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1933 Act File No. 333-49491
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 .................................... X
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Post-Effective Amendment No. .................................
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FOUNTAIN SQUARE FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219-3035
(Address of Principal Executive Offices)
(614) 470-8000
(Registrant's Telephone Number)
Copy to:
Joseph B. Hemker, Esq. Melanie Mayo West, Esq.
Howard & Howard Attorneys, P.C. Hertz, Schram & Saretsky, P.C.
100 Portage Road, Suite 200 1760 S. Telegraph Road, Suite 300
Kalamazoo, Michigan 49007 Bloomfield Hills, Michigan 48302-01831
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: as soon as practicable after the
effective date of this Registration Statement.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effectiveness until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to such Section
8(a), shall determine.
Title of Securities Being Registered: Shares of Beneficial Interest.
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended, and
filed the Notice required by that Rule on September 25, 1997.
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FOUNTAIN SQUARE FUNDS
REGISTRATION STATEMENT ON FORM N-14
CROSS-REFERENCE SHEET
PART A. INFORMATION REQUIRED IN THE PROSPECTUS
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ITEM NO. RULE 481(a) CROSS-REFERENCE
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1. Beginning of Registration Statement and Cross-Reference Sheet; Cover Page
Outside Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Fee Table, Synopsis Information and Risk Comparative Fee Tables; Summary; Comparison of
Factors Investment Objectives, Investment Policies and Risk
Factors
4. Information About the Transaction Information Relating to the Proposed Reorganization;
Other Comparative Information
5. Information About the Registrant Other Comparative Information; Comparison of Investment
Objectives, Investment Policies and Risk Factors, Comparison
of Cardinal and FSF Investment Advisor and Other Service
Providers; Financial Statements; Incorporated by Reference
to Registrant's Annual Report dated July 31, 1998 (File No.
811-05669).
6. Information About the Company Being Other Comparative Information; Comparison of
Acquired Investment Objectives, Investment Policies and Risk
Factors, Comparison of Cardinal and FSF Investment
Advisor and Other Service Providers; Financial
Statements
7. Voting Information Summary; Information Relating to Voting Matters
8. Interest of Certain Persons and Experts Corporation of Cardinal and FSF Investment Advisor
and Other Service Providers
9. Additional Information Not Applicable
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PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information About the Registrant Incorporated by Reference to Registrant's Statement of Additional
Information dated September 30, 1997, as supplemented,
November 30, 1997, as supplemented and May 20, 1998, as
supplemented. (File No. 33-24848)
13. Additional Information About the Company Incorporated by Reference to Cardinal's Statement of
Being Acquired Additional Information dated January 30, 1998, as
supplemented. (File No. 33-59984).
14. Financial Statements Financial Statements
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THE CARDINAL GROUP
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
May 27, 1998
Dear Cardinal Shareholder:
On behalf of the Board of Trustees of The Cardinal Group ("Cardinal"), we are
pleased to invite you to a special meeting of shareholders on July 10, 1998
(the "Special Meeting"), that has been called to consider matters that are
important to you. At the Special Meeting, you will be asked to consider a
proposed reorganization of the six Cardinal Funds (the "Cardinal Funds") into
six corresponding funds (the "Fountain Square Funds") of Fountain Square Funds
("FSF").
As a result of the proposed merger of a subsidiary of Fifth Third
Bancorp, the parent company of FSF's investment advisor Fifth Third Bank ("Fifth
Third") and The Ohio Company, the parent company of Cardinal's investment
advisor Cardinal Management Corp. ("CMC"), representatives of Fifth Third and
The Ohio Company recommended to the Board of Trustees of Cardinal that the
Trustees consider and approve combining the Cardinal Funds with the Fountain
Square Funds. This recommendation was made because Fifth Third and CMC believed
that combining the Cardinal Funds and the Fountain Square Funds would offer a
number of potential benefits to the shareholders of the two mutual fund groups.
CARDINAL'S BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THE
PROPOSED REORGANIZATION.
Background. It is currently anticipated that on or about June 5, 1998, Fifth
Third M Corp. will merge with The Ohio Company ("The Ohio Company merger"). By
law, this merger will result in the automatic termination of Cardinal's then
current investment advisory agreement with CMC. At a special meeting of
shareholders held on March 20, 1998, Cardinal shareholders approved a new
investment advisory agreement with CMC effective upon the close of The Ohio
Company merger.
At the upcoming Special Meeting, you will be asked to approve a reorganization
of each of your Cardinal Funds into corresponding Fountain Square Funds. Each
Fountain Square Fund is a series of FSF, an open-end management investment
company advised by Fifth Third. If all approvals are obtained, the Cardinal
Funds are expected to be reorganized into the corresponding Fountain Square
Funds on or about July 13, 1998, when shares of your Cardinal Funds, in effect,
will be exchanged for shares of the corresponding Fountain Square Funds of equal
value. The reorganization that you are being asked to approve should benefit
shareholders by:
o facilitating investment management, administration and
marketing by combining the Cardinal Funds and the Fountain
Square Funds;
o improving efficiency, including the potential for economies
of scale;
o eliminating duplicative costs; and
o making available to shareholders a greater number of
investment portfolio options.
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In considering these matters, you should note:
o SIMILAR OBJECTIVES AND POLICIES
Two of the six Cardinal Funds will be reorganized into new Fountain
Square Funds which have been created for purposes of the fund
reorganization, and the remaining four Cardinal Funds will be
reorganized into existing Fountain Square Funds. The objectives and
policies of each of the Fountain Square Funds are generally similar to
those of its corresponding Cardinal Fund. There are some differences,
however, which are discussed in the enclosed Combined Proxy
Statement/Prospectus, and you should consider these differences
carefully.
o SIMILAR ACCESS ARRANGEMENTS
You will enjoy access to the Fountain Square Funds through distribution
and shareholder servicing arrangements that are substantially similar
to Cardinal's current arrangements. To continue check writing access to
Money Market Fund balances, shareholders must establish a One Account
Advantage account with Fifth Third Securities.
o SAME VALUE OF SHARES
The total net asset value of the Fountain Square Fund shares that you
receive in the reorganization will be the same as the total net asset
value of the Cardinal Fund shares that you hold immediately before the
reorganization.
o EQUAL OR BETTER OPERATING EXPENSE RATIOS
The annual fund operating expense ratios (after waivers) for each of
the corresponding Fountain Square Funds after the reorganization are
expected to be equal to or less than the current annual fund operating
expense ratios of your Cardinal Fund through at least July 13, 2000.
The formal Notice of Special Meeting, a Combined Proxy Statement/Prospectus and
a Proxy Card are enclosed. If you own shares in more than one Cardinal Fund,
more than one Proxy Card accompanies these proxy materials.
YOUR VOTE IS VERY IMPORTANT TO US. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD(S) PROMPTLY.
The proposed reorganization and the reasons for the Cardinal Board of Trustees'
recommendation are discussed in detail in the enclosed materials, which you
should read carefully. If you have any questions about the reorganization,
please do not hesitate to call The Cardinal Group toll-free at (800) 282-9446.
Very truly yours,
/s/ Frank W. Siegel
Frank W. Siegel
President
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THE CARDINAL GROUP
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on July 10, 1998
Dear Cardinal Shareholder:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders of
The Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal Balanced Fund,
Cardinal Government Obligations Fund, Cardinal Government Securities Money
Market Fund and Cardinal Tax Exempt Money Market Fund (each a "Cardinal Fund"),
series of The Cardinal Group ("Cardinal") will be held at the National City
Board Room, Third Floor, 155 East Broad Street, Columbus, Ohio on July 10, 1998,
at 9:00 a.m. Eastern Time for the following purposes:
ITEM 1. With respect to each Cardinal Fund:
To consider and act upon a proposal to approve or disapprove
an Agreement and Plan of Reorganization and Liquidation (the
"Reorganization Agreement") and the transactions contemplated
thereby, including the transfer of all of the assets and known
liabilities of each Cardinal Fund to a corresponding
investment portfolio of Fountain Square Funds ("FSF") in
exchange for shares of designated classes of the corresponding
Fountain Square Fund.
ITEM 2. With respect to each Cardinal Fund:
To transact such other business as may properly come before
the Special Meeting or any adjournment(s) thereof.
The proposed reorganization and related matters are described in the
attached Combined Proxy Statement/Prospectus. Appendix A to the Combined Proxy
Statement/Prospectus is a copy of the Reorganization Agreement.
Shareholders of record as of the close of business on May 12, 1998 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment(s)
thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY
CARDINAL'S BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO CARDINAL A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED
PROXY OR BY OTHERWISE GIVING NOTICE OF REVOCATION IN OPEN MEETING.
/s/ Karen J. Hipsher
Karen J. Hipsher
Secretary
May 27, 1998
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COMBINED PROXY STATEMENT/PROSPECTUS
DATED MAY 27, 1998
THE CARDINAL GROUP
155 East Broad Street
Columbus, Ohio 43215
Telephone Number: (800) 282-9446
FOUNTAIN SQUARE FUNDS
38 Fountain Square Plaza
Mail Drop: 1090Q6
Cincinnati, Ohio 45263
Telephone Number: (888) 799-5353
This Combined Proxy Statement/Prospectus is furnished in connection
with the solicitation of proxies by the Board of Trustees of The Cardinal Group
("Cardinal") in connection with a Special Meeting of Shareholders (the "Special
Meeting") of The Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal
Balanced Fund, Cardinal Government Obligations Fund, Cardinal Government
Securities Money Market Fund and Cardinal Tax Exempt Money Market Fund (each a
"Cardinal Fund") to be held on July 10, 1998, at 9:00 a.m. Eastern Time at the
National City Board Room, Third Floor, 155 East Broad Street, Columbus Ohio. At
the Special Meeting, shareholders will be asked to consider and approve a
proposed Agreement and Plan of Reorganization and Liquidation dated as of April
27, 1998 (the "Reorganization Agreement") by and between Cardinal, Cardinal
Management Corp. ("CMC"), Fifth Third Bank ("Fifth Third") and Fountain Square
Funds ("FSF"). Appendix A to the Combined Proxy Statement/Prospectus is a copy
of the Reorganization Agreement.
Cardinal and FSF are both open-end management investment companies
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). CMC currently provides investment advisory services to Cardinal. Fifth
Third provides investment advisory services to FSF. In reviewing the proposed
reorganization (the "Reorganization"), the Cardinal Board of Trustees considered
the pending acquisition by a subsidiary of Fifth Third Bancorp of The Ohio
Company, CMC's parent corporation; the effect of such acquisition on Cardinal;
the recommendation of CMC and Fifth Third with respect to the proposed
consolidation of Cardinal and FSF; the fact that the Reorganization would
constitute a tax-free reorganization; the fact that the interests of
shareholders would not be diluted as a result of the Reorganization; the
portfolio managers, performance records and estimated expense ratios of the
Fountain Square Funds; and other factors.
The Reorganization Agreement provides for the transfer of all of the
assets and stated liabilities of each Cardinal Fund to a corresponding
investment portfolio of FSF (each a "Fountain Square Fund" and collectively the
"Fountain Square Funds") in exchange for shares of comparable classes of the
Fountain Square Funds having equal value. As a result of the Reorganization,
shareholders of the Cardinal Funds will become shareholders of the Fountain
Square Funds as follows:
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CARDINAL FUNDS FOUNTAIN SQUARE FUNDS
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The Cardinal Fund Fountain Square Cardinal Fund*
Cardinal Aggressive Growth Fund Fountain Square Mid Cap Fund
Cardinal Balanced Fund Fountain Square Balanced Fund
Cardinal Government Obligations Fund Fountain Square Bond Fund For Income
Cardinal Government Securities Money Market Fund Fountain Square Government Cash Reserves Fund
Cardinal Tax Exempt Money Market Fund Fountain Square Tax Exempt Money Market Fund*
</TABLE>
*Fountain Square Cardinal Fund and Fountain Square Tax Exempt Money Market Fund
have been organized to facilitate the Reorganization and have not commenced
operations.
See "Information Relating to the Proposed Reorganization" for a discussion of
each Cardinal Fund and the corresponding Fountain Square Fund into which it will
be reorganized.
This Combined Proxy Statement/Prospectus sets forth concisely the
information that a shareholder of Cardinal should know before voting on the
Reorganization Agreement (and related transactions), and should be retained for
future reference.
For shareholders of the Cardinal Funds who will receive Investment A
Shares of Fountain Square Bond Fund For Income, Fountain Square Mid Cap Fund and
Fountain Square Balanced Fund as part of the Reorganization, this Combined Proxy
Statement/Prospectus is accompanied by applicable excerpts from FSF's Annual
Report to Shareholders dated July 31, 1997, applicable excerpts from FSF's
Semi-Annual Report to Shareholders dated January 31, 1998 and the Prospectus
dated November 30, 1997, as supplemented through the date hereof, relating to
Investment A Shares of each of these Fountain Square Funds. For shareholders of
Cardinal Government Securities Money Market Fund who will receive Investment A
Shares or Institutional Shares of Fountain Square Government Cash Reserves Fund
as part of the Reorganization, this Combined Proxy Statement/Prospectus is
accompanied by the Prospectus dated September 30, 1997, as supplemented through
the date hereof, relating to Investment A Shares (also known as Investment
Shares) and Institutional Shares (formerly known as Trust Shares) of Fountain
Square Government Cash Reserves Fund. Fountain Square Bond Fund For Income,
Fountain Square Mid Cap Fund, Fountain Square Balanced Fund and Fountain Square
Government Cash Reserves Fund are collectively referred to as the ("Operating
Fountain Square Funds.")
For shareholders of the Cardinal Funds who will receive Investment A
Shares of Fountain Square Cardinal Fund and Fountain Square Tax Exempt Money
Market Fund (the "New Fountain Square Funds"), as part of the Reorganization,
this Combined Proxy Statement/Prospectus is accompanied by one or more
applicable Prospectuses dated May 20, 1998, as supplemented through the date
hereof, relating to Investment A Shares of each of the New Fountain Square
Funds.
For shareholders of the Cardinal Funds who will receive Institutional
Shares of any of the Fountain Square Funds, except Fountain Square Government
Cash Reserves Fund as part of the Reorganization, this Combined Proxy
Statement/Prospectus is accompanied by one or more Prospectuses dated May 20,
1998, as supplemented through the date hereof, relating to Institutional Shares
of the Fountain Square Funds.
Additional information relating to this Combined Proxy
Statement/Prospectus is set forth in the Statement of Additional Information,
dated the date hereof, which is incorporated herein by reference, and in the
Prospectuses and Statement of Additional Information dated January 30, 1998, as
supplemented through the date hereof, for the Cardinal Funds. Each of these
documents is on file with the Securities and Exchange Commission (the "SEC"),
and is available without charge by writing or calling either Cardinal or FSF at
the respective addresses or telephone numbers indicated above. The information
contained in each of the Fountain Square Funds Prospectuses and Prospectuses
for the Cardinal Funds is incorporated herein by reference.
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This Combined Proxy Statement/Prospectus is Cardinal's proxy statement
for the Special Meeting, and FSF's Prospectus for the shares of the Fountain
Square Funds that have been registered with the SEC and are to be issued in
connection with the Reorganization.
This Combined Proxy Statement/Prospectus is expected to first be sent
to Cardinal shareholders on or about May 27, 1998.
THE SECURITIES OF FSF HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVEN ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY
STATEMENT/PROSPECTUS AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY
REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CARDINAL OR FSF.
SHARES OF FSF ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
FIFTH THIRD BANK OR ANY OF ITS AFFILIATES. SHARES OF FSF ARE NOT FEDERALLY
INSURED BY, GUARANTEED BY, OR OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE WILL
VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES OF THE
FSF, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. AN
INVESTMENT IN FSF INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
AN INVESTMENT IN ANY OF THE MONEY MARKET FUNDS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY SUCH
FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
iii
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TABLE OF CONTENTS
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PAGE
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SUMMARY................................................................................................ 1
Proposed Reorganization....................................................................... 1
Reasons for the Reorganization................................................................ 1
Federal Income Tax Consequences............................................................... 1
Comparison of Shareholder Transactions and Services........................................... 2
Voting Information............................................................................ 2
Risk Factors.................................................................................. 3
COMPARISON OF CARDINAL AND FSF INVESTMENT ADVISOR
AND OTHER SERVICE PROVIDERS............................................................................ 3
The Cardinal Funds............................................................................ 3
Fountain Square Funds......................................................................... 4
COMPARATIVE FEE TABLES................................................................................. 6
Comparative Fee Tables - Non-Money Market Funds............................................... 6
Comparative Fee Tables - Money Market Funds (Retail Investors)................................ 13
Comparative Fee Tables - Money Market Funds (Institutional Investors)......................... 15
Expense Ratios - Cardinal Funds............................................................... 17
Expense Ratios - Fountain Square Funds........................................................ 17
INFORMATION RELATING TO THE PROPOSED REORGANIZATION.................................................... 20
Description of the Reorganization Agreement................................................... 20
Capitalization................................................................................ 22
Federal Income Tax Consequences............................................................... 26
COMPARISON OF INVESTMENT OBJECTIVES, INVESTMENT POLICIES AND RISK
FACTORS................................................................................................ 26
The Cardinal Fund and Fountain Square Cardinal Fund........................................... 26
Cardinal Aggressive Growth Fund and Fountain Square Mid Cap Fund.............................. 27
Cardinal Balanced Fund and Fountain Square Balanced Fund...................................... 28
Cardinal Government Obligations Fund and Fountain Square Bond Fund For Income................. 29
Cardinal Government Securities Money Market Fund and Fountain Square Government Cash
Reserves Fund............................................................................... 30
Cardinal Tax Exempt Money Market Fund and Fountain Square Tax Exempt Money Market
Fund........................................................................................ 31
Risk Factors.................................................................................. 32
OTHER COMPARATIVE INFORMATION.......................................................................... 33
Purchase and Redemption Information, Exchange Privileges, Distribution and Pricing............ 33
Other Information............................................................................. 36
INFORMATION RELATING TO VOTING MATTERS................................................................. 37
General Information........................................................................... 37
Shareholder and Board Approvals............................................................... 38
Appraisal Rights.............................................................................. 40
Quorum........................................................................................ 40
</TABLE>
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Annual Meetings............................................................................... 40
ADDITIONAL INFORMATION ABOUT FSF....................................................................... 41
ADDITIONAL INFORMATION ABOUT CARDINAL.................................................................. 42
LITIGATION............................................................................................. 42
FINANCIAL STATEMENTS................................................................................... 42
OTHER BUSINESS......................................................................................... 43
SHAREHOLDER INQUIRIES.................................................................................. 43
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SUMMARY
The following is a summary of certain information relating to the
proposed Reorganization, the parties thereto and the related transactions, and
is qualified by reference to the more complete information contained elsewhere
in this Combined Proxy Statement/Prospectus, the Prospectuses and Statements of
Additional Information of Cardinal and FSF, and the Reorganization Agreement
attached to this Combined Proxy Statement/Prospectus as Appendix A. Cardinal's
Annual Report to Shareholders may be obtained free of charge by calling or
writing Cardinal.
PROPOSED REORGANIZATION. The Reorganization Agreement provides for: (i)
the transfer of all of the assets and stated liabilities of each Cardinal Fund
to a corresponding Fountain Square Fund in exchange for shares of comparable
classes of the corresponding Fountain Square Fund; and (ii) the distribution of
Fountain Square Fund shares so received to the shareholders of the Cardinal
Funds in liquidation of the Cardinal Funds. The Reorganization is subject to a
number of conditions with respect to each Cardinal Fund, including shareholder
approval and receipt of an exemptive order from the Securities and Exchange
Commission (the "SEC"). Following the Reorganization, Cardinal will wind up its
affairs and deregister as an investment company under the Investment Company Act
of 1940, as amended (the "1940 Act"). Based upon their evaluation of the
relevant information presented to them, and in light of their fiduciary duties
under federal and state law, Cardinal's and FSF's Boards, including their
members who are not "interested persons" within the meaning of the 1940 Act,
have determined that the proposed Reorganization is in the best interests of
Cardinal's and FSF's shareholders, respectively, and that the interests of
existing shareholders of Cardinal and FSF, respectively, will not be diluted as
a result of such Reorganization.
The Reorganization Agreement may be terminated at any time prior to the
closing of the Reorganization (a) by mutual written consent of Cardinal and FSF
or (b) by either Cardinal or FSF if either Board of Trustees determines that
proceeding with the Reorganization is not in the best interests of its
shareholders.
REASONS FOR THE REORGANIZATION. The primary reason for the
Reorganization is the pending acquisition of The Ohio Company, CMC's parent
corporation, by a subsidiary of Fifth Third Bancorp, Fifth Third's parent
corporation. In light of this acquisition, Fifth Third and The Ohio Company
have recommended that each of the Cardinal Funds be reorganized as described in
this Combined Proxy Statement/Prospectus shortly after the proposed acquisition
of The Ohio Company. In recognition of the fact that the Reorganization will be
tax-free and will not dilute the interests of Cardinal shareholders and for
other reasons more fully described herein, the Board of Trustees of Cardinal has
unanimously approved the Reorganization Agreement and has recommended its
approval to shareholders.
FEDERAL INCOME TAX CONSEQUENCES. Shareholders of the Cardinal Funds
will recognize no gain or loss for federal income tax purposes on their receipt
of shares of the Fountain Square Funds and shareholders of the Fountain Square
Funds will have no tax consequences from the Reorganization. The Cardinal Funds
will incur no federal tax liability as a result of the Reorganization, and the
Fountain Square Funds will recognize no gain or loss for federal tax purposes on
their issuance of shares in the Reorganization. See "Information Relating to the
Proposed Reorganization - Federal Income Tax Consequences."
OVERVIEW OF THE CARDINAL FUNDS AND THE FOUNTAIN SQUARE FUNDS. There are
no material differences between the investment objectives and policies of The
Cardinal Fund and Cardinal Tax Exempt Money Market Fund and the corresponding
New Fountain Square Funds. The investment objectives and policies of the
remaining Cardinal Funds are generally similar to those of the Operating
Fountain Square Funds.
Additional information is provided below under "Comparison of
Investment Objectives, Investment Policies and Risk Factors" and in the Cardinal
and FSF Prospectuses, which are incorporated herein by reference, relating to
the similarities and differences between the investment objectives and policies
of the Cardinal Funds and their corresponding Fountain Square Funds.
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As discussed more fully below under "Comparison of Cardinal and FSF -
Investment Advisor and Other Service Providers," Fifth Third currently serves as
the investment advisor to each of the Operating Fountain Square Funds, and will
serve as the investment advisor to the New Fountain Square Funds. In all cases,
the overall expense ratios of the Fountain Square Funds, after waivers, are
expected to be equal to or less than the overall expense ratios of the
corresponding Cardinal Funds. In addition, in this regard, Fifth Third and FSF
have agreed that for a period of two years after the Closing Date, FSF will not
enter into, participate in, or pay compensation in connection with any
arrangement that facilitates or is intended to facilitate the payment of direct
or indirect compensation to Fifth Third, CMC or any interested person of either
of them, or increase compensation payable to Fifth Third, CMC or any interested
person of either of them which results in an increase in the expense ratios of
any of the Fountain Square Funds described in the pro forma combined fee tables
(net of fee waivers) in this Combined Proxy Statement/Prospectus. In addition,
FSF and Fifth Third have represented to Cardinal's Board of Trustees that the
expense ratios for the Fountain Square Funds will not exceed those set forth in
such pro forma combined fee tables for a period of two years after the Closing
Date. Cardinal and FSF have different administrators, distributors, transfer
agents, independent public accountants and trustees.
Each of the Fountain Square Funds will issue Investment A Shares and
Institutional Shares in connection with the Reorganization. Each of Fountain
Square Cardinal Fund, Fountain Square Mid Cap Fund, Fountain Square Balanced
Fund and Fountain Square Bond Fund For Income (the "Fountain Square Non-Money
Market Funds") also offer Investment C Shares. Investment A Shares of the
Fountain Square Funds are sold to the general public and are subject to
front-end sales charges and Rule 12b-1 fees. Investment C Shares are sold at net
asset value, but are subject to a contingent deferred sales charge if sold
within one year after purchase. In addition, Investment C Shares are subject to
higher Rule 12b-1 fees than Investment A Shares. Institutional Shares are
offered only to clients of Fifth Third Bank who make purchases through Fifth
Third's Trust Department, certain qualified employee benefit plans, and
broker-dealers, investment advisors, financial planners and other financial
institutions who place trades for their own accounts or the accounts of their
clients for a management, consulting or other fee. Such shares are offered at
net asset value without any front-end or contingent deferred sales charge and
are not subject to any Rule 12b-1 fees. Each of The Cardinal Fund, Cardinal
Aggressive Growth Fund, Cardinal Balanced Fund and Cardinal Government
Obligations Fund (the "Cardinal Non-Money Market Funds") offers Investor Shares
and Institutional Shares. Investor Shares of the Cardinal Funds are similar to
Investment A Shares of the Fountain Square Funds. Such shares are offered at net
asset value, subject to a front-end sales charge and Rule 12b-1 fees.
Institutional Shares of the Cardinal Funds are similar to Institutional Shares
of the Fountain Square Funds, except that Institutional Shares of the Cardinal
Funds are subject to administrative services fees and Institutional Shares of
the Fountain Square Funds are not.
COMPARISON OF SHAREHOLDER TRANSACTIONS AND SERVICES. With certain
exceptions, the purchase, redemption, dividend, exchange and other policies and
procedures for the Fountain Square Funds and the Cardinal Funds are generally
similar. None of the Fountain Square Funds offers a check-writing redemption
feature, although investors may participate in the One Account Advantage program
at Fifth Third which permits check writing against Fountain Square Money Market
Fund balances.
VOTING INFORMATION. Only shareholders of record of the Cardinal Funds
at the close of business on May 12, 1998 will be entitled to notice of and to
vote at the Special Meeting or any adjournments thereof. Each dollar of value
invested in the Cardinal Funds or fraction of a dollar invested as of the close
of business on the record date is entitled to one vote or fraction thereof and
all shares will vote separately by Fund (but not by class). Shares represented
by a properly executed proxy will be voted in accordance with the specified
instructions, or if no specification is made, the persons named as proxies will
vote in favor of each proposal set forth in the Notice of Meeting. Shares
represented by proxies, unless previously revoked, will be voted at the Special
Meeting in accordance with the instructions of the shareholders. If no
instructions are given, the proxies will be voted in favor of the proposal. To
revoke a proxy, the shareholder giving such proxy must either submit to Cardinal
a subsequently dated proxy, deliver to Cardinal a written notice of revocation
or otherwise give notice of revocation in open meeting, in all cases prior to
the exercise of the authority granted in the proxy. For additional information,
including a description of the shareholder vote required for approval of the
Reorganization Agreement and related transactions, see "Information Relating to
Voting Matters."
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<PAGE> 14
RISK FACTORS. Because of the similarities of the investment objectives,
policies and restrictions of the Cardinal Funds and their corresponding Fountain
Square Funds, an investment in a Fountain Square Fund involves risks that are
similar to those of the corresponding Cardinal Fund. In the case of Fountain
Square Cardinal Fund and Fountain Square Mid Cap Fund, the investment risks, in
general, are those typically associated with investing in a portfolio of common
stocks. In the case of Fountain Square Bond Fund For Income, the investment
risks, in general, are those typically associated with investing in a portfolio
of investment grade fixed income securities, including corporate debt
obligations. Funds which invest in corporate debt obligations involve credit
risks which are greater than investments in funds such as Cardinal Government
Obligations Fund which limits its investments to U.S. government securities. In
the case of Fountain Square Balanced Fund, the investment risks are those
typically associated with investing in a portfolio of both common stocks and
investment grade fixed income securities. Finally, with respect to Fountain
Square Government Cash Reserves Fund and Fountain Square Tax Exempt Money Market
Fund, the investment risks, in general, are those typically associated with
investing in a portfolio of high quality money market instruments. In addition,
these Money Market Funds attempt to maintain a stable net asset value of $1.00,
although there is no assurance that they will be able to do so. See "Comparison
of Investment Objectives, Investment Policies and Risk Factors."
COMPARISON OF CARDINAL AND FSF
INVESTMENT ADVISOR AND OTHER SERVICE PROVIDERS
THE CARDINAL FUNDS. CMC serves as investment advisor and manager of the
Cardinal Funds and is entitled to receive advisory and management fees
("advisory fees") from the Cardinal Funds, computed and paid monthly, at the
following annual rates, expressed as a percentage of average daily net assets:
<TABLE>
<CAPTION>
MAXIMUM ACTUAL
ADVISORY FEE ADVISORY FEE
(% OF AVERAGE IN YEAR ENDED
CARDINAL FUNDS DAILY NET WORTH) SEPTEMBER 30, 1997
-------------- ---------------- ---------------
<S> <C> <C>
The Cardinal Fund 0.60% 0.60%
Cardinal Aggressive Growth Fund 0.75% 0.75%
Cardinal Balanced Fund 0.75% 0.75%
Cardinal Government Obligations Fund 0.50% 0.50%
Cardinal Government Securities Money Market Fund 0.50% 0.50%
Cardinal Tax Exempt Money Market Fund 0.50% 0.50%
</TABLE>
Pursuant to the Cardinal Investment Advisory and Management Agreement
(the "Cardinal Advisory Agreement"), CMC conducts a continuous investment
program, including investment research and management with respect to all
securities and investments and cash equivalents in the Cardinal Funds. CMC
provides these services in accordance with the Cardinal Funds' investment
objectives, policies and restrictions. In addition, pursuant to the Cardinal
Advisory Agreement, CMC is responsible for overall management of the Cardinal
Funds' business affairs except those performed by Cardinal's custodian, transfer
agent and fund accountant.
Transfer agency services are provided to Cardinal by CMC. For services
in its capacity as transfer agent, CMC receives an annual fee per shareholder
account, computed daily and paid monthly, equal to $18 for The Cardinal Fund,
Cardinal Aggressive Growth Fund and Cardinal Balanced Fund and $21 for Cardinal
Government Obligations Fund, Cardinal Government Securities Money Market Fund
and Cardinal Tax Exempt Money Market Fund, plus out-of-pocket expenses.
Custodial services are provided to Cardinal by Fifth Third Bank, for
which it receives a base fee for each Cardinal Fund, plus applicable transaction
charges. Effective January 20, 1997, Fifth Third also began providing fund
accounting services to each Cardinal Fund for a fee of 0.03% on the
3
<PAGE> 15
first $100 million of such Fund's average daily net assets, 0.02% on the next
$100 million, and 0.01% on assets above $200 million. A minimum monthly charge
of $2,500 for each Cardinal Fund applies, and there is a $7,000 surcharge for
additional classes of shares.
The Ohio Company, CMC's parent corporation, is the principal
underwriter for Cardinal. Under the distribution agreement, The Ohio Company
acts as the agent of Cardinal in connection with the offering of shares of each
Cardinal Fund.
Cardinal has adopted a Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act (the "Cardinal 12b-1 Plan"). Under the Cardinal 12b-1 Plan,
Investor Shares of The Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal
Balanced Fund and Cardinal Government Obligation Fund bear the expense of
distribution fees payable to The Ohio Company at an annual rate of up to 0.25%
of the average daily net asset value of each Fund's outstanding Investor Shares
to finance activities which are principally intended to result in the sale of
such shares. The Cardinal 12b-1 Plan allows The Ohio Company to enter into
agreements with broker-dealers and other financial institutions which provide
shareholder services as agents for their customers who beneficially own Investor
Shares of these Funds. Shareholder services provided by such financial
institutions may include, without limitation: answering shareholder questions
concerning the Cardinal Funds; providing information to shareholders on their
investments in the Cardinal Funds; providing such personnel and communication
equipment as is necessary and appropriate to accomplish such matters; and such
other services as may reasonably be requested.
The Cardinal 12b-1 Plan is a compensation type plan as opposed to a
reimbursement type plan. Accordingly, payments by Investor Shares under the
12b-1 Plan are based on the expressed fee rather than on the specific amounts
expended by The Ohio Company for shareholder services. The Ohio Company may be
able to recover such amounts or may earn a profit from payments made by Investor
Shares of these Cardinal Funds under the Cardinal 12b-1 Plan.
Cardinal has also adopted an Administrative Services Plan (the
"Cardinal Administrative Services Plan"), pursuant to which The Ohio Company
receives an annual fee of up to 0.15% of the average net assets of the
Institutional Shares of The Cardinal Fund, Cardinal Aggressive Growth Fund,
Cardinal Balanced Fund and Cardinal Government Obligation Fund for which it
provides shareholder administrative services. Other financial institutions may
also receive fees under the Cardinal Administrative Services Plan.
FOUNTAIN SQUARE FUNDS. Fifth Third, which is a wholly-owned subsidiary
of Fifth Third Bancorp, a bank holding company organized under the laws of Ohio,
serves as investment advisor to FSF and is entitled to receive advisory fees
from FSF, computed daily and paid monthly, at the following annual rates:
<TABLE>
<CAPTION>
ACTUAL
MAXIMUM ADVISORY FEE
ADVISORY FEE IN YEAR ENDED
(% OF AVERAGE JULY 31, 1997
FOUNTAIN SQUARE FUNDS DAILY NET ASSETS) (AFTER WAIVERS)
--------------------- ----------------- ---------------
<S> <C> <C>
Fountain Square Cardinal Fund.............................. 0.60% N/A*
Fountain Square Mid Cap Fund............................... 0.80% 0.80%
Fountain Square Balanced Fund.............................. 0.80% 0.80%
Fountain Square Bond Fund for Income....................... 0.55% 0.55%
Fountain Square Government Cash Reserves Fund.............. 0.40% 0.37%
Fountain Square Tax Exempt Money Market Fund............... 0.50% N/A*
</TABLE>
* Fountain Square Cardinal Fund and Fountain Square Tax Exempt Money Market Fund
have been organized to facilitate the Reorganization and have not commenced
operations.
4
<PAGE> 16
Fifth Third serves as investment advisor to FSF pursuant to the FSF
Advisory Contract which is similar in all material respects to the Cardinal
Investment Advisory Agreement with CMC, except that administration services
provided by Fifth Third to FSF are not covered by the FSF Advisory Contract,
but are provided to FSF by BISYS Fund Services, L.P., as described below.
Under the Cardinal Advisory Agreement, subject to the supervision of
the Cardinal Trustees, CMC has the authority and discretion to select brokers
and dealers to execute portfolio transactions for the Cardinal Funds. Similarly,
subject to the supervision of the FSF Trustees, Fifth Third has the authority
and discretion to select brokers and dealers to execute portfolio transactions
for the Fountain Square Funds. The Cardinal Advisory Agreement obligates CMC to
obtain prompt execution of orders in an effective manner at the most favorable
price. Consistent with this obligation, when the execution and price offered by
two or more brokers or dealers are comparable, CMC may, in its discretion,
purchase and sell portfolio securities to and from brokers and dealers who
provide CMC with research, advice and other services. The FSF Advisory Contract
contains no similar provision, although FSF and Fifth Third believe that Fifth
Third may, consistent with its fiduciary responsibility, purchase and sell
portfolio securities to and from brokers and dealers who provide Fifth Third
with research, advice and related services. In return for this research and
analysis, Fifth Third may pay those brokers and dealers a higher commission or
spread than may be charged by other brokers and dealers.
See "Fountain Square Funds Information - Management of the Trust -
Investment Advisor" in the FSF Prospectuses accompanying this Combined Proxy
Statement/Prospectus, which are incorporated herein by reference, for additional
information on FSF's Advisor.
Administration services are provided to FSF by BISYS Fund Services,
L.P. ("BISYS"), 3435 Stelzer Road, Columbus, Ohio 43219. For its services, BISYS
is entitled to receive a fee, computed daily and paid monthly, at the annual
rate of 0.20% of the first $1 billion of the combined average daily net assets
of all funds offered by FSF, 0.18% of the next $1 billion of such combined
average daily net assets, and 0.17% of such combined average daily net assets
in excess of $2 billion.
Pursuant to a separate agreement with BISYS, Fifth Third performs
sub-administration services on behalf of each Fountain Square Fund, including
providing certain administrative personnel and services necessary to operate the
Fountain Square Fund, for which Fifth Third receives a fee from BISYS computed
daily and paid periodically calculated at an annual rate of 0.025% of average
daily net assets. Fifth Third also serves as custodian for the securities and
cash of the Fountain Square Funds, transfer agent for the shares of the Fountain
Square Funds, and dividend disbursing agent for the Fountain Square Funds.
Finally, Fifth Third provides fund accounting services to each of the Fountain
Square Funds. For each of these services, Fifth Third receives a base fee per
Fund plus applicable transaction charges.
BISYS also serves as FSF's principal underwriter for all Fountain
Square Funds. Under the Distribution Agreement, BISYS may enter into dealer
agreements on behalf of FSF in order to sell Investment A Shares of the Fountain
Square Funds.
FSF has also adopted a Distribution Plan pursuant to Rule 12b-1 of the
1940 Act (the "FSF 12b-1 Plan"). Under the FSF 12b-1 Plan, as amended,
Investment A Shares of each Fountain Square Fund bear the expense of
distribution fees payable to BISYS at an annual rate of up to 0.25% of the
average daily net asset value of such Fund's outstanding Investment A Shares to
finance activities which are principally intended to result in the sale of such
shares. The FSF 12b-1 Plan allows BISYS, as distributor, to enter into
agreements with broker-dealers and other financial institutions to provide
shareholder services similar to those described with respect to the Cardinal
12b-1 Plan as well as distribution services.
5
<PAGE> 17
Like the Cardinal 12b-1 Plan, the FSF 12b-1 Plan is a compensation type
plan as opposed to a reimbursement type plan. For the fiscal year ended July 31,
1997, FSF did not pay any fees to BISYS pursuant to the FSF 12b-1 Plan in
connection with the sale of the Investment A Shares of any of the Fountain
Square Funds. Beginning on or about July 13, 1998, each of the Fountain Square
Funds, except Fountain Square Tax Exempt Money Market Fund, expects to pay to
BISYS 0.25% of the average daily net asset value of its Investment A Shares.
Fountain Square Tax Exempt Money Market Fund only expects to pay 0.07% of the
average daily net asset value of its Investment A Shares.
See "Fountain Square Funds Information" in the FSF Prospectuses
accompanying this Combined Proxy/Prospectus, which are incorporated herein by
reference, for additional information on FSF's service providers.
COMPARATIVE FEE TABLES
COMPARATIVE FEE TABLES - NON-MONEY MARKET FUNDS. Set forth in the
tables below is (i) information regarding the fees and expenses paid by The
Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal Balanced Fund and
Cardinal Government Obligations Fund and of each corresponding Fountain Square
Fund which are expected to be incurred during the current fiscal year ending
July 31, 1998 and (ii) pro forma information for each combined Fund assuming the
Reorganization had taken place on September 30, 1997.
INFORMATION RELATING TO THE EXCHANGE OF
INVESTOR SHARES OF THE CARDINAL NON-MONEY MARKET FUNDS
FOR INVESTMENT A SHARES OF THE CORRESPONDING FOUNTAIN SQUARE FUNDS
COMPARATIVE FEE TABLES FOR EACH NON-MONEY MARKET FUND
<TABLE>
<CAPTION>
FOUNTAIN PRO FORMA
CARDINAL SQUARE COMBINED
FUNDS FUNDS FUNDS
INVESTOR INVESTMENT A INVESTMENT A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases................ 4.50% 4.50% 4.50%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price)......... None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable).............................. None None None
Redemption Fee (as a percentage of amount
redeemed, if applicable).............................. None None None
Exchange Fee........................................... None None None
</TABLE>
6
<PAGE> 18
<TABLE>
<CAPTION>
FOUNTAIN
THE CARDINAL SQUARE PRO FORMA
FUND CARDINAL FUND COMBINED FUND
INVESTOR INVESTMENT A INVESTMENT A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.60% 0.60% 0.60%
12b-1 Fees............................................. 0.25% 0.25% 0.25%
Other Expenses (after fee waivers)(1).................. 0.21% 0.19% 0.19%
----- ----- -----
Total Operating Expenses (after fee waivers)(2)...... 1.06% 1.04% 1.04%
===== ===== =====
</TABLE>
(1) Other expenses for the Fountain Square Cardinal Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.29%.
(2) Total Investment A Shares Operating Expenses for the Fountain Square
Cardinal Fund and Pro Forma Combined Fund would be 1.14%, absent the
voluntary waiver of a portion of the administration fee. All expenses
for the Fountain Square Cardinal Fund are based on estimates for such
Fund.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Cardinal Fund - Investor Shares.......................... $55 $77 $101 $169
=== === ==== ====
Fountain Square Cardinal Fund - Investment A Shares.......... $55 $77 $100 $166
=== === ==== ====
Pro Forma Combined Fund - Investment A Shares................ $55 $77 $100 $166
=== === ==== ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
AGGRESSIVE SQUARE PRO FORMA
GROWTH FUND MID CAP FUND COMBINED FUND
INVESTOR INVESTMENT A INVESTMENT A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.75% 0.80% 0.80%
12b-1 Fees............................................. 0.25% 0.25% 0.25%
Other Expenses (after fee waivers)(3).................. 0.86% 0.20% 0.20%
----- ----- -----
Total Operating Expenses (after fee waivers)(4)...... 1.86% 1.25% 1.25%
===== ===== =====
</TABLE>
(3) Other expenses for the Fountain Square Mid Cap Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.27%.
7
<PAGE> 19
(4) Total Investment A Shares Operating Expenses for the Fountain Square
Mid Cap Fund and Pro Forma Combined Fund would be 1.32%, absent the
voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Aggressive Growth Fund - Investor Shares............ $63 $101 $141 $253
=== ==== ==== ====
Fountain Square Mid Cap Fund - Investment A Shares........... $57 $83 $111 $189
=== === ==== ====
Pro Forma Combined Fund - Investment A Shares................ $57 $83 $111 $189
=== === ==== ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
FOUNTAIN
CARDINAL SQUARE PRO FORMA
BALANCED FUND BALANCED FUND COMBINED FUND
INVESTOR INVESTMENT A INVESTMENT A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.75% 0.80% 0.80%
12b-1 Fees............................................. 0.25% 0.25% 0.25%
Other Expenses (after fee waivers)(5).................. 0.44% 0.20% 0.20%
----- ----- -----
Total Operating Expenses (after fee waivers)(6)...... 1.44% 1.25% 1.25%
===== ===== =====
</TABLE>
(5) Other expenses for the Fountain Square Balanced Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.29%.
(6) Total Investment A Shares Operating Expenses for the Fountain Square
Balanced Fund and Pro Forma Combined Fund would be 1.34%, absent the
voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Balanced Fund - Investor Shares.......................... $59 $89 $120 $210
=== === ==== ====
Fountain Square Balanced Fund - Investment A Shares............... $57 $83 $111 $189
=== === ==== ====
Pro Forma Combined Fund - Investment A Shares..................... $57 $83 $111 $189
=== === ==== ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
8
<PAGE> 20
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE
OBLIGATIONS BOND FUND PRO FORMA
FUND FOR INCOME COMBINED FUND
INVESTOR INVESTMENT A INVESTMENT A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees....................................... 0.50% 0.55% 0.55%
12b-1 Fees............................................ 0.25% 0.25% 0.25%
Other Expenses (after fee waivers)(7)................. 0.26% 0.21% 0.21%
----- ----- -----
Total Operating Expenses (after fee waivers)(8)..... 1.01% 1.01% 1.01%
===== ===== =====
</TABLE>
(7) Other expenses for Investment A Shares of the Fountain Square Bond Fund
For Income and Pro Forma Combined Fund have been reduced to reflect the
anticipated voluntary waiver of a portion of the administration fee. In
the absence of such waiver, other expenses would be 0.27%.
(8) Total Investment A Shares Operating Expenses for the Fountain Square
Bond Fund For Income and Pro Forma Combined Fund would be 1.07%, absent
the voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Government Obligations Fund - Investor Shares $55 $76 $98 $163
=== === === ====
Fountain Square Bond Fund For Income Fund -
Investment A Shares.............................................. $55 $76 $98 $163
=== === === ====
Pro Forma Combined Fund - Investment A Shares.................... $55 $76 $98 $163
=== === === ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
9
<PAGE> 21
INFORMATION RELATING TO THE EXCHANGE OF
INSTITUTIONAL SHARES OF THE CARDINAL NON-MONEY MARKET FUNDS
FOR INSTITUTIONAL SHARES OF THE CORRESPONDING FOUNTAIN SQUARE FUNDS
COMPARATIVE FEE TABLES FOR EACH NON-MONEY MARKET FUND
<TABLE>
<CAPTION>
FOUNTAIN PRO FORMA
CARDINAL SQUARE COMBINED
FUNDS FUNDS FUNDS
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases................... None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price)............ None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable)................................. None None None
Redemption Fee (as a percentage of amount
redeemed, if applicable)................................. None None None
Exchange Fee.............................................. None None None
</TABLE>
<TABLE>
<CAPTION>
FOUNTAIN
THE CARDINAL SQUARE PRO FORMA
FUND CARDINAL FUND COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.60% 0.60% 0.60%
Administrative Service Fees............................ 0.15% 0.00% 0.00%
Other Expenses (after fee waivers)(1).................. 0.25% 0.19% 0.19%
----- ----- -----
Total Operating Expenses (after fee waivers)(2)...... 1.00% 0.79% 0.79%
===== ===== =====
</TABLE>
(1) Other expenses for the Fountain Square Cardinal Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.29%. All expenses for the Fountain
Square Cardinal Fund are based on estimates for such Fund for its
current fiscal year.
(2) Total Institutional Shares Operating Expenses for the Fountain Square
Cardinal Fund and Pro Forma Combined Fund would be 0.89%, absent the
voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
10
<PAGE> 22
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Cardinal Fund - Institutional Shares..................... $10 $32 $55 $122
=== === === ====
Fountain Square Cardinal Fund - Institutional Shares......... $ 8 $25 $44 $ 98
=== === === ====
Pro Forma Combined Fund - Institutional Shares............... $ 8 $25 $44 $ 98
=== === === ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
AGGRESSIVE SQUARE PRO FORMA
GROWTH FUND MID CAP FUND COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.75% 0.80% 0.80%
Administrative Service Fees............................ 0.15% 0.00% 0.00%
Other Expenses (after fee waivers)(3).................. 1.21% 0.20% 0.20%
----- ----- -----
Total Operating Expenses (after fee waivers)(4)...... 2.11% 1.00% 1.00%
===== ===== =====
</TABLE>
(3) Other expenses for the Fountain Square Mid Cap Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.27%.
(4) Total Institutional Shares Operating Expenses for the Fountain Square
Mid Cap Fund and Pro Forma Combined Fund would be 1.07%, absent the
voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Aggressive Growth Fund - Institutional Shares....... $21 $66 $113 $244
=== === ==== ====
Fountain Square Mid Cap Fund - Institutional Shares.......... $10 $32 $ 55 $122
=== === ==== ====
Pro Forma Combined Fund - Institutional Shares............... $10 $32 $ 55 $122
=== === ==== ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
11
<PAGE> 23
<TABLE>
<CAPTION>
FOUNTAIN
CARDINAL SQUARE PRO FORMA
BALANCED FUND BALANCED FUND COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.75% 0.80% 0.80%
Administrative Service Fees............................ 0.15% 0.00% 0.00%
Other Expenses (after fee waivers)(5).................. 0.61% 0.20% 0.20%
----- ----- -----
Total Operating Expenses (after fee waivers)(6)...... 1.51% 1.00% 1.00%
===== ===== =====
</TABLE>
(5) Other expenses for the Fountain Square Balanced Fund and Pro Forma
Combined Fund have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. In the absence of such
waiver, other expenses would be 0.29%.
(6) Total Institutional Shares Operating Expenses for the Fountain Square
Balanced Fund and Pro Forma Combined Fund would be 1.09%, absent the
voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Balanced Fund - Institutional Shares................ $15 $48 $82 $180
=== === === ====
Fountain Square Balanced Fund - Institutional Shares......... $10 $32 $55 $122
=== === === ====
Pro Forma Combined Fund - Institutional Shares............... $10 $32 $55 $122
=== === === ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE
OBLIGATIONS BOND FUND PRO FORMA
FUND FOR INCOME COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.50% 0.55% 0.55%
Administrative Service Fees............................ 0.15% 0.00% 0.00%
Other Expenses (after fee waivers)(7).................. 0.28% 0.21% 0.21%
----- ----- -----
Total Operating Expenses (after fee waivers)(8)...... 0.93% 0.76% 0.76%
===== ===== =====
</TABLE>
(7) Other expenses for the Fountain Square Bond Fund For Income and Pro
Forma Combined Fund have been reduced to reflect the anticipated
voluntary waiver of a portion of the administration fee. In the absence
of such waiver, other expenses would be 0.27%.
(8) Total Institutional Shares Operating Expenses for the Fountain Square
Bond Fund For Income and Pro Forma Combined Fund would be 0.82%, absent
the voluntary waiver of a portion of the administration fee.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Cardinal Government Obligations Fund -
Institutional Shares........................... $9 $30 $51 $114
Fountain Square Bond Fund For Income -
Institutional Shares........................... $8 $24 $42 $ 94
Pro Forma Combined Fund - Institutional Shares... $8 $24 $42 $ 94
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
12
<PAGE> 24
COMPARATIVE FEE TABLES - MONEY MARKET FUNDS (RETAIL INVESTORS). (1) Set
forth in the tables below is (i) information regarding the fees and expenses
paid by certain investors holding shares of Cardinal Government Securities Money
Market Fund and Cardinal Tax Exempt Money Market Fund who are not eligible to
purchase Institutional Shares of Fountain Square Funds and therefore will
receive Investment A Shares of the corresponding Fountain Square Fund as part of
the Reorganization as of September 30, 1997, and of each corresponding Fountain
Square Fund which are expected to be incurred during the current fiscal year
ending July 31, 1998 and (ii) pro forma information for each combined Fund
assuming the Reorganization had taken place on September 30, 1997.
INFORMATION RELATING TO THE EXCHANGE OF
SHARES OF THE CARDINAL MONEY MARKET FUNDS
FOR INVESTMENT A SHARES OF THE CORRESPONDING FOUNTAIN SQUARE FUNDS
COMPARATIVE FEE TABLES FOR EACH MONEY MARKET FUND
<TABLE>
<CAPTION>
FOUNTAIN PRO FORMA
CARDINAL SQUARE COMBINED
FUNDS FUNDS FUNDS
RETAIL INVESTMENT A INVESTMENT A
INVESTORS(1) SHARES SHARES
------------ ------ ------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases................ None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price)......... None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable).............................. None None None
Redemption Fee (as a percentage of amount
redeemed, if applicable).............................. None None None
Exchange Fee........................................... None None None
</TABLE>
(1) The term "retail investors" of any of the Cardinal Money Market Funds is
used to refer to all investors who are ineligible to purchase Institutional
Shares of the Fountain Square Funds. Persons who are eligible to purchase
Institutional Shares are clients of Fifth Third Bank who make purchases through
the Fifth Third Trust Department, certain qualified employee benefit plans, and
broker-dealers, investment advisors, financial planners and other financial
institutions who place trades for their own accounts or the accounts of their
clients for a management, consulting or other fee.
13
<PAGE> 25
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE
SECURITIES GOVERNMENT
MONEY CASH RESERVES PRO FORMA
MARKET FUND FUND COMBINED FUND
RETAIL INVESTMENT A INVESTMENT A
INVESTORS SHARES SHARES
--------- ------ ------
<C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.50% 0.40% 0.40%
12b-1 Fees............................................. None 0.25% 0.25%
Other Expenses......................................... 0.38% 0.23% 0.23%
----- ----- -----
Total Operating Expenses............................. 0.88% 0.88% 0.88%
===== ===== =====
</TABLE>
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Government Securities Money Market Fund -
Retail Investors............................................. $9 $28 $49 $108
== === === ====
Fountain Square Government Cash Reserves Fund -
Investment A Shares.......................................... $9 $28 $49 $108
== === === ====
Pro Forma Combined Fund - Investment A Shares................ $9 $28 $49 $108
== === === ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
FOUNTAIN
CARDINAL SQUARE
TAX EXEMPT TAX EXEMPT
MONEY MONEY PRO FORMA
MARKET FUND MARKET FUND COMBINED FUND
RETAIL INVESTMENT A INVESTMENT A
INVESTORS SHARES SHARES
--------- ------ ------
<C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waivers)(2)..................... 0.50% 0.40% 0.40%
12b-1 Fees (after waivers)(3).......................... None 0.07% 0.07%
Other Expenses......................................... 0.30% 0.33% 0.33%
----- ----- -----
Total Operating Expenses (after fee waivers)(4)...... 0.80% 0.80% 0.80%
===== ===== =====
</TABLE>
(2) Management fees for the Fountain Square Tax Exempt Money Market Fund
and Pro Forma Combined Fund have been reduced to reflect the
anticipated voluntary waiver of a portion of the advisory fee. The
maximum management fee for the Fountain Square Tax Exempt Money Market
Fund is 0.50%. Subject to the terms of the Reorganization Agreement,
the advisor may terminate this voluntary waiver at any time.
(3) Rule 12b-1 fees for Investment A Shares of the Fountain Square Tax
Exempt Money Market Fund and Pro Forma Combined Fund have been reduced
to reflect the anticipated voluntary waiver of a portion of such fees.
Investment A Shares can pay up to 0.25% as Rule 12b-1 fees to the
distributor.
14
<PAGE> 26
(4) Total Investment A Shares Operating Expenses for the Fountain Square
Tax Exempt Money Market Fund and Pro Forma Combined Fund would be
1.08%, absent the voluntary waivers of a portion of the advisory fee
and Rule 12b-1 fees. All expenses for Fountain Square Tax Exempt Money
Market Fund are based on estimates for such Fund for its current fiscal
year.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Tax Exempt Money Market Fund - Retail
Investors.................................................... $8 $26 $44 $99
== === === ===
Fountain Square Tax Exempt Money Market Fund -
Investment A Shares.......................................... $8 $26 $44 $99
== === === ===
Pro Forma Combined Fund - Investment A Shares................ $8 $26 $44 $99
== === === ===
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
COMPARATIVE FEE TABLES - MONEY MARKET FUNDS (INSTITUTIONAL
INVESTORS)(1). Set forth in the tables below is (i) information regarding the
fees and expenses paid by certain investors holding shares of Cardinal
Government Securities Money Market Fund and Cardinal Tax Exempt Money Market
Fund who are eligible to purchase Institutional Shares of Fountain Square Funds
as of September 30, 1997, and of each corresponding Fountain Square Fund which
are expected to be incurred during the current fiscal year ending July 31,
1998, and (ii) pro forma information for each combined Fund assuming the
Reorganization had taken place on September 30, 1997.
INFORMATION RELATING TO THE EXCHANGE OF
SHARES OF THE CARDINAL MONEY MARKET FUNDS
FOR INSTITUTIONAL SHARES OF THE CORRESPONDING FOUNTAIN SQUARE FUNDS
COMPARATIVE FEE TABLES FOR EACH MONEY MARKET FUND
<TABLE>
<CAPTION>
FOUNTAIN PRO FORMA
CARDINAL SQUARE COMBINED
FUNDS FUNDS FUNDS
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INVESTORS(1) SHARES SHARES
------------ ------ ------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases................ None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price)......... None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable).............................. None None None
Redemption Fee (as a percentage of amount
redeemed, if applicable).............................. None None None
Exchange Fee........................................... None None None
</TABLE>
15
<PAGE> 27
(1) The term "institutional investors" is used to refer to all clients of
Fifth Third Bank who make purchases through the Fifth Third Trust Department,
certain qualified employee benefit plans, and broker-dealers, investment
advisors, financial planners and other financial institutions who place
trades for their own accounts or the accounts of their clients for a
management, consulting or other fee.
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE
SECURITIES GOVERNMENT
MONEY CASH RESERVES PRO FORMA
MARKET FUND FUND COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INVESTORS SHARES SHARES
--------- ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................................ 0.50% 0.40% 0.40%
Other Expenses......................................... 0.38% 0.23% 0.23%
----- ----- -----
Total Operating Expenses............................. 0.88% 0.63% 0.63%
===== ===== =====
</TABLE>
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, and (2) redemption at the end of the following
periods:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Government Securities Money Market Fund -
Institutional Investors...................................... $9 $28 $49 $108
== === === ====
Fountain Square Government Cash Reserves Fund -
Institutional Shares......................................... $6 $20 $35 $ 79
== === === ====
Pro Forma Combined Fund - Institutional Shares............... $6 $20 $35 $ 79
== === === ====
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
TAX EXEMPT SQUARE
MONEY TAX EXEMPT PRO FORMA
MARKET FUND FUND COMBINED FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INVESTORS SHARES SHARES
--------- ------ ------
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waivers)(2)..................... 0.50% 0.40% 0.40%
Other Expenses......................................... 0.30% 0.33% 0.33%
----- ----- -----
Total Operating Expenses (after fee waivers)(3)...... 0.80% 0.73% 0.73%
===== ===== =====
</TABLE>
(2) Management fees for the Fountain Square Tax Exempt Money Market Fund
and Pro Forma Combined Fund have been reduced to reflect the
anticipated voluntary waiver of a portion of the advisory fee. The
maximum management fee for the Fountain Square Tax Exempt Money Market
Fund is 0.50%. Subject to the terms of the Reorganization Agreement,
the advisor may terminate this voluntary waiver at any time.
16
<PAGE> 28
(3) Total Institutional Shares Operating Expenses for the Fountain Square
Tax Exempt Money Market Fund and Pro Forma Combined Fund would be
0.83%, absent the voluntary waivers of a portion of the advisory fee.
All expenses for Fountain Square Tax Exempt Money Market Fund are based
on estimates for the Fund for its current fiscal year.
EXAMPLE: An investor would pay the following expense on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end of the following
periods, and (3) payment of the maximum sales charge:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Cardinal Tax Exempt Money Market Fund -
Institutional Investors...................................... $8 $26 $44 $99
== === === ===
Fountain Square Tax Exempt Money Market Fund -
Institutional Shares......................................... $7 $23 $41 $91
== === === ===
Pro Forma Combined Fund - Institutional Shares............... $7 $23 $41 $91
== === === ===
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
EXPENSE RATIOS - CARDINAL FUNDS. The following table sets forth the
ratios of operating expenses to average net assets of the Cardinal Funds for
the fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1997
--------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
THE CARDINAL GROUP NET ASSETS AFTER FEE NET ASSETS ABSENT FEE
WAIVERS AND EXPENSE WAIVERS AND EXPENSE
REIMBURSEMENTS REIMBURSEMENTS
-------------- --------------
INVESTOR INSTITUTIONAL INVESTOR INSTITUTIONAL
SHARES SHARES SHARES SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
The Cardinal Fund....................................... 1.06% 1.00% 1.12% 1.00%
Cardinal Aggressive Growth Fund......................... 1.86% 2.11% 1.93% 2.11%
Cardinal Balanced Fund.................................. 1.44% 1.51% 1.50% 1.51%
Cardinal Government Obligations......................... 1.01% 0.93% 1.08% 0.93%
Cardinal Government Securities Money Market
Fund(1)................................................. 0.88% 0.88% 0.88% 0.88%
Cardinal Tax Exempt Money Market Fund(1)................ 0.80% 0.80% 0.80% 0.80%
</TABLE>
(1) Cardinal Government Securities Money Market Fund and Cardinal Tax
Exempt Money Market Fund only issue one class of shares which is
without any class designation.
EXPENSE RATIOS - FOUNTAIN SQUARE FUNDS. The following tables set forth
(i) the ratios of operating expenses to average net assets of Investment A
Shares of Fountain Square Funds for the fiscal year ended July 31,
17
<PAGE> 29
1997 (a) after fee waivers and expense reimbursements, and (b) absent fee
waivers and expense reimbursements (ii) the annualized ratios of operating
expenses to average net assets of Investment A Shares of the Fountain Square
Funds for the six- month period ended January 31, 1998 (a) after fee waivers and
expense reimbursements, and (b) absent fee waivers and expense reimbursements
and (iii) the estimated annualized ratios of operating expenses to average net
assets of Institutional Shares of the Fountain Square Funds for the current
fiscal year (a) after fee waivers and expense reimbursements, and (b) absent fee
waivers and reimbursements.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1997
-----------------------------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
NET ASSETS AFTER NET ASSETS ABSENT
FEE WAIVERS AND FEE WAIVERS AND
EXPENSE EXPENSE
REIMBURSEMENTS REIMBURSEMENTS
-------------- --------------
FOUNTAIN SQUARE FUNDS INVESTMENT A INVESTMENT A
SHARES SHARES
------ ------
<S> <C> <C>
Fountain Square Cardinal Fund (1)............................. 1.04% 1.14%
==== ====
Fountain Square Mid Cap Fund.................................. 1.00% 1.37%
==== ====
Fountain Square Balanced Fund................................. 1.00% 1.40%
==== ====
Fountain Square Bond Fund For Income.......................... 0.79% 1.21%
==== ====
Fountain Square Government Cash Reserves Fund................. 0.51% 0.95%
==== ====
Fountain Square Tax Exempt Money Market Fund (1).............. 0.80% 1.08%
==== ====
</TABLE>
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED JANUARY 31, 1998
-----------------------------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
NET ASSETS AFTER NET ASSETS ABSENT
FEE WAIVERS AND FEE WAIVERS AND
EXPENSE EXPENSE
REIMBURSEMENTS REIMBURSEMENTS
-------------- --------------
FOUNTAIN SQUARE FUNDS INVESTMENT A INVESTMENT A
SHARES SHARES
------ ------
<S> <C> <C>
Fountain Square Cardinal Fund (1)............................. 1.04% 1.14%
==== ====
Fountain Square Mid Cap Fund.................................. 1.00% 1.40%
==== ====
Fountain Square Balanced Fund................................. 1.00% 1.42%
==== ====
Fountain Square Bond Fund For Income.......................... 0.75% 1.17%
==== ====
Fountain Square Government Cash Reserves Fund................. 0.52% 1.00%
==== ====
Fountain Square Tax Exempt Money Market Fund (1).............. 0.80% 1.08%
==== ====
</TABLE>
18
<PAGE> 30
<TABLE>
<CAPTION>
ESTIMATED
----------------------------------------------------------
RATIO OF OPERATING RATIO OF OPERATING
EXPENSES TO AVERAGE EXPENSES TO AVERAGE
NET ASSETS AFTER NET ASSETS ABSENT
FEE WAIVERS AND FEE WAIVERS AND
EXPENSE EXPENSE
REIMBURSEMENTS REIMBURSEMENTS
-------------- --------------
INSTITUTIONAL INSTITUTIONAL
FOUNTAIN SQUARE FUNDS SHARES SHARES
------ ------
<S> <C> <C>
Fountain Square Cardinal Fund (1).............................. 0.79% 0.89%
==== ====
Fountain Square Mid Cap Fund................................... 1.00% 1.07%
==== ====
Fountain Square Balanced Fund.................................. 1.00% 1.09%
==== ====
Fountain Square Bond Fund For Income........................... 0.76% 0.82%
==== ====
Fountain Square Government Cash Reserves Fund.................. 0.63% 0.63%
==== ====
Fountain Square Tax Exempt Money Market Fund (1)............... 0.73% 0.83%
==== ====
</TABLE>
(1) The Fountain Square Cardinal Fund and the Fountain Square Tax Exempt
Money Market Fund had not commenced operations as of January 31, 1998.
Figures shown represent estimated expense ratios for those Funds.
19
<PAGE> 31
INFORMATION RELATING TO THE PROPOSED REORGANIZATION
Cardinal has entered into the Reorganization Agreement whereby its
investment portfolios are to be acquired by corresponding portfolios of FSF.
Significant provisions of this Reorganization Agreement are summarized below;
however, this summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Appendix A to this
Combined Proxy Statement/Prospectus.
DESCRIPTION OF THE REORGANIZATION AGREEMENT. There are six separate
Cardinal Funds. The assets of four of them, Cardinal Aggressive Growth Fund,
Cardinal Balanced Fund, Cardinal Government Obligations Fund and Cardinal
Government Securities Money Market Fund, are being acquired by similar
investment portfolios currently offered by FSF. Two of the Cardinal Funds, The
Cardinal Fund and Cardinal Tax Exempt Money Market Fund, will be acquired by two
new FSF portfolios which have been organized to continue the operations of these
Cardinal Funds.
The Reorganization Agreement provides that on the Closing Date of the
Reorganization all of the assets and stated liabilities of the Cardinal Funds
will be transferred to the Fountain Square Funds identified in the table below.
The holders of Investor Shares of The Cardinal Fund, Cardinal Aggressive Growth
Fund, Cardinal Balanced Fund and Cardinal Government Obligations Fund will
receive Investment A Shares of the corresponding Fountain Square Fund which will
issue Investment A Shares to such Cardinal Fund. The holders of Institutional
Shares of The Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal Balanced
Fund and Cardinal Government Obligations Fund will receive Institutional Shares
of the corresponding Fountain Square Fund which will issue Institutional Shares
to such Cardinal Fund. Holders of shares of Cardinal Government Securities Money
Market Fund and Cardinal Tax Exempt Money Market Fund will receive either
Investment A Shares or Institutional Shares, as applicable, of the corresponding
Fountain Square Fund which will issue the appropriate shares to such Cardinal
Funds. See "Information Relating to the Exchange of Shares of the Cardinal Money
Market Funds for Investment A Shares of the Corresponding Fountain Square Funds"
and "Information Relating to the Exchange of Shares of the Cardinal Money Market
Funds for Institutional Shares of the Corresponding Fountain Square Funds"
above. The series of shares to be issued by each Fountain Square Fund will have
an aggregate net asset value equal to the aggregate net asset value of the
corresponding shares of the particular Cardinal Fund as of the regular close of
the New York Stock Exchange, currently 4:00 p.m. New York time, on the last
business day preceding the Closing Date.
<TABLE>
<CAPTION>
Cardinal Funds Fountain Square Funds
-------------- ---------------------
<S> <C>
The Cardinal Fund....................................................... Fountain Square Cardinal Fund
Cardinal Aggressive Growth Fund......................................... Fountain Square Mid Cap Fund
Cardinal Balanced Fund.................................................. Fountain Square Balanced Fund
Cardinal Government Obligations Fund.................................... Fountain Square Bond Fund For Income
Cardinal Government Securities
Money Market Fund....................................................... Fountain Square Government Cash Reserves Fund
Cardinal Tax Exempt Money Market Fund................................... Fountain Square Tax Exempt Money Market Fund
</TABLE>
Cardinal expects to liquidate a limited number of holdings of Cardinal
Government Securities Money Market Fund in light of the investment policies of
Fountain Square Government Cash Reserves Fund and the strategies of its
investment advisor. Similarly, in the case of Cardinal Government Obligations
Fund, Cardinal expects to liquidate all of the illiquid securities issued by the
Government National Mortgage Association ("GNMA") and certain other securities
held by that Fund in light of the investment policies of Fountain Square
20
<PAGE> 32
Bond Fund For Income and the strategies of its investment advisor. The
transaction costs that will result from such sales are expected to be minimal.
As in the case of all sales, such Cardinal Funds may realize taxable gains or
losses.
The Reorganization Agreement provides that Cardinal will declare a
dividend or dividends prior to the Closing Date of the Reorganization which,
together with all previous dividends, will have the effect of distributing to
the shareholders of each of the Cardinal Funds all of the undistributed net
investment income earned and net capital gains realized up to the Closing
Date of the Reorganization.
Following the transfer of assets and liabilities from the Cardinal
Funds to the corresponding Fountain Square Funds, and the issuance of shares by
the Fountain Square Funds to the Cardinal Funds, each of the Cardinal Funds
will distribute the shares of the Fountain Square Funds so received pro rata to
the holders of the Cardinal Funds, as described above, in complete liquidation
of the Cardinal Funds. Each holder of shares of a Cardinal Fund on the Closing
Date of the Reorganization will receive an amount of the appropriate class of
shares of the corresponding Fountain Square Fund of equal value, plus the right
to receive any dividends or distributions which were declared before the
Closing Date of the Reorganization but which remained unpaid at that time.
Following the Reorganization, the registration of Cardinal as an investment
company under the 1940 Act will be terminated, and Cardinal will be terminated
under state law. The stock transfer books of Cardinal will be permanently
closed on the Closing Date of the Reorganization.
The Reorganization is subject to a number of conditions, including
approval of the Reorganization Agreement and the transactions contemplated
thereby described in this Combined Proxy Statement/Prospectus by the
shareholders of Cardinal; the receipt of an order of exemption by the SEC; the
receipt of certain legal opinions described in the Reorganization Agreement; the
receipt of certain certificates from the parties concerning the continuing
accuracy of the representations and warranties in the Reorganization Agreement
and other matters; and the parties' performance in all material respects of
their agreements and undertakings in the Reorganization Agreement. Assuming
satisfaction of the conditions in the Reorganization Agreement, the Closing Date
of the Reorganization is expected to occur on July 13, 1998, or such other date
as is agreed to by the parties.
The expenses of FSF and Cardinal incurred in connection with the
Reorganization will be borne by Fifth Third.
The Reorganization may be abandoned at any time prior to the Closing
Date of the Reorganization by mutual written consent of Cardinal and FSF or by
written notice of Cardinal or FSF if in the opinion of the Board of Trustees of
either Cardinal or FSF, proceeding with the Reorganization is not in the best
interests of that party's shareholders. The Reorganization Agreement provides
further that at any time (a) either Cardinal or FSF may, by written agreement
approved by their respective Boards of Trustees with or without the approval of
their shareholders, amend any of the provisions of the Reorganization Agreement,
provided, however, that any amendment occurring after shareholder approval shall
not substantially alter the terms of the Reorganization Agreement; and (b) the
Board of Trustees of Cardinal or FSF may waive any breach by the other party or
the failure to satisfy any of the conditions to its obligations with or without
the approval of such party's shareholders.
The Reorganization Agreement also provides that the Reorganization will
be contingent upon the consummation of the acquisition of The Ohio Company by
Fifth Third Bancorp's subsidiary.
In its consideration and approval of the Reorganization at a meeting on
March 12, 1998, the Board of Trustees of Cardinal considered the pending
acquisition of The Ohio Company by a subsidiary of Fifth Third Bancorp. In light
of the acquisition, The Ohio Company and Fifth Third recommended that each of
the Cardinal Funds be reorganized as described in this Combined Proxy
Statement/Prospectus shortly after the proposed acquisition transaction. The
Board of Trustees also considered the effect of the proposed acquisition
transaction; the recommendation of The Ohio Company and Fifth Third with respect
to the proposed consolidation of Cardinal and FSF; the portfolio managers and
performance
21
<PAGE> 33
records of the Fountain Square Funds the investment objectives, policies and
restrictions of the Fountain Square Funds compared to those of the
corresponding Cardinal Funds; the different service providers; the expense
ratios of the Fountain Square Funds following the Reorganization; the expansion
of investment alternatives and other benefits of being part of FSF; the fact
that the reorganization would constitute a tax-free reorganization that the
Cardinal Funds' expenses incurred in connection with the Reorganization would
be borne by Fifth Third; and that the interests of shareholders would not be
diluted as a result of the reorganization.
Section 15(f) of the 1940 Act provides that when a change in the
control of an investment advisor occurs, the investment advisor or any of its
affiliated persons may receive any amount or benefit in connection therewith as
long as, among other things, no "unfair burden" is imposed on the investment
company as a result of the transaction relating to the change of control, or any
express or implied terms, conditions or understandings applicable thereto. The
term "unfair burden" as defined in the 1940 Act includes any arrangement during
the two-year period after the transaction whereby the investment advisor (or
predecessor or successor advisor), or any "interested person" of any such
advisor, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its security holders (other than fees
for bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from or
on behalf of the investment company (other than fees for bona fide principal
underwriting services.)
Each of Fifth Third and FSF has agreed that for a period of two years
after the Closing Date, FSF will not enter into, participate in, or pay
compensation in connection with any arrangement that facilitates or is intended
to facilitate the direct or indirect payment of compensation to Fifth Third, CMC
or any interested person of either of them proscribed by the Reorganization
Agreement, or increase compensation payable to Fifth Third, CMC or any
interested person of either of them which results in an increase in the expense
ratios of any Fountain Square Funds, as presented in the pro forma combined fee
tables (net of waivers) in this Combined Proxy Statement/Prospectus. In
addition, FSF and Fifth Third have represented to Cardinal's Board of Trustees
that the expense ratios for the Fountain Square Funds will not exceed those set
forth in such pro forma combined fee tables for a period of two years after the
Closing Date.
After consideration of all of the foregoing factors, together with
certain other factors and information considered to be relevant, Cardinal's
Board of Trustees determined that the Reorganization was in the best interests
of the shareholders and that the interests of the shareholders would not be
diluted as a result thereof, unanimously approved the Reorganization Agreement
and directed that it be submitted to shareholders of each Cardinal Fund for
approval. Cardinal's Board of Trustees unanimously recommends that shareholders
vote "FOR" approval of the Reorganization Agreement.
The Board of Trustees of Cardinal has not determined what action it
will take in the event the shareholders of any Cardinal Fund fail to approve the
Reorganization Agreement or for any reason the Reorganization is not
consummated. If the Reorganization is not consummated for any reason, the
Trustees may choose to consider approval of a new investment advisory agreement
with another investment advisor, including Fifth Third, alternative disposition
of Cardinal's assets, including the sale of assets to, or merger with, another
investment company, or the possible liquidation of any of the Cardinal Funds.
At a meeting held on March 23, 1998, the FSF Board of Trustees
considered the proposed Reorganization with respect to FSF. Based upon their
evaluation of the relevant information provided to them, and in light of their
fiduciary duties under federal and state law, the Board of Trustees unanimously
determined that the proposed Reorganization was in the best interests of the
Fountain Square Funds and their respective shareholders and that the interests
of existing shareholders of FSF would not be diluted as a result of effecting
the transaction.
CAPITALIZATION. As indicated in the tables below, the capitalization of
each of the Pro Forma Combined Funds is expected to be greater than the current
capitalizations of each of the Cardinal Funds, except with respect to The
Cardinal Fund and Cardinal Tax Exempt Money Market Fund, whose Pro Forma
Combined Fund capitalizations are expected to be identical to the
capitalizations of their corresponding Fountain Square Fund as of the Closing
Date. The following tables set forth as of January 31, 1998, (i) the unaudited
capitalizations of each of the Cardinal Funds, (ii) the unaudited
capitalizations of each of the corresponding Fountain Square Funds, and (iii)
the unaudited pro forma capitalizations of each
22
<PAGE> 34
of the Fountain Square Funds as adjusted to give the effect to the
Reorganization. If consummated, the capitalizations are likely to be different
on the Closing Date of the Reorganization as a result of daily share purchase
and redemption activity in the Funds.
<TABLE>
<CAPTION>
As of January 31, 1998
(unaudited)
----------------------
FOUNTAIN PRO FORMA
THE CARDINAL SQUARE COMBINED
FUND CARDINAL FUND FUND
<S> <C> <C> <C>
Total Net Assets......................................... $297,788,000 $0 $297,788,000
Investor Shares/Investment A Shares............. $268,131,000 $0 $268,131,000
Investment C Shares............................. N/A $0 $0
Institutional Shares............................ $29,657,000 $0 $29,657,000
Shares Outstanding....................................... 18,853,684 0 18,853,684
Investor Shares/Investment A Shares............. 19,976,503 0 19,976,503
Investment C Shares............................. N/A 0 0
Institutional Shares............................ 1,877,181 0 1,877,181
Net Asset Value Per Share
Investor Shares/Investment A Shares............. $15.79 $0.00 $15.79
Investment C Shares............................. N/A $0.00 $0.00
Institutional Shares $15.80 $0.00 $15.80
</TABLE>
<TABLE>
<CAPTION>
FOUNTAIN
CARDINAL SQUARE PRO FORMA
AGGRESSIVE MID CAP COMBINED
GROWTH FUND FUND FUND
<S> <C> <C> <C>
Total Net Assets......................................... $12,556,000 $212,635,000 $225,191,000
Investor Shares/Investment A Shares............. $8,751,000 $211,768,000 $220,519,000
Investment C Shares............................. N/A $867,000 $867,000
Institutional Shares............................ $3,805,000 $0 $3,805,000
Shares Outstanding....................................... 971,414 12,942,426 13,706,638
Investor Shares/Investment A Shares............. 677,132 12,889,105 13,421,729
Investment C Shares............................. N/A 53,321 53,321
Institutional Shares............................ 294,282 0 231,589
Net Asset Value Per Share
Investor Shares/Investment A Shares............. $12.92 $16.43 $16.43
Investment C Shares............................. N/A $16.26 $16.26
Institutional Shares $12.93 N/A $16.43
</TABLE>
23
<PAGE> 35
<TABLE>
<CAPTION>
FOUNTAIN
SQUARE PRO FORMA
CARDINAL BALANCED COMBINED
BALANCED FUND FUND FUND
<S> <C> <C> <C>
Total Net Assets......................................... $17,948,949 $151,906,157 $169,849,648
Investor Shares/Investment A Shares............. $15,982,908 $149,223,068 $165,200,518
Investment C Shares............................. N/A $2,683,089 $2,683,089
Institutional Shares............................ $1,966,041 $0 $1,966,041
Shares Outstanding....................................... 1,417,953 10,527,346 11,770,831
Investor Shares/Investment A Shares............. 1,262,751 10,341,510 11,448,748
Investment C Shares............................. N/A 185,836 185,836
Institutional Shares............................ 155,202 0 136,247
Net Asset Value Per Share
Investor Shares/Investment A Shares............. $12.66 $14.43 $14.43
Investment C Shares............................. N/A $14.44 $14.44
Institutional Shares $12.67 N/A $14.43
</TABLE>
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE PRO FORMA
OBLIGATIONS BOND FUND COMBINED
FUND FOR INCOME FUND
<S> <C> <C> <C>
Total Net Assets......................................... $124,648,018 $170,784,330 $295,404,355
Investor Shares/Investment A Shares............. $118,733,858 $170,670,669 $289,366,534
Investment C Shares............................. N/A $113,661 $113,661
Institutional Shares............................ $5,924,160 $0 $5,924,160
Shares Outstanding....................................... 15,079,957 13,938,047 24,117,546
Investor Shares/Investment A Shares............. 14,363,251 13,928,763 23,620,518
Investment C Shares............................. N/A 9,284 9,284
Institutional Shares............................ 716,706 0 483,592
Net Asset Value Per Share
Investor Shares/Investment A Shares............. $8.27 $12.25 $12.25
Investment C Shares............................. N/A $12.24 $12.24
Institutional Shares ........................... $8.27 N/A $12.25
</TABLE>
24
<PAGE> 36
<TABLE>
<CAPTION>
CARDINAL FOUNTAIN
GOVERNMENT SQUARE
SECURITIES GOVERNMENT PRO FORMA
MONEY MARKET CASH RESERVES COMBINED
FUND FUND FUND
<S> <C> <C> <C>
Total Net Assets.................................. $520,809,000 $325,208,000 $846,017,000
Shares (Retail Investors)/Investment
A Shares................................. $432,292,942 $135,014,000 $567,306,942
Shares (Institutional
Investors)/Institutional Shares (1)...... $ 88,516,058 $190,194,000 $278,710,058
Shares Outstanding................................ 520,809,000 325,208,000 846,017,000
Shares (Retail Investors)/Investment
A Shares................................. 432,292,942 135,014,000 567,306,942
Shares (Institutional
Investors)/Institutional Shares (1)...... 88,516,058 190,194,000 278,710,058
Net Asset Value Per Share
Shares (Retail Investors)/
Investment A Shares...................... $1.00 $1.00 $1.00
Shares (Institutional Investors)/
Institutional Shares (1)................. $1.00 $1.00 $1.00
</TABLE>
(1) Effective May 22, 1998, Trust Shares offered by Fountain Square Government
Cash Reserves Fund have been renamed Institutional Shares.
<TABLE>
<CAPTION>
FOUNTAIN
SQUARE TAX
CARDINAL TAX EXEMPT PRO FORMA
EXEMPT MONEY MONEY COMBINED
MARKET FUND MARKET FUND FUND
<S> <C> <C> <C>
Total Net Assets......................................... $61,524,000 $0 $61,524,000
Shares (Retail Investors)/Investment A
Shares.......................................... $55,393,248 $0 $55,393,248
Shares (Institutional Investors)/
Institutional Shares............................ $ 6,130,752 $0 $ 6,130,752
Shares Outstanding....................................... 61,524,000 0 61,524,000
Shares (Retail Investors)/Investment A
Shares.......................................... 55,393,248 0 55,393,248
Shares (Institutional Investors)/
Institutional Shares............................ 6,130,752 0 6,130,752
Net Asset Value Per Share
Shares (Retail Investors)/Investment A
Shares.......................................... $1.00 N/A $1.00
Shares (Institutional Investors)/
Institutional Shares............................ $1.00 N/A $1.00
</TABLE>
25
<PAGE> 37
FEDERAL INCOME TAX CONSEQUENCES. Consummation of the Reorganization is
subject to the condition that Cardinal and FSF receive an opinion from Howard &
Howard Attorneys, P.C. to the effect that for federal income tax purposes: (a)
the transfer of all or substantially all of each Cardinal Fund's assets in
exchange for corresponding Fountain Square Fund shares and the distribution of
such Fountain Square Fund shares to the shareholders of the Cardinal Funds in
liquidation of the Cardinal Fund will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code; (b) no gain or loss will be
recognized by a Fountain Square Fund upon the receipt of the assets of the
applicable Cardinal Fund solely in exchange for the Fountain Square Fund
Shares; (c) no gain or loss will be recognized by a Cardinal Fund upon the
transfer of the applicable Cardinal Fund assets to the Fountain Square Fund in
exchange for the Fountain Square Fund shares or upon the distribution (whether
actual or constructive) of the Fountain Square Fund shares to Cardinal Fund
shareholders in exchange for their shares of the Cardinal Fund; (d) no gain or
loss will be recognized by the Cardinal Fund shareholders upon the exchange for
their Cardinal Fund shares for the applicable Fountain Square Fund shares; (e)
the tax basis of each Cardinal Fund's assets acquired by the applicable
Fountain Square Fund will be the same as the tax basis of such assets to the
Cardinal Fund immediately prior to the Reorganization; (f) the tax basis of the
Fountain Square Fund shares received by each of the Cardinal Fund shareholders
pursuant to the Reorganization will be the same as the tax basis of the
Cardinal Fund shares held by such shareholder immediately prior to the
Reorganization; (g) the holding period of the assets of each Cardinal Fund in
the hands of the applicable Fountain Square Fund will include the period during
which those assets were held by the Cardinal Fund; and (h) the holding period
of the Fountain Square Fund shares to be received by each Cardinal Fund's
shareholders will include the period during which the Cardinal Fund shares
exchanged thereof were held by such shareholder (provided the Cardinal Fund
shares were held as capital assets on the date of the Reorganization).
FSF and Cardinal have not sought a tax ruling from the Internal Revenue
Service (the "IRS"), but are acting in reliance upon the opinion of counsel
discussed in the previous paragraph. That opinion is not binding on the IRS and
does not preclude the IRS from adopting a contrary position. Shareholders should
consult their own advisors concerning the potential tax consequences to them,
including state and local income taxes.
With respect to existing capital loss carry forwards of the Cardinal
Funds, such loss carry forwards will be available to the Fountain Square Funds
to offset capital gains recognized after the Reorganization, subject to
limitations imposed by the Code. These limitations provide generally that the
amount of loss carry forwards which may be used any year following the Closing
is an amount equal to the value of all of the outstanding shares of the
Cardinal Funds immediately prior to the Reorganization, multiplied by the
long-term tax-exempt bond rate determined monthly by the IRS.
COMPARISON OF INVESTMENT OBJECTIVES, INVESTMENT POLICIES AND RISK FACTORS
There are no material differences between the investment objectives and
policies of The Cardinal Fund and Cardinal Tax Exempt Money Market Fund and the
corresponding New Fountain Square Funds. The investment objectives and policies
of the remaining Cardinal Funds are generally similar to those of the Operating
Fountain Square Funds. Because of the similarities in the types of investments
in which the Cardinal Funds invest versus their corresponding Fountain Square
Funds, the risks associated with investment in such Funds are expected to be
substantially similar. With respect to each of the investment objectives,
investment policies and risk factors, however, there are some differences. The
following discussion summarizes some of the more significant similarities and
differences in the investment objectives, investment policies and risk factors
of the Cardinal Funds versus their corresponding Fountain Square Funds and is
qualified in its entirety by the discussion elsewhere herein, and in the
Prospectuses and Statements of Additional Information of the Cardinal Funds and
the Fountain Square Funds incorporated herein by reference.
Investment objectives, policies and limitations which are deemed
fundamental may not be changed without the vote of the holders of a majority of
the outstanding shares of the applicable Fund. Unless otherwise specified, all
investment objectives are fundamental and all policies and limitations are
non-fundamental and may be changed by the Board of Trustees without shareholder
approval.
THE CARDINAL FUND AND FOUNTAIN SQUARE CARDINAL FUND. The investment
objectives of both The Cardinal Fund and Fountain Square Cardinal Fund are to
achieve long-term growth of capital and income. Neither Fund may change its
investment objective without a vote of the holders of a majority of the
outstanding shares of the applicable Fund. The investment policies of the two
Funds, except as otherwise noted, may be changed by that Fund's Board of
Trustees without a vote of shareholders. Both Funds seek to achieve their
objectives by investing primarily in common stocks of companies having a market
capitalization of at least $10 million. Both Funds may also invest up to 25% of
their assets in American Depositary Receipts, invest in illiquid securities,
lend portfolio securities, enter into repurchase agreements or reverse
repurchase agreements, engage in options and futures transactions and, for
temporary defensive purposes, invest in cash and various money market
instruments, investment grade debt securities, U.S. government securities and
securities of other investment
26
<PAGE> 38
companies. The Cardinal Fund may invest in real estate investment trusts
("REITs"), although it does not currently do so, while Fountain Square Cardinal
Fund does not permit such investments. Fountain Square Cardinal Fund may lend
portfolio securities, enter into reverse repurchase agreements, invest up to 10%
of its net assets in restricted securities and engage in when-issued and delayed
delivery transactions with respect to up to 20% of the value of its total
assets. These types of transactions are not permitted for The Cardinal Fund.
The Cardinal Fund has several fundamental investment limitations which
may not be changed without a vote of the holders of a majority of the
outstanding shares of the Fund. These limitations affect the ability of The
Cardinal Fund to purchase securities of any one issuer, purchase securities of
one or more issuers in the same industry, borrow money or issue senior
securities, make loans, purchase securities on margin, underwrite securities
issued by other persons, purchase or sell real estate, or purchase or sell
commodities or commodities contracts. In addition, The Cardinal Fund has several
non-fundamental investment limitations which may be changed by the Cardinal
Board of Trustees. These limitations affect the ability of The Cardinal Fund to
invest in illiquid securities, purchase securities of other investment
companies, engage in short sales, invest in issuers whose securities are owned
by officers and Trustees/directors of Cardinal or CMC, mortgage or pledge the
Fund's assets, purchase participations or direct interests in oil, gas or other
mineral exploration or development programs, or invest in securities of issuers
which, together with any predecessors, have a record of less than three years'
continuous operations.
Fountain Square Cardinal Fund has fundamental investment limitations
which are substantially similar to those of The Cardinal Fund. Fountain Square
Cardinal Fund's limitation on borrowing money or issuing senior securities,
however, is less stringent in that it may borrow money directly or through
reverse repurchase agreements in amounts up to one-third of the value of its
total assets as opposed to the 10% imposed on The Cardinal Fund. Fountain Square
Cardinal Fund's ability to lend portfolio securities as an exception to the
prohibition on making loans is limited to one-third of the value of its total
assets, whereas The Cardinal Fund has no specific percentage limitation.
Fountain Square Cardinal Fund also categorizes its restriction on mortgaging,
pledging or hypothecating assets and its restriction on engaging in short sales
as fundamental investment limitations. Except with respect to those restrictions
and investing in unseasoned issuers, the non-fundamental investment limitations
of Fountain Square Cardinal Fund are also similar to those of The Cardinal Fund.
Investment in issuers with less than three years of continuous operations is
limited to 5% of the value of Fountain Square Cardinal Fund's total assets, as
opposed to a 10% limitation for The Cardinal Fund, and the restriction relating
to holdings of Cardinal or CMC officers and Trustees/directors applies to
Fountain Square Funds and Fifth Third. Other additional non-fundamental
investment limitations of Fountain Square Cardinal Fund include limitations on
investing in restricted securities, investing in issuers whose securities are
owned by officers and Trustees of Fountain Square Funds, engaging in
arbitrage transactions, purchasing securities for the purpose of exercising
control, and investing in warrants.
CARDINAL AGGRESSIVE GROWTH FUND AND FOUNTAIN SQUARE MID CAP FUND. The
investment objective of Cardinal Aggressive Growth Fund is to seek appreciation
of capital. The investment objective of Fountain Square Mid Cap Fund is to
provide growth of capital, with income as a secondary objective. Neither of
these investment objectives may be changed without the vote of the holders of a
majority of the outstanding shares of the applicable Fund. The investment
policies of these two Funds, except as otherwise noted, may be changed by that
Fund's Board of Trustees without a vote of shareholders. Both Funds seek to
achieve their objectives by investing primarily in common stocks and securities
convertible into common stocks. Cardinal Aggressive Growth Fund invests in
securities of companies having a market capitalization of at least $10 million
and may invest up to 10% of its net assets in non-investment grade convertible
debt securities, while Fountain Square Mid Cap Fund invests under normal market
conditions at least 65% of its assets in securities of companies with market
capitalizations (at the time of investment) between $100 million and $3 billion
and is limited to investment grade convertible securities. As a result, the
median market capitalization of Cardinal Aggressive Growth Fund is approximately
$5.2 billion, while the median market capitalization of Fountain Square Mid Cap
Fund is approximately $2.9 billion. Both Funds may invest in medium-grade
securities (i.e., securities rated in the fourth highest rating category by a
nationally recognized statistical rating organization ("NRSRO")). Both Funds may
also invest up to 25% of their assets in American Depositary Receipts, enter
into repurchase agreements, engage in options and futures transactions and, for
temporary defensive purposes, invest in cash and various money market
instruments, investment grade short-term debt securities, U.S. government
securities and securities of other investment companies. Cardinal Aggressive
Growth Fund may invest
27
<PAGE> 39
in REITs, although it does not currently do so, while Fountain Square Mid Cap
Fund does not permit such investments. Fountain Square Mid Cap Fund may lend
portfolio securities, invest up to 15% of its net assets in illiquid securities
invest up to 10% of its net assets in restricted securities and engage in
when-issued and delayed delivery transactions with respect to up to 20% of the
value of its total assets. These types of transactions are not permitted for
Cardinal Aggressive Growth Fund.
Cardinal Aggressive Growth Fund has several fundamental investment
limitations which may not be changed without a vote of the holders of a majority
of the outstanding shares of the Fund. These limitations affect the ability of
Cardinal Aggressive Growth Fund to purchase securities of any one issuer,
purchase securities of any one or more issuers in the same industry, borrow
money or issue senior securities, makes loans, purchase securities on margin,
underwrite the securities issued by other persons, purchase or sell real estate,
or purchase or sell commodities or commodities contracts. In addition, Cardinal
Aggressive Growth Fund has several non-fundamental investment limitations which
may be changed by the Cardinal Board of Trustees without shareholder approval.
These limitations affect the ability of Cardinal Aggressive Growth Fund to
invest in illiquid securities, purchase securities of other investment
companies, engage in short sales, invest in issuers whose securities are owned
by officers and Trustees/directors of Cardinal or CMC, mortgage or pledge the
Fund's assets, purchase participations or direct interests in oil, gas or other
mineral exploration or development programs, or invest in securities of issuers
which, together with any predecessors, have a record of less than three years'
continuous operations.
Fountain Square Mid Cap Fund has fundamental investment limitations
which are substantially similar to those of Cardinal Aggressive Growth Fund.
Fountain Square Mid Cap Fund's limitation on borrowing money or issuing senior
securities, however, is less stringent in that it may borrow directly or through
reverse repurchase agreements in amounts up to one-third of the value of its
total assets as opposed to the 10% exception imposed on Cardinal Aggressive
Growth Fund. Fountain Square Mid Cap Fund's ability to lend portfolio securities
as an exception to the prohibition on making loans is limited to one-third of
the value of its total assets, whereas Cardinal Aggressive Growth Fund has no
specific percentage limitation. Fountain Square Mid Cap Fund also categorizes
its restrictions on mortgaging, pledging or hypothecating assets and its
restriction on engaging in short sales as fundamental investment limitations.
Except with respect to those restrictions and investing in unseasoned issuers,
the non-fundamental investment limitations of Fountain Square Mid Cap Fund are
also similar to those of Cardinal Aggressive Growth Fund. Investment in issuers
with less than three years of continuous operations is limited to 5% of the
value of Fountain Square Mid Cap Fund's total assets, and the restriction
relating to holdings of Cardinal or CMC officers or Trustees/directors applies
to Fountain Square Funds and Fifth Third. Other additional non-fundamental
investment limitations of Fountain Square Mid Cap Fund include limitations on
investing in restricted securities, engaging in arbitrage transactions,
purchasing securities for the purpose of exercising control, and investing in
warrants.
CARDINAL BALANCED FUND AND FOUNTAIN SQUARE BALANCED FUND. The
investment objectives of Cardinal Balanced Fund are to seek current income and
long-term growth of both capital and income. The investment objective of
Fountain Square Balanced Fund is to pursue capital appreciation and income.
Neither of these investment objectives may be changed without the vote of the
holders of a majority of the outstanding securities of the applicable Fund. The
investment policies of the two Funds, except as otherwise noted, may be changed
by that Fund's Board of Trustees without a vote of shareholders. Both Funds seek
to achieve their objectives by investing in diversified portfolios of common
stocks, preferred stocks, securities convertible into common stocks, corporate
fixed income securities, U.S. government securities and money market
instruments. Each Fund, as a balanced fund, invests at least 25% of its assets
in fixed income senior securities. Cardinal Balanced Fund also invests in
certain foreign securities such as Yankee securities, Eurodollar securities, and
supranational agency bonds, mortgage-related securities, including
collateralized mortgage obligations ("CMOs"), and asset-backed securities.
Cardinal Balanced Fund invests in securities of companies having a market
capitalization of not less than $10 million and may invest up to 10% of its net
assets in non-investment grade convertible debt securities, while Fountain
Square Balanced Fund invests in securities of companies with market
capitalizations between $100 million and $3 billion and is limited to investment
grade convertible securities. Both Funds may also invest up to 25% of their
assets in American Depositary Receipts, invest in restricted and illiquid
securities, enter into repurchase agreements, engage
28
<PAGE> 40
in options and futures transactions, engage in when-issued and delayed delivery
transactions and, for temporary defensive purposes, invest in cash and various
money market instruments, U.S. government securities and securities of other
investment companies. In addition, Cardinal Balanced Fund may invest in REITs,
while Fountain Square Balanced Fund does not permit such investments. However,
Fountain Square Balanced Fund may lend portfolio securities and enter into
reverse repurchase agreements, while Cardinal Balanced Fund is not currently
permitted to do so.
Cardinal Balanced Fund has several fundamental investment limitations
which may not be changed without a vote of the holders of a majority of the
outstanding shares of the Fund. These limitations affect the ability of
Cardinal Balanced Fund to purchase securities of any one issuer, purchase
securities of any one or more issuers in the same industry, borrow money or
issue senior securities, make loans, purchase securities on margin, underwrite
the securities issued by other persons, purchase or sell real estate, or
purchase or sell commodities or commodities contracts. In addition, Cardinal
Balanced Fund has several non-fundamental investment limitations which may be
changed by the Cardinal Board of Trustees without shareholder approval. These
limitations affect the ability of Cardinal Balanced Fund to invest in illiquid
securities, purchase securities of other investment companies, engage in short
sales, invest in restricted securities, invest in issuers whose securities are
owned by officers and Trustees/directors of Cardinal or CMC, mortgage or pledge
the Fund's assets, purchase participations or direct interests in oil, gas or
other mineral exploration or development programs, or invest in securities of
issuers which, together with any predecessors, have a record of less than three
years' continuous operations.
Fountain Square Balanced Fund has fundamental investment limitations
which are substantially similar to those of Cardinal Balanced Fund. Fountain
Square Balanced Fund's limitation on borrowing money or issuing senior
securities, however, is less stringent in that it may borrow directly or through
reverse repurchase agreements in amounts up to one-third of the value of its
total assets, as opposed to the 10% limitation imposed on Cardinal Balanced
Fund. Fountain Square Balanced Fund's ability to lend portfolio securities as an
exception to the prohibition on making loans is limited to one-third of the
value of its total assets, whereas Cardinal Balanced Fund has no specific
percentage limitations. Fountain Square Balanced Fund also categorizes its
restrictions on mortgaging, pledging or hypothecating assets and engaging in
short sales as fundamental investment limitations. Except with respect to those
restrictions and investing in unseasoned issuers, the non-fundamental investment
limitations of Fountain Square Balanced Fund are also similar to those of
Cardinal Balanced Fund. Investment in issuers with less than three years of
continuous operations is limited to 5% of the value of Fountain Square Balanced
Fund's total assets, and the restriction relating to holdings of Cardinal or CMC
officers or Trustees/directors applies to Fountain Square Funds and Fifth Third.
Other additional non-fundamental investment limitations include limitations on
engaging in arbitrage transactions, purchasing securities for the purpose of
exercising control, and investing in warrants.
CARDINAL GOVERNMENT OBLIGATIONS FUND AND FOUNTAIN SQUARE BOND FUND FOR
INCOME. The investment objectives of Cardinal Government Obligations Fund are to
maximize safety of capital and, consistent with such objective, earn the highest
available current income obtainable from government securities. The investment
objective of Fountain Square Bond Fund For Income is to provide a high level of
current income. Neither of these investment objectives may be changed without
the vote of the holders of a majority of the outstanding securities of the
applicable Fund. The investment policies of the two Funds, except as otherwise
noted, may be changed by that Fund's Board of Trustees without a vote of
shareholders. Cardinal Government Obligations Fund seeks to achieve its
objectives by investing, under normal market conditions, substantially all, but
in no event less than 65% of its total assets in obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities. Fountain
Square Bond Fund For Income pursues its investment objective by investing in a
diversified portfolio of investment grade debt securities with remaining
maturities of ten years or less. This includes corporate debt obligations,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, U.S. dollar-denominated issues of foreign corporations,
foreign governments and foreign government agencies and CMOs. Under normal
market conditions, Fountain Square Bond Fund For Income will invest at least 65%
of its assets in fixed income debt securities rated at least Baa by Moody's
Investors Service or BBB by Standard & Poor's. Both Funds may also invest in
repurchase agreements, engage in options and futures transactions, engage in
29
<PAGE> 41
when-issued and delayed delivery transactions, and, for temporary defensive
purposes, invest in cash and various money market instruments and securities of
other investment companies. In addition, Fountain Square Bond Fund For Income
may lend portfolio securities, enter into reverse repurchase agreements, invest
up to 15% of its net assets in illiquid securities and invest up to 10% of its
net assets in restricted securities. These activities are not permitted for
Cardinal Governmental Obligations Fund.
Cardinal Government Obligations Fund has several fundamental investment
limitations which may not be changed without a vote of the holders of a majority
of the outstanding shares of the Fund. These limitations affect the ability of
Cardinal Government Obligations Fund to purchase securities of any one issuer,
purchase securities of one or more issuers in the same industry, borrow money or
issue senior securities, make loans, purchase securities on margin, underwrite
securities issued by other persons, purchase or sell real estate, purchase or
sell commodities or commodities contracts, mortgage, pledge or hypothecate the
Fund's assets, or purchase participations or direct interests in oil, gas or
other mineral exploration or development programs. In addition, Cardinal
Government Obligations Fund has several non-fundamental investment limitations
which may be changed by the Cardinal Board of Trustees. These limitations affect
the ability of the Fund to invest in illiquid securities, purchase securities of
other investment companies, engage in short sales, and invest in issuers whose
securities are owned by officers and Trustees/directors of Cardinal or CMC.
Fountain Square Bond Fund For Income has fundamental investment
limitations which are substantially similar to those of Cardinal Government
Obligations Fund. Fountain Square Bond Fund For Income's limitation on borrowing
money or issuing senior securities, however, is less stringent in that it may
borrow money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets as opposed to the 10% exception
available to Cardinal Government Obligations Fund. Fountain Square Bond Fund For
Income also categorizes its restriction on engaging in short sales as a
fundamental investment limitation. Except with respect to that restriction,
Fountain Square Bond Fund For Income's non-fundamental investment limitations
are also similar to those of Cardinal Government Obligations Fund. The
restriction relating to holdings of Cardinal and CMC officers or
Trustees/directors applies to Fountain Square Funds and Fifth Third. Other
additional non-fundamental investment limitations of Fountain Square Bond Fund
For Income include limitations on purchasing participations or direct interests
in oil, gas or other mineral exploration or development programs, engaging in
arbitrage transactions and purchasing securities for the purpose of exercising
control.
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND AND FOUNTAIN SQUARE
GOVERNMENT CASH RESERVES FUND. The investment objectives of Cardinal Government
Securities Money Market Fund are to maximize current income while preserving
capital and maintaining liquidity. The investment objective of Fountain Square
Government Cash Reserves Fund is high current income consistent with stability
of principal and liquidity. Neither of these investment objectives may be
changed without the vote of the holders of a majority of the outstanding
securities of the applicable Fund. The investment policies of the two Funds,
except as otherwise noted, may be changed by that Fund's Board of Trustees
without a vote of shareholders. Both Funds seek to achieve their objectives by
investing primarily in a portfolio of short-term securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities. Cardinal Government
Securities Money Market Fund may also invest in repurchase agreements relating
to such obligations. Fountain Square Government Cash Reserves Fund presently
intends to limit its investments in only those U.S. government securities whose
interest is generally exempt from personal income tax in the various states if
owned directly. Both Funds may engage in when-issued and delayed delivery
transactions and invest in securities of other investment companies, although
Fountain Square Government Cash Reserves Fund may only invest in other
investment companies for temporary defensive purposes.
Cardinal Government Securities Money Market Fund has several
fundamental investment limitations which may not be changed without a vote of
the holders of a majority of the outstanding shares of the Fund. These
limitations affect the ability of Cardinal Government Securities Money Market
Fund to purchase securities of any
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<PAGE> 42
one issuer, purchase securities of one or more issuers in the same industry,
make loans, borrow money or issue senior securities, pledge, mortgage or
hypothecate securities, underwrite securities issued by other persons, purchase
or sell real estate, purchase or sell commodities or commodities contracts,
purchase participations or other direct interests in oil, gas or other mineral
exploration or development programs, or purchase securities on margin. In
addition, Cardinal Government Securities Money Market Fund has several
non-fundamental investment limitations which may be changed by the Cardinal
Board of Trustees without shareholder approval. These limitations affect the
ability of Cardinal Government Securities Money Market Fund to invest in
illiquid securities, purchase securities of other investment companies, engage
in short sales, invest in illiquid or restricted securities, or invest in
issuers whose securities are owned by officers and Trustees/directors of
Cardinal or CMC.
Fountain Square Government Cash Reserves Fund has fundamental
investment limitations which are similar to those of Cardinal Government
Securities Money Market Fund. Fountain Square Government Cash Reserves Fund's
limitation on borrowing money or issuing senior securities, however, is less
stringent in that it may borrow money directly or through reverse repurchase
agreements in amounts up to one-third of the value of its total assets as
opposed to the 10% exception available to Cardinal Government Securities Money
Market Fund. Fountain Square Government Cash Reserves Fund also categorizes its
restriction on engaging in short sales as a fundamental investment limitation
and has not adopted any specific restrictions relating to investment in the
securities of any one issuer or any one industry or with respect to purchases of
sales of real estate, commodities or oil, gas or mineral exploration or
development programs. These limitations would generally not apply to the U.S.
government securities in which the Funds invest. The non-fundamental investment
limitations of Fountain Square Government Cash Reserves Fund are also similar to
those of Cardinal Government Securities Money Market Fund, except that, for the
same reasons explained above with respect to its fundamental investment
restrictions, Fountain Square Government Cash Reserves Fund has not adopted
specific restrictions on investing in restricted securities or securities owned
by officers or Trustees/directors of FSF or Fifth Third.
CARDINAL TAX EXEMPT MONEY MARKET FUND AND FOUNTAIN SQUARE TAX EXEMPT
MONEY MARKET FUND. The investment objectives of both Cardinal Tax
Exempt Money Market Fund and Fountain Square Tax Exempt Money Market Fund are to
maximize current income exempt from federal income tax while preserving capital
and maintaining liquidity. Neither Fund may change its investment objective
without a vote of the holders of a majority of the holders of the outstanding
shares of the applicable Fund. The investment policies of the two Funds, except
as otherwise noted, may be changed by that Fund's Board of Trustees without a
vote of shareholders. Both Funds seek to achieve their objectives by investing
primarily in a portfolio of high-grade short-term municipal bonds and notes,
including participation interests in such obligations, tax-exempt commercial
paper and tax-exempt short-term discount notes. Each of the Funds intends to
invest, under normal market conditions, at least 80% of its net assets in a
diversified portfolio of municipal securities, the interest on which is both
exempt from federal income tax and is not treated as a preference item for
purposes of federal alternative minimum tax. Both Funds may invest in variable
rate securities, enter into repurchase agreements, engage in when-issued and
delayed delivery transactions, and, for temporary defensive purposes, invest in
taxable money market securities. Both Funds may invest in securities of other
investment companies, although Fountain Square Tax Exempt Money Market Fund may
only do so for temporary defensive purposes.
Cardinal Tax Exempt Money Market Fund has several fundamental
investment limitations which may not be changed without a vote of the holders of
a majority of the outstanding shares of the Fund. These limitations affect the
ability of Cardinal Tax Exempt Money Market Fund to purchase securities of any
one issuer, purchase securities of one or more issuers in the same industry,
make loans, borrow money or issue senior securities, pledge, mortgage or
hypothecate securities, underwrite securities issued by other persons, purchase
or sell real estate, purchase or sell commodities or commodities contracts,
purchase securities on margin, engage in options transactions, purchase
participations or other direct interests in oil, gas or other mineral
exploration or development programs, or purchase securities which are subject to
federal income tax. In addition, Cardinal Tax Exempt Money Market Fund has
several non-fundamental investment limitations which may be changed by the
Cardinal Board of Trustees. These limitations affect the ability of Cardinal Tax
Exempt Money Market Fund to invest in illiquid securities, purchase securities
of other investment companies, engage in short sales, invest in restricted
securities, or invest in issuers whose securities are owned by officers and
Trustees/directors of Cardinal or CMC.
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<PAGE> 43
Fountain Square Tax Exempt Money Market Fund has fundamental investment
limitations which are substantially similar to those of Cardinal Tax Exempt
Money Market Fund, except that Fountain Square Tax Exempt Money Market Fund has
not adopted a specific policy restricting the maximum percentage for investment
in securities subject to federal income taxation. Cardinal Tax Exempt Money
Market Fund limits its maximum investment in taxable securities to 20% of its
assets. The non-fundamental investment limitations of Fountain Square Tax Exempt
Money Market Fund are also similar to those of Cardinal Tax Exempt Money Market
Fund. An additional non-fundamental investment limitation is a limitation on
investing in issuers with less than three years of continuous operations.
Fountain Square Tax Exempt Money Market Fund's limitation on borrowing money and
issuing senior securities is less stringent than the Cardinal Tax Exempt Money
Market Fund in that it may borrow money directly or through reverse repurchase
agreements in amounts up to one-third of the value of its total assets as
opposed to the 10% exceptions for Cardinal Tax Exempt Money Market Fund.
Fountain Square Tax Exempt Money Market Fund also categorizes its restriction on
engaging in short sales as a fundamental investment limitation.
RISK FACTORS. Because of the similarities of the investment objectives,
policies and restrictions of the Cardinal Funds and their corresponding Fountain
Square Funds, an investment in a Fountain Square Fund involves risks that are
similar to those of the corresponding Cardinal Fund. In the case of Fountain
Square Cardinal Fund and Fountain Square Mid Cap Fund, the investment risks, in
general, are those typically associated with investing in a portfolio of common
stocks. Since equity markets tend to be cyclical, the possibility exists that
common stocks could decline over short or even extended periods of time. Because
these Funds invest in both small and medium capitalization stocks, there are
some additional risk factors associated with investment in the Funds. For small
or unseasoned companies, stocks tend to be more thinly traded and therefore
subject to more abrupt or erratic price movements than larger, well-established
companies. In general, stocks in the small and medium capitalization sectors of
the United States equity market tend to be more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500 Index
(the "S&P 500). Investors should expect Fountain Square Cardinal Fund and
Fountain Square Mid Cap Fund to be more volatile than, and may fluctuate
independently of, broad stock market indices such as the S&P 500.
In the case of Fountain Square Bond Fund For Income, the investment
risks, in general, are those typically associated with investing in a portfolio
of investment grade fixed income securities, including corporate bonds. Fixed
income securities are subject to credit risk and market risk. Market risk
relates to changes in the value of a security as a result of changes in interest
rates. Credit risk relates to the ability of the issuer to make payments of
principal and interest. Because Fountain Square Bond Fund For Income invests in
a variety of corporate debt obligations, in additional to government obligations
and mortgage-related securities, it will be subject to greater credit risk than
Cardinal Government Obligations Fund. The mortgage-related securities, including
collateralized mortgage obligations ("CMOs") in which both Funds invest subject
them to prepayment risk. Cardinal Government Obligations Fund invests primarily
in mortgage-related securities and therefore is subject to greater prepayment
risk than Fountain Square Bond Fund For Income.
In the case of Fountain Square Balanced Fund, the investment risks are
those typically associated with investing in a portfolio of both common stocks
and investment grade fixed income securities.
With respect to Fountain Square Government Cash Reserves Fund and
Fountain Square Tax Exempt Money Market Fund, the investment risks, in general,
are those typically associated with investing in a portfolio of high quality
money market instruments. In addition, these Money Market Funds attempt to
maintain a stable net asset value of $1.00, although there is no assurance that
they will be able to do so. For Fountain Square Tax Exempt Money Market Fund,
the characteristics of short-term municipal securities are such that the price
stability and liquidity of the Fund may not be equal to that of a money market
fund which exclusively invests in taxable money market instruments.
As discussed above, several of the Fountain Square Funds may engage in
when-issued and delayed delivery transactions. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause a Fund to miss a price or yield considered to be advantageous. In
addition, because settlement dates may be a month or more after entering into
the transaction, a Fund may pay more or less than the market value of the
securities on the settlement date.
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<PAGE> 44
Lending portfolio securities also entails certain risks. Although the
Fountain Square Funds will only enter into loan arrangements with certain
approved broker/dealers, banks or other institutions and will receive no less
than 100% collateral on the securities loaned, there is the risk that loaned
securities may not be available to the lending Fund on a timely basis and the
Fund may, therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities files for
bankruptcy or becomes insolvent, disposition of the securities may be delayed
pending court action.
The use of futures and options successfully will depend on the ability
of Fifth Third to predict pertinent market movements, and Fifth Third could be
incorrect in its expectations. In these events, a Fund could lose money on the
futures or option contract. In addition, where futures or options are
imperfectly correlated or not correlated at all with the related security, use
of futures and options for hedging purposes may not have the desired effect.
Finally, a Fund may not be able to close out a futures or options position where
no secondary market for such futures or options exists.
All of the Cardinal Funds and Fountain Square Funds may invest in
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Funds and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that
the original seller does not repurchase the securities from a Fund, that Fund
could receive less than the repurchase price on any sale of such securities.
CMOs and other mortgage-related securities in which certain of the
Cardinal Funds and Fountain Square Funds may invest provide for a periodic
payment consisting of both principal and interest. These securities are often
subject to higher prepayment risks than most other types of debt instruments.
Prepayment risks on mortgage-related securities tend to increase during periods
of declining mortgage interest rates, because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Depending upon market
conditions, the yield that a Fund receives from the reinvestment of such
prepayments, or any scheduled principal payments, may be lower than the yield
ohn the original mortgage-related security. Prepayments may result in a capital
loss to a fund to the extent that the prepaid mortgage securities were
purchased at a market premium over their stated principal amount. Conversely,
the prepayment of mortgage securtities purchased at a market discount from
their stated principal amount will accelerate the recognition of interest income
by a Fund, which would be taxed as ordinary income when distributed to the
shareholders.
Several of the Cardinal Funds and Fountain Square Funds may invest in
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Some obligations issued or guaranteed by the U.S. government
are backed by the full faith and credit of the U.S. Treasury. No assurances can
be given that the U.S. government will provide financial support or other
agencies or instrumentalities, since it is not obligated to do so.
OTHER COMPARATIVE INFORMATION
PURCHASE AND REDEMPTION INFORMATION, EXCHANGE PRIVILEGES, DISTRIBUTION
AND PRICING. Investor Shares of the Cardinal Funds are sold on a continuous
basis by its principal underwriter, The Ohio Company, and may be purchased at
the public offering price through The Ohio Company and National Association of
Securities Dealers, Inc. ("NASD") member broker-dealers having sales agreements
with The Ohio Company. The public offering price of Investor Shares is the net
asset value per share next computed after receipt of an order, plus a sales
charge of 4.50%. The amount of the sales charge is reduced incrementally on
purchases of $100,000 or more, depending upon the amount of the purchase, with a
minimum sales charge of 0.50% charged for purchases of $1,000,000 or more as
follows:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF OFFERING PRICE SALES CHARGE AS A
--------------------------------- PERCENTAGE OF THE NET
AMOUNT OF SINGLE TRANSACTION SALES CHARGE DEALER'S CONCESSION AMOUNT INVESTED
- ---------------------------- ------------ ------------------- ---------------
<S> <C> <C> <C>
Less than $100,000..................... 4.50% 4.00% 4.71%
$100,000 but less than $250,000........ 3.50% 3.00% 3.63%
$250,000 but less than $500,000........ 2.50% 2.00% 2.56%
$500,000 but less than $1,000,000...... 1.50% 1.00% 1.52%
$1,000,000 or more..................... 0.50% 0.40% 0.50%
</TABLE>
Sales charges are not imposed on purchases of Investor Shares by (i)
officers, trustees and employees of Cardinal, (ii) full-time employees of The
Ohio Company or CMC who have been such for at least 90 days or by qualified
retirement plans for such persons, or (iii) accounts with respect to which The
Ohio Company serves as either trustee or as investment advisor. Any applicable
sales charge may also be substantially reduced through quantity discounts, such
as rights of accumulation, letters of intent or concurrent purchases.
Institutional Shares of the Cardinal Funds are sold on a continuous
basis through procedures established by The Ohio Company in connection with
accounts for which banks, broker-dealers, savings and loan associations, trust
companies, qualified investment advisors and certain other financial
institutions serve in a fiduciary capacity
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<PAGE> 45
on behalf of customers or beneficiaries. The public offering price of
Institutional Shares of the Cardinal Funds is the net asset value per share next
computed after receipt of an order, without a sales charge.
Shares of the Cardinal Money Market Funds are also sold on a continuous
basis by The Ohio Company without a sales charge at the net asset value next
determined after an order is received.
The minimum initial investment for Investor Shares of The Cardinal
Fund, Cardinal Aggressive Growth Fund, Cardinal Balanced Fund and Cardinal
Government Obligations Fund and for shares of the Cardinal Money Market Funds is
$1,000. Subsequent investments must be in amounts of at least $50 except for
shares of the Cardinal Money Market Funds which must be in amounts of at least
$100. There is no minimum investment for Institutional Shares of The Cardinal
Fund, Cardinal Aggressive Growth Fund, Cardinal Balanced Fund or Cardinal
Government Obligations Fund. Purchase orders for shares of the Cardinal Funds
are effected on any "business day," that is, a day on which the New York Stock
Exchange is open for business, (other than a day on which no shares of that
Cardinal Fund are tendered for redemption and no order to purchase shares of
that Cardinal Fund is received), and such other days on which there is a
sufficient degree of trading in a Fund's portfolio securities that such Fund's
net asset value might be materially affected by changes in the value of the
portfolio securities.
Investors may purchase shares of the Cardinal Funds by Federal Funds
Wire or by mail. Cardinal also offers an Automatic Investment Plan, pursuant to
which investors may make automatic monthly or quarterly investments in any of
the Cardinal Funds. Cardinal reserves the right to reject any purchase request
in whole or in part.
Investors may redeem shares of the Cardinal Funds by mail or telephone.
In addition, Cardinal offers a Systematic Withdrawal Plan, pursuant to which
holders of Investor Shares of The Cardinal Fund, Cardinal Balanced Fund and
Cardinal Aggressive Growth Fund with accounts valued at over $10,000, holders of
Investor Shares of Cardinal Government Obligations Fund with accounts valued at
over $25,000, and holders of shares of the Cardinal Money Market Funds may make
automatic periodic withdrawals from any of their Cardinal Fund holdings. By
Automatic Withdrawal, Cardinal shareholders may elect to have the proceeds from
redemptions transmitted to an authorized bank account. The Cardinal Money Market
Funds also offer check writing redemption and expedited redemption features. The
Cardinal Funds redeem shares at their net asset value next determined after CMC
receives the redemption request. Redemptions are made on days on which the
shares of the Cardinal Funds compute their net asset value.
Shareholders may exchange Investor Shares or Institutional Shares of
any of the Cardinal Funds for shares of the same class of any of the other
Cardinal Funds. In addition, shares of the Cardinal Money Market Funds may be
exchanged for Investor Shares or, assuming the owner qualifies, for
Institutional Shares of any of the other Cardinal Funds. When exchanging into
and out of Investor Shares of the Cardinal Funds, shareholders who have paid an
equal or greater sales charge once, or have had sales charges waived, will not
have to pay a sales charge on an exchange.
Investment A Shares of the Fountain Square Funds are sold on a
continuous basis by BISYS, and may be purchased through a financial institution
or directly through BISYS. The public offering price of Investment A Shares of
the Fountain Square Non-Money Market Funds is the net asset value per share next
computed after receipt of an order, plus a maximum sales charge of 4.50%. No
sales charge is imposed upon purchases of any of the Fountain Square Money
Market Funds. The amount of any sales charge is reduced incrementally on
purchases of $50,000 or more depending upon the amount of the purchase, with no
sales charge being charged on purchases of $500,000 or more as follows:
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<PAGE> 46
<TABLE>
<CAPTION>
AS A PERCENTAGE OF OFFERING PRICE
--------------------------------- SALES CHARGE AS A
PERCENTAGE OF THE NET
AMOUNT OF SINGLE TRANSACTION SALES CHARGE DEALER'S CONCESSION AMOUNT INVESTED
- ---------------------------- ------------ ------------------- ---------------------
<S> <C> <C> <C>
Less than $50,000...................... 4.50% 3.83% 4.71%
$50,000 but less than $100,000......... 4.00% 3.40% 4.17%
$100,000 but less than $150,000........ 3.00% 2.55% 3.09%
$150,000 but less than $250,000........ 2.00% 1.70% 2.04%
$250,000 but less than $500,000........ 1.00% 0.85% 1.01%
$500,000 or more....................... 0.00% 0.00% 0.00%
</TABLE>
Sales charges will not be applicable to: (i) reinvestment of dividends
and distributions; (ii) purchases by directors, officers and employees of FSF's
distributor and of broker-dealers having agreements with FSF's distributor
pertaining to the sale of Investment A Shares; (iii) purchases by members of
FSF's Board of Trustees; and (iv) purchases by officers, directors, employees
and retirees of Fifth Third Bancorp and their spouses and children under 21. Any
applicable sales charge may also be substantially reduced through quantity
discounts, such as rights of accumulation, letters of intent, or concurrent
purchases, as well as through participation in certain programs offered by Fifth
Third, and purchases with proceeds from redemptions of any unaffiliated mutual
fund shares. No sales charge will be imposed, however, on Investment A Shares of
the Fountain Square Funds issued in the Reorganization.
Institutional Shares of the Fountain Square Funds are sold on a
continuous basis by BISYS without a sales charge at the net asset value next
determined after an order is received. Institutional Shares are only offered to
clients of Fifth Third Bank who make purchases through Fifth Third's Trust
Department, certain qualified employee benefit plans under the Internal Revenue
Code, and broker-dealers, investment advisors, financial planners and other
financial institutions who place trades for their own accounts or the accounts
of their clients for a management, consulting or other fee.
The minimum initial investment for each of the Fountain Square Funds is
$1,000. The minimum investment for subsequent purchases is $50. Purchase orders
for shares of Fountain Square Funds are effected on any day on which the New
York Stock Exchange and the Federal Reserve Bank of Cleveland are open for
business. Investors may purchase Investment A Shares of the Fountain Square
Funds by Federal Funds Wire or by mail. In addition, FSF offers a Systematic
Investment Program, pursuant to which investors may make automatic periodic
investments in any of the Fountain Square Funds. FSF reserves the right to
reject any purchase request in whole or in part.
Investors may redeem Investment A Shares of the Fountain Square Funds
by mail and telephone. Holders of Institutional Shares may redeem all or part of
their shares in accordance with procedures governing their accounts at such
institutions. In addition, FSF offers a Systematic Withdrawal Program, pursuant
to which investors with accounts valued at over $10,000 may make automatic
period withdrawals from any of their Fountain Square Fund holdings. FSF reserves
the right to redeem accounts involuntarily, upon 30 days' written notice, if the
account's net asset value falls below $1,000 as a result of redemptions.
Redemption orders are effected at the net asset value per share next determined
after receipt and acceptance of the order by the distributor. FSF reserves the
right to send redemption proceeds within seven days after receiving the
redemption order if, in its judgment, an earlier payment could adversely affect
the Fund.
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<PAGE> 47
Shareholders may exchange Investment A Shares or Institutional Shares
of any of the Fountain Square Funds for shares of the same class of any of the
other Fountain Square Funds, including those not described in this Combined
Proxy Statement/Prospectus. When exchanging into and out of Investment A Shares
of the Fountain Square Funds, shareholders who have paid a sales charge once
upon purchasing Investment A Shares of any Fountain Square Fund will not have to
pay a sales charge again on an exchange. Exchanges of Investment A Shares of any
of the Fountain Square Non-Money Market Funds received in the Reorganization may
be exchanged for Investment A Shares of any of the other Fountain Square Funds
without the imposition of a sales charge. Any exchange must satisfy the
requirements relating to the minimum initial investment in the particular
Fountain Square Fund.
Each of The Cardinal Fund, Cardinal Aggressive Growth Fund and Cardinal
Balanced Fund declares dividends and makes distributions with such frequency and
in such amounts as Cardinal from time to time shall determine. It is the policy
of each of these Funds to distribute, at least annually, substantially all of
its net investment income and to distribute annually any net realized gains.
Cardinal Government Obligations Fund declares dividends daily consisting of net
investment income and pays such dividends monthly. Dividends consisting of
long-term capital gains normally will be distributed only once annually. Each of
the Cardinal Money Market Funds declares dividends daily consisting of
interest accrued on the portfolio plus realized net short-term capital gains or
losses due to portfolio transactions, less the accrued expenses of the Fund and
pays such dividends monthly.
Each of Fountain Square Cardinal Fund, Fountain Mid Cap Fund and
Fountain Square Balanced Fund declares and pays dividends quarterly. Fountain
Square Bond Fund For Income declares and pays dividends monthly. Each of
Fountain Square Government Cash Reserve Fund and Fountain Square Tax Exempt
Money Market Fund declare dividends daily and pay dividends monthly. In all
cases dividends are declared just prior to determining net asset value. Capital
gains realized by a Fountain Square Fund, if any, will be distributed at least
once every 12 months.
Both FSF and Cardinal determine net asset value for the Non-Money
Market Funds as of the close of regular trading on the New York Stock Exchange,
normally 4:00 p.m. (Eastern Time). For the Money Market Funds, FSF determines
net asset value as of 4:00 p.m. (Eastern time), while Cardinal determines net
asset value as of 12:00 p.m. (Eastern time). In all cases, net asset value per
share is determined on each day on which the New York Stock Exchange is open for
trading (and on certain other days as noted above). Currently, the New York
Stock Exchange is closed on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
Net asset value per share for each class of each of the Fountain Square
Funds and the Cardinal Funds for purposes of pricing sales and redemptions is
calculated by dividing the value of all securities and other assets
attributable to the applicable class of the Fund, less the liabilities
attributable to the class of shares of that Fund, divided by the number of
outstanding shares of the Fund attributable to that class. The Non-Money Market
Funds are valued based on the market values of securities held by such Funds
determined in accordance with procedures adopted by the Board of Trustees. The
Money Market Funds are valued based on the amortized cost method provided for
under Rule 2a-7 of the 1940 Act.
OTHER INFORMATION. Financial highlights, information relating
shareholder rights and general information relating to Cardinal and FSF and
management of each of the Cardinal Funds and Fountain Square Funds is contained
in the Prospectuses for the applicable Funds incorporated by reference herein.
Management's discussion of performance for each of the Cardinal Funds and
Fountain Square Funds is contained in the Cardinal and FSF Annual Reports and
FSF Semi-Annual Report incorporated by reference herein.
FSF and Cardinal are registered as open-end management investment
companies under the 1940 Act. Currently, FSF offers sixteen investment
portfolios and Cardinal offers six investment portfolios. FSF was organized as a
Massachusetts business trust on September 15, 1988 and is subject to the
provisions of its Declaration of Trust and By-Laws. Cardinal is organized as an
Ohio business trust and is subject to Ohio law governing business trust and to
the provisions of its Declaration of Trust and By-Laws.
As discussed below, shareholders of the Cardinal Funds are entitled to
one vote for each dollar of value invested and a proportionate fractional vote
for any fraction of a dollar invested, and will vote in the aggregate and not by
series or class except as otherwise expressly required by law. Since the
Reorganization must be approved
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<PAGE> 48
individually with respect to each Cardinal Fund, shareholders will vote on a
Fund by Fund basis and not by class for purposes of approving the
Reorganization Agreement.
By contrast, shareholders of the Fountain Square Funds are each
entitled to one vote for each one share held. All shares of each Fountain Square
Fund have equal voting rights, except that in matters affecting only a
particular Fund or class, only shares of that Fund or class are entitled to
vote.
None of the shares of the Cardinal Funds or the Fountain Square Funds
have any pre-emptive or conversion rights.
Each share of a Cardinal Fund and a Fountain Square Fund represents an
equal proportionate interest in that particular Fund with other shares of the
same Fund and is entitled to cash dividends and distributions earned on such
shares as are declared.
Under Massachusetts law, shareholders of the Fountain Square Funds
could, under certain circumstances, be held personally liable for the
obligations of FSF. FSF's Declaration of Trust, however, provides
indemnification and reimbursement of expenses from FSF assets for all
shareholders against liability arising solely by reason of having been a
shareholder.
Under Section 1746.13, Ohio Revised Code, liability to third persons
for any act, omission or obligation of an Ohio business trust, such as Cardinal,
which has made its requisite filings with the Ohio Secretary of State is limited
to trust assets and no such liability shall attach to the trustees, officers,
employees, agents or shareholders of the business trust. In addition, Cardinal's
Declaration of Trust provides for indemnification of shareholders from trust
assets similar to that provided by FSF.
Trustees and officers of FSF, pursuant to FSF's Declaration of Trust,
and Trustees and officers of Cardinal, pursuant to Cardinal's Declaration of
Trust, shall only be liable for the willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee or officer, as the case may be, and for nothing else.
The foregoing is only a summary. Shareholders may obtain copies of the
Declaration of Trust and By-Laws of FSF and the Declaration of Trust and By-Laws
of Cardinal from FSF upon written request at the address shown on the cover page
of this Combined Proxy Statement/Prospectus.
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Proxy Statement/Prospectus is being
furnished in connection with the solicitation of proxies by Cardinal's Board of
Trustees in connection with the Special Meeting. Cardinal has engaged Automatic
Data Processing Investor Communication Services ("ADP") to assist it in this
proxy solicitation at an estimated cost of $42,393. It is expected that the
solicitation of proxies will be primarily by mail. Officers and service
contractors of Cardinal, including representatives from ADP, may also solicit
proxies by telephone, electronic mail or personal interview. The costs of this
proxy solicitation are being borne by Fifth Third.
Shares represented by proxies, unless previously revoked, will be voted
at the Special Meeting in accordance with the instructions of the shareholders.
If no instructions are given and the proxy is properly executed, dated and
returned to Cardinal, the proxy returned will be voted in favor of the
proposal. To revoke a proxy, the shareholder giving such proxy must either
submit to Cardinal a subsequently dated proxy, deliver to Cardinal a written
notice of revocation or otherwise give notice of revocation in open meeting, in
all cases prior to the exercise of the authority granted in the proxy.
37
<PAGE> 49
Only shareholders of record at the close of business on May 12, 1998,
will be entitled to vote at the Special Meeting. On that date there were
outstanding and entitled to be voted 16,740,236 Investor Shares and 1,804,845
Institutional Shares of The Cardinal Fund, 660,413 Investor Shares and 267,857
Institutional Shares of Cardinal Aggressive Growth Fund, 1,232,756 Investor
Shares and 151,740 Institutional Shares of Cardinal Balanced Fund, 13,763,511
Investor Shares and 725,419 Institutional Shares of Cardinal Government
Obligations Fund, 531,967,297 shares of Cardinal Government Securities Money
Market Fund, and 58,775,066 shares of Cardinal Tax Exempt Money Market Fund. As
of such time, the net asset values of each share of the Cardinal Funds were as
follows: The Cardinal Fund, $17.83 per Investor Share and $ 17.84 per
Institutional Share; Cardinal Aggressive Growth Fund, $ 14.31 per Investor Share
and $ 14.31 per Institutional Share; Cardinal Balanced Fund $ 13.93 per Investor
Share and $ 13.93 per Institutional Share; Cardinal Government Obligations Fund,
$ 8.21 per Investor Share and $ 8.22 per Institutional Share; Cardinal
Government Securities Money Market Fund, $1.00 per share; and Cardinal Tax
Exempt Money Market Fund, $1.00 per share. Shareholders of the Cardinal Funds
are entitled to one vote for each dollar of value invested and a proportionate
fractional vote for any fraction of a dollar invested. Shareholders of each
Cardinal Fund will vote as a Fund, and not in the aggregate with other
shareholders of Cardinal, for purposes of approving the Reorganization Agreement
with respect to that particular Fund. For information on adjournment of the
Special Meeting, see "Quorum" below.
SHAREHOLDER AND BOARD APPROVALS. The Reorganization Agreement (and the
transactions contemplated thereby) are being submitted for approval at the
Special Meeting by a majority of all votes attributable to the outstanding
shares of The Cardinal Fund, Cardinal Aggressive Growth Fund, Cardinal Balanced
Fund, Cardinal Government Obligations Fund, Cardinal Government Securities Money
Market Fund and Cardinal Tax Exempt Money Market Fund in accordance with the
provisions of Cardinal's Declaration of Trust and the requirements of the 1940
Act. The term "majority of all votes attributable to the outstanding shares" of
a Cardinal Fund as used herein means the lesser of (a) 67% of all votes
attributable to the outstanding shares of the particular Cardinal Fund present
at the Special Meeting if the holders of more than 50% of the shares of such
Cardinal Fund are present in person or by proxy, or (b) more than 50% of the
votes attributable to the outstanding shares of such Fund.
In tallying shareholder votes, abstentions and broker non-votes (i.e.,
proxies sent in by brokers and other nominees that cannot be voted on a proposal
because instructions have not been received from the beneficial owners) will be
counted for purposes of determining whether or not a quorum is present for
purposes of convening the Special Meeting. On the Reorganization proposal,
abstentions and broker non-votes will be considered to be a vote against the
Reorganization proposal.
The vote of the shareholders of the corresponding Fountain Square Funds
is not being solicited because their approval or consent is not necessary for
the Reorganization to be consummated.
As of May 12, 1998, The Ohio Company, 155 East Broad Street, Columbus,
Ohio 43215, was the only shareholder of record who owned 5% or more of any
class of shares of the Cardinal Funds. The estimated percentage share ownership
of the corresponding Fountain Square Fund shares to be owned by The Ohio Company
upon consummation of the Reorganization, based upon its holdings and outstanding
shares as of May 12, 1998, is as follows:
38
<PAGE> 50
<TABLE>
<CAPTION>
===============================================================================================================================
ESTIMATED
PERCENTAGE OF
PERCENTAGE FOUNTAIN
PERCENTAGE OF TOTAL SQUARE FUND TO
CARDINAL FUND CLASS OF OF CLASS SHARES BE OWNED AFTER
SHARES OWNED OWNED OWNED REORGANIZATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Cardinal Fund Institutional Shares 73.2% 7.1% 7.1%
- -------------------------------------------------------------------------------------------------------------------------------
Cardinal Aggressive Growth Fund Institutional Shares 91.6% 26.4% 1.4%
- -------------------------------------------------------------------------------------------------------------------------------
Cardinal Balanced Fund Institutional Shares 92.5% 10.1% 1.1%
- -------------------------------------------------------------------------------------------------------------------------------
Cardinal Government Obligations
Fund Institutional Shares 75.2% 3.8% 1.5%
- -------------------------------------------------------------------------------------------------------------------------------
Cardinal Government Securities
Money Market Fund Shares 9.6% 9.6% 5.9%
- -------------------------------------------------------------------------------------------------------------------------------
Cardinal Tax Exempt Money
Market Fund Shares 11.6% 11.6% 11.6%
===============================================================================================================================
</TABLE>
As of May 12, 1998, Fifth Third Bank, 38 Fountain Square Plaza,
Cincinnati, Ohio 45263, a subsidiary of Fifth Third Bancorp, was the only
shareholder of record who owned more than 5% of any class of shares of the
Fountain Square Funds. As a result, Fifth Third Bank may be deemed to control
one or more Fountain Square Funds. The estimated share ownership upon
consummation of the Reorganization based upon Fifth Third Bank's holdings and
outstanding shares as of May 12, 1998 is as follows:
<TABLE>
<CAPTION>
===============================================================================================================================
ESTIMATED
PERCENTAGE OF
PERCENTAGE FOUNTAIN
PERCENTAGE OF TOTAL SQUARE FUND TO
FOUNTAIN SQUARE FUND CLASS OF OF CLASS SHARES BE OWNED AFTER
SHARES OWNED OWNED OWNED REORGANIZATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fountain Square Mid Cap Fund Investment A Shares 88.2% 87.8% 86.9%
- -------------------------------------------------------------------------------------------------------------------------------
Fountain Square Balanced Fund Investment A Shares 73.7% 72.1% 69.7%
- -------------------------------------------------------------------------------------------------------------------------------
Fountain Square Bond Fund
For Income Investment A Shares 98.7% 98.6% 59.7%
- -------------------------------------------------------------------------------------------------------------------------------
Fountain Square Government Cash
Reserves Fund Investment A Shares 100.0% 57.2% 22.5%
===============================================================================================================================
</TABLE>
As of May 12, 1998, there were no shareholders of Fountain Square
Cardinal Fund and Fountain Square Tax Exempt Money Market Fund and neither Fund
had any assets. Accordingly, the ownership interests of shareholders of The
Cardinal Fund in Fountain Square Cardinal Fund, and the ownership interests of
shareholders of Cardinal Tax Exempt Money Market Fund in Fountain Square Tax
Exempt Money Market Fund will not materially change upon consummation of the
Reorganization.
39
<PAGE> 51
As of May 12, 1988, Fifth Third Bank was the only shareholder of
record who owned 5% or more of the Fountain Square Funds not involved in the
Reorganization as follows:
<TABLE>
<CAPTION>
INVESTMENT A SHARES PERCENTAGE OF
FUND PERCENTAGE OF OWNERSHIP TOTAL SHARES OWNED
- ---- ----------------------- ------------------
<S> <C> <C>
Fountain Square Quality Growth Fund 85.0% 83.7%
Fountain Square Equity Income Fund 93.9% 93.5%
Fountain Square International Equity Fund 96.7% 96.1%
Fountain Square Quality Bond Fund 92.3% 92.1%
Fountain Square U.S. Government Securities Fund 90.9% 90.7%
Fountain Square Municipal Bond Fund 99.9% 99.9%
Fountain Square Ohio Tax Free Bond Fund 88.2% 88.0%
Fountain Square Commercial Paper Fund 100.0% 91.5%
Fountain Square Treasury Fund 100.0% 100.0%
</TABLE>
As of May 12, 1998, the trustees and officers of Cardinal, as a group,
owned less than 1% of the outstanding shares of each of the Cardinal Funds. As
of May 12, 1998, the trustees and officers of FSF owned less than 1% of the
outstanding shares of each of the corresponding Fountain Square Funds.
APPRAISAL RIGHTS. Shareholders are not entitled to any rights of share
appraisal under Cardinal's Declaration of Trust or under the laws of the State
of Ohio in connection with the Reorganization. Shareholders do, however, have
the right to redeem from Cardinal their Cardinal Funds shares at net asset value
until the business day immediately preceding the Closing Date of the
Reorganization. Thereafter, shareholders may redeem from FSF the Fountain Square
Funds shares acquired by them in the Reorganization at net asset value.
QUORUM. In the event that a quorum is not present at the Special
Meeting, or in the event that a quorum is present at the Special Meeting but
sufficient votes to approve the Reorganization Agreement and the transactions
contemplated thereby are not received, the persons named as proxies may propose
one or more adjournments of the Special Meeting to permit further solicitation
of proxies. Any such adjournment will require the affirmative vote of a majority
of those shares affected by the adjournment that are represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies which they are entitled to vote FOR the Reorganization Agreement in
favor of such adjournments, and will vote those proxies required to be voted
AGAINST such proposal against any adjournment. A shareholder vote may be taken
with respect to one or more Cardinal Funds (but not all Cardinal Funds) before
any such adjournments if sufficient votes have been received for approval. A
quorum is constituted with respect to a Cardinal Fund by the presence in person
or by proxy of the holders of more than 50% of the votes attributable to the
outstanding shares of the Fund entitled to vote at the Meeting. Cardinal proxies
properly executed and marked with a negative vote or an abstention will be
considered to be present at the Special Meeting for the purposes of determining
the existence of a quorum for the transaction of business.
ANNUAL MEETINGS. Neither Cardinal nor FSF presently intends to hold
annual meetings of shareholders for the election of trustees and other business
unless required by the 1940 Act or other applicable law. Shareholders have the
right to call
40
<PAGE> 52
a meeting of shareholders to consider the removal of one or more trustees or for
other matters. Such meetings will be called when requested in writing by the
holders of record of 10% or more of outstanding shares entitled to vote.
ADDITIONAL INFORMATION ABOUT FSF
Information about the Fountain Square Funds is included in the
Prospectuses accompanying this Combined Proxy Statement/Prospectus, which are
incorporated by reference herein. Additional information about the Fountain
Square Funds is included in their Statements of Additional Information dated
September 30, 1997, as supplemented to the date hereof, and dated November 30,
1997, as supplemented to the date hereof, which have been filed with the SEC.
Copies of the Statements of Additional Information may be obtained without
charge by writing to FSF at 38 Fountain Square Plaza, Mail Drop 1090Q6,
Cincinnati, Ohio 45263, or by calling FSF at (888) 799-5353. FSF is subject to
the informational requirements of the Securities Exchange Act of 1934 and the
1940 Act, as applicable, and, in accordance with such requirements, files proxy
materials, reports and other information with the SEC. These materials can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the offices listed above
and at the SEC's Regional Offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington D.C. 20549, at prescribed rates.
In addition, these materials and other information regarding companies that file
electronically with the SEC are available on the SEC's Internet Web Site at
http:\\www.sec.gov.
The current trustees and officers of FSF will continue as trustees and
officers following the Reorganization. The names, addresses and birth dates of
each of the trustees as well as information concerning their principal
occupation during the past five years are as follows:
<TABLE>
<CAPTION>
======================================================================================================================
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION
AND BIRTH DATE WITH FSF DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Albert E. Harris Chairman and Trustee Formerly, Chairman of the Board of
5905 Graves Road EDB Holdings, Inc.
Cincinnati, OH 45263 (Retired July, 1993)
July 2, 1932
- ----------------------------------------------------------------------------------------------------------------------
Edward Burke Carey Trustee President of Carey Leggett Realty
394 East Town Street Advisors
Columbus, OH 43215
July 2, 1945
- ----------------------------------------------------------------------------------------------------------------------
Lee A. Carter Trustee Formerly, President of Local Marketing
425 Walnut Street Corporation
Cincinnati, OH 45202 (Retired December 31, 1993)
December 17, 1938
- ----------------------------------------------------------------------------------------------------------------------
Stephen G. Mintos President From January 1987 to present, employee
3435 Stelzer Road of BISYS Fund Services, Inc.
Columbus, OH 43219
February 5, 1954
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 53
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
George R. Landreth Vice President From December 1992 to present,
3435 Stelzer Road employee of BISYS Fund Services, Inc.
Columbus, OH 43219
July 11, 1942
- ----------------------------------------------------------------------------------------------------------------------
Jeffrey C. Cusick Secretary and Treasurer From July 1995 to present, employee of
3435 Stelzer Road BISYS Fund Services, Inc.; from
Columbus, OH 43219 September 1993 to July 1995, Assistant
May 19, 1959 Vice President of Federated
Administrative Services; from 1989 to
September 1993, Manager of Client
Services, Federated Administrative
Services
======================================================================================================================
</TABLE>
ADDITIONAL INFORMATION ABOUT CARDINAL
Information about Cardinal is incorporated herein by reference from its
Prospectuses and Statements of Additional Information, dated January 30, 1998,
copies of which may be obtained without charge by writing or calling Cardinal at
the address and telephone number shown on the cover page of this Combined Proxy
Statement/Prospectus. Cardinal is subject to the informational requirements of
the Securities Exchange Act of 1934 and the 1940 Act, and, in accordance with
such requirements, files proxy materials reports and other information with
the SEC. Reports and other information filed by Cardinal can be inspected and
copied at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of such material can be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Serves, Securities and Exchange Commission, Washington, D.C. 20549,
at prescribed rates.
LITIGATION
Neither Cardinal nor FSF is involved in any litigation that would have
any material adverse financial effect upon either the Cardinal Funds or the
Fountain Square Funds.
FINANCIAL STATEMENTS
The financial statements and financial highlights for Investment A
Shares of Fountain Square Mid Cap Fund, Fountain Square Balanced Fund and
Fountain Square Bond Fund For Income for the fiscal year ended July 31, 1997 are
contained in FSF's Annual Report to Shareholders dated the same date. The
financial statements and financial highlights for Investment A Shares and
Institutional Shares (formerly Trust Shares) of Fountain Square Government Cash
Reserves Fund for the fiscal year ended July 31, 1997 are contained in that
Fund's Prospectus dated September 30, 1997. The financial statements and
financial highlights for Investment A Shares of Fountain Square Mid Cap Fund,
Fountain Square Balanced Fund, Fountain Square Bond Fund For Income and Fountain
Square Government Cash Reserves Fund for the six months ended January 31, 1998
are contained in FSF's Semi-Annual Report to Shareholders dated the same date.
The financial statements and financial highlights for shares of the Cardinal
Funds for the fiscal year ended September 30, 1997, are included in Cardinal's
Annual Report to Shareholders dated the same date.
The statements of assets and liabilities of the Fountain Square Funds,
including the portfolios of investments as of July 31, 1997, and the related
statements of operations, statements of changes in net assets and financial
highlights for the periods indicated in the financial statements included in
FSF's Annual Report to Shareholders and Money Market Funds Prospectuses and
incorporated by reference in FSF's Statements of Additional Information, are
incorporated by reference in this Combined Proxy Statement/Prospectus reliance
on the reports of Ernst & Young LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
42
<PAGE> 54
The statements of assets and liabilities of the Cardinal Funds,
including the portfolios of investments as of September 30, 1997, and the
related statements of operations, statements of changes in net assets and
financial highlights for the periods indicated in the financial statements
included in Cardinal's Annual Report to Shareholders and included in
Cardinal's Statement of Additional Information, are incorporated by reference
in this Combined Proxy Statement/Prospectus, have been incorporated herein in
reliance on the report of KPMG Peat Marwick LLP, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
OTHER BUSINESS
Cardinal's Board knows of no other business to be brought before the
Meeting. However, if any other matters come before the Meeting, it is the
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to Cardinal in writing at the
address on the cover page of this Combined Proxy Statement/Prospectus or by
telephoning (800) 282-9446.
* * *
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
43
<PAGE> 55
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION dated as of April
27, 1998 (the "Agreement"), by and between FOUNTAIN SQUARE FUNDS, a
Massachusetts business trust ("Fountain Square"), on behalf of certain of its
portfolios now in existence or to be created, Fountain Square Government Cash
Reserves Fund, Fountain Square Tax Exempt Money Market Fund, Fountain Square
Cardinal Fund, Fountain Square Balanced Fund, Fountain Square Mid Cap Fund, and
Fountain Square Bond Fund For Income (the "Fountain Square Portfolios"), FIFTH
THIRD BANK, an Ohio state-chartered bank ("Fifth Third"), THE CARDINAL GROUP, an
Ohio business trust ("Cardinal"), on behalf of its portfolios, Cardinal
Government Securities Money Market Fund, Cardinal Tax Exempt Money Market Fund,
The Cardinal Fund, Cardinal Balanced Fund, Cardinal Aggressive Growth Fund, and
Cardinal Government Obligations Fund (the "Cardinal Portfolios"), and CARDINAL
MANAGEMENT CORP., an Ohio corporation ("CMC").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all of the
Fund Assets and Stated Liabilities as hereinafter defined of Investor A Shares
of The Cardinal Fund, Cardinal Balanced Fund, Cardinal Aggressive Growth Fund,
and Cardinal Government Obligations Fund, and shares of Cardinal Government
Securities Money Market Fund and Cardinal Tax Exempt Money Market Fund held by
investors who are not eligible to invest in Institutional Shares of the Fountain
Square Portfolios, in exchange for Investment A Shares of the corresponding
Fountain Square Portfolios and of Investor Y Shares of The Cardinal Fund,
Cardinal Balanced Fund, Cardinal Aggressive Growth Fund, and Cardinal Government
Obligations Fund, and shares of Cardinal Government Securities Money Market Fund
and Cardinal Tax Exempt Money Market Fund held by investors who are eligible to
invest in Institutional Shares of the Fountain Square Portfolios, in exchange
for Institutional Shares of the corresponding Fountain Square Portfolios (as
described in Schedule A hereto) (all shares of the Fountain Square Portfolios
being collectively referred to as the "Acquiring Fund Shares") and the
distribution, after the Closing Date as hereinafter defined, of such shares of
the Fountain Square Portfolios to the shareholders of the corresponding
Cardinal Portfolios in liquidation of the Cardinal Portfolios as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, Cardinal and Fountain Square are registered open-end,
management investment companies and the Cardinal Portfolios own securities which
generally are assets of the character in which the Fountain Square Portfolios
are permitted to invest;
WHEREAS, Fountain Square is authorized to issue the Acquiring Fund
Shares and Cardinal is authorized to issue its shares of beneficial interest;
WHEREAS, Fifth Third serves as investment adviser to the Fountain
Square Portfolios;
<PAGE> 56
WHEREAS, CMC, an investment adviser registered as such under the
Investment Advisers Act of 1940, as amended, serves as investment adviser to the
Cardinal Portfolios;
WHEREAS, the parties intend that two of the Fountain Square Portfolios,
the Fountain Square Tax Exempt Fund, and the Fountain Square Cardinal Fund, will
have nominal assets and liabilities before the Reorganization and will continue
investment operations of the Cardinal Tax Exempt Money Market Fund, and The
Cardinal Fund, respectively, after the Reorganization;
WHEREAS, the Board of Trustees of Fountain Square, including a majority
of the Trustees who are not "interested persons" of Fountain Square as defined
under the Investment Company Act of 1940, as amended (the "1940 Act"), has
determined that the exchange of all of the Fund Assets (as defined below) and
assumption of all of the Stated Liabilities (as defined below) of the Cardinal
Portfolios for Acquiring Fund Shares is in the best interests of Fountain Square
and the Fountain Square Portfolios' shareholders and that the interests of the
existing shareholders of Fountain Square and the Fountain Square Portfolios
would not be diluted as a result of the Reorganization; and
WHEREAS, the Board of Trustees of Cardinal, including a majority of the
Trustees who are not "interested persons" (as defined under the 1940 Act) of
Cardinal, has determined that the exchange of all of the Fund Assets (as defined
below) and assumption of the Stated Liabilities of the Cardinal Portfolios for
the Acquiring Fund Shares is in the best interests of the Cardinal Portfolios'
shareholders, that the interests of the shareholders of the Cardinal Portfolios
would not be diluted as a result of the Reorganization and determined that,
subsequent to the Reorganization, the Cardinal Portfolios will cease operations;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES OF THE
CARDINAL PORTFOLIOS IN EXCHANGE FOR THE ACQUIRING FUND SHARES
AND LIQUIDATION OF CARDINAL.
1.1 Subject to the terms and conditions contained herein, and
on the basis of the representations and warranties contained herein,
each Cardinal Portfolio shall assign, transfer, and convey to its
corresponding Fountain Square Portfolio identified in Schedule A (each,
an "Acquiring Fund"), all of the Fund Assets (as defined in paragraph
1.2) and Stated Liabilities (as defined in paragraph 1.3) of each of
the Cardinal Funds (each, an "Acquired Fund") at the time of the
Closing (defined below), and Fountain Square agrees in exchange
therefor to assume such Stated Liabilities and deliver to CMC, as
transfer agent for the benefit of Cardinal, the number of Acquiring
Fund Shares, including fractional Acquiring Fund Shares, determined as
set forth in paragraph 2.3 of this Agreement. Such transactions shall
take place at the closing (the "Closing") on the closing date (the
"Closing Date"), as provided in paragraph 3.1 of this Agreement. In
lieu of delivering certificates for the Acquiring Fund Shares, the
2
<PAGE> 57
Acquiring Fund shall credit the Acquiring Fund Shares to the Acquired
Fund's account on the stock record books of the Acquiring Fund's
transfer agent and shall deliver a confirmation thereof to the
applicable Acquired Fund.
1.2 With respect to each Acquired Fund, the Fund Assets shall
consist of all property and assets of any nature whatsoever, including,
without limitation, all cash, except an amount necessary to pay any
unpaid dividends and distributions as provided in paragraph 5.6, cash
equivalents, securities, claims (whether absolute or contingent, known
or unknown, accrued or unaccrued) and receivables (including dividend
and interest receivables) owned by each Acquired Fund, and any deferred
or prepaid expenses shown as an asset on each Acquired Fund's books on
the Closing Date, all other intangible property and all books and
records belonging to the Acquired Funds.
1.3 With respect to each Acquired Fund, the Stated Liabilities
shall consist of all liabilities and obligations disclosed on an
unaudited statement of assets and liabilities for the Acquired Fund
prepared by or on behalf of Cardinal as of the Valuation Date (as
defined in paragraph 2.1), in accordance with generally accepted
accounting principles consistently applied from the prior audited
period. The Acquiring Fund shall assume only the Stated Liabilities of
its corresponding Acquired Fund, and no other liabilities or
obligations, whether absolute or contingent, known or unknown, accrued
or unaccrued. Notwithstanding the foregoing, unamortized organizational
expenses of each of the Acquired Funds shall not be transferred or
assumed hereunder. The parties have been advised that such expenses
will be paid to such Acquired Funds by one or more third parties and
will be eliminated from the balance sheets of such Acquired Funds prior
to the Closing. Each Acquired Fund will endeavor to discharge all of
its known liabilities and obligations prior to the Closing Date.
1.4 Delivery of the Fund Assets of each Acquired Fund to be
transferred shall be made on the Closing Date (defined below) and shall
be delivered to Fifth Third Bank, Cincinnati, Ohio, Fountain Square's
custodian (the "Custodian"), for the account of the corresponding
Acquiring Fund, together with proper instructions and all documents
necessary to transfer such assets to the account of the Acquiring Fund,
free and clear of all liens, encumbrances, rights, restrictions and
claims, except as may be indicated in a schedule delivered by the
Acquired Fund to the Acquiring Fund immediately prior to the Closing.
All cash delivered shall be in the form of currency or immediately
available funds payable to the order of the Custodian.
1.5 At least 15 business days prior to the Closing Date, each
Acquired Fund will provide the corresponding Acquiring Fund with a
schedule of its Fund Assets and its Stated Liabilities, and each
Acquiring Fund will provide the corresponding Acquired Fund with a copy
of its current investment objective and policies. Each Acquired Fund
reserves the right to sell any of the securities or other assets shown
on the schedule of Fund Assets prior to the Closing Date but will not,
without the prior approval of the corresponding Acquiring Fund, acquire
any additional securities other than securities
3
<PAGE> 58
which the Acquiring Fund is permitted to purchase in accordance with
its stated investment objective and policies. At least 10 business days
prior to the Closing Date, the Acquiring Fund will advise the
corresponding Acquired Fund of any investments shown on the schedule
provided by the Acquired Fund which the Acquiring Fund would not be
permitted to hold, pursuant to its stated investment objective and
policies or otherwise. In the event that the Acquired Fund holds any
investments that its corresponding Acquiring Fund would not be
permitted to hold under its stated investment objective or policies,
the Acquired Fund, if requested by the Acquiring Fund and, to the
extent permissible and consistent with the Acquired Fund's own
investment objective and policies, will dispose of such securities
prior to the Closing Date. In addition, if it is determined that the
holdings of the Acquired Fund and the Acquiring Fund, when aggregated,
would contain investments exceeding certain percentage limitations to
which the Acquiring Fund is or will be subject with respect to such
investments, the Acquired Fund, if requested by the Acquiring Fund and,
to the extent permissible and consistent with the Acquired Fund's own
investment objective and policies, will dispose of and/or reinvest a
sufficient amount of such investments as may be necessary to avoid
violating such limitations as of the Closing Date.
1.6 Each Acquired Fund will pay or cause to be paid to its
corresponding Acquiring Fund any dividends or interest received on or
after the Closing Date with respect to Fund Assets transferred to the
Acquiring Fund hereunder. Each Acquired Fund will transfer to the
Acquiring Fund any distributions, rights, or other assets received by
the Acquired Fund after the Closing Date as distributions on, or with
respect to, the Fund Assets transferred. Such distributions, rights or
other assets shall be deemed included in Fund Assets transferred to the
Acquiring Fund on the Closing Date and shall not be separately valued.
1.7 As soon after the Closing Date as is practicable (the
"Liquidation Date"), each Acquired Fund will liquidate and distribute
pro rata to such Acquired Fund's shareholders of record, determined as
of the close of business on the Closing Date (the "Acquired Fund
Shareholders"), the Acquiring Fund Shares received by the Acquired Fund
pursuant to paragraph 1.1. Such liquidation and distribution will be
accomplished by the Acquiring Fund or its transfer agent transferring
the Acquiring Fund Shares to an account for each shareholder on the
books of the Acquiring Fund's transfer agent in the name of each
Acquired Fund Shareholder and representing the pro rata number of the
Acquiring Fund Shares due each Acquired Fund Shareholder. All issued
and outstanding shares of each Acquired Fund will simultaneously be
canceled on the books of the Acquired Fund.
1.8 Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Acquired
Fund shares on the books of the Acquired Fund as of the Closing Date
shall, as a condition of such issuance and transfer, be paid by the
person to whom such Acquiring Fund Shares are to be issued and
transferred.
4
<PAGE> 59
1.9 Following the transfer of Fund Assets by each Acquired
Fund to its corresponding Acquiring Fund, the assumption of the
Acquired Fund's Stated Liabilities by the Acquiring Fund, and the
distribution by the Acquired Fund of the Acquiring Fund Shares received
by it pursuant to paragraph 1.7, Cardinal shall terminate the
registration of such Acquired Fund and its shares at all appropriate
federal and state agencies. Upon the transfer of Fund Assets by all of
the Acquired Funds to their corresponding Acquiring Funds, the
assumption of all of the Acquired Funds' Stated Liabilities by the
Acquiring Funds, and the distribution by all of the Acquired Funds of
the Acquiring Fund Shares received, Cardinal shall dissolve the trust.
Any reporting responsibility of an Acquired Fund is and shall remain
the exclusive responsibility of the Acquired Fund up to and including
the date on which the particular Acquired Fund is terminated, dissolved
and deregistered with federal and state securities or "blue sky"
authorities.
1.10 The failure of one Acquired Fund to consummate the
transactions contemplated hereby shall not affect the consummation or
validity of the distribution of Acquiring Fund Shares to the
shareholders of any other Acquired Fund in liquidation of such Acquired
Fund, and the provisions of this Agreement shall be construed to effect
this intent.
2. VALUATION.
2.1 The value of the Fund Assets of each Acquired Fund to be
acquired by an Acquiring Fund hereunder shall be the current market
value of such Fund Assets computed as of the close of business on the
last business day preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation
procedures set forth in the Acquiring Fund's then-current prospectus or
statement of additional information.
2.2 The net asset value of an Acquiring Fund Share shall be
the net asset value per share computed as of the close of business on
the Valuation Date, using the valuation procedures set forth in the
Acquiring Fund's then-current prospectus or statement of additional
information, provided that if the Acquiring Fund has no assets or
liabilities as of the Valuation Date, the net asset value of an
Acquiring Fund Share shall equal the net asset value per share of the
corresponding Acquired Fund on the Valuation Date.
2.3 The number of Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for each Acquired
Fund's assets shall be determined by dividing the value of the Fund
Assets attributable to the Acquired Fund, net of all known liabilities,
determined using the same valuation procedures referred to in paragraph
2.1, by the net asset value of one Acquiring Fund Share of the
corresponding Acquiring Fund, determined in accordance with
paragraph 2.2.
2.4 All computations of value contemplated by this Section 2
shall be made by Fifth Third in accordance with its regular practice
and shall be reviewed by its
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independent accountants. Fifth Third shall deliver a copy of a
valuation report reviewed by its independent accountants to Cardinal at
the Closing.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be July 13, 1998, or such later
date as the parties may mutually agree. All acts taking place at the
Closing Date shall be deemed to take place simultaneously as of 9:00
a.m. on the Closing Date unless otherwise provided. The Closing shall
be held at 9:00 a.m. at the offices of Fifth Third, Cincinnati, Ohio,
or such other time and/or place as the parties may mutually agree.
3.2 If on the Valuation Date: (a) the primary trading market
for portfolio securities of an Acquiring Fund or the applicable
Acquired Fund shall be closed to trading or trading thereon shall be
restricted; or (b) trading or the reporting of trading shall be
disrupted so that accurate appraisal of the value of the net assets of
the Acquiring Fund or the Acquired Fund is impracticable, the Closing
Date shall be postponed with respect to the affected Acquired Fund
until the first business day after the day when trading shall have been
fully resumed and reporting shall have been restored, or such other
time as the parties may mutually agree.
3.3 Cardinal, on behalf of each Acquired Fund, shall instruct
CMC, as transfer agent for the Acquired Fund, to deliver to Fountain
Square at the Closing, a certificate of an authorized officer stating
that its records contain the names, addresses and taxpayer
identification numbers of the Acquired Fund Shareholders and the number
of outstanding shares owned by each such shareholder as of the close of
business on the Valuation Date. With respect to each Acquired Fund,
Cardinal shall provide Fountain Square and its transfer agent with
immediate access from and after the Closing Date to all documentation,
including computer, electronic or other similar forms, of such records.
Each Acquiring Fund shall issue and deliver on the Closing Date to the
Secretary of Cardinal a confirmation evidencing the Acquiring Fund
Shares to be credited, and that such Acquiring Fund Shares have been
credited to the respective accounts of the Acquired Fund Shareholders
on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party
or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 Each of Cardinal and CMC represents and warrants to
Fountain Square as follows:
(a) Cardinal is a validly existing business trust,
duly organized under the laws of the State of Ohio and has the
power to carry on its business as it is now being conducted
and to carry out its obligations under this Agreement.
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Cardinal has qualified as a foreign business trust in each
jurisdiction where the ownership of its property or the
conduct of its business requires such qualification.
(b) Cardinal is registered under the 1940 Act as an
open-end, management investment company, and such registration
has not been revoked or rescinded and is in full force and
effect as of the date of this Agreement.
(c) Cardinal is not in material breach or violation
of, and the execution, delivery, and performance of this
Agreement, subject to approval by Cardinal's shareholders,
will not result in a material breach or violation of, its
Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease, or other undertaking
to which Cardinal is a party or by which it is bound.
(d) Cardinal has no contracts or other commitments
outstanding which will result in liability to it after the
Closing Date not reflected on the Acquired Funds' balance
sheets other than liabilities in the ordinary course of
business or otherwise disclosed to Fifth Third and Fountain
Square.
(e) No material litigation, administrative proceeding
or investigation of or before any court or governmental body
is currently pending or, to Cardinal's knowledge, threatened
against any Cardinal or Acquired Fund, or any of Cardinal's or
the Acquired Funds' properties or assets which, if adversely
determined, would materially and adversely affect Cardinal's
or the Acquired Fund's financial condition or the conduct of
its business. Neither CMC nor Cardinal knows of any facts
which might form the basis for the institution of such
proceedings, and neither Cardinal nor any Acquired Fund is a
party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially
and adversely affects an Acquired Fund's business or
Cardinal's ability to consummate the transactions herein
contemplated.
(f) The Statement of Assets and Liabilities,
Statement of Operations and Statement of Changes in Net Assets
of each Acquired Fund as of and for the year ended September
30, 1997, have been audited by KPMG Peat Marwick LLP,
independent auditors, and have been prepared in accordance
with generally accepted accounting principles, consistently
applied, and such statements (copies of which have been or
will be furnished to Fountain Square) fairly reflect the
financial condition of each Acquired Fund as of such date, and
there are no liabilities of the Acquired Funds, known to
Cardinal or to CMC, contingent or otherwise, as of such date
not disclosed therein.
(g) Since September 30, 1997, there has not been any
material adverse change in any Acquired Fund's financial
condition, assets, liabilities, or business
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<PAGE> 62
other than changes occurring in the ordinary course of
business, or any incurrence by any Acquired Fund of any
indebtedness for borrowed money, except indebtedness pursuant
to a line of credit established with Fifth Third or as
otherwise disclosed in writing to Fifth Third and Fountain
Square and accepted by the corresponding Acquiring Fund.
(h) At the Closing Date, all federal and other tax
returns and reports of each Acquired Fund required by law (or
permitted extensions thereto) will have been filed, and
related taxes will have been paid or provision will have been
made for the payment thereof for all periods ending on or
before the Closing Date, and to the best of Cardinal's
knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns. All
tax liabilities of Cardinal and each Acquired Fund have been
adequately provided for on its books, and no tax deficiency or
liability of Cardinal or each Acquired Fund has been asserted,
and no question with respect thereto has been raised, by the
Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid.
(i) For each fiscal year (or part thereof) of its
operation, each Acquired Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a
regulated investment company and has taken and will take all
necessary and required actions to maintain such status.
(j) All issued and outstanding shares of each
Acquired Fund are, and at the Closing Date will be, duly
authorized, validly issued and outstanding, and fully paid and
non-assessable. All of the issued and outstanding shares of
each Acquired Fund will, at the time of the Closing, be held
by the persons and in the amounts set forth in the records of
its transfer agent as provided in paragraph 3.3 of this
Agreement. No Acquired Fund has outstanding any options,
warrants or other rights to subscribe for or purchase any
Acquired Fund shares, nor is there outstanding any security
convertible into Acquired Fund shares.
(k) All of the issued and outstanding shares of each
Acquired Fund have been, and as of the Closing Date will be,
duly registered under the Securities Act of 1933, as amended
(the "1933 Act"), and all appropriate notices, or exemptions
from registration, to the extent required thereby under each
state securities or "blue sky" law of every state in which
such Acquired Fund has offered or sold its shares, have been,
and as of the Closing Date, will be filed and maintained.
(l) At the Closing Date, each Acquired Fund will have
good and marketable title to its Fund Assets with full right,
power, and authority to sell, assign, transfer, and deliver
the Fund Assets and Stated Liabilities to be transferred by it
pursuant to this Agreement.
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<PAGE> 63
(m) The execution, delivery, and performance of this
Agreement has been duly authorized by all necessary action on
the part of Cardinal's Board of Trustees and, subject to the
approval of each Acquired Fund's shareholders, this Agreement
constitutes the valid and legally binding obligation of
Cardinal enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and other similar laws
relating to or affecting creditors' rights generally and court
decisions with respect thereto, and to general principles of
equity and the discretion of the court before which a
proceeding is brought (regardless of whether the
enforceability is considered in a proceeding in equity or at
law).
(n) No consent, approval, authorization or order of
any court or governmental authority is required for the
consummation by Cardinal or any Acquired Fund of the
transactions contemplated by this Agreement, except such as
have been or will be obtained under the 1933 Act, the 1934 Act
and the 1940 Act and such as may be required under state
securities or "blue sky" laws.
(o) Materials and information provided by Cardinal,
in connection with the preparation of, or contained in the
Registration Statement (as defined in paragraph 5.5) will not,
on the effective date of the Registration Statement and on the
Closing Date, contain any untrue statement of material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which such statements were made, not
misleading.
4.2 Each of Fountain Square and Fifth Third represents and warrants to
Cardinal as follows:
(a) Fountain Square is a validly existing business
trust, duly organized and in good standing under the laws of
the Commonwealth of Massachusetts and has the power to carry
on its business as it is now being conducted and to carry out
its obligations under this Agreement. Fountain Square has
qualified as a foreign business trust in each jurisdiction
where the ownership of its property or the conduct of its
business requires such qualification.
(b) Fountain Square is registered under the 1940 Act
as an open-end management investment company, and such
registration has not been revoked or rescinded and is in full
force and effect as of the date of this Agreement.
(c) Fountain Square is not in material breach or
violation of, and the execution, delivery, and performance of
this Agreement will not result in a material breach or
violation of, its Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease, or other
undertaking to which Fountain Square is a party or by which it
is bound.
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<PAGE> 64
(d) Fountain Square has no contracts or other
commitments outstanding which will result in liability to it
after the Closing Date not reflected in the Acquiring Funds'
balance sheets other than liabilities in the ordinary course
of business or otherwise disclosed to CMC and Cardinal.
(e) No material litigation, administrative proceeding
or investigation of or before any court or governmental body
is currently pending or, to Fountain Square's knowledge,
threatened against Fountain Square or any Acquiring Fund, or
any of Fountain Square's or the Acquiring Funds' properties or
assets which, if adversely determined, would materially and
adversely affect Fountain Square's or the Acquiring Fund's
financial condition or the conduct of its business. Neither
Fifth Third nor Fountain Square knows of any facts which might
form the basis for the institution of such proceedings, and
neither Fountain Square nor any Acquiring Fund is a party to
or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and
adversely affects its business or its ability to consummate
the transactions herein contemplated.
(f) The Statement of Assets and Liabilities,
Statement of Operations and Statement of Changes in Net Assets
of each Acquiring Fund as of and for the year ended July 31,
1997, have been audited by Ernst & Young, LLP, independent
auditors, and have been prepared in accordance with generally
accepted accounting principles, consistently applied, and such
statements (copies of which have been or will be furnished to
Cardinal) fairly reflect the financial condition of each
Acquiring Fund as of such date, and there are no liabilities
of the Acquiring Funds, known to Fountain Square or Fifth
Third, contingent or otherwise, as of such date not disclosed
therein.
(g) Since July 31, 1997, there has not been any
material adverse change in any Acquiring Fund's financial
condition, assets, liabilities, or business other than changes
occurring in the ordinary course of business, or any
incurrence by any Acquiring Fund of any indebtedness for
borrowed money, except as disclosed in writing to CMC and
Cardinal and accepted by the corresponding Acquired Fund.
(h) The unaudited Statements of Assets and
Liabilities, Statement of Operations and Statements of Changes
in Net Assets for each Acquiring Funds for the six months
ended January 31, 1998 will be prepared in accordance with
generally accepted accounting principles and furnished to
Cardinal promptly upon completion thereof. Such statements
will fairly reflect the financial condition of each Acquiring
Fund as of such date.
(i) At the Closing Date, all federal and other tax
returns and reports of each Acquiring Fund required by law (or
permitted extensions thereto) will
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<PAGE> 65
have been filed and related taxes will have been paid or
provision will have been made for the payment thereof for all
periods ending on or before the Closing Date, and to the best
of Fountain Square's knowledge, no federal or other tax return
is currently under audit and no assessment has been asserted
with respect to such returns. All tax liabilities of Fountain
Square and each Acquiring Fund have been adequately provided
for on its books, and no tax deficiency or liability of
Fountain Square or each Acquiring Fund has been asserted, and
no question with respect thereto has been raised, by the
Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid.
(j) For each fiscal year (or part thereof) of its
operation, each Acquiring Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a
regulated investment company and has taken and will take all
necessary and required actions to maintain such status.
(k) All issued and outstanding shares of each
Acquiring Fund are, including the Acquiring Fund Shares to be
issued to the Acquired Fund Shareholders pursuant hereto, and
at the Closing Date will be, duly authorized, validly issued
and outstanding, and fully paid and non-assessable. No
Acquiring Fund has outstanding any options, warrants or other
rights to subscribe for or purchase any Acquiring Fund Shares,
nor is there outstanding any security convertible into
Acquiring Fund Shares.
(l) All of the issued and outstanding shares of each
Acquiring Fund are, and as of the Closing Date will be, duly
registered under the 1933 Act and all appropriate notices, or
exemptions from registration, to the extent required thereby
under each state securities or "blue sky" law of every state
in which such Acquiring Fund has offered or sold its shares,
have been, and as of the Closing Date, will be filed and
maintained.
(m) At the Closing Date, each Acquiring Fund will
have good and marketable title to its assets with full right,
power, and authority to purchase the Fund Assets and assume
the Stated Liabilities of each Acquired Fund to be transferred
to it pursuant to this Agreement.
(n) The execution, delivery, and performance of this
Agreement has been duly authorized by all necessary action on
the part of Fountain Square's Board of Trustees, and, subject
to the approval by each Acquired Fund's shareholders, this
Agreement constitutes the valid and legally binding obligation
of Fountain Square enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other
similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto, and to
general principles of equity and the
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<PAGE> 66
discretion of the court before which a proceeding is brought
(regardless of whether the enforceability is considered in a
proceeding in equity or at law).
(o) No consent, approval, authorization or order of
any court or governmental authority is required for the
consummation by Fountain Square or any Acquiring Fund of the
transactions contemplated by this Agreement, except such as
have been or will be obtained under the 1933 Act, the 1934 Act
and the 1940 Act and such as may be required under state
securities or "blue sky" laws.
(p) The Registration Statement (as defined in
paragraph 5.5), except with respect to materials and
information provided by Cardinal and contained therein, will,
on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which such statements were made,
not misleading.
(q) The current prospectuses and statements of
additional information of each Acquiring Fund set forth in
Post-Effective Amendments to the Trust's registration
statement on Form N-1A, as supplemented, (collectively, the
"Acquiring Fund Prospectuses"), will as of their date conform
in all material respects to the applicable requirements of the
1933 Act and the 1940 Act and the rules and regulations of the
Securities and Exchange Commission (the "SEC") thereunder and
will not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(r) Fifth Third will assume all of Fountain Square's
expenses of the Reorganization, including legal fees of
Fountain Square.
(s) Fifth Third will assume all of Cardinal's
expenses of the Reorganization, including legal fees of
Cardinal, and the costs of preparing, printing, copying, and
mailing proxy solicitation materials to each Acquired Fund's
shareholders.
5. COVENANTS OF FOUNTAIN SQUARE, FIFTH THIRD, CARDINAL AND CMC.
5.1 Fountain Square and Cardinal each will operate its
business in the ordinary course between the date hereof and the Closing
Date, it being understood that such ordinary course of business will
include the customary payment of dividends and distributions.
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<PAGE> 67
5.2 Subject to the provisions of this Agreement, Fountain
Square and Cardinal will each take, or cause to be taken, all action,
and do or cause to be done, all things reasonably necessary, proper, or
advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.3 As promptly as practicable, but in any case within sixty
days after the Closing Date, Cardinal, on behalf of each Acquired Fund,
shall furnish its corresponding Acquiring Fund, in such form as is
reasonably satisfactory to Fountain Square, a statement of the earnings
and profits of each Acquired Fund for federal income tax purposes which
will be carried over to the applicable Acquiring Fund as a result of
Section 381 of the Code and which will be certified by an authorized
officer of Cardinal and an authorized officer of CMC.
5.4 On the Closing Date, Cardinal, on behalf of each Acquired
Fund, shall furnish to its corresponding Acquiring Fund, a final
statement of the total amount of Fund Assets and Stated Liabilities of
each Acquired Fund as of the Closing Date, which statement shall be
certified by an officer of Cardinal as being determined in accordance
with generally accepted accounting principles consistently applied and
as being valued in accordance with Section 2 hereof.
5.5 As promptly as practicable after the date hereof, Cardinal
will call a meeting of each Acquired Fund's shareholders to consider
and act upon this Agreement and to take all other action necessary and
appropriate to obtain approval of the transactions contemplated herein.
Fountain Square shall prepare and file with the SEC a Registration
Statement on Form N-14 complying in all material respects with the
requirements of the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act, and applicable rules and
regulations thereunder (the "Registration Statement"), relating to such
meeting of the shareholders of each Acquired Fund. Fountain Square
shall take all necessary and reasonable actions to have such
Registration Statement declared effective by the SEC. Cardinal agrees
to provide Fountain Square with information relating to each Acquired
Fund which Fountain Square deems necessary, proper or advisable in the
preparation of the Registration Statement or consummation of the
transactions contemplated herein.
5.6 Prior to the Closing, each Acquired Fund shall have
declared a dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders
all of its investment company taxable income for its taxable year ended
September 30, 1997 and the short taxable year beginning on October 1,
1997 and ending on the Closing Date (computed without regard to any
deduction for dividends paid), and all of its net capital gain realized
in its taxable year beginning on October 1, 1997 and ending on the
Closing Date (after reduction for any capital loss carryover).
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<PAGE> 68
5.7 As soon after the Closing Date as is reasonably
practicable, Cardinal, on behalf of each Acquired Fund shall (i)
prepare and file all federal and other tax returns and reports of each
Acquired Fund required by law to be filed with respect to all periods
ending on or before the Closing Date but not previously filed, and (ii)
pay all federal and other taxes shown as due and/or all federal and
other taxes that were unpaid as of the Closing Date.
5.8 As soon after the Closing Date as is reasonably
practicable, Cardinal will file any final regulatory reports,
including, but not limited to, any Form N-SAR and Rule 24f-2 filings
with respect to the Acquired Funds, and will take all other steps as
are necessary and proper to effect the termination or declassification
of such Acquired Funds in accordance with the laws of the state of Ohio
and other applicable requirements.
5.9 For a period of three years after the Closing Date, at
least 75 percent of the Trustees of Fountain Square shall not be
"interested persons" (as defined in the 1940 Act) of Fifth Third or
CMC.
5.10 For a period of two years after the Closing Date no
unfair burden shall be imposed upon Fountain Square or an Acquiring
Fund as a result of the transactions contemplated herein; in
furtherance of such covenant, during such two-year period, Fountain
Square will not (a) pay, directly or indirectly, any compensation to
Fifth Third, CMC or any interested person of either of them (i) for
other than bona fide investment advisory or other services, which other
bona fide services may include, without limitation, serving as
administrator, sub-administrator, custodian, transfer agent, fund
accountant or a dealer under a Rule 12b-1 related agreement, or (ii)
for the purchase or sale of securities or other property to, from or on
behalf of Fountain Square, other than where such sales are permitted by
Section 15(f)(1)(B) of the 1940 Act, (b) enter into, participate in, or
pay compensation in connection with any arrangement that facilitates or
is intended to facilitate the payment of compensation proscribed by (a)
herein, or (c) increase compensation payable to Fifth Third, CMC or any
interested person of either of them which results in an increase in the
expense ratios of any of the Acquiring Funds, as presented to the
shareholders of the Acquired Funds in the Registration Statement.
5.11 Fountain Square agrees to use all best efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940
Act, and all applicable state securities or "blue sky" laws in order to
continue its operations after the Closing Date.
5.12 Cardinal, on behalf of each Acquired Fund, covenants that
the corresponding Acquiring Fund Shares to be issued hereunder are not
being acquired for the purpose of making any distribution thereof,
other than in accordance with the terms of this Agreement.
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<PAGE> 69
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF FOUNTAIN SQUARE.
The obligations of Fountain Square to consummate the transactions
provided for herein shall be subject to the performance by Cardinal and CMC of
all the obligations to be performed by them hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of Cardinal and CMC
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing
Date.
6.2 Cardinal shall have delivered to Fountain Square a
statement of the Fund Assets and Stated Liabilities of each Acquired
Fund, together with a list of each Acquired Fund's portfolio securities
showing the tax costs of such securities by lot and the holding periods
of such securities, as of the Closing Date, certified by an authorized
officer of Cardinal.
6.3 Cardinal and CMC shall have delivered to Fountain Square
on the Closing Date a certificate executed in their names by two of
their respective officers, in form and substance reasonably
satisfactory to Fountain Square, to the effect that the representations
and warranties of Cardinal and CMC made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such
other matters as Fountain Square shall reasonably request.
6.4 On or before the Closing Date, all conditions to the
closing of the Agreement and Plan of Merger among The Ohio Company,
Fifth Third Bancorp and Fifth Third M Corp. dated December 22, 1997,
shall have been satisfied or waived and such closing shall have
occurred.
6.5 Fountain Square shall have received an opinion of Baker &
Hostetler LLP, in form reasonably satisfactory to Fountain Square and
its counsel and dated the Closing Date, to the effect that (i) Cardinal
is a validly existing business trust, duly organized under the laws of
the state of Ohio, its Report of Operation of Business Trust is in full
force and effect and Cardinal has the power to carry on its business as
it is now being conducted and to carry out its obligations under this
Agreement, (ii) this Agreement has been duly authorized, executed, and
delivered by Cardinal and, assuming due authorization, execution and
delivery of this Agreement by Fountain Square, CMC and Fifth Third, is
a valid and legally binding obligation of Cardinal, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto,
and to general principles of equity and the discretion of the court
before
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<PAGE> 70
which a proceeding is brought (regardless of whether the enforceability
is considered in a proceeding in equity or at law), (iii) each Acquired
Fund has the full right, power and authority to sell, assign, transfer
and deliver the Fund Assets and Stated Liabilities, and, in accordance
with the terms of this Agreement, each Acquired Fund will have duly
sold, assigned, conveyed, transferred and delivered such assets and
liabilities to Fountain Square, (iv) the execution, delivery and
performance of this Agreement will not result in a material breach or
violation of Cardinal's Declaration of Trust or By-Laws, or any
agreement, indenture, instrument, contract, lease, or other undertaking
known to such counsel, to which Cardinal is a party or by which it is
bound; provided that, such counsel may rely upon a certificate of an
officer of Cardinal whose responsibility it is to advise Cardinal with
respect to such matters, (v) no consent, approval, authorization or
order of any court or governmental authority is required for the
consummation by Cardinal or any Acquired Fund of the transactions
contemplated by this Agreement, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required
under state securities or "blue sky" laws; provided that such opinion
shall not be deemed to apply to Fountain Square's compliance
obligations under the 1933 Act, 1934 Act, 1940 Act, or state securities
or "blue sky" laws, and (vi) no material litigation, administrative
proceeding or investigation of or before any court or governmental body
is currently pending or, to such counsel's knowledge, threatened
against Cardinal or any Acquired Fund, or any of Cardinal's or the
Acquired Funds' properties or assets which, if adversely determined,
would materially and adversely affect the Acquired Fund's financial
condition or the conduct of its business.
6.6 With respect to each Acquired Fund, Cardinal's Board of
Trustees, including a majority of Trustees who are not "interested
persons" as defined under the 1940 Act, has determined that the
Reorganization is in the best interests of each Acquired Fund and that
the interests of the existing shareholders of each Acquired Fund would
not be diluted as a result of the Reorganization.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF CARDINAL.
The obligations of Cardinal to consummate the transactions provided for
herein shall be subject to the performance by Fountain Square and Fifth Third of
all the obligations to be performed by them hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Fountain Square and
Fifth Third contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the
Closing Date with the same force and effect as if made on and as of the
Closing Date.
7.2 Fountain Square and Fifth Third shall have delivered to
Cardinal on the Closing Date a certificate executed in their names by
two of their respective authorized
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<PAGE> 71
officers, in form and substance reasonably satisfactory to Cardinal, to
the effect that the representations and warranties of Fountain Square
and Fifth Third made in this Agreement are true and correct at and as
of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as
Cardinal shall reasonably request.
7.3 On or before the Closing Date, all conditions to the
closing of the Agreement and Plan of Merger among The Ohio Company,
Fifth Third Bancorp and Fifth Third M Corp. dated December 22, 1997,
shall have been satisfied or waived and such closing shall have
occurred.
7.4 Cardinal shall have received an opinion of Howard & Howard
Attorneys, P.C., counsel to Fountain Square in a form reasonably
satisfactory to Cardinal and its counsel and dated the Closing Date, to
the effect that (i) Fountain Square is a validly existing business
trust, duly organized and in good standing under the laws of the
Commonwealth of Massachusetts and has the power to carry on its
business as it is now being conducted and to carry out this Agreement,
(ii) the Acquiring Fund Shares to be issued to the Acquired Fund
Shareholders pursuant to this Agreement are duly authorized, validly
issued and outstanding, and fully paid and non-assessable and no
Acquiring Fund has outstanding any options, warrants or other rights to
subscribe for or purchase any Acquiring Fund Shares, nor is there
outstanding any security convertible into Acquiring Fund Shares, (iii)
this Agreement has been duly authorized, executed and delivered by
Fountain Square and, assuming due authorization, execution and delivery
of this Agreement by Cardinal, CMC and Fifth Third, is a valid and
legally binding obligation of Fountain Square, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws relating to or affecting the
enforcement of creditors' rights generally and court decisions with
respect thereto and to general principles of equity and the discretion
of the court before which a proceeding is brought (regardless of
whether the enforceability is considered in a proceeding in equity or
at law), (iv) the execution, delivery and performance of this Agreement
will not result in a material breach or violation of Fountain Square's
Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease, or other undertaking known to such counsel
to which Fountain Square or any Acquiring Fund is a party or by which
it is bound; provided that, such counsel may rely upon a certificate of
an officer of Fountain Square whose responsibility it is to advise
Fountain Square with respect to such matters, (v) no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by Fountain Square or any Acquiring Fund
of the transactions contemplated by this Agreement, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act and
such as may be required under state securities or "blue sky" laws;
provided that, such opinion shall not be deemed to apply to Cardinal's
compliance obligations under the 1933 Act, 1934 Act, 1940 Act, or state
securities or "blue sky" laws, and (vi) no material litigation,
administrative proceeding or investigation of or before any court or
governmental body is currently pending or, to such counsel's knowledge,
17
<PAGE> 72
threatened against Fountain Square or any Acquiring Fund, or any of
Fountain Square's or the Acquiring Funds' properties or assets which,
if adversely determined, would materially and adversely affect the
Acquiring Fund's financial condition or the conduct of its business.
7.5 With respect to each Acquiring Fund, Fountain Square's
Board of Trustees, including a majority of Trustees who are not
"interested persons" as defined under the 1940 Act, has determined that
the Reorganization is in the best interests of each Acquiring Fund and
that the interests of the existing shareholders of each Acquiring Fund
would not be diluted as a result of the Reorganization.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FOUNTAIN SQUARE AND
CARDINAL.
If any of the conditions set forth below are not satisfied on or before
the Closing Date with respect to Cardinal or Fountain Square, the other party to
this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein
shall have been approved by the requisite vote of the holders of
beneficial interest of each Acquired Fund in accordance with the laws
of the state of Ohio and Cardinal's Declaration of Trust and By-Laws.
8.2 On the Closing Date no action, suit or other proceeding
shall be pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in
connection with, this Agreement or the transactions contemplated
herein.
8.3 All consents, orders, permits, and exemptions of federal,
state, and local regulatory authorities (including those of the SEC and
of state "blue sky" securities authorities) deemed necessary by
Fountain Square or Cardinal to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order, or
permit would not involve a risk of a material adverse effect on the
assets or properties of Fountain Square or Cardinal.
8.4 The Registration Statement shall have been declared
effective under the 1933 Act by the SEC and no stop orders suspending
the effectiveness thereof shall have been issued and, to the best
knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened, or
contemplated under the 1933 Act.
8.5 For each Acquiring Fund and corresponding Acquired Fund,
Fountain Square and Cardinal shall have received an opinion of Howard &
Howard Attorneys,
18
<PAGE> 73
P.C., substantially to the effect that, on the basis of written
representations made by Cardinal and Fountain Square, the existing
provisions of the Code, current administrative rules, and court
decisions, for federal income tax purposes:
(a) The transfer of all or substantially all of the
Acquired Fund's assets in exchange for shares of the
applicable Acquiring Fund and the distribution of such shares
to the shareholders of the Acquired Fund in liquidation of the
Acquired Fund will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code; (b) no gain or loss
will be recognized by an Acquiring Fund upon the receipt of
the assets of the applicable Acquired Fund solely in exchange
for the Acquiring Fund Shares; (c) no gain or loss will be
recognized by an Acquired Fund upon the transfer of the
applicable Acquired Fund assets to the Acquiring Fund in
exchange for the Acquiring Fund Shares or upon the
distribution (whether actual or constructive) of the Acquiring
Fund Shares to Acquired Fund shareholders in exchange for
their shares of the Acquired Fund; (d) no gain or loss will be
recognized by the Acquired Fund shareholders upon the exchange
of their Acquired Fund shares for the applicable Acquiring
Fund Shares; (e) the tax basis of each Acquired Fund's assets
acquired by the applicable Acquiring Fund will be the same as
the tax basis of such assets to the Acquired Fund immediately
prior to the Reorganization; (f) the tax basis of the
Acquiring Fund Shares received by each of the Acquired Fund
shareholders pursuant to the Reorganization will be the same
as the tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization; (g) the
holding period of the assets of each Acquired Fund in the
hands of the applicable Acquiring Fund will include the period
during which those assets were held by the Acquired Fund; and
(h) the holding period of the Acquiring Fund Shares to be
received by each Acquired Fund's shareholders will include the
period during which the Acquired Fund shares exchanged
therefor were held by such shareholder (provided the Acquired
Fund shares were held as capital assets on the date of the
Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing
Date (a) by mutual written consent of Cardinal and Fountain Square or
(b) by either Cardinal or Fountain Square by written notice to the
other, without liability on the part of either party hereto, if
circumstances should develop that, in the opinion of either such Board
of Trustees, proceeding with the Reorganization is not in the best
interests of that party's shareholders.
9.2 If this Agreement is terminated and the transaction
contemplated hereby are abandoned pursuant to the provisions of this
Section 9, this Agreement shall become void and have no effect, without
any liability on the part of any party hereto or the
19
<PAGE> 74
Trustees, officers or shareholders of Cardinal or of Fountain Square,
in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Trustees of Cardinal or the Board of Trustees of
Fountain Square if, in the judgment of both Boards of Trustees, such waiver will
not alter the shares to be received by shareholders of Cardinal or otherwise
have a material adverse effect on the benefits intended under this Agreement to
the shareholders of Cardinal or of Fountain Square, as the case may be.
11. AMENDMENT.
This Agreement may be amended, modified or supplemented at any time in
such manner as may be mutually agreed upon in writing by Cardinal and Fountain
Square, authorized by their respective Boards of Trustees and notwithstanding
approval thereof by each Acquired Fund's shareholders; provided, that if so
approved by an Acquired Fund's shareholders, no amendment shall be made which
substantially changes the terms hereof.
12. NO BROKER'S OR FINDER'S FEE.
Cardinal and Fountain Square each represents that there is no person
with whom it has dealt who by reason of such dealings is entitled to any
broker's or finder's or other similar fee or commission arising out of the
transactions contemplated by this Agreement.
13. INDEMNIFICATION.
13.1
(a) Each Acquired Fund will indemnify and hold
harmless, out of its own assets and no others, the
corresponding Acquiring Fund and Fountain Square's Trustees
and officers (for purposes of this paragraph, the "Indemnified
Parties") against any and all expenses, losses, claims,
damages and liabilities at any time imposed upon or reasonably
incurred by any one or more of the Indemnified Parties in
connection with, arising out of, or resulting from any claim,
action, suit or proceeding in which any one or more of the
Indemnified Parties may be involved or with which any one or
more of the Indemnified Parties may be threatened by reason of
any untrue statement or alleged untrue statement of a material
fact relating to Cardinal or any Acquired Fund contained in
the Registration Statement, any Acquired Fund Prospectus or
related Statement of Additional Information, or any amendment
or supplement to any of the foregoing, or arising out of or
based upon the omission or alleged omission to state in any of
the foregoing a material fact relating to Cardinal or any
Acquired Fund
20
<PAGE> 75
required to be stated therein or necessary to make the
statements relating to Cardinal or any Acquired Fund therein
not misleading, including, without limitation, any amounts
paid by any one or more of the Indemnified Parties in a
reasonable compromise or settlement of any such claim, action,
suit or proceeding, or threatened claim, action, suit or
proceeding made with the prior consent of Cardinal.
(b) The Indemnified Parties will notify Cardinal in
writing within ten days after the receipt by any one or more
of the Indemnified Parties of any notice of legal process or
any suit brought against or claim made against such
Indemnified Party as to any matters covered by this
paragraph 13.1. Cardinal shall be entitled to participate at
its own expense in the defense of any claim, action, suit or
proceeding covered by this paragraph 13.1, or, if it so
elects, to assume at its expense by counsel satisfactory to
the Indemnified Parties the defense of any such claim, action,
suit or proceeding, and if Cardinal elects to assume such
defense, the Indemnified Parties shall be entitled to
participate in the defense of any such claim, action, suit or
proceeding at their own expense. The obligation of each of the
Acquired Funds under this paragraph 13.1 to indemnify and hold
harmless the Indemnified Parties shall constitute a guarantee
of any expenses, losses, claims, damages and liabilities
required to be paid by it under paragraph 13.1 without the
necessity of the Indemnified Parties' first paying the same.
13.2
(a) Each Acquiring Fund will indemnify and hold
harmless, out of its own assets and no others, the
corresponding Acquired Fund and Cardinal's Trustees and
officers (for purposes of this paragraph, the "Indemnified
Parties") against any and all expenses, losses, claims,
damages and liabilities at any time imposed upon or reasonably
incurred by any one or more of the Indemnified Parties in
connection with, arising out of, or resulting from any claim,
action, suit or proceeding in which any one or more of the
Indemnified Parties may be involved or with which any one or
more of the Indemnified Parties may be threatened by reason of
any untrue statement or alleged untrue statement of a material
fact relating to Fountain Square or any Acquiring Fund
contained in the Registration Statement, any Acquiring Fund
Prospectus or related Statement of Additional Information, or
any amendment or supplement to any of the foregoing, or
arising out of or based upon the omission or alleged omission
to state in any of the foregoing a material fact relating to
Fountain Square or any Acquiring Fund required to be stated
therein or necessary to make the statements relating to
Fountain Square or any Acquiring Fund therein not misleading,
including, without limitation, any amounts paid by any one or
more of the Indemnified Parties in a reasonable compromise or
settlement of any such claim, action, suit
21
<PAGE> 76
or proceeding, or threatened claim, action, suit or proceeding
made with the prior consent of Fountain Square.
(b) The Indemnified Parties will notify Fountain
Square in writing within ten days after the receipt by any one
or more of the Indemnified Parties of any notice of legal
process or any suit brought against or claim made against such
Indemnified Party as to any matters covered by this
paragraph 13.2. Fountain Square shall be entitled to
participate at its own expense in the defense of any claim,
action, suit or proceeding covered by this paragraph 13.2, or,
if it so elects, the assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any
such claim, action, suit or proceeding, and, if Fountain
Square elects to assume such defense, the Indemnified Parties
shall be entitled to participate in the defense of any such
claim, action, suit or proceeding at their own expense. The
obligation of each of the Acquiring Funds under this
paragraph 13.2 to indemnify and hold harmless the Indemnified
Parties shall constitute a guarantee of payment so that the
Acquiring Funds will pay in the first instance any expenses,
losses, claims, damages and liabilities required to be paid by
it under this paragraph 13.2 without the necessity of the
Indemnified Parties' first paying the same.
14. MISCELLANEOUS.
14.1 The representations, warranties and covenants included or
provided for herein shall survive consummation of the transactions
contemplated hereby.
14.2 This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject
matter hereof, and merges and supersedes all prior discussions,
agreements, and understandings of every kind and nature between them
relating to the subject matter hereof. Neither party shall be bound by
any condition, definition, warranty, or representation, other than as
set forth or provided in this Agreement or as may be set forth in a
later writing signed by the party to be bound thereby.
14.3 This Agreement shall be governed and construed in
accordance with the internal laws of the state of Ohio, without giving
effect to such jurisdiction's conflicts of laws principles.
14.4 This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be
deemed to be an original.
14.5 The article and paragraph headings contained herein are
for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.
22
<PAGE> 77
14.6 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations hereunder
shall be made by any party without the written consent of the other
parties. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm, or corporation,
other than the parties hereto and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
14.7 Cardinal and CMC are hereby expressly put on notice of
the limitation of liability as set forth in the Declaration of Trust of
Fountain Square and agrees that the obligations assumed by Fountain
Square pursuant to this Agreement shall be limited in any case to
Fountain Square and its assets and Cardinal shall not seek satisfaction
of any such obligation from the shareholders of Fountain Square, the
Trustees, officers, or employees of Fountain Square or any of them.
14.8 Fountain Square and Fifth Third are hereby expressly put
on notice of the limitation of liability as set forth in the
Declaration of Trust of Cardinal, which is on file with the Secretary
of State of Ohio, and agrees that the obligations assumed by Cardinal
pursuant to this Agreement shall be limited in any case to Cardinal and
its assets and Fountain Square shall not seek satisfaction of any such
obligation from the shareholders of Cardinal, the Trustees, officers,
or employees of Cardinal or any of them.
14.9 If the transactions contemplated by this Agreement and
Plan of Reorganization have not been completed by December 31, 1998,
the Agreement shall automatically terminate on that date unless a later
date is agreed to in writing by all parties to this Agreement.
IN WITNESS WHEREOF, each of Cardinal, CMC, Fountain Square, and Fifth
Third have caused this Agreement and Plan of Reorganization and Liquidation to
be executed and attested on its behalf by its duly authorized representatives as
of the date first above written.
Attest Cardinal:
THE CARDINAL GROUP
By:
- --------------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
23
<PAGE> 78
Attest CMC:
CARDINAL MANAGEMENT GROUP
By:
- --------------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
Attest Foundation Square:
FOUNDATION SQUARE FUNDS
By:
- --------------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
Attest Fifth Third:
FIFTH THIRD BANK
By:
- --------------------------------- ---------------------------------
Name:
-------------------------------
Title:
------------------------------
24
<PAGE> 79
SCHEDULE A
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
<TABLE>
<CAPTION>
Acquired Fund Acquiring Fund
------------- --------------
<S> <C> <C> <C>
1. Cardinal Government Securities Money 1. Fountain Square Government Cash Reserves
Market Fund Fund
Retail Portion of Shares(1) Investment A Shares
Institutional Portion of Shares(2) Institutional Shares(3)
2. Cardinal Tax Exempt Money Market Fund 2. Fountain Square Tax Exempt Money Market
Retail Portion of Shares(1) Fund(4)
Institutional Portion of Shares(2) Investment A Shares(4)
Institutional Shares(4)
3. The Cardinal Fund 3. Fountain Square Cardinal Fund(4)
Investor A Shares Investment A Shares(4)
Investor Y Shares Institutional Shares(4)
4. Cardinal Government Obligations Fund 4. Fountain Square Bond Fund for Income
Investor A Shares Investment A Shares
Investor Y Shares Institutional Shares(4)
5. Cardinal Aggressive Growth Fund 5. Fountain Square Mid Cap Fund
Investor A Shares Investment A Shares
Investor Y Shares Institutional Shares(4)
6. Cardinal Balanced Fund 6. Fountain Square Balanced Fund
Investor A Shares Investment A Shares
Investor Y Shares Institutional Shares(4)
</TABLE>
(1) Holders of shares of Cardinal Government Securities Money Market Fund and
Cardinal Tax Exempt Money Market Fund who are not eligible to invest in
Institutional Shares of the Fountain Square Funds as of the Closing Date will
receive Investment A Shares.
(2) Holders of shares of Cardinal Government Securities Money Market Fund and
Cardinal Tax Exempt Money Market Fund who are eligible to invest in
Institutional Shares of the Fountain Square Funds as of the Closing Date will
receive Institutional Shares.
(3) Existing Trust Shares of Fountain Square Government Cash Reserves Fund will
be renamed Institutional Shares prior to the Closing Date.
(4) To be created prior to the Closing Date.
Note: Investment A Shares of the Funds are subject to Rule 12b-1 fees of 25 b.p.
and a front-end sales charge of 4.50%. Investment A Shares are sold to retail
customers.
Institutional Shares of the Funds are not subject to any Rule 12b-1 fees or
sales charges of any kind. Institutional Shares are sold only to clients of
Fifth Third Bank who make purchases through the Fifth Third Trust Department,
qualified employee benefit plans, and broker-dealers, investment advisors,
financial planners and certain other financial institutions who place trades for
their own accounts or the accounts of their clients for a management, consulting
or other fee.
<PAGE> 80
THE CARDINAL GROUP
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
[Name and Address of Shareholder]
Account Number:
Shares:
Control No:
TO VOTE, MARK BLOCKS BELOW IN BLUE INK AS FOLLOWS: X
KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
THE CARDINAL GROUP
This Proxy is Solicited on Behalf of
the Board of Trustees of the Group
The undersigned hereby appoints H. Keith
Allen, Frank W. Siegel and James M
Schrack II, and each of them, with full
power of substitution, proxies to vote
and act with respect to all Shares of
[Name of Applicable Fund]
(the "Fund") of THE CARDINAL GROUP (the "Group"),
which the undersigned is entitled to vote, at the
Special Meeting of Shareholders of the Group to be
held Friday, July 10, 1998, at the National City
Board Room, 3rd Floor, 155 East Broad Street,
Columbus, Ohio, at 9:00 A.M. (Eastern Time) and at
any and all adjournments thereof, on the following
proposal and any other matters that may properly
come before the meeting.
PLEASE DATE, SIGN AND MAIL PROMPTLY
The Shares represented by this proxy will be voted upon the proposal
listed hereon in accordance with the instructions given by the shareholder, but
if no instructions are given, and this proxy is properly executed and returned
to the Group, this proxy will be voted FOR the proposal and in accordance with
the best judgment of the proxies on any other matter which properly comes before
the Meeting.
VOTE ON PROPOSAL
1 Approval of the Agreement and Plan of Reorganization and Liquidation by
and between Fountain Square Funds, Fifth Third Bank, The Cardinal Group
and Cardinal Management Corp.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders dated May 27, 1998, and the Proxy Statement attached
thereto.
(Please sign legibly exactly as the name is printed above or as it
appears on your account statement.)
- ----------------------------------- ----------------------------------
Signature Date Signature (Joint Owner) Date
<PAGE> 81
STATEMENT OF ADDITIONAL INFORMATION
May 27, 1998
THE CARDINAL GROUP
155 East Broad Street
Columbus, Ohio 43215
Telephone Number: (800) 282-9446
FOUNTAIN SQUARE FUNDS
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Telephone Number: (888) 799-5353
Relating to
Special Meeting of Shareholders
of
The Cardinal Group
July 10, 1998
This Statement of Additional Information is not a prospectus. A
Combined Proxy Statement/Prospectus, dated May 27, 1998, related to the
above-referenced matter may be obtained by writing to or calling The Cardinal
Group or Fountain Square Funds at the addresses and telephone numbers shown
above. This Statement of Additional Information should be read in conjunction
with such Combined Proxy Statement/Prospectus.
<PAGE> 82
TABLE OF CONTENTS
INFORMATION INCORPORATED BY REFERENCE..............................B-1
GENERAL INFORMATION................................................B-2
INTRODUCTORY NOTE TO PRO FORMA FINANCIAL STATEMENTS................B-2
2
<PAGE> 83
INFORMATION INCORPORATED BY REFERENCE
1. The information relating to Investment A Shares of Fountain Square
Mid Cap Fund, Fountain Square Balanced Fund, and Fountain Square Bond Fund For
Income, portfolios of Fountain Square Funds, contained in the Combined Statement
of Additional Information of Fountain Square Funds, dated November 30, 1997, as
supplemented, is incorporated by reference from Fountain Square's Post-Effective
Amendment No. 25 to its Registration Statement on Form N-1A (File No. 33-24848)
which was filed with the Securities and Exchange Commission on November 28,
1997.
2. The information relating to Investment A Shares and Institutional
Shares (formerly known as Trust Shares) of Fountain Square Government Cash
Reserves Fund, a portfolio of Fountain Square Funds, contained in the Combined
Statement of Additional Information of Fountain Square Government Cash Reserves
Fund, dated September 30, 1997, as supplemented, is incorporated by reference
from Fountain Square's Post-Effective Amendment No. 23 to its Registration
Statement on Form N-1A (File No. 33-24848) which was filed with the Securities
and Exchange Commission on September 30, 1997.
3. The information relating to each of the portfolios of The Cardinal
Group contained in the Statement of Additional Information of The Cardinal
Group, dated January 30, 1998, as supplemented, is incorporated by reference
from Cardinal's Post-Effective Amendment No. 10 to its Registration Statement on
Form N-1A (File No. 33-59984) which was filed with the Securities and Exchange
Commission on January 28, 1998.
4. The information relating to Investment A Shares of Fountain Square
Mid Cap Fund, Fountain Square Balanced Fund, and Fountain Square Bond Fund For
Income contained in the audited financial statements of Fountain Square, dated
July 31, 1997, is incorporated by reference from Fountain Square's Annual Report
to Shareholders which was filed with the Securities and Exchange Commission on
or about October 9, 1997 (File No. 811-05669).
5. The information relating to Investment A Shares and Institutional
Shares (formerly known as Trust Shares) of Fountain Square Government Cash
Reserves Fund contained in the audited financial statements of Fountain Square
Cash Reserves Fund, dated July 31, 1997, is incorporated by reference from
Fountain Square's Post-Effective Amendment No. 23 to its Registration Statement
on Form N-1A (File No. 33-24848) which was filed with the Securities and
Exchange Commission on September 30, 1997.
6. The information relating to Investment A Shares of Fountain Square
Mid Cap Fund, Fountain Square Balanced Fund, and Fountain Square Bond Fund For
Income, and Investment A Shares and Institutional Shares (formerly known as
Trust Shares) of Fountain Square Government Cash Reserves Fund contained in the
unaudited financial statements of Fountain Square, dated January 31, 1998, are
incorporated by reference from Fountain Square's Semi-Annual Report to
Shareholders which was filed with the Securities and Exchange Commission on or
about April 1, 1998 (File No. 811-05699).
B-1
<PAGE> 84
7. The information relating to each of the portfolios of The Cardinal
Group contained in the audited financial statements of The Cardinal Group, dated
September 30, 1997, is incorporated by reference from Cardinal's Annual Report
to Shareholders which was filed with the Securities and Exchange Commission on
or about December 10, 1997 (File No. 811-07588).
8. The information relating to Investment A Shares and Institutional
Shares of Fountain Square Cardinal Fund and Fountain Square Tax Exempt Money
Market Fund and relating to Institutional Shares of Fountain Square Balanced
Fund, Fountain Square Mid Cap Fund and Fountain Square Bond Fund For Income,
contained in the applicable Statements of Additional Information, dated May 20,
1998, as supplemented, is incorporated by reference from Fountain Square's
Post-Effective Amendment No. 27 to its Registration Statement on Form N-1A
(File No. 33-24848) which was filed with the Securities and Exchange Commission
on March 6, 1998.
GENERAL INFORMATION
The proposed Reorganization contemplates: (i) the transfer of all of
the assets and stated liabilities of each of the Cardinal Funds to a
corresponding Fountain Square Fund in exchange for shares of comparable classes
of such corresponding Fountain Square Fund; and (ii) the distribution pro rata
of Fountain Square Fund shares to the shareholders of the Cardinal Funds in
complete liquidation of the Cardinal Funds. The Reorganization is subject to a
number of conditions with respect to each Cardinal Fund, including shareholder
approval. Following the Reorganization, The Cardinal Group will wind up its
affairs and deregister as an investment company under the 1940 Act.
As a result of the proposed Reorganization, a Cardinal Fund shareholder
will become a shareholder of its corresponding Fountain Square Fund and will
hold, immediately after the Reorganization, shares of the comparable class of
the corresponding Fountain Square Fund having a total dollar value equal to the
total dollar value of the shares of the Cardinal Fund that the shareholder held
immediately before the Reorganization.
INTRODUCTORY NOTE TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma information gives effect to the
proposed transfer of the assets and stated liabilities of the Cardinal Funds to
their corresponding Fountain Square Funds, accounted for as if the
Reorganization had occurred as of January 31, 1998 and as if the Fountain Square
Funds had operated for the periods then ended. In addition, each pro forma
combining statement has been prepared based upon the structure of the proposed
fee and expense structure of the applicable surviving Fountain Square Fund. Pro
forma financial information is not provided with respect to Fountain Square
Cardinal Fund and Fountain Square Tax Exempt Money Market Fund, as such Funds
have been organized to facilitate the Reorganization, have not commenced
operations and will have only nominal assets as of the date of the
Reorganization. In addition, the expenses for each of these Funds are not
expected to be materially different from the expenses of its corresponding
Cardinal Fund.
Pro forma financial information is not provided with respect to
Fountain Square Mid Cap Fund, as the assets of Cardinal Aggressive Growth Fund
amount to less than 10% of the assets of Fountain Square Mid Cap Fund.
The pro forma financial information should be read in conjunction with
the historical financial statements and notes thereto of the Cardinal Funds and
Fountain Square Funds incorporated by reference in this Statement of Additional
Information. Each combination of the above Cardinal Funds and Fountain Square
Funds will be accounted for as a tax-free reorganization.
B-2
<PAGE> 85
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Common Stocks (62.2%):
Banking (5.6%):
4,000 4,000 Ahmanson (HF) & Co. $233,250 $233,250
3,300 3,300 AmSouth Bancorp 178,200 178,200
2,000 2,000 Bank of Boston Corp. 179,000 179,000
3,500 55,000 58,500 Bank of New York Co., Inc. 189,655 $2,980,313 3,169,968
1,000 1,000 Citicorp 119,000 119,000
35,000 35,000 First Tennessee National Corp. 2,060,625 2,060,625
3,000 13,000 16,000 Mellon Bank Corp. 181,120 784,880 966,000
70,000 70,000 Norwest Corp. 2,555,000 2,555,000
--------- --------- ----------
1,080,225 8,380,818 9,461,043
--------- --------- ----------
Beverages (0.3%):
3,000 3,000 Coca Cola Co. 194,250 194,250
4,000 4,000 Pepsico, Inc. 144,250 144,250
3,000 3,000 Robert Mondavi, Class A (a) 108,563 108,563
--------- --------- ----------
447,063 447,063
--------- --------- ----------
Business Services (0.2%):
10,000 10,000 Cintas Corp. 417,500 417,500
--------- --------- ----------
Chemicals (1.9%):
2,000 2,000 Dupont de Nemours and Co. 113,250 113,250
4,500 4,500 Monsanto Co. 213,469 213,469
70,000 70,000 Praxair, Inc. 2,900,625 2,900,625
--------- --------- ----------
326,719 2,900,625 3,227,344
--------- --------- ----------
Computer Software & Services (5.8%):
2,000 2,000 Computer Sciences (a) 169,750 169,750
35,000 35,000 Electronics for Imaging, Inc. 586,250 586,250
65,000 65,000 First Data Corp. 1,990,625 1,990,625
50,000 50,000 Fiserv, Inc. (a) 2,593,749 2,593,749
4,000 4,000 HBO & Company 209,250 209,250
1,500 4,800 6,300 Microsoft Corp. (a) 223,781 716,100 939,881
84,000 84,000 Oracle Corp. (a) 1,953,000 1,953,000
25,000 25,000 Reynolds & Reynolds Co., Class A 496,875 496,875
20,000 20,000 Sun Microsystems, Inc. (a) 958,750 958,750
--------- --------- ----------
602,781 9,295,349 9,898,130
--------- --------- ----------
Computer Systems & Equipment (3.4%):
5,000 5,000 Applied Materials (a) 164,063 164,063
3,000 52,500 55,500 Cisco Systems (a) 189,187 3,310,781 3,499,968
6,000 6,000 Compaq Computer Corp. 180,375 180,375
16,000 16,000 Diebold, Inc. 796,000 796,000
</TABLE>
<PAGE> 86
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
3,000 16,000 19,000 Hewlett-Packard Co. 180,000 960,000 1,140,000
--------- ---------- ----------
713,625 5,066,781 5,780,406
--------- ---------- ----------
Construction (0.2%):
4,500 4,500 Crane Co. 194,344 194,344
3,000 3,000 Deere & Co. 158,250 158,250
--------- ---------- ----------
352,594 352,594
--------- ---------- ----------
Consumer Cyclicals (0.3%):
4,500 4,500 Avery Dennison Corp. 201,938 201,938
3,000 3,000 Kohls Corp. (a) 208,125 208,125
3,000 3,000 Service Corporation Intl. 117,000 117,000
--------- ---------- ----------
527,063 527,063
--------- ---------- ----------
Consumer Products (3.2%):
29,000 29,000 Conagra, Inc. 917,125 917,125
38,000 38,000 Crown Cork & Seal Co., Inc. 1,881,000 1,881,000
40,000 40,000 Newell Co. 1,642,500 1,642,500
2,000 4,000 6,000 Procter & Gamble Co. 156,750 313,500 470,250
20,000 20,000 Sherwin Williams Co. 570,000 570,000
--------- ---------- ----------
156,750 5,324,125 5,480,875
--------- ---------- ----------
Distributors (0.3%):
12,000 12,000 Fastenal Co. 527,250 527,250
--------- ---------- ----------
Eating & Drinking Places
(0.1%):
7,000 7,000 Wendy's Intl. 156,188 156,188
--------- ---------- ----------
Electrical Equipment (2.3%):
20,000 20,000 Belden, Inc. 762,500 762,500
3,000 25,000 28,000 Emerson Electric Co. 181,500 1,512,500 1,694,000
4,000 14,000 18,000 General Electric Co. 310,000 1,085,000 1,395,000
--------- ---------- ----------
491,500 3,360,000 3,851,500
--------- ---------- ----------
Electronics (6.7%):
105,000 105,000 Adaptec, Inc. (a) 2,342,813 2,342,813
60,000 60,000 Computer Products, Inc. (a) 1,447,500 1,447,500
20,000 20,000 Flextronics, International (a) 712,500 712,500
2,600 50,000 52,600 Intel Corp. 210,600 4,049,999 4,260,599
2,500 2,500 Lucent Technologies 221,250 221,250
50,000 50,000 Molex, Inc. 1,362,500 1,362,500
15,000 15,000 QLogic Corp. (a) 485,625 485,625
27,562 27,562 Vishay Intertechnology, Inc. (a) 578,802 578,802
--------- ---------- ----------
431,850 10,979,739 11,411,589
--------- ---------- ----------
Entertainment & Leisure (0.1%):
1,900 1,900 The Walt Disney Co. 202,469 202,469
--------- ---------- ----------
</TABLE>
<PAGE> 87
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Financial (2.2%):
2,000 2,000 Am. Express 167,375 167,375
77,000 77,000 Federal Home Loan Mortgage Corp. 3,426,500 3,426,500
2,500 2,500 Federal National Mortage Assn. 154,375 154,375
--------- ---------- ----------
321,750 3,426,500 3,748,250
--------- ---------- ----------
General Building Contractors (0.4%):
45,000 45,000 Clayton Homes Inc. 753,750 753,750
--------- ---------- ----------
Healthcare (1.5%):
17,000 17,000 First Health Group Corp. 809,624 809,624
9,000 9,000 Healthsouth Corp. (a) 201,938 201,938
5,000 5,000 Medtronic, Inc. 255,313 255,313
2,000 2,000 Merck & Company, Inc. 234,500 234,500
4,500 4,500 Quorum Health Group (a) 112,500 112,500
15,000 15,000 STERIS Corp. (a) 785,625 785,625
4,000 4,000 Tenet Healthcare Corporation 138,000 138,000
--------- ---------- ----------
942,251 1,595,249 2,537,500
--------- ---------- ----------
Holding & Other Investment
Offices (0.1%): 4,000 4,000 Am. General Hospitality 110,250 110,250
--------- ---------- ----------
Insurance (4.1%):
10,000 10,000 Allstate Corp. 885,000 885,000
40,000 40,000 American Bankers Insurance
Group, Inc. 2,209,999 2,209,999
1,500 1,500 American International
Group, Inc. 165,469 165,469
8,000 8,000 Cincinnati Financial Corp. 1,020,000 1,020,000
36,000 36,000 MGIC Investment Corp. 2,434,499 2,434,499
3,999 3,999 Traveler's Group 197,951 197,951
--------- ---------- ----------
363,420 6,549,498 6,912,918
--------- ---------- ----------
Manufacturing (2.5%):
40,000 40,000 Federal Signal Corp. 897,500 897,500
35,000 35,000 Illinois Tool Works 1,949,063 1,949,063
50,000 50,000 Zebra Technologies Corp.,
Class A (a) 1,387,500 1,387,500
---------- ----------
4,234,063 4,234,063
--------- ---------- ----------
Media/Publishing (1.2%):
42,000 42,000 Interpublic Group of Cos., Inc. 2,060,625 2,060,625
--------- ---------- ----------
Medical Devices (1.4%):
38,000 38,000 Guidant Corp. 2,441,500 2,441,500
--------- ---------- ----------
Medical Distribution (0.6%):
2,000 2,000 Bergen Brunswig Corp. 91,125 91,125
2,000 9,000 11,000 Cardinal Health, Inc. 154,875 696,938 851,813
--------- ---------- ----------
246,000 696,938 942,938
--------- ---------- ---------
</TABLE>
<PAGE> 88
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Miscellaneous Manufacturing
Industries (0.1%): 5,000 5,000 Tyco International Ltd. 221,875 221,875
--------- ---------- ----------
Oil & Gas (2.7%):
8,000 8,000 Chevron Corp. 598,500 598,500
18,000 18,000 ENSCO International 488,250 488,250
3,000 3,000 Exxon Corp. 177,938 177,938
25,000 25,000 Global Marine 573,438 573,438
2,000 22,000 24,000 Mobil Corp. 136,250 1,498,749 1,634,999
2,000 2,000 Schlumberger Ltd. 147,375 147,375
4,000 4,000 Transocean Offshore, Incorporated 159,000 159,000
40,000 40,000 Varco International, Inc. (a) 820,000 820,000
--------- ---------- ----------
620,563 3,978,937 4,599,500
--------- ---------- ----------
Pharmaceuticals (8.2%):
27,000 27,000 American Home Products 2,576,813 2,576,813
2,000 8,000 10,000 Amgen, Inc. 100,000 400,000 500,000
3,000 3,000 Colgate-Palmolive Co. 219,750 219,750
2,500 2,500 Gillette Co. 246,875 246,875
3,000 47,000 50,000 Johnson & Johnson 200,813 3,146,061 3,346,874
2,000 20,000 22,000 Pfizer, Inc. 163,875 1,638,750 1,802,625
40,000 40,000 Schering - Plough Corp. 2,895,000 2,895,000
14,000 14,000 Warner Lambert, Inc. 2,107,000 2,107,000
--------- ---------- ----------
931,313 12,763,624 13,694,937
--------- ---------- ----------
Printing & Publishing
(0.3%): 3,500 3,500 New York Times Co., Class A 227,719 227,719
4,000 4,000 Tribune Co. 243,000 243,000
--------- ---------- ----------
470,719 470,719
--------- ---------- ----------
Retail (3.1%):
4,000 60,000 64,000 Consolidated Stores Corp. (a) 164,500 2,467,500 2,632,000
20,000 20,000 Dollar General 727,500 727,500
33,000 33,000 Home Depot, Inc. 1,990,313 1,990,313
--------- ---------- ----------
164,500 5,185,313 5,349,813
--------- ---------- ----------
Security & Commodity Brokers
(0.3%): 4,600 4,600 Ben Franklin Resources 206,138 206,138
3,500 3,500 T. Rowe Price Association 226,625 226,625
--------- ---------- ----------
432,763 432,763
--------- ---------- ----------
Telecommunications (1.4%):
15,000 15,000 Century Telephone Enterprises 791,250 791,250
32,000 32,000 Cincinnati Bell 1,148,000 1,148,000
5,100 5,100 MCI Communications Corp. 236,831 236,831
</TABLE>
<PAGE> 89
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
7,000 7,000 Worldcom, Inc. (a) 250,688 250,688
--------- ---------- ----------
487,519 1,939,250 2,426,769
--------- ---------- ----------
Transportation (1.5%)
1,500 1,500 Burlington Northern Santa Fe 130,125 130,125
80,000 80,000 Comair Holdings, Inc. 2,255,000 2,255,000
2,500 2,500 Federal Express (a) 162,656 162,656
--------- ---------- ----------
292,781 2,255,000 2,547,781
--------- ---------- ----------
Transportation Equipment
(0.1%) 2,400 2,400 Textron, Inc. 143,550 143,550
--------- ---------- ----------
Utility (0.1%):
6,000 6,000 Williams Cos. 171,000 171,000
--------- ---------- ----------
Total Common Stocks 11,409,081 94,132,434 105,541,515
---------- ---------- -----------
Preferred Stocks (0.1%):
Banking (0.1%):
3,000 3,000 Glendale Federal Bank 8.750%
Preferred Series E 238,500 238,500
---------- ---------- ----------
Total Preferred Stocks 238,500 238,500
---------- ---------- ----------
Asset Backed Securities
(1.4%):
Financial (1.4%):
$1,500,000 $1,500,000 Cityscape, Series, 1996-3,
7.15%, 8/25/11 1,547,299 1,547,299
750,000 750,000 GE Capital Management, 6.94%,
3/25/27 763,500 763,500
---------- ---------- ----------
Total Asset Backed Securities 2,310,799 2,310,799
---------- ---------- ----------
Corporate Bonds (6.6%):
Beverages (0.2%):
$250,000 250,000 Anheuser Busch Co., 7.00%,
9/01/05 261,250 261,250
---------- ---------- ----------
Consumer Products (0.1%):
200,000 200,000 Dole Foods Company, 7.00%,
5/15/03 207,000 207,000
---------- ---------- ----------
Financial (3.9%):
46,000 46,000 Bankers Trust New York Corp.,
9.20%, 7/15/99 48,040 48,040
1,500,000 1,500,000 CIT Group Holdings, 6.25%, 3/28/01 1,517,382 1,517,382
2,000,000 2,000,000 First Union Corp., 7.00%, 3/15/06 2,076,147 2,076,147
500,000 500,000 Ford Motor Credit, Floating Rate
Note, 11/9/98 (5.65%, 2/9/98)(b) 499,518 499,518
200,000 200,000 General Motors Acceptance Corp.,
7.00%, 9/15/02 208,500 208,500
1,000,000 1,000,000 General Motors Acceptance Corp.,
6.63%, 10/1/02 1,026,027 1,026,027
250,000 250,000 Kemper Corporation, 6.875%,
9/15/03 260,000 260,000
1,000,000 1,000,000 Sears Roebuck, 6.54%, 2/20/03 1,024,002 1,024,002
---------- --------- ----------
468,500 6,191,116 6,659,616
---------- --------- ----------
</TABLE>
<PAGE> 90
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing (0.9%):
500,000 500,000 IBP, Inc., 6.13%, 2/1/06 499,679 499,679
1,000,000 1,000,000 Texas Instruments, 6.88%, 1,026,119 1,026,119
-------- --------- ---------
7/15/00 1,525,798 1,525,798
-------- --------- ---------
Retail (0.3%):
250,000 250,000 Limited Inc., 7.50%, 3/15/23 249,375 249,375
250,000 250,000 Nordstrom Inc., 6.70%, 7/01/05 258,438 258,438
-------- --------- ---------
507,813 507,813
-------- --------- ---------
Transportation (0.3%):
250,000 250,000 American Airlines, 10.18%,
1/02/13 318,365 318,365
250,000 250,000 CSX Transportation, 6.72%,
6/01/06 259,375 259,375
-------- --------- --------
577,740 577,740
-------- --------- ---------
Utility (0.9%):
300,000 300,000 Consumers Power, 7.50%, 6/01/02 304,875 304,875
1,000,000 1,000,000 Georgia Power, 6.88%, 9/1/02 1,016,669 1,016,669
150,000 150,000 United States Filter Corp.,
4.50%, 12/15/01 162,562 162,562
--------- ---------- ----------
467,439 1,016,667 1,484,106
--------- ---------- ----------
2,489,740 8,733,583 11,223,323
Total Corporate Bonds --------- ---------- ----------
Mortgage Backed Securities (0.4%):
U.S. Government Agencies (0.4%):
5,177 5,177 Federal Home Loan Mortgage Corp.,
9.50%, 10/1/02, Pool #38-0009 5,352 5,352
11,117 11,117 Federal Home Loan Mortgage Corp.,
8.00%, 8/1/08, Pool #27-2525 11,528 11,528
653,243 653,243 Federal National Mortgage Assn.,
6.00%, 4/1/11, Dwarf Pool 344185 647,396 647,396
--------- ---------- ----------
664,276 664,276
--------- ---------- ----------
Total Mortgage Backed Securities
U.S. Government Securities (17.0%):
U.S. Government Agencies (8.1%):
250,000 250,000 Federal National Mortgage
Assn., 7.00%, 9/03/03 254,388 254,388
250,000 250,000 Federal National Mortgage
Assn., 7.03%, 10/25/06 264,343 264,343
250,000 250,000 Federal National Mortgage
Assn., 7.50%, 11/15/06 256,650 256,650
250,000 250,000 Federal National Mortgage
Assn., 7.09%, 3/13/07 260,388 260,388
250,000 250,000 Federal National Mortgage
Assn., 6.99%, 7/09/07 262,165 262,165
500,000 500,000 Federal National Mortgage
Assn., 6.94%, 3/14/11 504,665 504,665
2,000,000 2,000,000 Federal National Mortgage
Assn., 6.80%, 8/27/12 2,113,167 2,113,167
1,939,700 1,939,700 Federal National Mortgage
Assn., 7.00%, 7/18/27 1,963,248 1,963,248
1,244,595 1,244,595 Government National Mortgage
Assn., 7.50%, 8/15/27,
Pool #449006 1,282,182 1,282,182
6,457,081 6,457,081 Government National Mortgage
Assn., 7.50%, 9/15/27,
Pool #451459 6,652,084 6,652,084
--------- ---------- ----------
1,802,599 12,010,681 13,813,280
--------- ---------- ----------
</TABLE>
<PAGE> 91
FOUNTAIN SQUARE BALANCED FUND/CARDINAL BALANCED FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market Value
-------------------------------------
Shares or Principal Amount Fountain
------------------------------------------------ Cardinal Square
Cardinal Fountain Square Pro Forma Security Balanced Balanced Pro Forma
Balanced Fund Balanced Fund Combined Description Fund Fund Combined
------------- --------------- --------- ----------------------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Bonds (5.2%):
8,750,000 8,750,000 6.00%, 2/15/26, 6.00%, 2/15/26 8,892,188 8,892,188
--------- ---------- ----------
U.S. Treasury Notes (3.4%):
5,000,000 5,000,000 6.5%, 8/31/01 5,178,125 5,178,125
500,000 500,000 5.875%, 2/15/04 512,020 512,020
--------- ---------- ----------
512,020 5,178,125 5,690,145
--------- ---------- ----------
U.S. Treasury Strips (0.3%):
1,000,000 1,000,000 11.25%, 2/15/09 533,190 533,190
--------- ---------- ----------
Total U.S. Government Securities 2,847,808 26,080,995 28,928,803
--------- ---------- ----------
Repurchase Agreement (14.3%):
811,804 811,804 Fifth Third 811,804 811,804
23,444,000 23,444,000 UBS Securities 23,444,000 23,444,000
Total Repurchase Agreement 811,804 23,444,000 24,255,804
Total Investments (Cost
$14,338,007, $128,997,043,
and $143,335,050, respectively) (a)
(a) - 102.0% $17,796,933 $155,366,087 $173,163,020
=========== ============ ============
(b) Current rate and next reset date shown.
</TABLE>
<PAGE> 92
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Market Value
- ------------------------------------------------------ ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- ----------------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Asset Backed Securities
(1.7%):
Financial (1.7%):
$5,000,000 $5,000,000 GE Capital Management, 6.94%, $5,090,000 $5,090,000
3/25/27 --------- --------- ----------
Total Asset Backed Securities 5,090,000 5,090,000
--------- --------- ----------
Corporate Bonds (26.0%):
Chemicals (1.8%):
5,000,000 5,000,000 Engelhard Corp., 7.00%, 8/1/01 5,178,535 5,178,535
--------- --------- ----------
Financial (17.2%):
5,000,000 5,000,000 American General Finance Corp.,
7.25%, 4/15/00 5,139,135 5,139,135
5,000,000 5,000,000 Bear Stearns, Inc., 7.25%, 10/15/06 5,264,825 5,264,825
5,000,000 5,000,000 Chrysler Corp., Medium Term Note,
6.37%, 6/21/99 5,038,120 5,038,120
5,000,000 5,000,000 CIT Group Holdings, 6.25%, 3/28/01 5,057,940 5,057,940
5,000,000 5,000,000 DLJ, Medium Term Note, 6.38%, 5/26/00 5,059,050 5,059,050
5,000,000 5,000,000 IBM, 6.45%, 8/1/07 5,043,340 5,043,340
5,000,000 5,000,000 Metropolitan Life, 6.30%, 11/1/03 5,004,150 5,004,150
5,000,000 5,000,000 Morgan Stanley, 6.38%, 8/1/02 5,069,105 5,069,105
5,000,000 5,000,000 Paine Webber Group, 6.68%, 2/10/04 5,068,145 5,068,145
5,000,000 5,000,000 Southern National Corp.,
7.05%, 5/23/03 5,237,515 5,237,515
--------- --------- ----------
50,981,325 50,981,325
--------- --------- ----------
Manufacturing (4.8%):
5,000,000 5,000,000 Amgen, Inc., 6.50%, 12/1/07 5,101,200 5,101,200
4,000,000 4,000,000 Archers Danial Midland Co.,
6.25%, 5/15/03 4,057,496 4,057,496
5,000,000 5,000,000 Tyco International, Ltd.,
6.38%, 1/15/04 5,102,010 5,102,010
--------- --------- ----------
14,260,706 14,260,706
--------- --------- ----------
Telecommunications (1.8%):
5,000,000 5,000,000 British Telecommunications, Inc.,
9.38%, 2/15/99 5,198,515 5,198,515
Utilities (0.4%):
1,000,000 1,000,000 Southern New England, 8.00%, 1,074,509 1,074,509
11/20/01 --------- --------- ----------
Total Corporate Bonds 76,693,590 76,693,590
--------- --------- ----------
U.S. Government Securities
(69.9%):
U.S. Government Agencies
(47.4%):
126 126 Federal Home Loan Mortgage Corp.,
7.50%, 2/1/02 129 129
$2,970,000 2,970,000 Federal Home Loan Mortgage Corp.
#574, 7.00% Due 12/01/27 $3,015,471 3,015,471
12,500,000 12,500,000 Federal National Mortgage Assoc.,
6.85%, 7/2/02 12,568,563 12,568,563
5,000,000 5,000,000 Federal National Mortgage Assoc.,
7.33%, 6/19/07 5,171,635 5,171,635
122,003 122,003 Government National Mortgage
Association, 10.00%, 12/20/21,
Pool #1742 132,868 132,868
774,126 774,126 Government National Mortgage
Association, 9.00%, 03/15/33,
Pool #362593 842,582 842,582
370,759 370,759 Government National Mortgage
Association, 7.375%, 07/15/98,
Pool #419389 381,878 381,878
</TABLE>
<PAGE> 93
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
PrincipAL Amount Market Value
- ---------------------------------------------- ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- --------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
2,241,841 2,241,841 Government National Mortgage Association,
7.35%, 07/15/98, Pool #419389 2,309,074 2,309,074
165,384 165,384 Government National Mortgage Association,
8.00%, 10/15/98, Pool #419426 176,134 176,134
2,470,232 2,470,232 Government National Mortgage Association,
8.00%, 10/15/98, Pool #419426 2,630,797 2,630,797
142,512 142,512 Government National Mortgage Association,
7.75%, 12/15/98, Pool #419398 150,839 150,839
417,432 417,432 Government National Mortgage Association,
8.125%, 05/15/99, Pool #425872 441,693 441,693
3,384,748 3,384,748 Government National Mortgage Association,
8.125%, 05/15/99, Pool #425672 3,581,470 3,581,470
63,726 63,726 Government National Mortgage Association,
10.00%, 01/20/14, Pool #107928 69,401 69,401
60,016 60,016 Government National Mortgage Association,
10.00%, 05/20/14, Pool #112459 65,361 65,361
991,779 991,779 Government National Mortgage Association,
10.50%, 7/15/14, Pool #321016 1,038,254 1,038,254
112,304 112,304 Government National Mortgage Association,
10.00%, 03/20/15, Pool #125173 122,305 122,305
75,035 75,035 Government National Mortgage Association,
10.00%, 03/20/16, Pool #147588 81,718 81,718
85,762 85,762 Government National Mortgage Association,
10.00%, 04/20/16, Pool #529 93,401 93,401
36,268 36,268 Government National Mortgage Association,
8.50%, 05/15/16, Pool #139537 38,750 38,750
350,763 350,763 Government National Mortgage Association,
9.00%, 05/15/16, Pool #159879 382,219 382,219
177,945 177,945 Government National Mortgage Association,
8.50%, 6/15/16, Pool #164477 190,122 190,122
206,924 206,924 Government National Mortgage Association,
8.50%, 06/15/16, Pool #161999 221,084 221,084
185,001 185,001 Government National Mortgage Association,
8.50%, 06/15/16, Pool #160405 197,661 197,661
410,592 410,592 Government National Mortgage Association,
9.00%, 06/15/16, Pool #153293 447,414 447,414
124,475 124,475 Government National Mortgage Association,
10.00%, 06/20/16, Pool #152054 135,560 135,560
768,636 768,636 Government National Mortgage Association,
8.50%, 7/15/16, Pool #164894 821,233 821,233
489,160 489,160 Government National Mortgage Association,
9.00%, 7/15/16, Pool #166416 533,028 533,028
369,872 369,872 Government National Mortgage Association,
9.00%, 07/15/16, Pool #146518 403,042 403,042
333,430 333,430 Government National Mortgage Association,
9.00%, 07/15/16, Pool #160341 363,332 363,332
228,198 228,198 Government National Mortgage Association,
9.00%, 8/15/16, Pool #169792 248,663 248,663
932,810 932,810 Government National Mortgage Association,
9.00%, 8/15/16, Pool #164699 1,016,464 1,016,464
1,186,997 1,186,997 Government National Mortgage Association,
9.00%, 8/15/16, Pool #179713 1,293,447 1,293,447
287,001 287,001 Government National Mortgage Association,
8.50%, 09/15/16, Pool #156438 306,641 306,641
387,258 387,258 Government National Mortgage Association,
8.50%, 9/15/16, Pool #175882 413,758 413,758
87,326 87,326 Government National Mortgage Association,
9.00%, 9/15/16, Pool #174976 95,157 95,157
116,689 116,689 Government National Mortgage Association,
9.00%, 10/15/16, Pool #193400 127,153 127,153
321,052 321,052 Government National Mortgage Association,
9.00%, 10/15/16, Pool #176776 349,844 349,844
139,052 139,052 Government National Mortgage Association,
9.00%, 10/15/16, Pool #163761 151,522 151,522
1,365,997 1,365,997 Government National Mortgage Association,
9.00%, 10/15/16, Pool #164652 1,488,500 1,488,500
44,556 44,556 Government National Mortgage Association,
9.00%, 10/15/16, Pool #186431 48,552 48,552
56,964 56,964 Government National Mortgage Association,
10.00%, 10/20/16, Pool #190434 62,037 62,037
106,899 106,899 Government National Mortgage Association,
10.00%, 10/20/16, Pool #182759 116,419 116,419
315,134 315,134 Government National Mortgage Association,
8.50%, 11/15/16, Pool #174441 336,699 336,699
143,828 143,828 Government National Mortgage Association,
9.00%, 11/15/16, Pool #190624 156,726 156,726
281,442 281,442 Government National Mortgage Association,
9.00%, 11/15/16, Pool #192560 306,681 306,681
361,451 361,451 Government National Mortgage Association,
9.00%, 11/15/16, Pool #181604 393,866 393,866
</TABLE>
<PAGE> 94
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Market Value
- ---------------------------------------------- ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- --------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
251,135 251,135 Government National Mortgage Association,
9.00%, 11/15/16, Pool #152872 273,657 273,657
293,624 293,624 Government National Mortgage Association,
10.00%, 1/20/16, Pool #662 319,775 319,775
200,217 200,217 Government National Mortgage Association,
9.00%, 12/15/16, Pool #192257 218,172 218,172
124,779 124,779 Government National Mortgage Association,
9.00%, 12/15/16, Pool #183880 135,969 135,969
313,169 313,169 Government National Mortgage Association,
8.50%, 1/15/17, Pool #196004 334,599 334,599
119,411 119,411 Government National Mortgage Association,
8.50%, 1/15/17, Pool #194021 127,582 127,582
194,353 194,353 Government National Mortgage Association,
8.50%, 1/15/17, Pool #194160 207,653 207,653
187,596 187,596 Government National Mortgage Association,
8.50%, 1/15/17, Pool #198032 200,433 200,433
344,693 344,693 Government National Mortgage Association,
8.50%, 1/15/17, Pool #190648 368,281 368,281
232,931 232,931 Government National Mortgage Association,
8.50%, 1/15/17, Pool #186456 248,870 248,870
113,271 113,271 Government National Mortgage Association,
9.00%, 1/15/17, Pool #195250 123,429 123,429
89,995 89,995 Government National Mortgage Association,
9.00%, 1/15/17, Pool #174479 98,066 98,066
173,090 173,090 Government National Mortgage Association,
9.00%, 1/15/17, Pool #173118 188,613 188,613
134,764 134,764 Government National Mortgage Association,
8.50%, 2/15/17, Pool #201264 143,986 143,986
88,006 88,006 Government National Mortgage Association,
8.50%, 2/15/17, Pool #195882 94,028 94,028
597,928 597,928 Government National Mortgage Association,
8.50%, 2/15/17, Pool #195618 638,845 638,845
228,039 228,039 Government National Mortgage Association,
8.50%, 2/15/17, Pool #197425 243,643 243,643
123,970 123,970 Government National Mortgage Association,
8.50%, 2/15/17, Pool #186814 132,453 132,453
240,757 240,757 Government National Mortgage Association,
9.00%, 2/15/17, Pool #208070 262,348 262,348
194,375 194,375 Government National Mortgage Association,
9.00%, 2/15/17, Pool #200724 211,807 211,807
232,758 232,758 Government National Mortgage Association,
9.00%, 2/15/17, Pool #200847 253,632 253,632
124,161 124,161 Government National Mortgage Association,
9.00%, 2/15/17, Pool #181754 135,296 135,296
353,826 353,826 Government National Mortgage Association,
9.00%, 3/15/17, Pool #191314 385,557 385,557
214,206 214,206 Government National Mortgage Association,
8.50%, 4/15/17, Pool #205815 228,864 228,864
182,105 182,105 Government National Mortgage Association,
9.00%, 4/15/17, Pool #211288 198,436 198,436
103,484 103,484 Government National Mortgage Association,
8.50%, 5/15/17, Pool #189313 110,565 110,565
148,362 148,362 Government National Mortgage Association,
8.50%, 5/15/17, Pool #184722 158,514 158,514
216,985 216,985 Government National Mortgage Association,
9.00%, 5/15/17, Pool #214259 236,444 236,444
231,163 231,163 Government National Mortgage Association,
9.00%, 5/15/17, Pool #204622 251,894 251,894
343,380 343,380 Government National Mortgage Association,
8.50%, 6/15/17, Pool #192269 366,877 366,877
414,805 414,805 Government National Mortgage Association,
8.50%, 6/15/17, Pool #224868 443,191 443,191
215,595 215,595 Government National Mortgage Association,
8.50%, 6/15/17, Pool #214028 230,348 230,348
233,008 233,008 Government National Mortgage Association,
8.50%, 6/15/17, Pool #225776 248,953 248,953
153,153 153,153 Government National Mortgage Association,
9.00%, 6/15/17, Pool #206523 166,887 166,887
138,104 138,104 Government National Mortgage Association,
9.00%, 6/15/17, Pool #204594 150,489 150,489
164,823 164,823 Government National Mortgage Association,
9.00%, 6/15/17, Pool #205962 179,605 179,605
416,154 416,154 Government National Mortgage Association,
8.50%, 7/15/17, Pool #218605 444,632 444,632
263,881 263,881 Government National Mortgage Association,
8.50%, 8/15/17, Pool #232813 281,938 281,938
205,760 205,760 Government National Mortgage Association,
9.00%, 8/15/17, Pool #226935 224,212 224,212
119,053 119,053 Government National Mortgage Association,
9.00%, 9/15/17, Pool #221595 129,729 129,729
</TABLE>
<PAGE> 95
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Market Value
- ---------------------------------------------- ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- --------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
251,135 251,135 Government National Mortgage Association,
9.00%, 11/15/16, Pool #152872 273,657 273,657
119,419 119,419 Government National Mortgage Association,
10.00%, 9/20/17, Pool #837 130,054 130,054
103,906 103,906 Government National Mortgage Association,
10.00%, 11/20/17, Pool #872 113,160 113,160
204,088 204,088 Government National Mortgage Association,
9.00% 12/15/17, Pool, #234549 222,391 222,391
122,953 122,953 Government National Mortgage Association,
10.00% 12/20/17, Pool #246373 133,903 133,903
118,490 118,490 Government National Mortgage Association,
10.00%, 1/20/18, Pool #227354 129,042 129,042
149,187 149,187 Government National Mortgage Association,
10.00%, 1/20/18, Pool #227352 162,474 162,474
244,599 244,599 Government National Mortgage Association,
10.00%, 1/20/18, Pool #247511 266,383 266,383
310,045 310,045 Government National Mortgage Association,
10.00%, 01/20/18, Pool #908 337,658 337,658
61,009 61,009 Government National Mortgage Association,
10.00%, 2/20/18, Pool #227356 66,442 66,442
139,016 139,016 Government National Mortgage Association,
10.00%, 3/20/18, Pool #250752 151,397 151,397
704,940 704,940 Government National Mortgage Association,
10.00%, 3/20/18, Pool #237233 767,722 767,722
231,691 231,691 Government National Mortgage Association,
10.00%, 3/20/18, Pool #237233 252,325 252,325
141,260 141,260 Government National Mortgage Association,
10.00%, 3/20/17, Pool #216068 153,841 153,841
34,042 34,042 Government National Mortgage Association,
9.00%, 4/15/18, Pool #246622 37,094 37,094
103,254 103,254 Government National Mortgage Association,
9.00%, 5/15/18, Pool #253054 112,514 112,514
81,292 81,292 Government National Mortgage Association,
9.00%, 5/15/18, Pool #235318 88,582 88,582
78,129 78,129 Government National Mortgage Association,
9.00%, 5/15/18, Pool #216072 85,135 85,135
95,478 95,478 Government National Mortgage Association,
9.00%, 7/15/18, Pool #255277 104,041 104,041
141,476 141,476 Government National Mortgage Association,
9.00%, 8/15/18, Pool #248940 154,163 154,163
169,418 169,418 Government National Mortgage Association,
10.00%, 10/20/18, Pool #249978 184,506 184,506
184,737 184,737 Government National Mortgage Association,
9.00%, 11/15/18, Pool #266921 201,304 201,304
183,964 183,964 Government National Mortgage Association,
9.50%, 1/15/19, Pool #268159 194,082 194,082
87,532 87,532 Government National Mortgage Association,
10.00%, 1/20/19, Pool #26988 95,328 95,328
340,987 340,987 Government National Mortgage Association,
10.00%, 02/20/19, Pool #1138 371,355 371,355
120,708 120,708 Government National Mortgage Association,
10.00%, 03/20/19, Pool #1154 131,458 131,458
2,325,594 2,325,594 Government National Mortgage Association,
8.00%, 06/15/19, Pool #413902 2,487,642 2,487,642
153,763 153,763 Government National Mortgage Association,
9.00%, 10/15/19, Pool #277461 167,553 167,553
491,314 491,314 Government National Mortgage Association,
10.00%, 10/20/19, Pool #1274 535,071 535,071
17,371 17,371 Government National Mortgage Association,
10.00%, 11/20/19, Pool #1292 18,919 18,919
132,553 132,553 Government National Mortgage Association,
9.00%, 12/15/2019, Pool #202664 144,440 144,440
242,284 242,284 Government National Mortgage Association,
9.00%, 12/15/19, Pool #278194 264,012 264,012
219,998 219,998 Government National Mortgage Association,
10.00%, 01/20/20, Pool #1328 239,591 239,591
105,867 105,867 Government National Mortgage Association,
10.00%, 02/20/20, Pool #1346 115,295 115,295
118,290 118,290 Government National Mortgage Association,
10.00%, 03/20/20, Pool #1364 128,825 128,825
201,406 201,406 Government National Mortgage Association,
10.00%, 04/20/20, Pool #1382 219,343 219,343
60,745 60,745 Government National Mortgage Association,
10.00%, 7/20/20, Pool #195423 66,155 66,155
58,108 58,108 Government National Mortgage Association,
10.00%, 07/20/20, Pool #1436 63,283 63,283
51,961 51,961 Government National Mortgage Association,
10.00%, 09/20/20, Pool #1472 56,588 56,588
51,375 51,375 Government National Mortgage Association,
10.00%, 12/20/20, Pool #1526 55,951 55,951
75,886 75,886 Government National Mortgage Association,
10.00%, 02/20/21, Pool #1562 82,645 82,645
</TABLE>
<PAGE> 96
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Market Value
- ---------------------------------------------- ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- --------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
179,317 179,317 Government National Mortgage Association,
10.00%, 03/20/21, Pool #1580 195,287 195,287
225,480 225,480 Government National Mortgage Association,
9.00%, 4/15/21, Pool #305932 245,701 245,701
87,787 87,787 Government National Mortgage Association,
10.00%, 04/20/21, Pool #1598 95,605 95,605
3,335,682 3,335,682 Government National Mortgage Association,
8.00%, 05/15/21, Pool #422982 3,568,112 3,568,112
19,593 19,593 Government National Mortgage Association,
10.00%, 9/20/21, Pool #266 21,338 21,338
1,751,876 1,751,876 Government National Mortgage Association,
9.00%, 10/15/21, Pool #168090 1,825,770 1,825,770
237,095 237,095 Government National Mortgage Association,
10.00%, 10/20/21, Pool #1706 258,210 258,210
182,008 182,008 Government National Mortgage Association,
10.00%, 11/20/21, Pool #45 198,217 198,217
281,555 281,555 Government National Mortgage Association,
10.00%, 11/20/21, Pool #1724 306,630 306,630
918,243 918,243 Government National Mortgage Association,
8.25%, 3/15/22, Pool #20824 948,371 948,371
924,743 924,743 Government National Mortgage Association,
8.50%, 6/15/22, Pool #220207 981,670 981,670
1,615,973 1,615,973 Government National Mortgage Association,
10.25%, 12/15/22, Pool #246963 1,711,816 1,711,816
5,218,710 5,218,710 Government National Mortgage Association,
8.50%, 1/15/23, Pool #249895 5,539,975 5,539,975
613,608 613,608 Government National Mortgage Association,
9.50%, 02/15/23, Pool #250803 647,927 647,927
1,470,657 1,470,657 Government National Mortgage Association,
9.00%, 08/15/24, Pool #389588 1,586,927 1,586,927
1,066,321 1,066,321 Government National Mortgage Association,
9.00%, 08/15/24, Pool #403527 1,150,624 1,150,624
546,631 546,631 Government National Mortgage Association,
9.00%, 06/15/25, Pool #410533 589,848 589,848
1,824,274 1,824,274 Government National Mortgage Association,
7.50%, 10/15/25, Pool #412507 1,882,414 1,882,414
1,903,613 1,903,613 Government National Mortgage Association,
7.50%, 11/15/26, Pool #436723 1,964,281 1,964,281
1,862,541 1,862,541 Government National Mortgage Association,
7.50%, 11/15/26, Pool #437107 1,921,900 1,921,900
934,610 934,610 Government National Mortgage Association,
7.50%, 12/15/26, Pool #423689 964,396 964,396
989,321 989,321 Government National Mortgage Association,
7.50%, 12/15/26, Pool #436821 1,020,851 1,020,851
981,175 981,175 Government National Mortgage Association,
7.50%, 02/15/27, Pool #429857 1,012,445 1,012,445
1,978,794 1,978,794 Government National Mortgage Association,
7.50%, 02/15/97, Pool #440209 2,041,858 2,041,858
2,761,551 2,761,551 Government National Mortgage Association,
8.25%, 7/15/27, Pool #396628 2,874,581 2,874,581
5,975,702 5,975,702 Government National Mortgage Association,
7.50%, 10/15/27 6,166,149 6,166,149
9,900,000 9,900,000 Government National Mortgage Association,
7.00%, 01/15/28, Pool #449506 10,048,501 10,048,501
4,040,000 4,040,000 Government National Mortgage Association,
7.00%, 01/15/28, Pool #427237 4,100,600 4,100,600
2,019,913 2,019,913 Government National Mortgage Association,
7.00%, 01/15/28, Pool #463389 2,050,212 2,050,212
2,145,275 2,145,275 Government National Mortgage Association,
8.50%, 09/15/29, Pool #394093 2,322,925 2,322,925
1,756,367 1,756,367 Government National Mortgage Association,
8.50%, 03/15/30, Pool #362585 1,799,714 1,799,714
812,934 812,934 Government National Mortgage Association,
9.25%, 03/15/30, Pool #361587 885,585 885,585
1,196,125 1,196,125 Government National Mortgage Association,
8.00%, 08/15/31, Pool #415672 1,279,471 1,279,471
1,969,356 1,969,356 Government National Mortgage Association,
7.75%, 05/15/32 2,029,047 2,029,047
831,072 831,072 Government National Mortgage Association,
9.25%, 5/15/33, Pool #165345 905,869 905,869
753,605 753,605 Government National Mortgage Association,
9.00%, 03/15/33, Pool #363408 820,247 820,247
1,978,493 1,978,493 Government National Mortgage Association,
8.25%, 11/15/34, Pool #394098 2,128,720 2,128,720
3,267,829 3,267,829 Government National Mortgage Association,
8.00%, 8/15/35, Pool #3333 3,475,107 3,475,107
2,421,168 2,421,168 Government National Mortgage Association,
8.25%, 10/15/36, Pool #406703 2,605,008 2,605,008
1,022,729 1,022,729 Government National Mortgage Association,
8.00%, 04/15/37 1,088,245 1,088,245
</TABLE>
<PAGE> 97
FOUNTAIN SQUARE BOND FUND FOR INCOME/CARDINAL GOVERNMENT OBLIGATIONS FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Market Value
- ---------------------------------------------- ------------------------------------
Fountain
Cardinal Cardinal Square
Government Fountain Square Pro Forma Security Government Bond for Pro Forma
Obligations Bond for Income Combined Description Obligations Income Combined
- --------------- --------------- --------- ----------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
2,725,156 2,725,156 Government National Mortgage Association,
8.00%, 11/15/37, Pool #419429 2,898,012 2,898,012
------------ ------------ ------------
122,626,925 17,740,327 140,367,252
------------ ------------ ------------
U.S. Treasury Notes
(22.5%):
2,500,000 2,500,000 9.00%, 5/15/98 2,525,000 2,525,000
2,580,000 2,580,000 9.25%, 8/15/98 2,631,600 2,631,600
1,750,000 1,750,000 7.13%, 10/15/98 1,770,781 1,770,781
2,000,000 2,000,000 8.00%, 8/15/99 2,076,876 2,076,876
8,500,000 8,500,000 5.63%, 11/30/99 8,537,188 8,537,188
6,000,000 6,000,000 6.13%, 7/31/00 6,106,878 6,106,878
4,000,000 4,000,000 7.75%, 2/15/01 4,265,000 4,265,000
11,500,000 11,500,000 6.13%, 12/31/01 11,787,500 11,787,500
17,000,000 17,000,000 5.88%, 9/30/02 17,313,446 17,313,446
5,000,000 5,000,000 5.75%, 8/15/03 5,070,315 5,070,315
4,000,000 4,000,000 6.50%, 10/15/06 4,252,500 4,252,500
66,337,084 66,337,084
------------ ------------ ------------
Total U.S. Government
Securities 122,626,925 84,077,411 206,704,336
------------ ------------ ------------
Repurchase Agreement (2.7%):
2,943,551 2,943,551 Fifth Third 2,943,551 2,943,551
4,922,000 4,922,000 UBS Securities 4,922,000 4,922,000
------------ ------------ ------------
Total Repurchase Agreement 2,943,551 4,922,000 7,865,551
============ ============ ============
Total Investments (Cost $122,423,420,
$167,472,033, and $289,895,453,
respectively) 100.3% $125,570,476 $170,783,001 $296,353,477
============ ============ ============
</TABLE>
<PAGE> 98
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND/CARDINAL GOVERNMENT SECURITIES
MONEY MARKET FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Amortized Cost
- ----------------------------------------------------- -------------------------------------
Fountain
Cardinal Fountain Square Cardinal Square
Government Government Pro Forma Security Government Government Pro Forma
Securities Cash Reserves Combined Description Securities Cash Reserves Combined
- ----------------------- ------------- --------- ----------------------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Agencies
(86.7%):
Federal Farm Credit Bank
(22.1%):
$25,000,000 $25,000,000 Discount Note, 2/2/98 $25,000,000 $25,000,000
7,500,000 7,500,000 Discount Note, 2/2/98 7,500,000 7,500,000
$5,991,000 5,991,000 Discount Note, 2/18/98 $5,975,440 5,975,440
4,000,000 4,000,000 Discount Note, 2/20/98 3,988,368 3,988,368
5,000,000 5,000,000 Discount Note, 2/23/98 4,983,408 4,983,408
25,000,000 25,000,000 Discount Note, 3/2/97 25,000,000 25,000,000
9,000,000 9,000,000 Discount Note, 3/23/98 8,932,875 8,932,875
5,000,000 5,000,000 Discount Note, 4/1/98 5,000,000 5,000,000
10,000,000 10,000,000 Discount Note, 4/15/98 9,891,919 9,891,919
5,000,000 5,000,000 Discount Note, 5/1/98 5,000,000 5,000,000
6,000,000 6,000,000 Discount Note, 5/15/98 5,906,441 5,906,441
10,000,000 10,000,000 Discount Note, 6/2/98 10,010,928 10,010,928
30,000,000 30,000,000 Discount Note, 7/1/98 30,000,000 30,000,000
30,000,000 30,000,000 Discount Note, 8/3/98 30,000,000 30,000,000
10,000,000 10,000,000 Discount Note, 8/18/98 10,000,000 10,000,000
------------ ---------- -----------
147,510,928 39,678,451 187,189,379
------------ ---------- -----------
Federal Home Loan Bank
(39.5%):
20,000,000 20000000 Discount Note, 2/4/98 19,991,067 19,991,067
15,248,000 15248000 Discount Note, 2/6/98 15,236,412 15,236,412
5,000,000 5000000 Discount Note, 2/10/98 4,993,213 4,993,213
12,000,000 12000000 Discount Note, 2/13/98 11,978,553 11,978,553
10,000,000 10,000,000 Discount Note, 2/13/98 10,000,000 10,000,000
15,000,000 15,000,000 Discount Note, 2/18/97 14,960,817 14,960,817
11,000,000 11,000,000 Discount Note, 2/20/98 10,968,666 10,968,666
7,250,000 7,250,000 Discount Note, 2/25/97 7,223,054 7,223,054
10,000,000 10,000,000 Discount Note, 3/4/98 10,000,000 10,000,000
10,000,000 10,000,000 Discount Note, 3/5/98 9,951,378 9,951,378
10,000,000 10,000,000 Discount Note, 3/10/98 9,944,808 9,944,808
4,000,000 4,000,000 Discount Note, 3/11/98 3,977,411 3,977,411
10,000,000 10,000,000 Discount Note, 3/13/98 9,998,868 9,998,868
10,000,000 10,000,000 Discount Note, 3/18/98 9,931,875 9,931,875
</TABLE>
<PAGE> 99
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND/CARDINAL GOVERNMENT SECURITIES
MONEY MARKET FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Amortized Cost
- ----------------------------------------------------- -------------------------------------
Fountain
Cardinal Fountain Square Cardinal Square
Government Government Pro Forma Security Government Government Pro Forma
Securities Cash Reserves Combined Description Securities Cash Reserves Combined
- ----------------------- ------------- --------- ----------------------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
10,000,000 10,000,000 Discount Note, 3/19/98 9,929,850 9,929,850
13,000,000 13,000,000 Discount Note, 3/20/98 12,907,658 12,907,658
15,455,000 15,455,000 Discount Note, 3/25/98 15,335,502 15,335,502
5,000,000 5,000,000 Discount Note, 4/1/98 4,956,037 4,956,037
10,000,000 10,000,000 Discount Note, 4/8/98 9,901,550 9,901,550
4,000,000 4,000,000 Discount Note, 4/15/98 3,956,524 3,956,524
4,000,000 4,000,000 Discount Note, 4/17/98 3,954,750 3,954,750
5,000,000 5,000,000 Floating Rate Note, 5.61%, 2/4/98(a) 5,000,000 5,000,000
10,000,000 10,000,000 Discount Note, 4/23/98 9,875,688 9,875,688
10,000,000 10,000,000 Discount Note, 4/29/98 9,870,225 9,870,225
10,000,000 10,000,000 Discount Note, 6/5/98 9,810,211 9,810,211
5,000,000 5,000,000 Discount Note, 6/10/98 4,901,817 4,901,817
10,000,000 10,000,000 Discount Note, 6/16/98 10,000,000 10,000,000
10,000,000 10,000,000 Discount Note, 6/17/98 9,793,356 9,793,356
10,000,000 10,000,000 Discount Note, 6/30/98 9,995,182 9,995,182
20,000,000 20,000,000 Discount Note, 9/2/98 19,999,999 19,999,999
5,000,000 5,000,000 Discount Note, 9/16/98 5,000,000 5,000,000
15,000,000 15,000,000 Discount Note, 9/18/98 15,006,377 15,006,377
15,000,000 15,000,000 Discount Note, 12/23/98 15,000,000 15,000,000
------------ ----------- -----------
105,000,426 229,350,422 334,350,848
------------ ----------- -----------
Student Loan Marketing
Association (24.5%):
3,000,000 3000000 Floating Rate Note, 5.41%, 2/3/98(a) 2,997,210 2997210
30,000,000 10,000,000 40,000,000 Floating Rate Note, 5.42%, 2/3/98(a) 30,000,000 10,000,000 40,000,000
20,000,000 20,000,000 Floating Rate Note, 5.47%, 2/3/98(a) 20,000,000 20,000,000
5,000,000 10,000,000 15,000,000 Floating Rate Note, 5.56%, 2/3/98(a) 5,000,000 10,000,000 15,000,000
30,000,000 30,000,000 Floating Rate Note, 5.56%, 2/3/98(a) 30,000,000 30,000,000
30,000,000 30,000,000 Floating Rate Note, 5.61%, 2/3/98(a) 30,000,000 30,000,000
30,000,000 30,000,000 Floating Rate Note, 5.52%, 2/3/98(a) 30,000,000 30,000,000
5,000,000 5,000,000 Master Note, 5.90%, 12/10/98(b) 5,000,000 5,000,000
5,000,000 5,000,000 Master Note, 5.56%, 01/27/99(b) 5,000,000 5,000,000
29,050,000 29,050,000 Master Note, 5.46%, 7/1/00(b) 29,050,000 29,050,000
------------ ----------- ------------
155,000,000 52,047,210 207,047,210
------------ ----------- ------------
</TABLE>
<PAGE> 100
FOUNTAIN SQUARE GOVERNMENT CASH RESERVES FUND/CARDINAL GOVERNMENT SECURITIES
MONEY MARKET FUND
Pro Forma Combining Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Principal Amount Amortized Cost
- ----------------------------------------------------- -------------------------------------
Fountain
Cardinal Fountain Square Cardinal Square
Government Government Pro Forma Security Government Government Pro Forma
Securities Cash Reserves Combined Description Securities Cash Reserves Combined
- ----------------------- ------------- --------- ----------------------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tennessee Valley
Authority (0.6%):
5,000,000 5000000 Discount Note, 2/13/98 4,990,700 4,990,700
----------- ----------- -----------
Total U.S. Government
Agencies 407,511,354 326,066,783 733,578,137
----------- ----------- -----------
Repurchase
Agreements (16.8%):
2,892,699 2,892,699 Fifth Third 2,892,669 2,892,669
33,000,000 33,000,000 Merril Lynch 33,000,000 33,000,000
48,000,000 48,000,000 Paine Webber 48,000,000 48,000,000
30,000,000 30,000,000 Prudential 30,000,000 30,000,000
28,000,000 28,000,000 Smith Barney 28,000,000 28,000,000
----------- ----------- -----------
Total Repurchase Agreements Prudential 141,892,669 141,892,669
----------- ----------- -----------
Total Investments (Amortized
Cost $549,404,023,
$326,066,783, and $875,470,806,
respectively) 103.5% $549,404,023 $326,066,783 $875,470,806
------------ ------------ ------------
(a) Current rate and next demand date shown.
(b) Current rate shown
</TABLE>
<PAGE> 101
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Assets and Liabilities
<TABLE>
<CAPTION>
January 31, 1998 Pro Forma
(Unaudited) Combined
Fountain Square Cardinal Fountain Square
Balanced Balanced Pro Forma Balanced
Fund Fund Adjustments Fund
--------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Assets:
Investments, at value (Cost $105,553,043; $13,526,203;) $131,922,087 $ 16,985,129 $ $148,907,216
Repurchase agreements (Cost $23,444,000; $811,804;) 23,444,000 811,804 24,255,804
------------ ------------ --------- ------------
Total Investments 155,366,087 17,796,933 173,163,020
Cash 928 -- 928
Interest and dividends receivable 747,061 100,184 847,245
Receivable for investments sold 82 67,858 67,940
Receivable for Fund shares sold 243,087 -- -- 243,087
Unamortized organizational costs -- 5,458 (5,458) --
Prepaid expenses and other assets 6,847 32,418 39,265
------------ ------------ --------- ------------
Total Assets 156,364,092 18,002,851 (5,458) 174,361,485
------------ ------------ --------- ------------
Liabilities:
Payable for investments purchased 4,246,647 -- 4,246,647
Payable for Fund shares redeemed 55,742 2,685 -- 58,427
Accrued expenses and other payables:
Investment advisory fees 98,943 10,558 109,501
Administration fees 12,738 1,393 14,131
Distribution Services - Investment C Shares 7,512 3,912 11,424
Shareholder Servicing - Investment C Shares 3,302 -- 3,302
Accounting and transfer agent fees 7,357 -- 7,357
Custodian fees 900 8,176 9,076
Legal and audit fees 5,519 2,098 7,617
Printing fees 3,828 8,191 12,019
Registration & Filing 8,231 -- 8,231
Other 7,216 16,889 24,105
------------ ------------ --------- ------------
Total Liabilities 4,457,935 53,902 -- 4,511,837
------------ ------------ --------- ------------
Net Assets :
Paid-in capital 122,601,467 14,496,388 (5,458) 137,092,397
Net unrealized appreciation (depreciation)
on investments and foreign currency 26,369,044 3,458,926 -- 29,827,970
Accumulated net realized gains (losses)
on investment and foreign currency transactions 2,716,946 35,312 -- 2,752,258
Undistributed net investment income(loss) 218,700 (41,677) -- 177,023
------------ ------------ --------- ------------
Net Assets $151,906,157 $ 17,948,949 $ (5,458) $169,849,648
============ ============ ========= ============
Net Assets
Investment A Shares $149,223,068 $ 15,982,908 $ (5,458) $165,200,518
Investment C Shares 2,683,089 -- -- 2,683,089
Institutional Class -- 1,966,041 -- 1,966,041
------------ ------------ --------- ------------
Total $151,906,157 $ 17,948,949 $ (5,458) $169,849,648
============ ============ ========= ============
Outstanding units of beneficial interest (shares)
Investment A Shares 10,341,510 1,262,751 (155,513) 11,448,748
Investment C Shares 185,836 -- -- 185,836
Institutional Class -- 155,202 (18,955) 136,247
------------ ------------ --------- ------------
Total 10,527,346 1,417,953 (174,468) 11,770,831
============ ============ ========= ============
Net asset value
Redemption price per share-Investment A Shares $ 14.43 $ 12.66 $ 14.43
============ ============ ========= ============
Offering price per shares-Investment C Shares* $ 14.44 $ -- $ 14.44
============ ============ ========= ============
Redemption price per share-Institutional $ 14.43 $ 12.67 $ 14.43
============ ============ ========= ============
Maximum Sales Charge 4.50% $ 4.00% 4.50%
============ ============ ========= ============
Maximum Offering Price (100%/(100%-Maximum Sales Charge)
of net asset value adjusted to nearest cent)
per share (Investment A Shares) $ 15.11 $ 13.19 $ 15.11
============ ============ ========= ============
</TABLE>
* Redemption price per share varies by length of time shares are held.
(See Notes which are an integral part of the Financial Statements)
<PAGE> 102
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Assets and Liabilities
<TABLE>
<CAPTION>
January 31, 1998 Pro Forma
(Unaudited) Combined
Fountain Square Fountain Square
Bond Fund Cardinal Bond Fund
For Gov't Obligations Pro Forma For
Income Fund Adjustments Income
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Assets:
Investments, at value (Cost $162,549,040; $119,478,876;) $ 165,861,001 $ 122,626,925 $- $ 288,487,926
Repurchase agreements (Cost $4,922,000; $2,943,551;) 4,922,000 2,943,551 -- 7,865,551
------------- ------------- ----------- -------------
Total Investments 170,783,001 125,570,476 -- 296,353,477
Cash 561 -- -- 561
Interest and dividends receivable 3,222,647 789,254 -- 4,011,901
Receivable for investments sold 7,259,005 7,417,929 -- 14,676,934
Receivable for Fund shares sold -- 53,202 -- 53,202
Unamortized organizational costs 7,197 27,993 (27,993) 7,197
Prepaid expenses and other assets 8,011 131,426 -- 139,437
------------- ------------- ----------- -------------
Total Assets 181,280,422 133,990,280 (27,993) 315,242,709
------------- ------------- ----------- -------------
Liabilities:
Payable for investments purchased 10,166,434 8,505,358 -- 18,671,792
Payable for Fund shares redeemed 2,500 -- -- 2,500
Interest Payable 214,244 687,386 -- 901,630
Accrued expenses and other payables:
Investment advisory fees 78,681 53,515 -- 132,196
Administration fees 17,579 3,693 -- 21,272
Distribution Services - Investment C Shares 233 28,373 -- 28,606
Shareholder Servicing - Investment C Shares 97 -- -- 97
Accounting and transfer agent fees 3,141 16,111 -- 19,252
Custodian fees 725 16,025 -- 16,750
Legal and audit fees 5,519 6,611 -- 12,130
Printing fees 2,704 8,954 -- 11,658
Registration & Filing 3,012 -- -- 3,012
Other 1,223 16,236 -- 17,459
------------- ------------- ----------- -------------
Total Liabilities 10,496,092 9,342,262 -- 19,838,354
------------- ------------- ----------- -------------
Net Assets :
Paid-in capital 166,628,408 144,757,349 (27,993) 311,357,764
Net unrealized appreciation (depreciation)
on investments and foreign currency 3,311,961 3,147,056 -- 6,459,017
Accumulated net realized gains (losses) on investment
and foreign currency transactions 850,765 (23,321,461) -- (22,470,696)
Undistributed net investment income(loss) (6,804) 65,074 -- 58,270
------------- ------------- ----------- -------------
Net Assets $ 170,784,330 $ 124,648,018 $ (27,993) $ 295,404,355
============= ============= =========== =============
Net Assets
Investment A Shares $ 170,670,669 $ 118,723,858 $ (27,993) $ 289,366,534
Investment C Shares 113,661 -- -- 113,661
Institutional Class -- 5,924,160 -- 5,924,160
------------- ------------- ----------- -------------
Total $ 170,784,330 $ 124,648,018 $ (27,993) $ 295,404,355
============= ============= =========== =============
Outstanding units of beneficial interest (shares)
Investment A Shares 13,928,763 14,363,251 (4,673,793) 23,618,221
Investment C Shares 9,284 -- -- 9,284
Institutional Class -- 716,706 (233,101) 483,605
------------- ------------- ----------- -------------
Total 13,938,047 15,079,957 (4,906,894) 24,111,110
============= ============= =========== =============
Net asset value
Redemption price per share-Investment A Shares $ 12.25 $ 8.27 $ 12.25
============= ============= =========== =============
Offering price per shares-Investment C Shares* $ 12.24 $ -- $ 12.24
============= ============= =========== =============
Redemption price per share-Institutional Shares $ $ 8.27 $ 12.25
============= ============= =========== =============
Maximum Sales Charge 4.50% 4.00% 4.50%
============= ============= =========== =============
Maximum Offering Price (100%/(100%-Maximum Sales Charge)
of net asset value adjusted to nearest cent)
per share (Investment A Shares) $ 12.83 $ 8.61 $ 12.83
============= ============= =========== =============
</TABLE>
* Redemption price per share varies by length of time shares are held.
(See Notes which are an integral part of the Financial Statements)
<PAGE> 103
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Assets and Liabilities
<TABLE>
<CAPTION>
January 31, 1998 Pro Forma
(Unaudited) Combined
Fountain Square Cardinal Fountain Square
Gov't Cash Gov't Securities Gov't Cash
Reserves Money Market Pro Forma Reserves
Fund Fund Adjustments Fund
-------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Assets:
Investments, at value
(Amortized Cost $326,066,783; $407,511,354;) $326,066,783 $ 407,511,354 $- $ 733,578,137
Repurchase agreements
(Amortized Cost $0; $141,892,669;) -- 141,892,669 -- 141,892,669
------------ ------------- --------- -------------
Total Investments 326,066,783 549,404,023 -- 875,470,806
Cash 3,517 31 -- 3,548
Interest and dividends receivable 691,560 6,132,741 -- 6,824,301
Receivable for investments sold -- -- -- --
Receivable for Fund shares sold -- 239,509 -- 239,509
Unamortized organizational costs -- 113,365 (113,365) --
Prepaid expenses and other assets 8,521 352,690 -- 361,211
------------ ------------- --------- -------------
Total Assets 326,770,381 556,242,359 (113,365) 882,899,375
------------ ------------- --------- -------------
--
Liabilities: --
Interest and dividends Payable 1,388,282 -- -- 1,388,282
Payable for investments purchased -- 35,053,318 -- 35,053,318
Payable for Fund shares redeemed -- -- -- --
Accrued expenses and other payables: --
Investment advisory fees 103,993 227,180 -- 331,173
Administration fees 22,677 -- -- 22,677
Distribution Services - Investment C Shares -- -- -- --
Shareholder Servicing - Investment C Shares -- -- -- --
Accounting and transfer agent fees 7,200 99,409 -- 106,609
Custodian fees 1,688 12,149 -- 13,837
Legal and audit fees 5,519 27,129 -- 32,648
Printing fees 3,908 13,526 -- 17,434
Registration & Filing 15,320 12,378 -- 27,698
Other 13,749 58,194 -- 71,943
------------ ------------- --------- -------------
Total Liabilities 1,562,336 35,503,283 -- 37,065,619
------------ ------------- --------- -------------
-------------
-------------
Net Assets : --
Paid-in capital 325,206,515 521,954,727 (113,365) 847,047,877
Net unrealized appreciation (depreciation)
on investments and foreign currency -- -- -- --
Accumulated net realized gains (losses)
on investment and foreign currency transactions 1,530 (1,553,942) -- (1,552,412)
Undistributed net investment income(loss) -- 338,291 -- 338,291
------------ ------------- --------- -------------
Net Assets 325,208,045 $ 520,739,076 $(113,365) $ 845,833,756
============ ============= ========= =============
Net Assets
Investment A Shares 190,194,107 $ 520,739,076 $(113,365) $ 710,819,818
Investment C Shares 135,013,938 -- -- 135,013,938
------------ ------------- --------- -------------
Total 325,208,045 $ 520,739,076 $(113,365) $ 845,833,756
============ ============= ========= =============
-------------
Outstanding units of beneficial interest (shares) --
Investment A Shares 190,193,410 520,809,044 (113,365) 710,889,089
Investment C Shares 135,013,100 -- -- 135,013,100
------------ ------------- --------- -------------
Total 325,206,510 520,809,044 (113,365) 845,902,189
============ ============= ========= =============
Net asset value
Redemption price per share-Investment A Shares $ 1.00 $ 1.00 $ 1.00
============ ============= ========= =============
Offering price per shares-Investment C Shares* $ -- $ -- $ 1.00
============ ============= ========= =============
Maximum Sales Charge 0.00% 0.00% 0.00%
============ ============= ========= =============
Maximum Offering Price (100%/(100%-Maximum Sales Charge)
of net asset value adjusted to nearest cent)
per share (Investment A Shares) $ 1.00 $ 1.00 $ 1.00
============ ============= ========= =============
</TABLE>
* Redemption price per share varies by length of time shares are held.
(See Notes which are an integral part of the Financial Statements)
<PAGE> 104
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Operations
For the year ended January 31, 1998
<TABLE>
<CAPTION>
(Unaudited) Pro Forma
Combined
Fountain Square Cardinal Fountain Square
Balanced Balanced Pro Forma Balanced
Fund Fund Adjustments Fund
-------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 2,877,796 $ 378,469 $ -- $ 3,256,265
Dividend income 792,924 147,004 -- 939,928
----------- ---------- -------- -----------
Total Income 3,670,720 525,473 -- 4,196,193
----------- ---------- -------- -----------
EXPENSES:
Investment advisory fees 986,064 120,256 9,896 1,116,216
Administrative fees 209,194 -- (68,629) 140,565
Distribution & service fees - Investment A 424,772 36,315 17,273 478,360
Distribution & service fees - Investment C 10,847 -- -- 10,847
Shareholder servicing - Investment C 3,616 1,590 (1,590) 3,616
Organization expense 3,270 10,585 (10,585) 3,270
Custodian fees 10,036 8,896 (8,182) 10,750
Portfolio accounting fees 42,551 17,937 (23,768) 36,720
Transfer and dividend disbursing
agent fees and expenses 17,569 16,748 1,750 36,067
Directors'/Trustees' fees 1,204 2,102 (2,006) 1,300
Audit fees 8,779 64 657 9,500
Legal fees 7,725 697 1,328 9,750
Fund share registration costs 11,099 9,514 (3,209) 17,404
Printing and postage expense 7,075 -- 946 8,021
Insurance expense 896 1,095 1,002 2,993
Other 1,366 1,228 (500) 2,094
----------- ---------- -------- -----------
Total Expenses 1,746,063 227,027 (85,617) 1,887,473
----------- ---------- -------- -----------
Less fees voluntarily reduced (509,332) -- -- (509,332)
----------- ---------- -------- -----------
Net Expenses 1,236,731 227,027 (85,617) 1,378,141
----------- ---------- -------- -----------
Net Investment Income (Loss) 2,433,989 298,446 85,617 2,818,052
----------- ---------- -------- -----------
Realized and Unrealized Gains
(Losses) from Investments and
Foreign Currency Transactions:
Net realized gains(losses) from investments
and foreign currency transactions 13,660,190 486,645 -- 14,146,835
Net change in unrealized appreciation (depreciation)
from investments and translation of assets
and liabilities in foreign securities 7,155,154 3,458,926 -- 10,614,080
----------- ---------- -------- -----------
Net realized and unrealized gains(losses)
from investments and foreign currency 20,815,344 3,945,571 -- 24,760,915
----------- ---------- -------- -----------
Change in net assets resulting
from operations $23,249,333 $4,244,017 $ 85,617 $27,578,967
=========== ========== ======== ===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE> 105
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Operations
For the year ended January 31, 1998
<TABLE>
<CAPTION>
(Unaudited) Pro Forma
Combined
Fountain Square Cardinal Fountain Square
Bond Fund Gov't Obligations Pro Forma Bond Fund
For Income Fund Adjustments For Income
--------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $10,274,593 $10,144,635 $ -- $20,419,228
Dividend income (3,946) -- -- (3,946)
----------- ----------- -------- -----------
Total Income 10,270,647 10,144,635 -- 20,415,282
----------- ----------- -------- -----------
EXPENSES:
Investment advisory fees 851,218 640,945 62,116 1,554,279
Administrative fees 262,971 -- 85,754 348,725
Distribution & service fees - Investment A 541,536 279,289 147,503 968,328
Distribution & service fees - Investment C 437 3,694 (437) 3,694
Shareholder servicing - Investment C 116 -- 159 275
Organization expense 1,830 8,395 (8,395) 1,830
Custodian fees 8,652 34,281 (34,033) 8,900
Portfolio accounting fees 42,080 50,133 (14,113) 78,100
Transfer and dividend disbursing
agent fees and expenses 19,586 106,500 (71,939) 54,147
Directors'/Trustees' fees 3,031 20,421 (21,071) 2,381
Audit fees 14,020 12,119 (16,639) 9,500
Legal fees 9,539 22,020 (21,809) 9,750
Fund share registration costs 64,207 24,829 (40,518) 48,518
Printing and postage expense 19,314 24,759 (36,052) 8,021
Insurance expense 2,882 8,307 (4,792) 6,397
Other 60 25,274 (23,053) 2,281
----------- ----------- -------- -----------
Total Expenses 1,841,479 1,260,966 2,681 3,105,126
----------- ----------- -------- -----------
Less fees voluntarily reduced (650,208) -- -- (650,208)
----------- ----------- -------- -----------
Net Expenses 1,191,271 1,260,966 2,681 2,454,918
----------- ----------- -------- -----------
Net Investment Income (Loss) 9,079,376 8,883,669 (2,681) 17,960,364
----------- ----------- -------- -----------
Realized and Unrealized Gains
(Losses) from Investments and
Foreign Currency Transactions:
Net realized gains(losses) from investments
and foreign currency transactions 1,686,155 604,849 -- 2,291,004
Net change in unrealized appreciation(depreciation)
from investments and translation of assets and
liabilities in foreign securities 1,256,890 3,147,056 -- 4,403,946
----------- ----------- -------- -----------
Net realized and unrealized gains(losses)
from investments and foreign currency 2,943,045 3,751,905 -- 6,694,950
----------- ----------- -------- -----------
Change in net assets resulting
from operations $12,022,421 $12,635,574 $ (2,681) $24,655,314
=========== =========== ======== ===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE> 106
Fountain Square Funds/The Cardinal Group
Pro Forma Combining Statements of Operations
For the year ended January 31, 1998
<TABLE>
<CAPTION>
(Unaudited) Pro Forma
Cardinal Combined
Fountain Square Gov't Securities Fountain Square
Gov't Cash Money Market Pro Forma Gov't Cash
Reserves Fund Fund Adjustments Reserves Fund
--------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $15,214,437 $28,264,156 $ -- $43,478,593
Dividend income -- -- -- --
----------- ----------- ---------- -----------
Total Income 15,214,437 28,264,156 -- 43,478,593
----------- ----------- ---------- -----------
EXPENSES:
Investment advisory fees 1,104,723 2,639,807 (582,271) 3,162,259
Administrative fees 468,052 -- 208,547 676,599
Distribution & service fees - Investment A 400,037 -- 1,290,779 1,690,816
Distribution & service fees - Investment C -- -- -- --
Shareholder servicing - Investment C -- -- -- --
Organization expense -- 34,675 (34,675) --
Custodian fees 14,834 26,497 (23,131) 18,200
Portfolio accounting fees 56,504 63,832 (9,935) 110,401
Transfer and dividend disbursing
agent fees and expenses 23,018 1,072,372 (657,774) 437,616
Directors'/Trustees' fees 2,598 54,107 (49,754) 6,951
Audit fees 8,600 68,566 (67,666) 9,500
Legal fees 7,725 62,787 (60,762) 9,750
Fund share registration costs 48,199 9,801 74,224 132,224
Printing and postage expense 14,866 112,898 (115,826) 11,938
Insurance expense 2,337 43,475 (32,137) 13,675
Other 352 327,461 (327,012) 801
----------- ----------- ---------- -----------
Total Expenses 2,151,845 4,516,278 (387,393) 6,280,730
----------- ----------- ---------- -----------
Less fees voluntarily reduced (729,406) -- -- (729,406)
----------- ----------- ---------- -----------
Net Expenses 1,422,439 4,516,278 (387,393) 5,551,324
----------- ----------- ---------- -----------
Net Investment Income (Loss) 13,791,998 23,747,878 387,393 37,927,269
----------- ----------- ---------- -----------
Realized and Unrealized Gains
(Losses) from Investments and
Foreign Currency Transactions:
Net realized gains(losses) from investments
and foreign currency transactions 961 (91,324) -- (90,363)
Net change in unrealized appreciation(depreciation)
from investments and translation of assets and
liabilities in foreign securities -- -- -- --
----------- ----------- ---------- -----------
Net realized and unrealized gains(losses)
from investments and foreign currency 961 (91,324) -- (90,363)
----------- ----------- ---------- -----------
Change in net assets resulting
from operations $13,792,959 $23,656,554 $ 387,393 $37,836,906
=========== =========== ========== ===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE> 107
FOUNTAIN SQUARE FUNDS/THE CARDINAL GROUP
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
-------
1. BASIS OF COMBINATION:
The unaudited Pro Forma Combining Statements of Assets and Liabilities,
Statements of Operations, and Schedules of Portfolio Investments reflect the
accounts of three investment portfolios offered by Fountain Square Funds (the
"Company"): the Balanced Fund, the Bond Fund For Income and the Government Cash
Reserves Fund and three investment portfolios offered by The Cardinal Group: the
Balanced Fund, the Government Obligations Fund and the Government Securities
Money Market Fund (collectively, "Funds") as if the proposed reorganization
occurred as of and for the year ended January 31, 1998. These statements have
been derived from books and records utilized in calculating daily net asset
value at January 31, 1998.
The Reorganization Agreement provides that on the Closing Date of the
Reorganization, all of the assets and liabilities will be transferred as follows
such that at and after the Reorganization, the assets and liabilities of the
applicable Cardinal Fund will become the assets and liabilities of the
corresponding Fountain Square Fund: the Cardinal Balanced Fund assets and
liabilities will be transferred to the Fountain Square Balanced Fund, the
Cardinal Government Obligations Fund assets and liabilities will be transferred
to the Fountain Square Bond Fund For Income and the Cardinal Government
Securities Money Market Fund assets and liabilities will be transferred to the
Fountain Square Government Cash Reserves Fund. In exchange for the transfer of
assets and liabilities,FSF will issue to the Cardinal Funds full and fractional
shares of the corresponding Fountain Square Funds, and the Cardinal Funds will
make a liquidating distribution of such shares to its shareholders. The number
of shares of the Fountain Square Funds so issued will be equal in value to the
full and fractional shares of the Cardinal Funds that are outstanding
immediately prior to the Reorganization. At and after the Reorganization, all
debts, liabilities and obligations of the Cardinal Funds will attach to the
Fountain Square Funds and may thereafter be enforced against the Fountain Square
Funds to the same extent as if they had been incurred by such Funds. The pro
forma statements give effect to the proposed transfer described above.
Under the purchase method of accounting for business combinations under
generally accepted accounting principles, the basis on the part of the Fountain
Square Funds, of the assets of the Cardinal Funds will be the fair market value
of such assets on the Closing Date of the Reorganization. The Fountain Square
Funds will recognize no gain or loss for federal tax purposes on its issuance
of shares in the reorganization, and the basis to the Fountain Square Funds of
the assets of the Cardinal Funds received pursuant to the Reorganization will
equal the fair market value of the consideration furnished by the Fountain
Square Funds in the reorganization -- i.e., the sum of the
(CONTINUED)
<PAGE> 108
FOUNTAIN SQUARE FUNDS/THE CARDINAL GROUP
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
-------
liabilities assumed, the fair market value of the Fountain Square Funds shares
issued. For accounting purposes, the Operating Fountain Square Funds are
the surviving Funds of this Reorganization. The pro forma statements reflect
the combined results of operations of the Cardinal Funds and the Fountain
Square Funds. However, should such Reorganization be effected, the statements
of operations of the Fountain Square Funds will not be restated for
precombination period results of the corresponding Cardinal Funds.
The Pro Forma Combining Statements of Assets and Liabilities, Statements
of Operations, and Schedules of Portfolio Investments should be read in
conjunction with the historical financial statements of the Funds incorporated
by reference in the Statement of Additional Information.
The Cardinal Funds and the Fountain Square Funds are each separate
portfolios of The Cardinal Group and the Fountain Square Funds, respectively,
which are registered as an open-end management investment companies under the
Investment Company Act of 1940 (the "1940 Act"). The investment objective of the
Cardinal Balanced Fund is to seek current income and long-term growth of both
capital and income. The investment objective of the Fountain Square Balanced
Fund is to pursue capital appreciation and income. The investment objective of
the Cardinal Government Obligations is to maximize safety of capital and,
consistent with such objective, earn the highest available current income
obtainable from government securities. The investment objective of the Fountain
Square Bond Fund For Income is to provide a high level of current income. The
investment objective of the Cardinal Government Securities Money Market Fund is
to maximize current income while preserving capital and maintaining liquidity.
The investment objective of Fountain Square Government Cash Reserves Fund is
high current income consistent with stability of principal and liquidity.
EXPENSES
Fifth Third Bank (the "Advisor"), serves as the Fountain Square Funds'
investment advisor. BISYS Fund Services L.P. (the "Administrator"), an
indirect, wholly-owned subsidiary of The BISYS Group, Inc. (BISYS) serves as
the administrator and distributor to the Fountain Square Funds. Fifth Third
Bank serves as transfer and dividend disbursing agent, fund accountant and
custodian for the Fountain Square Funds.
Cardinal Funds:
Cardinal Balanced Fund and Cardinal Government Obligations Fund each
issues two classes of shares. The Investor Shares of these Funds have rights
and privileges analogous to those of Investment A Shares of the corresponding
Fountain Square Funds. The Institutional Shares of these Cardinal Funds
(CONTINUED)
<PAGE> 109
FOUNTAIN SQUARE FUNDS/THE CARDINAL GROUP
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
-------
have rights and privileges analogous to those of the Institutional Shares of
the corresponding Fountain Square Funds. Shares of the Government Securities
Money Market Fund have rights and privileges analogous to those of
Institutional Shares (formerly known as Trust Shares) of Fountain Square
Governmental Cash Reserves Fund.
Under the terms of the investment advisory agreement between The Cardinal Group
and Cardinal Management Corp. (the "Advisor"), the Advisor is entitled to
receive fees computed at the annual rate of 0.75% for the Balanced Fund, 0.50%
for the Government Obligations Fund and 0.50% of Government Securities Money
Market Fund. Such fees are accrued daily and paid monthly. For the 12-month
period ended January 31, 1998, total investment advisory fees incurred by these
Funds were as follows:
<TABLE>
<CAPTION>
Total Fees
----------
<S> <C>
Balanced Fund 120,256
Government Obligations 640,945
Government Securities 2,639,807
</TABLE>
Fountain Square Funds:
The Fountain Square Balanced Fund and Bond Fund For Income issue three
class of shares: Investment A Shares, Investment C Shares and Institutional
Shares. The Government Cash Reserves Fund issues two classes of shares:
Investment A Shares and Institutional Shares (formerly Trust Shares). Each
class of shares has identical rights and privileges except with respect to fees
paid under shareholder servicing or distribution plans, expenses allocable
exclusively to each class of shares, voting rights on matters affecting a
single class of shares, and the exchange privilege of each class of shares.
Investment A Shares are subject to an initial sales charge upon purchase
(except for the Government Cash Reserves Fund). Investment C Shares are subject
to a contingent deferred sales change (CDSC).
Under the terms of the investment advisory agreement between Fountain Square
Funds and Fifth Third Bank (the "Advisor"), the Advisor is entitled to receive
fees computed at the annual rate of 0.80% for the Balanced Fund, 0.55% for the
Bond Fund For Income and 0.40% of Government Cash Reserves Fund. Such fees are
accrued daily and paid monthly. For the 12-month period ended January 31, 1998,
total investment advisory fees incurred by these Funds were as follows:
(CONTINUED)
<PAGE> 110
FOUNTAIN SQUARE FUNDS/THE CARDINAL GROUP
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
-------
<TABLE>
<CAPTION>
Total Fees
----------
<S> <C>
Balanced Fund 1,116,216
Bond Fund For Income 1,554,279
Government Cash Reserves Fund 3,162,259
</TABLE>
Under the terms of the administration agreement the Administrator's fees are
computed, at the annual rate of 0.20% of first $1 billion of net assets of the
Trust, 0.18% of net assets of the Trust between $1 billion and $2 billion, and
0.17% of more than $2 billion of the net assets of the Trust. For the 12-month
period ended January 31, 1998, the Administrator's fees earned from these Funds
were as follows:
<TABLE>
<CAPTION>
Total Fees
----------
<S> <C>
Balanced Fund 140,565
Bond Fund For Income 348,725
Government Cash Reserves Fund 676,599
</TABLE>
PRO FORMA ADJUSTMENTS AND PRO FORMA COMBINED COLUMNS
The pro forma adjustments and pro forma combined columns of the
statements of operations reflect the adjustments necessary to show expenses at
the rates which would have been in effect if the Cardinal Funds were included in
the Fountain Square Funds for the 12-month period ended January 31, 1998.
Investment advisory and shareholder service and 12b-1 fees in the pro forma
combined column are calculated at the rates in effect for the Fountain Square
Funds based upon the combined net assets of the Cardinal Funds and the Fountain
Square Funds. Certain pro forma adjustments were made to estimate the benefit
of combining operations of separate funds into one survivor fund. The
unamortized organizational expenses of the Cardinal Funds that would be written
off if the Reorganization had occurred as of January 31, 1998 are as follows:
The Cardinal Fund, $43,495; Cardinal Aggressive Growth Fund, $5,195; and
Cardinal Balanced Fund, $19,700.
The pro forma schedules of portfolio investments give effect to the
proposed transfer of such assets as if the reorganization had occurred at
January 31, 1998.
(CONTINUED)
<PAGE> 111
FOUNTAIN SQUARE FUNDS/THE CARDINAL GROUP
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
-------
2. PORTFOLIO VALUATION, SECURITIES TRANSACTIONS AND RELATED INCOME:
Investments in equity securities are determined on the basis of the mean between
the latest available bid and asked prices in the principal market (last sales
price on a national securities exchange). For unlisted securities, value is
determined on the basis of the latest bid prices. Investments in other open-end
investment companies are valued at net asset value. Bonds and other fixed income
securities are valued at prices provided by an independent pricing service.
Value of all other securities is determined at fair value in good faith in
accordance with procedures adopted by the Board of Trustees.
Securities transactions are accounted for on the date the security is purchased
or sold (trade date). Interest income is recognized on the accrual basis and
includes, where applicable, the pro rata amortization of premium or discount.
Dividend income is recorded on the ex-dividend date. Gains or losses realized on
sales of securities are determined by comparing the identified cost of the
security lot sold with the net sales proceeds.
3. CAPITAL SHARES:
The pro forma net asset values per share assume the issuance of shares
of the Fountain Square Funds which would have occurred at January 31, 1998 in
connection with the proposed reorganization. The pro forma number of shares
outstanding consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------- -------------------- ------------------------ ---------------------
Additional Shares
Shares outstanding Assumed in the
at January 31, 1998 Reorganization Proforma Shares at
(000) (000) January 31, 1998
- ----------------------------------------- -------------------- ------------------------ ---------------------
<S> <C> <C> <C>
Balanced Fund 10,528 1,243 11,771
- ----------------------------------------- -------------------- ------------------------ ---------------------
Bond Fund For Income 13,938 10,173 24,111
- ----------------------------------------- -------------------- ------------------------ ---------------------
Government Cash Reserves 325,207 520,695 845,902
- ----------------------------------------- -------------------- ------------------------ ---------------------
</TABLE>
<PAGE> 112
PART C. OTHER INFORMATION
Item 15. Indemnification
Indemnification is provided to Officers and Trustees of the Registrant
pursuant to Article IX of Registrant's By-Laws. The Investment Advisory
Contracts between the Registrant and Fifth Third Bank ("Fifth Third") (with
respect to all of the Fountain Square Funds except Fountain Square Pinnacle
Fund) and Heartland Capital Management, Inc. ("Heartland") (with respect to the
Fountain Square Pinnacle Fund) (Fifth Third and Heartland, each the "Adviser")
each provide that, in the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties under the
Investment Advisory Contracts on the part of the Adviser, the Adviser shall not
be liable to the Registrant or to any shareholder for any act or omission in the
course of or connected in any way with rendering services or for any losses that
may be sustained in the purchase, holding, or sale of any security. Registrant's
Trustees and Officers are covered by an Errors and Omissions Policy.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to Trustees, Officers, and
controlling persons of the Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is aware that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by Trustees, Officers, or
controlling persons of the Registrant in connection with the successful defense
of any act, suit, or proceeding) is asserted by such Trustees, Officers, or
controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Insofar as indemnification for liabilities may be permitted pursuant to
Section 17 of the Investment Company Act of 1940, as amended, for Trustees,
Officers, and controlling persons of the Registrant by the Registrant pursuant
to its Declaration of Trust and By-Laws, or otherwise, the Registrant is aware
of the position of the Securities and Exchange Commission as set forth in
Investment Company Act Release No. IC-11330. Therefore, the Registrant
undertakes that in addition to complying with the applicable provisions of its
Declaration of Trust and ByLaws, or otherwise, in the absence of a final
decision on the merits by a court or other body before which the proceeding was
brought, that an indemnification payment will not be made unless in the absence
of such a decision, a reasonable determination based upon factual review has
been made: (i) by a majority vote of a quorum of non-party Trustees who are not
interested persons of the Registrant, or (ii) by independent legal counsel for
an act of willful misfeasance, bad faith, gross negligence, or reckless
disregard of duties. The Registrant further undertakes that advancement of
expenses incurred in the defense of a proceeding (upon undertaking for repayment
unless it is ultimately determined that indemnification is appropriate) against
an Officer, Trustee, or controlling person of the Registrant will not be made
absent the
<PAGE> 113
fulfillment of at least one of the following conditions: (i) the indemnitee
provides security for his undertaking; (ii) the Registrant is insured against
losses arising by reason of any lawful advances; or (iii) a majority of a quorum
of disinterested non-party Trustees or independent legal counsel in a written
opinion makes a factual determination that there is reason to believe the
indemnitee will be entitled to indemnification.
Item 16. Exhibits
(1) Conformed Copy of Declaration of Trust of the Registrant
including Amendments No. 1 through 7.(1)
(i) Conformed Copy of Amendment No. 8 to the Declaration
of Trust.(2)
(ii) Conformed Copy of Amendment No. 9 to the Declaration
of Trust.(3)
(iii) Conformed Copy of Amendment No. 10 to the Declaration
of Trust.(4)
(iv) Conformed Copy of Amendment No. 11 to the Declaration
of Trust.(5)
(v) Conformed Copy of Amendment No. 12 to the Declaration
of Trust.(10)
(2) Copy of By-Laws of the Registrant.(1)
(3) Not Applicable.
(4) Agreement and Plan of Reorganization and Liquidation, dated as
of March 23, 1997, by and among Fountain Square Funds, Fifth
Third Bank, The Cardinal Group and Cardinal Management Corp.
is included as Exhibit A to the Combined Proxy
Statement/Prospectus forming a part of this Registration
Statement.(11)
(5) The instruments defining the rights of holders of shares of
the Fountain Square Funds are the Registrant's Declaration of
Trust and By-Laws. See Exhibits (1) and (2), above.
(6) (i) Conformed Copy of Investment Advisory Contract of the
Registrant through and including Exhibit J.(1)
(a) Conformed Copy of Exhibits K-M to Investment
Advisory Contract of Registrant.(4)
(b) Conformed Copy of Exhibits N-O to Investment
Advisory Contract of Registrant.(10)
(ii) Conformed Copy of Sub-Advisory Agreement.(6)
(iii) Conformed Copy of Investment Advisory Contract of the
Registrant with respect to Fountain Square Pinnacle
Fund.(10)
(7) (i) Conformed Copy of Distribution Agreement of the
Registrant.(7)
(a) Conformed Copy of amended Schedules A-C to
Distribution Agreement.(10)
(ii) Copy of Administrative Service Agreement of the
Registrant.(2)
(a) Conformed Copy of amended Exhibit A to
Administrative Service Agreement.(10)
<PAGE> 114
(8) Not Applicable.
(9) (i) Conformed Copy of Custody Agreement of the
Registrant(8).
(a) Conformed Copy of amended Exhibit B to Custody
Agreement.(4)
(ii) Conformed Copy of (Sub-)Custody Agreement.(1)
(10) (i) Conformed Copy of Rule 12b-1 Plan through and including
Exhibits A and B.(7)
(a) Conformed Copy of amended Exhibits A and B to
Rule 12b-1 Plan.(10)
(ii) Form of Rule 12b-1 Agreement.(7)
(a) Copy of amended Exhibit A to Rule 12b-1
Agreement.(10)
(iii) Conformed Copy of Amended and Restated Multiple Class
Plan.(10)
(11) Conformed Copy of Opinion and Consent of Hertz, Schram &
Saretsky, P.C. as to legality of shares being registered.(11)
(12) Form of Opinion and Consent of Howard & Howard Attorneys, P.C.
as to tax matters.(11)
(13) (i) Conformed Copy of Transfer Agency and Accounting
Services Agreement of the Registrant.(1)
(a) Conformed Copy of amended Schedule A to Transfer
Agency and Accounting Services Agreement.(10)
(ii) Conformed Copy of Management and Administration
Agreement of the Registrant.(4)
(a) Conformed Copy of amended Schedule A to
Management and Administration Agreement.(10)
(iii) Conformed Copy of Sub-Administration Agreement.(4)
(a) Conformed Copy of amended Schedule A to
Sub-Administration Agreement.(10)
(14) (i) Conformed Copy of Consent of KPMG Peat Marwick LLP,
independent auditors of Cardinal.*
(ii) Conformed Copy of Consent of Ernst & Young LLP.*
(15) Not Applicable.
(16) Conformed Copy of Power of Attorney.(7)
(17) (i) Prospectus dated November 30, 1997 for Investment A
Shares and Investment C Shares of Fountain Square
Funds.(11)
(ii) Prospectus dated September 30, 1997 for Fountain Square
Government Cash Reserves Fund.(11)
(iii) Prospectuses dated May 20, 1998 for Institutional
Shares of Fountain Square Funds, Investment A Shares
and Institutional Shares of Fountain Square Cardinal
Fund and Investment A Shares and Institutional Shares
of Fountain Square Tax Exempt Money Market Fund.*
(iv) Prospectuses dated January 30, 1998 for Investor Shares
and Institutional Shares of each of the Funds of The
Cardinal Group.(11)
(v) Combined Statement of Additional Information dated
November 30, 1997 for Fountain Square Funds.(11)
(vi) Combined Statement of Additional Information dated
September 30, 1997 for Fountain Square Government
Cash Reserves Fund.(11)
(vii) Statements of Additional Information dated May 20, 1998
for Institutional Shares of Fountain Square Funds,
Investment A Shares and Institutional Shares of
Fountain Square Cardinal Fund and Investment A Shares
and Institutional Shares of Fountain Square Tax Exempt
Money Market Fund.*
(viii) Statement of Additional Information dated January 30,
1998 for The Cardinal Group.(11)
(ix) Annual Report dated July 31, 1997 for Fountain Square
Funds.(11)
(x) Semi-Annual Report dated January 31, 1998 for Fountain
Square Funds.*
(xi) Annual Report dated September 30, 1997 for The
Cardinal Group.(11)
(xii) Financial Data Schedules.(12)
*Filed electronically herewith.
(1) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed February 28, 1995 (File Nos.
811-5669 and 33-24848).
<PAGE> 115
(2) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed on or about October 28, 1996 (File
Nos. 811-5669 and 33-24848).
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed on or about October 1, 1996 (File
No. 811-5669 and 33-24848).
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed on or about September 30, 1997
(File Nos. 811-5669 and 33-24848).
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed on or about January 21, 1998 (File
Nos. 811-5669 and 33-24898).
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed June 1, 1994. (File Nos. 811-5669
and 33-24848).
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed on or about January 18, 1996. (File
Nos. 811-5669 and 33-24848).
(8) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed on or about November 26, 1997.
(9) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed on or about September 30, 1995.
(File Nos. 811-5669 and 33-24848).
(10) To be filed by post-effective amendment to Registrant's Registration
Statement on Form N-1A.
(11) Response is incorporated by reference to Registrant's Form N-14 filed
on or about April 6, 1998 (File No. 333-49491).
(12) Response is incorporated by reference to Registrant's Post-Effective
Amendment Nos. 23 and 25 on Form N-1A filed on or about September 30,
1997 and November 26, 1997 (File Nos. 811-5669 and 33-24848) and The
Cardinal Group's Post-Effective Amendment No. 10 on Form N-1A filed on
or about January 28, 1998 (File Nos. 811-07588 and 33-59984).
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
part of this Registration Statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, as amended, the reoffering prospectus will
contain the information called for by the applicable registration form
for the reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is
effective, and that in determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment shall be deemed
to be a new Registration Statement for the securities offered therein;
and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant, FOUNTAIN SQUARE FUNDS, certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Form
N-14 under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the city of Columbus and state of Ohio, on the 26th day of May,
1998.
FOUNTAIN SQUARE FUNDS
By: /s/ Stephen G. Mintos*
----------------------
Stephen G. Mintos
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacity and on the date indicated:
Name Title Date
---- ----- ----
By: /s/ Stephen G. Mintos President May 26, 1998
--------------------- (Principal Executive
Stephen G. Mintos Officer); Attorney-In-Fact
For the Persons Listed
Below
Name Title
---- -----
/s/ Jeffrey C. Cusick Treasurer and Secretary May 26, 1998
- --------------------- (Principal Financial and
Jeffrey C. Cusick Accounting Officer)
Edward Burke Carey* Trustee
Lee A. Carter* Trustee
Albert E. Harris* Trustee
- -----------------------------------------------
*By Power of Attorney
<PAGE> 117
EXHIBIT LIST
14 (i) Conformed Copy of Consent of KPMG Peat Marwick LLP
14 (ii) Conformed Copy of Consent of Ernst & Young LLP
17 (iii) Prospectuses dated May 20, 1998 for Institutional
Shares of Fountain Square Funds, Investment A Shares
and Institutional Shares of Fountain Square Cardinal
Fund, and Investment A Shares and Institutional Shares
of Fountain Square Tax Exempt Money Market Fund.
(vii) Statements of Additional Information dated May 20, 1998
for Institutional Shares of Fountain Square Funds,
Investment A Shares and Institutional Shares of
Fountain Square Cardinal Fund and Investment A Shares
and Institutional Shares of Fountain Square Tax Exempt
Money Market Fund.
(x) Semi-Annual Report dated January 31, 1998 for Fountain
Square Funds.
<PAGE> 1
EXHIBIT 14(i)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees
of The Cardinal Group:
We consent to use of our report dated February 13, 1998, and incorporated by
reference herein, and to the reference to our firm under the heading "Financial
Statements" in the Combined Proxy Statement/Prospectus.
/s/ KPMG Peat Marwick LLP
Columbus, Ohio
May 26, 1998
<PAGE> 1
Exhibit 14(ii)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Financial
Statements" in the Combined Proxy Statement/Prospectus and to the use of our
reports included in the Annual Report to Shareholders of Fountain Square Funds
dated July 31, 1997 and included in the Prospectus of Fountain Square Government
Cash Reserves Fund dated September 30, 1997 on the statements of assets and
liabilities of the Fountain Square Funds as of July 31, 1997, including the
portfolios of investments as of such date, and the related statements of
operations, statements of changes in net assets and financial highlights for the
periods indicated in the financial statements, incorporated by reference in
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-14
(333-49491) of Fountain Square Funds.
/s/ Ernst & Young LLP
Cincinnati, Ohio
May 20, 1998
<PAGE> 1
FOUNTAIN SQUARE FUNDS
INSTITUTIONAL SHARES
PROSPECTUS
Fountain Square 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:
oFountain Square U.S. Government Securities Fund;
oFountain Square Quality Bond Fund;
oFountain Square Ohio Tax Free Bond Fund;
oFountain Square Quality Growth Fund;
oFountain Square Mid Cap Fund;
oFountain Square Balanced Fund;
oFountain Square International Equity Fund;
oFountain Square Equity Income Fund;
oFountain Square Bond Fund For Income;
oFountain Square Municipal Bond Fund; and
oFountain Square Pinnacle Fund
This Prospectus contains the information you should read and know before you
invest in Institutional Shares of any of the Funds. Keep this Prospectus for
future reference.
Additional information about Institutional Shares of the Funds is contained in
the Funds' combined Statement of Additional Information, dated May 20, 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 the Funds by writing to or calling
the Trust toll-free at (888) 799-5353.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 20, 1998
<PAGE> 2
TABLE OF CONTENTS
SYNOPSIS.......................................................... 1
Risk Factors............................................. 2
EXPENSES OF THE FUNDS
INSTITUTIONAL SHARES.............................................. 3
EXPENSES OF THE FUNDS
INSTITUTIONAL SHARES.............................................. 4
PREDECESSOR COMMON TRUST FUNDS PERFORMANCE
INFORMATION....................................................... 6
OBJECTIVE OF EACH FUND............................................ 7
Government Securities Fund............................... 7
Acceptable Investments.......................... 7
Investment Limitations.......................... 8
Quality Bond Fund........................................ 8
Acceptable Investments.......................... 8
Collateralized Mortgage Obligations............. 8
Investment Limitations.......................... 9
Ohio Tax Free Bond Fund.................................. 9
Acceptable Investments.......................... 9
Characteristics................................. 10
Participation Interests......................... 10
Variable Rate Municipal Securities.............. 10
Municipal Leases................................ 10
Temporary Investments........................... 10
Ohio Municipal Securities....................... 10
Investment Risks................................ 11
Non-Diversification............................. 11
Investment Limitations.......................... 11
Quality Growth Fund...................................... 11
Acceptable Investments.......................... 12
Convertible Securities.......................... 12
Investment Limitations.......................... 12
Mid Cap Fund............................................. 13
Acceptable Investments.......................... 13
Investment Limitations.......................... 13
Balanced Fund............................................ 13
Acceptable Investments.......................... 13
Money Market Instruments........................ 14
Investment Limitations.......................... 14
International Equity Fund................................ 14
Acceptable Investments.......................... 15
Money Market Instruments........................ 15
Foreign Currency Transactions................... 15
Forward Foreign Currency Exchange Contracts..... 16
Investment Limitations.......................... 16
Risk Considerations............................. 16
Equity Income Fund....................................... 16
Acceptable Investments.......................... 16
Investment Limitations.......................... 17
Bond Fund For Income..................................... 17
Acceptable Investments.......................... 17
Investment Limitations.......................... 18
Municipal Bond Fund...................................... 18
Acceptable Investments.......................... 18
Characteristics................................. 18
Temporary Investments........................... 18
Municipal Securities............................ 19
Investment Limitations.......................... 19
Pinnacle Fund............................................ 19
Acceptable Investments.......................... 19
Convertible Securities.......................... 19
Investment Limitations.......................... 20
PORTFOLIO INVESTMENTS AND STRATEGIES.............................. 20
Borrowing Money.......................................... 20
Diversification.......................................... 20
Restricted and Illiquid Securities....................... 20
Repurchase Agreements.................................... 21
When-Issued and Delayed Delivery Transactions............ 21
Lending of Portfolio Securities.......................... 21
Options and Futures...................................... 21
Put and Call Options............................ 21
Futures and Options on Futures.................. 22
Risks........................................... 23
Foreign Investments...................................... 24
Exchange Rates.................................. 24
Foreign Companies............................... 24
U.S. Government Policies........................ 25
Emerging Markets................................ 25
Foreign Bank Instruments........................ 25
Derivative Securities.................................... 25
Bond Ratings............................................. 26
Temporary Investments.................................... 26
Variable Rate Demand Notes...................... 26
Commercial Paper................................ 26
Bank Instruments................................ 27
Investment Companies............................ 27
Equity Investment Risks.................................. 27
FOUNTAIN SQUARE FUNDS INFORMATION................................. 27
Management of the Trust.................................. 27
Board of Trustees............................... 27
Investment Advisors............................. 27
Advisory Fees................................... 28
Fifth Third Bank's Background................... 28
Fifth Third Bank Portfolio Managers'
Background............................. 28
Heartland's Background.......................... 29
Heartland Portfolio Managers' Background........ 29
Sub-Advisor..................................... 29
Sub-Advisory Fees............................... 29
MSAM's Background............................... 29
MSAM Portfolio Managers' Background............. 29
Distribution of Shares of the Funds...................... 30
Payments to Financial Institutions....................... 30
Administration of the Funds.............................. 30
Administrative Services......................... 30
Custodian, Transfer Agent and Dividend
Disbursing Agent................................ 31
Independent Auditors..................................... 31
Expenses of the Funds and Institutional Shares........... 31
Brokerage Transactions................................... 31
NET ASSET VALUE................................................... 32
INVESTING IN THE FUNDS............................................ 32
i
<PAGE> 3
Share Purchases.......................................... 32
Purchases by Certain Heartland Clients.......... 32
Purchases by All Other Investors................ 33
Additional Information................................... 33
Minimum Investment Required.............................. 33
Investing In Institutional Shares........................ 33
Exchanging Securities for Fund Shares.................... 33
Systematic Investment Program............................ 33
Certificates and Confirmations........................... 34
Dividends and Capital Gains.............................. 34
EXCHANGES......................................................... 34
REDEEMING SHARES.................................................. 35
By Telephone............................................. 35
By Mail.................................................. 35
Systematic Withdrawal Program............................ 36
Accounts with Low Balances............................... 36
SHAREHOLDER INFORMATION........................................... 37
Voting Rights............................................ 37
Massachusetts Law........................................ 37
EFFECT OF BANKING LAWS............................................ 37
TAX INFORMATION................................................... 38
Federal Income Tax....................................... 38
Additional Tax Information for Ohio Tax Free
Bond Fund....................................... 38
State of Ohio Income Taxes...................... 38
Other State and Local Taxes..................... 38
Additional Tax Information for Municipal Bond Fund....... 39
Additional Tax Information for International
Equity Fund..................................... 39
PERFORMANCE INFORMATION........................................... 39
ADDRESSES......................................................... 41
ii
<PAGE> 4
NOTICE OF DELIVERY OF PROSPECTUSES,
SEMI-ANNUAL REPORTS, AND ANNUAL REPORTS
In order to reduce expenses of the Fountain Square Funds incurred in connection
with the mailing of prospectuses, semi-annual reports and annual reports to
multiple shareholders at the same address, Fountain Square Funds may in the
future deliver one copy of a prospectus, semi-annual report, or annual report to
a single investor sharing a street address or post office box with other
investors, provided that all such investors have the same last name or are
believed to be members of the same family. If you share an address with another
investor and wish to receive your own prospectuses, semi-annual reports and
annual reports, please call the Trust toll-free at 1-888-799-5353.
<PAGE> 5
SYNOPSIS
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. This Prospectus relates only to Institutional
Shares of the Funds described herein. The Funds are designed for individuals and
institutions as a convenient means of accumulating interests in professionally
managed portfolios.
Institutional Shares of the following Funds are offered in this Prospectus:
o Fountain Square U.S. Government Securities Fund ("Government
Securities Fund")-seeks to provide a high level of current
income by investing primarily in U.S. government securities,
including U.S. Treasury and government agency issues;
o Fountain Square Quality Bond Fund ("Quality Bond Fund")-seeks
to provide a high level of current income with capital growth
as a secondary objective by investing in investment grade debt
securities of U.S. corporations, U.S. dollar-denominated
issues of foreign corporations, U.S. government securities,
and collateralized mortgage obligations;
o Fountain Square Ohio Tax Free Bond Fund ("Ohio Tax Free Bond
Fund")-seeks to provide current income exempt from federal
income tax and the personal income taxes imposed by the state
of Ohio and Ohio municipalities by investing primarily in Ohio
municipal securities. The Fund is not likely to be a suitable
investment for non-Ohio taxpayers or retirement plans since it
intends to invest in Ohio municipal securities;
o Fountain Square Quality Growth Fund ("Quality Growth
Fund")-seeks to provide growth of capital by investing
primarily in common stocks of high-quality companies,
generally leaders in their industries, with minimum market
capitalization of $100 million;
o Fountain Square Mid Cap Fund ("Mid Cap Fund")-seeks to provide
growth of capital with income as a secondary objective by
investing primarily in common stocks of companies with
superior long-term growth opportunities and maximum market
capitalizations of approximately $3 billion;
o Fountain Square Balanced Fund ("Balanced Fund")-seeks to
provide capital appreciation and income by investing primarily
in common stocks of high quality companies, generally leaders
in their industries, and in investment grade debt securities
of U.S. corporations, U.S. dollar- denominated issues of
foreign corporations, U.S. government securities, and
collateralized mortgage obligation;
o Fountain Square International Equity Fund ("International
Equity Fund")-seeks to provide long- term capital appreciation
by investing primarily in equity securities of non-U.S.
issuers;
o Fountain Square Equity Income Fund ("Equity Income
Fund")-seeks to provide a high level of current income
consistent with capital appreciation by investing primarily in
high quality common stocks or convertible securities that have
above-average current yield;
o Fountain Square Bond Fund For Income ("Bond Fund For
Income")-seeks to provide a high level of current income by
investing primarily in investment grade debt securities with
remaining maturities of ten years or less;
o Fountain Square Municipal Bond Fund ("Municipal Bond
Fund")-seeks to provide a high level of current income that is
exempt from federal regular income taxes by investing
primarily in investment grade municipal securities; and
1
<PAGE> 6
o Fountain Square 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.
For information on how to purchase Institutional Shares of any of the Funds,
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. 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, except the Pinnacle Fund, is
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 Bank. 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 collectively 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 "Objective of Each Fund" and
"Portfolio Investments and Strategies."
2
<PAGE> 7
EXPENSES OF THE FUNDS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)............ None
Exchange Fee................................................................... None
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Ohio Bond
Government Quality Tax Free Fund Municipal
Securities Bond Bond For Bond
Fund Fund Fund Income Fund
---- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Management Fees (after waivers)(1).................. 0.47% 0.55% 0.55% 0.55% 0.55%
Other Expenses (after waivers)(2)................... 0.28% 0.20% 0.20% 0.20% 0.23%
Total Institutional Shares
Operating Expenses(3)............................ 0.75% 0.75% 0.75% 0.75% 0.78%
</TABLE>
(1) The management fee of the 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 at its sole discretion. The maximum
management fee for the Government Securities Fund is 0.55%.
(2) Other expenses have been reduced to reflect the anticipated voluntary
waiver of a portion of the administration fee. With respect to the
Government Securities Fund, Quality Bond Fund, Ohio Tax Free Bond Fund,
Bond Fund For Income and Municipal Bond Fund, in the absence of such
waivers, other expenses would be 0.38%, 0.30%, 0.30%, 0.26% and 0.33%,
respectively.
(3) Total Institutional Shares Operating Expenses for the Government
Securities Fund would have been 0.93% absent the voluntary waivers by
the investment advisor and the administrator. Total Institutional
Shares Operating Expenses for the Quality Bond Fund, Ohio Tax Free Bond
Fund, Bond Fund For Income and Municipal Bond Fund would have been
0.85%, 0.85%, 0.81% and 0.88%, respectively, absent the voluntary
waivers by the administrator.
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 "FOUNTAIN SQUARE FUNDS INFORMATION" AND
"INVESTING IN THE FUNDS." Wire-transferred redemptions of less than $5,000 may
be subject to additional fees.
3
<PAGE> 8
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
You would pay the following expenses on a $1,000 investment in
Institutional Shares assuming (1) 5% annual return; (2) redemption at the end of
each time period. Institutional Shares charge no redemption fees or sales
charges.
<TABLE>
<CAPTION>
Government Ohio Bond Fund
Securities Quality Tax Free For Municipal
Fund Bond Fund Bond Fund Income Bond Fund
---- --------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
1 Year............................... $ 8 $ 8 $ 8 $ 8 $ 8
3 Years.............................. $24 $24 $24 $24 $25
5 Years.............................. $42 $42 $42 N/A N/A
10 Years.............................. $93 $93 $93 N/A N/A
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
EXPENSES OF THE FUNDS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable).................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)............. None
Exchange Fee.................................................................... None
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Quality International Equity
Growth Mid Cap Balanced Equity Income Pinnacle
Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Management Fees........................ 0.80% 0.80% 0.80% 1.00% 0.80% 0.80%
Other Expenses (after waivers)(1)...... 0.20% 0.20% 0.20% 0.47% 0.20% 0.65%
Total Institutional Shares
Operating Expenses(2)............... 1.00% 1.00% 1.00% 1.47% 1.00% 1.45%
</TABLE>
(1) Other expenses for all of the Funds except the International Equity
Fund and the Pinnacle Fund have been reduced to reflect the anticipated
voluntary waiver of a portion of the administration fee. With respect
to the Quality Growth Fund, Mid Cap Fund, Balanced Fund and Equity
Income Fund, in the absence of such waivers, other expenses would be
0.22%, 0.26%, 0.28% and 0.28%, respectively. For the Pinnacle Fund,
other expenses are based on estimated amounts for the current fiscal
year.
4
<PAGE> 9
(2) Total Institutional Shares Operating Expenses for the Quality Growth
Fund, the Mid Cap Fund, the Balanced Fund, and the Equity Income Fund
would have been 1.02%, 1.06%, 1.08%, and 1.08%, respectively, absent
the voluntary waivers by the administrator.
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 "FOUNTAIN SQUARE FUNDS INFORMATION" AND
"INVESTING IN THE FUNDS." Wire-transferred redemptions of less than $5,000 may
be subject to additional fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
You would pay the following expenses on a 1,000 investment in
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>
Quality International Equity
Growth Mid Cap Balanced Equity Income Pinnacle
Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1 Year.............................. $ 10 $ 10 $ 10 $ 15 $10 $15
3 Years............................. $ 32 $ 32 $ 32 $ 46 $32 $46
5 Years............................. $ 55 $ 55 $ 55 $ 80 N/A N/A
10 Years............................ $122 $122 $122 $146 N/A N/A
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE> 10
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 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 42.74% 23.98% 14.20% 11.79%
Bond Fund For Income
[Successor to Taxable Bond Fund]
--------------------------------
Institutional Shares 8.03% 7.28% 5.33% 7.52%
Municipal Bond Fund
[Successor to Tax-Free Bond Fund]
---------------------------------
Institutional Shares 7.10% 5.51% 4.66% 5.87%
</TABLE>
*Annualized Total Returns are calculated based upon the fiscal year ended July
31, 1997.
For periods dating back to January 1, 1983 prior to the Funds' commencement of
operations, all of the Funds intend to quote total returns that include the
performance of collectively managed accounts advised by Fifth Third Bank whose
assets were converted to create the 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 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. Performance
of the Funds reflects the deduction of fees associated with a mutual fund, such
as investment management and accounting fees. Performance also reflects the
reinvestment of all dividends and capital gains distributions.
6
<PAGE> 11
OBJECTIVE OF EACH FUND
- --------------------------------------------------------------------------------
The investment objectives and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this Prospectus.
Unless indicated otherwise, the investment policies and limitations of a Fund
may be changed by the Board of Trustees ("Trustees") without approval of
shareholders. Shareholders will be notified before any material change in these
policies becomes effective.
Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below, appears in
the "Portfolio Investments and Strategies" section of this Prospectus and in the
combined Statement of Additional Information.
GOVERNMENT SECURITIES FUND
The investment objective of the Government Securities Fund is to provide a high
level of current income. The Government Securities Fund pursues its investment
objective consistent with its investment in a portfolio of U.S. government
securities. Capital growth is a secondary objective. The Fund pursues its
investment objectives by investing in a diversified portfolio of U.S. government
securities, including both U.S. Treasury and government agency issues. The Fund
will purchase only securities with remaining maturities or estimated average
lives of seven years or less. In managing the portfolio, Fifth Third Bank seeks
to minimize fluctuations in the value of the Fund's shares.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund invests
are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. The prices of fixed income securities fluctuate inversely to
the direction of interest rates. These securities include, but are not limited
to:
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 below for the
Quality Bond Fund.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so. The
instrumentalities are supported by:
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
7
<PAGE> 12
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."
QUALITY BOND FUND
The investment objective of the Quality Bond Fund is to achieve high current
income. Capital growth is a secondary objective. The Quality Bond Fund pursues
its investment objectives consistent with its investment in a portfolio of
investment grade bonds. The Fund pursues its investment objectives by investing
in the bonds and other instruments described below. Under normal market
conditions, the Fund will invest at least 65% of its assets in quality bonds. As
used herein, the Fund considers bonds rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's Ratings Group
("S&P"), or unrated bonds that are determined by 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 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
above; and
o collateralized mortgage obligations.
The Quality Bond Fund does not intend to invest in corporate bonds rated below
Baa by Moody's or BBB by S & P. The weighted average maturity will be less than
15 years.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities, invest in repurchase agreements, engage in
options and futures transactions and participate in when-issued and delayed
delivery transactions. (See "Portfolio Investments and Strategies.")
COLLATERALIZED MORTGAGE OBLIGATIONS. The Fund may invest in collateralized
mortgage obligations ("CMOs") which are rated Baa or better by Moody's or BBB or
higher by S&P and which are issued by private entities such as investment
banking firms and companies related to the construction industry. The CMOs in
which the Fund may invest may be: (i) privately issued securities which are
collateralized by pools of mortgages in which each mortgage is guaranteed as to
payment of principal and interest by an agency or instrumentality of the U.S.
government; (ii) privately issued securities which are collateralized by pools
of mortgages in which payment of principal and interest is guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities; (iii)
other privately issued securities in which the proceeds of the issuance are
invested in mortgage-backed securities and payment of the principal and interest
is supported by the credit of an agency or instrumentality of the U.S.
8
<PAGE> 13
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.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
OHIO TAX FREE BOND FUND
The investment objective of the Ohio Tax Free Bond Fund is to provide current
income exempt from federal income tax and the personal income taxes imposed by
the state of Ohio and Ohio municipalities. The Fund pursues its investment
objective by investing primarily in Ohio municipal securities. Interest income
of the Fund that is exempt from the income taxes described above retains its
exempt status when distributed to the Fund's shareholders. Income distributed by
the Fund may not necessarily be exempt from state or municipal taxes in states
other than Ohio. In addition, interest income from certain types of municipal
securities may be subject to federal alternative minimum tax. To the extent the
Municipal Bond Fund invests in these bonds, individual shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Municipal Bond Fund's distributions derived from these bonds.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are:
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 defined above.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted securities, enter into repurchase agreements, and engage in
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies.")
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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.
As a matter of investment policy, under normal market conditions, the Fund will
invest at least 65% of its assets in bonds that provide current income exempt
from federal income tax and the personal income taxes imposed by the State of
Ohio and Ohio municipalities.
PARTICIPATION INTERESTS. The Fund may purchase participation interests from
financial institutions such as commercial banks, savings and loan associations,
and insurance companies. These participation interests give the Fund an
undivided interest in Ohio municipal securities. The financial institutions from
which the Fund purchases participation interests frequently provide or secure
irrevocable letters of credit or guarantees to assure that the participation
interests are of high quality.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the Ohio municipal securities which
the Fund purchases may have variable interest rates. Variable interest rates are
normally based on a published interest rate or interest rate index or a similar
standard, such as the 91-day U.S. Treasury bill rate. Many variable rate
municipal securities are subject to payment of principal on demand by the Fund
in not more than seven days. All variable rate municipal securities will meet
the quality standards for the Fund. The Fund's Advisor has been instructed by
the Trustees to monitor the pricing, quality, and liquidity of the variable rate
municipal securities, including participation interests held by the Fund on the
basis of published financial information and reports of the rating agencies and
other analytical services.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities. They may take the form of a lease, an installment purchase contract,
a conditional sales contract, or a participation certificate on any of the
above.
TEMPORARY INVESTMENTS. The Fund normally invests its assets so that at least 80%
of its annual interest income is exempt from federal income tax and the personal
income taxes imposed by the state of Ohio and Ohio municipalities, or at least
80% of its 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 corporations.
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<PAGE> 15
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS. Yields on Ohio municipal securities depend on a variety of
factors, including: the general conditions of the municipal bond market; the
size of the particular offering; the maturity of the obligations; and the rating
of the issue. Further, any adverse economic conditions or developments affecting
the state of Ohio or its municipalities could impact the Fund's portfolio. The
state of Ohio and certain underlying municipalities face potential economic
problems over the longer term. The state economy has grown more slowly than that
of the nation as a whole, resulting in a gradual erosion of its relative
economic affluence. The causes of this relative decline are varied and complex,
involving in many cases national and international demographic and economic
trends beyond the influence of the state. The ability of the Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
Ohio municipal securities and participation interests, or the guarantors of
either, to meet their obligations for the payment of interest and principal when
due. Investing in Ohio municipal securities which meet the Fund's quality
standards may not be possible if the state of Ohio or its municipalities do not
maintain their current credit ratings. In addition, certain Ohio constitutional
amendments, legislative measures, executive orders, administrative regulations,
and voter initiatives could result in adverse consequences affecting Ohio
municipal securities.
NON-DIVERSIFICATION. The Fund is a non-diversified investment portfolio. As
such, there is no limit on the percentage of assets which can be invested in any
single issuer. An investment in the Fund, therefore, will entail greater risk
than would exist in a diversified portfolio of securities because the higher
percentage of investments among fewer issuers may result in greater fluctuation
in the total market value of the Fund's portfolio. Any economic, political, or
regulatory developments affecting the value of the securities in the Fund's
portfolio will have a greater impact on the total value of the portfolio than
would be the case if the portfolio were diversified among more issuers.
The Fund intends to comply with Subchapter M of the Internal Revenue Code. This
undertaking requires that at the end of each quarter of the taxable year: (a)
with regard to at least 50% of the Fund's total assets, no more than 5% of its
total assets are invested in the securities of a single issuer and (b) no more
than 25% of its total assets are invested in the securities of a single issuer.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money" and "Restricted and Illiquid Securities."
QUALITY GROWTH FUND
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 ant are characterized by sound management and the ability to
finance expected growth. Among other things, Fifth Third Bank would look for
strength in the following areas: historical and five year projected dividend
growth and earnings growth, debt to capital ratio, and quality of management.
The Fund's investment approach is based on the conviction that over the long
term the economy will continue to expand and develop, which will be reflected in
the growth of the revenues and earnings of major corporations. Under
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<PAGE> 16
normal market conditions, at least 65% of the Fund's assets will be invested in
the types of quality common stocks as described above.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to the following:
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 assets in ADRs. (See "Foreign Investments."); and
o convertible bonds rated at least BBB by S&P, or at least Baa
by Moody's, or if not rated, are determined to be of
comparable quality by the advisor.
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities, warrants,
and engage in put and call options, futures and options on futures, and
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies.")
CONVERTIBLE SECURITIES. Convertible securities are securities which may be
exchanged or converted into a predetermined number of the issuer's underlying
common stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible bonds, convertible
preferred stock or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives.
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which entitle the holder to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bonds' maturity. Convertible securities are senior to equity securities, and
therefore have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stocks when, in the advisor's opinion, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objectives. Otherwise, the Fund will hold or trade
the convertible securities. In selecting convertible securities for the Fund,
the Fund's Advisor evaluates the investment characteristics of the convertible
security as a fixed income instrument, and the investment potential of the
underlying equity security for capital appreciation. In evaluating these matters
with respect to a particular convertible security, 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."
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<PAGE> 17
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 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 stock of U.S. companies with at least $100 million in
market capitalization and a maximum of $3 billion in market
capitalization which are listed on the New York or American
Stock Exchanges or traded in over-the-counter markets,
preferred stock of such companies, and preferred stock
convertible into common stock of such companies. The Fund
intends to invest in industries and companies which, in the
opinion of Fifth Third Bank, have potential primarily for
capital growth and secondarily for income;
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 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, lend portfolio securities, invest in
restricted and illiquid securities, warrants, enter into repurchase agreements,
and engage in put and call options, futures and options on futures, and
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies.")
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed under
"Borrowing Money," "Diversification," and "Restricted and Illiquid Securities."
BALANCED FUND
The investment objective of the Balanced Fund is to pursue capital appreciation
and income. The Fund invests primarily in a diversified portfolio of common and
preferred stocks, U.S. government securities, convertible securities, investment
grade corporate bonds, and prime money market instruments.
ACCEPTABLE INVESTMENTS. Those income and equity securities acceptable for
investment in this Fund are outlined under the "Acceptable Investments" sections
of the Quality Bond Fund, the Quality Growth Fund, and the Mid Cap Fund. In
addition, the Balanced Fund may invest in money market instruments that are
either rated in the highest short-term rating category by a nationally
recognized statistical rating organization or are of comparable quality to
securities having such ratings.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities, warrants, repurchase agreements, and engage
in put and call options, futures and options on futures, and when- issued and
delayed delivery transactions. (See "Portfolio Investments and Strategies.")
The asset mix of the Fund will normally range between 40-75 percent in common
stock and convertible securities, 25-50 percent in preferred stock and bonds,
and 0-25 percent in money market instruments. Moderate shifts between assets
classes are made in order to maximize returns or reduce risk. The Fund will
maintain at least 25%
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<PAGE> 18
of its assets in fixed income senior securities (including the value of
convertible senior securities attributable to their fixed income
characteristics).
MONEY MARKET INSTRUMENTS. The money market instruments in which the Fund invests
include but are not limited to:
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."
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, 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. (Although, of course
there can be no assurance that these goals will be achieved.)
In consultation with Fifth Third Bank, MSAM determines country allocations for
the Fund on an ongoing basis within policy ranges dictated by each country's
market capitalization and liquidity. The Fund will invest substantially in
industrialized countries throughout the world that comprise the Morgan Stanley
Capital International EAFE (Europe, Australia and the Far East) Index. In
addition, the Fund may invest in emerging country equity securities. As used in
this Prospectus, the term "emerging country" applies to any country which, in
the opinion of 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
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<PAGE> 19
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 American
Depositary Receipts ("ADRs")); and
o corporate and government fixed income securities dominated in
currencies other than U.S. dollars.
In addition, the Fund may enter into repurchase agreements, invest in restricted
and illiquid securities, engage in options and futures contracts, participate in
when-issued and delayed delivery transactions, and lend portfolio securities.
(See "Portfolio Investments and Strategies.") The Fund may also make the
following investments.
MONEY MARKET INSTRUMENTS. The Fund may acquire money market instruments rated in
one of the two highest rating categories by a Nationally Recognized Statistical
Rating Organization or which, in the opinion of 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.
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<PAGE> 20
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. (Please
see Foreign Currency Transactions in the combined Statement of Additional
Information for further information about the risks.)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract ("forward contract") is an obligation to purchase or sell an amount of
a particular currency at a specific price and on a future date agreed upon by
the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Fund will not enter into a forward contract
with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). This includes using foreign exchange contracts in conjunction
with futures contracts to achieve a currency exposure similar to that of holding
securities denominated in that currency. The period between trade date and
settlement date will vary between 24 hours and 60 days, depending upon local
custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although 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.
EQUITY INCOME FUND
The investment objective of the Equity Income Fund is to provide a high level of
current income consistent with capital appreciation. The Equity Income Fund
pursues its investment objective by investing in a diversified portfolio of high
quality common stocks or convertible securities that have above-average current
yield. The Equity Income Fund focuses its investment in income producing stocks
to help moderate stock market volatility. These stocks are characterized by
relatively high dividend yields and dividend growth potential above inflation.
Under normal market conditions, the Equity Income Fund will invest at least 65%
of its assets in income producing equity securities.
ACCEPTABLE INVESTMENTS. The securities in which the Equity Income Fund invests
include, but are not limited to, the following:
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<PAGE> 21
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 American Depositary Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in the
over-the-counter market. The Equity Income Fund may not invest
more than 25% of its assets in ADRs. (See "Foreign
Investments"); and
o Convertible securities rated in the four highest rating
categories by a nationally recognized statistical rating
organization (a "NRSRO") (e.g., at least BBB by Standard &
Poors Rating Group or Baa by Moody's Investors Service, Inc.)
or, if not rated, are determined to be of comparable quality
by 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 Equity Income Fund may borrow money; lend portfolio securities;
invest in restricted and illiquid securities and warrants; enter into repurchase
agreements; and engage in put and call options, futures, options on futures, and
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies").
INVESTMENT LIMITATIONS. The Equity Income Fund's investment limitations are
discussed under "Borrowing Money," "Diversification," and "Restricted and
Illiquid Securities."
BOND FUND FOR INCOME
The investment objective of the Bond Fund For Income is to provide a high level
of current income. The Bond Fund For Income pursues its investment objective by
investing in a diversified portfolio of investment grade debt securities with
remaining maturities of ten years or less. Under normal market conditions, the
Bond Fund For Income will invest at least 65% of its assets in fixed income debt
securities.
ACCEPTABLE INVESTMENTS. The Bond Fund For Income invests primarily in a
professionally managed, diversified portfolio of investment grade securities
which include:
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 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 (See "Collateralized
Mortgage Obligations").
The Bond Fund For Income does not intend to invest in corporate bonds rated
below Baa by Moody's or BBB by S&P.
In addition, the Bond Fund For Income may borrow money, lend portfolio
securities, invest in restricted and illiquid securities, invest in repurchase
agreements, engage in options and futures transactions and participate in
when-issued and delayed delivery transactions. (See "Portfolio Investments and
Strategies").
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<PAGE> 22
INVESTMENT LIMITATIONS. The Bond Fund For Income's investment limitations are
discussed below under "Borrowing Money," "Diversification," and "Restricted and
Illiquid Securities."
MUNICIPAL BOND FUND
The investment objective of the Municipal Bond Fund is to provide a high level
of current income that is exempt from federal regular income taxes. The
Municipal Bond Fund pursues its objective by investing primarily in a
diversified portfolio of investment grade municipal securities. Interest income
of the Municipal Bond Fund that is exempt from federal regular income taxes
retains its exempt status when distributed to shareholders. Income distributed
by the Municipal Bond Fund may not necessarily be exempt from state or municipal
taxes. In addition, interest income from certain types of municipal securities
may be subject to federal alternative minimum tax. To the extent the Municipal
Bond Fund invests in these bonds, individual shareholders, depending on their
own tax status, may be subject to alternative minimum tax on that part of the
Municipal Bond Fund's distributions derived from these bonds.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Municipal Bond
Fund invests are:
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 income securities acceptable for investment in the Municipal Bond Fund are
outlined under the following subsections of the "Acceptable Investments" section
of the Ohio Tax Free Bond Fund: "Participation Interests," "Variable Rate
Municipal Securities," and "Municipal Leases."
As a matter of investment policy, which may not be changed without shareholder
approval, under normal market conditions at least 80% of the value of the
Municipal Bond Fund's net assets will be invested in municipal securities, as
defined above.
In addition, the Municipal Bond Fund may borrow money, lend portfolio
securities, invest in restricted securities, enter into repurchase agreements,
and engage in put and call options, futures, options on futures, and when-issued
and delayed delivery transactions. (See "Portfolio Investments and Strategies")
CHARACTERISTICS. The municipal securities which the Municipal Bond Fund buys are
investment grade bonds rated Aaa, Aa, A or Baa by Moody's, or AAA, AA, A or BBB
by S&P or Fitch Investors Service, Inc. In certain cases, the Fund's Advisor may
choose bonds which are unrated if it judges the bonds to have the same
characteristics as the investment grade bonds described above. Downgrades will
be evaluated on a case by case basis by 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 Municipal Bond Fund normally invests its assets so
that at least 80% of its net assets are invested in obligations the interest
from which is exempt from federal regular income taxes. However, from time to
time, during periods of other than normal market conditions, the Fund may invest
in up to 100% of its assets in taxable temporary investments. These temporary
investments include: notes issued by or on behalf of corporate issuers;
obligations issued or guaranteed by the U.S. government, its agencies, or
instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements.
There are no rating requirements applicable to temporary investments. However,
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.
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Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.
MUNICIPAL SECURITIES. Municipal securities are generally issued to finance
public works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Municipal securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligations" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT LIMITATIONS. The Municipal Bond 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
Pinnacle 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 Pinnacle 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 Pinnacle 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 Pinnacle Fund may borrow money, enter into repurchase
agreements, lend portfolio securities, invest in restricted and illiquid
securities, and engage 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 Pinnacle 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 Investors Service, Inc. ("Moody's") or
BBB or higher by Standard & Poor's Ratings Group ("S&P"), or unrated securities
that are determined by Heartland to be of comparable quality. 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 income securities until
they have been converted, but also react to movements in the underlying
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equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege.
INVESTMENT LIMITATIONS. The Pinnacle Fund's investment limitations are discussed
below under "Borrowing Money," "Diversification," and "Restricted and Illiquid
Securities."
PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------
BORROWING MONEY
The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which a Fund sells a money market or other portfolio
instrument, as applicable, for a percentage of its cash value with an agreement
to buy it back on a set date) or pledge securities except, under certain
circumstances, a Fund may borrow money up to one-third of the value of its total
assets and pledge assets as necessary to secure such borrowings. This policy
cannot be changed without the approval of holders of a majority of a Fund's
shares.
DIVERSIFICATION
With respect to 75% of the value of total assets, all of the Funds (with the
exception of the Ohio Tax Free Bond Fund) will not invest more than 5% in
securities of any one issuer or acquire more than 10% of the outstanding voting
securities of any one issuer, other than cash, cash items or securities issued
or guaranteed by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by U.S. government
securities. This policy cannot be changed without the approval of holders of a
majority of a Fund's shares.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restrictions on resale under
federal securities law. Restricted securities may be issued by new and early
stage companies which may include a high degree of business and financial risk
that can result in substantial losses. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund, or less than what may be considered the fair
value of such securities. Further, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly traded.
If such securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required to bear
the expense of registration. The Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
All of the Funds (with the exception of the Ohio Tax Free Bond Fund) may invest
in commercial paper issued in reliance on the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933. Section 4(2) commercial
paper is restricted as to disposition under federal securities law, and is
generally sold to institutional investors, such as one of these Funds, who agree
that they are purchasing the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity. The Funds believe that Section 4(2) commercial paper and
certain other restricted securities, which meet the criteria for liquidity
established by the Trustees, are quite liquid. Therefore, the Funds intend to
treat these securities as liquid
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and not subject to the investment limitation applicable to illiquid securities.
In addition, because these securities are liquid, the Funds will not subject
such securities to the limitation otherwise applicable to restricted securities.
REPURCHASE AGREEMENTS
The securities in which each Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to a Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from a Fund, that Fund could
receive less than the repurchase price on any sale of such securities. The Funds
will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Advisor to
be creditworthy pursuant to guidelines established by the Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause a Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may vary
from the purchase prices. Accordingly, a Fund may pay more/less than the market
value of the securities on the settlement date. A Fund may dispose of a
commitment prior to settlement if the Advisor deems it appropriate to do so. In
addition, a Fund may enter into transactions to sell its purchase commitments to
third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. A Fund may realize
short-term profits or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Funds may lend portfolio securities
on a short-term or long-term basis, up to one-third of the value of their total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Funds will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Advisor has determined are creditworthy under
guidelines established by the Trustees and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned. There is the risk that when lending portfolio securities, the
securities may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable price. In
addition, in the event that a borrower of securities would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending court
action.
OPTIONS AND FUTURES
The Funds (with the exception of the Ohio Tax Free Bond Fund, the Municipal Bond
Fund and the Pinnacle Fund) may engage in options and futures transactions as
described below.
PUT AND CALL OPTIONS. Each Fund (with the exception of the Ohio Tax Free Bond
Fund, the Municipal Bond Fund and the Pinnacle Fund) may purchase put options on
their portfolio securities. These options will be used as a hedge to attempt to
protect securities which a Fund holds against decreases in value. Each of the
Funds (with the exception of the Ohio Tax Free Bond Fund, the Municipal Bond
Fund and the Pinnacle 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.
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The International Equity Fund may deal in options on foreign currencies,
securities, and securities indices, and on futures contracts involving these
items, which options may be listed for trading on an international securities
exchange or traded over-the-counter. The Fund may use options to manage interest
rate and currency risks. The Fund may also write covered call options and
secured put options to generate income or lock in gains. The Fund may write
covered call options and secured put options on up to 25% of its net assets and
may purchase put and call options provided that no more than 5% of the fair
market value of its net assets may be invested in premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund forgoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset at a disadvantageous price.
A Fund may purchase and write over-the-counter options ("OTC Options") on
portfolio securities in negotiated transactions with the buyers or writers of
the options when options on the portfolio securities held by the Fund are not
traded on an exchange. A Fund purchases and writes options only with investment
dealers and other financial institutions (such as commercial banks or savings
and loan associations) deemed creditworthy by the Advisor.
OTC options are two party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid market
while over-the-counter options may not.
OTC options differ from exchange traded options in several respects. They are
transacted directly with dealers and not with a clearing corporation, and there
is a risk of nonperformance by the dealer as a result of the insolvency of such
dealer or otherwise, in which event the Fund may experience material losses.
However, in writing options, the premium is paid in advance by the dealer. OTC
options, which may not be continuously liquid, are available for a greater
variety of assets, and with a wider range of expiration dates and exercise
prices, than are exchange traded options.
FUTURES AND OPTIONS ON FUTURES. The Funds (with the exception of the Ohio Tax
Free Bond Fund, the Municipal Bond Fund and the Pinnacle Fund) may purchase and
sell financial futures contracts to hedge against the effects of changes in the
value of portfolio securities due to anticipated changes in interest rates and
market conditions. The Quality Growth Fund, the Mid Cap Fund, the Balanced Fund,
the Equity Income Fund, and the Bond Fund For Income may also purchase and sell
stock index futures to hedge against changes in prices.
The Funds will not engage in futures transactions for speculative purposes.
Futures contracts call for the delivery of particular securities at a certain
time in the future. The seller of the contract agrees to make delivery of the
type of instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time.
The International Equity Fund may enter into futures contracts involving foreign
currency, securities and securities indices, or options thereon, for bona fide
hedging purposes. The Fund may also enter into such futures contracts or related
options for purposes other than bona fide hedging if the aggregate amount of
initial margin deposits on the Fund's futures and related options positions
would not exceed 5% of the net liquidation value of the Fund's assets, provided
further that in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
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A Fund may not sell futures contracts if the value of such futures contracts
exceeds the total market value of the Fund's portfolio securities. Futures
contracts and options thereon sold by a Fund are generally subject to
segregation and coverage requirements established by either the Commodity
Futures Trading Commission ("CFTC") or the SEC, with the result that, if the
Fund does not hold the instrument underlying the futures contract or option, the
Fund will be required to segregate on an ongoing basis with its custodian cash,
U.S. government securities, or other liquid high grade debt obligations in an
amount at least equal to the Fund's obligations with respect to such
instruments.
The Funds (with the exception of the Ohio Tax Free Bond Fund, the Municipal Bond
Fund and the Pinnacle 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 indexes. An
index futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to the differences between the
value of the index at the close of the last trading day of the contract and the
price at which the index contract was originally written.
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 movements,
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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 funds to
invest in ADRs, the following is of particular interest with respect to the
International Equity Fund. In an attempt to reduce some of these risks, the
International Equity Fund diversifies its investments broadly among foreign
countries, which may include both developed and emerging countries. At least
three different countries will always be represented in that portfolio.
EXCHANGE RATES. Foreign securities are denominated in foreign currencies.
Therefore, the value in U.S. dollars of the Fund's assets and income may be
affected by changes in exchange rates and regulations. Although the Fund values
its assets daily in U.S. dollars, it will not convert its holding of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers realize a
profit on the difference between the prices at which they buy and sell
currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
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
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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 Fund. Although
the Fund is unaware of any current restrictions, investors are advised that
these policies could be reinstituted.
EMERGING MARKETS. The International Equity Fund may take advantage of the
unusual opportunities for higher returns available from investing in emerging
countries. These investments, however, carry considerably more volatility and
risk because they generally are associated with less mature economies and less
stable political systems. The economies of individual emerging countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade. These economies also have been, and may
continue to be, adversely affected by economic conditions in the countries with
which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject to
limitation in other emerging countries. Foreign ownership limitations also may
be imposed by the charters of individual companies in emerging countries to
prevent, among other concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some emerging
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any emerging country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the U.S.
FOREIGN BANK INSTRUMENTS. Different risks may also exist for Eurodollar
Certificates of Deposit ("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee
Certificates of Deposit ("Yankee CDs") because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks, such as
reserve requirements, loan limitations, examinations, accounting, auditing,
recordkeeping and the public availability of information.
DERIVATIVE SECURITIES
Several of the Funds may invest in securities that may be described as
"derivative" securities. These securities "derive" their value from changes in
the value of an underlying security, currency, commodity, or index, and may
include asset-backed securities; mortgage-backed securities (such as CMOs); or
futures, forward, option and swap contracts.
Derivative securities can be used to reduce or increase the volatility of an
investment portfolio's performance. While derivative securities may respond to
market changes differently than the securities, currencies, commodities, or
indices that underlie them, they do not necessarily present greater market risk
than the underlying investments.
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The Funds that utilize investment contracts or securities that may be deemed to
be derivative securities may do so only subject to the limitations described in
this Prospectus. For example, the Funds that invest in put options may do so
only as a hedge to attempt to protect securities that they hold against
decreases in value. The Funds that write call options may do so only on
securities held in their portfolios or on securities that they have a right to
obtain without payment of additional consideration. When the International
Equity Fund deals in options on foreign currencies, securities, and securities
indices, and on future contracts, it does so to manage interest rate and
currency risks. These and other investment practices are fully described above,
including limitations on the amount of assets that may be invested in these
securities and rating requirements, if applicable.
BOND RATINGS
Bonds rated in the fourth highest rating category by a NRSRO (e.g., "BBB" by S&P
or "Baa" by Moody's) have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than higher rated bonds. If a security's
rating is reduced below the required minimum after a Fund has purchased it, the
Fund is not required to sell the security, but may consider doing so.
TEMPORARY INVESTMENTS
For defensive purposes only, and in such amounts up to 100% as the Advisor in
its judgment believes market conditions warrant, the Government Securities Fund,
Quality Bond Fund, Quality Growth Fund, Mid Cap Fund, Balanced Fund, Equity
Income Fund, Bond Fund For Income and Pinnacle 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 the
Funds with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at par. The interest
rate may float or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on published interest rate or interest rate
index. Most variable rate demand notes allow a Fund to demand the repurchase of
the security on not more than seven days prior notice. Other notes only permit a
Fund to tender the security at the time of each interest rate adjustment or at
other fixed intervals. A Fund treats variable rate demand notes as maturing on
the later of the date of the next interest adjustment or the date on which a
Fund may next tender the security for repurchase. The Pinnacle Fund will not
invest in variable rate demand notes.
COMMERCIAL PAPER. The Funds may acquire commercial paper rated A-1 by S&P,
Prime-1 by Moody's, or F-1 by Fitch Investors Service, and money market
instruments (including commercial paper) which are not rated but are determined
by the Trustees to be of comparable quality to other bank or corporate
obligations.
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BANK INSTRUMENTS. The Funds may acquire instruments of domestic banks and
foreign banks (such as certificates of deposit, demand and time deposits, saving
shares, and bankers' acceptances) if those banks have capital, surplus, and
undivided profits of over $100,000,000 and/or if their deposits are insured by
the Federal Deposit Insurance Corporation ("FDIC"). These instruments may
include ECDs, Yankee CDs, and ETDs which are subject to the same risks as
detailed previously under "Foreign Investments."
INVESTMENT COMPANIES. In addition, all of the Funds may purchase shares of other
investment companies, primarily for the purpose of investing short-term cash on
a temporary basis. Investment in shares of other investment companies may
subject the Fund to additional or duplicative fees and expenses.
EQUITY INVESTMENT RISKS
With respect to the Quality Growth Fund, Mid Cap Fund, Balanced Fund,
International Equity Fund, Equity Income Fund and Pinnacle 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 Mid Cap Fund and the Equity Income Fund, because these
Funds invest in medium capitalization stocks, there are some additional risk
factors associated with investments in these Funds. In particular, stocks in the
medium capitalization sector of the United States equity market tend to be
slightly more volatile in price than larger capitalization stocks, such as those
included in the S&P 500 Index. This is because, among other things, medium-sized
companies have less certain growth prospects than larger companies, have a lower
degree of liquidity in the equity market, and tend to have a greater sensitivity
to changing economic conditions. Further, in addition to exhibiting slightly
higher volatility, the stocks of medium-sized companies may, to some degree,
fluctuate independently of the stocks of large companies. That is, the stocks of
medium-sized companies may decline in price as the price of large company stocks
rises or vice versa. Therefore, investors should expect that the Fund will be
slightly more volatile than, and may fluctuate independently of, broad stock
market indices such as the Standard & Poor's 500 Index.
FOUNTAIN SQUARE FUNDS INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders.
INVESTMENT ADVISORS. Pursuant to an investment advisory contract with the Trust,
investment decisions for all of the Funds 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 Capital Management, Inc., subject to the
direction of the Trustees. Each of Fifth Third Bank and Heartland continually
conducts investment research and supervision for the Funds and is responsible
for the purchase or sale of portfolio instruments, for which it receives an
annual fee from the assets of each Fund.
With respect to the International Equity Fund, as discussed further below, Fifth
Third Bank has retained Morgan Stanley Asset Management, Inc. to act as
sub-advisor to the Fund. As Advisor, Fifth Third Bank will conduct a program for
ongoing oversight and evaluation of MSAM's services to this Fund, and will
regularly report to the Trustees on these matters. Fifth Third Bank will also
assist in the formulation of, and will continue to monitor, the structure and
strategies of this Fund's portfolio to meet the needs of shareholders. As part
of the above, Fifth Third Bank will review the portfolio daily and will monitor
the Fund's expenses, as well as the brokerage and research services provided to
the Fund and selection of brokers by MSAM.
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ADVISORY FEES. Fifth Third Bank receives an investment advisory fee at
annual rates equal to percentages of the relevant Fund's average net
assets as follows: the Government Securities Fund, the Quality Bond
Fund, the Ohio Tax Free Bond Fund, the Bond Fund For Income, and the
Municipal Bond Fund-0.55%; the Quality Growth Fund, the Mid Cap Fund,
the Balanced Fund, and the Equity Income Fund-0.80%; the International
Equity Fund-1.00%. 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, the Mid Cap, the Balanced, the
International Equity, and the Pinnacle Funds while higher than the
advisory fee paid by other mutual funds in general, are comparable to
fees paid by many mutual funds with similar objectives and policies.
The investment advisory 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 the Funds for certain other expenses, but
reserves the right to terminate such waiver or reimbursement at any
time at 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 January 31, 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 $118
billion.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, Fifth Third Investment Advisors, a division of Fifth Third
Bank, manages 5 such pools with total assets of over $401 million.
Fifth Third Bank has managed mutual funds since 1988.
As part of its regular banking operations, Fifth Third Bank may make
loans to public companies. Thus, it may be possible from time to time,
for the Funds to hold or acquire the securities of issuers which are
also lending clients of Fifth Third Bank. The lending relationship will
not be a factor in the selection of securities.
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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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., an Ohio corporation. As of December 31, 1997, Heartland
acted as investment advisor for institutional and individual portfolios
with assets of approximately $963 million. 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: Mr. Robert D. Markley, President and
Chief Executive Officer of Heartland; Mr. Thomas F. Maurath, Executive
Vice President of Heartland; and Mr. 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 will be responsible as sub-advisor for managing the
International Equity Fund's portfolio, selecting investments for purchase or
sale, along with the countries in which the Fund will invest, and the dealers in
these securities. In addition, MSAM will furnish to Fifth Third Bank such
investment advice and statistical and other factual information as may from time
to time be reasonably requested by Fifth Third Bank.
SUB-ADVISORY FEES. Fifth Third Bank will be responsible for
compensating MSAM at the annual rate of 0.50% 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 March 31, 1998, MSAM managed investments totaling
approximately $166 billion under active management and $21 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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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 OF THE FUNDS
BISYS Fund Services L.P. serves as the distributor for the Trust. BISYS Fund
Services L.P. is wholly-owned by BISYS Group, Inc., 150 Clove Road, Little
Falls, NJ 07424, a publicly owned company engaged in information processing and
record keeping services to and through banking and other financial
organizations.
PAYMENTS TO FINANCIAL INSTITUTIONS
BISYS Fund Services and Fifth Third Bank, from their own assets, may pay
financial institutions supplemental fees for the performance of sales services,
distribution-related support services, or shareholder and administrative
services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Trustees will
consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
ADMINISTRATION OF THE FUNDS
ADMINISTRATIVE SERVICES. BISYS Fund Services L.P. serves as the administrator.
The administrator generally assists in all aspects of the Trust's administration
and operation including providing the Funds with certain administrative
personnel and services necessary to operate the Funds, such as legal and
accounting services. BISYS Fund Services L.P. provides these at an annual rate
as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FUND
------------------ ----------------------
0.20% of the first $1 billion
0.18% of the next $1 billion
0.17% in excess of $2 billion
The administrator may periodically waive all or a portion of its administrative
fee which will cause the yield of a Fund to be higher than it would otherwise be
in the absence of such a waiver.
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Pursuant to a separate agreement with BISYS Fund Services L.P., Fifth Third Bank
performs sub-administration services on behalf of each Fund including providing
certain administrative personnel and services necessary to operate the Fund for
which it receives a fee from BISYS Fund Services L.P. computed daily and paid
periodically calculated at an annual rate of 0.025% of average daily net assets.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Funds,
transfer agent for the shares of the Funds, and dividend disbursing agent for
the Funds.
INDEPENDENT AUDITORS. The independent auditors for the Funds are Ernst & Young
LLP, Cincinnati, Ohio.
EXPENSES OF THE FUNDS 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.
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 Securities and Exchange
Commission 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.
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NET ASSET VALUE
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The net asset value per share of each Fund fluctuates daily. The net asset value
for shares of each Fund is determined by adding the interest of each class of
shares in the market value of all securities and other assets of each Fund,
subtracting the interest of each class of shares in the liabilities of such Fund
and those attributable to each class of shares, and dividing the remainder by
the total number of each class of shares outstanding. The net asset value for
each class of shares may differ due to the variance in daily net income realized
by each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
The net asset value of each class of shares of the Funds is determined as of the
close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on days on which there are not
sufficient changes in the value of a Fund's portfolio securities that its net
asset value might be materially affected and days during which no shares are
tendered for redemption and no orders to purchase Shares are received.
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
The Funds each offer 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 the Funds can be obtained by contacting the Trust.
Each of the share classes are subject to different levels of expenses and may
carry sales loads or contingent deferred sales charges.
SHARE PURCHASES
Institutional Shares of the Funds are sold on days on which the New York Stock
Exchange and the Federal Reserve Bank of Cleveland are open for business. In
connection with the sale of Institutional Shares of the Funds, the distributor
may from time to time offer certain items of nominal value to any shareholder or
investor. The Funds reserve the right to reject any purchase request. Purchases
of Fund Institutional Shares may not be available to investors in all states.
Institutional Shares of the Funds 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 shares to be purchased at that day's price. 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
Trust. 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 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. Federal funds should be wired to the Trust as
follows: ABA No. 042 000 314 Fifth Third Cincinnati, Attention: Fountain Square
Funds Department; For Credit to: (shareholder name and account number); For
Further Credit to: Fountain Square (Name of Fund and Applicable Class of
Shares). Investors should consult their financial institutions for wiring
instructions.
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ADDITIONAL INFORMATION
From time to time, shares of the Funds may be purchased by the Fifth Third Bank,
Heartland, the Distributor, or the Administrator in connection with various
promotions of the Fountain Square Funds. In these cases, Fifth Third Bank,
Heartland, the Distributor, or the Administrator will distribute Fund shares to
existing or potential investors as an incentive to purchase the Funds.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Institutional Shares of a Fund by an investor
is $1,000. Subsequent investments must be in amounts of at least $50.
INVESTING IN INSTITUTIONAL SHARES
Institutional Shares of the Funds are sold at their net asset value next
determined after an order is received.
The net asset value for the Funds is determined at the close of trading on the
New York Stock Exchange, normally 4:00 p.m. (Eastern time) Monday through
Friday, except on days on which there are not sufficient changes in the value of
a Fund's portfolio securities that its net asset value might be materially
affected and days during which no shares are tendered for redemption and no
orders to purchase shares are received. No orders to purchase or redeem shares
are processed on the following holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day, and Christmas Day.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain securities
and cash for Fund shares. The securities and any cash must have a market value
of at least $25,000. The Funds reserve the right to determine the acceptability
of securities to be exchanged. On the day securities are accepted by a Fund,
they are valued in the same manner as a Fund values its assets. Investors
wishing to exchange securities should first contact 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 Fund 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 their account application or by contacting his or her financial
representative.
CERTIFICATES AND CONFIRMATIONS
The transfer agent maintains a share account for each shareholder of record.
Share certificates are not issued. Detailed statements that include account
balances, information on each purchase or redemption, and a report of dividends
paid are sent to shareholders.
DIVIDENDS AND CAPITAL GAINS
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<PAGE> 38
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 Government Securities Fund, the Quality Bond
Fund, the Quality Growth Fund, the Ohio Tax Free Bond Fund, the Equity Income
Fund, the Bond Fund For Income, and the Municipal Bond Fund, dividends are
declared and paid monthly. With respect to the Mid Cap Fund, the Balanced Fund
and the Pinnacle Fund, dividends are declared and paid quarterly. With respect
to the International Equity Fund, dividends, if any, are declared and paid
annually.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder may exchange shares of one Fund for shares of the same class of
any of the other Funds in the Trust, including those not offered by this
Prospectus, by calling or sending a written request to the Trust.
Shareholders may exchange Institutional Shares of one Fund for Institutional
Shares any of the other Funds in the Trust, including those not offered by this
Prospectus, by contacting the financial institution responsible for the account.
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 in the Trust will be executed by redeeming the shares
owned at net asset value and purchasing Institutional Shares of any of the other
Funds at the net asset value determined after the exchange request is received.
Orders for exchanges involving the non-money market Funds of the Trust 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 for exchanges 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 would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Each Fund redeems Institutional Shares at their net asset value next determined
after the Fund receives the redemption request. Redemptions will be made on days
on which the New York Stock Exchange and the Federal Reserve Bank of Cleveland
are open for business. 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
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<PAGE> 39
redeemed at that day's price. It is the financial institution's responsibility
to transmit orders promptly, however, investors should allow sufficient time for
orderly processing and transmission.
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 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.
Normally, a check for the proceeds is mailed to the shareholder within three
business days, but in no event more than seven days, after receipt of a proper
written redemption request, provided the Fund or its agents have received
payment for shares from the shareholder.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Fund
shares, and the fluctuation of the net asset value of Fund shares redeemed under
this program, redemptions may reduce, and eventually exhaust, the shareholder's
investment in a Fund. For this reason, payments under this program should not be
considered as yield or income on the shareholder's investment in a Fund. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000. A shareholder may apply for participation in this
program through his or her financial representative.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000.
Before redeeming shares to close an account, 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 each Fund in the
Trust have equal voting rights, except that in matters affecting only a
particular Fund, only shares of that Fund are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or a Fund's operation and for the election of Trustees
under certain circumstances. As of May 10, 1998, Fifth Third Bank may for
certain purposes be deemed to control the Funds because it is owner of record of
certain shares of the Funds.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding Shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of a Fund. To
protect shareholders of a Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of a Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign on behalf of a Fund.
In the unlikely event a shareholder of a Fund is held personally liable for the
Trust's obligations on behalf of a Fund, the Trust is required by the
Declaration of Trust to use the property of a Fund to protect or compensate the
shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of a Fund for any act or obligation of the Trust
on behalf of a Fund. Therefore, financial loss resulting from liability as a
shareholder of a Fund will occur only if the Trust cannot meet its obligations
to indemnify shareholders and pay judgments against them from the assets of a
Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956, as amended, or any affiliate thereof from sponsoring, organizing or
controlling a registered, open-end investment company continuously engaged in
the issuance of its shares, and from issuing, underwriting, selling or
distributing securities in general. Such laws and regulations do not prohibit
such a holding company or affiliate from acting as investment advisor, transfer
agent, custodian, fund accountant, or dividend disbursing agent to such an
investment company or from purchasing shares of such a company as agent for and
upon the order of their customers. Fifth Third Bank is subject to such banking
laws and regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for any Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or a Fund. In such event, changes in the operation of a
Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment or redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisors and other means of continuing available investment services.
It is not expected that an existing Fund's shareholders
36
<PAGE> 41
would suffer any adverse financial consequences (if another advisor with
equivalent abilities to Fifth Third Bank is found) as a result of any of these
occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Funds will pay no federal income tax because each Fund expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a Fund,
if any, will not be combined for tax purposes with those realized by any of the
other Funds.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the shares. No federal income tax is due on any
dividend earned in an IRA or qualified retirement plan until distributed.
Shareholders are urged to consult their own tax advisors regarding the status of
their accounts under state and local tax laws.
ADDITIONAL TAX INFORMATION FOR OHIO TAX FREE BOND FUND
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
Distributions representing net long-term capital gains realized by the Fund, if
any, will be taxable as long-term capital gains regardless of the length of time
shareholders have held their shares.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
STATE OF OHIO INCOME TAXES. Dividends of the Fund representing interest from
obligations held by the Fund which are issued by the state of Ohio or its
subdivisions, which interest is exempt from federal income tax when received by
a shareholder, should also be exempt from the Ohio individual income tax.
Dividends of the Fund representing interest from obligations held by the Fund
which are issued by the state of Ohio or its subdivisions should also be exempt
from any Ohio municipal income tax even if the municipality is permitted under
current Ohio law to levy a tax on intangible income.
OTHER STATE AND LOCAL TAXES. Income from the Fund is not necessarily free from
state income taxes in states other than Ohio or from personal property taxes.
State laws differ on this issue, and shareholders are urged to consult their own
tax advisors regarding the status of their accounts under state and local tax
laws.
ADDITIONAL TAX INFORMATION FOR MUNICIPAL BOND FUND
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
Distributions representing net long-term capital gains realized by
37
<PAGE> 42
the Fund, if any, will be taxable as long-term capital gains regardless of the
length of time shareholders have held their shares.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
ADDITIONAL TAX INFORMATION FOR INTERNATIONAL EQUITY FUND
The Fund may invest in the stock of certain foreign corporations which would
constitute a Passive Foreign Investment Company (PFIC). Federal income taxes may
be imposed on the Fund upon disposition of PFIC investments.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemption on this income. The effective rate of foreign tax
cannot be predicted since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Internal Revenue Code stipulations that would allow
shareholders to claim a foreign tax credit or deduction on their U.S. income tax
returns. The Internal Revenue Code, as amended, may limit a shareholder's
ability to claim a foreign tax credit. Furthermore, shareholders who elect to
deduct their portion of the Fund's foreign taxes rather than take the foreign
tax credit must itemize deductions on their income tax returns.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Funds advertise total return and yield for each class of
shares, including predecessor fund performance as described above, for each
class of shares. In addition, the Ohio Tax Free Bond Fund and the Municipal Bond
Fund may advertise tax-equivalent yield.
Total return represents the change, over a specified period of time, in the
value of an investment in each class of shares of a Fund after reinvesting all
income and capital gains distributions. It is calculated by dividing that change
by the initial investment and is expressed as a percentage.
The yield of each class of shares of a Fund is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by each class of shares over a thirty-day period by the
maximum offering price per share of each class on the last day of the period.
This number is then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by each class of shares and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
The tax-equivalent yields of the Ohio Tax Free Bond Fund and the Municipal Bond
Fund are calculated similarly to the yield, but are adjusted to reflect the
taxable yield that would have to be earned to equal the actual yield of each
class of shares of the Funds, assuming a specific tax rate. The yield and
tax-equivalent yield do not necessarily reflect income actually earned by each
class of shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
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.
38
<PAGE> 43
<TABLE>
<CAPTION>
ADDRESSES
- ----------------------------------------------------------------------------------------------------
<S> <C>
Fountain Square U.S. Government Fountain Square Funds
Securities Fund c/o Fifth Third Bank
Fountain Square Quality Bond Fund 38 Fountain Square Plaza
Fountain Square Ohio Tax Free Bond Fund Cincinnati, Ohio 45263
Fountain Square Quality Growth Fund
Fountain Square Mid Cap Fund
Fountain Square Balanced Fund
Fountain Square International Equity Fund
Fountain Square Equity Income Fund
Fountain Square Bond Fund For Income
Fountain Square Municipal Bond Fund
Fountain Square Pinnacle 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
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>
39
<PAGE> 44
FOUNTAIN SQUARE CARDINAL FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT A SHARES
INVESTMENT C SHARES
PROSPECTUS
The Investment A Shares and Investment C Shares of the Fountain Square Cardinal
Fund (the "Fund") offered by this Prospectus represent interests in a
diversified portfolio of securities which is one of a series of investment
portfolios of the Fountain Square Funds (the "Trust"), an open-end management
investment company (a mutual fund).
This Prospectus contains the information you should read and know before you
invest in Investment A Shares or Investment C Shares of the Fund. Keep this
Prospectus for future reference.
Additional Information about Investment A Shares and Investment C Shares of the
Fund is contained in the Fund's combined Statement of Additional Information for
Investment A Shares and Investment C Shares, dated May 20, 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 the Fund by writing to the Trust or calling toll-free (888)
799-5353.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 20, 1998
<PAGE> 45
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
EXPENSES OF THE FUND
INVESTMENT A SHARES........................................................ 1
EXPENSES OF THE FUND
INVESTMENT C SHARES........................................................ 2
FOUNTAIN SQUARE CARDINAL FUND
FINANCIAL HIGHLIGHTS - INVESTMENT A SHARES................................. 3
OBJECTIVE OF THE FUND...................................................... 5
Cardinal Fund............................................ 5
Acceptable Investments.......................... 5
Investment Limitations.......................... 5
PORTFOLIO INVESTMENTS AND STRATEGIES....................................... 5
Borrowing Money................................................... 5
Diversification................................................... 6
Restricted and Illiquid Securities................................ 6
Repurchase Agreements............................................. 6
When-Issued and Delayed Delivery Transactions..................... 6
Lending of Portfolio Securities................................... 7
Options and Futures............................................... 7
Foreign Investments............................................... 9
Temporary Investments............................................. 10
Equity Investment Risks........................................... 11
FOUNTAIN SQUARE FUNDS INFORMATION.......................................... 11
Management of the Fund............................................ 11
Board of Trustees........................................ 11
Investment Advisor....................................... 11
Advisory Fees............................................ 11
Advisor's Background..................................... 11
Portfolio Managers' Background........................... 12
Distribution of Shares of the Fund................................ 12
Distribution Plan................................................. 12
Administrative Services Agreement (Investment C
Shares Only)............................................. 12
Other Payments to Financial Institutions.......................... 13
Administration of the Fund........................................ 13
Administrative Services.................................. 13
Custodian, Transfer Agent and Dividend Disbursing
Agent.................................................... 13
Independent Auditors.............................................. 13
Expenses of the Fund, Investment A Shares and
Investment C Shares...................................... 13
Brokerage Transactions............................................ 14
NET ASSET VALUE............................................................ 14
INVESTING IN THE FUND...................................................... 14
Share Purchases................................................... 15
Purchases by Former Cardinal
Shareholders...................................... 15
Purchases by all Other Investors......................... 15
Additional Information............................................ 15
Minimum Investment Required....................................... 16
Investing In Investment A Shares.................................. 16
Purchases at Net Asset Value............................. 16
Dealer Concessions....................................... 16
Reducing/Eliminating the Sales Charge.................... 16
Quantity Discounts and Accumulated Purchases............. 17
Letter of Intent......................................... 17
Fifth Third Bank Club 53, One Account Plus, One
Account Gold, One Account Advantage
and One Account Platinum Programs................. 17
Purchases with Proceeds from Redemptions of
Unaffiliated Mutual Fund Shares................... 18
Purchases with Proceeds from Distributions of
Qualified Retirement Plans or Other Trusts
Administered by Fifth Third Bank.................. 18
Concurrent Purchases..................................... 18
Investing in Investment C Shares.................................. 18
Exchanging Securities for Fund Shares............................. 19
Systematic Investment Program..................................... 19
Certificates and Confirmations.................................... 19
Dividends and Capital Gains....................................... 19
EXCHANGES.................................................................. 19
REDEEMING SHARES........................................................... 20
By Telephone...................................................... 20
By Mail........................................................... 21
Systematic Withdrawal Program..................................... 22
Accounts with Low Balances........................................ 22
Contingent Deferred Sales Charge.................................. 22
SHAREHOLDER INFORMATION.................................................... 23
Voting Rights..................................................... 23
Massachusetts Law................................................. 23
EFFECT OF BANKING LAWS..................................................... 23
TAX INFORMATION............................................................ 24
Federal Income Tax................................................ 24
PERFORMANCE INFORMATION.................................................... 24
ADDRESSES.................................................................. 26
i
<PAGE> 46
NOTICE OF DELIVERY OF PROSPECTUSES,
SEMI-ANNUAL REPORTS, AND ANNUAL REPORTS
In order to reduce expenses of the Fountain Square Funds incurred in connection
with the mailing of Prospectuses, semi-annual reports and annual reports to
multiple shareholders at the same address, Fountain Square Funds may in the
future deliver one copy of a Prospectus, semi-annual report, or annual report to
a single investor sharing a street address or post office box with other
investors, provided that all such investors have the same last name or are
believed to be members of the same family. If you share an address with another
investor and wish to receive your own Prospectuses, semi-annual reports and
annual reports, please call the Trust toll-free at 1-888-799-5353.
<PAGE> 47
EXPENSES OF THE FUND
INVESTMENT A SHARES
- --------------------------------------------------------------------------------
INVESTMENT A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable).................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)............. None
Exchange Fee.................................................................... None
</TABLE>
INVESTMENT A SHARES
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees..........................................................0.60%
12b-1 Fee ...............................................................0.25%
Other Expenses (after waivers) (1).......................................0.19%
Total Investment A Shares Operating Expenses (2)................1.04%
(1) Other expenses for the Fund have been reduced to reflect the
anticipated voluntary waiver of a portion of the administration fee. In
the absence of such waiver, other expenses would be 0.29%.
(2) Total Investment A Shares Operating Expenses for the Fund would be
1.14%, absent the voluntary waiver of a portion of the administration
fee. All expenses for the Fund are 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 THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND
"INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
- -------
You would pay the following expenses on a $1,000 investment in Investment A
Shares, assuming (1) 5% annual return; (2) redemption at the end of each time
period; and (3) payment of the maximum sales charge. Investment A Shares charge
no redemption fees.
1 Year.............................................. $55
3 Years............................................. $77
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1
<PAGE> 48
EXPENSES OF THE FUND
INVESTMENT C SHARES
- --------------------------------------------------------------------------------
INVESTMENT C SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1).............. 1.00%
Redemption Fees (as a percentage of amount redeemed, if applicable)............. None
Exchange Fee.................................................................... None
</TABLE>
INVESTMENT C SHARES
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees.........................................................0.60%
12b-1 Fee (after waivers) (2)...........................................0.50%
Other Expenses (after waivers) (3)......................................0.44%
Administrative Service Fee.......................................0.25%
Total Investment C Shares Operating Expenses (4)...............1.54%
(1) The contingent deferred sales charge is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed
within one year of the purchase date. (See "Contingent Deferred Sales
Charge").
(2) The Investment C Shares of the Fund can pay up to 0.75% as a 12b-1 fee
to the distributor.
(3) Other expenses for the Fund have been reduced to reflect the
anticipated voluntary waiver of a portion of the administration fee. In
the absence of such waiver, other expenses would be 0.29%.
(4) Total Investment C Shares Operating Expenses for the Fund would be
1.89%, absent the voluntary waiver of a portion of the 12b-1 fee and
administration fee. All expenses for the Fund are 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 THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND
"INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
- -------
You would pay the following expenses on a $1,000 investment in Investment C
Shares, assuming (1) 5% annual return; (2) either redemption in Year 1 or no
redemption; and (3) payment of the maximum sales charge.
1 Year (with redemption)............................ $26
1 Year (assuming no redemption)..................... $16
3 Years............................................. $49
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> 49
FOUNTAIN SQUARE CARDINAL FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Fund expects to quote total returns that include the performance results of
shares of The Cardinal Fund (the "Predecessor Fund"), an open-end investment
company which was the predecessor fund to the Fountain Square Cardinal Fund. The
Predecessor Fund was advised by John Bevilacqua of Cardinal Management Corp.
("Cardinal"), a wholly-owned subsidiary of The Ohio Company. Pursuant to an
Agreement and Plan of Merger dated December 22, 1997, The Ohio Company became an
indirect subsidiary of Fifth Third Bancorp, Inc., the parent company of Fifth
Third Bank, the Fund's advisor (the "Advisor"). The Fund will be managed by Mr.
Bevilacqua with the same investment objective and substantially identical
investment policies as the Predecessor Fund. Holders of Investor Shares of the
Predecessor Fund will receive Investment A Shares, and holders of Institutional
Shares of the Predecessor Fund will receive Institutional Shares, of the
Fountain Square Cardinal Fund in exchange for their shares as part of a fund
reorganization.
The Fund expects to quote total returns that include performance of the
Predecessor Fund for the period between October 1, 1988 and the commencement of
the Fund's operations. All performance figures quoted for Investment C Shares of
the Fund will be adjusted to reflect the deduction of fees associated with the
Fund (excluding waivers or reimbursements) and will reflect the reinvestment of
all dividends and capital gains distributions.
3
<PAGE> 50
OBJECTIVE OF THE FUND
- --------------------------------------------------------------------------------
The investment objectives and policies of the Fund appear below. The investment
objectives of the Fund cannot be changed without the approval of holders of a
majority of the Fund's shares. While there is no assurance that the Fund will
achieve its investment objectives, it endeavors to do so by following the
investment policies described in this Prospectus.
Unless indicated otherwise, the investment policies and limitations of the Fund
may be changed by the Board of Trustees ("Trustees") without approval of
shareholders. Shareholders will be notified before any material change in these
policies becomes effective.
Additional information about investment limitations, strategies 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.
CARDINAL FUND
The 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 American Depositary Receipts ("ADRs"), provided that not more than 25%
of the Fund's 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, warrants,
put and call options, futures and options on futures, and engage 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."
PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------
BORROWING MONEY
The Fund 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.
5
<PAGE> 51
DIVERSIFICATION
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 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 Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restrictions on resale under
federal securities law. Restricted securities may be issued by new and early
stage companies which may include a high degree of business and financial risk
that can result in substantial losses. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund, or less than what may be considered the fair
value of such securities. Further, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly traded.
If such securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required to bear
the expense of registration. The Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
The 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 Fund, 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 Fund 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 Fund 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 Fund will not subject such securities to the limitation otherwise
applicable to restricted securities.
REPURCHASE AGREEMENTS
The securities in which the Fund invests may be purchased pursuant to repurchase
agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the 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 the Fund, that Fund
could receive less than the repurchase price on any sale of such securities. The
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Advisor to
be creditworthy pursuant to guidelines established by the Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous.
6
<PAGE> 52
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/less than the market value of the
securities on the settlement date. The Fund may dispose of a commitment prior to
settlement if the Advisor deems it appropriate to do so. In addition, the Fund
may enter into transactions to sell its purchase commitments to third parties at
current market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis, up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Advisor has determined are creditworthy under
guidelines established by the Trustees and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned. There is the risk that when lending portfolio securities, the
securities may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable price. In
addition, in the event that a borrower of securities would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending court
action.
OPTIONS AND FUTURES
The Fund may engage in options and futures transactions as described below.
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities. These options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value. The Fund may also
write covered call options on all or any portion of its portfolio to generate
income. The Fund will write call options on securities either held in its
portfolio, for which it has the right to obtain without payment of further
consideration, or for which it has segregated cash or U.S. government securities
in the amount of any additional consideration.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying 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 security or other asset at
the exercise price during the option period. The writer of a covered call owns
assets that are acceptable for escrow, and the writer of a secured put invests
an amount not less than the exercise price in eligible assets to the extent that
it is obligated as a writer. If a call written by the Fund is exercised, the
Fund foregoes any possible profit from an increase in the market price of the
underlying asset over the exercise price plus the premium received. In writing
puts, there is a risk that the Fund may be required to take delivery of the
underlying asset at a disadvantageous price.
The 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. The Fund purchases and writes options only with
investment dealers and other financial institutions (such as commercial banks or
savings and loan associations) deemed creditworthy by the Advisor.
OTC Options are two party contracts with price and terms negotiated between
buyer and seller. In contract, 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 OTC 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 non-performance by the dealer as a result of the insolvency of such
dealer or otherwise, in which event the Fund may experience material losses.
However, in writing options,
7
<PAGE> 53
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 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 Fund may also purchase and sell stock index futures to hedge against changes
in prices.
The Fund will not engage in futures transactions for speculative purposes.
Futures contracts call for the delivery of particular securities at a certain
time in the future. The seller of the contract agrees to make delivery of the
type of instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time.
The Fund may not sell futures contracts if the value of such futures contracts
exceeds the total market value of the Fund's portfolio securities. Futures
contracts and options thereon sold by the Fund are generally subject to
segregation and coverage requirements established by either the Commodity
Futures Trading Commission ("CFTC") or the Securities and Exchange Commission
(the "SEC"), with the result that, if the Fund does not hold the instrument
underlying the futures contract or option, the Fund will be required to
segregate on an ongoing basis with its custodian, cash, U.S. government
securities, or other liquid high-grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.
The 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 to the extent permitted by the CFTC. Securities index
futures contracts are based on indices 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 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
contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in an 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 the 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,
the 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. The Fund may also invest in
securities index futures contracts when the Advisor believes that such
investment is more efficient, liquid or cost-effective than investing directly
in the securities underlying the index.
The 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 the 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, the 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. The 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. The 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.
8
<PAGE> 54
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the a mount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed
five percent of the market value of the Fund's total assets. When the 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 custody (or
the broker, if legally permitted) to collateralize the position and thereby
ensure that the use of such futures contract is unleveraged. When the 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 the 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 futures contract or option. Also, there might be imperfect
correlation, or even no correlation, between the change in market value of the
securities held by the Fund and the prices of the futures and options thereon
relating to the securities purchased or sold by the 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. The 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. There are several considerations relevant
to the ability of the Fund to invest in ADRs. 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 regulations and supervision of
foreign stock exchanges, brokers, listed companies, and banks;
o differences in legal systems which may effect 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 effect 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
9
<PAGE> 55
o political or financial changes which adversely effect
investments in some countries (including possible governmental
seizure or nationalization of assets).
FOREIGN BANK INSTRUMENTS. Different risks may also exist for Eurodollar
Certificates of Deposits ("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee
Certificates of Deposit ("Yankee CDs") because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks, such as
reserve requirements, loan limitations, examinations, accounting, auditing,
recordkeeping and the public availability of information.
TEMPORARY INVESTMENTS
For defensive purposes only, and in such amounts up to 100% of total assets as
the Advisor in its judgment believes market conditions warrant, the 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;
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
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 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 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. 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.
COMMERCIAL PAPER. The Fund may acquire commercial paper rated A-1 by S&P,
Prime-1 by Moody's, or F-1 by Fitch Investors Service, and money market
instruments (including commercial paper) which are not rated but are determined
by the Trustees to be of comparable quality to other bank or corporate
obligations.
BANK INSTRUMENTS. The Fund may acquire instruments of domestic banks (such as
certificates of deposit, demand and time deposits, saving shares, and bankers'
acceptances) if those banks have capital, surplus, and undivided profits of over
$100,000,000 and/or if their deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC").
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.
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<PAGE> 56
EQUITY INVESTMENT RISKS
As with other mutual funds that invest primarily in equity securities, the Fund
is subject to market risks. Since equity markets tend to be cyclical, the
possibility exists that common stocks could decline over short or even ext ended
periods of time. Because the Fund invests in both small and medium
capitalization stocks, there are some additional risk factors associated with
investment in the Fund. 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. The Fund will not invest more
than 5% of its total net 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
Fund will be slightly more volatile than, and may fluctuate independently of,
broad stock market indices such as the Standard & Poor's 500 Index.
FOUNTAIN SQUARE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders.
INVESTMENT ADVISOR. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Fifth Third Bank, the Fund's
Advisor, subject to direction by the Trustees. The Advisor continually conducts
investment research and supervision for the Funds and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the assets of each Fund.
ADVISORY FEES. The Advisor receives an investment advisory fee at
annual rates equal to 0.60% of the Fund's average net assets. The
investment advisory contract provides for the voluntary waiver of
expenses by the Advisor from time to time. The Advisor may voluntarily
choose to waive a portion of its fees or reimburse the Funds for
certain other expenses, but reserves the right to terminate such waiver
or reimbursement at any time at its sole discretion.
ADVISOR'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank,
is a wholly-owned subsidiary of Fifth Third Bancorp, a bank holding
company organized under the laws of Ohio. Fifth Third Bank is a
commercial bank offering a wide range of banking services to its
customers. As of January 31, 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 $118
billion.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, Fifth Third Investment Advisors, a division of Fifth Third
Bank, manages five such pools with total assets of over $401 million.
Fifth Third Bank has managed mutual funds since 1988.
As part of its regular banking operations, Fifth Third Bank may make
loans to public companies. Thus, it may be possible from time to time,
for the Funds to hold or acquire the securities of issuers which are
11
<PAGE> 57
also lending clients of Fifth Third Bank. The lending relationship will
not be a factor in the selection of securities.
PORTFOLIO MANAGERS' BACKGROUND. John Bevilacqua has been primarily
responsible for the day-to-day management of the Fund since its
inception. Prior to that period, Mr. Bevilacqua was a Vice President
and Portfolio Manager for The Ohio Company, where he managed The
Cardinal Fund, the Fund's predecessor. Prior to joining The Ohio
Company in October 1994, Mr. Bevilacqua had served as Second Vice
President - Investments for Midland Mutual Life Insurance Company since
1984. Mr. Bevilacqua holds a B.S. from Franklin University and an
M.B.A. from Xavier Unversity and is an Adjunct Professor at Xavier
Unversity.
DISTRIBUTION OF SHARES OF THE FUND
BISYS Fund Services L.P. serves as the distributor for the Trust. BISYS Fund
Services L.P. is wholly-owned by BISYS Group, Inc., 150 Clove Road, Little
Falls, NJ 07424, a publicly owned company engaged in information processing and
record keeping services to and through banking and other financial
organizations.
The distributor may offer to pay financial institutions an amount equal to 1.00%
of the net asset value of Investment C Shares purchased by their clients or
customers at the time of purchase. These payments will be made directly by the
distributor from its assets, and will not be made from assets of the Fund.
Financial institutions may elect to waive the initial payment described above;
such waiver will result in the waiver by the Fund of the otherwise applicable
contingent deferred sales charge.
DISTRIBUTION PLAN
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), as amended, Investment A Shares and Investment
C Shares may pay a fee to the distributor in an amount computed at an annual
rate of up to 0.25% and 0.75%, respectively, of the average daily net assets of
each class of shares to finance any activity which is principally intended to
result in the sale of shares subject to the Distribution Plan. For Investment A
Shares and Investment C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisors, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.
The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by shares
under the Plan.
ADMINISTRATIVE SERVICES AGREEMENT (INVESTMENT C SHARES ONLY)
In addition, the Fund has entered into an Administrative Services Agreement with
respect to Investment C Shares with Fifth Third Bank, under which the Fund may
make payments up to 0.25 of 1% of the average daily net asset value of
Investment C Shares to obtain certain administrative services for shareholders
and for the maintenance of shareholder accounts ("Administrative Services").
Under the Administrative Services Agreement, Fifth Third Bank will either
perform Administrative Services directly or will select certain firms to perform
Administrative Services, for which such firms may receive all or a portion of
the Administrative Services fee.
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<PAGE> 58
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan and
Administrative Services Agreement, BISYS Fund Services and Fifth Third Bank,
from their own assets, may pay financial institutions supplemental fees for the
performance of sales services, distribution-related support services, or
shareholder and administrative services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Trustees will
consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. BISYS Fund Services L.P. serves as the administrator.
The administrator generally assists in all aspects of the Trust's administration
and operation including providing the Fund with certain administrative personnel
and services necessary to operate the Fund, such as legal and accounting
services. BISYS Fund Services L.P. provides these at an annual rate as specified
below:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FUND
------------------ ----------------------
0.20% of the first $1 billion
0.18% of the next $1 billion
0.17% in excess of $2 billion
The administrator may periodically waive all or a portion of its administrative
fee which will cause the yield of the Fund to be higher than it would otherwise
be in the absence of such a waiver.
Pursuant to a separate agreement with BISYS Fund Services L.P., Fifth Third Bank
performs sub-administration services on behalf of the Fund including providing
certain administrative personnel and services necessary to operate the Fund for
which it receives a fee from BISYS Fund Services L.P. computed daily and paid
periodically calculated at an annual rate of 0.025% of average daily net assets.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Fund, transfer
agent for the shares of the Fund, and dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young
LLP, Cincinnati, Ohio.
EXPENSES OF THE FUND, 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.
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<PAGE> 59
The Fund expenses for which holders of Investment A Shares and Investment C
Shares pay their allocable portion include, but are not limited to: registering
the Fund and Investment A Shares and Investment C Shares of the Fund; investment
advisory services; taxes and commissions; custodian fees; insurance premiums;
auditors' fees; legal expenses of the Fund; organizational expenses; and such
non-recurring and extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Investment A
Shares and Investment C Shares as classes are expenses under the Trust's
Distribution Plan and fees for Administrative Services. However, the Trustees
reserve the right to allocate certain other expenses to holders of Investment A
Shares and Investment C Shares as they deem appropriate ("Class Expenses"). In
any case, Class Expenses would be limited to: distribution fees; transfer agent
fees as identified by the transfer agent as attributable to holders of
Investment A Shares and Investment C Shares; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
Prospectuses and proxies to current shareholders; registration fees paid to the
Securities and Exchange Commission and to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Investment A Shares and Investment C Shares; legal fees relating solely to
Investment A Shares or Investment C Shares; and Trustees' fees incurred as a
result of issues related solely to Investment A Shares or Investment C Shares.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Advisor looks for prompt execution of the order at a favorable
price. In working with dealers, the Advisor will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Advisor may give consideration to those
firms which have sold or are selling shares of the Fund. The Advisor makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of the Fund fluctuates daily. The net asset value
for shares of the Fund is determined by adding the interest of each class of
shares in the market value of all securities and other assets of the Fund,
subtracting the interest of each class of shares in the liabilities of such Fund
and those attributable to each class of shares, and dividing the remainder by
the total number of each class of shares outstanding. The net asset value for
each class of shares may differ due to the variance in daily net income realized
by each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
The net asset value of each class of shares of the Fund is determined as of the
close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected and days during which no shares are
tendered for redemption and no orders to purchase shares are received.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
The Fund offers investors three classes of shares: Investment A Shares,
Investment C Shares and Institutional Shares. A separate prospectus for
Institutional Shares of the Fund can be obtained by contacting the Trust. Each
of the share classes are subject to different levels of expenses and may carry
sales loads or contingent deferred sales charges.
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<PAGE> 60
SHARE PURCHASES
Investment A Shares and Investment C Shares of the Fund are sold on days on
which the New York Stock Exchange and the Federal Reserve Bank of Cleveland are
open for business. In connection with the sale of shares of the Fund, the
distributor may from time to time offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request. Purchases of Fund shares may not be available to investors in all
states.
Shares of the Fund may be purchased 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 Fund who
obtained their shares as part of The Cardinal Group reorganization, special
procedures for purchasing shares apply. See "Purchases by Former Cardinal
Shares" below.
Purchase orders must be received by the Trust by 2:30 p.m. (Eastern time) in
order for shares to be purchased at that day's price. Payment may be made to the
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 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
Trust.
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 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.
PURCHASES BY FORMER CARDINAL SHAREHOLDERS. Shareholders of the Fund who were
formerly shareholders of The Cardinal Fund at the time of its reorganization
with the Fund, but who do not maintain a brokerage account with The Ohio
Company, may purchase additional shares of the Fund by calling the Trust
toll-free at (800) 282-5706 or by mailing a request to: Fountain Square Cardinal
Fund, 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
shareholders may purchase shares of the Fund by contacting the Trust toll-free
at (888) 799-5353. Federal funds should be wired to the Fund as follows: ABA No.
042 000 314 Fifth Third Cincinnati, Attention: Fountain Square Funds Department;
For Credit to: (shareholder name and account number); For Further Credit to:
Fountain Square Cardinal Fund (Name of Applicable Class of Shares). Investors
not purchasing directly from the Trust should consult their financial
institutions for wiring instructions.
ADDITIONAL INFORMATION
From time to time, shares of the Fund may be purchased by Fifth Third Bank, the
Distributor, or the Administrator in connection with various promotions of the
Fountain Square Funds. In these cases, Fifth Third Bank, the Distributor, or the
Administrator will distribute Fund shares to existing or potential investors as
an incentive to purchase the Fund.
In connection with the sale of shares of the Fund, the distributor may make
certain payments to all dealers selling shares of the Fund which include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more Funds of the Trust, and/or other
dealer-sponsored special events. In some instances, this compensation will be
made available only to certain dealers whose representatives have sold a
significant amount of shares of Funds in the Trust. Compensation may include
payment for travel expenses, including lodging, to various locations for meeting
or seminars of a business nature. Compensation may also include the following
types of non-cash compensation offered through promotional contests: travel and
lodging at non-business locations; tickets for entertainment events;
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<PAGE> 61
and merchandise. None of the aforesaid compensation is paid for by the Fund or
its shareholders. In some cases, the distributor, in its sole discretion, may
uniformly offer to pay to all dealers selling shares of the Fund, all or a
portion of any applicable sales charge which it normally retains.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund by an investor is $1,000.
Subsequent investments must be in amounts of at least $50.
INVESTING IN INVESTMENT A SHARES
Investment A Shares of the Fund are sold at their net asset value next
determined after an order is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
--------------------- -------------- --------
<S> <C> <C>
Less than $50,000.......................... 4.50% 4.71%
$50,000 but less than $100,000............. 4.00% 4.17%
$100,000 but less than $150,000............ 3.00% 3.09%
$150,000 but less than $250,000............ 2.00% 2.04%
$250,000 but less than $500,000............ 1.00% 1.01%
$500,000 or more........................... 0.00% 0.00%
</TABLE>
The net asset value for the Fund is determined at the close of trading on the
New York Stock Exchange, normally 4:00 p.m. (Eastern time) Monday through
Friday, except on days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its net asset value might be materially
affected and days during which no Shares are tendered for redemption and no
orders to purchase shares are received. No orders to purchase or redeem shares
are processed on the following holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day, and Christmas Day.
PURCHASES AT NET ASSET VALUE. Investment A Shares of the Fund may be purchased
at net asset value, without a sales charge, by current and retired employees and
Directors of Fifth Third Bancorp and their spouses and children under 21;
Fountain Square Fund Trustees; 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 the 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 normally be retained by the
distributor.
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:
16
<PAGE> 62
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 the 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 the Fund is made, the
distributor will aggregate such additional purchases with previous purchases of
Investment A Shares of the Fund provided the prior purchase is still invested in
either of these Funds. For example, if a shareholder already owns Investment A
Shares having a current value at the public offering price of $40,000 and he
purchases $10,000 more at the current public offering price, the sales charge on
the additional purchase according to the schedule now in effect would be 4.00%,
not 4.50%.
To receive the sales charge reduction, an investor should complete the
appropriate section of the account application at the time the purchase is made
indicating that Investment A Shares of a Fund have been purchased and are still
invested or that such purchases are being combined. The distributor will reduce
the sales charge after it confirms the purchase.
LETTER OF INTENT. If a shareholder intends to purchase at least $50,000 of Fund
Investment A Shares over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the Fund's custodian to
hold up to 4.50% of the total amount intended to be purchased in escrow (in
shares of the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent,
which must be $50,000 or more of Fund Investment A Shares, is not purchased. In
this event, an appropriate number of escrowed Investment A Shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase Investment A
Shares, but if he does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. The letter may
be dated as of a prior date to include any purchases made within the past 90
days; however, these previous purchases will not receive the reduced sales
charge.
FIFTH THIRD BANK CLUB 53, ONE ACCOUNT PLUS, ONE ACCOUNT GOLD, ONE ACCOUNT
ADVANTAGE AND ONE ACCOUNT PLATINUM PROGRAMS. All shareholders who have a Club 53
Account, One Account Plus, One Account Gold, One Account Advantage or One
Account Platinum through Fifth Third Bank are eligible for a reduced sales
charge on the purchase of Investment A Shares of the Fund. Shareholders should
consult their Fifth Third Securities Representative for details about these
account programs.
17
<PAGE> 63
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-$99,999........................ 3.47% 3.59%
$100,000-$149,999...................... 2.47% 2.53%
$150,000-$249,999...................... 1.47% 1.49%
$250,000-$499,999...................... 0.47% 0.47%
$500,000 or more....................... 0.00% 0.00%
</TABLE>
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED MUTUAL FUND SHARES.
Investors may purchase Investment A Shares of the Fund 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 Trust must
be notified by the investor in writing, or by his financial institution, at the
time the purchase is made.
PURCHASES WITH PROCEEDS FROM DISTRIBUTIONS OF QUALIFIED RETIREMENT PLANS OR
OTHER TRUSTS ADMINISTERED BY FIFTH THIRD BANK. Investors may purchase Investment
A Shares of the Fund 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
Fund 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 Trust must be notified by the
shareholder in writing or by their financial institution at the time the
concurrent purchases are made. The Trust will reduce the sales charge after it
confirms the purchases.
INVESTING IN INVESTMENT C SHARES
Investment C Shares are sold at net asset value next determined after an order
is received. A contingent deferred sales charge of 1.00% will be charged on
assets redeemed within the first full 12 months following purchase. For a
complete description of this charge, see "Contingent Deferred Sales Charge."
Investment C Shares provide an investor the benefit of putting all of the
investor's dollars to work from the time the investment is made, but will have a
higher expense ratio and pay lower dividends than Investment A Shares of the
Fund due to the imposition of the 12b-1 fee and the Administrative Services fee.
No orders to purchase or redeem Investment C Shares are processed on the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day, and Christmas Day.
18
<PAGE> 64
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain securities
and cash for Fund Shares. The securities and any cash must have a market value
of at least $25,000. The Fund reserves the right to determine the acceptability
of securities to be exchanged. On the day securities are accepted by the Fund,
they are valued in the same manner as the Fund values its assets. 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 the shareholder's checking account and
invested in Fund 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 their account application or by contacting the Trust.
CERTIFICATES AND CONFIRMATIONS
The transfer agent maintains a share account for each shareholder of record.
Share certificates are not issued. Detailed statements that include account
balances, information on each purchase or redemption, and a report of dividends
paid are sent to shareholders.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared just prior to determining net asset value. Capital gains
realized by the 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 Trust.
Dividends are paid to all shareholders who are invested in the Fund on its
record date. The Fund's dividends are declared and paid quarterly.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder may exchange Investment A Shares or Investment C Shares of the
Fund for shares of the same class of any of the other Funds in 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 Fund who were formerly shareholders of The Cardinal Fund at
the time of its reorganization with the Fund must open an account with Fifth
Third Securities, Inc. 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. 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 Investment A Shares or Investment C Shares of the 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. Orders for exchanges involving other non-money
market funds of the Trust 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 received prior to
19
<PAGE> 65
the applicable cut-off time will be executed as of the close of business that
day. 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.
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 would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a Prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Investment A Shares and Investment C Shares at their net asset
value, less any applicable contingent deferred sales charge, next determined
after the Fund receives the redemption request. Redemptions will be made on days
on which the New York Stock Exchange and the Federal Reserve Bank of Cleveland
are open for business. Telephone or written requests for redemption must be
received in proper form as described below and can be made through a
shareholder's financial representative or directly through the Trust. For
investors who obtained shares of the Fund as part of The Cardinal Fund
reorganization, special procedures apply.
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 at that day's price. It is the financial
institution's responsibility to transmit orders promptly, however, investors
should allow sufficient time for orderly processing and transmission.
BY TELEPHONE
Investment A Shares and Investment C Shares may be redeemed in any amount by
calling the Trust, provided that the Trust has received a properly completed
authorization form. Shareholders of the Fund who were formerly shareholders of
The Cardinal Fund at the time of its reorganization with the Fund, but who do
not maintain a brokerage account with The Ohio Company, may redeem shares of the
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 2:30 p.m. (Eastern time), a check will be
sent to the address of record. Normally, a check for the proceeds is mailed
within three business days, but in no event more than seven days after receipt
of a proper request for redemption has been received, provided the Trust has
received payment for the shares
20
<PAGE> 66
being redeemed. If at any time the Fund shall determine it necessary to
terminate or modify this method of redemption, shareholders would be promptly
notified.
An authorization form permitting the Trust to accept telephone requests must be
completed. Authorization forms and information on this service are available
from the Trust or the distributor.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL
Shareholders of the Fund who were formerly shareholders of The Cardinal Fund at
the time of its reorganization with the Fund, but who do not maintain a
brokerage account with The Ohio Company, may redeem shares of the Fund by
sending a written request to:
Fountain Square Cardinal 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
Fountain Square Funds Redemptions 1090EC
38 Fountain Square Plaza
Cincinnati, Ohio 45263
The written request should include the shareholder's name, the Fund and
applicable Class name, the account number, the share or dollar amount requested
and the proper endorsement. Shareholders should call the applicable telephone
number for the Trust for assistance in redeeming by mail.
Shareholders requesting a redemption of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record must have signatures
on written redemption requests guaranteed by:
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.
Normally, a check for the proceeds is mailed to the shareholder within three
business days, but in no event more than seven days, after receipt of a proper
written redemption request, provided the Fund or its agents have received
payment for shares from the shareholder.
21
<PAGE> 67
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Fund
shares, and the fluctuation of the net asset value of Fund shares redeemed under
this program, redemptions may reduce, and eventually exhaust, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the 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 or by contacting the Trust.
Due to the fact that shares are sold with a sales charge, it is not advisable
for shareholders to be purchasing shares while participating in this program. A
contingent deferred sales charge may be imposed on Investment C Shares redeemed
under the Program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000.
Before redeeming shares to close an account, the Trust will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
shares to meet the minimum requirement.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming Investment C Shares from their Fund account within one
full year of the purchase date of those shares will be charged a contingent
deferred sales charge by the Fund's distributor of 1.00%. Any applicable
contingent deferred sales charge will be imposed on the lesser of the net asset
value of the redeemed Investment C Shares at the time of purchase or the net
asset value of the redeemed Investment C Shares at the time of redemption.
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) shares held for more than one
full year from the date of purchase. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to a
contingent deferred sales charge. In computing the amount of the applicable
contingent deferred sales charge, redemptions are deemed to have occurred in the
following order: (1) shares acquired through the reinvestment of dividends and
long-term capital gains; (2) shares held for more than one full year from the
date of purchase; (3) shares held for fewer than one full year from the date of
purchase, on a first-in, first-out basis. A contingent deferred sales charge is
not assessed in connection with an exchange of Fund shares for shares of other
funds in the Trust (see "Exchanges"). Any contingent deferred sales charge
imposed at the time the exchanged for shares are redeemed is calculated as if
the shareholder had held the shares from the date on which he became a
shareholder of the exchanged-from shares.
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing distributions from an Individual
Retirement Account or other retirement plan to a shareholder; and (3)
involuntary redemptions by the Fund of shares in shareholder accounts that do
not comply with the minimum balance requirements. No contingent deferred sales
charge will be imposed on redemptions of shares held by Directors, employees and
registered representatives of the Fund, the distributor, or affiliates of the
Fund or distributor; employees of any financial institution that sells shares of
the Fund pursuant to a sales agreement with the distributor; and spouses and
children under the age of 21 of the aforementioned persons.
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<PAGE> 68
The Trustees reserve the right to discontinue any elimination of the contingent
deferred sales charge. Shareholders will be notified of such elimination. Any
Investment C Shares purchased prior to the termination of such waiver would have
the contingent deferred sales charge eliminated as provided in the Fund's
Prospectus at the time of the purchase of the shares. If a shareholder making a
redemption qualifies for an elimination of the contingent deferred sales charge,
the shareholder must notify the transfer agent in writing that he is entitled to
such elimination.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund in the
Trust have equal voting rights, except that in matters affecting only a
particular Fund, only shares of that Fund are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances. As of May 10, 1998, Fifth Third Bank may for
certain purposes be deemed to control the Funds because it is owner of record of
certain shares of the Funds.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of the Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of the Fund for any act or obligation of the
Trust on behalf of the Fund. Therefore, financial loss resulting from liability
as a shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from the
assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956, 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 Trust's investment advisor, Fifth Third
Bank, is subject to such banking laws and regulations.
23
<PAGE> 69
Fifth Third Bank believes that it may perform the investment advisory services
for any Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or the Fund. In such event, changes in the operation of a
Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment or redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisors and other means of continuing available investment services.
It is not expected that an existing Fund's shareholders would suffer any adverse
financial consequences (if another advisor with equivalent abilities to Fifth
Third Bank is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Fund, if any, will not be combined for tax purposes with those realized by any
of the other Funds.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the shares. No federal income tax is due on any
dividend earned in an IRA or qualified retirement plan until distributed.
Shareholders are urged to consult their own tax advisors regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund will advertise total return and yield, including
Predecessor Fund performance as described above, for each class of shares.
Total return represents the change, over a specified period of time, in the
value of an investment in each class of shares of the 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 the Fund is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by each class of shares over a thirty-day period by the
maximum offering price per Share of each class on the last day of the period.
This number is then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by each class of shares and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
The 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 and yield.
24
<PAGE> 70
From time to time, advertisements for each class of shares of the Fund 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.
25
<PAGE> 71
ADDRESSES
- --------------------------------------------------------------------------------
Fountain Square Cardinal Fund
c/o Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Investment Advisor
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend Disbursing Agent, and
Sub-Administrator
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Distributor and Administrator
BISYS Fund Services, L.P. 3435 Stelzer Road
Columbus, Ohio 43219
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP 1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
26
<PAGE> 72
FOUNTAIN SQUARE CARDINAL FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of the Fountain Square Cardinal Fund (the "Fund")
offered by this Prospectus represent interests in a diversified portfolio of
securities which is one of a series of investment portfolios of the Fountain
Square Funds (the "Trust"), an open-end management investment company (a mutual
fund).
This Prospectus contains the information you should read and know before you
invest in Institutional Shares of the Fund. Keep this Prospectus for future
reference.
Additional Information about Institutional Shares of the Fund is contained in
the Fund's Statement of Additional Information for Institutional Shares, dated
May 20, 1998, which has also been filed with the Securities and Exchange
Commission. The information contained in the Statement of Additional Information
is incorporated by reference into this Prospectus. You may request a copy of the
Statement of Additional Information free of charge, obtain other information or
make inquiries about the Fund by writing to the Trust or calling toll-free (888)
799-5353.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 20, 1998
<PAGE> 73
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
EXPENSES OF THE FUND
INSTITUTIONAL SHARES...................................................... 1
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SHARES............................... 2
OBJECTIVE OF THE FUND..................................................... 2
Cardinal Fund.................................................... 2
Acceptable Investments.................................. 2
Investment Limitations.................................. 3
PORTFOLIO INVESTMENTS AND STRATEGIES...................................... 3
Borrowing Money.................................................. 3
Diversification.................................................. 3
Restricted and Illiquid Securities............................... 3
Repurchase Agreements............................................ 4
When-Issued and Delayed Delivery Transactions.................... 4
Lending of Portfolio Securities.................................. 4
Options and Futures.............................................. 4
Foreign Investments.............................................. 6
Temporary Investments............................................ 7
Equity Investment Risks.......................................... 8
FOUNTAIN SQUARE FUNDS INFORMATION......................................... 8
Management of the Fund........................................... 8
Board of Trustees....................................... 8
Investment Advisor...................................... 8
Advisory Fees........................................... 8
Advisor's Background.................................... 8
Portfolio Managers' Background.......................... 9
Distribution of Shares of the Fund............................... 9
Payments to Financial Institutions............................... 9
Administration of the Fund....................................... 9
Administrative Services................................. 9
Custodian, Transfer Agent and Dividend Disbursing
Agent............................................................ 10
Independent Auditors............................................. 10
Expenses of the Fund and Institutional Shares.................... 10
Brokerage Transactions........................................... 10
NET ASSET VALUE........................................................... 10
INVESTING IN THE FUND..................................................... 11
Share Purchases.................................................. 11
Additional Information........................................... 11
Minimum Investment Required...................................... 12
Investing In Institutional Shares................................ 12
Exchanging Securities for Fund Shares............................ 12
Systematic Investment Program.................................... 12
Certificates and Confirmations................................... 12
Dividends and Capital Gains...................................... 12
EXCHANGES................................................................. 13
REDEEMING SHARES.......................................................... 13
Systematic Withdrawal Program.................................... 14
Accounts with Low Balances....................................... 14
SHAREHOLDER INFORMATION................................................... 14
Voting Rights.................................................... 14
Massachusetts Law................................................ 15
EFFECT OF BANKING LAWS.................................................... 15
TAX INFORMATION........................................................... 15
Federal Income Tax............................................... 15
PERFORMANCE INFORMATION................................................... 16
ADDRESSES................................................................. 17
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NOTICE OF DELIVERY OF PROSPECTUSES,
SEMI-ANNUAL REPORTS, AND ANNUAL REPORTS
In order to reduce expenses of the Fountain Square Funds incurred in connection
with the mailing of Prospectuses, semi-annual reports and annual reports to
multiple shareholders at the same address, Fountain Square Funds may in the
future deliver one copy of a Prospectus, semi-annual report, or annual report to
a single investor sharing a street address or post office box with other
investors, provided that all such investors have the same last name or are
believed to be members of the same family. If you share an address with another
investor and wish to receive your own Prospectuses, semi-annual reports and
annual reports, please call the Trust toll-free at 1-888-799-5353.
<PAGE> 75
EXPENSES OF THE FUND
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable).................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)............. None
Exchange Fee.................................................................... None
</TABLE>
INSTITUTIONAL SHARES
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees..........................................................0.60%
Other Expenses (after waivers) (1).......................................0.19%
Total Institutional Shares Operating Expenses (2)...............0.79%
(1) Other expenses for the Fund have been reduced to reflect the
anticipated voluntary waiver of a portion of the administration fee. In
the absence of such waiver, other expenses would be 0.29%.
(2) Total Institutional Shares Operating Expenses for the Fund would be
0.89%, absent the voluntary waiver of a portion of the administration
fee. All expenses for the Fund are 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 THE
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND
"INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLE
- -------
You would pay the following expenses on a $1,000 investment in 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.
1 Year.............................................. $ 8
3 Years............................................. $25
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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<PAGE> 76
FOUNTAIN SQUARE CARDINAL FUND
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Fund expects to quote total returns that include performance of The Cardinal
Fund (the "Predecessor Fund"), an open-end investment company which was the
predecessor fund to the Fountain Square Cardinal Fund. The Predecessor Fund was
advised by John Bevilacqua of Cardinal Management Corp. ("Cardinal"), a
wholly-owned subsidiary of The Ohio Company. Pursuant to an Agreement and Plan
of Merger, dated December 22, 1997, The Ohio Company became an indirect
subsidiary of Fifth Third Bancorp, the parent company of Fifth Third Bank, the
Fund's advisor the ("Advisor"). The Fund will be managed by Mr. Bevilacqua with
the same investment objective and substantially identical investment policies as
the Predecessor Fund. Holders of Institutional Shares of the Predecessor Fund
will receive Institutional Shares of the Fountain Square Cardinal Fund in
exchange for their shares as part of a fund reorganization.
The Fund expects to quote total returns that include performance of the
Predecessor Fund for the period between October 1, 1988 and the commencement of
the Fund's operations. All performance figures quoted for Institutional Shares
of the Fund will be adjusted to reflect the deduction of fees associated with
the Fund (excluding waivers or reimbursements) and will reflect the reinvestment
of all dividends and capital gains distributions.
OBJECTIVE OF THE FUND
- --------------------------------------------------------------------------------
The investment objectives and policies of the Fund appear below. The investment
objectives of the Fund cannot be changed without the approval of holders of a
majority of the Fund's shares. While there is no assurance that the Fund will
achieve its investment objectives, it endeavors to do so by following the
investment policies described in this Prospectus.
Unless indicated otherwise, the investment policies and limitations of the Fund
may be changed by the Board of Trustees ("Trustees") without approval of
shareholders. Shareholders will be notified before any material change in these
policies becomes effective.
Additional information about investment limitations, strategies 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.
CARDINAL FUND
The 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 American Depositary Receipts ("ADRs"), provided that not more than 25%
of the Fund's assets are invested in ADRs. (See "Foreign Investments").
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<PAGE> 77
In addition, the Fund may borrow money, enter into repurchase agreements, lend
portfolio securities, invest in restricted and illiquid securities, warrants,
put and call options, futures and options on futures, and engage 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."
PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------
BORROWING MONEY
The Fund 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, 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 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 Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restrictions on resale under
federal securities law. Restricted securities may be issued by new and early
stage companies which may include a high degree of business and financial risk
that can result in substantial losses. As a result of the absence of a public
trading market for these securities, they may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund, or less than what may be considered the fair
value of such securities. Further, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly traded.
If such securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required to bear
the expense of registration. The Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.
The 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 Fund, 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 Fund 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 Fund intends to
treat these securities
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<PAGE> 78
as liquid and not subject to the investment limitation applicable to illiquid
securities. In addition, because these securities are liquid, the Fund will not
subject such securities to the limitation otherwise applicable to restricted
securities.
REPURCHASE AGREEMENTS
The securities in which the Fund invests may be purchased pursuant to repurchase
agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the 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 the Fund, that Fund
could receive less than the repurchase price on any sale of such securities. The
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Advisor to
be creditworthy pursuant to guidelines established by the Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay
more/less than the market value of the securities on the settlement date. The
Fund may dispose of a commitment prior to settlement if the Advisor deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis, up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Advisor has determined are creditworthy under
guidelines established by the Trustees and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned. There is the risk that when lending portfolio securities, the
securities may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable price. In
addition, in the event that a borrower of securities would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending court
action.
OPTIONS AND FUTURES
The Fund may engage in options and futures transactions as described below.
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities. These options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value. The Fund may also
write covered call options on all or any portion of its portfolio to generate
income. The Fund will write call options on securities either held in its
portfolio, for which it has the right to obtain without payment of further
consideration, or for which it has segregated cash or U.S. government securities
in the amount of any additional consideration.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying 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 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
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<PAGE> 79
than the exercise price in eligible assets to the extent that it is obligated as
a writer. If a call written by the Fund is exercised, the Fund foregoes any
possible profit from an increase in the market price of the underlying asset
over the exercise price plus the premium received. In writing puts, there is a
risk that the Fund may be required to take delivery of the underlying asset at a
disadvantageous price.
The 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. The Fund purchases and writes options only with
investment dealers and other financial institutions (such as commercial banks or
savings and loan associations) deemed creditworthy by the Advisor.
OTC Options are two party contracts with price and terms negotiated between
buyer and seller. In contract, 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 OTC 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 non-performance by the dealer as a result of the insolvency of such
dealer or otherwise, in which event the Fund may experience material losses.
However, in writing options, the premium is paid in advance by the dealer. OTC
Options, which may not be continuously liquid, are available for a greater
variety of assets, and with a wider range of expiration dates and exercise
prices, than are exchange-traded options.
FUTURES AND OPTIONS ON FUTURES. The 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 Fund may also purchase and sell stock index futures to hedge against changes
in prices.
The Fund will not engage in futures transactions for speculative purposes.
Futures contracts call for the delivery of particular securities at a certain
time in the future. The seller of the contract agrees to make delivery of the
type of instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time.
The Fund may not sell futures contracts if the value of such futures contracts
exceeds the total market value of the Fund's portfolio securities. Futures
contracts and options thereon sold by the Fund are generally subject to
segregation and coverage requirements established by either the Commodity
Futures Trading Commission ("CFTC") or the Securities and Exchange Commission
(the "SEC"), with the result that, if the Fund does not hold the instrument
underlying the futures contract or option, the Fund will be required to
segregate on an ongoing basis with its custodian, cash, U.S. government
securities, or other liquid high-grade debt obligations in an amount at least
equal to the Fund's obligations with respect to such instruments.
The 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 to the extent permitted by the CFTC. Securities index
futures contracts are based on indices 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 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
contract was originally written.
The Fund may enter into securities index futures contracts to sell a securities
index in an 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 the 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,
the 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. The Fund may also invest in
securities index futures contracts when the Advisor believes that such
investment is more efficient, liquid or cost-effective than investing directly
in the securities underlying the index.
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<PAGE> 80
The 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 the 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, the 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. The 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. The 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.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed
five percent of the market value of the Fund's total assets. When the 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 custody (or
the broker, if legally permitted) to collateralize the position and thereby
ensure that the use of such futures contract is unleveraged. When the 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 the 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 futures contract or option. Also, there might be imperfect
correlation, or even no correlation, between the change in market value of the
securities held by the Fund and the prices of the futures and options thereon
relating to the securities purchased or sold by the 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. The 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. There are several considerations relevant
to the ability of the Fund to invest in ADRs. 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 regulations and supervision of
foreign stock exchanges, brokers, listed companies, and banks;
6
<PAGE> 81
o differences in legal systems which may effect 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 effect 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 effect
investments in some countries (including possible governmental
seizure or nationalization of assets).
FOREIGN BANK INSTRUMENTS. Different risks may also exist for Eurodollar
Certificates of Deposits ("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee
Certificates of Deposit ("Yankee CDs") because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks, such as
reserve requirements, loan limitations, examinations, accounting, auditing,
recordkeeping and the public availability of information.
TEMPORARY INVESTMENTS
For defensive purposes only, and in such amounts up to 100% of total assets as
the Advisor in its judgment believes market conditions warrant, the 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;
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
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 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 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. 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.
COMMERCIAL PAPER. The Fund may acquire commercial paper rated A-1 by S&P,
Prime-1 by Moody's, or F-1 by Fitch Investors Service, and money market
instruments (including commercial paper) which are not rated but are determined
by the Trustees to be of comparable quality to other bank or corporate
obligations.
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<PAGE> 82
BANK INSTRUMENTS. The Fund may acquire instruments of domestic banks (such as
certificates of deposit, demand and time deposits, saving shares, and bankers'
acceptances) if those banks have capital, surplus, and undivided profits of over
$100,000,000 and/or if their deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC").
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.
EQUITY INVESTMENT RISKS
As with other mutual funds that invest primarily in equity securities, the Fund
is subject to market risks. Since equity markets tend to be cyclical, the
possibility exists that common stocks could decline over short or even extended
periods of time. Because the Fund invests in both small and medium
capitalization stocks, there are some additional risk factors associated with
investment in the Fund. 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. The Fund will not invest more
than 5% of its total net 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
Fund will be slightly more volatile than, and may fluctuate independently of,
broad stock market indices such as the Standard & Poor's 500 Index.
FOUNTAIN SQUARE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders.
INVESTMENT ADVISOR. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Fifth Third Bank, the Fund's
Advisor, subject to direction by the Trustees. The Advisor continually conducts
investment research and supervision for the Funds and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the assets of each Fund.
ADVISORY FEES. The Advisor receives an investment advisory fee at
annual rates equal to 0.60% of the Fund's average net assets. The
investment advisory contract provides for the voluntary waiver of
expenses by the Advisor from time to time. The Advisor may voluntarily
choose to waive a portion of its fees or reimburse the Funds for
certain other expenses, but reserves the right to terminate such waiver
or reimbursement at any time at its sole discretion.
ADVISOR'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank,
is a wholly-owned subsidiary of Fifth Third Bancorp, a bank holding
company organized under the laws of Ohio. Fifth Third Bank is a
commercial bank offering a wide range of banking services to its
customers. As of January 31, 1998, Fifth Third Bank
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<PAGE> 83
and its affiliates managed assets in excess of $15 billion on a
discretionary basis and provided custody services for additional assets
in excess of $118 billion.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, Fifth Third Investment Advisors, a division of Fifth Third
Bank, manages five such pools with total assets of over $401 million.
Fifth Third Bank has managed mutual funds since 1988.
As part of its regular banking operations, Fifth Third Bank may make
loans to public companies. Thus, it may be possible from time to time,
for the Funds to hold or acquire the securities of issuers which are
also lending clients of Fifth Third Bank. The lending relationship will
not be a factor in the selection of securities.
PORTFOLIO MANAGERS' BACKGROUND. John Bevilacqua has been primarily
responsible for the day-to-day management of the Fund since its
inception. Prior to that period, Mr. Bevilacqua was a Vice President
and Portfolio Manager for The Ohio Company, where he managed The
Cardinal Fund, the Fund's predecessor. Prior to joining The Ohio
Company in October 1994, Mr. Bevilacqua had served as Second Vice
President Investments for Midland Mutual Life Insurance Company since
1984. Mr. Bevilacqua holds a B.S. from Franklin University and an
M.B.A. from Xavier University and is an Adjunct Professor at Xavier
University.
DISTRIBUTION OF SHARES OF THE FUND
BISYS Fund Services L.P. serves as the distributor for the Trust. BISYS Fund
Services L.P. is wholly-owned by BISYS Group, Inc., 150 Clove Road, Little
Falls, NJ 07424, a publicly owned company engaged in information processing and
record keeping services to and through banking and other financial
organizations.
PAYMENTS TO FINANCIAL INSTITUTIONS
BISYS Fund Services and Fifth Third Bank, from their own assets, may pay
financial institutions supplemental fees for the performance of sales services,
distribution-related support services, or shareholder and administrative
services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the capacities described above or should Congress
relax current restrictions on depository institutions, the Trustees will
consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. BISYS Fund Services L.P. serves as the administrator.
The administrator generally assists in all aspects of the Trust's administration
and operation including providing the Fund with certain administrative personnel
and services necessary to operate the Fund, such as legal and accounting
services. BISYS Fund Services L.P. provides these at an annual rate as specified
below:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FUND
------------------ ----------------------
0.20% of the first $1 billion
0.18% of the next $1 billion
0.17% in excess of $2 billion
9
<PAGE> 84
The administrator may periodically waive all or a portion of its administrative
fee which will cause the yield of the Fund to be higher than it would otherwise
be in the absence of such a waiver.
Pursuant to a separate agreement with BISYS Fund Services L.P., Fifth Third Bank
performs sub-administration services on behalf of the Fund including providing
certain administrative personnel and services necessary to operate the Fund for
which it receives a fee from BISYS Fund Services L.P. computed daily and paid
periodically calculated at an annual rate of 0.025% of average daily net assets.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Fund, transfer
agent for the shares of the Fund, and dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young
LLP, Cincinnati, Ohio.
EXPENSES OF THE FUND 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.
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, there are no expenses which 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
Securities and Exchange Commission 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.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of the Fund fluctuates daily. The net asset value
for shares of the Fund is determined by adding the interest of each class of
shares in the market value of all securities and other assets of the Fund,
subtracting the interest of each class of shares in the liabilities of such Fund
and those attributable to each class of shares, and
10
<PAGE> 85
dividing the remainder by the total number of each class of shares outstanding.
The net asset value for each class of shares may differ due to the variance in
daily net income realized by each class. Such variance will reflect only accrued
net income to which the shareholders of a particular class are entitled.
The net asset value of each class of shares of the Fund is determined as of the
close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected and days during which no shares are
tendered for redemption and no orders to purchase shares are received.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
The Fund offers investors three classes of shares: Investment A Shares,
Investment C Shares and Institutional Shares. A separate combined prospectus for
Investment A Shares and Investment C Shares of the Fund can be obtained by
contacting the Trust. Each of the share classes are subject to different levels
of expenses and may carry sales loads or contingent deferred sales charges.
SHARE PURCHASES
Institutional Shares of the Fund 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 of the Funds, 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 Fund shares may not be available to investors in all states.
Institutional Shares of the Fund may be purchased either 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 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 shares to be purchased at that day's price. 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
Trust. 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 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. Federal funds should be wired to the Trust as
follows: ABA No. 042 000 314 Fifth Third Cincinnati; Attention: Fountain Square
Funds Department; for credit to: (shareholder name and account number); for
further credit to: Fountain Square Cardinal Fund - Institutional Shares.
Investors should consult their financial institutions for wiring instructions.
ADDITIONAL INFORMATION
From time to time, shares of the Funds may be purchased by the Fifth Third Bank,
the Distributor, or the Administrator in connection with various promotions of
the Fountain Square Funds. In these cases, Fifth Third Bank, the Distributor, or
the Administrator will distribute Fund shares to existing or potential investors
as an incentive to purchase the Fund.
11
<PAGE> 86
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of the Fund by an investor is $1,000.
Subsequent investments must be in amounts of at least $50.
INVESTING IN INSTITUTIONAL SHARES
Institutional Shares of the Fund are sold at their net asset value next
determined after an order is received. The net asset value for the Fund is
determined at the close of trading on the New York Stock Exchange, normally 4:00
p.m. (Eastern time) Monday through Friday, except on days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected and days during which no shares are
tendered for redemption and no orders to purchase shares are received. No orders
to purchase or redeem shares are processed on the following holidays: New Years
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.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain securities
and cash for Fund Shares. The securities and any cash must have a market value
of at least $25,000. The Fund reserves the right to determine the acceptability
of securities to be exchanged. On the day securities are accepted by the Fund,
they are valued in the same manner as the Fund values its assets. 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 the shareholder's checking account and
invested in Fund 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 their account application or by contacting the Trust.
CERTIFICATES AND CONFIRMATIONS
The transfer agent maintains a share account for each shareholder of record.
Share certificates are not issued. Detailed statements that include account
balances, information on each purchase or redemption, and a report of dividends
paid are sent to shareholders 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 the Fund, if any, will be distributed at least once every 12 months.
Dividends and capital gains will be reinvested in additional Institutional
Shares on payment dates at the ex-dividend date net asset value unless cash
payments are requested by shareholders by writing to the Fund.
Dividends are paid to all shareholders who are invested in the Fund on its
record date. The Fund's dividends are declared and paid quarterly.
12
<PAGE> 87
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder may exchange Institutional Shares of the Fund for shares of the
same class of any of the other Funds in the Trust, including those not offered
by this Prospectus, by calling or sending a written request to the Trust.
Shareholders may exchange Institutional Shares of the Fund for Institutional
Shares of any of the other Funds in the Trust, including those not offered by
this Prospectus, by contacting the financial institution responsible for the
account. 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 the Fund for Institutional Shares 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. Orders for exchanges involving other non-money market funds of the
Trust 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 for exchanges received after the
applicable cut-off time on any business day will be executed at the close of the
next business day.
An excessive number of exchanges may be disadvantageous to the Trust. Therefore
the Trust, in addition to its right to reject any exchange, reserves the right
to modify or terminate the exchange privilege at any time. Shareholders would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a Prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Institutional Shares at their net asset value next determined
after the Fund receives the redemption request. Redemptions will be made on days
on which the New York Stock Exchange and the Federal Reserve Bank of Cleveland
are open for business. 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 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 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 FDIC;
o a member of the New York, American, Boston, Midwest, or
Pacific Stock Exchange;
13
<PAGE> 88
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.
Normally, a check for the proceeds is mailed to the shareholder within three
business days, but in no event more than seven days, after receipt of a proper
written redemption request, provided the Fund or its agents have received
payment for shares from the shareholder.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Fund
shares, and the fluctuation of the net asset value of Fund shares redeemed under
this program, redemptions may reduce, and eventually exhaust, the shareholder's
investment in the Fund. For this reason, payments under this program should not
be considered as yield or income on the shareholder's investment in the 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 Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000.
Before redeeming shares to close an account, the 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 the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund in the
Trust have equal voting rights, except that in matters affecting only a
particular Fund, only shares of that Fund are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of Trustees
under certain circumstances. As of May 10, 1998, Fifth Third Bank may
for certain purposes be deemed to control the Funds because it is owner of
record of certain shares of the Funds.
14
<PAGE> 89
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of the Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of the Fund for any act or obligation of the
Trust on behalf of the Fund. Therefore, financial loss resulting from liability
as a shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from the
assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956, 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 Fund's investment advisor, Fifth Third
Bank, is subject to such banking laws and regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for any Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or the Fund. In such event, changes in the operation of a
Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment or redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisors and other means of continuing available investment services.
It is not expected that an existing Fund's shareholders would suffer any adverse
financial consequences (if another advisor with equivalent abilities to Fifth
Third Bank is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
15
<PAGE> 90
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Fund, if any, will not be combined for tax purposes with those realized by any
of the other Funds.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the shares. No federal income tax is due on any
dividend earned in an IRA or qualified retirement plan until distributed.
Shareholders are urged to consult their own tax advisors regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Fund will advertise total return and yield, including
Predecessor Fund performance as described above, for Institutional Shares of the
Fund.
Total return represents the change, over a specified period of time, in the
value of an investment in Institutional Shares of the 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 the Fund is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) 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. The yield does 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 each class of shares of the Fund 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.
16
<PAGE> 91
ADDRESSES
- --------------------------------------------------------------------------------
Fountain Square Cardinal Fund
c/o Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Investment Advisor
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend Disbursing Agent, and
Sub-Administrator
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Distributor and Administrator
BISYS Fund Services, L.P. 3435 Stelzer Road
Columbus, Ohio 43219
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP 1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
17
<PAGE> 92
FOUNTAIN SQUARE TAX EXEMPT MONEY MARKET FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT A SHARES
PROSPECTUS
The Investment A Shares of Fountain Square Tax Exempt Money Market Fund (the
"Fund") offered by this Prospectus represent interests in a diversified
portfolio of securities which is one of a series of investment portfolios in
Fountain Square Funds (the "Trust"), an open-end management investment company
(a mutual fund).
The Fund is a money market fund which invests in short-term high-grade municipal
bonds and notes, tax-exempt commercial paper and tax-exempt short-term discount
notes to maximize current income exempt from federal tax while preserving
capital and maintaining liquidity.
This Prospectus contains the information you should read and know before you
invest in Investment A Shares of the Fund. Keep this Prospectus for future
reference.
The Fund has also filed a combined Statement of Additional Information for
Investment A Shares and Institutional Shares, dated May 20, 1998, with the
Securities and Exchange Commission. The information contained in the combined
Statement of Additional Information is incorporated by reference into this
Prospectus. You may request a copy of the combined Statement of Additional
Information free of charge, obtain other information or make inquiries about the
Fund by writing to the Trust or calling toll-free (888) 799-5353.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. THE FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO DO SO. THE CHARACTERISTICS OF SHORT-TERM MUNICIPAL
SECURITIES IN WHICH THE FUND INVESTS ARE SUCH THAT THE PRICE AND STABILITY OF
THE FUND MAY NOT BE EQUAL TO THAT OF OTHER MONEY MARKET FUNDS WHICH INVEST IN
TAXABLE SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 20, 1998
<PAGE> 93
NOTICE OF DELIVERY OF PROSPECTUSES,
SEMI-ANNUAL REPORTS, AND ANNUAL REPORTS
In order to reduce expenses of the Fountain Square Funds incurred in connection
with the mailing of prospectuses, semi-annual reports and annual reports to
multiple shareholders at the same address, Fountain Square Funds may in the
future deliver one copy of a prospectus, semi-annual report, or annual report to
a single investor sharing a street address or post office box with other
investors, provided that all such investors have the same last name or are
believed to be members of the same family. If you share an address with another
investor and wish to receive your own prospectuses, semi-annual reports and
annual reports, please call the Trust toll-free at 1-888-799-5353.
<PAGE> 94
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES........................................................................................ 1
FINANCIAL HIGHLIGHTS-INVESTMENT A SHARES........................................................................ 2
GENERAL INFORMATION............................................................................................. 3
INVESTMENT INFORMATION.......................................................................................... 3
Investment Objective.................................................................................. 3
Investment Policies................................................................................... 3
Acceptable Investments....................................................................... 3
Characteristics.............................................................................. 3
Variable Rate Demand Municipal Securities.................................................... 4
Participation Interests...................................................................... 4
Municipal Leases............................................................................. 4
Municipal Securities......................................................................... 4
Repurchase Agreements........................................................................ 4
When-Issued and Delayed Delivery Transactions................................................ 5
Lending of Portfolio Securities.............................................................. 5
Temporary Investments................................................................................. 5
Investment Limitations................................................................................ 6
FOUNTAIN SQUARE FUNDS INFORMATION............................................................................... 6
Management of the Trust................................................................................ 6
Board of Trustees............................................................................. 6
Investment Advisor............................................................................ 6
Advisory Fees........................................................................ 6
Advisor's Background................................................................. 6
Distribution of Shares of the Fund..................................................................... 7
Distribution Plan...................................................................................... 7
Other Payments to Financial Institutions............................................................... 7
Administration of the Fund............................................................................. 8
Administrative Services....................................................................... 8
Custodian, Transfer Agent and Dividend Disbursing Agent....................................... 8
Independent Auditors.......................................................................... 8
NET ASSET VALUE................................................................................................. 8
INVESTING IN THE FUND........................................................................................... 8
Share Purchases........................................................................................ 9
Purchases by Former Cardinal Shareholders..................................................... 9
Purchases by All Other Investors.............................................................. 9
Additional Information................................................................................. 9
Minimum Investment Required............................................................................ 10
Investing in Investment A Shares....................................................................... 10
Certificates and Confirmations......................................................................... 10
Dividends.............................................................................................. 10
Capital Gains.......................................................................................... 10
EXCHANGES....................................................................................................... 10
REDEEMING SHARES................................................................................................ 11
By Telephone........................................................................................... 11
By Mail................................................................................................ 12
Accounts with Low Balances............................................................................. 13
SHAREHOLDER INFORMATION......................................................................................... 13
Voting Rights.......................................................................................... 13
Massachusetts Law...................................................................................... 13
EFFECT OF BANKING LAWS.......................................................................................... 14
TAX INFORMATION................................................................................................. 14
Federal Income Tax..................................................................................... 14
Additional Tax Information for Tax Exempt Money Market Fund............................................ 14
State and Local Taxes.................................................................................. 15
PERFORMANCE INFORMATION......................................................................................... 15
ADDRESSES....................................................................................................... 16
</TABLE>
i
<PAGE> 95
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................................None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)...........................................................................None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)...........................................................................None
Redemption Fee (as a percentage of amount redeemed, if applicable).............................................None
Exchange Fee...................................................................................................None
ANNUAL INVESTMENT A SHARES OPERATING EXPENSES
Management Fee (after waiver)(1)..............................................................................0.40%
12b-1 Fee (after waiver)(2)...................................................................................0.07%
Other Expenses................................................................................................0.33%
Total Investment A Shares Operating Expenses(3)......................................................0.80%
</TABLE>
(1) The management fee has been reduced to reflect the anticipated
voluntary waiver of fees by the advisor. Subject to certain
restrictions currently in effect, the advisor can terminate the
voluntary waiver at any time in its sole discretion. The maximum
management fee is 0.50%.
(2) 12b-1 fees have been reduced to reflect the voluntary waiver of a
portion of the 12b-1 fees. The maximum 12b-1 fee is 0.25%.
(3) Total Investment A Shares operating expenses would be 1.08% absent the
voluntary waiver by the advisor, and the waiver of a portion
of the 12b-1 fee. All expenses for the Fund are based on estimates
for the current fiscal year.
EXAMPLE 1 year 3 years
- ------- ------ -------
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. The Fund
charges no redemption fees for Investment A Shares.............. $8 $26
THE PURPOSE OF THE EXPENSE TABLE IS TO ASSIST AN INVESTOR IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INVESTMENT A
SHARES WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS
OF THE VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION" AND
"INVESTING IN INVESTMENT A SHARES." Wire-transferred redemptions of less than
$10,000 may be subject to additional fees.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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<PAGE> 96
FOUNTAIN SQUARE TAX EXEMPT FUND
FINANCIAL HIGHLIGHTS-INVESTMENT A SHARES
- --------------------------------------------------------------------------------
The Fund expects to quote total returns that include the performance results of
shares of the Cardinal Tax Exempt Money Market Fund (the "Predecessor Fund"), an
open-end investment company which was the predecessor fund to the Fountain
Square Tax Exempt Money Market Fund. The Predecessor Fund was advised by Jeffrey
Alton of Cardinal Management Corp. ("Cardinal"), a wholly-owned subsidiary of
The Ohio Company. Pursuant to an Agreement and Plan of Merger, dated December
22, 1997, The Ohio Company became an indirect subsidiary of Fifth Third Bancorp,
the parent company of Fifth Third Bank, the Fund's advisor (the "Advisor"). The
Fund will be managed by Mr. Alton with the same investment objective and
substantially identical investment policies as the Predecessor Fund. Holders of
shares of the Predecessor Fund who are not eligible to receive Institutional
Shares will receive Investment A Shares of the Fountain Square Tax Exempt Money
Market Fund in exchange for their shares as part of a fund reorganization.
The Fund expects to quote total returns that include performance of the
Predecessor Fund for the period between October 1, 1988 and the commencement of
the Fund's operations.
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GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this Prospectus, the Board of
Trustees ("Trustees") has established two classes of shares of the Fund, known
as Investment A Shares and Institutional Shares. This Prospectus relates only to
Investment A Shares of the Fund.
Investment A Shares are intended to provide a convenient means of accumulating
an interest in a professionally managed, diversified portfolio limited to
short-term tax-exempt securities. A minimum initial investment of One Thousand
Dollars ($1,000) is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to maximize current income, exempt from
federal income tax, while preserving capital and maintaining liquidity. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
Prospectus. The investment objective of the Fund cannot be changed without the
approval of holders of a majority of the Fund's shares.
INVESTMENT POLICIES
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. 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.
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.
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 a nationally recognized statistical
rating organization (an "NRSRO") for short-term tax-exempt securities, or,
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<PAGE> 98
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.
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.
The two principal classifications of municipal securities are "general
obligations" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
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<PAGE> 99
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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if Fifth Third Bank
deems it appropriate to do so. In addition, the Fund may enter into transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which Fifth Third Bank has determined are creditworthy under
guidelines established by the Fund's Trustees and will receive collateral at all
times equal to at least 100% of the value of the securities loaned. There is the
risk that when lending portfolio securities, the securities may not be available
to the Fund on a timely basis and the Fund may, therefore, lose the opportunity
to sell the securities at a desirable price. In addition, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
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.
o Repurchase agreement 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.
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<PAGE> 100
INVESTMENT LIMITATIONS
The Fund will not:
o 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;
o with respect to 75% of the value of total assets, 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;
o 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.
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.
FOUNTAIN SQUARE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders.
INVESTMENT ADVISOR. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by The Fifth Third Bank, the Fund's
investment advisor ("Fifth Third Bank"), subject to direction by the Trustees.
The Advisor continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Advisor receives an annual investment advisory fee
equal to 0.50 of 1% of the Fund's average daily net assets. The Advisor
may voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver
or reimbursement at any time at its sole discretion.
ADVISOR'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank,
is a wholly-owned subsidiary of Fifth Third Bancorp, a bank holding
company organized under the laws of Ohio. Fifth Third Bank is a
commercial bank offering a wide range of banking services to its
customers. As of January 31, 1998, Fifth
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<PAGE> 101
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 $118 billion. Fifth Third Bank has managed mutual
funds since 1988.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages five such pools
with total assets of over $401 million.
As part of their regular banking operations, Fifth Third Bank may make
loans to public companies. Thus, it may be possible, from time to time,
for the Fund to hold or acquire the securities of issuers which are
also lending clients of Fifth Third Bank. The lending relationship will
not be a factor in the selection of securities.
DISTRIBUTION OF SHARES OF THE FUND
BISYS Fund Services L.P. serves as the distributor for the Trust. BISYS Fund
Services L.P. is wholly-owned by BISYS Group, Inc., 150 Clove Road, Little
Falls, NJ 07424, a publicly owned company engaged in information processing and
record keeping services to and through banking and other financial
organizations.
DISTRIBUTION PLAN
Under a distribution plan adopted in accordance with Rule 12b-1 (the "Plan")
under the Investment Company Act of 1940, as amended, 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 subject to the Plan.
For Investment A Shares, the distributor may select financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisors, and
broker/dealers to provide sales, or distribution-related support services as
agents for their clients or customers who beneficially own Investment A Shares.
The Plan is a compensation type plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, 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 Plan.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the Investment A Shares exceed such lower expense
limitation as the distributor may, by notice to the Trust, voluntarily declare
to be effective.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Plan, the distributor, the Advisor,
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 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.
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<PAGE> 102
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. BISYS Fund Services L.P. serves as the administrator.
The administrator generally assists in all aspects of the Trust's administration
and operation including providing the Fund with certain administrative personnel
and services necessary to operate the Fund, such as legal and accounting
services. BISYS Fund Services L.P. provides these at an annual rate as specified
below:
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 Fund Services L.P., Fifth Third Bank
performs sub-administrative services on behalf of the Fund including providing
certain administrative personnel and services necessary to operate the Fund for
which it receives a fee from BISYS Fund Services L.P. computed daily and paid
periodically calculated at an annual rate of 0.025% of average daily net assets.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Fund, transfer
agent for the shares of the Fund, and dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young
LLP, Cincinnati, Ohio.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share for each class of shares is determined by adding the interest of the
applicable class of shares in the value of all securities and other assets of
the Fund, subtracting the interest of those shares in liabilities of the Fund
and those attributable to such shares, and dividing the remainder by the total
number of shares in the class outstanding. The Fund cannot guarantee that its
net asset value will always remain at $1.00 per Share.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
The Fund offers two classes of shares: Investment A Shares and Institutional
Shares. A separate prospectus for Institutional Shares of the Fund can be
obtained by contracting the Trust. Each of the share classes is subject to
different levels of expenses and may carry sales loads or contingent deferred
sales charges.
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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 Fund reserves
the right to reject any purchase request. Purchases of Fund shares may not be
available for investors in all states.
Investment A Shares of the Fund 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 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 Fund who were
formerly shareholders of the Cardinal Tax Exempt Money Market Fund at the time
of its reorganization with the Fund, but who do not maintain a brokerage account
with The Ohio Company, may purchase additional shares of the Fund by calling the
Trust toll-free at (800) 282-5706 or by mailing a request to: Fountain Square
Tax Exempt Money Market Fund, 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
shareholders may purchase shares of the Fund by contacting the Trust toll-free
at (888) 799-5353. Federal funds should be wired to the Fund as follows: ABA No.
042 000 314 Fifth Third Cincinnati; Attention: Fountain Square Funds Department;
For Credit to: (shareholder name and account number); For Further Credit to:
Fountain Square Tax Exempt Money Market 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 Fund may be purchased by Fifth Third Bank, the
Distributor, or the Administrator, in connection with various promotions of the
Fountain Square Funds. In these cases, Fifth Third Bank, the Distributor, or the
Administrator will distribute Fund shares to existing or potential investors as
an incentive to purchase the Fund.
In connection with the sale of shares of the Fund, the Distributor may make
certain payments to all dealers selling shares of the Fund which include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more Funds of the Trust, and/or other
dealer-sponsored special events. In some instances, this compensation will be
made available only to certain dealers whose representatives have sold a
significant amount of shares of Funds in the Trust. Compensation may include
payment for travel expenses, including lodging, to various locations for
meetings or seminars of a business nature. Compensation may also include the
following types of non-cash compensation offered through promotional contests:
travel and lodging at non-business locations; tickets for entertainment events;
and merchandise. None of the aforesaid compensation is paid for by the Fund or
its shareholders. In some cases, the
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<PAGE> 104
Distributor, in its sole discretion, may uniformly offer to pay to all dealers
selling shares of the Fund, all or a portion of any applicable sales charge
which it normally retains.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Investment A Shares of the Fund 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 automatically invest cash accumulations in the Fund.
Investors participating in such arrangements may be charged separate fees by the
financial institution that provides this service, and should read this
Prospectus along with their financial institution's agreement or other
literature relating to this service.
INVESTING IN INVESTMENT A SHARES
Investment A Shares are sold at their net asset value next determined after an
order is received. The Fund does not impose a sales charge on Investment A
Shares.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
The transfer agent for the Fund maintains a share account for each shareholder
of record. Share certificates are not issued. Detailed statements that include
account balances, information on each purchase or redemption, and a report of
dividends paid during the month are sent to shareholders 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 of the Fund unless cash payments
are requested by writing to the Trust. Share purchase orders received by the
Fund before 11:00 a.m. (Eastern time) earn dividends that day.
CAPITAL GAINS
If the Fund experiences capital gains, it could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, the Fund realizes net long-term capital gains, it will
distribute them at least once every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder may exchange Investment A Shares of the Fund for Investment A
Shares of any of the other Funds in the Trust by calling the Trust toll-free at
(888) 799-5353 or by sending a written request to the Trust.
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<PAGE> 105
Shareholders of the Fund who were formerly shareholders of the Cardinal Tax
Exempt Money Market Fund at the time of its reorganization with the Fund must
open an account with Fifth Third Securities, Inc. 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 the 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 Trust's money
market funds 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
non-money market 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. 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 would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a Prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Investment A Shares at their net asset value next determined
after the Fund receives the redemption request. Redemptions will be made on days
on which the Fund computes its net asset value. Telephone or written requests
for redemption must be received in proper form and can be made through a
shareholder's financial representative or directly through the Trust. For
investors who obtained shares of the 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 by calling the Trust, provided the Trust
has received a properly completed authorization form. Shareholders of the Fund
who were formerly shareholders of the Cardinal Tax Exempt Money Market Fund at
the time of its reorganization with the Fund, but who do not maintain a
brokerage account with The Ohio Company, may redeem shares of the 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
11
<PAGE> 106
(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 seven 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
would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must be
completed. Authorization forms and information on this service are available
from the Trust.
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 Fund who were formerly shareholders of the Cardinal Tax
Exempt Money Market Fund at the time of its reorganization with the Fund, but
who do not maintain a brokerage account with The Ohio Company, may redeem shares
of the Fund by sending a written request to:
Fountain Square 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
Fountain Square Redemptions
M.D. 1090EC
38 Fountain Square Plaza
Cincinnati, Ohio 45263
The written request should include the shareholder's name, the Fund name and
class of shares, the account number, and the share or dollar amount requested
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 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
12
<PAGE> 107
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.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000.
Before redeeming shares to close an account, the Fund will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each Fund in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust or the Fund's operation and for the election of
Trustees under certain circumstances. As of May 10, 1998, Fifth Third Bank may
for certain purposes be deemed to control the Funds because it is owner of
record of certain shares of the Funds.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of the Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer to be given in each agreement, obligation, or instrument the
Trust or its Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or to compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of the Fund for any act or obligation of the
Trust on behalf of the Fund. Therefore, financial loss resulting from liability
as a shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and to pay judgments against them from the
assets of the Fund.
13
<PAGE> 108
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956 or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment advisor, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of their customer. The Fund's investment advisor, Fifth Third
Bank, is subject to such banking laws and regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for the Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or the Fund. In such event, changes in the operation of
the Fund may occur, including the possible alteration or termination of any
automatic or other Fund share investment and redemption services then being
provided by Fifth Third Bank, and the Trustees would consider alternative
investment advisors and other means of continuing available investment services.
It is not expected that Fund shareholders would suffer any adverse financial
consequences (if another advisor with equivalent abilities to Fifth Third Bank
is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
ADDITIONAL TAX INFORMATION FOR TAX EXEMPT MONEY MARKET FUND
The 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
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 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 by the Fund on such obligations.
Also, a portion of all other interest excluded from gross income for federal
income tax purposes
14
<PAGE> 109
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 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 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.
STATE AND LOCAL TAXES
Under state or local law, distributions of net investment income may be taxable
to shareholders as dividend income even though a substantial portion of such
distribution may be derived from interest excluded from gross income for federal
income tax purposes that, if received directly, would be exempt from such income
taxes. The 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, the Fund advertises its yield, effective yield and
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.
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 the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
15
<PAGE> 110
ADDRESSES
- --------------------------------------------------------------------------------
Fountain Square Tax Exempt Fund Fountain Square Funds
c/o Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Investment Advisor
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend Disbursing Agent, and Sub-Administrator
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Distributor and Administrator
BISYS Fund Services L.P. 3435 Stelzer Road
Columbus, Ohio 43219
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP 1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
16
<PAGE> 111
FOUNTAIN SQUARE TAX EXEMPT MONEY MARKET FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Fountain Square Tax Exempt Money Market Fund (the
"Fund") offered by this Prospectus represent interests in a diversified
portfolio of securities which is one of a series of investment portfolios in
Fountain Square Funds (the "Trust"), an open-end management investment company
(a mutual fund).
The Fund is a money market fund which invests in short-term high-grade municipal
bonds and notes, tax-exempt commercial paper and tax-exempt short-term discount
notes to maximize current income exempt from federal tax while preserving
capital and maintaining liquidity.
This Prospectus contains the information you should read and know before you
invest in Institutional Shares of the Fund. Keep this Prospectus for future
reference.
The Fund has also filed a combined Statement of Additional Information for
Investment A Shares and Institutional Shares, dated May 20, 1998, with the
Securities and Exchange Commission. The information contained in the combined
Statement of Additional Information is incorporated by reference into this
Prospectus. You may request a copy of the combined Statement of Additional
Information free of charge, obtain other information or make inquiries about the
Fund by writing to the Trust or calling toll-free (888) 799-5353.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF FIFTH
THIRD BANK, ARE NOT ENDORSED OR GUARANTEED BY FIFTH THIRD BANK, AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. THE FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE
FUND WILL BE ABLE TO DO SO. THE CHARACTERISTICS OF SHORT-TERM MUNICIPAL
SECURITIES IN WHICH THE FUND INVESTS ARE SUCH THAT THE PRICE AND STABILITY OF
THE FUND MAY NOT BE EQUAL TO THAT OF OTHER MONEY MARKET FUNDS WHICH INVEST IN
TAXABLE SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 20, 1998
<PAGE> 112
NOTICE OF DELIVERY OF PROSPECTUSES,
SEMI-ANNUAL REPORTS, AND ANNUAL REPORTS
In order to reduce expenses of the Fountain Square Funds incurred in connection
with the mailing of prospectuses, semi-annual reports and annual reports to
multiple shareholders at the same address, Fountain Square Funds may in the
future deliver one copy of a prospectus, semi-annual report, or annual report to
a single investor sharing a street address or post office box with other
investors, provided that all such investors have the same last name or are
believed to be members of the same family. If you share an address with another
investor and wish to receive your own prospectuses, semi-annual reports and
annual reports, please call the Trust toll-free at 1-888-799-5353.
<PAGE> 113
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES......................................... 1
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SHARES...................... 2
GENERAL INFORMATION.............................................. 2
INVESTMENT INFORMATION........................................... 2
Investment Objective.................................... 2
Investment Policies..................................... 3
Acceptable Investments......................... 3
Characteristics................................ 3
Variable Rate Demand Municipal
Securities............................ 3
Participation Interests........................ 4
Municipal Leases............................... 4
Municipal Securities........................... 4
Repurchase Agreements.......................... 4
When-Issued and Delayed Delivery
Transactions.......................... 4
Lending of Portfolio Securities................ 4
Temporary Investments................................... 5
Investment Limitations.................................. 5
FOUNTAIN SQUARE FUNDS INFORMATION................................ 6
Management of the Trust................................. 6
Board of Trustees.............................. 6
Investment Advisor............................. 6
Advisory Fees......................... 6
Advisor's Background.................. 6
Distribution of Shares of the Fund...................... 6
Payments to Financial Institutions...................... 6
Administration of the Fund.............................. 7
Administrative Services........................ 7
Custodian, Transfer Agent and
Dividend Disbursing
Agent................................. 7
Independent Auditors........................... 7
NET ASSET VALUE.................................................. 7
INVESTING IN THE FUND............................................ 8
Share Purchases......................................... 8
Minimum Investment Required............................. 8
Investing in Institutional Shares....................... 8
Certificates and Confirmations.......................... 9
Dividends............................................... 9
Capital Gains........................................... 9
EXCHANGES........................................................ 9
REDEEMING SHARES................................................. 10
Receiving Payment....................................... 10
Accounts with Low Balances.............................. 10
SHAREHOLDER INFORMATION.......................................... 11
Voting Rights........................................... 11
Massachusetts Law....................................... 11
EFFECT OF BANKING LAWS........................................... 11
TAX INFORMATION.................................................. 12
Federal Income Tax...................................... 12
Additional Tax Information for Tax Exempt
Money Market Fund..................... 12
State and Local Taxes................................... 13
PERFORMANCE INFORMATION.......................................... 13
ADDRESSES........................................................ 14
i
<PAGE> 114
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)...............................................None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)...............................................None
Redemption Fee (as a percentage of amount redeemed, if applicable).................None
Exchange Fee.......................................................................None
</TABLE>
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)....................................0.40%
12b-1 Fee............................................................None
Total Other Expenses................................................0.33%
Total Institutional Shares Operating Expenses(3)...........0.73%
(1) The management fee has been reduced to reflect the voluntary waiver of
fees by the advisor. Subject to certain restrictions currently in
effect, the advisor can terminate the voluntary waiver at any time in
its sole discretion. The maximum management fee is 0.50%.
(2) Total Institutional Shares operating expenses would be 0.83% absent the
voluntary waivers by the investment advisor and the administrator. All
expenses for the Fund are based on estimates for the current fiscal
year.
THE PURPOSE OF THE EXPENSE TABLE IS TO ASSIST AN INVESTOR IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL
SHARES WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS
OF THE VARIOUS COSTS AND EXPENSES, SEE "FOUNTAIN SQUARE FUNDS INFORMATION," AND
"INVESTING IN INSTITUTIONAL SHARES." Wire-transferred redemptions of less than
$10,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- ------- ------ -------
<S> <C> <C>
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. The Fund
charges no redemption fees for Institutional Shares............ $7 $23
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1
<PAGE> 115
FOUNTAIN SQUARE TAX EXEMPT FUND
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Fund expects to quote total returns that include performance of the Cardinal
Tax Exempt Money Market Fund (the "Predecessor Fund"), an open-end investment
company which was the predecessor fund to the Fountain Square Tax Exempt Fund.
The Predecessor Fund was advised by Jeffrey Alton of Cardinal Management Corp.
("Cardinal"), a wholly-owned subsidiary of The Ohio Company. Pursuant to an
Agreement and Plan of Merger, dated December 22, 1997, The Ohio Company became
an indirect subsidiary of Fifth Third Bancorp, the parent company of Fifth Third
Bank, the Fund's advisor the ("Advisor"). The Fund will be managed by Mr. Alton
with the same investment objective and substantially identical investment
policies as the Predecessor Fund. Holders of Institutional Shares of the
Predecessor Fund will receive Institutional Shares of the Fountain Square Tax
Exempt Fund in exchange for their shares as part of a fund reorganization.
The Fund expects to quote total returns that include performance of the
Predecessor Fund for the period between October 1, 1988 and the commencement of
the Fund's operations. All performance figures quoted for Institutional Shares
of the Fund will be adjusted to reflect the deduction of fees associated with
the Fund (excluding waivers or reimbursements) and will reflect the reinvestment
of all dividends and capital gains distributions.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this Prospectus, the Board of
Trustees ("Trustees") has established two classes of shares of the Fund, known
as Investment A Shares and Institutional Shares. This Prospectus relates only to
Institutional Shares of the Fund.
Institutional Shares are intended to provide a convenient means of accumulating
an interest in a professionally managed, diversified portfolio limited to
short-term tax-exempt securities. Institutional Shares are offered only 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 or other financial institutions who place trades
for their own accounts or the accounts of their clients for a management,
consulting or other fee. In both cases, a minimum initial investment of One
Thousand Dollars ($1,000) is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to maximize current income, exempt from
federal income tax, while preserving capital and maintaining liquidity. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
Prospectus. The investment objective of the Fund cannot be changed without the
approval of holders of a majority of the Fund's shares.
2
<PAGE> 116
INVESTMENT POLICIES
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. 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.
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.
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 a nationally recognized statistical
rating organization (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.
3
<PAGE> 117
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.
The two principal classifications of municipal securities are "general
obligations" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. However, interest on and principal of revenue bonds are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if Fifth Third Bank
deems it appropriate to do so. In addition, the Fund may enter into transactions
to sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, or
both, to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which Fifth Third Bank has determined are creditworthy under
guidelines established by the Fund's Trustees and will receive collateral at all
times equal to at least 100% of the value of the securities loaned. There is the
risk that when lending portfolio securities, the securities may not be available
to the Fund on a timely basis and the Fund may, therefore, lose the
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<PAGE> 118
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.
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.
o Repurchase agreement 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 Fund will not:
o 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;
o with respect to 75% of the value of total assets, 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;
o 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.
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.
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<PAGE> 119
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.
FOUNTAIN SQUARE FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders.
INVESTMENT ADVISOR. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by The Fifth Third Bank, the Fund's
investment advisor ("Fifth Third Bank"), subject to direction by the Trustees.
The Advisor continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Advisor receives an annual investment advisory fee
equal to 0.50 of 1% of the Fund's average daily net assets. The Advisor
may voluntarily choose to waive a portion of its fee or reimburse other
expenses of the Fund, but reserves the right to terminate such waiver
or reimbursement at any time at its sole discretion.
ADVISOR'S BACKGROUND. Fifth Third Bank, an Ohio state chartered bank,
is a wholly-owned subsidiary of Fifth Third Bancorp, a bank holding
company organized under the laws of Ohio. Fifth Third Bank is a
commercial bank offering a wide range of banking services to its
customers. As of January 31, 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 $118
billion. Fifth Third Bank has managed mutual funds since 1988.
Fifth Third Bank has managed pools of commingled funds since 1953.
Currently, the Trust and Investment Division manages five such pools
with total assets of over $401 million.
As part of their regular banking operations, Fifth Third Bank may make
loans to public companies. Thus, it may be possible, from time to time,
for the Fund to hold or acquire the securities of issuers which are
also lending clients of Fifth Third Bank. The lending relationship will
not be a factor in the selection of securities.
DISTRIBUTION OF SHARES OF THE FUND
BISYS Fund Services L.P. serves as the distributor for the Trust. BISYS Fund
Services L.P. is wholly-owned by BISYS Group, Inc., 150 Clove Road, Little
Falls, NJ 07424, a publicly owned company engaged in information processing and
record keeping services to and through banking and other financial
organizations.
PAYMENTS TO FINANCIAL INSTITUTIONS
The Distributor, the Advisor, or their affiliates may offer to pay a fee from
their own assets to financial institutions as financial assistance for providing
substantial marketing and sales support. The support may include initiating
customer accounts, providing sales literature, or participating in sales,
educational and training seminars (including those held at recreational
facilities). Such assistance will be predicated upon the amount of shares the
financial
6
<PAGE> 120
institution sells or may sell and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Advisor or its affiliates.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of most securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. BISYS Fund Services L.P. serves as the administrator.
The administrator generally assists in all aspects of the Trust's administration
and operation including providing the Fund with certain administrative personnel
and services necessary to operate the Fund, such as legal and accounting
services. BISYS Fund Services L.P. provides these at an annual rate as specified
below:
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 Fund Services L.P., Fifth Third Bank
performs sub-administrative services on behalf of the Fund including providing
certain administrative personnel and services necessary to operate the Fund for
which it receives a fee from BISYS Fund Services L.P. computed daily and paid
periodically calculated at an annual rate of 0.025% of average daily net assets.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Fifth Third Bank,
Cincinnati, Ohio, is custodian for the securities and cash of the Fund, transfer
agent for the shares of the Fund, and dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young
LLP, Cincinnati, Ohio.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share for each class of shares is determined by adding the interest of the
applicable class of shares in the value of all securities and other assets of
the Fund, subtracting the interest of those shares in liabilities of the Fund
and those attributable to such shares, and dividing the remainder by the total
number of shares in the class outstanding. The Fund cannot guarantee that its
net asset value will always remain at $1.00 per Share.
7
<PAGE> 121
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
The Fund offers two classes of shares: Investment A Shares and Institutional
Shares. A separate prospectus for Investment A Shares of the Fund can be
obtained by contacting the Trust. Each of the share classes 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 Fund reserves
the right to reject any purchase request. Purchases of Fund shares may not be
available for investors in all states.
Institutional Shares of the Fund may be purchased either 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 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 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 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. Federal funds should be wired to the Trust as
follows: ABA No. 042 000 314 Fifth Third Cincinnati; Attention: Fountain Square
Funds Department; For Credit to: (shareholder name and account number); For
Further Credit to: Fountain Square Tax Exempt Fund-Institutional Shares.
Investors should consult their financial institution for wiring instructions.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Institutional Shares of the Fund is $1,000.
Subsequent investments must be in amounts of at least $50. An institutional
investor's minimum investment will be calculated by combining all accounts it
maintains with the Fountain Square Funds.
The minimum investment requirements do not apply with respect to accounts that
have been established to automatically invest cash accumulations in the Fund.
Investors participating in such arrangements may be charged separate fees by the
financial institution that provides this service, and should read this
Prospectus along with their financial institution's agreement or other
literature relating to this service.
INVESTING IN INSTITUTIONAL SHARES
Shares are sold at their net asset value next determined after an order is
received. The Fund does not impose a sales charge. The net asset value for the
Fund is determined at 4:00 p.m. (Eastern time), Monday through Friday, except
on: (i) days on which there are not sufficient changes in the value of the
Fund's portfolio securities that its net asset
8
<PAGE> 122
value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; or (iii)
the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
The transfer agent for the Fund maintains a share account for each shareholder
of record. Share certificates are not issued. Detailed statements that include
account balances, information on each purchase or redemption, and a report of
dividends paid during the month are sent to shareholders 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. Share purchase orders received by the Fund
before 11:00 a.m. (Eastern time) earn dividends that day.
CAPITAL GAINS
If the Fund experiences capital gains, it could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, the Fund realizes net long-term capital gains, it will
distribute them at least once every 12 months.
EXCHANGES
- --------------------------------------------------------------------------------
A shareholder may exchange Institutional Shares of the Fund for Institutional
Shares of any of the other Funds in the Trust by contacting the financial
institution responsible for the account. 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 in the Trust will be executed by redeeming the shares
owned at net asset value and purchasing Institutional Shares of any of the other
Funds at the net asset value determined after the exchange request is received.
Orders for exchanges involving any of the Trust's money market funds 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 for exchanges 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 would be
notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. An exchange constitutes a sale for federal income tax purposes.
9
<PAGE> 123
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold. Before the exchange, a shareholder must
receive a Prospectus of the Fund for which the exchange is being made.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Institutional Shares at their net asset value next determined
after the Fund receives the redemption request. Redemptions will be made on days
on which the Fund computes its net asset value. Telephone or written requests
for redemption must be received in proper form and can 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 that day. It is the financial institution's
responsibility to transmit 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 Fund, or a
redemption payable other than to the shareholder of record must have signatures
on written redemption requests guaranteed by:
o a trust company or commercial bank whose deposits are insured
by the Bank Insurance Fund, which is administered by the
Federal Deposit Insurance Corporation ("FDIC");
o a member of the New York, American, Boston, Midwest, or
Pacific Stock Exchange;
o a savings and loan association or a savings bank whose
deposits are insured by the Savings Association Insurance
Fund, which is administered by the FDIC; or
o any other "eligible guarantor institution," as defined by the
Securities Exchange Act of 1934.
The 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 received payment for
the shares being redeemed.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum
value of $1,000.
Before redeeming shares to close an account, the Fund will notify the
shareholder in writing and allow the shareholder 30 days to purchase additional
shares to meet the minimum requirement.
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<PAGE> 124
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each Fund in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shares of that Fund or class are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust or the Fund's operation and for the election of
Trustees under certain circumstances. As of May 10, 1998, Fifth Third Bank may
for certain purposes be deemed to control the Funds because it is owner of
record of certain shares of the Funds.
Trustees may be removed by a two-thirds vote of the number of Trustees prior to
such removal or by a two-thirds vote of the shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all series entitled to vote.
MASSACHUSETTS LAW
Under certain circumstances, shareholders may be held personally liable under
Massachusetts law for acts or obligations of the Trust on behalf of the Fund. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders of the Fund
for such acts or obligations of the Trust. These documents require inclusion of
this disclaimer to be given in each agreement, obligation, or instrument the
Trust or its Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations on behalf of the Fund, the Trust is required by the
Declaration of Trust to use the property of the Fund to protect or to compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder of the Fund for any act or obligation of the
Trust on behalf of the Fund. Therefore, financial loss resulting from liability
as a shareholder of the Fund will occur only if the Trust cannot meet its
obligations to indemnify shareholders and to pay judgments against them from the
assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Federal Bank Holding Company Act of
1956 or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such laws and regulations do not prohibit such a holding company or
affiliate from acting as investment advisor, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of their customer. The Fund's investment advisor, Fifth Third
Bank, is subject to such banking laws and regulations.
Fifth Third Bank believes that it may perform the investment advisory services
for the Fund contemplated by its advisory agreement with the Trust without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations, could prevent
Fifth Third Bank from continuing to perform all or a part of the above services
for its customers and/or the Fund. In such event, changes in the operation of
the Fund may occur,
11
<PAGE> 125
including the possible alteration or termination of any automatic or other Fund
share investment and redemption services then being provided by Fifth Third
Bank, and the Trustees would consider alternative investment advisors and other
means of continuing available investment services. It is not expected that Fund
shareholders would suffer any adverse financial consequences (if another advisor
with equivalent abilities to Fifth Third Bank is found) as a result of any of
these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
ADDITIONAL TAX INFORMATION FOR TAX EXEMPT MONEY MARKET FUND
The 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
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 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 by the Fund 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 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 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
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<PAGE> 126
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.
STATE AND LOCAL TAXES
Under state or local law, distributions of net investment income may be taxable
to shareholders as dividend income even though a substantial portion of such
distribution may be derived from interest excluded from gross income for federal
income tax purposes that, if received directly, would be exempt from such income
taxes. The 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, the Fund advertises its yield, effective yield and
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.
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 the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
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ADDRESSES
- --------------------------------------------------------------------------------
Fountain Square Tax Exempt Fund Fountain Square Funds
c/o Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Investment Advisor
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend Disbursing Agent, and Sub-Administrator
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------
Distributor and Administrator
BISYS Fund Services L.P. 3435 Stelzer Road
Columbus, Ohio 43219
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP 1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
14
<PAGE> 1
FOUNTAIN SQUARE FUNDS
INSTITUTIONAL SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This combined Statement of Additional Information relates only to the following
portfolios (the "Funds") of Fountain Square Funds (the "Trust"):
o Fountain Square U.S. Government Securities Fund;
o Fountain Square Quality Bond Fund;
o Fountain Square Ohio Tax Free Bond Fund;
o Fountain Square Quality Growth Fund;
o Fountain Square Mid Cap Fund;
o Fountain Square Balanced Fund;
o Fountain Square International Equity Fund;
o Fountain Square Equity Income Fund;
o Fountain Square Bond Fund For Income;
o Fountain Square Municipal Bond Fund; and
o Fountain Square Pinnacle Fund
This combined Statement of Additional Information should be read with the
Prospectus for Institutional Shares of the Funds dated May 20, 1998. This
Statement is not a prospectus itself. To receive a copy of the Prospectus,
please write the Trust or call toll-free (888) 799-5353.
FOUNTAIN SQUARE FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
Statement dated May 20, 1998
<PAGE> 2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
GENERAL INFORMATION ABOUT THE TRUST............................................................................. 1
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS................................................................. 1
Types of Investments.......................................................................... 1
When-Issued and Delayed Delivery
Transactions.................................................................................. 10
Repurchase Agreements......................................................................... 10
Reverse Repurchase Agreements................................................................. 10
Lending of Portfolio Securities............................................................... 10
Restricted And Illiquid Securities............................................................ 11
Portfolio Turnover............................................................................ 11
Investment Limitations........................................................................ 12
Investment Risks (Ohio Tax Free Fund)......................................................... 16
FOUNTAIN SQUARE FUNDS MANAGEMENT................................................................................ 16
Officers and Trustees......................................................................... 16
Trust Ownership............................................................................... 18
Trustees' Compensation........................................................................ 19
Trustee Liability............................................................................. 19
INVESTMENT ADVISORY SERVICES.................................................................................... 19
Advisors to the Trust......................................................................... 19
Advisory Fees................................................................................. 20
Sub-Advisor................................................................................... 20
Sub-Advisory Fees............................................................................. 21
ADMINISTRATIVE SERVICES......................................................................................... 21
Transfer Agent and Dividend Disbursing Agent.................................................. 23
BROKERAGE TRANSACTIONS.......................................................................................... 23
PURCHASING SHARES............................................................................................... 24
Conversion to Federal Funds................................................................... 24
Exchanging Securities for Fund Shares......................................................... 25
DETERMINING NET ASSET VALUE..................................................................................... 25
Determining Market Value of Securities........................................................ 25
Valuing Municipal Bonds....................................................................... 26
Use of Amortized Cost......................................................................... 26
Trading in Foreign Securities................................................................. 26
REDEEMING SHARES................................................................................................ 26
Redemption in Kind............................................................................ 26
TAX STATUS...................................................................................................... 27
The Funds' Tax Status......................................................................... 27
Shareholders' Tax Status...................................................................... 27
Capital Gains................................................................................. 27
Foreign Taxes................................................................................. 28
TOTAL RETURN.................................................................................................... 28
YIELD........................................................................................................... 28
TAX-EQUIVALENT YIELD............................................................................................ 28
Tax Equivalency Table......................................................................... 29
PERFORMANCE COMPARISONS......................................................................................... 30
FINANCIAL STATEMENTS............................................................................................ 33
APPENDIX........................................................................................................ 34
</TABLE>
<PAGE> 3
GENERAL INFORMATION ABOUT THE TRUST
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. This combined Statement of Additional
Information relates only to Institutional Shares of the following Funds:
Fountain Square U.S. Government Securities Fund ("Government Securities Fund"),
Fountain Square Quality Bond Fund ("Quality Bond Fund"), Fountain Square Ohio
Tax Free Bond Fund ("Ohio Tax Free Fund"), Fountain Square Quality Growth Fund
("Quality Growth Fund"), Fountain Square Mid Cap Fund ("Mid Cap Fund"), Fountain
Square Balanced Fund ("Balanced Fund"), Fountain Square International Equity
Fund ("International Equity Fund"), Fountain Square Equity Income Fund ("Equity
Income Fund"), Fountain Square Bond Fund For Income ("Bond Fund For Income"),
Fountain Square Municipal Bond Fund ("Municipal Bond Fund"), and Fountain Square
Pinnacle Fund ("Pinnacle Fund").
All of the Funds 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 Prospectus discusses 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 Prospectus. The Funds'
respective investment objectives cannot be changed without approval of
shareholders. Unless otherwise indicated, the investment policies described
below may be changed by the Board of Trustees (the "Trustees") without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
TYPES OF INVESTMENTS
BANK INSTRUMENTS
The Quality Bond Fund, the Quality Growth Fund, the Mid Cap
Fund, the Balanced Fund, the Equity Income Fund, the Bond Fund
For Income, and the Municipal Bond Fund may invest in the
instruments of banks and savings and loans whose deposits are
insured by the Bank Insurance Fund or the Savings Association
Insurance Fund, both of which are administered by the Federal
Deposit Insurance Corporation, such as certificates of
deposit, demand and time deposits, savings shares, and
bankers' acceptances. However, these instruments are not
necessarily guaranteed by those organizations.
FUTURES AND OPTIONS TRANSACTIONS
All of the Funds (except the Ohio Tax Free 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 by buying and selling
financial futures contracts
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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. The Funds (with the exception of the Ohio
Tax Free 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 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
Advisors to predict correctly movements in the direction of
the stock market generally or of a particular industry. This
requires different skills and techniques than predicting
changes in the price of individual stocks.
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PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS. Each of the Funds
(except the Ohio Tax Free 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.
The International Equity Fund may write listed put options on
financial futures contracts to hedge its portfolio or 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 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. A 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.
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Prior to the expiration of a call written by a Fund, or
exercise of it by the buyer, a Fund may close out the option
by buying an identical option. If the hedge is successful, the
cost of the second option will be less than the premium
received by a Fund for the initial option. The net premium
income of a Fund will then substantially offset the realized
decrease in value of the hedged securities.
The International Equity Fund may buy listed call options on
financial futures contracts to hedge its portfolio. When the
Fund purchases a call option on a futures contract, it is
purchasing the right (not the obligation) to assume a long
futures position (buy a futures contract) at a fixed price at
any time during the life of the option.
LIMITATION ON OPEN FUTURES POSITIONS. A Fund will not maintain
open positions in futures contracts it has sold or options it
has written on futures contracts if, in the aggregate, the
value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus
the unrealized gain or loss on those open positions, adjusted
for the correlation of volatility between the securities or
securities index underlying the futures contract and the
futures contracts. If a Fund exceeds this limitation at any
time, it will take prompt action to close out a sufficient
number of open contracts to bring its open futures and options
positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS. Unlike the purchase or sale
of a security, 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. A Fund 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 (except the Ohio Tax Free 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
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securities which it has the right to obtain without payment of
further consideration (or securities for which it has
segregated cash in the amount of any additional
consideration).
OVER-THE-COUNTER OPTIONS. Each of the Funds (except the Ohio
Tax Free 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")
The Government Securities Fund, the Quality Bond Fund, the
Balanced Fund and the Bond Fund For Income may invest in CMOs.
Privately issued CMOs generally represent an ownership
interest in a pool of federal agency mortgage pass-through
securities such as those issued by the Government National
Mortgage Association. The terms and characteristics of the
mortgage instruments may vary among pass-through mortgage loan
pools.
The market for such CMOs has expanded considerably since its
inception. The size of the primary issuance market and the
active participation in the secondary market by securities
dealers and other investors make government-related pools
highly liquid.
CONVERTIBLE SECURITIES
The Quality Growth Fund, the Mid Cap Fund, the Balanced Fund,
the International Equity Fund, the Equity Income Fund and the
Pinnacle 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.
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WARRANTS
The Quality Growth Fund, the Mid Cap Fund, the Balanced Fund,
the International Equity Fund, and the Equity Income Fund may
invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above
the market value of the optioned common stock at issuance)
valid for a specific period of time. Warrants may have a life
ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after
which they are worthless. In addition, if the market price of
the common stock does not exceed the warrant's exercise price
during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends,
and have no rights with respect to the assets of the
corporation issuing them. The percentage increase or decrease
in the market price of the warrant may tend to be greater than
the percentage increase or decrease in the market price of the
optioned common stock.
MUNICIPAL SECURITIES
The Ohio Tax Free Fund may invest in Ohio municipal securities
which have the characteristics set forth in the prospectus.
The Municipal Bond Fund may invest in municipal securities of
any state which have the characteristics set forth in the
prospectus. If a high-rated bond loses its ratings or has its
rating reduced after the Fund has purchased it, the Fund is
not required to drop the bond from the portfolio, but will
consider doing so. If ratings made by Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group
("S&P") or Fitch Investors Service, Inc. ("Fitch") change
because of changes in those organizations or in their rating
systems, the Funds will try to use comparable ratings as
standards in accordance with the investment policies described
in the Funds' prospectus.
Examples of Municipal Securities are:
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 Fund and the
Municipal Bond Fund may invest in participation interests. The
financial institutions from which the Ohio Tax Free Fund and
the Municipal Bond Fund purchase participation interests
frequently provide or secure from another
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financial institution irrevocable letters of credit or
guarantees and give the Funds the right to demand payment of
the principal amounts of the participation interests plus
accrued interest on short notice (usually within seven days).
VARIABLE RATE MUNICIPAL SECURITIES. The Ohio Tax Free Fund and
the Municipal Bond Fund may invest in variable rate municipal
securities. Variable interest rates generally reduce changes
in the market value of municipal securities from their
original purchase prices. Accordingly, as interest rates
decrease or increase, the potential for capital appreciation
or depreciation is less for variable rate municipal securities
than for fixed income obligations. Many municipal securities
with variable interest rates purchased by the Funds are
subject to repayment of principal (usually within seven days)
on the Funds' demand. The terms of these variable-rate demand
instruments require payment of principal and accrued interest
from the issuer of the municipal obligations, the issuer of
the participation interests, or a guarantor of either issuer.
MUNICIPAL LEASES. The Ohio Tax Free Fund and the Municipal
Bond Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional
interests in lease payments by a governmental or non-profit
entity. The lease payments and other rights under the lease
provide for and secure the payments on the certificates. Lease
obligations may be limited by municipal charter or the nature
of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the
entity does not appropriate funds for future lease payments,
the entity cannot be compelled to make such payments.
Furthermore, a lease may provide that the certificate trustee
cannot accelerate lease obligations upon default. The trustee
would only be able to enforce lease payments as they become
due. In the event of a default or failure of appropriation, it
is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment. In determining the
liquidity of municipal lease securities, the Advisor, under
the authority delegated by the Trustees, will base its
determination on the following factors: (a) whether the lease
can be terminated by the lessee; (b) the potential recovery,
if any, from a sale of the leased property upon termination of
the lease; (c) the lessee's general credit strength (e.g., its
debt, administrative, economic and financial characteristics
and, prospects); (d) the likelihood that the lessee will
discontinue appropriating funding for the leased property
because the property is no longer deemed essential to its
operations (e.g., the potential for an "event of
nonappropriation"); and (e) any credit enhancement or legal
recourse provided upon an event of nonappropriation or other
termination of the lease.
TEMPORARY INVESTMENTS. The Ohio Tax Free Fund and the
Municipal Bond Fund may also invest in temporary investments,
such as repurchase agreements and reverse repurchase
agreements, during times of unusual market conditions for
defensive purposes.
From time to time, such as when suitable municipal bonds are
not available, these Funds may invest a portion of their
assets in cash. Any portion of a Fund's assets maintained in
cash will reduce the amount of assets in municipal bonds and
thereby reduce the Fund's yield.
FOREIGN CURRENCY TRANSACTIONS
The International Equity Fund may engage in foreign currency
transactions.
CURRENCY RISKS. The exchange rates between the U.S. dollar and
foreign currencies are a function of such factors as supply
and demand in the currency exchange markets, international
balances of payments, governmental intervention, speculation
and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not
convert its holdings of foreign currencies to U.S. dollars
daily. The Fund may incur conversion costs when it converts
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its holdings to another currency. Foreign exchange dealers may
realize a profit on the difference between the price at which
the Fund buys and sells currencies.
The Fund will engage in foreign currency exchange transactions
in connection with its portfolio investments. The Fund will
conduct its foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through forward contracts
to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may
enter into forward foreign currency exchange contracts in
order to protect against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and
a foreign currency involved in an underlying transaction.
However, forward foreign currency exchange contracts may limit
potential gains which could result from a positive change in
such currency relationships. The Advisors believe that it is
important to have the flexibility to enter into forward
foreign currency exchange contracts whenever it determines
that it is in the Fund's best interest to do so. The Fund will
not speculate in foreign currency exchange.
The Fund will not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts when it
would be obligated to deliver an amount of foreign currency in
excess of the value of its portfolio securities or other
assets denominated in that currency or, in the case of a
"cross-hedge" denominated in a currency or currencies that the
Advisors believe will tend to be closely correlated with that
currency with regard to price movements. Generally, the Fund
will not enter into a forward foreign currency exchange
contract with a term longer than one year.
FOREIGN CURRENCY OPTIONS. A foreign currency option provides
the option buyer with the right to buy or sell a stated amount
of foreign currency at the exercise price on a specified date
or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency.
Conversely, the owner of a put option has the right, but not
the obligation, to sell the currency.
When the option is exercised, the seller (i.e., writer) of the
option is obligated to fulfill the terms of the sold option.
However, either the seller or the buyer may, in the secondary
market, close its position during the option period at any
time prior to expiration.
A call option on foreign currency generally rises in value if
the underlying currency appreciates in value, and a put option
on foreign currency generally rises in value if the underlying
currency depreciates in value. Although purchasing a foreign
currency option can protect the Fund against an adverse
movement in the value of a foreign currency, the option will
not limit the movement in the value of such currency. For
example, if the Fund was holding securities denominated in a
foreign currency that was appreciating and had purchased a
foreign currency put to hedge against a decline in the value
of the currency, the Fund would not have to exercise their put
option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in
conjunction with that purchase, were to purchase a foreign
currency call option to hedge against a rise in value of the
currency, and if the value of the currency instead depreciated
between the date of purchase and the settlement date, the Fund
would not have to exercise its call. Instead, the Fund could
acquire in the spot market the amount of foreign currency
needed for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS. Buyers
and sellers of foreign currency options are subject to the
same risks that apply to options generally. In addition, there
are certain
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additional risks associated with foreign currency options. The
markets in foreign currency options are relatively new, and
the Fund's ability to establish and close out positions on
such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write
such options unless and until, in the opinion of the Advisors,
the market for them has developed sufficiently to ensure that
the risks in connection with such options are not greater than
the risks in connection with the underlying currency, there
can be no assurance that a liquid secondary market will exist
for a particular option at any specific time.
In addition, options on foreign currencies are affected by all
of those factors that influence foreign exchange rates and
investments generally.
The value of a foreign currency option depends upon the value
of the underlying currency relative to the U.S. dollar. As a
result, the price of the option position may vary with changes
in the value of either or both currencies and may have no
relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency
options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirement that
quotations available through dealers or other market sources
be firm or revised on a timely basis. Available quotation
information is generally representative of very large
transactions in the interbank market and thus may not reflect
relatively smaller transactions (i.e., less than $1 million)
where rates may be less favorable. The interbank market in
foreign currencies is a global, around-the-clock market. To
the extent that the U.S. option markets are closed while the
markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying
markets that cannot be reflected in the options markets until
they reopen.
FOREIGN CURRENCY FUTURES TRANSACTIONS. By using foreign
currency futures contracts and options on such contracts, the
Fund may be able to achieve many of the same objectives as it
would through the use of forward foreign currency exchange
contracts. The Fund may be able to achieve these objectives
possibly more effectively and at a lower cost by using futures
transactions instead of forward foreign currency exchange
contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES
CONTRACTS AND RELATED OPTIONS. Buyers and sellers of foreign
currency futures contracts are subject to the same risks that
apply to the use of futures generally. In addition, there are
risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with
options on currencies, as described above.
Options on foreign currency futures contracts may involve
certain additional risks. Trading options on foreign currency
futures contracts is relatively new. The ability to establish
and close out positions on such options is subject to the
maintenance of a liquid secondary market. To reduce this risk,
the Fund will not purchase or write options on foreign
currency futures contracts unless and until, in the opinion of
the Advisors, the market for such options has developed
sufficiently that the risks in connection with such options
are not greater than the risks in connection with transactions
in the underlying foreign currency futures contracts. Compared
to the purchase or sale of foreign currency futures contracts,
the purchase of call or put options on futures contracts
involves less potential risk to the Fund because the maximum
amount at risk is
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the premium paid for the option (plus transaction costs).
However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a
loss, such as when there is no movement in the price of the
underlying currency or futures contract.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for a Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of a Fund sufficient to
make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked-to-market daily and are
maintained until the transaction has been settled. The Funds do not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the value of their total assets.
REPURCHASE AGREEMENTS
The Funds require 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, a Fund could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by a Fund might be delayed pending court action. The Funds believe
that under the regular procedures normally in effect for custody of a Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of a Fund and allow retention or disposition of
such securities. The Funds will only enter into repurchase agreements with banks
and other recognized financial institutions such as broker/dealers which are
deemed by the Advisors to be creditworthy pursuant to guidelines established by
the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, a Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future it will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable a Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that a Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on a Fund's records at the trade date. These securities are
marked to market daily and maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when a Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of a Fund or the borrower. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. A Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
10
<PAGE> 13
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in securities issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) securities are restricted as to disposition under the federal securities
laws and are generally sold to institutional investors, such as the Funds, who
agree that they are purchasing such securities for investment purposes and not
with a view to public distributions. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) securities are normally resold to other
institutional investors like the Funds through or with the assistance of the
issuer or investment dealers who make a market in such securities, thus
providing liquidity. The Funds believe that Section 4(2) securities and possibly
certain other restricted securities which meet the criteria for liquidity
established by the Trustees are quite liquid. The Funds intend, therefore, to
treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) securities, as determined by
the Advisors, as liquid and not subject to the investment limitation applicable
to illiquid securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange Commission ("SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the Staff of the SEC has left the question of
determining the liquidity of all restricted 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
The Funds will not attempt to set or meet portfolio turnover rates since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Funds' investment objectives. The following is a list of the portfolio
turnover rates for the Funds:
FISCAL YEAR ENDED FISCAL YEAR ENDED
JULY 31, 1997 JULY 31, 1996
Government Securities Fund 169% 103%
Quality Bond Fund 182% 117%
Ohio Tax Free Fund 49% 30%
Quality Growth Fund 37% 37%
Mid Cap Fund 52% 54%
Balanced Fund 101% 61%
International Equity Fund 60% 41%
Equity Income Fund(1) 14% --
Bond Fund For Income(1) 80% --
Municipal Bond Fund(1) 31% --
11
<PAGE> 14
(1) Information for the fiscal year ended July 31, 1997 reflects the period from
January 27, 1997 (date of initial public investment) to July 31, 1997.
The portfolio turnover rate for the Pinnacle Fund, which commenced public
investment on March 6, 1998, is expected to be less than 100%.
The increases in portfolio turnover for each of the Government Securities Fund,
the Quality Bond Fund, the Ohio Tax Free Fund and the Balanced Fund were
principally due to the unusually high level of volatility in the interest rate
markets which produced increased trading opportunities. The increase in
portfolio turnover for the International Equity Fund was principally due the
Fund's adherence to its strategy of taking advantage of fluctuations in the
overseas equities market, which was subject to greater volatility than usual.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that a Fund
may borrow money directly or through reverse repurchase
agreements in amounts up to one-third of the value of its
total assets, including the amount borrowed; and except to the
extent that a Fund (with the exception of Ohio Tax Free Fund,
Municipal Bond Fund and Pinnacle Fund) may enter into futures
contracts, as applicable.
The Funds will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to
facilitate management of the portfolio by enabling a Fund to
meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. A
Fund will not purchase any securities while any borrowings in
excess of 5% of its total assets are outstanding. Currently,
the Funds do not intend to borrow money.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits
as are necessary for clearance of purchases and sales of
securities.
The deposit or payment by the Funds (with the exception of
Ohio Tax Free Fund, 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 will not mortgage, pledge, or hypothecate any
assets, except to secure permitted borrowings. In these cases,
the Funds may pledge assets as necessary to secure such
borrowings. For purposes of this limitation, where applicable,
(a) the deposit of assets in escrow in connection with the
writing of covered put or call options and the purchase of
securities on a when-issued basis and (b) collateral
arrangements with respect to: (i) the purchase and sale of
stock options (and options on stock indices) and (ii) initial
or variation margin for futures contracts, will not be deemed
to be pledges of a Fund's assets.
LENDING CASH OR SECURITIES
The Funds will not lend any of their respective assets except
portfolio securities up to one-third of the value of total
assets. This shall not prevent a Fund from purchasing or
holding U.S. government obligations, money market instruments,
publicly or non-publicly issued municipal
12
<PAGE> 15
bonds, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other
transactions where permitted by a Fund's investment objective,
policies, and limitations or the Trust's Declaration of Trust.
The Ohio Tax Free Fund and the Municipal Bond Fund may,
however, acquire temporary investments or enter into
repurchase agreements in accordance with their respective
investment objective, policies and limitations or the Trust's
Declaration of Trust.
INVESTING IN COMMODITIES
None of the Funds will purchase or sell commodities, commodity
contracts, or commodity futures contracts except to the extent
that the Funds (with the exception of Ohio Tax Free Fund,
Government Securities Fund, 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 will purchase or sell real estate, including
limited partnership interests, although the Funds (with the
exception of Government Securities Fund) may invest in
securities of issuers whose business involves the purchase or
sale of real estate or (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, a Fund (with the exception of Ohio Tax Free Fund) will
not purchase securities issued by any one issuer (other than
cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by
such securities), if as a result more than 5% of the value of
their total assets would be invested in the securities of that
issuer. A Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer.
DEALING IN PUTS AND CALLS
The Ohio Tax Free Fund, the Municipal Bond Fund and the
Pinnacle Fund will not buy or sell puts, calls, straddles,
spreads, or any combination of these.
CONCENTRATION OF INVESTMENTS
The Government Securities Fund, Quality Bond Fund, Quality
Growth Fund, Mid Cap Fund, Balanced Fund, International Equity
Fund and Pinnacle Fund will not invest 25% or more of the
value of their respective total assets in any one industry,
except that these Funds may invest more than 25% of the value
of its total assets in securities issued or guaranteed by the
U.S. government, its agencies, or instrumentalities and
repurchase agreements collateralized by such securities.
The Ohio Tax Free Fund and the Municipal Bond Fund will not
purchase securities if, as a result of such purchase, 25% or
more of the value of their respective total assets would be
invested in any one industry or in industrial development
bonds or other securities, the interest upon which is paid
from revenues of similar types of projects. However, the Funds
may invest as temporary investments more than 25% of the value
of their respective assets in cash or cash items, securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money
market instruments, i.e., repurchase agreements.
13
<PAGE> 16
UNDERWRITING
A Fund will not underwrite any issue of securities, except as
a Fund may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in
accordance with its investment objective, policies, and
limitations.
The above limitations cannot be changed with respect to a Fund without approval
of the holders or a majority of that Fund's shares. The following limitations
may be changed by the Trustees without shareholder approval. Shareholders will
be notified before any material change in these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Funds will not invest more than 10% of the value of their
respective net assets in securities that are subject to
restrictions on resale under federal securities law.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of the value of their
respective net assets in illiquid securities, including, as
applicable, repurchase agreements providing for settlement
more than seven days after notice, over-the-counter options,
certain restricted securities not determined by the Trustees
to be liquid, and non-negotiable time deposits with maturities
over seven days.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their respective investments in other
investment companies to no more than 3% of the total
outstanding voting stock of any investment company, invest no
more than 5% of their respective total assets in any one
investment company, and will invest no more than 10% of their
respective total assets in investment companies in general.
The Funds will purchase securities of closed-end investment
companies only in open market transactions involving only
customary broker's commissions. However, these limitations are
not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. It
should be noted that investment companies incur certain
expenses such as management fees and, therefore, any
investment by a Fund in shares of another investment company
would be subject to such expenses.
INVESTING IN NEW ISSUERS
The Government Securities Fund, Quality Bond Fund, Quality
Growth Fund, Mid Cap Fund, Balanced Fund, International Equity
Fund and Pinnacle Fund will not invest more than 5% of the
value of their respective total assets in securities of
issuers which have records of less than three years of
continuous operations, including the operation of any
predecessor.
The Ohio Tax Free Fund and the Municipal Bond Fund will not
invest more that 5% of the value of their respective total
assets in industrial development bonds where the principal and
interest are the responsibility of companies (or guarantors,
where applicable) with less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
TRUSTEES OF THE TRUST
A Fund will not purchase or retain the securities of any
issuer if the officers and Trustees of the Trust, 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.
14
<PAGE> 17
INVESTING IN MINERALS
A Fund will not purchase interests in oil, gas, or other
mineral exploration or development programs or leases, except
they may purchase the securities of issuers which invest in or
sponsor such programs.
ARBITRAGE TRANSACTIONS
A Fund will not enter into transactions for the purpose of
engaging in arbitrage.
PURCHASING SECURITIES TO EXERCISE CONTROL
A Fund will not purchase securities of a company for the
purpose of exercising control or management.
INVESTING IN WARRANTS
The Quality Growth Fund, Mid Cap Fund, Balanced Fund,
International Equity Fund, and Equity Income Fund may not
invest more than 5% of their net assets in warrants, including
those acquired in units or attached to other securities. To
comply with certain state restrictions, a Fund will limit its
investment in such warrants not listed on the New York or
American Stock Exchanges to 2% of its net assets. (If state
restrictions change, this latter restriction may be revised
without notice to shareholders.) For purposes of this
investment restriction, warrants will be valued at the lower
of cost or market, except that warrants acquired by a Fund in
units with or attached to securities may be deemed to be
without value.
INVESTING IN PUT OPTIONS
The International Equity Fund will not purchase put options on
securities or futures contracts, unless the securities or
futures contracts are held in the Fund's portfolio or unless
the Fund in entitled to them in deliverable form without
further payment or after segregating cash in the amount of any
further payment.
WRITING COVERED CALL OPTIONS
The International Equity Fund will not write call options on
securities or futures contracts unless the securities of
futures contracts are held in the Fund's portfolio or unless
the Fund is entitled to them in deliverable form without
further payment or after segregating cash in the amount of any
further payment.
Except with respect to the Funds' policy of borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not result
in a violation of such restriction. For purposes of its policies and
limitations, the Funds consider certificates of deposit and demand and time
deposits issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
The Ohio Tax Free Fund and the Municipal Bond Fund do not expect to borrow money
or pledge securities in excess of 5% of the value of their respective net assets
during the coming fiscal year.
15
<PAGE> 18
INVESTMENT RISKS (OHIO TAX FREE FUND)
The economy of the state of Ohio is reliant in part on durable goods
manufacturing, largely concentrated in motor vehicles and equipment, steel,
rubber products and household appliances. During the past decade, competition in
various industries in the state of Ohio has changed from being domestic to
international in nature. In addition, these industries may be characterized as
having excess capacity in particular product segments. The steel industry, in
particular, and the automobile industry, to a lesser extent, share these
characteristics. Because the state of Ohio and certain underlying municipalities
have large exposure to these industries and their respective aftermarkets,
trends in these industries may, over the long term, impact the demographic and
financial position of the state of Ohio and its municipalities. To the degree
that domestic manufacturers in industries to which Ohio municipalities have
exposure fail to make competitive adjustments, employment statistics and
disposable income of residents in Ohio may deteriorate, possibly leading to
population declines and erosion of municipality tax bases.
Both the economic trends above and the political climate in various
municipalities may have contributed to the decisions of various businesses and
individuals to relocate outside the state. A municipality's political climate in
particular may affect its own credit standing. For both the state of Ohio and
underlying Ohio municipalities, adjustment of credit ratings by the rating
agencies may affect the ability to issue securities and thereby affect the
supply of obligations meeting the quality standards for investment by the Fund.
The state ended fiscal year 1993 with a positive budgetary fund balance of over
$100 million. The 1994-1995 biennial budget was formulated with reasonable
revenue assumptions. The state implemented a revenue enhancement package in
January of 1993 that increased the cigarette tax and the income tax bracket for
incomes over $200,000, broadened the sales tax base and capped tax distributions
to local governments. These and other minor revenue enhancements are budgeted to
add $912 million of additional revenue to the 1994-1995 biennial budget. The
state's fund balance reserve levels continue to be minimal but the state has
demonstrated its ability to manage with limited financial flexibility.
The state has established procedures for municipal fiscal emergencies under
which joint state/local commissions are established to monitor the fiscal
affairs of a financially troubled municipality. When these procedures are
invoked, the municipality must develop a financial plan to eliminate deficits
and cure any defaults. Since their adoption in 1979, these procedures have been
applied to approximately twenty-two cities and villages, including the city of
Cleveland; in sixteen of these communities, the fiscal situation has been
resolved and the procedures terminated.
The foregoing discussion only highlights some of the significant financial
trends and problems affecting the state of Ohio and underlying municipalities.
FOUNTAIN SQUARE FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, principal
occupations, and present positions. Except as listed below, none of the Trustees
or officers are affiliated with Fifth Third Bank, Heartland, Fifth Third
Bancorp, The BISYS Group, Inc., BISYS Fund Services, Inc., BISYS Fund Services
Ohio, Inc., or BISYS Fund Services Limited Partnership.
- --------------------------------------------------------------------------------
16
<PAGE> 19
Albert E. Harris
5905 Graves Road
Cincinnati, OH 45243
Birthdate: July 2, 1932
Chairman of the Board of Trustees
Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993)
- --------------------------------------------------------------------------------
Edward Burke Carey
394 East Town Street
Columbus, OH 43215
Birthdate: July 2, 1945
Member of the Board of Trustees
President of Carey Leggett Realty Advisors
- --------------------------------------------------------------------------------
Lee A. Carter
425 Walnut Street
Cincinnati, OH 45202
Birthdate: December 17, 1938
Member of the Board of Trustees
Formerly, President, Local Marketing Corporation (retired December 31, 1993)
- --------------------------------------------------------------------------------
Stephen G. Mintos
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: February 5, 1954
President
From January 1987 to the present, employee of BISYS Fund Services, Inc.
- --------------------------------------------------------------------------------
George R. Landreth
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: July 11, 1942
Vice President
From December 1992 to present, employee of BISYS Fund Services, Inc.
17
<PAGE> 20
- --------------------------------------------------------------------------------
Jeffrey C. Cusick
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: May 19, 1959
Secretary and Treasurer
From July 1995 to present, employee of BISYS Fund Services, Inc.; from September
1993 to July 1995, Assistant Vice President, Federated Administrative Services;
from 1989 to September 1993, Manager, Client Services, Federated Administrative
Services.
- --------------------------------------------------------------------------------
TRUST OWNERSHIP
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.
Fifth Third Bank, as nominee for numerous trust and agency accounts, was the
owner of record of more than 5% of the outstanding Investment A Shares of each
Fund as of May 12, 1998. The following list indicates the extent of its
ownership for each Fund.
Government Securities Fund: 3,783,953 shares 90.9%
Quality Bond Fund: 9,712,531 shares 92.3%
Ohio Tax Free Fund: 16,157,513 shares 88.2%
Quality Growth Fund: 21,889,575 shares 85.0%
Mid Cap Fund: 11,906,532 shares 88.2%
Balanced Fund: 8,204,654 shares 73.7%
International Equity Fund: 12,299,596 shares 96.7%
Equity Income Fund: 8,964,085 shares 93.9%
Bond Fund For Income: 14,400,733 shares 98.7%
Municipal Bond Fund: 9,396,096 shares 99.9%
For the Pinnacle Fund, the following table sets forth, as of May 15, 1998, the
persons known to be beneficial owners of more than 5% of the Fund's outstanding
Investment A Shares.
Butler Fairman & Seufert, Inc.
Profit Sharing and 401(k) Plan 64,677 shares 7.22%
9405 Delegates Row
Indianapolis, IN 46250
Heartland Capital Management, Inc.
Profit Sharing Trust 68,410 shares 7.64%
36 S. Pennsylvania, Suite 610
Indianapolis, IN 46250
18
<PAGE> 21
TRUSTEES' COMPENSATION
NAME AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*+
- --------------------------------------------------------------------------------
Edward Burke Carey
Trustee $7,800
Lee A. Carter
Trustee $6,600
Albert E. Harris
Trustee, Chairman of the Board $9,800
*Information is furnished for the fiscal year ended July 31, 1997. The Trust is
the only investment company in the Fund complex.
+The aggregate compensation is provided for the Trust which is comprised of
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 of the Trust except the Pinnacle Fund is Fifth
Third Bank. It provides investment advisory services through its Trust and
Investment Division. Fifth Third Bank is a wholly-owned subsidiary of Fifth
Third Bancorp. The Advisor 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 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.
19
<PAGE> 22
Because of the internal controls maintained by Fifth Third Bank to restrict the
flow of non-public information, a Fund's investments are typically made without
any knowledge of Fifth Third Bank's or affiliates' lending relationship with an
issuer.
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the Prospectus. The following shows all of Fifth
Third Bank's investment advisory fees incurred by the Funds and the amounts of
those fees that were voluntarily waived by Fifth Third Bank for the fiscal years
ended July 31, 1997, July 31, 1996, and July 31, 1995:
<TABLE>
<CAPTION>
===================================================================================================================================
YEAR ENDED AMOUNT YEAR ENDED AMOUNT YEAR ENDED AMOUNT
FUND NAME JULY 31, 1997 WAIVED-1997 JULY 31, 1996 WAIVED-1996 JULY 31, 1995 WAIVED-1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Government Securities
Fund $233,799 $45,748 $153,416 $74,182 $ 134,241 $ 83,786
- -----------------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $483,167 $17,650 $402,013 $35,943 $ 265,658 $ 33,033
- -----------------------------------------------------------------------------------------------------------------------------------
Ohio Tax Free Fund(1) $813,101 $0 $177,022 $9,656 $ 142,708 $ 7,814
- -----------------------------------------------------------------------------------------------------------------------------------
Quality Growth Fund $2,328,245 $0 $901,809 $953 $ 536,144 $ 18,889
- -----------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $1,146,430 $4,161 $528,676 $26,747 $287,494 $52,747
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $861,073 $17,327 $632,772 $36,873 $ 424,672 $ 18,857
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity
Fund $1,360,967 $0 $1,049,641 $57,525 $ 641,669(2) $ 45,670
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $441,829(3) $0 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Bond Fund For
Income $410,755(3) $0 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund $282,200(3) $0 -- -- -- --
===================================================================================================================================
</TABLE>
(1) In addition to the waivers noted, Fifth Third Bank voluntarily reimbursed
certain operating expenses of the Ohio Tax Free Fund during the fiscal years
ended July 31, 1997, July 31, 1996, and July 31, 1995, of $11,621, $84,063, and
$179,400, respectively.
(2) For the period from August 19, 1994 (date of initial public investment) to
July 31, 1995.
(3) For the period from January 27, 1997 (date of commencement of operations) to
July 31, 1997.
For its advisory services, Heartland also receives an annual investment advisory
fee as described in the Prospectus. Heartland's investment advisory fees
incurred by the Pinnacle Fund and the amount of those fees that were voluntarily
waived by Heartland are not available, as the Pinnacle Fund did not commence
operations until March 9, 1998.
SUB-ADVISOR
Morgan Stanley Asset Management, Inc. is the sub-advisor to International Equity
Fund under the terms of a Sub- Advisory Agreement between Fifth Third Bank and
Morgan Stanley Asset Management, Inc.
20
<PAGE> 23
SUB-ADVISORY FEES
For its sub-advisory services, Morgan Stanley Asset Management, Inc. receives an
annual sub-advisory fee paid by Fifth Third Bank as described in the prospectus.
For the period from August 19, 1994 (date of initial public investment) through
July 31, 1995, MSAM earned fees from International Equity Fund of $320,835, of
which $22,835 was waived. For the year ended July 31, 1996, MSAM earned fees
from International Equity Fund of $524,821, of which $28,763 was waived. For the
year ended July 31, 1997, MSAM earned fees from International Equity Fund of
$680,483, of which $0.00 was waived.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Until December 1, 1995, Federated Administrative Services, which is a subsidiary
of Federated Investors, provided administrative personnel and services to the
Funds. The following shows all fees earned by Federated Administrative Services
and the amounts of those fees that were voluntarily waived for the four-month
period ended December 1, 1995, and the fiscal year ended July 31, 1995:
<TABLE>
<CAPTION>
================================================================================================================================
FOUR-MONTH AMOUNT WAIVED
FUND NAME PERIOD ENDED DECEMBER AUGUST 1, 1995 TO YEAR ENDED AMOUNT
1, 1995 DECEMBER 1, 1995 JULY 31, 1995 WAIVED-1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government Securities
Fund $16,770 $ 0 $ 50,047 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $22,486 $ 0 $ 53,404 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Ohio Tax Free Fund $16,770 $ 0 $ 50,000 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Quality Growth Fund $33,213 $ 0 $ 74,089 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $19,527 $ 0 $ 50,000 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $19,760 $ 0 $ 58,741 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
International Equity Fund
$ ------- $ 0 $ 142,192* $ 0
================================================================================================================================
</TABLE>
*For the period from August 19, 1994 (date of initial public investment) to July
31, 1995.
Effective December 1, 1995, BISYS Fund Services L.P., 3435 Stelzer Road,
Columbus, Ohio 43219, provided administrative personnel and services to the
Funds for the fees set forth in the prospectus. The following shows all fees
earned by BISYS and the amounts of those fees that were voluntarily waived. For
the year ended July 31, 1997, and the eight-month period ended July 31, 1996:
<TABLE>
<CAPTION>
================================================================================================================================
YEAR ENDED AMOUNT EIGHT-MONTH PERIOD AMOUNT WAIVED
JULY 31, 1997 WAIVED-1997 ENDED JULY 31, 1996 DECEMBER 1, 1995
TO JULY 1, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government Securities Fund $55,179 $14,275 $13,327 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $114,352 $29,728 $35,961 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Ohio Tax Free Fund $197,989 $11,017 $15,306 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Quality Growth Fund $396,610 $16,801 $56,852 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AMOUNT EIGHT-MONTH PERIOD AMOUNT WAIVED
JULY 31, 1997 WAIVED-1997 ENDED JULY 31, 1996 DECEMBER 1, 1995
TO JULY 1, 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mid Cap Fund $191,888 $16,294 $33,025 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $141,253 $30,357 $39,823 $ 0
- --------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $166,482 $ 0 $114,974(1) $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $84,693 $36,958(2) -- $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Bond Fund for Income $114,052 $50,011(2) -- $ 0
- --------------------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund $77,342 $33,330(2) -- $ 0
================================================================================================================================
</TABLE>
(1) For the entire fiscal year, August 1, 1995 through July 31, 1996.
(2) For the period from January 27, 1997 (date of commencement of operations) to
July 31, 1997.
Information relating to fees paid by the Pinnacle Fund for administrative
personnel and services is not provided, as that Fund did not commence operations
until March 9, 1998.
Effective December 1, 1995, pursuant to a separate agreement with BISYS Fund
Services L.P., Fifth Third Bank performs sub-administration services on behalf
of each Fund, for which it receives compensation from BISYS Fund Services L.P.
For the year ended July 31, 1997, and eight-month period ended July 31, 1996,
Fifth Third Bank earned the following sub-administrative fees:
<TABLE>
<CAPTION>
==========================================================================================================================
YEAR ENDED EIGHT-MONTH PERIOD ENDED
JULY 31, 1997 JULY 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Government Securities Fund $10,627 $ 4,161
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $21,962 $11,231
- --------------------------------------------------------------------------------------------------------------------------
Ohio Tax Free Fund $36,959 $ 4,802
- --------------------------------------------------------------------------------------------------------------------------
Quality Growth Fund $72,758 $17,721
- --------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $35,827 $28,558
- --------------------------------------------------------------------------------------------------------------------------
Balanced Fund $26,909 $12,428
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund $34,046 $16,694
- --------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $13,918 --
- --------------------------------------------------------------------------------------------------------------------------
Bond Fund for Income $18,671 --
- --------------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund $12,827 --
==========================================================================================================================
</TABLE>
Information relating to fees paid by the Pinnacle Fund for sub-administration
services is not provided, as that Fund did not commence operations until March
9, 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
22
<PAGE> 25
Company is an affiliate of Morgan Stanley Asset Management, Inc. Fees for
custody services are based upon the market value of Fund securities held in
custody plus out-of-pocket expenses. All fees earned by Fifth Third Bank as the
custodian were voluntarily waived for the fiscal year ended July 31, 1997.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Fifth Third Bank serves as transfer agent and dividend disbursing agent for the
Funds. The fee paid to the transfer agent is based upon the size, type and
number of accounts and transactions made by shareholders.
Fifth Third Bank also maintains the Trust's accounting records. The fee paid for
this service is based upon the level of the Funds' average net assets for the
period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the 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 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;
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, 1997, the Funds
paid brokerage commissions in exchange for brokerage and research services
described above in the following amounts: Quality Growth Fund, $90,186 of
$229,134 total brokerage commissions paid; Mid Cap Fund, $53,745 of $134,532
total brokerage commissions paid; Balanced Fund, $31,402 of $75,158 total
brokerage commissions paid; U.S. Government Securities Fund, all $188 of total
brokerage commissions paid; Quality Bond Fund, all $12,422 of total brokerage
commissions paid; Ohio Tax Free Fund, all $18,995 of total brokerage commissions
paid; Equity Income Fund, $23,290 of $61,251 total brokerage commissions paid;
and International Equity Fund, $33,171 of $178,270 total brokerage commissions
paid.
Research services provided by brokers may be used by the Advisors in advising
the Funds and 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.
23
<PAGE> 26
Although investment decisions for the Funds 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 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, 1997, July 31, 1996, and for the period from
August 19, 1994 (date of initial public investment) to July 31, 1995, Morgan
Stanley & Co. Incorporated, an affiliate of the International Equity Fund,
earned $0, $104 and $31,034, respectively, in brokerage commissions,
representing 0.00%, 0.09% and 9.67%, respectively, of the total brokerage
commissions paid by the Fund. These transactions with Morgan Stanley & Co.
Incorporated amounted to 0.00%, 0.29% and 4.91%, respectively, of the value of
the Fund's securities transactions on which commissions were paid. Morgan
Stanley & Co. Incorporated executed trades for the Fund in Indonesia which, in
general, involve higher transaction costs than trades done in such other markets
as Japan or the European countries, which accounts for the differences in these
percentages.
During the fiscal year ended July 31, 1997, some of the Funds acquired
securities of the Funds' regular brokers or dealers or their parents as follows:
Quality Growth Fund held securities issued by UBS Securities and held $19,460 of
securities issued by UBS Securities as of year end; Equity Income Fund purchased
securities issued by UBS Securities and held $952,000 of securities issued by
UBS Securities at year end; Balanced Fund purchased securities issued by UBS
Securities and held $3,922,000 of securities issued by UBS Securities at year
end; Mid Cap Fund purchased securities issued by UBS Securities and held
$10,184,000 in securities issued by UBS Securities at year end; International
Equity Fund purchased securities issued by UBS Securities and held $10,172,000
in securities issued by UBS Securities at year end; Bond Fund For Income
purchased securities issued by Bear Stearns, Inc., Donaldson, Lufkin & Jenrette,
Merrill Lynch, Morgan Stanley, PaineWebber and UBS Securities and held
$5,162,909 in securities issued by Bear Stearns, Inc., $5,020,000 in securities
issued by Donaldson, Lufkin & Jenrette, $3,015,000 in securities issued by
Merrill Lynch, $5,007,000 in securities issued by Morgan Stanley, $4,996,635 in
securities issued by PaineWebber and $22,323,000 in securities issued by UBS
Securities, each at year end; Quality Bond Fund purchased securities issued by
Merrill Lynch and UBS Securities and held $4,020,000 in securities issued by
Merrill Lynch and $15,771,000 in securities issued by UBS Securities, each at
year end; U.S. Government Securities Fund purchased securities issued by UBS
Securities and held $843,000 in securities issued by UBS Securities at year end.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Institutional Shares of the Funds are sold at their net asset value on days the
New York Stock Exchange and the Federal Reserve Bank of Cleveland are open for
business. The procedure for purchasing Institutional Shares of the Funds is
explained in the Prospectus under "Investing in the Funds."
CONVERSION TO FEDERAL FUNDS
It is the Funds' policy to be as fully invested as possible so that maximum
interest or dividends may be earned. To this end, all payments from shareholders
must be in federal funds or be converted into federal funds. Fifth Third Bank
acts as the shareholder's agent in depositing checks and converting them to
federal funds.
24
<PAGE> 27
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange securities they already own for shares of a Fund or they
may exchange a combination of securities and cash for Fund shares. Any
securities to be exchanged must meet the investment objective and policies of
each Fund, must have a readily ascertainable market value, must be liquid, and
must not be subject to restrictions on resale. An investor should forward the
securities in negotiable form with an authorized letter of transmittal to Fifth
Third Bank. A Fund will notify the investor of its acceptance and valuation of
the securities within five business days of their receipt by Fifth Third Bank.
A Fund values such securities in the same manner as a Fund values its assets.
The basis of the exchange will depend upon the net asset value of shares of a
Fund on the day the securities are valued. One Share of a Fund will be issued
for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, conversion, or
other rights attached to the securities become the property of a Fund, along
with the securities.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset values of the Funds generally change each day. The days on which the
net asset value is calculated by these Funds are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
The market value of the Funds' portfolio securities (with the exception of Ohio
Tax Free Fund and Municipal Bond Fund) are determined as follows:
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;
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 Funds will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges unless the Trustees determine in good faith
that another method of valuing option positions is necessary to appraise their
fair value.
25
<PAGE> 28
VALUING MUNICIPAL BONDS
With respect to Ohio Tax Free Fund and Municipal Bond Fund, the Trustees use an
independent pricing service to value municipal bonds. The independent pricing
service takes into consideration yield, stability, risk, quality, coupon rate,
maturity, type of issue, trading characteristics, special circumstances of a
security or trading market, and any other factors or market data it considers
relevant in determining valuations for normal institutional size trading units
of debt securities, and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized to
be purchased by the Fund with remaining maturities of 60 days or less at the
time of purchase may be their amortized cost value, unless the particular
circumstances of the security indicate otherwise. Under this method, portfolio
instruments and assets are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Executive Committee continually assesses this method of
valuation and recommends changes where necessary to assure that the Fund's
portfolio instruments are valued at their fair value as determined in good faith
by the Trustees.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value,
International Equity Fund values foreign securities at the latest closing price
on the exchange on which they are traded immediately prior to the closing of the
New York Stock Exchange. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are translated into
U.S. dollars at current rates. Occasionally, events that affect these values and
exchange rates may occur between the times at which they are determined and the
closing of the New York Stock Exchange. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Trustees, although the actual
calculation may be done by others.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at the next computed net asset value after the Trust
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although Fifth Third Bank does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of a Fund's net
asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Trust will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
26
<PAGE> 29
TAX STATUS
- --------------------------------------------------------------------------------
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, each Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends,
interest, and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
With respect to Government Securities Fund, Quality Bond Fund, Quality Growth
Fund, Mid Cap Fund, Balanced Fund, International Equity Fund, Equity Income
Fund, Bond Fund For Income, and Pinnacle Fund, shareholders are subject to
federal income tax on dividends received as cash or additional shares. No
portion of any income dividend paid by a Fund is eligible for the dividends
received deduction available to corporations. These dividends, and any
short-term capital gains, are taxable as ordinary income.
With respect to Ohio Tax Free Fund and Municipal Bond Fund, no portion of any
income dividend paid by a Fund is eligible for the dividends received deduction
available to corporations.
CAPITAL GAINS
With respect to Government Securities Fund, Quality Bond Fund, Quality Growth
Fund, Mid Cap Fund, Balanced Fund, International Equity Fund, Equity Income
Fund, and Bond Fund For Income, long-term capital gains distributed to
shareholders will be treated as long-term capital gains regardless of how long
shareholders have held shares.
With respect to Ohio Tax Free Fund and Municipal Bond Fund, capital gains or
losses may be realized by a Fund on the sale of portfolio securities and as a
result of discounts from par value on securities held to maturity. Sales would
generally be made because of:
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.
27
<PAGE> 30
Distributions of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested, and regardless of the length of time the
shareholder has owned shares. Any loss by a shareholder on shares held for less
than six months and sold after a capital distribution will be treated as a
long-term capital loss to the extent of the capital gains distribution.
FOREIGN TAXES
Investment income on certain foreign securities in which International Equity
Fund may invest may be subject to foreign withholding or other taxes that could
reduce the return on these securities. Tax treaties between the United States
and foreign countries, however, may reduce or eliminate the amount of foreign
taxes to which the Fund would subject.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Funds is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The Funds may advertise SEC yields for Institutional Shares.
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 Fund and the Municipal Bond Fund may also advertise
tax-equivalent yield. 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 37.90% tax rate and
assuming that income is 100% tax-exempt.
28
<PAGE> 31
TAX EQUIVALENCY TABLE
The Ohio Tax Free Fund and Municipal Bond Fund may also use a tax-equivalency
table in advertising and sales literature. The interest earned by the municipal
obligations in the Ohio Tax Free Fund's portfolio generally remains free from
federal regular income tax and is free from income taxes imposed by the state of
Ohio. The interest earned by the Municipal Bond Fund's portfolio is generally
free from federal regular income tax. As the tables below indicates, a
"tax-free" investment in the Ohio Tax Free Fund is an attractive choice for
investors, particularly in times of narrow spreads between "tax-free" and
taxable yields.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TAXABLE YIELD EQUIVALENT FOR 1997
STATE OF OHIO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET:
19.457% 33.201% 37.900% 43.500% 47.100%
- -----------------------------------------------------------------------------------------------------------------------------------
SINGLE $1- $23,351- $56,551- $117,951- OVER
RETURN 23,350 56,550 117,950 256,500 256,500
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Taxable Yield Equivalent
Yield
- -----------------------------------------------------------------------------------------------------------------------------------
1.50% 1.86% 2.25% 2.42% 2.65% 2.84%
2.00% 2.48% 2.99% 3.22% 3.54% 3.78%
2.50% 3.10% 3.74% 4.03% 4.42% 4.73%
3.00% 3.72% 4.49% 4.83% 5.31% 5.67%
3.50% 4.35% 5.24% 5.64% 6.19% 6.62%
4.00% 4.97% 5.99% 6.44% 7.08% 7.56%
4.50% 5.59% 6.74% 7.25% 7.96% 8.51%
5.00% 6.21% 7.49% 8.05% 8.85% 9.45%
5.50% 6.83% 8.23% 8.86% 9.73% 10.40%
6.00% 7.45% 8.98% 9.66% 10.62% 11.34%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Ohio Tax Free Fund shares.
* Some portion of Ohio Tax Free Fund's and Municipal Bond Fund's
income may be subject to the federal alternative minimum tax
and state and local income taxes.
29
<PAGE> 32
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
Each Fund's performance 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, Balanced, Mid
Cap, Equity Income, and Pinnacle Funds)
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, Quality
Bond and Bond Fund For Income)
30
<PAGE> 33
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. (Government Securities, Balanced,
Quality Bond, and Bond Fund For Income)
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. (Government
Securities, Balanced, Quality Bond, and Bond Fund For Income)
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, Quality Bond, Government
Securities, and Bond Fund For Income)
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 at the start and at the close of the
performance measurement period. Corporate instruments must be
rated by S&P or by Moody's as investment grade issues (i.e.,
BBB/Baa or better). (Balanced, Quality Bond, and Bond Fund For
Income)
31
<PAGE> 34
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, Quality Bond
and Bond Fund For Income)
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, Quality Bond, and
Bond Fund For Income)
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,
Balanced, Mid Cap, Equity Income, and Pinnacle Funds)
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
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primarily in common stocks. In addition, the S&P indices
assume reinvestment of all dividends paid by stocks listed on
its indices. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated in the
S&P figures. (Quality Growth, Balanced, Mid Cap, Equity
Income, and Pinnacle 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 may quote total returns
which are calculated on nonstandardized base periods. These total returns also
represent the historic change in the value of an investment in the Funds based
on monthly/quarterly reinvestment of dividends over a specified period of time.
As of the date of this Statement of Additional Information, no historical
performance of Institutional Shares of any of the Funds was available. The
Funds, however, expect to total returns for each of the Funds, calculated as
described in the Prospectus.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for Fountain Square U.S. Government Securities Fund,
Fountain Square Quality Bond Fund, Fountain Square Ohio Tax Free Fund, Fountain
Square Quality Growth Fund, Fountain Square Mid Cap Fund, Fountain Square
Balanced Fund, Fountain Square International Equity Fund, Fountain Square Equity
Income Fund, Fountain Square Bond Fund For Income, and Fountain Square Municipal
Bond Fund for the fiscal year ended July 31, 1997 are incorporated herein by
reference to the Annual Report to Shareholders of the Fountain Square Stock and
Bond Mutual Funds dated July 31, 1997. (File Nos. 33-24848 and 811-5669.) A copy
of the Annual Report may be obtained without charge by contacting the Trust at
the address located on the back cover of the Prospectus.
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APPENDIX
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STANDARD AND POOR'S RATINGS GROUP CORPORATE AND MUNICIPAL BOND RATING
DEFINITIONS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P may apply a plus (+) or
minus (-) to the above rating classifications to show relative standing within
the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE AND MUNICIPAL BOND RATING DEFINITIONS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
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FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATING DEFINITIONS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
SP-3--Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE SHORT-TERM LOAN RATING DEFINITIONS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus (+) sign.
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<PAGE> 38
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.
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FOUNTAIN SQUARE CARDINAL FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT A SHARES
INVESTMENT C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
The Investment A Shares and Investment C Shares of Fountain Square Cardinal Fund
(the "Fund") represent interests in a diversified portfolio of securities of
Fountain Square Funds (the "Trust"). This combined Statement of Additional
Information should be read with the Prospectus for Investment A Shares and
Investment C Shares dated May 20, 1998. This Statement is not a prospectus
itself. To receive a copy of the Prospectus, please write the Trust or call
toll-free, (888) 799-5353.
FOUNTAIN SQUARE FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
Statement dated May 20, 1998
<PAGE> 40
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST........................................ 1
INVESTMENT OBJECTIVES AND POLICIES OF THE FUND............................. 1
Types of Investments.............................................. 1
When-Issued and Delayed Delivery Transactions..................... 4
Repurchase Agreements............................................. 4
Reverse Repurchase Agreements..................................... 5
Lending of Portfolio Securities................................... 5
Restricted And Illiquid Securities................................ 5
Portfolio Turnover................................................ 6
Investment Limitations............................................ 6
FOUNTAIN SQUARE FUNDS MANAGEMENT........................................... 9
Officers and Trustees............................................. 9
Trust Ownership................................................... 10
Trustees' Compensation............................................ 10
Trustee Liability................................................. 11
INVESTMENT ADVISORY SERVICES............................................... 11
Advisor to the Fund............................................... 11
Advisory Fees..................................................... 11
ADMINISTRATIVE SERVICES.................................................... 11
Transfer Agent and Dividend Disbursing Agent...................... 12
BROKERAGE TRANSACTIONS..................................................... 12
PURCHASING SHARES.......................................................... 13
Distribution Plan and Administrative Services Agreement
(Investment C Shares Only)........................................ 13
Conversion to Federal Funds....................................... 13
Exchanging Securities for Fund Shares............................. 14
DETERMINING NET ASSET VALUE................................................ 14
Determining Market Value of Securities............................ 14
Use of Amortized Cost............................................. 15
REDEEMING SHARES........................................................... 15
Redemption in Kind................................................ 15
TAX STATUS................................................................. 15
The Fund's Tax Status............................................. 15
Shareholders' Tax Status.......................................... 16
Capital Gains..................................................... 16
TOTAL RETURN............................................................... 16
YIELD...................................................................... 16
PERFORMANCE COMPARISONS.................................................... 16
APPENDIX................................................................... 19
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GENERAL INFORMATION ABOUT THE TRUST
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. This combined Statement of Additional
Information relates only to Investment A Shares and Investment C Shares of the
Fountain Square Cardinal Fund (the "Fund"). The Fund is advised by Fifth Third
Bank (the "Advisor").
INVESTMENT OBJECTIVES AND POLICIES OF THE FUND
- --------------------------------------------------------------------------------
The Prospectus discusses the objectives of the Fund and the policies employed to
achieve those objectives. The following discussion supplements the description
of the Fund's investment policies in the Prospectus. The Fund's investment
objectives cannot be changed without approval of shareholders. Unless otherwise
indicated, the investment policies described below may be changed by the Board
of Trustees (the "Trustees") without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
TYPES OF INVESTMENTS
BANK INSTRUMENTS
The 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
The Fund may engage in futures and options transactions as
described below to the extent consistent with its investment
objectives and policies.
As a means of reducing fluctuations in the net asset value of
shares of the Fund, the 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. The Fund may attempt to
hedge all or a portion of its portfolio by buying and selling
financial futures contracts and writing call options on
futures contracts. The Fund may also write covered call
options on portfolio securities to attempt to increase current
income.
The 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. The 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
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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 the 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, the
Fund could enter into contracts to "go short" to protect
itself against the possibility that the prices of its fixed
income securities may decline during the Fund's anticipated
holding period. The Fund would "go long" to hedge against a
decline in market interest rates. The International Equity
Fund may also invest in securities index futures contracts
when the Advisor believes such investment is more efficient,
liquid or cost-effective than investing directly in the
securities underlying the index.
STOCK INDEX OPTIONS. The 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 the 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 the 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 the 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.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund may
purchase listed put options on financial futures contracts.
The 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.
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, the Fund will normally close out its option by
selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second
option will be large enough to offset both the premium paid by
the Fund for the original option plus the realized decrease in
value of the hedged securities.
Alternatively, the 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
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<PAGE> 43
the strike price of the option) and exercise the option. The
Fund would then deliver the futures contract in return for
payment of the strike price. If the Fund neither closes out
nor exercises an option, the option will expire on the date
provided in the option contract, and only the premium paid for
the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS. The 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. When the 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, the Fund's
obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the
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 the Fund keeps the premium
received for the option. This premium can help substantially
offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or
exercise of it by the buyer, the Fund may close out the option
by buying an identical option. If the hedge is successful, the
cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium
income of the Fund will then substantially offset the realized
decrease in value of the hedged securities.
LIMITATION ON OPEN FUTURES POSITIONS. The Fund will not
maintain open positions in futures contracts it has sold or
options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market)
exceeds the current market value of its securities portfolio
plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between
the securities or securities index underlying the futures
contract and the futures contracts. If the Fund exceeds this
limitation at any time, it will take prompt action to close
out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS. Unlike the purchase or sale
of a security, the Fund does not pay or receive money upon the
purchase or sale of a futures contract. Rather, the 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 the 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 the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day the 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 the Fund but is instead settlement between the Fund
and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset
value, the Fund will mark to market its open futures
positions.
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The Fund is also required to deposit and maintain margin when
it writes call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES. The Fund may
purchase put options on portfolio securities to protect
against price movements in particular securities in its
portfolio. A put option gives the Fund, in return for a
premium, the right to sell the underlying security to the
writer (seller) at a specified price during the term of the
option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES. The Fund
may also write covered call options to generate income. As the
writer of a call option, the Fund has the obligation, upon
exercise of the option during the option period, to deliver
the underlying security upon payment of the exercise price.
The Fund may sell call options either on securities held in
its portfolio or on securities which it has the right to
obtain without payment of further consideration (or securities
for which it has segregated cash in the amount of any
additional consideration).
OVER-THE-COUNTER OPTIONS. The 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 the Fund and not
traded on an exchange.
WARRANTS
The Fund may invest in warrants. Warrants are basically
options to purchase common stock at a specific price (usually
at a premium above the market value of the optioned common
stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to
twenty years or may be perpetual. However, most warrants have
expiration dates after which they are worthless. In addition,
if the market price of the common stock does not exceed the
warrant's exercise price during the life of the warrant, the
warrant will expire as worthless. Warrants have no voting
rights, pay no dividends, and have no rights with respect to
the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may
tend to be greater than the percentage increase or decrease in
the market price of the optioned common stock.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the value of its total assets.
REPURCHASE AGREEMENTS
The Fund requires its 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 the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as
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<PAGE> 45
broker/dealers which are deemed by the Advisor to be creditworthy pursuant to
guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future 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 the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These securities are
marked to market daily and maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the 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. The 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. The Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
RESTRICTED AND ILLIQUID SECURITIES
The Fund 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 Fund, 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 Fund through or with the assistance of the
issuer or investment dealers who make a market in such securities, thus
providing liquidity. The Fund 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 Fund intends, therefore, to
treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) securities, as determined by
the Advisor, as liquid and not subject to the investment limitation applicable
to illiquid securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange Commission ("SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the staff of the SEC has left the question of
determining the liquidity of all
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<PAGE> 46
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
The Fund will not attempt to set or meet portfolio turnover rates since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objectives. Although the Fund's portfolio turnover rate
cannot be predicted, it is expected to be less than 100% for the current fiscal
year.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that it 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
the Fund may enter into futures contracts.
The Fund 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 the Fund to meet
redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while any borrowings
in excess of 5% of its total assets are outstanding.
Currently, the Fund does not intend to borrow money.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits
as are necessary for clearance of purchases and sales of
securities.
The deposit or payment by the 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 Fund will not mortgage, pledge, or hypothecate any assets,
except to secure permitted borrowings. In these cases, the
Fund may pledge assets as necessary to secure such borrowings.
For purposes of this limitation, (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 the Fund's
assets.
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<PAGE> 47
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio
securities up to one-third of the value of total assets. This
shall not prevent the Fund from purchasing or holding U.S.
government obligations, money market instruments, variable
rate demand notes, bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions
permitted by the Fund's investment objectives, policies, and
limitations or the Trust's Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity
contracts, or commodity futures contracts, except to the
extent that the Fund may engage in transactions involving
futures contracts or options on futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including
limited partnership interests, although the Fund may invest in
securities of issuers whose business involves the purchase or
sale of real estate or in securities which are secured by real
estate or interests in real estate.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the 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. The Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total
assets in any one industry, except that the Fund 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.
UNDERWRITING
The 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 objectives,
policies, and limitations.
The above limitations cannot be changed with respect to the Fund without
approval of the holders of a majority of the Fund's shares. The following
limitations may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net
assets in securities that are subject to restrictions on
resale under federal securities law.
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<PAGE> 48
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net
assets in illiquid securities, including, as applicable,
repurchase agreements providing for settlement more than seven
days after notice, 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 Fund will limit its 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 its
total assets in any one investment company, and will invest no
more than 10% of its total assets in investment companies in
general. The Fund 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 the Fund in shares of another investment company
would be subject to such expenses.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its
total assets in securities of issuers which have records of
less than three years of continuous operations, including the
operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
TRUSTEES OF THE TRUST
The Fund will not purchase or retain the securities of any
issuer if the officers and Trustees of the Trust, Fifth Third
Bank, 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
The Fund will not purchase interests in oil, gas, or other
mineral exploration or development programs or leases, except
they may purchase the securities of issuers which invest in or
sponsor such programs.
ARBITRAGE TRANSACTIONS
The Fund will not enter into transactions for the purpose of
engaging in arbitrage.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the
purpose of exercising control or management.
INVESTING IN WARRANTS
The Fund may not 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 the Fund in units with or attached
to securities may be deemed to be without value.
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<PAGE> 49
Except with respect to the Fund's policy of borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not result
in a violation of such restriction. For purposes of its policies and
limitations, the Fund considers certificates of deposit and demand and time
deposits issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
FOUNTAIN SQUARE FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, principal
occupations, and present positions. Except as listed below, none of the Trustees
or officers are affiliated with Fifth Third Bank, Fifth Third Bancorp, The BISYS
Group, Inc., BISYS Fund Services, Inc., BISYS Fund Services Ohio, Inc., or BISYS
Fund Services Limited Partnership.
- --------------------------------------------------------------------------------
Albert E. Harris
5905 Graves Road
Cincinnati, OH 45243
Birthdate: July 2, 1932
Chairman of the Board of Trustees
Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993)
- --------------------------------------------------------------------------------
Edward Burke Carey
394 East Town Street
Columbus, OH 43215
Birthdate: July 2, 1945
Member of the Board of Trustees
President of Carey Leggett Realty Advisors
- --------------------------------------------------------------------------------
Lee A. Carter
425 Walnut Street
Cincinnati, OH 45202
Birthdate: December 17, 1938
Member of the Board of Trustees
Formerly, President, Local Marketing Corporation (retired December 31, 1993)
9
<PAGE> 50
- --------------------------------------------------------------------------------
Stephen G. Mintos
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: February 5, 1954
President
From January 1987 to the present, employee of BISYS Fund Services, Inc.
- --------------------------------------------------------------------------------
George R. Landreth
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: July 11, 1942
Vice President
From December 1992 to present, employee of BISYS Fund Services, Inc..
- --------------------------------------------------------------------------------
Jeffrey C. Cusick
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: May 19, 1959
Secretary and Treasurer
From July 1995 to present, employee of BISYS Fund Services, Inc.; from September
1993 to July 1995, Assistant Vice President, Federated Administrative Services;
from 1989 to September 1993, Manager, Client Services, Federated Administrative
Services.
- --------------------------------------------------------------------------------
TRUST OWNERSHIP
As of the date of this Statement of Additional Information, for each class of
shares of the Fund, officers and Trustees own less than 1% of the outstanding
shares of the Fund and there are no persons known to be beneficial owners of
more than 5% of the Fund's outstanding Investment A Shares or Investment C
Shares.
TRUSTEES' COMPENSATION
NAME AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*+
- --------------------------------------------------------------------------------
Edward Burke Carey
Trustee $7,800
10
<PAGE> 51
Lee A. Carter
Trustee $6,600
Albert E. Harris
Trustee, Chairman of the Board $9,800
*Information is furnished for the fiscal year ended July 31, 1997. The Trust is
the only investment company in the Fund complex.
+The aggregate compensation is provided for the Trust which is comprised of
thirteen portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISOR TO THE FUND
The Advisor to the Fund is Fifth Third Bank. It provides investment advisory
services through its Trust and Investment Division. Fifth Third Bank is a
wholly-owned subsidiary of Fifth Third Bancorp. Fifth Third Bank shall not be
liable to the Trust, the Fund, or any shareholder of the Fund for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Fifth Third Bank to restrict the
flow of non-public information, the Fund's investments are typically made
without any knowledge of Fifth Third Bank's or affiliates' lending relationship
with an issuer.
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the Prospectus.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
BISYS Fund Services L.P., 3435 Stelzer Road, Columbus, Ohio 43219, provides
administrative personnel and services to the Fund for the fees set forth in the
Prospectus. Pursuant to a separate agreement with BISYS Fund Services L.P.,
Fifth Third Bank performs sub-administration services on behalf of the Fund, for
which it receives compensation from BISYS Fund Services L.P.
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<PAGE> 52
Under the custodian agreement, Fifth Third Bank holds each Fund's portfolio
securities and keeps all necessary records and documents relating to its duties.
Fees for custody services are based upon the market value of Fund securities
held in custody plus out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Fifth Third Bank serves as transfer agent and dividend disbursing agent for the
Fund. 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 Fund's average net assets for the
period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Advisor will look for prompt execution of the order at a
favorable price. In working with dealers, the Advisor will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The Advisor
makes decisions on portfolio transactions and selects brokers and dealers
subject to guidelines established by the Trustees.
The Advisor may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Advisor
and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Advisor and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Advisor in advising the
Fund and other accounts. To the extent that receipt of these services may
supplant services for which the Advisor or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Advisor, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Advisor are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Advisor to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the 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 Fund.
12
<PAGE> 53
PURCHASING SHARES
- --------------------------------------------------------------------------------
Investment A Shares and Investment C Shares of the Fund are sold at their net
asset value with an applicable sales charge or contingent deferred sales charge
on days the New York Stock Exchange and the Federal Reserve Bank of Cleveland
are open for business. The procedure for purchasing Investment A Shares or
Investment C Shares of the Fund is explained in the Prospectus under "Investing
in the Fund."
DISTRIBUTION PLAN AND ADMINISTRATIVE SERVICES AGREEMENT (INVESTMENT C SHARES
ONLY)
With respect to Investment A Shares and Investment C Shares of the Fund, the
Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the
Securities and Exchange Commission pursuant to the Investment Company Act of
1940. The Plan provides for payment of fees to the distributor to finance any
activity which is principally intended to result in the sale of the Fund's
shares subject to the Plan. Such activities may include the advertising and
marketing of shares; preparing printing, and distributing prospectuses and sales
literature to prospective shareholders, brokers, or administrators; and
implementing and operating the Plan. Pursuant to the Plan, the distributor may
enter into agreements to pay fees to brokers for distribution and administrative
support services and to other participating financial institutions and persons
for distribution assistance and support services to the Fund and its
shareholders. The administrative services are provided by a representative who
has knowledge of the shareholder's particular circumstances and goals, and
include, but are not limited to: communicating account openings; communicating
account closings; entering purchase transactions; entering redemption
transactions; providing or arranging to provide accounting support for all
transactions, wiring funds and receiving funds for Share purchases and
redemptions, confirming and reconciling all transactions, reviewing the activity
in Fund accounts, and providing training and supervision of broker personnel;
posting and reinvesting dividends to Fund accounts or arranging for this service
to be performed by the Trust's transfer agent; and maintaining and distributing
current copies of prospectuses and shareholder reports to the beneficial owners
of shares and prospective shareholders.
The Trustees expect that the Plan will result in the sale of a sufficient number
of shares so as to allow the Fund to achieve economic viability. It is also
anticipated that an increase in the size of the Fund will facilitate more
efficient portfolio management and assist the Fund in seeking to achieve its
investment objective.
Pursuant to the Plan, with respect to Investment A Shares, the Fund is
authorized to pay the distributor a monthly distribution fee computed at an
annual rate of up to 0.25% of the average aggregate net asset value of the
Investment A Shares of the Fund held during the month.
Pursuant to the Plan, with respect to Investment C Shares, the Fund is
authorized to pay the distributor a monthly distribution fee computed at the
annual rate of up to 0.75% of the average aggregate net asset value of the
Investment C Shares of the Fund held during the month.
With respect to Investment C Shares, the Fund may enter into an Administrative
Services Agreement to permit the payment of fees to financial institutions,
including Fifth Third Bank, to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. Benefits to shareholders of Investment C Shares of the Fund may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
CONVERSION TO FEDERAL FUNDS
13
<PAGE> 54
It is the Fund's policy to be as fully invested as possible so that maximum
interest or dividends may be earned. To this end, all payments from shareholders
must be in federal funds or be converted into federal funds. Fifth Third Bank
acts as the shareholder's agent in depositing checks and converting them to
federal funds.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange securities they already own for shares of the 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 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 Fund will notify the investor of its acceptance and valuation of
the securities within five business days of their receipt by Fifth Third Bank.
The Fund values such securities in the same manner as the Fund values its
assets. The basis of the exchange will depend upon the net asset value of shares
of the Fund on the day the securities are valued. One Share of the 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 Fund, along
with the securities.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset values of the Fund generally change each day. The days on which the
net asset value is calculated by the Fund are described in the Prospectus.
DETERMINING MARKET VALUE OF SECURITIES
The market value of the Fund's portfolio securities 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;
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.
14
<PAGE> 55
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized to
be purchased by the Fund with remaining maturities of 60 days or less at the
time of purchase may be their amortized cost value, unless the particular
circumstances of the security indicate otherwise. Under this method, portfolio
instruments and assets are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Executive Committee continually assesses this method of
valuation and recommends changes where necessary to assure that the Fund's
portfolio instruments are valued at their fair value as determined in good faith
by the Trustees.
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
Prospectus under "Redeeming Shares." Although Fifth Third Bank does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
Investment C Shares redeemed within one year of purchase may be subject to a
contingent deferred sales charge. The contingent deferred sales charge may be
reduced with respect to a particular shareholder where a financial institution
selling Investment C Shares elects not to receive a commission from the
distributor with respect to its sale of such shares.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the 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 FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends,
interest, and gains from the sale of securities;
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.
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<PAGE> 56
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The Fund may advertise SEC yields for Investment A Shares and Investment C
Shares of the Fund.
The yield for the 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 the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
16
<PAGE> 57
o changes in interest rates and market value of portfolio
securities;
o changes in the Fund's expenses; and
o various other factors
The 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 Fund uses 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.
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.
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.
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.
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.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on nonstandardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
monthly/quarterly reinvestment of dividends over a specified period of time.
As of the date of this Statement of Additional Information, no historical
performance of the Fund was available. The Fund, however, expects to quote total
returns of The Cardinal Fund (the "Predecessor Fund"), an open-end
17
<PAGE> 58
investment company which was the predecessor fund to the Fountain Square
Cardinal Fund, calculated as described in the Prospectus for the Fund for the
period between October 1, 1988 and the commencement of operations of the Fund.
Advertisements may quote performance information for the Fund which does not
reflect the effect of the sales load.
18
<PAGE> 59
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S RATINGS GROUP CORPORATE AND MUNICIPAL BOND RATING
DEFINITIONS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P may apply a plus (+) or
minus (-) to the above rating classifications to show relative standing within
the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE AND MUNICIPAL BOND RATING DEFINITIONS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
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FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATING DEFINITIONS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
SP-3--Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE SHORT-TERM LOAN RATING DEFINITIONS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus (+) sign.
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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.
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FOUNTAIN SQUARE CARDINAL FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
The Institutional Shares of Fountain Square Cardinal Fund (the "Fund") represent
interests in a diversified portfolio of securities of Fountain Square Funds (the
"Trust"). This Statement of Additional Information should be read with the
Prospectus for Institutional Shares dated May 20, 1998. This Statement is not a
prospectus itself. To receive a copy of the Prospectus, please write the Trust
or call toll-free, (888) 799-5353.
FOUNTAIN SQUARE FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
Statement dated May 20, 1998
<PAGE> 63
TABLE OF CONTENTS
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GENERAL INFORMATION ABOUT THE TRUST.................................................................... 1
INVESTMENT OBJECTIVES AND POLICIES OF THE FUND......................................................... 1
Types of Investments.......................................................................... 1
When-Issued and Delayed Delivery Transactions................................................. 4
Repurchase Agreements......................................................................... 4
Reverse Repurchase Agreements................................................................. 5
Lending of Portfolio Securities............................................................... 5
Restricted And Illiquid Securities............................................................ 5
Portfolio Turnover............................................................................ 6
Investment Limitations........................................................................ 6
FOUNTAIN SQUARE FUNDS MANAGEMENT....................................................................... 9
Officers and Trustees......................................................................... 9
Trust Ownership............................................................................... 10
Trustees' Compensation........................................................................ 10
Trustee Liability............................................................................. 11
INVESTMENT ADVISORY SERVICES........................................................................... 11
Advisor to the Fund........................................................................... 11
Advisory Fees................................................................................. 11
ADMINISTRATIVE SERVICES................................................................................ 11
Transfer Agent and Dividend Disbursing Agent.................................................. 12
BROKERAGE TRANSACTIONS................................................................................. 12
PURCHASING SHARES...................................................................................... 13
Conversion to Federal Funds................................................................... 13
Exchanging Securities for Fund Shares......................................................... 13
DETERMINING NET ASSET VALUE............................................................................ 13
Determining Market Value of Securities........................................................ 13
Use of Amortized Cost......................................................................... 14
REDEEMING SHARES....................................................................................... 14
Redemption in Kind............................................................................ 14
TAX STATUS............................................................................................. 14
The Fund's Tax Status......................................................................... 14
Shareholders' Tax Status...................................................................... 15
Capital Gains................................................................................. 15
TOTAL RETURN........................................................................................... 15
YIELD.................................................................................................. 15
PERFORMANCE COMPARISONS................................................................................ 16
APPENDIX............................................................................................... 18
</TABLE>
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GENERAL INFORMATION ABOUT THE TRUST
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 15, 1988. This Statement of Additional Information
relates only to Institutional Shares of the Fountain Square Cardinal Fund (the
"Fund"). The Fund is advised by Fifth Third Bank (the "Advisor").
INVESTMENT OBJECTIVES AND POLICIES OF THE FUND
- --------------------------------------------------------------------------------
The Prospectus discusses the objectives of the Fund and the policies employed to
achieve those objectives. The following discussion supplements the description
of the Fund's investment policies in the Prospectus. The Fund's investment
objectives cannot be changed without approval of shareholders. Unless otherwise
indicated, the investment policies described below may be changed by the Board
of Trustees (the "Trustees") without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
TYPES OF INVESTMENTS
BANK INSTRUMENTS
The 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
The Fund may engage in futures and options transactions as
described below to the extent consistent with its investment
objectives and policies.
As a means of reducing fluctuations in the net asset value of
shares of the Fund, the 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. The Fund may attempt to
hedge all or a portion of its portfolio by buying and selling
financial futures contracts and writing call options on
futures contracts. The Fund may also write covered call
options on portfolio securities to attempt to increase current
income.
The 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. The 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
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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 the 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, the
Fund could enter into contracts to "go short" to protect
itself against the possibility that the prices of its fixed
income securities may decline during the Fund's anticipated
holding period. The Fund would "go long" to hedge against a
decline in market interest rates. The International Equity
Fund may also invest in securities index futures contracts
when the Advisor believes such investment is more efficient,
liquid or cost-effective than investing directly in the
securities underlying the index.
STOCK INDEX OPTIONS. The 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 the 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 the 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 the 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.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund may
purchase listed put options on financial futures contracts.
The 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.
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, the Fund will normally close out its option by
selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second
option will be large enough to offset both the premium paid by
the Fund for the original option plus the realized decrease in
value of the hedged securities.
Alternatively, the 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
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the strike price of the option) and exercise the option. The
Fund would then deliver the futures contract in return for
payment of the strike price. If the Fund neither closes out
nor exercises an option, the option will expire on the date
provided in the option contract, and only the premium paid for
the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS. The 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. When the 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, the Fund's
obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the
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 the Fund keeps the premium
received for the option. This premium can help substantially
offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or
exercise of it by the buyer, the Fund may close out the option
by buying an identical option. If the hedge is successful, the
cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium
income of the Fund will then substantially offset the realized
decrease in value of the hedged securities.
LIMITATION ON OPEN FUTURES POSITIONS. The Fund will not
maintain open positions in futures contracts it has sold or
options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market)
exceeds the current market value of its securities portfolio
plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between
the securities or securities index underlying the futures
contract and the futures contracts. If the Fund exceeds this
limitation at any time, it will take prompt action to close
out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS. Unlike the purchase or sale
of a security, the Fund does not pay or receive money upon the
purchase or sale of a futures contract. Rather, the 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 the 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 the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is
traded. Each day the 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 the Fund but is instead settlement between the Fund
and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset
value, the Fund will mark to market its open futures
positions.
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The Fund is also required to deposit and maintain margin when
it writes call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES. The Fund may
purchase put options on portfolio securities to protect
against price movements in particular securities in its
portfolio. A put option gives the Fund, in return for a
premium, the right to sell the underlying security to the
writer (seller) at a specified price during the term of the
option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES. The Fund
may also write covered call options to generate income. As the
writer of a call option, the Fund has the obligation, upon
exercise of the option during the option period, to deliver
the underlying security upon payment of the exercise price.
The Fund may sell call options either on securities held in
its portfolio or on securities which it has the right to
obtain without payment of further consideration (or securities
for which it has segregated cash in the amount of any
additional consideration).
OVER-THE-COUNTER OPTIONS. The 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 the Fund and not
traded on an exchange.
WARRANTS
The Fund may invest in warrants. Warrants are basically
options to purchase common stock at a specific price (usually
at a premium above the market value of the optioned common
stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to
twenty years or may be perpetual. However, most warrants have
expiration dates after which they are worthless. In addition,
if the market price of the common stock does not exceed the
warrant's exercise price during the life of the warrant, the
warrant will expire as worthless. Warrants have no voting
rights, pay no dividends, and have no rights with respect to
the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may
tend to be greater than the percentage increase or decrease in
the market price of the optioned common stock.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the value of its total assets.
REPURCHASE AGREEMENTS
The Fund requires its 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 the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as
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broker/dealers which are deemed by the Advisor to be creditworthy pursuant to
guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future 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 the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These securities are
marked to market daily and maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the 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. The 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. The Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
RESTRICTED AND ILLIQUID SECURITIES
The Fund 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 Fund, 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 Fund through or with the assistance of the
issuer or investment dealers who make a market in such securities, thus
providing liquidity. The Fund 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 Fund intends, therefore, to
treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) securities, as determined by
the Advisor, as liquid and not subject to the investment limitation applicable
to illiquid securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange Commission ("SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the staff of the SEC has left the question of
determining the liquidity of all
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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
The Fund will not attempt to set or meet portfolio turnover rates since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objectives. Although the Fund's portfolio turnover rate
cannot be predicted, it is expected to be less than 100% for the current fiscal
year.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that it 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
the Fund may enter into futures contracts.
The Fund 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 the Fund to meet
redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while any borrowings
in excess of 5% of its total assets are outstanding.
Currently, the Fund does not intend to borrow money.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits
as are necessary for clearance of purchases and sales of
securities.
The deposit or payment by the 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 Fund will not mortgage, pledge, or hypothecate any assets,
except to secure permitted borrowings. In these cases, the
Fund may pledge assets as necessary to secure such borrowings.
For purposes of this limitation, (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 the Fund's
assets.
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LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio
securities up to one-third of the value of total assets. This
shall not prevent the Fund from purchasing or holding U.S.
government obligations, money market instruments, variable
rate demand notes, bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions
permitted by the Fund's investment objectives, policies, and
limitations or the Trust's Declaration of Trust.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity
contracts, or commodity futures contracts, except to the
extent that the Fund may engage in transactions involving
futures contracts or options on futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including
limited partnership interests, although the Fund may invest in
securities of issuers whose business involves the purchase or
sale of real estate or in securities which are secured by real
estate or interests in real estate.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the 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. The Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total
assets in any one industry, except that the Fund 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.
UNDERWRITING
The 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 objectives,
policies, and limitations.
The above limitations cannot be changed with respect to the Fund without
approval of the holders of a majority of the Fund's shares. The following
limitations may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change in these limitations
becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net
assets in securities that are subject to restrictions on
resale under federal securities law.
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INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net
assets in illiquid securities, including, as applicable,
repurchase agreements providing for settlement more than seven
days after notice, 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 Fund will limit its 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 its
total assets in any one investment company, and will invest no
more than 10% of its total assets in investment companies in
general. The Fund 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 the Fund in shares of another investment company
would be subject to such expenses.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its
total assets in securities of issuers which have records of
less than three years of continuous operations, including the
operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
TRUSTEES OF THE TRUST
The Fund will not purchase or retain the securities of any
issuer if the officers and Trustees of the Trust, Fifth Third
Bank, 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
The Fund will not purchase interests in oil, gas, or other
mineral exploration or development programs or leases, except
they may purchase the securities of issuers which invest in or
sponsor such programs.
ARBITRAGE TRANSACTIONS
The Fund will not enter into transactions for the purpose of
engaging in arbitrage.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the
purpose of exercising control or management.
INVESTING IN WARRANTS
The Fund may not 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 the Fund in units with or attached
to securities may be deemed to be without value.
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<PAGE> 72
Except with respect to the Fund's policy of borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not result
in a violation of such restriction. For purposes of its policies and
limitations, the Fund considers certificates of deposit and demand and time
deposits issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
FOUNTAIN SQUARE FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, principal
occupations, and present positions. Except as listed below, none of the Trustees
or officers are affiliated with Fifth Third Bank, Fifth Third Bancorp, The BISYS
Group, Inc., BISYS Fund Services, Inc., BISYS Fund Services Ohio, Inc., or BISYS
Fund Services Limited Partnership.
- --------------------------------------------------------------------------------
Albert E. Harris
5905 Graves Road
Cincinnati, OH 45243
Birthdate: July 2, 1932
Chairman of the Board of Trustees
Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993)
- --------------------------------------------------------------------------------
Edward Burke Carey
394 East Town Street
Columbus, OH 43215
Birthdate: July 2, 1945
Member of the Board of Trustees
President of Carey Leggett Realty Advisors
- --------------------------------------------------------------------------------
Lee A. Carter
425 Walnut Street
Cincinnati, OH 45202
Birthdate: December 17, 1938
Member of the Board of Trustees
Formerly, President, Local Marketing Corporation (retired December 31, 1993)
- --------------------------------------------------------------------------------
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<PAGE> 73
- --------------------------------------------------------------------------------
Stephen G. Mintos
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: February 5, 1954
President
From January 1987 to the present, employee of BISYS Fund Services, Inc.
- --------------------------------------------------------------------------------
George R. Landreth
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: July 11, 1942
Vice President
From December 1992 to present, employee of BISYS Fund Services, Inc.
- --------------------------------------------------------------------------------
Jeffrey C. Cusick
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: May 19, 1959
Secretary and Treasurer
From July 1995 to present, employee of BISYS Fund Services, Inc.; from September
1993 to July 1995, Assistant Vice President, Federated Administrative Services;
from 1989 to September 1993, Manager, Client Services, Federated Administrative
Services.
- --------------------------------------------------------------------------------
TRUST OWNERSHIP
As of the date of this Statement of Additional Information, for each class of
shares of the Fund, officers and Trustees own less than 1% of the outstanding
shares of the Fund and there are no persons known to be beneficial owners of
more than 5% of the Fund's outstanding Institutional Shares.
TRUSTEES' COMPENSATION
NAME AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST*+
- --------------------------------------------------------------------------------
Edward Burke Carey
Trustee $7,800
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<PAGE> 74
Lee A. Carter
Trustee $6,600
Albert E. Harris
Trustee, Chairman of the Board $9,800
* Information is furnished for the fiscal year ended July 31, 1997. The Trust is
the only investment company in the Fund complex.
+ The aggregate compensation is provided for the Trust which is comprised of
thirteen portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISOR TO THE FUND
The Advisor to the Fund is Fifth Third Bank. It provides investment advisory
services through its Trust and Investment Division. Fifth Third Bank is a
wholly-owned subsidiary of Fifth Third Bancorp. Fifth Third Bank shall not be
liable to the Trust, the Fund, or any shareholder of the Fund for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Fifth Third Bank to restrict the
flow of non-public information, the Fund's investments are typically made
without any knowledge of Fifth Third Bank's or affiliates' lending relationship
with an issuer.
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the Prospectus.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
BISYS Fund Services L.P., 3435 Stelzer Road, Columbus, Ohio 43219, provides
administrative personnel and services to the Fund for the fees set forth in the
Prospectus. Pursuant to a separate agreement with BISYS Fund Services L.P.,
Fifth Third Bank performs sub-administration services on behalf of the Fund, for
which it receives compensation from BISYS Fund Services L.P.
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<PAGE> 75
Under the custodian agreement, Fifth Third Bank holds each Fund's portfolio
securities and keeps all necessary records and documents relating to its duties.
Fees for custody services are based upon the market value of Fund securities
held in custody plus out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Fifth Third Bank serves as transfer agent and dividend disbursing agent for the
Fund. 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 Fund's average net assets for the
period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Advisor will look for prompt execution of the order at a
favorable price. In working with dealers, the Advisor will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The Advisor
makes decisions on portfolio transactions and selects brokers and dealers
subject to guidelines established by the Trustees.
The Advisor may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Advisor
and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Advisor and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Advisor in advising the
Fund and other accounts. To the extent that receipt of these services may
supplant services for which the Advisor or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Advisor, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Advisor are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Advisor to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the 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 Fund.
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<PAGE> 76
PURCHASING SHARES
- --------------------------------------------------------------------------------
Institutional Shares of the Fund are sold at their net asset value on days the
New York Stock Exchange and the Federal Reserve Bank of Cleveland are open for
business. The procedure for purchasing Institutional Shares of the Fund is
explained in the Prospectus under "Investing in the Fund."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest or dividends may be earned. To this end, all payments from shareholders
must be in federal funds or be converted into federal funds. Fifth Third Bank
acts as the shareholder's agent in depositing checks and converting them to
federal funds.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange securities they already own for shares of the 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 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 Fund will notify the investor of its acceptance and valuation of
the securities within five business days of their receipt by Fifth Third Bank.
The Fund values such securities in the same manner as the Fund values its
assets. The basis of the exchange will depend upon the net asset value of shares
of the Fund on the day the securities are valued. One Share of the 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 Fund, along
with the securities.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset values of the Fund generally change each day. The days on which the
net asset value is calculated by the Fund are described in the Prospectus.
DETERMINING MARKET VALUE OF SECURITIES
The market value of the Fund's portfolio securities 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;
o for bonds and other fixed income securities, as determined by
an independent pricing service;
13
<PAGE> 77
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.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized to
be purchased by the Fund with remaining maturities of 60 days or less at the
time of purchase may be their amortized cost value, unless the particular
circumstances of the security indicate otherwise. Under this method, portfolio
instruments and assets are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Executive Committee continually assesses this method of
valuation and recommends changes where necessary to assure that the Fund's
portfolio instruments are valued at their fair value as determined in good faith
by the Trustees.
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
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 the 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 FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
14
<PAGE> 78
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
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The Fund may advertise SEC yields for Institutional Shares of the Fund.
The yield for the 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 the Fund,
the performance will be reduced for those shareholders paying those fees.
15
<PAGE> 79
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance 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 the Fund's expenses; and
o various other factors
The 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 Fund uses 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.
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.
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.
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.
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
16
<PAGE> 80
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.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on nonstandardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
monthly/quarterly reinvestment of dividends over a specified period of time.
As of the date of this Statement of Additional Information, no historical
performance of the Fund was available. The Fund, however, expects to quote total
returns of The Cardinal Fund (the "Predecessor Fund"), an open-end investment
company which was the predecessor fund to the Fountain Square Cardinal Fund,
calculated as described in the Prospectus for the Fund for the period between
October 1, 1988 and the commencement of operations of the Fund.
Advertisements may quote performance information for the Fund which does not
reflect the effect of the sales load.
17
<PAGE> 81
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S RATINGS GROUP CORPORATE AND MUNICIPAL BOND RATING
DEFINITIONS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P may apply a plus (+) or
minus (-) to the above rating classifications to show relative standing within
the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE AND MUNICIPAL BOND RATING DEFINITIONS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
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<PAGE> 82
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATING DEFINITIONS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
SP-3--Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE SHORT-TERM LOAN RATING DEFINITIONS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus (+) sign.
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<PAGE> 83
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.
20
<PAGE> 84
FOUNTAIN SQUARE TAX EXEMPT FUND
(A PORTFOLIO OF FOUNTAIN SQUARE FUNDS)
INVESTMENT A SHARES
INSTITUTIONAL SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
The Investment A Shares and Institutional Shares of Fountain Square Tax Exempt
Fund (the "Fund") represent interests in a diversified portfolio of securities.
This combined Statement of Additional Information should be read with either the
Prospectus for Investment A Shares dated May 20, 1998 or the Prospectus for
Institutional Shares dated May 20, 1998. This Statement is not a Prospectus
itself. To receive a copy of either of the Prospectuses, please write the Trust
or call toll-free (888) 799-5353.
FOUNTAIN SQUARE FUNDS
C/O FIFTH THIRD BANK
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45263
Statement dated May 20, 1998
<PAGE> 85
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND........................................ 1
INVESTMENT OBJECTIVE AND POLICIES......................................... 1
Types of Investments............................................. 1
When-Issued and Delayed Delivery Transactions.................... 3
Repurchase Agreements............................................ 3
Reverse Repurchase Agreements.................................... 3
Lending of Portfolio Securities.................................. 3
Restricted And Illiquid Securities............................... 4
Investment Limitations........................................... 4
FOUNTAIN SQUARE FUNDS MANAGEMENT.......................................... 7
Officers and Trustees............................................ 7
Fund Ownership................................................... 8
Trustees' Compensation........................................... 8
Trustee Liability................................................ 9
INVESTMENT ADVISORY SERVICES.............................................. 9
Advisor to the Fund.............................................. 9
Advisory Fees.................................................... 9
BROKERAGE TRANSACTIONS.................................................... 9
ADMINISTRATIVE SERVICES................................................... 10
Transfer Agent and Dividend Disbursing Agent..................... 10
PURCHASING SHARES......................................................... 10
Distribution Plan (Investment A Shares).......................... 10
Conversion to Federal Funds...................................... 11
DETERMINING NET ASSET VALUE............................................... 11
Use of the Amortized Cost Method................................. 11
REDEEMING SHARES.......................................................... 12
Redemption in Kind............................................... 12
TAX STATUS................................................................ 13
The Fund's Tax Status............................................ 13
Shareholders' Tax Status......................................... 13
YIELD..................................................................... 13
Tax Equivalency Table............................................ 14
EFFECTIVE YIELD........................................................... 14
PERFORMANCE COMPARISONS................................................... 15
APPENDIX.................................................................. 16
i
<PAGE> 86
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
Fountain Square Tax Exempt Fund (the "Fund") is a portfolio in the Fountain
Square Funds (the "Trust"). The Trust was established as a Massachusetts
business trust under a Declaration of Trust dated September 15, 1988.
Shares of the Fund are offered in two classes, Investment A Shares and
Institutional Shares. This combined Statement of Additional Information relates
to the above-mentioned shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to maximize current income exempt from
federal income tax while preserving capital and maintaining liquidity. The
following discussion supplements the description of the Fund's investment
policies contained in the Fund's Prospectuses. The investment objective cannot
be changed without approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests primarily in short-term municipal securities.
BANK INSTRUMENTS
The 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.
MUNICIPAL SECURITIES
The 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 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;
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<PAGE> 87
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 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 Funds 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 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 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 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
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<PAGE> 88
credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
TEMPORARY INVESTMENTS. The Fund may also invest in temporary
investments, such as repurchase agreements and reverse
repurchase agreements, during times of unusual market
conditions for defensive purposes.
From time to time, such as when suitable municipal bonds are
not available, the Fund may invest a portion of its assets in
cash. Any portion of the Fund's assets maintained in cash will
reduce the amount of assets in municipal bonds and thereby
reduce the Fund's yield.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Advisor to be
creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash and agrees that on a stipulated date in the
future 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 the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These securities are
marked to market daily and maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the 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
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<PAGE> 89
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. The 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. The Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in securities issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) securities are restricted as to disposition under the federal securities
laws and are generally sold to institutional investors, such as the Funds, who
agree that they are purchasing such securities for investment purposes and not
with a view to public distributions. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) securities are normally resold to other
institutional investors like the Funds through or with the assistance of the
issuer or investment dealers who make a market in such securities, thus
providing liquidity. The Funds believe that Section 4(2) securities and possibly
certain other restricted securities which meet the criteria for liquidity
established by the Trustees are quite liquid. The Funds intend, therefore, to
treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) securities, as determined by
the Advisors, as liquid and not subject to the investment limitation applicable
to illiquid securities.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange commission ("SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the Staff of the SEC has left the question of
determining the liquidity of all restricted 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.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin but may obtain such short-term credit as may be necessary for
clearance of transactions.
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<PAGE> 90
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money directly or indirectly through reverse repurchase
agreements in amounts up to one-third of the value of its total assets,
including the amount borrowed.
The Fund will not borrow money except as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while borrowings in excess of
5% of its total assets are outstanding. Currently, the Fund does not
intend to borrow money.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase
or hold U.S. government securities permitted by its investment
objective, policies and limitations.
UNDERWRITING
The 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.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although the Fund may invest in securities of
issuers whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, strattles, spreads, or any
combination of these.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, the Fund will not
purchase securities issued by any one issuer (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. The 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.
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<PAGE> 91
CONCENTRATION OF INVESTMENTS
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.
The Fund does not consider the issuance of separate classes of shares to involve
the issuance of "senior securities" within the meaning of the investment
limitation set forth above. The following limitations, however, may be changed
by the Board of Trustees (the "Trustees") without shareholder approval.
Shareholders will be notified before any material change in those limitations
becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund can acquire up to 3% of the total outstanding securities of
other investment companies. The Fund will limit its investments in the
securities of other investment companies to those money market funds
having investment objectives and policies similar to its own. The Fund
will purchase securities of other investment companies only in
open-market transactions involving no more than customary broker's
commissions. However, there is no limitation applicable to securities
of any investment company acquired in a merger, consolidation, or
acquisition of assets. It should be noted that investment companies
incur certain expenses such as management fees, and, therefore, any
investment by the Fund in such shares would be subject to customary
expenses.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in illiquid securities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets
in securities that are subject to restrictions on resale under federal
securities law.
INVESTING IN NEW ISSUERS
The 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
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except that 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 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.
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<PAGE> 92
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
For the purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
FOUNTAIN SQUARE FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions. Except as listed below, none of the Trustees or Officers
are affiliated with The Fifth Third Bank ("Fifth Third Bank"), Fifth Third
Bancorp, or BISYS Fund Services, L.P.
- --------------------------------------------------------------------------------
Albert E. Harris
5905 Graves Road
Cincinnati, OH
Birthdate: July 2, 1932
Chairman of the Board of Trustees
Formerly, Chairman of the Board EDB Holdings, Inc. (retired July, 1993).
- --------------------------------------------------------------------------------
Edward Burke Carey
394 East Town Street
Columbus, OH
Birthdate: July 2, 1945
Member of the Board of Trustees
President of Carey Leggett Realty Advisors.
- --------------------------------------------------------------------------------
Lee A. Carter
425 Walnut Street
Cincinnati, OH
Birthdate: December 17, 1938
Member of the Board of Trustees
Formerly, President, Local Marketing Corporation (retired December 31, 1993).
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<PAGE> 93
- --------------------------------------------------------------------------------
Stephen G. Mintos
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: February 5, 1954
President
From January 1987 to the present, employee of BISYS Fund Services, Inc.
- --------------------------------------------------------------------------------
George R. Landreth
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: July 11, 1942
Vice President
From December 1992 to present, employee of BISYS Fund Services, Inc.
- --------------------------------------------------------------------------------
Jeffrey C. Cusick
3435 Stelzer Road
Columbus, Ohio 43219-3035
Birthdate: May 19, 1959
Secretary and Treasurer
From July 1995 to present, employee of BISYS Fund Services, Inc.; from September
1993 to July 1995, Assistant Vice President, Federated Administrative Services;
from 1989 to September 1993, Manager, Client Services, Federated Administrative
Services.
- --------------------------------------------------------------------------------
FUND OWNERSHIP
As of the date of this Statement of Additional Information, officers and
Trustees own less than 1% of the outstanding shares of the Fund and there are no
persons known to be beneficial owners of more than 5% of the Fund's outstanding
shares.
TRUSTEES' COMPENSATION
NAME, AGGREGATE
POSITION WITH COMPENSATION FROM
TRUST TRUST *+
- --------------------------------------------------------------------------------
Edward Burke Carey $7,800
Trustee
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<PAGE> 94
Lee A. Carter $6,600
Trustee
Albert E. Harris $9,800
Trustee
*Information is furnished for the fiscal year ended July 31, 1997. The Trust is
the only investment company in the Fund complex.
+The aggregate compensation is provided for the Trust which is comprised of
sixteen portfolios as of the date of this Statement of Additional Information.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISOR TO THE FUND
The Fund's investment advisor is Fifth Third Bank (the "Advisor"). It provides
investment advisory services through its Trust and Investment Division. Fifth
Third Bank is a wholly-owned subsidiary of Fifth Third Bancorp.
The Advisor shall not be liable to the Trust, the Fund or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Fifth Third Bank receives an annual investment
advisory fee as described in the Prospectuses.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Advisor looks for prompt execution of the order at a favorable
price. In working with dealers, the Advisor will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Advisor makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Advisor may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Advisor
and may include:
o advice as to the advisability of investing in securities;
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<PAGE> 95
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Advisor and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers and dealers may be used by the Advisor in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Advisor or its affiliates might
otherwise have paid, it would tend to reduce expenses.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
BISYS Fund Services L.P., 3435 Stelzer Road, Columbus, Ohio 43219, provides
administrative services to the Fund for the fees set forth in the Prospectuses.
Pursuant to a separate agreement with BISYS Fund Services L.P., Fifth Third Bank
performs sub-administrative services on behalf of the Fund, for which it
receives compensation from BISYS Fund Services L.P.
Under the custodian agreement, Fifth Third Bank holds the Fund's portfolio
securities and keeps all necessary records and documents relating to its duties.
Fifth Third Bank's fees for custody services are based upon the market value of
Fund securities held in custody plus out-of-pocket expenses.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Fifth Third Bank serves as transfer agent and dividend disbursing agent for the
Funds. The fee paid to the transfer agent is based upon the size, type and
number of accounts and transactions made by shareholders.
Fifth Third Bank also maintains the Trust's accounting records. The fee paid for
this service is based upon the level of the Funds' average net assets for the
period plus out-of-pocket expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Bank of Cleveland are open for
business. The procedure for purchasing shares is explained in the Prospectuses
under "Investing in the Fund."
DISTRIBUTION PLAN (INVESTMENT A SHARES)
With respect to the Investment A Shares class of the Fund, the Trust has adopted
a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and
Exchange Commission pursuant to the Investment Company Act of 1940. The Plan
provides for payment of fees to the distributor to finance any activity which is
principally intended
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<PAGE> 96
to result in the sale of Investment A Shares of the Fund 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 Share purchases and redemptions, confirming and reconciling
all transactions, reviewing the activity in Fund accounts, and providing
training and supervision of broker personnel; posting and reinvesting dividends
to Fund accounts or arranging for this service to be performed by the Fund's
transfer agent; and maintaining and distributing current copies of prospectuses
and shareholder reports to the beneficial owners of Investment 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 Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Fifth Third Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the 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 Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share
based upon available indications of market value. The Trustees will
decide what, if any, steps should be taken if there is a difference of
more than 0.50 of 1% between the two values. The Trustees will take any
steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the
two methods of determining net asset value.
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<PAGE> 97
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
if rated, have received the requisite rating from one or more
nationally recognized statistical rating organizations. If the
instruments are not rated, the Trustees must determine that they are of
comparable quality. Shares of investment companies purchased by the
Fund will meet these same criteria and will have investment policies
consistent with the Rule. The Rule also requires the Fund to maintain a
dollar-weighted average portfolio maturity (not more than 90 days)
appropriate to the objective of maintaining a stable net asset value of
$1.00 per share. In addition, no instruments with a remaining maturity
of more than 397 days can be purchased by the Fund.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the
Fund will invest its available cash to reduce the average maturity to
90 days or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities
to take advantage of short-term market variations. This policy may,
from time to time, result in high portfolio turnover. Under the
amortized cost method of valuation, neither the amount of daily income
nor the net asset value is affected by any unrealized appreciation or
depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on
shares of the Fund computed by dividing the annualized daily income on
the Fund's portfolio by the net asset value computed as above may tend
to be higher than a similar computation made by using a method of
valuation based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on
shares of the Fund computed the same way may tend to be lower than a
similar computation made by using a method of calculation based upon
market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at the next computed net asset value after the Fund receives
the redemption request. Redemption procedures are explained in the Prospectuses
under "Redeeming Shares." Although the Custodian does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $10,000.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash up to the lesser of $250,000 or 1% of the 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.
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<PAGE> 98
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends,
interest, and gains from the sale of securities;
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
No portion of any income dividend paid by the Fund is eligible for the dividends
received deduction available to corporations. These dividends and any short-term
capital gains are taxable as ordinary income.
YIELD
- --------------------------------------------------------------------------------
The Fund calculates the yield for both classes of shares daily, based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is computed by:
o determining the net change in the value of a hypothetical
account with a balance of one Share at the beginning of the
base period, with the net change excluding capital changes but
including the value of any additional shares purchased with
dividends earned from the original one Share and all dividends
declared on the original and any purchased shares;
o dividing the net change in the account's value by the value of
the account at the beginning of the base period to determine
the base period return; and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders paying
those fees.
The tax-equivalent yield of the Fund is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a 37.90% tax rate and assuming that income is
100% tax-exempt.
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TAX EQUIVALENCY TABLE
The 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 Fund is an attractive choice for investors, particularly in
times of narrow spreads between "tax-free" and taxable yields.
<TABLE>
<CAPTION>
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TAXABLE YIELD EQUIVALENT FOR 1998
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<S> <C> <C> <C> <C> <C>
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
- -----------------------------------------------------------------------------------------------------------------------------------
SINGLE $1- $25,351- $ 61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 278,450
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Taxable Yield Equivalent
Yield
- -----------------------------------------------------------------------------------------------------------------------------------
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 Fund's effective yield for both classes of shares is computed by compounding
the unannualized base period return by:
o adding 1 to the base period return;
14
<PAGE> 100
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of both classes of shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in expenses of the Fund or of either class of shares;
and
o the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price.
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total
return. Total return assumes the reinvestment of all income
dividends and capital gains distributions, if any. From time
to time, the Fund will quote its Lipper ranking for either
class of shares in the "short-term U.S. government funds"
category in advertising and sales literature.
o SALOMON 30 DAY TREASURY BILL INDEX is a weekly quote of the
most representative yields for selected securities issued by
the U.S. Treasury, maturing in 30 days.
o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of
hundreds of money market funds on a weekly basis and through
its Money Market Insight publication reports monthly and
12-month-to-date investment results for the same money funds.
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.
15
<PAGE> 101
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S RATINGS GROUP CORPORATE AND MUNICIPAL BOND RATING
DEFINITIONS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P may apply a plus (+) or
minus (-) to the above rating classifications to show relative standing within
the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE AND MUNICIPAL BOND RATING DEFINITIONS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
16
<PAGE> 102
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or Minus
(-): Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATING DEFINITIONS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
SP-3--Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE SHORT-TERM LOAN RATING DEFINITIONS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus (+) sign.
17
<PAGE> 103
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.
18
<PAGE> 1
FOUNTAIN SQUARE(R) FUNDS
[PICTURE APPEARS HERE]
QUALITY GROWTH FUND
EQUITY INCOME FUND
BALANCED FUND
MID CAP FUND
INTERNATIONAL EQUITY FUND
BOND FUND FOR INCOME
QUALITY BOND FUND
U.S. GOVERNMENT SECURITIES FUND
MUNICIPAL BOND FUND
OHIO TAX FREE BOND FUND
COMMERCIAL PAPER FUND
GOVERNMENT CASH RESERVES FUND
U.S. TREASURY OBLIGATIONS FUND
Semi-Annual Report to Shareholders
January 31, 1998
<PAGE> 2
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus, which contains facts
concerning the objectives and policies, management fees, expenses and other
information.
For more complete information on the Fountain Square Funds, including fees,
expenses and sales charges, please call 1-888-799-5353 for a prospectus, which
you should read carefully before you invest or send money. The Fountain Square
Funds are distributed by BISYS Fund Services.
Fifth Third Bank serves as Investment Advisor to the Funds and receives a fee
for its services.
Fountain Square Funds, like all mutual funds:
. are NOT FDIC insured
. have no bank guarantee
. may lose value
<PAGE> 3
Letter from the Chief Investment Officer
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present the Fountain Square Funds Semi-Annual Report for
the six months ended January 31, 1998. This letter offers us an opportunity
to comment on recent market conditions and to review some of the principles
that have continued to guide our investment strategy. It also gives us a
chance to explain our outlook for the coming months, as well as our strategy
based on that outlook.
Gains accompanied by volatility
The financial markets continued to post gains during the recent period, with
the Standard & Poor's 500 delivering a total return of 3.56%. The Fountain
Square Funds also performed well during the period.
The stock market's positive return over the past six months was due to
several factors. For one, continued economic growth coupled with low
inflation provided an attractive environment for investors. Increased worker
productivity allowed companies to increase wages without raising prices.
Interest rates also declined significantly during the period, with the yield
on the 30-year Treasury bond falling by 50 basis points. Good corporate
earnings--reflecting increased productivity due to firms' large investments
in technology--also helped boost stock prices. And strong money flows into
stocks and mutual funds benefited equities.
The gains of the market were accompanied by increasing volatility, however,
due to severe economic and currency problems in Asian countries. In
particular, investors worried that weak Asian economies would hurt corporate
profits in the United States. Such concerns caused stock prices to fluctuate
significantly during the period.
A long-term focus
Despite the stock market's recent volatility, we resisted the temptation to
focus too closely on short-term events. As always, we managed the Funds with
long-term performance in mind. Our disciplined approach of buying shares of
consistent, high-quality growth companies trading at attractive valuations
again benefited the Funds' performances.
The Funds' strong performances reflect our strategy, which calls for
identifying long-term trends driving the stock market and investing in
high-quality growth companies that may benefit from those trends. For
example, we have invested heavily in shares of health-care firms and
financial services companies, which should benefit as aging baby-boomers
spend more on their health and invest more for their retirement. We also have
invested in shares of companies that supply or benefit from
productivity-enhancing technology, such as computers.
We also continued to take a long-term approach to bonds, taking advantage of
opportunities without exposing shareholders to unnecessary risk. For example,
we invested in fixed-income securities with strong credit ratings. We also
avoided large interest rate bets that would require us to deviate greatly
from the average maturity of the Funds' benchmarks. Instead, we took
advantage of opportunities in specific sectors or maturity ranges, while
maintaining relatively stable average maturities.
1
<PAGE> 4
Letter from the Chief Investment Officer continued
- --------------------------------------------------------------------------------
Looking ahead
During the next several months, we expect wage costs and productivity
gains to balance out, keeping inflation low. Yields on long-term bonds
likely will remain between 5.5% and 6.5%, although they could drift
slightly lower than that range.
We will keep a careful watch on how the recent economic turmoil in Asia
affects corporate earnings in the United States. Although we may see a
slight decline in United States GDP (Gross Domestic Product) growth this
year, we do not foresee a recession. We expect companies to continue to
post positive earnings growth in 1998, although the gains likely will be
more modest than in the past. For example, we estimate the Standard &
Poor's 500 Stock Index's(*) overall earnings growth rate will be 5% to
8%, although, we believe the earnings of the quality growth companies in
which our Funds invest could increase by 8% to 10%.
We believe that stock valuations are still reasonable if earnings growth
stays positive. Although valuation measures such as price-to-earnings
ratios are historically high, inflation is low enough to warrant those
valuations.
However, it is worth mentioning that the stock market has become more
volatile during the past several months, due in part to the Asian
economic crisis. What's more, we are far along in the economic cycle,
having recently completed our seventh consecutive year of economic
expansion. In that environment, we continue to stress the importance of
holding a variety of assets in your portfolio.
In particular, now may be a good time to examine your exposure to
international markets. Although returns from overseas markets during
recent years have been weak relative to returns at home, exposure to
international stocks is an important component of a diversified
portfolio. Moreover, such stocks may begin to perform well in the coming
year.
Thank you for your continued confidence in us. We will continue to manage
the Funds with a disciplined, long-term approach and will do our best to
help you meet your financial goals.
Sincerely,
/s/ James D. Berghausen, CFA
James D. Berghausen, CFA
Chief Investment Officer
Fifth Third Bank
(*)Standard & Poor's 500 Stock Index is an unmanaged market Index. This
index does not include transaction costs associates with buying and
selling securities, nor does it include any management fees.
2
<PAGE> 5
This page intentionally left blank
3
<PAGE> 6
Investment Reviews
- --------------------------------------------------------------------------------
Fountain Square Quality Growth Fund
The Fund posted a total return of 4.30% on Investment A Shares (before
deduction of sales charge)/1/ during the six months ended January 31,
1998. The Fund's return compared to a total return of 3.56% for the
Standard & Poor's 500 Index, one of the Fund's benchmarks.
The stock market's performance was more sluggish than it has been
recently due to already high valuations and concerns that economic
problems in Southeast Asia would hamper domestic growth. Within that
environment, we continued to invest in shares of high-quality companies
with strong earnings growth rates, while keeping an eye on the valuations
of our holdings.
That approach resulted in an overweighting in the technology,
health-care, financial services and capital goods sectors. The decision
to overweight health-care stocks was driven by attractive valuations in
the sector, accelerating growth rates and strong product cycles of such
companies as Schering-Plough Corp. (4.0% of net assets as of January 31,
1998) and American Home Products (3.4%). In the financial services
sector, the Fund's investment in Cincinnati Financial (2.2%) helped boost
performance.
We continued to underweight sectors with limited growth potential, high
valuations and a high degree of economic sensitivity. These sectors
included utilities, energy, consumer staples and basic materials.
Looking forward, we expect returns in the stock market during the next 12
to 18 months to be closer to their historical averages. We will continue
to emphasize shares of relatively large, high-quality growth companies
with low economic sensitivity, high earnings visibility and above-average
earnings dividend growth. We will also continue to carefully monitor the
valuations of the Fund's investments, in an effort to avoid holding
overvalued stocks. This should help improve downside protection.
As of January 31, 1998, the Fund's top holdings were Intel Corp. (5.1%),
Freddie Mac (4.4%), Cisco Systems (4.2%), Johnson & Johnson (4.1%) and
Schering-Plough Corp. (4.0%)./2/
/1/ With the maximum sales charge of 4.50%, the Fund's total return for
Investment A Shares was -0.40% for the six-month period.
/2/ The composition of the Fund's portfolio is subject to change.
4
<PAGE> 7
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in the Fountain Square Quality Growth Fund
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper Growth S&P/BARRA S&P 500 Investment Investment
Date Funds Average Growth Index Stock Index A Shares* C Shares**
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jan-88 10,000 10,000 10,000 9,550 10,000
Jan-89 11,651 11,760 12,013 10,974 11,440
Jan-90 13,036 13,848 13,742 12,519 12,984
Jan-91 14,259 15,619 14,893 14,405 14,877
Jan-92 18,503 20,021 18,274 18,358 18,889
Jan-93 20,231 21,565 20,195 19,929 20,439
Jan-94 23,069 22,641 22,790 20,545 21,070
Jan-95 22,048 23,427 22,920 20,564 21,090
Jan-96 29,550 32,783 31,757 26,950 27,639
Jan-97 36,342 42,208 40,132 34,563 35,217
Jan-98 43,594 55,232 50,951 44,434 44,948
</TABLE>
Average Annual Total Return for the Period Ended January 31, 1998/1/
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Investment A* Investment C**
------------- --------------
<S> <C> <C>
1 Year......................................22.75%..................27.63%
5 Year......................................16.32%..................17.08%
10 Year.....................................16.10%..................16.23%
- -----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
/1/ The quoted performance of the Quality Growth Fund includes performance of
certain collectively managed accounts advised by Fifth Third Bank, for periods
dating back to 1/31/88 and prior to the Quality Growth Fund's commencement of
operations on 11/20/92, as adjusted to reflect the expenses associated with the
Fund (without waivers or reimbursements). These collectively managed accounts
were not registered with the Securities and Exchange Commission and, therefore,
were not subject to the investment restrictions imposed by law on registered
mutual funds. If such accounts had been registered, the performance may have
been adversely affected. The performance shown reflects the deduction of fees
for value-added services associated with a mutual fund, such as investment
management and fund accounting fees. The performance also reflects reinvestment
of all dividends and capital-gains distributions.
* Reflects the maximum sales charge of 4.50%.
** Investment C Shares were initially offered April 19, 1996. The performance
figures for Investment C Shares for periods prior to such date represent the
performance for Investment A Shares of the Fund. Investment C Shareholders that
redeem within one year of purchase are subject to a contingent deferred sales
charge of 1.00%. The Investment A Shares are subject to a maximum front-end
sales charge of 4.50%. Investment C Shares are also subject to administrative
service fees at a maximum rate of 0.25% and Rule 12b-1 fees of up to 1.00% of
the average daily net asset value of Investment C Shares. If these 12b-1 fees
were reflected, performance would have been lower. Investment A Shares are
subject to Rule 12b-1 fees of up to 0.35% of the average daily net asset value
of Investment A Shares.
The Fund's performance is measured against the Standard & Poor's 500 Stock
Index, S&P/BARRA Growth Index, both of which are unmanaged indices generally
representative of the stock market, and the Lipper Growth Funds Average,
representative of the average of the total returns reported by all of the mutual
funds designated by Lipper Analytical Services, Inc. falling into this category.
The S&P's 500 Stock Index and the S&P/BARRA Growth Index do not reflect the
deduction of fees associated with a mutual fund. The Lipper Growth Funds Average
and the Fund's performance reflect the deduction of fees for these value-added
services.
Past performance is not indicative of future results. The investment return and
NAV will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
5
<PAGE> 8
- --------------------------------------------------------------------------------
Fountain Square Equity Income Fund
The Fund posted a total return of 12.61% on Investment A Shares (before
deduction of sales charge)/1/ during the six months ended January 31, 1998.
The Fund's total return compared favorably to a 4.33% return for Lipper
Equity Income Funds Average, and a 3.56% return for the S&P 500 Stock Index.
The environment during the period was favorable for the Fund, as falling
interest rates and continued earnings growth drove stock performance.
Investors, fearing that the financial crisis in Southeast Asia could lead to
slower U.S. economic growth, favored stocks of firms with above-average
earnings and dividend growth.
The Fund overweighted financial services, utilities and health-care stocks.
These shares benefited from investors' flight-to-quality, as well as from
falling interest rates. In particular, Cincinnati Financial Corp. (1.2% of
net assets as of January 31, 1998) helped boost the Fund's performance; its
stock rose over 120% during 1997, boosted by its addition to the S&P 500
Stock Index on December 17, 1997. Ameritech Corp. (5.2%) performed well in
the telecommunications sector. In addition, shares of pharmaceutical
companies, such as Merck & Co., Inc. (1.8%), also boosted the Fund's returns.
We expect earnings growth to drive the stock market's performance during the
coming months. We will continue to emphasize stocks of high-quality firms
that have potential to consistently increase their earnings and dividends. We
expect that earnings increases of roughly 7 to 10% will support stock price
gains in a similar range.
As of January 31, 1998, the Fund's top five holdings were Ameritech Corp.
(5.2%), Mellon Bank Corp. (5.2%), Fannie Mae (4.5%), GATX Corp. (4.4%), and
Alltel Corp. (4.3%)./2/
/1/ With the maximum sales charge of 4.50%, the Fund's total return for the
Investment A Shares was 7.55% for the six-month period. /2/ The composition
of the Fund's portfolio is subject to change.
6
<PAGE> 9
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in the Fountain Square Equity Income Fund
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper Equity Income S&P 500 Investment Investment C
Date Funds Average Stock Index A Shares* C Shares**
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jan-88 10,000 10,000 9,550 10,000
Jan-89 11,527 12,013 11,288 11,715
Jan-90 12,579 13,742 12,749 13,096
Jan-91 12,624 14,893 13,606 13,853
Jan-92 15,400 18,274 16,550 16,682
Jan-93 17,194 20,195 17,547 17,506
Jan-94 19,991 22,790 18,405 18,196
Jan-95 19,334 22,920 18,034 17,661
Jan-96 25,265 31,757 23,713 23,007
Jan-97 30,325 40,132 28,279 27,172
Jan-98 36,816 50,951 38,103 36,374
</TABLE>
Average Annual Total Return for the Period Ended January 31, 1998/1/
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Investment A* Investment C**
------------- --------------
<S> <C> <C>
1 Year......................................28.73%..................33.87%
5 Year......................................15.70%..................15.75%
10 Year.....................................14.32%..................13.79%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
/1/ The quoted performance of the Equity Income Fund includes performance of
certain collectively managed accounts advised by Fifth Third Bank, for periods
dating back to 1/31/88 and prior to the Equity Income Fund's commencement of
operations on 1/27/97, as adjusted to reflect the expenses associated with the
Fund (without waivers or reimbursements). These collectively managed accounts
were not registered with the Securities and Exchange Commission and, therefore,
were not subject to the investment restrictions imposed by law on registered
mutual funds. If such accounts had been registered, the performance may have
been adversely affected. The performance shown reflects the deduction of fees
for value-added services associated with a mutual fund, such as investment
management and fund accounting fees. The performance also reflects reinvestment
of all dividends and capital-gains distributions.
* Reflects the maximum sales charge of 4.50%.
** Investment C Shareholders that redeem within one year of purchase are subject
to a contingent deferred sales charge of 1.00%. Investment C Shares are also
subject to administrative service fees at a maximum rate of 0.25% and Rule 12b-1
fees of up to 1.00% of the average daily net asset value of Investment C Shares.
If these 12b-1 fees were reflected, performance would have been lower.
The Fund's performance is measured against the Standard & Poor's 500 Stock Index
and the Lipper Equity Income Funds Average. The S&P 500 Stock Index is an
unmanaged index that is generally representative of the U.S. Stock Market as a
whole. The Lipper Equity Income Funds Average is representative of the average
of the total returns reported by all of the mutual funds designated by Lipper
Analytical Services, Inc. falling into this category. The S&P 500 Stock Index
does not reflect the deduction of fees associated with a mutual fund. The Lipper
Equity Income Funds Average and the Fund's performance reflect the deduction of
fees for these value-added services.
Past performance is not indicative of future results. The investment return and
NAV will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
7
<PAGE> 10
- --------------------------------------------------------------------------------
Fountain Square Balanced Fund
The Fund posted a total return of 3.43% on Investment A Shares (before
deduction of sales charge)/1/ during the six months ended January 31, 1998.
The Fund's return compared to a 3.56% total return for the Standard & Poor's
500 Index, one of the Fund's benchmarks.
We maintained the Fund's asset allocation of 65% equities and 35%
fixed-income securities during the period. The Fund's stock holdings included
a 65% to 70% stake in shares of large, high-quality growth companies. We also
increased our position in shares of fast-growing mid-cap firms, taking
advantage of attractive valuations among such stocks. We overweighted the
technology, health-care, financial services and capital goods sectors. The
Fund was underweighted in utilities, energy, consumer staples, communication
services and basic materials companies.
The Fund's fixed-income holdings primarily were a mix of U.S. Treasury
securities and high-quality corporate issues, with some select
mortgage-backed bonds.
During the coming months, we anticipate that stocks could outperform bonds.
Therefore, we will continue to invest most of the portfolio in shares of
high-quality, large and medium-sized growth companies trading at reasonable
valuations. We will increase the Fund's exposure to mid-cap stocks, due to
their attractive valuations and high earnings visibility. However, we also
will continue to invest a reasonable percentage of the portfolio in
high-quality Treasury and corporate fixed-income securities in an effort to
help mitigate risk to shareholders.
As of January 31, 1998, the Fund's top five equity holdings were Intel (2.7%
of net assets), Freddie Mac (2.3%), Cisco Systems (2.2%), Johnson & Johnson
(2.1%) and Bank of New York (2.0%).(2)
/1/ With the maximum sales charge of 4.50%, the Fund's total return for the
Investment A Shares was -1.22% for the six-month period.
/2/ The composition of the Fund's portfolio is subject to change.
<PAGE> 11
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in the Fountain Square Balanced Fund
[LINE GRAPH APPEARS HERE]
Balanced Fund
<TABLE>
<CAPTION>
Lehman Brothers Lipper Balanced S&P/BARRA S&P 500 Investment A Investment C
Aggregate Bond Index Funds Average Growth Index Stock Index Shares* Shares**
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jan-88 10,000 10,000 10,000 10,000 9,550 10,000
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Jan-89 10,572 11,002 11,760 12,013 10,947 11,435
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Jan-90 11,784 12,079 13,848 13,742 12,733 13,228
- ----------------------------------------------------------------------------------------------------------------
Jan-91 13,165 13,049 15,619 14,893 14,849 15,380
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Jan-92 14,880 15,738 20,021 18,274 18,548 19,114
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Jan-93 16,513 17,264 21,565 20,195 20,659 21,221
- ----------------------------------------------------------------------------------------------------------------
Jan-94 18,022 19,530 22,641 22,790 21,525 22,112
- ----------------------------------------------------------------------------------------------------------------
Jan-95 17,604 18,779 23,427 22,920 21,320 21,901
- ----------------------------------------------------------------------------------------------------------------
Jan-96 20,587 23,732 32,783 31,757 26,632 27,359
- ----------------------------------------------------------------------------------------------------------------
Jan-97 21,257 27,359 42,208 40,132 31,232 31,911
- ----------------------------------------------------------------------------------------------------------------
Jan-98 23,541 32,179 55,232 50,951 37,962 38,523
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</TABLE>
Average Annual Total Return for the Period Ended January 31, 1998(1)
- --------------------------------------------------------------------------------
Investment A* Investment C**
------------ ------------
1 Year..................................16.06%...............20.72%
5 Year..................................11.91%...............12.66%
10 Year.................................14.27%...............14.43%
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/1/ The quoted performance of the Balanced Fund includes performance of certain
collectively managed accounts advised by Fifth Third Bank, for periods dating
back to 1/31/88 and prior to the Balanced Fund's commencement of operations on
11/20/92, as adjusted to reflect the expenses associated with the Fund (without
waivers or reimbursements). These collectively managed accounts were not
registered with the Securities and Exchange Commission and, therefore, were not
subject to the investment restrictions imposed by law on registered mutual
funds. If such accounts had been registered, the performance may have been
adversely affected. The performance shown reflects the deduction of fees for
value-added services associated with a mutual fund, such as investment
management and fund accounting fees. The performance also reflects reinvestment
of all dividends and capital-gains distributions.
* Reflects the maximum sales charge of 4.50%.
** Investment C Shares were initially offered April 19, 1996. The performance
figures for Investment C Shares for periods prior to such date represent the
performance for Investment A Shares of the Fund. Investment C Shareholders that
redeem within one year of purchase are subject to a contingent deferred sales
charge of 1.00%. The Investment A Shares are subject to a maximum front-end
sales charge of 4.50%. Investment C Shares are also subject to administrative
service fees at a maximum rate of 0.25% and Rule 12b-1 fees of up to 1.00% of
the average daily net asset value of Investment C Shares. If these 12b-1 fees
were reflected, performance would have been lower. Investment A Shares are
subject to Rule 12b-1 fees of up to 0.35% of the average daily net asset value
of Investment A Shares.
The Fund's performance is measured against the Standard & Poor's 500 Stock
Index, S&P/BARRA Growth Index, both of which are unmanaged indices generally
representative of the stock market; the Lehman Brothers Aggregate Bond Index, an
unmanaged index generally representative of the bond market as a whole, and the
Lipper Balanced Funds Average, representative of the average of the total
returns reported by all of the mutual funds designated by Lipper Analytical
Services, Inc. falling into this category. The S&P 500 Stock Index, the
S&P/BARRA Growth Index and the Lehman Brothers Aggregate Bond Index do not
reflect the deduction of fees associated with a mutual fund. The Lipper Balanced
Funds Average and the Fund's performance reflect the deduction of fees for these
value-added services.
Past performance is not indicative of future results. The investment return and
NAV will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
9
<PAGE> 12
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Fountain Square Mid Cap Fund
During the six months ended January 31, 1998, the Fund's total return was
7.19% for the Investment A Share class (before deduction of sales charge)./1/
That return compared to a 4.47% total return for the Standard & Poor's MidCap
400 Index, one of the Fund's benchmarks.
Shares of medium-sized firms performed well during the period, due to
attractive valuations and improving earnings for such firms. Furthermore, the
economic crisis in Southeast Asia caused many investors to shift assets from
shares of large, multinational firms with strong international exposure, to
shares of companies with less international exposure-and that group included
stocks of many mid-sized companies.
We continued to invest in shares of high-quality, medium-sized companies with
above-average growth prospects trading at attractive valuations. This
approach led us to overweight the financial services, technology, consumer
cyclicals and capital goods sectors. Stocks that helped boost the Fund's
return during the period included American Bankers Insurance Group (5.1% of
net assets) and Cincinnati Financial (2.6%) in the financial services sector;
Comair Holdings (4.5%) in the transportation and Casey's General Stores
(2.3%) in the consumer cyclicals sector./2/
We underweighted the basic materials, communication services, energy and
utilities sectors. We believe these sectors offered limited growth potential
during the period.
We expect shares of high-quality, medium-sized growth companies to perform
well relative to large- company stocks in the coming months. We believe
mid-cap stocks in general offer more attractive valuations, stronger earnings
growth potential and less exposure to international economies. We will
continue to invest in companies with potentially sustainable above-average
growth rates when their shares trade at attractive prices.
As of January 31, 1998, the Fund's top five holdings were American Bankers
Insurance Group (5.1%), Fiserv (4.9%), Comair Holdings (4.5%), First
Tennessee National (4.3%) and Cardinal Health (4.1%)./2/
/1/ With the maximum sales charge of 4.50%, the Fund's total return for the
Investment A Shares was 2.36% for the six-month period.
/2/ The composition of the Fund's portfolio is subject to change.
10
<PAGE> 13
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Growth of $10,000 Invested in the Fountain Square Mid Cap Fund
[LINE GRAPH APPEARS HERE]
Mid Cap Fund
Lipper MidCap Standard & Poor's Investment A Investment C
Funds Average MidCap 400 Index Shares * Shares **
- --------------------------------------------------------------------------------
Jan-88 10,000 10,000 9,550 10,000
- --------------------------------------------------------------------------------
Jan-89 11,911 12,345 11,764 12,248
- --------------------------------------------------------------------------------
Jan-90 13,360 14,340 13,486 13,991
- --------------------------------------------------------------------------------
Jan-91 14,576 16,038 15,835 16,353
- --------------------------------------------------------------------------------
Jan-92 20,617 22,704 21,918 22,546
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Jan-93 22,629 25,279 22,902 23,486
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Jan-94 26,517 29,117 23,535 24,135
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Jan-95 25,294 27,722 23,667 24,270
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Jan-96 33,353 36,448 29,850 30,612
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Jan-97 39,908 44,432 35,231 35,972
- --------------------------------------------------------------------------------
Jan-98 44,603 55,560 45,801 46,419
- --------------------------------------------------------------------------------
Average Annual Total Return for the Period Ended January 31, 1998/1/
- --------------------------------------------------------------------------------
Investment A* Investment C**
------------ ------------
1 Year......................................24.15%.................29.04%
5 Year......................................13.82%.................14.59%
10 Year.....................................16.44%.................16.59%
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- --------------------------------------------------------------------------------
/1/ The quoted performance of the Mid Cap Fund includes performance of certain
collectively managed accounts advised by Fifth Third Bank, for periods dating
back to 1/31/88 and prior to the Mid Cap Fund's commencement of operations on
11/20/92, as adjusted to reflect the expenses associated with the Fund (without
waivers or reimbursements). These collectively managed accounts were not
registered with the Securities and Exchange Commission and, therefore, were not
subject to the investment restrictions imposed by law on registered mutual
funds. If such accounts had been registered, the performance may have been
adversely affected. The performance shown reflects the deduction of fees for
value-added services associated with a mutual fund, such as investment
management and fund accounting fees. The performance also reflects reinvestment
of all dividends and capital-gains distributions.
* Reflects the maximum sales charge of 4.50%.
** Investment C Shares were initially offered April 19, 1996. The performance
figures for Investment C Shares for periods prior to such date represent the
performance for Investment A Shares of the Fund. Investment C Shareholders that
redeem within one year of purchase are subject to a contingent deferred sales
charge of 1.00%. The Investment A Shares are subject to a maximum front-end
sales charge of 4.50%. Investment C Shares are also subject to administrative
service fees at a maximum rate of 0.25% and Rule 12b-1 fees of up to 1.00% of
the average daily net asset value of Investment C Shares. If these 12b-1 fees
were reflected, performance would have been lower. Investment A Shares are
subject to Rule 12b-1 fees of up to 0.35% of the average daily net asset value
of Investment A Shares.
The Fund's performance is measured against the Standard & Poor's MidCap 400
Index, an unmanaged index generally representative of the mid-cap sector of the
U.S. stock market, and the Lipper MidCap Funds Average, representative of the
average of the total returns reported by all of the mutual funds designated by
Lipper Analytical Services, Inc. falling into this category. The Standard &
Poor's MidCap 400 Index does not reflect the deduction of fees associated with a
mutual fund. The Lipper MidCap Funds Average and the Fund's performance reflect
the deduction of fees for these value-added services.
Past performance is not indicative of future results. The investment return and
NAV will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
11
<PAGE> 14
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Fountain Square International Equity Fund+
The Fund posted a -2.50% loss on Investment A Shares (before deduction of
sales charge)/1/ during the six months ended January 31, 1998. That compared
to a -5.69% return for the Morgan Stanley Capital International EAFE (Europe,
Australasia and Far East) Index.
Foreign markets were very volatile, especially late in the period. There was
a divergence of returns between Europe and Asia: European stocks gained 12.6%
in local currency terms, while stock markets in the Far East (ex-Japan)
declined 28%. Japan's market fell 16%. Many Asian currencies also declined
significantly.
The Fund outperformed its benchmark, in part because we sold its stake in
Malaysia during the second quarter. Malaysia's market was down 65% in U.S.
dollar terms during the period. In September, we sold the Fund's entire
position in Hong Kong. That move helped the Fund, as Hong Kong's market lost
43% during the period. The Fund also benefited from its relatively low
investment in Japan, and from our strategy of hedging some of the Fund's
currency exposure. The currency-hedging strategy added more than a full
percentage point to the Fund's return.
Late in the period, we increased the Fund's exposure to Japan to roughly
equal the weighting of our benchmark. That shift reflected our belief that
Japanese stocks are undervalued. For example, the price-to-book and
price-to-sales ratios of the market are the cheapest of any developed market
in the EAFE index.
The Fund also benefited from its overweighting in Europe. Italy (which
delivered a 25.7% return in U.S. dollar terms during the period) and Spain
(18.9% return) were overweighted, while the Fund had neutral weightings in
France (3% return) and Germany (flat return). During the period, we trimmed
the Fund's overweight in the United Kingdom (12.5% return) to neutral, in
part due to concerns that the pound is somewhat overvalued./2/
The Fund's holdings within each country are broadly diversified among
industries and sectors. This reflects our belief that an emphasis on choosing
the right allocation among countries rather than the right individual stocks
will determine the Fund's performance.
We will continue to emphasize countries that offer attractive valuations and
good fundamentals. Although valuations in Europe are higher than they have
been historically, they look reasonable compared to interest rates and
earnings growth rates. As a result, we will retain the Fund's overweighting
in Europe. The Fund will remain underweight in Asia, because we have doubts
about Asian companies' chances for earnings growth and think that those
markets will trade lower. We also will continue to use currency hedging as a
defensive measure. The Fund remains underweighted in the United States
compared to global markets, because we are concerned about the outlook for
domestic earnings growth; moreover, U.S. stock valuations are expensive after
seven years of gains.
The Fund's top five holdings as of January 31, 1998, were Novartis (1.8% of
net assets), Glaxo Holdings (1.6%), Nippon Telegraph (1.6%), British
Petroleum Company (1.5%) and Lloyds (1.5)./2/
+ International investing involves increased risk and volatility.
/1/ With the maximum sales charge of 4.50%, the Fund's total return for the
Investment A Shares was -6.88% for the six-month period.
/2/ The composition of the Fund's portfolio is subject to change.
12
<PAGE> 15
Growth of $10,000 Invested in the Fountain Square International Equity Fund
[LINE GRAPH APPEARS HERE]
Investment Investment Morgan Stanley
C Shares** A Shares* International EAFE Index
- --------------------------------------------------------------------------------
8/18/94 10,000 9,550 10,000
Jan-95 9,010 8,605 9,449
Jan-96 10,830 10,344 11,007
Jan-97 11,072 10,647 11,251
Jan-98 12,620 12,180 12,443
Average Annual Total Return for the Period Ended January 31, 1998/1/
- --------------------------------------------------------------------------------
Investment A* Investment C**
------------ ------------
1 Year.......................................... 9.29% ............. 13.98%
Start of Performance (8/18/94).................. 5.87% .............. 6.96%
- --------------------------------------------------------------------------------
*Reflects the maximum sales charge of 4.50%.
**Investment C Shares were initially offered April 19, 1996. The performance
figures for Investment C Shares for periods prior to such date represent the
performance for Investment A Shares of the Fund. Investment C Shareholders
that redeem within one year of purchase are subject to a contingent deferred
sales charge of 1.00%. Investment C Shares were also subject to
administrative service fees at a maximum rate of 0.25% and Rule 12b-1 fees of
up to 1.00% of the average daily net asset value of Investment C Shares. If
these 12b-1 fees were reflected, performance would have been lower. The
maximum sales charge for Investment A Shares is 4.50%.
The International Equity Fund's performance is measured against the Morgan
Stanley Capital International EAFE Index, an unmanaged index generally
representative of the foreign stock market. The Index does not reflect the
deduction of fees associated with a mutual fund, such as investment
management and fund accounting fees. The Fund's performance reflects the
deduction of fees for these value-added services.
Past performance is not indicative of future results. The investment return
and NAV will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
13
<PAGE> 16
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Fountain Square Bond Fund For Income
During the six months ended January 31, 1998, the Fund distributed income of
$0.36 per share. Its net asset value per share increased from $12.19 to
$12.25, for a total return of 3.95% on Investment A Shares (before deduction
of sales charge)./1/ That return compares to a 4.27% return for the Fund's
benchmark, the Lehman Brothers Intermediate Government Corporate Bond Index,
and a 3.46% return for the Lipper Short-Intermediate Investment Grade Bond
Funds Average.
The economy grew at a moderate pace, and inflation remained low during the
period. Furthermore, investors worried that the severe economic turmoil in
Asia would eventually slow economic growth in the United States. Therefore,
interest rates declined, and bond prices rose significantly.
The Fund seeks to provide shareholders with stable current income, and
therefore takes a somewhat cautious approach. For example, the Fund's average
maturity began the period at 4.1 years and finished at 4 years. Meanwhile,
the Fund's already high average credit quality rose from AA2 to AA1. That
strategy benefited the Fund, as investors worried about the Asian crisis
flocked to high-quality issues./2/
At the same time, we took steps to maintain the Fund's commitment to
providing shareholders with attractive levels of current income. In
particular, we overweighted the Fund's exposure to corporate bonds relative
to its index. Corporate bonds made up 44.9% of the Fund's net assets as of
January 31, 1998; that compares to 38.8% for the benchmark. Treasury
securities made up only 26% of the portfolio at the end of the period, versus
64% of the benchmark./2/
We expect that the bond market will be volatile during the coming months.
Bond prices already have climbed to reflect the possibility that the Asian
crisis will reduce the growth rate of the U.S. economy. As of yet, however,
there is no economic data to confirm that hypothesis. Thus, investors likely
will react strongly to economic data that supports or weakens the argument
that there is a clear connection between the Asian crisis and our domestic
economy.
On balance, we expect that interest rates will remain stable or perhaps
decline slightly by the end of the year. We do not foresee any reduction in
short-term rates by the Federal Reserve in the near term; however, the Fed
could lower rates later in the year if the economy slows. In that
environment, we will extend the Fund's average maturity modestly to lock-in
higher yields as rates fall. We will continue to focus on issues with strong
credit quality to help reduce risk to shareholders. We also will emphasize
corporate bonds in the Fund's portfolio, to help provide an attractive level
of current income to shareholders.
/1/With the maximum sales charge of 4.50%, the Fund's total return for the
Investment A Shares was 2.55% for the six-month period.
/2/The composition of the Fund's portfolio is subject to change.
14
<PAGE> 17
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Growth of $10,000 Invested in the Fountain Square Bond Fund For Income
[LINE GRAPH APPEARS HERE]
Lipper
Short-Intermediate
Investment Lehman Brothers
Investment Investment Grade Bond Intermediate Gov't
C Shares** A Shares* Funds Average Corporate Index
Jan-88 10,000 9,550 10,000 10,000
Jan-89 10,455 10,085 10,419 10,521
Jan-90 11,366 11,065 11,349 11,664
Jan-91 12,376 12,164 12,412 12,947
Jan-92 13,741 13,649 13,931 14,557
Jan-93 14,964 15,016 15,395 16,049
Jan-94 15,946 16,591 16,786 17,308
Jan-95 14,893 15,238 16,255 17,066
Jan-96 17,055 17,630 18,242 19,519
Jan-97 17,127 17,882 18,855 20,216
Jan-98 18,413 19,384 20,202 22,007
Average Annual Total Return for the Period Ended January 31, 1998/1/
------------------------------------------------------------------------
Investment A* Investment C**
------------ ------------
1 Year.....................................3.51% .............7.52%
5 Year.....................................4.27% .............4.24%
10 Year....................................6.85% .............6.29%
------------------------------------------------------------------------
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/1/ The quoted performance of the Bond Fund for Income includes performance
of certain collectively managed accounts advised by Fifth Third Bank, for
periods dating back to 1/31/88 and prior to the Bond Fund For Income's
commencement of operations on 1/27/97, as adjusted to reflect the expenses
associated with the Fund (without waivers or reimbursements). These
collectively managed accounts were not registered with the Securities and
Exchange Commission and, therefore, were not subject to the investment
restrictions imposed by law on registered mutual funds. If such accounts had
been registered, the performance may have been adversely affected. The
performance shown reflects the deduction of fees for value-added services
associated with a mutual fund, such as investment management and fund
accounting fees. The performance also reflects reinvestment of all dividends
and capital-gains distributions.
* Reflects the maximum sales charge of 4.50%.
** Investment C Shareholders that redeem within one year of purchase are
subject to a contingent deferred sales charge of 1.00%. Investment C Shares
were also subject to administrative service fees at a maximum rate of 0.25%
and Rule 12b-1 fees of up to 1.00% of the average daily net asset value of
Investment C Shares. If these 12b-1 fees were reflected, performance would
have been lower.
The Fund's performance is measured against the Lehman Brothers Intermediate
Government Corporate Index, an unmanaged index generally representative of
the performance of the bond market as a whole. The Fund's performance is also
measured against the Lipper Short-Intermediate Investment Grade Bond Funds
Average, representative of the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. falling
into this category. The Lehman Brothers Intermediate Government Corporate
Index does not reflect the deduction of fees associated with a mutual fund.
The Lipper Short-Intermediate Investment Grade Bond Funds Average and the
Fund's performance reflect the deduction of fees for these value-added
services.
Past performance is not indicative of future results. The investment return
and NAV will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
15
<PAGE> 18
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Fountain Square Quality Bond Fund
The Fund delivered a total return of 4.40% on Investment A Shares (before
deduction of sales charge)/1/ during the six months ended January 31, 1998.
That return reflected an income distribution of $0.29 per share and an
increase in the Fund's net asset value from $9.85 to $9.98 per share. The
Fund's benchmark, the Lehman Brothers Aggregate Bond Index and the Lipper
Intermediate Investment Grade Debt Funds Average, returned 4.90% and 4.21%,
respectively, for the period.
Interest rates declined considerably during most of the period, due to
moderate economic growth, continued low inflation and investor concerns that
financial turmoil in Asia would ultimately slow U.S. economic growth. The
yield on the 30-year Treasury bond fell to 5.87% at the end of the period,
down from 6.30% in August. As a result, bond prices-which generally move in
the opposite direction of rates-rose significantly.
The average maturity of the Fund fell from 8.5 years on August 1, 1997, to 7
years by January 31, 1998. The Fund benefited from shifts in the yield curve,
which allowed it to outperform the Fund's index without increasing
shareholders' risk over the period. For example, 30-year securities offered a
very slight yield to maturity advantage--only 0.22 percentage points--over
two-year securities early in the period. Therefore, we sold the Fund's
30-year positions and purchased shorter-term securities. When the yield
advantage on long-term securities increased in January, we increased our
holdings in longer-term bonds.
We continued to hold issues with very strong credit quality, to help reduce
risks to shareholders. The average credit quality of the Fund's holdings
during the period remained high at AA1. The Fund also benefited from our
decision to underweight mortgage securities, which typically underperform
Treasuries when interest rates decline. In general, we were underweighted in
agency securities and overweighted in Treasuries and high-quality corporate
securities.
Looking ahead, interest rates likely will remain relatively stable or perhaps
decline somewhat during the next 12 months. We believe Federal Reserve policy
will be neutral in the short term, although they may act to reduce short-term
rates if the economy slows later in the year. Meanwhile, we believe the bond
market will react strongly to any piece of economic data that portrays
continued vibrant economy by decreasing prices. That is because investors
have already priced in the possibility of an economic slowdown in the United
States due to the Asian crisis--but there is no economic data out yet to back
that up.
We will continue to focus on high-quality Treasury and corporate bonds,
underweighting mortgage-backed securities and taking advantage of yield
discrepancies that occur between different maturity sectors of the market. In
addition, we will maintain a neutral to relatively long average maturity,
since we believe that interest rates will eventually trend downward.
/1/ With the maximum sales charge of 4.50%, the Fund's total return for the
Investment A shares was -0.29% for the six-month period.
16
<PAGE> 19
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Growth of $10,000 Invested in the Fountain Square Quality Bond Fund
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers Lipper Intermediate
Intermediate Govt. Investment Grade Debt Investment A Investment C
Corporate Index Funds Average Shares * Shares **
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jan-88 10,000 10,000 9,550 10,000
- -----------------------------------------------------------------------------------------
Jan-89 10,521 10,416 10,008 10,426
- -----------------------------------------------------------------------------------------
Jan-90 11,664 11,381 10,953 11,366
- -----------------------------------------------------------------------------------------
Jan-91 12,947 12,486 12,013 12,408
- -----------------------------------------------------------------------------------------
Jan-92 14,557 14,186 13,459 13,847
- -----------------------------------------------------------------------------------------
Jan-93 16,049 15,755 14,704 15,081
- -----------------------------------------------------------------------------------------
Jan-94 17,308 17,401 15,783 16,166
- - ---------------------------------------------------------------------------------------
Jan-95 17,066 16,692 15,259 15,650
- -----------------------------------------------------------------------------------------
Jan-96 19,519 19,442 17,526 18,011
- -----------------------------------------------------------------------------------------
Jan-97 20,216 20,139 17,809 18,200
- -----------------------------------------------------------------------------------------
Jan-98 22,007 22,170 19,504 19,743
- -----------------------------------------------------------------------------------------
</TABLE>
Average Annual Total Return for the Period Ended January 31, 1998/1/
- --------------------------------------------------------------------------------
Investment A* Investment C**
------------ ------------
1 Year...................................4.54%.................8.48%
5 Year...................................4.84%.................5.54%
10 Year..................................6.92%.................7.05%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/1/ The quoted performance of the Quality Bond Fund includes performance of
certain collectively managed accounts advised by Fifth Third Bank, for
periods dating back to 1/31/88 and prior to the Quality Bond Fund's
commencement of operations on 11/20/92, as adjusted to reflect the expenses
associated with the Fund (without waivers or reimbursements). These
collectively managed accounts were not registered with the Securities and
Exchange Commission and, therefore, were not subject to the investment
restrictions imposed by law on registered mutual funds. If such accounts had
been registered, the performance may have been adversely affected. The
performance shown reflects the deduction of fees for value-added services
associated with a mutual fund, such as investment management and fund
accounting fees. The performance also reflects reinvestment of all dividends
and capital-gains distributions.
* Reflects the maximum sales charge of 4.50%.
** Investment C Shares were initially offered April 19, 1996. The performance
figures for Investment C Shares for periods prior to such date represent the
performance for Investment A Shares of the Fund. Investment C Shareholders
that redeem within one year of purchase are subject to a contingent deferred
sales charge of 1.00%. The Investment A Shares are subject to a maximum
front-end sales charge of 4.50%. Investment C Shares are also subject to
administrative service fees at a maximum rate of 0.25% and Rule 12b-1 fees of
up to 1.00% of the average daily net asset value of Investment C Shares. If
these 12b-1 fees were reflected, performance would have been lower.
Investment A Shares are subject to Rule 12b-1 fees of up to 0.35% of the
average daily net asset value of Investment A Shares.
The Fund's performance is measured against the Lehman Brothers Aggregate Bond
Index, an unmanaged index generally representative of the performance of the
bond market as a whole, and the Lipper Intermediate Investment Grade Debt
Funds Average, representative of the average of the total returns reported by
all of the mutual funds designated by Lipper Analytical Services, Inc.
falling into this category. The Lehman Brothers Aggregate Bond Index does not
reflect the deduction of fees associated with a mutual fund. The Lipper
Intermediate Investment Grade Debt Funds Average and the Fund's performance
reflect the deduction of fees for these value-added services.
Past performance is not indicative of future results. The investment return
and NAV will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
17
<PAGE> 20
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Fountain Square U.S. Government Securities Fund
During the six months ended January 31, 1998, the Fund distributed $0.27 per
share. Its net asset value per share increased from $9.75 to $9.87, for a
total return of 4.10% on Investment A Shares (before deduction of sales
charge)./1/ The return compares to 4.27% and 3.58% returns for the Fund's
benchmarks, the Lehman Brothers Intermediate Government Bond Index and the
Lipper Short-Intermediate Government Bond Funds Average, respectively.
Although bond prices declined early in the period, prices rose considerably
beginning in October. The rally reflected a number of factors, including
continued moderate economic growth and low inflation. In addition, the
financial crisis in Asia seemed likely to lead to slower economic growth in
the United States. Those factors prevented the Federal Reserve from taking
any action that would boost interest rates.
We extended the Fund's average maturity from 2.9 years to 3.1 years early in
the period as interest rates rose. That strategy benefited the Fund as rates
declined later. We also continued to take advantage of shifts in the relative
yields of securities with different maturities. For example, we shifted
assets from seven-year Treasury bonds to four-year Treasury bonds when the
latter seemed to offer a more attractive outlook. At the same time, we put
more cash to work in the bond market to avoid reducing the overall average
maturity of the portfolio.
The Fund maintained an AAA average credit rating. We underweighted callable
securities and mortgage issues in favor of Treasuries, which made up 57.1% of
the Fund's net assets at the end of the period. That approach also helped
boost the Fund's returns, as the Asian crisis encouraged a flight by
investors to the highest quality issues./2/
Looking ahead, we will keep a close eye on inflationary pressures. Most
economists believe that any wage pressures will be dampened by slower
economic growth in the United States due to fallout from the Asian crisis.
However, we will watch closely for inflationary signs that contradict that
outlook.
We expect interest rates to continue to decline over the long term. However,
bond market volatility will likely offer opportunities to make trades that
will enhance the Fund's returns. In particular, we will lengthen the
portfolio slightly when bond prices decline, and shorten the Fund's average
maturity when the market rallies. As always, we seek to maintain a steady
income for shareholders while managing the Fund's total return.
/1/ With the maximum sales charge of 4.50%, the Fund's total return for the
Investment A Shares was -0.59% for the six-month period.
/2/ The composition of the Fund's portfolio is subject to change.
<PAGE> 21
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in the Fountain Square U.S. Government
Securities Fund
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers Lipper Short-Intermediate
Intermediate Govt. U.S. Government Bond Investment A Investment C
Bond Index Funds Average Shares * Shares **
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jan-88 10,000 10,000 9,550 10,000
- -----------------------------------------------------------------------------------------
Jan-89 10,486 10,299 9,937 10,327
- -----------------------------------------------------------------------------------------
Jan-90 11,627 11,287 10,737 11,105
- -----------------------------------------------------------------------------------------
Jan-91 12,950 12,508 11,737 12,101
- -----------------------------------------------------------------------------------------
Jan-92 14,484 13,874 12,738 13,070
- -----------------------------------------------------------------------------------------
Jan-93 15,929 15,113 13,553 13,863
- -----------------------------------------------------------------------------------------
Jan-94 17,085 16,070 14,385 14,713
- -----------------------------------------------------------------------------------------
Jan-95 16,893 15,868 14,131 14,453
- -----------------------------------------------------------------------------------------
Jan-96 19,179 17,730 15,877 16,240
- -----------------------------------------------------------------------------------------
Jan-97 19,866 18,434 16,215 16,482
- -----------------------------------------------------------------------------------------
Jan-98 21,596 19,823 17,536 17,658
- -----------------------------------------------------------------------------------------
</TABLE>
Average Annual Total Return for the Period Ended January 31, 1998/1/
- --------------------------------------------------------------------------------
Investment A* Investment C**
------------ ------------
1 Year.....................................3.33%................7.14%
5 Year.....................................4.32%................4.96%
10 Year....................................5.78%................5.86%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/1/ The quoted performance of the U.S Government Securities Fund includes
performance of certain collectively managed accounts advised by Fifth Third
Bank, for periods dating back to 1/31/88 and prior to the U.S. Government
Securities Fund's commencement of operations on 11/20/92, as adjusted to
reflect the expenses associated with the Fund (without waivers or
reimbursements). These collectively managed accounts were not registered with
the Securities and Exchange Commission and, therefore, were not subject to
the investment restrictions imposed by law on registered mutual funds. If
such accounts had been registered, the performance may have been adversely
affected. The performance shown reflects the deduction of fees for
value-added services associated with a mutual fund, such as investment
management and fund accounting fees. The performance also reflects
reinvestment of all dividends and capital-gains distributions.
*Reflects the maximum sales charge of 4.50%.
**Investment C Shares were initially offered April 19, 1996. The performance
figures for Investment C Shares for periods prior to such date represent the
performance for Investment A Shares of the Fund. Investment C Shareholders
that redeem within one year of purchase are subject to a contingent deferred
sales charge of 1.00%. The Investment A Shares are subject to a maximum
front-end sales charge of 4.50%. Investment C Shares are also subject to
administrative service fees at a maximum rate of 0.25% and Rule 12b-1 fees of
up to 1.00% of the average daily net asset value of Investment C Shares. If
these 12b-1 fees were reflected, performance would have been lower.
Investment A Shares are subject to Rule 12b-1 fees of up to 0.35% of the
average daily net asset value of Investment A Shares.
The Fund's performance is measured against the Lehman Brothers Intermediate
Government Bond Index, an unmanaged index generally representative of
intermediate-term government bonds and the Lipper Short-Intermediate U.S.
Government Bond Funds Average, representative of the average of the total
returns reported by all of the mutual funds designated by Lipper Analytical
Services, Inc. falling into this category. The Lehman Brothers Intermediate
Government Bond Index does not reflect the deduction of fees associated with
a mutual fund. The Lipper Short-Intermediate U.S. Government Bond Funds
Average and the Fund's performance reflect the deduction for fees for these
value-added services.
Past performance is not indicative of future results. The investment return
and NAV will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
19
<PAGE> 22
- --------------------------------------------------------------------------------
Fountain Square Municipal Bond Fund/+/
During the six months ended January 31, 1998, the Fund delivered a total
return of 2.97% on Investment A Shares (before deduction of sales charge)./1/
Its net asset value remained steady at $12.33 per share, and shareholders
received an income distribution of $0.27. The Fund's return compared to 3.61%
and 4.21% total returns for its benchmarks, the Lehman Brothers 7-Year
Municipal Bond Index and the Lipper Intermediate Investment Grade Debt Funds
Average, respectively.
Municipal bond yields rose early in the period, along with yields on Treasury
securities. But while Treasury rates fell sharply beginning in October due to
the crisis in Asia, municipal bond yields remained relatively stable. Yields
on 10-year Treasury bonds declined 0.49 percentage points during the period,
from 6.6% to 5.5%. By contrast, yields on comparable municipal bonds declined
only slightly, from 4.5% to 4.3%. One reason was that investors were eager to
take shelter in the highest quality issues, such as Treasuries. In addition,
a relatively heavy supply of municipal issues in January helped support
tax-exempt yields.
At the end of November, 30-year municipal bonds yielded 85% of the yield on
30-year Treasuries. But as Treasury yields declined, that percentage rose to
90%, making municipal bonds more attractive relative to Treasuries. Although
the percentage declined again to 84% in December, municipal bonds remained
attractive.
We lengthened the Fund's duration from 5.62 years to around 5.98% years when
yields rose during August. We maintained a similar duration through December
as the municipal market rallied. But we allowed new cash flow to gradually
shorten the Fund's duration in January.
We maintained the Fund's high credit quality, with an overall credit rating
of AA1. We enhanced the credit quality of the portfolio by purchasing select
insured bonds and by shifting some assets from revenue bonds into general
obligation bonds (GOs). The Fund's growing assets also allowed us to take
larger positions, helping to keep trading costs lower.
We expect that as the Treasury bond market becomes less volatile, the ratio
of municipal bond yields to Treasury yields will return to normal from its
relatively high current level. However, U.S. interest rates are not likely to
decline further until we see the domestic economy slowing in response to the
Asian crisis. As always, we will continue to pursue the Fund's primary
objective--seeking to protect shareholders' income stream while seeking
attractive opportunities to boost the Fund's yield.
/+/ Some or all of the income may be subject to the federal alternative
minimum tax and to certain state and local taxes.
/1/ With the maximum sales charge of 4.50%, the Fund's total return for the
Investment A Shares was -1.67% for the six-month period.
20
<PAGE> 23
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in the Fountain Square Municipal Bond Fund
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers
Lipper Intermediate Municipal Bond Index/
Investment Investment Municipal Debt Lehman Brothers 7-Year
Date C Shares** A Shares* Funds Average Municipal Bond Index
- ---- ----------- ---------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Jan-88 10,000 9,550 10,000 10,000
Jan-89 10,295 9,936 10,508 10,857
Jan-90 10,873 10,591 11,198 11,729
Jan-91 11,538 11,362 12,120 13,114
Jan-92 12,497 12,429 13,287 14,463
Jan-93 13,124 13,187 14,464 15,817
Jan-94 13,838 14,023 15,931 17,400
Jan-95 13,444 13,779 15,493 17,054
Jan-96 14,514 15,013 17,344 19,293
Jan-97 14,846 15,514 17,890 20,013
Jan-98 15,847 16,681 18,731 21,694
</TABLE>
Average Annual Total Return for the Period Ended January 31, 1998/1/
-------------------------------------------------------------------------
Investment A* Investment C**
------------ ------------
1 Year....................................2.68%..............6.74%
5 Year....................................3.86%..............3.84%
10 Year...................................5.25%..............4.71%
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/1/ The quoted performance of the Municipal Bond Fund includes performance of
certain collectively managed accounts advised by Fifth Third Bank, for
periods dating back to 1/31/88 and prior to the Municipal Bond Fund's
commencement of operations on 1/27/97, as adjusted to reflect the expenses
associated with the Fund (without waivers or reimbursements). These
collectively managed accounts were not registered with the Securities and
Exchange Commission and, therefore, were not subject to the investment
restrictions imposed by law on registered mutual funds. If such accounts had
been registered, the performance may have been adversely affected. The
performance shown reflects the deduction of fees for value-added services
associated with a mutual fund, such as investment management and fund
accounting fees. The performance also reflects reinvestment of all dividends
and capital-gains distributions.
* Reflects the maximum sales charge of 4.50%.
** Investment C Shareholders that redeem within one year of purchase are
subject to a contingent deferred sales charge of 1.00%. Investment C Shares
were also subject to administrative service fees at a maximum rate of 0.25%
and Rule 12b-1 fees of up to 1.00% of the average daily net asset value of
Investment C Shares. If these 12b-1 fees were reflected, performance would
have been lower.
The Fund's performance is measured against the Lehman Brothers Municipal Bond
Index, from 1/31/88 to 1/31/90, prior to the creation of the Lehman Brothers
7-Year Municipal Bond Index against which the performance is now measured.
Both Lehman Brothers indices are unmanaged indices that are generally
representative of municipal bonds with intermediate maturities. The Fund's
performance is also measured against the Lipper Intermediate Municipal Debt
Funds Average, which is representative of the average of the total returns
reported by all of the mutual funds designated by Lipper Analytical Services,
Inc. falling into this category. The Lehman Brothers Municipal Bond Index and
the Lehman Brothers 7-Year Municipal Bond Index do not reflect the deduction
of fees associated with a mutual fund. The Lipper Intermediate Municipal Debt
Funds Average and the Fund's performance reflect the deduction of fees for
these value-added services.
Past performance is not indicative of future results. The investment return
and NAV will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
21
<PAGE> 24
- --------------------------------------------------------------------------------
Fountain Square Ohio Tax Free Bond Fund/+/
The Fund posted a total return of 3.04% on Investment A Shares (before
deduction of sales charge)/1/ during the six months ended January 31, 1998.
That return reflected an income distribution of $0.22 per share and an
increase in the Fund's net asset value from $10.31 to $10.36 per share. The
Fund's benchmarks the Lehman Brothers 7-Year Municipal Bond Index and the
Lipper Intermediate Municipal Debt Funds Average, returned 3.61% and 3.18%,
respectively, for the period.
The Ohio municipal market reflected many of the factors that drove the
performance of the broader tax-exempt market. Tax-exempt bond yields rose
early in the period, along with yields on Treasury securities. But the two
sectors of the bond market diverged somewhat after that: Treasury rates fell
significantly beginning in October due to the Asian economic crisis, while
municipal bond yields remained relatively stable.
For example, yields on 10-year Treasury bonds declined 0.49% during the
period, from 6.0% to 5.5%. By contrast, yields on Ohio 10-year general
obligation bonds (GOs) declined more modestly, from 4.5% to 4.3%. The
difference reflected the fact that investors, worried by the Asian crisis,
were eager to take shelter in the highest quality issues. Moreover, the Ohio
tax-exempt market saw heavy issuance in January, which helped support yields.
We lengthened the Fund's duration from 5.62 years to around 5.78 years when
yields rose in August. We maintained a similar duration through December as
the municipal market rallied. However, we allowed new cash flow to gradually
shorten the Fund's duration in January.
We maintained the Fund's high credit quality, with an average rating of AA.
We boosted that rating by adding to the Fund's insured bonds, which were
relatively inexpensive, compared to non-insured bonds of comparable quality.
In addition, the Fund's assets continued to grow, allowing us to take larger
positions, which helps to keep trading costs lower.
Ohio's economy remains strong and diverse, and we will continue to maintain
the Fund's high credit quality by purchasing insured bonds and GOs when they
are trading at attractive prices. We also will look for opportunities to
shift from callable securities to non-callable issues. That approach is
designed to help the Fund take advantage of interest rate declines, which are
likely to occur as the Asian financial crisis affects the U.S. economy. In
addition, we will look for chances to sell small odd-lot positions when they
can fetch attractive prices, and use the proceeds to purchase larger blocks
of individual securities.
If the large supply of Ohio municipal issues pushes rates to attractive
levels, we may extend the Fund's duration. However, we will keep an eye on
economic forces, and will act to reduce the Fund's risks if inflationary
pressures threaten to cause a slump in the municipal market.
/+/ Some or all of the income may be subject to the federal alternative
minimum tax and to certain state and local taxes.
/1/ With the maximum sales charge of 4.50%, the Fund's total return for the
Investment A Shares was -1.60% for the six-month period.
22
<PAGE> 25
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in the Fountain Square Ohio Tax Free Bond Fund
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers
Lipper Intermediate Municipal Bond Index/
Investment Investment Municipal Debt Lehman Brothers 7-Year Lehman Brothers 5-Year
Date C Shares** A Shares* Funds Average Municipal Bond Index Municipal Bond Index
- ---- ---------- ---------- ------------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Jan-88 10,000 9,550 10,000 10,000 10,000
Jan-89 10,388 10,013 10,508 10,857 10,540
Jan-90 11,054 10,693 11,198 11,729 11,353
Jan-91 11,748 11,414 12,120 13,114 12,402
Jan-92 12,843 12,529 13,287 14,463 13,657
Jan-93 13,551 13,277 14,464 15,817 14,822
Jan-94 14,531 14,253 15,931 17,400 16,068
Jan-95 14,083 13,813 15,493 17,054 15,917
Jan-96 15,878 15,573 17,344 19,293 17,730
Jan-97 16,145 15,931 17,890 20,013 18,359
Jan-98 17,257 17,148 18,731 21,694 19,644
</TABLE>
Average Annual Total Return for the Period Ended January 31, 1998(1)
------------------------------------------------------------------------
Investment A* Investment C**
------------ ------------
1 Year...................................2.85%.............6.89%
5 Year...................................4.29%.............4.95%
10 Year..................................5.54%.............5.61%
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/1/ The quoted performance of the Ohio Tax Free Bond Fund includes
performance of certain collectively managed accounts advised by Fifth Third
Bank, for periods dating back to 1/31/88 and prior to the Ohio Tax Free Bond
Fund's commencement of operations on 5/27/93, as adjusted to reflect the
expenses associated with the Fund (without waivers or reimbursements). These
collectively managed accounts were not registered with the Securities and
Exchange Commission and, therefore, were not subject to the investment
restrictions imposed by law on registered mutual funds. If such accounts had
been registered, the performance may have been adversely affected. The
performance shown reflects the deduction of fees for value-added services
associated with a mutual fund, such as investment management and fund
accounting fees. The performance also reflects reinvestment of all dividends
and capital-gains distributions.
* Reflects the maximum sales charge of 4.50%.
** Investment C Shares were initially offered April 19, 1996. The performance
figures for Investment C Shares for periods prior to such date represent the
performance for Investment A Shares of the Fund. Investment C Shareholders
that redeem within one year of purchase are subject to a contingent deferred
sales charge of 1.00%. The Investment A Shares are subject to a maximum sales
charge of 4.50%. Investment C Shares are also subject to administrative
service fees at a maximum rate of 0.25% and Rule 12b-1 fees of up to 1.00% of
the average daily net asset value of Investment C Shares. If these 12b-1 fees
were reflected, performance would have been lower. Investment A Shares are
subject to Rule 12b-1 fees of up to 0.35% of the average daily net asset
value of Investment A Shares.
The Fund's performance is measured against the Lehman Brothers Municipal Bond
Index from 1/31/88 to 1/31/90, prior to the creation of the Lehman Brothers
7-Year Municipal Bond Index, against which the Fund's performance is now
measured. The Fund's performance is also measured against the Lehman 5-Year
Municipal Bond Index. The Lehman Brothers indices are unmanaged indices
generally representative of the intermediate-term municipal bond market. The
Fund's performance is also measured against the Lipper Intermediate Municipal
Debt Funds Average, which is representative of the average of the total
returns reported by all of the mutual funds designated by Lipper Analytical
Services, Inc. falling into this category. The Lehman Brothers 5-Year and
Lehman 7-Year Municipal Bond Indices do not reflect the deduction of fees
associated with a mutual fund. The Lipper Intermediate Municipal Debt Funds
Average and the Fund's performance do reflect the deduction of fees for these
value-added services.
Past performance is not indicative of future results. The investment return
and NAV will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
23
<PAGE> 26
- --------------------------------------------------------------------------------
Fountain Square Money Market Funds/+/
At the start of the recent six-month period ended January 31, 1998, investors
were uncertain about the strength of the economy and were concerned about the
potential for wage inflation and the possibility that the Federal Reserve
would change short-term interest rates. However, moderate economic growth,
low inflation and news of economic turmoil in Asia caused interest rates to
decline until late December. In that environment, Fed policy remained
unchanged.
In late December, short-term rates temporarily increased due to certain
year-end anomalies. For example, the Federal Funds Rate tends to spike during
the final days of December, boosting rates on discount notes and commercial
paper. Rates continued to be volatile in January, due in part to investor
concerns about the Asian currency crisis.
During the period, the Funds' average maturities ranged between 35 and 45
days--a neutral, fairly conservative position relative to the Funds' peer
group. We did not feel that economic signals were clear enough to justify a
large bet on the direction of interest rates. That conservative strategy
benefited the Funds' returns, as very short-term overnight securities traded
better than longer-term issues during much of the period.
We further boosted returns in the Commercial Paper Fund by increasing our
investments in various types of commercial paper and repo's. That helped the
Fund capture extra yield when yields rose in late December.
We do not expect the Fed to make any changes to short-term rates until at
least midsummer. At that point, second-quarter corporate earnings will be
released, which will indicate the effects of the Asian crisis on our economy.
Meanwhile, we will maintain the Funds' current strategies, in an effort to
provide attractive yields to shareholders without exposing them to
unnecessary risk.
Fountain Square Commercial Paper Fund is a no-load money market mutual fund
that invests primarily in high-quality commercial paper. Commercial paper
represents very short-term loans made by banks and other corporations.
Fountain Square Government Cash Reserves Fund is a no-load money market
mutual fund that invests in short-term U.S. government securities. The Fund
limits its investments to U.S. government securities paying interest that
generally would be exempt from state income taxes.
Fountain Square U.S. Treasury Obligations Fund is a no-load money market fund
that invests in short-term U.S. Treasury obligations and repurchase
agreements fully collateralized by such Treasury securities.
/+/ Investments in the Funds are neither insured nor guaranteed by the U.S.
Government. Yields will fluctuate, and there can be no assurance that the
Funds will be able to maintain a stable NAV of $1.00 per share.
24
<PAGE> 27
Fountain Square Quality Growth Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ---------------------------------------------------- -----------
Common Stocks -- 97.0%
- --------------------------------------------------------------
Banking -- 7.7%
---------------------------------------------------
330,000 Bank of New York Co., Inc. $17,881,875
---------------------------------------------------
72,000 Mellon Bank Corp. 4,347,000
---------------------------------------------------
390,000 Norwest Corp. 14,235,000
--------------------------------------------------- -----------
Total 36,463,875
--------------------------------------------------- -----------
Business Services -- 1.0%
---------------------------------------------------
110,000 Cintas Corp. 4,592,500
--------------------------------------------------- -----------
Chemicals -- 3.8%
---------------------------------------------------
430,000 Praxair, Inc. 17,818,125
--------------------------------------------------- -----------
Computer Software & Services -- 7.9%
---------------------------------------------------
420,000 First Data Corp. 12,862,499
---------------------------------------------------
41,400 Microsoft Corp. (b) 6,176,363
---------------------------------------------------
575,000 Oracle Corp. (b) 13,368,749
---------------------------------------------------
115,000 Sun Microsystems, Inc. (b) 5,512,813
--------------------------------------------------- -----------
Total 37,920,424
--------------------------------------------------- -----------
Computer Systems & Equipment -- 6.6%
---------------------------------------------------
315,000 Cisco Systems (b) 19,864,688
---------------------------------------------------
92,000 Diebold, Inc. 4,577,000
---------------------------------------------------
115,000 Hewlett-Packard Co. 6,900,000
--------------------------------------------------- -----------
Total 31,341,688
--------------------------------------------------- -----------
Consumer Products -- 7.9%
---------------------------------------------------
150,000 Conagra, Inc. 4,743,750
---------------------------------------------------
240,000 Crown Cork & Seal Co., Inc. 11,880,000
---------------------------------------------------
340,000 Newell Co. 13,961,249
---------------------------------------------------
28,000 Procter & Gamble Co. 2,194,500
---------------------------------------------------
150,000 Sherwin Williams Co. 4,275,000
--------------------------------------------------- -----------
Total 37,054,499
--------------------------------------------------- -----------
Electrical Equipment -- 3.6%
---------------------------------------------------
150,000 Emerson Electric Co. 9,075,000
---------------------------------------------------
105,000 General Electric Co. 8,137,500
--------------------------------------------------- -----------
Total 17,212,500
--------------------------------------------------- -----------
-- Continued --
25
<PAGE> 28
Fountain Square Quality Growth Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- --------------------------------------------------- -----------
Common Stocks--Continued
- --------------------------------------------------------------
Electronics -- 7.9%
---------------------------------------------------
315,000 Adaptec, Inc. (b) 7,028,438
---------------------------------------------------
300,000 Intel Corp. 24,300,000
---------------------------------------------------
210,000 Molex, Inc. 5,722,500
--------------------------------------------------- -----------
Total 37,050,938
--------------------------------------------------- -----------
Financial -- 4.4%
---------------------------------------------------
470,000 Federal Home Loan Mortgage Corp. 20,915,000
--------------------------------------------------- -----------
Insurance -- 7.4%
---------------------------------------------------
50,000 Allstate Corp. 4,425,000
---------------------------------------------------
46,000 American International Group, Inc. 5,074,375
---------------------------------------------------
82,000 Cincinnati Financial Corp. 10,455,000
---------------------------------------------------
220,000 MGIC Investment Corp. 14,877,500
--------------------------------------------------- -----------
Total 34,831,875
--------------------------------------------------- -----------
Manufacturing -- 5.1%
---------------------------------------------------
380,000 Federal Signal Corp. 8,526,250
---------------------------------------------------
220,000 Illinois Tool Works 12,251,250
---------------------------------------------------
117,000 Zebra Technologies Corp., Class A (b) 3,246,750
--------------------------------------------------- -----------
Total 24,024,250
--------------------------------------------------- -----------
Media/Publishing -- 2.7%
---------------------------------------------------
255,000 Interpublic Group of Cos., Inc. 12,510,938
--------------------------------------------------- -----------
Medical Devices -- 2.7%
---------------------------------------------------
195,000 Guidant Corp. 12,528,750
--------------------------------------------------- -----------
Medical Distribution -- 1.5%
---------------------------------------------------
90,000 Cardinal Health, Inc. 6,969,375
--------------------------------------------------- -----------
Oil & Gas -- 2.7%
---------------------------------------------------
45,000 Chevron Corp. 3,366,563
---------------------------------------------------
136,000 Mobil Corp. 9,265,000
---------------------------------------------------
Total 12,631,563
--------------------------------------------------- -----------
Oil & Gas Extraction -- 0.7%
---------------------------------------------------
120,000 Ensco International 3,255,000
--------------------------------------------------- -----------
Pharmaceuticals -- 16.8%
---------------------------------------------------
170,000 American Home Products 16,224,375
---------------------------------------------------
40,000 Amgen, Inc. (b) 2,000,000
---------------------------------------------------
290,000 Johnson & Johnson 19,411,874
---------------------------------------------------
145,000 Pfizer, Inc. 11,880,938
---------------------------------------------------
260,000 Schering - Plough Corp. 18,817,500
---------------------------------------------------
-- Continued --
26
<PAGE> 29
Fountain Square Quality Growth Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- --------------------------------------------------- -----------
Common Stocks--Continued
- --------------------------------------------------------------
75,000 Warner Lambert, Inc. 11,287,500
--------------------------------------------------- -----------
Total 79,622,187
--------------------------------------------------- -----------
Retail -- 3.0%
---------------------------------------------------
235,000 Home Depot, Inc. 14,173,438
--------------------------------------------------- -----------
Telecommunications -- 1.7%
---------------------------------------------------
225,000 Cincinnati Bell 8,071,875
--------------------------------------------------- -----------
Transportation -- 1.9%
---------------------------------------------------
310,000 Comair Holdings, Inc. 8,738,125
--------------------------------------------------- -----------
Total Common Stocks 457,726,925
--------------------------------------------------- -----------
Demand Notes -- 0.0%
- --------------------------------------------------------------
Miscellaneous -- 0.0%
---------------------------------------------------
6,849 General Electric Demand Note 6,849
--------------------------------------------------- ----------
Total Demand Notes 6,849
--------------------------------------------------- ----------
Repurchase Agreements -- 3.0%
- --------------------------------------------------------------
14,026,000 UBS Securities, 5.58%, dated 1/30/98, due 2/2/98
(at amortized cost), collateralized by U.S.
Treasury Bills due 7/2/98 with a value of
$14,309,100. 14,026,000
--------------------------------------------------- -----------
Total Repurchase Agreements 14,026,000
--------------------------------------------------- -----------
Total Investments (Cost $326,005,150) (a) -- 100.0% 471,759,774
---------------------------------------------------
Other assets in excess of liabilities -- 0.0% 192,473
--------------------------------------------------- -----------
TOTAL NET ASSETS -- 100.0% $471,952,247
=================================================== ===========
Percentages indicated are based on net assets of $471,952,247.
(a) The cost of investments for federal tax purposes amounts to $326,005,150.
The net unrealized appreciation of investments on federal tax basis amounts
to $145,754,624, which is composed of $158,299,691 appreciation and
$12,545,067 depreciation at January 31, 1998.
(b) Non-income producing security.
See notes to financial statements.
27
<PAGE> 30
Fountain Square Equity Income Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ------------------------------------------------------------ --------
Common Stock -- 98.2%
- --------------------------------------------------------------
Banking -- 13.7%
---------------------------------------------------
105,000 Bank of New York Co., Inc. $5,689,688
---------------------------------------------------
9,800 First Tennessee National Corp. 576,975
---------------------------------------------------
114,000 Mellon Bank Corp. 6,882,749
---------------------------------------------------
142,000 Norwest Bank 5,183,000
--------------------------------------------------- -----------
Total 18,332,412
--------------------------------------------------- -----------
Chemicals -- 3.8%
---------------------------------------------------
312,500 RPM, Inc. 5,000,000
--------------------------------------------------- -----------
Electrical Equipment -- 8.1%
---------------------------------------------------
65,000 Emerson Electric Co. 3,932,500
---------------------------------------------------
40,000 General Electric Co. 3,100,000
---------------------------------------------------
75,000 Hubbell, Inc. Class B 3,754,688
--------------------------------------------------- -----------
Total 10,787,188
--------------------------------------------------- -----------
Financial Services -- 9.7%
---------------------------------------------------
90,000 A.G. Edwards, Inc. 3,408,750
---------------------------------------------------
96,000 Federal National Mortgage Assoc. 5,928,000
---------------------------------------------------
162,000 United Asset Management Corp. 3,564,000
--------------------------------------------------- -----------
Total 12,900,750
--------------------------------------------------- -----------
Food -- 4.5%
---------------------------------------------------
45,000 Conagra, Inc. 1,423,125
---------------------------------------------------
82,000 H.J. Heinz Co. 4,545,875
--------------------------------------------------- -----------
Total 5,969,000
--------------------------------------------------- -----------
Insurance -- 4.8%
---------------------------------------------------
50,000 American General Corp. 2,818,750
---------------------------------------------------
12,000 Cincinnati Financial Corp. 1,530,000
---------------------------------------------------
40,300 Safeco Corp. 2,012,481
--------------------------------------------------- -----------
Total 6,361,231
--------------------------------------------------- -----------
Manufacturing -- 3.2%
---------------------------------------------------
190,000 Federal Signal Corp. 4,263,125
--------------------------------------------------- -----------
-- Continued --
28
<PAGE> 31
Fountain Square Equity Income Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
Office Equipment & Supplies -- 6.6%
---------------------------------------------------
94,000 Avery Dennison Corp. 4,218,250
---------------------------------------------------
100,000 Pitney-Bowes, Inc. 4,587,500
--------------------------------------------------- -----------
Total 8,805,750
--------------------------------------------------- -----------
Oil & Gas -- 9.3%
---------------------------------------------------
42,000 Amoco Corp. 3,417,750
---------------------------------------------------
65,000 Chevron Corp. 4,862,813
---------------------------------------------------
60,000 Mobil Corp. 4,087,500
--------------------------------------------------- -----------
Total 12,368,063
--------------------------------------------------- -----------
Pharmaceuticals -- 7.9%
---------------------------------------------------
14,000 Abbott Labs 991,375
---------------------------------------------------
38,900 Johnson & Johnson 2,603,869
---------------------------------------------------
20,000 Merck & Co., Inc. 2,345,000
---------------------------------------------------
20,000 Pfizer, Inc. 1,638,750
---------------------------------------------------
40,000 Schering - Plough Corp. 2,895,000
--------------------------------------------------- -----------
Total 10,473,994
--------------------------------------------------- -----------
Retail -- 3.0%
---------------------------------------------------
60,000 J.C. Penney Co., Inc. 4,042,500
--------------------------------------------------- -----------
Telecommunications -- 12.5%
---------------------------------------------------
135,000 Alltel Corp. 5,771,250
---------------------------------------------------
162,000 Ameritech Corp. 6,955,875
---------------------------------------------------
42,500 Bell Atlantic Corp. 3,933,906
--------------------------------------------------- -----------
Total 16,661,031
--------------------------------------------------- -----------
Transportation -- 4.4%
---------------------------------------------------
80,000 GATX Corp. 5,805,000
--------------------------------------------------- -----------
Utilities/Electric -- 5.3%
---------------------------------------------------
90,000 Cinergy Corp. 3,105,000
---------------------------------------------------
60,000 Duke Power 3,251,250
---------------------------------------------------
17,000 KU Energy Corp. 637,500
--------------------------------------------------- -----------
Total 6,993,750
--------------------------------------------------- -----------
Utilities/Natural Gas -- 1.4%
---------------------------------------------------
94,000 AGL Resources, Inc. 1,862,375
--------------------------------------------------- -----------
Total Common Stock 130,626,169
--------------------------------------------------- -----------
-- Continued --
29
<PAGE> 32
Fountain Square Equity Income Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Repurchase Agreements -- 1.5%
- ------------------------------------------------------------------
1,930,000 UBS Securities, 5.58%, dated 1/30/98, due 2/2/98 (at
amortized cost), collateralized by U.S. Treasury
Bills due 7/2/98 with a value of $1,971,476. 1,930,000
--------------------------------------------------- ------------
Total Repurchase Agreements 1,930,000
--------------------------------------------------- ------------
Total Investments (Cost $87,581,820) (a) -- 99.7% 132,556,169
--------------------------------------------------- ------------
Other assets in excess of liabilities -- 0.3% 338,741
--------------------------------------------------- ------------
TOTAL NET ASSETS -- 100.0% $132,894,910
=================================================== ============
Percentages indicated are based on net assets of $132,894,910.
*The cost of investments for federal tax purposes amounts to $87,581,820. The
net unrealized appreciation of investments on federal tax basis amounts to
$44,974,349, which is composed of $45,605,048 appreciation and $630,699
depreciation at January 31, 1998.
See notes to financial statements.
30
<PAGE> 33
Fountain Square Balanced Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- -----------
Common Stocks -- 62.1%
- ------------------------------------------------------------------
Banking -- 5.5%
-------------------------------------------------------
55,000 Bank of New York Co., Inc. $2,980,313
-------------------------------------------------------
35,000 First Tennessee National Corp. 2,060,625
-------------------------------------------------------
13,000 Mellon Bank Corp. 784,875
-------------------------------------------------------
70,000 Norwest Corp. 2,555,000
------------------------------------------------------- ----------
Total 8,380,813
------------------------------------------------------- ----------
Business Services -- 0.3%
-------------------------------------------------------
10,000 Cintas Corp. 417,500
------------------------------------------------------- ----------
Chemicals -- 1.9%
-------------------------------------------------------
70,000 Praxair, Inc. 2,900,625
------------------------------------------------------- ----------
Computer Software & Services -- 6.1%
-------------------------------------------------------
35,000 Electronics for Imaging, Inc. 586,250
-------------------------------------------------------
65,000 First Data Corp. 1,990,625
-------------------------------------------------------
50,000 Fiserv, Inc. (b) 2,593,750
-------------------------------------------------------
4,800 Microsoft Corp. (b) 716,100
-------------------------------------------------------
84,000 Oracle Corp. (b) 1,953,000
-------------------------------------------------------
25,000 Reynolds & Reynolds Co., Class A 496,875
-------------------------------------------------------
20,000 Sun Microsystems, Inc. (b) 958,750
------------------------------------------------------- ----------
Total 9,295,350
------------------------------------------------------- ----------
Computer Systems & Equipment -- 3.3%
-------------------------------------------------------
52,500 Cisco Systems (b) 3,310,781
-------------------------------------------------------
16,000 Diebold, Inc. 796,000
-------------------------------------------------------
16,000 Hewlett-Packard Co. 960,000
------------------------------------------------------- ----------
Total 5,066,781
------------------------------------------------------- ----------
Consumer Products -- 3.5%
-------------------------------------------------------
29,000 Conagra, Inc. 917,125
-------------------------------------------------------
38,000 Crown Cork & Seal Co., Inc. 1,881,000
-------------------------------------------------------
40,000 Newell Co. 1,642,500
-------------------------------------------------------
4,000 Procter & Gamble Co. 313,500
-------------------------------------------------------
20,000 Sherwin Williams Co. 570,000
------------------------------------------------------- ----------
Total 5,324,125
------------------------------------------------------- ----------
Distributors -- 0.3%
-------------------------------------------------------
12,000 Fastenal Co. 527,250
------------------------------------------------------- ----------
-- Continued --
31
<PAGE> 34
Fountain Square Balanced Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- ------------
Common Stocks--Continued
- ------------------------------------------------------------------
Electrical Equipment -- 2.2%
-------------------------------------------------------
20,000 Belden, Inc. 762,500
-------------------------------------------------------
25,000 Emerson Electric Co. 1,512,500
-------------------------------------------------------
14,000 General Electric Co. 1,085,000
------------------------------------------------------- ----------
Total 3,360,000
------------------------------------------------------- ----------
Electronics -- 7.2%
-------------------------------------------------------
105,000 Adaptec, Inc. (b) 2,342,813
-------------------------------------------------------
60,000 Computer Products, Inc. (b) 1,447,500
-------------------------------------------------------
20,000 Flextronics, International (b) 712,500
-------------------------------------------------------
50,000 Intel Corp. 4,049,999
-------------------------------------------------------
50,000 Molex, Inc. 1,362,500
-------------------------------------------------------
15,000 QLogic Corp. (b) 485,625
-------------------------------------------------------
27,562 Vishay Intertechnology, Inc. (b) 578,802
------------------------------------------------------- ----------
Total 10,979,739
------------------------------------------------------- ----------
Financial -- 2.3%
-------------------------------------------------------
77,000 Federal Home Loan Mortgage Corporation 3,426,500
------------------------------------------------------- ----------
General Building Contractors -- 0.5%
-------------------------------------------------------
45,000 Clayton Homes Inc. 753,750
------------------------------------------------------- ----------
Healthcare -- 1.1%
-------------------------------------------------------
17,000 First Health Group Corp. 809,625
-------------------------------------------------------
15,000 STERIS Corp. (b) 785,625
------------------------------------------------------- ----------
Total 1,595,250
------------------------------------------------------- ----------
Insurance -- 4.3%
-------------------------------------------------------
10,000 Allstate Corp. 885,000
-------------------------------------------------------
40,000 American Bankers Insurance Group, Inc. 2,210,000
-------------------------------------------------------
8,000 Cincinnati Financial Corp. 1,020,000
-------------------------------------------------------
36,000 MGIC Investment Corp. 2,434,500
------------------------------------------------------- ----------
Total 6,549,500
------------------------------------------------------- ----------
Manufacturing -- 2.8%
-------------------------------------------------------
40,000 Federal Signal Corp. 897,500
-------------------------------------------------------
35,000 Illinois Tool Works 1,949,063
-------------------------------------------------------
50,000 Zebra Technologies Corp., Class A (b) 1,387,500
------------------------------------------------------- ----------
Total 4,234,063
------------------------------------------------------- ----------
Media/Publishing -- 1.4%
-------------------------------------------------------
42,000 Interpublic Group of Cos., Inc. 2,060,625
------------------------------------------------------- ----------
-- Continued --
32
<PAGE> 35
Fountain Square Balanced Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- -----------
Common Stocks--Continued
- ------------------------------------------------------------------
Medical Devices -- 1.6%
-------------------------------------------------------
38,000 Guidant Corp. 2,441,500
------------------------------------------------------- -----------
Medical Distribution -- 0.5%
-------------------------------------------------------
9,000 Cardinal Health, Inc. 696,938
------------------------------------------------------- -----------
Oil & Gas -- 2.6%
-------------------------------------------------------
8,000 Chevron Corp. 598,500
-------------------------------------------------------
18,000 ENSCO International 488,250
-------------------------------------------------------
25,000 Global Marine 573,438
-------------------------------------------------------
22,000 Mobil Corp. 1,498,750
-------------------------------------------------------
40,000 Varco International, Inc. (b) 820,000
------------------------------------------------------- -----------
Total 3,978,938
------------------------------------------------------- -----------
Pharmaceuticals -- 8.5%
-------------------------------------------------------
27,000 American Home Products 2,576,813
-------------------------------------------------------
8,000 Amgen, Inc. 400,000
-------------------------------------------------------
47,000 Johnson & Johnson 3,146,062
-------------------------------------------------------
20,000 Pfizer, Inc. 1,638,750
-------------------------------------------------------
40,000 Schering - Plough Corp. 2,894,999
-------------------------------------------------------
14,000 Warner Lambert, Inc. 2,107,000
------------------------------------------------------- -----------
Total 12,763,624
------------------------------------------------------- -----------
Retail -- 3.4%
-------------------------------------------------------
60,000 Consolidated Stores Corp. (b) 2,467,500
-------------------------------------------------------
20,000 Dollar General 727,500
-------------------------------------------------------
33,000 Home Depot, Inc. 1,990,313
------------------------------------------------------- -----------
Total 5,185,313
------------------------------------------------------- -----------
Telecommunications -- 1.3%
-------------------------------------------------------
15,000 Century Telephone Enterprises 791,250
-------------------------------------------------------
32,000 Cincinnati Bell 1,148,000
------------------------------------------------------- -----------
Total 1,939,250
------------------------------------------------------- -----------
Transportation -- 1.5%
-------------------------------------------------------
80,000 Comair Holdings, Inc. 2,255,000
------------------------------------------------------- -----------
Total Common Stocks 94,132,434
------------------------------------------------------- -----------
-- Continued --
33
<PAGE> 36
Fountain Square Balanced Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
Asset Backed Securities -- 1.5%
- --------------------------------------------------------------
Financial -- 1.5%
---------------------------------------------------
1,500,000 Cityscape, Series 1996-3, 7.15%, 8/25/11 1,547,299
---------------------------------------------------
750,000 GE Capital Management, 6.94%, 3/25/27 763,500
--------------------------------------------------- -----------
Total Asset Backed Securities 2,310,799
--------------------------------------------------- -----------
Corporate Bonds -- 5.7%
- --------------------------------------------------------------
Financial -- 4.0%
---------------------------------------------------
46,000 Bankers Trust New York Corp., 9.20%, 7/15/99 48,040
---------------------------------------------------
1,500,000 CIT Group Holdings, 6.25%, 3/28/01 1,517,382
---------------------------------------------------
2,000,000 First Union Corp., 7.00%, 3/15/06 2,076,147
---------------------------------------------------
500,000 Ford Motor Credit, Floating Rate Note, 11/9/98
(5.65%, 2/9/98)(c) 499,518
---------------------------------------------------
1,000,000 General Motors Acceptance Corp., 6.63%, 10/1/02 1,026,027
---------------------------------------------------
1,000,000 Sears Roebuck, 6.54%, 2/20/03 1,024,002
--------------------------------------------------- -----------
Total 6,191,116
--------------------------------------------------- -----------
Manufacturing -- 1.0%
---------------------------------------------------
500,000 IBP, Inc., 6.13%, 2/1/06 499,679
---------------------------------------------------
1,000,000 Texas Instruments, 6.88%, 7/15/00 1,026,120
---------------------------------------------------
Total 1,525,799
--------------------------------------------------- -----------
Utility -- 0.7%
---------------------------------------------------
1,000,000 Georgia Power, 6.88%, 9/1/02 1,016,668
--------------------------------------------------- -----------
Total Corporate Bonds 8,733,583
--------------------------------------------------- -----------
Mortgage Backed Securities -- 0.4%
- -------------------------------------------------------------
U.S. Government Agencies -- 0.4%
---------------------------------------------------
5,177 Federal Home Loan Mortgage Corp., 9.50%, 10/1/02,
Pool #38-0009 5,352
---------------------------------------------------
11,117 Federal Home Loan Mortgage Corp., 8.00%, 8/1/08,
Pool #27-2525 11,528
---------------------------------------------------
653,243 Federal National Mortgage Association, 6.00%,
4/1/11, Dwarf Pool 344185 647,396
--------------------------------------------------- -----------
Total Mortgage Backed Securities 664,276
--------------------------------------------------- -----------
U.S. Government Securities -- 17.2%
- --------------------------------------------------------------
U.S. Government Agencies -- 7.9%
---------------------------------------------------
2,000,000 Federal National Mortgage Association, 6.80%,
8/27/12 2,113,168
---------------------------------------------------
1,939,700 Federal National Mortgage Association, 7.00%,
7/18/27 1,963,248
---------------------------------------------------
1,244,595 Government National Mortgage Association, 7.50%,
8/15/27, Pool #449006 1,282,182
---------------------------------------------------
6,457,081 Government National Mortgage Association, 7.50%,
9/15/27, Pool #451459 6,652,084
--------------------------------------------------- -----------
Total 12,010,682
--------------------------------------------------- -----------
-- Continued --
34
<PAGE> 37
Fountain Square Balanced Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
U.S. Government Securities--Continued
- --------------------------------------------------------------
U.S. Treasury Bonds -- 5.9%
---------------------------------------------------
8,750,000 6.00%, 2/15/26 8,892,188
--------------------------------------------------- -----------
U.S. Treasury Notes -- 3.4%
---------------------------------------------------
5,000,000 6.50%, 8/31/01 5,178,125
--------------------------------------------------- -----------
Total U.S. Government Securities 26,080,995
--------------------------------------------------- -----------
Repurchase Agreement -- 15.4%
- --------------------------------------------------------------
23,444,000 UBS Securities, 5.58%, dated 1/30/98, due 2/2/98
(at amortized cost), collateralized by U.S.
Treasury Bills due 7/2/98 with a value of
$23,916,988. 23,444,000
--------------------------------------------------- -----------
Total Repurchase Agreement 23,444,000
--------------------------------------------------- -----------
Total Investments (Cost $128,997,043) (a)-- 102.3% 155,366,087
---------------------------------------------------
Liabilities in excess of other assets -- (2.3)% (3,459,930)
--------------------------------------------------- -----------
TOTAL NET ASSETS-- 100.0% $151,906,157
=================================================== ============
Percentages indicated are based on net assets of $151,906,157.
(a) The cost of investments for federal tax purposes amounts to $128,997,043.
The net unrealized appreciation of investments on federal tax basis amounts
to $26,369,044, which is composed of $30,417,659 appreciation and
$4,048,615 depreciation at January 31, 1998.
(b) Non-income producing security.
(c) Current rate and next reset date shown.
See notes to financial statements.
35
<PAGE> 38
Fountain Square Mid Cap Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
Common Stocks -- 96.5%
- --------------------------------------------------------------
Banking -- 7.1%
---------------------------------------------------
155,000 First Tennessee National Corp. $9,125,625
---------------------------------------------------
100,000 Firstar Corp. 3,881,250
---------------------------------------------------
52,000 Regions Financial Corp. 2,034,500
--------------------------------------------------- -----------
Total 15,041,375
--------------------------------------------------- -----------
Business Services -- 5.5%
---------------------------------------------------
123,000 Cintas Corp. 5,135,250
---------------------------------------------------
160,000 Omnicom Group 6,490,000
--------------------------------------------------- -----------
Total 11,625,250
--------------------------------------------------- -----------
Chemicals -- 0.5%
---------------------------------------------------
68,750 RPM, Inc. 1,100,000
--------------------------------------------------- -----------
Computer Software & Services -- 7.1%
---------------------------------------------------
150,000 Electronics for Imaging, Inc. 2,512,500
---------------------------------------------------
200,000 Fiserv, Inc. (b) 10,375,000
---------------------------------------------------
110,000 Reynolds & Reynolds Co., Class A 2,186,250
--------------------------------------------------- -----------
Total 15,073,750
--------------------------------------------------- -----------
Computer Systems & Equipment -- 3.3%
---------------------------------------------------
140,000 Diebold, Inc. 6,965,000
--------------------------------------------------- -----------
Consumer Products -- 1.8%
---------------------------------------------------
95,000 Newell Co. 3,900,938
--------------------------------------------------- -----------
Distributors -- 1.7%
---------------------------------------------------
82,000 Fastenal Co. 3,602,875
--------------------------------------------------- -----------
Electrical Equipment -- 3.4%
---------------------------------------------------
190,000 Belden, Inc. 7,243,750
--------------------------------------------------- -----------
Electronics -- 12.6%
---------------------------------------------------
267,000 Adaptec, Inc. (b) 5,957,437
---------------------------------------------------
246,000 Computer Products, Inc. (b) 5,934,750
---------------------------------------------------
120,000 Flextronics, International (b) 4,275,000
---------------------------------------------------
110,000 Molex, Inc. 2,997,500
---------------------------------------------------
82,000 QLogic Corp. (b) 2,654,750
---------------------------------------------------
235,725 Vishay Intertechnology, Inc. (b) 4,950,225
--------------------------------------------------- -----------
Total 26,769,662
--------------------------------------------------- -----------
-- Continued --
36
<PAGE> 39
Fountain Square Mid Cap Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
Common Stocks--Continued
- --------------------------------------------------------------
General Building Contractors -- 1.4%
---------------------------------------------------
180,000 Clayton Homes Inc. 3,015,000
--------------------------------------------------- -----------
Healthcare -- 7.5%
---------------------------------------------------
320,000 Ballard Medical Products 8,040,000
---------------------------------------------------
68,000 First Health Group Corp. 3,238,500
---------------------------------------------------
90,000 STERIS Corp. (b) 4,713,750
--------------------------------------------------- -----------
Total 15,992,250
--------------------------------------------------- -----------
Insurance -- 14.3%
---------------------------------------------------
196,000 American Bankers Insurance Group, Inc. 10,828,999
---------------------------------------------------
43,000 Cincinnati Financial Corp. 5,482,500
---------------------------------------------------
115,000 MGIC Investment Corp. 7,776,875
---------------------------------------------------
216,000 Mutual Risk Management, Limited 6,439,500
--------------------------------------------------- -----------
Total 30,527,874
--------------------------------------------------- -----------
Manufacturing -- 7.6%
---------------------------------------------------
60,000 Applied Industrial Technologies, Inc. 1,593,750
---------------------------------------------------
100,000 Chart Industries, Inc. 2,150,000
---------------------------------------------------
187,000 Federal Signal Corp. 4,195,813
---------------------------------------------------
50,000 OM Group, Inc. 1,915,625
---------------------------------------------------
228,000 Zebra Technologies Corp., Class A (b) 6,327,000
--------------------------------------------------- -----------
Total 16,182,188
--------------------------------------------------- -----------
Medical Distribution -- 4.1%
---------------------------------------------------
112,000 Cardinal Health, Inc. 8,673,000
--------------------------------------------------- -----------
Natural Gas -- 0.8%
---------------------------------------------------
40,000 Questar Corp. 1,665,000
--------------------------------------------------- -----------
Oil & Gas -- 2.2%
---------------------------------------------------
113,000 Global Marine (b) 2,591,938
---------------------------------------------------
100,000 Varco International, Inc. (b) 2,050,000
--------------------------------------------------- -----------
Total 4,641,938
--------------------------------------------------- -----------
Retail -- 8.4%
---------------------------------------------------
172,000 Casey's General Stores 4,837,500
---------------------------------------------------
170,000 Consolidated Stores Corp. (b) 6,991,250
---------------------------------------------------
165,000 Dollar General 6,001,875
--------------------------------------------------- -----------
Total 17,830,625
--------------------------------------------------- -----------
Telecommunications -- 1.7%
---------------------------------------------------
70,000 Century Telephone Enterprises 3,692,500
--------------------------------------------------- -----------
-- Continued --
37
<PAGE> 40
Fountain Square Mid Cap Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- --------------------------------------------------- --------
Common Stocks--Continued
- --------------------------------------------------------------
Transportation -- 5.5%
---------------------------------------------------
340,000 Comair Holdings, Inc. 9,583,750
---------------------------------------------------
30,000 GATX Corp. 2,176,875
--------------------------------------------------- ------------
Total 11,760,625
--------------------------------------------------- ------------
Total Common Stocks 205,303,600
--------------------------------------------------- ------------
Repurchase Agreements -- 6.1%
- --------------------------------------------------------------
12,907,000 UBS Securities, 5.58%, dated 1/30/98, due 2/2/98
(at amortized cost), collateralized by U.S.
Treasury Bills due 7/2/98 with a value of
$13,169,264. 12,907,000
--------------------------------------------------- ------------
Total Repurchase Agreements 12,907,000
--------------------------------------------------- ------------
Total Investments (Cost $164,107,482) (a) -- 102.6% 218,210,600
---------------------------------------------------
Liabilities in excess of other assets -- (2.6)% (5,575,377)
--------------------------------------------------- ------------
TOTAL NET ASSETS -- 100.0% $212,635,223
=================================================== ============
Percentages indicated are based on net assets of $212,635,223.
(a) The cost of investments for federal tax purposes amounts to $164,107,482.
The net unrealized appreciation of investments on federal tax basis amounts
to $54,103,118, which is composed of $61,806,636 appreciation and
$7,703,518 depreciation at January 31, 1998.
(b) Non-income producing security.
See notes to financial statements.
38
<PAGE> 41
Fountain Square International Equity Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Common Stocks -- 90.7%
- ------------------------------------------------------------------
Australia -- 1.8%
-------------------------------------------------------
10,300 Amcor, Ltd. $46,730
-------------------------------------------------------
4,800 Australian Gas & Light 36,811
-------------------------------------------------------
14,000 Australian National Industries, Ltd. 13,049
-------------------------------------------------------
18,913 Boral, Ltd. 47,440
-------------------------------------------------------
3,500 Brambles Industries, Ltd. 71,240
-------------------------------------------------------
29,587 Broken Hill Proprietary Co., Ltd. 292,658
-------------------------------------------------------
7,695 Burns Philp & Co., Ltd. 1,055
-------------------------------------------------------
12,060 Coca Cola Amatil, Ltd. 97,942
-------------------------------------------------------
16,938 Coles Myer, Ltd. 85,448
-------------------------------------------------------
15,866 Crown, Ltd. (b) 7,611
-------------------------------------------------------
17,400 CSR, Ltd. 61,174
-------------------------------------------------------
29,600 Fosters Brewing Group 62,886
-------------------------------------------------------
19,300 General Property Trust Units 37,181
-------------------------------------------------------
14,981 Gio Australia Holdings, Ltd. 40,247
-------------------------------------------------------
19,205 Goodman Fielder Wattie, Ltd. 30,285
-------------------------------------------------------
3,200 Howard Smith, Ltd. 26,646
-------------------------------------------------------
4,600 ICI Australia, Ltd. 33,247
-------------------------------------------------------
3,900 Leighton Holdings 14,112
-------------------------------------------------------
3,888 Lend Lease Corp. 91,083
-------------------------------------------------------
22,413 M.I.M. Holdings, Ltd. 13,978
-------------------------------------------------------
34,555 National Australia Bank, Ltd. 477,897
-------------------------------------------------------
4,134 Newcrest Mining, Ltd. (b) 5,241
-------------------------------------------------------
28,365 News Corp., Ltd. (b) 178,649
-------------------------------------------------------
24,753 Normandy Mining, Ltd. 29,009
-------------------------------------------------------
10,641 North, Ltd. 30,264
-------------------------------------------------------
14,100 Pacific Dunlop, Ltd. 29,956
-------------------------------------------------------
14,400 Pioneer International 36,219
-------------------------------------------------------
3,500 Plutonic Resources, Ltd. 11,274
-------------------------------------------------------
3,110 Renison Goldfields Consolidated, Ltd. 5,286
-------------------------------------------------------
5,100 Rio Tinto, Ltd. 67,653
-------------------------------------------------------
9,512 Santos, Ltd. 40,482
-------------------------------------------------------
2,000 Sons of Gwalia, Ltd. 5,962
-------------------------------------------------------
9,845 Southcorp. Holdings, Ltd. 37,109
-------------------------------------------------------
-- Continued --
39
<PAGE> 42
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
5,100 TABCORP Holdings, Ltd. 25,865
-------------------------------------------------------
57,500 Telstra Corp. 130,830
-------------------------------------------------------
15,445 Western Mining, Ltd. 54,534
-------------------------------------------------------
1,219 Westfield Trust 2,431
-------------------------------------------------------
19,454 Westfield Trust 41,064
-------------------------------------------------------
26,800 Westpac Banking Corp., Ltd. 183,669
------------------------------------------------------- ---------
Total 2,504,217
------------------------------------------------------- ---------
Austria -- 0.6%
-------------------------------------------------------
500 Austrian Airlines 11,507
-------------------------------------------------------
1,500 Bank Austria 84,902
-------------------------------------------------------
1,332 Bank of Austria AG (b) 75,186
-------------------------------------------------------
500 Banl Austria 28,262
-------------------------------------------------------
100 Bau Holding 4,432
-------------------------------------------------------
200 BAU Holdings AG 11,040
-------------------------------------------------------
400 Boehler-Uddeholm 24,071
-------------------------------------------------------
100 BWT AG 16,716
-------------------------------------------------------
200 EA-Generali AG 53,181
-------------------------------------------------------
900 Flughafen Wein AG 37,856
-------------------------------------------------------
200 Lenzing AG (b) 11,896
-------------------------------------------------------
400 Mayr-Melnhof Karton AG 22,283
-------------------------------------------------------
100 Mikro Systemeintl AG 5,660
-------------------------------------------------------
200 Oesterreichische Brau-Beteiligun 10,418
-------------------------------------------------------
1,100 Oesterreichische Elektrizitaetsw 120,333
-------------------------------------------------------
800 OMV AG 105,801
-------------------------------------------------------
500 Redex Herallith 18,077
-------------------------------------------------------
300 Steyr-Daimler-Purch AG 9,447
-------------------------------------------------------
500 Va Technologies 71,141
-------------------------------------------------------
300 Weinerberger Baustoffindustrie 55,280
------------------------------------------------------- ---------
Total 777,489
------------------------------------------------------- ---------
France -- 7.8%
-------------------------------------------------------
933 Accor SA 183,795
-------------------------------------------------------
1,769 Air Liquid 279,710
-------------------------------------------------------
3,541 Alcatel Alsthom 470,242
-------------------------------------------------------
7,488 AXA SA 622,571
-------------------------------------------------------
4,853 Banque Nationale De Paris 250,973
-------------------------------------------------------
1,246 BIC 91,262
-------------------------------------------------------
637 Bouygues 81,160
-------------------------------------------------------
-- Continued --
40
<PAGE> 43
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
790 Canal Plus 159,496
-------------------------------------------------------
927 Carrefour SA 501,202
-------------------------------------------------------
2,180 Casino Guichard Perrachon 121,071
-------------------------------------------------------
2,030 De St. Gobain 267,925
-------------------------------------------------------
718 Eridania Beghin-Say SA 127,837
-------------------------------------------------------
264 Essilor International 80,468
-------------------------------------------------------
95 Eurafrance 38,329
-------------------------------------------------------
2,608 Financiere De Paribas SA 233,450
-------------------------------------------------------
15,447 France Telecom SA (b) 659,815
-------------------------------------------------------
2,922 Generale Des Eaux 424,314
-------------------------------------------------------
1,844 Groupe Danone 361,751
-------------------------------------------------------
1,735 Havas SA 124,046
-------------------------------------------------------
383 Imetal 48,109
-------------------------------------------------------
1,435 L'OREAL 580,608
-------------------------------------------------------
2,293 La Farge-Coppee 146,149
-------------------------------------------------------
2,611 La Gardere Groupe Sca 92,549
-------------------------------------------------------
734 Le Grand SA 146,152
-------------------------------------------------------
2,065 Lvmh Moet Vuitton Hennessy Lous 378,121
-------------------------------------------------------
2,925 Lyonnaise Des Eaux SA 348,304
-------------------------------------------------------
2,875 Michelin Class B, Registered 153,330
-------------------------------------------------------
201 Pathe SA 34,277
-------------------------------------------------------
1,621 Pernod Ricard 103,795
-------------------------------------------------------
1,231 Peugeot SA 161,666
-------------------------------------------------------
504 Pinault-Printemps-Redoute SA 296,373
-------------------------------------------------------
448 Promodes 188,069
-------------------------------------------------------
7,822 Rhone Poulenc SA 357,751
-------------------------------------------------------
118 Sagem SA 61,679
-------------------------------------------------------
2,560 Sanofi SA 282,260
-------------------------------------------------------
3,133 Schneider SA 182,493
-------------------------------------------------------
582 Simco-Union SA, Registered 45,632
-------------------------------------------------------
5,926 Societe Elf Aquitane SA 669,844
-------------------------------------------------------
2,244 Societe Generale 291,770
-------------------------------------------------------
190 Sodexho SA 102,417
-------------------------------------------------------
2,880 Thomson CSF 98,791
-------------------------------------------------------
5,664 Total SA, Class B 590,268
-------------------------------------------------------
5,964 Unisor Sacilor SA 82,027
-------------------------------------------------------
1,563 Valeo SA 109,348
------------------------------------------------------- ----------
Total 10,631,199
------------------------------------------------------- ----------
-- Continued --
41
<PAGE> 44
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ------------------------------------------------------------------ ---------
Common Stocks--Continued
- ------------------------------------------------------------------
Germany -- 8.4%
-------------------------------------------------------
1,000 Adidas 147,154
-------------------------------------------------------
700 Agiva AG (b) 11,967
-------------------------------------------------------
4,650 Allianz AG 1,379,984
-------------------------------------------------------
200 Amb Aachener Muenchner 21,772
-------------------------------------------------------
12,150 BASF AG 410,758
-------------------------------------------------------
14,850 Bayer AG 558,496
-------------------------------------------------------
4,950 Bayerisch Hypotheken & Wechsek Bank AG 239,375
-------------------------------------------------------
5,950 Bayerische Vereins Ag 379,196
-------------------------------------------------------
1,300 Bilfinger & Berger 35,487
-------------------------------------------------------
150 Brau & Brunnen (b) 13,539
-------------------------------------------------------
600 CKAG Konzern AG 55,437
-------------------------------------------------------
1,650 Continental Gummiwerke AG 37,910
-------------------------------------------------------
10,950 Dailmer Benz AG 763,141
-------------------------------------------------------
2,000 Degussa AG 105,689
-------------------------------------------------------
10,350 Deutsche Bank AG 674,048
-------------------------------------------------------
47,896 Deutsche Telekom 835,816
-------------------------------------------------------
9,300 Dresdner Bank AG 413,613
-------------------------------------------------------
1,140 Heidelberger Zement 82,943
-------------------------------------------------------
2,150 Hochtief AG 78,213
-------------------------------------------------------
200 Karstadt AG 67,286
-------------------------------------------------------
1,050 Kloeckner Humboldt Deutz AG (b) 7,295
-------------------------------------------------------
200 Linde AG 119,583
-------------------------------------------------------
7,400 Lufthansa AG 133,183
-------------------------------------------------------
300 Man AG 80,579
-------------------------------------------------------
750 Mannesmann AG 427,514
-------------------------------------------------------
3,850 Merck KGaA 133,949
-------------------------------------------------------
4,796 Metro AG 189,687
-------------------------------------------------------
1,700 Muenchener Rueckver 692,829
-------------------------------------------------------
400 Preussag AG 128,664
-------------------------------------------------------
7,250 RWE AG 404,934
-------------------------------------------------------
1,342 SAP AG 457,951
-------------------------------------------------------
1,650 Schering AG 170,505
-------------------------------------------------------
11,350 Siemens AG 693,538
-------------------------------------------------------
100 STRABAG AG (b) 7,166
-------------------------------------------------------
700 Thyssen AG 146,662
-------------------------------------------------------
10,600 VEBA AG 737,588
-------------------------------------------------------
-- Continued --
42
<PAGE> 45
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ------------------------------------------------------------------ ---------
Common Stocks--Continued
- ------------------------------------------------------------------
550 Viag AG 319,828
-------------------------------------------------------
600 Volkswagen AG 345,621
-------------------------------------------------------
Total 11,508,900
------------------------------------------------------- ----------
Great Britain -- 23.2%
-------------------------------------------------------
36,400 Abbey National PLC 718,335
-------------------------------------------------------
18,250 Arjo Wiggins Appleton PLC 45,057
-------------------------------------------------------
12,975 Associated British Foods PLC 127,815
-------------------------------------------------------
80,615 B.A.T. Industries PLC 734,817
-------------------------------------------------------
44,195 Barclays PLC 1,333,177
-------------------------------------------------------
28,600 Bass PLC 440,489
-------------------------------------------------------
18,186 BICC Group PLC, Registered 41,479
-------------------------------------------------------
33,842 Blue Circle Industries PLC 177,062
-------------------------------------------------------
18,219 BOC Group PLC 269,731
-------------------------------------------------------
28,600 Boots Co. PLC 402,379
-------------------------------------------------------
18,250 BPB Industries PLC 89,815
-------------------------------------------------------
12,990 British Aerospace PLC 337,058
-------------------------------------------------------
31,199 British Airways PLC 261,428
-------------------------------------------------------
101,007 British Gas 541,683
-------------------------------------------------------
149,173 British Petroleum Co. PLC 2,009,722
-------------------------------------------------------
41,600 British Sky Broadcasting Group PLC 245,878
-------------------------------------------------------
52,025 British Steel PLC 112,068
-------------------------------------------------------
150,900 British Telecommunications PLC 1,440,239
-------------------------------------------------------
109,271 BTR PLC 290,766
-------------------------------------------------------
7,785 Burmah Castrol PLC 128,303
-------------------------------------------------------
65,072 Cable & Wireless PLC 619,206
-------------------------------------------------------
28,598 Cadbury Schweppes PLC 333,383
-------------------------------------------------------
20,845 Caradon PLC 55,042
-------------------------------------------------------
114,475 Centrica PLC (b) 200,736
-------------------------------------------------------
23,444 Coats Viyella PLC 34,498
-------------------------------------------------------
18,192 Commercial Union PLC 293,275
-------------------------------------------------------
12,975 Courtaulds PLC 53,672
-------------------------------------------------------
2,611 De La Rue, LTD. 15,731
-------------------------------------------------------
12,987 EMI Group PLC 95,446
-------------------------------------------------------
1 Energy Group PLC 12
-------------------------------------------------------
75,450 General Electric Co. PLC 470,313
-------------------------------------------------------
15,630 GKN PLC 318,927
-------------------------------------------------------
83,250 Glaxo Holdings PLC 2,225,464
-------------------------------------------------------
-- Continued --
43
<PAGE> 46
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
18,233 Granada Group PLC 283,652
-------------------------------------------------------
31,225 Great Universal Stores PLC 377,281
-------------------------------------------------------
20,827 Guardian Royal Exchange PLC 134,251
-------------------------------------------------------
91,407 Guinness PLC (b) 816,748
-------------------------------------------------------
15,629 Hanson PLC 68,355
-------------------------------------------------------
33,775 Harrison & Crossfield PLC 72,065
-------------------------------------------------------
57,244 HSBC Holdings PLC 1,412,334
-------------------------------------------------------
23,425 Imperial Chemical Industries PLC 358,104
-------------------------------------------------------
31,209 Ladbroke Group PLC 147,085
-------------------------------------------------------
20,800 Land Securities PLC 379,530
-------------------------------------------------------
20,800 LASMO PLC 89,271
-------------------------------------------------------
31,225 Legal & General Group PLC 330,568
-------------------------------------------------------
143,075 Lloyds TSB Group PLC 1,991,897
-------------------------------------------------------
20,833 Lonrho PLC 32,870
-------------------------------------------------------
91,050 Marks & Spencer PLC 858,218
-------------------------------------------------------
15,625 MEPC PLC, Registered 154,431
-------------------------------------------------------
36,400 National Power PLC 391,305
-------------------------------------------------------
21,259 Peninsular & Oriental Steam Navigation Co. 241,919
-------------------------------------------------------
39,042 Pilkington PLC 73,409
-------------------------------------------------------
52,063 Prudential Corp. PLC 696,733
-------------------------------------------------------
23,425 Rank Group PLC 112,506
-------------------------------------------------------
36,400 Reed International PLC 374,046
-------------------------------------------------------
44,225 Reuters Holdings PLC 397,332
-------------------------------------------------------
15,625 Rexam PLC 65,272
-------------------------------------------------------
31,215 Rio Tinto PLC, Registered 397,320
-------------------------------------------------------
7,800 RMC Group PLC 101,259
-------------------------------------------------------
36,407 Royal & Sun Alliance Insurance Group PLC 408,345
-------------------------------------------------------
13,047 Royal Bank of Scotland Group PLC 183,347
-------------------------------------------------------
23,412 Safeway PLC 145,937
-------------------------------------------------------
41,612 Sainsbury (J) PLC 337,797
-------------------------------------------------------
5,175 Schroder PLC 164,231
-------------------------------------------------------
26,010 Scottish Power PLC 223,264
-------------------------------------------------------
52,025 Sears PLC 42,956
-------------------------------------------------------
15,614 Sedgwick Group PLC 37,017
-------------------------------------------------------
12,975 Slough Estates PLC 83,478
-------------------------------------------------------
137,910 SmithCline Beecham 1,758,769
-------------------------------------------------------
12,990 Southern Electric PLC 112,884
-------------------------------------------------------
-- Continued --
44
<PAGE> 47
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------ --------
Common Stocks--Continued
- -----------------------------------------------------------------
13,003 T.I. Group PLC 94,500
------------------------------------------------------
36,389 Tarmac PLC 61,430
------------------------------------------------------
20,780 Taylor Woodrow PLC 60,306
------------------------------------------------------
49,451 Tesco PLC 434,380
------------------------------------------------------
18,193 Thames Water PLC 260,720
------------------------------------------------------
12,989 Thorn PLC 30,581
------------------------------------------------------
75,550 Unilever 595,079
------------------------------------------------------
18,245 United Utilities Group PLC 242,075
------------------------------------------------------
85,839 Vodafone Group PLC 660,683
------------------------------------------------------
23,425 Zeneca Group PLC 913,453
------------------------------------------------------ -----------
Total 31,671,999
------------------------------------------------------ -----------
Indonesia -- 0.0%
------------------------------------------------------
19,000 Mulia Industrindo 950
------------------------------------------------------ -----------
Italy -- 7.4%
------------------------------------------------------
5,700 Assicuratrice Industrial 68,751
------------------------------------------------------
38,440 Assicurazioni Generali SpA 1,048,800
------------------------------------------------------
60,100 Banca Commerciale Italiana 246,299
------------------------------------------------------
26,200 Banco Ambrosiano Veneto 121,320
------------------------------------------------------
7,676 Benetton Group SpA 135,791
------------------------------------------------------
6,400 Burgo (Cartiere) SpA 41,880
------------------------------------------------------
104,500 Credito Italiano (b) 390,589
------------------------------------------------------
28,000 Edison SpA 182,293
------------------------------------------------------
331,000 Ente Nazional Indrocarburi SpA 1,931,024
------------------------------------------------------
7,000 Falck, Accia & Ferriere Lombarde 40,449
------------------------------------------------------
141,830 Fiat SpA 469,162
------------------------------------------------------
31,720 Fiat SpA, di risp 62,094
------------------------------------------------------
11,000 Impregilo SpA 9,492
------------------------------------------------------
36,600 Istituto Bancario san Paolo di Torina 399,439
------------------------------------------------------
26,450 Istituto Mobiliare Italiano 365,232
------------------------------------------------------
175,600 Istituto Nazionale delle Assicurazioni 387,571
------------------------------------------------------
10,150 Italcementi SpA 77,676
------------------------------------------------------
6,850 Italcementi SpA, di risp 24,122
------------------------------------------------------
28,300 Italgas SpA 111,427
------------------------------------------------------
19,900 Magneti Marelli SpA 37,852
------------------------------------------------------
50,000 Mediaset SpA 266,741
------------------------------------------------------
21,000 Mediobanca Banca SpA 193,318
------------------------------------------------------
119,154 Montedison SpA 113,917
------------------------------------------------------
-- Continued --
45
<PAGE> 48
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------ --------
Common Stocks--Continued
- -----------------------------------------------------------------
41,500 Montedison SpA, di risp 29,941
------------------------------------------------------
107,680 Olivetti Ing & Co. SpA (b) 89,213
------------------------------------------------------
67,480 Parmalat Finanziaria SpA 106,464
------------------------------------------------------
70,000 Pirelli SpA 183,807
------------------------------------------------------
880 R.A.S. 6,637
------------------------------------------------------
12,625 RAS Italian 135,474
------------------------------------------------------
1,600 Reno (Saffa) (b) 4,951
------------------------------------------------------
9,600 Rinascente 72,908
------------------------------------------------------
12,800 Sirti SpA 76,768
------------------------------------------------------
29,000 Snia BPD SpA 34,094
------------------------------------------------------
272,500 Telecom Italia Mobile SpA 1,300,353
------------------------------------------------------
42,151 Telecom Italia SpA 208,739
------------------------------------------------------
145,833 Telecom Italia SpA (b) 1,010,904
------------------------------------------------------
65,000 Tim, di risp (b) 192,666
------------------------------------------------------ -----------
Total 10,178,158
------------------------------------------------------ -----------
Japan -- 20.5%
------------------------------------------------------
25,400 Ajinomoto Co., Inc. 262,413
------------------------------------------------------
26,600 Aoki Corp. (b) 20,558
------------------------------------------------------
2,200 Aoyama Trading Co., Ltd. 52,571
------------------------------------------------------
11,900 Asahi Bank, Ltd. 57,435
------------------------------------------------------
15,600 Asahi Breweries, Ltd. 215,300
------------------------------------------------------
49,000 Asahi Chemical Industry Co., Ltd. 195,150
------------------------------------------------------
45,800 Asahi Glass Co., Ltd. 263,314
------------------------------------------------------
80,000 Bank of Tokyo-Mitsubishi, Ltd. 1,160,883
------------------------------------------------------
7,400 Bank of Yokohama, Ltd. 23,927
------------------------------------------------------
15,600 Bridgestone Corp. 375,236
------------------------------------------------------
19,400 Canon, Inc. 471,230
------------------------------------------------------
9,800 Casio Computer Co., Ltd. 83,470
------------------------------------------------------
6,400 Chiba Bank 28,467
------------------------------------------------------
15,600 Chugai Pharmaceutical Co., Ltd. 92,640
------------------------------------------------------
19,600 Dai Nippon Printing Co., Ltd. 363,249
------------------------------------------------------
17,600 Daiei, Inc. 96,744
------------------------------------------------------
15,600 Daikin Industries, Ltd. 76,155
------------------------------------------------------
15,600 Daiwa House Industry Co. Ltd. 114,416
------------------------------------------------------
9,000 Daiwa Securities, Ltd. 41,380
------------------------------------------------------
94 East Japan Railway Co. 440,347
------------------------------------------------------
10,800 Ebara Corp. 119,243
------------------------------------------------------
-- Continued --
46
<PAGE> 49
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
6,500 Fanuc Co., Ltd. 237,342
-------------------------------------------------------
12,000 Fuji Bank 75,237
-------------------------------------------------------
10,000 Fuji Photo Film Co., Ltd. 419,558
-------------------------------------------------------
38,000 Fujitsu, Ltd. 434,542
-------------------------------------------------------
11,800 Furukawa Electric Co. 55,743
-------------------------------------------------------
21,400 Hankyu Corp. 102,949
-------------------------------------------------------
14,600 Hazama Corp. 13,587
-------------------------------------------------------
82,000 Hitachi, Ltd. 646,687
-------------------------------------------------------
21,000 Honda Motor Co., Ltd. 763,485
-------------------------------------------------------
11,800 Industrial Bank of Japan 100,505
-------------------------------------------------------
9,800 ITO-Yokado Co., Ltd. 514,732
-------------------------------------------------------
51,000 Japan Airlines (b) 168,927
-------------------------------------------------------
38,000 Japan Energy Corp. (Nikko Kyodo Co., Ltd.) 47,650
-------------------------------------------------------
4,600 Joyo Bank 21,621
-------------------------------------------------------
7,800 JUSCO, Ltd. 141,483
-------------------------------------------------------
31,400 Kajima Corp. 107,721
-------------------------------------------------------
21,200 Kansai Electric Power, Inc. 366,151
-------------------------------------------------------
21,000 Kao Corp. 296,451
-------------------------------------------------------
25,400 Kawasaki Steel Corp. 38,260
-------------------------------------------------------
36,000 Kinki Nippon Railway 206,404
-------------------------------------------------------
32,400 Kirin Brewery Co., Ltd. 268,296
-------------------------------------------------------
30,400 Komatsu, Ltd. 157,274
-------------------------------------------------------
45,000 Kubota Corp. 131,664
-------------------------------------------------------
50,400 Kumagai Gumi Co., Ltd. 47,697
-------------------------------------------------------
4,700 Kyocera Corp. 254,645
-------------------------------------------------------
14,600 Kyowa Hakko Kogyo Co., Ltd. 67,128
-------------------------------------------------------
42,800 Marubenii Corp. 107,337
-------------------------------------------------------
4,000 Marui Co., Ltd. 63,091
-------------------------------------------------------
45,000 Matsushita Electric Industrial Co., Ltd. 677,839
-------------------------------------------------------
49,000 Mitsubishi Chemical Corp. 86,561
-------------------------------------------------------
43,000 Mitsubishi Corp. 373,028
-------------------------------------------------------
57,800 Mitsubishi Electric Corp. 182,334
-------------------------------------------------------
7,000 Mitsubishi Estate Co., Ltd. 77,287
-------------------------------------------------------
89,000 Mitsubishi Heavy Industries, Ltd. 381,128
-------------------------------------------------------
30,200 Mitsubishi Material Corp. 61,924
-------------------------------------------------------
23,000 Mitsubishi Trust & Banking Co. 266,640
-------------------------------------------------------
43,800 Mitsui & Co. 290,848
-------------------------------------------------------
-- Continued --
47
<PAGE> 50
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
31,400 Mitsui Engineering & Shipbuilding Co., Ltd. (b) 27,983
-------------------------------------------------------
6,400 Mitsui Fudosan 63,596
-------------------------------------------------------
5,200 Mitsui Trust & Bankings Co. 14,804
-------------------------------------------------------
16,600 Mitsukoshi, Ltd. 59,043
-------------------------------------------------------
31,000 Model 69,677
-------------------------------------------------------
1,000 Murata Manufacturing Co., Ltd. 29,022
-------------------------------------------------------
9,800 Mycal Corp. 85,789
-------------------------------------------------------
28,200 NEC Corp. 333,596
-------------------------------------------------------
32,400 New Oji Paper Co. 148,202
-------------------------------------------------------
15,600 NGK Insulators, Ltd. 142,713
-------------------------------------------------------
17,600 Nippon Denso, Ltd. 360,883
-------------------------------------------------------
12,600 Nippon Express Co., Ltd. 76,912
-------------------------------------------------------
14,600 Nippon Fire & Marine Insurance 62,177
-------------------------------------------------------
93,800 Nippon Kokan 102,825
-------------------------------------------------------
14,600 Nippon Light Metal Co. 20,841
-------------------------------------------------------
14,600 Nippon Meat Packers, Inc. 179,621
-------------------------------------------------------
46,800 Nippon Oil Co., Ltd. 164,612
-------------------------------------------------------
180,800 Nippon Steel Corp. 283,748
-------------------------------------------------------
243 Nippon Telegraph & Telephone Corp. 2,203,864
-------------------------------------------------------
45,000 Nippon Yusen Kabushiki Kaisha 133,084
-------------------------------------------------------
57,600 Nissan Motors Co., Ltd. 256,656
-------------------------------------------------------
9,000 Nomura Securities Co., Ltd. 120,662
-------------------------------------------------------
17,400 Odakyu Electric Railway 79,727
-------------------------------------------------------
69,200 Osaka Gas Co., Ltd. 153,899
-------------------------------------------------------
14,600 Penta-Ocean Construction Co., Ltd. 29,246
-------------------------------------------------------
4,000 Pioneer Electronic Corp. 72,240
-------------------------------------------------------
2,000 Rohm Co. 219,243
-------------------------------------------------------
59,000 Sakura Bank 221,017
-------------------------------------------------------
12,800 Sankyo Co., Ltd. 334,132
-------------------------------------------------------
41,000 Sanwa Bank, Ltd. 449,448
-------------------------------------------------------
45,000 Sanyo Electric Co. 133,084
-------------------------------------------------------
3,800 Secom Co., Ltd. 239,748
-------------------------------------------------------
3,200 Sega Enterprise, Ltd. 68,644
-------------------------------------------------------
15,600 Sekisui House, Ltd. 129,180
-------------------------------------------------------
30,200 Sharp Corp. 242,934
-------------------------------------------------------
4,000 Shimano, Inc. 86,751
-------------------------------------------------------
23,600 Shimizu Construction 85,615
-------------------------------------------------------
5,800 Shin-Etsu Chemical Co. 128,990
-------------------------------------------------------
-- Continued --
48
<PAGE> 51
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
6,800 Shiseido Co., Ltd. 94,921
-------------------------------------------------------
5,400 Shizuoka Bank 60,047
-------------------------------------------------------
30,400 Shon Denko KK 38,120
-------------------------------------------------------
8,000 Sony Corp. 738,170
-------------------------------------------------------
11,000 Sumitomo Bank, Ltd. 131,861
-------------------------------------------------------
60,600 Sumitomo Chemical Co., Ltd. 191,167
-------------------------------------------------------
31,200 Sumitomo Corp. 212,101
-------------------------------------------------------
22,400 Sumitomo Electric Industries 330,347
-------------------------------------------------------
1,000 Sumitomo Forestry Co., Ltd. 6,191
-------------------------------------------------------
15,600 Sumitomo Metal & Mining 60,776
-------------------------------------------------------
58,600 Sumitomo Metal Industries 93,353
-------------------------------------------------------
15,600 Sumitomo Osaka Cement Co. 22,637
-------------------------------------------------------
32,400 Taisei Construction 89,432
-------------------------------------------------------
9,800 Taisho Pharmaceutical Co. 245,773
-------------------------------------------------------
18,000 Taiyo Yuden Co., Ltd. 183,123
-------------------------------------------------------
18,400 Takeda Chemical Industries 519,495
-------------------------------------------------------
32,400 Teijin, Ltd. 84,066
-------------------------------------------------------
20,600 Tobu Railway Co., Ltd. 73,432
-------------------------------------------------------
10,900 Tohoku Electric Power Co., Inc. 165,907
-------------------------------------------------------
11,800 Tokai Bank 70,819
-------------------------------------------------------
49,000 Tokio Marine Fire Insurance Co. 544,874
-------------------------------------------------------
27,500 Tokyo Electric Power 513,998
-------------------------------------------------------
3,000 Tokyo Electron, Ltd. 115,457
-------------------------------------------------------
65,600 Tokyo Gas, Ltd. 147,962
-------------------------------------------------------
25,400 Tokyu Corp. 101,560
-------------------------------------------------------
20,600 Toppan Printing Co., Ltd. 256,688
-------------------------------------------------------
49,100 Toray Industries, Inc. 241,240
-------------------------------------------------------
15,600 Toto, Ltd. 122,659
-------------------------------------------------------
32,400 Toyobo, Ltd. 47,271
-------------------------------------------------------
66,200 Toyota Motor Corp. 1,848,169
-------------------------------------------------------
30,400 Ube Industries, Inc. 47,950
-------------------------------------------------------
6,000 Yasuda Trust & Banking 10,410
-------------------------------------------------------
17,000 Yokogawa Electric 107,255
------------------------------------------------------- ----------
Total 27,939,323
------------------------------------------------------- ----------
Malaysia -- 0.5%
-------------------------------------------------------
12,000 Airlines System 10,217
-------------------------------------------------------
7,000 AMMB Holdings 4,453
-------------------------------------------------------
-- Continued --
49
<PAGE> 52
Fountain Square International Equity Fund
- -------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
14,000 Amsteel Corp. 2,813
-------------------------------------------------------
19,000 Banking 41,807
-------------------------------------------------------
16,000 Berjaya Group 2,966
-------------------------------------------------------
6,000 Berjaya Land 3,458
-------------------------------------------------------
7,000 Cement Berhad 3,014
-------------------------------------------------------
3,000 Cement Works 933
-------------------------------------------------------
14,000 Commerce Assets Holdings 5,893
-------------------------------------------------------
30,000 DCB Holdings 12,557
-------------------------------------------------------
4,000 Ederan Otomobil Nasional 4,152
-------------------------------------------------------
8,000 Ekran Berhad (b) 1,607
-------------------------------------------------------
17,000 Golden Hope Plantations 18,134
-------------------------------------------------------
5,000 Guinness Anchor 5,955
-------------------------------------------------------
10,000 Highlands & Lowlands 9,758
-------------------------------------------------------
2,000 Hong Leong Industries 1,210
-------------------------------------------------------
4,000 Hong Leong Properties 794
-------------------------------------------------------
5,000 Hume Ind. 4,425
-------------------------------------------------------
10,000 Idris Hydraulic (b) 1,913
-------------------------------------------------------
5,000 IGB Corp. 1,256
-------------------------------------------------------
16,000 International Shipping 21,812
-------------------------------------------------------
14,000 IOI Corp. 6,697
-------------------------------------------------------
4,000 Jaya Tiasa Holdings 5,740
-------------------------------------------------------
3,000 Kian Joo Can Factory 2,669
-------------------------------------------------------
10,000 Kuala Lumpur Kepong 21,286
-------------------------------------------------------
24,000 Magnum Corp. 13,260
-------------------------------------------------------
13,000 MBF Capital Berhad 3,140
-------------------------------------------------------
13,000 Metroplex 2,985
-------------------------------------------------------
13,000 Mining Corp. 5,752
-------------------------------------------------------
5,000 Mosaics 2,452
-------------------------------------------------------
10,000 Mulph International 1,507
-------------------------------------------------------
12,000 Multi Purpose Holdings 3,128
-------------------------------------------------------
5,000 Mycom Berhad 981
-------------------------------------------------------
4,000 Nestle 18,081
-------------------------------------------------------
4,000 New Straits Times Press 3,922
-------------------------------------------------------
6,000 Oriental Holdings Berhad 6,601
-------------------------------------------------------
1,000 Oxygen 2,308
-------------------------------------------------------
4,000 Pacific Industries 9,950
-------------------------------------------------------
5,000 Perlis Plantations 6,398
-------------------------------------------------------
9,000 Perusahaan Otomobil Nasional 6,587
-------------------------------------------------------
-- Continued --
50
<PAGE> 53
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
2,000 Petaling Garden 1,196
-------------------------------------------------------
25,000 Public Bank 7,534
-------------------------------------------------------
6,000 Rashid Hussain 4,477
-------------------------------------------------------
20,000 Resort World 36,115
-------------------------------------------------------
18,000 Resources Corp. 4,090
-------------------------------------------------------
4,000 RJ Reynolds 6,505
-------------------------------------------------------
5,000 Rothmans Pall Mall 39,762
-------------------------------------------------------
8,000 Selangor Properties 2,373
-------------------------------------------------------
1,000 Shell Refining 1,339
-------------------------------------------------------
36,000 Sime Darby 37,024
-------------------------------------------------------
8,000 Sungei Way Holdings 1,818
-------------------------------------------------------
16,000 TA Enterprises 2,679
-------------------------------------------------------
12,000 Tan Chong 5,023
-------------------------------------------------------
14,000 Technology Resources Ind. 6,697
-------------------------------------------------------
47,000 Telekom 115,782
-------------------------------------------------------
50,000 Tenega Nasional 84,905
-------------------------------------------------------
13,000 Time Engineering 1,897
-------------------------------------------------------
4,000 UMW Holdings 2,239
-------------------------------------------------------
14,000 United Engineers, Ltd. 7,166
-------------------------------------------------------
21,000 United Ind. 3,114
-------------------------------------------------------
20,000 YTL Corp. 25,113
------------------------------------------------------- ---------
Total 679,419
------------------------------------------------------- ---------
Netherlands -- 3.0%
-------------------------------------------------------
16,670 ABN Amro Holdings NV 335,848
-------------------------------------------------------
950 Akzo Nobel NV 172,117
-------------------------------------------------------
8,100 Elsevier NV 137,236
-------------------------------------------------------
500 Heineken NV 86,122
-------------------------------------------------------
9,205 ING Groep NV 421,847
-------------------------------------------------------
1,093 KLM Royal Dutch Airlines NV 37,939
-------------------------------------------------------
4,820 Koninklijke Ahold NV 132,909
-------------------------------------------------------
413 Koninklijke Hoogovens NV 17,784
-------------------------------------------------------
1,300 Koninklijke KNP BT NV 32,691
-------------------------------------------------------
12,097 Koninklijke Royal PTT Nederland NV 523,256
-------------------------------------------------------
300 Nedlloyd Groep NV 6,219
-------------------------------------------------------
4,100 Philips Electronics NV 277,065
-------------------------------------------------------
26,400 Royal Dutch Petroleum Co. 1,381,596
-------------------------------------------------------
7,800 Unilever NV 447,580
-------------------------------------------------------
-- Continued --
51
<PAGE> 54
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
369 Verenigde Machinefabrieken Stork NV 13,041
-------------------------------------------------------
867 Wolters Kluwer NV CVA 117,431
------------------------------------------------------- ----------
Total 4,140,681
------------------------------------------------------- ----------
Norway -- 0.5%
-------------------------------------------------------
1,500 Ager, Series A 25,237
-------------------------------------------------------
1,300 Bergesen, Series A 28,219
-------------------------------------------------------
500 Bergesen, Series B 10,689
-------------------------------------------------------
12,700 Christiania Bank 46,422
-------------------------------------------------------
700 Dyno Industrier 11,731
-------------------------------------------------------
1,200 Elkem 15,677
-------------------------------------------------------
2,300 Hafslund AS 12,899
-------------------------------------------------------
500 Helicopter Services Group 5,674
-------------------------------------------------------
1,000 Kvaerner Industrier 38,664
-------------------------------------------------------
700 Lief Hoegh & Co. 11,546
-------------------------------------------------------
3,555 NCL Holding, Series A (b) 13,323
-------------------------------------------------------
5,400 Norsk Hydro 243,703
-------------------------------------------------------
700 Norske Skogindystrier 19,583
-------------------------------------------------------
1,100 Orkla ASA, Series A 89,706
-------------------------------------------------------
700 Pertroleum Geo Services (b) 38,611
-------------------------------------------------------
6,600 Storebrand (b) 47,901
-------------------------------------------------------
400 Unitor AS 5,278
------------------------------------------------------- ----------
Total 664,863
------------------------------------------------------- ----------
Portugal -- 1.5%
-------------------------------------------------------
9,000 Banco Commercial 205,223
-------------------------------------------------------
4,700 Banco Espirito Santo 168,360
-------------------------------------------------------
4,500 Banco Portugues Investmento 138,339
-------------------------------------------------------
3,400 Banco Totta 75,438
-------------------------------------------------------
500 Cie De Seguros Tranquilidad 11,893
-------------------------------------------------------
4,800 Cimpor Cimentos 132,421
-------------------------------------------------------
200 Corporacao Industrial Do Norte 14,168
-------------------------------------------------------
1,100 Corticeira Amorim 13,244
-------------------------------------------------------
21,000 Electricidade De Portugal 434,618
-------------------------------------------------------
400 Engil Sociedade Gestora 4,801
-------------------------------------------------------
900 Inapa 10,153
-------------------------------------------------------
6,050 Jeronimo Martins 197,634
-------------------------------------------------------
5,100 Portucel Industrial 31,357
-------------------------------------------------------
11,000 Portugal Telecom 562,410
-------------------------------------------------------
-- Continued --
52
<PAGE> 55
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
700 Sociedade De Construcoes Soares Da Costa SA (b) 4,341
-------------------------------------------------------
2,400 Sonae 99,380
-------------------------------------------------------
700 Unicer 11,059
------------------------------------------------------- ----------
Total 2,114,839
------------------------------------------------------- ----------
Singapore -- 0.7%
-------------------------------------------------------
26,666 Asia Food & Property (b) 3,467
-------------------------------------------------------
17,000 City Development, Ltd. 52,970
-------------------------------------------------------
2,000 Creative Technology, Ltd. (b) 35,876
-------------------------------------------------------
5,000 Cycle & Carriage, Ltd. 12,347
-------------------------------------------------------
21,000 DBS Land Ltd. 21,526
-------------------------------------------------------
11,000 Development Bank of Singapore, Ltd. (b) 70,472
-------------------------------------------------------
7,000 First Capital Corp., Ltd. 4,158
-------------------------------------------------------
7,000 Fraser & Neave, Ltd. 24,461
-------------------------------------------------------
13,000 Hai Sun Huo Group 3,710
-------------------------------------------------------
10,000 Hotel & Properties 4,834
-------------------------------------------------------
4,000 Inchcape Berhad 4,100
-------------------------------------------------------
4,000 Inchcape Marketing Services (b) 920
-------------------------------------------------------
16,000 Keppel Corp., Ltd. 37,088
-------------------------------------------------------
2,000 Metro Holdings, Ltd. 1,747
-------------------------------------------------------
7,000 Natsteel, Ltd. 5,789
-------------------------------------------------------
19,000 Neptune Orient Lines, Ltd. 7,525
-------------------------------------------------------
18,960 OCBC - Foreign (b) 78,954
-------------------------------------------------------
3,000 Overseas Union Enterprises, Ltd. 4,997
-------------------------------------------------------
7,000 Parkway Holdings, Ltd. 10,559
-------------------------------------------------------
1,200 Robinson & Co. 3,494
-------------------------------------------------------
3,100 Shangri-La Hotel, Ltd. 4,496
-------------------------------------------------------
19,000 Singapore International Airlines, Ltd. 123,937
-------------------------------------------------------
4,400 Singapore Press Holdings, Ltd. 57,146
-------------------------------------------------------
16,000 Singapore Technologies Industrial Corp. 11,089
-------------------------------------------------------
134,000 Singapore Telecommunications, Ltd. 265,347
-------------------------------------------------------
8,000 Straits Trading Co., Ltd. 7,036
-------------------------------------------------------
32,000 United Industries Corp., Ltd. 9,691
-------------------------------------------------------
19,000 United Overseas Bank, Ltd. (b) 70,821
-------------------------------------------------------
12,000 United Overseas Land, Ltd. 7,688
------------------------------------------------------- ----------
Total 946,245
------------------------------------------------------- ----------
Spain -- 4.3%
-------------------------------------------------------
257 Acerinox SA, Registered 37,623
-------------------------------------------------------
-- Continued --
53
<PAGE> 56
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
8,284 Acesa Autopista 114,644
-------------------------------------------------------
400 Alba 43,588
-------------------------------------------------------
23,800 Banco Bilbao Vizcaya SA, Registered 832,259
-------------------------------------------------------
18,600 Banco Santander SA 656,421
-------------------------------------------------------
12,800 Bco Cent Hispanoamer 313,816
-------------------------------------------------------
4,400 Corporacion Bancaria de Espana SA 303,752
-------------------------------------------------------
1,580 Corporacion Mapfre 41,999
-------------------------------------------------------
1,400 Dragados & Construcciones SA 33,646
-------------------------------------------------------
1,200 Ebro Agricolas, Compania De Alimentacion SA 23,691
-------------------------------------------------------
550 Empresa Nacional de Celulosas SA 7,274
-------------------------------------------------------
37,300 Endesa-Empresa Nac Elec. 719,552
-------------------------------------------------------
4,100 Ercros SA (b) 4,867
-------------------------------------------------------
1,600 Fomento De Construction 62,867
-------------------------------------------------------
5,400 Gas Natural SDG SA 276,977
-------------------------------------------------------
32,400 Iberdrola SA 490,196
-------------------------------------------------------
535 Inmobiliaria Metropolitana Vasco Central SA 23,989
-------------------------------------------------------
10,600 Repsol SA 454,789
-------------------------------------------------------
1,631 Sociedade General De Aguas D'Barcelona, SA 69,136
-------------------------------------------------------
900 Tabacalera Spanish SA, Registered 76,938
-------------------------------------------------------
33,300 Telefonica De Espana 1,089,268
-------------------------------------------------------
7,100 Union Electrica Fenosa SA 74,896
-------------------------------------------------------
2,300 Uralita SA 26,265
-------------------------------------------------------
1,339 Vallehermoso SA 43,972
-------------------------------------------------------
500 Viscofan Envolturas Celulosicas 14,097
-------------------------------------------------------
371 Zardoya Otis SA 43,803
------------------------------------------------------- ----------
Total 5,880,325
------------------------------------------------------- ----------
Sweden -- 2.8%
-------------------------------------------------------
18,600 ABB AB, Series A 220,227
-------------------------------------------------------
400 AGA AB, Series A 5,377
-------------------------------------------------------
4,100 AGA AB, Series B 51,579
-------------------------------------------------------
35,866 Astra AB, Series A 656,893
-------------------------------------------------------
3,900 Atlas Copco AB, Series A 109,188
-------------------------------------------------------
2,000 Electrolux AB, Series B 145,782
-------------------------------------------------------
25,000 Ericsson LM, Series B 980,511
-------------------------------------------------------
200 Esselte AB, Series A 3,848
-------------------------------------------------------
1,300 Granges AB (b) 20,924
-------------------------------------------------------
5,400 Hennes & Mauritz AB, Series B 241,761
-------------------------------------------------------
-- Continued --
54
<PAGE> 57
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
50 Scancem AB, Series A 1,912
-------------------------------------------------------
2,300 Securitas AB, Series B 67,230
-------------------------------------------------------
2,900 Skandia Forsakrings AB 151,295
-------------------------------------------------------
14,700 Skandinaviska Enskilda Banken, Class A 181,302
-------------------------------------------------------
3,400 Skanska AB, Series B 153,478
-------------------------------------------------------
2,200 SKF AB, Series B 44,228
-------------------------------------------------------
9,400 Stora Kopparbergs Bergslag Aktiebolag, Series A 118,833
-------------------------------------------------------
5,800 Svenska Cellulosa AB, Series B 125,185
-------------------------------------------------------
5,800 Svenska Handelsbanken, Class A 212,099
-------------------------------------------------------
14,600 Swedish Match AB 47,538
-------------------------------------------------------
4,000 Trelleborg AB, Series B 47,854
-------------------------------------------------------
10,900 Volvo AB, Series B 298,445
------------------------------------------------------- ----------
Total 3,885,489
------------------------------------------------------- ----------
Switzerland -- 7.7%
-------------------------------------------------------
220 ABB AB, Bearer 280,282
-------------------------------------------------------
420 Adia SA, Bearer 130,498
-------------------------------------------------------
135 Alusuisse-Lonza Holding, Registered 147,656
-------------------------------------------------------
6,000 Credit Suisse Group, Registered 956,523
-------------------------------------------------------
15 Georg Fischer AG 22,871
-------------------------------------------------------
160 Holderbank Financiere Glarus AG 131,846
-------------------------------------------------------
890 Nestle SA, Registered 1,420,350
-------------------------------------------------------
1,450 Novartis AG, Registered 2,486,012
-------------------------------------------------------
157 Roche Holdgs AG, Genuss 1,632,073
-------------------------------------------------------
37 Roche Holding AG 577,946
-------------------------------------------------------
75 Sairgroup, Registered (b) 96,567
-------------------------------------------------------
115 SMH Swiss Corp. 61,878
-------------------------------------------------------
43 Societe Generale 71,683
-------------------------------------------------------
85 Sulzer AG, Registered 58,869
-------------------------------------------------------
1,720 Swiss Bank Corp. 530,340
-------------------------------------------------------
330 Swiss Reinsurance Co., Registered 650,761
-------------------------------------------------------
440 Union Bank of Switzerland, Bearer 626,460
-------------------------------------------------------
520 Union Bank of Switzerland, Registered 147,826
-------------------------------------------------------
150 Valora Holding AG, Registered 34,510
-------------------------------------------------------
1,075 Zurich Verichrng Gesellschft, Registered 538,353
------------------------------------------------------- ----------
Total 10,603,304
------------------------------------------------------- ----------
Thailand -- 0.0%
-------------------------------------------------------
8,700 CMIC Finance & Securities Co., Ltd. 1,072
-------------------------------------------------------
-- Continued --
55
<PAGE> 58
Fountain Square International Equity Fund
- -------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Common Stocks--Continued
- ------------------------------------------------------------------
13,300 Finance One PLC (b) 857
-------------------------------------------------------
14,500 General Finance & Securities Co., Ltd. 2,172
-------------------------------------------------------
12,469 Land & House 4,727
-------------------------------------------------------
25,200 TPI Polene Co., Ltd. 1,911
-------------------------------------------------------
9,100 Univest Land Public Co., Ltd. (b) 259
------------------------------------------------------- -----------
Total 10,998
------------------------------------------------------- -----------
Total Common Stocks 124,138,398
------------------------------------------------------- -----------
Preferred Stocks -- 0.6%
- ------------------------------------------------------------------
Australia -- 0.1%
-------------------------------------------------------
20,853 News Corp., Ltd. 112,186
------------------------------------------------------- -----------
Austria -- 0.0%
-------------------------------------------------------
800 Bank Austria (b) 42,918
------------------------------------------------------- -----------
Germany -- 0.4%
-------------------------------------------------------
4,850 RWE AG 224,457
-------------------------------------------------------
942 SAP AG 346,188
------------------------------------------------------- -----------
Total 570,645
------------------------------------------------------- -----------
Italy -- 0.1%
-------------------------------------------------------
47,750 Fiat SpA (b) 87,384
------------------------------------------------------- -----------
Total Preferred Stocks 813,133
------------------------------------------------------- -----------
Warrants and Rights -- 0.0%
- ------------------------------------------------------------------
Australia -- 0.0%
-------------------------------------------------------
5,769 Crown, Ltd. 435
------------------------------------------------------- -----------
France -- 0.0%
-------------------------------------------------------
426 Casino Guichard Perrachon (b) 8,802
-------------------------------------------------------
3,255 Cie Generale Des Eaux (b) 2,382
-------------------------------------------------------
8 Sodexho SA (b) 1,746
------------------------------------------------------- -----------
Total 12,930
------------------------------------------------------- -----------
Hong Kong -- 0.0%
-------------------------------------------------------
590 Peregrine Investment Holdings (b) 1
------------------------------------------------------- -----------
Italy -- 0.0%
-------------------------------------------------------
1,600 Mediobanca/Rinascenter (b) 1,087
-------------------------------------------------------
2,400 Mediobanca/Rinascenter (b) 3,035
-------------------------------------------------------
107,680 Olivetti 16,601
------------------------------------------------------- -----------
Total 20,723
------------------------------------------------------- -----------
Singapore -- 0.0%
-------------------------------------------------------
6,250 Straight Steamship (b) 673
------------------------------------------------------- -----------
-- Continued --
56
<PAGE> 59
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------------------------------------------------------------- --------
Warrants and Rights --Continued
- ------------------------------------------------------------------
Thailand -- 0.0%
-------------------------------------------------------
1,290 National Finance & Security (b) 56
------------------------------------------------------- -----------
United States -- 0.0%
-------------------------------------------------------
2,000 Asia Food & Property 120
------------------------------------------------------- -----------
Total Warrants and Rights 34,938
------------------------------------------------------- -----------
Convertible Securities -- 0.1%
- ------------------------------------------------------------------
France -- 0.1%
-------------------------------------------------------
325 Sanofia, Convertible Bond, 4.00%, 1/1/00 38,647
-------------------------------------------------------
277 Simco, Convertible Bond, 3.25%, 1/1/06 24,931
------------------------------------------------------- -----------
Total 63,578
------------------------------------------------------- -----------
Portugal -- 0.0%
-------------------------------------------------------
960 Jeronimo Martins, Convertible Bond, 12/30/04 5,133
------------------------------------------------------- -----------
Total Convertible Securities 68,711
------------------------------------------------------- -----------
Corporate Bonds -- 0.0%
- ------------------------------------------------------------------
France -- 0.0%
-------------------------------------------------------
426 Casino Guichard, 4.50%, 7/12/01 237
-------------------------------------------------------
40,000 Sodexho S.A., 6.00%, 7/6/04 6,742
------------------------------------------------------- -----------
Total 6,979
------------------------------------------------------- -----------
Italy -- 0.0%
-------------------------------------------------------
12,800,000 Mediobanca, 4.50%, 1/1/00 7,007
-------------------------------------------------------
2,125,000 Mediobanca, 6.00%, 12/31/02 1,461
------------------------------------------------------- -----------
Total 8,468
------------------------------------------------------- -----------
Total Corporate Bonds 15,447
------------------------------------------------------- -----------
Repurchase Agreements -- 16.1%
- ------------------------------------------------------------------
United States -- 16.1%
-------------------------------------------------------
22,030,000 UBS Securities, 5.58%, dated 1/30/98, due 2/2/98
(at amortized cost), collateralized by U.S. Treasury
Bills due 7/2/98 with a value of $22,473,848. 22,030,000
------------------------------------------------------- -----------
Total Repurchase Agreements 22,030,000
------------------------------------------------------- -----------
Total Investments (Cost $128,635,906) (a)-- 107.5% 147,100,627
-------------------------------------------------------
Liabilities in excess of other assets -- (7.5)% (10,274,426)
------------------------------------------------------- -----------
TOTAL NET ASSETS-- 100.0% $136,826,201
======================================================= ===========
Percentages indicated are based on net assets of $136,826,201.
(a) The cost of investments for federal tax purposes amounts to $128,635,906.
The net unrealized appreciation of investments on federal tax basis amounts
to $18,464,721, which is composed of $26,815,559 appreciation and $8,350,838
depreciation at January 31, 1998.
-- Continued --
57
<PAGE> 60
Fountain Square International Equity Fund
- --------------------------------------------------------------------------------
(b) Non-income producing security
At January 31, 1998, International Equity Fund's investment concentration, by
industry, was as follows:
Automotive 4.5%
Business & Financial Services 15.7%
Food 3.0%
Insurance 7.4%
Manufacturing 3.8%
Oil & Gas Producers 7.3%
Pharmaceuticals 9.5%
Retail 3.5%
Telecommunications 3.8%
Telephone 5.2%
See notes to financial statements.
58
<PAGE> 61
Fountain Square Bond Fund For Income
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- -------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ------------- -------------------------------------------------- -----------
Asset Backed Securities -- 3.0%
- ------------------------------------------------------------------
Financial -- 3.0%
--------------------------------------------------
5,000,000 GE Capital Management, 6.94%, 3/25/27 $5,090,000
-------------------------------------------------- -----------
Total Asset Backed Securities 5,090,000
-------------------------------------------------- -----------
Corporate Bonds -- 44.9%
- ------------------------------------------------------------------
Chemicals -- 3.0%
--------------------------------------------------
5,000,000 Engelhard Corp., 7.00%, 8/1/01 5,178,535
-------------------------------------------------- -----------
Financial -- 29.9%
--------------------------------------------------
5,000,000 American General Finance Corp., 7.25%, 4/15/00 5,139,135
--------------------------------------------------
5,000,000 Bear Stearns, Inc., 7.25%, 10/15/06 5,264,825
--------------------------------------------------
5,000,000 Chrysler Corp., Medium Term Note, 6.37%, 6/21/99 5,038,120
--------------------------------------------------
5,000,000 CIT Group Holdings, 6.25%, 3/28/01 5,057,940
--------------------------------------------------
5,000,000 DLJ, Medium Term Note, 6.38%, 5/26/00 5,059,050
--------------------------------------------------
5,000,000 IBM, 6.45%, 8/1/07 5,043,340
-------------------------------------------------
5,000,000 Metropolitan Life, 6.30%, 11/1/03 5,004,150
--------------------------------------------------
5,000,000 Morgan Stanley, 6.38%, 8/1/02 5,069,105
--------------------------------------------------
5,000,000 Paine Webber Group, 6.68%, 2/10/04 5,068,145
--------------------------------------------------
5,000,000 Southern National Corp., 7.05%, 5/23/03 5,237,515
-------------------------------------------------- -----------
Total 50,981,325
-------------------------------------------------- -----------
Manufacturing -- 8.4%
--------------------------------------------------
5,000,000 Amgen, Inc., 6.50%, 12/1/07 5,101,200
--------------------------------------------------
4,000,000 Archers Danial Midland Co., 6.25%, 5/15/03 4,057,496
--------------------------------------------------
5,000,000 Tyco International, Ltd., 6.38%, 1/15/04 5,102,010
-------------------------------------------------- -----------
Total 14,260,706
-------------------------------------------------- -----------
Telecommunications -- 3.0%
--------------------------------------------------
5,000,000 British Telecommunications, Inc., 9.38%, 2/15/99 5,198,515
-------------------------------------------------- -----------
Utilities -- 0.6%
--------------------------------------------------
1,000,000 Southern New England, 8.00%, 11/20/01 1,074,509
-------------------------------------------------- -----------
Total Corporate Bonds 76,693,590
-------------------------------------------------- -----------
-- Continued --
59
<PAGE> 62
Fountain Square Bond Fund For Income
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ------------- ------------------------------------------------ --------------
U.S. Government Securities -- 49.2%
- ----------------------------------------------------------------
U.S. Government Agencies -- 10.4%
------------------------------------------------
126 Federal Home Loan Mortgage Corp., 7.50%, 2/1/02 129
------------------------------------------------
12,500,000 Federal National Mortgage Assoc., 6.85%, 7/2/02 12,568,563
------------------------------------------------
5,000,000 Federal National Mortgage Assoc., 7.33%, 6/19/07 5,171,635
------------------------------------------------ ------------
Total 17,740,327
------------------------------------------------ ------------
U.S. Treasury Notes -- 38.8%
------------------------------------------------
2,500,000 9.00%, 5/15/98 2,525,000
------------------------------------------------
2,580,000 9.25%, 8/15/98 2,631,600
------------------------------------------------
1,750,000 7.13%, 10/15/98 1,770,781
------------------------------------------------
2,000,000 8.00%, 8/15/99 2,076,876
------------------------------------------------
8,500,000 5.63%, 11/30/99 8,537,188
------------------------------------------------
6,000,000 6.13%, 7/31/00 6,106,878
------------------------------------------------
4,000,000 7.75%, 2/15/01 4,265,000
------------------------------------------------
11,500,000 6.13%, 12/31/01 11,787,500
------------------------------------------------
17,000,000 5.88%, 9/30/02 17,313,446
------------------------------------------------
5,000,000 5.75%, 8/15/03 5,070,315
------------------------------------------------
4,000,000 6.50%, 10/15/06 4,252,500
------------------------------------------------ ------------
Total 66,337,084
------------------------------------------------ ------------
Total U.S. Government Securities 84,077,411
------------------------------------------------ ------------
Repurchase Agreement -- 2.9%
- ----------------------------------------------------------------
4,922,000 UBS Securities, 5.58%, dated 1/30/98, due 2/2/98
(at amortized cost), collateralized by U.S.
Treasury Bills due 7/2/98 with a value of
$5,024,084. 4,922,000
------------------------------------------------ ------------
Total Repurchase Agreement 4,922,000
------------------------------------------------ ------------
Total Investments (Cost $167,471,040)
(a)-- 100.0% 170,783,001
------------------------------------------------
Other assets in excess of liabilities-- 0.0% 1,329
------------------------------------------------ ------------
TOTAL NET ASSETS-- 100.0% $170,784,330
================================================ ============
Percentages indicated are based on net assets of $170,784,330.
* The cost of investments for federal tax purposes amounts to $167,471,040. The
net unrealized appreciation of investments on federal tax basis amounts to
$3,311,961, which is composed of $3,324,229 appreciation and $12,268
depreciation at January 31, 1998.
See notes to financial statements.
60
<PAGE> 63
Fountain Square Quality Bond Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------- ----------------------------------------------------- -----------
Asset Backed Securities -- 5.7%
- ------------------------------------------------------------------
Financial -- 2.0%
-----------------------------------------------------
2,000,000 GE Capital Management, 6.94%, 3/25/27 $2,036,000
----------------------------------------------------- -----------
Private Label CMOs -- 3.7%
-----------------------------------------------------
3,500,000 Greentree Financial, 7.70%, 9/15/27, Series 1996-D
A4, REMIC 3,694,538
----------------------------------------------------- -----------
Total Asset Backed Securities 5,730,538
----------------------------------------------------- -----------
Corporate Bonds -- 20.5%
- ------------------------------------------------------------------
Financial -- 17.5%
-----------------------------------------------------
4,000,000 First Union Corp., 7.00%, 3/15/06 4,152,295
-----------------------------------------------------
1,000,000 Ford Motor Credit Corp., Floating Rate Note, 11/9/98,
(5.65%, 2/9/98) (b) 999,035
-----------------------------------------------------
2,500,000 GMAC, 6.75%, 2/7/02 2,565,583
-----------------------------------------------------
4,000,000 McDonnel Douglas, 6.56%, 12/24/01 4,102,868
-----------------------------------------------------
2,500,000 Nations Bank, 7.00%, 9/15/01 2,597,118
-----------------------------------------------------
3,000,000 Sears Roebuck, 6.54%, 2/20/03 3,072,006
----------------------------------------------------- ----------
Total 17,488,905
----------------------------------------------------- ----------
Manufacturing -- 1.5%
-----------------------------------------------------
1,500,000 IBP, Inc., Debenture, 6.13%, 2/1/06 1,499,036
----------------------------------------------------- ----------
Utility -- 1.5%
-----------------------------------------------------
1,500,000 Georgia Power, 6.88%, 9/1/02 1,525,002
----------------------------------------------------- ----------
Total Corporate Bonds 20,512,943
----------------------------------------------------- ----------
Mortgage Backed Securities -- 0.0%
- ------------------------------------------------------------------
U.S. Government Agencies -- 0.0%
-----------------------------------------------------
6,465 Federal Home Loan Mortgage Corp., 9.50%, 10/1/02,
Pool #38-0009, CMO 6,683
-----------------------------------------------------
13,961 Federal Home Loan Mortgage Corp., 8.00%, 8/1/08,
Pool #27-2525, CMO 14,477
----------------------------------------------------- ----------
Total Mortgage Backed Securities 21,160
----------------------------------------------------- ----------
U.S. Government Securities -- 63.9%
- ------------------------------------------------------------------
U.S. Government Agencies -- 18.3%
-----------------------------------------------------
3,879,399 Federal National Mortgage Association, 7.00%, 7/18/27 3,926,495
-----------------------------------------------------
1,493,514 Government National Mortgage Association, 7.50%,
8/15/27, Pool #449006 1,538,618
-----------------------------------------------------
12,416,276 Government National Mortgage Association, 7.50%,
9/15/27, Pool #451459 12,791,248
----------------------------------------------------- ----------
Total 18,256,361
----------------------------------------------------- ----------
U.S. Treasury Bonds -- 9.1%
-----------------------------------------------------
9,000,000 6.00%, 2/15/26 9,146,250
----------------------------------------------------- ----------
-- Continued --
61
<PAGE> 64
Fountain Square Quality Bond Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------- ------------------------------------------------------ -----------
U.S. Government Securities--Continued
- -------------------------------------------------------------------
U.S. Treasury Notes --36.5%
------------------------------------------------------
14,000,000 5.63%, 11/30/99 14,061,250
------------------------------------------------------
14,750,000 5.75%, 8/15/03 14,957,429
------------------------------------------------------
7,000,000 6.50%, 10/15/06 7,441,875
------------------------------------------------------ -----------
Total 36,460,554
------------------------------------------------------ -----------
Total U.S. Government Securities 63,863,165
------------------------------------------------------ -----------
Repurchase Agreement -- 8.9%
- -------------------------------------------------------------------
8,940,000 UBS Securities, 5.58%, dated 1/30/98, due 2/2/98
(at amortized cost), collateralized by U.S. Treasury
Bills due 7/2/98 with a value of $9,123,580. 8,940,000
------------------------------------------------------ -----------
Total Repurchase Agreement 8,940,000
------------------------------------------------------ -----------
Total Investments (Cost $97,895,144) (a)-- 99.0% 99,067,806
------------------------------------------------------
Other assets in excess of liabilities 1.0% 968,404
------------------------------------------------------ -----------
TOTAL NET ASSETS-- 100.0% $100,036,210
====================================================== ===========
Percentages indicated are based on net assets of $100,036,210.
(a) The cost of investments for federal tax purposes amounts to $97,895,144. The
net unrealized appreciation of investments on federal tax basis amounts to
$1,172,662, which is composed of $1,181,653 appreciation and $8,991
depreciation at January 31, 1998.
(b) Current rate and next reset date shown.
The following abbreviations are used in this portfolio:
CMO -- Collateralized Mortgage Obligation
REMIC -- Real Estate Mortgage Investment Conduit
See notes to financial statements.
62
<PAGE> 65
Fountain Square U.S. Government Securities Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------- ------------------------------------------------------- ----------
U.S. Government Securities -- 95.9%
- --------------------------------------------------------------------
Mortgage Backed Securities -- 16.0%
-------------------------------------------------------
1,310,714 Federal Loan Home Mortgage Corp., 7.00%, 9/1/03,
Gold Pool #N96911 $1,339,038
-------------------------------------------------------
1,346,128 Federal National Mortgage Association, 6.00%, 6/1/01,
Pool #303016 1,346,989
-------------------------------------------------------
4,017,205 Federal National Mortgage Association Gold Series,
6.00%, 10/1/04 4,016,724
------------------------------------------------------- ----------
Total 6,702,751
------------------------------------------------------- ----------
U.S. Government Agencies -- 22.8%
-------------------------------------------------------
1,000,000 Federal Home Loan Bank, 6.29%, 12/23/02 1,006,200
-------------------------------------------------------
2,000,000 Federal Home Loan Bank Coupon Bond, 6.00%, 9/1/00 1,999,714
-------------------------------------------------------
1,000,000 Federal Home Loan Mortgage Corp., 6.30%, 4/29/99 1,001,598
-------------------------------------------------------
1,000,000 Federal Home Loan Mortgage Corp., 6.50%, 6/8/00,
(Callable 6/8/98 @ 100) 1,003,389
-------------------------------------------------------
500,000 Federal Home Loan Mortgage Corp., 6.70%, 10/9/02,
(Callable 10/9/98 @ 100) 503,602
-------------------------------------------------------
1,000,000 Federal National Mortgage Association, Variable rate, 4/14/00,
Callable 4/14/98 @ 100 (5.78%,
4/14/98) (b) 1,000,440
-------------------------------------------------------
3,000,000 Federal National Mortgage Association, 6.75%, 7/26/04,
Callable 7/26/00 @100 3,067,581
------------------------------------------------------- ----------
Total 9,582,524
------------------------------------------------------- ----------
U.S. Treasury Notes -- 57.1%
-------------------------------------------------------
3,700,000 7.50%, 11/15/01 3,963,625
-------------------------------------------------------
5,600,000 5.88%, 11/30/01 5,690,999
-------------------------------------------------------
5,000,000 6.25%, 1/31/02 5,150,000
-------------------------------------------------------
5,000,000 6.25%, 6/30/02 5,162,500
-------------------------------------------------------
4,000,000 5.75%, 8/15/03 4,056,252
------------------------------------------------------- ----------
Total 24,023,376
------------------------------------------------------- ----------
Total U.S. Government Securities 40,308,651
------------------------------------------------------- ----------
-- Continued --
63
<PAGE> 66
Fountain Square U.S. Government Securities
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------- ----------------------------------------------------- ----------
Repurchase Agreements -- 2.8%
- ------------------------------------------------------------------ ----------
1,166,000 UBS Securities, 5.58%, dated 1/30/98, due 2/2/98
(at amortized cost), collateralized by U.S. Treasury
Bills due 7/2/98 with a value of $1,193,648. 1,166,000
----------------------------------------------------- -----------
Total Repurchase Agreements 1,166,000
----------------------------------------------------- -----------
Total Investments (Cost $40,724,613) (a)-- 98.7% 41,474,651
-----------------------------------------------------
Other assets in excess of liabilities 1.3% 537,307
----------------------------------------------------- -----------
TOTAL NET ASSETS-- 100.0% $42,011,958
===================================================== ============
Percentages indicated are based on net assets of $42,011,958.
(a) The cost of investments for federal tax purposes amounts to $40,724,613. The
net unrealized appreciation of investments on federal tax basis amounts to
$750,038 which is composed of $761,355 appreciation and $11,317 depreciation
at January 31, 1998.
(b) Current rate and next reset date shown.
See notes to financial statements.
64
<PAGE> 67
Fountain Square Municipal Bond Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
Municipal Bonds -- 93.0%
- ------------------------------------------------------------------
Alabama -- 2.9%
-------------------------------------------------------
1,000,000 Shelby County Board Of Education, Revenue, 5.50%,
2/1/08, (Callable 2/1/05 @ 102) $1,074,890
-------------------------------------------------------
2,000,000 State, Water Pollution Control, Series A, Revenue, 4.75%, 8/15/11
(Callable 2/15/08 @ 100) 2,003,120
------------------------------------------------------- ----------
Total 3,078,010
------------------------------------------------------- ----------
Arizona -- 3.0%
-------------------------------------------------------
1,000,000 Phoenix, GO, 5.80%, 7/1/07 (Callable 7/1/05 @ 102) 1,113,030
-------------------------------------------------------
2,000,000 Salt River Project Agriculture, Revenue, 4.80%, 1/1/07,
Series C 2,074,860
------------------------------------------------------- ----------
Total 3,187,890
------------------------------------------------------- ----------
Arkansas -- 1.9%
-------------------------------------------------------
2,000,000 State Developmental Financial Authority, Health Care
Facilities, Sisters of Mercy Health - Series B,
3.70%, 6/1/12 2,000,000
------------------------------------------------------- ----------
California -- 3.7%
-------------------------------------------------------
2,000,000 State Public Works Board, Lease Revenue, 5.00%, 9/1/11
(Callable 9/1/07 @ 102) 2,062,080
-------------------------------------------------------
2,000,000 Yuba County, Water Agency, Revenue, 4.00%, 3/1/16 (Callable 3/18/98 @
100), MBIA-IBC 1,877,320
------------------------------------------------------- ----------
Total 3,939,400
------------------------------------------------------- ----------
Delaware -- 2.0%
-------------------------------------------------------
1,000,000 State, GO, 5.80%, 8/15/99 1,031,850
-------------------------------------------------------
1,000,000 Transportation Authority, Revenue, 5.70%, 7/1/06,
(Callable 7/1/02 @ 102) 1,071,920
------------------------------------------------------- ----------
Total 2,103,770
------------------------------------------------------- ----------
Florida -- 6.2%
-------------------------------------------------------
2,455,000 Escambie County, Revenue, 4.60%, 1/1/07 2,499,902
-------------------------------------------------------
1,000,000 Jacksonville Excise Taxes, Revenue, 5.25%, 10/1/08,
(Callable 10/1/03 @ 101) 1,047,430
-------------------------------------------------------
1,000,000 State, GO, 6.20%, 7/1/99, (Callable 7/1/98 @ 100) 1,010,460
-------------------------------------------------------
1,000,000 State Board Of Education Capital Outlay, GO, 6.25%,
6/1/99 1,033,370
-------------------------------------------------------
1,000,000 Volusia County School District, GO, 5.88%, 8/1/00 1,048,120
------------------------------------------------------- ----------
Total 6,639,282
------------------------------------------------------- ----------
Hawaii -- 1.0%
-------------------------------------------------------
1,000,000 Honolulu City & County, GO, 5.80%, 3/1/01 1,052,030
------------------------------------------------------- ----------
-- Continued --
65
<PAGE> 68
Fountain Square Municipal Bond Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- -------------------------------------------------------- --------
Municipal Bonds -- Continued
- ------------------------------------------------------------------
Illinois -- 7.5%
-------------------------------------------------------
1,000,000 Chicago, GO, 5.40%, 1/1/09, (Callable 1/1/04 @ 102) 1,055,270
-------------------------------------------------------
1,000,000 Chicago Park, GO, 6.10%, 11/15/05 1,111,730
-------------------------------------------------------
1,000,000 Chicago Park, GO, 5.20%, 1/1/09, (Callable 1/1/06 @ 102) 1,050,570
-------------------------------------------------------
2,000,000 Chicago, O'Hara International Airport, Revenue, 5.63%, 1/1/15,
(Callable 1/1/06 @ 102) 2,103,120
-------------------------------------------------------
2,500,000 University of Illinois, Revenue, 5.25%, 8/15/04 2,631,225
------------------------------------------------------- ----------
Total 7,951,915
------------------------------------------------------- ----------
Indiana -- 3.3%
-------------------------------------------------------
1,000,000 Bank Board, Revenue, 5.80%, 2/1/08, (Callable 2/1/05
@ 101) 1,086,550
-------------------------------------------------------
1,000,000 Municipal Power Agency Supply, Revenue, 5.38%, 1/1/03 1,056,250
-------------------------------------------------------
1,275,000 Munster School Building Corp., Revenue, 5.70%, 7/15/10,
(Callable 1/15/05 @ 101) 1,365,869
------------------------------------------------------- ----------
Total 3,508,669
------------------------------------------------------- ----------
Kansas -- 1.3%
-------------------------------------------------------
1,250,000 Douglas County, Union School District, GO, 6.00%, 9/1/09
(Prerefunded 9/1/03 @ 100) 1,356,413
------------------------------------------------------- ----------
Kentucky -- 1.0%
-------------------------------------------------------
1,000,000 State Property & Buildings Commission, Revenue, 5.30%,
11/1/07, (Callable 11/1/05 @ 102) 1,073,140
------------------------------------------------------- ----------
Maryland -- 1.0%
-------------------------------------------------------
1,000,000 Washington Subern, San District Water System, GO,
5.00%, 6/1/02 1,038,990
------------------------------------------------------- ----------
Massachusetts -- 1.9%
-------------------------------------------------------
2,000,000 State, Series A, GO, 6.10%, 8/1/99 2,069,740
------------------------------------------------------- ----------
Michigan -- 3.8%
-------------------------------------------------------
2,000,000 Johannesburg-Lewiston Schools, GO, 5.00%, 5/1/16,
(Callable 5/1/05 @ 101), MBIA 1,988,020
-------------------------------------------------------
2,000,000 Kent County, Refuse Disposal System, Series A, GO, 5.00%, 11/1/09,
(Callable 11/1/06 @ 101) 2,081,320
------------------------------------------------------- ----------
Total 4,069,340
------------------------------------------------------- ----------
Minnesota -- 2.8%
-------------------------------------------------------
3,000,000 Public Facilities Authority, Water Pollution Control,
Revenue, 4.88%, 3/1/12, (Callable 3/1/06 @ 100) 3,016,800
------------------------------------------------------- ----------
Missouri -- 0.8%
-------------------------------------------------------
900,000 State Health Facilities, St. Anthonys Medical Center,
Series A, Revenue, 3.55%, 12/1/19 (b) 900,000
------------------------------------------------------- ----------
-- Continued --
66
<PAGE> 69
Fountain Square Municipal Bond Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
Municipal Bonds--Continued
- ------------------------------------------------------------------
Nebraska -- 0.7%
-------------------------------------------------------
700,000 Lincoln Water Revenue, Revenue, 6.85%, 11/1/03
(Prerefunded 11/1/00 @ 101) 758,730
------------------------------------------------------- ----------
Nevada -- 1.3%
-------------------------------------------------------
1,285,000 Carson City, School District, GO, 5.00%, 4/1/06,
(Callable 4/1/04 @ 101) 1,338,135
------------------------------------------------------- ----------
Ohio -- 7.6%
-------------------------------------------------------
1,000,000 Columbus, GO, 6.88%, 9/15/05, (Callable 9/15/01 @ 100) 1,096,280
-------------------------------------------------------
1,000,000 Columbus Sewer Improvement No 26-E-U, GO, 6.50%,
9/15/01 1,085,990
-------------------------------------------------------
2,000,000 Marion County, Convention & Recreational Facilities
Authority, Series A, Excise Tax Revenue, 5.00%, 6/1/12
(Callable 6/1/08 @ 101) 2,018,220
-------------------------------------------------------
2,000,000 State Public Facilities Commission, Higher Education
Facilities, Series II-A, Revenue, 4.75%, 5/1/03 2,063,620
-------------------------------------------------------
1,000,000 State Public Facilities Commissions, Revenue, 6.50%,
6/1/01, (Callable 6/1/99 @ 102) 1,055,510
-------------------------------------------------------
750,000 University Of Cincinnati, Series R9, Revenue, 5.60%,
6/1/07, (Callable 6/1/03 @ 100) 793,440
------------------------------------------------------- ----------
Total 8,113,060
------------------------------------------------------- ----------
Oklahoma -- 2.0%
-------------------------------------------------------
2,000,000 Oklahoma City, GO, 5.00%, 2/1/08 (Callable 2/1/07 @ 100) 2,083,880
------------------------------------------------------- ----------
Pennsylvania -- 7.6%
-------------------------------------------------------
1,750,000 Intergovernmental, Coop Authority, Revenue, 5.50%, 6/15/16, (Callable
6/15/06 @ 100), FGIC 1,818,880
-------------------------------------------------------
2,000,000 Montoursville, Area Achievement District, Lycoming County, GO, 5.00%,
5/1/13 (Callable 5/1/08 @ 100) 2,000,000
-------------------------------------------------------
2,000,000 State, Higher Eduction Facilities Authority Health
Services, Revenue, 5.10%, 1/1/05 2,093,600
-------------------------------------------------------
2,000,000 Trinity Area School District, GO, 6.63%, 11/1/11
(Callable 11/1/01 @ 100) 2,182,560
------------------------------------------------------- ----------
Total 8,095,040
------------------------------------------------------- ----------
South Carolina -- 1.9%
-------------------------------------------------------
2,000,000 South Carolina, Series B, GO, 5.00%, 4/1/13 (Callable
4/1/06 @ 102) 2,044,680
------------------------------------------------------- ----------
Texas -- 7.3%
-------------------------------------------------------
2,500,000 Austin Utility System, Series B, Revenue, 7.75%,
11/15/08 (Callable 11/15/98 @ 102) 2,618,950
-------------------------------------------------------
2,000,000 Houston Hotel Occupancy, Revenue, 5.50%, 7/1/15,
(Callable 7/1/05 @ 101) 2,079,100
-------------------------------------------------------
1,000,000 State, GO, 7.00%, 10/1/03, (Prerefunded 10/1/99 @ 100) 1,051,630
-------------------------------------------------------
2,000,000 State, Public Building Authority, Revenue, 5.00%, 8/1/11, (Callable
8/1/07 @ 100) 2,042,480
------------------------------------------------------- ----------
Total 7,792,160
------------------------------------------------------- ----------
-- Continued --
67
<PAGE> 70
Fountain Square Municipal Bond Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ------------------------------------------------------- --------
Municipal Bonds--Continued
- ------------------------------------------------------------------
Utah -- 2.6%
-------------------------------------------------------
1,000,000 Iron County, School District, GO, 5.90%, 1/15/05 1,097,840
-------------------------------------------------------
1,530,000 St. George, Water Revenue, 5.60%, 6/1/10, (Callable
6/1/05 @ 101) 1,635,998
------------------------------------------------------- ----------
Total 2,733,838
------------------------------------------------------- ----------
Virginia -- 2.0%
-------------------------------------------------------
1,000,000 State, Public Building Authority, Revenue, 5.70%,
8/1/00 1,042,770
-------------------------------------------------------
1,000,000 Virginia Beach, GO, 5.70%, 11/1/07, (Callable 11/1/04 @
102) 1,094,990
------------------------------------------------------- ----------
Total 2,137,760
------------------------------------------------------- ----------
Washington -- 8.2%
-------------------------------------------------------
2,000,000 King County, School District No. 411, GO, 6.50%,
12/1/09, (Prerefunded 12/1/02 @ 100) 2,214,960
-------------------------------------------------------
2,000,000 Seattle Water System, Revenue, 5.10%, 6/1/04, (Callable
6/1/03 @ 102) 2,099,120
-------------------------------------------------------
1,000,000 Spokane, Regional Solid Waste, Revenue, 5.50%, 12/1/10,
(Callable 12/1/05 @ 102) 1,068,050
-------------------------------------------------------
1,000,000 State, Public Power Supply System, Revenue, 7.50%,
7/1/03, (Callable 1/1/01 @ 102) 1,111,550
-------------------------------------------------------
2,000,000 State, Public Power Supply System, Revenue, 5.60%,
7/1/07 2,151,420
------------------------------------------------------- ----------
Total 8,645,100
------------------------------------------------------- ----------
Wisconsin -- 7.7%
-------------------------------------------------------
1,000,000 Milwaukee, GO, 5.30%, 6/15/07, (Prerefunded 6/15/02 @
100) 1,050,590
-------------------------------------------------------
1,000,000 Milwaukee County, GO, 6.00%, 12/1/99, (Prerefunded
12/1/98 @ 100) 1,019,290
-------------------------------------------------------
2,000,000 Milwaukee, Corp. Purpose, Series J, GO, 5.00%, 12/1/10
(Callable 12/1/07 @ 100) 2,067,400
-------------------------------------------------------
2,000,000 State, Series E, GO, 6.80%, 5/1/98 2,015,840
-------------------------------------------------------
2,000,000 Wisconsin, Clean Water, Series 1, Revenue, 4.00%,
6/1/99 2,006,200
------------------------------------------------------- ----------
Total 8,159,320
------------------------------------------------------- ----------
Total Municipal Bonds 98,887,092
------------------------------------------------------- ----------
-- Continued --
68
<PAGE> 71
Fountain Square Municipal Bond Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- --------- ----------------------------------------------------- ------------
Cash Equivalents -- 7.7%
- ----------------------------------------------------------------
Stifs/Money Markets -- 7.7%
-----------------------------------------------------
3,230,186 Federated Tax Free Trust 3,230,186
-----------------------------------------------------
4,920,000 SEI Institutional Tax Free Fund, 5.60% 4,920,000
----------------------------------------------------- ------------
Total Cash Equivalents 8,150,186
----------------------------------------------------- ------------
Total Investments (Cost $103,669,567) (a) -- 100.7% 107,037,278
-----------------------------------------------------
Liabilities in excess of other assets (0.7)% (719,485)
----------------------------------------------------- ------------
TOTAL NET ASSETS -- 100.0% $106,317,793
===================================================== ============
Percentages indicated are based on net assets of $106,317,793.
(a) The cost of investments for federal tax purposes amounts to $103,669,567.
The net unrealized appreciation of investments on federal tax basis amounts
to $3,367,711, which is composed of $3,394,880 appreciation and $27,169
depreciation at January 31, 1998.
(b) Current rate shown.
The following abbreviations are used in this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
GO -- General Obligation
FGIC -- Financial Guaranty Insurance Corporation
MBIA -- Municipal Bond Investors Assurance Corporation
See notes to financial statements.
69
<PAGE> 72
Fountain Square Ohio Tax Free Bond Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------- ------------------------------------------------------- ----------
Municipal Bonds -- 93.9%
- --------------------------------------------------------------------
Ohio -- 93.9%
-------------------------------------------------------
1,100,000 Akron, Sewer System, Revenue, 5.05%, 12/1/03 $1,155,440
-------------------------------------------------------
500,000 Akron, Various Purpose Improvement, GO, 5.60%,
12/1/06 (Callable 12/1/04 @ 102) 546,215
-------------------------------------------------------
1,000,000 Akron, Waterworks System Management, Revenue, 5.90%,
3/1/09 (Callable 3/1/04 @ 102) 1,090,480
-------------------------------------------------------
1,510,000 Bowling Green State University, Revenue, 5.55%, 6/1/10
(Callable 6/1/06 @ 101) 1,625,862
-------------------------------------------------------
5,000,000 Butler County, 5.00%, 4/1/02 5,168,650
-------------------------------------------------------
1,005,000 Centerville, GO, 6.25%, 12/1/06 (Callable 12/1/04 @ 102) 1,138,173
-------------------------------------------------------
2,500,000 Cincinnati, GO, 4.75%, 12/1/99 2,547,100
-------------------------------------------------------
600,000 Cincinnati, GO, 7.00%, 10/1/00 647,310
-------------------------------------------------------
2,000,000 Cincinnati, GO, 4.75%, 12/1/02 2,064,380
-------------------------------------------------------
1,150,000 Cincinnati CSD, Revenue, 5.75%, 6/15/98 1,158,660
-------------------------------------------------------
1,300,000 Clermont County, Hospital Facilities Revenue, Series
A, 3.55%, 12/1/21 (b) 1,300,000
-------------------------------------------------------
1,000,000 Cleveland, GO, 6.70%, 7/1/00 1,057,620
-------------------------------------------------------
4,500,000 Cleveland, GO, 5.30%, 9/1/08 4,835,700
-------------------------------------------------------
4,000,000 Cleveland CSD, Revenue, 5.00%, 6/1/01 4,127,320
-------------------------------------------------------
5,000,000 Cleveland CSD, Revenue, 4.80%, 6/1/03 5,173,250
-------------------------------------------------------
3,000,000 Cleveland Water, Revenue, 5.63%, 1/1/13 (Callable
1/1/06 @ 102) 3,208,050
-------------------------------------------------------
5,000,000 Cleveland, Public Power, Revenue, 5.25%, 11/15/16
(Callable 11/15/06 @ 102) 5,119,650
-------------------------------------------------------
500,000 Cleveland, Waterworks Refunding, First Mortgage,
Series G, Revenue, 5.40%, 1/1/06 536,220
-------------------------------------------------------
5,000,000 Columbus, GO, 6.00%, 6/15/07 5,653,999
-------------------------------------------------------
1,000,000 Columbus, Library Refunding Improvement, Revenue,
5.15%, 10/1/99 1,023,540
-------------------------------------------------------
1,000,000 Columbus, Refunding LT, Series A, GO, 5.30%, 7/1/09
(Callable 7/1/03 @ 101.5) 1,053,300
-------------------------------------------------------
1,000,000 Columbus, Service, GO, 6.80%, 9/15/05 (Prerefunded
9/15/01 @ 100) 1,090,950
-------------------------------------------------------
1,350,000 Columbus, Service, GO, 5.50%, 5/15/08 (Callable
5/15/04 @ 102) 1,454,382
-------------------------------------------------------
1,000,000 Columbus, Sewer Improvement, GO, 6.63%, 9/15/03
(Callable 9/15/01 @ 100) 1,088,410
-------------------------------------------------------
1,000,000 Columbus, Sewer Improvement No 26-E-U, GO, 6.50%,
9/15/01 1,085,990
-------------------------------------------------------
500,000 Columbus, Water Systems Refunding, Revenue, 5.75%,
11/1/00 524,290
-------------------------------------------------------
1,000,000 Columbus, Waterworks Enlargement, GO, 5.10%, 5/1/01 1,035,650
-------------------------------------------------------
-- Continued --
70
<PAGE> 73
Fountain Square Ohio Tax Free Bond Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------- ------------------------------------------------------- ---------
Municipal Bonds--Continued
- --------------------------------------------------------------------
3,435,000 Cuyahoga County, GO, 5.60%, 5/15/13 3,765,275
-------------------------------------------------------
4,000,000 Cuyahoga Hospital, Revenue, 5.63%, 1/15/13 (Callable
1/15/06 @ 102) 4,239,200
-------------------------------------------------------
1,000,000 Delaware County, Sewer, GO, 5.50%, 12/1/01 1,052,800
-------------------------------------------------------
4,000,000 Dublin School Bonds, 4.65%, 12/1/08, (Callable
12/1/07 @ 101) 4,067,960
-------------------------------------------------------
500,000 Erie County, East Erie Sewer, GO, 7.40%, 12/1/14
(Prerefunded 12/1/00 @ 100) 545,675
-------------------------------------------------------
1,000,000 Euclid CSD, GO, 5.20%, 12/1/10 (Callable 12/1/05 @ 102) 1,051,510
-------------------------------------------------------
1,500,000 Euclid CSD, GO, 5.13%, 12/1/11 (Callable 12/1/05 @ 102) 1,556,835
-------------------------------------------------------
500,000 Euclid CSD, Improvement, GO, 6.70%, 12/1/02 (Callable
12/1/01 @ 102) 555,935
-------------------------------------------------------
1,000,000 Franklin County, GO, 6.80%, 12/1/02 (Prerefunded
12/1/00 @ 102) 1,093,760
-------------------------------------------------------
1,555,000 Franklin County, GO, 6.80%, 12/1/11 (Prerefunded
12/1/00 @ 102) 1,700,797
-------------------------------------------------------
1,000,000 Franklin County, Hospital Revenue Refunding, 7.38%,
5/15/05 (Prerefunded 5/15/00 @ 102) 1,093,700
-------------------------------------------------------
625,000 Franklin County, Hospital Revenue Refunding, 6.40%,
11/1/06 (Prerefunded 11/1/01 @ 102) 686,594
-------------------------------------------------------
1,030,000 Franklin County, Hospital Revenue Refunding, 6.50%,
5/1/07 (Callable 11/1/02 @ 102) 1,143,218
-------------------------------------------------------
1,500,000 Hamilton County, Building Improvement, GO, 5.90%,
12/1/99 1,558,320
-------------------------------------------------------
1,000,000 Hamilton County, Hospital Facilities, Revenue, 6.10%,
1/1/00 1,039,330
-------------------------------------------------------
1,000,000 Hamilton County, Hospital Facilities, Revenue, 6.50%,
1/1/02 (Callable 1/1/01 @ 100) 1,066,500
-------------------------------------------------------
500,000 Hamilton County, Hospital Facilities, Revenue, 7.00%,
1/1/09 (Callable 7/1/98 @ 101) 511,230
-------------------------------------------------------
1,000,000 Hamilton County, Sewer System, Revenue, 5.60%,
12/1/08 (Callable 12/1/05 @ 102) 1,091,570
-------------------------------------------------------
1,000,000 Hilliard CSD, GO, 5.80%, 12/1/03 (Callable 12/1/01
@ 102) 1,079,060
-------------------------------------------------------
1,345,000 Hilliard CSD, GO, 5.25%, 12/1/04 1,430,555
-------------------------------------------------------
500,000 Huron County, GO, 7.00%, 12/1/09 (Prerefunded 12/1/00
@ 100) 542,040
-------------------------------------------------------
500,000 Kettering, Refunding, 4.30%, 12/1/98 502,725
-------------------------------------------------------
1,000,000 Lakota Local School District, 6.40%, 12/1/01 1,084,280
-------------------------------------------------------
505,000 Mahoning County, GO, 5.70%, 12/1/07 (Callable 12/1/04
@ 101) 549,607
-------------------------------------------------------
250,000 Mahoning County, Hospital Facilities, Revenue, 6.80%,
12/1/98 (Callable 6/1/98 @ 100) 255,028
-------------------------------------------------------
1,000,000 Montgomery County, Revenue, 6.50%, 5/15/08 (Callable
5/15/01 @ 102) 1,090,620
-------------------------------------------------------
635,000 Montgomery County, Issue, GO, 7.10%, 9/1/06
(Prerefunded 9/1/00 @ 101.5) 693,115
-------------------------------------------------------
1,750,000 Montgomery County, Refunding, GO, 5.45%, 9/1/10
(Callable 9/1/03 @ 101) 1,836,660
-------------------------------------------------------
1,750,000 Montgomery County, Solid Waste, Revenue, 5.25%,
11/1/04 1,860,128
-------------------------------------------------------
-- Continued --
71
<PAGE> 74
Fountain Square Ohio Tax Free Bond Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------- ------------------------------------------------------- ---------
Municipal Bonds--Continued
- --------------------------------------------------------------------
3,000,000 Montgomery County, Solid Waste, Revenue, 5.40%,
11/1/08 (Callable 11/1/05 @ 102) 3,220,830
-------------------------------------------------------
1,000,000 Ohio Higher Education, Revenue, 5.15%, 11/1/08
(Callable 11/1/06 @ 101) 1,050,790
-------------------------------------------------------
2,500,000 Ohio Special Obligation, Elementary & Secondary
Education Capital Facilities, Series B, 5.00%, 12/1/06 2,625,500
-------------------------------------------------------
1,250,000 Ohio State Building Authority State Facilities, Adult
Correctional, Series A, Revenue, 5.65%, 10/1/07
(Callable 10/1/04 @ 101) 1,352,500
-------------------------------------------------------
1,000,000 Ohio State Building Authority State Facilities,
Revenue, 5.40%, 10/1/00 1,038,140
-------------------------------------------------------
1,000,000 Ohio State Building Authority State Facilities,
Revenue, 5.40%, 10/1/04 1,070,910
-------------------------------------------------------
1,000,000 Ohio State Building Authority, Revenue, 6.20%, 10/1/07
(Callable 10/1/02 @ 102) 1,101,080
-------------------------------------------------------
1,000,000 Ohio State Building Correctional, Revenue, 5.75%,
10/1/05 1,095,860
-------------------------------------------------------
1,500,000 Ohio State Higher Education, Revenue, 5.00%, 11/1/05 1,573,545
-------------------------------------------------------
500,000 Ohio State Higher Educational Facilities, Revenue,
6.70%, 5/1/01 (Callable 5/1/00 @ 102) 537,800
-------------------------------------------------------
1,000,000 Ohio State Higher Educational Facilities, Series II-B,
Revenue, 5.88%, 12/1/98 1,018,290
-------------------------------------------------------
500,000 Ohio State Higher Educational Facilities, Xavier,
Revenue, 7.20%, 11/1/99, (Prerefunded 11/1/98 @ 100) 513,210
-------------------------------------------------------
5,000,000 Ohio State Highway, GO, 4.80%, 5/15/04 5,178,050
-------------------------------------------------------
5,000,000 Ohio State Public Facilities Commission, 4.25%,
12/1/99 5,044,900
-------------------------------------------------------
500,000 Ohio State Public Facilities Commission, Higher
Education Capital Facilities, Series II-A, FSA, CR,
Revenue, 5.50%, 12/1/03 (Callable 12/1/01 @ 102) 533,145
-------------------------------------------------------
2,000,000 Ohio State Public Facilities Commission, Higher
Education Capital Facilities, Series II-B, 4.50%,
11/1/02 2,041,040
-------------------------------------------------------
2,000,000 Ohio State Public Facilities Common Higher Education,
Revenue, 5.75%, 11/1/04 2,180,480
-------------------------------------------------------
2,000,000 Ohio State Public Facilities Common Higher Education,
Revenue, 5.75%, 11/1/05 (Callable 11/1/04 @ 100) 2,174,360
-------------------------------------------------------
1,000,000 Ohio State Public Facilities Common Higher Education,
Revenue, 5.50%, 12/1/00 1,043,050
-------------------------------------------------------
1,000,000 Ohio State Public Facilities, Revenue, 5.88%, 12/1/06
(Callable 12/1/04 @ 100) 1,092,370
-------------------------------------------------------
1,000,000 Ohio State Special Obligations, Revenue, 5.80%, 6/1/03 1,082,170
-------------------------------------------------------
5,000,000 Ohio State Turnpike, Revenue, 5.75%, 2/15/14 (Callable
2/15/06 @ 102) 5,416,299
-------------------------------------------------------
1,500,000 Ohio State University Refunding, Revenue, 5.15%,
12/1/00 1,551,030
-------------------------------------------------------
2,000,000 Ohio State University Revenue Refunding General
Receipts, 5.75%, 12/1/09 (Callable 12/1/02 @ 102) 2,146,920
-------------------------------------------------------
5,000,000 Ohio State Water, Revenue, 5.13%, 12/1/08 (Callable
6/1/05 @ 101) 5,251,600
- --------------------------------------------------------------------
-- Continued --
72
<PAGE> 75
Fountain Square Ohio Tax Free Bond Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------- ------------------------------------------------------- ---------
Municipal Bonds--Continued
- --------------------------------------------------------------------
5,000,000 Ohio State Water Development Authority, Revenue,
5.30%, 12/1/10 (Callable 6/1/05 @ 101) 5,267,300
-------------------------------------------------------
5,000,000 State Of Ohio, GO, 5.10%, 8/1/09 (Callable 8/1/07
@ 101) 5,270,300
-------------------------------------------------------
555,000 Tiffin, GO, 6.60%, 12/1/03 (Callable 12/1/01 @ 101) 606,432
-------------------------------------------------------
400,000 Toledo, Improvement, GO, 5.05%, 12/1/99 409,572
-------------------------------------------------------
3,000,000 University Of Cincinnati, 5.00%, 6/1/10 3,140,640
-------------------------------------------------------
500,000 University of Cincinnati, 6.30%, 12/1/00 532,280
-------------------------------------------------------
1,000,000 University of Toledo, 7.50%, 6/1/02, (Callable 6/1/98
@ 102) 1,032,600
-------------------------------------------------------
2,000,000 Wauseon Village School District, GO, 5.45%, 12/1/14 (Callable
6/1/07 @ 101) 2,111,160
-------------------------------------------------------
1,000,000 West Geauga, Local School District, GO, 5.55%, 11/1/05
(Callable 11/1/04 @ 101) 1,087,100
-------------------------------------------------------
1,000,000 West Geauga, Local School District, GO, 5.65%, 11/1/06
(Callable 11/1/04 @ 102) 1,095,180
-------------------------------------------------------
2,000,000 Westlake CSD, 5.05%, 12/1/04 2,103,640
-------------------------------------------------------
1,000,000 Westlake, GO, 5.75%, 12/1/07 (Callable 12/1/04 @ 102) 1,096,230
-----------------------------------------------------------------
Total Municipal Bonds 169,940,921
-----------------------------------------------------------------
Regulated Investment Companies -- 5.0%
- --------------------------------------------------------------------
STIFS/Money Markets -- 5.0%
-------------------------------------------------------
7,074,645 Midwest Ohio Money Fund 7,074,645
-------------------------------------------------------
2,000,000 Vangard Ohio Tax Free Money Mkt 2,000,000
-----------------------------------------------------------------
Total Regulated Investment Companies 9,074,645
-----------------------------------------------------------------
Total Investments (Cost $171,720,497) (a)-- 98.9% 179,015,566
-------------------------------------------------------
Other assets in excess of liabilities 1.1% 1,958,243
-----------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $180,973,809
======================================================= ===========
Percentages indicated are based on net assets of $180,973,809.
Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings.
(a) The cost of investments for federal tax purposes amounts to $171,720,497.
The net unrealized appreciation of investments on federal tax basis amounts
to $7,295,069, which is composed of $7,356,607 appreciation and $61,538
depreciation at January 31, 1998.
(b) Current rate and next reset date shown.
The following abbreviations are used in this portfolio:
CSD -- City School District
GO -- General Obligation
LT -- Limited Tax
NR -- Not Rated
See notes to financial statements.
73
<PAGE> 76
Fountain Square Commercial Paper Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- -----------------------------------------------------------------------------
Shares or
Principal Security Amortized
Amount Description Cost
- ---------------------------------------------------------------- ----------
Commercial Paper -- 78.6%
- ------------------------------------------------------------------
Banks -- 9.8%
-------------------------------------------------------
10,000,000 JP Morgan, 3/16/98 $9,932,155
-------------------------------------------------------
10,000,000 Rabobank Nederland, 4/9/98 9,896,336
-------------------------------------------------------
9,000,000 Rabobank Nederland, 4/10/98 8,903,780
-------------------------------------------------------
5,000,000 Societe Generale, 3/23/98 4,962,153
-------------------------------------------------------
10,000,000 Societe Generale, 4/22/98 9,876,889
------------------------------------------------------- ----------
Total 43,571,313
------------------------------------------------------- ----------
Beverages -- 2.2%
-------------------------------------------------------
10,000,000 Coca Cola Co., 3/20/98 9,925,975
------------------------------------------------------- ----------
Brokerage -- 6.9%
-------------------------------------------------------
5,000,000 Goldman Sachs Group, 2/20/98 4,985,090
-------------------------------------------------------
6,000,000 Goldman Sachs Group, 4/17/98 5,929,000
-------------------------------------------------------
8,000,000 Goldman Sachs Group, 5/8/98 7,879,467
-------------------------------------------------------
7,000,000 Merrill Lynch, 4/6/98 6,932,053
-------------------------------------------------------
5,000,000 Merrill Lynch, 4/30/98 4,930,456
------------------------------------------------------- ----------
Total 30,656,066
------------------------------------------------------- ----------
Capital Goods -- 3.4%
-------------------------------------------------------
10,000,000 Cargill, Inc., 3/18/98 9,929,500
-------------------------------------------------------
5,000,000 Cargill, Inc., 4/1/98 4,953,619
------------------------------------------------------- ----------
Total 14,883,119
------------------------------------------------------- ----------
Consumer Products -- 1.8%
-------------------------------------------------------
8,000,000 Procter & Gamble, 3/25/98 7,935,867
------------------------------------------------------- ----------
Energy -- 7.4%
-------------------------------------------------------
10,000,000 Petrofina Delaware, 3/23/98 9,924,444
-------------------------------------------------------
4,000,000 Petrofina Delaware, 4/22/98 3,951,556
-------------------------------------------------------
10,000,000 Wisconsin Power & Light, 2/5/98 9,993,578
-------------------------------------------------------
9,000,000 Wisconsin Power & Light, 2/17/98 8,976,600
------------------------------------------------------- ----------
Total 32,846,178
------------------------------------------------------- ----------
Financial -- 36.7%
-------------------------------------------------------
3,000,000 A.I. Credit, 2/5/98 2,998,167
-------------------------------------------------------
5,000,000 American Express Credit Corp., 4/27/98 4,934,243
-------------------------------------------------------
7,000,000 American Express Credit Corp., 5/26/98 6,878,146
-------------------------------------------------------
-- Continued --
74
<PAGE> 77
Fountain Square Commercial Paper Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Amortized
Amount Description Cost
- ---------------------------------------------------------------- ----------
Commercial Paper--Continued
- ------------------------------------------------------------------
4,000,000 American General Finance Corp., 2/12/98 3,993,229
-------------------------------------------------------
5,000,000 American General Finance Corp., 4/15/98 4,945,554
-------------------------------------------------------
4,000,000 American General Finance Corp., 4/29/98 3,947,317
-------------------------------------------------------
7,000,000 American General Finance Corp., 5/11/98 6,895,088
-------------------------------------------------------
5,000,000 Associates Corp., 3/5/98 4,975,378
-------------------------------------------------------
7,000,000 Associates Corp., 3/12/98 6,958,368
-------------------------------------------------------
8,000,000 Associates Corp., 4/14/98 7,909,120
-------------------------------------------------------
5,000,000 Avco Financial Services, 2/24/98 4,981,903
-------------------------------------------------------
8,000,000 Avco Financial Services, 3/13/98 7,949,422
-------------------------------------------------------
6,000,000 CIT Group, 3/27/98 5,950,050
-------------------------------------------------------
5,000,000 CIT Group, 4/3/98 4,953,318
-------------------------------------------------------
10,000,000 Deutsche Bank Financial, 2/2/98 9,998,424
-------------------------------------------------------
4,000,000 Ford Motor Credit Corp., 2/10/98 3,994,490
-------------------------------------------------------
5,000,000 Ford Motor Credit Corp., 3/23/98 4,960,347
-------------------------------------------------------
10,000,000 Ford Motor Credit Corp., 4/8/98 9,899,258
-------------------------------------------------------
7,000,000 General Electric Capital Corp., 4/16/98 6,921,581
-------------------------------------------------------
5,000,000 General Electric Capital Corp., 5/15/98 4,919,174
-------------------------------------------------------
4,000,000 IBM Credit Corp., 2/9/98 3,995,102
-------------------------------------------------------
8,000,000 MetLife Funding, 3/23/98 7,939,444
-------------------------------------------------------
10,000,000 Pitney Bowes Credit Corp., 2/4/98 9,995,458
-------------------------------------------------------
10,000,000 Pitney Bowes Credit Corp., 5/13/98 9,849,903
-------------------------------------------------------
6,000,000 Prudential Funding Corp., 3/19/98 5,956,300
-------------------------------------------------------
6,000,000 Prudential Funding Corp., 3/26/98 5,949,650
-----------------------------------------------------------------
Total 162,648,434
-----------------------------------------------------------------
Miscellaneous -- 4.4%
-------------------------------------------------------
3,500,000 Stanford University, 2/2/98 3,499,463
-------------------------------------------------------
6,000,000 Stanford University, 3/23/98 5,954,000
-------------------------------------------------------
10,000,000 Stanford University, 5/6/98 9,856,911
-----------------------------------------------------------------
Total 19,310,374
-----------------------------------------------------------------
Technology -- 6.0%
-------------------------------------------------------
4,800,000 AT&T Corp., 2/5/98 4,797,056
-------------------------------------------------------
5,000,000 AT&T Corp., 3/13/98 4,969,000
-------------------------------------------------------
5,000,000 Bell South Telecommunications, 2/11/98 4,992,056
-------------------------------------------------------
12,000,000 Bell South Telecommunications, 2/13/98 11,977,160
-----------------------------------------------------------------
Total 26,735,272
-----------------------------------------------------------------
Total Commercial Paper 348,512,598
-----------------------------------------------------------------
-- Continued --
75
<PAGE> 78
Fountain Square Commercial Paper Fund
- -----------------------------------------------------------------------------
Shares or
Principal Security Amortized
Amount Description Cost
- --------- ------------------------------------------------------ ----------
Corporate Bonds -- 1.4%
- -----------------------------------------------------------------
Brokerage -- 1.4%
------------------------------------------------------
6,000,000 Merrill Lynch, Floating Rate Note, 5.57%, 2/27/98 (b) 6,000,065
------------------------------------------------------ -----------
Total Corporate Bonds 6,000,065
------------------------------------------------------ -----------
Repurchase Agreements -- 20.5%
- -----------------------------------------------------------------
50,724,000 JP Morgan, 5.58%, dated 1/30/98, due 2/2/98 (at
amortized cost), collateralized by U.S. Treasury Notes,
6.38%, due 5/15/99 with a value of $51,739,275. 50,724,000
------------------------------------------------------
20,000,000 Prudential Securities, 5.56%, dated 1/30/98, due 2/2/98
(at amortized cost), collateralized by U.S. Treasury
Notes, 5.88%, due 8/31/99 with a value of $9,879,805
and U.S. Treasury Bonds, 11.25% -- 11.88%, due
2/15/15 -- 11/15/03 with a value of $10,521,285. 20,000,000
------------------------------------------------------
20,000,000 UBS Securities, 5.58%, dated 1/30/98, due 2/2/98 (at
amortized cost), collateralized by U.S. Treasury Bills
due 7/2/98 with a value of $20,404,532. 20,000,000
------------------------------------------------------ -----------
Total Repurchase Agreements 90,724,000
------------------------------------------------------ -----------
Total Investments (Amortized Cost $445,236,663)
(a) -- 100.5% 445,236,663
------------------------------------------------------
Liabilities in excess of other assets -- (0.5)% (2,306,054)
------------------------------------------------------ -----------
TOTAL NET ASSETS-- 100.0% $442,930,609
====================================================== ===========
Percentages indicated are based on net assets of $442,930,609.
(a) Also represents cost for federal tax purposes.
(b) Current rate and next demand date shown.
See notes to financial statements.
76
<PAGE> 79
Fountain Square Government Cash Reserves Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares or
Principal Security Amortized
Amount Description Cost
- ---------- ------------------------------------------------------ --------
U.S. Government Agencies-- 100.3%
- ------------------------------------------------------------------
Federal Farm Credit Bank -- 12.2%
-------------------------------------------------------
5,991,000 Discount Note, 2/18/98 $5,975,440
-------------------------------------------------------
4,000,000 Discount Note, 2/20/98 3,988,368
-------------------------------------------------------
5,000,000 Discount Note, 2/23/98 4,983,408
-------------------------------------------------------
9,000,000 Discount Note, 3/23/98 8,932,875
-------------------------------------------------------
10,000,000 Discount Note, 4/15/98 9,891,919
-------------------------------------------------------
6,000,000 Discount Note, 5/15/98 5,906,442
-----------------------------------------------------------------
Total 39,678,452
-----------------------------------------------------------------
Federal Home Loan Bank -- 70.6%
-------------------------------------------------------
20,000,000 Discount Note, 2/4/98 19,991,066
-------------------------------------------------------
15,248,000 Discount Note, 2/6/98 15,236,412
-------------------------------------------------------
5,000,000 Discount Note, 2/10/98 4,993,213
-------------------------------------------------------
12,000,000 Discount Note, 2/13/98 11,978,553
-------------------------------------------------------
15,000,000 Discount Note, 2/18/97 14,960,817
-------------------------------------------------------
11,000,000 Discount Note, 2/20/98 10,968,666
-------------------------------------------------------
7,250,000 Discount Note, 2/25/97 7,223,054
-------------------------------------------------------
10,000,000 Discount Note, 3/5/98 9,951,378
-------------------------------------------------------
10,000,000 Discount Note, 3/10/98 9,944,808
-------------------------------------------------------
4,000,000 Discount Note, 3/11/98 3,977,411
-------------------------------------------------------
10,000,000 Discount Note, 3/18/98 9,931,875
-------------------------------------------------------
10,000,000 Discount Note, 3/19/98 9,929,850
-------------------------------------------------------
13,000,000 Discount Note, 3/20/98 12,907,658
-------------------------------------------------------
15,455,000 Discount Note, 3/25/98 15,335,502
-------------------------------------------------------
5,000,000 Discount Note, 4/1/98 4,956,037
-------------------------------------------------------
10,000,000 Discount Note, 4/8/98 9,901,550
-------------------------------------------------------
4,000,000 Discount Note, 4/15/98 3,956,524
-------------------------------------------------------
4,000,000 Discount Note, 4/17/98 3,954,750
-------------------------------------------------------
5,000,000 Floating Rate Note, 5.61%, 2/4/98 (b) 5,000,000
-------------------------------------------------------
10,000,000 Discount Note, 4/23/98 9,875,688
-------------------------------------------------------
10,000,000 Discount Note, 4/29/98 9,870,225
-------------------------------------------------------
10,000,000 Discount Note, 6/5/98 9,810,211
-------------------------------------------------------
5,000,000 Discount Note, 6/10/98 4,901,817
-------------------------------------------------------
10,000,000 Discount Note, 6/17/98 9,793,356
-----------------------------------------------------------------
Total 229,350,421
-----------------------------------------------------------------
-- Continued --
77
<PAGE> 80
Fountain Square Government Cash Reserves Fund
- --------------------------------------------------------------------------------
Shares or
Principal Security Amortized
Amount Description Cost
- ---------------------------------------------------------------- --------
U.S. Government Agencies--Continued
- ------------------------------------------------------------------
Student Loan Marketing Association -- 16.0%
-------------------------------------------------------
3,000,000 Floating Rate Note, 5.41%, 2/3/98 (b) 2,997,210
-------------------------------------------------------
10,000,000 Floating Rate Note, 5.42%, 2/3/98 (b) 10,000,000
-------------------------------------------------------
10,000,000 Floating Rate Note, 5.56%, 2/3/98 (b) 10,000,000
-------------------------------------------------------
29,050,000 Master Note, 5.46%, 7/1/00 (c) 29,050,000
-----------------------------------------------------------------
Total 52,047,210
----------------------------------------------------------------
Tennesse Valley Authority -- 1.5%
-------------------------------------------------------
5,000,000 Discount Note, 2/13/98 4,990,700
-----------------------------------------------------------------
Total U.S. Government Agencies 326,066,783
-----------------------------------------------------------------
Total Investments (Amortized Cost $326,066,783)
(a) -- 100.3% 326,066,783
-------------------------------------------------------
Liabilities in excess of other assets -- (0.3)% (858,738)
-----------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $325,208,045
======================================================= ===========
Percentages indicated are based on net assets of $325,208,045.
(a) Also represents cost for federal tax purposes.
(b) Current rate and next demand date shown.
(c) Current rate shown.
See notes to financial statements.
78
<PAGE> 81
Fountain Square U.S. Treasury Obligations Fund
Schedule of Portfolio Investments
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
Shares or
Principal Security Amortized
Amount Description Cost
- ---------- ------------------------------------------------------- ---------
U.S. Government Securities -- 24.1%
- ------------------------------------------------------------------
U.S. Treasury Notes -- 24.1%
-------------------------------------------------------
10,000,000 5.13%, 3/31/98 $9,986,277
-------------------------------------------------------
20,000,000 6.13%, 3/31/98 20,007,917
-------------------------------------------------------
20,000,000 5.88%, 4/30/98 20,012,394
-------------------------------------------------------
20,000,000 6.00%, 5/31/98 20,022,483
-------------------------------------------------------
20,000,000 6.25%, 6/30/98 20,049,643
-------------------------------------------------------
10,000,000 5.25%, 7/31/98 9,976,165
-------------------------------------------------------
10,000,000 6.25%, 7/31/98 10,026,776
-------------------------------------------------------
20,000,000 4.75%, 8/31/98 19,897,368
-------------------------------------------------------
20,000,000 6.13%, 8/31/98 20,088,487
-------------------------------------------------------
10,000,000 4.75%, 9/30/98 9,947,634
-----------------------------------------------------------------
Total U.S. Government Securities 160,015,144
-----------------------------------------------------------------
Repurchase Agreements -- 75.9%
- ------------------------------------------------------------------
105,000,000 Barclays Capital, 5.57%, dated 1/30/98, due 2/2/98 (at
amortized cost), collateralized by U.S. Treasury Notes,
6.25%, due 6/30/02 with a value of $107,100,582. 105,000,000
-------------------------------------------------------
30,000,000 Bear Stearns & Co., 5.57%, dated 1/30/98, due 2/2/98
(at amortized cost), collateralized by U.S. Treasury
Bonds, 6.88%-13.75%, due 8/15/04-8/15/25 with a value
of $30,706,104. 30,000,000
-------------------------------------------------------
30,000,000 BT Securities, 5.55%, dated 1/30/98, due 2/2/98 (at
amortized cost), collateralized by U.S. Treasury Notes,
6.63%, due 7/31/01 with a value of $30,629,000. 30,000,000
-------------------------------------------------------
30,000,000 Deutsche Bank, 5.54%, dated 1/30/98, due 2/2/98 (at
amortized cost), collateralized by U.S. Treasury Notes,
7.50%, due 11/15/16 with a value of $30,623,000. 30,000,000
-------------------------------------------------------
114,259,000 JP Morgan, 5.58%, dated 1/30/98, due 2/2/98 (at
amortized cost), collateralized by U.S. Treasury Notes,
5.88%-6.88%, due 7/31/99-11/30/01 with a value of
$116,544,382. 114,259,000
-------------------------------------------------------
30,000,000 Merrill Lynch, 5.55%, dated 1/30/98, due 2/2/98 (at
amortized cost), collateralized by U.S. Treasury Notes,
5.50%-6.13%, due 4/15/00-8/15/07 with a value of
$9,297,451 and by U.S. Treasury Bonds, 11.25%, due
2/15/15 with a value of $21,306,324. 30,000,000
-------------------------------------------------------
30,000,000 Nesbitt Burns, 5.55%, dated 1/30/98, due 2/2/98 (at
amortized cost), collateralized by U.S. Treasury Notes,
5.63%-6.63%, due 10/31/99-7/31/01 with a value of
$30,698,000. 30,000,000
-------------------------------------------------------
-- Continued --
79
<PAGE> 82
Fountain Square U.S. Treasury Obligations Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Security Amortized
Amount Description Cost
- --------- ------------------------------------------------------- ---------
Repurchase Agreements--Continued
- -------------------------------------------------------------------
<S> <C> <C>
30,000,000 Prudential Securities, 5.56%, dated 1/30/98, due 2/2/98
(at amortized cost), collateralized by U.S. Treasury
Notes, 6.25%-6.50%, due 5/31/01-8/31/02, with a value
of $8,292,184 and by U.S. Treasury Bonds, 11.25%, due
2/15/15 with a value of $22,309,199. 30,000,000
-------------------------------------------------------
105,000,000 UBS Securities, 5.58%, dated 1/30/98, due 2/2/98 (at
amortized cost), collateralized by U.S. Treasury Bills
due 4/16/98-7/2/98 with a value of $107,101,619. 105,000,000
------------------------------------------------------- -----------
Total Repurchase Agreements 504,259,000
------------------------------------------------------- -----------
Total Investments (Amortized Cost $664,274,144)
(a) -- 100.0% 664,274,144
-------------------------------------------------------
Liabilities in excess of other assets-- 0.0% (186,208)
------------------------------------------------------- -----------
TOTAL NET ASSETS-- 100.0% $664,087,936
======================================================= ===========
</TABLE>
Percentages indicated are based on net assets of $664,087,936.
(a) Also represents cost for federal tax purposes.
See notes to financial statements.
80
<PAGE> 83
Fountain Square Funds
Statements of Assets and Liabilities
January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Quality Equity International
Growth Income Balanced Mid Cap Equity
Fund Fund Fund Fund Fund
-------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
- -----------------------------------------------
Investments, at value (Cost $311,979,150;
$85,651,820; $105,553,043; $151,200,482;
and $106,605,906, respectively) $457,733,774 $130,626,169 $131,922,087 $205,303,600 $125,070,627
- -----------------------------------------------
Repurchase agreements (Cost $14,026,000;
$1,930,000; $23,444,000; $12,907,000; and
$22,030,000, respectively) 14,026,000 1,930,000 23,444,000 12,907,000 22,030,000
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total Investments 471,759,774 132,556,169 155,366,087 218,210,600 147,100,627
- -----------------------------------------------
Cash 166 161 928 51 -
- -----------------------------------------------
Foreign Currency - - - - 668,646
- -----------------------------------------------
Interest and dividends receivable 235,916 212,795 747,061 30,161 214,970
- -----------------------------------------------
Receivable for investments sold - - 82 - -
- -----------------------------------------------
Receivable for Fund shares sold 376,250 237,101 243,087 73,593 6,623
- -----------------------------------------------
Unrealized foreign currency gains - - - - 1,253,629
- -----------------------------------------------
Reclaim Receivable - - - - 179,472
- -----------------------------------------------
Unamortized organizational costs - 5,951 - - 14,975
- -----------------------------------------------
Prepaid expenses and other assets 19,145 7,688 6,847 7,665 29,617
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total Assets 472,391,251 133,019,865 156,364,092 218,322,070 149,468,559
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Liabilities:
- -----------------------------------------------
Cash Overdraft - - - - 11,419,520
- -----------------------------------------------
Payable for investments purchased - - 4,246,647 5,506,384 692,701
- -----------------------------------------------
Payable for Fund shares redeemed 19,993 - 55,742 1,560 -
- -----------------------------------------------
Unrealized foreign currency losses - - - - 199,501
- -----------------------------------------------
Variation margin payable - - - - 149,645
- -----------------------------------------------
Accrued expenses and other payables:
- -----------------------------------------------
Investment advisory fees 308,436 88,460 98,943 139,839 112,809
- -----------------------------------------------
Administration fees 62,843 11,374 12,738 21,469 20,643
- -----------------------------------------------
Distribution Services - Investment C Shares 18,958 681 7,512 3,520 192
- -----------------------------------------------
Shareholder Servicing - Investment C Shares 8,653 269 3,302 1,617 96
- -----------------------------------------------
Accounting and transfer agent fees 4,617 6,727 7,357 3,694 3,100
- -----------------------------------------------
Custodian fees 1,000 600 900 500 11,099
- -----------------------------------------------
Legal and audit fees 5,519 5,519 5,519 5,219 6,269
- -----------------------------------------------
Printing fees 5,894 3,349 3,828 1,359 2,002
- -----------------------------------------------
Registration & Filing 3,091 3,670 8,231 1,686 -
- -----------------------------------------------
Other - 4,306 7,216 - 24,781
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total Liabilities 439,004 124,955 4,457,935 5,686,847 12,642,358
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Net Assets:
- -----------------------------------------------
Paid-in capital 315,984,185 81,241,114 122,601,467 151,105,110 126,282,948
- -----------------------------------------------
Net unrealized appreciation (depreciation)
on investments and foreign currency 145,754,624 44,974,349 26,369,044 54,103,118 19,746,558
- -----------------------------------------------
Accumulated net realized gains (losses) on
investment and foreign currency transactions 10,433,737 6,711,049 2,716,946 7,782,774 (5,330,537)
- -----------------------------------------------
Undistributed net investment income (loss) (220,299) (31,602) 218,700 (355,779) (3,872,768)
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total Net Assets $471,952,247 $132,894,910 $151,906,157 $212,635,223 $136,826,201
- ----------------------------------------------- ============== ============= ============== ============== ==============
Net Assets
- -----------------------------------------------
Investment A Shares $465,714,502 $132,469,067 $149,223,068 $211,767,864 $136,602,630
- -----------------------------------------------
Investment C Shares 6,237,745 425,843 2,683,089 867,359 223,571
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total $471,952,247 $132,894,910 $151,906,157 $212,635,223 $136,826,201
- ----------------------------------------------- ============== ============= ============== ============== ==============
Outstanding units of beneficial
interest (shares)
- -----------------------------------------------
Investment A Shares 25,149,528 9,065,912 10,341,510 12,892,996 12,635,406
- -----------------------------------------------
Investment C Shares 338,726 29,123 185,836 53,348 20,694
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total 25,488,254 9,095,035 10,527,346 12,946,344 12,656,100
- ----------------------------------------------- ============== ============= ============== ============== ==============
Net asset value
- -----------------------------------------------
Redemption price per share-Investment A
Shares $ 18.52 $ 14.61 $ 14.43 $ 16.43 $ 10.81
- ----------------------------------------------- ============== ============= ============== ============== ==============
Offering price per share-Investment C
Shares* $ 18.42 $ 14.62 $ 14.44 $ 16.26 $ 10.80
- ----------------------------------------------- ============== ============= ============== ============== ==============
Maximum Sales Charge 4.50% 4.50% 4.50% 4.50% 4.50%
- ----------------------------------------------- ============== ============= ============== ============== ==============
Maximum Offering Price
(100%/(100%-Maximum Sales Charge)
of net asset value adjusted to nearest cent)
per share (Investment A Shares) $ 19.39 15.30 $ 15.11 $ 17.20 $ 11.32
- ----------------------------------------------- ============== ============= ============== ============== ==============
</TABLE>
*Redemption price per share varies by length of time shares are held.
(See Notes which are an integral part of the Financial Statements)
81
<PAGE> 84
Fountain Square Funds
Statements of Assets and Liabilities
January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Ohio
Bond Fund Quality Government Municipal Tax Free
For Bond Securities Bond Bond
Income Fund Fund Fund Fund
-------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
- -----------------------------------------------
Investments, at value (Cost $162,549,040;
$88,955,144; $39,558,613; $103,669,567;
and $171,720,497, respectively) $165,861,001 $ 90,127,806 $ 40,308,651 $107,037,278 $179,015,566
- -----------------------------------------------
Repurchase agreements (Cost $4,922,000;
$8,940,000; $1,166,000; $0; and $0,
respectively) 4,922,000 8,940,000 1,166,000 - -
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total Investments 170,783,001 99,067,806 41,474,651 107,037,278 179,015,566
- -----------------------------------------------
Cash 561 775 962 - -
- -----------------------------------------------
Interest receivable 3,222,647 1,703,721 558,334 1,342,447 1,958,370
- -----------------------------------------------
Receivable for investments sold 7,259,005 4,083,032 - 2,012,260 -
- -----------------------------------------------
Receivable for Fund shares sold - 188,959 - 23,875 75,000
- -----------------------------------------------
Unamortized organizational costs 7,197 - - 5,841 1,496
- -----------------------------------------------
Prepaid expenses and other assets 8,011 5,901 7,689 8,424 37,260
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total Assets 181,280,422 105,050,194 42,041,636 110,430,125 181,087,692
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Liabilities:
- -----------------------------------------------
Payable for investments purchased 10,166,434 4,811,973 - 4,006,200 -
- -----------------------------------------------
Payable for Fund shares redeemed 2,500 2,500 - - 2,773
- -----------------------------------------------
Interest Payable 214,244 128,954 - 39,432 -
- -----------------------------------------------
Accrued expenses and other payables:
- -----------------------------------------------
Investment advisory fees 78,681 46,294 16,719 48,845 83,184
- -----------------------------------------------
Administration fees 17,579 6,975 2,946 7,360 12,540
- -----------------------------------------------
Distribution Services - Investment C Shares 233 1,681 577 138 1,266
- -----------------------------------------------
Shareholder Servicing - Investment C Shares 97 841 288 69 633
- -----------------------------------------------
Accounting and transfer agent fees 3,141 4,617 2,470 2,239 3,179
- -----------------------------------------------
Custodian fees 725 762 500 571 998
- -----------------------------------------------
Legal and audit fees 5,519 5,519 5,519 5,519 5,519
- -----------------------------------------------
Printing fees 2,704 2,521 659 1,179 2,061
- -----------------------------------------------
Registration & Filing 3,012 1,347 - 780 1,730
- -----------------------------------------------
Other 1,223 - - - -
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total Liabilities 10,496,092 5,013,984 29,678 4,112,332 113,883
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Net Assets:
- -----------------------------------------------
Paid-in capital 166,628,408 99,945,772 42,705,152 102,251,334 173,590,384
- -----------------------------------------------
Net unrealized appreciation (depreciation)
on investments 3,311,961 1,172,662 750,038 3,367,711 7,295,069
- -----------------------------------------------
Accumulated net realized gains (losses) on
investment transactions 850,765 (1,084,226) (1,426,447) 693,612 157,194
- -----------------------------------------------
Undistributed net investment income (loss) (6,804) 2,002 (16,785) 5,136 (68,838)
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total Net Assets $170,784,330 $100,036,210 $ 42,011,958 $106,317,793 $180,973,809
- ----------------------------------------------- ============== ============= ============== ============== ==============
Net Assets
- -----------------------------------------------
Investment A Shares $170,670,669 $ 99,838,150 $ 41,942,721 $106,317,793 $180,543,945
- -----------------------------------------------
Investment C Shares 113,661 198,060 69,237 - 429,864
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total $170,784,330 $100,036,210 $ 42,011,958 $106,317,793 $180,973,809
- ----------------------------------------------- ============== ============= ============== ============== ==============
Outstanding units of beneficial interest
(shares)
- -----------------------------------------------
Investment A Shares 13,928,763 10,000,239 4,249,670 8,624,698 17,432,663
- -----------------------------------------------
Investment C Shares 9,284 19,836 7,031 - 41,527
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
Total 13,938,047 10,020,075 4,256,701 8,624,698 17,474,190
- ----------------------------------------------- ============== ============= ============== ============== ==============
Net asset value
- -----------------------------------------------
Redemption price per share-Investment A
Shares $ 12.25 $ 9.98 $ 9.87 $ 12.33 $ 10.36
- ----------------------------------------------- ============== ============= ============== ============== ==============
Offering price per share-Investment C
Shares* $ 12.24 $ 9.98 $ 9.85 $ 12.33** $ 10.35
- ----------------------------------------------- ============== ============= ============== ============== ==============
Maximum Sales Charge 4.50% 4.50% 4.50% 4.50% 4.50%
- ----------------------------------------------- ============== ============= ============== ============== ==============
Maximum Offering Price
(100%/(100%-Maximum Sales Charge)
of net asset value adjusted to nearest cent)
per share (Investment A Shares) $ 12.83 $ 10.45 $ 10.34 $ 12.91 $ 10.85
- ----------------------------------------------- ============== ============= ============= ============== ==============
</TABLE>
*Redemption price per share varies by length of time shares are held.
**As of January 31, 1998, no shares or assets existed in the Municipal Bond Fund
Investment C Shares. The Municipal Bond Fund Investment C Shares continue to
be available for investment with an offering price equal to the Municipal Bond
Fund Investment A Shares.
(See Notes which are an integral part of the Financial Statements)
82
<PAGE> 85
Fountain Square Funds
Statements of Assets and Liabilities
January 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial Government U.S. Treasury
Paper Cash Reserves Obligations
Fund Fund Fund
------------- ------------- --------------
<S> <C> <C> <C>
Assets:
- -----------------------------------------------------------------
Investments, at value (Amortized cost $354,512,663;
$326,066,783; and $160,015,144, respectively) $354,512,663 $326,066,783 $160,015,144
- -----------------------------------------------------------------
Repurchase agreements (Amortized cost $90,724,000; $0;
and $504,259,000, respectively) 90,724,000 - 504,259,000
- ----------------------------------------------------------------------------- -------------- --------------
Total Investments 445,236,663 326,066,783 664,274,144
- -----------------------------------------------------------------
Cash 94 3,517 746
- -----------------------------------------------------------------
Interest receivable 32,677 691,560 3,033,211
- -----------------------------------------------------------------
Prepaid expenses and other assets 11,452 8,521 15,038
- ----------------------------------------------------------------------------- -------------- --------------
Total Assets 445,280,886 326,770,381 667,323,139
- ----------------------------------------------------------------------------- -------------- --------------
Liabilities:
- -----------------------------------------------------------------
Dividends payable 2,100,887 1,388,282 2,951,813
- -----------------------------------------------------------------
Accrued expenses and other payables:
- -----------------------------------------------------------------
Investment advisory fees 153,501 103,993 146,939
- -----------------------------------------------------------------
Administration fees 33,444 22,677 46,785
- -----------------------------------------------------------------
Accounting and transfer agent fees 10,737 7,200 11,962
- -----------------------------------------------------------------
Custodian fees 2,541 1,688 5,200
- -----------------------------------------------------------------
Legal and audit fees 5,519 5,519 5,519
- -----------------------------------------------------------------
Printing fees 5,322 3,908 8,016
- -----------------------------------------------------------------
Registration & Filing 19,901 15,320 37,647
- -----------------------------------------------------------------
Other 18,425 13,749 21,322
- ----------------------------------------------------------------------------- -------------- --------------
Total Liabilities 2,350,277 1,562,336 3,235,203
- ----------------------------------------------------------------------------- -------------- --------------
Net Assets:
- -----------------------------------------------------------------
Paid-in capital 442,930,862 325,206,515 664,082,585
- -----------------------------------------------------------------
Accumulated net realized gains (losses)
on investment transactions (190) 1,530 274
- -----------------------------------------------------------------
Undistributed net investment income (loss) (63) - 5,077
- ----------------------------------------------------------------------------- -------------- --------------
Net Assets $442,930,609 $325,208,045 $664,087,936
- ----------------------------------------------------------------- ============= ============== ==============
Net Assets
- -----------------------------------------------------------------
Trust Shares $411,499,855 $190,194,107 $664,087,936
- -----------------------------------------------------------------
Investment Shares 31,430,754 135,013,938 -
- ----------------------------------------------------------------------------- -------------- --------------
Total $442,930,609 $325,208,045 $664,087,936
- ----------------------------------------------------------------- ============= ============== ==============
Outstanding units of beneficial interest (shares)
- -----------------------------------------------------------------
Trust Shares 411,500,345 190,193,410 664,087,935
- -----------------------------------------------------------------
Investment Shares 31,430,789 135,013,100 -
- ----------------------------------------------------------------------------- -------------- --------------
Total 442,931,134 325,206,510 664,087,935
- ----------------------------------------------------------------- ============= ============== ==============
Net asset value
- -----------------------------------------------------------------
Offering and redemption price per share - Trust Shares $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------- ============= ============== ==============
Offering and redemption price per share - Investor Shares $ 1.00 $ 1.00 $ -
- ----------------------------------------------------------------- ============= ============== ==============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
83
<PAGE> 86
Fountain Square Funds
Statements of Operations
For the period ended January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quality Equity International
Growth Income Balanced Mid Cap Equity
Fund Fund Fund Fund Fund
-------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------
Interest income $ 336,835 $ 61,435 $ 1,595,468 $ 686,578 --
- -----------------------------------------------
Dividend income 2,073,318 1,524,699 369,581 190,459 1,033,319
- -----------------------------------------------
Foreign tax withholding -- -- -- -- (70,228)
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Total Income 2,410,153 1,586,134 1,965,049 877,037 963,091
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
EXPENSES:
- -----------------------------------------------
Investment advisory fees 1,736,542 495,513 539,985 810,181 708,647
- -----------------------------------------------
Administrative fees 398,677 113,759 123,985 185,987 130,070
- -----------------------------------------------
Distribution and service fees - Investment A 750,901 216,366 232,887 353,135 247,604
- -----------------------------------------------
Distribution and service fees - Investment C 18,438 889 7,091 2,515 886
- -----------------------------------------------
Shareholder Servicing - Investment C 6,146 296 2,364 838 295
- -----------------------------------------------
Organization expense 434 753 409 386 4,394
- -----------------------------------------------
Custodian fees 4,056 3,357 4,551 5,712 81,025
- -----------------------------------------------
Portfolio accounting fees 21,632 20,162 17,664 20,442 54,260
- -----------------------------------------------
Transfer and dividend disbursing agent fees
and expenses 15,419 11,183 9,925 11,844 18,942
- -----------------------------------------------
Directors'/Trustees' fees 1,170 1,598 1,112 1,126 1,602
- -----------------------------------------------
Audit fees 4,750 4,750 4,750 4,750 5,500
- -----------------------------------------------
Legal fees 3,972 3,972 3,972 3,972 3,972
- -----------------------------------------------
Fund share registration costs 11,994 9,368 8,276 6,858 5,686
- -----------------------------------------------
Printing and postage expense 10,401 7,853 5,913 5,185 4,157
- -----------------------------------------------
Insurance expense 1,710 1,071 896 1,303 851
- -----------------------------------------------
Other -- -- -- -- --
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Total Expenses 2,986,242 890,890 963,780 1,414,234 1,267,891
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Less fees voluntarily reduced (800,461) (270,205) (282,686) (399,850) (247,899)
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Net Expenses 2,185,781 620,685 681,094 1,014,384 1,019,992
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Net Investment Income (Loss) 224,372 965,449 1,283,955 (137,347) (56,901)
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Realized and Unrealized Gains (Losses) from
Investments and Foreign Currency Transactions:
- -----------------------------------------------
Net realized gains (losses) from investments
and foreign currency transactions 16,957,836 9,303,038 6,283,858 16,258,920 (4,241,056)
- -----------------------------------------------
Net change in unrealized appreciation
(depreciation) from investments and
translation of assets and liabilities in
foreign securities 2,286,497 4,608,437 (2,785,041) (2,520,083) (58,617)
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Net realized and unrealized gains (losses)
from investments and foreign currency 19,244,333 13,911,475 3,498,817 13,738,837 (4,299,673)
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Change in net assets resulting
from operations $19,468,705 $14,876,924 $ 4,782,772 $13,601,490 $ (4,356,574)
- ----------------------------------------------- ============== ============= ============= ============== ==============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
84
<PAGE> 87
Fountain Square Funds
Statements of Operations
For the period ended January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Ohio
Bond Fund Quality Government Municipal Tax Free
For Bond Securities Bond Bond
Income Fund Fund Fund Fund
-------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------
Interest income $ 5,269,549 $ 3,000,555 $ 1,278,859 $ 2,547,734 $ 4,195,998
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Total Income 5,269,549 3,000,555 1,278,859 2,547,734 4,195,998
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
EXPENSES:
- -----------------------------------------------
Investment advisory fees 450,874 259,002 115,697 283,451 473,138
- -----------------------------------------------
Administrative fees 150,556 86,491 38,630 94,649 158,022
- -----------------------------------------------
Distribution and service fees - Investment A 286,751 164,450 73,510 180,364 300,518
- -----------------------------------------------
Distribution and service fees - Investment C 291 801 264 20 1,332
- -----------------------------------------------
Shareholder Servicing - Investment C 97 267 88 7 444
- -----------------------------------------------
Organizational Costs 909 381 338 740 2,993
- -----------------------------------------------
Custodian fees 4,404 4,205 3,084 4,018 5,947
- -----------------------------------------------
Portfolio accounting fees 21,873 17,607 16,756 21,565 19,800
- -----------------------------------------------
Transfer and dividend disbursing agent fees
and expenses 12,376 10,741 7,005 10,970 9,882
- -----------------------------------------------
Directors'/Trustees' fees 1,605 1,192 1,094 1,594 1,606
- -----------------------------------------------
Audit fees 4,750 4,750 4,750 4,750 4,750
- -----------------------------------------------
Legal fees 3,972 3,972 3,972 3,972 3,972
- -----------------------------------------------
Fund share registration costs 9,743 4,885 2,500 8,380 7,008
- -----------------------------------------------
Printing and postage expense 7,323 2,828 1,337 7,077 7,155
- -----------------------------------------------
Insurance expense 2,882 1,103 725 1,869 2,373
- -----------------------------------------------
Other -- -- -- -- --
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Total Expenses 958,406 562,675 269,750 623,426 998,940
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Less fees voluntarily reduced (344,028) (211,808) (111,462) (231,907) (350,414)
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Net Expenses 614,378 350,867 158,288 391,519 648,526
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Net Investment Income (Loss) 4,655,171 2,649,688 1,120,571 2,156,215 3,547,472
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Realized and Unrealized Gains (Losses)
from Investments:
- -----------------------------------------------
Net realized gains (losses) from investments 1,483,393 1,783,014 270,705 959,173 179,236
- -----------------------------------------------
Net change in unrealized appreciation
(depreciation) from investments 243,776 (474,690) 288,822 (155,963) 1,297,785
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Net realized/unrealized gains (losses)
from investments 1,727,169 1,308,324 559,527 803,210 1,477,021
- ------------------------------------------------------------ ------------- ------------- -------------- --------------
Change in net assets resulting
from operations $ 6,382,340 $ 3,958,012 $ 1,680,098 $ 2,959,425 $ 5,024,493
- ----------------------------------------------- ============== ============= ============= ============== ==============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
85
<PAGE> 88
Fountain Square Funds
Statements of Operations
For the period ended January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Commercial Government U.S. Treasury
Paper Cash Reserves Obligations
Fund Fund Fund
------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------
Interest income $12,430,900 $ 8,339,699 $17,121,722
- ----------------------------------------------------------------------------- -------------- --------------
Total Income 12,430,900 8,339,699 17,121,722
- ----------------------------------------------------------------------------- -------------- --------------
EXPENSES:
- -----------------------------------------------------------------
Investment advisory fees 875,452 599,958 1,221,563
- -----------------------------------------------------------------
Administrative fees 401,839 275,403 560,632
- -----------------------------------------------------------------
Distributions fees - Investment Shares 51,202 220,306 --
- -----------------------------------------------------------------
Portfolio accounting fees 64,158 43,712 69,036
- -----------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 13,032 6,868 11,158
- -----------------------------------------------------------------
Directors'/Trustees' fees 1,658 1,628 1,686
- -----------------------------------------------------------------
Audit fees 4,750 4,750 4,750
- -----------------------------------------------------------------
Custodian 21,886 7,534 19,595
- -----------------------------------------------------------------
Legal fees 3,972 3,972 3,972
- -----------------------------------------------------------------
Fund share registration costs 12,479 11,518 12,538
- -----------------------------------------------------------------
Printing and postage expense 15,941 10,486 11,312
- -----------------------------------------------------------------
Insurance expense 2,554 2,337 3,658
- -----------------------------------------------------------------
Other 4,888 157 233
- ----------------------------------------------------------------------------- -------------- --------------
Total Expenses 1,473,811 1,188,629 1,920,133
- ----------------------------------------------------------------------------- -------------- --------------
Less expenses voluntarily reduced (335,721) (415,029) (732,895)
- ----------------------------------------------------------------------------- -------------- --------------
Net Expenses 1,138,090 773,600 1,187,238
- ----------------------------------------------------------------------------- -------------- --------------
Net Investment Income (Loss) 11,292,810 7,566,099 15,934,484
- ----------------------------------------------------------------------------- -------------- --------------
Realized Losses from Investments:
- -----------------------------------------------------------------
Net realized gains (losses) from investment transactions (84) 961 (47,143)
- ----------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting
from operations $11,292,726 $ 7,567,060 $15,887,341
- ----------------------------------------------------------------- ============= ============== ==============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
86
<PAGE> 89
Fountain Square Funds
Statements of Changes in Net Assets
For the period ended January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quality Growth Fund Equity Income Fund
-------------------------------- --------------------------------
Period Ended Year Ended Period Ended Year Ended
January 31, July 31, January 31, July 31,
1998 1997 1998 1997
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
- ------------------------------------------------
Operations--
- ------------------------------------------------
Net investment income (loss) $ 224,372 $ 1,308,380 $ 965,449 $ 1,291,704
- ------------------------------------------------
Net realized gains (losses) on investment
transactions 16,957,836 29,035,436 9,303,038 9,529,112
- ------------------------------------------------
Change in unrealized appreciation (depreciation)
of investments 2,286,497 94,222,664 4,608,437 10,892,457
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets resulting from
operations 19,468,705 124,566,480 14,876,924 21,713,273
- ------------------------------------------------ ------------- ------------- ------------- -------------
Distributions to Shareholders--
- ------------------------------------------------
Dividends to shareholders from net
investment income
- ------------------------------------------------
Investment A Shares (240,346) (1,442,974) (1,073,621) (1,182,123)
- ------------------------------------------------
Investment C Shares -- -- (1,050) (359)
- ------------------------------------------------
Distributions in excess of net investment income
- ------------------------------------------------
Investment A Shares (200,825) -- (31,475) --
- ------------------------------------------------
Investment C Shares -- (175) (127) --
- ------------------------------------------------
Distributions to shareholders from net realized
gains on investment transactions
- ------------------------------------------------
Total -- -- -- --
- ------------------------------------------------
Investment A Shares (33,263,912) (7,460,310) (12,092,071) --
- ------------------------------------------------
Investment C Shares (424,302) (28,501) (29,030) --
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets from distributions to
shareholders (34,129,385) (8,931,960) (13,227,374) (1,182,482)
- ------------------------------------------------ ------------- ------------- ------------- -------------
Fund Share (Principal) Transactions--
- ------------------------------------------------
Proceeds from sale of shares 109,023,091 187,617,592** 4,846,158 106,178,839**
- ------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 33,912,940 6,311,183 12,144,963 6,820
- ------------------------------------------------
Cost of shares redeemed (59,152,624) (41,622,694) (6,161,706) (6,300,505)
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets from Fund
share transactions 83,783,407 152,306,081 10,829,415 99,885,154
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets 69,122,727 267,940,601 12,478,965 120,415,945
- ------------------------------------------------
Net Assets:
- ------------------------------------------------
Beginning of period 402,829,520 134,888,919 120,415,945 --
- ------------------------------------------------ ------------- ------------- ------------- -------------
End of period $ 471,952,247 $ 402,829,520 $ 132,894,910 $ 120,415,945
- ------------------------------------------------ ============= ============= ============= =============
</TABLE>
*Commencement of operations began January 27, 1997.
**Includes acquired appreciation from Trust conversion in fiscal year end July
31, 1997.
(See Notes which are an integral part of the Financial Statements)
87
<PAGE> 90
Fountain Square Funds
Statements of Changes in Net Assets
For the period ended January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced Fund Mid Cap Fund
------------------------------- -------------------------------
Period Ended Year Ended Period Ended Year Ended
January 31, July 31, January 31, July 31,
1998 1997 1998 1997
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
- --------------------------------------------------
Operations--
- --------------------------------------------------
Net investment income (loss) $ 1,283,955 $ 2,204,006 $ (137,347) $ 135,410
- --------------------------------------------------
Net realized gains (losses) on investment
transactions 6,283,858 8,348,906 16,258,920 12,065,319
- --------------------------------------------------
Change in unrealized appreciation (depreciation)
of investments (2,785,041) 24,552,465 (2,520,083) 40,393,443
- -------------------------------------------------- ------------- ------------- ------------- -------------
Change in net assets resulting from
operations 4,782,772 35,105,377 13,601,490 52,594,172
- -------------------------------------------------- ------------- ------------- ------------- -------------
Distributions to Shareholders--
- --------------------------------------------------
Dividends to shareholders from net investment
income
- --------------------------------------------------
Investment A Shares (1,307,956) (2,116,372) -- (136,536)
- --------------------------------------------------
Investment C Shares (12,145) (6,021) -- --
- --------------------------------------------------
Distributions in excess of net investment income
- --------------------------------------------------
Investment A Shares -- -- -- (216,171)
- --------------------------------------------------
Investment C Shares -- -- -- --
- --------------------------------------------------
Distributions to shareholders from net realized
gains on investment transactions
- --------------------------------------------------
Total -- -- -- --
- --------------------------------------------------
Investment A Shares (11,107,647) (3,941,823) (19,805,042) (6,692,368)
- --------------------------------------------------
Investment C Shares (183,396) (11,819) (76,645) (22,049)
- -------------------------------------------------- ------------- ------------- ------------- -------------
Change in net assets from distributions to
shareholders (12,611,144) (6,076,035) (19,881,687) (7,067,124)
- -------------------------------------------------- ------------- ------------- ------------- -------------
Fund Share (Principal) Transactions--
- --------------------------------------------------
Proceeds from sale of shares 30,158,803 27,076,472 27,344,792 84,402,432**
- --------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 12,515,192 5,683,213 19,881,687 5,620,179
- --------------------------------------------------
Cost of shares redeemed (6,860,217) (30,940,765) (14,815,511) (21,937,233)
- -------------------------------------------------- ------------- ------------- ------------- -------------
Change in net assets from Fund
share transactions 35,813,778 1,818,920 32,410,968 68,085,378
- -------------------------------------------------- ------------- ------------- ------------- -------------
Change in net assets 27,985,406 30,848,262 26,130,771 113,612,426
- --------------------------------------------------
Net Assets:
- --------------------------------------------------
Beginning of period 123,920,751 93,072,489 186,504,452 72,892,026
- -------------------------------------------------- ------------- ------------- ------------- -------------
End of period $ 151,906,157 $ 123,920,751 $ 212,635,223 $ 186,504,452
- -------------------------------------------------- ============= ============= ============= =============
</TABLE>
*Commencement of operations began January 27, 1997.
**Includes acquired appreciation from Trust conversion in fiscal year end July
31, 1997.
(See Notes which are an integral part of the Financial Statements)
88
<PAGE> 91
Fountain Square Funds
Statements of Changes in Net Assets
For the period ended January 31, 1998
- --------------------------------------------------------------------------------
(Unaudited)
International Equity Fund
------------------------------
Period Ended Year Ended
January 31, July 31,
1998 1997
------------------------------
Increase (Decrease) in Net Assets:
- ------------------------------------------------
Operations--
- ------------------------------------------------
Net investment income (loss) $ (56,901) $ 528,879
- ------------------------------------------------
Net realized gains (losses) on investment
transactions (4,241,056) 9,857,198
- ------------------------------------------------
Change in unrealized appreciation
(depreciation) of investments (58,617) 16,764,042
- ------------------------------------------------ ------------ ------------
Change in net assets resulting from
operations (4,356,574) 27,150,119
- ------------------------------------------------ ------------ ------------
Distributions to Shareholders--
- ------------------------------------------------
Dividends to shareholders from net
investment income
- ------------------------------------------------
Investment A Shares (3,462,890) (8,371,837)
- ------------------------------------------------
Investment C Shares (4,006) (3,431)
- ------------------------------------------------
Distributions in excess of net investment income
- ------------------------------------------------
Investment A Shares (3,865,091) (1,976,558)
- ------------------------------------------------
Investment C Shares (7,676) (2,141)
- ------------------------------------------------
Distributions to shareholders from net realized
gains on investment transactions
- ------------------------------------------------
Total -- --
- ------------------------------------------------
Investment A Shares (3,564,492) (694,681)
- ------------------------------------------------
Investment C Shares (6,302) (396)
- ------------------------------------------------ ------------ ------------
Change in net assets from distributions to
shareholders (10,910,457) (11,049,044)
- ------------------------------------------------ ------------ ------------
Fund Share (Principal) Transactions--
- ------------------------------------------------
Proceeds from sale of shares 6,076,869 32,814,823
- ------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 8,419,820 7,089,844
- ------------------------------------------------
Cost of shares redeemed (14,341,596) (24,474,153)
- ------------------------------------------------ ------------ ------------
Change in net assets from Fund
share transactions 155,093 15,430,514
- ------------------------------------------------ ------------ ------------
Change in net assets (15,111,938) 31,531,589
- ------------------------------------------------
Net Assets:
- ------------------------------------------------
Beginning of period 151,938,139 120,406,550
- ------------------------------------------------ ------------ ------------
End of period $136,826,201 $151,938,139
- ------------------------------------------------ ============ ============
*Commencement of operations began January 27, 1997.
**Includes acquired appreciation from Trust conversion in fiscal year end July
31, 1997.
(See Notes which are an integral part of the Financial Statements)
89
<PAGE> 92
Fountain Square Funds
Statements of Changes in Net Assets
For the period ended January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond Fund For Income Quality Bond Fund
------------------------------- -------------------------------
Period Ended Period Ended Period Ended Year Ended
January 31, July 31, January 31, July 31,
1998 1997* 1998 1997
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
- ------------------------------------------------
Operations--
- ------------------------------------------------
Net investment income (loss) $ 4,655,171 $ 4,537,787 $ 2,649,688 $ 5,023,612
- ------------------------------------------------
Net realized gains (losses) on investment
transactions 1,483,393 55,662 1,783,014 (492,997)
- ------------------------------------------------
Change in unrealized appreciation of investments 243,776 2,305,299 (474,690) 3,472,557
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets resulting from
operations 6,382,340 6,898,748 3,958,012 8,003,172
- ------------------------------------------------ ------------- ------------- ------------- -------------
Distributions to Shareholders--
- ------------------------------------------------
Dividends to shareholders from net
investment income
- ------------------------------------------------
Total - - - -
- ------------------------------------------------
Investment A Shares (4,823,293) (4,367,295) (2,704,999) (4,925,664)
- ------------------------------------------------
Investment C Shares (1,791) (417) (5,231) (9,427)
- ------------------------------------------------
Distributions in excess of net investment income
- ------------------------------------------------
Investment A Shares (6,628) - - -
- ------------------------------------------------
Investment C Shares (176) (162) (90) -
- ------------------------------------------------
Distributions to shareholders from net realized
gain on investment transactions
- ------------------------------------------------
Investment A Shares (687,835) - - -
- ------------------------------------------------
Investment C Shares (455) - - -
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets from distributions to
shareholders (5,520,178) (4,367,874) (2,710,320) (4,935,091)
- ------------------------------------------------ ------------- ------------- ------------- -------------
Fund Share (Principal) Transactions--
- ------------------------------------------------
Proceeds from sale of shares 21,118,842 161,008,922** 13,087,823 25,472,460
- ------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 784,738 31,616 1,555,874 2,847,103
- ------------------------------------------------
Cost of shares redeemed (9,095,813) (6,457,011) (7,847,603) (22,979,053)
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets from Fund
share transactions 12,807,767 154,583,527 6,796,094 5,340,510
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets 13,669,929 157,114,401 8,043,786 8,408,591
- ------------------------------------------------
Net Assets:
- ------------------------------------------------
Beginning of period 157,114,401 - 91,992,424 83,583,833
- ------------------------------------------------ ------------- ------------- ------------- -------------
End of period $ 170,784,330 $ 157,114,401 $ 100,036,210 $ 91,992,424
- ------------------------------------------------ ============= ============= ============= =============
</TABLE>
*Commencement of operations of the Fund began January 27, 1997.
**Includes acquired appreciation from Trust conversion in fiscal year end July
31, 1997.
(See Notes which are an integral part of the Financial Statements)
90
<PAGE> 93
Fountain Square Funds
Statements of Changes in Net Assets
For the period ended January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Securities Municipal Bond Fund
------------------------------- -------------------------------
Period Ended Year Ended Period Ended Period Ended
January 31, July 31, January 31, July 31,
1998 1997 1998 1997*
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
- ------------------------------------------------
Operations--
- ------------------------------------------------
Net investment income (loss) $ 1,120,571 $ 2,363,635 $ 2,156,215 $ 2,288,296
- ------------------------------------------------
Net realized gains (losses) on investment
transactions 270,705 384,260 959,173 514,915
- ------------------------------------------------
Change in unrealized appreciation of investments 288,822 400,692 (155,963) 2,083,197
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets resulting from
operations 1,680,098 3,148,587 2,959,425 4,886,408
- ------------------------------------------------ ------------- ------------- ------------- -------------
Distributions to Shareholders--
- ------------------------------------------------
Dividends to shareholders from net
investment income
- ------------------------------------------------
Total - - - -
- ------------------------------------------------
Investment A Shares (1,148,166) (2,321,676) (2,220,318) (2,217,602)
- ------------------------------------------------
Investment C Shares (1,574) (3,373) - (999)
- ------------------------------------------------
Distributions in excess of net investment income
- ------------------------------------------------
Investment A Shares (16,681) - - -
- ------------------------------------------------
Investment C Shares (104) - (79) (377)
- ------------------------------------------------
Distributions to shareholders from net realized
gain on investment transactions
- ------------------------------------------------
Investment A Shares - - (780,467) -
- ------------------------------------------------
Investment C Shares - - (9) -
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets from distributions to
shareholders (1,166,525) (2,325,049) (3,000,873) (2,218,978)
- ------------------------------------------------ ------------- ------------- ------------- -------------
Fund Share (Principal) Transactions--
- ------------------------------------------------
Proceeds from sale of shares 3,902,965 25,917,379** 17,197,545 111,498,655**
- ------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 558,419 1,239,373 788,140 5,290
- ------------------------------------------------
Cost of shares redeemed (5,452,626) (16,293,089) (13,253,779) (12,544,040)
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets from Fund
share transactions (991,242) 10,863,663 4,731,906 98,959,905
- ------------------------------------------------ ------------- ------------- ------------- -------------
Change in net assets (477,669) 11,687,201 4,690,458 101,627,335
- ------------------------------------------------
Net Assets:
- ------------------------------------------------
Beginning of period 42,489,627 30,802,426 101,627,335 -
- ------------------------------------------------ ------------- ------------- ------------- -------------
End of period $ 42,011,958 $ 42,489,627 $ 106,317,793 $ 101,627,335
- ------------------------------------------------ ============= ============= ============= =============
</TABLE>
*Commencement of operations of the Fund began January 27, 1997.
**Includes acquired appreciation from Trust conversion in fiscal year end July
31, 1997.
(See Notes which are an integral part of the Financial Statements)
91
<PAGE> 94
Fountain Square Funds
Statements of Changes in Net Assets
For the period ended January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ohio Tax Free Bond Fund
-------------------------------
Period Ended Year Ended
January 31, July 31,
1998 1997
-------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
- ------------------------------------------------
Operations--
- ------------------------------------------------
Net investment income (loss) $ 3,547,472 $ 6,323,718
- ------------------------------------------------
Net realized gains (losses) on investment
transactions 179,236 959,916
- ------------------------------------------------
Change in unrealized appreciation of investments 1,297,785 4,314,862
- ------------------------------------------------ ------------- -------------
Change in net assets resulting from
operations 5,024,493 11,598,496
- ------------------------------------------------ ------------- -------------
Distributions to Shareholders--
- ------------------------------------------------
Dividends to shareholders from net
investment income
- ------------------------------------------------
Total - -
- ------------------------------------------------
Investment A Shares (3,555,828) (6,309,126)
- ------------------------------------------------
Investment C Shares (5,780) (2,374)
- ------------------------------------------------
Distributions in excess of net investment income
- ------------------------------------------------
Investment A Shares (68,361) -
- ------------------------------------------------
Investment C Shares (477) (185)
- ------------------------------------------------
Distributions to shareholders from net realized
gain on investment transactions
- ------------------------------------------------
Investment A Shares (664,105) -
- ------------------------------------------------
Investment C Shares (1,606) -
- ------------------------------------------------ ------------- -------------
Change in net assets from distributions to
shareholders (4,296,157) (6,311,685)
- ------------------------------------------------ ------------- -------------
Fund Share (Principal) Transactions--
- ------------------------------------------------
Proceeds from sale of shares 19,233,558 158,886,252**
- ------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 1,160,044 809,532
- ------------------------------------------------
Cost of shares redeemed (9,195,695) (31,436,522)
- ------------------------------------------------ ------------- -------------
Change in net assets from Fund
share transactions 11,197,907 128,259,262
- ------------------------------------------------ ------------- -------------
Change in net assets 11,926,243 133,546,073
- ------------------------------------------------
Net Assets:
- ------------------------------------------------
Beginning of period 169,047,566 35,501,493
- ------------------------------------------------ ------------- -------------
End of period $ 180,973,809 $ 169,047,566
- ------------------------------------------------ ============= =============
</TABLE>
*Commencement of operations of the Fund began January 27, 1997.
**Includes acquired appreciation from Trust conversion in fiscal year end July
31, 1997.
(See Notes which are an integral part of the Financial Statements)
92
<PAGE> 95
Fountain Square Funds
Statements of Changes in Net Assets
For the period ended January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Commercial Paper Fund Government Cash Reserves Fund
--------------------------------- --------------------------------------
Period Ended Year Ended Period Ended Year Ended
January 31, July 31, January 31, July 31,
1998 1997 1998 1997
--------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
- ------------------------------------------------
Operations--
- ------------------------------------------------
Net investment income $ 11,292,810 $ 16,961,155 $ 7,566,099 $ 12,079,572
- ------------------------------------------------
Net realized losses on investment transactions (84) (101) 961 569
- ------------------------------------------------
Change in unrealized appreciation (depreciation)
of investments - - - -
- ------------------------------------------------ --------------- --------------- --------------- ---------------
Change in net assets resulting from
operations 11,292,726 16,961,054 7,567,060 12,080,141
- ------------------------------------------------ --------------- --------------- --------------- ---------------
Distributions to Shareholders--
- ------------------------------------------------
Dividends to shareholders from net investment income:
- ------------------------------------------------
Trust Shares (10,538,246) (15,645,249) (4,390,813) (7,338,297)
- ------------------------------------------------
Investment Shares (754,564) (1,315,906) (3,175,286) (4,741,275)
- ------------------------------------------------ --------------- --------------- --------------- ---------------
Change in net assets from distributions
to shareholders (11,292,810) (16,961,155) (7,566,099) (12,079,572)
- ------------------------------------------------ --------------- --------------- --------------- ---------------
Fund Share (Principal) Transactions--
- ------------------------------------------------
Proceeds from sale of shares 717,130,375 1,395,843,822 209,156,497 390,115,033
- ------------------------------------------------
Net asset value of shares issued to
shareholders in payment of dividends
declared 285,760 784,154 - -
- ------------------------------------------------
Cost of shares redeemed (649,751,360) (1,341,524,057) (157,070,793) (318,164,002)
- ------------------------------------------------ --------------- --------------- --------------- ---------------
Change in net assets from Fund
share transactions 67,664,775 55,103,919 52,085,704 71,951,031
- ------------------------------------------------ --------------- --------------- --------------- ---------------
Change in net assets 67,664,691 55,103,818 52,086,665 71,951,600
- ------------------------------------------------
Net Assets:
- ------------------------------------------------
Beginning of period 375,265,918 320,162,100 273,121,380 201,169,780
- ------------------------------------------------ --------------- --------------- --------------- ---------------
End of period $ 442,930,609 $ 375,265,918 $ 325,208,045 $ 273,121,380
- ------------------------------------------------ =============== =============== =============== ===============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
93
<PAGE> 96
Fountain Square Funds
Statements of Changes in Net Assets
For the period ended January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Treasury Obligations Fund
-----------------------------------
Period Ended Year Ended
January 31, July 31,
1998 1997
-----------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
- -----------------------------------------------
Operations--
- -----------------------------------------------
Net investment income $ 15,934,484 $ 24,602,016
- -----------------------------------------------
Net realized losses on investment transactions (47,143) 46,027
- -----------------------------------------------
Change in unrealized appreciation (depreciation)
of investments - -
- ----------------------------------------------- --------------- ---------------
Change in net assets resulting from
operations 15,887,341 24,648,043
- ----------------------------------------------- --------------- ---------------
Distributions to Shareholders--
- -----------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------
Trust Shares (15,934,481) (24,602,021)
- -----------------------------------------------
Investment Shares - -
- ----------------------------------------------- --------------- ---------------
Change in net assets from distributions
to shareholders (15,934,481) (24,602,021)
- ----------------------------------------------- --------------- ---------------
Fund Share (Principal) Transactions--
- -----------------------------------------------
Proceeds from sale of shares 848,097,301 1,825,126,116
- -----------------------------------------------
Net asset value of shares issued to
shareholders in payment of dividends
declared 3,258,711 5,305,436
- -----------------------------------------------
Cost of shares redeemed (726,308,391) (1,780,618,543)
- ----------------------------------------------- --------------- ---------------
Change in net assets from Fund
share transactions 125,047,621 49,813,009
- ----------------------------------------------- --------------- ---------------
Change in net assets 125,000,481 49,859,031
- -----------------------------------------------
Net Assets:
- -----------------------------------------------
Beginning of period 539,087,455 489,228,424
- ----------------------------------------------- --------------- ---------------
End of period $ 664,087,936 $ 539,087,455
- ----------------------------------------------- =============== ===============
</TABLE>
(See Notes which are an integral part of the Financial Statements)
94
<PAGE> 97
Fountain Square Funds
Notes to Financial Statements
January 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
(1) Organization
Fountain Square Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company. At January 31, 1998, the Trust consisted of fourteen separate
investment portfolios. Fountain Square Pinnacle Fund, however, had not yet
commenced operations as of that date.
The accompanying financial statements relate to the following Funds:
Portfolio Name
- --------------------------------------------------------------------------------
Fountain Square Quality Growth Fund ("Quality Growth Fund") Fountain Square
Equity Income Fund ("Equity Income Fund") Fountain Square Balanced Fund
("Balanced Fund") Fountain Square Mid Cap Fund ("Mid Cap Fund") Fountain Square
International Equity Fund ("International Equity Fund") Fountain Square Bond
Fund For Income ("Bond Fund For Income") Fountain Square Quality Bond Fund
("Quality Bond Fund")
Fountain Square U.S. Government Securities Fund ("Government Securities Fund")
Fountain Square Municipal Bond Fund ("Municipal Bond Fund")
Fountain Square Ohio Tax Free Bond Fund ("Ohio Tax Free Fund")
Fountain Square Commercial Paper ("Commercial Paper Fund")
Fountain Square Government Cash Reserves ("Government Cash Reserves Fund")
Fountain Square U.S. Treasury Obligations ("Treasury Obligations Fund")
The non-money market Funds each issue two classes of shares: Investment A Shares
and Investment C Shares. Fountain Square Commercial Paper Fund and Fountain
Square Government Cash Reserves Fund each issue Investment Shares and Trust
Shares. Fountain Square U.S. Treasury Obligations Fund issues Trust Shares only.
The Investment A Shares are subject to initial sales charges imposed at the time
of purchase, in accordance with the Funds' prospectuses. Certain redemptions of
Investment C Shares made within one year of purchase are subject to contingent
deferred sales charges in accordance with the Funds' prospectuses. Each class of
shares for each Fund has identical rights and privileges, except with respect to
voting rights on matters affecting a single class of shares and the exchange
privileges of each class of shares. As of January 8, 1998, all shares were
redeemed from the Municipal Bond Fund Investment C Shares. Municipal Bond Fund
Investment C Shares continue to be available for investment with an offering
price equal to Municipal Bond Fund Investment A Shares. As of the date of this
report there are no assets or shareholders in the Municipal Bond Fund Investment
C Shares.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
for the period. Actual results could differ from those estimates.
A. Securities Valuations--Investments in equity securities are determined on the
basis of the mean between the latest available bid and asked prices in the
principal market (last sales price on a national securities exchange). For
unlisted securities, value is determine on the basis of the latest bid prices.
95
<PAGE> 98
Fountain Square Funds
- --------------------------------------------------------------------------------
Investments in other open-end investment companies are valued at net asset
value. Bonds and other fixed income securities are valued at prices provided by
an independent pricing service. Value of all other securities is determined at
fair value in good faith in accordance with procedures adopted by the Board of
Trustees.
B. Repurchase Agreements--Each of the Funds will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by its Advisor to be creditworthy pursuant to
guidelines and/or standards reviewed or established by the Board of Trustees. It
is the policy of the Funds to require the custodian or sub-custodian bank to
take possession, to have legally segregated in the Federal Reserve Book Entry
System, or to have segregated within the custodian bank's vault, all securities
held as collateral under repurchase agreement transactions. Additionally,
procedures have been established by the Funds to monitor, on a daily basis, the
market value of each repurchase agreement's collateral to ensure that the value
of collateral at least equals the repurchase price to be paid under the
repurchase agreement transaction. Risks may arise from the potential inability
of counterparties to honor the terms of the repurchase agreement. Accordingly,
the Funds could receive less than the repurchase price on the sale of collateral
securities.
C. Securities Transactions and Related Income--Securities transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis and includes, where
applicable, the pro rata amortization of premium or discount. Dividend income is
recorded on the ex-dividend date. Gains or losses realized on sales of
securities are determined by comparing the identified cost of the security lot
sold with the net sales proceeds.
D. Foreign Currency Translation--The accounting records of the International
Equity Fund are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars based on the
rate of exchange of such currencies against the U.S. dollar on the date of
valuation. Purchases and sales of securities, income and expenses are translated
at the rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expenses are translated at the rate of
exchange quoted on the respective date that such transactions are recorded.
Differences between income and expense amounts recorded and collected or paid
are adjusted when reported by the custodian bank. The International Equity Fund
does not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gains or losses from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities
transactions, the difference between the amount of dividends, interest, and
foreign withholding taxes recorded on the International Equity Fund's books, and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate.
E. Forward Commitments--The International Equity Fund may enter into forward
commitments for forward foreign currency exchange contracts which are based upon
financial indices at an exchange rate at a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in foreign
exchange rates. The forward foreign currency exchange contracts are adjusted by
the daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date.
At January 31, 1998, the International Equity Fund had outstanding forward
foreign currency exchange contracts as set forth below.
96
<PAGE> 99
Fountain Square Funds
- --------------------------------------------------------------------------------
Contracts Unrealized
Delivery To Deliver In Exchange Appreciation
Date (Local Currency) For (Depreciation)
- -------------------------------------------------------------------------------
Australian Dollar
Long Contracts
2/12/98 1,930,091 1,272,992 51,454
Short Contracts
2/12/98 1,930,091 1,360,000 35,554
British Sterling Pound
Long Contracts
2/19/98 2,756,368 4,642,000 (142,036)
Short Contracts
2/19/98 1,387,632 2,300,000 34,594
French Franc
Long Contracts
3/16/98 12,625,676 2,126,000 (62,438)
4/28/98 6,527,290 1,078,000 (8,573)
Short Contracts
3/16/98 13,434,851 2,275,000 79,184
4/28/98 17,567,672 2,896,000 17,722
5/11/98 6,073,122 1,002,000 6,308
German Deutsche Mark
Long Contracts
3/16/98 2,955,454 1,631,000 (11,578)
Short Contracts
3/16/98 4,946,185 2,796,000 85,770
4/14/98 2,118,051 1,168,000 5,512
5/14/98 2,087,765 1,155,997 8,294
Italian Lira
Long Contracts
2/19/98 3,064,366,200 1,810,000 (112,518)
4/21/98 1,668,746,000 932,000 (8,901)
5/7/98 2,779,749,240 1,549,800 (12,290)
Short Contracts
2/19/98 1,532,183,100 897,848 49,107
4/21/98 1,463,283,840 816,000 6,557
5/4/98 1,783,139,500 995,000 8,738
5/7/98 7,085,922,450 3,931,308 11,907
Japanese Yen
Long Contracts
2/5/98 2,293,487,000 18,462,300 (365,329)
2/26/98 332,263,664 2,584,689 42,872
3/16/98 4,185,000 33,453 (275)
4/20/98 124,200,337 1,002,343 (12,479)
Short Contracts
2/5/98 2,293,487,000 19,320,000 1,223,034
2/26/98 476,936,624 3,866,351 94,705
3/16/98 4,185,000 33,593 415
4/20/98 870,868,828 6,906,400 (34,341)
97
<PAGE> 100
Fountain Square Funds
- --------------------------------------------------------------------------------
Contracts Unrealized
Delivery To Deliver In Exchange Appreciation
Date (Local Currency) For (Depreciation)
- --------------------------------------------------------------------------------
Malasian Ringgit
Long Contracts
2/5/98 2,896,250 640,763 51,959
5/4/98 334,500 75,000 5,018
Short Contracts
5/4/98 2,896,000 633,698 (59,075)
Netherland Guilder
Long Contracts
2/19/98 1,809,984 939,653 (60,757)
Short Contracts
2/19/98 1,067,935 550,000 31,430
5/11/98 832,245 409,000 3,147
Singapore Dollar
Long Contracts
3/5/98 1,680,748 1,054,686 (75,924)
3/23/98 410,601 237,068 1,441
7/7/98 329,122 178,000 11,113
Short Contracts
3/5/98 1,680,748 1,038,140 59,377
3/23/98 410,601 249,000 10,491
7/7/98 1,823,670 1,035,000 (12,878)
Spanish Peseta
Long Contracts
2/12/98 94,651,900 652,500 (42,162)
3/18/98 92,340,000 600,000 (4,798)
4/21/98 91,938,000 597,000 (3,877)
5/7/98 6,033,300 39,000 (60)
Short Contracts
2/12/98 94,651,900 650,000 39,661
3/18/98 194,494,440 1,288,000 34,335
4/21/98 73,041,978 474,000 2,782
5/4/98 88,992,926 578,000 3,680
5/7/98 93,780,296 608,000 2,720
Swedish Krona
Long Contracts
2/19/98 21,240,565 2,764,464 (148,884)
Short Contracts
2/19/98 21,240,565 2,830,000 214,420
---------
Net Unrealized Appreciation/(Depreciation) of Forward Commitments $1,054,128
---------
F. Foreign Currency Commitments--The International Equity Fund may enter into
foreign currency commitments for the delayed delivery of securities of foreign
currency exchange transactions. Risks may arise upon entering into these
transactions from the potential inability of counterparties to meet the terms of
their commitments and form unanticipated movements in security prices or foreign
exchange
98
<PAGE> 101
Fountain Square Funds
- --------------------------------------------------------------------------------
rates. The foreign currency transactions are adjusted by the daily exchange rate
of the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the settlement date.
G. Option Contracts--The Quality Growth Fund, Balanced Fund, and International
Equity Fund may write or purchase option contracts. A written option obligates a
Fund to deliver (a call), or to receive (a put), the contract amount of foreign
currency upon exercise by the holder of the option. The value of the option
contract is recorded as a liability, and unrealized gain or loss is measured by
the difference between the current value and the premium received. The Funds had
no written options outstanding at January 31, 1998.
H. When-Issued and Delayed Delivery Transactions--The Funds may engage in
when-issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
valued daily and begin earning interest on the settlement date.
I. Dividends to Shareholders--Dividends from net investment income are declared
and paid monthly for the Equity Income Fund, the Bond Fund For Income, the
Quality Bond Fund, Government Securities Fund, the Municipal Bond Fund, and the
Ohio Tax Free Fund. Dividends from net investment income are declared and paid
quarterly for the Quality Growth Fund, the Mid Cap Fund and the Balanced Fund.
Dividends from net investment income are declared and paid annually for
International Equity Fund. Distributable net realized gains, if any, are
declared and distributed at least annually.
Dividends from net investment income and from net realized capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for mortgage-backed securities, foreign currency
transactions, expiring capital loss carryforwards and deferrals of certain
losses.
J. Federal Taxes--It is the Funds' policy to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of their income.
Accordingly, no provision for federal income tax is necessary. However, federal
taxes may be imposed on the International Equity Fund upon the disposition of
certain investments in passive foreign investment companies. Withholding taxes
on foreign dividends have been provided for in accordance with the International
Equity Fund's understanding of the applicable country's tax rules and rates.
K. Deferred Expenses--The costs incurred by each Fund with respect to
registration of their shares in their first fiscal year, excluding the initial
expense of registering their shares, have been deferred and are being amortized
using the straight-line method not to exceed a period of five years from each
Fund's commencement date.
99
<PAGE> 102
Fountain Square Funds
- --------------------------------------------------------------------------------
(3) Shares of Beneficial Interest
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Quality Growth Fund
----------------------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
---------------------- ----------------------
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 5,569,855 $105,861,106 12,743,633 $185,256,357
Reinvestment of dividends 1,871,074 33,488,638 451,069 6,282,507
Redeemed (3,072,752) (58,834,741) (2,633,003) (41,371,155)
- ------------------------------------- ------------ ------------- ------------
Net increase (decrease) -
Investment A Shares 4,368,177 80,515,003 10,561,699 150,167,709
- ------------------------------------- ------------ ------------- ------------
Investment C Shares
Sold 168,181 3,161,985 145,512 2,361,235
Reinvestment of dividends 23,824 424,302 2,080 28,676
Redeemed (17,293) (317,883) (15,534) (251,539)
- ------------------------------------- ------------ ------------- ------------
Net increase -
Investment C Shares 174,712 3,268,404 132,058 2,138,372
- ------------------------------------- ------------ ------------- ------------
Net increase in Fund 4,542,889 $ 83,783,407 10,693,757 $152,306,081
- --------------------------- =========== ============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Equity Income Fund
----------------------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
---------------------- ----------------------
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 310,909 $ 4,489,840 8,821,577 $106,096,267
Reinvestment of dividends 842,456 12,114,756 484 6,461
Redeemed (421,457) (6,106,195) (488,057) (6,300,505)
- ------------------------------------- ------------ ------------- ------------
Net increase -
Investment A Shares 731,908 10,498,401 8,334,004 99,802,223
- ------------------------------------- ------------ ------------- ------------
Investment C Shares
Sold 24,423 356,318 6,330 82,572
Reinvestment of dividends 2,099 30,207 28 359
Redeemed (3,757) (55,511) -- --
- ------------------------------------- ------------ ------------- ------------
Net increase -
Investment A Shares 22,765 331,014 6,358 82,931
- ------------------------------------- ------------ ------------- ------------
Net increase in Fund 754,673 $10,829,415 8,340,362 $99,885,154
- --------------------------- =========== ============ ============= ============
</TABLE>
100
<PAGE> 103
Fountain Square Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced Fund
----------------------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
---------------------- -----------------------
Shares Amount Shares Amount
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 1,916,987 $28,658,083 1,989,624 $26,278,552
Reinvestment of dividends 868,226 12,319,651 454,771 5,665,373
Redeemed (452,454) (6,815,046) (2,333,372) (30,860,103)
- --------------------------- --------- ------------ ------------- ------------
Net increase (decrease) -
Investment A Shares 2,332,759 34,162,688 111,023 1,083,822
- --------------------------- --------- ------------ ------------- ------------
Investment C Shares
Sold 99,828 1,500,720 57,113 797,920
Reinvestment of dividends 13,812 195,541 1,425 17,840
Redeemed (3,142) (45,171) (5,707) (80,662)
- --------------------------- --------- ------------ ------------- ------------
Net increase -
Investment C Shares 110,498 1,651,090 52,831 735,098
- --------------------------- --------- ------------ ------------- ------------
Net increase in Fund 2,443,257 $35,813,778 163,854 $ 1,818,920
- --------------------------- ========= ============ ============= ============
<CAPTION>
Mid Cap Fund
----------------------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
---------------------- -----------------------
Shares Amount Shares Amount
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 1,545,377 $26,877,991 6,315,189 $84,164,198
Reinvestment of dividends 1,233,959 19,805,042 438,494 5,598,130
Redeemed (845,722) (14,744,674) (1,559,545) (21,785,247)
- --------------------------- --------- ------------ ------------- ------------
Net increase -
Investment A Shares 1,933,614 31,938,359 5,194,138 67,977,081
- --------------------------- --------- ------------ ------------- ------------
Investment C Shares
Sold 26,668 466,801 17,037 238,234
Reinvestment of dividends 4,820 76,645 1,737 22,049
Redeemed (4,127) (70,837) (11,013) (151,986)
- --------------------------- --------- ------------ ------------- ------------
Net increase -
Investment C Shares 27,361 472,609 7,761 108,297
- --------------------------- --------- ------------ ------------- ------------
Net increase in Fund 1,960,975 $32,410,968 5,201,899 $68,085,378
- --------------------------- ========= ============ ============= ============
</TABLE>
101
<PAGE> 104
Fountain Square Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity Fund
----------------------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
---------------------- ----------------------
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 1,328,133 $32,508,734 2,956,166 $32,508,734
Reinvestment of dividends - 7,083,876 687,514 7,083,876
Redeemed (1,285,399) (24,295,241) (2,257,739) (24,295,240)
- ------------------------------------- ------------ ------------- -------------
Net increase -
Investment A Shares 42,734 15,297,369 1,385,941 15,297,370
- ------------------------------------- ------------ ------------- -------------
Investment C Shares
Sold 7,526 306,090 28,683 306,089
Reinvestment of dividends - 5,968 580 5,968
Redeemed (4,350) (178,913) (17,099) (178,913)
- ------------------------------------- ------------ ------------- -------------
Net increase -
Investment C Shares 3,176 133,145 12,164 133,144
- ------------------------------------- ------------ ------------- -------------
Net increase in Fund 45,910 $15,430,514 1,398,105 $15,430,514
- --------------------------- =========== ============ ============= =============
<CAPTION>
Bond Fund For Income
----------------------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
---------------------- ----------------------
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 1,724,782 $20,989,034 13,407,383 $160,901,750
Reinvestment of dividends 64,251 782,316 2,588 31,037
Redeemed (744,370) (9,069,852) (525,871) (6,355,414)
- ------------------------------------- ------------ ------------- ------------
Net increase -
Investment A Shares 1,044,663 12,701,498 12,884,100 154,577,373
- ------------------------------------- ------------ ------------- ------------
Investment C Shares
Sold 10,719 129,808 8,938 107,172
Reinvestment of dividends 199 2,422 48 579
Redeemed (2,148) (25,961) (8,472) (101,597)
- ------------------------------------- ------------ ------------- ------------
Net increase -
Investment C Shares 8,770 106,269 514 6,154
- ------------------------------------- ------------ ------------- ------------
Net increase in Fund 1,053,433 $12,807,767 12,884,614 $154,583,527
- --------------------------- =========== ============ ============= ============
</TABLE>
102
<PAGE> 105
Fountain Square Funds
- --------------------------------------------------------------------------------
<TABLE>
Quality Bond Fund
----------------------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
---------------------- ----------------------
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 1,321,320 $13,048,678 2,642,247 $25,418,923
Reinvestment of dividends 157,508 1,550,553 294,612 2,837,676
Redeemed (793,607) (7,794,632) (2,382,151) (22,952,488)
- ------------------------------------- ------------ ------------- -------------
Net increase -
Investment A Shares 685,221 6,804,599 554,708 5,304,111
- ------------------------------------- ------------ ------------- -------------
Investment C Shares
Sold 3,971 39,145 5,487 53,536
Reinvestment of dividends 540 5,321 978 9,427
Redeemed (5,343) (52,971) (2,758) (26,564)
- ------------------------------------- ------------ ------------- -------------
Net increase -
Investment C Shares (832) (8,505) 3,707 36,399
- ------------------------------------- ------------ ------------- -------------
Net increase in Fund 684,389 $ 6,796,094 558,415 $ 5,340,510
- --------------------------- =========== ============ ============= =============
</TABLE>
<TABLE>
U.S. Government Securities Fund
----------------------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
---------------------- ----------------------
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 398,796 $3,897,451 2,689,563 $25,865,573
Reinvestment of dividends 57,164 556,741 128,488 1,236,000
Redeemed (557,780) (5,438,682) (1,685,808) (16,263,648)
- ------------------------------------- ------------ ------------- -------------
Net increase (decrease) -
Investment A Shares (101,820) (984,490) 1,132,243 10,837,925
- ------------------------------------- ------------ ------------- -------------
Investment C Shares
Sold 570 5,515 5,308 51,806
Reinvestment of dividends 172 1,678 350 3,373
Redeemed (1,442) (13,944) (3,045) (29,441)
- ------------------------------------- ------------ ------------- -------------
Net increase -
Investment C Shares (700) (6,751) 2,613 25,738
- ------------------------------------- ------------ ------------- -------------
Net increase in Fund (102,520) $ (991,241) 1,134,856 $10,863,663
- --------------------------- =========== ============ ============= =============
</TABLE>
103
<PAGE> 106
Fountain Square Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Municipal Bond Fund
----------------------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
----------------------- -----------------------
Shares Amount Shares Amount
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 1,399,310 $17,197,545 9,250,564 $111,100,626
Reinvestment of dividends 64,280 788,052 322 3,914
Redeemed (1,078,503) (13,242,585) (1,011,275) (12,155,917)
- ------------------------------------- ---------- ------------ ------------- -------------
Net increase -
Investment A Shares 385,087 4,743,012 8,239,611 98,948,623
- ------------------------------------- ---------- ------------ ------------- -------------
Investment C Shares
Sold - - 33,017 398,029
Reinvestment of dividends 7 88 115 1,376
Redeemed (916) (11,194) (32,223) (388,123)
- ------------------------------------- ---------- ------------ ------------- -------------
Net increase -
Investment A Shares (909) (11,106) 909 11,282
- ------------------------------------- ---------- ------------ ------------- -------------
Net increase in Fund 384,178 $ 4,731,906 8,240,520 $ 98,959,905
- ------------------------------------- ========== ============ ============= =============
</TABLE>
<TABLE>
<CAPTION>
Ohio Tax Free Fund
----------------------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
---------------------- -----------------------
Shares Amount Shares Amount
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Investment A Shares
Sold 1,849,238 $19,058,231 15,859,540 $158,671,462
Reinvestment of dividends 111,995 1,152,181 80,121 806,973
Redeemed (894,537) (9,191,960) (3,116,779) (31,423,698)
- ------------------------------------- ---------- ------------ ------------- -------------
Net increase -
Investment A Shares 1,066,696 11,018,452 12,822,882 128,054,737
- ------------------------------------- ---------- ------------ ------------- -------------
Investment C Shares
Sold 17,117 175,328 21,215 214,790
Reinvestment of dividends 765 7,863 253 2,559
Redeemed (364) (3,735) (1,260) (12,824)
- ------------------------------------- ---------- ------------ ------------- -------------
Net increase -
Investment C Shares 17,518 179,456 20,208 204,525
- ------------------------------------- ---------- ------------ ------------- -------------
Net increase in Fund 1,084,214 $11,197,908 12,843,090 $128,259,262
- ------------------------------------- ========== ============ ============= =============
</TABLE>
104
<PAGE> 107
Fountain Square Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Commercial Paper Fund
--------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
--------------- ---------------
Shares Shares
--------------- ---------------
<S> <C> <C>
Trust Shares
Sold 696,889,511 1,348,424,212
Reinvestment of dividends 285,760 784,154
Redeemed (627,502,790) (1,308,202,316)
- ------------------------------------- --------------- ---------------
Net increase - Trust Shares 69,672,481 41,006,050
- ------------------------------------- --------------- ---------------
Investment Shares
Sold 20,240,864 47,419,610
Reinvestment of dividends - -
Redeemed (22,248,570) (33,321,741)
- ------------------------------------- --------------- ---------------
Net increase -
Investment Shares (2,007,706) 14,097,869
- ------------------------------------- --------------- ---------------
Net increase in Fund 67,664,775 55,103,919
- ------------------------------------- =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Government Cash Reserves Fund
--------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
--------------- ---------------
Shares Shares
--------------- ---------------
<S> <C> <C>
Trust Shares
Sold 136,344,415 263,396,399
Reinvestment of dividends - -
Redeemed (108,693,544) (233,179,851)
- ------------------------------------- --------------- ---------------
Net increase - Trust Shares 27,650,871 30,216,548
- ------------------------------------- --------------- ---------------
Investment Shares
Sold 72,812,082 126,718,634
Reinvestment of dividends - -
Redeemed (48,377,249) (84,984,156)
- ------------------------------------- --------------- ---------------
Net increase -
Investment Shares 24,434,833 41,734,478
- ------------------------------------- --------------- ---------------
Net increase in Fund 52,085,704 71,951,026
- ------------------------------------- =============== ===============
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury Obligations Fund
--------------------------------------
Period Ended Year Ended
January 31, 1998 July 31, 1997
--------------- ---------------
Shares Shares
--------------- ---------------
<S> <C> <C>
Shares
Sold 848,097,301 1,825,126,116
Reinvestment of dividends 3,258,711 5,305,436
Redeemed (726,308,391) (1,780,618,543)
- ------------------------------------- --------------- ---------------
Net increase (decrease)
in Fund 125,047,621 49,813,009
- ------------------------------------- =============== ===============
</TABLE>
105
<PAGE> 108
Fountain Square Funds
- --------------------------------------------------------------------------------
(4) Investment Advisory Fee and Other Transactions with Affiliates
Investment Advisory Fee--Fifth Third Bank, the Trust's investment Advisor (the
"Advisor"), receives for its services an annual investment advisory fee based on
a percentage of each Fund's average daily net assets (see below).
Fund Annual Rate
---- -----------
Quality Growth Fund 0.80%
Equity Income Fund 0.80%
Balanced Fund 0.80%
Mid Cap Fund 0.80%
International Equity Fund 1.00%
Bond Fund For Income 0.55%
Quality Bond Fund 0.55%
U.S. Government Securities Fund 0.55%
Municipal Bond Fund 0.55%
Ohio Tax Free Fund 0.55%
Commercial Paper Fund 0.40%
Government Cash Reserves Fund 0.40%
Treasury Obligations Fund 0.40%
The Advisor may voluntarily choose to waive a portion of its fee and reimburse
certain operating expenses of each Fund. The Advisor can modify or terminate
this voluntary waiver and reimbursement at any time at its sole discretion. For
the six months ended January 31, 1998, the Advisor waived fees in the following
amounts:
Fund Fees Waived
---- -----------
Quality Growth Fund $ 0
Equity Income Fund 0
Balanced Fund 0
Mid Cap Fund 0
International Equity Fund 0
Bond Fund For Income 0
Quality Bond Fund 0
U.S. Government Securities Fund 16,829
Municipal Bond Fund 0
Ohio Tax Free Fund 0
Commercial Paper Fund 43,770
Government Cash Reserves Fund 44,733
Treasury Obligations Fund 427,546
Morgan Stanley Asset Management, Inc. is the International Equity Fund's
sub-advisor (the "Sub-Advisor"). The Advisor compensates the Sub-Advisor at the
annual rate of 0.50% of the International Equity Fund's average daily net
assets.
Administrative Fee--BISYS Fund Services ("BISYS") is the Trust's administrator.
The administrator generally assists in all aspects of the Trust's administration
and operation including providing the Fund with certain administrative personnel
and services necessary to operate the Fund. Pursuant to a separate agreement
with BISYS, Fifth Third Bank performs sub-administrative services on behalf of
the Funds including providing certain administrative personnel and services
necessary to operate the Funds, for which it receives a fee from BISYS computed
daily as a percentage of the daily net assets of the Funds. Under the terms of
the administration agreement, BISYS' fees are computed daily as a percentage of
the average net assets of the Trust for the period. Administration fees are
computed at 0.20% 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 six months ended January 31, 1998,
the administrator waived the following amounts:
106
<PAGE> 109
Fountain Square Funds
- --------------------------------------------------------------------------------
Fund Fees Waived
---- -----------
Quality Growth Fund $ 43,414
Equity Income Fund 53,543
Balanced Fund 47,435
Mid Cap Fund 45,877
International Equity Fund 0
Bond Fund For Income 57,180
Quality Bond Fund 47,091
U.S. Government Securities Fund 21,035
Municipal Bond Fund 51,536
Ohio Tax Free Fund 49,452
Commercial Paper Fund 218,844
Government Cash Reserves Fund 150,223
U.S. Treasury Obligations Fund 305,349
Distribution Services Fee--BISYS serves as the Trust's principal distributor
(the "Distributor") and has entered into a Distribution Plan with the Trust with
respect to Investment A Shares and Investment C Shares. This Plan is in
accordance with Rule 12b-1 under the 1940 Act. Under the Distribution Plan, the
Funds may pay a fee to the Distributor in an amount computed at an annual rate
of up to 0.35% for Investment A Shares and up to 0.75% for Investment C Shares.
The Distributor may voluntarily choose to waive all or a portion of its fee. The
Distributor can modify or terminate this voluntary waiver at any time at its
sole discretion. For the six months ended January 31, 1998, the Distributor
waived the following amounts:
Fund Fees Waived
---- -----------
Quality Growth Fund $757,047
Equity Income Fund 216,662
Balanced Fund 235,251
Mid Cap Fund 353,973
International Equity Fund 247,899
Bond Fund For Income 286,848
Quality Bond Fund 164,717
U.S. Government Securities Fund 73,598
Municipal Bond Fund 180,371
Ohio Tax Free Fund 300,962
Commercial Paper Fund 51,221
Government Cash Reserves Fund 220,073
U.S. Treasury Obligations Fund 0
Administrative Services Fee--The Trust has entered into an Administrative
Services Agreement with Fifth Third Bank with respect to Investment C Shares.
Under the Agreement, the Funds may make payments up to 0.25% of the average
daily net asset value of Investment C Shares in exchange for certain
administrative services for shareholders and for the maintenance of shareholder
accounts.
Transfer and Dividend Disbursing Agent, Accounting and Custody Fees--Fifth Third
Bank serves as transfer and dividend disbursing agent for the Funds for which it
receives a fee. Fifth Third Bank handles the execution of the transfer and
dividend disbursing agent functions.
Fifth Third Bank also maintains the Funds' accounting records except with
respect to the International Equity Fund 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. BISYS Fund Services provides accounting services for the
International Equity Fund for a fee based on average net assets for the period.
Fifth Third Bank is the Funds' custodian for which it receives a fee. The fee is
based on the level of each Fund's average net assets for the period, plus
out-of-pocket expenses. For the six months ended January 31, 1998, Fifth Third
Bank waived the following custodian fees:
107
<PAGE> 110
Fountain Square Funds
- --------------------------------------------------------------------------------
Fund Fees Waived
---- -----------
Quality Growth Fund $ 0
Equity Income Fund 0
Balanced Fund 0
Mid Cap Fund 0
International Equity Fund 0
Bond Fund For Income 0
Quality Bond Fund 0
U.S. Government Securities Fund 0
Municipal Bond Fund 0
Ohio Tax Free Fund 0
Commercial Paper Fund 21,886
Government Cash Reserves Fund 0
U.S. Treasury Obligations Fund 0
Certain officers of the Trust are officers of BISYS Fund Services.
(5) Investment Transactions
Purchases and sales of investments, excluding short-term securities for the six
months ended January 31, 1998, were as follows:
<TABLE>
<CAPTION>
Quality Equity Mid International
Growth Income Balanced Cap Equity
Fund Fund Fund Fund Fund
- --------------------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases $ 96,053,400 $ 16,119,968 $109,418,541 $ 46,966,924 $ 23,628,499
- ---------------------------
Sales $ 45,817,335 $ 18,039,913 $ 98,021,670 $ 35,294,345 $ 29,250,345
- ---------------------------
U.S. Ohio
Bond Fund Quality Government Municipal Tax Free
For Bond Securities Bond Bond
Income Fund Fund Fund Fund
- --------------------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Purchases $121,590,681 $182,551,727 $ 39,905,366 $ 42,414,307 $ 32,690,860
- ---------------------------
Sales $ 88,257,730 $168,753,666 $ 41,215,889 $ 44,212,366 $ 18,741,557
- ---------------------------
</TABLE>
(6) Concentration of Credit Risk
The Ohio Tax Free Bond Fund invests a substantial proportion of its assets in
debt obligations issued by the State of Ohio and its political subdivisions,
agencies and public authorities. The Portfolio is more susceptible to factors
adversely affecting issuers of Ohio municipal securities than a fund that is not
concentrated in these issuers to the same extent.
The International Equity Fund invests in equity and fixed income securities of
non-U.S. issuers. Although the Fund maintains a diversified investment
portfolio, the political or economic developments within a particular country or
region may have an adverse effect on the ability of domiciled issuers to meet
their obligations. Additionally, political or economic developments may have an
effect on the liquidity and volatility or portfolio securities and currency
holdings. The International Equity Fund has a relatively large concentration of
securities invested in companies domiciled in Japan. The Fund may be more
susceptible to the political, social and economic events adversely affecting the
Japanese companies than funds not so concentrated.
108
<PAGE> 111
Fountain Square Funds
- --------------------------------------------------------------------------------
(7) Federal Income Tax Information
The Trust designates the following eligible distributions for the dividends
received deduction for corporations for the taxable year ended July 31, 1997:
<TABLE>
<CAPTION>
Distributions from
Dividend Dividend Income
Income per Share
----------- ---------------------
<S> <C> <C>
Quality Growth Fund
Investment A Shares $3,575,354 $.086
Investment C Shares 15,351 .004
Equity Income Fund
Investment A Shares 1,819,077 .140
Investment C Shares 755 .095
Balanced Fund
Investment A Shares 822,034 .096
Investment C Shares 6,525 .069
Mid Cap Fund
Investment A Shares 1,305,448 .037
Investment C Shares 3,040 -
</TABLE>
The Trust designates the following exempt-interest dividends for the year ended
July 31, 1997:
<TABLE>
<CAPTION>
Municipal Bond Ohio Tax Free
Fund Bond Fund
---------------- ----------------
<S> <C> <C>
Exempt-interest dividends:
Investment A Shares $2,217,602 $6,309,126
Investment C Shares 1,376 2,559
Exempt-interest dividends per share:
Investment A Shares .266 .431
Investment C Shares .221 .359
</TABLE>
For the year ended July 31, 1997, 100% of the exempt-interest income for the
Ohio Tax Free Bond Fund was generated from Ohio municipal securities.
As of July 31, 1997, for federal income purposes, the following Funds have
capital loss carryforwards available to offset future capital gains, if any:
<TABLE>
<CAPTION>
Amount Expires
--------- ---------
<S> <C> <C>
Government Securities Fund $1,100,088 2003
948,699 2004
Quality Bond Fund 162,755 2002
</TABLE>
109
<PAGE> 112
Fountain Square Quality Growth Fund
Financial Highlights - Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending
January 31, Year Ended July 31,
1998 ------------------------------------------------------------------
(Unaudited) 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 (loss) 0.01 0.08 0.12 0.14 0.13 0.10
- ----------------------------------
Net realized and unrealized
gains (losses) on investments 0.76 6.75 1.37 2.09 0.17 0.47
- ---------------------------------- ------------- --------- ---------- ---------- ---------- ----------
Total from investment
operations 0.77 6.83 1.49 2.23 0.30 0.37
- ---------------------------------- ------------- --------- ---------- ---------- ---------- ----------
Less distributions
- ----------------------------------
Dividends to shareholders
from net investment income (0.02) (0.09) (0.12) (0.14) (0.13) (0.09)
- ----------------------------------
Distribution to shareholders
from net realized gains on
investment transactions (1.46) (0.67) -- -- -- --
- ----------------------------------
Distribution to shareholders
in excess of net investment
income (a) -- -- -- -- (0.01) --
- ---------------------------------- ------------- --------- ---------- ---------- ---------- ----------
Total distributions (1.48) (0.76) (0.12) (0.14) (0.14) (0.09)
- ---------------------------------- ------------- --------- ---------- ---------- ---------- ----------
Net asset value, end of period $18.52 $19.23 $13.16 $11.79 $9.70 $9.54
================================== ============= ========= ========== ========== ========== ==========
Total return ** 4.30%(d) 54.02% 12.69% 23.21% 3.17% (3.73%)(d)
- ----------------------------------
Ratios to Average Net Assets
- ----------------------------------
Expenses 1.00%(c) 1.00% 0.99% 1.00% 1.00% 0.99%(c)
- ----------------------------------
Net investment income (loss) 0.11%(c) 0.45% 0.98% 1.44% 1.42% 1.47%(c)
- ----------------------------------
Expense waiver/
reimbursement (b) 0.37%(c) 0.36% 0.03% 0.05% 0.03% 0.05%(c)
- ----------------------------------
Supplemental data
- ----------------------------------
Net assets, end of period
(000 omitted) $465,715 $399,683 $134,469 $82,594 $69,648 $67,681
- ----------------------------------
Portfolio turnover rate (e) 11% 37% 37% 34% 37% 28%
- ----------------------------------
Average commission rate paid(f) $0.0588 $0.0622 $0.0652 -- -- --
- ----------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
** Based on net asset value, which does not reflect the sales load.
(a) These distributions did not represent a return of capital for federal tax
purposes for the year ended July 31, 1994.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Annualized.
(d) Not annualized.
(e) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(f) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
110
<PAGE> 113
Fountain Square Quality Growth Fund
Financial Highlights - Investment C Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Month
Period Period Period
Ending Ended Ended
January 31, July 31, July 31,
1998 1997 1996*
(Unaudited)
-------------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period $19.18 $13.16 $13.37
- -------------------------------------------------- ----------- ----------- -----------
Income from investment operations
- --------------------------------------------------
Net investment income (0.03) (0.03) --
- --------------------------------------------------
Net realized and unrealized losses
on investments 0.73 6.72 (0.21)
- -------------------------------------------------- ----------- ----------- -----------
Total from investment operations 0.70 6.69 (0.21)
- -------------------------------------------------- ----------- ----------- -----------
Less distributions
- --------------------------------------------------
Dividends to shareholders from net
investment income -- -- --
- --------------------------------------------------
Distributions to shareholders from net
realized gains on investment transactions (1.46) (0.67) --
- -------------------------------------------------- ----------- ----------- -----------
Total distributions (1.46) (0.67) --
- -------------------------------------------------- ----------- ----------- -----------
Net asset value, end of period $18.42 $19.18 $13.16
- -------------------------------------------------- =========== =========== ===========
Total return ** 3.87%(d) 52.79% 12.50%(a)
- --------------------------------------------------
Ratios to Average Net Assets
- --------------------------------------------------
Expenses 1.75%(c) 1.75% 1.77%(c)
- --------------------------------------------------
Net investment income (loss) 0.62%(c) (0.32%) 0.26%(c)
- --------------------------------------------------
Expense waiver/reimbursement (b) 0.27%(c) 0.26% 0.06%(c)
- --------------------------------------------------
Supplemental data
- --------------------------------------------------
Net assets, end of period (000 omitted) $6,238 $3,146 $420
- --------------------------------------------------
Portfolio turnover rate (e) 11% 37% 37%
- --------------------------------------------------
Average commission rate paid (f) $0.0588 $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) 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 13, 1996.
(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)
111
<PAGE> 114
Fountain Square Equity Income Fund
Financial Highlights - Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Month
Period Period
Ending Ended
January 31, July 31,
1998* 1997*
(Unaudited)
-------------- -------------
<S> <C> <C>
Net asset value, beginning of period $14.44 $12.00
- -------------------------------------------------- ------------- -------------
Income from investment operations
- --------------------------------------------------
Net investment income (loss) 0.11 0.15
- --------------------------------------------------
Net realized and unrealized gains (losses)
on investments 1.67 2.43
- -------------------------------------------------- ------------- -------------
Total from investment operations 1.78 2.58
- -------------------------------------------------- ------------- -------------
Less distributions
- --------------------------------------------------
Distributions to shareholders from net
investment income (0.13) (0.14)
- --------------------------------------------------
Distributions to shareholders from net
realized gains on investment transactions (1.48) -
- -------------------------------------------------- ------------- -------------
Total Distributions (1.61) (0.14)
- -------------------------------------------------- ------------- -------------
Net asset value, end of period $14.61 $14.44
- -------------------------------------------------- ============= =============
Total return ** 12.61%(c) 21.64%(c)
- --------------------------------------------------
Ratios to Average Net Assets
- --------------------------------------------------
Expenses 1.00%(b) 1.06%(b)
- --------------------------------------------------
Net investment income (loss) 1.56%(b) 2.32%(b)
- --------------------------------------------------
Expense waiver/reimbursement (a) 0.44%(b) 0.42%(b)
- --------------------------------------------------
Supplemental data
- --------------------------------------------------
Net assets, end of period (000 omitted) $132,469 $120,324
- --------------------------------------------------
Portfolio turnover rate (c) 13% 28%(b)
- --------------------------------------------------
Average commission rate paid (e) $0.0759 $0.0665
- --------------------------------------------------
</TABLE>
*Reflects operations for the period from January 27, 1997 (date of commencement
of operations) to July 31, 1997.
**Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not Annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
112
<PAGE> 115
Fountain Square Equity Income Fund
Financial Highlights - Investment C Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Month
Period
Ending Period
January 31, Ended
1998 July 31,
(Unaudited) 1997*
-------------- ------------
<S> <C> <C>
Net asset value, beginning of period $14.45 $12.00
- -------------------------------------------------- ---------- --------
Income from investment operations
- --------------------------------------------------
Net investment income (loss) 0.07 0.10
- --------------------------------------------------
Net realized and unrealized gain (losses)
on investments 1.66 2.45
- -------------------------------------------------- ---------- --------
Total from investment operations 1.73 2.55
- -------------------------------------------------- ---------- --------
Less distributions
- --------------------------------------------------
Dividends to shareholders from net
investment income (0.08) (0.10)
- --------------------------------------------------
Distributions to shareholders from net
realized gains on investment transactions (1.48) -
- -------------------------------------------------- ---------- --------
Total Distributions (1.56) (0.10)
- -------------------------------------------------- ---------- --------
Net asset value, end of period $14.62 $14.45
- -------------------------------------------------- ========== ========
Total return** 12.20%(c) 21.30%(c)
- --------------------------------------------------
Ratio to Average Net Assets
- --------------------------------------------------
Expenses 1.75%(b) 1.81%(b)
- --------------------------------------------------
Net investment income (loss) 0.86%(b) 1.56%(b)
- --------------------------------------------------
Expense waiver/reimbursement (a) 0.34%(b) 0.26%(b)
- --------------------------------------------------
Supplemental data
- --------------------------------------------------
Net assets, end of period (000 omitted) $426 $92
- --------------------------------------------------
Portfolio turnover rate (c) 13% 28%(b)
- --------------------------------------------------
Average commission rate paid (e) $0.0759 $0.0665
- --------------------------------------------------
</TABLE>
* Reflects operations for the period from January 27, 1997 (date of
commencement of operations) to July 31, 1997.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not Annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
113
<PAGE> 116
Fountain Square Balanced Fund
Financial Highlights - Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending
January 31, Year Ended July 31,
1998 -------------------------------------------------------------------
(Unaudited) 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 (loss) 0.14 0.27 0.27 0.28 0.26 0.20
- ------------------------------------
Net realized and unrealized
gains (losses) on investments 0.36 4.06 0.47 1.57 (0.06) (0.25)
- ------------------------------------ ---------- -------- -------- ------- ------- --------
Total from investment
operations 0.50 4.33 0.74 1.85 0.20 (0.05)
- ------------------------------------ ---------- -------- -------- ------- ------- --------
Less distributions
- ------------------------------------
Dividends to shareholders
from net investment income (0.15) (0.26) (0.27) (0.27) (0.26) (0.17)
- ------------------------------------
Distribution to shareholders
from net realized gains on
investment transactions (1.25) (0.49) -- -- -- --
- ------------------------------------
Distribution to shareholders
in excess of net investment
income (a) -- -- -- -- (0.02) --
- ------------------------------------ ---------- -------- -------- ------- ------- --------
Total distributions (1.40) (0.75) (0.27) (0.27) (0.28) (0.17)
- ------------------------------------ ---------- -------- -------- ------- ------- --------
Net asset value, end of period $14.43 $15.33 $11.75 $11.28 $9.70 $9.78
- ------------------------------------ ========== ======== ======== ======= ======= ========
Total return ** 3.43%(d) 38.45% 6.52% 19.37% 2.02% (0.51%)(d)
- ------------------------------------
Ratios to Average Net Assets
- ------------------------------------
Expenses 1.00%(c) 1.00% 1.00% 1.00% 1.00% 1.00%(c)
- ------------------------------------
Net investment income (loss) 1.91%(c) 2.05% 2.31% 2.73% 2.64% 3.04%(c)
- ------------------------------------
Expense waiver/
reimbursement (b) 0.42%(c) 0.40% 0.06% 0.06% 0.06% 0.08%(c)
- ------------------------------------
Supplemental data
- ------------------------------------
Net assets, end of period
(000 omitted) $149,223 $122,765 $92,808 $58,075 $59,363 $60,168
- ------------------------------------
Portfolio turnover rate (e) 80% 101% 61% 58% 53% 30%
- ------------------------------------
Average commission
rate paid (f) $0.0622 $0.0240 $0.0062 -- -- --
- ------------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
** Based on net asset value, which does not reflect the sales load.
(a) These distributions did not represent a return of capital for federal tax
purposes for the year ended July 31, 1994.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) Annualized.
(d) Not annualized.
(e) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued
(f) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
114
<PAGE> 117
Fountain Square Balanced Fund
Financial Highlights - Investment C Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Month
Period Period Period
Ending Ended Ended
January 31, July 31, July 31
1998 1997 1996*
(Unaudited)
-------------- --------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period $15.34 $11.75 $12.13
- ----------------------------------------------- --------- -------- --------
Income from investment operations
- -----------------------------------------------
Net investment income (loss) 0.08 0.16 0.05
- -----------------------------------------------
Net realized and unrealized gain (losses)
on investments 0.36 4.08 (0.39)
- ----------------------------------------------- --------- -------- --------
Total from investment operations 0.44 4.24 (0.34)
- ----------------------------------------------- --------- -------- --------
Less distributions
- -----------------------------------------------
Dividends to shareholders from net
investment income (0.09) (0.16) (0.04)
- ----------------------------------------------- --------- -------- --------
Distributions to shareholders from net
realized gains on investment transactions (1.25) (0.49) --
- ----------------------------------------------- --------- -------- --------
Total Distributions (1.34) (0.65) (0.04)
- ----------------------------------------------- --------- -------- --------
Net asset value, end of period $14.44 $15.34 $11.75
- ----------------------------------------------- ========= ======== ========
Total return ** 3.06%(d) 37.52% 6.32%(a)
- -----------------------------------------------
Ratios to Average Net Assets
- -----------------------------------------------
Expenses 1.75%(c) 1.75% 1.78%(c)
- -----------------------------------------------
Net investment income (loss) 1.22%(c) 1.30% 1.60%(c)
- -----------------------------------------------
Expense waiver/reimbursement (b) 0.32%(c) 0.30% 0.07%(c)
- -----------------------------------------------
Supplemental data
- -----------------------------------------------
Net assets, end of period (000 omitted) $2,683 $1,155 $264
- -----------------------------------------------
Portfolio turnover rate (e) 80% 101% 61%
- -----------------------------------------------
Average commission rate paid (f) $0.0622 $0.0240 $0.0062
- -----------------------------------------------
</TABLE>
*Reflects operations for the period from April 25, 1996 (date of commencement
of operations) to July 31, 1996.
**Based on net asset value, which does not reflect the contingent deferred sales
charge.
(a) 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.
(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)
115
<PAGE> 118
Fountain Square Mid Cap Fund
Financial Highlights - Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending
January 31, Year Ended July 31,
1998 -----------------------------------------------------
(Unaudited) 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) (0.01) 0.02 0.06 0.08 0.06 0.06
- -------------------------------------
Net realized and unrealized
gains (losses) on investments 1.20 5.55 0.11 2.48 0.43 (0.33)
- ------------------------------------- -------- --------- -------- -------- -------- ---------
Total from investment operations 1.19 5.57 0.17 2.56 0.49 (0.27)
- ------------------------------------- -------- --------- -------- -------- -------- ---------
Less distributions
- -------------------------------------
Dividends to shareholders
from net investment income - (0.02) (0.07) (0.07) (0.07) (0.05)
- -------------------------------------
Dividends to shareholders
in excess of net investment
income - (0.02) - - - -
- -------------------------------------
Distributions to shareholders
from net realized gains on
investment transactions (1.74) (1.15) (0.09) - - -
- ------------------------------------- -------- --------- -------- -------- -------- ---------
Total distributions (1.74) (1.19) (0.16) (0.07) (0.07) (0.05)
- ------------------------------------- -------- --------- -------- -------- -------- ---------
Net asset value, end of period $16.43 $16.98 $12.60 $12.59 $10.10 $9.68
- ------------------------------------- ======== ========= ======== ======== ======== =========
Total return 7.19%(c) 47.17% 1.27% 25.45% 5.07% (2.73%)(c)
- -------------------------------------
Ratios to Average Net Assets
- -------------------------------------
Expenses 1.00%(b) 1.00% 1.00% 1.00% 1.00% 0.99%(b)
- -------------------------------------
Net investment income (loss) 0.13%(b) 0.10% 0.42% 0.77% 0.60% 0.88%(b)
- -------------------------------------
Expense waiver/
reimbursement (a) 0.40%(b) 0.37% 0.06% 0.18% 0.33% 0.40%(b)
- -------------------------------------
Supplemental data
- -------------------------------------
Net assets, end of period
(000 omitted) $211,768 $186,066 $72,663 $47,184 $30,210 $24,019
- -------------------------------------
Portfolio turnover rate (d) 18% 52% 54% 23% 44% 20%
- -------------------------------------
Average commission
rate paid (e) $0.0592 $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)
116
<PAGE> 119
Fountain Square Mid Cap Fund
Financial Highlights - Investment C Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Month
Period Period Period
Ending Ended Ended
January 31, July 31 July 31
1998 1997 1996*
(Unaudited)
----------- ------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period $16.88 $12.59 $13.72
- ------------------------------------------------ ------- ------- -------
Income from investment operations
- ------------------------------------------------
Net investment income (0.01) (0.07) (0.01)
- ------------------------------------------------
Net realized and unrealized losses
on investments 1.13 5.51 (1.12)
- ------------------------------------------------ ------- ------- -------
Total from investment operations 1.12 5.44 (1.13)
- ------------------------------------------------ ------- ------- -------
Less distributions
- ------------------------------------------------
Dividends to shareholders from net
investment income - - -
- ------------------------------------------------ ------- ------- -------
Distributions to shareholders from net
realized gains on investment transactions (1.74) (1.15) -
- ------------------------------------------------ ------- ------- -------
Total distributions (1.74) (1.15) -
- ------------------------------------------------ ------- ------- -------
Net asset value, end of period $16.26 $16.88 $12.59
- ------------------------------------------------ ======= ======= =======
Total return ** 6.87%(d) 46.05% 1.11%(a)
- ------------------------------------------------
Ratios to Average Net Assets
- ------------------------------------------------
Expenses 1.75%(c) 1.75% 1.78%(c)
- ------------------------------------------------
Net investment income (loss) 0.86%(c) (0.62%) (0.51%)(c)
- ------------------------------------------------
Expense waiver/reimbursement (b) 0.30%(c) 0.27% 0.06%(c)
- ------------------------------------------------
Supplemental data
- ------------------------------------------------
Net assets, end of period (000 omitted) $867 $439 $229
- ------------------------------------------------
Portfolio turnover rate (e) 18% 52% 54%
- ------------------------------------------------
Average commission rate paid (f) $0.0592 $0.0635 $0.0659
- ------------------------------------------------
</TABLE>
* Reflects operations for the period from April 24, 1996 (date of commencement
of operations) to July 31, 1996.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) 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 13, 1996.
(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)
117
<PAGE> 120
Fountain Square International Equity Fund
Financial Highlights - Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending Period
January 31, Year Ended July 31 Ended
1998 ------------------- July 31,
(Unaudited) 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 (loss) - 0.04 0.01 0.05
- -----------------------------------------------
Net realized and unrealized gains
(losses) on investment (0.35) 2.15 0.90 (0.22)
- ----------------------------------------------- --------- ------ ------ ------
Total from investment operations (0.35) 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 $10.81 $12.05 $10.74 $9.83
- ----------------------------------------------- ========= ====== ====== ======
Total return ** (2.50%)(c) 21.78% 9.26% (1.70%)(c)
- -----------------------------------------------
Ratios to Average Net Assets
- -----------------------------------------------
Expenses 1.44%(b) 1.38% 1.61% 1.65%(b)
- -----------------------------------------------
Net investment income (loss) 1.83%(b) 0.39% 0.32% 0.62%(b)
- -----------------------------------------------
Expense waiver/reimbursement (a) 0.35%(b) 0.35% 0.05% 0.07%(b)
- -----------------------------------------------
Supplemental data
- -----------------------------------------------
Net assets, end of period (000 omitted) $136,603 $151,728 $120,349 $86,442
- -----------------------------------------------
Portfolio turnover rate (d) 19% 60% 41% 54%
- -----------------------------------------------
Average commission rate paid (e) $0.0123 $0.0028 $0.0010 -
- -----------------------------------------------
</TABLE>
* Reflects operations for the period from August 19, 1994 (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)
118
<PAGE> 121
Fountain Square International Equity Fund
Financial Highlights - Investment C Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Month
Period Period Period
Ending Ended Ended
January 31, July 31, July 31,
1998 1997 1996*
(Unaudited)
------------ --------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period $12.01 $10.71 $11.21
- --------------------------------------------------- --------- --------- ---------
Income from investment operations
- ---------------------------------------------------
Net investment income (loss) (0.61) (0.02) 0.01
- ---------------------------------------------------
Net realized and unrealized gains (losses)
on investments (0.25) 2.16 (0.51)
- --------------------------------------------------- --------- --------- ---------
Total from investment operations (0.86) 2.14 (0.50)
- --------------------------------------------------- --------- --------- ---------
Less distributions
- ---------------------------------------------------
Dividends to shareholders from net
investment income (0.05) (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 (0.35) (0.84) -
- --------------------------------------------------- --------- --------- ---------
Net asset value, end of period $10.80 $12.01 $10.71
- --------------------------------------------------- ========= ========= =========
Total return ** 2.82%(d) 21.25% 8.95%(a)
- ---------------------------------------------------
Ratios to Average Net Assets
- ---------------------------------------------------
Expenses 2.19%(c) 2.13% 2.34%(c)
- ---------------------------------------------------
Net investment income (loss) 0.99%(c) (0.28%) 0.76%(c)
- ---------------------------------------------------
Expense waiver/reimbursement (b) 0.25%(c) 0.25% -
- ---------------------------------------------------
Supplemental data
- ---------------------------------------------------
Net assets, end of period (000 omitted) $224 $210 $57
- ---------------------------------------------------
Portfolio turnover rate (e) 18% 60% 41%
- ---------------------------------------------------
Average commission rate paid (f) $0.0123 $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) Represents total return for Invesment 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 13, 1996.
(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)
119
<PAGE> 122
Fountain Square Bond For Income Fund
Financial Highlights - Investment A Shares
- -------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Month
Period Period
Ending Ended
January 31, July 31,
1998 1997 *
(Unaudited)
---------- ----------
<S> <C> <C>
Net asset value, beginning of period $12.19 $12.00
- -------------------------------------------------- --------- ---------
Income from investment operations
- --------------------------------------------------
Net investment income (loss) 0.35 0.37
- --------------------------------------------------
Net realized and unrealized losses
on investments 0.12 0.18
- -------------------------------------------------- --------- ---------
Total from investment operations 0.47 0.55
- -------------------------------------------------- --------- ---------
Less distributions
- --------------------------------------------------
Dividends to shareholders from net
investment income (0.36) (0.36)
- --------------------------------------------------
Distributions to shareholders from net
realized gains on investment transactions (0.05) -
- --------------------------------------------------
Total Distributions (0.41) (0.36)
- -------------------------------------------------- --------- ---------
Net asset value, end of period $12.25 $12.19
- -------------------------------------------------- ========= =========
Total return ** 3.95%(c) 4.64%(c)
- --------------------------------------------------
Ratios to Average Net Assets
- --------------------------------------------------
Expenses 0.75%(b) 0.79%(b)
- --------------------------------------------------
Net investment income (Loss) 5.68%(b) 6.08%(b)
- --------------------------------------------------
Expense waiver/reimbursement (a) 0.42%(b) 0.42%(b)
- --------------------------------------------------
Supplemental data
- --------------------------------------------------
Net assets, end of period (000 omitted) $170,671 $157,108
- --------------------------------------------------
Portfolio turnover rate (d) 62% 157%(b)
- --------------------------------------------------
</TABLE>
* Reflects operations for the period from January 27, 1997 (date of
commencement of operations) to July 31, 1997.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not Annualized
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
120
<PAGE> 123
Fountain Square Bond For Income Fund
Financial Highlights - Investment C Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Month
Period Period
Ending Ended
January 31, July 31,
1998 1997 *
(Unaudited)
---------- ---------
<S> <C> <C>
Net asset value, beginning of period $12.18 $12.00
- ----------------------------------------------- ------- -------
Income from investment operations
- -----------------------------------------------
Net investment income (loss) 0.61 (0.01)
- -----------------------------------------------
Net realized and unrealized gains (losses)
on investments (0.19) 0.50
- ----------------------------------------------- ------- -------
Total from investment operations 0.42 0.49
- ----------------------------------------------- ------- -------
Less distributions
- -----------------------------------------------
Dividends to shareholders from net
investment income (0.31) (0.31)
- -----------------------------------------------
Distributions to shareholders from net
realized gains on investment transactions (0.05) -
- ----------------------------------------------- ------- -------
Total Distributions (0.36) (0.31)
- ----------------------------------------------- ------- -------
Net asset value, end of period $12.24 $12.18
- ----------------------------------------------- ======= =======
Total return ** 3.55%(c) 4.18%(c)
- -----------------------------------------------
Ratios to Average Net Assets
- -----------------------------------------------
Expenses 1.50%(b) 1.54%(b)
- -----------------------------------------------
Net investment income (Loss) 5.04%(b) 4.20%(b)
- -----------------------------------------------
Expense waiver/reimbursement (a) 0.32%(b) 0.26%(b)
- -----------------------------------------------
Supplemental data
- -----------------------------------------------
Net assets, end of period (000 omitted) $114 $6
- -----------------------------------------------
Portfolio turnover rate (d) 62% 157%(b)
- -----------------------------------------------
</TABLE>
* Reflects operations for the period from January 27, 1997 (date of
commencement of operations) to July 31, 1997.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not Annualized
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
121
<PAGE> 124
Fountain Square Quality Bond Fund
Financial Highlights - Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending
January 31, Year Ended July 31,
1998 -------------------------------------------------------
(Unaudited) 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 (loss) 0.28 0.55 0.56 0.64 0.57 0.41
- -----------------------------------
Net realized and unrealized
gains (losses) on investments 0.14 .32 (0.19) 0.17 (0.69) 0.26
- ----------------------------------- ------------- --------- --------- -------- --------- ---------
Total from investment
operations 0.42 0.87 0.37 0.81 (0.12) 0.67
- ----------------------------------- ------------- --------- --------- -------- --------- ---------
Less distributions
- -----------------------------------
Dividends to shareholders
from net investment income (0.29) (0.54) (0.57) (0.64) (0.59) (0.38)
- -----------------------------------
Distribution to shareholders
from net realized gains on
investment transactions - - - - (0.03) -
- ----------------------------------- ------------- --------- --------- -------- --------- ---------
Total distributions (0.29) (0.54) (0.57) (0.64) (0.62) (0.38)
- ----------------------------------- ------------- --------- --------- -------- --------- ---------
Net asset value, end of period $9.98 $9.85 $9.52 $9.72 $9.55 $10.29
- ----------------------------------- ============= ========= ========= ======== ========= =========
Total return ** 4.40%(c) 9.43% 3.86% 8.89% (1.25%) 6.78%(c)
- -----------------------------------
Ratios to Average Net Assets
- -----------------------------------
Expenses 0.75%(b) 0.75% 0.75% 0.75% 0.75% 0.74%(b)
- -----------------------------------
Net investment income (loss) 5.63%(b) 5.71% 5.80% 6.72% 5.76% 6.07%(b)
- -----------------------------------
Expense waiver/
reimbursement (a) 0.45%(b) 0.41% 0.06% 0.09% 0.11% 0.23%(b)
- -----------------------------------
Supplemental data
- -----------------------------------
Net assets, end of period
(000 omitted) $99,838 $91,789 $83,422 $55,767 $47,272 $37,962
- -----------------------------------
Portfolio turnover rate (d) 215% 181% 117% 138% 112% 19%
- -----------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
** Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
122
<PAGE> 125
Fountain Square Quality Bond Fund
Financial Highlights - Investment C Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Month
Period Period Period
Ending Ended Ended
January 31, July 31 July 31
1998 1997 1996*
(Unaudited)
-------------- --------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period $9.86 $9.53 $9.62
- ------------------------------------------------- -------------- --------- ---------
Income from investment operations
- -------------------------------------------------
Net investment income 0.24 0.49 0.14
- -------------------------------------------------
Net realized and unrealized losses
on investments 0.13 0.32 (0.08)
- ------------------------------------------------- -------------- --------- ---------
Total from investment operations 0.37 0.81 0.06
- ------------------------------------------------- -------------- --------- ---------
Less distributions
- -------------------------------------------------
Dividends to shareholders from net
investment income (0.25) (0.48) (0.15)
- ------------------------------------------------- -------------- --------- ---------
Net asset value, end of period $9.98 $9.86 $9.53
- ------------------------------------------------- ============== ========= =========
Total return ** 3.92%(c) 8.68% 3.71%(d)
- -------------------------------------------------
Ratios to Average Net Assets
- -------------------------------------------------
Expenses 1.49%(b) 1.50% 1.52%(b)
- -------------------------------------------------
Net investment income (loss) 4.89%(b) 4.97% 5.03%(b)
- -------------------------------------------------
Expense waiver/reimbursement (b) 0.35%(b) 0.31% 0.09%(b)
- -------------------------------------------------
Supplemental data
- -------------------------------------------------
Net assets, end of period (000 omitted) $198 $204 $162
- -------------------------------------------------
Portfolio turnover rate (e) 215% 181% 117%
- -------------------------------------------------
</TABLE>
* Reflects operations for the period from April 25, 1996 (date of commencement
of operations) to July 31, 1996.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized
(c) Not annualized.
(d) 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 13, 1996.
(e) 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)
123
<PAGE> 126
Fountain Square U.S. Government Securities Fund
Financial Highlights - Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending
January 31, Year Ended July 31,
1998 -------------------------------------------------------
(Unaudited) 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 (loss) 0.26 0.54 0.55 0.58 0.51 0.35
- -----------------------------------
Net realized and unrealized
gains (losses) on investments 0.13 0.19 (0.20) 0.13 (0.49) 0.13
- ----------------------------------- ------------- --------- --------- -------- --------- ---------
Total from investment
operations 0.39 0.73 0.35 0.71 0.02 0.48
- ----------------------------------- ------------- --------- --------- -------- --------- ---------
Less distributions
- -----------------------------------
Dividends to shareholders
from net investment income (0.27) (0.53) (0.57) (0.58) (0.57) (0.27)
- -----------------------------------
Distribution to shareholders
from net realized gains on
investment transactions - - - - (0.02) -
- ----------------------------------- ------------- --------- --------- -------- --------- ---------
Total distributions (0.27) (0.53) (0.57) (0.58) (0.59) (0.27)
- ----------------------------------- ------------- --------- --------- -------- --------- ---------
Net asset value, end of period $9.87 $9.75 $9.55 $9.77 $9.64 $10.21
- ----------------------------------- ============= ========= ========= ======== ========= =========
Total return ** 4.10%(c) 7.83% 3.63% 7.66% 0.11% 4.87%(c)
- -----------------------------------
Ratios to Average Net Assets
- -----------------------------------
Expenses 0.75%(b) 0.75% 0.75% 0.75% 0.75% 0.74%(b)
- -----------------------------------
Net investment income (loss) 5.33%(b) 5.56% 5.67% 5.98% 5.17% 5.36%(b)
- -----------------------------------
Expense waiver/
reimbursement (a) 0.53%(b) 0.50% 0.29% 0.39% 0.18% 0.33%(b)
- -----------------------------------
Supplemental data
- -----------------------------------
Net assets, end of period
(000 omitted) $41,973 $42,414 $30,754 $25,054 $29,107 $29,603
- -----------------------------------
Portfolio turnover rate (d) 108% 169% 103% 115% 55% 23%
- -----------------------------------
</TABLE>
* Reflects operations for the period from November 20, 1992 (date of initial
public investment) to July 31, 1993.
** Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(See Notes which are an integral part of the Financial Statements)
124
<PAGE> 127
Fountain Square U.S. Government Securities Fund
Financial Highlights - Investment C Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
Six Month
Period Period Period
Ending Ended Ended
January 31, July 31 July 31
1998 1997 1996*
(Unaudited)
----------- ------- -------
Net asset value, beginning of period $9.75 $9.56 $9.65
- ------------------------------------------- ------- ------- -------
Income from investment operations
- -------------------------------------------
Net investment income 0.23 0.46 0.16
- -------------------------------------------
Net realized and unrealized losses
on investments 0.11 0.19 (0.10)
- ------------------------------------------- ------ ------ ------
Total from investment operations 0.34 0.65 0.06
- ------------------------------------------- ------ ------ ------
Less distributions
- -------------------------------------------
Dividends to shareholders from net
investment income (0.24) (0.46) (0.15)
- ------------------------------------------- ------ ------ ------
Net asset value, end of period $9.85 $9.75 $9.56
- ------------------------------------------- ====== ====== ======
Total return ** 3.51%(c) 6.92% 3.48%(d)
- -------------------------------------------
Ratios to Average Net Assets
- -------------------------------------------
Expenses 1.50%(b) 1.50% 1.52%(b)
- -------------------------------------------
Net investment income (loss) 4.57%(b) 4.82% 4.80%(b)
- -------------------------------------------
Expense waiver/reimbursement (a) 0.43%(b) 0.40% 0.37%(b)
- -------------------------------------------
Supplemental data
- -------------------------------------------
Net assets, end of period (000 omitted) $69 $75 $49
- -------------------------------------------
Portfolio turnover rate (e) 108% 169% 103%
- -------------------------------------------
*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) Not annualized.
(d) Represents total return for Invesment 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 13, 1996.
(e) 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)
125
<PAGE> 128
Fountain Square Municipal Bond Fund
Financial Highlights - Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
Six Month
Period Period
Ending Ended
January 31, July 31
1998 1997
(Unaudited)
----------- -----------
Net asset value, beginning of period $12.33 $12.00
- ---------------------------------------------- ----------- -----------
Income from investment operations
- ----------------------------------------------
Net investment income (loss) 0.26 0.28
- ----------------------------------------------
Net realized and unrealized gains (losses)
on investments 0.10 0.32
- ---------------------------------------------- ----------- -----------
Total from investment operations 0.36 0.60
- ---------------------------------------------- ----------- -----------
Less distributions
- ----------------------------------------------
Dividends to shareholders from net
investment income (0.27) (0.27)
- ----------------------------------------------
Distributions to shareholders from net
realized gains on investment transactions (0.09) --
- ---------------------------------------------- ----------- -----------
Total Distributions (0.36) (0.27)
- ---------------------------------------------- ----------- -----------
Net asset value, end of period $12.33 $12.33
- ---------------------------------------------- =========== ===========
Total return ** 2.97%(c) 5.04%(c)
- ----------------------------------------------
Ratios to Average Net Assets
- ----------------------------------------------
Expenses 0.75%(b) 0.81%(b)
- ----------------------------------------------
Net investment income (loss) 4.18%(b) 4.44%(b)
- ----------------------------------------------
Expense waiver/reimbursement (a) 0.45%(b) 0.42%(b)
- ----------------------------------------------
Supplemental data
- ----------------------------------------------
Net assets, end of period (000 omitted) $106,318 $101,616
- ----------------------------------------------
Portfolio turnover rate (d) 47% 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)
126
<PAGE> 129
Fountain Square Municipal Bond Fund
Financial Highlights - Investment C Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
For the Period
August 1, Period
1997 to Ended
January 8, July 31
1998 1997
(Unaudited)***
-------------- ------
Net asset value, beginning of period $12.33 $12.00
- -------------------------------------------------- ------ ------
Income from investment operations
- --------------------------------------------------
Net investment income (loss) 0.19 (0.20)
- --------------------------------------------------
Net realized and unrealized losses
on investments 0.10 0.75
- -------------------------------------------------- ------ ------
Total from investment operations 0.29 0.55
- -------------------------------------------------- ------ ------
Less distributions
- --------------------------------------------------
Dividends to shareholders from net
investment income (0.22) (0.22)
- --------------------------------------------------
Distributions to shareholders from net
realized gains on investment transactions (0.09) --
- -------------------------------------------------- ------ ------
Total distributions (0.31) (0.22)
- -------------------------------------------------- ------ ------
Net asset value, end of period $12.31 $12.33
- -------------------------------------------------- ====== ======
Total return ** 2.35%(c) 4.65%(c)
- --------------------------------------------------
Ratios to Average Net Assets
- --------------------------------------------------
Expenses 1.50%(b) 1.56%(b)
- --------------------------------------------------
Net investment income (loss) 3.36%(b) 3.09%(b)
- --------------------------------------------------
Expense waiver/reimbursement (a) 0.38%(b) 0.26%(b)
- --------------------------------------------------
Supplemental data
- --------------------------------------------------
Net assets, end of period (000 omitted) $ -- $11
- --------------------------------------------------
Portfolio turnover rate (d) 47% 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 contingent deferred sales
charge.
***As of January 8, 1998, all shares and assets were redeemed from the Municipal
Bond Fund Investment C Shares.
(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)
127
<PAGE> 130
Fountain Square Ohio Tax Free Bond Fund
Financial Highlights -- Investment A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending
January 31, Year Ended July 31,
1998 -------------------------------------------------------
(Unaudited) 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 (loss) 0.22 0.43 0.40 0.42 0.40 0.05
- ----------------------------------
Net realized and unrealized
gains (losses) on investments 0.09 0.30 0.03 0.24 (0.21) (0.05)
- ---------------------------------- -------- -------- --------- -------- --------- ---------
Total from investment
operations 0.31 0.73 0.43 0.66 0.19 -
- ---------------------------------- -------- -------- --------- -------- --------- ---------
Less distributions
- ----------------------------------
Dividends to shareholders
from net investment income (0.22) (0.43) (0.41) (0.42) (0.39) (0.05)
- ---------------------------------- -------- -------- --------- -------- --------- ---------
Distribution to shareholders
from net realized gains on
investment transactions (0.04) - - - - -
- ---------------------------------- -------- -------- --------- -------- --------- ---------
Total distributions (0.26) (0.43) (0.41) (0.42) (0.39) (0.05)
- ---------------------------------- -------- -------- --------- -------- --------- ---------
Net asset value, end of period $10.36 $10.31 $10.01 $ 9.99 $ 9.75 $ 9.95
- ---------------------------------- ======== ======== ========= ======== ========= =========
Total return ** 3.04%(c) 7.49% 4.33% 7.02% 1.95% (0.01%)(c)
- ----------------------------------
Ratios to Average Net Assets
- ----------------------------------
Expenses 0.75%(b) 0.75% 0.74% 0.35% 0.00% 0.00%(b)
- ----------------------------------
Net investment income (loss) 4.12%(b) 4.27% 4.01% 4.36% 4.18% 3.53%(b)
- ----------------------------------
Expense waiver/
reimbursement (a) 0.41%(b) 0.37% 0.32% 0.77% 1.33% 2.21%(b)
- ----------------------------------
Supplemental data
- ----------------------------------
Net assets, end of period
(000 omitted) $180,544 $168,800 $35,463 $28,315 $23,854 $8,163
- ----------------------------------
Portfolio turnover rate (d) 12% 49% 30% 27% 94% 31%
- ----------------------------------
</TABLE>
* Reflects operations for the period from May 27, 1993 (date of initial public
investment) to July 31, 1993.
** Based on net asset value, which does not reflect the sales load.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued
(See Notes which are an integral part of the Financial Statements)
128
<PAGE> 131
Fountain Square Ohio Tax Bond Fund
Financial Highlights -- Investment C Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six Month
Period Period Period
Ending Ended Ended
January 31, July 31 July 31
1998 1997 1996*
(Unaudited)
----------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $10.31 $10.00 $10.02
- ------------------------------------------- ------- ------- -------
Income from investment operations
- -------------------------------------------
Net investment income 0.18 0.36 0.10
- -------------------------------------------
Net realized and unrealized losses
on investments 0.08 0.31 (0.01)
- ------------------------------------------- ------- ------- -------
Total from investment operations 0.26 0.67 0.09
- ------------------------------------------- ------- ------- -------
Less distributions
- -------------------------------------------
Dividends to shareholders from net
investment income (0.18) (0.36) (0.11)
- -------------------------------------------
Distributions to shareholders from net
realized gains on investment
transactions (0.04) - -
- ------------------------------------------- ------- ------- -------
Total distributions (0.22) (0.36) (0.11)
- ------------------------------------------- ------- ------- -------
Net asset value, end of period $10.35 $10.31 $10.00
- ------------------------------------------- ======= ======= =======
Total return ** 2.68%(c) 6.84% 3.98%(d)
- -------------------------------------------
Ratios to Average Net Assets
- -------------------------------------------
Expenses 1.50%(b) 1.50% 1.52%(b)
- -------------------------------------------
Net investment income (loss) 3.36%(b) 3.51% 3.41%(b)
- -------------------------------------------
Expense waiver/reimbursement (a) 0.31%(b) 0.27% 0.28%(b)
- -------------------------------------------
Supplemental data
- -------------------------------------------
Net assets, end of period (000 omitted) $430 $248 $38
- -------------------------------------------
Portfolio turnover rate (e) 12% 49% 30%
- -------------------------------------------
</TABLE>
* Reflects operations for the period from April 24, 1996 (date of commencement
of operations) to July 31, 1996.
** Based on net asset value, which does not reflect the contingent deferred
sales charge.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Annualized
(c) Not annualized.
(a) 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 13, 1996.
(e) 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)
129
<PAGE> 132
Fountain Square Commercial Paper Fund
Financial Highlights -- Investment Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending
January 31, Year Ended July 31,
1998 ----------------------------------------------------------------
(Unaudited) 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 (loss) 0.03 0.05 0.05 0.05 0.03 0.03
- --------------------------------- -------- --------- ---------- ---------- ---------- ----------
Less distributions
- ---------------------------------
Dividends to shareholders
from net investment income (0.03) (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 ** 2.64%(c) 5.11% 5.20% 5.25% 3.02% 2.70%(c)
- ---------------------------------
Ratios to Average Net Assets
- ---------------------------------
Expenses 0.52%(b) 0.52% 0.49% 0.49% 0.49% 0.48%(b)
- ---------------------------------
Net investment income (loss) 5.16%(b) 4.99% 5.06% 5.12% 2.97% 2.69%(b)
- ---------------------------------
Expense waiver/
reimbursement (a) 0.48%(b) 0.44% 0.40% 0.44% 0.45% 0.47%(b)
- ---------------------------------
Supplemental data
- ---------------------------------
Net assets, end of period
(000 omitted) $31,431 $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)
130
<PAGE> 133
Fountain Square Commercial Paper Fund
Financial Highlights - Trust Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending
January 31, Year Ended July 31,
1998 ----------------------------------------------------------
(Unaudited) 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 (loss) 0.03 0.05 0.05 0.05 0.03 0.03
- --------------------------------- ------------- --------- --------- -------- --------- ---------
Less distributions
- ---------------------------------
Dividends to shareholders
from net investment income (0.03) (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** 2.64%(c) 5.11% 5.20% 5.25% 3.02% 2.78%
- ---------------------------------
Ratios to Average Net Assets
- ---------------------------------
Expenses 0.52%(b) 0.52% 0.49% 0.49% 0.49% 0.48%
- ---------------------------------
Net investment income (loss) 5.16%(b) 4.99% 5.07% 5.12% 2.97% 2.75%
- ---------------------------------
Expense waiver/
reimbursement (a) 0.13%(b) 0.09% 0.08% 0.09% 0.10% 0.12%
- ---------------------------------
Supplemental data
- ---------------------------------
Net assets, end of period
(000 omitted) $411,500 $341,827 $300,821 $223,640 $213,126 $180,065
- ---------------------------------
</TABLE>
(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)
131
<PAGE> 134
Fountain Square Government Cash Reserves Fund
Financial Highlights - Investment Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending
January 31, Year Ended July 31,
1998 ----------------------------------------------------------
(Unaudited) 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 (loss) 0.03 0.05 0.05 0.05 0.03 0.03
- --------------------------------- ------------- --------- --------- -------- --------- ---------
Less distributions
- ---------------------------------
Dividends to shareholders
from net investment income (0.03) (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** 2.58%(c) 5.00% 5.11% 5.22% 3.03% 2.76%
- ---------------------------------
Ratios to Average Net Assets
- ---------------------------------
Expenses 0.52%(b) 0.51% 0.51% 0.50% 0.50% 0.50%
- ---------------------------------
Net investment income (loss) 5.05%(b) 4.90% 4.97% 5.17% 2.96% 3.22%
- ---------------------------------
Expense waiver/
reimbursement (a) 0.48%(b) 0.44% 0.42% 0.45% 0.48% 0.50%
- ---------------------------------
Supplemental data
- ---------------------------------
Net assets, end of period
(000 omitted) $135,014 $110,578 $68,844 $45,726 $11,073 $10,923
- ---------------------------------
</TABLE>
(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)
132
<PAGE> 135
Fountain Square Government Cash Reserves Fund
Financial Highlights - Trust Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending
January 31, Year Ended July 31,
1998 ----------------------------------------------------------
(Unaudited) 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 (loss) 0.03 0.05 0.05 0.05 0.03 0.03
- --------------------------------- ------------- --------- --------- -------- --------- ---------
Less distributions
- ---------------------------------
Dividends to shareholders
from net investment income (0.03) (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 2.58%(c) 5.01% 5.11% 5.22% 3.03% 2.76%
- ---------------------------------
Ratios to Average Net Assets
- ---------------------------------
Expenses 0.52%(b) 0.51% 0.50% 0.50% 0.50% 0.50%
- ---------------------------------
Net investment income (loss) 5.05%(b) 4.90% 4.99% 5.17% 3.01% 3.22%
- ---------------------------------
Expense waiver/
reimbursement (a) 0.13%(b) 0.09% 0.07% 0.20% 0.13% 0.15%
- ---------------------------------
Supplemental data
- ---------------------------------
Net assets, end of period
(000 omitted) $190,194 $162,543 $132,326 $129,603 $106,632 $92,993
- ---------------------------------
</TABLE>
(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)
133
<PAGE> 136
Fountain Square U.S. Treasury Obligations Fund
Financial Highlights - Trust Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Month
Period
Ending
January 31, Year Ended July 31,
1998 ----------------------------------------------------------
(Unaudited) 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 (loss) 0.03 0.05 0.05 0.05 0.03 0.03
- --------------------------------- ------------- --------- --------- -------- --------- ---------
Less distributions
- ---------------------------------
Dividends to shareholders
from net investment income (0.03) (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** 2.67%(c) 5.11% 5.24% 5.18% 3.02% 2.82%
- ---------------------------------
Ratios to Average Net Assets
- ---------------------------------
Expenses 0.39%(b) 0.42% 0.43% 0.44% 0.44% 0.44%
- ---------------------------------
Net investment income (loss) 5.22%(b) 5.00% 5.10% 5.07% 2.99% 2.79%
- ---------------------------------
Expense waiver/
reimbursement (a) 0.24%(b) 0.17% 0.12% 0.11% 0.14% 0.15%
- ---------------------------------
Supplemental data
- ---------------------------------
Net assets, end of period
(000 omitted) $664,088 $539,087 $489,228 $321,640 $336,229 $290,408
- ---------------------------------
</TABLE>
(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)
134
<PAGE> 137
<TABLE>
<CAPTION>
Addresses
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Fountain Square Quality Growth Fund Fountain Square Funds
Fountain Square Equity Income Fund c/o Fifth Third Bank
Fountain Square Balanced Fund 38 Fountain Square Plaza
Fountain Square Mid Cap Fund Cincinnati, Ohio 45263
Fountain Square International Equity Fund
Fountain Square Bond Fund For Income
Fountain Square Quality Bond Fund
Fountain Square U.S. Government Securities Fund
Fountain Square Municipal Bond Fund
Fountain Square Ohio Tax Free Bond Fund
Fountain Square Commercial Paper Fund
Fountain Square Government Cash Reserves Fund
Fountain Square U.S. Treasury Obligations Fund
- --------------------------------------------------------------------------------------------------------------
Investment Advisor
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------------------------------------
Custodian, Transfer Agent, Dividend Disbursing Agent, and Sub-Administrator
Fifth Third Bank 38 Fountain Square Plaza
Cincinnati, Ohio 45263
- --------------------------------------------------------------------------------------------------------------
Distributor and Administrator
BISYS Fund Services, L.P. 3435 Stelzer Road
Columbus, Ohio 43219
- --------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP 1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 138
[LOGO OF FIFTH THIRD BANK APPEARS HERE]
Fifth Third Bank
Investment Advisor
