<PAGE>
[LOGO OF FIFTH THIRD FUNDS APPEARS HERE]
[PICTURE APPEARS HERE]
----------------------------
CARDINAL FUND
----------------------------
----------------------------
TAX EXEMPT MONEY MARKET FUND
----------------------------
Fifth Third Funds
Annual Report to Shareholders
=======================
September 30, 1998
<PAGE>
This report is authorized for distribution to prospective investors only when
preceded or accompanied by a prospectus for the Funds, which contains facts
concerning the objectives and policies, management fees, expenses and other
information.
For more complete information on the Fifth Third 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 Fifth Third Funds are
distributed by BISYS Fund Services.
Fifth Third Bank and its affiliate Heartland Capital Management, Inc. serve as
Investment Advisors to the Funds and receive a fee for their services.
Fifth Third Funds, like all mutual funds:
. are NOT FDIC insured
. have no bank guarantee
. may lose value
<PAGE>
Letter From the Chief Investment Officer
- --------------------------------------------------------------------------------
We are pleased to present this annual report for the Fifth Third Cardinal
Fund and the Fifth Third Tax Exempt Money Market Fund. The report covers the
12 months ended September 30, 1998.
The two funds, previously managed by The Cardinal Management Corp., joined
the Fifth Third family of funds on September 21, 1998. Both funds are welcome
additions to the family, and together will further strengthen the lineup of
Fifth Third Funds, which currently manage some $4.5 billion in assets. In
addition, the two funds have been managed according to basic principles
similar to those that govern the management of other Fifth Third Funds. Thus,
their management styles will not change significantly. Meanwhile, combining
the research groups of Cardinal and Fifth Third Bank adds strength and depth
to our efforts to identify attractive investment opportunities. Effective
November 1, 1998 the Fountain Square Funds changed their name to the "Fifth
Third Funds".
Strong performance despite volatility
Moderate economic growth, declining inflation and interest rates, and
respectable corporate profits marked much of the recent period. However,
those positive factors were overshadowed at times by extreme volatility in
the financial markets due to the continuing affects of the Asian economic
crisis. Investors worried that economic turmoil in Asia, Latin American and
Russia would result in slower economic growth and reduced corporate profits
in the United States.
Those concerns caused stock prices to fluctuate considerably during the
period, with many stocks' prices falling from mid-July through September.
Still, the Standard & Poor's 500 Index* delivered a total return of 9.08%
during the 12-month period. Bonds performed well in the low-inflation
environment, with high-quality issues attracting the strongest cash inflows
as investors worried about economic uncertainty in many parts of the world.
A challenging environment ahead
The Fifth Third Funds take a disciplined, long-term approach to investing. We
keep our funds fully invested, making no attempt to time the market. We do
not pay too much attention to short-term events and price fluctuations.
Instead, we attempt to identify long-term trends driving the stock market. At
the same time, we invest in what we believe to be consistent, high-quality
growth companies with strong management and market positions that will
benefit from those trends. Typically, we buy those firms' stocks when they
trade at attractive valuations.
Still, we also bear in mind the potential impact upon our funds of wider
economic and financial trends. We are optimistic that inflation will remain
low and that interest rates will decline further in the months ahead.
However, we expect increased volatility in the financial markets due to
further weakness in the Japanese financial system and the continuing Asian
economic downturn. Furthermore, the meltdown in the Russian market has caused
concerns about the health of the European economy. Those factors likely will
dampen U.S. economic growth. We expect very slow earnings growth during the
next year or so, after an unprecedented seven years of strong earnings growth
by the companies that make up the Standard & Poor's 500 Index.
In that environment, we will continue to invest in the "steady growers" that
we favor--that is, high-quality companies that can consistently increase
their earnings. When the going gets tough, we believe investors will
recognize and appreciate quality companies that may consistently deliver 10%
to 12% annual earnings growth.
1
<PAGE>
Letter from the Chief Investment Officer (continued)
- --------------------------------------------------------------------------------
The market's recent volatility serves as a reminder of the importance of
building and maintaining a diversified investment portfolio. Such a portfolio
should include shares of different sized companies from different markets, as
well as fixed-income investments that can offer some stability. Fifth Third
offers a family of funds that can help you meet a wide range of investment
needs. We welcome our new shareholders and encourage them to consider
building a diversified, long-term portfolio through the Fifth Third Funds.
Sincerely,
/s/ James D. Berghausen
James D. Berghausen, CFA
Chief Investment Officer
Fifth Third Bank
- ---------
(*) The Cardinal Fund's performance is measured against the Standard & Poor's
500 Index, a managed index generally representative of the stock market. The
Standard & Poor's 500 Index does not reflect the deduction of fees associated
with a mutual fund, such as investment management and fund accounting fees. 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.
2
<PAGE>
Investment Reviews
- --------------------------------------------------------------------------------
Fifth Third Cardinal Fund
An interview with John Bevilacqua, Portfolio Manager
Q: How did the Fund perform during the 12-month period ended September 30,
1998?
A: The fund posted a total return of -2.09% on Investment A shares (reflects
the maximum sales charge of 4.50%) during the 12 months ended September 30,
1998. That compares to a 9.08% return for the Standard & Poor's 500(*), and
a -1.44% return for the Lipper Growth Funds Average.(*)
Q: What economic or market conditions contributed to the Fund's performance?
A: Stock prices benefited from factors such as moderate economic growth,
falling interest rates and very low inflation. However, stocks became
increasingly volatile during the period as investors feared that the Asian
economic crisis, the Russian currency devaluation and the uncertain health
of Latin American economies would hurt the profits of U.S. companies. Many
companies did post disappointing earnings late in the period, and stock
prices declined as a result. The market's gains were concentrated among
highly liquid shares of very large companies.
Q: How did you manage the Fund in that environment?
A: The Fund continued to benefit from our investments in large, solid firms
with strong brand recognition and good management. For example, our holdings
in firms such as DuPont (1.12% as a percentage of net assets),
Microsoft(4.68%), Intel(2.99%) and others performed well overall. We reduced
our exposure to some stocks whose prices had risen a great deal, in part to
ensure that no one stock made up too much of the total portfolio.
Q: In what sectors of the market did you find opportunities?
A: We found attractive investment opportunities in shares of large,
household name firms in several sectors of the market. For example, we were
overweight in the financial services sector, and the Fund's investments
there included money center banks (Citicorp 0.36% of net assets) and
investment managers (T. Rowe Price Associates, 0.34%). We also invested
relatively heavily in the health care sector, investing in large, well-known
drug companies (Merck, 2.51%), medical device firms (Medtronic, 1.57%) and
some health care organizations (Tenent Healthcare, 0.44%).
Our relatively large exposure to high-quality firms in the technology sector
also benefited the Fund. For example, we held shares of IBM(1.49% of net
assets), Intel(2.99%), Microsoft(4.68%), Dell(1.32%) and other strong tech
companies.
Q: What sectors did you de-emphasize during the period?
A: We continued to underweight basic materials, commodity-oriented companies
and utilities. We believe such firms do not offer the potential for long-
term growth that we require of our investments.
Q: What is your outlook for the financial markets?
A: We expect the economy to continue to grow modestly, although more slowly
than it has in the past, due to continued fallout from the Asian crisis. In
that environment, inflation likely will remain at a very low level, and
interest rates will continue to decline. We also expect continued volatility
in the stock market in the months ahead as investors react to global
economic news.
Q: How will you manage the Fund in that environment?
A: We will continue to look for opportunities among large, well-established
companies that we believe can consistently deliver strong earnings
growth--in short, the type of companies that we currently hold.
- -------------
* The Fund's performance is measured against the Standard & Poor's 500 Index,
a managed index generally representative of the stock market. It is also
measured against 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. as falling into this category. The
Standard & Poor's 500 Index does not reflect the deduction of fees
associated with a mutual fund, such as investment management and fund
accounting fees. However, the Lipper Growth 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.
3
<PAGE>
[GRAPH APPEARS HERE]
Growth of $10,000 Invested in the Fifth Third Cardinal Fund
Investment C Shares** Investment A Shares* S&P 500 Stock Index
Sep-88 10,000 9,500 10,000
Sep-89 12,195 11,646 13,284
Sep-90 10,564 10,088 12,049
Sep-91 14,111 13,475 15,815
Sep-92 16,235 15,503 17,556
Sep-93 17,368 16,585 19,836
Sep-94 17,965 17,155 20,566
Sep-95 20,623 19,693 26,667
Sep-96 24,325 23,229 32,090
Sep-97 33,857 32,330 45,082
Sep-98 34,718 33,137 49,164
Average Annual Total Return for the Period Ended September 30, 1998/1/
Investment A(*) Institutional
--------------- -------------
1 Year..................................... -2.09% ..................2.60%
5 Year..................................... 13.79% .................14.86%
10 Year.................................... 12.73% .................13.25%
- --------------------------------------------------------------------------------
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.
/1/ The quoted performance of the Fifth Third Cardinal Fund includes performance
of its predecessor fund, The Cardinal Fund, an open-end investment company
advised by the Cardinal Management Corp. for periods dating back to September
30, 1988 and prior to the Fifth Third Cardinal Fund's commencement of operations
on September 21, 1998. The performance also reflects reinvestment of all
dividends and capital-gains distributions.
The total return set forth may reflect the waiver of a portion of the fund's
advisory or administrative fees for certain periods since the inception date. In
such instances, and without waiver of fees, total return would have been lower.
(*)Reflects the maximum sales charge of 4.50%.
/7/ The Fund's performance is measured against the Standard & Poor's 500 Index,
which is an unmanaged index that is generally representative of the U.S. stock
market as a whole. The Standard & Poor's 500 Index does not reflect the
deduction of fees associated with a mutual fund.
4
<PAGE>
- --------------------------------------------------------------------------------
Fifth Third Tax Exempt Money Market Fund+,++
An interview with Jeff Alton, Portfolio Manager
Q: What were conditions like in the tax exempt money markets during the 12
months through September 30, 1998?
A: There was little movement in short-term interest rates during the period,
due to continued domestic economic growth coupled with very low inflation.
The Federal Reserve made no move to reduce rates until September, when it
cut the Federal Funds rate by 0.25%.
Q: How did you manage the Fund's average maturity in that environment?
A: We extended the Fund's average maturity in anticipation that the effects
of the Asian crisis on the U.S. economy would lead to a rate cut by the Fed.
The average maturity of the portfolio's holdings began the period at 42 days
and ended it at 78 days in late September. That approach allowed us to lock
in attractive yields for shareholders.
Q: How did you manage the Fund's credit quality?
A: We primarily held issues with high credit ratings. However, we also
devoted significant resources to credit analysis in order to broaden the
fund's universe of issues. Therefore, we were able to find select, unrated
issues that helped boost the Fund's yield. Our analysis indicated that the
possibility of default by such issues was extremely slim, due to the
strength of the U.S. economy during the period.
Q. What is your outlook going forward?
A: We think the Federal Reserve will reduce short-term rates during the
year, due to concerns that Asia's weakness will affect the growth of the U.S
economy.
Q: How will you manage the Fund in that environment?
A: We will maintain the Fund's relatively long average maturity in order to
lock in yield as rates fall. We also will take a more cautious approach in
terms of credit quality, focusing on highly rated issues while we wait to
see how weakness in overseas markets affects the U.S. economy.
- ---------
+ An investment in the Funds is not insured nor guaranteed by the FDIC or any
other government agency. Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the Fund.
++ The Fund's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
5
<PAGE>
Fifth Third Cardinal Fund
Schedule of Portfolio Investments
September 30, 1998
(Amounts in thousands except share amounts)
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------- ------------------------------- ---------
Common Stocks (99.1%):
- ------------------------------------------
Banks (5.6%):
-------------------------------
30,000 Amsouth Bancorp $ 1,024
-------------------------------
80,000 Banc One Corp. 3,410
-------------------------------
30,000 Bank of New York Co., Inc. 821
-------------------------------
10,000 Citicorp 929
-------------------------------
66,000 Huntington Bancshares, Inc. 1,658
-------------------------------
200,000 Key Corp. 5,776
-------------------------------
15,000 Mellon Bank Corp. 826
------------------------------- ---------
14,444
------------------------------- ---------
Beverages (3.8%):
-------------------------------
50,000 Anheuser Busch, Inc. 2,700
-------------------------------
100,000 Coca Cola Co. 5,762
-------------------------------
50,000 PepsiCo, Inc. 1,472
------------------------------- --------
9,934
------------------------------- --------
Business Services (0.4%):
-------------------------------
30,000 Service Corp. International 956
------------------------------- ---------
Computer Software (5.9%):
-------------------------------
15,000 Computer Associates
International, Inc. 555
-------------------------------
50,000 HBO & Co. 1,444
-------------------------------
110,000 Microsoft Corp. (b) 12,107
-------------------------------
35,000 Oracle Corp. (b) 1,019
------------------------------- ---------
15,125
------------------------------- ---------
Computer Systems & Equipment (6.8%):
-------------------------------
56,250 Cisco Systems, Inc. (b) 3,477
-------------------------------
100,000 Compaq Computer Corp. 3,163
-------------------------------
30,000 Computer Sciences Corp. 1,635
-------------------------------
52,000 Dell Computer Corp. (b) 3,419
-------------------------------
40,000 Hewlett-Packard Co. 2,118
-------------------------------
30,000 IBM Corp. 3,839
------------------------------- ---------
17,651
------------------------------- ---------
Consumer Products (3.5%):
-------------------------------
10,000 Clorox Co. 825
-------------------------------
50,000 Gillette Co. 1,913
-------------------------------
30,000 Kimberly-Clark Corp. 1,215
-------------------------------
70,000 Procter & Gamble Co. 4,965
------------------------------- ---------
8,918
------------------------------- ---------
Electronics (0.6%):
-------------------------------
25,000 Johnson Controls, Inc. 1,162
-------------------------------
25,000 Tektronix, Inc. 388
------------------------------- ---------
1,550
------------------------------- ---------
Entertainment & Leisure (1.1%):
-------------------------------
20,000 Imax, Inc. 400
--------------------------------
100,000 The Walt Disney Co. 2,531
------------------------------- ---------
2,931
------------------------------- ---------
Environmental Control (0.2%):
-------------------------------
35,000 U.S. Filter Corp. (b) 560
------------------------------- ---------
Financial Services (7.3%):
-------------------------------
45,000 American International Group,
Inc. 3,465
-------------------------------
7,000 Bankers Trust 413
-------------------------------
150,000 Charter One Financial Corp. 3,731
-------------------------------
175,000 Cincinnati Financial Corp. 5,381
-------------------------------
30,000 Fannie Mae 1,928
-------------------------------
15,000 FHLMC 742
-------------------------------
40,000 Household International, Inc. 1,500
-------------------------------
10,000 J.P. Morgan & Co. 846
-------------------------------
30,000 T. Rowe Price Associates, Inc. 881
------------------------------- ---------
18,887
------------------------------- ---------
Healthcare (9.4%):
-------------------------------
100,000 American Home Products 5,239
-------------------------------
25,000 Amgen, Inc. (b) 1,889
-------------------------------
20,000 Bergen Brunswig Corp. 1,011
-------------------------------
60,000 Biomet, Inc. 2,081
-------------------------------
30,000 Boston Scientific (b) 1,541
-------------------------------
25,000 Guidant Corp. 1,856
-------------------------------
75,000 Healthsouth Corp. (b) 792
-------------------------------
60,000 Johnson & Johnson 4,695
-------------------------------
70,000 Medtronic, Inc. 4,051
-------------------------------
40,000 Tenet Healthcare Corp. (b) 1,150
------------------------------- ---------
24,305
------------------------------- ---------
Insurance (3.1%):
-------------------------------
30,000 Allstate 1,251
-------------------------------
135,000 Marsh & McLennan, Inc. 6,716
------------------------------- ---------
7,967
------------------------------- ---------
Machinery (5.5%):
-------------------------------
20,000 Boeing Co. 686
-------------------------------
30,000 Caterpillar, Inc. 1,337
-------------------------------
25,000 Deere & Co. 756
-------------------------------
140,000 General Electric Co. 11,139
-------------------------------
20,000 PRI Automation, Inc. (b) 250
------------------------------- ---------
14,168
------------------------------- ---------
Manufacturing (4.2%):
-------------------------------
25,000 Minnesota Mining &
Manufacturing Co. 1,842
-------------------------------
25,000 Monsanto Co. 1,409
-------------------------------
80,000 Textron, Inc. 4,850
-------------------------------
50,000 Tyco International, Ltd. 2,763
------------------------------- ---------
10,864
------------------------------- ---------
Media/Publishing (3.0%):
-------------------------------
20,000 Clear Channel Communications,
Inc. (b) 950
-------------------------------
30,000 Gannett Co. 1,607
-------------------------------
20,000 Jacor Communications, Inc. (b) 1,013
-------------------------------
80,000 New York Times Co., Class A 2,199
-------------------------------
40,000 Tribune Co. 2,013
------------------------------- ---------
7,782
------------------------------- ---------
-- Continued --
6
<PAGE>
Fifth Third Cardinal Fund
Schedule of Portfolio Investments
September 30, 1998
(Amounts in thousands except share amounts)
- --------------------------------------------------------------------------------
Shares or
Principal Security Market
Amount Description Value
- ---------- ------------------------------- ---------
Common Stocks--Continued
Office Equipment & Supplies (0.3%):
-------------------------------
20,000 Avery Dennison Corp. $ 874
------------------------------- ---------
Oil & Gas Producers & Services (9.9%):
-------------------------------
60,000 Exxon Corp. 4,211
-------------------------------
75,000 Mobil Corp. 5,694
-------------------------------
100,000 Royal Dutch Petroleum 4,762
-------------------------------
40,000 Schlumberger, Ltd. 2,013
-------------------------------
75,000 Texaco, Inc. 4,702
-------------------------------
30,000 Transocean Offshore, Inc. 1,041
-------------------------------
120,000 Williams Companies, Inc. 3,450
------------------------------- ---------
25,873
------------------------------- ---------
Pharmaceuticals (6.9%):
-------------------------------
15,000 Cardinal Health, Inc. 1,549
-------------------------------
50,000 Merck & Co., Inc. 6,478
-------------------------------
70,000 Pfizer, Inc. 7,416
-------------------------------
30,000 Warner Lambert, Inc. 2,265
------------------------------- ---------
17,708
------------------------------- ---------
Retail (3.8%):
-------------------------------
60,000 Consolidated Stores Corp. (b) 1,178
-------------------------------
40,000 Kohls Corp. (b) 1,560
-------------------------------
70,000 Lowe's Companies 2,227
-------------------------------
30,000 McDonald's Corp. 1,791
-------------------------------
45,000 Pier One Imports, Inc. 338
-------------------------------
50,000 Wal-Mart Stores, Inc. 2,730
------------------------------- ---------
9,824
------------------------------- ---------
Semiconductors (4.2%):
-------------------------------
90,000 Intel Corp. 7,717
-------------------------------
10,000 KLA-Tencor Corp. (b) 249
-------------------------------
40,000 Motorola, Inc. 1,708
-------------------------------
20,000 Texas Instruments, Inc. 1,055
------------------------------- ---------
10,729
------------------------------- ---------
Technology (1.6%):
-------------------------------
40,000 Applied Materials (b) 1,010
-------------------------------
10,000 Aspen Technology, Inc. (b) 268
-------------------------------
51,400 Dupont (E.I.) de Nemours & Co. 2,884
------------------------------- ---------
4,162
------------------------------- ---------
Telecommunications & Equipment (8.3%):
-------------------------------
50,000 GTE Corp. 2,750
-------------------------------
80,000 Lucent Technologies, Inc. 5,525
-------------------------------
133,439 MCI Worldcom, Inc. (b) 6,521
-------------------------------
58,305 Qwest Communication
International (b) 1,826
-------------------------------
40,000 Sprint Corp. 2,880
-------------------------------
50,000 Tellabs, Inc. (b) 1,991
------------------------------- ---------
21,493
------------------------------- ---------
Tobacco Products (2.7%):
-------------------------------
150,000 Philip Morris Companies, Inc. 6,909
------------------------------- ---------
Utilities (1.0%):
-------------------------------
60,000 Western Resources, Inc. 2,483
------------------------------- ---------
Total Common Stocks 256,097
------------------------------- ---------
Cash Equivalents (0.9%):
- ------------------------------------------
Repurchase Agreements (0.9%):
- ------------------------------------------
$ 2,443 Warburg, 5.50%, dated 9/30/98,
due 10/1/98 (at amortized cost),
collateralized by U.S. Treasury
Notes, 7.50%, due 11/15/01, with
a value of $20, and U.S. Treasury
Bonds, 11.25%, due 2/15/15 with
a value of $2,473. 2,443
------------------------------- ---------
Total Cash Equivalents 2,443
------------------------------- ---------
Total Investments (Cost
$151,062) (a) -- 100.0% 258,540
-------------------------------
Liabilities in excess of other
assets -- (0.0%) (95)
------------------------------- ---------
TOTAL NET ASSETS -- 100.0% $258,445
------------------------------- =========
(a) Represents cost for financial reporting and federal tax purposes. The net
unrealized appreciation of investments for federal tax basis amounts to
$107,478, which is composed of $117,112 appreciation and $9,634 depreciation
at September 30, 1998.
(b) Non-income producing security.
(See Notes which are an integral part of the Financial Statements)
7
<PAGE>
Fifth Third Tax Exempt Money Market Fund
Schedule of Portfolio Investments
September 30, 1998
(Amounts in thousands)
- --------------------------------------------------------------------------------
Principal Security Amortized
Amount Description Cost
- ---------- -------------------------------- ---------
Certificate of Participation (1.0%):
- -------------------------------------------
500 Wood County, Ohio, 7.88%, due
12/1/13 $ 513
-------------------------------- ---------
Total Certificate of
Participation 513
-------------------------------- ---------
Commercial Paper (7.6%):
- -------------------------------------------
1,000 Cleveland, Ohio, 3.35%, due
10/14/98 1,000
--------------------------------
1,000 Illinois Health, 3.45%, due
10/27/98 1,000
--------------------------------
1,000 Illinois Health, 3.55%, due
10/30/98 1,000
--------------------------------
1,000 Massachusetts Bay Transportation,
3.38%, due 12/7/98 1,000
-------------------------------- ---------
Total Commercial Paper 4,000
-------------------------------- ---------
Municipal Bonds (88.1%):
- -------------------------------------------
General Obligation (21.0%):
--------------------------------
995 Brown City, Michigan, School
District, 4.10%, due 8/20/98 1,000
--------------------------------
1,000 Chicago, Illinois, Floating Rate
Note, 3.55%, 10/21/98 (b) 1,000
--------------------------------
1,000 Chicago, Illinois, Floating Rate
Note, 3.60%, 1/1/06 1,000
--------------------------------
1,255 Delaware, Ohio, 3.90%, due 6/2/99 1,256
--------------------------------
2,650 Fairfield, Ohio, 3.90%, due
6/11/99 2,653
--------------------------------
1,500 Hamilton County, Ohio, 3.75%, due
6/11/99 1,500
--------------------------------
300 Hilliard, Ohio, 3.85%, due 9/9/99 301
--------------------------------
610 Hudson, Ohio, 3.95%, due 5/4/99 610
--------------------------------
1,025 Lakewood, Ohio, 3.60%, due
12/1/98 1,025
--------------------------------
400 London, Ohio, 4.25%, due 7/22/99 401
--------------------------------
275 Wapakoneta, Ohio, 4.80%, due
6/23/99 277
-------------------------------- ---------
11,023
-------------------------------- ---------
Revenue Bonds (67.1%):
--------------------------------
1,000 Allen County, Ohio, Health Care,
Floating Rate Note, 2.90%,
10/21/98 (b) 1,000
--------------------------------
2,400 Ashtabula County, Ohio, Industrial
Development, 3.75%, due 12/1/16 2,400
--------------------------------
800 Burke County, Georgia, Development
Authority, Floating Rate Note,
4.05%, 10/1/98 (b) 800
--------------------------------
2,230 Clark County, Kentucky, Pollution
Control, 3.75%, due 10/15/14 2,230
--------------------------------
1,040 Columbus, Indiana, Floating Rate
Note, 4.15%, 10/1/98 (b) 1,040
--------------------------------
1,475 Dade County, Florida, Aviation,
5.00%, due 10/1/98 1,475
--------------------------------
400 Delaware City, Pennsylvania, 3.95%,
due 12/1/15 400
--------------------------------
2,000 Grand Rapids, Michigan, Water
Supply, 3.50%, due 1/1/20 2,000
--------------------------------
1,920 Hamilton County, Ohio, 3.45%, due
1/1/18 1,920
--------------------------------
100 Harris County, Texas, 4.10%, due
2/15/27 100
--------------------------------
1,000 Indiana, Health Facility Financing
Authority, 3.90%, due 11/1/98 1,001
--------------------------------
500 Kansas City, Missouri, Health
Revenue Bond, Floating Rate Note,
4.16%, 10/1/98 (b) 500
--------------------------------
200 Kansas City, Missouri, Industrial
Development Authority, Floating
Rate Note, 4.10%, 10/1/98 (b) 200
--------------------------------
900 Kentucky, Development Financial
Authority, 3.90%, due 12/2/15 900
--------------------------------
1,000 Kentucky, Higher Education, 4.55%,
due 6/1/98 1,007
--------------------------------
1,200 Lexington Fayette County, Kentucky,
3.70%, due 4/1/99 1,200
--------------------------------
500 Lubbock, Texas, Floating Rate Note,
4.10%, 10/1/98 (b) 500
--------------------------------
1,000 Metro Service District of Oregon,
6.75%, due 7/1/22 1,049
--------------------------------
800 Michigan Hospital Facility, 3.55%,
due 12/1/23 800
--------------------------------
1,800 Michigan State Hospital Finance
Authority, 3.55%, due 12/1/23 1,800
--------------------------------
1,000 Missouri Higher Education, 4.20%,
due 8/15/99 1,005
--------------------------------
1,750 Ohio Building Referendum, Disalles,
Ohio, 5.00%, due 10/1/98 1,750
--------------------------------
1,000 Ohio Facilities, 4.50%, due 11/1/98 1,001
--------------------------------
1,850 Ohio State Building Authority,
5.00%, due 10/1/98 1,850
--------------------------------
500 Ohio State Building Authority,
7.75%, due 10/1/08 510
--------------------------------
1,000 Ohio State University, 7.15%, due
12/1/09 1,026
--------------------------------
100 Perry County, Mississippi, Floating
Rate Note, 4.05%, 10/1/98 (b) 100
--------------------------------
300 Phoenix, Arizonia, 4.00%, due
7/1/99 301
--------------------------------
2,000 Student Loan Funding, Ohio, 3.55%,
due 12/29/98 2,000
--------------------------------
2,000 Unita County, Wyoming, Pollution
Control, Floating Rate Note, 3.65%,
10/16/98 (b) 2,000
--------------------------------
1,300 Washington State, Health, Floating
Rate Note, 4.05%, 10/1/98 (b) 1,300
-------------------------------- ---------
35,165
-------------------------------- ---------
Total Municipal Bonds 46,188
-------------------------------- ---------
Warrants (1.9%):
- -------------------------------------------
1,000 West Lafayette, Indiana, Community
School Tax, 4.07%, due 12/31/98 1,001
-------------------------------- ---------
Total Warrants 1,001
-------------------------------- ---------
Total Investments (Amortized Cost
$51,702) (a) -- 98.6% 51,702
--------------------------------
Other assets in excess of
liabilities -- (1.4%) 745
-------------------------------- ---------
TOTAL NET ASSETS-- 100.0% $ 52,447
-------------------------------- =========
* Percentages indicated are based on net assets of $52,447.
(a) Also represents cost for federal tax purposes.
(b) Current rate and next reset date shown.
(See Notes which are an integral part of the Financial Statements)
8
<PAGE>
Fifth Third Funds
Statements of Assets and Liabilities
September 30, 1998 (Amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tax Exempt
Cardinal Money Market
Fund Fund
--------- ------------
<S> <C> <C>
Assets:
- -------------------------------------------------------------------------
Investments, at value (Cost $148,619; $51,702, respectively) $ 256,097 $ 51,702
- -------------------------------------------------------------------------
Repurchase agreements (Cost $2,443; $0, respectively) 2,443 --
- ------------------------------------------------------------------------- --------- ---------
Total Investments 258,540 51,702
- -------------------------------------------------------------------------
Cash 1 152
- -------------------------------------------------------------------------
Interest and dividends receivable 386 594
- -------------------------------------------------------------------------
Receivable for Fund shares sold 67 --
- -------------------------------------------------------------------------
Prepaid expenses and other assets 86 78
- ------------------------------------------------------------------------- --------- ---------
Total Assets 259,080 52,526
- ------------------------------------------------------------------------- --------- ---------
Liabilities:
- -------------------------------------------------------------------------
Income distribution payable -- 46
- -------------------------------------------------------------------------
Payable for Fund shares redeemed 344 --
- -------------------------------------------------------------------------
Accrued expenses and other payables:
- -------------------------------------------------------------------------
Investment advisory fees 38 6
- -------------------------------------------------------------------------
Administration service fees - Institutional Shares 9 --
- -------------------------------------------------------------------------
Distribution services - Investment A Shares 127 --
- -------------------------------------------------------------------------
Accounting and transfer agent fees 34 9
- -------------------------------------------------------------------------
Custodian fees 3 2
- -------------------------------------------------------------------------
Other 80 16
- ------------------------------------------------------------------------- --------- ---------
Total Liabilities 635 79
- ------------------------------------------------------------------------- --------- ---------
Net Assets:
- -------------------------------------------------------------------------
Paid-in capital 147,032 52,449
- -------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments 107,478 --
- -------------------------------------------------------------------------
Accumulated undistributed net realized gains (losses)
on investment 3,954 (2)
- -------------------------------------------------------------------------
Accumulated undistributed net investment income (loss) (19) --
- ------------------------------------------------------------------------- --------- ---------
Net Assets $ 258,445 $ 52,447
- ------------------------------------------------------------------------- --------- ---------
Net Assets
- -------------------------------------------------------------------------
Investment A Shares $ 232,903 $ 44,494
- -------------------------------------------------------------------------
Institutional Shares 25,542 7,953
- ------------------------------------------------------------------------- --------- ---------
Total $ 258,445 $ 52,447
- ------------------------------------------------------------------------- --------- ---------
Outstanding units of beneficial interest (shares)
- -------------------------------------------------------------------------
Investment A Shares 15,668 44,496
- -------------------------------------------------------------------------
Institutional Shares 1,719 7,954
- ------------------------------------------------------------------------- --------- ---------
Total 17,387 52,450
- ------------------------------------------------------------------------- ========= =========
Net asset value
- -------------------------------------------------------------------------
Redemption price per share - Investment A Shares $ 14.87 $ 1.00
- ------------------------------------------------------------------------- ========= =========
Offering price per share - Institutional Shares $ 14.86 $ 1.00
- ------------------------------------------------------------------------- ========= =========
Maximum Sales Charge 4.50%
- ------------------------------------------------------------------------- =========
Maximum Offering Price (100%/(100%-Maximum
Sales Charge) of net asset value adjusted to nearest cent)
per share (Investment A Shares) $ 15.57
- ------------------------------------------------------------------------- =========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
9
<PAGE>
Fifth Third Funds
Statements of Operations
For the Year Ended September 30, 1998
(Amounts in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tax Exempt
Cardinal Money Market
Fund Fund
-------- ------------
<S> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------
Interest income $ 1,068 $ 2,187
- -----------------------------------------------------------
Dividend income 4,074 3
- -----------------------------------------------------------
Foreign Tax withholding (11) --
- ----------------------------------------------------------- -------- --------
Total Income 5,131 2,190
- ----------------------------------------------------------- -------- --------
EXPENSES:
- -----------------------------------------------------------
Investment advisory fees 1,827 304
- -----------------------------------------------------------
Administrative fees 4 1
- -----------------------------------------------------------
Administrative service fees - Institutional Shares 44 --
- -----------------------------------------------------------
Distributions service fees - Investment A Shares 687 --
- -----------------------------------------------------------
Organizational costs 11 5
- -----------------------------------------------------------
Custodian fees 36 7
- -----------------------------------------------------------
Portfolio accounting fees 35 20
- -----------------------------------------------------------
Transfer agent fees 188 53
- -----------------------------------------------------------
Trustees' fees 30 2
- -----------------------------------------------------------
Audit fees 12 6
- -----------------------------------------------------------
Legal fees 30 11
- -----------------------------------------------------------
Fund share registration fees 57 7
- -----------------------------------------------------------
Printing fees 41 12
- -----------------------------------------------------------
Insurance fees 25 1
- -----------------------------------------------------------
Other 32 6
- ----------------------------------------------------------- -------- --------
Total Expenses 3,059 435
- ----------------------------------------------------------- -------- --------
Less fees voluntarily reduced (278) (1)
- ----------------------------------------------------------- -------- --------
Net Expenses 2,781 434
- ----------------------------------------------------------- -------- --------
Net Investment Income (Loss) 2,350 1,756
- ----------------------------------------------------------- -------- --------
Realized and Unrealized Gains (Losses) on Investments
- -----------------------------------------------------------
Net realized gains (losses) from investments 22,115 (2)
- -----------------------------------------------------------
Net change in unrealized appreciation (depreciation)
from investments (13,872) --
- ----------------------------------------------------------- -------- --------
Net realized and unrealized gains (losses) on investments 8,243 (2)
- ----------------------------------------------------------- -------- --------
Change in net assets resulting from operations $ 10,593 $ 1,754
- ----------------------------------------------------------- ======== ========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
10
<PAGE>
Fifth Third Funds
Statements of Changes in Net Assets
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tax Exempt Money
Cardinal Fund Market Fund
-------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 (a) 1997
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
- ------------------------------------------------------
Operations:
- ------------------------------------------------------
Net investment income 2,350 2,539 1,756 1,783
- ------------------------------------------------------
Net realized gains (losses) on investment transactions 22,115 19,070 (2) -
- ------------------------------------------------------
Change in unrealized appreciation (depreciation) on
investments (13,872) 63,545 - -
- ------------------------------------------------------ ------------ ----------- ------------ ------------
Change in net assets resulting from operations 10,593 85,154 1,754 1,783
- ------------------------------------------------------ ------------ ----------- ------------ ------------
Distributions to Shareholders:
- ------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------
Investment A Shares (2,265) (2,179) (1,750) (1,783)
- ------------------------------------------------------
Institutional Shares (271) (174) (6) -
- ------------------------------------------------------
Distributions in excess of net investment income
- ------------------------------------------------------
Investment A Shares (543) - - -
- ------------------------------------------------------
Institutional Shares (65) - - -
- ------------------------------------------------------
Distributions from net realized gains
- ------------------------------------------------------
Investment A Shares (31,312) (19,080) - -
- ------------------------------------------------------
Institutional Shares (3,387) - - -
- ------------------------------------------------------ ------------ ----------- ------------ ------------
Change in net assets from distributions (37,843) (21,433) (1,756) (1,783)
- ------------------------------------------------------ ------------ ----------- ------------ ------------
Fund Share (Principal) Transactions:
- ------------------------------------------------------
Investment A Shares
- ------------------------------------------------------
Proceeds from shares issued 15,605 12,835 169,673 155,053
- ------------------------------------------------------
Dividends reinvested 31,761 19,793 1,648 1,668
- ------------------------------------------------------
Cost of shares redeemed (57,668) (51,330) (187,110) (156,352)
- ------------------------------------------------------ ------------ ----------- ------------ ------------
Change in net assets from share transactions (10,302) (18,702) (15,789) 369
- ------------------------------------------------------ ------------ ----------- ------------ ------------
Institutional Shares
- ------------------------------------------------------
Proceeds from shares issued 4,380 24,912 12,864 -
- ------------------------------------------------------
Dividends reinvested 3,721 174 - -
- ------------------------------------------------------
Cost of shares redeemed (6,893) (4,358) (4,910) -
- ------------------------------------------------------ ------------ ----------- ------------ ------------
Change in net assets from share transactions 1,208 20,728 7,954 -
- ------------------------------------------------------ ------------ ----------- ------------ ------------
Change in net assets (36,344) 65,747 (7,837) 369
- ------------------------------------------------------
Net Assets:
- ------------------------------------------------------
Beginning of year 294,789 229,042 60,284 59,915
- ------------------------------------------------------ ------------ ----------- ------------ ------------
End of year $258,445 $294,789 $ 52,447 $ 60,284
- ------------------------------------------------------ ============ =========== ============ ============
</TABLE>
(a) The Tax Exempt Money Market Fund Institutional Shares commenced operations
on September 21, 1998.
(See Notes which are an integral part of the Financial Statements)
11
<PAGE>
Fifth Third Funds
Notes to Financial Statements
September 30, 1998
- --------------------------------------------------------------------------------
(1) Organization
Fifth Third Funds, formerly known as the Fountain Square Funds, (the "Trust") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
an open-end management investment company. At September 30, 1998, the Trust
consisted of sixteen separate investment portfolios. The accompanying financial
statements and notes relate only to the Fifth Third Cardinal Fund (the "Cardinal
Fund") and the Fifth Third Tax Exempt Money Market Fund (the "Tax Exempt Money
Market Fund") (collectively, "the Funds").
The Funds each issue two classes of shares: Investment A shares and
Institutional shares. Investment A shares are subject to initial sales charges
imposed at the time of purchase, in accordance with the Funds' prospectuses.
Each class of shares has identical rights and privileges except with respect to
distribution (12b-1) fees paid by the Investment A Class, voting rights on
matters affecting a single class of shares, and the exchange privileges of each
class of shares. The Tax Exempt Money Market Fund commenced operations of the
Institutional shares on September 21, 1998.
(2) Reorganization
The Trust entered into an Agreement and Plan of Reorganization and Liquidation
with The Cardinal Group pursuant to which all of the assets and liabilities of
each Cardinal Group Portfolio transferred to a portfolio of the Trust in
exchange for shares of the corresponding portfolio of the Trust. The Cardinal
Government Obligations Fund transferred its assets and liabilities to the Fifth
Third Bond Fund For Income. The Cardinal Government Securities Money Market Fund
transferred its assets and liabilities to the Fifth Third Government Cash
Reserves Fund. The Cardinal Balanced Fund transferred its assets and liabilities
to the Fifth Third Balanced Fund. The Cardinal Aggressive Growth Fund
transferred its assets and liabilities to the Fifth Third Midcap Fund. The
Cardinal Fund transferred its assets and liabilities to the Fifth Third Cardinal
Fund. The Cardinal Tax Exempt Money Market Fund transferred its assets and
liabilities to the Fifth Third Tax Exempt Money Market Fund. The reorganization,
which qualified as a tax-free exchange for federal income purposes, was
completed on September 21, 1998 and was approved by shareholders of The Cardinal
Group at a special shareholder meeting held on July 24, 1998. The following is a
summary of shares outstanding, net assets, net asset value per share and
unrealized appreciation immediately before and after the reorganization for the
Cardinal Fund and Tax Exempt Money Market Fund:
<TABLE>
<CAPTION>
After
Before Reorganization Reorganization
------------------------------------ ----------------
Fifth Third Fifth Third
Cardinal Cardinal Cardinal
Fund Fund Fund
----------------- ---------------- ----------------
<S> <C> <C> <C>
Shares (000) 17,572 0 17,572
Net Assets (000) $263,745 $0 $263,745
Net Asset Value - Investment A $15.01 $0 $15.01
Unrealized appreciation (000) $113,875 $0 $113,875
<CAPTION>
After
Before Reorganization Reorganization
------------------------------------ ----------------
Cardinal Fifth Third Fifth Third
Tax Exempt Tax Exempt Tax Exempt
Money Market Money Market Money Market
Fund Fund Fund
----------------- ---------------- ----------------
<S> <C> <C> <C>
Shares (000) 54,034 0 54,034
Net Assets (000) $54,032 $0 $54,032
Net Asset Value $1.00 $0 $1.00
Unrealized appreciation (000) $0 $0 $0
</TABLE>
12
<PAGE>
Fifth Third Funds
- --------------------------------------------------------------------------------
(3) Special Meeting of Shareholders
A Special Meeting of Shareholders of The Cardinal Group was held on July 24,
1998. At the Meeting, shareholders voted on the approval of the Agreement and
Plan of Reorganization and Liquidation by and between Fifth Third Funds, Fifth
Third Bank, The Cardinal Group and Cardinal Management Corp. ("CMC"). The
results of this vote by shareholders was as follows:
For Against Abstain
307,245,979 11,856,341 13,544,912
A Special Meeting of Shareholders of The Cardinal Group was held on March 20,
1998. At the Meeting, shareholders voted to approve a new Investment Advisory
and Management Agreement with CMC pending the proposed merger of Fifth Third
Bancorp with The Ohio Company ("TOC"). CMC is a wholly owned subsidiary of TOC.
The results of this vote by shareholders was as follows:
For Against Abstain
609,293,256 6,638,335 21,391,628
(4) Significant Accounting Policies
The following is a summary of significant accounting policies that the Trust
follows in the preparation of its financial statements and the calculation of
daily net asset values. The policies are in conformity with general accepted
accounting principles and the Act. The preparation of these financial statements
requires the management of the Trust to make estimates and assumptions which
affect the reported amounts of assets and liabilities as of September 30, 1998
and the income and expenses reported for the period. Actual results could differ
significantly from those estimates.
Securities Valuation
Investments in Tax Exempt Money Market Fund are valued at amortized cost, which
approximates market value. Any premiums and discounts are amortized on a
straight-line method to the maturity of the particular security. The use of the
amortized cost method requires that the money market fund purchase only
securities with a remaining maturity of 397 calendar days or less (longer if
certain maturity shortening provisions in Rule 2a-7, of the Act, apply) and
maintain a dollar weighted portfolio maturity of 90 days or less.
Investments in the Cardinal Fund listed or traded on a national securities
exchange are valued at the last sale price. Investments traded in the
over-the-counter market are valued at either the mean between the bid and ask
prices or the last sale price as may be quoted by the National Association of
Securities Dealers Automated Quotation System. If no quotations are available,
the portfolio securities are valued in good faith using methods approved by the
Board of Trustees.
Security Transactions and Investment Income--Security transactions are recorded
on the trade date, which is the date they are purchased or sold. Interest income
is recognized on the accrual basis. Dividend income, if any, is recognized on
the ex-dividend date. Realized gains or losses are calculated using specific
identification basis.
Repurchase Agreements--The Funds may purchase instruments from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase them at an agreed upon time and price ("repurchase
agreements"). The seller under a repurchase agreement is required to maintain
the value of the securities subject to the agreement at not less than the
repurchase price. Default by the seller would, however, expose the relevant
Funds to possible loss because of adverse market action or delay in connection
with the disposition of the underlying obligations. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreements. Accordingly, the Funds could receive less than the carrying value
upon the sale of the underlying collateral securities.
13
<PAGE>
Fifth Third Funds
- --------------------------------------------------------------------------------
Federal Income Taxes--The Trust has made no provision for Federal income taxes.
It is the intention of the management of the Trust to comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies and to
make sufficient distributions of taxable income and gains within the required
time, to relieve it from all, or substantially all, Federal income taxes.
Distributions to Shareholders--The Tax Exempt Money Market Fund declares
dividends from net investment income daily and pays them to shareholders
monthly. The Cardinal Fund declares and pays dividends from net investment
income, if any, quarterly. Realized capital gains, if any, are declared and paid
annually by the Trust. Distributions of net investment income and realized
capital gains are determined in accordance with the income tax regulations which
may differ with generally accepted accounting principles. These differences are
primarily due to differing treatments for expiring capital loss carryforwards
and deferrals of certain losses.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are classified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassifications.
Dividends and distributions to shareholders which exceed net investment income
and net realized gains for financial reporting purposes but not for tax purposes
are reported as dividends in excess of net investment income or distributions in
excess of net realized gains. To the extent they exceed net investment income
and net realized gains for tax purposes, they are reported as distribution of
capital.
As of September 30, 1998, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to
paid-in-capital (in thousands):
Accumulated Accumulated Net
Undistributed Net Realized Gain/(Loss)
Investment Income on Investments
----------------- ------------------
Cardinal Fund $589 $(3,169)
Option Writing--When the Cardinal Fund writes an option, an amount equal to the
premium received is recorded as a liability and is subsequently adjusted to the
current market value of the option written. Premiums received from options
written that expire unexercised are recognized as realized gains by the Fund on
the expiration date. The difference, if any, between the premium received and
the amount paid in a closing transaction is also treated as realized gain or
loss. If a written option is exercised, the premium received is added to
proceeds from sales of the underlying securities for call options written or
deducted from the cost basis of securities purchased for put options written.
The portfolios which write options bear the market risk of an unfavorable change
in the price of any security/index underlying the written option.
Written option activity for the year ended September 30, 1998 was as follows:
<TABLE>
<CAPTION>
Cardinal Fund
Put Options Call Options
---------------------------- ----------------------------
Number Number
of contracts Premium of contracts Premium
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Contracts outstanding at 9/30/97 600 $2,194,000 600 $858,000
Contracts written 760 300,000
Contracts expired (700) (932,000) (600) (858,000)
Contracts exercised (660) (1,562,000)
---------- --------- --------- --------
Contracts outstanding at 9/30/98 0 $0 0 $0
========== ========= ========= ========
</TABLE>
Expense Allocation Expenses directly related to one of the Trust's portfolios or
classes are charged to that portfolio or class. Other operating expenses are
allocated to the Trust based on their relative net assets.
14
<PAGE>
Fifth Third Funds
- --------------------------------------------------------------------------------
(5) Purchase and Sales Securities
The purchases and sales of investment securities (excluding short-term
securities) for the year ended September 30, 1998 were as follows (in
thousands):
Purchases Sales
--------- -------
Cardinal Fund $41,160 $65,972
(6) Transactions with Affiliates
Investment Advisory Fee--Prior to June 12, 1998, CMC, a wholly owned subsidiary
of TOC acted as investment advisor and transfer agent for the Cardinal Fund and
Tax Exempt Money Market Fund under contracts monitored and annually approved by
the Board of Trustees. CMC also provided certain administrative services for the
Funds. On June 12, 1998, TOC became a wholly owned subsidiary of Fifth Third
Bancorp. At that time, the shareholders approved the new investment advisory
agreement as discussed in Note 3. CMC received a fee based on the net assets of
each portfolio. As a result of the merger of the Fifth Third Funds and The
Cardinal Group, Fifth Third Bank became the investment advisor on September 21,
1998 and began receiving fees based on the net assets of each portfolio. CMC and
Fifth Third Bank each received annualized investment advisory fees of 0.50% (Tax
Exempt Money Market Fund) and 0.60% (Cardinal Fund) of net assets for the
respective time periods that they served as investment advisor during the year
ended September 30, 1998. CMC voluntarily waived $50,000 in investment advisory
fees on the Cardinal Fund during the year ended September 30, 1998. Fifth Third
Bank also began serving as transfer agent and dividend disbursing agent for the
Funds on September 21, 1998 for which it receives a fee. Fifth Third Bank
subcontracts the execution of the transfer and dividend disbursing agent
functions to a non-affiliated entity.
Distribution Services Fee--TOC served as the Cardinal Fund's distributor until
June 12, 1998. TOC received fees from the Cardinal Fund for providing services
under the Distribution and Shareholder Service Plan, pursuant to Rule 12b-1 of
the Investment Company Act of 1940, and the Administrative Service Plan. Under
the Plan, the Cardinal Fund paid TOC an annual fee not to exceed 0.25% of the
average net assets of the Investment A shares of the fund for providing
distribution and shareholder services. During the year ended September 30, 1998
TOC voluntarily waived $202,000 in distribution servicing fees on the Cardinal
Fund.
BISYS Fund Services ("BISYS") began serving as the Cardinal Fund's principal
distributor pursuant to an agreement between BISYS and The Cardinal Group dated
June 12, 1998. The terms of the agreement were identical to the Distribution and
Shareholder Service Plan noted above.
After the merger of The Cardinal Group and Fifth Third Funds on September 21,
1998, BISYS began serving as the Cardinal Fund and the Tax Exempt Money Market
Fund's principal distributor under the Trust's agreement. In accordance with
Rule 12b-1 under the 1940 Act, the Trust entered into a Distribution Plan with
BISYS with respect to Investment A shares. Under the Distribution Plan, the
Funds may pay a fee not to exceed 0.25% or the average net assets of the
Investment A shares of the Fund to the Distributor. These fees may be used by
BISYS to pay banks, broker dealers and other institutions, or to reimburse BISYS
or its affiliates for administration, distribution and shareholder service
assistance in connection with the distribution of the fund.
Administrative Services Fee--Under the Administrative Services Plan, TOC
received 0.15% of the average net assets of the Institutional shares of the
Cardinal Fund for providing shareholder services. TOC voluntarily waived $22,000
in administrative servicing fees on the Cardinal Fund during the year ended
September 30, 1998. The Administrative Services Plan for Institutional shares
was terminated on September 21, 1998.
15
<PAGE>
Fifth Third Funds
- --------------------------------------------------------------------------------
Administrative Fee--As of September 21, 1998, the date of the merger, BISYS
serves as the Funds' administrator. The administrator generally assists in all
aspects of the Funds' administration and operation including providing the Funds
with certain administrative personnel and services necessary to operate the
Funds. Pursuant to a separate agreement with BISYS, Fifth Third Bank performs
sub-administrative services on behalf of the Funds, including providing certain
administrative personnel and services necessary to operate the Funds for which
it receives a fee from BISYS. Under the terms of the administration agreement,
BISYS' fees are computed daily as a percentage of the average net assets of the
Trust for the period. Administration fees are computed at 0.20% of first $1
billion of net assets of the Trust, 0.18% of net assets of the Trust between $1
billion and $2 billion, and 0.17% of more than $2 billion of net assets of the
Trust. For the period ended September 30, 1998, BISYS waived $4,000 and $1,000
for the Cardinal Fund and Tax Exempt Money Market Fund, respectively.
Accounting and Custody Fees--Fifth Third Bank maintains the Trust's accounting
records for which it receives a fee. The fee is based on the level of each
Fund's average net assets for the period, plus out-of-pocket expenses.
Fifth Third Bank is the Trust's custodian for which it receives a fee. The fee
is based on the level of each Fund's average net assets for the period, plus
out-of-pocket expenses.
Certain Officers and Trustees of the Trust are Officers and Trustees of the
above companies but are not paid any fees directly by the Trust for serving as
Officers and Trustees of the Trust.
7. Insurance
Fidelity Bond and Errors/Omissions insurance coverage for the Funds and its
Officers and Trustees had been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. The Funds include,
in other assets, deposits made for the initial capital and certificates of
deposits that collateralized standby letters of credit sponsoring potential
capital needs of ICI Mutual. In addition, these portfolios are also committed to
provide additional capital should ICI Mutual experience unusual losses arising
from its insurance underwriting. The following table details the deposits and
certificates of deposit of the Funds:
Certificates
Deposits of Deposits
---------- ----------
Cardinal Fund $28,588 $56,600
Tax Exempt Money Market Fund 13,291 27,000
(8) Federal Income Tax Information (unaudited) (in thousands)
During the year ended September 30, 1998 the Cardinal Fund declared long-term
capital distributions of $32,104.
For corporate shareholders of the Cardinal Fund 100% of the total ordinary
income distributions paid during the fiscal year ended September 30, 1998,
qualify for the corporate dividend received deductions.
During the year ended September 30, 1998, the Tax Exempt Money Market Fund
declared tax-exempt income distributions of $1,710.
16
<PAGE>
Fifth Third Funds
- --------------------------------------------------------------------------------
9. Capital Share Transactions
Transactions in capital shares for the Funds for the years ended September 30,
1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Tax Exempt
Cardinal Money Market
Fund Fund (a)
--------------------- --------------------
Shares Amount Shares Amount
--------- --------- --------- --------
<S> <C> <C> <C> <C>
For the year ended September 30, 1998:
- --------------------------------------
Investment A Shares
- --------------------------------------
Shares issued 961 $ 15,605 169,674 $ 169,673
- --------------------------------------
Dividends reinvested 2,062 31,761 1,648 1,648
- --------------------------------------
Shares redeemed (3,449) (57,668) (187,110) (187,110)
- -------------------------------------- --------- --------- --------- --------
Net increase (decrease)
Investment A Shares (426) $(10,302) (15,788) $ (15,789)
- -------------------------------------- ========= ========= ========= ========
Institutional Shares
- --------------------------------------
Shares issued 261 $ 4,380 12,864 $ 12,864
- --------------------------------------
Dividends reinvested 242 3,721 - -
- --------------------------------------
Shares redeemed (399) (6,893) (4,910) (4,910)
- -------------------------------------- --------- --------- -------- --------
Net increase (decrease)
Institutional Shares 104 $ 1,208 7,954 $ 7,954
- -------------------------------------- ========= ========= ======== ========
For the year ended September 30, 1997:
- --------------------------------------
Investment A Shares
- --------------------------------------
Shares issued 989 $ 12,835 155,053 $ 155,053
- --------------------------------------
Dividends reinvested 1,512 19,793 1,668 1,668
- --------------------------------------
Shares redeemed (3,845) (51,330) (156,352) (156,352)
- -------------------------------------- --------- --------- -------- --------
Net increase (decrease)
Investment A Shares (1,344) $(18,702) 369 $ 369
- -------------------------------------- ========= ========= ======== ========
Institutional Shares
- --------------------------------------
Shares issued 1,894 $ 24,912 - $ -
- --------------------------------------
Dividends reinvested 12 174 - -
- --------------------------------------
Shares redeemed (291) (4,358) - -
- -------------------------------------- --------- --------- -------- --------
Net increase (decrease)
Institutional Shares 1,615 $ 20,728 - $ -
- -------------------------------------- ========= ========= ======== ========
</TABLE>
(a) The Tax Exempt Money Market Institutional Shares commenced operations on
September 21, 1998.
17
<PAGE>
Fifth Third Cardinal Fund
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended September 30,
------------------------------------------------------
1998 1997
-------------------------- ---------------------------
Investment A Institutional Investment A Institutional*
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of year $ 16.65 $ 16.64 $ 13.13 $ 12.92
- --------------------------------- --------- --------- --------- ---------
Income from investment
operations
- ---------------------------------
Net investment income (loss) 0.14 0.15 0.14 0.12
- ---------------------------------
Net realized and unrealized
gains (losses) on
investments 0.27 0.28 4.64 3.70
- --------------------------------- --------- --------- --------- ---------
Total from investment
operations 0.41 0.43 4.78 3.82
- --------------------------------- --------- --------- --------- ---------
Less distributions
- ---------------------------------
Dividends to shareholders
from net investment income (0.14) (0.15) (0.13) (0.10)
- ---------------------------------
Distributions to shareholders
in excess of net investment
income (0.04) (0.05) -- --
- ---------------------------------
Distributions to shareholders
from net realized gains on
investment transactions (2.01) (2.01) (1.13) --
- --------------------------------- --------- --------- --------- ---------
Total distributions (2.19) (2.21) (1.26) (0.10)
- --------------------------------- --------- --------- --------- ---------
Net asset value, end of year $ 14.87 $ 14.86 $ 16.65 $ 16.64
- --------------------------------- ========= ========= ========= =========
Total return** 2.50% 2.60% 39.17% 29.77%
- ---------------------------------
Ratios to Average Net Assets
- ---------------------------------
Expenses 0.92% 0.84% 1.06% 1.00%
- ---------------------------------
Net investment income (loss) 0.76% 0.85% 0.97% 1.04%
- ---------------------------------
Expense waiver/
reimbursement (a) 0.09% 0.09% 0.06% 0.00%
- ---------------------------------
Supplemental data
- ---------------------------------
Net assets, end of period
(000 omitted) $232,903 $ 25,542 $267,908 $ 26,881
- ---------------------------------
Portfolio turnover rate (b) 15% 15% 13% 13%
- ---------------------------------
<CAPTION>
Period Ended September 30,
---------------------------------------
1996 1995 1994
------------ ------------ ------------
Investment A Investment A Investment A
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning
of year $ 13.23 $ 12.73 $ 12.91
- --------------------------------- --------- --------- ---------
Income from investment
operations
- ---------------------------------
Net investment income (loss) 0.25 0.36 0.31
- ---------------------------------
Net realized and unrealized
gains (losses) on
investments 1.95 1.32 0.12
- --------------------------------- --------- --------- ---------
Total from investment
operations 2.20 1.68 0.43
- --------------------------------- --------- --------- ---------
Less distributions
- ---------------------------------
Dividends to shareholders
from net investment income (0.26) (0.35) (0.33)
- ---------------------------------
Distributions to shareholders
in excess of net investment
income -- -- --
- ---------------------------------
Distributions to shareholders
from net realized gains on
investment transactions (2.04) (0.83) (0.28)
- --------------------------------- --------- --------- ---------
Total distributions (2.30) (1.18) (0.61)
- --------------------------------- --------- --------- ---------
Net asset value, end of year $ 13.13 $ 13.23 $ 12.73
- --------------------------------- ========= ========= =========
Total return** 17.96% 14.84% 3.38%
- ---------------------------------
Ratios to Average Net Assets
- ---------------------------------
Expenses 0.75% 0.70% 0.72%
- ---------------------------------
Net investment income (loss) 1.90% 2.89% 2.40%
- ---------------------------------
Expense waiver/
reimbursement (a) 0.10% 0.00% 0.00%
- ---------------------------------
Supplemental data
- ---------------------------------
Net assets, end of period
(000 omitted) $ 229,042 $ 226,181 $ 246,581
- ---------------------------------
Portfolio turnover rate (b) 58% 20% 23%
- ---------------------------------
</TABLE>
*For the period from January 2, 1997 (commencement of operations) to September
30, 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) 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)
18
<PAGE>
Fifth Third Tax Exempt Money Market Fund
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended September 30,
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------- ------------ ------------ ------------ ------------
Investment A Institutional* Investment A Investment A Investment A Investment A
------------ ------------- ------------ ------------ ------------ ------------
<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 -- 0.03 0.03 0.03 0.02
- --------------------------------------- --------- --------- --------- --------- --------- ---------
0.03 -- 0.03 0.03 0.03 0.02
--------- --------- --------- --------- --------- ---------
- ---------------------------------------
Less distributions
- ----------------------------------------
Dividends to shareholders
from net investment income (0.03) -- (0.03) (0.03) (0.03) (0.02)
- ---------------------------------------- --------- --------- --------- --------- --------- ---------
(0.03) -- (0.03) (0.03) (0.03) (0.02)
- ---------------------------------------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------- ========= ========= ========= ========= ========= =========
Total return 2.74% 2.74%(a) 2.72% 2.67% 3.02% 1.78%
- ----------------------------------------
Ratios to Average Net Assets
- ----------------------------------------
Expenses 0.71% 0.63%(b) 0.80% 0.89% 0.81% 0.76%
- ----------------------------------------
Net investment income (loss) 2.88% 3.09%(b) 2.79% 2.66% 2.99% 1.78%
- ----------------------------------------
Supplemental data
- ----------------------------------------
Net assets, end of period
(000 omitted) $44,494 $ 7,953 $60,284 $59,915 $64,780 $80,531
- ----------------------------------------
</TABLE>
* Reflects operations for the period from September 21, 1998 (commencement of
operations) to September 30, 1998.
(a) Represents total return based on the activity of Investment A Shares for
the period from October 1, 1997 to September 20, 1998 and the activity of
the Institutional Shares for the period from September 21, 1998 to
September 30, 1998. Total return for the Institutional Shares for the
period from September 21, 1998 (commencement of operations) to September
30, 1998 was 3.16% annualized.
(b) Annualized
(See Notes which are an integral part of the Financial Statements)
19
<PAGE>
Report of Independent Auditors
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
FIFTH THIRD FUNDS
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of the Fifth Third Cardinal Fund and the
Fifth Third Tax Exempt Money Market Fund (the Funds) as of September 30, 1998,
and the related statements of operations and statements of changes for the year
then ended and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial statements and financial highlights for the Funds for each
of the respective years or periods ended September 30, 1997 were audited by
other auditors whose report dated November 14, 1997 expressed an unqualified
opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of September 30, 1998, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds as of September 30, 1998, the results of their operations, changes
in their net assets, and their financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
October 28, 1998
20
<PAGE>
Addresses
- --------------------------------------------------------------------------------
Fifth Third Cardinal Fund Fifth Third Funds
Fifth Third Tax Exempt Money Market 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
- --------------------------------------------------------------------------------
<PAGE>
[LOGO OF FIFTH THIRD FUNDS APPEARS HERE]
