155% 169% 103% 115% 55% 23%(b)
</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)
23
<PAGE> 31
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD U.S. GOVERNMENT SECURITIES FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------
1998 1997 1996*
---- ---- -----
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $9.75 $9.56 $9.65
----- ----- -----
Income from investment operations:
Net investment income............................ 0.46 0.46 0.16
Net realized and unrealized gains
(losses) on investments....................... 0.04 0.19 (0.10)
---- ---- -----
Total from investment operations.......... 0.50 0.65 0.06
Less distributions:
Dividends to shareholders from net
investment income............................. 0.45 (0.46) (0.15)
----- ----- -----
NET ASSET VALUE, END OF PERIOD................... $9.80 $9.75 $9.56
===== ===== =====
TOTAL RETURN**................................... 5.19% 6.92% 3.48%(c)
Ratios to Average Net Assets:
Expenses...................................... 1.50% 1.50% 1.52%(b)
Net investment income (loss).................. 4.56% 4.82% 4.80%(b)
Expense waiver/reimbursement (a).............. 0.43% 0.40% 0.37%(b)
Supplemental data:
Net assets, end of period (000)............... $118 $75 $49
Portfolio turnover rate (d)................... 155% 169% 103%(b)
</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)
24
<PAGE> 32
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD MUNICIPAL BOND FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
YEAR ENDED JULY 31,
-------------------
1998 1997*
---- -----
NET ASSET VALUE, BEGINNING OF PERIOD................ $12.33 $12.00
------ ------
Income from investment operations:
Net investment income............................... 0.50 0.28
Net realized and unrealized gains on investments... 0.01 0.32
----- ----
Total from investment operations............. 0.51 0.60
Less distributions:
Dividends to shareholders from net
investment income................................ (0.51) (0.27)
Distributions to shareholders from net
realized gains on investment transactions........ (0.09) ----
------ ------
Total distributions.............................. (0.60) (0.27)
------ ------
NET ASSET VALUE, END OF PERIOD...................... $12.24 $12.33
====== ======
TOTAL RETURN**...................................... 4.28% 5.04%(c)
Ratios to Average Net Assets:
Expenses......................................... 0.76% 0.81%(b)
Net investment income (loss)..................... 4.09% 4.44%(b)
Expense waiver/reimbursement (a)................. 0.45% 0.42%(b)
Supplemental data:
Net assets, end of period (000).................. $117,333 $101,616
Portfolio turnover rate (d)...................... 121% 63%(b)
- ---------
* 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)
25
<PAGE> 33
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD MUNICIPAL BOND FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------
1998 1997*
---- -----
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $12.33 $12.00
------ ------
Income from investment operations:
Net investment income (loss)........................ 0.18 (0.20)
Net realized and unrealized gains on investments... 0.07 0.75
------ ------
Total from investment operations............. 0.25 0.55
Less distributions:
Dividends to shareholders from net
investment income................................ (0.18) (0.16)
Distributions to shareholders from net
realized gains on investment transactions........ (0.09) ----
Distributions to shareholders in excess
of net investment income......................... ---- (0.06)
------ ------
Total distributions.......................... (0.27) (0.22)
------ ------
NET ASSET VALUE, END OF PERIOD...................... $12.31 $12.33
====== ======
TOTAL RETURN**...................................... 2.03%(c) 4.65%(c)
Ratios to Average Net Assets:
Expenses......................................... 1.51% 1.56%(b)
Net investment income............................ 3.41% 3.09%(b)
Expense waiver/reimbursement (a)................. 0.37% 0.26%(b)
Supplemental data:
Net assets, end of period (000).................. ---- $11
Portfolio turnover rate (d)...................... 121% 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.
*** Reflects operations for the period from August 1, 1997 to January 8, 1998.
As of January 8, 1998, all Investment C Shares were redeemed; however,
these shares are still available. Per share information is calculated using
the average share method.
(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)
26
<PAGE> 34
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD OHIO TAX FREE BOND FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's 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 Fifth
Third Ohio Tax Free Bond Fund which was the predecessor to Investment A Shares
of the Fund.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------
1998 1997 1996 1995 1994 1993*
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $10.31 $10.01 $9.99 $9.75 $9.95 $10.00
------ ------ ----- ----- ----- ------
Income from investment operations:
Net investment income............................. 0.42 0.43 0.40 0.42 0.40 0.05
Net realized and unrealized gains
(losses) on investments........................ 0.02 0.30 0.03 0.24 (0.21) (0.05)
---- ---- ----- ---- ------ ------
Total from investment operations........... 0.44 0.73 0.43 0.66 0.19 ----
Less distributions:
Dividends to shareholders from net
investment income.............................. (0.42) (0.43) (0.41) (0.42) (0.39) (0.05)
Distributions to shareholders from net
realized gains on investment transactions...... (0.04) ---- ---- ---- ---- ----
------ ------ ------ ------ ------ ------
Total distributions........................ (0.46) (0.43) (0.41) (0.42) (0.39) (0.05)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.................... $10.29 $10.31 $10.01 $9.99 $9.75 $9.95
====== ====== ====== ===== ===== =====
TOTAL RETURN**.................................... 4.38% 7.49% 4.33% 7.02% 1.95% (0.01%)(c)
Ratios to Average Net Assets:
Expenses....................................... 0.74% 0.75% 0.74% 0.35% 0.00% 0.00%(b)
Net investment income (loss)................... 4.09% 4.27% 4.01% 4.36% 4.18% 3.53%(b)
Expense waiver/reimbursement (a)............... 0.43% 0.37% 0.32% 0.77% 1.33% 2.21%(b)
Supplemental data:
Net assets, end of period (000)................ $188,966 $168,800 $35,463 $28,315 $23,854 $8,163
Portfolio turnover rate (d).................... 42% 49% 30% 27% 94% 31%(b)
</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)
27
<PAGE> 35
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD OHIO TAX FREE BOND FUND - 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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
notes thereto, which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1998 1997 1996*
---- ---- -----
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $10.31 $10.00 $10.02
------ ------ ------
Income from investment operations:
Net investment income............................. 0.35 0.36 0.10
Net realized and unrealized gains
(losses) on investments........................ 0.01 0.31 (0.01)
------ ------ ------
Total from investment operations........... 0.36 0.67 0.09
Less distributions:
Dividends to shareholders from net
investment income.............................. (0.35) (0.35) (0.11)
Distributions to shareholders from net
realized gains on investment transactions...... (0.04) ---- ----
Distributions to shareholders in excess
of net investment income....................... ---- (0.01) ----
------ ------ ------
Total distributions........................ (0.39) (0.36) (0.11)
------ ------ ------
NET ASSET VALUE, END OF PERIOD.................... $10.28 $10.31 $10.00
====== ====== ======
TOTAL RETURN**.................................... 3.56% 6.84% 3.98%(c)
Ratios to Average Net Assets:
Expenses....................................... 1.49% 1.50% 1.52%(b)
Net investment income (loss)................... 3.33% 3.51% 3.41%(b)
Expense waiver/reimbursement (a)............... 0.33% 0.27% 0.28%(b)
Supplemental data:
Net assets, end of period (000)................ $584 $248 $38
Portfolio turnover rate (d).................... 42% 49% 30%(b)
</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)
28
<PAGE> 36
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 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 Investment A Shares of 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 Investment A Shares and Investment C
Shares of the Fund into which it converted. 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*
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Income Fund
[Successor to Equity Fund (Income)]
Investment A Shares 17.67% 27.98% 21.18% 16.55%
Investment C Shares 22.78% 29.81% 22.22% 17.05%
Bond Fund For Income
[Successor to Taxable Bond Fund]
Investment A Shares 1.49% 4.59% 3.76% 6.88%
Investment C Shares 5.50% 5.25% 3.75% 6.34%
Municipal Bond Fund
[Successor to Tax-Free Bond Fund]
Investment A Shares (0.40)% 3.55% 3.42% 5.30%
</TABLE>
--------
*Annualized Total Returns are calculated based upon the fiscal year
ended July 31, 1998.
For periods prior to commencement of operations, all of the Funds offered by
this Prospectus (except the Cardinal Fund, Pinnacle Fund and International
Equity Fund) intend to quote total returns that include performance of certain
collectively managed accounts advised by Fifth Third Bank whose assets were
converted to create such Funds, as adjusted to reflect the expenses associated
with the Funds (without waivers or reimbursements). Each of the predecessor
collectively managed accounts was not registered with the Securities and
Exchange Commission (the "SEC") and, therefore, was not subject to the
investment restrictions imposed by law on registered mutual funds. If such
accounts had been registered, the performance may have been adversely affected.
Quoted performance of these 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.
29
<PAGE> 37
OBJECTIVES OF THE FUNDS
- -------------------------------------------------------------------------------
The investment objectives and policies of each Fund offered by this Prospectus
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 without the 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 Prospectus and in the
Combined Statement of Additional Information.
QUALITY GROWTH FUND
The investment objective of the Quality Growth Fund is to provide growth of
capital. Income is a secondary objective. The Fund pursues its investment
objectives by investing primarily in a professionally managed and diversified
portfolio of common stocks of high-quality companies. The Fund intends to invest
in industries and companies which, in the opinion of Fifth Third Bank, have
potential primarily for capital growth. These companies generally are leaders in
their industries and are characterized by sound management and the ability to
finance expected growth. Among other things, Fifth Third Bank looks 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 total 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:
o 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;
o 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 total assets in ADRs. (See "Foreign
Investments."); and
o convertible bonds rated at least BBB by Standard & Poor's Rating Group
("S&P"), or at least Baa by Moody's Investors Service, Inc.
("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 and warrants,
engage options and futures transactions, and participate in 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 in which the Fund may invest 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.
30
<PAGE> 38
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 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, Fifth Third Bank 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."
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 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 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 Fund will invest at least 65% of its total assets in
income producing equity securities.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to, the following:
o 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;
o 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 total assets in ADRs. (See "Foreign Investments"); and
o convertible securities rated in the four highest rating categories by a
nationally recognized statistical rating organization (an "NRSRO")
(e.g., at least BBB by S&P or Baa by Moody's) or, if not rated, are
determined to be of comparable quality by Fifth Third Bank. Downgrades
will be evaluated on a case-by-case basis by Fifth Third Bank. Fifth
Third Bank 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, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities and warrants,
engage options and futures transactions, and participate in when-issued and
delayed delivery transactions. (See "Portfolio Investments and Strategies").
31
<PAGE> 39
INVESTMENT LIMITATIONS. The Equity Income Fund's investment limitations are
discussed under "Borrowing Money," "Diversification," and "Restricted and
Illiquid Securities."
CARDINAL FUND
The Cardinal Fund's investment objective is long-term growth of capital and
income. Current income is a secondary objective. The Fund pursues these
investment objectives through selective participation in the long-term progress
of business and industries. The Fund generally invests in equity securities of
companies which, in the opinion of the Advisor, are growth-oriented.
ACCEPTABLE INVESTMENTS. The securities in which the Fund may invest include, but
are not limited to, the following:
o common stocks which are exchange-listed or over-the-counter securities
of companies having a market capitalization of at least $10 million;
and
o ADRs, provided that not more than 25% of the Fund's total assets are
invested in ADRs (see "Foreign Investments").
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities and warrants,
engage in options and futures transactions, and participate in when-issued and
delayed delivery transactions (see "Portfolio Investments and Strategies").
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
PINNACLE FUND
The Pinnacle Fund's investment objective is long-term capital appreciation. The
Fund pursues this investment objective by investing primarily in common stocks
which, in the opinion of Heartland, offer opportunities for long-term capital
appreciation. The Fund is not intended to be a current income producing
investment and will not purchase securities with a view toward short-term
profits.
ACCEPTABLE INVESTMENTS. Subject to the investment limitations discussed below,
the securities in which the Fund may invest include, but are not limited to, the
following:
o common stocks and securities convertible into common stock, such as
convertible bonds, convertible debentures and convertible preferred
stock, which are exchange-listed or over-the-counter securities of
small or large, well-established or unseasoned companies.
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities, and
participate in when-issued and delayed delivery transactions (see "Portfolio
Investments and Strategies").
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest may
take the form of investment grade convertible bonds, convertible preferred stock
or debentures. As used herein, the term "investment grade" means convertible
securities rated Baa or higher by Moody's or BBB or higher by S&P, or unrated
securities that are determined by Heartland to be of comparable quality.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
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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 the 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 Fund may invest in money market instruments that are either rated
in the highest short-term rating category by an NRSRO or are of comparable
quality to securities having such ratings.
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities and warrants,
engage in options and futures transactions, and participate in when-issued and
delayed delivery transactions. (See "Portfolio Investments and Strategies.")
The asset mix of the Fund will normally range between 40% and 75% in common
stock and convertible securities, 25% to 50% in preferred stock and bonds, and
0% to 25% 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 total 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:
o prime commercial paper including master demand notes;
o securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies, or instrumentalities;
and
o repurchase agreements.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
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 Fifth Third Bank on the basis of traditional research
techniques, including assessment of earnings and dividend growth prospects and
the risk and volatility of the company's business. Under normal market
conditions, at least 65% of the Fund's total 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:
o common stocks 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 Fifth Third Bank, have potential primarily for capital
growth and secondarily for income;
o 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 total assets in ADRs. (See "Foreign Investments."); and
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<PAGE> 41
o 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
Fifth Third Bank. Downgrades will be evaluated on a case by case basis
by Fifth Third Bank. Fifth Third Bank 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, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities and warrants,
engage in options and futures transactions, and participate in 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."
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:
o the opportunity to take advantage of investment opportunities in
countries outside the U.S. which may arise because of differing
economic and political cycles;
o the opportunity to invest in financial markets of foreign countries,
some of which are believed to have superior growth potential; and
o 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 Fifth Third Bank, in consultation with MSAM, in common
stocks of non-U.S. issuers which, in the aggregate, generally replicate broad
country indices. MSAM 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. There can be no assurance that these
goals will be achieved.
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 MSAM, 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 MSAM, 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
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<PAGE> 42
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, MSAM 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 MSAM
provide an expected return for each stock market. The expected return is
adjusted by currency return expectations derived from MSAM'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. MSAM may overweight or underweight an industry segment of a particular
index if it concludes this would be advantageous to the Fund. Stock selection
for 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:
o common stock equivalents (such as rights, warrants, securities that are
not convertible into common stocks and ADRs); and
o corporate and government fixed income securities dominated in
currencies other than U.S. dollars.
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities, engage in
options and futures transactions, and participate in when-issued and delayed
delivery transactions. (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 an NRSRO or which, in the opinion of
Fifth Third Bank or MSAM, 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.)
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<PAGE> 43
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.
In connection with foreign currency exchange contracts, 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 MSAM will
consider the likelihood of changes in currency values when making investment
decisions, MSAM believes that it is important to be able to enter into forward
contracts when it believes the interests of the Fund will be served. The Fund
will not enter into forward contracts for hedging purposes in a particular
currency in an amount in excess of the Fund's assets denominated in that
currency, but, as consistent with its other investment policies, is not
otherwise limited in its ability to use this strategy.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities".
RISK CONSIDERATIONS. Risk considerations relating to investing in non-U.S.
securities are discussed below under "Foreign Investments".
BOND FUND FOR INCOME
The investment objective of the Bond Fund For Income is to provide a high level
of current income. The Fund pursues its investment objective by investing in a
diversified portfolio of investment grade debt securities with remaining average
lives of ten years or less. Under normal market conditions, the Fund will invest
at least 65% of its total assets in fixed income debt securities.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in a professionally managed,
diversified portfolio of investment grade securities which include:
o domestic issues of corporate debt obligations rated in the four highest
rating categories by a NRSRO, or unrated bonds that are determined by
Fifth Third Bank to be comparable quality. Downgrades will be evaluated
on a case by case basis by Fifth Third Bank. Fifth Third Bank will
determine whether or not the security continues to be an acceptable
investment. If not, the security will be sold;
o 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 total
assets in foreign investments (see "Foreign Investments");
o obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities, as described above; and
o collateralized mortgage obligations.
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The Fund does not intend to invest in corporate bonds rated below Baa by Moody's
or BBB by S&P. In addition, the Fund may borrow money, enter into repurchase
agreements, lend portfolio securities, invest in restricted and illiquid
securities, 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. As a result of this
prepayment risk, the effective maturity of these securities is expected to be
shorter than the stated maturity. For purposes of compliance with stated
maturity policies and calculation of a Fund's weighted average maturity, the
effective maturity of such securities will be used.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
QUALITY BOND FUND
The investment objective of the Quality Bond Fund is to achieve high current
income. Capital growth is a secondary objective. The Fund pursues its investment
objectives 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 total assets in quality bonds. As used herein, the
Fund considers bonds rated Baa or higher by Moody's or BBB or higher by S&P, or
unrated bonds that are determined by Fifth Third Bank 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:
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o 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 Fifth Third Bank to be of comparable quality. Downgrades will be
evaluated on a case by case basis by Fifth Third Bank. Fifth Third Bank
will determine whether or not the security continues to be an
acceptable investment. If not, the security will be sold;
o 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 total
assets in foreign investments (see "Foreign Investments");
o 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 below; and
o collateralized mortgage obligations (see discussion of collateralized
mortgage obligations for the "Bond Fund For Income").
The Fund does not intend to invest in corporate bonds rated below Baa by Moody's
or BBB by S&P. In addition, the Fund may borrow money, enter into repurchase
agreements, lend portfolio securities, invest in restricted and illiquid
securities, engage in options and futures transactions, and participate in
when-issued and delayed delivery transactions (see "Portfolio Investments and
Strategies").
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
U.S. GOVERNMENT SECURITIES FUND
The investment objective of the Government Securities Fund is to provide a high
level of current income. The 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, Fifth Third Bank seeks to minimize
fluctuations in the value of the Fund's shares. Under normal market conditions,
the Fund will invest at least 65% of its total assets in U.S. Government
securities.
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:
o direct obligations of the U.S. Treasury such as U.S. Treasury bills,
notes and bonds; and
o 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
above for the Bond Fund For Income.
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:
o the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
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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.
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."
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 Fund
pursues its objective by investing primarily in a diversified portfolio of
investment grade municipal securities. Interest income of the Fund that is
exempt from federal regular income taxes retains its exempt status when
distributed to shareholders. Income distributed by the 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 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 Fund's distributions derived from these bonds.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are:
o debt obligations of any state, territory, or possession of the United
States, including the District of Columbia, or any political
subdivision, authority, agency or instrumentality of any of these; and
o participation interests, as described below, in any of the above
obligations.
As a matter of investment policy, which may not be changed without shareholder
approval, under normal market conditions at least 80% of the value of the Fund's
net assets will be invested in municipal securities, as defined above.
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted securities, engage in options and
futures transactions, and participate in when-issued and delayed delivery
transactions (see "Portfolio Investments and Strategies").
CHARACTERISTICS. The 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 Fifth Third Bank. Fifth Third Bank 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.
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 municipal securities. The financial institutions from
which the Fund purchases participation interests frequently provide or secure
irrevocable letters of credit or guarantees to assure that the participation
interests are of high quality.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the municipal securities which the
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
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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
foregoing.
TEMPORARY INVESTMENTS. The 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,
Fifth Third Bank will limit temporary investments to those rated within the
investment grade categories described under "Acceptable Investments-
Characteristics" if rated, or if unrated, those which Fifth Third Bank judges to
have the same characteristics as such investment grade securities.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.
MUNICIPAL SECURITIES. Municipal securities are generally issued to finance
public works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Municipal securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
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 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
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subject to federal alternative minimum tax. To the extent the 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 Fund's distributions
derived from these bonds.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are:
o obligations issued by or on behalf of the state of Ohio, its political
subdivisions, or agencies;
o 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
o 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 Fifth Third Bank 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 described above.
The income securities acceptable for investment in the Fund are outlined under
the following subsections of the "Acceptable Investments" section of the
Municipal Bond Fund: "Participation Interests," "Variable Rate Municipal
Securities," and "Municipal Leases."
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted securities, and participate 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 Fifth Third Bank. Fifth Third Bank 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 Fund normally invests its assets so that at least 80%
of its annual interest income is exempt from federal income tax and the personal
income taxes imposed by the state of Ohio and Ohio municipalities, or at least
80% of its net assets are invested in obligations the interest from which is
exempt from such taxes. However, from time to time, during periods of other than
normal market conditions, the Fund may invest 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,
Fifth Third Bank will limit temporary investments to those rated within the
investment grade categories described under "Acceptable Investments-
Characteristics" if rated, or if unrated, those which Fifth Third Bank 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.
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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. While
diversifying more into the services and other non-manufacturing areas, the Ohio
economy continues to rely in part on durable goods manufacturing, largely
concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some other
states and in the nation as a whole. Agriculture is an important segment of the
Ohio economy, with over half of the State's area devoted to farming and
approximately 16% of total employment in agribusiness. 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."
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PORTFOLIO INVESTMENTS AND STRATEGIES
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BORROWING MONEY
The Funds offered by this Prospectus 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, none of the Funds offered by
this Prospectus (with the exception of the Ohio Tax Free Bond Fund) will invest
more than 5% of its total assets 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 offered by this Prospectus may invest in restricted securities.
Restricted securities are any securities in which a 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 a 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, a Fund may be required to bear the expense of registration. The Funds
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 offered by this Prospectus (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 the Funds, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the purchaser
must be in an exempt transaction. Section 4(2) commercial paper is normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Trust believes 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 Trust intends 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 Trust will not subject such securities to the limitation otherwise
applicable to restricted securities.
REPURCHASE AGREEMENTS
The securities in which each Fund offered by this Prospectus invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized
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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 offered by this Prospectus 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 offered by this Prospectus may purchase securities on a when-issued or
delayed delivery basis. 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. 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 or
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 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, each of the Funds offered by this
Prospectus may lend its portfolio securities on a short-term or long-term basis,
in an amount up to one-third of the value of its total assets to broker/dealers,
banks, or other institutional borrowers of securities. A 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
Trustees and will receive collateral in the form of cash or liquid 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 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 would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
OPTIONS AND FUTURES
The Funds offered by this Prospectus (with the exception of the Pinnacle Fund,
the Municipal Bond Fund and the Ohio Tax Free Bond Fund) may engage in options
and futures transactions as described below.
PUT AND CALL OPTIONS. Each Fund offered by this Prospectus (with the exception
of the Pinnacle Fund, the Municipal Bond Fund and the Ohio Tax Free Bond Fund)
may purchase put options on its 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 Pinnacle Fund, the
Municipal Bond Fund and 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 International Equity Fund may use
options to manage interest rate and currency risks. It may also write covered
call options and secured put options to generate income or lock
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in gains. The International Equity Fund may write covered call options and
secured put options on up to 25% of its net assets and may purchase put and call
options provided that no more than 5% of the fair market value of its net assets
may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by a 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 a Fund may be
required to take delivery of the underlying asset at a disadvantageous price.
Each Fund offered by this Prospectus (with the exception of the Pinnacle Fund,
the Municipal Bond Fund and the Ohio Tax Free Bond 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. These Funds
purchase and write options only with investment dealers and other financial
institutions (such as commercial banks or savings and loan associations) deemed
creditworthy by the Advisor.
OTC options are two party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid market
while over-the-counter options may not.
OTC options differ from exchange traded options in several respects. They are
transacted directly with dealers and not with a clearing corporation, and there
is a risk of nonperformance by the dealer as a result of the insolvency of such
dealer or otherwise, in which event a 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 offered by this Prospectus (with the
exception of the Pinnacle Fund, the Municipal Bond Fund and 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
Equity Income Fund, the Cardinal Fund, the Balanced Fund, the Mid Cap Fund and
the Bond Fund For Income may also purchase and sell stock index futures to hedge
against changes in prices.
None of the Funds offered by this Prospectus will 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 International Equity 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.
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None of the Funds offered by this Prospectus may 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 a 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 offered by this Prospectus (with the exception of the Pinnacle Fund,
the Municipal Bond Fund and the Ohio Tax Free Bond Fund) 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 indices. 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.
A Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When a Fund is not fully invested and anticipates a significant market
advance, it may enter into futures contracts to purchase the index in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that it intends to purchase. In many of these transactions, a
Fund will purchase such securities upon termination of the futures position but,
depending on market conditions, a futures position may be terminated without the
corresponding purchases of common stock. A Fund may also invest in securities
index futures contracts when the Advisor believes such investment is more
efficient, liquid or cost-effective than investing directly in the securities
underlying the index.
A Fund may also write call options and purchase put options on futures contracts
as a hedge to attempt to protect securities in its portfolio against decreases
in value. When a Fund writes a call option on a futures contract, it is
undertaking the obligation of selling a futures contract at a fixed price at any
time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, a Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option. An option on a securities index futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a securities
index futures contract. A Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. A Fund may also invest in
options on securities index futures contracts when the Advisor believes such
investment is more efficient, liquid or cost-effective than investing directly
in the futures contract or in the securities underlying the index, or when the
futures contract or underlying securities are not available for investment upon
favorable terms.
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 ability to predict pertinent market
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movements, and the Advisor could be incorrect in its expectations about the
direction or extent of market factors such as stock price movement. In these
events, the Fund may lose money on the future contract or option. Also, there
might be imperfect correlation, or even no correlation, between the change in
market value of the securities held by Fund and the prices of the futures and
options thereon relating to the securities purchased or sold by Fund. This may
cause the futures contract and any related options to react differently than the
portfolio securities to market changes. The use of futures and related options
may reduce risk of loss by wholly or partially offsetting the negative effect of
unfavorable price movements but they can also reduce the opportunity for gain by
offsetting the positive effect of favorable price movements in positions. No
assurance can be given that the Advisor's judgment in this respect will be
correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Advisor will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. A Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
FOREIGN INVESTMENTS
Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. While a number of the considerations noted
below under "Foreign Companies" are relevant to the ability of several of the
Funds offered by this Prospectus 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 assets and income of a Fund which
invests in foreign securities may be affected by changes in exchange rates and
regulations. Although each of the Funds values its assets daily in U.S. dollars,
it will not convert its holdings of foreign currencies to U.S. dollars on a
daily basis. When a 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:
o less publicly available information about foreign companies;
o the lack of uniform financial accounting standards applicable to
foreign companies;
o less readily available market quotations on foreign companies;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
o generally lower foreign stock market volume and possible delays in
settlement of foreign transactions (which could adversely affect
shareholder equity);
o the likelihood that foreign securities may be less liquid or more
volatile;
o foreign brokerage commissions may be higher;
o unreliable mail service between countries; and
o 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 International
Equity Fund. Although the International Equity Fund is unaware of any current
restrictions, investors are advised that these policies could be reinstituted.
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EMERGING MARKETS. The International Equity Fund may take advantage of the
unusual opportunities for higher returns available from investing in emerging
countries. These investments, however, carry considerably more volatility and
risk because they generally are associated with less mature economies and less
stable political systems. The economies of individual emerging countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject to
limitation in other emerging countries. Foreign ownership limitations also may
be imposed by the charters of individual companies in emerging countries to
prevent, among other concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some emerging
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any emerging country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.
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,
record keeping and the public availability of information.
DERIVATIVE SECURITIES
Several of the Funds offered by this Prospectus 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
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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 an 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 up to 100% as the Advisor in
its judgment believes market conditions warrant, each of the Funds offered by
this Prospectus (except the International Equity Fund, the Municipal Bond Fund
and the Ohio Tax Free Bond Fund) may also invest temporarily in cash and money
market instruments during times of unusual market conditions and to maintain
liquidity as described below. Temporary investments may include obligations such
as:
o domestic issues of corporate debt obligations including variable rate
demand notes (except with respect to the Pinnacle Fund);
o commercial paper and other money market instruments;
o securities issued and/or guaranteed as to payment of principal and
interest by U.S. government, its agencies, or instrumentalities;
o instruments of domestic banks and (except with respect to the Pinnacle
Fund) foreign banks; and o 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 a
Fund with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at par. The interest
rate may float or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on published interest rate or interest rate
index. Most variable rate demand notes allow 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. The Pinnacle Fund will not
invest in variable rate demand notes.
COMMERCIAL PAPER. The commercial paper and money market instruments in which the
Funds identified above may invest will be rated A-1 by S&P, Prime-1 by Moody's,
or F-1 by Fitch Investors Service, or will be unrated, but determined by the
Advisor to be of comparable quality to other bank or corporate obligations.
BANK INSTRUMENTS. The domestic banks and foreign banks which issue instruments
in which the Funds identified above may invest (such as certificates of deposit,
demand and time deposits, saving shares, and bankers' acceptances) will have
capital, surplus, and undivided profits of over $100,000,000 and/or their
deposits will be insured by the Federal Deposit Insurance Corporation ("FDIC").
ECDs, Yankee CDS, and ETDs are subject to the same risks as detailed previously
under "Foreign Investments."
INVESTMENT COMPANIES. In addition, all of the Funds offered by this Prospectus
may purchase shares of other investment companies, primarily for the purpose of
investing short-term cash on a temporary basis. Investment in shares of other
investment companies may subject a Fund to additional or duplicative fees and
expenses.
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<PAGE> 57
EQUITY INVESTMENT RISKS
With respect to the Quality Growth Fund, Equity Income Fund, Cardinal Fund,
Pinnacle Fund, Balanced Fund, Mid Cap Fund and International Equity Fund, 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 Cardinal Fund and Pinnacle Fund which
invest in both small and medium capitalization stocks and the Equity Income Fund
and Mid Cap Fund which invest in medium capitalization stocks, there are some
additional risk factors associated with investments in these 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. Neither the Cardinal Fund nor the Pinnacle Fund will invest more than
5% of its total assets in securities of companies having a record of less than
three years of continuous operations (including the record of any predecessor).
In general, stocks in the small and medium capitalization sectors of the United
States equity market tend to be slightly more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Index. This is because, among other things, both small and 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 small or medium-sized companies may, to some
degree, fluctuate independently of the stocks of large companies. That is, the
stocks of small or medium-sized companies may decline in price as the price of
large company stocks rises or vice versa. Therefore, investors should expect
that the Funds identified above will be slightly more volatile than, and may
fluctuate independently of, broad stock market indices such as the Standard &
Poor's 500 Index.
FIFTH THIRD FUNDS INFORMATION
- -------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all of
the Trust's powers except those reserved for the shareholders.
INVESTMENT ADVISORS. Pursuant to an investment advisory contract with the Trust,
investment decisions for all of the Funds offered by this Prospectus except the
Pinnacle Fund are made by Fifth Third Bank, subject to direction by the
Trustees. Pursuant to a separate investment advisory contract with the Trust,
investment decisions for the Pinnacle Fund are made by Heartland, subject to the
direction of the Trustees. Each of Fifth Third Bank and Heartland continually
conducts investment research and supervision for the Funds offered by this
Prospectus and is responsible for the purchase or sale of portfolio instruments,
for which it receives an annual fee from these Funds.
With respect to the International Equity Fund, as discussed further below, Fifth
Third Bank has retained MSAM to act as sub-advisor to the Fund. As Advisor,
Fifth Third Bank conducts a program for ongoing oversight and evaluation of
MSAM's services to this Fund, and regularly reports to the Trustees on these
matters. Fifth Third Bank also assisted in the formulation of, and continues 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 reviews the portfolio
daily and monitors the Fund's expenses, as well as the brokerage and research
services provided to the Fund and selection of brokers by MSAM.
ADVISORY FEES. Fifth Third Bank receives an investment advisory fee at
annual rates equal to the percentages of the relevant Fund's average
daily net assets as follows: the Bond Fund For Income, the Quality Bond
Fund, the Government Securities Fund, the Municipal Bond Fund and the
Ohio Tax
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<PAGE> 58
Free Bond Fund--0.55%; the Cardinal Fund--0.60%; the Quality Growth
Fund, the Equity Income Fund, the Balanced Fund and the Mid Cap
Fund--0.80%; and the International Equity Fund--1.00%. Heartland
receives an investment advisory fee at an annual rate of 0.80% of the
Pinnacle Fund's average net assets. The fees paid by the Quality Growth
Fund, the Pinnacle Fund, the Balanced Fund, the Mid Cap Fund and the
International Equity Fund, 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 contracts provide for the voluntary waiver of expenses by
Fifth Third Bank or Heartland from time to time. Each of Fifth Third
Bank or Heartland may voluntarily choose to waive a portion of its fees
or reimburse other expenses of a Fund, but reserves the right to
terminate such waiver or reimbursement at any time in its sole
discretion.
FIFTH THIRD BANK'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 September 30, 1998, Fifth Third Bank and its
affiliates managed assets in excess of $15 billion on a discretionary
basis and provided custody services for additional assets in excess of
$119 billion. Fifth Third Bank has managed mutual funds since 1988.
Fifth Third Bank has managed pools of commingled funds since 1953. As
of September 30, 1998, Fifth Third Investment Advisors, a division of
Fifth Third Bank, managed six such pools with total assets of over $355
million.
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.
FIFTH THIRD BANK 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.
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<PAGE> 59
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.
HEARTLAND'S BACKGROUND. Heartland, an Indiana corporation and
registered investment advisor, is a wholly-owned subsidiary of Fifth
Third Bancorp. As of September 30, 1998, Heartland acted as investment
advisor for institutional and individual portfolios with assets of
approximately $1 billion. Heartland has been an investment advisor
since 1984 and has managed mutual fund assets since 1985.
HEARTLAND PORTFOLIO MANAGERS' BACKGROUND. The employees of Heartland
who are primarily responsible for the day-to-day management of the
Pinnacle Fund's portfolio are: ROBERT D. MARKLEY, President and Chief
Executive Officer of Heartland; THOMAS F. MAURATH, Executive Vice
President of Heartland; and BARRY F. EBERT, an employee of Heartland.
Each of Messrs. Markley, Maurath and Ebert has been primarily
responsible for management of the Pinnacle Fund since its inception and
management of its predecessor fund since its inception on March 6,
1985. Mr. Markley is a chartered financial analyst and holds a B.A. in
Marketing from Michigan State University and an M.B.A. from
Northwestern University. Mr. Maurath is also a chartered financial
analyst who earned a B.B.A. in Accounting from the University of Notre
Dame, and an M.B.A. from Indiana University. Mr. Ebert holds both a
B.B.A. in Finance and an M.B.A. from the University of Wisconsin.
SUB-ADVISOR. Under the terms of a Sub-Advisory Agreement between Fifth
Third Bank and MSAM, MSAM is 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, MSAM
furnishes 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. Fifth Third Bank is responsible for compensating
MSAM at the annual rate of 0.45% of the Fund's average daily net
assets.
MSAM'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, 1998, MSAM managed investments totaling
approximately $79 billion under active management and approximately $20
billion as named fiduciary or fiduciary advisor.
MSAM PORTFOLIO MANAGERS' BACKGROUND. BARTON M. BIGGS has been Chairman
and a Director of MSAM 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 MSAM and certain of its affiliates
provides investment advisory services. Mr. Biggs holds a B.A. from Yale
University and an M.B.A. from New York University.
MADHAV DHAR is a Managing Director of Morgan Stanley & Co.
Incorporated. He joined MSAM in 1984 to focus on global asset
allocation and investment strategy and now heads MSAM'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.
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<PAGE> 60
FRANCINE BOVICH joined MSAM as a Principal in 1993. She is responsible
for product development, portfolio management and communication of
MSAM'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 MSAM. She is a member of MSAM'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
BISYS serves as the distributor for the Trust. BISYS 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.
DISTRIBUTION PLAN
Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Distribution Plan"), Investment A Shares
may pay a fee to the distributor in an amount computed at an annual rate of up
to 0.25% and Investment C Shares may pay up to 0.75% of its average daily net
assets to finance any activity which is principally intended to result in the
sale of Investment A Shares or Investment C Shares, as applicable. Prior to
March 23, 1998, the maximum 12b-1 fees payable on Investment A Shares was 0.35%.
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.
Administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Funds; assisting clients in changing dividend options; account designations, and
addresses; and providing such other services as the Funds reasonably request.
Financial institutions will receive fees from the distributor based upon
Investment A Shares or Investment C 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.
The Distribution Plan is a compensation type plan. As such, a Fund makes no
payment to the distributor except as described above. Therefore, a Fund will 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 under the
Distribution Plan.
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ADMINISTRATIVE SERVICES AGREEMENT (INVESTMENT C SHARES ONLY)
In addition, the Trust has entered into an Administrative Services Agreement
with respect to Investment C Shares of the Funds offered by this Prospectus with
Fifth Third Bank, under which the Funds may make payments up to 0.25% of the
average daily net asset value of Investment C Shares to obtain certain
administrative services for shareholders and for the maintenance of shareholder
accounts ("Administrative Services"). Under the Administrative Services
Agreement, Fifth Third Bank will either perform Administrative Services directly
or will select certain firms to perform Administrative Services, for which such
firms may receive all or a portion of the Administrative Services fee. The Trust
may enter into similar agreements with other financial institutions in the
future.
PAYMENTS TO FINANCIAL INSTITUTIONS
BISYS, Fifth Third Bank or their affiliates, 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 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
Fifth Third Bank or its affiliates.
BISYS may also 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 Funds. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Funds of the otherwise applicable contingent
deferred sales charge.
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 TRUST
ADMINISTRATIVE SERVICES. BISYS serves as the administrator of the Trust. 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 provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
------------------ -----------------------
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.
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Pursuant to a separate agreement with BISYS, Fifth Third Bank performs
sub-administrative services on behalf of each Fund including providing certain
administrative personnel and services necessary to operate the Funds for which
it receives a fee from BISYS computed daily and paid periodically calculated at
an annual rate of 0.025% of the average aggregate daily net assets of the Trust.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Funds,
transfer agent for the shares of the Funds, and dividend disbursing agent for
the Funds.
INDEPENDENT AUDITORS. The independent auditors for the Funds are Ernst & Young
LLP, Cincinnati, Ohio.
EXPENSES OF THE FUNDS, INVESTMENT A SHARES AND INVESTMENT C SHARES
Holders of Investment A Shares and Investment C Shares pay their allocable
portion of Trust and Fund expenses.
The Trust expenses for which holders of Investment A Shares and Investment C
Shares pay their allocable portion include, but are not limited to: the cost of
organizing the Trust and continuing its existence; registering the Trust with
federal and state securities authorities; Trustees' fees; auditors' fees; the
cost of meetings of Trustees; legal fees of the Trust; association membership
dues; and such non-recurring and extraordinary items as may arise from time to
time.
The Fund expenses for which holders of Investment A Shares and Investment C
Shares pay their allocable portion include, but are not limited to: registering
the Fund and Investment A Shares and Investment C Shares of the Fund; investment
advisory services; taxes and commissions; custodian fees; insurance premiums;
auditors' fees; legal expenses of the Fund; organizational expenses; and such
non-recurring and extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Investment A
Shares and Investment C Shares as classes are expenses under the Trust's
Distribution Plan and fees for Administrative Services. However, the Trustees
reserve the right to allocate certain other expenses to holders of Investment A
Shares and Investment C Shares as they deem appropriate ("Class Expenses"). In
any case, Class Expenses would be limited to: distribution fees; transfer agent
fees as identified by the transfer agent as attributable to holders of
Investment A Shares and Investment C Shares; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to the
Securities and Exchange Commission and to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Investment A Shares and Investment C Shares; legal fees relating solely to
Investment A Shares or Investment C Shares; and Trustees' fees incurred as a
result of issues related solely to Investment A Shares or Investment C Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Advisor looks for prompt execution of the order at a favorable
price. In working with dealers, the Advisor will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Advisor may give consideration to those
firms which have sold or are selling shares of the Fund. The Advisor makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
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 MSAM. In order for such
affiliates to effect any portfolio transactions for the Fund, the commissions,
fees or other remuneration
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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 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:
(i) 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; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; and (iii) 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.
INVESTING IN THE FUNDS
- -------------------------------------------------------------------------------
Each of the Funds offered by this Prospectus issues three classes of shares:
Investment A Shares, Investment C Shares and Institutional Shares. A separate
prospectus for Institutional Shares of these Funds can be obtained by contacting
the Trust. Each class of shares is subject to different levels of expenses and
may carry sales loads or contingent deferred sales charges.
SHARE PURCHASES
Investment A Shares and Investment C 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 A Shares and Investment C
Shares, the distributor may from time to time offer certain items of nominal
value to any shareholder or investor. The Trust reserves the right to reject any
purchase request. Purchases of Investment A Shares or Investment C Shares may
not be available to investors in all states.
Investment A Shares and Investment C Shares of the Funds offered by this
Prospectus 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 Trust. For certain investors in the Cardinal Fund
or the Pinnacle Fund who obtained their shares as part of either The Cardinal
Group or The Pinnacle Fund reorganization, special procedures for purchasing
shares apply. See "Purchases by Former Cardinal and Pinnacle Shareholders"
below.
Purchase orders must be received by the Trust by 2:30 p.m. (Eastern time) in
order for shares to be purchased that day. Payment may be made to the Trust's
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 Trust receives
the check. Proceeds from redeemed shares
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<PAGE> 64
purchased by check will not be sent until the check has cleared. When payment is
made with federal funds, the order is considered received when federal funds are
received by the custodian.
Orders placed through financial institutions must be received by the financial
institution and transmitted to the Trust before 2:30 p.m. (Eastern time) in
order for shares to be purchased that day. It is the financial institutions's
responsibility to transmit orders promptly; however, investors should allow
sufficient time for processing and transmission.
PURCHASES BY FORMER CARDINAL AND PINNACLE SHAREHOLDERS. Shareholders of the
Cardinal Fund who were formerly shareholders of The Cardinal Fund at the time of
it reorganization with the Fifth Third Cardinal Fund, but who do not maintain a
brokerage account with Fifth Third/The Ohio Company, and shareholders of the
Pinnacle Fund who were formerly shareholders of The Pinnacle Fund at the time of
the reorganization with the Fifth Third Pinnacle Fund, may purchase additional
shares of any of the Funds of the Trust (including the Cardinal Fund or the
Pinnacle Fund) by calling the Trust toll-free at (800) 282-5706 or by mailing a
request to: Fifth Third Funds, P.O. Box 5354, Cincinnati, Ohio 45201-5354.
Shareholders should call the Trust for assistance in purchasing by mail.
PURCHASES BY ALL OTHER INVESTORS. Investors other than former shareholders of
The Cardinal Fund or The Pinnacle Fund may purchase shares of any of the Funds
of the Trust by contacting the Trust toll-free at (888) 799-5353. Federal funds
should be wired to the Funds as follows: ABA No. 042 000 314 Fifth Third
Cincinnati, Attention: Fifth Third Funds Department; For Credit to: (shareholder
name and account number); For Further Credit to: Fifth Third (name of applicable
Fund and class of shares). Investors not purchasing directly from the Trust
should consult their financial institution for wiring instructions.
ADDITIONAL INFORMATION
From time to time, shares of the Funds may be purchased by Fifth Third Bank or
BISYS in connection with various promotions of the Fifth Third Funds. In these
cases, Fifth Third Bank or BISYS will distribute Fund shares to existing or
potential investors as an incentive to purchase such Fund. In addition, through
April 15, 1999, Fifth Third Bank is offering a special $50 investment bonus to
individuals who purchase shares of a Fifth Third Stock or Bond Mutual Fund
through Fifth Third Securities, Inc. or Fifth Third/The Ohio Company, Inc. The
minimum investment required to receive the $50 investment bonus, payable by
check, is $5,000 and the minimum holding period is six months. One investment
bonus is allowed per shareholder. For more information regarding the $50
investment bonus, you should call your Investment Executive or the Trust
toll-free at (888) 799-5353. In addition to the commission paid to dealers, the
distributor or the Adviser may pay cash compensation to dealers in connection
with sales of shares of a Fund.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Investment A Shares or Investment C Shares of
the Funds offered by this Prospectus is $1,000. Subsequent investments must be
in amounts of at least $50.
The minimum investment requirements do not apply with respect to accounts that
have been established to invest cash accumulations in the Funds automatically.
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.
INVESTING IN INVESTMENT A SHARES
Investment A Shares of the Funds are sold at the net asset value next determined
after an order is received, plus a sales charge as follows:
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<PAGE> 65
<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>
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 its affiliates and their spouses and
children under 21; Fifth Third Fund Trustees; 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.
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, BISYS, 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:
o quantity discounts and accumulated purchases;
o signing a 13-month letter of intent;
o Fifth Third Bank's Club 53, One Account Plus, One Account Gold, One
Account Advantage, or One Account Platinum Programs;
o purchases with proceeds from redemptions of unaffiliated mutual fund
shares;
o purchases with proceeds from distributions of qualified retirement
plans or other trusts administered by Fifth Third Bank; or
o 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
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public offering price, the sales charge on the additional purchase according to
the schedule now in effect would be 4.00%, not 4.50%.
To receive the sales charge reduction, an investor should complete the
appropriate section of the account application at the time the purchase is made
indicating that Investment A Shares of a Fund have been purchased and are still
invested or that such purchases are being combined. The distributor will reduce
the sales charge after it confirms the purchase.
LETTER OF INTENT. If a shareholder intends to purchase at least $50,000 of Fund
Investment A Shares over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the Fund's custodian to
hold up to 4.50% of the total amount intended to be purchased in escrow (in
shares of the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent,
which must be $50,000 or more of Fund Investment A Shares, is not purchased. In
this event, an appropriate number of escrowed Investment A Shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase Investment A
Shares, but if he does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. The letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.
FIFTH THIRD BANK CLUB 53, ONE ACCOUNT PLUS, ONE ACCOUNT GOLD, ONE ACCOUNT
ADVANTAGE AND ONE ACCOUNT PLATINUM PROGRAMS. All shareholders who have a Club 53
Account, One Account Plus, One Account Gold, One Account Advantage or One
Account Platinum through Fifth Third Bank are eligible for a reduced sales
charge on the purchase of Investment A Shares of the Funds. Shareholders should
consult their Fifth Third Securities Representative for details about these
account programs.
The reduced sales charges applicable to the accounts are as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<S> <C> <C>
Less than $50,000.................................... 3.97% 4.13%
$50,000 but less than $100,000....................... 3.47% 3.59%
$100,000 but less than $150,000...................... 2.47% 2.53%
$150,000 but less than $250,000...................... 1.47% 1.49%
$250,000 but less than $500,000...................... 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.
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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 the 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.
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: (a) shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; or (b) 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 less 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 or she became a
shareholder of the exchanged-from shares.
The contingent deferred sales charge will be waived 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, as amended) 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 or Trustees,
employees and registered representatives of the Trust, the distributor, or
affiliates of the Trust 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 such persons. The Trustees
reserve the right to discontinue any waiver of the contingent deferred sales
charge at any time. Shareholders will be notified of such discontinuance of the
waiver. Any Investment C Shares purchased prior to the termination of such
waiver would have the contingent deferred sales charge waived as provided in the
Funds' Prospectus at the time of the purchase of
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<PAGE> 68
the shares. If a shareholder making a redemption qualifies for a waiver of the
contingent deferred sales charge, the shareholder must notify the transfer agent
in writing that he or she is entitled to such waiver. 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.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain securities
and cash for Investment A Shares or Investment C Shares in the Funds offered by
this Prospectus. The securities and any cash must have a market value of at
least $25,000. The Trust reserves the right to determine the acceptability of
securities to be exchanged. On the day securities are accepted by the Trust,
they are valued in the same manner as the Trust values the assets of the Funds.
Investors wishing to exchange securities should first contact the Trust.
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 a shareholder's checking account and
invested in Investment A Shares or Investment C Shares at the net asset value
next determined after an order is received by the Trust, 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 his or her account
application or by contacting the Trust.
CERTIFICATES AND CONFIRMATIONS
The transfer agent for the Trust 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 monthly and will serve as confirmations
of all transactions in the shareholder's account for the statement period.
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 Quality Growth Fund, the Equity Income Fund,
the Bond Fund For Income, Quality Bond Fund, Government Securities Fund, the
Municipal Bond Fund and the Ohio Tax Free Bond Fund, dividends are declared and
paid monthly. With respect to the Cardinal Fund, the Pinnacle Fund, the Balanced
Fund and the Mid Cap 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 any of the Funds offered by this Prospectus
for shares of the same class of any of the Funds of the Trust, including those
not offered by this Prospectus, by calling the Trust toll-free at (888) 799-5353
or by sending a written request to the Trust.
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Shareholders of the Cardinal Fund who were formerly shareholders of The Cardinal
Fund at the time of its reorganization with Fifth Third Cardinal Fund and
shareholders of the Pinnacle Fund who were formerly shareholders of The Pinnacle
Fund at the time of its reorganization with the Fifth Third Pinnacle Fund must
open an account with Fifth Third Securities, Inc. or Fifth Third/ The Ohio
Company to facilitate exchanges. No charge will be imposed to open the account,
but other transactions not involving exchanges among Funds of the Trust may
carry charges. Orders to exchange Investment A Shares or Investment C Shares of
one Fund for shares of the same class of any of the other Funds in the Trust
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, plus any applicable sales
charge. Orders for exchanges involving any of the Funds offered by this
Prospectus must be received by the Trust prior to 2:30 p.m. (Eastern time) on
any day that Trust is open for business. Orders for exchanges involving other
Funds of the Trust must be received by 11:00 a.m. (Eastern time). Orders
received prior to the applicable cut-off time will be executed at the close of
business that day. Orders for exchanges received after the applicable cut-off
time will be executed at the close of the next business day. 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.
Investment A Shares of Funds with a sales charge may be exchanged at net asset
value for Investment A Shares of other Funds with an equal sales charge or no
sales charge. Investment A Shares of Funds with no sales charge acquired by
direct purchase or reinvestment of dividends on such shares may be exchanged for
Investment A Shares of Funds with a sales charge at net asset value, plus the
applicable sales charge. 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."
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 will 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 of the Funds offered by this Prospectus redeems Investment A Shares and
Investment C Shares at the net asset value, less any applicable contingent
deferred sales charge, next determined after the Trust receives the redemption
request. Redemptions will be made on days on which the Fund being redeemed
computes its net asset value. 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 Trust. For
investors who obtained shares of the Cardinal Fund as part of The Cardinal Group
reorganization and investors who obtained shares of the Pinnacle Fund as part of
The Pinnacle Fund reorganization, special procedures apply.
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<PAGE> 70
Orders placed through financial institutions must be received by the financial
institution and transmitted to the Trust before 2:30 p.m. (Eastern time) in
order for shares to be redeemed that day. 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 less than $50,000 by telephone.
Shareholders of the Cardinal Fund who were formerly shareholders of The Cardinal
Fund at the time of its reorganization with the Fifth Third Cardinal Fund, but
who do not maintain a brokerage account with Fifth Third/The Ohio Company, and
shareholders of the Pinnacle Fund who were formerly shareholders of The Pinnacle
Fund at the time of its reorganization with the Fifth Third Pinnacle Fund, may
redeem shares of these Funds by calling the Trust toll-free at (800) 282-5706.
All other shareholders may redeem their shares by calling the Trust toll-free at
(888) 799-5353. 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 by the Trust 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 15 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.
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
Shareholders of the Cardinal Fund who were formerly shareholders of The Cardinal
Fund at the time of its reorganization with the Fifth Third Cardinal Fund, but
who do not maintain a brokerage account with Fifth Third/The Ohio Company, and
shareholders of the Pinnacle Fund who were formerly shareholders of The Pinnacle
Fund at the time of its reorganization with the Fifth Third Pinnacle Fund, may
redeem shares of these Funds by sending a written request to:
Fifth Third (insert applicable Fund name) Fund Redemptions
P.O. Box 5354
Cincinnati, Ohio 45201-5354
All other shareholders may redeem shares by sending a written request to:
Fifth Third Bank
Fifth Third Funds Redemptions
M.D. 1090EC
38 Fountain Square Plaza
Cincinnati, Ohio 45263
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The written request should include the shareholder's name, the Fund and class of
shares, the account number, the share or dollar amount requested and the proper
endorsement. Shareholders should call the applicable telephone number 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 Trust, 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
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 in the
Securities Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust 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 Trust has received payment for the
shares being redeemed.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, 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, and the fluctuation of
the net asset value of 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 Investment A
Shares are sold with a sales charge, it is not advisable for shareholders to be
purchasing Investment A Shares while participating in this program. A contingent
deferred sales charge may be imposed on Investment C Shares redeemed under this
program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000.
Before redeeming shares to close an account, the Trust will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
shares to meet the minimum requirement.
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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 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 operation of the Trust or a Fund and for the election
of Trustees under certain circumstances. As of October 31, 1998, Fifth Third
Bank may for certain purposes be deemed to control several of the Funds of the
because it is the owner of record of more than 5% of the outstanding shares of
such 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 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 any Fund.
In the unlikely event a shareholder 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 the applicable 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 the
applicable 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. Fifth Third Bank and Heartland are subject to
such banking laws and regulations.
Each of Fifth Third Bank and Heartland 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 or Heartland from continuing to perform all or a
part of the above services for its customers and/or the Funds offered by this
Prospectus. In such event, changes in the operation of a Fund may occur,
including the possible alteration or termination of any automatic or other share
investment or redemption services then being provided by Fifth Third Bank or
Heartland, and the Trustees would consider alternative investment advisors and
other means of continuing available investment services. It is not expected that
shareholders
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would suffer any adverse financial consequences (if other advisors with
equivalent abilities to Fifth Third Bank and Heartland are found) as a result of
any of these occurrences.
TAX INFORMATION
- -------------------------------------------------------------------------------
FEDERAL INCOME TAX
None of the Funds offered by this Prospectus will pay any federal income tax
because they expect 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 the
Trust's other Funds, if any, will not be combined for tax purposes with those
realized by any other Fund of the Trust.
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 INTERNATIONAL EQUITY FUND
The International Equity 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 International Equity Fund upon
disposition of PFIC investments.
Investment income received by the International Equity 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 International Equity Fund to reduced tax rates or exemption on this
income. The effective rate of foreign tax cannot be predicted since the amount
of assets to be invested within various countries is unknown. However, the
International Equity Fund intends to operate so as to qualify for treaty-reduced
tax rates where applicable.
If more than 50% of the value of the International Equity 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 International
Equity Fund's foreign taxes rather than take the foreign tax credit must itemize
deductions on their income tax returns.
ADDITIONAL TAX INFORMATION FOR MUNICIPAL BOND FUND
Dividends of the Municipal Bond 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 Municipal Bond Fund, if any, will be taxable as long-term capital gains
regardless of the length of time shareholders have held their shares.
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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.
ADDITIONAL TAX INFORMATION FOR OHIO TAX FREE BOND FUND
Dividends of the Ohio Tax Free Bond 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 Ohio Tax Free Bond 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 AND CORPORATION FRANCHISE TAXES. Provided that the Ohio Tax
Free Bond Fund continues to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (Code), and that at all times at least
50% of the value of the total assets of the Ohio Tax Free Bond Fund consists of
obligations issued by or on behalf of Ohio, political subdivisions thereof or
agencies or instrumentalities of Ohio or its political subdivisions ("Ohio
Obligations"), or similar obligations of other states or their subdivisions,
(i) distributions with respect to shares of the Ohio Tax Free Bond Fund
("Distributions") will be exempt from Ohio personal income tax and municipal and
school district income taxes in Ohio, and will be excluded from the net income
base of the Ohio corporation franchise tax to the extent such distributions are
properly attributable to interest payments on Ohio Obligations, and (ii)
distributions of profit made on the sale, exchange or other disposition of Ohio
Obligations, including distributions of "capital gain dividends", as defined in
the Internal Revenue Code of 1986, properly attributable to the sale, exchange
or other disposition of Ohio Obligations will be exempt from Ohio personal
income tax and municipal and school district income taxes in Ohio, and will be
excluded from the net income of the Ohio corporation franchise tax.
However, other Distributions will generally not be exempt from Ohio personal
income tax and municipal and school district income taxes in Ohio, and shares
of the Ohio Tax Free Bond Fund will not be excluded from the net worth base of
the Ohio corporation franchise tax.
OTHER STATE AND LOCAL TAXES. Income from the Ohio Tax Free Bond Fund is not
necessarily free from state income taxes or from personal property taxes in
states other than Ohio. 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, each of the Funds offered by this Prospectus advertise total
return and yield for each class of shares, including predecessor fund
performance. 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 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.
67
<PAGE> 75
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.
68
<PAGE> 76
<TABLE>
<CAPTION>
ADDRESSES
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Fifth Third Quality Growth Fund Fifth Third Funds
Fifth Third Equity Income Fund c/o Fifth Third Bank
Fifth Third Cardinal Fund 38 Fountain Square Plaza
Fifth Third Pinnacle Fund Cincinnati, Ohio 45263
Fifth Third Balanced Fund
Fifth Third Mid Cap Fund
Fifth Third International Equity Fund
Fifth Third Bond Fund For Income
Fifth Third Quality Bond Fund
Fifth Third U.S. Government Securities Fund
Fifth Third Municipal Bond Fund
Fifth Third Ohio Tax Free Bond Fund
- -------------------------------------------------------------------------------------------------------------------
Investment Advisor Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------------------------
Investment Advisor (Pinnacle Fund only) Heartland Capital Management, Inc.
36 Pennsylvania Street, Suite 610
Indianapolis, Indiana 46204
- -------------------------------------------------------------------------------------------------------------------
Sub-Advisor (International Equity Fund only) Morgan Stanley Asset Management, Inc.
1221 Avenue of the Americas
New York, New York 10020
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE> 77
[BACK COVER]
[Fifth Third Logo]
Investment Advisor
<PAGE> 78
FIFTH THIRD FUNDS
(FORMERLY FOUNTAIN SQUARE FUNDS)
INSTITUTIONAL SHARES
Quality Growth Fund
Equity Income Fund
Cardinal Fund
Pinnacle Fund
Balanced Fund
Mid Cap Fund
[Artwork]
International Equity Fund
Bond Fund For Income
Quality Bond Fund
U.S. Government Securities Fund
Municipal Bond Fund
Ohio Tax Free Bond Fund
STOCK AND BOND MUTUAL FUNDS
Prospectus
November 2, 1998
[Fifth Third Logo]
<PAGE> 79
FIFTH THIRD FUNDS
(FORMERLY FOUNTAIN SQUARE FUNDS)
INSTITUTIONAL SHARES
Prospectus
Fifth Third Funds (the "Trust") is an open-end management investment company (a
mutual fund). This Prospectus offers investors interests in Institutional Shares
of the following separate investment portfolios (the "Funds"), each having
distinct investment objectives and policies:
o Fifth Third Quality Growth Fund;
o Fifth Third Equity Income Fund;
o Fifth Third Cardinal Fund;
o Fifth Third Pinnacle Fund;
o Fifth Third Balanced Fund;
o Fifth Third Mid Cap Fund;
o Fifth Third International Equity Fund;
o Fifth Third Bond Fund For Income;
o Fifth Third Quality Bond Fund;
o Fifth Third U.S. Government Securities Fund;
o Fifth Third Municipal Bond Fund; and
o Fifth Third Ohio Tax Free Bond Fund
This Prospectus contains the information you should read and know before you
invest in Institutional Shares of any of the above Funds. Keep this Prospectus
for future reference.
Additional information about Institutional Shares of these Funds is contained in
their Combined Statement of Additional Information, dated November 2, 1998,
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 these Funds by writing to or calling
the Trust toll-free at (888) 799-5353. The Securities and Exchange Commission
maintains an Internet Website (http://www.sec.gov) that contains the Combined
Statement of Additional Information, materials incorporated by reference into
this Prospectus and into the Combined Statement of Additional Information, and
other information regarding companies that file electronically with the
Securities and Exchange Commission.
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. 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated November 2, 1998
<PAGE> 80
NOTICE OF DELIVERY OF PROSPECTUSES,
SEMI-ANNUAL REPORTS AND ANNUAL REPORTS
In order to reduce expenses of the Fifth Third Funds incurred in connection with
the mailing of prospectuses, prospectus supplements, semi-annual reports and
annual reports to multiple shareholders at the same address, Fifth Third Funds
may in the future deliver one copy of a prospectus, prospectus supplement,
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, prospectus supplements, semi-annual reports and annual
reports, please call the Trust toll-free at (888) 799-5353.
<PAGE> 81
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Synopsis..................................................................1
Risk Factors.........................................................2
Expenses of the Funds.....................................................2
Financial Highlights......................................................5
Fifth Third Cardinal Fund - Institutional Shares.....................5
Common Trust Funds Performance Information...........................6
Objectives of the Funds...................................................7
Quality Growth Fund..................................................7
Equity Income Fund...................................................8
Cardinal Fund........................................................8
Pinnacle Fund........................................................9
Balanced Fund........................................................9
Mid Cap Fund........................................................10
International Equity Fund...........................................11
Bond Fund For Income................................................13
Quality Bond Fund...................................................14
U.S. Government Securities Fund.....................................15
Municipal Bond Fund.................................................15
Ohio Tax Free Bond Fund.............................................17
Portfolio Investments and Strategies.....................................19
Borrowing Money.....................................................19
Diversification.....................................................19
Restricted and Illiquid Securities..................................19
Repurchase Agreements...............................................20
When-Issued and Delayed Delivery Transactions.......................20
Lending of Portfolio Securities.....................................20
Options and Futures.................................................21
Foreign Investments.................................................23
Derivative Securities...............................................24
Bond Ratings........................................................25
Temporary Investments...............................................25
Equity Investment Risks.............................................26
Fifth Third Funds Information............................................26
Management of the Trust.............................................26
Distribution of Shares..............................................29
Payments to Financial Institutions..................................29
Administration of the Trust.........................................29
Expenses of the Funds and Institutional Shares......................30
Brokerage Transactions..............................................30
Net Asset Value..........................................................31
Investing in the Funds...................................................31
Share Purchases.....................................................31
Additional Information..............................................32
Minimum Investment Required.........................................32
What Shares Cost....................................................32
Exchanging Securities for Fund Shares...............................32
Systematic Investment Program.......................................32
Certificates and Confirmations......................................32
Dividends and Capital Gains.........................................32
Exchanges................................................................33
Redeeming Shares.........................................................33
Receiving Payment...................................................34
Systematic Withdrawal Program.......................................34
Accounts with Low Balances..........................................34
Shareholder Information..................................................34
Voting Rights.......................................................34
Massachusetts Law...................................................35
Effect of Banking Laws...................................................35
Tax Information..........................................................35
Federal Income Tax..................................................35
Additional Tax Information for
International Equity Fund.......................................36
Additional Tax Information for
Municipal Bond Fund.............................................36
Additional Tax Information for
Ohio Tax Free Bond Fund.........................................36
Performance Information..................................................37
Addresses................................................................38
i
<PAGE> 82
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 Institutional
Shares of the Funds described herein. These Funds are intended to provide a
convenient means of accumulating interests in professionally managed portfolios.
Institutional Shares of the following Funds are offered in this Prospectus:
o Fifth Third 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;
o Fifth Third 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;
o Fifth Third Cardinal Fund ("Cardinal Fund") seeks to provide
long-term growth of capital and income by investing primarily in
common stocks of exchange-listed or over-the-counter securities of
companies having a market capitalization of at least $10 million;
o Fifth Third Pinnacle Fund ("Pinnacle Fund") seeks to provide
long-term capital appreciation by investing primarily in common
stocks which offer opportunities for long-term capital
appreciation;
o Fifth Third 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;
o Fifth Third 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;
o Fifth Third International Equity Fund ("International Equity
Fund") seeks to provide long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers;
o Fifth Third 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;
o Fifth Third 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;
o Fifth Third 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;
1
<PAGE> 83
o Fifth Third 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; and
o Fifth Third 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.
For information on how to purchase Institutional Shares of any of the Funds
offered by this Prospectus, please refer to "Investing in the Funds."
Institutional Shares are only offered to: clients of Fifth Third Bank who make
purchases through the Trust Department; qualified employee benefit plans under
the Internal Revenue Code, subject to minimum requirements which may be
established by the distributor with respect to the number of employees or amount
of purchase; 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.
A minimum initial investment of $1,000 is required for each Fund offered by this
Prospectus. Subsequent investments must be in amounts of at least $50.
Institutional Shares of each Fund are sold at net asset value, without the
imposition of any sales charges, and are redeemed at net asset value.
Information on redeeming shares may be found under "Redeeming Shares." Each of
the Funds offered by this Prospectus, except the Pinnacle Fund, is advised by
Fifth Third Bank. The Pinnacle Fund is advised by Heartland Capital Management,
Inc. ("Heartland"), a wholly-owned subsidiary of Fifth Third Bancorp. The
International Equity Fund is sub-advised by Morgan Stanley Asset Management,
Inc. ("MSAM"). Each of Fifth Third Bank, Heartland and MSAM may be referred to
individually as the "Advisor" for the Fund or Funds for which it provides
advisory services, or may be collectively referred to as the "Advisors."
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 "Objectives of the Funds" and
"Portfolio Investments and Strategies."
Investors should also be aware that, like other mutual funds and financial and
business organizations around the world, each of the Funds offered by this
Prospectus could be adversely impacted if the computer systems used by Fifth
Third Bank, BISYS Fund Services L.P. ("BISYS") or other service providers and
entities with computer systems that are linked to Fund records do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as "Year 2000 Risk." Fifth Third Bank and BISYS
are taking steps that they believe are reasonably designed to address Year 2000
Risk with respect to their computer systems and to obtain satisfactory
assurances that comparable steps are being taken by each of the Trust's other
service providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Funds.
2
<PAGE> 84
EXPENSES OF THE FUNDS
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)..............None
Redemption Fees (as a percentage of amount redeemed, if applicable).........None
Exchange Fee................................................................None
INSTITUTIONAL SHARES
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL OPERATING
FEES(1) EXPENSES(2) EXPENSES(3)
------- ----------- -----------
<S> <C> <C> <C>
Quality Growth Fund.......................... 0.80% 0.20% 1.00%
Equity Income Fund........................... 0.80% 0.20% 1.00%
Cardinal Fund................................ 0.60% 0.19% 0.79%
Pinnacle Fund................................ 0.80% 0.65% 1.45%
Balanced Fund................................ 0.80% 0.20% 1.00%
Mid Cap Fund................................. 0.80% 0.20% 1.00%
International Equity Fund.................... 1.00% 0.50% 1.50%
Bond Fund for Income......................... 0.55% 0.20% 0.75%
Quality Bond Fund............................ 0.55% 0.20% 0.75%
U.S. Government Securities Fund.............. 0.47% 0.28% 0.75%
Municipal Bond Fund.......................... 0.55% 0.20% 0.75%
Ohio Tax Free Bond Fund...................... 0.55% 0.20% 0.75%
</TABLE>
- ---------------
(1) The management fee of the U.S. Government Securities Fund has been reduced
to reflect the voluntary waiver of a portion of the investment advisory fee
by the investment advisor. The investment advisor can terminate this
voluntary waiver at any time in its sole discretion. The maximum management
fee for the U.S. Government Securities Fund is 0.55%.
(2) For all Funds other than the International Equity Fund, Other Expenses have
been reduced to reflect the voluntary waiver of fees by the administrator.
In the absence of such waivers, other expenses for these Funds would be:
Quality Growth Fund--0.22%, Equity Income Fund--0.28%, Cardinal
Fund--0.29%, Pinnacle Fund--0.75%, Balanced Fund--0.28%, Mid Cap
Fund--0.25%, Bond Fund for Income--0.26%, Quality Bond Fund--0.30%, U.S.
Government Securities Fund--0.38%, Municipal Bond Fund--0.30% and Ohio Tax
Free Bond Fund--0.30%.
(3) Absent the voluntary waivers by the investment advisor and the
administrator described above, Total Institutional Shares Operating
Expenses for these Funds would be: Quality Growth Fund--1.02%, Equity
Income Fund--1.08%, Cardinal Fund--0.89%, Pinnacle Fund--1.55%, Balanced
Fund--1.08%, Mid Cap Fund--1.05%, Bond Fund for Income--0.81%, Quality Bond
Fund--0.85%, U.S. Government Securities Fund--0.93%, Municipal Bond
Fund--0.85% and Ohio Tax Free Bond Fund--0.85%. Expense information for the
Cardinal Fund and the Pinnacle Fund is based on estimates for the current
fiscal year.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN INSTITUTIONAL SHARES OF EACH
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "FIFTH THIRD FUNDS INFORMATION" AND
"INVESTING IN THE FUNDS." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY
BE SUBJECT TO ADDITIONAL FEES.
3
<PAGE> 85
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.
EXPENSE EXAMPLES:
You would pay the following expenses on a $1,000 investment in
Institutional Shares assuming (1) 5% annual return; and (2) redemption at the
end of each time period. Institutional Shares charge no redemption fees or sales
charges.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Quality Growth Fund.................. $10 $32 $55 $122
Equity Income Fund................... $10 $32 $55 $122
Cardinal Fund........................ $ 8 $25 $44 $ 98
Pinnacle Fund........................ $15 $46 $79 $174
Balanced Fund........................ $10 $32 $55 $122
Mid Cap Fund......................... $10 $32 $55 $122
International Equity Fund............ $15 $47 $82 $179
Bond Fund for Income................. $ 8 $24 $42 $ 93
Quality Bond Fund.................... $ 8 $24 $42 $ 93
U.S. Government Securities Fund...... $ 8 $24 $42 $ 93
Municipal Bond Fund.................. $ 8 $24 $42 $ 93
Ohio Tax Free Bond Fund.............. $ 8 $24 $42 $ 93
</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> 86
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FIFTH THIRD CARDINAL FUND - INSTITUTIONAL SHARES
(For a share outstanding throughout each period)
On September 21, 1998, holders of Institutional Shares of The Cardinal Fund
exchanged their shares for Institutional Shares of the Fifth Third Cardinal
Fund. The following table illustrating the historical performance of The
Cardinal Fund has been audited by Ernst & Young LLP, the Trust's independent
auditors for the year ended September 30, 1998. Prior periods were audited by
KPMG Peat Marwick LLP. The report of Ernst & Young LLP dated October 28, 1998,
on the financial statements for the Fifth Third Cardinal Fund for the year ended
September 30, 1998, is included in the Combined Statement of Additional
Information, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may be
obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997*
---- -----
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $16.64 $12.92
------ ------
Income from investment operations:
Net investment income........................................ 0.15 0.12
Net realized and unrealized gains on investments............. 0.28 3.70
---- ----
Total from investment operations...................... 0.43 3.82
------ ------
Less distributions:
Dividends to shareholders from net
investment income......................................... (0.15) (0.10)
Distributions to shareholders in excess of net
investment income......................................... (0.05) ----
Distributions to shareholders from net
realized gains on investment transactions................. (2.01) ----
------ ------
Total distributions................................... (2.21) (0.10)
------ ------
NET ASSET VALUE, END OF PERIOD............................... $14.86 $16.64
====== ======
TOTAL RETURN................................................. 2.60% 29.77%(a)
Ratios to Average Net Assets:
Expenses.................................................. 0.84% 1.00%(b)
Net investment income..................................... 0.25% 1.04%(b)
Expense waiver/reimbursement (c).......................... 0.09% ----
Supplemental data:
Net assets, end of period (000)........................... $25,542 $26,881
Portfolio turnover rate (d)............................... 14.67% 12.73%(b)
Average commission rate paid (e).......................... n/a $0.08
</TABLE>
- ---------
* Reflects operations for the period from January 2, 1997 (date of
commencement of operations) to September 30, 1997.
(a) Not annualized.
(b) Annualized.
(c) This voluntary expense decrease is reflected in both the expense and the
net investment income ratios shown above.
(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)
5
<PAGE> 87
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 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 Investment A Shares 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 Institutional Shares of the Fund into
which it converted. 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*
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Income Fund
[Successor to Equity Fund (Income)]
Institutional Shares 19.57% 25.40% 17.87% 14.90%
Bond Fund For Income
[Successor to Taxable Bond Fund]
Institutional Shares 6.23% 6.19% 4.72% 7.37%
Municipal Bond Fund
[Successor to Tax-Free Bond Fund]
Institutional Shares 4.28% 5.14% 4.38% 5.79%
</TABLE>
--------
*Annualized Total Returns are calculated based upon the fiscal year
ended July 31, 1998.
For periods prior to commencement of operations, all of the Funds offered by
this Prospectus (except the Cardinal Fund, the Pinnacle Fund and the
International Equity Fund) intend to quote total returns that include the
performance of certain collectively managed accounts advised by Fifth Third Bank
whose assets were converted to create such Funds, as adjusted to reflect the
expenses associated with the Funds (without waivers or reimbursements). Each of
the predecessor collectively managed accounts was not registered with the
Securities and Exchange Commission (the "SEC") and, therefore, was not subject
to the investment restrictions imposed by law on registered mutual funds. If
such accounts had been registered, the performance may have been adversely
affected. Quoted performance of these 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.
6
<PAGE> 88
OBJECTIVES OF THE FUNDS
- --------------------------------------------------------------------------------
The investment objectives and policies of each Fund offered by this Prospectus
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 without the 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 Prospectus and in the
Combined Statement of Additional Information.
QUALITY GROWTH FUND
The investment objective of the Quality Growth Fund is to provide growth of
capital. Income is a secondary objective. The Fund pursues its investment
objectives by investing primarily in a professionally managed and diversified
portfolio of common stocks of high-quality companies. The Fund intends to invest
in industries and companies which, in the opinion of Fifth Third Bank, have
potential primarily for capital growth. These companies generally are leaders in
their industries and are characterized by sound management and the ability to
finance expected growth. Among other things, Fifth Third Bank looks 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 total 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:
o 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;
o 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 total assets in ADRs (see "Foreign
Investments."); and
o convertible bonds rated at least BBB by Standard & Poor's Rating Group
("S&P"), or at least Baa by Moody's Investors Service, Inc.
("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 and warrants,
engage options and futures transactions, and participate in 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 in which the Fund may invest may take the form of
convertible bonds, convertible preferred stock or debentures, units consisting
of "usable" bonds and warrants or a combination
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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 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, Fifth Third Bank 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."
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 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 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 Fund will invest at least 65% of its total assets in
income producing equity securities.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to, the following:
o 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;
o 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 total assets in ADRs (see "Foreign Investments"); and
o convertible securities rated in the four highest rating categories by a
nationally recognized statistical rating organization (an "NRSRO")
(e.g., at least BBB by S&P or Baa by Moody's) or, if not rated, are
determined to be of comparable quality by Fifth Third Bank. Downgrades
will be evaluated on a case-by-case basis by Fifth Third Bank. Fifth
Third Bank will determine whether or not the security continues to be
an acceptable investment. If not, the security will be sold.
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In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities and warrants,
engage options and futures transactions, and participate in 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."
CARDINAL FUND
The Cardinal Fund's investment objective is long-term growth of capital and
income. Current income is a secondary objective. The Fund pursues these
investment objectives through selective participation in the long-term progress
of business and industries. The Fund generally invests in equity securities of
companies which, in the opinion of the Advisor, are growth-oriented.
ACCEPTABLE INVESTMENTS. The securities in which the Fund may invest include, but
are not limited to, the following:
o common stocks which are exchange-listed or over-the-counter securities
of companies having a market capitalization of at least $10 million;
and
o ADRs, provided that not more than 25% of the Fund's total assets are
invested in ADRs (see "Foreign Investments").
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities and warrants,
engage in options and futures transactions, and participate in when-issued and
delayed delivery transactions (see "Portfolio Investments and Strategies").
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
PINNACLE FUND
The Pinnacle Fund's investment objective is long-term capital appreciation. The
Fund pursues this investment objective by investing primarily in common stocks
which, in the opinion of Heartland, offer opportunities for long-term capital
appreciation. The Fund is not intended to be a current income producing
investment and will not purchase securities with a view toward short-term
profits.
ACCEPTABLE INVESTMENTS. Subject to the investment limitations discussed below,
the securities in which the Fund may invest include, but are not limited to, the
following:
o common stocks and securities convertible into common stock, such as
convertible bonds, convertible debentures and convertible preferred
stock, which are exchange-listed or over-the-counter securities of
small or large, well-established or unseasoned companies.
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities, and
participate in when-issued and delayed delivery transactions (see "Portfolio
Investments and Strategies").
CONVERTIBLE SECURITIES. Convertible securities in which the Fund may invest may
take the form of investment grade convertible bonds, convertible preferred stock
or debentures. As used herein, the term "investment
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grade" means convertible securities rated Baa or higher by Moody's or BBB or
higher by S&P, or unrated securities that are determined by Heartland to be of
comparable quality.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
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 the 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 Fund may invest in money market instruments that are either rated
in the highest short-term rating category by an NRSRO or are of comparable
quality to securities having such ratings.
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities and warrants,
engage in options and futures transactions, and participate in when-issued and
delayed delivery transactions (see "Portfolio Investments and Strategies").
The asset mix of the Fund will normally range between 40% and 75% in common
stock and convertible securities, 25% to 50% in preferred stock and bonds, and
0% to 25% 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 total 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:
o prime commercial paper including master demand notes;
o securities issued and/or guaranteed as to payment of principal and interest
by the U.S. government, its agencies, or instrumentalities; and
o repurchase agreements.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
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 Fifth Third Bank on the basis of traditional research
techniques, including assessment of earnings and dividend growth prospects and
the risk and volatility of the company's business. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in common
stocks of companies meeting the market capitalization criteria set forth below.
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ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to the following:
o common stocks 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 Fifth Third
Bank, have potential primarily for capital growth and secondarily for
income;
o 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 total
assets in ADRs (see "Foreign Investments"); and
o 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
Fifth Third Bank. Downgrades will be evaluated on a case by case basis by
Fifth Third Bank. Fifth Third Bank 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, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities and warrants,
engage in options and futures transactions, and participate in 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."
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:
o the opportunity to take advantage of investment opportunities in countries
outside the U.S. which may arise because of differing economic and
political cycles;
o the opportunity to invest in financial markets of foreign countries, some
of which are believed to have superior growth potential; and
o 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 Fifth Third Bank, in consultation with MSAM, in common
stocks of non-U.S. issuers which, in the aggregate, generally replicate broad
country indices. MSAM 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. There can be no assurance that these
goals will be achieved.
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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 MSAM, 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 MSAM, 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, MSAM 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 MSAM
provide an expected return for each stock market. The expected return is
adjusted by currency return expectations derived from MSAM'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. MSAM may overweight or underweight an industry segment of a particular
index if it concludes this would be advantageous to the Fund. Stock selection
for 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:
o common stocks of non-U.S. issuers;
o common stock equivalents (such as rights, warrants, securities that are not
convertible into common stocks and ADRs); and
o corporate and government fixed income securities dominated in currencies
other than U.S. dollars.
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities, engage in
options and futures transactions, and participate in when-issued and delayed
delivery transactions (see "Portfolio Investments and Strategies"). The Fund may
also make the following investments.
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MONEY MARKET INSTRUMENTS. The Fund may acquire money market instruments rated in
one of the two highest rating categories by an NRSRO or which, in the opinion of
Fifth Third Bank or MSAM, 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.
In connection with forward foreign currency exchange contracts, 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 MSAM will
consider the likelihood of changes in currency values when making investment
decisions, MSAM 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."
BOND FUND FOR INCOME
The investment objective of the Bond Fund For Income is to provide a high level
of current income. The Fund pursues its investment objective by investing in a
diversified portfolio of investment grade debt securities with remaining average
lives of ten years or less. Under normal market conditions, the Fund will invest
at least 65% of its total assets in fixed income debt securities.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in a professionally managed,
diversified portfolio of investment grade securities which include:
o domestic issues of corporate debt obligations rated in the four highest
rating categories by an NRSRO, or unrated bonds that are determined by
Fifth Third Bank to be comparable quality. Downgrades will be evaluated on
a case by case basis by Fifth Third Bank. Fifth Third Bank will determine
whether or not the security continues to be an acceptable investment. If
not, the security will be sold;
o 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 total assets
in foreign investments (see "Foreign Investments");
o obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, as described above; and
o collateralized mortgage obligations.
The Fund does not intend to invest in corporate bonds rated below Baa by Moody's
or BBB by S&P. In addition, the Fund may borrow money, enter into repurchase
agreements, lend portfolio securities, invest in restricted and illiquid
securities, 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
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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. As a result of this prepayment risk, the effective maturity of
these securities is expected to be shorter than the stated maturity. For
purposes of compliance with stated maturity policies and calculation of a Fund's
weighted average maturity, the effective maturity of such securities will be
used.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
QUALITY BOND FUND
The investment objective of the Quality Bond Fund is to achieve high current
income. Capital growth is a secondary objective. The Fund pursues its investment
objectives 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 total assets in quality bonds. As used herein, the
Fund considers bonds rated Baa or higher by Moody's or BBB or higher by S&P, or
unrated bonds that are determined by Fifth Third Bank 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:
o 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
Fifth Third Bank to be of comparable quality. Downgrades will be evaluated
on a case by case basis by Fifth Third Bank. Fifth Third Bank will
determine whether or not the security continues to be an acceptable
investment. If not, the security will be sold;
o 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 total assets
in foreign investments (see "Foreign Investments");
o 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 below; and
o collateralized mortgage obligations (see discussion of collateralized
mortgage obligations for the Bond Fund For Income).
The Fund does not intend to invest in corporate bonds rated below Baa by Moody's
or BBB by S & P. In addition, the Fund may borrow money, enter into repurchase
agreements, lend portfolio securities, invest in restricted and illiquid
securities, engage in options and futures transactions, and participate in
when-issued and delayed delivery transactions (see "Portfolio Investments and
Strategies").
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
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U.S. GOVERNMENT SECURITIES FUND
The investment objective of the Government Securities Fund is to provide a high
level of current income. The 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, Fifth Third Bank seeks to minimize
fluctuations in the value of the Fund's shares. Under normal market conditions,
the Fund will invest at least 65% of its total assets in U.S. Government
Securities.
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:
o direct obligations of the U.S. Treasury such as U.S. Treasury bills, notes
and bonds; and
o 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 above for the Bond Fund For Income.
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:
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.
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."
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 Fund
pursues its objective by investing primarily in a diversified portfolio of
investment grade municipal securities. Interest income of the Fund that is
exempt from federal regular income taxes retains its exempt status when
distributed to shareholders. Income distributed by the Fund may not necessarily
be exempt from state or municipal taxes. In addition, interest income from
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certain types of municipal securities may be subject to federal alternative
minimum tax. To the extent the 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 Fund's distributions derived from these bonds.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are:
o debt obligations of any state, territory, or possession of the United
States, including the District of Columbia, or any political subdivision,
authority, agency or instrumentality of any of these; and
o participation interests, as described below, in any of the above
obligations.
As a matter of investment policy, which may not be changed without shareholder
approval, under normal market conditions at least 80% of the value of the Fund's
net assets will be invested in municipal securities, as defined above.
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted securities, engage in options and
futures transactions, and participate in when-issued and delayed delivery
transactions (see "Portfolio Investments and Strategies").
CHARACTERISTICS. The 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 Fifth Third Bank. Fifth Third Bank 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.
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 municipal securities. The financial institutions from
which the Fund purchases participation interests frequently provide or secure
irrevocable letters of credit or guarantees to assure that the participation
interests are of high quality.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the municipal securities which the
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
foregoing.
TEMPORARY INVESTMENTS. The 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
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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,
Fifth Third Bank will limit temporary investments to those rated within the
investment grade categories described under "Acceptable
Investments-Characteristics" if rated, or if unrated, those which Fifth Third
Bank judges to have the same characteristics as such investment grade
securities.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.
MUNICIPAL SECURITIES. Municipal securities are generally issued to finance
public works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Municipal securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
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 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
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 Fund's
distributions derived from these bonds.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are:
o obligations issued by or on behalf of the state of Ohio, its political
subdivisions, or agencies;
o 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
o participation interests, as described below, in any of the above
obligations,
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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 Fifth Third Bank 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 described above.
The income securities acceptable for investment in the Fund are outlined under
the following subsections of the "Acceptable Investments" section of the
Municipal Bond Fund: "Participation Interests," "Variable Rate Municipal
Securities," and "Municipal Leases."
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted securities, and participate 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 Fifth Third Bank. Fifth Third Bank 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 Fund normally invests its assets so that at least 80%
of its annual interest income is exempt from federal income tax and the personal
income taxes imposed by the state of Ohio and Ohio municipalities, or at least
80% of its net assets are invested in obligations the interest from which is
exempt from such taxes. However, from time to time, during periods of other than
normal market conditions, the Fund may invest 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,
Fifth Third Bank will limit temporary investments to those rated within the
investment grade categories described under "Acceptable
Investments-Characteristics" if rated, or if unrated, those which Fifth Third
Bank 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
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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. While
diversifying more into the service and other non-manufacturing areas, the Ohio
economy continues to rely in part on durable goods manufacturing, largely
concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some other
states and in the nation as a whole. Agriculture is an important segment of the
Ohio economy, with over half of the State's area devoted to farming and
approximately 16% of total employment in agribusiness. 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."
PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------
BORROWING MONEY
The Funds offered by this Prospectus 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
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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, none of the Funds offered by
this Prospectus (with the exception of the Ohio Tax Free Bond Fund) will invest
more than 5% of its total assets 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 offered by this Prospectus may invest in restricted securities.
Restricted securities are any securities in which a 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 a 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, a Fund may be required to bear the expense of registration. The Funds
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 offered by this Prospectus (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 the Funds, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the purchaser
must be in an exempt transaction. Section 4(2) commercial paper is normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Trust believes 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 Trust intends 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 Trust will not subject such securities to the limitation otherwise
applicable to restricted securities.
REPURCHASE AGREEMENTS
The securities in which each Fund offered by this Prospectus 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
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such securities. The Funds offered by this Prospectus 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 offered by this Prospectus may purchase securities on a when-issued or
delayed delivery basis. 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. 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 or
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 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, each of the Funds offered by this
Prospectus may lend its portfolio securities on a short-term or long-term basis,
in an amount up to one-third of the value of its total assets to broker/dealers,
banks, or other institutional borrowers of securities. A 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
Trustees and will receive collateral in the form of cash or liquid 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 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 would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
OPTIONS AND FUTURES
The Funds offered by this Prospectus (with the exception of the Pinnacle Fund,
the Municipal Bond Fund and the Ohio Tax Free Bond Fund) may engage in options
and futures transactions as described below.
PUT AND CALL OPTIONS. Each Fund offered by this Prospectus (with the exception
of the Pinnacle Fund, the Municipal Bond Fund and the Ohio Tax Free Bond Fund)
may purchase put options on its 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 Pinnacle Fund, the
Municipal Bond Fund and 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 International Equity Fund may use
options to manage interest rate and currency risks. It may also write covered
call options and secured put options to generate income or lock
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in gains. The International Equity Fund may write covered call options and
secured put options on up to 25% of its net assets and may purchase put and call
options provided that no more than 5% of the fair market value of its net assets
may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by a 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 a Fund may be
required to take delivery of the underlying asset at a disadvantageous price.
Each Fund offered by this Prospectus (with the exception of the Pinnacle Fund,
the Municipal Bond Fund and the Ohio Tax Free Bond 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. These Funds
purchase and write options only with investment dealers and other financial
institutions (such as commercial banks or savings and loan associations) deemed
creditworthy by the Advisor.
OTC options are two party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid market
while over-the-counter options may not.
OTC options differ from exchange traded options in several respects. They are
transacted directly with dealers and not with a clearing corporation, and there
is a risk of nonperformance by the dealer as a result of the insolvency of such
dealer or otherwise, in which event a 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 offered by this Prospectus (with the
exception of the Pinnacle Fund, the Municipal Bond Fund and 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
Equity Income Fund, the Cardinal Fund, the Balanced Fund, the Mid Cap Fund and
the Bond Fund For Income may also purchase and sell stock index futures to hedge
against changes in prices.
None of the Funds offered by this Prospectus will 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 International Equity 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
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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.
None of the Funds offered by this Prospectus may 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 a 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 offered by this Prospectus (with the exception of the Pinnacle Fund,
the Municipal Bond Fund and the Ohio Tax Free Bond Fund) 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 indices. 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.
A Fund may enter into securities index futures contracts to sell a securities
index in anticipation of or during a market decline to attempt to offset the
decrease in market value of securities in its portfolio that might otherwise
result. When a Fund is not fully invested and anticipates a significant market
advance, it may enter into futures contracts to purchase the index in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that it intends to purchase. In many of these transactions, a
Fund will purchase such securities upon termination of the futures position but,
depending on market conditions, a futures position may be terminated without the
corresponding purchases of common stock. A Fund may also invest in securities
index futures contracts when the Advisor believes such investment is more
efficient, liquid or cost-effective than investing directly in the securities
underlying the index.
A Fund may also write call options and purchase put options on futures contracts
as a hedge to attempt to protect securities in its portfolio against decreases
in value. When a Fund writes a call option on a futures contract, it is
undertaking the obligation of selling a futures contract at a fixed price at any
time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, a Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option. An option on a securities index futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a securities
index futures contract. A Fund may purchase and write put and call options on
securities index futures contracts in order to hedge all or a portion of its
investment and may enter into closing purchase transactions with respect to
written options in order to terminate existing positions. There is no guarantee
that such closing transactions can be effected. A Fund may also invest in
options on securities index futures contracts when the Advisor believes such
investment is more efficient, liquid or cost-effective than investing directly
in the futures contract or in the securities underlying the index, or when the
futures contract or underlying securities are not available for investment upon
favorable terms.
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
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the position and thereby insure that the use of such futures contract is
unleveraged. When a Fund sells futures contracts, it will either own or have the
right to receive the underlying future or security, or will make deposits to
collateralize the position as discussed above.
RISKS. The use of futures and related options involves special considerations
and risks. For example, the ability of a Fund to utilize futures successfully
will depend on the Advisor's ability to predict pertinent market movements, and
the Advisor could be incorrect in its expectations about the direction or extent
of market factors such as stock price movement. In these events, the Fund may
lose money on the future contract or option. Also, there might be imperfect
correlation, or even no correlation, between the change in market value of the
securities held by Fund and the prices of the futures and options thereon
relating to the securities purchased or sold by Fund. This may cause the futures
contract and any related options to react differently than the portfolio
securities to market changes. The use of futures and related options may reduce
risk of loss by wholly or partially offsetting the negative effect of
unfavorable price movements but they can also reduce the opportunity for gain by
offsetting the positive effect of favorable price movements in positions. No
assurance can be given that the Advisor's judgment in this respect will be
correct.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Advisor will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. A Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
FOREIGN INVESTMENTS
Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. While a number of the considerations noted
below under "Foreign Companies" are relevant to the ability of several of the
Funds offered by this Prospectus 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 assets and income of a Fund which
invests in foreign securities may be affected by changes in exchange rates and
regulations. Although each of the Funds values its assets daily in U.S. dollars,
it will not convert its holdings of foreign currencies to U.S. dollars on a
daily basis. When a 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:
o less publicly available information about foreign companies;
o the lack of uniform financial accounting standards applicable to foreign
companies;
o less readily available market quotations on foreign companies; o
differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
o generally lower foreign stock market volume and possible delays in
settlement of foreign transactions (which could adversely affect
shareholder equity);
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o the likelihood that foreign securities may be less liquid or more volatile;
o foreign brokerage commissions may be higher;
o unreliable mail service between countries; and
o 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 International
Equity Fund. Although the International Equity Fund is unaware of any current
restrictions, investors are advised that these policies could be reinstituted.
EMERGING MARKETS. The International Equity Fund may take advantage of the
unusual opportunities for higher returns available from investing in emerging
countries. These investments, however, carry considerably more volatility and
risk because they generally are associated with less mature economies and less
stable political systems. The economies of individual emerging countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject to
limitation in other emerging countries. Foreign ownership limitations also may
be imposed by the charters of individual companies in emerging countries to
prevent, among other concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some emerging
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any emerging country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.
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,
record keeping and the public availability of information.
DERIVATIVE SECURITIES
Several of the Funds offered by this Prospectus 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,
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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 an 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 up to 100% as the Advisor in
its judgment believes market conditions warrant, each of the Funds offered by
this Prospectus (except the International Equity Fund, the Municipal Bond Fund
and the Ohio Tax Free Bond Fund) may also invest temporarily in cash and money
market instruments during times of unusual market conditions and to maintain
liquidity as described below. Temporary investments may include obligations such
as:
o domestic issues of corporate debt obligations including variable rate
demand notes (except with respect to the Pinnacle Fund);
o commercial paper and other money market instruments;
o securities issued and/or guaranteed as to payment of principal and interest
by U.S. government, its agencies, or instrumentalities;
o instruments of domestic banks and (except with respect to the Pinnacle
Fund) foreign banks; and
o 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 a
Fund with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at par. The interest
rate may float or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on published interest rate or interest rate
index. Most variable rate demand notes allow 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
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interest adjustment or the date on which a Fund may next tender the security for
repurchase. The Pinnacle Fund will not invest in variable rate demand notes.
COMMERCIAL PAPER. The commercial paper and money market instruments in which the
Funds identified above may invest will be rated A-1 by S&P, Prime-1 by Moody's,
or F-1 by Fitch Investors Service, or will be unrated, but determined by the
Advisor to be of comparable quality to other bank or corporate obligations.
BANK INSTRUMENTS. The domestic banks and foreign banks which issue instruments
in which the Funds identified above may invest (such as certificates of deposit,
demand and time deposits, saving shares, and bankers' acceptances) will have
capital, surplus, and undivided profits of over $100,000,000 and/or their
deposits will be insured by the Federal Deposit Insurance Corporation ("FDIC").
ECDs, Yankee CDS, and ETDs are subject to the same risks as detailed previously
under "Foreign Investments."
INVESTMENT COMPANIES. In addition, all of the Funds offered by this Prospectus
may purchase shares of other investment companies, primarily for the purpose of
investing short-term cash on a temporary basis. Investment in shares of other
investment companies may subject a Fund to additional or duplicative fees and
expenses.
EQUITY INVESTMENT RISKS
With respect to the Quality Growth Fund, Equity Income Fund, Cardinal Fund,
Pinnacle Fund, Balanced Fund, Mid Cap Fund and International Equity Fund, 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 Cardinal Fund and Pinnacle Fund which
invest in both small and medium capitalization stocks and the Equity Income Fund
and Mid Cap Fund which invest in medium capitalization stocks, there are some
additional risk factors associated with investments in these 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. Neither the Cardinal Fund nor the Pinnacle Fund will invest more than
5% of its total assets in securities of companies having a record of less than
three years of continuous operations (including the record of any predecessor).
In general, stocks in the small and medium capitalization sectors 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, both small and 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 small or medium-sized companies may, to some degree,
fluctuate independently of the stocks of large companies. That is, the stocks of
small or medium-sized companies may decline in price as the price of large
company stocks rises or vice versa. Therefore, investors should expect that the
Funds identified above will be slightly more volatile than, and may fluctuate
independently of, broad stock market indices such as the Standard & Poor's 500
Index.
FIFTH THIRD FUNDS INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all of
the Trust's powers except those reserved for the shareholders.
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INVESTMENT ADVISORS. Pursuant to an investment advisory contract with the Trust,
investment decisions for all of the Funds offered by this Prospectus except the
Pinnacle Fund are made by Fifth Third Bank, subject to direction by the
Trustees. Pursuant to a separate investment advisory contract with the Trust,
investment decisions for the Pinnacle Fund are made by Heartland, subject to the
direction of the Trustees. Each of Fifth Third Bank and Heartland continually
conducts investment research and supervision for the Funds offered by this
Prospectus and is responsible for the purchase or sale of portfolio instruments,
for which it receives an annual fee from these Funds.
With respect to the International Equity Fund, as discussed further below, Fifth
Third Bank has retained MSAM to act as sub-advisor to the Fund. As Advisor,
Fifth Third Bank conducts a program for ongoing oversight and evaluation of
MSAM's services to this Fund, and regularly reports to the Trustees on these
matters. Fifth Third Bank also assisted in the formulation of, and continues 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 reviews the portfolio
daily and monitors the Fund's expenses, as well as the brokerage and research
services provided to the Fund and selection of brokers by MSAM.
ADVISORY FEES. Fifth Third Bank receives an investment advisory fee at
annual rates equal to the percentages of the relevant Fund's average
daily net assets as follows: the Bond Fund For Income, the Quality Bond
Fund, the Government Securities Fund, the Municipal Bond Fund and the
Ohio Tax Free Bond Fund-0.55%%; the Cardinal Fund-0.60%%; the Quality
Growth Fund, the Equity Income Fund, the Balanced Fund and the Mid Cap
Fund-0.80%; and the International Equity Fund-1.00%. Heartland receives
an investment advisory fee at an annual rate of 0.80% of the Pinnacle
Fund's average net assets. The fees paid by the Quality Growth Fund,
the Pinnacle Fund, the Balanced Fund, the Mid Cap Fund and the
International Equity Fund, 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 contracts provide for the voluntary waiver of expenses by
Fifth Third Bank or Heartland from time to time. Each of Fifth Third
Bank or Heartland may voluntarily choose to waive a portion of its fees
or reimburse other expenses of a Fund, but reserves the right to
terminate such waiver or reimbursement at any time in its sole
discretion.
FIFTH THIRD BANK'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 September 30, 1998, Fifth Third Bank and its
affiliates managed assets in excess of $15 billion on a discretionary
basis and provided custody services for additional assets in excess of
$119 billion. Fifth Third Bank has managed mutual funds since 1988.
Fifth Third Bank has managed pools of commingled funds since 1953. As
of September 30, 1998, Fifth Third Investment Advisors, a division of
Fifth Third Bank, managed six such pools with total assets of over $355
million.
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.
FIFTH THIRD BANK 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
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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.
HEARTLAND'S BACKGROUND. Heartland, an Indiana corporation and
registered investment advisor, is a wholly-owned subsidiary of Fifth
Third Bancorp. As of September 30, 1998, Heartland acted as investment
advisor for institutional and individual portfolios with assets of
approximately $1 billion. Heartland has been an investment advisor
since 1984 and has managed mutual fund assets since 1985.
HEARTLAND PORTFOLIO MANAGERS' BACKGROUND. The employees of Heartland
who are primarily responsible for the day-to-day management of the
Pinnacle Fund's portfolio are: ROBERT D. MARKLEY, President and Chief
Executive Officer of Heartland; THOMAS F. MAURATH, Executive Vice
President of Heartland; and BARRY F. EBERT, an employee of Heartland.
Each of Messrs. Markley, Maurath and Ebert has been primarily
responsible for management of the Pinnacle Fund since its inception and
management of its predecessor fund since its inception on March 6,
1985. Mr. Markley is a chartered financial analyst and holds a B.A. in
Marketing from Michigan State University and an M.B.A. from
Northwestern University. Mr. Maurath is also a chartered financial
analyst who earned a B.B.A. in Accounting from the University of Notre
Dame, and an M.B.A. from Indiana University. Mr. Ebert holds both a
B.B.A. in Finance and an M.B.A. from the University of Wisconsin.
SUB-ADVISOR. Under the terms of a Sub-Advisory Agreement between Fifth Third
Bank and MSAM, MSAM is 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.
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In addition, MSAM furnishes 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. Fifth Third Bank is responsible for compensating
MSAM at the annual rate of 0.45% of the Fund's average daily net
assets.
MSAM'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, 1998, MSAM managed investments totaling
approximately $79 billion under active management and approximately $20
billion as named fiduciary or fiduciary advisor.
MSAM PORTFOLIO MANAGERS' BACKGROUND. BARTON M. BIGGS has been Chairman
and a Director of MSAM 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 MSAM and certain of its affiliates
provides investment advisory services. Mr. Biggs holds a B.A. from Yale
University and an M.B.A. from New York University.
MADHAV DHAR is a Managing Director of Morgan Stanley & Co.
Incorporated. He joined MSAM in 1984 to focus on global asset
allocation and investment strategy and now heads MSAM'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 MSAM as a Principal in 1993. She is responsible
for product development, portfolio management and communication of
MSAM'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 MSAM. She is a member of MSAM'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
BISYS serves as the distributor for the Trust. BISYS 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.
PAYMENTS TO FINANCIAL INSTITUTIONS
BISYS, Fifth Third Bank or their affiliates may offer to pay a fee from their
own assets to financial institutions supplemental fees for the performance of
sales services, distribution-related support services, or shareholder and
administrative services. The support may include initiating customer accounts,
providing sales literature, or participating in sales, educational and training
seminars (including those held at recreational facilities).
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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
BISYS may be reimbursed by Fifth Third Bank 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 TRUST
ADMINISTRATIVE SERVICES. BISYS serves as the administrator of the Trust. 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 provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
------------------ -----------------------
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, Fifth Third Bank performs
sub-administrative services on behalf of each Fund including providing certain
administrative personnel and services necessary to operate the Funds for which
it receives a fee from BISYS computed daily and paid periodically calculated at
an annual rate of 0.025% of the average aggregate daily net assets of the Trust.
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 Trust are Ernst & Young
LLP, Cincinnati, Ohio.
EXPENSES OF THE FUNDS AND INSTITUTIONAL SHARES
Holders of Institutional Shares pay their allocable portion of Trust and Fund
expenses.
The Trust expenses for which holders of Institutional 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.
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The Fund expenses for which holders of Institutional Shares pay their allocable
portion include, but are not limited to: registering the Fund and Institutional
Shares of the Fund; investment advisory services; taxes and commissions;
custodian fees; insurance premiums; auditors' fees; legal expenses of the Fund;
organizational expenses; and such non-recurring and extraordinary items as may
arise from time to time.
At present, no expenses are allocated specifically to Institutional Shares as a
class. However, the Trustees reserve the right to allocate certain expenses to
holders of Institutional 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
Institutional 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 SEC and to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Institutional Shares; legal fees relating solely
to Institutional Shares; and Trustees' fees incurred as a result of issues
related solely to Institutional Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Advisor looks for prompt execution of the order at a favorable
price. In working with dealers, the Advisor will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Advisor may give consideration to those
firms which have sold or are selling shares of the Fund. The Advisor makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
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 MSAM. 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 is determined as of the close of trading on the New York
Stock Exchange, normally 4:00 p.m. (Eastern time), Monday through Friday, except
on: (i) 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; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; and (iii) on the
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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.
INVESTING IN THE FUNDS
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Each of the Funds offered by this Prospectus issues three classes of shares:
Investment A Shares, Investment C Shares and Institutional Shares. A separate
prospectus for Investment A Shares and Investment C Shares of these Funds can be
obtained by contacting the Trust. Each class of shares is subject to different
levels of expenses and may carry sales loads or contingent deferred sales
charges.
SHARE PURCHASES
Institutional 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 Institutional Shares, the distributor may, from time to time, offer
certain items of nominal value to any shareholder or investor. The Trust
reserves the right to reject any purchase request. Purchases of Institutional
Shares may not be available to investors in all states.
Institutional Shares of the Funds offered by this Prospectus may be purchased
either through: the Trust Department of Fifth Third Bank; qualified employee
retirement plans under the Internal Revenue Code, subject to minimum
requirements which may be established by the distributor with respect to the
number of employees or amount of purchase; or broker-dealers, investment
advisors, financial planners or other financial institutions who place trades
for their own account or the accounts of their clients for a management,
consulting or other fee.
Purchase orders must be received by the Trust by 2:30 p.m. (Eastern time) in
order for Institutional Shares to be purchased at that day's price. Orders
placed through financial institutions must be transmitted to the Trust 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.
Payment may be made to the Trust's custodian either by check or by 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 Trust receives the check. Proceeds from redeemed
shares purchased by check will not be sent until the check has cleared. 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 Trust as follows: ABA No. 042 000 314 Fifth Third Cincinnati; Attention:
Fifth Third Funds Department; For Credit to: (shareholder's name and account
number); For Further Credit to: Fifth Third (name of applicable Fund)
Fund-Institutional Shares. Investors should consult their financial institutions
for wiring instructions.
ADDITIONAL INFORMATION
From time to time, shares of the Funds offered by this Prospectus may be
purchased by Fifth Third Bank, Heartland or BISYS in connection with various
promotions of the Fifth Third Funds. In these cases, Fifth Third Bank, Heartland
or BISYS will distribute Fund shares to existing or potential investors as an
incentive to purchase such Fund.
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MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Institutional Shares of the Funds offered by
this Prospectus 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 Fifth Third Funds.
WHAT SHARES COST
Institutional Shares are sold at their net asset value next determined after an
order is received. No sales charge is imposed on Institutional Shares.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain securities
and cash for shares of the Funds offered by this Prospectus. The securities and
any cash must have a market value of at least $25,000. The Trust reserves the
right to determine the acceptability of securities to be exchanged. On the day
securities are accepted by the Trust, they are valued in the same manner as the
Trust values the assets of the Funds. An investor wishing to exchange securities
should first contact his or her financial representative.
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 Institutional Shares at the net asset value next determined after an
order is received by the Trust. 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 his or her
account application or by contacting his or her financial representative.
CERTIFICATES AND CONFIRMATIONS
The transfer agent for the Trust 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 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 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 Quality Growth Fund, the Equity Income Fund,
the Bond Fund For Income, Quality Bond Fund, Government Securities Fund, the
Municipal Bond Fund and the Ohio Tax Free Bond Fund, dividends are declared and
paid monthly. With respect to the Cardinal Fund, the Pinnacle Fund, the Balanced
Fund and the Mid Cap Fund, dividends are declared and paid quarterly. With
respect to the International Equity Fund, dividends, if any, are declared and
paid annually.
35
<PAGE> 117
EXCHANGES
- --------------------------------------------------------------------------------
Shareholders may exchange Institutional Shares of any of the Funds offered by
this Prospectus for Institutional Shares of any of the Funds in the Trust,
including those not offered by this Prospectus, by contacting the financial
institution responsible for the account. Telephone exchange instructions may be
recorded. If reasonable procedures are not followed by the Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
Orders to exchange Institutional Shares of one Fund for Institutional Shares of
any of the other Funds of the Trust will be executed by redeeming the shares
owned at net asset value and purchasing Institutional Shares of the other Funds
at the net asset value next determined after the exchange request is received.
Orders for exchanges involving any of the Funds offered by this Prospectus must
be received by the Trust prior to 2:30 p.m. (Eastern time) on any day that the
Trust is open for business. Orders for exchanges involving any of the Trust's
money market funds must be received by 11:00 a.m. (Eastern time). Orders which
are received prior to the applicable cut-off time will be executed as of the
close of business that day. Orders received after the applicable cut-off time
will be executed at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time. Shareholders will 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 of the Funds offered by this Prospectus redeems Institutional Shares at the
net asset value next determined after the Trust receives the redemption request.
Redemptions will be made on days on which the Fund being redeemed computes its
net asset value. Requests for redemption must be received in proper form as
described below and must be made through a shareholder's financial
representative. Orders must be received by the financial institution and
transmitted to the Trust 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 such orders promptly; however, investors should allow
sufficient time for orderly processing and transmission.
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:
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
36
<PAGE> 118
o any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust 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 Trust 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, 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, and the fluctuation of
the net asset value of 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 his or her
financial representative.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000.
Before redeeming shares to close an account, the Trust will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
Voting Rights
Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of 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 operation of the Trust or a Fund and for the election
of Trustees under certain circumstances. As of October 31, 1998, Fifth Third
Bank may for certain purposes be deemed to control several of the Funds of the
Trust because it is owner of record of more than 5% of the outstanding shares of
such Funds.
37
<PAGE> 119
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 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 any Fund.
In the unlikely event a shareholder 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 the applicable 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 to pay judgments against them from the assets of
the applicable 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. Fifth Third Bank and Heartland are subject to
such banking laws and regulations. Each of Fifth Third Bank and Heartland
believes that it may perform the investment advisory services for the Funds
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 or Heartland from
continuing to perform all or a part of the above services for its customers
and/or the Funds offered by this Prospectus. In such event, changes in the
operation of a Fund may occur, including the possible alteration or termination
of any automatic or other share investment or redemption services then being
provided by Fifth Third Bank or Heartland, and the Trustees would consider
alternative investment advisors and other means of continuing available
investment services. It is not expected that shareholders would suffer any
adverse financial consequences (if other advisors with equivalent abilities to
Fifth Third Bank and Heartland are found) as a result of any of these
occurrences.
38
<PAGE> 120
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
None of the Funds offered by this Prospectus will pay any federal income tax
because they each expect 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 the
Trust's other Funds, if any, will not be combined for tax purposes with those
realized by any other Fund of the Trust.
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 INTERNATIONAL EQUITY FUND
The International Equity 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 International Equity Fund upon
disposition of PFIC investments.
Investment income received by the International Equity 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 International Equity Fund to reduced tax rates or exemption on this
income. The effective rate of foreign tax cannot be predicted since the amount
of assets to be invested within various countries is unknown. However, the
International Equity Fund intends to operate so as to qualify for treaty-reduced
tax rates where applicable.
If more than 50% of the value of the International Equity 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 International
Equity Fund's foreign taxes rather than take the foreign tax credit must itemize
deductions on their income tax returns.
ADDITIONAL TAX INFORMATION FOR MUNICIPAL BOND FUND
Dividends of the Municipal Bond 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 Municipal Bond Fund, if any, will be taxable as long-term capital gains
regardless of the length of time shareholders have held their shares.
39
<PAGE> 121
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.
ADDITIONAL TAX INFORMATION FOR OHIO TAX FREE BOND FUND
Dividends of the Ohio Tax Free Bond 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 Ohio Tax Free Bond 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 AND CORPORATION FRANCHISE TAXES. Provided that the Ohio Tax
Free Bond Fund continues to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (Code), and that at all times at least
50% of the value of the total assets of the Ohio Tax Free Bond Fund consists of
obligations issued by or on behalf of Ohio, political subdivisions thereof or
agencies or instrumentalities of Ohio or its political subdivisions ("Ohio
Obligations"), or similar obligations of other states or their subdivisions, (i)
distributions with respect to shares of the Ohio Tax Free Bond Fund
("Distributions") will be exempt from Ohio personal income tax and municipal and
school district income taxes in Ohio, and will be excluded from the net income
base of the Ohio corporation franchise tax to the extent such distributions are
properly attributable to interest payments on Ohio Obligations, and (ii)
distributions of profit made on the sale, exchange or other disposition of Ohio
Obligations, including distributions of "capital gain dividends", as defined in
the Internal Revenue Code of 1986, properly attributable to the sale, exchange
or other disposition of Ohio Obligations will be exempt from Ohio personal
income tax and municipal and school district income taxes in Ohio, and will be
excluded from the net income of the Ohio corporation franchise tax.
However, other Distributions will generally not be exempt from Ohio personal
income tax and municipal and school district income taxes in Ohio, and shares of
the Ohio Tax Free Bond Fund will not be excluded from the net worth base of the
Ohio corporation franchise tax.
OTHER STATE AND LOCAL TAXES. Income from the Ohio Tax Free Bond Fund is not
necessarily free from state income taxes or from personal property taxes in
states other than Ohio. 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, each of the Funds offered by this Prospectus advertises total
return and yield for Institutional Shares, including predecessor fund
performance. 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 the Institutional 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 Institutional Shares of a Fund is calculated by dividing the net
investment income per share (as defined by the SEC) earned by Institutional
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.
40
<PAGE> 122
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
Institutional Shares, assuming a specific tax rate. The yield and tax-equivalent
yield do not necessarily reflect income actually earned by Institutional Shares
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
From time to time, advertisements for a Fund may refer to ratings, rankings, and
other information in certain financial publications and/or compare the
performance of a Fund to certain indices.
41
<PAGE> 123
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Fifth Third Quality Growth Fund Fifth Third Funds
Fifth Third Equity Income Fund c/o Fifth Third Bank
Fifth Third Cardinal Fund 38 Fountain Square Plaza
Fifth Third Pinnacle Fund Cincinnati, Ohio 45263
Fifth Third Balanced Fund
Fifth Third Mid Cap Fund
Fifth Third International Equity Fund
Fifth Third Bond Fund For Income
Fifth Third Quality Bond Fund
Fifth Third U.S. Government Securities Fund
Fifth Third Municipal Bond Fund
Fifth Third Ohio Tax Free Bond Fund
- -------------------------------------------------------------------------------------------------------------------
Investment Advisor (all Funds except Pinnacle Fund) Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- -------------------------------------------------------------------------------------------------------------------
Investment Advisor (Pinnacle Fund only) Heartland Capital Management, Inc.
36 Pennsylvania Street , Suite 610
Indianapolis, Indiana 46204
- -------------------------------------------------------------------------------------------------------------------
Sub-Advisor (International Equity Fund only) Morgan Stanley Asset Management, Inc.
1221 Avenue of the Americas
New York, New York 10020
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 124
[BACK COVER]
[Fifth Third Logo]
Investment Advisor
<PAGE> 125
FIFTH THIRD FUNDS
(formerly Fountain Square Funds)
Investment A Shares
(formerly Investment Shares)
Government Cash Reserves Fund
Commercial Paper Fund
Tax Exempt Money Market Fund
[Artwork]
Money Market Mutual Funds
Prospectus
November 2, 1998
[Fifth Third Logo]
<PAGE> 126
FIFTH THIRD FUNDS
(formerly Fountain Square Funds)
INVESTMENT A SHARES
(formerly known as Investment Shares)
PROSPECTUS
Fifth Third Funds (the "Trust") is an open-end management investment company (a
mutual fund). This Prospectus offers investors interests in Investment A Shares
of only the following separate investment portfolios (the "Funds"), each having
distinct investment objectives and policies:
o Fifth Third Government Cash Reserves Fund;
o Fifth Third Commercial Paper Fund; and
o Fifth Third Tax Exempt Money Market Fund
This Prospectus contains the information you should read and know before you
invest in Investment A Shares of any of the above Funds. Keep this Prospectus
for future reference.
Additional information about Investment A Shares of these Funds is contained in
their Combined Statement of Additional Information, dated November 2, 1998,
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 these Funds by writing to or calling
the Trust toll-free at (888) 799-5353. The Securities and Exchange Commission
maintains an Internet Website (http://www.sec.gov) that contains the Combined
Statement of Additional Information, materials incorporated by reference into
this Prospectus and into the Combined Statement of Additional Information, and
other information regarding companies that file electronically with the
Securities and Exchange Commission.
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. INVESTMENT IN THESE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE FUNDS
OFFERED BY THIS PROSPECTUS ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE; THERE CAN BE NO ASSURANCE THAT ANY OF THESE FUNDS WILL BE ABLE TO DO
SO.
THESE SECURITIES 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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated November 2, 1998
<PAGE> 127
NOTICE OF DELIVERY OF PROSPECTUSES,
SEMI-ANNUAL REPORTS AND ANNUAL REPORTS
In order to reduce expenses of the Fifth Third Funds incurred in connection with
the mailing of prospectuses, prospectus supplements, semi-annual reports and
annual reports to multiple shareholders at the same address, Fifth Third Funds
may in the future deliver one copy of a prospectus, prospectus supplement,
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 prospectus, prospectus supplements, semi-annual reports and annual reports,
please call the Trust toll-free at (888) 799-5353.
<PAGE> 128
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Summary of Fund Expenses......................................................1
Financial Highlights..........................................................3
Fifth Third Government Cash Reserves Fund-Investment A Shares............3
Fifth Third Commercial Paper Fund-Investment A Shares....................4
Fifth Third Tax Exempt Money Market Fund-Investment A Shares.............5
General Information...........................................................6
Year 2000 Risk...........................................................6
Objectives of the Funds.......................................................6
Government Cash Reserves Fund............................................7
Commercial Paper Fund....................................................7
Tax Exempt Money Market Fund............................................10
Portfolio Investments and Strategies.........................................13
When-Issued and Delayed Delivery Transactions...........................13
Lending of Portfolio Securities.........................................13
Fifth Third Funds Information................................................13
Management of the Trust.................................................13
Distribution of Shares..................................................14
Distribution Plan.......................................................14
Payments to Financial Institutions......................................15
Administration of the Trust.............................................15
Net Asset Value..............................................................16
Investing in the Funds.......................................................16
Share Purchases.........................................................16
Additional Information..................................................17
Minimum Investment Required.............................................17
What Shares Cost........................................................18
Certificates and Confirmations..........................................18
Dividends...............................................................18
Capital Gains...........................................................18
Exchanges....................................................................18
Redeeming Shares.............................................................19
By Telephone............................................................19
By Mail.................................................................20
Receiving Payment.......................................................21
Accounts with Low Balances..............................................21
Shareholder Information......................................................21
Voting Rights...........................................................21
Massachusetts Law.......................................................22
Effect of Banking Laws.......................................................22
Tax Information..............................................................22
Federal Income Tax......................................................23
Additional Tax Information for Government Cash Reserves Fund............23
Additional Tax Information for Tax Exempt Money Market Fund.............23
Performance Information......................................................24
Addresses....................................................................25
i
<PAGE> 129
SUMMARY OF FUND EXPENSES
- -------------------------------------------------------------------------------
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 FUND OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL OPERATING
FEES(1) 12b-1 FEES(2) EXPENSES(3) EXPENSES(4)
------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Government Cash Reserves Fund ............... 0.40% 0.20% 0.17% 0.77%
Commercial Paper Fund........................ 0.38% 0.25% 0.14% 0.77%
Tax Exempt Money Market Fund ................ 0.40% 0.07% 0.33% 0.80%
</TABLE>
- -------
(1) The management fees of the Commercial Paper Fund and Tax Exempt Money
Market Fund have been reduced to reflect the voluntary waiver of a portion
of the investment advisory fee by the investment advisor. The investment
advisor can terminate these voluntary waivers at any time in its sole
discretion. The maximum management fee for each of the and Commercial Paper
Fund is 0.40%. The maximum management fee for the Tax Exempt Money Market
Fund is 0.50%.
(2) Beginning on March 23, 1998, the maximum 12b-1 fees which may be charged on
Investment A Shares was reduced to 0.25% from 0.35%. On August 11, 1998,
the distributor terminated its voluntary waiver of 12b-1 fees on Investment
A Shares of the Commercial Paper Fund which had previously been in effect.
12b-1 fees for the Government Cash Reserves Fund and the Tax Exempt Money
Market Fund have been reduced to reflect the voluntary waiver by the
distributor of a portion of the 12b-1 fees. The distributor can terminate
this voluntary waiver at any time in its sole discretion.
(3) Other expenses have been reduced to reflect the voluntary waiver of fees by
the administrator. In the absence of such waivers, other expenses for the
Government Cash Reserves Fund, Commercial Paper Fund and Tax Exempt Money
Market Fund would be 0.27%, 0.24% and 0.43%, respectively.
(4) Absent the voluntary waivers by the investment advisor and the
administrator, Total Investment A Shares Operating Expenses for the
Government Cash Reserves Fund, Commercial Paper Fund and Tax Exempt Money
Market Fund would be 0.92%, 0.89% and 1.18%, respectively. Expense
information for the Government Cash Reserves Fund and Commercial Paper Fund
has been restated to reflect current fees. Expense information for the Tax
Exempt Money Market Fund is based on estimates for the current fiscal year.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT A SHARES OF EACH
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "FIFTH THIRD FUNDS INFORMATION" AND
"INVESTING IN THE FUNDS." Wire-transferred redemptions of less than $10,000 may
be subject to additional fees.
1
<PAGE> 130
EXPENSE EXAMPLES:
You would pay the following expenses on a $1,000 investment in
Investment A Shares, assuming (1) 5% annual return and (2) redemption at the end
of each time period. Investment A Shares have no sales load (charge) or
redemption fees.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Cash Reserves Fund......... $ 8 $ 25 $ 43 $ 95
Commercial Paper Fund................. $ 8 $ 25 $ 43 $ 95
Tax Exempt Money Market Fund.......... $ 8 $ 26 $ 44 $ 99
</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> 131
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD GOVERNMENT CASH RESERVES FUND-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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
the notes thereto, which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992*
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income................... 0.05 0.05 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) (0.05) (0.03) (0.03) (0.03)
----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD.......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== =====
Total return............................ 5.13% 5.00% 5.11% 5.22% 3.03% 2.76% 2.61%(c)
Ratios to Average Net Assets:
Expenses............................. 0.52% 0.51% 0.51% 0.50% 0.50% 0.50% 0.50%(b)
Net investment income................ 5.02% 4.90% 4.97% 5.17% 2.96% 3.22% 3.68%(b)
Expense waiver/reimbursement (a)..... 0.47% 0.44% 0.42% 0.45% 0.48% 0.50% 0.50%(b)
Supplemental data:
Net assets, end of period (000)...... $150,286 $110,543 $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> 132
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD COMMERCIAL PAPER FUND-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 24, 1998, on the Trust's
financial statements for the year ended July 31, 1998 is included in the
Fountain Square Funds Annual Report, which is incorporated by reference. This
table should be read in conjunction with the Trust's financial statements and
the notes thereto, which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------
1998 1997 1996 1995 1994 1993*
---- ---- ---- ---- ---- -----
<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 0.05 0.03 0.03
Less distributions:
Dividends to shareholders from net
investment income............................ (0.05) (0.05) (0.05) (0.05) (0.03) (0.03)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD.................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== =====
Total return.................................... 5.25% 5.11% 5.20% 5.25% 3.02% 2.70%(c)
Ratios to Average Net Assets:
Expenses..................................... 0.52% 0.52% 0.49% 0.49% 0.49% 0.48%(b)
Net investment income........................ 5.13% 4.99% 5.06% 5.12% 2.97% 2.69%(b)
Expense waiver/reimbursement (a)............. 0.47% 0.44% 0.40% 0.44% 0.45% 0.47%(b)
Supplemental data:
Net assets, end of period (000).............. $36,552 $33,438 $19,341 $10,169 $6,147 $4,714
</TABLE>
- -------
* Reflects operations for the period from August 11, 1992 (date of initial
public investment) to July 31, 1993.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(See Notes which are an integral part of the Financial Statements)
4
<PAGE> 133
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD TAX EXEMPT MONEY MARKET FUND-INVESTMENT A SHARES
(For a share outstanding throughout each period)
On September 21, 1998, holders of a single class of shares of the Cardinal Tax
Exempt Money Market Fund exchanged their shares for either Investment A Shares
or Institutional Shares of the Fifth Third Tax Exempt Money Market Fund
(formerly known as the Fountain Square Tax Exempt Money Market Fund). The
following table illustrating the historical performance of that class of shares
for the fiscal year ended September 30, 1998, has been audited by Ernst & Young
LLP, the Trust's independent auditors. Prior periods shown were audited by KPMG
Peat Marwick LLP. The report of Ernst & Young LLP, dated October 28, 1998, on
the financial statements of the Fountain Square Tax Exempt Money Market Fund,
for the year ended September 30, 1998, is included in the Combined Statement of
Additional Information, which is incorporated by reference. This table should be
read in conjunction with the Fund's financial statements and the notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income................... 0.03 0.03 0.03 0.03 0.02 0.02 0.03 0.04 0.05 0.06
Less distributions:
Dividends to shareholders from net
investment income.................... (0.03) (0.03) (0.3) (0.3) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of period.......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return............................ 2.74% 2.72% 2.63% 3.02% 1.78% 1.81% 2.62% 4.40% 5.41% 5.95%
Ratios to Average Net Assets:
Expenses............................. 0.71% 0.80% 0.89% 0.83% 0.76% 0.77% 0.76% 0.72% 0.76% 0.72%
Net investment income................ 2.88% 2.79% 2.66% 2.99% 1.78% 1.80% 2.59% 4.31% 5.26% 5.79%
Supplemental data:
Net assets, end of period (000)...... $44,494 $60,284 $59,915 $64,780 $80,531 $91,159 $70,054 $85,488 $82,988 $82,031
</TABLE>
(See Notes which are an integral part of the Financial Statements)
5
<PAGE> 134
GENERAL INFORMATION
- -------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. This Prospectus relates only to Investment A
Shares of the Funds described herein. These Funds are intended to provide a
convenient means of accumulating interests in professionally managed portfolios.
For information on how to purchase Investment A Shares of any of the Funds
offered by this Prospectus, please refer to "Investing in the Funds." Investment
A Shares are designed for investors who are not fiduciary or agency clients of
financial institutions. A minimum initial investment of $1,000 is required for
each Fund offered by this Prospectus. Subsequent investments must be in amounts
of at least $50. Each of the Funds offered by this Prospectus attempts to
stabilize the value of its shares at $1.00. Shares are currently sold and
redeemed at that price. Information on redeeming shares may be found under
"Redeeming Shares." Each of the Funds offered by this Prospectus is advised by
Fifth Third Bank ("Fifth Third Bank" or the "Advisor").
YEAR 2000 RISK
Investors should be aware that, like other mutual funds and financial and
business organizations around the world, each of the Funds offered by this
Prospectus could be adversely impacted if the computer systems used by Fifth
Third Bank, BISYS Fund Services L.P. ("BISYS") or other service providers and
entities with computer systems that are linked to Fund records do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as "Year 2000 Risk." Fifth Third Bank and BISYS
are taking steps that they believe are reasonably designed to address Year 2000
Risk with respect to their computer systems and to obtain satisfactory
assurances that comparable steps are being taken by each of the Trust's other
service providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Funds.
OBJECTIVES OF THE FUNDS
- -------------------------------------------------------------------------------
The investment objectives and policies of each Fund offered by this Prospectus
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 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 Prospectus and in the
Combined Statement of Additional Information.
6
<PAGE> 135
GOVERNMENT CASH RESERVES FUND
The investment objective of the Government Cash Reserves Fund is high current
income consistent with stability of principal and liquidity. 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;
o notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as: Federal Farm Credit Banks; Federal Home
Loan Banks; and the Student Loan Marketing Association; and
o repurchase agreements collateralized by securities listed above.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U S. government will provide financial support
to other agencies or instrumentalities since it is not obligated to do so. These
agencies and instrumentalities are supported by:
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.
INVESTMENT LIMITATIONS. The Government Cash Reserves 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.
COMMERCIAL PAPER FUND
The investment objective of the Commercial Paper Fund is current income
consistent with stability of principal. The Fund pursues this investment
objective by investing exclusively in a portfolio of money market
7
<PAGE> 136
instruments maturing in 13 months or less, with at least 65% of its total assets
invested in commercial paper. The average maturity of the money market
instruments in the Fund's portfolio, computed on a dollar weighted basis, will
be 90 days or less.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
nationally recognized statistical rating organizations ("NRSROs") or that are of
comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
o domestic issues of corporate debt obligations, including variable rate
demand notes;
o commercial paper (including Canadian Commercial Paper and Europaper);
o certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments issued by domestic and foreign banks and other
deposit institutions ("Bank Instruments");
o short-term credit facilities, such as demand notes;
o obligations issued or guaranteed as to payment of principal and
interest by the U.S. government or one of its agencies or
instrumentalities ("Government Securities"); and
o other money market instruments.
The Fund invests only in instruments denominated and payable in U.S. dollars.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term corporate
debt instruments that have variable or floating interest rates and provide the
Fund with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at par. The interest
rate may float or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on a published interest rate or interest rate
index. Most variable rate demand notes allow the Fund to demand the repurchase
of the security on not more than seven days' prior notice. Other notes only
permit the Fund to tender the security at the time of each interest rate
adjustment or at other fixed intervals. See "Demand Features." The Fund treats
variable rate demand notes as maturing on the later of the date of the next
interest adjustment or the date on which the Fund may next tender the security
for repurchase. The Staff of the Securities and Exchange Commission has taken
the position that variable rate demand notes are not commercial paper; although
the Fund disagrees with this determination, variable rate demand notes will not
be included in the 65% of Fund total assets which will be invested in commercial
paper. In the event that the Staff of the Securities and Exchange Commission
changes its position on this matter, the Fund may include variable rate demand
notes in the 65% minimum commercial paper investment limitation without
notifying shareholders.
BANK INSTRUMENTS. The Fund only invests in bank instruments either issued by an
institution having capital, surplus and undivided profits over $100 million or
insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance
Fund ("SAIF"). Bank Instruments may include Eurodollar Certificates of Deposit
("ECDs"), Yankee Certificates of Deposit ("Yankee CDS") and Eurodollar Time
Deposits ("ETDs"). The Fund will treat securities credit enhanced by a bank's
letter of credit as bank instruments.
ECDs, ETDs, Yankee CDS, and Europaper are subject to different risks than
domestic obligations of domestic banks or corporations. Examples of these risks
include international, economic and political developments, foreign governmental
restrictions that may adversely affect the payment of principal or interest,
foreign withholdings or other taxes on interest income, difficulties in
obtaining or enforcing a judgment against the issuing entity, and the possible
impact of interruptions in the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDS because the banks
issuing these instruments,
8
<PAGE> 137
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, record
keeping, and the public availability of information. These factors will be
carefully considered by the Fund's advisor in selecting investments for the
Fund.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing arrangements
between a corporation and an institutional lender (such as the Fund) payable
upon demand by either party. The notice period for demand typically ranges from
one to seven days, and the party may demand full or partial payment. The Fund
may also enter into, or acquire participation in, short-term revolving credit
facilities with corporate borrowers. Demand notes and other short-term credit
arrangements usually provide for floating or variable rates of interest.
RATINGS. An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 or A-1+ by
Standard & Poor's Ratings Group ("S&P"), Prime-1 by Moody's Investors Service,
Inc. ("Moody's"), or F-1 (+ or -) by Fitch Investors Service, Inc. ("Fitch") are
all considered rated in the highest short-term rating category. The Fund will
follow applicable regulations in determining whether a security rated by more
than one NRSRO can be treated as being in the highest short-term rating
category; currently such securities must be rated by two NRSROs in their highest
rating category. See "Regulatory Compliance."
CREDIT ENHANCEMENT. The Fund may acquire securities that have been credit
enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally, the Fund
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances,
applicable regulations may require the Fund to treat the securities as having
been issued by both the issuer and the credit enhancer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the time of sale
to repurchase them at a mutually agreed upon time and price within one year from
the date of acquisition.
CONCENTRATION OF INVESTMENTS. The Fund will invest at least 65% of its total
assets in commercial paper and in excess of 25% of the Fund's assets will be
comprised of commercial paper issued by finance companies unless the Fund is in
a temporary defensive position as a result of economic conditions. Concentration
of the
9
<PAGE> 138
Fund's portfolio in such obligations may entail additional risks which are not
encountered by funds with more diversified portfolios.
INVESTMENT LIMITATIONS. The Commercial Paper Fund will not borrow money except,
under certain circumstances, the Fund may borrow up to one-third of the value of
its total assets. With respect to 75% of the value of its total assets the Fund
will not invest more than 5% of its total assets in securities of one issuer
(except repurchase agreements collateralized by U.S. government securities and
U.S. government obligations). The remaining 25% of its total assets may be
invested in a single issuer if the Advisor believes such a strategy to be
prudent.
The above investment limitations cannot be changed without shareholder approval.
As a matter of investment practice, which can be changed by the Trustees without
shareholder approval, the Fund will not invest more than 10% of its net assets
in securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
REGULATORY COMPLIANCE. The Fund may follow non-fundamental operational policies
that are more restrictive than its fundamental investment limitations, as set
forth in this Prospectus and the Combined Statement of Additional Information,
in order to comply with applicable laws and regulations, including the
provisions of and regulations under the Investment Company Act of 1940, as
amended. In particular, the Fund will comply with the various requirements of
Rule 2a-7, which regulates money market mutual funds. For example, with limited
exceptions, Rule 2a-7 prohibits the investment of more than 5% of the Fund's
total assets in the securities of any one issuer, although the Fund's investment
limitation only requires such 5% diversification with respect to 75% of its
assets. The Fund will invest more than 5% of its assets in any one issuer only
under circumstances permitted by Rule 2a-7. The Fund will also determine the
effective maturity of its investments, as well as its ability to consider a
security as having received the requisite short-term ratings by NRSROs,
according to Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.
TAX EXEMPT MONEY MARKET FUND
The investment objective of the Tax Exempt Money Market Fund is to maximize
current income, exempt from federal income tax, while preserving capital and
maintaining liquidity. The Fund pursues its investment objective by investing in
a portfolio of high-grade short-term municipal bonds and notes, tax-exempt
commercial paper and tax-exempt short-term discount notes. The average maturity
of securities in the Fund's portfolio, computed on a dollar-weighted basis, will
be 90 days or less. Under normal market conditions, the Fund will invest 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 not treated as
a preference item for purposes of the federal alternative minimum tax.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are:
o debt obligations of any state, territory or possession of the United
States, including the District of Columbia, or any political
subdivision, authority, agency or instrumentality of any of these,
which have, or are deemed to have, remaining maturities of 397 calendar
days or less;
o participation interests, as described below, in any of the above
obligations; and
o bond anticipation notes, construction loan notes, project notes,
revenue anticipation notes and tax anticipation notes.
10
<PAGE> 139
CHARACTERISTICS. The municipal securities which the Fund buys are rated in one
of the two highest rating categories by an NRSRO for short-term tax-exempt
securities, or, if not rated, are deemed by Fifth Third Bank to be of comparable
quality. Downgrades will be evaluated on a case by case basis by Fifth Third
Bank. Fifth Third Bank 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.
VARIABLE RATE DEMAND MUNICIPAL SECURITIES. The Fund intends to invest more than
25% of its total assets in certain variable rate demand municipal securities,
including participation interests therein. 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 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 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.
Variable interest rates are normally based on a published interest rate or
interest rate index or similar standard, such as the 91-day U.S. Treasury bill
rate. Fifth Third Bank will monitor the pricing, quality, and liquidity of the
variable rate demand 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.
Variable rate demand municipal securities may be considered to be derivative
securities. A derivative security 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 Fund has no limit as to the percentage of its total assets that may be
invested in variable rate demand municipal securities.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings and loan associations,
and insurance companies. Participation interests in which the Fund invests will
have a demand feature which permits the Fund to demand payment from the seller
of the principal amount of the Fund's participation plus accrued interest
thereon. This demand feature will often be supported by a letter of credit or
comparable guarantee provided by the selling financial institution.
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
foregoing.
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 includes 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.
11
<PAGE> 140
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.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price within one year from the date of acquisition. Use of
repurchase agreements may cause the Fund to earn income which would be taxable
to its shareholders.
TEMPORARY INVESTMENTS. For defensive purposes only, and in such amounts up to
100% of total assets as Fifth Third Bank in its judgment believes market
conditions warrant, the Fund may also temporarily invest in the following types
of taxable money market securities:
o money market instruments consisting of marketable obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
o deposit obligations of banks and savings and loan associations which
are members of the Federal Deposit Insurance Corporation;
o bankers' acceptances;
o high-grade commercial paper guaranteed or issued by domestic
corporations; and
o repurchase agreements secured by any of the above.
INVESTMENT COMPANIES. In addition, the Fund may purchase shares of other
investment companies, primarily for the purpose of investing short-term cash on
a temporary basis. Investment in shares of other investment companies may
subject the Fund to additional or duplicative fees and expenses.
INVESTMENT LIMITATIONS. The Tax Exempt Money Market Fund will not borrow money
directly or through reverse repurchase agreements (arrangements in which the
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, 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. With respect to 75% of the value of
total assets, the 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
U.S. government or its agencies or instrumentalities and repurchase agreements
collateralized by U.S. government securities. The Fund will not purchase
securities if, as a result of such purchase, 25% or more of the value of its
total assets would be invested in any one industry; provided that, this
limitation shall not apply to industrial development bonds or other securities,
the interest upon which is paid from revenues of similar types of projects,
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or variable rate demand municipal securities supported by
letters of credit or guarantees.
The above investment limitations cannot be changed without shareholder approval.
Compliance with the investment limitations of the Fund is subject to the
provisions of Rule 2a-7 under the Investment Company Act of 1940, as amended.
12
<PAGE> 141
The following limitation 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.
Other investment limitations of the Fund are described in the Combined Statement
of Additional Information.
PORTFOLIO INVESTMENTS AND STRATEGIES
- -------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Fund offered by this Prospectus may purchase securities on a when-issued or
delayed delivery basis. 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. 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.
A Fund may dispose of a commitment prior to settlement if the 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, each of the Funds offered by this
Prospectus may lend its portfolio securities on a short-term or long-term basis,
in an amount up to one-third of the value of its total assets, to
broker/dealers, banks, or other institutional borrowers of securities. A 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 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 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 would file for bankruptcy or become insolvent, disposition of the
securities may be delayed pending court action.
FIFTH THIRD FUNDS INFORMATION
- -------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all of
the Trust's powers except those reserved for the shareholders.
13
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INVESTMENT ADVISOR. Pursuant to an investment advisory contract with the Trust,
investment decisions for all of the Funds offered by this Prospectus are made by
Fifth Third Bank, subject to direction by the Trustees. Fifth Third Bank
continually conducts investment research and supervision for the Funds offered
by this Prospectus and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the assets of each Fund.
ADVISORY FEES. Fifth Third Bank receives an annual investment advisory fee at an
annual rate equal to the percentages of the relevant Fund's average daily net
assets as follows: Government Cash Reserves Fund and Commercial Paper
Fund-0.40%; and Tax Exempt Money Market Fund-0.50%. Fifth Third Bank may
voluntarily choose to waive a portion of its fee or reimburse a Fund for certain
other expenses, but reserves the right to terminate such waiver or reimbursement
at any time in 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 September 30, 1998, Fifth
Third Bank and its affiliates managed assets in excess of $15 billion on a
discretionary basis and provided custody services for additional assets in
excess of $119 billion. Fifth Third Bank has managed mutual funds since 1988.
Fifth Third Bank has managed pools of commingled funds since 1953. As of
September 30, 1998, Fifth Third Investment Advisors, a division of Fifth Third
Bank, managed six such pools with total assets of over $355 million.
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 a 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
BISYS serves as the distributor for the Trust. BISYS 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.
DISTRIBUTION PLAN
Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Distribution Plan"), Investment A Shares
may pay a fee to the distributor in an amount computed at an annual rate of up
to 0.25% of the average daily net asset value of the Investment A Shares to
finance any activity which is principally intended to result in the sale of
Investment A Shares. Prior to March 23, 1998, 1998, the maximum 12b-1 fees
payable on Investment A Shares was 0.35%.
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 A Shares. Administrative services may include,
but are not limited to, the following functions: providing office space,
equipment, telephone facilities, and various personnel including clerical,
supervisory, and computer as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Funds; assisting clients in
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changing dividend options; account designations, and addresses; and providing
such other services as the Funds reasonably request.
Financial institutions will receive fees from the distributor based upon
Investment A 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.
The Distribution Plan is a compensation type plan. As such, a Fund makes no
payment to the distributor except as described above. Therefore, a Fund will 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
Investment A Shares under the Distribution Plan.
PAYMENTS TO FINANCIAL INSTITUTIONS
BISYS, Fifth Third Bank, or their affiliates may pay financial institutions
supplemental fees for the performance of sales services, distribution-related
support services, or shareholder and administrative services. 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 Fifth Third Bank 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 TRUST
ADMINISTRATIVE SERVICES. BISYS serves as the administrator of the Trust. 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 provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
------------------ -----------------------
0.20% of the first $1 billion
0.18% of the next $1 billion
0.17% in excess of $2 billion
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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, Fifth Third Bank performs
sub-administrative services on behalf of each Fund including providing certain
administrative personnel and services necessary to operate the Funds for which
it receives a fee from BISYS computed daily and paid periodically calculated at
an annual rate of 0.025% of the average aggregate daily net assets of the Trust.
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 Trust are Ernst & Young
LLP, Cincinnati, Ohio.
NET ASSET VALUE
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Each of the Funds offered by this Prospectus attempts to stabilize the net asset
value of its shares at $1.00 by valuing the portfolio securities using the
amortized cost method. The net asset value per share for each Investment A Share
of a Fund is determined by adding the interest of the Investment A Shares in the
assets of such Fund, subtracting the interest of Investment A Shares in the
liabilities of the Fund and those attributable to Investment A Shares, and
dividing the remainder by the total number of Investment A Shares outstanding.
None of the Funds offered by this Prospectus can guarantee that its net asset
value will always remain at $1.00 per share.
The net asset value is determined as of the close of trading of the New York
Stock Exchange, normally 4:00 p.m. (Eastern time), Monday through Friday, except
on: (i) 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; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; and (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.
INVESTING IN THE FUNDS
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Each of the Funds offered by this Prospectus issues two classes of shares:
Investment A Shares and Institutional Shares. A separate prospectus for
Institutional Shares of these Funds can be obtained by contacting the Trust.
Institutional Shares are subject to different levels of expenses than Investment
A Shares.
SHARE PURCHASES
Investment A 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 A Shares, the distributor may from time to time offer
certain items of nominal value to any shareholder or investor. The Trust
reserves the right to reject any purchase request. Purchases of Investment A
Shares may not be available to investors in all states.
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Investment A Shares of the Funds offered by this Prospectus 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
Trust. For certain investors in the Tax Exempt Money Market Fund who obtained
their shares as part of The Cardinal Group reorganization, special procedures
for purchasing shares apply. See "Purchases by Former Cardinal Shareholders"
below.
Purchase orders must be received by the Trust by 11:00 a.m. (Eastern time) in
order for shares to be purchased that day. Payment may be made to the Trust's
custodian either by check or federal funds. Purchases made 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
Trust receives the check. Proceeds from redeemed shares purchased by check will
not be sent until the check has cleared. When payment is made with federal
funds, the order is considered received when federal funds are received by the
custodian.
Orders placed through financial institutions must be received by the financial
institution and transmitted to the Trust before 11:00 a.m. (Eastern time) in
order for shares to be purchased that day. It is the financial institution's
responsibility to transmit orders promptly; however, investors should allow
sufficient time for orderly processing and transmission.
PURCHASES BY FORMER CARDINAL SHAREHOLDERS. Shareholders of the Tax Exempt Money
Market Fund who were formerly shareholders of the Cardinal Tax Exempt Money
Market Fund at the time of its reorganization with the Fifth Third Tax Exempt
Money Market Fund, but who do not maintain a brokerage account with Fifth
Third/The Ohio Company, may purchase additional shares by calling the Trust
toll-free at (800) 282-5706 or by mailing a request to: Fifth Third Funds, P.O.
Box 5354, Cincinnati, Ohio 45201-5354. Shareholders should call the Trust for
assistance in purchasing by mail.
PURCHASES BY ALL OTHER INVESTORS. Investors other than former Cardinal Tax
Exempt Money Market Fund shareholders may purchase shares of any of the Funds of
the Trust by contacting the Trust toll-free at (888) 799-5353. Federal funds
should be wired to the Trust as follows: ABA No. 042 000 314 Fifth Third
Cincinnati; Attention: Fifth Third Funds Department; For Credit to: (shareholder
name and account number); For Further Credit to: Fifth Third (name of applicable
Fund) Fund-Investment A Shares. Investors not purchasing directly from the Trust
should consult their financial institution for wiring instructions.
ADDITIONAL INFORMATION
From time to time, shares of the Funds offered by this Prospectus may be
purchased by Fifth Third Bank or BISYS in connection with various promotions of
the Fifth Third Funds. In these cases, Fifth Third Bank or BISYS will distribute
Fund shares to existing or potential investors as an incentive to purchase such
Fund. In addition to the commission paid to dealers, the Distributor or the
Advisor may pay cash compensation to dealers in connection with sales of shares
of a Fund. In addition to the commission paid to dealers, the Distributor or
Advisor may pay cash compensation to dealers in connection with sales of shares
of a fund.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Investment A Shares of the Funds offered by
this Prospectus is $1,000. Subsequent investments must be in amounts of at least
$50.
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The minimum investment requirements do not apply with respect to accounts that
have been established to invest cash accumulations in the Funds automatically.
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
Investment A Shares are sold at the net asset value next determined after an
order is received. None of the Funds offered by this Prospectus impose any sales
charges on Investment A Shares.
CERTIFICATES AND CONFIRMATIONS
The transfer agent for the Trust 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 Investment A Shares unless cash payments are
requested by writing to the Trust. Purchase orders received by the Trust before
11:00 a.m. (Eastern time) earn dividends that day.
CAPITAL GAINS
If a 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, any of the Funds offered by this Prospectus realizes net
long-term capital gains, it will distribute them at least once every 12 months.
EXCHANGES
- -------------------------------------------------------------------------------
A shareholder may exchange Investment A Shares of any of the Funds offered by
this Prospectus for Investment A Shares of any of the Funds of the Trust,
including those not offered by this Prospectus, by calling the Trust toll-free
at (888) 799-5353 or by sending a written request to the Trust.
Shareholders of the Tax Exempt Money Market Fund who were formerly shareholders
of the Cardinal Tax Exempt Money Market Fund at the time of its reorganization
with the Fifth Third Tax Exempt Money Market Fund must open an account with
Fifth Third Securities, Inc. or Fifth Third/The Ohio Company to facilitate
exchanges. No charge will be imposed to open the account, but other transactions
not involving exchanges among Funds of the Trust may carry charges. Orders to
exchange Investment A Shares of a Fund for shares of the same class of any of
the other Funds in the Trust 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,
plus any applicable sales charge. Orders for exchanges involving any of the
Funds offered by this Prospectus must be received by the Trust prior to 11:00
a.m. (Eastern time) on any day that the Trust is open for business. Orders for
exchanges involving other Funds of the Trust must be received by 2:30 p.m.
(Eastern time). Orders received prior to the applicable cut-off time will be
executed as of the close of business that day.
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Orders for exchanges received after the applicable cut-off time on any business
day will be executed at the close of the next business day. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by the
Trust, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Investment A Shares of Funds with a sales charge may be exchanged at net asset
value for Investment A Shares of other Funds with an equal sales charge or no
sales charge. Investment A Shares of Funds with no sales charge acquired by
direct purchase or reinvestment of dividends on such shares may be exchanged for
Investment A Shares of Funds with a sales charge at net asset value, plus the
applicable sales charge. 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.
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 will be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
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Each of the Funds offered by this Prospectus redeems Investment A Shares at the
net asset value next determined after the Trust receives the redemption request.
Redemptions will be made on days on which the Fund being redeemed computes its
net asset value. Telephone or written requests for redemption must be received
in proper form and can be made through a shareholder's financial representative
or directly through the Trust. For investors who obtained shares of the Tax
Exempt Money Market Fund as part of the Cardinal Tax Exempt Money Market Fund
reorganization, special procedures apply.
Orders placed through financial institutions must be received by the financial
institution and transmitted to the Trust before 11:00 a.m. (Eastern time) in
order for shares to be redeemed that day. 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 less than $50,000 by telephone.
Shareholders of the Tax Exempt Money Market Fund who were formerly shareholders
of the Cardinal Tax Exempt Money Market Fund at the time of its reorganization
with the Fifth
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Third Tax Exempt Money Market Fund, but who do not maintain a brokerage account
with Fifth Third/The Ohio Company, may redeem shares of the Tax Exempt Money
Market Fund by calling the Trust toll-free at (800) 282-5706. All other
shareholders may redeem their shares by calling the Trust toll-free at (888)
799-5353. 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 Trust, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
For calls received by the Trust 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 15 days after a
proper request for redemption has been received, provided the Trust has received
payment for the shares being redeemed. If at any time the Trust shall determine
it necessary to terminate or modify this method of redemption, shareholders will
be promptly notified.
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
Shareholders of the Tax Exempt Money Market Fund who were formerly shareholders
of the Cardinal Tax Exempt Money Market Fund at the time of its reorganization
with the Fifth Third Tax Exempt Money Market Fund, but who do not maintain a
brokerage account with Fifth Third/The Ohio Company, may redeem shares of the
Tax Exempt Money Market Fund by sending a written request to:
Fifth Third Tax Exempt Money Market Fund Redemptions
P.O. Box 5354
Cincinnati, Ohio 45201-5354
All other shareholders may redeem shares by sending a written request to:
Fifth Third Bank
Fifth Third Funds Redemptions
M.D. 1090EC
38 Fountain Square Plaza
Cincinnati, Ohio 45263
The written request should include the shareholder's name, the Fund name and
class of shares, the account number, the share or dollar amount requested and
the proper endorsement. Shareholders should call the applicable telephone number
for assistance in redeeming by mail.
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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 Trust, 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 Trust does not accept signatures
guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT
Normally, a check for the proceeds of redemption 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 Trust has received payment
for the shares being redeemed.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000.
Before redeeming shares to close an account, the Trust will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
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VOTING RIGHTS
Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of 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 operation of the Trust or a Fund and for the election
of Trustees under certain circumstances. As of October 31, 1998, Fifth Third
Bank may for certain purposes be deemed to control several of the Funds of the
Trust because it is owner of record of more than 5% of the outstanding shares of
such Funds.
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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 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 any Fund.
In the unlikely event a shareholder 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 the applicable Fund to protect or to compensate the
shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder 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 to pay judgments against them from the assets of the applicable
Fund.
EFFECT OF BANKING LAWS
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The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956, as amended, or any affiliate thereof from sponsoring, organizing or
controlling a registered, open-end investment company continuously engaged in
the issuance of its shares, and from issuing, underwriting, selling or
distributing securities in general. Such laws and regulations do not prohibit
such a holding company or affiliate from acting as investment advisor, transfer
agent, custodian, fund accountant or dividend disbursing agent to such an
investment company or from purchasing shares of such a company as agent for and
upon the order of their customers. The investment advisor of the Funds offered
by this Prospectus, Fifth Third Bank, is subject to such banking laws and
regulations.
Fifth Third Bank believes that it may perform the investment advisory services
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 Funds
offered by this Prospectus. In such event, changes in the operation of these
Funds may occur, including the possible alteration or termination of any
automatic or other 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 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.
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TAX INFORMATION
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FEDERAL INCOME TAX
None of the Funds offered by this Prospectus will pay any federal income tax
because they each expect 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 the
Trust's other Funds, if any, will not be combined for tax purposes with those
realized by any other Fund of the Trust.
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.
ADDITIONAL TAX INFORMATION FOR GOVERNMENT CASH RESERVES FUND
The Government Cash Reserves 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 Government Cash Reserves 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 Government Cash Reserves 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.
ADDITIONAL TAX INFORMATION FOR TAX EXEMPT MONEY MARKET FUND
The Tax Exempt Money Market 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 Money Market 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 Money Market Fund will
also be treated as tax preference items in computing the alternative minimum tax
to the extent, if any, that distributions by the Fund are attributable to
interest earned it on 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 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 Money Market 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
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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 Money Market 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, include
exempt-interest dividends, received by a shareholder.
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 Money Market 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 Fund during the preceding year. 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
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From time to time, each the Funds offered by this Prospectus advertises its
yield and effective yield for Investment A Shares. The Tax Exempt Money Market
Fund may also advertise its tax-equivalent yield for Investment A Shares. The
yield of Investment A 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 A 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. The
tax-equivalent yield is calculated similarly to the yield, but is adjusted to
reflect the taxable yield that would have to be earned to equal the actual yield
of the Institutional Shares, assuming a specific tax rate. 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 A Shares after reinvesting all income distributions. It is calculated
by dividing that change by the initial investment and is expressed as a
percentage.
From time to time, advertisements for a Fund may refer to ratings, rankings, and
other information in certain financial publications and/or compare a Fund's
performance to certain indices.
24
<PAGE> 153
<TABLE>
<CAPTION>
Addresses
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Fifth Third Government Cash Reserves Fund Fifth Third Funds
Fifth Third Commercial Paper Fund c/o Fifth Third Bank
Fifth Third Tax Exempt Money Market Fund 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 Fifth Third Bank
and Sub-Administrator 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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 154
[Fifth Third Logo]
FIFTH THIRD BANK
Investment Advisor
<PAGE> 155
FIFTH THIRD FUNDS
(formerly Fountain Square Funds)
INSTITUTIONAL SHARES
(formerly Trust Shares)
Government Cash Reserves Fund
Commercial Paper Fund
[Artwork]
Tax Exempt Money Market Fund
U.S. Treasury Obligations Fund
Money Market Mutual Funds
Prospectus
November 2, 1998
[Fifth Third Logo]
<PAGE> 156
FIFTH THIRD FUNDS
(formerly Fountain Square Funds)
INSTITUTIONAL SHARES
(formerly known as Trust Shares)
PROSPECTUS
Fifth Third Funds (the "Trust") is an open-end management investment company (a
mutual fund). This Prospectus offers investors interests in Institutional Shares
of only the following separate investment portfolios (the "Funds"), each having
distinct investment objectives and policies:
o Fifth Third Government Cash Reserves Fund;
o Fifth Third Commercial Paper Fund;
o Fifth Third Tax Exempt Money Market Fund; and
o Fifth Third U.S. Treasury Obligations Fund
This Prospectus contains the information you should read and know before you
invest in Institutional Shares of any of the above Funds. Keep this Prospectus
for future reference.
Additional information about Institutional Shares of these Funds is contained in
their Combined Statement of Additional Information, dated November 2, 1998,
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 these Funds by writing to or calling
the Trust toll-free at (888) 799-5353. The Securities and Exchange Commission
maintains an Internet Website (http://www.sec.gov) that contains the Combined
Statement of Additional Information, materials incorporated by reference into
this Prospectus and into the Combined Statement of Additional Information, and
other information regarding companies that file electronically with the
Securities and Exchange Commission.
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. INVESTMENT IN THESE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE FUNDS
OFFERED BY THIS PROSPECTUS ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE; THERE CAN BE NO ASSURANCE THAT ANY OF THESE FUNDS WILL BE ABLE TO DO
SO.
THESE SECURITIES 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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated November 2, 1998
<PAGE> 157
NOTICE OF DELIVERY OF PROSPECTUSES,
SEMI-ANNUAL REPORTS AND ANNUAL REPORTS
In order to reduce expenses of the Fifth Third Funds incurred in connection with
the mailing of prospectuses, prospectus supplements, semi-annual reports and
annual reports to multiple shareholders at the same address, Fifth Third Funds
may in the future deliver one copy of a prospectus, prospectus supplement,
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, prospectus supplements, semi-annual reports and annual
reports, please call the Trust toll-free at (888) 799-5353.
<PAGE> 158
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Summary of Fund Expenses..........................................................................................1
Financial Highlights..............................................................................................3
Fifth Third Government Cash Reserves Fund-Institutional Shares...............................................3
Fifth Third Commercial Paper Fund-Institutional Shares.......................................................4
Fifth Third Tax Exempt Money Market Fund-Institutional Shares................................................5
Fifth Third U.S. Treasury Obligations Fund-Institutional Shares..............................................6
General Information...............................................................................................7
Year 2000 Risk...............................................................................................7
Objectives of the Funds...........................................................................................7
Government Cash Reserves Fund................................................................................8
Commercial Paper Fund........................................................................................9
Tax Exempt Money Market Fund................................................................................11
U.S. Treasury Obligations Fund..............................................................................14
Portfolio Investments and Strategies.............................................................................14
When-Issued and Delayed Delivery Transactions...............................................................14
Lending of Portfolio Securities.............................................................................15
Fifth Third Funds Information....................................................................................15
Management of the Trust.....................................................................................15
Distribution of Shares......................................................................................16
Payments to Financial Institutions..........................................................................16
Administration of the Trust.................................................................................16
Net Asset Value..................................................................................................17
Investing in the Funds...........................................................................................17
Share Purchases.............................................................................................17
Additional Information......................................................................................18
Minimum Investment Required.................................................................................18
What Shares Cost............................................................................................18
Certificates and Confirmations..............................................................................19
Dividends...................................................................................................19
Capital Gains...............................................................................................19
Exchanges........................................................................................................19
Redeeming Shares.................................................................................................20
Receiving Payment...........................................................................................20
Accounts with Low Balances..................................................................................20
Shareholder Information..........................................................................................21
Voting Rights...............................................................................................21
Massachusetts Law...........................................................................................21
Effect of Banking Laws...........................................................................................21
Tax Information..................................................................................................22
Federal Income Tax..........................................................................................22
Additional Tax Information for Government Cash Reserves Fund................................................22
Additional Tax Information for Tax Exempt Money Market Fund.................................................22
Performance Information..........................................................................................23
Addresses........................................................................................................25
</TABLE>
i
<PAGE> 159
SUMMARY OF FUND EXPENSES
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<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 Fund Operating Expenses
(As a percentage of average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL OPERATING
FEES (1) EXPENSES(2) EXPENSES(3)
-------- ----------- -----------
<S> <C> <C> <C>
Government Cash Reserves Fund ................ 0.40% 0.17% 0.57%
Commercial Paper Fund......................... 0.38% 0.14% 0.52%
Tax Exempt Money Market Fund ................. 0.40% 0.33% 0.73%
U.S. Treasury Obligations Fund ............... 0.26% 0.12% 0.38%
-------
</TABLE>
(1) The management fees of the Commercial Paper Fund, Tax Exempt Money
Market Fund and U.S. Treasury Obligations Fund have been reduced
to reflect the voluntary waiver of a portion of the investment
advisory fee by the investment advisor. The investment advisor can
terminate these voluntary waivers at any time in its sole
discretion. The maximum management fee for each of the Commercial
Paper Fund and U.S. Treasury Obligations Fund is 0.40%.
The maximum management fee for the Tax Exempt Money Market Fund is
0.50%.
(2) Other expenses have been reduced to reflect the voluntary waiver
of fees by the administrator. In the absence of such waivers,
other expenses for the Government Cash Reserves Fund, Commercial
Paper Fund, Tax Exempt Money Market Fund and U.S. Treasury
Obligations Fund would be 0.27%, 0.24%, 0.43% and 0.22%,
respectively.
(3) Absent the voluntary waivers by the investment advisor and the
administrator, Total Institutional Shares Operating Expenses for
the Government Cash Reserves Fund, Commercial Paper Fund, Tax
Exempt Money Market Fund and U.S. Treasury Obligations Fund would
be 0.67%, 0.64%, 0.93% and 0.62%, respectively. Expense
information for the Tax Exempt Money Market Fund is based on
estimates for the current fiscal year.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER IN INSTITUTIONAL SHARES OF EACH
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "FIFTH THIRD FUNDS INFORMATION" AND
"INVESTING IN THE FUNDS." Wire-transferred redemptions of less than $10,000 may
be subject to additional fees.
1
<PAGE> 160
EXPENSE EXAMPLES:
You would pay the following expenses on a $1,000 investment in
Institutional Shares, assuming (1) 5% annual return and (2) redemption at the
end of each time period. Institutional Shares have no sales load (charge) or
redemption fees.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Cash Reserves Fund.......... $ 6 $ 18 $ 32 $ 71
Commercial Paper Fund.................. $ 5 $ 17 $ 29 $ 65
Tax Exempt Money Market Fund........... $ 7 $ 23 $ 41 $ 91
U.S. Treasury Obligations Fund ........ $ 4 $ 12 $ 21 $ 48
</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> 161
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD GOVERNMENT CASH RESERVES FUND-INSTITUTIONAL 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 24, 1998 on the Trust's
financial statements is included in the Fountain Square Funds Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Trust's financial statements and the notes thereto, which may be
obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992*
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income.................. 0.05 0.05 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) (0.05) (0.03) (0.03) (0.04)
----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== =====
Total return........................... 5.13% 5.01% 5.11% 5.22% 3.03% 2.76% 4.19%
Ratios to Average Net Assets:
Expenses............................ 0.52% 0.51% 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income............... 5.02% 4.90% 4.99% 5.17% 3.01% 3.22% 4.14%
Expense waiver/reimbursement (a).... 0.12% 0.09% 0.07% 0.20% 0.13% 0.15% 0.15%
Supplemental data:
Net assets, end of period (000)..... $221,034 $162,543 $132,326 $129,603 $106,632 $92,993 $82,888
</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.
(See Notes which are an integral part of the Financial Statements)
3
<PAGE> 162
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD COMMERCIAL PAPER FUND-INSTITUTIONAL 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 24, 1998 on the Trust's
financial statements is included in the Fountain Square Funds Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Trust's financial statements and the notes thereto, which may be
obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.. $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Income from investment operations:
Net investment income................. 0.05 0.05 0.05 0.05 0.03
Less distributions:
Dividends to shareholders from net
investment income.................. (0.05) (0.05) (0.05) (0.05) (0.03)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD........ $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total return.......................... 5.25% 5.11% 5.20% 5.25% 3.02%
Ratios to Average Net Assets:
Expenses........................... 0.52% 0.52% 0.49% 0.49% 0.49%
Net investment income.............. 5.13% 4.99% 5.07% 5.12% 2.97%
Expense waiver/reimbursement (a)... 0.12% 0.09% 0.08% 0.09% 0.10%
Supplemental data:
Net assets, end of period (000).... $368,348 $341,827 $300,821 $223,640 $213,126
YEAR ENDED JULY 31,
------------------------------------------------------
1993 1992 1991 1990 1989*
---- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF PERIOD.. $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Income from investment operations:
Net investment income................. 0.03 0.04 0.07 0.08 0.01
Less distributions:
Dividends to shareholders from net
investment income.................. (0.03) (0.04) (0.07) (0.08) (0.01)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD........ $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total return.......................... 2.78% 4.27% 6.89% 8.22% 1.19%
Ratios to Average Net Assets:
Expenses........................... 0.48% 0.46% 0.50% 0.53% 0.45%
Net investment income.............. 2.75% 4.19% 6.61% 7.86% 8.95%
Expense waiver/reimbursement (a)... 0.12% 0.14% 0.14% 0.16% 0.35%
Supplemental data:
Net assets, end of period (000).... $180,065 $194,308 $213,889 $174,727 $62,225
</TABLE>
- -------
* Reflects operations for the period from June 14, 1989 (date of initial
public offering) to July 31, 1989.
(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> 163
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD TAX EXEMPT MONEY MARKET FUND-INSTITUTIONAL SHARES
(For a share outstanding throughout each period)
On September 21, 1998, holders of a single class of shares of the Cardinal Tax
Exempt Money Market Fund exchanged their shares for either Investment A Shares
or Institutional Shares of the Fifth Third Tax Exempt Money Market Fund
(formerly known as the Fountain Square Tax Exempt Money Market Fund). The
following table illustrating the historical performance of that class of shares
for the fiscal year ended September 30, 1998, has been audited by Ernst & Young
LLP, the Trust's independent auditors. Prior periods shown were audited by KPMG
Peat Marwick LLP. The report of Ernst & Young LLP, dated October 28, 1998, on
the financial statements of the Fountain Square Tax Exempt Money Market Fund,
for the year ended September 30, 1998, is included in the Combined Statement of
Additional Information, which is incorporated by reference. This table should be
read in conjunction with the Fund's financial statements and the notes thereto,
which may be obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------------
1998* 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income............... 0.0 0.03 0.03 0.03 0.02 0.02 0.03 0.04 0.05 0.06
Less distributions:
Dividends to shareholders from net
investment income................ (0.0) (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.04) (0.05) (0.06)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD...... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return........................ 2.74% 2.72% 2.63% 3.02% 1.78% 1.81% 2.62% 4.40% 5.41% 5.95%
Ratios to Average Net Assets:
Expenses......................... 0.63% 0.80% 0.89% 0.83% 0.76% 0.77% 0.76% 0.72% 0.76% 0.72%
Net investment income............ 3.09% 2.79% 2.66% 2.99% 1.78% 1.80% 2.59% 4.31% 5.26% 5.79%
Supplemental data:
Net assets, end of period (000).. $7,953 $60,284 $59,915 $64,780 $80,531 $91,159 $70,054 $85,488 $82,988 $82,031
</TABLE>
- -------
* Reflects operations for the period form September 21, 1998 (date of
commencement of operations) to September 30, 1998.
(a) Represents total return based on the activity of Investment A Shares for
the period from October 1, 1997 to September 20, 1998 and the activity of
the Institutional Shares for the period from September 21, 1998 to
September 30, 1998. Total return for the Institutional Shares for the
period from September 21, 1998 (commencement of operations) to September
30, 1998 was 3.16% annualized.
(b) Annualized.
(See Notes which are an integral part of the Financial Statements)
5
<PAGE> 164
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FIFTH THIRD U.S. TREASURY OBLIGATIONS FUND-INSTITUTIONAL 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 24, 1998 on the Trust's
financial statements is included in the Fountain Square Funds Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Trust's financial statements and the notes thereto, which may be
obtained from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.. $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Income from investment operations:
Net investment income................. 0.05 0.05 0.05 0.05 0.03
Less distributions:
Dividends to shareholders from net
investment income.................. (0.05) (0.05) (0.05) (0.05) (0.03)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD........ $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total return.......................... 5.31% 5.11% 5.24% 5.18% 3.02%
Ratios to Average Net Assets:
Expenses........................... 0.38% 0.42% 0.43% 0.44% 0.44%
Net investment income.............. 5.19% 5.00% 5.10% 5.07% 2.99%
Expense waiver/reimbursement (a)... 0.24% 0.17% 0.12% 0.11% 0.14%
Supplemental data:
Net assets, end of period (000).... $876,089 $539,087 $489,228 $321,640 $336,229
YEAR ENDED JULY 31,
----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF PERIOD.. $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Income from investment operations:
Net investment income................. 0.03 0.04 0.07 0.08 0.06
Less distributions:
Dividends to shareholders from net
investment income.................. (0.03) (0.04) (0.07) (0.08) (0.06)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD........ $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total return.......................... 2.82% 4.32% 6.74% 8.15% 5.65%
Ratios to Average Net Assets:
Expenses........................... 0.44% 0.45% 0.49% 0.54% 0.56%
Net investment income.............. 2.79% 4.18% 6.33% 7.84% 8.71%
Expense waiver/reimbursement (a)... 0.15% 0.15% 0.15% 0.15% 0.15%
Supplemental data:
Net assets, end of period (000)... $290,408 $339,924 $242,247 $138,368 $141,743
</TABLE>
- ------
* Reflects operations for the period from December 1, 1989 (date of initial
public offering) to July 31, 1989.
(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)
6
<PAGE> 165
GENERAL INFORMATION
- -------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. This Prospectus relates only to Institutional
Shares of the Funds described herein. These Funds are intended to provide a
convenient means of accumulating interests in professionally managed portfolios.
For information on how to purchase Institutional Shares of any of the Funds
offered by this Prospectus, please refer to "Investing in the Funds."
Institutional Shares are only offered to: clients of Fifth Third Bank who make
purchases through the Trust Department; qualified employee benefit plans under
the Internal Revenue Code, subject to minimum requirements which may be
established by the distributor with respect to the number of employees or amount
of purchase; 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.
A minimum initial investment of $1,000 is required for each Fund offered by this
Prospectus. Subsequent investments must be in amounts of at least $50. Each of
the Funds offered by this Prospectus attempts to stabilize the value of its
shares at $1.00. Shares are currently sold and redeemed at that price.
Information on redeeming shares may be found under "Redeeming Shares." Each of
the Funds offered by this Prospectus is advised by Fifth Third Bank ("Fifth
Third Bank" or the "Advisor").
YEAR 2000 RISK
Investors should be aware that, like other mutual funds and financial and
business organizations around the world, each of the Funds offered by this
Prospectus could be adversely impacted if the computer systems used by Fifth
Third Bank, BISYS Fund Services L.P. ("BISYS") or other service providers and
entities with computer systems that are linked to Fund records do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as "Year 2000 Risk." Fifth Third Bank and BISYS
are taking steps that they believe are reasonably designed to address Year 2000
Risk with respect to their computer systems and to obtain satisfactory
assurances that comparable steps are being taken by each of the Trust's other
service providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Funds.
OBJECTIVES OF THE FUNDS
- -------------------------------------------------------------------------------
The investment objectives and policies of each Fund offered by this Prospectus
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 without the approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
7
<PAGE> 166
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 Prospectus and in the
Combined Statement of Additional Information.
GOVERNMENT CASH RESERVES FUND
The investment objective of the Government Cash Reserves Fund is high current
income consistent with stability of principal and liquidity. 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;
o notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as: Federal Farm Credit Banks, Federal Home
Loan Banks and the Student Loan Marketing Association; and
o repurchase agreements collateralized by securities listed above.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U S. government will provide financial support
to other agencies or instrumentalities since it is not obligated to do so. These
agencies and instrumentalities are supported by:
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.
INVESTMENT LIMITATIONS. The Government Cash Reserves 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.
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COMMERCIAL PAPER FUND
The investment objective of the Commercial Paper Fund is current income
consistent with stability of principal. The Fund pursues this investment
objective by investing exclusively in a portfolio of money market instruments
maturing in 13 months or less, with at least 65% of its total assets invested in
commercial paper. The average maturity of the money market instruments in the
Fund's portfolio, computed on a dollar weighted basis, will be 90 days or less.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
nationally recognized statistical rating organizations ("NRSROs") or that are of
comparable quality to securities having such ratings. Examples of these
instruments include, but are not limited to:
o domestic issues of corporate debt obligations, including variable rate
demand notes;
o commercial paper (including Canadian Commercial Paper and Europaper);
o certificates of deposit, demand and time deposits, bankers' acceptances and
other instruments issued by domestic and foreign banks and other deposit
institutions ("Bank Instruments");
o short-term credit facilities, such as demand notes;
o obligations issued or guaranteed as to payment of principal and interest by
the U.S. government or one of its agencies or instrumentalities
("Government Securities"); and
o other money market instruments.
The Fund invests only in instruments denominated and payable in U.S. dollars.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term corporate
debt instruments that have variable or floating interest rates and provide the
Fund with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at par. The interest
rate may float or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on a published interest rate or interest rate
index. Most variable rate demand notes allow the Fund to demand the repurchase
of the security on not more than seven days' prior notice. Other notes only
permit the Fund to tender the security at the time of each interest rate
adjustment or at other fixed intervals. See "Demand Features." The Fund treats
variable rate demand notes as maturing on the later of the date of the next
interest adjustment or the date on which the Fund may next tender the security
for repurchase. The Staff of the Securities and Exchange Commission has taken
the position that variable rate demand notes are not commercial paper; although
the Fund disagrees with this determination, variable rate demand notes will not
be included in the 65% of Fund assets which will be invested in commercial
paper. In the event that the Staff of the Securities and Exchange Commission
changes its position on this matter, the Fund may include variable rate demand
notes in the 65% minimum commercial paper investment without notifying
shareholders.
BANK INSTRUMENTS. The Fund only invests in bank instruments either issued by an
institution having capital, surplus and undivided profits over $100 million or
insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance
Fund ("SAIF"). Bank Instruments may include Eurodollar Certificates of Deposit
("ECDs"), Yankee Certificates of Deposit ("Yankee CDS") and Eurodollar Time
Deposits ("ETDs"). The Fund will treat securities credit enhanced by a bank's
letter of credit as bank instruments.
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ECDs, ETDs, Yankee CDS, and Europaper are subject to different risks than
domestic obligations of domestic banks or corporations. Examples of these risks
include international, economic and political developments, foreign governmental
restrictions that may adversely affect the payment of principal or interest,
foreign withholdings or other taxes on interest income, difficulties in
obtaining or enforcing a judgment against the issuing entity, and the possible
impact of interruptions in the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDS because the banks
issuing these instruments, or their domestic or foreign branches, are not
necessarily subject to the same regulatory requirements that apply to domestic
banks, such as reserve requirements, loan limitations, examinations, accounting,
auditing, record keeping, and the public availability of information. These
factors will be carefully considered by the Fund's advisor in selecting
investments for the Fund.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing arrangements
between a corporation and an institutional lender (such as the Fund) payable
upon demand by either party. The notice period for demand typically ranges from
one to seven days, and the party may demand full or partial payment. The Fund
may also enter into, or acquire participation in, short-term revolving credit
facilities with corporate borrowers. Demand notes and other short-term credit
arrangements usually provide for floating or variable rates of interest.
RATINGS. An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 or A-1+ by
Standard & Poor's Ratings Group ("S&P"), Prime-1 by Moody's Investors Service,
Inc. ("Moody's"), or F-1 (+ or -) by Fitch Investors Service, Inc. ("Fitch") are
all considered rated in the highest short-term rating category. The Fund will
follow applicable regulations in determining whether a security rated by more
than one NRSRO can be treated as being in the highest short-term rating
category; currently such securities must be rated by two NRSROs in their highest
rating category. See "Regulatory Compliance."
CREDIT ENHANCEMENT. The Fund may acquire securities that have been credit
enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. Generally, the Fund
will not treat credit enhanced securities as having been issued by the credit
enhancer for diversification purposes. However, under certain circumstances,
applicable regulations may require the Fund to treat the securities as having
been issued by both the issuer and the credit enhancer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree
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at the time of sale to repurchase them at a mutually agreed upon time and price
within one year from the date of acquisition.
CONCENTRATION OF INVESTMENTS. The Fund will invest at least 65% of its total
assets in commercial paper and in excess of 25% of the Fund's assets will be
comprised of commercial paper issued by finance companies unless the Fund is in
a temporary defensive position as a result of economic conditions. Concentration
of the Fund's portfolio in such obligations may entail additional risks which
are not encountered by funds with more diversified portfolios.
INVESTMENT LIMITATIONS. The Commercial Paper Fund will not borrow money except,
under certain circumstances, the Fund may borrow up to one-third of the value of
its total assets. With respect to 75% of the value of its total assets the Fund
will not invest more than 5% of its total assets in securities of one issuer
(except repurchase agreements collateralized by U.S. government securities and
U.S. government obligations). The remaining 25% of its total assets may be
invested in a single issuer if the Advisor believes such a strategy to be
prudent.
The above investment limitations cannot be changed without shareholder approval.
As a matter of investment practice, which can be changed by the Trustees without
shareholder approval, the Fund will not invest more than 10% of its net assets
in securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
REGULATORY COMPLIANCE. The Fund may follow non-fundamental operational policies
that are more restrictive than its fundamental investment limitations, as set
forth in this Prospectus and the Combined Statement of Additional Information,
in order to comply with applicable laws and regulations, including the
provisions of and regulations under the Investment Company Act of 1940, as
amended. In particular, the Fund will comply with the various requirements of
Rule 2a-7, which regulates money market mutual funds. For example, with limited
exceptions, Rule 2a-7 prohibits the investment of more than 5% of the Fund's
total assets in the securities of any one issuer, although the Fund's investment
limitation only requires such 5% diversification with respect to 75% of its
assets. The Fund will invest more than 5% of its assets in any one issuer only
under circumstances permitted by Rule 2a-7. The Fund will also determine the
effective maturity of its investments, as well as its ability to consider a
security as having received the requisite short-term ratings by NRSROs,
according to Rule 2a-7. The Fund may change these operational policies to
reflect changes in the laws and regulations without the approval of its
shareholders.
TAX EXEMPT MONEY MARKET FUND
The investment objective of the Tax Exempt Money Market Fund is to maximize
current income, exempt from federal income tax, while preserving capital and
maintaining liquidity. The Fund pursues its investment objective by investing in
a portfolio of high-grade short-term municipal bonds and notes, tax-exempt
commercial paper and tax-exempt short-term discount notes. The average maturity
of securities in the Fund's portfolio, computed on a dollar-weighted basis, will
be 90 days or less. Under normal market conditions, the Fund will invest 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 not treated as
a preference item for purposes of the federal alternative minimum tax.
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ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are:
o debt obligations of any state, territory or possession of the United
States, including the District of Columbia, or any political subdivision,
authority, agency or instrumentality of any of these, which have, or are
deemed to have, remaining maturities of 397 calendar days or less;
o participation interests, as described below, in any of the above
obligations; and
o bond anticipation notes, construction loan notes, project notes, revenue
anticipation notes and tax anticipation notes.
CHARACTERISTICS. The municipal securities which the Fund buys are rated in one
of the two highest rating categories by an NRSRO for short-term tax-exempt
securities, or, if not rated, are deemed by Fifth Third Bank to be of comparable
quality. Downgrades will be evaluated on a case by case basis by Fifth Third
Bank. Fifth Third Bank 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.
VARIABLE RATE DEMAND MUNICIPAL SECURITIES. The Fund intends to invest more than
25% of its assets in certain variable rate demand municipal securities,
including participation interests therein. 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 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 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.
Variable interest rates are normally based on a published interest rate or
interest rate index or similar standard, such as the 91-day U.S. Treasury bill
rate. Fifth Third Bank will monitor the pricing, quality, and liquidity of the
variable rate demand 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.
Variable rate demand municipal securities may be considered to be derivative
securities. A derivative security 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 Fund has no limit as to the percentage of its total assets that may be
invested in variable rate demand municipal securities.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings and loan associations,
and insurance companies. Participation interests in which the Fund invests will
have a demand feature which permits the Fund to demand payment from the seller
of the principal amount of the Fund's participation plus accrued interest
thereon. This demand feature will often be supported by a letter of credit or
comparable guarantee provided by the selling financial institution.
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
foregoing.
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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
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.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price within one year from the date of acquisition. Use of
repurchase agreements may cause the Fund to earn income which would be taxable
to its shareholders.
TEMPORARY INVESTMENTS. For defensive purposes only, and in such amounts up to
100% of total assets as Fifth Third Bank in its judgment believes market
conditions warrant, the Fund may also temporarily invest in the following types
of taxable money market securities:
o money market instruments consisting of marketable obligations issued or
guaranteed by the U.S; government, its agencies or instrumentalities;
o deposit obligations of banks and savings and loan associations which are
members of the Federal Deposit Insurance Corporation;
o bankers' acceptances;
o high-grade commercial paper guaranteed or issued by domestic corporations;
and
o repurchase agreements secured by any of the above.
INVESTMENT COMPANIES. In addition, the Fund may purchase shares of other
investment companies, primarily for the purpose of investing short-term cash on
a temporary basis. Investment in shares of other investment companies may
subject the Fund to additional or duplicative fees and expenses.
INVESTMENT LIMITATIONS. The Tax Exempt Money Market Fund will not borrow money
directly or through reverse repurchase agreements (arrangements in which the
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, 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. With respect to 75% of the value of
total assets, the 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
U.S. government or its agencies or instrumentalities and repurchase agreements
collateralized by U.S. government securities. The Fund will not purchase
securities if, as a result of such purchase, 25% or more of the value of its
total assets would be invested in any one industry; provided
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that, this limitation shall not apply to industrial development bonds or other
securities, the interest upon which is paid from revenues of similar types of
projects, securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, or variable rate demand municipal securities supported by
letters of credit or guarantees.
The above investment limitations cannot be changed without shareholder approval.
Compliance with the investment limitations of the Fund is subject to the
provisions of Rule 2a-7 under the Investment Company Act of 1940, as amended.
The following limitation 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.
Other investment limitations of the Fund are described in the Combined Statement
of Additional Information.
U.S. TREASURY OBLIGATIONS FUND
The investment objective of the U.S. Treasury Obligations Fund is stability of
principal and current income consistent with stability of principal. The Fund
pursues its investment objective by investing in a portfolio consisting
exclusively of short-term U.S. Treasury obligations. The average maturity of the
Fund's portfolio, computed on a dollar weighted basis, will be 120 days or less.
As a matter of operating policy, the Fund will limit the average maturity of its
portfolio to 90 days or less, in order to meet current regulatory requirements.
ACCEPTABLE INVESTMENTS. The short-term U.S. Treasury obligations in which the
Fund invests are issued by the U.S. government and are fully guaranteed as to
principal and interest by the United States. All U.S. Treasury obligations in
which the Fund invests mature in one year or less from the date of acquisition
unless they are purchased under a repurchase agreement that provides for
repurchase by the seller within one year from the date of acquisition. The Fund
may also retain Fund assets in cash.
REPURCHASE AGREEMENTS. The Fund may invest in U.S. Treasury obligations pursuant
to repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers and other recognized financial institutions sell U.S. Treasury
obligations to the Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price within one year from the date of
acquisition.
INVESTMENT LIMITATIONS. As a matter of investment practice, which can be changed
without shareholder approval, repurchase agreements providing for settlement in
more than seven days after notice, along with illiquid obligations, will be
limited to not more than 10% of the Fund's net assets.
PORTFOLIO INVESTMENTS AND STRATEGIES
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WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Fund offered by this Prospectus may purchase securities on a when-issued or
delayed delivery basis. 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. Settlement dates may be a month or more
after entering into these transactions,
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and the market values of the securities purchased may vary from the purchase
prices. Accordingly, a Fund may pay more or 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 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, each of the Funds offered by this
Prospectus with the exception of the U.S. Treasury Obligations Fund may lend its
portfolio securities, in an amount up to one-third of the value of its total
assets, on a short-term or long-term basis to broker/dealers, banks, or other
institutional borrowers of securities. A 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 Trustees and
will receive collateral 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 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 would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending court
action.
FIFTH THIRD FUNDS INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all of
the Trust's powers except those reserved for the shareholders.
INVESTMENT ADVISOR. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Funds offered by this Prospectus are made by Fifth
Third Bank, subject to direction by the Trustees. Fifth Third Bank continually
conducts investment research and supervision for the Funds offered by this
Prospectus and is responsible for the purchase or sale of portfolio instruments,
for which it receives an annual fee from these Funds.
ADVISORY FEES. Fifth Third Bank receives an investment advisory fee at annual
rates equal to the percentages of the relevant Fund's average daily net assets
as follows: Government Cash Reserves Fund, Commercial Paper Fund and U.S.
Treasury Obligations Fund-0.40%; and Tax Exempt Money Market Fund-0.50%. Fifth
Third Bank may voluntarily choose to waive a portion of its fees or reimburse
other expenses of a Fund, but reserves the right to terminate such waiver or
reimbursement at any time in 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 September 30, 1998, Fifth
Third Bank and its affiliates managed assets in excess of $15 billion on a
discretionary basis and provided custody services for additional assets in
excess of $119 billion. Fifth Third Bank has managed mutual funds since 1988.
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Fifth Third Bank has managed pools of commingled funds since 1953. As of
September 30, 1998, Fifth Third Investment Advisors, a division of Fifth Third
Bank mutual funds since 1998, managed six such pools with total assets of over
$355 million.
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.
DISTRIBUTION OF SHARES
BISYS serves as the distributor for the Trust. BISYS 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.
PAYMENTS TO FINANCIAL INSTITUTIONS
BISYS Fund Services, Fifth Third Bank or their affiliates may offer to pay a fee
from their own assets to financial institutions supplemental fees for the
performance of sales services, distribution-related support services, or
shareholder and administrative services. 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 BISYS Fund Services may be reimbursed by Fifth Third Bank 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 TRUST
ADMINISTRATIVE SERVICES. BISYS serves as the administrator of the Trust. 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 provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
------------------ -----------------------
0.20% of the first $1 billion
0.18% of the next $1 billion
0.17% in excess of $2 billion
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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, Fifth Third Bank performs
sub-administrative services on behalf of each Fund including providing certain
administrative personnel and services necessary to operate the Funds for which
it receives a fee from BISYS computed daily and paid periodically calculated at
an annual rate of 0.025% of average aggregate daily net assets of the Trust.
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 Trust are Ernst & Young
LLP, Cincinnati, Ohio.
NET ASSET VALUE
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Each of the Funds offered by this Prospectus attempts to stabilize the net asset
value of its shares at $1.00 by valuing the portfolio securities using the
amortized cost method. The net asset value per share for each Institutional
Share of a Fund is determined by adding the interest of the Institutional Shares
in the assets of such Fund, subtracting the specific liabilities attributable to
Institutional Shares and the interest of Institutional Shares in the general
liabilities of the Fund, and dividing the remainder by the number of
Institutional Shares outstanding. None of the Funds offered by this Prospectus
can guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined as of the close of trading on the New York
Stock Exchange, normally 4:00 p.m. (Eastern time), Monday through Friday, except
on: (i) 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; (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.
INVESTING IN THE FUNDS
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Each of the Government Cash Reserves Fund, Commercial Paper Fund and Tax Exempt
Money Market Fund issues two classes of shares: Institutional Shares and
Investment A Shares. A separate prospectus for Investment A Shares of these
Funds can be obtained by contacting the Trust. Investment A Shares are subject
to different levels of expenses than Institutional Shares.
SHARE PURCHASES
Institutional 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 Institutional Shares, the distributor may, from time to time, offer
certain items of nominal value to any shareholder or investor. The Trust
reserves the right to reject any purchase request. Purchases of Institutional
Shares may not be available to investors in all states.
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Institutional Shares of the Funds offered by this Prospectus may be purchased
either through: the Trust Department of Fifth Third Bank; qualified employee
retirement plans under the Internal Revenue Code, subject to minimum
requirements which may be established by the distributor with respect to the
number of employees or amount of purchase; or broker-dealers, investment
advisors, financial planners or other financial institutions who place trades
for their own account or the accounts of their clients for a management,
consulting or other fee.
Purchase orders must be received by the Trust by 11:00 a.m. (Eastern time) in
order for Institutional Shares to be purchased at that day's price. Orders
placed through financial institutions must be transmitted to the Trust before
11:00 a.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.
Payment may be made to the Trust's custodian either by check or by 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 Trust receives the check. Proceeds from redeemed
shares purchased by check will not be sent until the check has cleared. 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 Trust as follows: ABA No. 042 000 314 Fifth Third Cincinnati; Attention:
Fifth Third Funds Department; For Credit to: (shareholder's name and account
number); For Further Credit to: Fifth Third (name of applicable Fund)
Fund-Institutional Shares. Investors should consult their financial institutions
for wiring instructions.
ADDITIONAL INFORMATION
From time to time, shares of the Funds offered by this Prospectus may be
purchased by Fifth Third Bank or BISYS in connection with various promotions of
the Fifth Third Funds. In these cases, Fifth Third Bank or BISYS will distribute
Fund shares to existing or potential investors as an incentive to purchase such
Fund.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Institutional Shares of the Funds offered by
this Prospectus 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 Fifth Third Funds.
The minimum investment requirements do not apply with respect to accounts that
have been established to invest cash accumulations in the Funds automatically.
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
Institutional Shares are sold at their net asset value next determined after an
order is received. No sales charge is imposed on Institutional Shares.
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CERTIFICATES AND CONFIRMATIONS
The transfer agent for the Trust 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 Institutional Shares unless cash payments are
requested by writing to the Trust. Purchase orders received by the Trust before
11:00 a.m. (Eastern time) earn dividends that day.
CAPITAL GAINS
If a 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, any of the Funds offered by this Prospectus realizes net
long-term capital gains, it will distribute them at least once every 12 months.
EXCHANGES
- -------------------------------------------------------------------------------
Shareholders may exchange Institutional Shares of any of the Funds offered by
this Prospectus for Institutional Shares of any of the Funds in the Trust,
including those not offered by this Prospectus, by contacting the financial
institution responsible for the account. Telephone exchange instructions may be
recorded. If reasonable procedures are not followed by the Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
Orders to exchange Institutional Shares of one Fund for Institutional Shares of
any of the other Funds of the Trust will be executed by redeeming the shares
owned at net asset value and purchasing Institutional Shares of the other Funds
at the net asset value next determined after the exchange request is received.
Orders for exchanges involving any of the Funds offered by this Prospectus must
be received by the Trust prior to 11:00 a.m. (Eastern time) on any day that the
Trust is open for business. Orders for exchanges involving the non-money market
Funds of the Trust must be received by 2:30 p.m. (Eastern time). Orders which
are received prior to the applicable cut-off time will be executed as of the
close of business that day. Orders received after the applicable cut-off time
will be executed at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time.
Shareholders will 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.
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The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
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Each of the Funds offered by this Prospectus redeems Institutional Shares at the
net asset value next determined after the Trust receives the redemption request.
Redemptions will be made on days on which the Fund being redeemed computes its
net asset value. Requests for redemption must be received in proper form as
described below and must be made through a shareholder's financial
representative. Orders must be received by the financial institution and
transmitted to the Trust before 11:00 a.m. (Eastern time) in order for shares to
be redeemed at that day's price. It is the financial institution's
responsibility to transmit such orders promptly; however, investors should allow
sufficient time for orderly processing and transmission.
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:
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 in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust 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 Trust has received payment for shares
from the shareholder.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000.
Before redeeming shares to close an account, the Trust will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
shares to meet the minimum requirement.
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SHAREHOLDER INFORMATION
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VOTING RIGHTS
Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of 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 operation of the Trust or a Fund and for the election
of Trustees under certain circumstances. As of October 31, 1998, Fifth Third
Bank may for certain purposes be deemed to control several of the Funds of the
Trust because it is owner of record of more than 5% of the outstanding shares of
such 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 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 any Fund.
In the unlikely event a shareholder 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 the applicable 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 to pay judgments against them from the assets of
the applicable 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 investment advisor of the Funds offered
by this Prospectus, 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
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 Funds
offered by this Prospectus. In such event, changes in the operation of these
Funds may occur, including the possible alteration or termination of any
automatic or other 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 shareholders would suffer any adverse financial consequences (if
another advisor with equivalent abilities to Fifth Third Bank is found) as a
result of any of these occurrences.
TAX INFORMATION
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FEDERAL INCOME TAX
None of the Funds offered by this Prospectus will pay any federal income tax
because they each expect 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 the
Trust's other Funds, if any, will not be combined for tax purposes with those
realized by any other Fund of the Trust.
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.
ADDITIONAL TAX INFORMATION FOR GOVERNMENT CASH RESERVES FUND
The Government Cash Reserves 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 Government Cash Reserves 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 Government Cash Reserves 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.
ADDITIONAL TAX INFORMATION FOR TAX EXEMPT MONEY MARKET FUND
The Tax Exempt Money Market 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 Money Market Fund and will be excluded from
gross income for federal income tax purposes. However, interest excluded from
gross
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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 Money Market Fund will
also be treated as tax preference items in computing the alternative minimum tax
to the extent, if any, that distributions by the Fund are attributable to
interest earned it on 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 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 Money Market 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 Money Market 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, include
exempt-interest dividends, received by a shareholder.
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 Money Market 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 Fund during the preceding year. 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, each of the Funds offered by this Prospectus advertises its
yield and effective yield for Institutional Shares. The Tax Exempt Money Market
Fund may also advertise its tax-equivalent yield. The yield of the Institutional
Shares of a Fund represents the annualized rate of income earned on an
investment in such Fund over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in the Institutional Shares of a
Fund is assumed to be reinvested daily. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the actual yield of the Institutional Shares of a Fund, assuming a specific tax
rate.
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Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Institutional Shares of a Fund after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
From time to time, advertisements for a Fund may refer to ratings, rankings, and
other information in certain financial publications and/or compare the
performance of a Fund to certain indices.
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ADDRESSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Fifth Third Government Cash Reserves Fund Fifth Third Funds
Fifth Third Commercial Paper Fund c/o Fifth Third Bank
Fifth Third Tax Exempt Money Market Fund 38 Fountain Square Plaza
Fifth Third U.S. Treasury Obligations Fund 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
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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[BACK COVER]
[Fifth Third Logo]
FIFTH THIRD BANK
Investment Advisor
<PAGE> 185
FIFTH THIRD FUNDS
(formerly Fountain Square Funds)
INVESTMENT A SHARES
INVESTMENT C SHARES
INSTITUTIONAL SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information relates only to the following
portfolios (the "Funds") of Fifth Third Funds (the "Trust"):
o Fifth Third Quality Growth Fund;
o Fifth Third Equity Income Fund;
o Fifth Third Cardinal Fund;
o Fifth Third Pinnacle Fund;
o Fifth Third Balanced Fund;
o Fifth Third Mid Cap Fund;
o Fifth Third International Equity Fund;
o Fifth Third Bond Fund For Income;
o Fifth Third Quality Bond Fund;
o Fifth Third U.S. Government Securities Fund;
o Fifth Third Municipal Bond Fund; and
o Fifth Third Ohio Tax Free Bond Fund
This Combined Statement of Additional Information should be read with the
applicable share class Prospectus for the Funds dated November 2, 1998. This
Statement is not a prospectus itself. To receive a copy of the appropriate
Prospectus, please write the Trust or call toll-free (888) 799-5353.
FIFTH THIRD FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
November 2, 1998
<PAGE> 186
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
General Information About the Trust............................................1
Investment Objectives and Policies of the Funds................................1
Types of Investments......................................................1
Lending of Portfolio Securities..........................................12
Restricted and Illiquid Securities.......................................12
Portfolio Turnover.......................................................13
Fundamental Investment Limitations.......................................14
Other Investment Limitations.............................................15
Fifth Third Funds Management..................................................17
Officers and Trustees....................................................17
Trust Ownership..........................................................18
Trustees' Compensation...................................................19
Trustee Liability........................................................19
Investment Advisory Services..................................................19
Advisors 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.............................................................24
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.........................................................................29
Tax-Equivalent Yield..........................................................29
Tax Equivalency Table....................................................29
Performance Comparisons.......................................................32
Financial Statements..........................................................35
Appendix A -- Description of Bond Ratings.....................................36
Appendix B -- Financial Statements of the Fifth Third Funds
(Cardinal Fund and Tax Exempt Money Market Fund).........................39
i
<PAGE> 187
GENERAL INFORMATION ABOUT THE TRUST
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The name of the Trust was changed, effective
November 1, 1998, from Fountain Square funds to Fifth Third Funds. This Combined
Statement of Additional Information relates only to Investment A Shares,
Investment C Shares and Institutional Shares of the following Funds: Fifth Third
Quality Growth Fund ("Quality Growth Fund"), Fifth Third Equity Income Fund
("Equity Income Fund"), Fifth Third Cardinal Fund ("Cardinal Fund"), Fifth Third
Pinnacle Fund ("Pinnacle Fund"), Fifth Third Balanced Fund ("Balanced Fund"),
Fifth Third Mid Cap Fund ("Mid Cap Fund"), Fifth Third International Equity Fund
("International Equity Fund"), Fifth Third Bond Fund For Income ("Bond Fund For
Income"), Fifth Third Quality Bond Fund ("Quality Bond Fund"), Fifth Third U.S.
Government Securities Fund ("Government Securities Fund"), Fifth Third Municipal
Bond Fund ("Municipal Bond Fund"), and Fifth Third Ohio Tax Free Bond Fund
("Ohio Tax Free Bond Fund").
All of the Funds described herein except the Pinnacle Fund are advised by Fifth
Third Bank ("Fifth Third Bank"). The Pinnacle Fund is advised by Heartland
Capital Management, Inc. ("Heartland"), a wholly-owned subsidiary of Fifth Third
Bancorp., the parent of Fifth Third Bank. The International Equity Fund is sub-
advised by Morgan Stanley Asset Management, Inc. ("MSAM"). Fifth Third Bank,
Heartland and MSAM may be referred to individually as the "Advisor," or
collectively as the "Advisors."
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
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The Prospectuses for the Funds discuss the objectives of each Fund and the
policies employed to achieve those objectives. The following discussion
supplements the description of the Funds' investment policies in the
Prospectuses. 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 without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
TYPES OF INVESTMENTS
BANK INSTRUMENTS. The Quality Growth Fund, Equity Income fund, Cardinal Fund,
Pinnacle Fund, Balanced Fund, Mid Cap Fund, Bond Fund For Income, Quality Bond
Fund 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 described herein (except the
Ohio Tax Free Bond Fund, the Municipal Bond Fund and the Pinnacle Fund) may
engage in futures and options transactions as described below to the extent
consistent with their investment objectives and policies.
As a means of reducing fluctuations in the net asset value of shares of a Fund,
a Fund may attempt to hedge all or a portion of its portfolio through the
purchase of put options on portfolio securities and put options on financial
futures contracts for portfolio securities. A Fund may attempt to hedge all or a
portion of its portfolio
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<PAGE> 188
by buying and selling financial futures contracts and writing call options on
futures contracts. A Fund may also write covered call options on portfolio
securities to attempt to increase current income.
A Fund will maintain its 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. All of the Funds described herein (with the
exception of the Ohio Tax Free Bond Fund, the Municipal Bond Fund and
the Pinnacle Fund) may enter into futures contracts. A futures contract
is a firm commitment by two parties, the seller who agrees to make
delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the
security ("going long") at a certain time in the future. However, a
securities index futures contract is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to
the difference between the value of the index at the close of the last
trading day of the contract and the price at which the index was
originally written. No physical delivery of the underlying security in
the index is made.
Financial futures contracts call for the delivery of particular debt
instruments issued or guaranteed by the U.S. Treasury or by specified
agencies or instrumentalities of the U.S. government at a certain time
in the future.
The purpose of the acquisition or sale of a futures contract by a Fund
is to protect it from fluctuations in the value of securities caused by
unanticipated changes in interest rates or stock prices without
necessarily buying or selling securities. For example, in the fixed
income securities market, price moves inversely to interest rates. A
rise in rates means a drop in price. Conversely, a drop in rates means
a rise in price. In order to hedge its holdings of fixed income
securities against a rise in market interest rates, a Fund could enter
into contracts to "go short" to protect itself against the possibility
that the prices of its fixed income securities may decline during the
Fund's anticipated holding period. A 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
Advisor believes such investment is more efficient, liquid or
cost-effective than investing directly in the securities underlying the
index.
STOCK INDEX OPTIONS. Each of the Funds (except the Ohio Tax Free Bond
Fund, the Municipal Bond Fund and the Pinnacle Fund) 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 a Fund's portfolio correlate
with price movements of the stock index selected. Because the value of
an index option depends upon movements in the level of the index rather
than the price of a particular stock, whether a Fund 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 a Fund of options on stock indices will be subject to
the ability of the Advisor to predict correctly movements in the
direction of the stock market generally or of a particular industry.
This requires different skills and techniques than predicting changes
in the price of individual stocks.
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<PAGE> 189
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS. Each of the Funds described
herein (except the Ohio Tax Free Bond Fund, the Municipal Bond Fund and
the Pinnacle Fund) may purchase listed (and, in the case of
International Equity Fund, over-the-counter) put options on financial
futures contracts. A Fund 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 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.
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.
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. Each of the Funds
described herein (except the Pinnacle fund, Municipal Bond Fund and the
Ohio Tax Free Bond Fund) may write listed call options or
over-the-counter call options on futures contracts, to hedge its
portfolio against an increase in market interest rates, or in the case
of International Equity Fund, when the 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
3
<PAGE> 190
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.
When a 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. None of the Funds described
herein will 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, a Fund does not pay or receive money upon the purchase or
sale of a futures contract. Rather, a Fund is 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. A Fund is also required to deposit and maintain
margin when it writes call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES. Each of the Funds
described herein (except the Pinnacle Fund, Municipal Bond Fund and
Ohio Tax Free Bond Bund) may purchase put options on portfolio
securities to protect against price movements in particular securities
in its portfolio. 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. Each of the Funds
described herein (except the Ohio Tax Free Bond Fund, the Municipal
Bond Fund and the Pinnacle Fund) may also write covered call options to
generate income. As the writer of a call option, a Fund has the
obligation, upon exercise of the option during the option period, to
deliver the underlying security upon payment of the exercise price. A
Fund may sell call options either on securities held in its portfolio
or on securities which it has the right to obtain without payment of
further consideration (or securities for which it has segregated cash
in the amount of any additional consideration).
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OVER-THE-COUNTER OPTIONS. Each of the Funds described herein (except
the Ohio Tax Free Bond Fund, the Municipal Bond Fund and the Pinnacle
Fund) may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options for those options on portfolio securities held by a Fund and
not traded on an exchange.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs"). Each of the Bond Fund for Income,
Quality Bond Fund, Government Securities Fund and Balanced Fund may invest in
CMOs. Privately issued CMOs generally represent an ownership interest in a pool
of federal agency mortgage pass-through securities such as those issued by the
Government National Mortgage Association. The terms and characteristics of the
mortgage instruments may vary among pass-through mortgage loan pools.
The market for such CMOs has expanded considerably since its inception. The size
of the primary issuance market and the active participation in the secondary
market by securities dealers and other investors make government-related pools
highly liquid.
CONVERTIBLE SECURITIES. Each of the Quality Growth Fund, Equity Income Fund,
Cardinal Fund, Pinnacle Fund, Balanced Fund, Mid Cap Fund, and International
Equity Fund may invest in convertible securities. Convertible securities are
securities, including 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 in which the above-mentioned Funds may invest may take the form of
convertible preferred stock, convertible bonds or convertible debentures. The
convertible securities in which each of the above-mentioned Funds except the
Pinnacle Fund may invest also include 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.
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 non-convertible 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. A Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock when, in the Advisor's opinion, the investment characteristics of
the underlying common shares will assist a Fund in achieving its investment
objective. Otherwise, a Fund may hold or trade convertible securities.
In selecting convertible securities for a 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. Each of the Quality Growth Fund, Equity Income Fund, Balanced Fund,
Mid Cap Fund and the International Equity Fund may invest in warrants. Warrants
are basically options to purchase common stock at a specific price (usually at a
premium above the market value of the optioned common stock at issuance) valid
for a specific period of time. Warrants may have a life ranging from less than a
year to twenty years or may be perpetual. However, most warrants have expiration
dates after which they are worthless. In addition, if the market price of the
common stock does not exceed the warrant's exercise price during the life of the
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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 Bond Fund may invest in Ohio municipal
securities ("Ohio Obligations") that have the characteristics set forth in the
Prospectuses for that Fund. The Municipal Bond Fund may invest in municipal
securities of any state which have the characteristics set forth in the
Prospectuses for that Fund. If a high-rated bond loses its ratings or has its
rating reduced after the Fund has purchased it, the Fund is not required to drop
the bond from the portfolio, but will consider doing so. If ratings made by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Group
("S&P") or Fitch Investors Service, Inc. ("Fitch") change because of changes in
those organizations or in their rating systems, the above-mentioned Funds will
try to use comparable ratings as standards in accordance with the investment
policies described in their Prospectuses.
Examples of municipal securities are:
o 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;
o municipal notes and tax-exempt commercial paper;
o serial bonds;
o tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes at a later date;
o bond anticipation notes sold in anticipation of the issuance of
long-term bonds in the future;
o pre-refunded municipal bonds whose timely payment of interest and
principal is ensured by an escrow of U.S. government obligations;
and
o general obligation bonds.
PARTICIPATION INTERESTS. The Ohio Tax Free Bond Fund and the Municipal
Bond Fund may invest in participation interests. The financial
institutions from which the Ohio Tax Free Bond 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 these 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 Bond 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 these Funds are subject to
repayment of principal (usually within seven days) on 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.
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MUNICIPAL LEASES. The Ohio Tax Free Bond 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, 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.
INVESTMENT RISKS (OHIO TAX FREE BOND FUND). Generally, the
creditworthiness of Ohio Obligations of local issuers is unrelated to
that of obligations of the State itself, and the State has no
responsibility to make payments on those local obligations. There may
be specific factors that at particular times apply in connection with
investment in particular Ohio Obligations or in those obligations of
particular Ohio issuers. It is possible that the investment may be in
particular Ohio Obligations, or in those of particular issuers, as to
which those factors apply. However, the information below is intended
only as a general summary, and is not intended as a discussion of any
specific factors that may affect any particular obligation or issuer.
While diversifying more into the service and other non-manufacturing
areas, the Ohio economy continues to rely in part on durable goods
manufacturing largely concentrated in motor vehicles and equipment,
steel, rubber products and household appliances. As a result, general
economic activity, as in many other industrially-developed states,
tends to be more cyclical than in some other states and in the nation
as a whole. Agriculture is an important segment of the economy, with
over half the State's area devoted to farming and approximately 16% of
total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported
1990 average monthly State rate was 5.7%, compared to the 5.5% national
figure. However, for the last seven years the State rates were below
the national rates (4.6% versus 4.9% in 1997). The unemployment rate
and its effects vary among geographic areas of the State.
The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is precluded by law from ending
its July 1 to June 30 fiscal year or fiscal biennium in a deficit
position. Most State operations are financed through the General
Revenue Fund (GRF), for which the personal income and sales-use taxes
are the major sources. Growth and depletion of GRF ending fund balances
show a consistent pattern related to national economic conditions, with
the ending fiscal year balance reduced during less favorable and
increased during more favorable economic periods. The State has
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well-established procedures for, and has timely taken, necessary
actions to ensure resource/expenditure balances during less favorable
economic periods. Those procedures included general and selected
reductions in appropriations spending.
The GRF appropriations act for the 1998-99 biennium was passed on June
25, 1997, and promptly signed (after selective vetoes) by the Governor.
All necessary GRF appropriations for State debt service and lease
rental payments then projected for the biennium were included in that
act.
The State's incurrence or assumption of debt without a vote of the
people is, with limited exceptions, prohibited by current State
constitutional provisions. The State may incur debt, limited in amount
to $750,000, to cover casual deficits or failures in revenues or to
meet expenses not otherwise provided for. The Constitution expressly
precludes the State from assuming the debts of any local government or
corporation, with certain limited exceptions.
By constitutional amendments, Ohio voters have authorized the
incurrence of State debt and the pledge of taxes or excises to its
payment. At September 26, 1998, $1.12 billion (excluding certain
highway bonds payable primarily from highway use receipts) of this debt
was outstanding. The only such State debt at that date still authorized
to be incurred were portions of the highway bonds, and the following:
(a) up to $100 million of obligations for coal research and development
may be outstanding at any one time ($26.7 million outstanding); (b)
$240 million of obligations previously authorized for local
infrastructure improvements, no more than $120 million of which may be
issued in any calendar year ($1 billion outstanding or awaiting
delivery); and (c) up to $200 million in general obligation bonds for
parks, recreation and natural resource purposes which may be
outstanding at any one time ($88.6 million outstanding, with no more
than $50 million to be issued in any one year).
State and local agencies issue obligations that are payable from
revenues from or relating to certain facilities (but not from taxes).
By judicial interpretation, these obligations are not "debt" within
constitutional provisions. In general, payment obligations under
lease-purchase agreements of Ohio public agencies (in which
certificates of participation may be issued) are limited in duration to
the agency's fiscal period, and are renewable only upon appropriations
being made available for the subsequent fiscal period.
Local school districts in Ohio receive a major portion (state-wide
aggregate approximately 44% in recent years) of their operating moneys
from State subsidies, but are dependent on local property taxes, and in
119 districts (as of September 17, 1998) from voter-authorized income
taxes, for significant portions of their budgets. Litigation, similar
to that in other states, has been pending questioning the
constitutionality of Ohio's system of school funding. The Ohio Supreme
Court has recently concluded that aspects of the system (including
basic operating assistance and the loan program referred to below) are
unconstitutional, and ordered the State to provide for and fund a
system complying with the Ohio Constitution, staying its order for a
year (to March 1998) to permit time for responsive corrective actions.
A small number of the State's 612 local school districts have in any
year required special assistance to avoid year-end deficits. A program
has provided for school district cash need borrowing directly from
commercial lenders, with diversion of State subsidy distributions to
repayment if needed. Recent borrowings under this program totalled
$41.1 million for 28 districts in fiscal 1994, $71.1 million for 29
districts in fiscal 1995 (including $29.5 million for one district),
$87.2 million for 20 districts in fiscal 1996 (including $42.1 million
for one district), and $113.2
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million for 12 districts in fiscal 1997 (including $90 million to one
district for restructuring its prior loans), and $23.4 million for 10
districts in fiscal 1998.
For those few municipalities and school districts that on occasion have
faced significant financial problems, there are statutory procedures
for a joint State/local commission to monitor the fiscal affairs and
for development of a financial plan to eliminate deficits and cure any
defaults. Similar procedures have recently been extended to counties
and townships. Since inception for municipalities in 1979, these
"fiscal emergency" procedures have been applied to 25 cities and
villages; for 18 of them the fiscal situation was resolved and the
procedures terminated (one village and three cities are in preliminary
"fiscal watch" status). As of September 17, 1998, the 1996 school
district "fiscal emergency" provision had been applied to six
districts, and ten districts were on preliminary "fiscal watch" status.
At present the State itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political
subdivisions and other local taxing districts. The Constitution has
since 1934 limited to 1% of true value in money the amount of the
aggregate levy (including a levy for unvoted general obligations) of
property taxes by all overlapping subdivisions, without a vote of the
electors or a municipal charter provision, and statutes limit the
amount of that aggregate levy to 10 mills per $1 of assessed valuation
(commonly referred to as the "ten-mill limitation"). Voted general
obligations of subdivisions are payable from property taxes that are
unlimited as to amount or rate.
Although the State's revenue obligations or its political subdivisions
may be payable from a specific project or source, including lease
rentals, there can be no assurance that economic difficulties and the
resulting impact on State and local governmental finances will not
adversely affect the market value of municipal obligations held in the
portfolio of the Ohio Series or the ability of the respective obligors
to make required payments on or leases relating to such obligations.
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 International Equity 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 International Equity 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 International Equity Fund will engage in foreign currency exchange
transactions in connection with its portfolio investments. The
International Equity 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 International Equity
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
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whenever it determines that it is in the Fund's best interest to do so.
The International Equity Fund will not speculate in foreign currency
exchange.
The International Equity Fund will not enter into forward foreign
currency exchange contracts or maintain a net exposure in such
contracts when it would be obligated to deliver an amount of foreign
currency in excess of the value of its portfolio securities or other
assets denominated in that currency or, in the case of a "cross-hedge"
denominated in a currency or currencies that the Advisors believe will
tend to be closely correlated with that currency with regard to price
movements. Generally, the International Equity 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 a 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 a Fund held securities denominated in a
foreign currency that was appreciating and had purchased a foreign
currency put option to hedge against a decline in the value of the
currency, the Fund would not have to exercise its put option. Likewise,
if a Fund were to enter into a contract to purchase a security
denominated in foreign currency and, in conjunction with that purchase,
purchased a foreign currency call option to hedge against a rise in
value of the currency, if the value of the currency depreciated between
the date of purchase and the settlement date, the Fund would not have
to exercise its call option. 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 a Fund's ability to establish
and close out positions on such options is subject to the maintenance
of a liquid secondary market. Although the International Equity 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
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either or both currencies and may have no relationship to the
investment merits of a foreign security. Because foreign currency
transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign
currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than $1
million) for the underlying foreign currencies at prices that are less
favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely
basis. Available quotation information is generally representative of
very large transactions in the interbank market and thus may not
reflect relatively smaller transactions (i.e., less than $1 million)
where rates may be less favorable. The interbank market in foreign
currencies is a global, around-the-clock market. To the extent that the
U.S. option markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options
markets until they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS. By using foreign currency
futures contracts and options on such contracts, a Fund may be able to
achieve many of the same objectives as it would through the use of
forward foreign currency exchange contracts. A 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 International Equity 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. None of the Funds described herein intend to engage in when-issued
and delayed delivery transactions to an extent that would cause the segregation
of more than 20% of the value of its total assets.
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REPURCHASE AGREEMENTS. Each of the Funds described herein requires their
custodian to take actual or constructive 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, that 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 Trust believes that under the regular procedures
normally in effect for custody of a Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
such Fund and allow retention or disposition of such securities. The Funds
described herein 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. Each of the Funds described herein 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 that 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
Each of the Funds described herein 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 Trust believes that Section 4(2)
securities and possibly certain other restricted securities which meet the
criteria for liquidity established by the Trustees are quite liquid. Each of the
Funds described herein intends, therefore, to treat the
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restricted securities which meet the criteria for liquidity established by the
Trustees, including Section 4(2) securities, as determined by the Advisors, as
liquid and not subject to the investment limitation applicable to illiquid
securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange Commission ("SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Trust 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:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security
and the number of other potential buyers:
o dealer undertakings to make a market in the security: and
o the nature of the security and the nature of the marketplace
trades.
PORTFOLIO TURNOVER
None of the Funds described herein will attempt to set or meet portfolio
turnover rates since any turnover would be incidental to transactions undertaken
in an attempt to achieve a 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, 1998 JULY 31, 1997
------------- -------------
<S> <C> <C>
Quality Growth Fund........................... 45% 37%
Equity Income Fund (1)........................ 41% 28%
Pinnacle Fund (2)............................. 38%(3) 50%
Balanced Fund................................. 135% 101%
Mid Cap Fund.................................. 44% 52%
International Equity Fund..................... 39% 60%
Bond Fund For Income(1)....................... 127% 157%(3)
Quality Bond Fund............................. 279% 182%
Government Securities Fund.................... 155% 169%
Municipal Bond Fund (1)....................... 121% 63%(3)
Ohio Tax Free Fund............................ 42% 49%
</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.
(2) Information includes portfolio turnover of the Fund's predecessor,
The Pinnacle Fund.
(3) Annualized.
The portfolio turnover rate for the Cardinal Fund, which commenced public
investment on September 21, 1998, is expected to be 30%, which includes
portfolio turnover of the Fund's predecessor, Cardinal Fund.
13
<PAGE> 200
The increases in portfolio turnover for each of the Government Securities Fund,
the Quality Bond Fund, the Ohio Tax Free Bond 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.
FUNDAMENTAL INVESTMENT LIMITATIONS
The following investment limitations have been designated as "fundamental"
investment policies and cannot be changed with respect to a Fund without
approval of the holders or a majority of that Fund's shares.
ISSUING SENIOR SECURITIES AND BORROWING MONEY. None of the Funds described
herein will 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 Bond Fund, Municipal
Bond Fund and Pinnacle Fund) may enter into futures contracts, as applicable.
The Funds described herein will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling a
Fund to meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. None of the Funds described herein
will purchase any securities while any borrowings in excess of 5% of its total
assets are outstanding. Currently, none of the Funds described herein intend to
borrow money.
SELLING SHORT AND BUYING ON MARGIN. None of the Funds described herein will 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 a Fund described herein (with the
exception of Ohio Tax Free Bond Fund, Municipal Bond Fund and Pinnacle 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 described herein will not mortgage, pledge, or
hypothecate any assets, except to secure permitted borrowings. In these cases, a
Fund 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 described herein 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 objectives, policies and limitations or the Trust's Declaration of
Trust.
INVESTING IN COMMODITIES. None of the Funds described herein will purchase or
sell commodities, commodity contracts, or commodity futures contracts except to
the extent that the Funds described herein (with the
14
<PAGE> 201
exception of Ohio Tax Free Bond Fund, Government Securities Fund, Municipal Bond
Fund and Pinnacle Fund) may engage in transactions involving futures contracts
or options on futures contracts.
INVESTING IN REAL ESTATE. None of the Funds described herein described herein
will purchase or sell real estate, including limited partnership interests,
although each of these 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 (with the exception of the Pinnacle Fund) in securities which
are secured by real estate or interests in real estate.
DIVERSIFICATION OF INVESTMENTS. With respect to 75% of the value of their
respective total assets, none of the Funds described herein (with the exception
of Ohio Tax Free Bond Fund) will 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 its total assets would be invested in the securities of
that issuer. None of the Funds described herein will acquire more than 10% of
the outstanding voting securities of any one issuer.
DEALING IN PUTS AND CALLS. The Pinnacle Fund, Municipal Bond Fund and Ohio Tax
Free Bond Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.
CONCENTRATION OF INVESTMENTS. The Quality Growth Fund, Cardinal Fund, Pinnacle
Fund, Balanced Fund, Mid Cap 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.
Neither the Ohio Tax Free Bond Fund or the Municipal Bond Fund will purchase
securities if, as a result of such purchase, 25% or more of the value of its
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, their Funds described herein may
invest as temporary investments more than 25% of the value of its total 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. None of the Funds described herein will 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.
OTHER INVESTMENT LIMITATIONS
The following investment limitations are "non-fundamental" and 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 described herein 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.
15
<PAGE> 202
INVESTING IN ILLIQUID SECURITIES. The Funds described herein will not invest
more than 15% of the value of their respective net assets in illiquid
securities, including, as applicable, repurchase agreements providing for
settlement more than seven days after notice, over-the-counter options, certain
restricted securities not determined by the Trustees to be liquid, and
non-negotiable time deposits with maturities over seven days.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Funds described
herein 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 described herein 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. None of the Quality Growth Fund, Cardinal Fund,
Pinnacle Fund, Balanced Fund, Mid Cap Fund, International Equity Fund, Quality
Bond Fund or Government Securities Fund will invest more than 5% of the value of
its respective total assets in securities of issuers which have records of less
than three years of continuous operations, including the operation of any
predecessor.
Neither the Ohio Tax Free Bond Fund or the Municipal Bond Fund will invest more
that 5% of the value of its 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. None of the Funds described herein will purchase or retain the securities
of any issuer if the officers and Trustees of the Trust, Fifth Third Bank or (in
the case of the Pinnacle Fund) Heartland, 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. None of the Funds described herein Fund will 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. None of the Funds described herein will enter into
transactions for the purpose of engaging in arbitrage.
PURCHASING SECURITIES TO EXERCISE CONTROL. None of the Funds described herein
will purchase securities of a company for the purpose of exercising control or
management.
INVESTING IN WARRANTS. None of the Quality Growth Fund, Equity Income Fund,
Cardinal Fund, Balanced Fund, Mid Cap Fund, or International Equity Fund may
invest more than 5% of its net assets in warrants, including those acquired in
units or attached to other securities. 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
16
<PAGE> 203
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 a Fund's policy relating 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 purposes of its policies and
limitations, the Trust 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."
The Ohio Tax Free Bond 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.
FIFTH THIRD 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, Heartland, Fifth Third
Bancorp, The BISYS Group, Inc., BISYS Fund Services, Inc., BISYS Fund Services
Ohio, Inc., or BISYS Fund Services Limited Partnership.
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION POSITION
WITH TRUST
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Albert E. Harris, 66 Formerly, Chairman of the Board, Chairman of the Board
5905 Graves Road EDB Holdings, Inc. of Trustees
Cincinnati, OH (retired, July 1993)
Birthdate: July 2, 1932
Edward Burke Carey, 53 President of Carey Leggett Trustee
394 East Town Street Realty Advisors.
Columbus, OH
Birthdate: July 2, 1945
Lee A. Carter, 59 Former President, Local Trustee
425 Walnut Street Marketing Corporation
Cincinnati, OH (retired, December 1993)
Birthdate: December 17, 1938
Stephen G. Mintos, 44 Employee of BISYS Fund President
3435 Stelzer Road Services, Inc., since 1987
Columbus, Ohio 43219-3035
Birthdate: February 5, 1954
</TABLE>
17
<PAGE> 204
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION POSITION
WITH TRUST
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
George R. Landreth, 56 Employee of BISYS Fund Vice President
3435 Stelzer Road Services, Inc., since 1992
Columbus, Ohio 43219-3035
Birthdate: July 11, 1942
Jeffrey C. Cusick, 39 Employee of BISYS Fund Secretary and Treasurer
3435 Stelzer Road Services, Inc., from September
Columbus, Ohio 43219-3035 1993 until July 1995; Assistant
Birthdate: May 19, 1959 Vice President, Federated
Administrative Services from
1995 to present; from September
1993 to July 1995
</TABLE>
TRUST OWNERSHIP
As of the date of this Statement of Additional Information, for each class of
shares, officers and Trustees own less than 1% of the outstanding shares of each
Fund.
As of September 30, 1998, there were no shareholders who owned more than 5% of
the outstanding Investment A Shares or Investment C Shares of any of the Funds
described herein.
As of September 30, 1998, Fifth Third Bank, as nominee for numerous trust and
agency accounts, was the owner of record of more than 5% of the outstanding
Institutional Shares of the Funds described herein as follows:
<TABLE>
<S> <C>
Quality Growth Fund:..................................... 22,253,307 shs. 83.2%
Equity Income Fund:...................................... 9,135,493 shs. 91.3%
Cardinal Fund:........................................... 2,027,941 shs. 11.7%
Pinnacle Fund:........................................... 163,827 shs. 11.9%
Balanced Fund:........................................... 8,576,016 shs. 65.0%
Mid Cap Fund:............................................ 12,050,740 shs. 84.9%
International Equity Fund:............................... 12,664,777 shs. 96.3%
Bond Fund For Income:.................................... 15,599,024 shs. 69.2%
Quality Bond Fund:....................................... 10,431,265 shs. 92.2%
U.S. Government Securities Fund:......................... 4,040,822 shs. 88.9%
Municipal Bond Fund:..................................... 9,631,919 shs. 99.9%
Ohio Tax Free Bond Fund:................................. 16,579,722 shs. 88.0%
</TABLE>
As of September 30, 1998, Butler Fairman & Seufert, Inc., Profit Sharing and
401(k) Plan, 9405 Delegates Row, Indianapolis, IN 46250, was the owner of record
of 67,578 Shares (6.56%), and Heartland Capital Management Corp., Profit Sharing
Trust, 36 S. Pennsylvania, Suite 610, Indianapolis, IN 46250, was the owner of
68,481 Shares (6.65%) of the Pinnacle Fund.
18
<PAGE> 205
TRUSTEES' COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
NAME AND CAPACITY IN WHICH RECEIVED FROM THE TRUST
REMUNERATION WAS RECEIVED WITH RESPECT TO ALL FUNDS*
------------------------- --------------------------
<S> <C>
Edward Burke Carey, Trustee..................... $7,800
Lee A. Carter, Trustee.......................... $7,800
Albert E. Harris, Trustee and Chairman.......... $9,800
</TABLE>
- ---------
*Information is furnished for the fiscal year ended July 31, 1998. The Trust is
the only investment company in the Fund complex. The aggregate compensation is
provided for the Trust, which is comprised of sixteen portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISORS TO THE TRUST
The Advisor to each of the Funds described herein of the Trust except the
Pinnacle Fund is Fifth Third Bank. Fifth Third Bank provides investment advisory
services through Fifth Third Investment Advisors, part of its Trust and
Investment Division. Fifth Third Bank is a wholly-owned subsidiary of Fifth
Third Bancorp. The Advisor to the Pinnacle Fund is Heartland Capital Management,
Inc. Heartland is a wholly-owned subsidiary of Fifth Third Bancorp. Neither
Fifth Third Bank nor Heartland shall be liable to the Trust, a Fund, or any
shareholder of any of the Funds described herein 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 any lending relationship of Fifth Third Bank or its affiliates
with an issuer.
ADVISORY FEES
For their advisory services, Fifth Third Bank or Heartland, as applicable,
receives an annual investment advisory fee as described in the Prospectuses for
the Funds described herein. The following shows all of the investment advisory
fees incurred by these Funds and the amounts of those fees that were voluntarily
waived for the fiscal years ended July 31, 1998, 1997 and 1996:
19
<PAGE> 206
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
1998 1997 1996
------------------ -------------------------- --------------------
FUND NAME INCURRED WAIVED INCURRED WAIVED INCURRED WAIVED
- --------- -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Quality Growth Fund................. $3,809,742 $ ---- $2,328,245 $ ---- $ 901,809 $ 953
Equity Income Fund.................. 1,087,531 441,829(3) ---- n/a n/a
Pinnacle Fund....................... 98,525(2) n/a n/a n/a n/a
Balanced Fund....................... 1,217,022 ---- 861,073 17,327 632,772 36,873
Mid Cap Fund........................ 1,725,385 ---- 1,146,430 4,161 528,676 26,747
International Equity Fund........... 1,470,820 ---- 1,360,967 ---- 1,049,641 57,525
Bond Fund for Income................ 937,636 ---- 410,755(3) ---- n/a n/a
Quality Bond Fund................... 544,518 ---- 483,167 17,650 402,013 35,943
U.S. Government Securities Fund..... 228,306 33,207 233,799 45,748 153,416 74,182
Municipal Bond Fund................. 591,384 ---- 282,200(3) ---- n/a n/a
Ohio Tax Free Bond Fund (1)......... 980,345 ---- 813,101 ---- 177,022 9,656
</TABLE>
- --------
(1) In addition to the waivers noted, Fifth Third Bank voluntarily
reimbursed certain operating expenses of the Ohio Tax Free Bond Fund
during the fiscal years ended July 31, 1998, 1997 and 1996 of $0,
$11,621 and $84,063, respectively.
(2) For the period from March 9, 1998 (date of commencement of operations)
to July 31, 1998.
(3) For the period from January 27, 1997 (date of commencement of
operations) to July 31, 1997.
Information relating to the Cardinal Fund is not provided, as that Fund did not
commence operations until September 21, 1998.
SUB-ADVISOR
Morgan Stanley Asset Management, Inc. ("MSAM") is the sub-advisor to
International Equity Fund under the terms of a Sub-Advisory Agreement between
Fifth Third Bank and MSAM.
SUB-ADVISORY FEES
For its sub-advisory services, MSAM receives an annual sub-advisory fee paid by
Fifth Third Bank as described in the Prospectuses.
For the years ended July 31, 1998, 1997 and 1996 MSAM earned fees from the
International Equity Fund of $777,259, $680,483 and $524,821. For the fiscal
year ended July 31, 1996, $28,763 of the fees earned was waived.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Effective December 1, 1995, BISYS Fund Services L.P., 3435 Stelzer Road,
Columbus, Ohio 43219, began providing administrative personnel and services to
the Funds described herein for the fees set forth in the Prospectuses. The
following shows all fees earned by BISYS and the amounts of those fees that were
voluntarily waived for the years ended July 31, 1998 and 1997 and the
eight-month period ended July 31, 1996:
20
<PAGE> 207
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, EIGHT-MONTH PERIOD
------------------------------------------- ENDED JULY 31,
1998 1997 1996
------------------------------------------- --------------------
FUND NAME INCURRED WAIVED INCURRED WAIVED INCURRED WAIVED
- --------- -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Quality Growth Fund.................... $747,192 $ 99,983 $396,610 $16,801 $56,852 $----
Equity Income Fund..................... 213,295 113,045 84,693 36,958(2) n/a n/a
Pinnacle Fund.......................... 18,401 10,974 n/a n/a n/a n/a
Balanced Fund.......................... 239,664 115,632 141,253 30,357 39,823 ----
Mid Cap Fund........................... 329,485 115,507 191,888 16,294 33,025 ----
International Equity Fund.............. 229,001 ---- 166,482 ---- 114,974(1) ----
Bond Fund for Income................... 267,560 111,152 114,052 50,011(2) n/a n/a
Quality Bond Fund...................... 155,380 99,049 114,352 29,728 35,961 ----
U.S. Government Securities Fund........ 66,172 41,150 55,179 14,275 13,327 ----
Municipal Bond Fund.................... 169,754 107,566 77,342 33,330(2) n/a n/a
Ohio Tax Free Bond Fund ............... 279,810 141,733 197,989 11,017 15,306 ----
</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.
Information relating to the Cardinal Fund is not provided, as that Fund did not
commence operations until September 21, 1998.
Until December 1, 1995, Federated Administrative Services, which is a subsidiary
of Federated Investors, provided administrative personnel and services to the
Funds described herein. 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:
<TABLE>
<CAPTION>
FOUR-MONTH PERIOD
ENDED DECEMBER 1, 1995
----------------------
FUND NAME INCURRED WAIVED
--------- -------- ------
<S> <C> <C>
Quality Growth Fund........................ $33,213 $ ----
Balanced Fund.............................. 19,760 ----
Mid Cap Fund............................... 19,527 ----
International Equity Fund.................. ---- ----
Quality Bond Fund.......................... 22,486 ----
Government Securities Fund................. 16,770 ----
Ohio Tax Free Bond Fund.................... 16,770 ----
</TABLE>
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank began performing sub-administration services on
behalf of each Fund, for which it receives compensation from BISYS Fund Services
L.P. For the years ended July 31, 1998 and 1997, and the eight-month period
ended July 31, 1996, Fifth Third Bank earned the following sub-administrative
fees:
21
<PAGE> 208
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, EIGHT-MONTH PERIOD
-------------------------- ENDED JULY 31,
FUND NAME 1998 1997 1996
- --------- ---- ---- ------------------
<S> <C> <C> <C>
Quality Growth Fund........................... $117,660 $72,758 $17,721
Equity Income Fund............................ 33,586 13,918 ----
Pinnacle Fund ........................... 2,982 n/a n/a
Balanced Fund................................. 37,575 26,909 12,428
Mid Cap Fund.................................. 53,327 35,827 28,558
International Equity Fund..................... 36,328 34,046 16,694
Bond Fund for Income.......................... 42,124 18,671 n/a
Quality Bond Fund............................. 24,464 21,962 11,231
U.S. Government Securities Fund............... 10,263 10,627 4,161
Municipal Bond Fund........................... 26,569 12,827 n/a
Ohio Tax Free Bond Fund ...................... 44,062 36,959 4,802
</TABLE>
Information relating to fees paid by the Cardinal Fund for sub-administration
services is not provided, as that Fund did not commence operations until
September 21, 1998.
Under the custodian agreement, Fifth Third Bank holds each Fund's portfolio
securities and keeps all necessary records and documents relating to its duties.
Pursuant to an agreement with Fifth Third Bank, Morgan Stanley Trust Company,
Brooklyn, NY, acts as the International Equity Fund's sub-custodian for foreign
assets held outside the United States and employs sub-custodians 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.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Fifth Third Bank serves as transfer agent and dividend disbursing agent for the
Trust. 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 aggregate 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 Advisors look for prompt execution of the order at a favorable
price. In working with dealers, the Advisors 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 Advisors make
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees.
The Advisors may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Funds described herein
or to the Advisors and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
22
<PAGE> 209
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Advisors 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, 1998, the Funds
described herein paid brokerage commissions in exchange for brokerage and
research services described above in the following amounts: Quality Growth Fund,
$101,448 of $510,067 total brokerage commissions paid; Mid Cap Fund, $46,704 of
$327,482 total brokerage commissions paid; Balanced Fund, $27,095 of $144,151
total brokerage commissions paid; Government Securities Fund, all $1,406 of
total brokerage commissions paid; Quality Bond Fund, all $300 of total brokerage
commissions paid; Equity Income Fund, $41,804 of $162,686 total brokerage
commissions paid; and International Equity Fund, $56,672 of $163,055 total
brokerage commissions paid.
Research services provided by brokers may be used by the Advisors in advising
the Funds described herein as well as other accounts. To the extent that receipt
of these services may supplant services for which the Advisors or their
affiliates might otherwise have paid, it would tend to reduce their expenses.
Although investment decisions for the Funds described herein are made
independently from those of the other accounts managed by the Advisors,
investments of the type the Funds may make may also be made by those other
accounts. When one of the Funds described herein and one or more other accounts
managed by the Advisors 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 Advisors 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, 1998, 1997, and 1996, Morgan Stanley & Co.
Incorporated, an affiliate of the International Equity Fund, earned $0, $0 and
$104, respectively, in brokerage commissions, representing 0.00%, 0.00% and
0.09%, respectively, of the total brokerage commissions paid by the Fund. These
transactions with Morgan Stanley & Co. Incorporated amounted to 0.00%, 0.00% and
0.29%, respectively, of the value of the Fund's securities transactions on which
commissions were paid.
During the fiscal year ended July 31, 1998, the Bond Fund for Income purchased
securities issued by Lehman Brothers Incorporated, one of the Trust's regular
brokers or dealers, and held $5,000,000 of such securities at year end.
23
<PAGE> 210
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares of the Funds described herein are sold at their net asset value, plus any
applicable sales charge, on days the New York Stock Exchange and the Federal
Reserve Bank of Cleveland are open for business. The procedure for purchasing
shares of the Funds described herein is explained in the applicable share class
Prospectus under "Investing in the Funds."
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy for each Fund 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
the applicable 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. The Trust will notify the investor of its
acceptance and valuation of the securities within five business days of their
receipt by Fifth Third Bank.
The Trust values such securities in the same manner as it values assets for the
Funds. The basis of the exchange will depend upon the net asset value of shares
of the applicable 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 the Trust, along
with the securities.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset values of the Funds described herein generally change each day. The
days on which the net asset value is calculated by these Funds are described in
their Prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
The market value of the portfolio securities of the Funds described herein (with
the exception of Ohio Tax Free Bond Fund and Municipal Bond Fund) are determined
as follows:
o for equity securities, according to the last sale price on a
national securities exchange, if available;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked
prices;
o for unlisted equity securities, the latest bid prices;
24
<PAGE> 211
o for bonds and other fixed income securities, as determined by
an independent pricing service;
o 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
o 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 Trust 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 Bond 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 a Fund with remaining maturities of 60 days or less at the time
of purchase may be its 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
Advisors continually assess this method of valuation and recommend changes where
necessary to assure that each 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.
25
<PAGE> 212
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at the next computed net asset value after the Trust
receives the redemption request, plus any applicable contingent deferred sales
charge. Redemption procedures are explained in the applicable share class
Prospectus under "Redeeming Shares." Although Fifth Third Bank does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of a Fund's net
asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUNDS' TAX STATUS
None of the Funds described herein will pay any federal income tax because they
each 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:
o derive at least 90% of its gross income from dividends,
interest, and gains from the sale of securities;
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
With respect to the Quality Bond Fund, Quality Growth Fund, Equity Income Fund,
Cardinal Fund, Pinnacle Fund, Balanced Fund, Mid Cap Fund, International Equity
Fund, Bond Fund For Income, Quality Bond Fund and Government Securities Fund,
shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by a Fund is eligible
for the dividends received deduction available to corporations. These dividends,
and any short-term capital gains, are taxable as ordinary income.
With respect to the Municipal Bond Fund and Ohio Tax Free Bond Fund, no portion
of any income dividend paid by a Fund is eligible for the dividends received
deduction available to corporations.
26
<PAGE> 213
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.
With respect to Ohio Tax Free Bond 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:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o 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. If a shareholder sells or otherwise disposes of
shares held for less than six months, any loss on the sale or other disposition
of such shares will be (i) treated as long-term capital loss to the extent of
any capital gain dividends received by the shareholder with respect to such
shares, or (ii) disallowed to the extent of any exempt-interest dividends
received by the shareholder with respect to such shares. A loss realized on a
sale or exchange of shares may be disallowed if other shares are acquired within
a 61-day period beginning 30 days before and ending 30 days after the date that
the shares were disposed of.
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 each share class of the Funds described
herein 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. For each share class, the ending redeemable value is computed by
multiplying the number of shares owned at the end of the period by the offering
price per share at the end of the period. The number of shares owned at the end
of the period is based on the number of shares purchased at the beginning of the
period with $1,000, less any applicable sales load, adjusted over the period by
any additional shares, assuming the monthly reinvestment of all dividends and
distributions.
The total return for Investment A Shares and for Investment C Shares (assuming
the imposition of the maximum sales load for the applicable class of Shares) of
each Fund is shown in the table below, computed for the 1-Year, 5-Year and
10-Years periods ended on July 31, 1998 (or from the inception of a Fund that
has not operated for such periods);
27
<PAGE> 214
INVESTMENT A SHARES
AVERAGE ANNUAL TOTAL RETURN--
FISCAL YEAR ENDED JULY 31, 1998
-------------------------------
<TABLE>
<CAPTION>
SINCE
FUND NAME 1 YEAR 5 YEARS 10 YEARS INCEPTION
- --------- ------ ------- -------- ---------
<S> <C> <C> <C> <C>
Quality Growth Fund.............. 8.97% 19.18% 16.64% n/a
Equity Income Fund*.............. 14.19% 16.80% 14.39% n/a
Cardinal Fund*................... (2.09%) 13.79% 12.73% n/a
Pinnacle Fund.................... 17.67% 21.18% 16.55% n/a
Balanced Fund.................... 3.55% 13.22% 14.28% n/a
Mid Cap Fund..................... 0.93% 14.66% 14.62% n/a
International Equity Fund........ 8.17% n/a n/a 9.19%
Bond Fund for Income*............ 1.49% 3.76% 6.88% n/a
Quality Bond Fund................ 2.14% 4.53% 7.05% n/a
U.S. Government Securities Fund.. 1.39% 4.08% 5.86% n/a
Municipal Bond Fund*............. (0.40%) 3.42% 5.30% n/a
Ohio Tax Free Fund............... (0.35%) 4.05% 5.47% n/a
</TABLE>
INVESTMENT C SHARES
AVERAGE ANNUAL TOTAL RETURN--
FISCAL YEAR ENDED JULY 31, 1998
-------------------------------
<TABLE>
<CAPTION>
SINCE
FUND NAME 1 YEAR 5 YEARS 10 YEARS INCEPTION
- --------- ------ ------- -------- ---------
<S> <C> <C> <C> <C>
Quality Growth Fund.............. 13.41% 19.90% 16.77% n/a
Equity Income Fund*.............. 18.72% 16.86% 13.86% n/a
Pinnacle Fund.................... 22.78% 22.22% 17.05% n/a
Balanced Fund.................... 7.67% 13.91% 14.42% n/a
Mid Cap Fund..................... 5.03% 15.38% 14.76% n/a
International Equity Fund........ 12.57% n/a n/a 10.09%
Bond Fund for Income*............ 5.50% 3.75% 6.34% n/a
Quality Bond Fund................ 5.92% 5.12% 7.15% n/a
U.S. Government Securities Fund.. 5.19% 4.63% 5.95% n/a
Ohio Tax Free Fund............... 3.56% 4.65% 5.52% n/a
</TABLE>
- ---------
* Includes performance of the Cardinal Fund's predecessor fund. For
the Equity Income Fund, Bond Fund for Income and Municipal Bond Fund,
includes performance of each such Fund's predecessor common trust fund,
adjusted to reflect expenses (other than 12b-1 fees where applicable) and the
maximum sales load imposed for the particular class of Shares.
Average annual total return is an historical measure of performance and is not
necessarily indicative of a Fund's future performance. Such measurement will
vary from time to time depending upon numerous factors, including without
limitation market conditions, the composition of each Fund's portfolio and
operating expenses. These factors should be considered when evaluating each
Fund's performance.
28
<PAGE> 215
YIELD
- --------------------------------------------------------------------------------
In addition to total returns, the Funds may advertise SEC yields for each of the
share classes.
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, 1998 were 4.79%, 5.15%, 3.65%,
0.04%, 0.31%, and 1.31%, 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 for the thirty-day period ended July 31, 1998 were 4.25%, 4.64%, 3.06%,
0.63%, 0.87%, and 0.85%, respectively.
For each share class, the yield for a Fund is determined by dividing the net
investment income per share (as defined by the SEC) earned by the Fund over a
thirty-day period by the maximum offering price per share of the Fund on the
last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments required by
the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
the performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Ohio Tax Free Bond Fund and the Municipal Bond Fund may also advertise
tax-equivalent yield. The tax-equivalent yield for the Ohio Tax Free Bond Fund
for the 30-day period ended July 31, 1998, was 6.04%, while the tax-equivalent
yield for the Municipal Bond Fund for the 30-day period ended July 31, 1998, was
6.11%. The tax-equivalent yield of a 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 39.6% tax rate and assuming that
income is 100% tax-exempt.
TAX EQUIVALENCY TABLE
The Municipal Bond Fund and Ohio Tax Free Bond Fund may also use tax-equivalency
tables in advertising and sales literature. The interest earned by the municipal
obligations in the Ohio Tax Free Bond 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 indicate, a
"tax-free" investment in the Ohio Tax Free Bond 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 1998
FEDERAL INCOME TAX ONLY
<S> <C> <C> <C> <C> <C>
Federal Tax Rate:
15.00% 28.00% 31.00% 36.00% 39.60%
Taxable Income
Brackets--
SINGLE RETURN: $1- $25,351- $61,401- $128,101- Over
$25,350 $61,400 $128,100 $278,450 $278,450
JOINT RETURN: $1- $42,351- $102,301- $155,951- Over
$42,350 $102,300 $155,950 $278,450 $278,450
- -------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- -------------------------------------------------------------------------------------------------------------------
1.50%................... 1.76% 2.08% 2.17% 2.34% 2.48%
2.00%................... 2.35% 2.78% 2.90% 3.13% 3.31%
2.50%................... 2.94% 3.47% 3.62% 3.91% 4.14%
3.00%................... 3.53% 4.17% 4.35% 4.69% 4.97%
3.50%................... 4.12% 4.86% 5.07% 5.47% 5.79%
4.00%................... 4.71% 5.56% 5.80% 6.25% 6.62%
4.50%................... 5.29% 6.25% 6.52% 7.03% 7.45%
5.00%................... 5.88% 6.94% 7.25% 7.81% 8.28%
5.50%................... 6.47% 7.64% 7.97% 8.59% 9.11%
6.00%................... 7.06% 8.33% 8.70% 9.38% 9.93%
===================================================================================================================
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions. The
chart above is for illustrative purposes only. It is not an indicator of past or
future performance of Municipal Bond Fund shares. Some portion of Municipal Bond
Fund's income may be subject to the federal alternative minimum tax and state
and local income taxes.
29
<PAGE> 216
<TABLE>
<CAPTION>
===================================================================================================================
TAXABLE YIELD EQUIVALENT FOR 1998
COMBINED FEDERAL AND STATE OF OHIO INCOME TAXES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SINGLE RETURN
Federal Tax Rate:
15.00% 28.00% 28.00% 31.00% 31.00% 31.00% 36.00% 36.0% 39.60%
Combined Federal and State Tax Rate:
18.43% 30.91% 31.40% 34.25% 34.72% 35.32% 40.00% 40.35% 43.71%
Taxable Income
Brackets: $1- $25,351- $40,001- $61,401- $80,001- $100,000- $128,101- $200,001- Over
$25,350 $40,000 $61,400 $80,000 $100,000 $128,100 $200,000 $278,450 $278,450
- -------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- -------------------------------------------------------------------------------------------------------------------
1.50%.......... 1.84% 2.17% 2.19% 2.28% 2.30% 2.32% 2.50% 2.52% 2.67%
2.00%.......... 2.45% 2.89% 2.91% 3.04% 3.06% 3.10% 3.33% 3.35% 3.55%
2.50%.......... 3.06% 3.62% 3.64% 3.80% 3.83% 3.87% 4.17% 4.19% 4.44%
3.00%.......... 3.68% 4.34% 4.37% 4.56% 4.60% 4.64% 5.00% 5.03% 5.33%
3.50%.......... 4.29% 5.07% 5.10% 5.32% 5.36% 5.41% 5.83% 5.87% 6.22%
4.00%.......... 4.90% 5.79% 5.83% 6.08% 6.13% 6.18% 6.67% 6.71% 7.11%
4.50%.......... 5.52% 6.51% 6.56% 6.84% 6.89% 6.96% 7.50% 7.54% 7.99%
5.00%.......... 6.13% 7.24% 7.29% 7.60% 7.66% 7.73% 8.33% 8.38% 8.88%
5.50%.......... 6.74% 7.96% 8.02% 8.37% 8.42% 8.50% 9.17% 9.22% 10.06%
6.00%.......... 7.36% 8.68% 8.75% 9.13% 9.19% 9.28% 10.00% 10.06% 10.66%
JOINT RETURN
Federal Tax Rate:
15.00% 15.00% 28.00% 28.00% 28.00% 31.00% 36.00% 36.0% 39.60%
Combined Federal and State Tax Rate:
18.43% 19.01% 31.40% 31.88% 32.50% 35.32% 40.00% 40.35% 43.71%
Taxable Income
Brackets: $1- $40,001- $42,351- $80,001- $100,001- $102,301- $155,951- $200,001- Over
$40,000 $42,350 $80,000 $100,000 $102,300 $155,950 $200,000 $278,450 $278,450
- -------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- -------------------------------------------------------------------------------------------------------------------
1.50%.......... 1.84% 1.85% 2.19% 2.20% 2.22% 2.32% 2.50% 2.52% 2.67%
2.00%.......... 2.45% 2.47% 2.91% 2.94% 2.96% 3.10% 3.33% 3.35% 3.55%
2.50%.......... 3.06% 3.09% 3.64% 3.67% 3.70% 3.87% 4.17% 4.19% 4.44%
3.00%.......... 3.68% 3.70% 4.37% 4.40% 4.44% 4.64% 5.00% 5.03% 5.33%
3.50%.......... 4.29% 4.32% 5.10% 5.14% 5.18% 5.41% 5.83% 5.87% 6.22%
4.00%.......... 4.90% 4.94% 5.83% 5.87% 5.93% 6.18% 6.67% 6.71% 7.11%
4.50%.......... 5.52% 5.56% 6.56% 6.61% 6.67% 6.96% 7.50% 7.54% 7.99%
5.00%.......... 6.13% 6.17% 7.29% 7.34% 7.41% 7.73% 8.33% 8.38% 8.88%
5.50%.......... 6.74% 6.79% 8.02% 8.07% 8.15% 8.50% 9.17% 9.22% 9.78%
6.00%.......... 7.36% 7.41% 8.75% 8.81% 8.89% 9.28% 10.00% 10.06% 10.66%
===================================================================================================================
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions. 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 Bond Fund's income may be subject to the federal alternative minimum tax
and state and local income taxes.
30
<PAGE> 217
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
Performance of each of the Funds described herein 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 and market value of portfolio
securities;
o changes in each Fund's expenses; and
o 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:
o 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, Equity Income,
Cardinal, Pinnacle Funds, Balanced and Mid Cap)
o 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)
o 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, Bond Fund
For Income and Quality Bond Funds)
31
<PAGE> 218
o 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)
o 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. ( Balanced, Bond Fund For Income,
Quality Bond and Government Securities Funds)
o 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. (Balanced, Bond
Fund For Income, Quality Bond and Government Securities Funds)
o 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, Bond Fund For Income,
Quality Bond and Government Securities Funds)
o 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)
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 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 Funds)
o MERRILL LYNCH COMPOSITE 1-5 YEAR TREASURY INDEX is comprised
of approximately 66 issues of U.S. Treasury securities
maturing between 1 and 4.99 years, with coupon rates of 4.25%
or more. These total return figures are calculated for one,
three, six, and twelve month periods and year-to-date and
include the value of the bond plus income and any price
appreciation or depreciation. (Government Securities Fund)
o 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
32
<PAGE> 219
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, Bond Fund For Income and Quality Bond Funds)
o 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, Bond Fund
For Income and Quality Bond Funds)
o 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)
o 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)
o 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)
o 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, Bond Fund For Income
and Quality Bond Funds)
o 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)
o 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, Equity
Income, Cardinal, Pinnacle, Balanced and Mid Cap Funds)
33
<PAGE> 220
o 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)
o 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, Equity Income, Cardinal,
Pinnacle, Balanced and Mid Cap, Funds)
o 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 described herein may
quote total returns which are calculated on non-standardized base periods. These
total returns also represent the historic change in the value of an investment
in the Funds based on monthly/quarterly reinvestment of dividends over a
specified period of time.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for the Fifth Third Quality Growth Fund, Fifth Third
Equity Income Fund, Fifth Third Pinnacle Fund, Fifth Third Mid Cap Fund, Fifth
Third Balanced Fund, Fifth Third International Equity Fund, Fifth Third Quality
Bond Fund, Fifth Third Bond Fund For Income, Fifth Third U.S. Government
Securities Fund, Fifth Third Municipal Bond Fund and Fifth Third Ohio Tax Free
Bond Fund for the fiscal year ended July 31, 1998, are incorporated herein by
reference to the Fountain Square Stock and Bond Mutual Funds Annual Report to
Shareholders dated July 31, 1998 (SEC File Nos. 33-24848 and 811-5669). A copy
of this Annual Report may be obtained without charge by contacting the Trust at
the address shown on the cover page of this Combined Statement of Additional
Information. The financial statements for Fifth Third Cardinal Fund for the
fiscal year ended September 30, 1998, are included as Appendix B to this
Combined Statement of Additional Information.
34
<PAGE> 221
APPENDIX A -- DESCRIPTION OF BOND RATINGS
- --------------------------------------------------------------------------------
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.
35
<PAGE> 222
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATING DEFINITIONS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
SP-3--Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE SHORT-TERM LOAN RATING DEFINITIONS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
36
<PAGE> 223
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus (+) sign.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will often be evidenced by the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
o 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> 224
APPENDIX B--FINANCIAL STATEMENTS OF THE FIFTH THIRD FUNDS
(CARDINAL FUND AND TAX EXEMPT MONEY MARKET FUND)
- --------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors ........................................... 39
Statements of Assets and Liabilities as of September 30, 1998 ............ 40
Statements of Operations for the year ended September 30, 1998 ........... 41
Statements of Changes in Net Assets for the years ended
September 30, 1998, and 1997 ........................................ 42
Schedule of Portfolio Investments as of September 30,
1998--Fifth Third Cardinal Fund ..................................... 43
Schedule of Portfolio Investments as of September 30,
1998--Fifth Third Tax Exempt Money Market Fund ...................... 46
Notes to Financial Statements ............................................ 48
38
<PAGE> 225
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Fifth Third Funds
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of the Fifth Third Cardinal Fund and the
Fifth Third Tax Exempt Money Market Fund (the Funds) as of September 30, 1998,
and the related statements of operations and statements of changes for the year
then ended and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial statements and financial highlights for the Funds for each
of the respective years or periods ended September 30, 1997 were audited by
other auditors whose report dated November 14, 1997 expressed an unqualified
opinion.
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 and financial highlights. Our procedures included confirmation of
securities owned as of September 30, 1998, by correspondence with the custodian.
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 Funds as of September 30, 1998, the results of their operations, changes
in their net assets, and their financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
October 28, 1998
39
<PAGE> 226
FIFTH THIRD FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Tax Exempt
Cardinal Money Market
Fund Fund
------------- ------------------
<S> <C> <C>
Assets:
Investments, at value (Cost $148,619; $51,702, respectively) $ 256,097 $ 51,702
Repurchase agreements (Cost $2,443; $0, respectively) 2,443 --
--------- --------
Total Investments 258,540 51,702
Cash 1 152
Interest and dividends receivable 386 594
Receivable for Fund shares sold 67 --
Prepaid expenses and other assets 86 78
--------- --------
Total Assets 259,080 52,526
--------- --------
Liabilities:
Income distribution payable -- 46
Payable for Fund shares redeemed 344 --
Accrued expenses and other payables:
Investment advisory fees 38 6
Administration services fee - Institutional Shares 9 --
Distribution services - Investment A Shares 127 --
Accounting and transfer agent fees 34 9
Custodian fees 3 2
Other 80 16
--------- --------
Total Liabilities 635 79
--------- --------
Net Assets:
Paid-in capital 147,032 52,449
Net unrealized appreciation (depreciation) on investments 107,478 --
Accumulated undistributed net realized gains (losses) on investment 3,954 (2)
Accumulated undistributed net investment income (loss) (19) --
--------- --------
Net Assets $ 258,445 $ 52,447
========= ========
Net Assets
Investment A Shares $ 232,903 $ 44,494
Institutional Shares 25,542 7,953
--------- --------
Total $ 258,445 $ 52,447
========= ========
Outstanding units of beneficial interest (shares)
Investment A Shares 15,668 44,496
Institutional Shares 1,719 7,954
--------- --------
Total 17,387 52,450
========= ========
Net asset value
Redemption price per share-Investment A Shares $ 14.87 $ 1.00
========= ========
Offering price per shares-Institutional Shares $ 14.86 $ 1.00
========= ========
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) $ 15.57
=========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
40
<PAGE> 227
FIFTH THIRD FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TAX EXEMPT
CARDINAL MONEY MARKET
FUND FUND
------------ ------------
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 1,068 $ 2,187
Dividend income 4,074 3
Foreign tax withholding (11) --
-------- -------
Total Income 5,131 2,190
-------- -------
EXPENSES:
Investment advisory fees 1,827 304
Administrative fees 4 1
Administrative services fees - Institutional Shares 44 --
Distribution services fees - Investment A Shares 687 --
Organizational costs 11 5
Custodian fees 36 7
Portfolio accounting fees 35 20
Transfer agent fees 188 53
Trustees' fees 30 2
Audit fees 12 6
Legal fees 30 11
Fund share registration fees 57 7
Printing fees 41 12
Insurance fees 25 1
Other 32 6
-------- -------
Total Expenses 3,059 435
-------- -------
Less fees voluntarily reduced (278) (1)
-------- -------
Net Expenses 2,781 434
-------- -------
Net Investment Income (Loss) 2,350 1,756
-------- -------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains(losses) on investments 22,115 (2)
Net change in unrealized appreciation(depreciation) from investments (13,872) --
-------- -------
Net realized and unrealized gains(losses) on investments 8,243 (2)
-------- -------
Change in net assets resulting from operations $ 10,593 $ 1,754
======== =======
</TABLE>
(See Notes which are an integral part of the Financial Statements)
41
<PAGE> 228
FIFTH THIRD FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cardinal Fund Tax Exempt Money Market Fund
------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 (a) 1997
---- ---- -------- ----
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 2,350 $ 2,539 $ 1,756 $ 1,783
Net realized gains (losses) on investment transactions 22,115 19,070 (2) --
Change in unrealized appreciation (depreciation) on investments (13,872) 63,545 -- --
--------- --------- --------- ---------
Change in net assets resulting from operations 10,593 85,154 1,754 1,783
--------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Investment A Shares (2,265) (2,179) (1,750) (1,783)
Institutional Shares (271) (174) (6) --
Distributions in excess of net investment income
Investment A Shares (543) -- -- --
Institutional Shares (65) -- -- --
Distributions from net realized gains
Investment A Shares (31,312) (19,080) -- --
Institutional Shares (3,387) -- -- --
--------- --------- --------- ---------
Change in net assets from distributions (37,843) (21,433) (1,756) (1,783)
--------- --------- --------- ---------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
Investment A Shares
Proceeds from shares issued 15,605 12,835 169,673 155,053
Dividends reinvested 31,761 19,793 1,648 1,668
Cost of shares redeemed (57,668) (51,330) (187,110) (156,352)
--------- --------- --------- ---------
Change in net assets from share transactions (10,302) (18,702) (15,789) 369
--------- --------- --------- ---------
Institutional Shares
Proceeds from shares issued 4,380 24,912 12,864 --
Dividends reinvested 3,721 174 -- --
Cost of shares redeemed (6,893) (4,358) (4,910) --
--------- --------- --------- ---------
Change in net assets from share transactions 1,208 20,728 7,954 --
--------- --------- --------- ---------
Change in net assets (36,344) 65,747 (7,837) 369
NET ASSETS:
Beginning of year 294,789 229,042 60,284 59,915
--------- --------- --------- ---------
End of year $ 258,445 $ 294,789 $ 52,447 $ 60,284
========= ========= ========= =========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
(a) The Tax Exempt Money Market Fund Institutional Shares commenced operations
on September 21, 1998.
42
<PAGE> 229
FIFTH THIRD CARDINAL FUND
Schedule of Portfolio Investments September 30, 1998
(Amounts in thousands except share amounts)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
------ ----------- -----
<S> <C> <C> <C>
COMMON STOCKS (99.1%):
BANKS (5.6%):
30,000 Amsouth Bancorp. $ 1,024
80,000 Banc One Corp. 3,410
30,000 Bank of New York Co., Inc. 821
10,000 Citicorp 929
66,000 Huntington Bancshares, Inc. 1,658
200,000 Key Corp. 5,776
15,000 Mellon Bank Corp. 826
--------------
14,444
--------------
BEVERAGES (3.8%):
50,000 Anheuser Busch, Inc. 2,700
100,000 Coca Cola Co. 5,762
50,000 PepsiCo, Inc. 1,472
--------------
9,934
--------------
BUSINESS SERVICES (0.4%):
30,000 Service Corp. International 956
--------------
COMPUTER SOFTWARE (5.9%):
15,000 Computer Associates International, Inc. 555
50,000 HBO & Co. 1,444
110,000 Microsoft Corp. (b) 12,107
35,000 Oracle Corp. (b) 1,019
--------------
15,125
--------------
COMPUTER SYSTEMS & EQUIPMENT (6.8%):
56,250 Cisco Systems, Inc. (b) 3,477
100,000 Compaq Computer Corp. 3,163
30,000 Computer Sciences Corp. 1,635
52,000 Dell Computer Corp. (b) 3,419
40,000 Hewlett-Packard Co. 2,118
30,000 IBM Corp. 3,839
--------------
17,651
--------------
CONSUMER PRODUCTS (3.5%):
10,000 Clorox Co. 825
50,000 Gillette Co. 1,913
30,000 Kimberly-Clark Corp. 1,215
70,000 Proctor & Gamble Co. 4,965
--------------
8,918
--------------
ELECTRONICS (0.6%):
25,000 Johnson Controls, Inc. 1,162
25,000 Tektronix, Inc. 388
--------------
1,550
--------------
ENTERTAINMENT & LEISURE (1.1%):
20,000 Imax, Inc. 400
100,000 The Walt Disney Co. 2,531
--------------
2,931
--------------
ENVIRONMENTAL CONTROL (0.2%):
35,000 U.S. Filter Corp. (b) 560
--------------
FINANCIAL SERVICES (7.3%):
45,000 American International Group, Inc. 3,465
7,000 Bankers Trust 413
150,000 Charter One Financial Corp. 3,731
175,000 Cincinnati Financial Corp. 5,381
30,000 Fannie Mae 1,928
</TABLE>
43
<PAGE> 230
<TABLE>
<S> <C> <C> <C>
15,000 FHLMC 742
40,000 Household International, Inc. 1,500
10,000 J.P. Morgan & Co. 846
30,000 T. Rowe Price Associates, Inc. 881
--------------
18,887
--------------
HEALTHCARE (9.4%):
100,000 American Home Products 5,239
25,000 Amgen, Inc. (b) 1,889
20,000 Bergen Brunswig Corp. 1,011
60,000 Biomet, Inc. 2,081
30,000 Boston Scientific (b) 1,541
25,000 Guidant Corp. 1,856
75,000 Healthsouth Corp. (b) 792
60,000 Johnson & Johnson 4,695
70,000 Medtronic, Inc. 4,051
40,000 Tenet Healthcare Corp. (b) 1,150
--------------
24,305
--------------
INSURANCE (3.1%):
30,000 Allstate 1,251
135,000 Marsh & McLennan, Inc. 6,716
--------------
7,967
--------------
MACHINERY (5.5%):
20,000 Boeing Co. 686
30,000 Caterpillar, Inc. 1,337
25,000 Deere & Co. 756
140,000 General Electric Co. 11,139
20,000 PRI Automation, Inc. (b) 250
--------------
14,168
--------------
MANUFACTURING (4.2%):
25,000 Minnesota Mining & Manufacturing Co. 1,842
25,000 Monsanto Co. 1,409
80,000 Textron, Inc. 4,850
50,000 Tyco International, Ltd. 2,763
10,864
MEDIA/PUBLISHING (3.0%):
20,000 Clear Channel Communications, Inc. (b) 950
30,000 Gannett Co. 1,607
20,000 Jacor Communications, Inc. (b) 1,013
80,000 New York Times Co., Class A 2,199
40,000 Tribune Co. 2,013
--------------
7,782
--------------
OFFICE EQUIPMENT & SUPPLIES (0.3%):
20,000 Avery Dennison Corp. 874
--------------
OIL & GAS PRODUCERS & SERVICES (9.9%):
60,000 Exxon Corp. 4,211
75,000 Mobil Corp. 5,694
100,000 Royal Dutch Petroleum 4,762
40,000 Schlumberger, Ltd. 2,013
75,000 Texaco, Inc. 4,702
30,000 Transocean Offshore, Inc. 1,041
120,000 Williams Companies, Inc. 3,450
--------------
25,873
--------------
PHARMACEUTICALS (6.9%):
15,000 Cardinal Health, Inc. 1,549
50,000 Merck & Co., Inc. 6,478
70,000 Pfizer, Inc. 7,416
30,000 Warner Lambert, Inc. 2,265
--------------
17,708
--------------
RETAIL (3.8%):
60,000 Consolidated Stores Corp. (b) 1,178
40,000 Kohls Corp. (b) 1,560
</TABLE>
44
<PAGE> 231
<TABLE>
<S> <C> <C> <C>
70,000 Lowe's Companies 2,227
30,000 McDonald's Corp. 1,791
45,000 Pier One Imports, Inc. 338
50,000 Wal-Mart Stores, Inc. 2,730
--------------
9,824
--------------
SEMICONDUCTORS (4.2%):
90,000 Intel Corp. 7,717
10,000 KLA-Tencor Corp. (b) 249
40,000 Motorola, Inc. 1,708
20,000 Texas Instruments, Inc. 1,055
--------------
10,729
--------------
TECHNOLOGY (1.6%):
40,000 Applied Materials (b) 1,010
10,000 Aspen Technology, Inc. (b) 268
51,400 Dupont (E.I.) de Nemours & Co. 2,884
--------------
4,162
--------------
TELECOMMUNICATIONS & EQUIPMENT (8.3%):
50,000 GTE Corp. 2,750
80,000 Lucent Technologies, Inc. 5,525
133,439 MCI Worldcom, Inc. (b) 6,521
58,305 Qwest Communication International (b) 1,826
40,000 Sprint Corp. 2,880
50,000 Tellabs, Inc. (b) 1,991
--------------
21,493
--------------
TOBACCO PRODUCTS (2.7%):
150,000 Philip Morris Companies, Inc. 6,909
--------------
UTILITIES (1.0%):
60,000 Western Resources, Inc. 2,483
--------------
TOTAL COMMON STOCKS 256,097
--------------
CASH EQUIVALENTS (0.9%):
REPURCHASE AGREEMENTS (0.9%):
$2,443 Warburg, 5.50%, dated 9/30/98, due 10/1/98 (at amortized 2,443
cost), collateralized by U.S. Treasury Notes, 7.50%, due --------------
11/15/01, with a value of $20, and U.S. Treasury
Bonds, 11.25%, due 2/15/15 with a value of $2,473.
TOTAL CASH EQUIVALENTS 2,443
--------------
TOTAL INVESTMENTS (COST $151,062) (a) - 100.0% 258,540
LIABILITIES IN EXCESS OF OTHER ASSETS - 0.0% (95)
--------------
TOTAL NET ASSETS - 100.0% $ 258,445
==============
</TABLE>
- ------------
(a) Represents cost for financial reporting and federal tax purposes. The
net unrealized appreciation of investments for federal tax basis amounts
to $107,478, which is composed of $117,112 appreciation and $9,634
depreciation at September 30, 1998.
(b) Non-income producing security.
See notes which are an integral part of the financial statements
45
<PAGE> 232
FIFTH THIRD TAX EXEMPT MONEY MARKET
Schedule of Portfolio Investments September 30, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
------ ----------- ----
<S> <C> <C>
CERTIFICATE OF PARTICIPATION (1.0%):
500 Wood County, Ohio, 7.88%, due 12/1/13 $ 513
---------------
TOTAL CERTIFICATE OF PARTICIPATION 513
---------------
COMMERCIAL PAPER (7.6%):
1,000 Cleveland, Ohio, 3.35%, due 10/14/98 1,000
1,000 Illinois Health, 3.45%, due 10/27/98 1,000
1,000 Illinois Health, 3.55%, due 10/30/98 1,000
1,000 Massachusetts Bay Transportation, 3.38%, due 12/7/98 1,000
---------------
TOTAL COMMERCIAL PAPER 4,000
---------------
MUNICIPAL BONDS (88.1%):
General Obligation (21.0%):
995 Brown City, Michigan, School District, 4.10%, due 8/20/98 1,000
1,000 Chicago, Illinois, Floating Rate Note, 3.55%,10/21/98 (b) 1,000
1,000 Chicago, Illinois, Floating Rate Note, 3.60%, 1/1/06 1,000
1,255 Delaware, Ohio, 3.90%, due 6/2/99 1,256
2,650 Fairfield, Ohio, 3.90%, due 6/11/99 2,653
1,500 Hamilton County, Ohio, 3.75%, due 6/11/99 1,500
300 Hilliard, Ohio, 3.85%, due 9/9/99 301
610 Hudson, Ohio, 3.95%, due 5/4/99 610
1,025 Lakewood, Ohio, 3.60%, due 12/1/98 1,025
400 London, Ohio, 4.25%, due 7/22/99 401
275 Wapakoneta, Ohio, 4.80%, due 6/23/99 277
---------------
11,023
---------------
Revenue Bonds (67.1%):
1,000 Allen County, Ohio, Health Care, Floating Rate Note, 2.90%, 1,000
10/21/98 (b)
2,400 Ashtabula County, Ohio, Industrial Development, 3.75%, due 2,400
12/1/16
800 Burke County, Georgia, Development Authority, Floating Rate 800
Note, 4.05%, 10/1/98 (b)
2,230 Clark County, Kentucky, Pollution Control, 3.75%, due 2,230
10/15/14
1,040 Columbus, Indiana, Floating Rate Note, 4.15%, 10/1/98 (b) 1,040
1,475 Dade County, Florida, Aviation, 5.00%, due 10/1/98 1,475
400 Delaware City, Pennsylvania, 3.95%, due 12/1/15 400
2,000 Grand Rapids, Michigan, Water Supply, 3.50%, due 1/1/20 2,000
1,920 Hamilton County, Ohio, 3.45%, due 1/1/18 1,920
100 Harris County, Texas, 4.10%, due 2/15/27 100
1,000 Indiana, Health Facility Financing Authority, 3.90%, due 1,001
11/1/98
500 Kansas City, Missouri, Health Revenue Bond, Floating Rate 500
Note, 4.16%, 10/1/98 (b)
200 Kansas City, Missouri, Industrial Development Authority, 200
Floating Rate Note, 4.10%, 10/1/98 (b)
900 Kentucky, Development Financial Authority, 3.90%, due 900
12/2/15
1,000 Kentucky, Higher Education, 4.55%, due 6/1/98 1,007
1,200 Lexington Fayette County, Kentucky, 3.70%, due 4/1/99 1,200
</TABLE>
46
<PAGE> 233
<TABLE>
<S> <C> <C>
500 Lubbock, Texas, Floating Rate Note, 4.10%, 10/1/98 (b) 500
1,000 Metro Service District of Oregon, 6.75%, due 7/1/22 1,049
800 Michigan Hospital Facility, 3.55%, due 12/1/23 800
1,800 Michigan State Hospital Finance Authority, 3.55%, due 1,800
12/1/23
1,000 Missouri Higher Education, 4.20%, due 8/15/99 1,005
1,750 Ohio Building Referendum, Disalles, Ohio, 5.00%, due 1,750
10/1/98
1,000 Ohio Facilities, 4.50%, due 11/1/98 1,001
1,850 Ohio State Building Authority, 5.00%, due 10/1/98 1,850
500 Ohio State Building Authority, 7.75%, due 10/1/08 510
1,000 Ohio State University, 7.15%, due 12/1/09 1,026
100 Perry County, Mississippi, Floating Rate Note, 4.05%, 100
10/1/98 (b)
300 Phoenix, Arizona, 4.00%, due 7/1/99 301
2,000 Student Loan Funding, Ohio, 3.55%, due 12/29/98 2,000
2,000 Unita County, Wyoming, Pollution Control, Floating Rate 2,000
Note, 3.65%, 10/16/98 (b)
1,300 Washington State, Health, Floating Rate Note, 4.05%, 1,300
10/1/98 (b) ---------------
35,165
---------------
TOTAL MUNICIPAL BONDS 46,188
---------------
WARRANTS (1.9%):
1,000 West Lafayette, Indiana, Community School Tax, 4.07%, due 1,001
12/31/98 ---------------
TOTAL WARRANTS 1,001
---------------
TOTAL INVESTMENTS (AMORTIZED COST $51,702) (a) - 98.6% 51,702
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.4% 745
---------------
TOTAL NET ASSETS - 100.0% $ 52,447
===============
</TABLE>
- ------------
Percentages indicated are based on net assets of $52,447.
(a) Also represents cost for federal tax purposes.
(b) Current rate and next reset date shown.
See notes which are an integral part of the financial statements.
47
<PAGE> 234
FIFTH THIRD FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. ORGANIZATION
Fifth Third Funds, formerly known as the 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 September 30, 1998, the Trust
consisted of sixteen separate investment portfolios. The accompanying financial
statements and notes relate only to the Fifth Third Cardinal Fund (the "Cardinal
Fund") and the Fifth Third Tax Exempt Money Market Fund (the "Tax Exempt Money
Market Fund") (collectively, "the Funds").
The Funds each issue two classes of shares: Investment A shares and
Institutional shares. Investment A shares are subject to initial sales charges
imposed at the time of purchase, in accordance with the Funds' prospectuses.
Each class of shares has identical rights and privileges except with respect to
distribution (12b-1) fees paid by the Investment A Class, voting rights on
matters affecting a single class of shares, and the exchange privileges of each
class of shares. The Tax Exempt Money Market Fund commenced operations of the
Institutional shares on September 21, 1998.
2. REORGANIZATION
The Trust entered into an Agreement and Plan of Reorganization and Liquidation
with The Cardinal Group pursuant to which all of the assets and liabilities of
each Cardinal Group Portfolio transferred to a portfolio of the Trust in
exchange for shares of the corresponding portfolio of the Trust. The Cardinal
Government Obligations Fund transferred its assets and liabilities to the Fifth
Third Bond Fund For Income. The Cardinal Government Securities Money Market Fund
transferred its assets and liabilities to the Fifth Third Government Cash
Reserves Fund. The Cardinal Balanced Fund transferred its assets and liabilities
to the Fifth Third Balanced Fund. The Cardinal Aggressive Growth Fund
transferred its assets and liabilities to the Fifth Third Midcap Fund. The
Cardinal Fund transferred its assets and liabilities to the Fifth Third Cardinal
Fund. The Cardinal Tax Exempt Money Market Fund transferred its assets and
liabilities to the Fifth Third Tax Exempt Money Market Fund. The reorganization,
which qualified as a tax-free exchange for federal income purposes, was
completed on September 21, 1998 and was approved by shareholders of The Cardinal
Group at a special shareholder meeting held on July 24, 1998. The following is a
summary of shares outstanding, net assets, net asset value per share and
unrealized appreciation immediately before and after the reorganization for the
Cardinal Fund and Tax Exempt Money Market Fund:
48
<PAGE> 235
<TABLE>
<CAPTION>
After
Before Reorganization Reorganization
--------------------- --------------
Fifth Third Fifth Third
Cardinal Cardinal Cardinal
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Shares (000) 17,572 0 17,572
Net Assets (000) $263,745 $0 $263,745
Net Asset Value--Investment A $ 15.01 $0 $ 15.01
Unrealized appreciation (000) $113,875 $0 $113,875
</TABLE>
<TABLE>
<CAPTION>
After
Before Reorganization Reorganization
--------------------- --------------
Cardinal Fifth Third Fifth Third
Tax Exempt Tax Exempt Tax Exempt
Money Market Money Market Money Market
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Shares (000) 54,034 0 54,034
Net Assets (000) $54,032 $0 $54,032
Net Asset Value $ 1.00 $0 $ 1.00
Unrealized appreciation (000) $ 0 $0 $ 0
</TABLE>
3. SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders of The Cardinal Group was held on July 24,
1998. At the Meeting, shareholders voted on the approval of the Agreement and
Plan of Reorganization and Liquidation by and between Fifth Third Funds, Fifth
Third Bank, The Cardinal Group and Cardinal Management Corp. ("CMC"). The
results of this vote by shareholders was as follows:
For Against Abstain
--- ------- -------
307,245,979 11,856,341 13,544,912
A Special Meeting of Shareholders of The Cardinal Group was held on March 20,
1998. At the Meeting. shareholders voted to approve a new Investment Advisory
and Management Agreement with CMC pending the proposed merger of Fifth Third
Bancorp with The Ohio Company ("TOC"). CMC is a wholly owned subsidiary of TOC.
The results of this vote by shareholders was as follows:
For Against Abstain
--- ------- -------
609,293,256 6,638,335 21,391,628
49
<PAGE> 236
4. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies that the Trust
follows in the preparation of its financial statements and the calculation of
daily net asset values. The policies are in conformity with general accepted
accounting principles and the Act. The preparation of these financial statements
requires the management of the Trust to make estimates and assumptions which
affect the reported amounts of assets and liabilities as of September 30, 1998
and the income and expenses reported for the period. Actual results could differ
significantly from those estimates.
SECURITIES VALUATION
Investments in Tax Exempt Money Market Fund are valued at amortized cost, which
approximates 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 fund 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 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 specific
identification basis.
REPURCHASE AGREEMENTS The Funds may purchase instruments from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase them at an agreed upon time and price ("repurchase
agreements"). The seller under a repurchase agreement is required to maintain
the value of the securities subject to the agreement at not less than the
repurchase price. Default by the seller would, however, expose the relevant
Funds to possible loss because of adverse market action or delay in connection
with the disposition of the underlying obligations. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreements. Accordingly, the Funds could receive less than the carrying value
upon the sale of the underlying collateral securities.
FEDERAL INCOME TAXES The Trust has made no provision for Federal income taxes.
It is the intention of the management of the Trust to comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies and to
make sufficient distributions of
50
<PAGE> 237
taxable income and gains within the required time, to relieve it from all, or
substantially all, Federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS The Tax Exempt Money Market Fund declares
dividends from net investment income daily and pays them to shareholders
monthly. The Cardinal Fund declares and pays dividends from net investment
income, if any, quarterly. Realized capital gains, if any, are declared and paid
annually by the Trust. Distributions of net investment income and realized
capital gains are determined in accordance with the income tax regulations which
may differ with generally accepted accounting principles. These differences are
primarily due to differing treatments for expiring capital loss carryforwards
and deferrals of certain losses.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are classified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassifications.
Dividends and distributions to shareholders which exceed net investment income
and net realized gains for financial reporting purposes but not for tax purposes
are reported as dividends in excess of net investment income or distributions in
excess of net realized gains. To the extent they exceed net investment income
and net realized gains for tax purposes, they are reported as distribution of
capital.
As of September 30, 1998, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to
paid-in-capital (in thousands):
ACCUMULATED ACCUMULATED NET
UNDISTRIBUTED NET REALIZED GAIN/(LOSS)
INVESTMENT INCOME ON INVESTMENTS
----------------- --------------
Cardinal Fund $589 $(3,169)
OPTION WRITING When the Cardinal Fund 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 Fund on
the expiration date. The difference, if any, between the premium received and
the amount paid in a closing transaction is also treated as 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 which write options bear the market risk of an unfavorable change
in the price of any security/index underlying the written option.
51
<PAGE> 238
Written option activity for the year ended September 30, 1998 was as follows:
<TABLE>
<CAPTION>
CARDINAL FUND
-------------
Put Options Call Options
----------- ------------
Number Number
of contracts Premium of contracts Premium
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Contracts outstanding at 9/30/97 600 $ 2,194,000 600 $ 858,000
Contracts written 760 300,000
Contracts expired (700) (932,000) (600) (858,000)
Contracts exercised (660) (1,562,000)
---- ----------- ---- ---------
Contracts outstanding at 9/30/98 0 $ 0 0 $ 0
==== =========== ==== =========
</TABLE>
EXPENSE ALLOCATION Expenses directly related to one of the Trust's portfolios or
classes are charged to that portfolio or class. Other operating expenses are
allocated to the Trust based on their relative net assets.
5. PURCHASE AND SALES SECURITIES
The purchases and sales of investment securities (excluding short-term
securities) for the year ended September 30, 1998 were as follows (in
thousands):
Purchases Sales
--------- -----
Cardinal Fund $41,160 $65,972
6. TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee -- Prior to June 12, 1998, CMC, a wholly owned
subsidiary of TOC acted as investment advisor and transfer agent for the
Cardinal Fund and Tax Exempt Money Market Fund under contracts monitored and
annually approved by the Board of Trustees. CMC also provided certain
administrative services for the Funds. On June 12, 1998, TOC became a wholly
owned subsidiary of Fifth Third Bancorp. At that time, the shareholders approved
the new investment advisory agreement as discussed in Note 3. CMC received a fee
based on the net assets of each portfolio. As a result of the merger of the
Fifth Third Funds and The Cardinal Group, Fifth Third Bank became the investment
advisor on September 21, 1998 and began receiving fees based on the net assets
of each portfolio. CMC and Fifth Third Bank each received annualized investment
advisory fees of 0.50% (Tax Exempt Money Market Fund) and 0.60% (Cardinal Fund)
of net assets for the respective time periods that they served as investment
advisor during the year ended September 30, 1998. CMC voluntarily waived $50,000
in investment advisory fees on the Cardinal Fund during the year ended September
30, 1998. Fifth Third Bank also began serving as transfer agent and dividend
disbursing agent for the Funds on September 21, 1998 for which it receives a
fee. Fifth Third Bank subcontracts the execution of the transfer and dividend
disbursing agent functions to a non-affiliated entity.
52
<PAGE> 239
Distribution Services Fee -- TOC served as the Cardinal Fund's distributor until
June 12, 1998. TOC received fees from the Cardinal 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 Cardinal Fund paid TOC an annual fee not to exceed 0.25% of the
average net assets of the Investment A shares of the fund for providing
distribution and shareholder services. During the year ended September 30, 1998
TOC voluntarily waived $202,000 in distribution servicing fees on the Cardinal
Fund.
BISYS Fund Services ("BISYS") began serving as the Cardinal Fund's principal
distributor pursuant to an agreement between BISYS and The Cardinal Group dated
June 12, 1998. The terms of the agreement were identical to the Distribution and
Shareholder Service Plan noted above.
After the merger of The Cardinal Group and Fifth Third Funds on September 21,
1998, BISYS began serving as the Cardinal Fund and the Tax Exempt Money Market
Fund's principal distributor under the Trust's agreement. In accordance with
Rule 12b-1 under the 1940 Act, the Trust entered into a Distribution Plan with
BISYS with respect to Investment A shares. Under the Distribution Plan, the
Funds may pay a fee not to exceed 0.25% or the average net assets of the
Investment A shares of the Fund to the Distributor. These fees may be used by
BISYS to pay banks, broker dealers and other institutions, or to reimburse BISYS
or its affiliates for administration, distribution and shareholder service
assistance in connection with the distribution of the fund.
Administrative Services Fee -- Under the Administrative Services Plan, TOC
received 0.15% of the average net assets of the Institutional shares of the
Cardinal Fund for providing shareholder services. TOC voluntarily waived $22,000
in administrative servicing fees on the Cardinal Fund during the year ended
September 30, 1998. The Administrative Services Plan for Institutional shares
was terminated on September 21, 1998.
Administrative Fee -- As of September 21, 1998, the date of the merger, BISYS
serves as the Funds' administrator. The administrator generally assists in all
aspects of the Funds' administration and operation including providing the Funds
with certain administrative personnel and services necessary to operate the
Funds. 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. 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 0.20% 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 period ended September 30, 1998, BISYS waived $4,000 and $1,000
for the Cardinal Fund and Tax Exempt Money Market Fund, respectively.
Accounting and Custody Fees -- Fifth Third Bank maintains the Trust's accounting
records 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.
53
<PAGE> 240
Fifth Third Bank is the Trust's custodian for which it receives a fee. The fee
is based on the level of each Fund's average net assets for the period, plus
out-of-pocket expenses.
Certain Officers and Trustees of the Trust are officers and Trustees of the
above companies but are not paid any fees directly by the Trust for serving as
Officers and Trustees of the Trust.
7. INSURANCE
Fidelity Bond and Errors/Omissions insurance coverage for the Funds and its
Officers and Trustees had been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. The Funds include,
in other assets, deposits made for the initial capital and certificates of
deposits that collateralized standby letters of credit sponsoring 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 and
certificates of deposit of the Funds:
CERTIFICATES
DEPOSITS OF DEPOSITS
-------- -----------
Cardinal Fund $28,588 $56,600
Tax Exempt Money Market Fund 13,291 27,000
8. FEDERAL INCOME TAX INFORMATION (UNAUDITED) (IN THOUSANDS)
During the year ended September 30, 1998 the Cardinal Fund declared long-term
capital distributions of $32,104.
For corporate shareholders of the Cardinal Fund 100% of the total ordinary
income distributions paid during the fiscal year ended September 30, 1998,
qualify for the corporate dividend received deductions.
During the year ended September 30, 1998, the Tax Exempt Money Market Fund
declared tax-exempt income distributions of $1,710.
9. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Funds for the years ended September 30,
1998 and 1997 were as follows (in thousands):
54
<PAGE> 241
FIFTH THIRD FUNDS
CAPITAL SHARE TRANSACTIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TAX EXEMPT MONEY
CARDINAL FUND MARKET FUND (a)
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
For the year ended September 30, 1998:
Investment A Shares:
Shares issued 961 $ 15,605 169,674 $ 169,673
Dividends reinvested 2,062 31,761 1,648 1,648
Shares redeemed (3,449) (57,668) (187,110) (187,110)
------ -------- -------- ---------
Net increase (decrease) Investment A Shares (426) $(10,302) (15,788) $ (15,789)
====== ======== ======== =========
Institutional Shares:
Shares issued 261 $ 4,380 12,864 $ 12,864
Dividends reinvested 242 3,721 -- --
Shares redeemed (399) (6,893) (4,910) (4,910)
------ -------- -------- ---------
Net increase (decrease) Institutional Shares 104 $ 1,208 7,954 $ 7,954
====== ======== ======== =========
For the year ended September 30, 1997:
Investment A Shares:
Shares issued 989 $ 12,835 155,053 $ 155,053
Dividends reinvested 1,512 19,793 1,668 1,668
Shares redeemed (3,845) (51,330) (156,352) (156,352)
------ -------- -------- ---------
Net increase (decrease) Investment A Shares (1,344) $(18,702) 369 $ 369
====== ======== ======== =========
Institutional Shares:
Shares issued 1,894 $ 24,912 -- $ --
Dividends reinvested 12 174 -- --
Shares redeemed (291) (4,358) -- --
------ -------- -------- ---------
Net increase Institutional Shares 1,615 $ 20,728 -- $ --
====== ======== ======== =========
</TABLE>
(a) The Tax Exempt Money Market Institutional Shares commenced operations
on September 21, 1998.
55
<PAGE> 242
FIFTH THIRD FUNDS
(formerly Fountain Square Funds)
INVESTMENT A SHARES
(formerly Investment Shares)
INSTITUTIONAL SHARES
(formerly Trust Shares)
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information relates only to the following
portfolios (the "Funds") of Fifth Third Funds (the "Trust"):
o Fifth Third Government Cash Reserves Fund (Investment A Shares and
Institutional Shares);
o Fifth Third Commercial Paper Fund (Investment A Shares and
Institutional Shares);
o Fifth Third Tax Exempt Money Market Fund (Investment A Shares and
Institutional Shares); and
o Fifth Third U.S. Treasury Obligations Fund (Institutional Shares only)
This Combined Statement of Additional Information should be read with the
applicable share class Prospectus for the Funds dated November 2, 1998. This
Statement is not a prospectus itself. To receive a copy of the appropriate
Prospectus, please write the Trust or call toll-free (888) 799-5353.
FIFTH THIRD FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
November 2, 1998
<PAGE> 243
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
General Information About the Trust......................................1
Investment Objectives and Policies.......................................1
Types of Investments-Commercial Paper Fund......................1
Types of Investments-Government Cash Reserves Fund..............2
Types of Investments-U.S. Treasury Obligations Fund.............2
Types of Investments-Tax Exempt Money Market Fund...............2
When-Issued and Delayed Delivery Transactions...................4
Repurchase Agreements...........................................4
Reverse Repurchase Agreements...................................4
Lending of Portfolio Securities.................................5
Restricted and Illiquid Securities..............................5
Fundamental Investment Limitations..............................6
Other Investment Limitations....................................8
Fifth Third Funds Management.............................................9
Officers and Trustees...........................................9
Fund Ownership.................................................10
Trustees' Compensation.........................................11
Trustee Liability..............................................11
Investment Advisory Services............................................11
Advisor to the Trust...........................................11
Advisory Fees..................................................11
Administrative Services.................................................12
Administrator of the Trust.....................................12
Custodian, Transfer Agent and Dividend Disbursing Agent........12
Brokerage Transactions..................................................13
Purchasing Shares.......................................................14
Distribution Plan (Investment A Shares)........................14
Conversion to Federal Funds....................................14
Determining Net Asset Value.............................................15
Use of the Amortized Cost Method...............................15
Redeeming Shares........................................................16
Redemption in Kind.............................................16
Tax Status..............................................................16
The Funds' Tax Status..........................................16
Shareholders' Tax Status.......................................17
State and Local Taxes..........................................17
Yield...................................................................17
Tax Equivalency Table..........................................18
Effective Yield.........................................................18
Performance Comparisons.................................................19
Financial Statements....................................................19
Appendix A--Financial Statements of the Fifth Third Funds (Cardinal
Fund and Tax Exempt Money Market Fund).........................20
i
<PAGE> 244
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 Institutional Shares of the
Fifth Third Government Cash Reserves Fund ("Government Cash Reserves Fund"),
Fifth Third Commercial Paper Fund ("Commercial Paper Fund") and Fifth Third Tax
Exempt Money Market Fund ("Tax Exempt Money Market Fund"), and Institutional
Shares of the Fifth Third U.S. Treasury Obligations Fund ("Treasury Obligations
Fund").
All of these Funds are advised by Fifth Third Bank ("Fifth Third Bank" or the
"Advisor").
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Prospectuses for the Funds described herein discuss the objectives of each
Fund and the policies employed to achieve those objectives. The following
discussion supplements the description of the Funds' investment policies in the
Prospectuses. 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 without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
TYPES OF INVESTMENTS-COMMERCIAL PAPER FUND
The Commercial Paper Fund invests in money market instruments which mature in 13
months or less. At least 65% of the total assets of the Fund will be invested in
commercial paper. The remaining portion of the Commercial Paper Fund assets will
be invested in money market instruments which include, but are not limited to,
U.S. government obligations and bank instruments.
U.S. GOVERNMENT OBLIGATIONS. The types of U.S. government obligations in which
the Commercial Paper Fund may invest generally include direct obligations of the
U.S. Treasury, such as U.S. Treasury bills, notes, and bonds, and obligations
issued or guaranteed by U.S. government agencies or instrumentalities. These
securities are backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
o Farm Credit Banks;
o Federal Home Loan Banks;
o Federal National Mortgage Association;
o Student Loan Marketing Association; and
o Federal Home Loan Mortgage Corporation.
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<PAGE> 245
BANK INSTRUMENTS. The instruments of banks and savings and loans whose deposits
are insured by Bank Insurance Fund ("BIF") or the Savings Association Insurance
Fund ("SAIF"), such as certificates of deposit, demand and time deposits, and
bankers' acceptances, are not necessarily guaranteed by that organization.
In addition to domestic bank obligations such as certificates of deposit, demand
and time deposits, and bankers' acceptances, the Commercial Paper Fund may
invest in:
o Eurodollar Certificates of Deposit issued by foreign branches of U.S.
or foreign banks;
o Eurodollar Time Deposits, which are U.S. dollar-denominated deposits
in foreign branches of U.S. or foreign banks; and
o Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and
held in the United States.
TYPES OF INVESTMENTS-GOVERNMENT CASH RESERVES FUND
The Government Cash Reserves 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 Government Cash Reserves 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 Government Cash Reserves 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.
TYPES OF INVESTMENTS-U.S. TREASURY OBLIGATIONS FUND
The U.S. Treasury Obligations Fund invests in U.S. Treasury obligations maturing
in one year or less. U.S. Treasury obligations as used herein refers to
evidences of indebtedness issued by the United States, which are fully
guaranteed as to principal and interest by the United States maturing in one
year or less from the date of acquisition. The Fund may also retain Fund assets
in cash.
TYPES OF INVESTMENTS-TAX EXEMPT MONEY MARKET FUND
The Tax Exempt Money Market Fund invests primarily in short-term municipal
securities.
MUNICIPAL SECURITIES. The Tax Exempt Money Market Fund may invest in municipal
securities which have the characteristics set forth in the Prospectuses. If a
high-rated bond loses its ratings or has its rating reduced after the Fund has
purchased it, the Fund is not required to drop the bond from the portfolio, but
will consider doing so. If ratings made by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service,
Inc. ("Fitch") change because of changes in those organizations or in their
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<PAGE> 246
rating systems, the Fund will try to use comparable ratings as standards in
accordance with the investment policies described in the Fund's Prospectuses.
Examples of municipal securities are:
o 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;
o municipal notes and tax-exempt commercial paper;
o serial bonds;
o tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes at a later date;
o bond anticipation notes sold in anticipation of the issuance of
long-term bonds in the future;
o pre-refunded municipal bonds whose timely payment of interest and
principal is ensured by an escrow of U.S. government obligations; and
o general obligation bonds.
VARIABLE RATE DEMAND MUNICIPAL SECURITIES. The Tax Exempt Money Market Fund
intends to invest more than 25% of its assets in variable rate demand 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 Tax Exempt Money Market Fund are subject to repayment of
principal (usually within seven days) on the Fund's demand. The terms of these
variable-rate demand instruments require payment of principal and accrued
interest from the issuer of the municipal obligations, the issuer of the
participation interests, or a guarantor of either issuer.
Variable rate demand municipal securities in which the Tax Exempt Money Market
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 Fund's assets
are invested in variable rate demand municipal securities supported by such
letters of credit or guarantees, the Fund may be deemed to be concentrated in
the banking industry.
PARTICIPATION INTERESTS. The Tax Exempt Money Market Fund may invest in
participation interests. The financial institutions from which the 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).
MUNICIPAL LEASES. The Tax Exempt Money Market Fund may purchase municipal
securities in the form of participation interests which represent undivided
proportional interests in lease payments by a governmental or non-profit entity.
The lease payments and other rights under the lease provide for and secure the
payments on the certificates. Lease obligations may be limited by municipal
charter or the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does not
appropriate funds for future lease payments, the entity cannot be compelled to
make such payments. Furthermore, a lease may provide that the certificate
trustee cannot accelerate lease obligations upon default. The trustee would only
be able to enforce lease payments as they become due. In the event of a default
or failure of appropriation, it is unlikely that the trustee would be able to
obtain an acceptable substitute source
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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.
BANK INSTRUMENTS. The Tax Exempt Money Market Fund may invest in the instruments
of banks and savings and loan associations 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.
TEMPORARY INVESTMENTS. The Tax Exempt Money Market 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
Tax Exempt Money Market Fund may invest a portion of its assets in cash. Any
portion of the Fund's assets maintained in cash will reduce the amount of assets
in municipal bonds and thereby reduce the Fund's yield.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each of the Funds described herein may participate in 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. None of
the Funds described herein intends to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20% of
the total value of its assets.
REPURCHASE AGREEMENTS
Each of the Commercial Paper Fund, Tax Exempt Money Market Fund and Treasury
Obligations Fund may enter into repurchase agreements. A Fund or its custodian
will take possession of the securities subject to repurchase agreements and
these securities will be marked to market daily. To the extent that the original
seller does not repurchase the securities from a Fund, the Fund could receive
less than the repurchase price on any sale of such securities. In the event that
such a defaulting seller filed for bankruptcy or became insolvent, disposition
of such securities by the Fund might be delayed pending court action. The Trust
believes that under the regular procedures normally in effect for custody of a
Fund's portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The above-mentioned Funds will only enter into
repurchase agreements with banks and other recognized financial institutions
such as broker/dealers, which are deemed by the Fund's Advisor to be
creditworthy, pursuant to guidelines established by the Board of Trustees.
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REVERSE REPURCHASE AGREEMENTS
Each of the Commercial Paper Fund, Tax Exempt Money Market Fund and Treasury
Obligations Fund may also enter into reverse repurchase agreements. This
transaction is 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 the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable 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 the 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 the Fund's records at the trade date. These securities are
market to market daily and maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
Each of the Funds described herein may lend 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 the 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
Each of the Funds described herein 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 Trust believes that Section 4(2)
securities and possibly certain other restricted securities which meet the
criteria for liquidity established by the Trustees are quite liquid. The Funds
intend, therefore, to treat the restricted securities which meet the criteria
for liquidity established by the Trustees, including Section 4(2) securities, as
determined by the Advisor, as liquid and not subject to the investment
limitation applicable to illiquid securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange commission ("SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Trust believes that the Staff of the SEC has left the question of
determining
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<PAGE> 249
the liquidity of all restricted securities to the Trustees. The Trustees
consider the following criteria in determining the liquidity of certain
restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers:
o dealer undertakings to make a market in the security: and
o the nature of the security and the nature of the marketplace trades.
FUNDAMENTAL INVESTMENT LIMITATIONS
The following investment limitations have been designated as "fundamental"
investment policies and cannot be changed without shareholder approval.
SELLING SHORT AND BUYING ON MARGIN. None of the Funds described herein will sell
any securities short or purchase any securities on margin, but each may obtain
such short-term credit as may be necessary for clearance of purchases and sales.
ISSUING SENIOR SECURITIES AND BORROWING MONEY. None of the Funds described
herein will issue senior securities, except that a Fund may borrow money
directly or through reverse repurchase agreements as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in excess of 5%
of the value of its total assets (except for the Government Cash Reserves Fund)
or in an amount up to one-third of the value of its total assets, including the
amount borrowed, in order to meet redemption requests without immediately
selling portfolio instruments. Any direct borrowings need not be collateralized.
None of the Funds described herein considers the issuance of separate classes of
shares to involve the issuance of "senior securities" within the meaning of this
investment limitation.
Neither the Government Cash Reserves Fund nor the Tax Exempt MoneyMarket Fund
will purchase any securities while borrowings in excess of 5% of its total
assets are outstanding. The Treasury Obligations Fund will not borrow money or
engage in reverse repurchase agreements for investment leverage purposes. None
of the Funds described herein has any present intention to borrow money.
PLEDGING SECURITIES OR ASSETS. The Commercial Paper Fund will not pledge
securities. None of the Government Cash Reserves Fund, Tax Exempt Money Market
Fund or Treasury Obligations Fund will 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.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR REAL ESTATE. The Commercial
Paper Fund will not invest in commodities, commodity contracts, or real estate,
except that it may purchase money market instruments issued by companies that
invest in real estate or sponsor such interests. The Tax Exempt Money Market
Fund will not purchase or sell commodities, commodity contracts, commodity
futures contracts or real estate, including limited partnership interests,
although the Tax Exempt Money Market Fund may invest in the 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> 250
UNDERWRITING. The Commercial Paper Fund will not engage in underwriting of
securities issued by others. The Tax Exempt Money Market Fund will not
underwrite any issue of securities, except as the 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.
LENDING CASH OR SECURITIES. None of the Funds described herein will lend any of
its assets, except that the Government Cash Reserves Fund may purchase or hold
U.S. government securities permitted by its investment objective, policies and
limitations, the Commercial Paper Fund may purchase or hold money market
instruments, including repurchase agreements and variable rate demand notes,
permitted by its investment objective and policies, the Tax Exempt Money Market
Fund may purchase or hold U.S. government securities permitted by its investment
objective, policies and limitations, and the Treasury Obligations Fund may
purchase or hold U.S. Treasury obligations, including repurchase agreements,
permitted by its investment objective and policies.
ACQUIRING VOTING SECURITIES. The Commercial Paper Fund will not acquire the
voting securities of any issuer. It will not invest in securities of a company
for the purpose of exercising control or management.
The Tax Exempt Money Market Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer. For purposes of this
limitation, non-governmental users of facilities financed by industrial
development or pollution control revenue bonds and banks issuing letters of
credit or comparable guarantees supporting variable rate demand municipal
securities are considered to be issuers.
DIVERSIFICATION OF INVESTMENTS. With respect to 75% of the value of its total
assets, the Commercial Paper Fund will not purchase securities issued by any one
issuer having a value of more than 5% of the value of its total assets except
repurchase agreements and U.S. government obligations. The total amount of the
remaining 25% of the value of the Commercial Paper Fund's total assets may be
invested in a single issuer if the Advisor believes such a strategy to be
prudent.
The Commercial Paper Fund considers the type of bank obligations it purchases to
be cash items.
With respect to 75% of the value of its total assets, the Tax Exempt Money
Market 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
its total assets would be invested in the securities of that issuer. For
purposes of this limitation, non-governmental users of facilities financed by
industrial development or pollution control revenue bonds and banks issuing
letters of credit or comparable guarantees supporting variable rate demand
municipal securities are considered to be issuers.
CONCENTRATION OF INVESTMENTS. The Commercial Paper Fund will not invest more
than 25% of the value of its total assets in any one industry except commercial
paper of finance companies. However, the Commercial Paper Fund reserves the
right to invest more than 25% of its net assets in domestic bank instruments
(such as time and demand deposits and certificates of deposit), U.S. government
obligations or instruments secured by these money market instruments, such as
repurchase agreements. The Commercial Paper Fund will not invest more than 25%
of its net assets in instruments of foreign banks.
The Tax Exempt Money Market Fund will not purchase securities if, as a result of
such purchase, 25% or more of the value of its total assets would be invested in
any one industry; provided that, this limitation shall not
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apply to industrial development bonds or other securities, the interest upon
which is paid from revenues of similar types of projects, securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, or
variable rate demand municipal securities supported by letters of credit or
guarantees.
DEALING IN PUTS AND CALLS. The Tax Exempt Money Market Fund will not buy or sell
puts, calls, straddles, spreads, or any combination of these.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. Each of the Commercial
Paper Fund and the Treasury Obligations Fund can acquire up to 3% of the total
outstanding securities of other investment companies. Each of these Funds will
limit its investments in the securities of other investment companies to those
of money market funds having investment objectives and policies similar to its
own. Each of these Funds 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 a Fund in such shares would
be subject to such customary expenses.
OTHER INVESTMENT LIMITATIONS
The following investment limitations are "non-fundamental" and may be changed by
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. Each of the Government
Cash Reserves Fund and the Tax Exempt Money Market Fund can acquire up to 3% of
the total outstanding securities of other investment companies. Each of these
Funds will limit its investments in the securities of other investment companies
to those of money market funds having investment objectives and policies similar
to its own. Each of these Funds 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 a Fund in such shares would
be subject to such customary expenses.
INVESTING IN ILLIQUID SECURITIES. None of the Funds described herein will invest
more than 10% of the value of its net assets in illiquid securities.
INVESTING IN RESTRICTED SECURITIES. Neither the Commercial Paper nor the Tax
Exempt Money Market Fund will invest more than 10% of the value of its net
assets in securities which are subject to restrictions on resale under federal
securities laws.
INVESTING IN NEW ISSUERS. The Commercial Paper Fund will not invest more than 5%
of the value of its total assets in securities of issuers which have records of
less than three years of continuous operations, including the operation of any
predecessor.
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The Tax Exempt Money Market Fund will not invest more than 5% of the value of
its total assets in industrial development bonds where the principal and
interest are the responsibility of companies (or guarantors, where applicable)
with less than three years of continuous operations, including the operation of
any predecessor.
INVESTING IN MINERALS. Neither the Commercial Paper nor the Tax Exempt Money
Market Fund will purchase interests in oil, gas, or other mineral exploration or
development programs or leases, although it may purchase the securities of
issuers which invest in or sponsor such programs.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE
TRUST. The Tax Exempt Money Market 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 one half of one percent of the
issuer's securities, together own more than five percent of the issuer's
securities.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
For the purposes of its policies and limitations, each of the Funds described
herein 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."
FIFTH THIRD FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their ages, addresses, principal
occupations and present positions. Except as listed below, none of the Trustees
or officers are affiliated with Fifth Third Bank, Heartland, Fifth Third
Bancorp, The BISYS Group, Inc., BISYS Fund Services, Inc., BISYS Fund Services
Ohio, Inc., or BISYS Fund Services Limited Partnership.
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION POSITION WITH TRUST
- --------------------- -------------------- -------------------
<S> <C> <C>
Albert E. Harris, 66 Formerly, Chairman of the Chairman of the Board of Trustees
5905 Graves Road Board, EDB Holdings, Inc.
Cincinnati, OH (retired, July 1993)
Birthdate: July 2, 1932
Edward Burke Carey, 53 President of Carey Leggett Trustee
394 East Town Street Realty Advisors.
Columbus, OH
Birthdate: July 2, 1945
Lee A. Carter, 59 Former President, Local Trustee
425 Walnut Street Marketing Corporation
Cincinnati, OH (retired, December 1993)
Birthdate: December 17, 1938
</TABLE>
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<TABLE>
<S> <C> <C>
Stephen G. Mintos, 44 Employee of BISYS Fund President
3435 Stelzer Road Services, Inc., since 1987
Columbus, Ohio 43219-3035
Birthdate: February 5, 1954
George R. Landreth, 56 Employee of BISYS Fund Vice President
3435 Stelzer Road Services, Inc., since 1992
Columbus, Ohio 43219-3035
Birthdate: July 11, 1942
Jeffrey C. Cusick, 39 Employee of BISYS Fund Secretary and Treasurer
3435 Stelzer Road Services, Inc., from September
Columbus, Ohio 43219-3035 1993 until July 1995; Assistant
Birthdate: May 19, 1959 Vice President, Federated
Administrative Services from
1995 to present; from September
1993 to July 1995
</TABLE>
FUND OWNERSHIP
As of September 30, 1998, for each class of shares, officers and Trustees own
less than 1% of the outstanding shares of each Fund described herein.
Fifth Third Bank, as nominee for numerous trust and agency accounts, was the
owner of record of more than 5% of the outstanding Institutional Shares of each
Fund as of September 30, 1998. The following list indicates the extent of its
ownership for each Fund.
Government Cash Reserves Fund: 315,014,303 shares 32.2%
Commercial Paper Fund: 330,273,129 shares 89.3%
Tax Exempt Money Market Fund: 44,493,830 shares 84.8%
Treasury Obligations Fund: 951,944,802 shares 100.0%
As of September 30, 1998, there were no shareholders of record who owned more
than 5% of the Investment A Shares of any of the Funds described herein.
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TRUSTEES' COMPENSATION
During the most recently completed fiscal year, the Trustees received the
following compensation from the Trust, which is the only group of mutual funds
managed by the Advisor:
AGGREGATE COMPENSATION
NAME AND CAPACITY IN WHICH RECEIVED FROM THE TRUST
REMUNERATION WAS RECEIVED WITH RESPECT TO ALL FUNDS*
------------------------- --------------------------
Edward Burke Carey, Trustee............................... $7,800
Lee A. Carter, Trustee.................................... $7,800
Albert E. Harris, Trustee and Chairman.................... $9,800
---------
* Aggregate compensation is provided for the Trust, which is comprised of
sixteen portfolios. Information is furnished for the fiscal year ended
July 31, 1998. The Trust is the only investment company in the Fund
complex.
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 TRUST
The investment advisor to each of the Funds described herein is Fifth Third
Bank. Fifth Third Bank provides investment advisory services through Fifth Third
Investment Advisors, part of 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 a
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the Prospectuses for the Funds. The following table
shows all of the investment advisory fees incurred by the Funds described herein
and the amounts of those fees that were voluntarily waived for the fiscal years
ended July 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
------------------------------------------------------------------------------------
1998 1997 1996
------------------------------------------------------------------------------------
FUND NAME INCURRED WAIVED INCURRED WAIVED INCURRED WAIVED
- --------- -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Government Cash Reserves Fund........... $1,284,367 $51,502 $985,974 $135,083 $746,543 $139,471
Commercial Paper Fund................... 1,762,324 88,109 $1,357,544 $139,109 $1,073,513 $182,807
Treasury Obligations Fund............... 2,794,700 978,211 $1,965,939 $655,154 $1,557,358 $470,081
</TABLE>
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For its advisory services, Fifth Third Bank also receives an annual investment
advisory fee as described in the Prospectuses for the Tax Exempt Money Market
Fund. Information relating to the Tax Exempt Money Market Fund is not provided,
as that Fund did not commence operations until September 19, 1998.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
ADMINISTRATOR OF THE TRUST
Effective December 1, 1995, BISYS Fund Services L.P., 3435 Stelzer Road,
Columbus, Ohio 43219, began providing administrative services to the Funds
described herein for the fees set forth in the Prospectuses. The following table
shows all of the administration fees incurred by the Funds described herein and
the amounts of those fees that were voluntarily waived for the years ended July
31, 1998 and 1997, and the eight-month period ended July 31, 1996:
<TABLE>
<CAPTION>
FISCAL YEAR OR PERIOD ENDED JULY 31,
----------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------
FUND NAME INCURRED WAIVED INCURRED WAIVED INCURRED WAIVED
- --------- -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Government Cash Reserves Fund............ $503,098 $320,842 $301,449 $84,441 $89,928 $0
Commercial Paper Fund.................... 691,813 440,581 $426,394 $128,042 $127,811 $0
Treasury Obligations Fund................ 1,094,898 698,925 $609,651 $176,976 $188,213 $0
</TABLE>
Information relating to the Tax Exempt Money Market Fund is not provided, as
that Fund did not commence operations until September 21, 1998.
Until December 1, 1995, Federated Administrative Services ("FAS"), a subsidiary
of Federated Investors, provided administrative personnel and services to the
Funds described herein for a fee. For the four-month period ending December 1,
1995, the Government Cash Reserves Fund, the Commercial Paper Fund and the
Treasury Obligations Fund incurred administrative fees of $63,639, $88,764 and
$124,224, respectively.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank began performing sub-administrative services on
behalf of the Funds described herein, for which it receives compensation from
BISYS Fund Services L.P. For the fiscal years ended July 31, 1998 and 1997, and
the eight-month period ended July 31, 1996, Fifth Third Bank earned the
following sub-administrative fees:
<TABLE>
<CAPTION>
FISCAL YEAR OR PERIOD ENDED JULY 31,
-------------------------------------------
FUND NAME 1998 1997 1996
- --------- -------------------------------------------
<S> <C> <C> <C>
Government Cash Reserves Fund............. $79,185 $61,623 $28,258
Commercial Paper Fund..................... 109,038 $84,846 $39,898
Treasury Obligations Fund................. 172,281 $122,871 $58,252
</TABLE>
Information relating to fees paid by the Tax Exempt Money Market Fund for
sub-administrative services is not provided, as that Fund did not commence
operations until September 21, 1998.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Under a custodian agreement with the Trust, Fifth Third Bank holds the portfolio
securities of each of the Funds described herein and keeps all necessary records
and documents relating to its duties. Fifth Third
12
<PAGE> 256
Bank's fees for custody services are based upon the market value of Fund
securities held in custody, plus out-of-pocket expenses.
Fifth Third Bank serves as transfer agent and dividend disbursing agent for the
Trust. 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 aggregate net assets
for the period, plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Advisor looks for prompt execution of the order at a favorable
price. In working with dealers, the Advisor will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Advisor makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Advisor may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to a Fund or Funds 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 Funds and other accounts. To the extent that receipt of these
services may supplant services for which the Advisor or its affiliates might
otherwise have paid, it would tend to reduce expenses.
Although investment decisions for the Funds described herein are made
independently from those of the other accounts managed by the Advisor,
investments of the type the Funds may make may also be made by those other
accounts. When one of the Funds described herein and one or more other accounts
managed by the Advisor are prepared to invest in, or desire to dispose of, the
same security, available investments or opportunities for sales will be
allocated in a manner believed by the Advisor to be equitable to each. In some
cases, this procedure may adversely affect the price paid or received by a Fund
or the size of the position obtained or disposed of by a Fund. 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, 1998, 1997 and 1996, none of the Funds
described herein paid any commissions on brokerage transactions.
13
<PAGE> 257
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares of the Funds described herein 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 applicable share class Prospectus under "Investing in the
Funds."
DISTRIBUTION PLAN (INVESTMENT A SHARES)
With respect to Investment A Shares of the Funds described herein, the Trust has
adopted a Plan pursuant to Rule 12b-1 (the "Plan") 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 A
Shares of any of the Funds subject to the Plan. Such activities may include: the
advertising and marketing of Investment A 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 A 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 A Share
purchases and redemptions; confirming and reconciling all transactions;
reviewing the activity in Fund accounts; 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 A Shares and prospective
shareholders.
The Trustees expect that the adoption of the Plan will result in the sale of
sufficient number of Investment A Shares so as to allow the Funds subject to the
Plan to achieve and maintain economic viability. It is also anticipated that
increases in the sizes of the Funds will facilitate more efficient portfolio
management and assist the Funds in seeking to achieve their investment
objectives.
For the fiscal years ended July 31, 1998, 1997 and 1996, distribution fees
applicable to Investment A Shares paid to the Trust's distributor were all
voluntarily waived. The amounts earned by the distributor were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
------------------------------------------------
FUND NAME 1998 1997 1996
- --------- ------------------------------------------------
<S> <C> <C> <C>
Government Cash Reserves Fund............ $469,356 $338,716 $214,512
Commercial Paper Fund.................... 111,399 92,287 55,852
</TABLE>
Information relating to the Tax Exempt Money Market Fund is not provided, as
that Fund did not commence operations until September 21, 1998.
14
<PAGE> 258
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy for each of the Funds described herein 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
- --------------------------------------------------------------------------------
Each of the Funds described herein attempts to stabilize the value of its shares
at $1.00. The days on which net asset value is calculated by these Funds are
described in the Prospectuses.
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 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 a 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 a 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 a Fund will meet these same criteria and will
have investment policies consistent with the Rule. The Rule also requires a 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 a Fund.
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, a Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon as
possible.
A 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.
15
<PAGE> 259
In periods of declining interest rates, the indicated daily yield on shares of a
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 a
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 Trust
receives the redemption request. Redemption procedures are explained in the
applicable share class Prospectus under "Redeeming Shares." Although the
custodian does not charge for telephone redemptions, it reserves the right to
charge a fee for the cost of wire-transferred redemptions of less than $10,000.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash up to the lesser of $250,000 or 1% of a Fund's net asset
value during any 90-day period. Any redemption beyond this amount will also be
in cash unless the Trustees determine that payments should be in kind. In such a
case, the Trust will pay all or a portion of the remainder of the redemption in
portfolio instruments, valued in the same way as the Fund determines net asset
value. The portfolio instruments will be selected in a manner that the Trustees
deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUNDS' TAX STATUS
Each of the Funds described herein 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, a Fund
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
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.
16
<PAGE> 260
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 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.
CAPITAL GAINS. Capital gains experienced by a Fund could result in an increase
in dividends. Capital losses could result in a decrease in dividends. If, for
some extraordinary reason, a Fund realizes net long-term capital gains, it will
distribute them at least once every 12 months.
STATE AND LOCAL TAXES
The Government Cash Reserves 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
- --------------------------------------------------------------------------------
Each of the Funds described herein calculates yield daily, based upon the seven
days ending on the day of the calculation, called the "base period." For each
share class, 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).
For the seven-day period ended July 31, 1998, the yield for Investment A Shares
of the Government Cash Reserves Fund and Commercial Paper Fund was ______% and
______%, respectively. For the seven-day period ended July 31, 1998, the yield
for Institutional Shares of the Government Cash Reserves Fund, Commercial Paper
Fund and Treasury Obligations Fund was ______%, ______% and ______%,
respectively.
Information relating to the Tax Exempt Money Market Fund is not provided, as
that Fund did not commence operations until September 21, 1998.
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.
17
<PAGE> 261
The tax-equivalent yield of the Tax Exempt Money Market 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 39.6% tax
rate and assuming that income is 100% tax-exempt.
TAX EQUIVALENCY TABLE
The Tax Exempt Money Market Fund may also use a tax-equivalency table in
advertising and sales literature. The interest earned by the Fund's portfolio is
generally free from federal regular income tax. As the table below indicates, a
"tax-free" investment in the Tax Exempt Money Market 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 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal Tax Rate:
15.00% 28.00% 31.00% 36.00% 39.60%
Taxable Income
Brackets--
SINGLE RETURN: $1- $25,351- $61,401- $128,101- Over
$25,350 $61,400 $128,100 $278,450 $278,450
JOINT RETURN: $1- $42,351- $102,301- $155,951- Over
$42,350 $102,300 $155,950 $278,450 $278,450
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50%.................. 1.76% 2.08% 2.17% 2.34% 2.48%
2.00%.................. 2.35% 2.78% 2.90% 3.13% 3.31%
2.50%.................. 2.94% 3.47% 3.62% 3.91% 4.14%
3.00%.................. 3.53% 4.17% 4.35% 4.69% 4.97%
3.50%.................. 4.12% 4.86% 5.07% 5.47% 5.79%
4.00%.................. 4.71% 5.56% 5.80% 6.25% 6.62%
4.50%.................. 5.29% 6.25% 6.52% 7.03% 7.45%
5.00%.................. 5.88% 6.94% 7.25% 7.81% 8.28%
5.50%.................. 6.47 % 7.64% 7.97% 8.59% 9.11%
6.00%.................. 7.06% 8.33% 8.70% 9.38% 9.93%
- --------------------------------------------------------------------------------------------------------
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of Tax Exempt Fund shares. SOME PORTION OF THE FUND'S
INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX AND STATE AND LOCAL
INCOME TAXES.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The effective yield of a Fund is computed by compounding the unannualized base
period return by: (1) adding 1 to the base period return, (2) raising the sum to
the 365/7th power; and (3) subtracting 1 from the result. For the seven-day
period ended July 31, 1998, the effective yield for Investment A Shares of the
Government Cash Reserves Fund and Commercial Paper Fund was 5.07% and 5.22%,
respectively. For the seven-day period ended July 31, 1998, the effective yield
for Institutional Shares of the Government Cash Reserves Fund, Commercial Paper
Fund and Treasury Obligations Fund was 5.07%, 5.22% and 5.34%, respectively.
18
<PAGE> 262
Information relating to the Tax Exempt Money Market Fund is not provided, as
that Fund did not commence operations until September 21, 1998.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of a Fund 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 a 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.
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.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for Fifth Third Government Cash Reserves Fund, Fifth
Commercial Paper Fund and Fifth Third Treasury Obligations Fund for the fiscal
year ended July 31, 1998, are incorporated herein by reference to the Annual
Report to Shareholders of the Fifth Third Money Market Funds dated July 31, 1998
(SEC File No. 811-5669). A copy of this Annual Reports may be obtained without
charge by contacting the Trust at the address shown on the cover page of this
Combined Statement of Additional Information. The financial statements for Fifth
Third Tax Exempt Money Market Fund for the fiscal year ended September 30, 1998,
are included as Appendix A to this Combined Statement of Additional Information.
19
<PAGE> 263
APPENDIX A -- FINANCIAL STATEMENTS OF THE FIFTH THIRD FUNDS
(CARDINAL FUND AND TAX EXEMPT MONEY MARKET FUND)
- -----------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors ....................................................................... 21
Statements of Assets and Liabilities as of September 30, 1998 ........................................ 22
Statements of Operations for the year ended September 30, 1998 ....................................... 23
Statements of Changes in Net Assets for the years ended September 30, 1998, and 1997 ................. 24
Schedule of Portfolio Investments as of September 30, 1998 -- Fifth Third Cardinal Fund .............. 25
Schedule of Portfolio Investments as of September 30, 1998 -- Fifth Third Tax Exempt
Money Market Fund ............................................................................ 28
Notes to Financial Statements ........................................................................ 30
</TABLE>
20
<PAGE> 264
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Fifth Third Funds
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of the Fifth Third Cardinal Fund and the
Fifth Third Tax Exempt Money Market Fund (the Funds) as of September 30, 1998,
and the related statements of operations and statements of changes for the year
then ended and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial statements and financial highlights for the Funds for each
of the respective years or periods ended September 30, 1997 were audited by
other auditors whose report dated November 14, 1997 expressed an unqualified
opinion.
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 and financial highlights. Our procedures included confirmation of
securities owned as of September 30, 1998, by correspondence with the custodian.
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 Funds as of September 30, 1998, the results of their operations, changes
in their net assets, and their financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
October 28, 1998
21
<PAGE> 265
FIFTH THIRD FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Tax Exempt
Cardinal Money Market
Fund Fund
------------- ------------------
<S> <C> <C>
Assets:
Investments, at value (Cost $148,619; $51,702, respectively) $ 256,097 $ 51,702
Repurchase agreements (Cost $2,443; $0, respectively) 2,443 --
--------- --------
Total Investments 258,540 51,702
Cash 1 152
Interest and dividends receivable 386 594
Receivable for Fund shares sold 67 --
Prepaid expenses and other assets 86 78
--------- --------
Total Assets 259,080 52,526
--------- --------
Liabilities:
Income distribution payable -- 46
Payable for Fund shares redeemed 344 --
Accrued expenses and other payables:
Investment advisory fees 38 6
Administration services fee - Institutional Shares 9 --
Distribution services - Investment A Shares 127 --
Accounting and transfer agent fees 34 9
Custodian fees 3 2
Other 80 16
--------- --------
Total Liabilities 635 79
--------- --------
Net Assets:
Paid-in capital 147,032 52,449
Net unrealized appreciation (depreciation) on investments 107,478 --
Accumulated undistributed net realized gains (losses) on investment 3,954 (2)
Accumulated undistributed net investment income (loss) (19) --
--------- --------
Net Assets $ 258,445 $ 52,447
========= ========
Net Assets
Investment A Shares $ 232,903 $ 44,494
Institutional Shares 25,542 7,953
--------- --------
Total $ 258,445 $ 52,447
========= ========
Outstanding units of beneficial interest (shares)
Investment A Shares 15,668 44,496
Institutional Shares 1,719 7,954
--------- --------
Total 17,387 52,450
========= ========
Net asset value
Redemption price per share-Investment A Shares $ 14.87 $ 1.00
========= ========
Offering price per shares-Institutional Shares $ 14.86 $ 1.00
========= ========
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) $ 15.57
=========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
22
<PAGE> 266
FIFTH THIRD FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TAX EXEMPT
CARDINAL MONEY MARKET
FUND FUND
------------ ------------
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 1,068 $ 2,187
Dividend income 4,074 3
Foreign tax withholding (11) --
-------- -------
Total Income 5,131 2,190
-------- -------
EXPENSES:
Investment advisory fees 1,827 304
Administrative fees 4 1
Administrative services fees - Institutional Shares 44 --
Distribution services fees - Investment A Shares 687 --
Organizational costs 11 5
Custodian fees 36 7
Portfolio accounting fees 35 20
Transfer agent fees 188 53
Trustees' fees 30 2
Audit fees 12 6
Legal fees 30 11
Fund share registration fees 57 7
Printing fees 41 12
Insurance fees 25 1
Other 32 6
-------- -------
Total Expenses 3,059 435
-------- -------
Less fees voluntarily reduced (278) (1)
-------- -------
Net Expenses 2,781 434
-------- -------
Net Investment Income (Loss) 2,350 1,756
-------- -------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains(losses) on investments 22,115 (2)
Net change in unrealized appreciation(depreciation) from investments (13,872) --
-------- -------
Net realized and unrealized gains(losses) on investments 8,243 (2)
-------- -------
Change in net assets resulting from operations $ 10,593 $ 1,754
======== =======
</TABLE>
(See Notes which are an integral part of the Financial Statements)
23
<PAGE> 267
FIFTH THIRD FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cardinal Fund Tax Exempt Money Market Fund
------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 (a) 1997
---- ---- -------- ----
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 2,350 $ 2,539 $ 1,756 $ 1,783
Net realized gains (losses) on investment transactions 22,115 19,070 (2) --
Change in unrealized appreciation (depreciation) on investments (13,872) 63,545 -- --
--------- --------- --------- ---------
Change in net assets resulting from operations 10,593 85,154 1,754 1,783
--------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Investment A Shares (2,265) (2,179) (1,750) (1,783)
Institutional Shares (271) (174) (6) --
Distributions in excess of net investment income
Investment A Shares (543) -- -- --
Institutional Shares (65) -- -- --
Distributions from net realized gains
Investment A Shares (31,312) (19,080) -- --
Institutional Shares (3,387) -- -- --
--------- --------- --------- ---------
Change in net assets from distributions (37,843) (21,433) (1,756) (1,783)
--------- --------- --------- ---------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
Investment A Shares
Proceeds from shares issued 15,605 12,835 169,673 155,053
Dividends reinvested 31,761 19,793 1,648 1,668
Cost of shares redeemed (57,668) (51,330) (187,110) (156,352)
--------- --------- --------- ---------
Change in net assets from share transactions (10,302) (18,702) (15,789) 369
--------- --------- --------- ---------
Institutional Shares
Proceeds from shares issued 4,380 24,912 12,864 --
Dividends reinvested 3,721 174 -- --
Cost of shares redeemed (6,893) (4,358) (4,910) --
--------- --------- --------- ---------
Change in net assets from share transactions 1,208 20,728 7,954 --
--------- --------- --------- ---------
Change in net assets (36,344) 65,747 (7,837) 369
NET ASSETS:
Beginning of year 294,789 229,042 60,284 59,915
--------- --------- --------- ---------
End of year $ 258,445 $ 294,789 $ 52,447 $ 60,284
========= ========= ========= =========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
(a) The Tax Exempt Money Market Fund Institutional Shares commenced operations
on September 21, 1998.
24
<PAGE> 268
FIFTH THIRD CARDINAL FUND
Schedule of Portfolio Investments September 30, 1998
(Amounts in thousands except share amounts)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
------ ----------- -----
<S> <C> <C> <C>
COMMON STOCKS (99.1%):
BANKS (5.6%):
30,000 Amsouth Bancorp. $ 1,024
80,000 Banc One Corp. 3,410
30,000 Bank of New York Co., Inc. 821
10,000 Citicorp 929
66,000 Huntington Bancshares, Inc. 1,658
200,000 Key Corp. 5,776
15,000 Mellon Bank Corp. 826
--------------
14,444
--------------
BEVERAGES (3.8%):
50,000 Anheuser Busch, Inc. 2,700
100,000 Coca Cola Co. 5,762
50,000 PepsiCo, Inc. 1,472
--------------
9,934
--------------
BUSINESS SERVICES (0.4%):
30,000 Service Corp. International 956
--------------
COMPUTER SOFTWARE (5.9%):
15,000 Computer Associates International, Inc. 555
50,000 HBO & Co. 1,444
110,000 Microsoft Corp. (b) 12,107
35,000 Oracle Corp. (b) 1,019
--------------
15,125
--------------
COMPUTER SYSTEMS & EQUIPMENT (6.8%):
56,250 Cisco Systems, Inc. (b) 3,477
100,000 Compaq Computer Corp. 3,163
30,000 Computer Sciences Corp. 1,635
52,000 Dell Computer Corp. (b) 3,419
40,000 Hewlett-Packard Co. 2,118
30,000 IBM Corp. 3,839
--------------
17,651
--------------
CONSUMER PRODUCTS (3.5%):
10,000 Clorox Co. 825
50,000 Gillette Co. 1,913
30,000 Kimberly-Clark Corp. 1,215
70,000 Proctor & Gamble Co. 4,965
--------------
8,918
--------------
ELECTRONICS (0.6%):
25,000 Johnson Controls, Inc. 1,162
25,000 Tektronix, Inc. 388
--------------
1,550
--------------
ENTERTAINMENT & LEISURE (1.1%):
20,000 Imax, Inc. 400
100,000 The Walt Disney Co. 2,531
--------------
2,931
--------------
ENVIRONMENTAL CONTROL (0.2%):
35,000 U.S. Filter Corp. (b) 560
--------------
FINANCIAL SERVICES (7.3%):
45,000 American International Group, Inc. 3,465
7,000 Bankers Trust 413
150,000 Charter One Financial Corp. 3,731
175,000 Cincinnati Financial Corp. 5,381
30,000 Fannie Mae 1,928
</TABLE>
25
<PAGE> 269
<TABLE>
<S> <C> <C> <C>
15,000 FHLMC 742
40,000 Household International, Inc. 1,500
10,000 J.P. Morgan & Co. 846
30,000 T. Rowe Price Associates, Inc. 881
--------------
18,887
--------------
HEALTHCARE (9.4%):
100,000 American Home Products 5,239
25,000 Amgen, Inc. (b) 1,889
20,000 Bergen Brunswig Corp. 1,011
60,000 Biomet, Inc. 2,081
30,000 Boston Scientific (b) 1,541
25,000 Guidant Corp. 1,856
75,000 Healthsouth Corp. (b) 792
60,000 Johnson & Johnson 4,695
70,000 Medtronic, Inc. 4,051
40,000 Tenet Healthcare Corp. (b) 1,150
--------------
24,305
--------------
INSURANCE (3.1%):
30,000 Allstate 1,251
135,000 Marsh & McLennan, Inc. 6,716
--------------
7,967
--------------
MACHINERY (5.5%):
20,000 Boeing Co. 686
30,000 Caterpillar, Inc. 1,337
25,000 Deere & Co. 756
140,000 General Electric Co. 11,139
20,000 PRI Automation, Inc. (b) 250
--------------
14,168
--------------
MANUFACTURING (4.2%):
25,000 Minnesota Mining & Manufacturing Co. 1,842
25,000 Monsanto Co. 1,409
80,000 Textron, Inc. 4,850
50,000 Tyco International, Ltd. 2,763
10,864
MEDIA/PUBLISHING (3.0%):
20,000 Clear Channel Communications, Inc. (b) 950
30,000 Gannett Co. 1,607
20,000 Jacor Communications, Inc. (b) 1,013
80,000 New York Times Co., Class A 2,199
40,000 Tribune Co. 2,013
--------------
7,782
--------------
OFFICE EQUIPMENT & SUPPLIES (0.3%):
20,000 Avery Dennison Corp. 874
--------------
OIL & GAS PRODUCERS & SERVICES (9.9%):
60,000 Exxon Corp. 4,211
75,000 Mobil Corp. 5,694
100,000 Royal Dutch Petroleum 4,762
40,000 Schlumberger, Ltd. 2,013
75,000 Texaco, Inc. 4,702
30,000 Transocean Offshore, Inc. 1,041
120,000 Williams Companies, Inc. 3,450
--------------
25,873
--------------
PHARMACEUTICALS (6.9%):
15,000 Cardinal Health, Inc. 1,549
50,000 Merck & Co., Inc. 6,478
70,000 Pfizer, Inc. 7,416
30,000 Warner Lambert, Inc. 2,265
--------------
17,708
--------------
RETAIL (3.8%):
60,000 Consolidated Stores Corp. (b) 1,178
40,000 Kohls Corp. (b) 1,560
</TABLE>
26
<PAGE> 270
<TABLE>
<S> <C> <C> <C>
70,000 Lowe's Companies 2,227
30,000 McDonald's Corp. 1,791
45,000 Pier One Imports, Inc. 338
50,000 Wal-Mart Stores, Inc. 2,730
--------------
9,824
--------------
SEMICONDUCTORS (4.2%):
90,000 Intel Corp. 7,717
10,000 KLA-Tencor Corp. (b) 249
40,000 Motorola, Inc. 1,708
20,000 Texas Instruments, Inc. 1,055
--------------
10,729
--------------
TECHNOLOGY (1.6%):
40,000 Applied Materials (b) 1,010
10,000 Aspen Technology, Inc. (b) 268
51,400 Dupont (E.I.) de Nemours & Co. 2,884
--------------
4,162
--------------
TELECOMMUNICATIONS & EQUIPMENT (8.3%):
50,000 GTE Corp. 2,750
80,000 Lucent Technologies, Inc. 5,525
133,439 MCI Worldcom, Inc. (b) 6,521
58,305 Qwest Communication International (b) 1,826
40,000 Sprint Corp. 2,880
50,000 Tellabs, Inc. (b) 1,991
--------------
21,493
--------------
TOBACCO PRODUCTS (2.7%):
150,000 Philip Morris Companies, Inc. 6,909
--------------
UTILITIES (1.0%):
60,000 Western Resources, Inc. 2,483
--------------
TOTAL COMMON STOCKS 256,097
--------------
CASH EQUIVALENTS (0.9%):
REPURCHASE AGREEMENTS (0.9%):
$2,443 Warburg, 5.50%, dated 9/30/98, due 10/1/98 (at amortized 2,443
cost), collateralized by U.S. Treasury Notes, 7.50%, due --------------
11/15/01, with a value of $20, and U.S. Treasury
Bonds, 11.25%, due 2/15/15 with a value of $2,473.
TOTAL CASH EQUIVALENTS 2,443
--------------
TOTAL INVESTMENTS (COST $151,062) (a) - 100.0% 258,540
LIABILITIES IN EXCESS OF OTHER ASSETS - 0.0% (95)
--------------
TOTAL NET ASSETS - 100.0% $ 258,445
==============
</TABLE>
- ------------
(a) Represents cost for financial reporting and federal tax purposes. The
net unrealized appreciation of investments for federal tax basis amounts
to $107,478, which is composed of $117,112 appreciation and $9,634
depreciation at September 30, 1998.
(b) Non-income producing security.
See notes which are an integral part of the financial statements
27
<PAGE> 271
FIFTH THIRD TAX EXEMPT MONEY MARKET
Schedule of Portfolio Investments September 30, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
------ ----------- ----
<S> <C> <C>
CERTIFICATE OF PARTICIPATION (1.0%):
500 Wood County, Ohio, 7.88%, due 12/1/13 $ 513
---------------
TOTAL CERTIFICATE OF PARTICIPATION 513
---------------
COMMERCIAL PAPER (7.6%):
1,000 Cleveland, Ohio, 3.35%, due 10/14/98 1,000
1,000 Illinois Health, 3.45%, due 10/27/98 1,000
1,000 Illinois Health, 3.55%, due 10/30/98 1,000
1,000 Massachusetts Bay Transportation, 3.38%, due 12/7/98 1,000
---------------
TOTAL COMMERCIAL PAPER 4,000
---------------
MUNICIPAL BONDS (88.1%):
General Obligation (21.0%):
995 Brown City, Michigan, School District, 4.10%, due 8/20/98 1,000
1,000 Chicago, Illinois, Floating Rate Note, 3.55%,10/21/98 (b) 1,000
1,000 Chicago, Illinois, Floating Rate Note, 3.60%, 1/1/06 1,000
1,255 Delaware, Ohio, 3.90%, due 6/2/99 1,256
2,650 Fairfield, Ohio, 3.90%, due 6/11/99 2,653
1,500 Hamilton County, Ohio, 3.75%, due 6/11/99 1,500
300 Hilliard, Ohio, 3.85%, due 9/9/99 301
610 Hudson, Ohio, 3.95%, due 5/4/99 610
1,025 Lakewood, Ohio, 3.60%, due 12/1/98 1,025
400 London, Ohio, 4.25%, due 7/22/99 401
275 Wapakoneta, Ohio, 4.80%, due 6/23/99 277
---------------
11,023
---------------
Revenue Bonds (67.1%):
1,000 Allen County, Ohio, Health Care, Floating Rate Note, 2.90%, 1,000
10/21/98 (b)
2,400 Ashtabula County, Ohio, Industrial Development, 3.75%, due 2,400
12/1/16
800 Burke County, Georgia, Development Authority, Floating Rate 800
Note, 4.05%, 10/1/98 (b)
2,230 Clark County, Kentucky, Pollution Control, 3.75%, due 2,230
10/15/14
1,040 Columbus, Indiana, Floating Rate Note, 4.15%, 10/1/98 (b) 1,040
1,475 Dade County, Florida, Aviation, 5.00%, due 10/1/98 1,475
400 Delaware City, Pennsylvania, 3.95%, due 12/1/15 400
2,000 Grand Rapids, Michigan, Water Supply, 3.50%, due 1/1/20 2,000
1,920 Hamilton County, Ohio, 3.45%, due 1/1/18 1,920
100 Harris County, Texas, 4.10%, due 2/15/27 100
1,000 Indiana, Health Facility Financing Authority, 3.90%, due 1,001
11/1/98
500 Kansas City, Missouri, Health Revenue Bond, Floating Rate 500
Note, 4.16%, 10/1/98 (b)
200 Kansas City, Missouri, Industrial Development Authority, 200
Floating Rate Note, 4.10%, 10/1/98 (b)
900 Kentucky, Development Financial Authority, 3.90%, due 900
12/2/15
1,000 Kentucky, Higher Education, 4.55%, due 6/1/98 1,007
1,200 Lexington Fayette County, Kentucky, 3.70%, due 4/1/99 1,200
</TABLE>
28
<PAGE> 272
<TABLE>
<S> <C> <C>
500 Lubbock, Texas, Floating Rate Note, 4.10%, 10/1/98 (b) 500
1,000 Metro Service District of Oregon, 6.75%, due 7/1/22 1,049
800 Michigan Hospital Facility, 3.55%, due 12/1/23 800
1,800 Michigan State Hospital Finance Authority, 3.55%, due 1,800
12/1/23
1,000 Missouri Higher Education, 4.20%, due 8/15/99 1,005
1,750 Ohio Building Referendum, Disalles, Ohio, 5.00%, due 1,750
10/1/98
1,000 Ohio Facilities, 4.50%, due 11/1/98 1,001
1,850 Ohio State Building Authority, 5.00%, due 10/1/98 1,850
500 Ohio State Building Authority, 7.75%, due 10/1/08 510
1,000 Ohio State University, 7.15%, due 12/1/09 1,026
100 Perry County, Mississippi, Floating Rate Note, 4.05%, 100
10/1/98 (b)
300 Phoenix, Arizona, 4.00%, due 7/1/99 301
2,000 Student Loan Funding, Ohio, 3.55%, due 12/29/98 2,000
2,000 Unita County, Wyoming, Pollution Control, Floating Rate 2,000
Note, 3.65%, 10/16/98 (b)
1,300 Washington State, Health, Floating Rate Note, 4.05%, 1,300
10/1/98 (b) ---------------
35,165
---------------
TOTAL MUNICIPAL BONDS 46,188
---------------
WARRANTS (1.9%):
1,000 West Lafayette, Indiana, Community School Tax, 4.07%, due 1,001
12/31/98 ---------------
TOTAL WARRANTS 1,001
---------------
TOTAL INVESTMENTS (AMORTIZED COST $51,702) (a) - 98.6% 51,702
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.4% 745
---------------
TOTAL NET ASSETS - 100.0% $ 52,447
===============
</TABLE>
- ------------
Percentages indicated are based on net assets of $52,447.
(a) Also represents cost for federal tax purposes.
(b) Current rate and next reset date shown.
See notes which are an integral part of the financial statements.
29
<PAGE> 273
FIFTH THIRD FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. ORGANIZATION
Fifth Third Funds, formerly known as the 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 September 30, 1998, the Trust
consisted of sixteen separate investment portfolios. The accompanying financial
statements and notes relate only to the Fifth Third Cardinal Fund (the "Cardinal
Fund") and the Fifth Third Tax Exempt Money Market Fund (the "Tax Exempt Money
Market Fund") (collectively, "the Funds").
The Funds each issue two classes of shares: Investment A shares and
Institutional shares. Investment A shares are subject to initial sales charges
imposed at the time of purchase, in accordance with the Funds' prospectuses.
Each class of shares has identical rights and privileges except with respect to
distribution (12b-1) fees paid by the Investment A Class, voting rights on
matters affecting a single class of shares, and the exchange privileges of each
class of shares. The Tax Exempt Money Market Fund commenced operations of the
Institutional shares on September 21, 1998.
2. REORGANIZATION
The Trust entered into an Agreement and Plan of Reorganization and Liquidation
with The Cardinal Group pursuant to which all of the assets and liabilities of
each Cardinal Group Portfolio transferred to a portfolio of the Trust in
exchange for shares of the corresponding portfolio of the Trust. The Cardinal
Government Obligations Fund transferred its assets and liabilities to the Fifth
Third Bond Fund For Income. The Cardinal Government Securities Money Market Fund
transferred its assets and liabilities to the Fifth Third Government Cash
Reserves Fund. The Cardinal Balanced Fund transferred its assets and liabilities
to the Fifth Third Balanced Fund. The Cardinal Aggressive Growth Fund
transferred its assets and liabilities to the Fifth Third Midcap Fund. The
Cardinal Fund transferred its assets and liabilities to the Fifth Third Cardinal
Fund. The Cardinal Tax Exempt Money Market Fund transferred its assets and
liabilities to the Fifth Third Tax Exempt Money Market Fund. The reorganization,
which qualified as a tax-free exchange for federal income purposes, was
completed on September 21, 1998 and was approved by shareholders of The Cardinal
Group at a special shareholder meeting held on July 24, 1998. The following is a
summary of shares outstanding, net assets, net asset value per share and
unrealized appreciation immediately before and after the reorganization for the
Cardinal Fund and Tax Exempt Money Market Fund:
30
<PAGE> 274
<TABLE>
<CAPTION>
After
Before Reorganization Reorganization
--------------------- --------------
Fifth Third Fifth Third
Cardinal Cardinal Cardinal
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Shares (000) 17,572 0 17,572
Net Assets (000) $263,745 $0 $263,745
Net Asset Value--Investment A $ 15.01 $0 $ 15.01
Unrealized appreciation (000) $113,875 $0 $113,875
</TABLE>
<TABLE>
<CAPTION>
After
Before Reorganization Reorganization
--------------------- --------------
Cardinal Fifth Third Fifth Third
Tax Exempt Tax Exempt Tax Exempt
Money Market Money Market Money Market
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Shares (000) 54,034 0 54,034
Net Assets (000) $54,032 $0 $54,032
Net Asset Value $ 1.00 $0 $ 1.00
Unrealized appreciation (000) $ 0 $0 $ 0
</TABLE>
3. SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders of The Cardinal Group was held on July 24,
1998. At the Meeting, shareholders voted on the approval of the Agreement and
Plan of Reorganization and Liquidation by and between Fifth Third Funds, Fifth
Third Bank, The Cardinal Group and Cardinal Management Corp. ("CMC"). The
results of this vote by shareholders was as follows:
For Against Abstain
--- ------- -------
307,245,979 11,856,341 13,544,912
A Special Meeting of Shareholders of The Cardinal Group was held on March 20,
1998. At the Meeting. shareholders voted to approve a new Investment Advisory
and Management Agreement with CMC pending the proposed merger of Fifth Third
Bancorp with The Ohio Company ("TOC"). CMC is a wholly owned subsidiary of TOC.
The results of this vote by shareholders was as follows:
For Against Abstain
--- ------- -------
609,293,256 6,638,335 21,391,628
31
<PAGE> 275
4. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies that the Trust
follows in the preparation of its financial statements and the calculation of
daily net asset values. The policies are in conformity with general accepted
accounting principles and the Act. The preparation of these financial statements
requires the management of the Trust to make estimates and assumptions which
affect the reported amounts of assets and liabilities as of September 30, 1998
and the income and expenses reported for the period. Actual results could differ
significantly from those estimates.
SECURITIES VALUATION
Investments in Tax Exempt Money Market Fund are valued at amortized cost, which
approximates 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 fund 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 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 specific
identification basis.
REPURCHASE AGREEMENTS The Funds may purchase instruments from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase them at an agreed upon time and price ("repurchase
agreements"). The seller under a repurchase agreement is required to maintain
the value of the securities subject to the agreement at not less than the
repurchase price. Default by the seller would, however, expose the relevant
Funds to possible loss because of adverse market action or delay in connection
with the disposition of the underlying obligations. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreements. Accordingly, the Funds could receive less than the carrying value
upon the sale of the underlying collateral securities.
FEDERAL INCOME TAXES The Trust has made no provision for Federal income taxes.
It is the intention of the management of the Trust to comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies and to
make sufficient distributions of
32
<PAGE> 276
taxable income and gains within the required time, to relieve it from all, or
substantially all, Federal income taxes.
DISTRIBUTIONS TO SHAREHOLDERS The Tax Exempt Money Market Fund declares
dividends from net investment income daily and pays them to shareholders
monthly. The Cardinal Fund declares and pays dividends from net investment
income, if any, quarterly. Realized capital gains, if any, are declared and paid
annually by the Trust. Distributions of net investment income and realized
capital gains are determined in accordance with the income tax regulations which
may differ with generally accepted accounting principles. These differences are
primarily due to differing treatments for expiring capital loss carryforwards
and deferrals of certain losses.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are classified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassifications.
Dividends and distributions to shareholders which exceed net investment income
and net realized gains for financial reporting purposes but not for tax purposes
are reported as dividends in excess of net investment income or distributions in
excess of net realized gains. To the extent they exceed net investment income
and net realized gains for tax purposes, they are reported as distribution of
capital.
As of September 30, 1998, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to
paid-in-capital (in thousands):
ACCUMULATED ACCUMULATED NET
UNDISTRIBUTED NET REALIZED GAIN/(LOSS)
INVESTMENT INCOME ON INVESTMENTS
----------------- --------------
Cardinal Fund $589 $(3,169)
OPTION WRITING When the Cardinal Fund 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 Fund on
the expiration date. The difference, if any, between the premium received and
the amount paid in a closing transaction is also treated as 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 which write options bear the market risk of an unfavorable change
in the price of any security/index underlying the written option.
33
<PAGE> 277
Written option activity for the year ended September 30, 1998 was as follows:
<TABLE>
<CAPTION>
CARDINAL FUND
-------------
Put Options Call Options
----------- ------------
Number Number
of contracts Premium of contracts Premium
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Contracts outstanding at 9/30/97 600 $ 2,194,000 600 $ 858,000
Contracts written 760 300,000
Contracts expired (700) (932,000) (600) (858,000)
Contracts exercised (660) (1,562,000)
---- ----------- ---- ---------
Contracts outstanding at 9/30/98 0 $ 0 0 $ 0
==== =========== ==== =========
</TABLE>
EXPENSE ALLOCATION Expenses directly related to one of the Trust's portfolios or
classes are charged to that portfolio or class. Other operating expenses are
allocated to the Trust based on their relative net assets.
5. PURCHASE AND SALES SECURITIES
The purchases and sales of investment securities (excluding short-term
securities) for the year ended September 30, 1998 were as follows (in
thousands):
Purchases Sales
--------- -----
Cardinal Fund $41,160 $65,972
6. TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee -- Prior to June 12, 1998, CMC, a wholly owned
subsidiary of TOC acted as investment advisor and transfer agent for the
Cardinal Fund and Tax Exempt Money Market Fund under contracts monitored and
annually approved by the Board of Trustees. CMC also provided certain
administrative services for the Funds. On June 12, 1998, TOC became a wholly
owned subsidiary of Fifth Third Bancorp. At that time, the shareholders approved
the new investment advisory agreement as discussed in Note 3. CMC received a fee
based on the net assets of each portfolio. As a result of the merger of the
Fifth Third Funds and The Cardinal Group, Fifth Third Bank became the investment
advisor on September 21, 1998 and began receiving fees based on the net assets
of each portfolio. CMC and Fifth Third Bank each received annualized investment
advisory fees of 0.50% (Tax Exempt Money Market Fund) and 0.60% (Cardinal Fund)
of net assets for the respective time periods that they served as investment
advisor during the year ended September 30, 1998. CMC voluntarily waived $50,000
in investment advisory fees on the Cardinal Fund during the year ended September
30, 1998. Fifth Third Bank also began serving as transfer agent and dividend
disbursing agent for the Funds on September 21, 1998 for which it receives a
fee. Fifth Third Bank subcontracts the execution of the transfer and dividend
disbursing agent functions to a non-affiliated entity.
34
<PAGE> 278
Distribution Services Fee -- TOC served as the Cardinal Fund's distributor until
June 12, 1998. TOC received fees from the Cardinal 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 Cardinal Fund paid TOC an annual fee not to exceed 0.25% of the
average net assets of the Investment A shares of the fund for providing
distribution and shareholder services. During the year ended September 30, 1998
TOC voluntarily waived $202,000 in distribution servicing fees on the Cardinal
Fund.
BISYS Fund Services ("BISYS") began serving as the Cardinal Fund's principal
distributor pursuant to an agreement between BISYS and The Cardinal Group dated
June 12, 1998. The terms of the agreement were identical to the Distribution and
Shareholder Service Plan noted above.
After the merger of The Cardinal Group and Fifth Third Funds on September 21,
1998, BISYS began serving as the Cardinal Fund and the Tax Exempt Money Market
Fund's principal distributor under the Trust's agreement. In accordance with
Rule 12b-1 under the 1940 Act, the Trust entered into a Distribution Plan with
BISYS with respect to Investment A shares. Under the Distribution Plan, the
Funds may pay a fee not to exceed 0.25% or the average net assets of the
Investment A shares of the Fund to the Distributor. These fees may be used by
BISYS to pay banks, broker dealers and other institutions, or to reimburse BISYS
or its affiliates for administration, distribution and shareholder service
assistance in connection with the distribution of the fund.
Administrative Services Fee -- Under the Administrative Services Plan, TOC
received 0.15% of the average net assets of the Institutional shares of the
Cardinal Fund for providing shareholder services. TOC voluntarily waived $22,000
in administrative servicing fees on the Cardinal Fund during the year ended
September 30, 1998. The Administrative Services Plan for Institutional shares
was terminated on September 21, 1998.
Administrative Fee -- As of September 21, 1998, the date of the merger, BISYS
serves as the Funds' administrator. The administrator generally assists in all
aspects of the Funds' administration and operation including providing the Funds
with certain administrative personnel and services necessary to operate the
Funds. 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. 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 0.20% 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 period ended September 30, 1998, BISYS waived $4,000 and $1,000
for the Cardinal Fund and Tax Exempt Money Market Fund, respectively.
Accounting and Custody Fees -- Fifth Third Bank maintains the Trust's accounting
records 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.
35
<PAGE> 279
Fifth Third Bank is the Trust's custodian for which it receives a fee. The fee
is based on the level of each Fund's average net assets for the period, plus
out-of-pocket expenses.
Certain Officers and Trustees of the Trust are officers and Trustees of the
above companies but are not paid any fees directly by the Trust for serving as
Officers and Trustees of the Trust.
7. INSURANCE
Fidelity Bond and Errors/Omissions insurance coverage for the Funds and its
Officers and Trustees had been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. The Funds include,
in other assets, deposits made for the initial capital and certificates of
deposits that collateralized standby letters of credit sponsoring 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 and
certificates of deposit of the Funds:
CERTIFICATES
DEPOSITS OF DEPOSITS
-------- -----------
Cardinal Fund $28,588 $56,600
Tax Exempt Money Market Fund 13,291 27,000
8. FEDERAL INCOME TAX INFORMATION (UNAUDITED) (IN THOUSANDS)
During the year ended September 30, 1998 the Cardinal Fund declared long-term
capital distributions of $32,104.
For corporate shareholders of the Cardinal Fund 100% of the total ordinary
income distributions paid during the fiscal year ended September 30, 1998,
qualify for the corporate dividend received deductions.
During the year ended September 30, 1998, the Tax Exempt Money Market Fund
declared tax-exempt income distributions of $1,710.
9. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Funds for the years ended September 30,
1998 and 1997 were as follows (in thousands):
36
<PAGE> 280
FIFTH THIRD FUNDS
CAPITAL SHARE TRANSACTIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TAX EXEMPT MONEY
CARDINAL FUND MARKET FUND (a)
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
For the year ended September 30, 1998:
Investment A Shares:
Shares issued 961 $ 15,605 169,674 $ 169,673
Dividends reinvested 2,062 31,761 1,648 1,648
Shares redeemed (3,449) (57,668) (187,110) (187,110)
------ -------- -------- ---------
Net increase (decrease) Investment A Shares (426) $(10,302) (15,788) $ (15,789)
====== ======== ======== =========
Institutional Shares:
Shares issued 261 $ 4,380 12,864 $ 12,864
Dividends reinvested 242 3,721 -- --
Shares redeemed (399) (6,893) (4,910) (4,910)
------ -------- -------- ---------
Net increase (decrease) Institutional Shares 104 $ 1,208 7,954 $ 7,954
====== ======== ======== =========
For the year ended September 30, 1997:
Investment A Shares:
Shares issued 989 $ 12,835 155,053 $ 155,053
Dividends reinvested 1,512 19,793 1,668 1,668
Shares redeemed (3,845) (51,330) (156,352) (156,352)
------ -------- -------- ---------
Net increase (decrease) Investment A Shares (1,344) $(18,702) 369 $ 369
====== ======== ======== =========
Institutional Shares:
Shares issued 1,894 $ 24,912 -- $ --
Dividends reinvested 12 174 -- --
Shares redeemed (291) (4,358) -- --
------ -------- -------- ---------
Net increase Institutional Shares 1,615 $ 20,728 -- $ --
====== ======== ======== =========
</TABLE>
(a) The Tax Exempt Money Market Institutional Shares commenced operations
on September 21, 1998.
37
<PAGE> 281
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following financial statements of each series of the Fountain Square
Funds (now known as "Fifth Third Funds"), other than the Fountain Square
Cardinal Fund and the Fountain Square Tax Exempt Money Market Fund, are
incorporated herein by reference to the Fountain Square Funds Annual Reports to
Shareholders, dated July 31, 1998 (File No. 811-5669):
Statement of Assets and Liabilities as of July 31, 1998
Statements of Operations for the years ended July 31, 1998 and 1997
Statements of Changes in Net Assets for the years ended July 31, 1998
and 1997
Schedule of Investments as of July 31, 1998
Notes to Financial Statements
Report of Independent Auditors
The following financial statements of the Fountain Square Cardinal Fund
and the Fountain Square Tax Exempt Money Market Fund are incorporated herein by
reference to the Fountain Square Funds Annual Report to Shareholders, dated
September 30, 1998, relating to such Funds (File No. 811-5669):
Statement of Assets and Liabilities as of September 30, 1998
Statements of Operations for the years ended September 30, 1998 and
1997
Statements of Changes in Net Assets for the years ended September 30,
1998 and 1997
Schedule of Investments as of September 30, 1998
Notes to Financial Statements
Report of Independent Auditors
(b) Exhibits:
(1) Declaration of Trust of the Registrant including Amendments No. 1
through 7 (Incorporated by reference to Registrant's
Post-Effective Amendment No. 15 on Form N-1A filed February 28,
1995)
(i) Amendment No. 8 to the Declaration of Trust (Incorporated by
reference to Registrant's Post-Effective Amendment No. 19 on
Form N-1A filed on or about October 28, 1996)
(ii) Amendment No. 9 to the Declaration of Trust (Incorporated by
reference to Registrant's Post-Effective Amendment No. 18 on
Form N-1A filed on or about October 1, 1996)
(iii) Amendment No. 10 to the Declaration of Trust (Incorporated
by reference to Registrant's Post-Effective Amendment No. 22
on Form N-1A filed on or about September 30, 1997)
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(iv) Amendment No. 11 to the Declaration of Trust (Incorporated
by reference to Registrant's Post-Effective Amendment No. 26
on Form N-1A filed on or about January 21, 1998)
(v) Amendment No. 12 to the Declaration of Trust (filed
herewith)
(vi) Amendment No. 13 to the Declaration of Trust (filed
herewith)
(2) By-Laws of the Registrant (Incorporated by reference to
Registrant's Post-Effective Amendment No. 15 on Form N-1A filed
February 28, 1995);
(3) Not applicable
(4) Not applicable
(5) (i) Investment Advisory Contract of the Registrant through and
including Exhibit J (Incorporated by reference to
Registrant's Post-Effective Amendment No. 15 on Form N-1A
filed February 28, 1995)
(a) Exhibits K-M to Investment Advisory Contract of
Registrant (Incorporated by reference to Registrant's
Post-Effective Amendment No. 22 on Form N-1A filed on
or about September 30, 1997
(b) Exhibits N-O to Investment Advisory Contract (filed
herewith)
(ii) Sub-Advisory Agreement (Incorporated by reference to
Registrant's Post-Effective Amendment No. 13 on Form N-1A
filed June 1, 1994)
(iii) Investment Advisory Contract of the Fifth Third Pinnacle
Fund (filed herewith)
(6) (i) Distribution Agreement of the Registrant (Incorporated by
reference to Registrant's Post-Effective Amendment No. 17 on
Form N-1A filed on or about January 18, 1996)
(a) Amended Schedules A-C to Distribution Agreement (filed
herewith)
(ii) Administrative Service Agreement of the Registrant
(Incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed on or about October 28,
1996)
(a) Amended Exhibit A to Administrative Service Agreement
(filed herewith
(7) Not applicable;
(8) (i) Custody Agreement of the Registrant (Incorporated by
reference to Registrant's Post-Effective Amendment No. 25 on
Form N-1A filed on or about November 28, 1997);
(a) Amended Exhibit B to Custody Agreement (Incorporated by
reference to Registrant's Post-Effective Amendment No.
22 on Form N-1A filed on or about September 30, 1997
(ii) Sub-Custody Agreement (Incorporated by reference to
Registrant's Post-Effective Amendment No. 15 on Form N-1A
filed February 28, 1995)
(9) (i) Transfer Agency and Accounting Services Agreement of the
Registrant (Incorporated by reference to Registrant's
Post-Effective Amendment No. 15 on Form N-1A filed
February 28, 1995)
(a) Amended Schedule A to Transfer Agency and Accounting
Services Agreement (filed herewith)
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(ii) Management and Administration Agreement of the Registrant
(Incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed on or about September
30, 1997)
(a) Amended Schedule A to Management and Administration
Agreement (filed herewith)
(iii) Sub-Administration Agreement (Incorporated by reference to
Registrant's Post-Effective Amendment No. 22 on Form N-1A
filed on or about September 30, 1997)
(a) Amended Schedule A to Sub-Administration Agreement
(filed herewith)
(10) Opinion and Consent of counsel as to legality of shares being
registered (filed herewith)
(11) (i) Consent of Ernst & Young LLP (filed herewith)
(ii) Consent of KPMG Peat Marwick LLP (filed herewith)
(12) Not applicable
(13) Initial Capital Understanding (Incorporated by reference to
Registrant's Post-Effective Amendment No. 15 on Form N-1A filed
February 28, 1995)
(14) Not applicable
(15) (i) Amended Rule 12b-1 Plan through and including Exhibits A and
B (filed herewith)
(ii) Form of Rule 12b-1 Agreement (filed herewith)
(16) Not applicable
(17) Financial Data Schedules (EDGAR filing only)
(18) Amended and Restated Multiple Class Plan (filed herewith)
(19) Power of Attorney (Incorporated by reference to Registrant's
Post-Effective Amendment No. 17 on Form N-1A filed on or about
January 18, 1996)
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth information as to all record holders of
Registrant's securities as of September 30, 1998:
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- -------------- --------------
Fifth Third Quality Growth Fund--
Investment A Shares 5,965
Investment C Shares 745
Institutional Shares 2,892
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Fifth Third Equity Income Fund--
Investment A Shares 946
Investment C Shares 112
Institutional Shares 1,099
Fifth Third Cardinal Fund--
Investment A Shares 5
Investment C Shares 0
Institutional Shares 75
Fifth Third Pinnacle Fund--
Investment A Shares 1,182
Investment C Shares 159
Institutional Shares 105
Fifth Third Balanced Fund--
Investment A Shares 2,773
Investment C Shares 349
Institutional Shares 859
Fifth Third Mid Cap Fund--
Investment A Shares 2,451
Investment C Shares 144
Institutional Shares 2,134
Fifth Third International Equity Fund--
Investment A Shares 657
Investment C Shares 41
Institutional Shares 1,685
Fifth Third Bond Fund for Income--
Investment A Shares 86
Investment C Shares 13
Institutional Shares 1,669
Fifth Third Quality Bond Fund--
Investment A Shares 442
Investment C Shares 25
Institutional Shares 1,096
Fifth Third U.S. Government Securities Fund--
Investment A Shares 157
Investment C Shares 10
Institutional Shares 625
Fifth Third Municipal Bond Fund--
Investment A Shares 11
Investment C Shares 0
Institutional Shares 416
Fifth Third Ohio Tax Free Bond Fund--
Investment A Shares 264
Investment C Shares 23
Institutional Shares 816
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Fifth Third Government Cash Reserves Fund--
Investment A Shares 41,440
Institutional Shares 3,376
Fifth Third Commercial Paper Fund--
Investment A Shares 10,605
Institutional Shares 3,391
Fifth Third Tax Exempt Money Market Fund--
Investment A Shares 1,417
Institutional Shares 66
Fifth Third U.S. Treasury Obligations Fund--
Institutional Shares 3,320
ITEM 27. INDEMNIFICATION
Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed September 27, 1991 (File Nos. 811-5669 and
33-24848).
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
FIFTH THIRD BANK
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
POSITION WITH BUSINESS, PROFESSION,
NAME FIFTH THIRD BANK VOCATION OR EMPLOYMENT
- ---- ---------------- ----------------------
<S> <C> <C>
George A. Schaefer, Jr. President, Chief Executive Officer
and Director None
Stephen J. Schrantz Executive Vice President None
P. Michael Brumm Executive Vice President None
Michael K. Keating Executive Vice President,
Trust Officer and Secretary None
Robert P. Niehaus Executive Vice President None
Michael D. Baker Executive Vice President None
James J. Hudepohl Executive Vice President None
Gerald L. Wissel Executive Vice President and
Director of Audit None
Henry W. Hobson, III Senior Vice President None
J. Patrick Bell Senior Vice President None
Tom A. Bobenread Senior Vice President None
Edward H. Silva, Jr. Senior Vice President None
Neal E. Arnold Senior Vice President and
Chief Financial Officer None
Paul L. Reynolds Senior Vice President, General
Counsel and Assistant Secretary None
James D. Berghausen Senior Vice President & Chief None
Investment Officer
Barry L. Boerstler Senior Vice President None
Richard A. Bondie Senior Vice President None
Roger W. Dean Senior Vice President & Bancorp
Controller None
Diane L. Dewbrey Senior Vice President & Cashier None
Sandra L. Lobert Senior Vice President & Trust
Officer None
</TABLE>
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<TABLE>
<S> <C> <C>
William J. Moran Senior Vice President None
Ronald A. Stahl Senior Vice President & Trust
Officer None
Darryl F. Allen Director Chairman, President and CEO, Aeroquip Vickers, Inc.
John F. Barrett Director President and CEO, The Western-Southern
Life Insurance Company
Gerald V. Dirvin Director Former Executive Vice President, The Proctor
& Gamble Company
Ivan W. Gorr Director Former Chairman and CEO,
Cooper Tire & Rubber Co.
Richard T. Farmer Director Chairman, Cintas Corp.
Thomas B. Donnell Director Chairman, Fifth Third Bank of Northwestern Ohio
Joseph H. Head, Jr. Director Chairman & CEO, Atkins and Pearce
Joan R. Herschede Director Former President and CEO, The Frank
Herschede Company
Allen M. Hill Director President and CEO, Dayton Power & Light, Inc.
William G. Kagler Director Former Chairman of the Executive Committee
of the Board of Directors, Skyline Chili, Inc.
James D. Kiggen Director Chairman, Xtek, Inc.
Jerry L. Kirby Director Chairman, Fifth Third Bank of Western Ohio
Mitchel D. Livingston, Ph.D. Director Vice President for Student Affairs & Human
Resources, University of Cincinnati
Robert B. Morgan Director President and CEO, Cincinnati Financial
Corp.
David E. Reese Director Chairman, Fifth Third Bank of the Southwest
James E. Rogers Director Vice Chairman, President & CEO, CINergy
Brian H. Rowe Director Chairman Emeritus, GE Aircraft Engines
John J. Schiff, Jr. Director Chairman, Cincinnati Financial Corp.
Donald B. Shackelford Director Chairman, Fifth Third Bank of Columbus
Dennis J. Sullivan, Jr. Director Executive Counselor, Dan Pinger Public
Relations
Dudley S. Taft Director President, Taft Broadcasting Co.
</TABLE>
MORGAN STANLEY ASSET MANAGEMENT INC. (Sub-adviser to the Fifth Third
International Equity Fund):
Listed below are the officers and Directors of Morgan Stanley Asset
Management Inc. ("MSAM"). The information as to any other business, profession,
vocation, or employment of substantial nature engaged in by the Chairman,
President and Directors during the past two fiscal years, is incorporated by
reference to Schedule A and D of Form ADV filed by MSAM pursuant to the Advisers
Act (SEC File No. 801-15757).
MORGAN STANLEY ASSET MANAGEMENT
Officers (Principals and Managing Directors)
<TABLE>
<S> <C>
John R. Alkire, Managing Director Frances Campion, Managing Director
James A. Allwin, Managing Director Stephen C. Cordy, Managing Director
Arden C. Armstrong, Managing Director Madhav Dhar, Managing Director
Thomas L. Bennett, Managing Director Kenneth B. Dunn, Managing Director
Barton M. Bigg, Managing Director Stephen F. Esser, Managing Director
Francine J. Bovich, Managing Director Philip W. Friedman, Managing Director
</TABLE>
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<TABLE>
<S> <C>
J. David Germany, Managing Director Timothy D. Jansen, Principal
Nicholas J. Kovich, Managing Director Margaret Kinsley Johnson, Principal
Maryann K. Malwald, Managing Director James Jolinger, Principal
Robert J. Marcin, Managing Director Michael F. Klein, Principal
Robert L. Meyer, Managing Director Paul W. Klug, Jr., Principal
Frank P.L. Minard, Managing Director George Kosby, Principal
Margaret B. Nayulor, Managing Director Steven K. Kreider, Principal
Russell C. Platt, Managing Director Michael B. Kushma, Principal
Scott F. Richard, Managing Director Khoon-Min Lim, Principal
Robert A. Sargent, Managing Director Marianne J. Lippmann, Principal
Gary G. Schlarbaum, Managing Director William David Lock, Principal
Vinod R. Sethi, Managing Director Jeremy Lodewick, Principal
Dennis G. Sherva, Managing Director Gordon W. Loery, Principal
James L. Tanner, Managing Director Yvonne Longley, Principal
Horacio A. Valeiras, Managing Director Andrew John Mack, Principal
James R. Tanner, Managing Director Gary J. Mangino, Principal
Marna C. Whittington, Managing Director Angelo G. Maniowoekis, Principal
Richard G. Woolworth, Jr., Managing Director James J. Manley, Principal
Richard B. Worley, Managing Director Jeffrey Margolis, Principal
Warren J. Ackerman, III, Principal Ian Martin, Principal
Susan S. Akers, Principal M. Paul Martin, Principal
Robert E. Angevine, Principal Teresa E. Martini, Principal
W. David Armstrong, Principal Walter Maynard, Jr., Principal
Eileen M. Barron, Principal Phoebe Mcbee, Principal
Gerald P. Barth-Wehrenalp, Principal Alexis C. McCarthy, Principal
Glenn E. Becker, Principal Mary Ann Milias St. Peter, Principal
Richard M. Behler, Principal Milesh Modi, Principal
Stephen H. Belgrad, Principal Paul F. O'Brien, Principal
William Bentley, Principal Yoshiro Okawa, Principal
Theodore R. Bigman, Principal Wayne D. Peterson, Principal
E. Clayton Boggs, Principal Christopher G. Petrow, Principal
Stuart H. Bohart, Principal Andreas Ludwig J. Povell, Principal
Richard F. Brereton, Principal Akash Prakash, Principal
Andrew C. Brown, Principal Narayan Rachmachandran, Principal
Jeffry P. Brown, Principal Gail H. Reeke, Principal
Angelica T. Cantlon, Principal Ronald R. Reese, Principal
Terence P. Carmichael, Principal Christine I. Reilly, Principal
Arthur Certosimo, Principal Christian G. Roth, Principal
Marc Crespi, Principal Stepano Russo, Principal
Jan Dalkuhara, Principal James D. Schmid, Principal
Jacqueline A. Day, Principal James H. Scott, Principal
Dana L. Dortone, Principal Kiat Seng Seah, Principal
Raye L. Dube, Principal Roberto M. Sella, Principal
Hassan Elmasry, Principal Stephen C. Sexauer, Principal
Abigail Jones Feder, Principal Andy B. Skov, Principal
Frits Nicolas Simon Fiena, Principal Kim I. Spellman, Principal
Eugene Flood, Jr., Principal Joseph P. Stadler, Principal
Robert J. Formisano, Principal Kunihiko Sugio, Principal
Thomas C. Frame, Principal Ram K. Sundaram, Principal
W. Blain Gem, Principal Ann D. Thivjerge, Principal
William B. Gerlach, Principal Lorraine Truten, Principal
Stephen T. Golding, Principal Elizabeth A. Vale, Principal
Robert L. Hagin, Principal Roberto Vedovetto, Principal
Perry E. Hall, II, Principal Marjorie M. Wilcox, Principal
Ellen D. Harvey, Principal Ram Willner, Principal
John D. Hevner, Principal Philip W. Winters, Principal
Kimberly L. Hirschman, Principal Bruce Wolfe, Principal
Ruth A. Hughes-Guden, Principal Peter John Wright, Principal
Tracey H. Ivey, Principal Alford E. Zick, Principal
</TABLE>
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<PAGE> 288
HEARTLAND CAPITAL MANAGEMENT, INC.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
POSITION WITH BUSINESS, PROFESSION,
NAME HEARTLAND VOCATION OR EMPLOYMENT
- ---- --------- ----------------------
<S> <C> <C>
Robert D. Markley President and Chief Executive
Officer None
Thomas F. Maurath Executive Vice President None
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) BISYS Fund Services Limited Partnership, formerly known as The Winsbury
Company Limited Partnership ("BISYS"), acts as distributor and administrator for
Registrant. BISYS also distributes the securities of Alpine Equity Trust, The
ARCH Fund, Inc., American Performance Funds, AmSouth Mutual Funds, The BB&T
Mutual Funds Group, The Coventry Group, ESC Strategic Funds, Inc., The Eureka
Funds, Fountain Square Funds, Hirtle Callaghan Trust, HSBC Family of Funds,
INTRUST Funds Trust, The Infinity Mutual Funds, Inc., The Kent Funds, Magna
Funds, Meyers Investment Trust, MMA Praxis Mutual Funds, M.S.D.&T. Funds,
Pacific Capital Funds, Parkstone Group of Funds, The Parkstone Advantage Funds,
Pegasus Funds, The Republic Advisors Funds Trust, Puget Sound Alternative
Investment Series Trust, The Republic Funds Trust, The Riverfront Funds, Inc.,
SBSF Funds, Inc. d/b/a Key Mutual Funds, Sefton Funds, The Sessions Group,
Summit Investment Trust, Variable Insurance Funds, The Victory Portfolios, The
Victory Variable Funds and Vintage Funds, Inc., each of which is an investment
management company.
(b) Directors, officers and partners of BISYS, as of October 15, 1998 were
as follows:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH
BUSINESS ADDRESS POSITIONS AND OFFICES WITH BISYS REGISTRANT
- ---------------- -------------------------------- --------------------------
<S> <C> <C>
The BISYS Group, Inc. Sole shareholder of BISYS Fund None
150 Clove Road Services, Inc.
Little Falls, NJ 07424
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
G. Ronald Henderson Executive Officer None
3435 Stelzer Road
Columbus, Ohio 43219
J. David Huber Senior Vice President None
3435 Stelzer Road Business Development
Columbus, Ohio 43219 Fund Services Division
</TABLE>
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<PAGE> 289
<TABLE>
<S> <C> <C>
Stephen G. Mintos Executive Vice President President
3435 Stelzer Road General Manager
Columbus, Ohio 43219 Fund Services Division
Kenneth B. Quintenz Executive Officer None
3435 Stelzer Road
Columbus, Ohio 43219
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Fifth Third Funds (Registrant)
3435 Stelzer Road
Columbus, Ohio 43219-3035
Fifth Third Bank (Advisor, Custodian, Sub-administrator, transfer agent
and dividend disbursing agent)
38 Fountain Square Plaza
Cincinnati, Ohio 45263
BISYS (Administrator)
3435 Stelzer Road
Columbus, Ohio 43219-3035
Heartland Capital Management, Inc. (Advisor to the Fifth Third
Pinnacle Fund)
36 South Pennsylvania Street, Suite 610
Indianapolis, Indiana 46204
Morgan Stanley Asset Management Inc. (Sub-Advisor to the Fifth Third
International Equity Fund)
1221 Avenue of the Americas
New York, New York 10020
ITEM 31. MANAGEMENT SERVICES
Not applicable.
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<PAGE> 290
ITEM 32. UNDERTAKINGS
Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of Registrant's latest Annual Report to Shareholders, upon
request and without charge.
Registrant undertakes to call a meeting of shareholders for the purpose
of voting upon the questions of removal of a trustee or trustees if requested to
do so by the holders of at least 10% of Registrant's outstanding shares.
Registrant will stand ready to assist shareholder communications in connection
with any meeting of shareholders as prescribed in Section 16(c) of the
Investment Company Act of 1940.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b)(1)(iii) under the Securities Act
of 1933, as amended, and the Registrant has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Columbus, State of Ohio,
on the 30th day of October, 1998.
FIFTH THIRD FUNDS
BY: /S/ STEPHEN G. MINTOS
----------------------------
Stephen G. Mintos, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment has been signed below by the following persons in the
capacities indicated on October 30, 1998.
/S/ STEPHEN G. MINTOS
- --------------------- President and Trustee (Principal Executive Officer)
Stephen G. Mintos
/S/ JEFFREY C. CUSICK
- --------------------- Treasurer and Secretary (Principal Financial and
Jeffrey C. Cusick Accounting Officer)
**
- --------------------- Trustee
Edward Burke Carey
**
- --------------------- Trustee
Lee A. Carter
**
- --------------------- Trustee
Albert E. Harris
**Executed on behalf of the indicated person by the undersigned, pursuant to
power of attorney previously filed and incorporated herein by reference.
By: /S/ STEPHEN G. MINTOS
--------------------------------------
Stephen G. Mintos, Attorney-in-fact
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<PAGE> 292
EXHIBIT INDEX
1 (v) Amendment No. 12 to the Declaration of Trust
(vi) Amendment No. 13 to the Declaration of Trust
5 (i) (b) Exhibits N-O to Investment Advisory Contract
(iii) Investment Advisory Contract of the Fifth Third Pinnacle Fund
6 (i) (a) Amended Schedules A-C to Distribution Agreement
6 (ii) (a) Amended Exhibit A to Administration Service Agreement
9 (i) (a) Amended Schedule A to Transfer Agency and Accounting
Services Agreement
9 (ii) (a) Amended Schedule A to Management and Administration
Agreement
9 (iii) (a) Amended Schedule A to Sub-Administration Agreement
10 Opinion and Consent of counsel as to legality of shares being registered
11 (i) Consent of Ernst & Young LLP
(ii) Consent of KPMG Peat Marwick LLP
15 (i) Amended Rule 12b-1 Plan through and including Exhibits A and B
15 (ii) Form of Rule 12b-1 Agreement
17 Financial Data Schedules (EDGAR filing only)
18 Amended and Restated Multiple Class Plan
<PAGE> 1
Exhibit 1(v)
FOUNTAIN SQUARE FUNDS
AMENDMENT NO. 12
DECLARATION OF TRUST
dated March 23, 1998
This Declaration of Trust is amended as follows:
Strike the first paragraph of Section 5 of Article III from the Declaration of
Trust and substitute in its place the following:
"Section 5. Establishing and Designation of Series or Class. Without
limiting the authority of the Trustees set forth in Article XII,
Section 8, inter alia, to establish and designate any additional
Series or Class, or to modify the rights and preferences of any
existing Series or Class, the Series and Classes of the Trust shall
be, and hereby are, established and designated as:
Fountain Square Balanced Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square Commercial Paper Fund:
Investment A Shares;
Institutional Shares;
Fountain Square Government Cash Reserves Fund:
Investment A Shares;
Institutional Shares;
Fountain Square International Equity Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square Mid Cap Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square Ohio Tax Free Bond Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square Quality Bond Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square Quality Growth Fund:
<PAGE> 2
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square U.S. Government Securities Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square Equity Income Fund;
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square Bond Fund For Income;
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square Municipal Bond Fund;
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square Pinnacle Fund;
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square Cardinal Fund;
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fountain Square Tax Exempt Money Market Fund;
Investment A Shares;
Institutional Shares; and
Fountain Square U.S. Treasury Obligations Fund;
Institutional Shares.
The remainder of Section 5 of Article III of the Declaration of Trust shall
remain in effect as previously constituted.
The undersigned Secretary of Fountain Square Funds hereby certifies that the
above-stated Amendment is a true and correct Amendment to the Declaration of
Trust, as adopted by the Board of Trustees on the 23rd day of March, 1998.
WITNESS the due execution hereof this 20th day of May, 1998.
/S/ JEFFREY C. CUSICK
---------------------
Jeffrey C. Cusick
Secretary
<PAGE> 1
Exhibit 1(vi)
FOUNTAIN SQUARE FUNDS
AMENDMENT NO. 13
dated September 21, 1998
to
DECLARATION OF TRUST
Effective November 1, 1998, the Declaration of Trust of Fountain Square Funds, a
Massachusetts business trust, is amended as follows:
1. Change the title of the Declaration of Trust to the following:
"DECLARATION OF TRUST
FIFTH THIRD FUNDS"
2. Strike Section 1 of Article I from the Declaration of Trust and substitute
in its place the following:
"Section 1. Name. This Trust shall be known as Fifth Third Funds."
3. Strike Section 2(b) of Article I from the Declaration of Trust and
substitute in its place the following:
"(b) The "Trust" refers to Fifth Third Funds;"
The remainder of Article I of the Declaration of Trust shall remain in effect as
previously constituted.
4. Strike the first paragraph of Section 5 of Article III from the Declaration
of Trust and substitute in its place the following:
"Section 5. Establishing and Designation of Series or Class. Without
limiting the authority of the Trustees set forth in Article XII,
Section 8, inter alia, to establish and designate any additional
Series or Class, or to modify the rights and preferences of any
existing Series or Class, the Series and Classes of the Trust shall
be, and hereby are, established and designated as:
Fifth Third Balanced Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fifth Third Bond Fund For Income;
Investment A Shares;
Investment C Shares;
Institutional Shares;
<PAGE> 2
Fifth Third Cardinal Fund;
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fifth Third Commercial Paper Fund:
Investment A Shares;
Institutional Shares;
Fifth Third Equity Income Fund;
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fifth Third Government Cash Reserves Fund:
Investment A Shares;
Institutional Shares;
Fifth Third International Equity Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fifth Third Mid Cap Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fifth Third Municipal Bond Fund;
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fifth Third Ohio Tax Free Bond Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fifth Third Pinnacle Fund;
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fifth Third Quality Bond Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fifth Third Quality Growth Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares;
Fifth Third Tax Exempt Money Market Fund;
Investment A Shares;
Institutional Shares;
<PAGE> 3
Fifth Third U.S. Government Securities Fund:
Investment A Shares;
Investment C Shares;
Institutional Shares; and
Fifth Third U.S. Treasury Obligations Fund;
Institutional Shares.
The remainder of Section 5 of Article III of the Declaration of Trust shall
remain in effect as previously constituted.
The undersigned Secretary of Fountain Square Funds hereby certifies
that the above-stated Amendment is a true and correct Amendment to the
Declaration of Trust, as adopted by the Board of Trustees on the 21st day of
September, 1998.
WITNESS the due execution hereof this 22 day of October, 1998.
/S/ JEFFREY C. CUSICK
---------------------
Jeffrey C. Cusick
Secretary
STATE OF OHIO )
)
COUNTY OF FRANKLIN )
On October 22, 1998, there appeared before me the above-named Jeffrey
C. Cusick, to me personally known, who did acknowledge the foregoing instrument
to be his free act and deed in his capacity as Secretary of FOUNTAIN SQUARE
FUNDS, a Massachusetts business trust.
--------------------------------
Notary Public
My Commission expires: __________
[NOTARIAL SEAL]
<PAGE> 1
Exhibit 5(i)(b)
EXHIBIT N
FOUNTAIN SQUARE CARDINAL FUND
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to 0.60 of 1% of the
average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of 0.60 of 1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 15th day of May, 1998.
Attest: FIFTH THIRD BANK
- -------------------------- By: ___________________
Name: _________________
Its: __________________
FOUNTAIN SQUARE FUNDS
By:
- ------------------------- ------------------------
Secretary Stephen G. Mintos
President
<PAGE> 2
EXHIBIT O
FOUNTAIN SQUARE TAX EXEMPT MONEY MARKET FUND
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to 0.50 of 1% of the
average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of 0.50 of 1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 15th day of May, 1998.
Attest: FIFTH THIRD BANK
- -------------------------- By: ___________________
Name: _________________
Its: __________________
FOUNTAIN SQUARE FUNDS
By:
- -------------------------- ------------------------
Secretary Stephen G. Mintos
President
<PAGE> 1
Exhibit 5(iii)
FOUNTAIN SQUARE PINNACLE FUND
INVESTMENT ADVISORY CONTRACT
THIS CONTRACT is made between Heartland Capital Management, Inc.
("Heartland"), an Indiana corporation having its principal place of business in
Indianapolis, Indiana and which is a wholly owned subsidiary of Fifth Third
Bancorp, an Ohio corporation, and Fountain Square Funds, a Massachusetts
business trust having its principal place of business in Pittsburgh,
Pennsylvania (the "Trust").
WHEREAS, the Trust is an open-end management investment company as that
term is defined in the Investment Company Act of 1940 and is registered as such
with the Securities and Exchange Commission; and
WHEREAS, Heartland is engaged in the business of rendering investment
advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
i. The Trust hereby appoints Heartland as Investment Adviser for
each of the portfolios ("Funds") of the Trust on whose behalf the
Trust executes an exhibit to this Contract, and Heartland, by its
execution of each such exhibit, accepts the appointments. Subject to
the direction of the Trustees of the Trust, Heartland shall provide
investment research and supervision of the investments of each of the
Funds and conduct a continuous program of investment evaluation and of
appropriate sale or other disposition and reinvestment of each Fund's
assets.
ii. Heartland, in its supervision of the investments of each of the
Funds will be guided by each of the Fund's fundamental investment
policies and the provisions and restrictions contained in the
Declaration of Trust and By-Laws of the Trust and as set forth in the
Registration Statement and exhibits as may be on file with the
Securities and Exchange Commission.
iii. The Trust shall pay or cause to be paid, on behalf of each Fund,
all of the Fund's expenses and the Fund's allocable share of Trust
expenses, including without limitation, the expenses of organizing the
Trust and continuing its existence; fees and expenses of officers and
Trustees of the Trust; fees for investment advisory services and
administrative services; fees and expenses of preparing and printing
amendments to its Registration Statement under the Securities Act of
1933 and the Investment Company Act of 1940; expenses of registering
and qualifying the Trust, the Funds and shares of the Funds ("Shares")
under Federal and state laws and regulations; expenses of preparing,
printing and distributing prospectuses (and any
<PAGE> 2
amendments thereto) and sales literature; expenses of registering,
licensing, or other authorization of the Trust as a broker-dealer and
of its officers as agents and salesmen under federal and state laws
and regulations; interest expense, taxes, fees and commissions of
every kind; expenses of issue (including cost of Share certificates),
purchase, repurchase and redemption of Shares, including expenses
attributable to a program of periodic issue; charges and expenses of
custodians, transfer agents, dividend disbursing agents, shareholder
servicing agents and registrars; printing and mailing costs, auditing,
accounting and legal expenses; reports to shareholders and
governmental officers and commissions; expenses of meetings of
Trustees and shareholders and proxy solicitations therefor; insurance
expenses; association membership dues; and such nonrecurring items as
may arise, including all losses and liabilities incurred in
administering the Trust and the Funds. The Trust will also pay each
Fund's allocable share of such extraordinary expenses as may arise,
including expenses incurred in connection with litigation,
proceedings, and claims and the legal obligations of the Trust to
indemnify its officers and Trustees and agents with respect thereto.
iv. The Trust, on behalf of each of the Funds shall pay to Heartland,
for all services rendered to such Funds by Heartland hereunder, the
fees set forth in the exhibits attached hereto.
v. Heartland may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume
expenses of one or more of the Funds); (i) to the extent that any
Fund's expenses exceed such lower expense limitation; (ii) for any
other reason, as Heartland may, by notice to the Fund, voluntarily
declare to be effective.
vi. This Contract shall begin for each Fund on the date that the
Trust executes an exhibit to this Contract relating to such Fund. This
Contract shall remain in effect for each Fund until the first meeting
of Shareholders held after the execution date of an exhibit relating
to the respective Fund, and if approved at such meeting by the
shareholders of a particular Fund, shall continue in effect for such
Fund for two years from the date of its execution and from year to
year thereafter, subject to the provisions for termination and all of
the other terms and conditions hereof if: (a) such continuation shall
be specifically approved at least annually by the vote of a majority
of the Trustees of the Trust, including a majority of the Trustees who
are not parties to this Contract or interested persons of any such
party (other than as Trustees of the Trust) cast in person at a
meeting called for that purpose; and (b) Heartland shall not have
notified the Trust in writing at least sixty (60) days prior to the
anniversary date of this Contract in any year thereafter that it does
not desire such continuation with respect to that Fund.
<PAGE> 3
vii. Notwithstanding any provision in this Contract, it may be
terminated at any time with respect to any Fund, without the payment
of any penalty, by the Trustees of the Trust or by a vote of the
shareholders of that Fund on sixty (60) days' written notice to
Heartland.
viii. This Contract may not be assigned by Heartland and shall
automatically terminate in the event of any assignment. Heartland may
employ or contract with such other person, persons, corporation or
corporations at its own cost and expense as it shall determine in
order to assist it in carrying out this Contract, provided that no
delegation of advisory responsibilities shall occur which would
require approval under the Investment Company Act of 1940.
ix. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties under this
Contract on the part of Heartland, Heartland shall not be liable to
the Trust or to any of the Funds 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.
x. Subject to the conditions set forth below, the Trust agrees to
indemnify and hold harmless Heartland and each person, if any, who
controls Heartland within the meaning of Section 15 of the 1933 Act
and Section 20 of the Securities Exchange Act of 1934, as amended,
against any and all loss, liability, claim, damage and expense
whatsoever, (including but not limited to any and all expense
whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any
claim whatsoever) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as from time to time amended
and supplemented) or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make
statements therein not misleading, unless such statement or omission
was made in reliance upon and conformity with written information
furnished to the Trust with respect to Heartland by or on behalf of
Heartland expressly for use in the Registration Statement or
Prospectus, or any amendment or supplement thereof.
If any action is brought against Heartland or any controlling person
thereof in respect of which indemnity may be sought against the Trust pursuant
to the foregoing paragraph, Heartland shall promptly notify the Trust in writing
of the institution of such action and the Trust shall assume the defense of such
action, including the employment of counsel selected by the Trust and payment of
expenses. Heartland or any such controlling person thereof shall have the right
to employ separate counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of Heartland or such controlling person unless
the employment of such counsel shall have been authorized in writing by the
Trust in connection with the defense of such action or the Trust shall
<PAGE> 4
not have employed counsel to have charge of the defense of such action, in any
of which events such fees and expenses shall be borne by the Trust. Anything in
this paragraph to the contrary notwithstanding, the Trust shall not be liable
for any settlement of any such claim or action effected without its written
consent. The Trust agrees promptly to notify Heartland of the commencement of
any litigation or proceeding against the Trust or any of its officers or
Trustees or controlling persons in connection with the issue and sale of shares
or in connection with such Registration Statement or Prospectus.
(1) Heartland agrees to indemnify and hold harmless the
Trust, each of its Trustees, each of its officers who have
signed the Registration Statement and each other person, if
any, who controls the Trust within the meaning of Section 15
of the 1933 Act, to the same extent as the foregoing
indemnity from the Trust to Heartland but only with respect
to statements or omissions, if any, made in the Registration
Statement or Prospectus or any amendment or supplement
thereof in reliance upon, and in conformity with,
information furnished to the Trust with respect to Heartland
by or on behalf of Heartland expressly for use in the
Registration Statement or Prospectus or any amendment or
supplement thereof. In case any action shall be brought
against the Trust or any other person so indemnified based
on the Registration Statement or Prospectus, or any
amendment or supplement thereof, and in respect of which
indemnity may be sought against Heartland, Heartland shall
have the rights and duties given to the Trust, and the Trust
and each other person so indemnified shall have the rights
and duties given to Heartland by the provisions of
subsection (a) above.
(2) Nothing herein contained shall be deemed to protect any
person against liability to the Trust or its shareholders to
which such person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the
performance of the duties of such person or by reason of the
reckless disregard by such person of the obligations and
duties of such person under this Contract.
xi. This Contract may be amended at any time by agreement of the
parties provided that the amendment shall be approved both by the vote
of a majority of the Trustees of the Trust, including a majority of
Trustees who are not parties to this Contract or interested persons of
any such party to this Contract (other than as Trustees of the Trust),
cast in person at a meeting called for that purpose, and on behalf of
a Fund by a majority of the outstanding voting securities of such
Fund.
xii. Heartland acknowledges that all sales literature for investment
companies (Such as the Trust) are subject to strict regulatory
oversight. Heartland agrees to submit any proposed sales literature
for the Trust (or any
<PAGE> 5
Fund) or for itself or its affiliates which mentions the Trust (or any
Fund) to the Trust's distributor for review and filing with the
appropriate regulatory authorities prior to the public release of any
such sales literature. The Trust agrees to cause its distributors to
promptly review all such sales literature to ensure compliance with
relevant requirements, to promptly advise Heartland of any
deficiencies contained in such sales literature, to promptly file
complying sales literature with the relevant authorities, and to cause
such sales literature to be distributed to prospective investors in
the Trust.
xiii. Heartland is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and
agrees that the obligations pursuant to this Contract of a particular
Fund and of the Trust with respect to that particular Fund be limited
solely to the assets of that particular Fund, and Heartland shall not
seek satisfaction of any such obligation form the assets of any other
Fund, the shareholders of any Fund, the Trustees, officers, employees
or agents of the Trust, or any of them.
xiv. This Contract shall be construed in accordance with and governed
by the laws of the State of Ohio.
xv. This Contract will become binding on the parties hereto upon
their execution of the attached exhibits to this Contract.
<PAGE> 6
Exhibit A
to the
Investment Advisory Contract
between
Heartland Capital Management, Inc.
and
Fountain Square Funds
FOUNTAIN SQUARE PINNACLE FUND
For all services rendered by Heartland hereunder, the Trust shall pay
to Heartland and Heartland agrees to accept as full compensation for all
services rendered hereunder, an annual investment advisory fee equal to 0.80 of
1% of the average daily net assets of the Fund.
The fee shall be accrued daily at the rate of 1/365th of 0.80 of 1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Heartland daily.
Witness the due execution hereof this 21st day of January, 1998.
HEARTLAND CAPITAL MANAGEMENT, INC.
/s/ THOMAS F. MAURATH
---------------------
Thomas F. Maurath
Executive Vice President
FOUNTAIN SQUARE FUNDS
________________________ /s/ STEPHEN G. MINTOS
---------------------
Secretary Stephen G. Mintos
President
<PAGE> 1
Exhibit 6(i)(a)
DATED: DECEMBER 1, 1995
AMENDED: MARCH 23, 1998
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BETWEEN FOUNTAIN SQUARE FUNDS AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
NAME OF FUND
------------
Fountain Square Government Cash Reserves Fund
Fountain Square Commercial Paper Fund
Fountain Square U.S. Treasury Obligations Fund
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
Fountain Square Municipal Bond Fund
Fountain Square Pinnacle Fund
Fountain Square Cardinal Fund
Fountain Square Tax Exempt Money Market Fund
FOUNTAIN SQUARE FUNDS
By: /s/ STEPHEN G. MINTOS
---------------------
Stephen G. Mintos, President
BISYS FUND SERVICES L.P.
By: BISYS Fund Services, Inc.
-------------------------
General Partner
By: /s/ J. DAVID HUBER
------------------
J. David Huber
Executive Vice President
<PAGE> 2
DATED: DECEMBER 1, 1995
AMENDED: MARCH 23, 1998
SCHEDULE B TO THE
DISTRIBUTION AGREEMENT
BETWEEN FOUNTAIN SQUARE FUNDS AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
NAME OF FUND
------------
Fountain Square Government Cash Reserves Fund
Fountain Square Commercial Paper Fund
Fountain Square U.S. Treasury Obligations Fund
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
Fountain Square Municipal Bond Fund
Fountain Square Pinnacle Fund
Fountain Square Cardinal Fund
Fountain Square Tax Exempt Money Market Fund
FOUNTAIN SQUARE FUNDS
By: /s/ STEPHEN G. MINTOS
---------------------
Stephen G. Mintos, President
BISYS FUND SERVICES L.P.
By: BISYS Fund Services, Inc.
-------------------------
General Partner
By: /s/ J. DAVID HUBER
------------------
J. David Huber
Executive Vice President
<PAGE> 3
DATED: DECEMBER 1, 1995
AMENDED: MARCH 23, 1998
SCHEDULE C
TO THE
DISTRIBUTION AGREEMENT
BETWEEN FOUNTAIN SQUARE FUNDS AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
NAME OF FUND
------------
Fountain Square Government Cash Reserves Fund
Fountain Square Commercial Paper 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
Fountain Square Municipal Bond Fund
Fountain Square Pinnacle Fund
Fountain Square Cardinal Fund
Fountain Square Tax Exempt Money Market Fund
FOUNTAIN SQUARE FUNDS
By: /s/ STEPHEN G. MINTOS
---------------------
Stephen G. Mintos, President
BISYS FUND SERVICES L.P.
By: BISYS Fund Services, Inc.
-------------------------
General Partner
By: /s/ J. DAVID HUBER
------------------
J. David Huber
Executive Vice President
<PAGE> 1
Exhibit 6(ii)(a)
DATED: DECEMBER 1, 1995
AMENDED: MARCH 23, 1998
EXHIBIT A
TO
FOUNTAIN SQUARE FUNDS
ADMINISTRATIVE SERVICE AGREEMENT
INVESTMENT C SHARES
This Agreement is adopted by Fountain Square Funds with respect to the
Investment C Shares of the following Funds of the Trust:
U.S. Government Securities Fund
Quality Bond Fund
Quality Growth Fund
Mid Cap Fund
Balanced Fund
Ohio Tax Free Bond Fund
International Equity Fund
Equity Income Fund
Bond Fund For Income
Municipal Bond Fund
Pinnacle Fund
Cardinal Fund
In compensation for the services provided pursuant to this Agreement,
FIFTH THIRD BANK will be paid a monthly fee computed at the annual rate of up to
0.25% of the average aggregate net asset value of the Investment C Shares of
each applicable Fund held during the month.
FOUNTAIN SQUARE FUNDS FIFTH THIRD BANK
By: /s/ STEPHEN G. MINTOS By: /s/ SCOTT N. DEGERBERG
--------------------- ----------------------
Stephen G. Mintos Scott N. Degerberg
President Vice President
<PAGE> 1
Exhibit 9(i)(a)
Dated: December 12, 1989
Amended: March 23, 1998
SCHEDULE A
TO THE
TRANSFER AGENCY AND ACCOUNTING SERVICES AGREEMENT
BETWEEN
THE FIFTH THIRD BANK
AND
FOUNTAIN SQUARE FUNDS
The following sets forth the list of Funds included and the
compensation paid by the Funds to Fifth Third Bank for its services under the
Transfer Agency and Accounting Services Agreement:
FUNDS
-----
(A) Money Market Funds
Fountain Square U.S. Treasury Obligations Fund
Fountain Square Commercial Paper Fund
Fountain Square Government Cash Reserves Fund
Fountain Square Tax Exempt Fund
(B) Fluctuating Net Asset Value Funds
Fountain Square Balanced Fund
Fountain Square Mid Cap Fund
Fountain Square Government Securities Fund
Fountain Square Quality Bond Fund
Fountain Square Quality Growth Fund
Fountain Square Ohio Tax Free Bond Fund
Fountain Square International Equity Fund
Fountain Square Equity Income Fund
Fountain Square Bond Fund for Income
Fountain Square Municipal Bond Fund
Fountain Square Pinnacle Fund
Fountain Square Cardinal Fund
COMPENSATION
------------
(A) Transfer Agency Fees
(1) Accounts Maintained on Fifth Third Bank's System (other than the
International Equity Fund)
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
Base Fee (omnibus accounts only): $300.00 per month per Fund
per Class
Transaction Charges (omnibus accounts only): $4.50 per transaction
The monthly fee for omnibus accounts is limited to a maximum
of $800.00 per Fund per class.
Per Account Charges
(fully disclosed/non-omnibus accounts): $21.00 per account per year
for Money Market Funds
$18.00 per account per year
for Fluctuating Net Asset
Value Funds
</TABLE>
(2) Accounts Maintained on a Sub-Transfer Agent's System (other than
the International Equity Fund, Accounts of the Pinnacle Fund in
existence as of date of reorganization, or Fund Direct Accounts).
$25.00 per account per year. The minimum monthly fee per Fund per
month shall be $600.00.
(3) International Equity Fund
Flat Fee: $18,000.00 annually to be paid by the Fund in equal
monthly amounts of $1,500.00.
Per Account Charges: $16.00 per account per year.
(4) Pinnacle Fund Accounts in Existence As of Date of Reorganization
Flat Fee: $18,000.00 annually to be paid by the Fund in equal
monthly amounts of $1,500.00.
Per Account Charges: $17.50 per account per year.
(5) Fund Direct Accounts
<TABLE>
<CAPTION>
<S> <C>
Per Account Charges (per Fund/Class): $21.00 per account per year
for Money Market Funds
$18.00 per account per year
for Fluctuating Net Asset
Value Funds
</TABLE>
<PAGE> 3
The fee for Fund Direct Accounts is subject to a minimum fee of
$1,500 per month per Fund/Class.
In addition to the above transfer agent fees, the Funds will reimburse Fifth
Third Bank for certain out-of-pocket costs, including items such as expenses for
postage, forms, statements, record storage, printing, communication lines,
statement mailings, confirmations and other shareholder correspondence and any
assessments taxes or levies assessed on the transfer agent for services provided
under the contract. These out-of-pocket expenses will be charged to the Funds at
Fifth Third Bank's cost. Fifth Third Bank will not mark up any of these charges
to the Funds.
(B) Fund Accounting Fees (Per Fund Per Year)
(1) All Funds Except International Equity Fund
<TABLE>
<CAPTION>
Assets Fees
------ ----
<S> <C>
Up to $500 million 0.020%
Over $500 million and
up to $1 billion 0.015%
Over $1 billion 0.010%
</TABLE>
There shall be an annual fee of $10,000 per additional Class of
shares per Fund. The minimum annual fee per Fund shall be
$30,000.
(2) International Equity Fund
0.050% of Fund assets, with a minimum fee of $50,000.00 per year.
In addition to the above Fund accounting fees, the Funds shall reimburse Fifth
Third Bank for certain out-of-pocket expenses, including pricing of portfolio
securities.
FOUNTAIN SQUARE FUNDS
By: /S/ STEPHEN G. MINTOS
----------------------
Stephen G. Mintos, President
THE FIFTH THIRD BANK
By: /S/ SCOTT N. DEGERBERG
----------------------
Scott N. Degerberg
Vice President
<PAGE> 1
Exhibit 9(ii)(a)
DATED: APRIL 1, 1997
AMENDED: MARCH 23, 1998
SCHEDULE A
TO THE
MANAGEMENT AND ADMINISTRATION AGREEMENT
BETWEEN FOUNTAIN SQUARE FUNDS AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION*
------------ -------------
<S> <C>
Fountain Square Government Cash Reserves Fund Annual Rate of:
Fountain Square Commercial Paper Fund Twenty one-hundredths of one percent (0.20%) of all
Fountain Square U.S. Treasury Obligations Fund Funds' average daily net assets up to $1 billion
Fountain Square U.S. Government Securities Fund
Fountain Square Quality Bond Fund Eighteen one-hundredths of one percent (0.18%) of all
Fountain Square Ohio Tax Free Bond Fund Funds' average daily net assets in excess of $1 billion
Fountain Square Quality Growth Fund up to $2 billion
Fountain Square Mid Cap Fund
Fountain Square Balanced Fund Seventeen one-hundredths of one percent (0.17%) of
Fountain Square International Equity Fund all Funds' average daily net assets in excess of $2
Fountain Square Equity Income Fund billion
Fountain Square Bond Fund for Income
Fountain Square Municipal Bond Fund
Fountain Square Pinnacle Fund
Fountain Square Cardinal Fund
Fountain Square Tax Exempt Money Market Fund
</TABLE>
FOUNTAIN SQUARE FUNDS BISYS FUND SERVICES L.P.
By: /s/ STEPHEN G. MINTOS By: BISYS Fund Services, Inc.
--------------------------- General Partner
Stephen G. Mintos, President
By: /s/ J. DAVID HUBER
-------------------------
J. David Huber
Executive Vice President
* All fees are computed daily and paid periodically.
XX The rate of compensation includes up to four classes of shares per
portfolio. An additional minimum fee of $10,000 per portfolio for each
additional class will be assessed.
<PAGE> 1
Exhibit 9(iii)(a)
DATED: DECEMBER 1, 1995
AMENDED: MARCH 23, 1998
SCHEDULE A
TO THE
SUB-ADMINISTRATION AGREEMENT
BETWEEN
BISYS FUND SERVICES LIMITED PARTNERSHIP
AND
FIFTH THIRD BANK
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION
------------ ------------
<S> <C>
Fountain Square Government Cash Reserves Fund Annual Rate of up to two and one-half one-hundredths
Fountain Square Commercial Paper Fund of one percent (0.025%) of all Funds' average daily net
Fountain Square U.S. Treasury Obligations Fund assets.
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
Fountain Square Municipal Bond Fund
Fountain Square Pinnacle Fund
Fountain Square Cardinal Fund
Fountain Square Tax Exempt Money Market Fund
</TABLE>
FIFTH THIRD BANK BISYS FUND SERVICES L.P.
LIMITED PARTNERSHIP
By: /s/ SCOTT N. DEGERBERG By: BISYS Fund Services, Inc.
---------------------- -------------------------
Scott N. Degerberg General Partner
Vice President
By: /s/ J. DAVID HUBER
------------------------
J. David Huber
Executive Vice President
<PAGE> 1
Exhibit 10
[LETTERHEAD OF DYKEMA GOSSETT PLLC]
400 Renaissance Center
Detroit, Michigan 48243
October 29, 1998
Board of Trustees
Fountain Square Funds
3435 Stelzer Road
Columbus, OH 43219
Gentlemen:
Fifth Third Funds (formerly known as "Fountain Square Funds"), a
Massachusetts business trust (the "Trust") has registered under the Securities
Act of 1933, as amended (the "1933 Act"), an indefinite number of shares of
beneficial interest, as permitted by Rule 24f-2 under the Investment Company Act
of 1940, as amended (the "1940 Act"). The Trust proposes to file post-effective
amendment number 28 (the "Post-Effective Amendment") to its Registration
Statement of Form N-1A, as required by Section 10(a)(3) of the 1933 Act.
We have examined the Trust's Declaration of Trust on file in the office
of the Secretary of the Commonwealth of Massachusetts and the Clerk of the City
of Boston. We have also examined a copy of the Trust's Bylaws and such other
documents and records as we have deemed necessary for the purpose of this
opinion.
Based upon the foregoing, we are of the opinion that the issue and sale
of the authorized but unissued Shares of each Series of the Trust have been duly
authorized under Massachusetts law. Upon the original issue and sale of the
Trust's authorized but unissued Shares and upon receipt of the authorized
consideration therefor in an amount not less than the net asset value of the
Shares established and in force at the time of their sale, the Shares issued
will be validly issued, fully paid and non-assessable shares.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust provides for indemnification out of
the property of a particular series of shares for all loss and expense of any
shareholder of that series held personally liable solely by reason of his being
or having been a shareholder. Thus, the risk of shareholder liability is limited
to circumstances in which that series of shares itself would be unable to meet
its obligations. We understand that this opinion is to be used in connection
with the filing of the Post-Effective Amendment. We consent to the filing of
this opinion with and as a part of the Post-Effective Amendment.
Very truly yours,
DYKEMA GOSSETT PLLC
By: /s/ PAUL R. RENTENBACH
------------------------------------
Paul R. Rentenbach, A Member of the Firm
<PAGE> 1
Exhibit 11(i)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" in the prospectuses included in
Post-Effective Amendment No. 28 to the Registration Statement (Form N-1A No.
811-5669) of Fifth Third Funds (formerly Fountain Square Funds) and to the use
of our reports dated September 24, 1998, for the Fountain Square Funds
incorporated by references therein and to the use of our report dated October
28, 1998, for the Fifth Third Cardinal Fund and Fifth Third Tax Exempt Money
Market Fund incorporated therein.
/s/ ERNST & YOUNG LLP
---------------------
Cincinnati, Ohio
October 28, 1998
<PAGE> 1
Exhibit 11(ii)
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees of
the Fifth Third Funds:
We consent to the reference to our firm under the heading "Financial
Highlights-Fifth Third Cardinal Fund" and "Financial Highlights-Fifth Third Tax
Exempt Money Market Fund" in the prospectuses which are included in
Post-Effective Amendment No. 29 to this Registration Statement on Form N- 1A
filed by Fifth Third Funds under the Securities Act of 1933, as amended.
/s/ KPMG PEAT MARWICK LLP
-------------------------
Columbus, Ohio
October 29, 1998
<PAGE> 1
Exhibit 15(i)
FOUNTAIN SQUARE FUNDS
RULE 12b-1 PLAN
This Rule 12b-1 Plan ("Plan") is adopted as of December 1, 1995, by the
Board of Trustees of FOUNTAIN SQUARE FUNDS (the "Trust"), a Massachusetts
business trust, with respect to certain classes of shares ("Classes") of the
portfolios of the Trust (the "Funds") set forth in exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "Act"), so as to allow the trust to make payments as
contemplated herein, in conjunction with the distribution of Classes of the
Funds' shares (the "Shares").
2. This Plan is designed to finance activities of BISYS Fund Services
Limited Partnership ("BISYS") principally intended to result in the sale of
Shares to include: (a) providing incentives to broker/dealers ("Brokers") to
sell Shares and to provide administrative support services to the Funds and
their shareholders; (b) compensating other participating financial institutions
and other persons ("Participating Organizations") for providing distribution
assistance and support services to the Funds and their shareholders; (c) paying
for the costs incurred in conjunction with advertising and marketing of Shares
to include expenses of preparing, printing and distributing prospectuses and
sales literature to prospective shareholders, Brokers or Participating
Organizations; and (d) other costs incurred in the implementation and operation
of the Plan. In compensation for services provided pursuant to this Plan, BISYS
will be paid a fee in respect of the applicable Classes set forth in the
applicable exhibit.
3. Any payment to BISYS in accordance with this Plan will be made
pursuant to the "Distribution Agreement" entered into by the Trust and BISYS.
Any payments made by BISYS to Brokers and Participating Organizations with funds
received as compensation under this Plan will be made pursuant to the "Rule
12b-1 Agreement" entered into by BISYS and the Broker or Participating
Organizations.
4. BISYS has the right (i) to select, in its sole discretion, the
Brokers and Participating Organizations to participate in the Plan and (ii) to
terminate without cause and in its sole discretion any Rule 12b-1 Agreement.
5. Quarterly in each year that this Plan remains in effect, BISYS shall
prepare and furnish to the Board of Trustees of the Trust, and the Board of
Trustees shall review, a written report of the amounts expended under the Plan
and the purpose for which such expenditures were made.
6. This Plan shall become effective with respect to each Class (i)
after approval by majority votes of: (a) the Trust's Board of Trustees; (b) the
Disinterested Trustees of the Trust, cast in person at a meeting called for the
purpose of voting on the Plan; and (c) the outstanding voting securities of the
particular Class, as defined in Section 2(a)(42) of the Act and (ii) upon
execution of an exhibit adopting this Plan with respect to such Class.
<PAGE> 2
7. This Plan shall remain in effect with respect to each Class
presently set forth on an exhibit and any subsequent Classes added pursuant to
an exhibit during the initial year of this Plan for the period of one year from
the date set forth above and may be continued thereafter if this Plan is
approved with respect to each Class at least annually by a majority of the
Trust's Board of Trustees and a majority of the Disinterested Trustees, cast in
person at a meeting called for the purpose of voting on such Plan. If this Plan
is adopted with respect to a Class after the first annual approval by the
Trustees as described above, this Plan will be effective as to that Class upon
execution of the applicable exhibit pursuant to the provisions of paragraph
6(ii) above and will continue in effect until the next annual approval of this
Plan by the Trustees and thereafter for successive periods of one year subject
to approval as described above.
8. All material amendments to this Plan must be approved by a vote of
the Board of Trustees of the Trust and of the Disinterested Trustees, cast in
person at a meeting called for the purpose of voting on it.
9. This Plan may not be amended in order to increase materially the
costs which the Classes may bear for distribution pursuant to the Plan without
being approved by a majority vote of the outstanding voting securities of the
Classes as defined in Section 2(a)(42) of the Act.
10. This Plan may be terminated with respect to a particular Class at
any time by: (a) a majority vote of the Disinterested Trustees; or (b) a vote of
a majority of the outstanding voting securities of the particular Class as
defined in Section 2(a)(42) of the Act; or (c) by BISYS on 60 days' notice to
the particular Trust.
11. While this Plan shall be in effect, the selection and nomination of
Disinterested Trustees of the Trust shall be committed to the discretion of the
Disinterested Trustees then in office.
12. All agreements with any person relating to the implementation of
this Plan shall be in writing and any agreement related to this Plan shall be
subject to termination, without penalty, pursuant to the provisions of Paragraph
10 herein.
13. This Plan shall be construed in accordance with and governed by the
laws of the State of Ohio.
Adopted: December 1, 1995
<PAGE> 3
DATED: DECEMBER 1, 1995
AMENDED: DECEMBER 17, 1997
EXHIBIT A
TO
FOUNTAIN SQUARE FUNDS
RULE 12b-1 PLAN
INVESTMENT A SHARES
The Rule 12b-1 Plan is adopted by Fountain Square Funds with respect to
the Investment A Shares of the Series of the Trust set forth below (the
"Applicable Funds"):
Commercial Paper Fund
Government Cash Reserves Fund
U.S. Government Securities Fund
Quality Bond Fund
Quality Growth Fund
Mid Cap Fund
Balanced Fund
Ohio Tax Free Bond Fund
International Equity Fund
Equity Income Fund
Bond Fund For Income
Municipal Bond Fund
Pinnacle Fund
Cardinal Fund
Tax Exempt Money Market Fund
In compensation for the services provided pursuant to this Plan, BISYS
Fund Services Limited Partnership will be paid a monthly fee computed at the
annual rate of up to 0.25% of the average aggregate net asset value of the
Investment A Shares of each Applicable Fund held during the month.
FOUNTAIN SQUARE FUNDS
By: /s/ STEPHEN G. MINTOS
----------------------------
Stephen G. Mintos, President
<PAGE> 4
EXHIBIT B
TO
FOUNTAIN SQUARE FUNDS
RULE 12b-1 PLAN
INVESTMENT C SHARES
The Rule 12b-1 Plan is adopted by Fountain Square Funds with respect to
the Investment C Shares of the Series of the Trust set forth below (the
"Applicable Funds"):
U.S. Government Securities Fund
Quality Bond Fund
Quality Growth Fund
Mid Cap Fund
Balanced Fund
Ohio Tax Free Bond Fund
International Equity Fund
Equity Income Fund
Bond Fund For Income
Municipal Bond Fund
Pinnacle Fund
Cardinal Fund
In compensation for the services provided pursuant to this Plan, BISYS
Fund Services Limited Partnership will be paid a monthly fee computed at the
annual rate of up to 0.75% of the average aggregate net asset value of the
Investment C Shares of each Applicable Fund held during the month.
FOUNTAIN SQUARE FUNDS
By: /s/ STEPHEN G. MINTOS
----------------------------
Stephen G. Mintos, President
<PAGE> 5
Exhibit 15(ii)
RULE 12b-1 AGREEMENT
This Agreement is made between the organization executing this
Agreement (the "Participating Organization") and BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services ("BISYS") for the shares of beneficial
interest (the "Shares") of the registered management investment companies listed
on Exhibit A to this Agreement, which Shares may be offered in one or more
series (the "Funds") and one or more classes thereof (the "Classes") and which
have adopted a Rule 12b-1 Plan (the "Plan") in relation to such Funds and
Classes, this form of agreement having been approved pursuant to Rule 12b-1
under the Investment Company Act of 1940. In consideration of the mutual
covenants hereinafter contained, it is hereby agreed by and between the parties
hereto as follows:
1. BISYS hereby appoints the Participating Organization to render or
cause to be rendered distribution and support services to the Funds
with respect to the Classes thereof and their shareholders.
2. The services to be provided under Paragraph 1 may include, but
are not limited to, the following:
(a) communicating account openings through computer terminals located
on the Participating Organization's premises ("computer
terminals"), through a toll-free telephone number or otherwise;
(b) communicating account closings via the computer terminals,
through a toll- free telephone number or otherwise;
(c) entering purchase transactions through the computer terminals,
through a toll- free telephone number or otherwise;
(d) entering redemption transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(e) electronically transferring and receiving funds for Fund Share
purchase and redemptions, and confirming and reconciling all such
transactions;
(f) reviewing the activity in Fund accounts;
(g) providing training and supervision of its personnel;
(h) maintaining and distributing current copies of prospectuses and
shareholders reports;
(i) advertising the availability of its services and products;
<PAGE> 6
(j) providing assistance and review in designing materials to send to
customers and potential customers and developing methods of
making such materials accessible to customers and potential
customers; and
(k) responding to customers' and potential customers' questions about
the Funds.
The services listed above are illustrative. The Participating Organization is
not required to perform each service and may at any time, upon agreement of the
parties hereto, perform either more or fewer services than described above.
3. During the term of this Agreement, BISYS will pay the
Participating Organization fees for each Fund or Class thereof set
forth in a written schedule delivered to the Participating
Organization pursuant to this Agreement. BISYS's fee schedule for
Participating Organization may be changed by BISYS sending a new fee
schedule to the Participating Organization pursuant to Paragraph 12 of
this Agreement. For the payment period in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of
the fee on the basis of the number of days that the Rule 12b-1
Agreement is in effect during the period.
4. The Participating Organization will not perform or provide any
duties which would cause it to be a fiduciary under Section 4975 of
the Internal Revenue Code, as amended. For purposes of that Section,
the Participating Organization understands that any person who
exercises any discretionary authority or discretionary control with
respect to any individual retirement account or its assets, or who
renders investment advice for a fee, or has any authority or
responsibility to do so, or has any discretionary authority or
discretionary responsibility in the administration of such an account,
is a fiduciary.
5. The Participating Organization understands that the Department of
Labor views ERISA as prohibiting fiduciaries of discretionary ERISA
assets from receiving compensation from funds in which the fiduciary's
discretionary ERISA assets are invested. To date, the Department of
Labor has not issued any exemptive order or advisory opinion that
would exempt fiduciaries from this interpretation. Receipt of such
compensation could violate ERISA provisions against fiduciary
self-dealing and conflict of interest and could subject the fiduciary
to substantial penalties.
6. The Participating Organization agrees not to solicit or cause to
be solicited directly, or indirectly, at any time in the future, any
proxies from the shareholders of any or all of the Funds in opposition
to proxies solicited by management of the Fund or Funds, unless a
court of competent jurisdiction shall have determined that the conduct
of a majority of the Trustees of the Fund or Funds constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard of
their duties. This Paragraph 6 will survive the term of this
Agreement.
7. With respect to each Fund or class thereof, this Agreement shall
continue in effect for one year from the date of its execution, and
thereafter for successive periods of one year if the form of this
Agreement is approved at least annually by the Trustees of the mutual
fund, including a majority of the Trustees of the Fund who are not
interested persons of the Fund and have no direct
<PAGE> 7
or indirect financial interest in the operation of the Fund's Plan or
in any related documents to the Plan ("Disinterested Trustees") cast
in person at a meeting for that purpose.
8. Notwithstanding Paragraph 7, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Trustees of the Fund or by a vote
of a majority of the outstanding voting securities of the Fund or
any Class thereof as defined in the Investment Company Act of
1940 on not more than sixty (60) days' written notice to the
parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as
defined in the Investment Company Act of 1940 or upon the
termination of the "Distributor's Contract" between the Fund or
Funds and BISYS; and
(c) by either party to the Agreement without cause by giving the
other party at least sixty (60) days' written notice of its
intention to terminate.
9. The termination of this Agreement with respect to any one Fund or
Class thereof will not cause the Agreement's termination with respect
to any other Fund or Class thereof.
10. The Participating Organization agrees to obtain any taxpayer
identification number certification form its customers required under
Section 3406 of the Internal Revenue Code, and any applicable Treasury
regulations, and to provide BISYS or its designee with timely written
notice of any failure to obtain such taxpayer identification number
certification in order to enable the implementation of any required
backup withholding.
11. This Agreement supersedes any prior service agreements between
the parties for the Funds.
12. This Agreement may be amended by BISYS from time to time by the
following procedure. BISYS will mail a copy of the amendment to the
Participating Organization's address, as shown below. If the
Participating Organization does not object to the amendment within
thirty (30) days after its receipt, the amendment will become part of
the Agreement. The Participating Organization's objection must be in
writing and be received by BISYS within such thirty days.
<PAGE> 8
13. This Agreement shall be construed in accordance with the laws of
the State of Ohio.
Dated:_____________________ [PARTICIPATING ORGANIZATION]
[Address]
[City, State Zip Code]
By:
-----------------------
Authorized Signature
[Print Name of Authorized Signature]
Title:
-------------------
BISYS FUND SERVICES Limited
Partnership
By:
-----------------------
Title:
-----------------------
<PAGE> 1
Exhibit 15(ii)
RULE 12b-1 AGREEMENT
This Agreement is made between the organization executing this
Agreement (the "Participating Organization") and BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services ("BISYS") for the shares of beneficial
interest (the "Shares") of the registered management investment companies listed
on Exhibit A to this Agreement, which Shares may be offered in one or more
series (the "Funds") and one or more classes thereof (the "Classes") and which
have adopted a Rule 12b-1 Plan (the "Plan") in relation to such Funds and
Classes, this form of agreement having been approved pursuant to Rule 12b-1
under the Investment Company Act of 1940. In consideration of the mutual
covenants hereinafter contained, it is hereby agreed by and between the parties
hereto as follows:
1. BISYS hereby appoints the Participating Organization to render or
cause to be rendered distribution and support services to the Funds with respect
to the Classes thereof and their shareholders.
2. The services to be provided under Paragraph 1 may include, but are
not limited to, the following:
(a) communicating account openings through computer terminals located
on the Participating Organization's premises ("computer
terminals"), through a toll-free telephone number or otherwise;
(b) communicating account closings via the computer terminals,
through a toll-free telephone number or otherwise;
(c) entering purchase transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(d) entering redemption transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(e) electronically transferring and receiving funds for Fund Share
purchase and redemptions, and confirming and reconciling all such
transactions;
(f) reviewing the activity in Fund accounts;
(g) providing training and supervision of its personnel;
(h) maintaining and distributing current copies of prospectuses and
shareholders reports;
(i) advertising the availability of its services and products;
<PAGE> 2
(j) providing assistance and review in designing materials to send to
customers and potential customers and developing methods of
making such materials accessible to customers and potential
customers; and
(k) responding to customers' and potential customers' questions about
the Funds.
The services listed above are illustrative. The Participating Organization is
not required to perform each service and may at any time, upon agreement of the
parties hereto, perform either more or fewer services than described above.
3. During the term of this Agreement, BISYS will pay the
Participating Organization fees for each Fund or Class thereof set forth in a
written schedule delivered to the Participating Organization pursuant to this
Agreement. BISYS's fee schedule for Participating Organization may be changed by
BISYS sending a new fee schedule to the Participating Organization pursuant to
Paragraph 12 of this Agreement. For the payment period in which this Agreement
becomes effective or terminates, there shall be an appropriate proration of the
fee on the basis of the number of days that the Rule 12b-1 Agreement is in
effect during the period.
4. The Participating Organization will not perform or provide any
duties which would cause it to be a fiduciary under Section 4975 of the Internal
Revenue Code, as amended. For purposes of that Section, the Participating
Organization understands that any person who exercises any discretionary
authority or discretionary control with respect to any individual retirement
account or its assets, or who renders investment advice for a fee, or has any
authority or responsibility to do so, or has any discretionary authority or
discretionary responsibility in the administration of such an account, is a
fiduciary.
5. The Participating Organization understands that the Department of
Labor views ERISA as prohibiting fiduciaries of discretionary ERISA assets from
receiving compensation from funds in which the fiduciary's discretionary ERISA
assets are invested. To date, the Department of Labor has not issued any
exemptive order or advisory opinion that would exempt fiduciaries from this
interpretation. Receipt of such compensation could violate ERISA provisions
against fiduciary self-dealing and conflict of interest and could subject the
fiduciary to substantial penalties.
6. The Participating Organization agrees not to solicit or cause to
be solicited directly, or indirectly, at any time in the future, any proxies
from the shareholders of any or all of the Funds in opposition to proxies
solicited by management of the Fund or Funds, unless a court of competent
jurisdiction shall have determined that the conduct of a majority of the
Trustees of the Fund or Funds constitutes willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties. This Paragraph 6 will survive
the term of this Agreement.
7. With respect to each Fund or class thereof, this Agreement shall
continue in effect for one year from the date of its execution, and thereafter
for successive periods of one year if the form of this Agreement is approved at
least annually by the Trustees of the mutual fund, including a majority of the
Trustees of the Fund who are not interested persons of the Fund and have no
direct
<PAGE> 3
or indirect financial interest in the operation of the Fund's Plan or in any
related documents to the Plan ("Disinterested Trustees") cast in person at a
meeting for that purpose.
8. Notwithstanding Paragraph 7, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Trustees of the Fund or by a vote
of a majority of the outstanding voting securities of the Fund or
any Class thereof as defined in the Investment Company Act of
1940 on not more than sixty (60) days' written notice to the
parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as
defined in the Investment Company Act of 1940 or upon the
termination of the "Distributor's Contract" between the Fund or
Funds and BISYS; and
(c) by either party to the Agreement without cause by giving the
other party at least sixty (60) days' written notice of its
intention to terminate.
9. The termination of this Agreement with respect to any one Fund or
Class thereof will not cause the Agreement's termination with respect to any
other Fund or Class thereof.
10. The Participating Organization agrees to obtain any taxpayer
identification number certification form its customers required under Section
3406 of the Internal Revenue Code, and any applicable Treasury regulations, and
to provide BISYS or its designee with timely written notice of any failure to
obtain such taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
11. This Agreement supersedes any prior service agreements between the
parties for the Funds.
12. This Agreement may be amended by BISYS from time to time by the
following procedure. BISYS will mail a copy of the amendment to the
Participating Organization's address, as shown below. If the Participating
Organization does not object to the amendment within thirty (30) days after its
receipt, the amendment will become part of the Agreement. The Participating
Organization's objection must be in writing and be received by BISYS within such
thirty days.
<PAGE> 4
13. This Agreement shall be construed in accordance with the laws of the
State of Ohio.
Dated:_____________________ [PARTICIPATING ORGANIZATION]
[Address]
[City, State Zip Code]
By:
-----------------------
Authorized Signature
--------------------------
[Print Name of Authorized Signature]
Title:
-------------------
BISYS FUND SERVICES Limited
Partnership
By:
-----------------------
Title:
-----------------------
<PAGE> 5
EXHIBIT A
TO
RULE 12b-1 AGREEMENT
The following Funds and their respective Classes of Shares shall be
subject to the Rule 12b-1 Agreement by and between the Participating
Organization and BISYS:
Fountain Square Commercial Paper Fund
Investment A Shares
Fountain Square Government Cash Reserves Fund
Investment A Shares
Fountain Square U.S. Government Securities Fund
Investment A Shares
Investment C Shares
Fountain Square Quality Bond Fund
Investment A Shares
Investment C Shares
Fountain Square Quality Growth Fund
Investment A Shares
Investment C Shares
Fountain Square Mid Cap Fund
Investment A Shares
Investment C Shares
Fountain Square Balanced Fund
Investment A Shares
Investment C Shares
Fountain Square Ohio Tax Free Bond Fund
Investment A Shares
Investment C Shares
Fountain Square International Equity Fund
Investment A Shares
Investment C Shares
Fountain Square Equity Income Fund
Investment A Shares
Investment C Shares
Fountain Square Bond Fund For Income
Investment A Shares
Investment C Shares
Fountain Square Municipal Bond Fund
Investment A Shares
Investment C Shares
Fountain Square Pinnacle Fund
Investment A Shares
Investment C Shares
<PAGE> 6
Fountain Square Cardinal Fund
Investment A Shares
Investment C Shares
Fountain Square Tax Exempt Money Market Fund
Investment A Shares
Dated: As of ____________________
<PAGE> 7
EXHIBIT B
TO
RULE 12B-1 AGREEMENT
Compensation
Class A Shares
Annual rate of up to 25 one-hundredths of one percent ( 0.25% ) of the
average daily net asset value of each Fund's Shares held of record by
you from time to time on behalf of Customers.
Class C Shares
Annual rate of up to 75 one-hundredths of one percent ( 0.75% ) of the
average daily net asset value of each Fund's Shares held of record by
you from time to time on behalf of Customers.
- -----------------------------------------------
* All fees are computed daily and paid monthly.
<PAGE> 1
Exhibit 18
FOUNTAIN SQUARE FUNDS
Multiple Class Plan
As Amended March 23, 1998
This Multiple Class Plan ("Plan") is adopted by FOUNTAIN SQUARE FUNDS
(the "Trust"), a Massachusetts business trust, with respect to the classes of
shares (the "Classes") of the portfolios of the Trust (the "Funds") set forth in
exhibits hereto.
1. PURPOSE
This Plan is adopted pursuant to Rule 18f-3 under the Investment Company
Act of 1940, as amended (the "Rule"), in connection with the issuance by
the Trust of more than one class of shares of any or all of the Funds
("Covered Classes") in reliance on the Rule.
2. SEPARATE ARRANGEMENTS/CLASS DIFFERENCES
The Funds set forth on Exhibit A offer one Class of shares which are titled
Institutional Shares. The Funds set forth on Exhibit B offer two Classes of
shares which are titled Investment A Shares and Institutional Shares. The
Funds set forth on Exhibit C offer three Classes of shares which are titled
Investment A Shares, Investment C Shares and Institutional Shares. The only
expenses allocated to the shares as a Class are, for Investment A Shares,
those expenses incurred under the Trust's distribution plan adopted
pursuant to Rule 12b-1 (the "Rule 12b-1 Plan"), and for Investment C
Shares, those expenses incurred under the Rule 12b-1 Plan and those
incurred under an administrative service arrangement (the "Administrative
Services Agreement").
Investment A Shares and Investment C Shares may be purchased through Fifth
Third Securities, Inc., as well as from the Distributor.
Institutional Shares may be purchased through: the Trust Department of
Fifth Third Bank; qualified employee benefit plans under the Internal
Revenue Code, subject to minimum requirements which may be established by
the Distributor; and broker-dealers, investment advisors, financial
planners, or 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 in each of the Covered Classes is $1,000.00.
Subsequent investments may be made in the amount of $50.00 for all Covered
Classes.
Shareholders are entitled to one vote for each share held on the record
date for any action requiring a vote by the shareholders and a
proportionate fractional vote for each fractional share held. Shareholders
of the Trust will vote in the aggregate and not by Fund or Class except (i)
as otherwise expressly required by law or when the Trustees determine that
the matter to be voted upon affects only the interests of the shareholders
of a particular Fund or Class, and (ii) only holders of Investment A Shares
and/or Investment C Shares, as the case
<PAGE> 2
may be, will be entitled to vote on matters submitted to a shareholder vote
with respect to the Rule 12b-1 Plan applicable to such Class.
3. EXPENSE ALLOCATIONS
The expenses incurred pursuant to the Rule 12b-1 Plan will be borne solely
by the Investment A Shares and/or the Investment C Shares, as may be the
case, of the applicable Fund. The expenses incurred pursuant to the
Administrative Services Agreement will be borne solely by the Investment C
Shares of the applicable Fund.
4. EXCHANGE FEATURES
A shareholder may exchange shares of one Fund for the appropriate Class of
shares of any other Fund in the Trust. 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 a sales charge may be
exchanged for shares of Funds with a higher sales charge at net asset
value, plus the additional sales charge. Shares of Funds with no sales
charge, whether acquired by direct purchase, reinvestment of dividends on
such shares, or otherwise, may be exchanged for shares of Funds with a
sales charge at net asset value, plus the applicable sales charge. When an
exchange is made from a Fund with a sales charge to a Fund with no sales
charge, the shares exchanged and additional shares which have been
purchased by reinvesting dividends or capital gains on such shares retain
the character of the exchanged shares for purposes of exercising further
exchange privileges.
5. EFFECTIVENESS
This Plan shall become effective with respect to each Class, (i) to the
extent required by the Rule, after approval by a majority vote of: (a) the
Trust's Board of Trustees; (b) the members of the Board of Trustees of the
Trust who are not interested persons of the Trust and have no direct or
indirect financial interest in the operation of the Trust's Plan; and/or
(ii) upon execution of an exhibit adopting this Plan with respect to such
Class.
6. AMENDMENT
This Plan may be amended at any time, with respect to any Class, by a
majority vote of: (i) the Trust's Board of Trustees; and (ii) the members
of the Board of Trustees who are not interested persons of the Trust and
have no direct or indirect financial interest in the operation of this
Plan.
/s/ STEPHEN G. MINTOS
---------------------
Stephen G. Mintos
President
<PAGE> 3
FOUNTAIN SQUARE FUNDS
EXHIBIT A
to the
Multiple Class Plan
Institutional Shares
Each of the portfolios of the Fountain Square Funds (the "Trust") set
forth below shall be covered by the Multiple Class Plan adopted by the Trust and
to which this Exhibit is attached with respect to the Institutional Shares of
such portfolio:
U.S. Treasury Obligations Fund
Witness the due execution hereof this 23rd day of March, 1998
FOUNTAIN SQUARE FUNDS
By: /s/ STEPHEN G. MINTOS
---------------------
Stephen G. Mintos
President
<PAGE> 4
FOUNTAIN SQUARE FUNDS
EXHIBIT B
to the
Multiple Class Plan
Institutional Shares
Investment A Shares
Each of the portfolios of the Fountain Square Funds (the "Trust") set
forth below shall be covered by the Multiple Class Plan adopted by the Trust and
to which this Exhibit is attached with respect to the Institutional Shares and
the Investment A Shares of such portfolio:
Commercial Paper Fund
Government Cash Reserves Fund
Tax Exempt Money Market Fund
Witness the due execution hereof this 23rd day of March, 1998
FOUNTAIN SQUARE FUNDS
By: /s/ STEPHEN G. MINTOS
---------------------
Stephen G. Mintos
President
<PAGE> 5
FOUNTAIN SQUARE FUNDS
EXHIBIT C
to the
Multiple Class Plan
Investment A Shares
Investment C Shares
Institutional Shares
Each of the portfolios of the Fountain Square Funds (the "Trust") set
forth below shall be covered by the Multiple Class Plan adopted by the Trust and
to which this Exhibit is attached with respect to the Investment A Shares, the
Investment C Shares and the Institutional Shares of such portfolio:
U.S. Government Securities Fund
Quality Bond Fund
Quality Growth Fund
Mid Cap Fund
Balanced Fund
Ohio Tax Free Bond Fund
International Equity Fund
Equity Income Fund
Bond Fund For Income
Municipal Bond Fund
Pinnacle Fund
Cardinal Fund
Witness the due execution hereof this 23rd day of March, 1998
FOUNTAIN SQUARE FUNDS
By: /s/ STEPHEN G. MINTOS
---------------------
Stephen G. Mintos
President
<TABLE> <S> <C>
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<NAME> THE FOUNTAIN SQUARE FUNDS
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<NAME> FOUNTAIN SQUARE COMMERCIAL PAPER FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 406,450,000
<INVESTMENTS-AT-VALUE> 406,450,000
<RECEIVABLES> 602,000
<ASSETS-OTHER> 11,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 407,063,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,163,000
<TOTAL-LIABILITIES> 2,163,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 404,902,000
<SHARES-COMMON-STOCK> 368,350,000<F1>
<SHARES-COMMON-PRIOR> 341,827,864<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 2,000
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 404,900,000
<DIVIDEND-INCOME> 175,000
<INTEREST-INCOME> 24,717,000
<OTHER-INCOME> 0
<EXPENSES-NET> 2,291,000
<NET-INVESTMENT-INCOME> 22,601,000
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 22,601,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 20,971,000<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,272,208,000<F1>
<NUMBER-OF-SHARES-REDEEMED> 1,246,181,000<F1>
<SHARES-REINVESTED> 495,000<F1>
<NET-CHANGE-IN-ASSETS> 29,634,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 63
<OVERDIST-NET-GAINS-PRIOR> 106
<GROSS-ADVISORY-FEES> 1,762,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,931,000
<AVERAGE-NET-ASSETS> 408,752,801<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> .05<F1>
<PER-SHARE-GAIN-APPREC> 0<F1>
<PER-SHARE-DIVIDEND> .05<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> .52<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Shares
</FN>
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<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 011
<NAME> FOUNTAIN SQUARE COMMERCIAL PAPER FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 406,450,000
<INVESTMENTS-AT-VALUE> 406,450,000
<RECEIVABLES> 602,000
<ASSETS-OTHER> 11,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 407,063,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,163,000
<TOTAL-LIABILITIES> 2,163,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 404,902,000
<SHARES-COMMON-STOCK> 36,552,000<F2>
<SHARES-COMMON-PRIOR> 33,438,495<F2>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 2,000
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 404,900,000
<DIVIDEND-INCOME> 175,000
<INTEREST-INCOME> 24,717,000
<OTHER-INCOME> 0
<EXPENSES-NET> 2,291,000
<NET-INVESTMENT-INCOME> 22,601,000
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 22,601,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,632,000<F2>
<DISTRIBUTIONS-OF-GAINS> 0<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 47,934,000<F2>
<NUMBER-OF-SHARES-REDEEMED> 44,820,000<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 29,634,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 63
<OVERDIST-NET-GAINS-PRIOR> 106
<GROSS-ADVISORY-FEES> 1,762,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,931,000
<AVERAGE-NET-ASSETS> 31,828,288<F2>
<PER-SHARE-NAV-BEGIN> 1.00<F2>
<PER-SHARE-NII> .05<F2>
<PER-SHARE-GAIN-APPREC> 0<F2>
<PER-SHARE-DIVIDEND> .05<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 1.00<F2>
<EXPENSE-RATIO> .52<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment Shares
</FN>
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<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 020
<NAME> FOUNTAIN SQUARE U.S. TREASURY OBLIGATIONS FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 877,774,000
<INVESTMENTS-AT-VALUE> 877,774,000
<RECEIVABLES> 2,458,000
<ASSETS-OTHER> 163,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 880,395,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,306,000
<TOTAL-LIABILITIES> 4,306,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 876,052,000
<SHARES-COMMON-STOCK> 876,053,000
<SHARES-COMMON-PRIOR> 539,040,314
<ACCUMULATED-NII-CURRENT> 46,000
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 9,000
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 876,089,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38,933,000
<OTHER-INCOME> 0
<EXPENSES-NET> 2,683,000
<NET-INVESTMENT-INCOME> 36,250,000
<REALIZED-GAINS-CURRENT> (9,000)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 36,241,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 36,250,000
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,830,875,000
<NUMBER-OF-SHARES-REDEEMED> 1,501,407,000
<SHARES-REINVESTED> 7,545,000
<NET-CHANGE-IN-ASSETS> 337,002,000
<ACCUMULATED-NII-PRIOR> 5,074
<ACCUMULATED-GAINS-PRIOR> 47,417
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,795,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,360,000
<AVERAGE-NET-ASSETS> 698,925,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .05
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 030
<NAME> FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 371,675,000
<INVESTMENTS-AT-VALUE> 371,675,000
<RECEIVABLES> 1,367,000
<ASSETS-OTHER> 14,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 373,056,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,736,000
<TOTAL-LIABILITIES> 1,736,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 371,314,000
<SHARES-COMMON-STOCK> 221,031,000<F1>
<SHARES-COMMON-PRIOR> 162,542,539<F1>
<ACCUMULATED-NII-CURRENT> 7,000
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,000
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 371,320,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,764,000
<OTHER-INCOME> 0
<EXPENSES-NET> 1,672,000
<NET-INVESTMENT-INCOME> 16,092,000
<REALIZED-GAINS-CURRENT> 6,000
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 16,098,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,366,000<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 284,720,000<F1>
<NUMBER-OF-SHARES-REDEEMED> 226,232,000<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 98,199,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 569
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,284,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,514,000
<AVERAGE-NET-ASSETS> 186,739,977<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> .05<F1>
<PER-SHARE-GAIN-APPREC> 0<F1>
<PER-SHARE-DIVIDEND> .05<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> .52<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 031
<NAME> FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 371,675,000
<INVESTMENTS-AT-VALUE> 371,675,000
<RECEIVABLES> 1,367,000
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 373,056,000
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,736,000
<TOTAL-LIABILITIES> 1,736,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 371,314,000
<SHARES-COMMON-STOCK> 150,283,000<F2>
<SHARES-COMMON-PRIOR> 110,578,267<F1>
<ACCUMULATED-NII-CURRENT> 7,000
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,000
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 371,320,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,764,000
<OTHER-INCOME> 0
<EXPENSES-NET> 1,672,000
<NET-INVESTMENT-INCOME> 16,092,000
<REALIZED-GAINS-CURRENT> 6,000
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 16,098,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,726,000<F2>
<DISTRIBUTIONS-OF-GAINS> 0<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 136,986,000<F2>
<NUMBER-OF-SHARES-REDEEMED> 97,281,000<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 98,199,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 569
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,284,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,514,000
<AVERAGE-NET-ASSETS> 134,101,747<F2>
<PER-SHARE-NAV-BEGIN> 1.00<F2>
<PER-SHARE-NII> .05<F2>
<PER-SHARE-GAIN-APPREC> 0<F2>
<PER-SHARE-DIVIDEND> .05<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 1.00<F2>
<EXPENSE-RATIO> .52<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 040
<NAME> FOUNTAIN SQUARE U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 40,930,000
<INVESTMENTS-AT-VALUE> 41,341,000
<RECEIVABLES> 345,000
<ASSETS-OTHER> 16,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,702,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,000
<TOTAL-LIABILITIES> 34,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,548,000
<SHARES-COMMON-STOCK> 4,230,000<F1>
<SHARES-COMMON-PRIOR> 4,351,490<F1>
<ACCUMULATED-NII-CURRENT> 76,000
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,367,000
<ACCUM-APPREC-OR-DEPREC> 411,000
<NET-ASSETS> 41,668,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,510,000
<OTHER-INCOME> 3,000
<EXPENSES-NET> 312,000
<NET-INVESTMENT-INCOME> 2,201,000
<REALIZED-GAINS-CURRENT> 359,000
<APPREC-INCREASE-CURRENT> (51,000)
<NET-CHANGE-FROM-OPS> 2,509,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,189,000<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 761,000<F1>
<NUMBER-OF-SHARES-REDEEMED> 990,000<F1>
<SHARES-REINVESTED> 108,000<F1>
<NET-CHANGE-IN-ASSETS> (822,000)
<ACCUMULATED-NII-PRIOR> 29,169
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 1,697,152
<GROSS-ADVISORY-FEES> 228,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 532,000
<AVERAGE-NET-ASSETS> 41,432,825<F1>
<PER-SHARE-NAV-BEGIN> 9.75<F1>
<PER-SHARE-NII> .52<F1>
<PER-SHARE-GAIN-APPREC> .07<F1>
<PER-SHARE-DIVIDEND> .52<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 9.82<F1>
<EXPENSE-RATIO> .75<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 041
<NAME> FOUNTAIN SQUARE U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 40,930,000
<INVESTMENTS-AT-VALUE> 41,341,000
<RECEIVABLES> 345,000
<ASSETS-OTHER> 16,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,702,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,000
<TOTAL-LIABILITIES> 34,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,548,000
<SHARES-COMMON-STOCK> 12,000<F2>
<SHARES-COMMON-PRIOR> 7,731<F2>
<ACCUMULATED-NII-CURRENT> 76,000
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,367,000
<ACCUM-APPREC-OR-DEPREC> 411,000
<NET-ASSETS> 41,668,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,510,000
<OTHER-INCOME> 3,000
<EXPENSES-NET> 312,000
<NET-INVESTMENT-INCOME> 2,201,000
<REALIZED-GAINS-CURRENT> 359,000
<APPREC-INCREASE-CURRENT> (51,000)
<NET-CHANGE-FROM-OPS> 2,509,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,000<F2>
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<NUMBER-OF-SHARES-REDEEMED> 3,000<F2>
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<OVERDIST-NET-GAINS-PRIOR> 1,697,152
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<GROSS-EXPENSE> 532,000
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<PER-SHARE-NAV-BEGIN> 9.75<F2>
<PER-SHARE-NII> .46<F2>
<PER-SHARE-GAIN-APPREC> .04<F2>
<PER-SHARE-DIVIDEND> .45<F2>
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<EXPENSE-RATIO> 1.50<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment C Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 050
<NAME> FOUNTAIN SQUARE QUALITY BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 108,408,000
<INVESTMENTS-AT-VALUE> 108,868,000
<RECEIVABLES> 1,460,000
<ASSETS-OTHER> 12,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 110,340,000
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,147,000
<TOTAL-LIABILITIES> 2,147,000
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<PAID-IN-CAPITAL-COMMON> 108,329,000
<SHARES-COMMON-STOCK> 10,827,000<F1>
<SHARES-COMMON-PRIOR> 9,315,018<F1>
<ACCUMULATED-NII-CURRENT> 44,000
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 640,000
<ACCUM-APPREC-OR-DEPREC> 460,000
<NET-ASSETS> 108,193,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,184,000
<OTHER-INCOME> 8,000
<EXPENSES-NET> 741,000
<NET-INVESTMENT-INCOME> 5,451,000
<REALIZED-GAINS-CURRENT> 2,228,000
<APPREC-INCREASE-CURRENT> (1,186,000)
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<NUMBER-OF-SHARES-REDEEMED> 1,745,000<F1>
<SHARES-REINVESTED> 320,000<F1>
<NET-CHANGE-IN-ASSETS> 16,201,000
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<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,867,240
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<GROSS-EXPENSE> 1,186,000
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<PER-SHARE-NAV-BEGIN> 9.85<F1>
<PER-SHARE-NII> .54<F1>
<PER-SHARE-GAIN-APPREC> .12<F1>
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<EXPENSE-RATIO> .75<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 051
<NAME> FOUNTAIN SQUARE QUALITY BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 108,408,000
<INVESTMENTS-AT-VALUE> 108,868,000
<RECEIVABLES> 1,460,000
<ASSETS-OTHER> 12,000
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<TOTAL-ASSETS> 110,340,000
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,147,000
<TOTAL-LIABILITIES> 2,147,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 108,329,000
<SHARES-COMMON-STOCK> 40,000<F2>
<SHARES-COMMON-PRIOR> 20,668<F2>
<ACCUMULATED-NII-CURRENT> 44,000
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 640,000
<ACCUM-APPREC-OR-DEPREC> 460,000
<NET-ASSETS> 108,193,000
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<OTHER-INCOME> 8,000
<EXPENSES-NET> 741,000
<NET-INVESTMENT-INCOME> 5,451,000
<REALIZED-GAINS-CURRENT> 2,228,000
<APPREC-INCREASE-CURRENT> (1,186,000)
<NET-CHANGE-FROM-OPS> 6,493,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,000<F2>
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<NUMBER-OF-SHARES-SOLD> 3,000<F2>
<NUMBER-OF-SHARES-REDEEMED> 12,000<F2>
<SHARES-REINVESTED> 1,000<F2>
<NET-CHANGE-IN-ASSETS> 16,201,000
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,867,240
<GROSS-ADVISORY-FEES> 545,000
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<GROSS-EXPENSE> 1,186,000
<AVERAGE-NET-ASSETS> 229,046<F2>
<PER-SHARE-NAV-BEGIN> 9.86<F2>
<PER-SHARE-NII> .48<F2>
<PER-SHARE-GAIN-APPREC> .09<F2>
<PER-SHARE-DIVIDEND> .48<F2>
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<PER-SHARE-NAV-END> 9.95<F2>
<EXPENSE-RATIO> 1.50<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment C Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 060
<NAME> FOUNTAIN SQUARE QUALITY GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 515,004,000
<INVESTMENTS-AT-VALUE> 662,765,000
<RECEIVABLES> 10,670,000
<ASSETS-OTHER> 28,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 673,463,000
<PAYABLE-FOR-SECURITIES> 27,762,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 117,276,000
<TOTAL-LIABILITIES> 145,038,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 327,810,000
<SHARES-COMMON-STOCK> 25,666,000<F1>
<SHARES-COMMON-PRIOR> 20,781,351<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 52,854,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 147,761,000
<NET-ASSETS> 528,425,000
<DIVIDEND-INCOME> 4,412,000
<INTEREST-INCOME> 799,000
<OTHER-INCOME> 22,000
<EXPENSES-NET> 4,799,000
<NET-INVESTMENT-INCOME> 434,000
<REALIZED-GAINS-CURRENT> 59,514,000
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 567,000<F1>
<DISTRIBUTIONS-OF-GAINS> 33,264,000<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 7,816,000<F1>
<NUMBER-OF-SHARES-REDEEMED> 4,806,000<F1>
<SHARES-REINVESTED> 1,875,000<F1>
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<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 27,164,115
<OVERDISTRIB-NII-PRIOR> 3,500
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,010,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,568,000
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<PER-SHARE-NAV-BEGIN> 19.23<F1>
<PER-SHARE-NII> .03<F1>
<PER-SHARE-GAIN-APPREC> 2.49<F1>
<PER-SHARE-DIVIDEND> .03<F1>
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<PER-SHARE-NAV-END> 20.26<F1>
<EXPENSE-RATIO> 1.00<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 061
<NAME> FOUNTAIN SQUARE QUALITY GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 515,004,000
<INVESTMENTS-AT-VALUE> 662,765,000
<RECEIVABLES> 10,670,000
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 673,463,000
<PAYABLE-FOR-SECURITIES> 27,762,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 117,276,000
<TOTAL-LIABILITIES> 145,038,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 327,810,000
<SHARES-COMMON-STOCK> 416,000<F2>
<SHARES-COMMON-PRIOR> 164,014<F2>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 52,854,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 147,761,000
<NET-ASSETS> 528,425,000
<DIVIDEND-INCOME> 4,412,000
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<EXPENSES-NET> 4,799,000
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<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 275,000<F2>
<NUMBER-OF-SHARES-REDEEMED> 47,000<F2>
<SHARES-REINVESTED> 24,000<F2>
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<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 6,568,000
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<PER-SHARE-NAV-BEGIN> 19.18<F2>
<PER-SHARE-NII> (0.07)<F2>
<PER-SHARE-GAIN-APPREC> 2.45<F2>
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<PER-SHARE-NAV-END> 20.10<F2>
<EXPENSE-RATIO> 1.63<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment C Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 070
<NAME> FOUNTAIN SQUARE MID CAP FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 252,565,000
<INVESTMENTS-AT-VALUE> 289,865,000
<RECEIVABLES> 3,877,000
<ASSETS-OTHER> 7,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 293,749,000
<PAYABLE-FOR-SECURITIES> 11,271,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,882,000
<TOTAL-LIABILITIES> 75,153,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161,142,000
<SHARES-COMMON-STOCK> 13,439,000<F1>
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<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 20,154,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,300,000
<NET-ASSETS> 218,596,000
<DIVIDEND-INCOME> 1,374,000
<INTEREST-INCOME> 373,000
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<EXPENSES-NET> 2,182,000
<NET-INVESTMENT-INCOME> (409,000)
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<NUMBER-OF-SHARES-REDEEMED> 1,606,000<F1>
<SHARES-REINVESTED> 1,234,000<F1>
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<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 11,405,541
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,725,000
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<GROSS-EXPENSE> 3,053,000
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<PER-SHARE-NAV-BEGIN> 16.98<F1>
<PER-SHARE-NII> (0.03)<F1>
<PER-SHARE-GAIN-APPREC> 0.98<F1>
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<PER-SHARE-NAV-END> 16.19<F1>
<EXPENSE-RATIO> 1.01<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 071
<NAME> FOUNTAIN SQUARE MID CAP FUND
<S> <C>
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<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
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<INVESTMENTS-AT-VALUE> 289,865,000
<RECEIVABLES> 3,877,000
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<TOTAL-ASSETS> 293,749,000
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 161,142,000
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<ACCUM-APPREC-OR-DEPREC> 37,300,000
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<DIVIDEND-INCOME> 1,374,000
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<EXPENSES-NET> 2,182,000
<NET-INVESTMENT-INCOME> (409,000)
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<DISTRIBUTIONS-OF-GAINS> 7,700<F2>
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<NUMBER-OF-SHARES-SOLD> 47,000<F2>
<NUMBER-OF-SHARES-REDEEMED> 12,000<F2>
<SHARES-REINVESTED> 5,000<F2>
<NET-CHANGE-IN-ASSETS> 32,092,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 11,405,541
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<GROSS-ADVISORY-FEES> 1,725,000
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<GROSS-EXPENSE> 3,053,000
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<PER-SHARE-NAV-BEGIN> 16.88<F2>
<PER-SHARE-NII> (0.05)<F2>
<PER-SHARE-GAIN-APPREC> 0.89<F2>
<PER-SHARE-DIVIDEND> 0<F2>
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<PER-SHARE-NAV-END> 15.98<F2>
<EXPENSE-RATIO> 1.61<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment C Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 080
<NAME> FOUNTAIN SQUARE BALANCED FUND
<S> <C>
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<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
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<TOTAL-LIABILITIES> 28,236,000
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<PAID-IN-CAPITAL-COMMON> 142,997,000
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<ACCUMULATED-NET-GAINS> 9,733,000
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<ACCUM-APPREC-OR-DEPREC> 24,996,000
<NET-ASSETS> 177,973,000
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<DISTRIBUTIONS-OF-GAINS> 11,108,000<F1>
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<NUMBER-OF-SHARES-SOLD> 4,237,000<F1>
<NUMBER-OF-SHARES-REDEEMED> 1,649,000<F1>
<SHARES-REINVESTED> 960,000<F1>
<NET-CHANGE-IN-ASSETS> 54,052,000
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<GROSS-EXPENSE> 2,191,000
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<PER-SHARE-NAV-BEGIN> 15.33<F1>
<PER-SHARE-NII> .27<F1>
<PER-SHARE-GAIN-APPREC> .92<F1>
<PER-SHARE-DIVIDEND> .28<F1>
<PER-SHARE-DISTRIBUTIONS> 1.25<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 14.99<F1>
<EXPENSE-RATIO> 1.00<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 081
<NAME> FOUNTAIN SQUARE BALANCED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
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<PAID-IN-CAPITAL-COMMON> 142,997,000
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<PER-SHARE-NII> .17<F2>
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<FN>
<F2>Investment C Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 090
<NAME> FOUNTAIN SQUARE OHIO TAX FREE BOND FUND
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
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<TOTAL-ASSETS> 193,832,000
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<PER-SHARE-NII> .42<F1>
<PER-SHARE-GAIN-APPREC> .02<F1>
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<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
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<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 091
<NAME> FOUNTAIN SQUARE OHIO TAX FREE BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
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<INVESTMENTS-AT-VALUE> 189,629,000
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<SHARES-COMMON-PRIOR> 24,009<F2>
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<SHARES-REINVESTED> 1,000<F2>
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<PER-SHARE-NII> .35<F2>
<PER-SHARE-GAIN-APPREC> .01<F2>
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment C Shares
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 100
<NAME> FOUNTAIN SQUARE INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 110,708,000
<INVESTMENTS-AT-VALUE> 145,679,000
<RECEIVABLES> 1,384,000
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<TOTAL-ASSETS> 167,299,000
<PAYABLE-FOR-SECURITIES> 3,483,000
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<OTHER-ITEMS-LIABILITIES> 228,000
<TOTAL-LIABILITIES> 3,711,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 130,730,000
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<SHARES-COMMON-PRIOR> 12,592,672<F1>
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<OVERDISTRIBUTION-NII> 3,867,000
<ACCUMULATED-NET-GAINS> 1,081,000
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<EXPENSES-NET> 2,162,000
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<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 101
<NAME> FOUNTAIN SQUARE INTERNATIONAL EQUITY FUND
<S> <C>
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<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
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<TOTAL-LIABILITIES> 3,711,000
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<GROSS-EXPENSE> 2,677,000
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<PER-SHARE-NII> (0.06)<F2>
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<EXPENSE-RATIO> 2.22<F2>
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<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment C Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 110
<NAME> FOUNTAIN SQUARE MUNICIPAL BOND FUND
<S> <C>
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<FISCAL-YEAR-END> JUL-31-1998
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<PER-SHARE-NII> .50<F1>
<PER-SHARE-GAIN-APPREC> .01<F1>
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<EXPENSE-RATIO> .76<F1>
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<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 111
<NAME> FOUNTAIN SQUARE MUNICIPAL BOND FUND
<S> <C>
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment C Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 120
<NAME> FOUNTAIN SQUARE BOND FOR INCOME FUND
<S> <C>
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 938,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,988,000
<AVERAGE-NET-ASSETS> 170,434,489<F1>
<PER-SHARE-NAV-BEGIN> 12.19<F1>
<PER-SHARE-NII> .68<F1>
<PER-SHARE-GAIN-APPREC> .06<F1>
<PER-SHARE-DIVIDEND> .69<F1>
<PER-SHARE-DISTRIBUTIONS> .05<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 12.19<F1>
<EXPENSE-RATIO> .75<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 121
<NAME> FOUNTAIN SQUARE BOND FOR INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 183,903,000
<INVESTMENTS-AT-VALUE> 185,098,000
<RECEIVABLES> 3,471,000
<ASSETS-OTHER> 12,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 188,581,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 280,000
<TOTAL-LIABILITIES> 280,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185,076,000
<SHARES-COMMON-STOCK> 19,000<F2>
<SHARES-COMMON-PRIOR> 514<F2>
<ACCUMULATED-NII-CURRENT> 11,000
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,019,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,195,000
<NET-ASSETS> 188,301,000
<DIVIDEND-INCOME> 157,000
<INTEREST-INCOME> 10,551,000
<OTHER-INCOME> 17,000
<EXPENSES-NET> 1,280,000
<NET-INVESTMENT-INCOME> 9,445,000
<REALIZED-GAINS-CURRENT> 2,652,000
<APPREC-INCREASE-CURRENT> (1,872,000)
<NET-CHANGE-FROM-OPS> 10,225,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,000<F2>
<DISTRIBUTIONS-OF-GAINS> 1,000<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 21,000<F2>
<NUMBER-OF-SHARES-REDEEMED> 3,000<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 31,187,000
<ACCUMULATED-NII-PRIOR> 169,913
<ACCUMULATED-GAINS-PRIOR> 55,662
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 938,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,988,000
<AVERAGE-NET-ASSETS> 120,737<F2>
<PER-SHARE-NAV-BEGIN> 12.18<F2>
<PER-SHARE-NII> .60<F2>
<PER-SHARE-GAIN-APPREC> .05<F2>
<PER-SHARE-DIVIDEND> .59<F2>
<PER-SHARE-DISTRIBUTIONS> .05<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.19<F2>
<EXPENSE-RATIO> 1.34<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment C Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 130
<NAME> FOUNTAIN SQUARE EQUITY INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 132,179,000
<INVESTMENTS-AT-VALUE> 177,590,000
<RECEIVABLES> 523,000
<ASSETS-OTHER> 14,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 178,127,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,755,000
<TOTAL-LIABILITIES> 26,755,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92,977,000
<SHARES-COMMON-STOCK> 9,781,000<F1>
<SHARES-COMMON-PRIOR> 8,334,004<F1>
<ACCUMULATED-NII-CURRENT> 79,000
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,905,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,411,000
<NET-ASSETS> 151,372,000
<DIVIDEND-INCOME> 3,462,000
<INTEREST-INCOME> 256,000
<OTHER-INCOME> 5,000
<EXPENSES-NET> 1,371,000
<NET-INVESTMENT-INCOME> 2,352,000
<REALIZED-GAINS-CURRENT> 15,497,000
<APPREC-INCREASE-CURRENT> 5,045,000
<NET-CHANGE-FROM-OPS> 22,894,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,377,000<F1>
<DISTRIBUTIONS-OF-GAINS> 12,092,000<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,375,000<F1>
<NUMBER-OF-SHARES-REDEEMED> 776,000<F1>
<SHARES-REINVESTED> 848,000<F1>
<NET-CHANGE-IN-ASSETS> 30,956,000
<ACCUMULATED-NII-PRIOR> 109,222
<ACCUMULATED-GAINS-PRIOR> 9,529,112
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,088,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,961,000
<AVERAGE-NET-ASSETS> 135,527,999<F1>
<PER-SHARE-NAV-BEGIN> 14.44<F1>
<PER-SHARE-NII> .26<F1>
<PER-SHARE-GAIN-APPREC> 2.43<F1>
<PER-SHARE-DIVIDEND> .27<F1>
<PER-SHARE-DISTRIBUTIONS> 1.48<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 15.38<F1>
<EXPENSE-RATIO> 1.01<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 131
<NAME> FOUNTAIN SQUARE EQUITY INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 132,179,000
<INVESTMENTS-AT-VALUE> 177,590,000
<RECEIVABLES> 523,000
<ASSETS-OTHER> 14,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 178,127,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,755,000
<TOTAL-LIABILITIES> 26,755,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92,977,000
<SHARES-COMMON-STOCK> 63,000<F2>
<SHARES-COMMON-PRIOR> 6,358<F2>
<ACCUMULATED-NII-CURRENT> 79,000
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,905,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,411,000
<NET-ASSETS> 151,372,000
<DIVIDEND-INCOME> 3,462,000
<INTEREST-INCOME> 256,000
<OTHER-INCOME> 5,000
<EXPENSES-NET> 1,371,000
<NET-INVESTMENT-INCOME> 2,352,000
<REALIZED-GAINS-CURRENT> 15,497,000
<APPREC-INCREASE-CURRENT> 5,045,000
<NET-CHANGE-FROM-OPS> 22,894,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,000<F2>
<DISTRIBUTIONS-OF-GAINS> 9,000<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 67,000<F2>
<NUMBER-OF-SHARES-REDEEMED> 12,000<F2>
<SHARES-REINVESTED> 2,000<F2>
<NET-CHANGE-IN-ASSETS> 30,956,000
<ACCUMULATED-NII-PRIOR> 109,222
<ACCUMULATED-GAINS-PRIOR> 9,529,112
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,088,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,961,000
<AVERAGE-NET-ASSETS> 496,556<F2>
<PER-SHARE-NAV-BEGIN> 14.45<F2>
<PER-SHARE-NII> .17<F2>
<PER-SHARE-GAIN-APPREC> 2.41<F2>
<PER-SHARE-DIVIDEND> .16<F2>
<PER-SHARE-DISTRIBUTIONS> 1.48<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 15.39<F2>
<EXPENSE-RATIO> 1.57<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 140
<NAME> FOUNTAIN SQUARE PINNACLE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 31,927,000
<INVESTMENTS-AT-VALUE> 42,363,000
<RECEIVABLES> 313,000
<ASSETS-OTHER> 6,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,682,000
<PAYABLE-FOR-SECURITIES> 630,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,581,000
<TOTAL-LIABILITIES> 6,211,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,068,000
<SHARES-COMMON-STOCK> 1,099,000<F1>
<SHARES-COMMON-PRIOR> 803,801<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 967,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,436,000
<NET-ASSETS> 36,471,000
<DIVIDEND-INCOME> 157,000
<INTEREST-INCOME> 29,000
<OTHER-INCOME> 1,000
<EXPENSES-NET> 207,000
<NET-INVESTMENT-INCOME> (20,000)
<REALIZED-GAINS-CURRENT> 1,357,000
<APPREC-INCREASE-CURRENT> 2,924,000
<NET-CHANGE-FROM-OPS> 4,261,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 389,000<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 370,000<F1>
<NUMBER-OF-SHARES-REDEEMED> 87,000<F1>
<SHARES-REINVESTED> 12,000<F1>
<NET-CHANGE-IN-ASSETS> 14,199,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 2,587
<OVERDIST-NET-GAINS-PRIOR> 9,365
<GROSS-ADVISORY-FEES> 129,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 258,000
<AVERAGE-NET-ASSETS> 26,337,404<F1>
<PER-SHARE-NAV-BEGIN> 27.71<F1>
<PER-SHARE-NII> (0.02)<F1>
<PER-SHARE-GAIN-APPREC> 5.13<F1>
<PER-SHARE-DIVIDEND> 0<F1>
<PER-SHARE-DISTRIBUTIONS> 0.47<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 32.35<F1>
<EXPENSE-RATIO> 1.28<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FOUNTAIN SQUARE FUNDS
<SERIES>
<NUMBER> 141
<NAME> FOUNTAIN SQUARE PINNACLE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUL-31-1998
<INVESTMENTS-AT-COST> 31,927,000
<INVESTMENTS-AT-VALUE> 42,363,000
<RECEIVABLES> 313,000
<ASSETS-OTHER> 6,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,682,000
<PAYABLE-FOR-SECURITIES> 630,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,581,000
<TOTAL-LIABILITIES> 6,211,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,068,000
<SHARES-COMMON-STOCK> 29,000<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 967,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,436,000
<NET-ASSETS> 36,471,000
<DIVIDEND-INCOME> 157,000
<INTEREST-INCOME> 29,000
<OTHER-INCOME> 1,000
<EXPENSES-NET> 207,000
<NET-INVESTMENT-INCOME> (20,000)
<REALIZED-GAINS-CURRENT> 1,357,000
<APPREC-INCREASE-CURRENT> 2,924,000
<NET-CHANGE-FROM-OPS> 4,261,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F2>
<DISTRIBUTIONS-OF-GAINS> 0<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 30,000<F2>
<NUMBER-OF-SHARES-REDEEMED> 1,000<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> 14,199,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 2,587
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 129,000
<INTEREST-EXPENSE> 9,365
<GROSS-EXPENSE> 258,000
<AVERAGE-NET-ASSETS> 252,696<F2>
<PER-SHARE-NAV-BEGIN> 30.16<F2>
<PER-SHARE-NII> (0.04)<F2>
<PER-SHARE-GAIN-APPREC> 2.16<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 32.28<F2>
<EXPENSE-RATIO> 2.17<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Investment C Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FIFTH THIRD FUNDS
<SERIES>
<NUMBER> 150
<NAME> FIFTH THIRD CARDINAL FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 151,062,000
<INVESTMENTS-AT-VALUE> 258,540,000
<RECEIVABLES> 454,000
<ASSETS-OTHER> 86,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 259,080,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 635,000
<TOTAL-LIABILITIES> 635,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 147,032,000
<SHARES-COMMON-STOCK> 15,668,000<F1>
<SHARES-COMMON-PRIOR> 16,094,000<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 19,000
<ACCUMULATED-NET-GAINS> 3,954,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 107,478,000
<NET-ASSETS> 258,445,000
<DIVIDEND-INCOME> 4,063,000
<INTEREST-INCOME> 1,068,000
<OTHER-INCOME> 0
<EXPENSES-NET> 2,781,000
<NET-INVESTMENT-INCOME> 2,350,000
<REALIZED-GAINS-CURRENT> 22,115,000
<APPREC-INCREASE-CURRENT> (13,872,000)
<NET-CHANGE-FROM-OPS> 10,593,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,808,000<F1>
<DISTRIBUTIONS-OF-GAINS> 31,312,000<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 961,000<F1>
<NUMBER-OF-SHARES-REDEEMED> 3,449,000<F1>
<SHARES-REINVESTED> 2,062,000<F1>
<NET-CHANGE-IN-ASSETS> (36,344,000)
<ACCUMULATED-NII-PRIOR> 186,000
<ACCUMULATED-GAINS-PRIOR> 19,707,000
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,827,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,059,000
<AVERAGE-NET-ASSETS> 274,884,411<F1>
<PER-SHARE-NAV-BEGIN> 16.65<F1>
<PER-SHARE-NII> 0.14<F1>
<PER-SHARE-GAIN-APPREC> 0.27<F1>
<PER-SHARE-DIVIDEND> 0.18<F1>
<PER-SHARE-DISTRIBUTIONS> 2.01<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 14.87<F1>
<EXPENSE-RATIO> 0.92<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FIFTH THIRD FUNDS
<SERIES>
<NUMBER> 151
<NAME> FIFTH THIRD CARDINAL FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 151,062,000
<INVESTMENTS-AT-VALUE> 258,540,000
<RECEIVABLES> 454,000
<ASSETS-OTHER> 86,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 259,080,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 635,000
<TOTAL-LIABILITIES> 635,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 147,032,000
<SHARES-COMMON-STOCK> 1,719,000<F2>
<SHARES-COMMON-PRIOR> 1,615,000<F2>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 19,000
<ACCUMULATED-NET-GAINS> 3,954,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 107,478,000
<NET-ASSETS> 258,445,000
<DIVIDEND-INCOME> 4,063,000
<INTEREST-INCOME> 1,068,000
<OTHER-INCOME> 0
<EXPENSES-NET> 2,781,000
<NET-INVESTMENT-INCOME> 2,350,000
<REALIZED-GAINS-CURRENT> 22,115,000
<APPREC-INCREASE-CURRENT> (13,872,000)
<NET-CHANGE-FROM-OPS> 10,593,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 336,000<F2>
<DISTRIBUTIONS-OF-GAINS> 3,387,000<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 261,000<F2>
<NUMBER-OF-SHARES-REDEEMED> 399,000<F2>
<SHARES-REINVESTED> 242,000<F2>
<NET-CHANGE-IN-ASSETS> (36,344,000)
<ACCUMULATED-NII-PRIOR> 186,000
<ACCUMULATED-GAINS-PRIOR> 19,707,000
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,827,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,059,000
<AVERAGE-NET-ASSETS> 29,544,236<F2>
<PER-SHARE-NAV-BEGIN> 16.64<F2>
<PER-SHARE-NII> 0.15<F2>
<PER-SHARE-GAIN-APPREC> 0.28<F2>
<PER-SHARE-DIVIDEND> 0.20<F2>
<PER-SHARE-DISTRIBUTIONS> 2.01<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 14.86<F2>
<EXPENSE-RATIO> 0.84<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Institutional Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FIFTH THIRD FUNDS
<SERIES>
<NUMBER> 160
<NAME> FIFTH THIRD TAX EXEMPT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 51,702,000
<INVESTMENTS-AT-VALUE> 51,702,000
<RECEIVABLES> 746,000
<ASSETS-OTHER> 78,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52,526,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79,000
<TOTAL-LIABILITIES> 79,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,449,000
<SHARES-COMMON-STOCK> 44,496,000<F1>
<SHARES-COMMON-PRIOR> 60,284,000<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 52,447,000
<DIVIDEND-INCOME> 3,000
<INTEREST-INCOME> 2,187,000
<OTHER-INCOME> 0
<EXPENSES-NET> 434,000
<NET-INVESTMENT-INCOME> 1,756,000
<REALIZED-GAINS-CURRENT> (2,000)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,754,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,750,000<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 169,674,000<F1>
<NUMBER-OF-SHARES-REDEEMED> 187,110,000<F1>
<SHARES-REINVESTED> 1,648,000<F1>
<NET-CHANGE-IN-ASSETS> (7,837,000)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 304,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 435,000
<AVERAGE-NET-ASSETS> 60,866,621<F1>
<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> 0.03<F1>
<PER-SHARE-GAIN-APPREC> 0<F1>
<PER-SHARE-DIVIDEND> 0.03<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> 0.71<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>
Investment A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000840678
<NAME> THE FIFTH THIRD FUNDS
<SERIES>
<NUMBER> 161
<NAME> FIFTH THIRD TAX EXEMPT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 51,702,000
<INVESTMENTS-AT-VALUE> 51,702,000
<RECEIVABLES> 746,000
<ASSETS-OTHER> 78,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52,526,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79,000
<TOTAL-LIABILITIES> 79,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,449,000
<SHARES-COMMON-STOCK> 7,953,000<F2>
<SHARES-COMMON-PRIOR> 0<F2>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 52,447,000
<DIVIDEND-INCOME> 3,000
<INTEREST-INCOME> 2,187,000
<OTHER-INCOME> 0
<EXPENSES-NET> 434,000
<NET-INVESTMENT-INCOME> 1,756,000
<REALIZED-GAINS-CURRENT> (2,000)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,754,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,000<F2>
<DISTRIBUTIONS-OF-GAINS> 0<F2>
<DISTRIBUTIONS-OTHER> 0<F2>
<NUMBER-OF-SHARES-SOLD> 12,864,000<F2>
<NUMBER-OF-SHARES-REDEEMED> 4,910,000<F2>
<SHARES-REINVESTED> 0<F2>
<NET-CHANGE-IN-ASSETS> (7,837,000)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 304,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 435,000
<AVERAGE-NET-ASSETS> 8,673,406<F2>
<PER-SHARE-NAV-BEGIN> 1.00<F2>
<PER-SHARE-NII> 0<F2>
<PER-SHARE-GAIN-APPREC> 0<F2>
<PER-SHARE-DIVIDEND> 0<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 1.00<F2>
<EXPENSE-RATIO> 0.63<F2>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F2>Institutional Shares
</FN>
</TABLE>
