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Rule 497(c)
File No. 811-6082
Reg. No. 33-34154
STATEMENT OF ADDITIONAL INFORMATION
THE RIVERFRONT FUNDS, INC.
THE RIVERFRONT U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
THE RIVERFRONT U.S. GOVERNMENT INCOME FUND
THE RIVERFRONT INCOME EQUITY FUND
THE RIVERFRONT OHIO TAX-FREE BOND FUND
THE RIVERFRONT BALANCED FUND
THE RIVERFRONT STOCK APPRECIATION FUND
THE RIVERFRONT LARGE COMPANY SELECT FUND
April 30, 1997
This Statement of Additional Information is not a prospectus but
relates to, and should be read in conjunction with, the prospectus (the
"Prospectus") of The Riverfront U.S. Government Securities Money Market Fund
(the "Money Market Fund"), The Riverfront U.S. Government Income Fund (the
"Income Fund"), The Riverfront Income Equity Fund (the "Income Equity Fund"),
The Riverfront Ohio Tax-Free Bond Fund (the "Ohio Tax-Free Fund"), The
Riverfront Stock Appreciation Fund (the "Stock Appreciation Fund"), The
Riverfront Large Company Select Fund (the "Large Company Fund") and The
Riverfront Balanced Fund (the "Balanced Fund") (the Money Market Fund, the
Income Fund, the Income Equity Fund, the Ohio Tax-Free Fund, the Stock
Appreciation Fund, the Large Company Fund, and the Balanced Fund are
hereinafter collectively referred to as the "Funds" and individually as a
"Fund") dated the date hereof. The Funds are currently seven series or
portfolios of The Riverfront Funds, Inc. (the "Company"). On January 9, 1995,
the Ohio Tax-Free Fund changed its name from The Riverfront Municipal Bond Fund
to The Riverfront Ohio Tax-Free Bond Fund. On January 2, 1997, the Balanced
Fund changed its name from The Riverfront Flexible Growth Fund to The
Riverfront Balanced Fund. This Statement of Additional Information is
incorporated in its entirety into the Prospectus. A copy of the Prospectus may
be obtained from BISYS Fund Services Limited Partnership, 3435 Stelzer Road,
Columbus, Ohio 43219.
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TABLE OF CONTENTS
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Page
THE COMPANY AND ITS FUNDS...................................................B-1
INVESTMENT OBJECTIVES AND POLICIES..........................................B-2
DIVIDENDS AND TAXES........................................................B-20
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................B-26
VALUATION OF SECURITIES....................................................B-26
DIRECTORS AND OFFICERS.....................................................B-29
MANAGEMENT OF THE FUNDS....................................................B-31
SECURITIES TRANSACTIONS....................................................B-37
ADMINISTRATOR..............................................................B-42
DISTRIBUTOR................................................................B-44
DISTRIBUTION PLANS.........................................................B-45
CAPITAL STOCK..............................................................B-47
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS.............................B-48
ADDITIONAL INFORMATION.....................................................B-53
FINANCIAL STATEMENTS.......................................................B-56
APPENDIX....................................................................A-1
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THE COMPANY AND ITS FUNDS
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The Riverfront Funds, Inc. (the "Company") is an open-end management
investment company, commonly known as a mutual fund, which currently issues
seven series of shares of capital stock which are described in this Statement
of Additional Information (the "Funds"). Each Fund of the Company, other than
the Ohio Tax-Free Fund, is diversified. The Ohio Tax-Free Fund is a
non-diversified Fund.
The Company was incorporated in Maryland on March 27, 1990. The
Provident Bank ("Provident") serves as investment adviser, either directly or
through a sub-adviser, to each Fund, and BISYS Fund Services Limited
Partnership (the "Distributor") serves as Administrator and Distributor.
Provident also serves as custodian and transfer agent for each of the Funds,
and provides certain fund accounting and recordkeeping services for the
Company. DePrince, Race & Zollo, Inc. ("DRZ") serves as the sub-adviser to the
Income Equity Fund.
As of September 30, 1995, pursuant to an Agreement and Plan of
Reorganization and Liquidation with MIM Mutual Funds, Inc. ("MIM"), the Company
acquired all of the assets and liabilities of MIM as follows: (a) the Money
Market Fund acquired all of the assets and liabilities of the MIM Money Market
Fund; (b) the Income Equity Fund acquired all of the assets and liabilities of
the MIM Bond Income Fund, the MIM Stock Income Fund and the AFA Equity Income
Fund; and (c) the Stock Appreciation Fund acquired all of the assets and
liabilities of the MIM Stock Growth Fund and the MIM Stock Appreciation Fund
(collectively, the "Reorganization"). In exchange for such assets and
liabilities, the respective Fund of the Company issued a number of its Investor
A shares equal in value to the net assets of the corresponding MIM Fund
acquired in the Reorganization. For accounting and performance purposes, the
MIM Stock Appreciation Fund is considered to be the successor of the Stock
Appreciation Fund; therefore, the performance and financial information of the
Stock Appreciation Fund included in this Statement of Additional Information
prior to September 30, 1995, relates to the operations of the MIM Stock
Appreciation Fund prior to the Reorganization.
The essential information about the Company and its Funds is contained
in the Prospectus. This Statement of Additional Informa tion provides
additional information about the Company and each of the Funds that may be of
interest to investors.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the
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Prospectus of the Funds. Capitalized terms not defined herein are defined in the
Prospectus. No investment in shares of a Fund should be made without first
reading such Fund's Prospectus.
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INVESTMENT OBJECTIVES AND POLICIES
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THE RIVERFRONT U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
The Riverfront U.S. Government Securities Money Market Fund (the
"Money Market Fund") seeks current income from U.S. Government short-term
securities while preserving capital and maintaining liquidity.
The Money Market Fund is designed for investors who wish to keep
temporary cash balances in a fund invested in short-term securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
THE RIVERFRONT U.S. GOVERNMENT INCOME FUND
The Riverfront U.S. Government Income Fund (the "Income Fund") seeks a
high level of current income, consistent with preservation of capital, by
investing primarily in securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities and in high quality fixed rate and adjustable
rate mortgage-backed securities and other asset-backed securities. The Income
Fund intends to invest in securities with dollar-weighted average durations of
between three and seven years. The dollar-weighted average life of the Income
Fund's securities is expected to be in the range of four to ten years.
The Income Fund is designed for investors seeking to provide for
near-term income needs by investing in a fund which seeks to provide higher
returns than those offered by certificates of deposits or U.S. Government money
market funds.
THE RIVERFRONT INCOME EQUITY FUND
The Riverfront Income Equity Fund (the "Income Equity Fund") seeks a
high level of investment income, with capital appreciation as a secondary
objective, through investment primarily in income-producing equity securities
of U.S. issuers. To provide investment advisory services to the Income Equity
Fund, Provident has entered into a sub-investment advisory agreement with DRZ.
The Income Equity Fund is designed for investors seeking to invest for
retirement, educational and other long-term needs.
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THE RIVERFRONT OHIO TAX-FREE BOND FUND
The Riverfront Ohio Tax-Free Bond Fund (the "Ohio Tax-Free Fund")
seeks (1) income which is exempt from federal income tax and Ohio state income
taxes and (2) preservation of capital.
The Ohio Tax-Free Fund is designed for investors seeking to invest in
a fund which generates income that is exempt from federal and Ohio state income
taxes and not a preference item for individuals for purposes of the federal
alternative minimum tax.
THE RIVERFRONT STOCK APPRECIATION FUND
The Riverfront Stock Appreciation Fund (the "Stock Appreciation Fund")
seeks capital growth.
The Stock Appreciation Fund is designed for investors seeking growth
of capital.
THE RIVERFRONT LARGE COMPANY SELECT FUND
The Riverfront Large Company Select Fund (the "Large Company Fund")
seeks long-term growth of capital with current income as a secondary objective.
The Large Company Fund is designed for investors seeking long-term
growth of capital with some current income.
THE RIVERFRONT BALANCED FUND
The Riverfront Balanced Fund (the "Balanced Fund") seeks long-term
growth of capital with some current income as a secondary objective.
The Balanced Fund is designed for investors seeking to invest in a
fund which generates long-term growth of capital with some current income.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objectives and
policies of each Fund as set forth in the Prospectus.
BANK OBLIGATIONS. Each Fund may invest in bank obligations such as
bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by
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such Funds will be those guaranteed by U.S. commercial banks having, at the time
of investment, capital, surplus, and undivided profits in excess of
$1,500,000,000 (as of the date of their most recently published financial
statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
will be those of domestic and foreign branches of U.S. banks which are members
of the Federal Reserve System or the Federal Deposit Insurance Corporation, if
at the time of investment the depository institution has capital, surplus, and
undivided profits in excess of $1,500,000,000 (as of the date of its most
recently published financial statements).
The Income Fund, the Income Equity Fund, the Balanced Fund, the Ohio
Tax-Free Fund, the Stock Appreciation Fund and the Large Company Fund may also
each invest in Eurodollar Certificates of Deposit, which are U.S. dollar
denominated certificates of deposit issued by offices of foreign and domestic
banks located outside the United States ("ECDs") and Yankee Certificates of
Deposit, which are certificates of deposit issued by a U.S. branch of a foreign
bank denominated in U.S. dollars and held in the United States.
ECDs may be general obligations of the parent bank in addition to the
issuing branch or may be limited by the terms of a specific obligation and by
government regulation. Payment of interest and principal upon these obligations
may also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences of
ownership of such obligations may be held outside the U.S. and a Fund may be
subject to the risks associated with the holding of such property overseas.
Examples of governmental actions would be the imposition of currency controls,
interest limitations, withholding taxes, seizure of assets or the declaration
of a moratorium. Various provisions of federal law governing domestic branches
do not apply to foreign branches of domestic or foreign banks.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Except as noted below with respect to variable
amount master demand notes, issues of commercial paper normally have maturities
of less than nine months and fixed rates of return.
The Income Fund, the Income Equity Fund, the Ohio Tax-Free Fund, the
Stock Appreciation Fund, the Balanced Fund and the Large Company Fund may
invest in commercial paper which is rated by applicable nationally recognized
statistical rating organizations ("NRSROs") in the highest rating category, or
if unrated, is deemed by that Fund's investment adviser to be of comparable
quality to commercial paper so rated.
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VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Income Fund, the Income Equity Fund, the Ohio Tax-Free Fund,
the Stock Appreciation Fund, the Balanced Fund and the Large Company Fund may
invest, are unsecured demand notes that permit the indebtedness thereunder to
vary and provide for periodic adjustments in the interest rate according to the
terms of the instrument. Because master demand notes are direct lending
arrangements between a Fund and the issuer, they are not normally traded.
Although there is no secondary market in the notes, a Fund may demand payment of
principal and accrued interest at any time within 30 days. While such notes are
not typically rated by credit rating agencies, variable amount master demand
notes must be determined by Provident or DRZ, as the case may be, to be of
comparable quality to the commercial paper which such Fund may purchase. The
Fund's investment adviser or sub-adviser, as the case may be, will consider the
earning power, cash flow, and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial status and ability to meet
payment on demand. In determining average weighted portfolio maturity, a
variable amount master demand note will be deemed to have a maturity equal to
the longer of the period of time remaining until the next interest rate
adjustment or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
FOREIGN INVESTMENT. Investments in securities issued by foreign
branches of U.S. banks, foreign banks, or other foreign issuers, including
ADRs, may subject a Fund to investment risks that differ in some respects from
those related to investment in obligations of U.S. domestic issuers or in U.S.
securities markets. Such risks include future adverse political and economic
developments, possible seizure, nationalization, or expropriation of foreign
investments, less stringent disclosure requirements, the possible establishment
of exchange controls or taxation at the source, or the adoption of other
foreign governmental restrictions. The Income Equity Fund, the Stock
Appreciation Fund, the Balanced Fund and the Large Company Fund will acquire
such securities only when such Fund's investment adviser or sub-adviser, as the
case may be, believes the risks associated with such investments are minimal.
U.S. GOVERNMENT OBLIGATIONS. Each Fund may invest in obligations
issued or guaranteed as to principal and interest by the U.S. Government or its
agencies or instrumentalities. Obligations of certain agencies and
instrumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the issuer to
borrow from the Treasury; others are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S. Government-
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sponsored agencies or instrumentalities if it is not obligated to do so by law.
EXEMPT SECURITIES. As stated in the Prospectus of the Ohio Tax-Free
Fund, under normal market conditions at least 80% of the net assets of the Ohio
Tax-Free Fund will be invested in bonds, notes, debentures, commercial paper
and other obligations of the State of Ohio or any county, municipality,
political subdivision, instrumentality, agency or authority thereof
(collectively, "agencies"), the interest on which, in the opinion of bond
counsel to the issuer, is exempt from federal income tax, is not a preference
item for purposes of the federal alternative minimum tax and is exempt from
Ohio state income tax ("Ohio Exempt Securities") and in debt obligations issued
by the Government of Puerto Rico and such other governmental entities whose
debt obligations, either by law or by treaty, generate interest income which is
exempt from federal income tax, is not a preference item for individuals for
the federal alternative minimum tax, and is exempt from Ohio state income taxes
(together with Ohio Exempt Securities called "Exempt Securities"). Under normal
market conditions, at least 65% of the total assets of the Ohio Tax-Free Fund
will be invested in Ohio Exempt Securities.
Exempt Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by
or on behalf of public authorities to finance various privately-operated
facilities are included within the term Exempt Securities if the interest paid
thereon is exempt from federal income tax and is not treated as a preference
item for purposes of the federal alternative minimum tax. However, if such
interest is subject to the federal alternative minimum tax, such securities will
not be considered as Exempt Securities for purposes of complying with the Ohio
Tax-Free Fund's 80% required investment in Exempt Securities as described above.
Among other types of Exempt Securities, the Ohio Tax-Free Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt
Commercial Paper, Construction Loan Notes and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Ohio Tax-Free Fund may invest in other types
of tax-exempt instruments, such as municipal bonds, private activity bonds, and
pollution control bonds.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development.
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While the issuing agency has the primary obligation with respect to its Project
Notes, they are also secured by the full faith and credit of the United States
through agreements with the issuing authority which provide that, if required,
the federal government will lend the issuer an amount equal to the principal of
and interest on the Project Notes.
As described in the Prospectus of the Ohio Tax-Free Fund, the two
principal classifications of Exempt Securities consist of "general obligation"
and "revenue" issues. The Ohio Tax-Free Fund may also acquire "moral
obligation" issues, which are normally issued by special purpose authorities.
There are, of course, variations in the quality of Exempt Securities, both
within a particular classification and between classifications, and the yields
on Exempt Securities depend upon a variety of factors, including the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating of
the issue. Ratings represent the opinion of an NRSRO as to the quality of
Exempt Securities. It should be emphasized, however, that ratings are general
and are not absolute standards of quality, and Exempt Securities with the same
maturity, interest rate and rating may have different yields, while Exempt
Securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to purchase, an issue of Exempt Securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase. Provident will consider such an event in determining whether the
Ohio Tax-Free Fund should continue to hold the obligation.
An issuer's obligations under its Exempt Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Exempt Securities may be materially
adversely affected by litigation or other conditions.
VARIABLE AND FLOATING RATE NOTES. Each Fund may acquire variable and
floating rate notes, subject to such Fund's investment objective, policies and
restrictions. A variable rate note is one whose terms provide for the
adjustment of its interest rate on set dates and which, upon such adjustment,
can reasonably be expected to have a market value that approximates its par
value. A floating rate note is one whose terms provide for the adjustment of
its interest rate whenever a specified interest rate changes and which, at any
time, can reasonably be expected to have a market value that approximates its
par value. Such notes are frequently not rated by
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credit rating agencies; however, unrated variable and floating rate notes
purchased by such Funds will be determined by Provident or DRZ, as the case may
be, to be of comparable quality at the time of purchase to rated instruments
eligible for purchase under that particular Fund's investment policies. In
making such determinations, Provident or DRZ, as the case may be, will consider
the earning power, cash flow and other liquidity ratios of the issuers of such
notes (such issuers include financial, merchandising, bank holding and other
companies) and will continuously monitor their financial condition. Although
there may be no active secondary market with respect to a particular variable or
floating rate note purchased by a Fund, the Fund may attempt to resell the note
at any time to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of a variable or floating
rate note in the event the issuer of the note defaulted on its payment
obligations and the Fund could, as a result or for other reasons, suffer a loss
to the extent of the default.
WHEN-ISSUED SECURITIES. As discussed in the Prospectus, each of the
Funds, other than the Stock Appreciation Fund, may purchase securities on a
"when-issued" basis (i.e., for delivery beyond the normal settlement date at a
stated price and yield). When such a Fund agrees to purchase securities on a
"when-issued" basis, the Fund's custodian will set aside cash or liquid
securities equal to the amount of the commitment in a separate account.
Normally, the Fund's custodian will set aside portfolio securities to satisfy
the purchase commitment, and in such a case, the Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the Fund's
commitment. It may be expected that the Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or high quality liquid debt securities to satisfy its purchase
commitments in the manner described above, such Fund's liquidity and the
ability of Provident or DRZ, as the case may be, to manage it might be affected
in the event its commitments to purchase "when-issued" securities ever exceeded
25% of its total assets. Under normal market conditions, however, a Fund's
commitment to purchase "when-issued" or "delayed-delivery" securities will not
exceed 25% of its total assets.
When a Fund engages in "when-issued" transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may cause the
Fund to incur a loss or miss an opportunity to obtain a price considered to be
advantageous. Such Funds will engage in "when-issued" delivery transactions
only for the purpose of acquiring portfolio securities consistent with the
Funds' investment objectives and policies and not for investment leverage. If
the Ohio Tax-Free Fund sells a "when-issued" or "delayed-
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delivery" security before delivery, any gain would not be tax-exempt.
REPURCHASE AGREEMENTS. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from banks and registered broker-dealers which
the investment adviser deems creditworthy under guidelines approved by the
Company's Board of Directors, subject to the seller's agreement to repurchase
such securities at a mutually agreed-upon date and price. The repurchase price
would generally equal the price paid by the Fund plus interest negotiated on the
basis of current short-term rates, which may be more or less than the rate on
the underlying portfolio securities. The seller under a repurchase agreement
will be required to maintain continually the value of collateral held pursuant
to the agreement at not less than the repurchase price (including accrued
interest). This requirement will be continually monitored by Provident or DRZ,
as the case may be. If the seller were to default on its repurchase obligation
or become insolvent, the Fund holding such obligation would suffer a loss to the
extent that the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement, or to the extent that the
disposition of such securities by the Fund were delayed pending court action.
Additionally, there is no controlling legal precedent confirming that a Fund
would be entitled, as against a claim by such seller or its receiver or trustee
in bankruptcy, to retain the underlying securities, although the Board of
Directors of the Company believes that, under the regular procedures normally in
effect for custody of a Fund's securities subject to repurchase agreements and
under federal laws, a court of competent jurisdiction would rule in favor of the
Company if presented with the question. Securities subject to repurchase
agreements will be held by that Fund's custodian or another qualified custodian
or in the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectus, each of
the Funds, other than the Money Market Fund, may borrow funds for temporary
purposes by entering into reverse repurchase agreements in accordance with that
Fund's investment restrictions. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers
and agree to repurchase the securities at a mutually agreed-upon date and
price. Each Fund intends to enter into reverse repurchase agreements only to
avoid otherwise selling securities during unfavorable market conditions to meet
redemptions. At the time a Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account assets such as U.S. Government
securities or other liquid securities consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and
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will subsequently continually monitor the account to ensure that such equivalent
value is maintained at all times. Reverse repurchase agreements involve the risk
that the market value of the securities sold by a Fund may decline below the
price at which a Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act.
Except as otherwise disclosed to the shareholders of the particular
Fund, the Company will not acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase agreements with, Provident, DRZ, the
Distributor, or their affiliates, and will not give preference to Provident's
correspondents with respect to such transactions, securities, savings deposits
and repurchase agreements. In addition, while the Stock Appreciation Fund's
investment restrictions permit it to engage in reverse repurchase agreements
without prior shareholder approval, the Stock Appreciation Fund does not
currently intend to enter into such agreements.
HEDGING TRANSACTIONS. Hedging transactions, including the use of
options and futures, in which a Fund may be authorized to engage as described
in the Prospectus or below, have risks associated with them, including possible
default by the other party to the transaction, illiquidity and, to the extent
the investment adviser's view as to certain market movements is incorrect, the
risk that the use of such hedging transactions could result in losses greater
than if they had not been used.
Use of put and call options may result in losses to a Fund, force the
sale or purchase of portfolio securities at inopportune times or for prices
higher than (in the case of put options) or lower than (in the case of call
options) current market values, limit the amount of appreciation a Fund can
realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund create the possibility that losses on the hedging
instrument may be greater than gains in the value of such Fund's position. In
addition, futures and options markets may not be liquid at all circumstances. As
a result, in certain markets, a Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in the
value of such position. Finally, the daily variation margin requirements for
futures contracts would create a greater ongoing potential financial risk than
would purchases of options, where the exposure is limited to the cost of the
initial premium. Losses resulting
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from the use of hedging transactions would reduce net asset value, and possible
income, and such losses can be greater than if the hedging transactions had not
been utilized.
WRITING COVERED CALL AND PUT OPTIONS. Each of the Income, Income
Equity, Ohio Tax-Free, Stock Appreciation, Large Company and Balanced Funds may
write covered call and covered put options on securities or on futures
contracts regarding securities, in which the particular Fund may invest, in an
effort to realize additional income. A put option gives the purchaser the right
to sell the underlying security at the stated exercise price at any time prior
to the expiration date of the option, regardless of the market price of the
security. A call option gives the purchaser of the option the right to buy, and
a writer the obligation to sell, the underlying security at the stated exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security. The premium paid to the writer is consideration
for undertaking the obligations under the option contract. Put and call options
purchased by a Fund will be valued at the last sale price, or in the absence of
such a price, at the mean between the bid and asked price. Such options will be
listed on national securities or futures exchanges or will be available in the
over-the-counter market through pricing reports of broker-dealers. A Fund may
write covered call options as a means of seeking to enhance its income through
the receipt of premiums in instances in which the adviser determines that the
underlying securities or futures contracts are not likely to increase in value
above the exercise price. A Fund also may seek to earn additional income
through the receipt of premiums by writing put options. Covered call options
give the purchaser the right, for a stated period, to buy the underlying
securities from a Fund at a stated price, while put options give the purchaser
the right, for a stated period, to sell the underlying securities to a Fund at
a stated price. By writing a call option, a Fund limits its opportunity to
profit from any increase in the market value of the underlying security above
the exercise price of the option; by writing a put option, a Fund assumes the
risk that it may be required to purchase the underlying security at a price in
excess of its then current market value.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the
traded option is the last sale price or, in the absence of a sale, the mean
between the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or a loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold)
and the deferred credit related to such option will be eliminated. If an option
is
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exercised, the Fund may deliver the underlying security in the open market.
In either event, the proceeds of the sale will be increased by the net premium
originally received and the Fund will realize a gain or loss.
Such Funds may also purchase or sell index options. Index options (or
options on securities indices) are similar in many respects to options on
securities except that an index option gives the holder the right to receive,
upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
The Ohio Tax-Free Fund may acquire "puts" with respect to Exempt
Securities held in its portfolio. A put is a right to sell a specified security
(or securities) within a specified period of time at a specified exercise
price. The Ohio Tax-Free Fund may sell, transfer, or assign a put only in
conjunction with the sale, transfer, or assignment of the underlying security
or securities.
The amount payable to the Ohio Tax-Free Fund upon its exercise of a
"put" is normally (i) the Ohio Tax-Free Fund's acquisition cost of the Exempt
Securities (excluding any accrued interest which the Ohio Tax-Free Fund paid on
the acquisition), less any amortized market premium or plus any amortized
market or original issue discount during the period the Ohio Tax-Free Fund owned
the securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period.
Puts may be acquired by the Ohio Tax-Free Fund to facilitate the
liquidity of its portfolio assets. Puts may also be used to facilitate the
reinvestment of the Ohio Tax-Free Fund's assets at a rate of return more
favorable than that of the underlying security. Puts may, under certain
circumstances, also be used to shorten the maturity of underlying variable rate
or floating rate securities for purposes of calculating the remaining maturity
of those securities.
The Ohio Tax-Free Fund expects that it will generally acquire puts
only where the puts are available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Ohio Tax-Free Fund may
pay for puts either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to the puts (thus reducing the
yield to maturity otherwise available for the same securities).
The Ohio Tax-Free Fund intends to enter into puts only with dealers,
banks, and broker-dealers which, in Provident's opinion, present minimal credit
risks.
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<PAGE> 14
OPTIONS AND FUTURES STRATEGIES. In addition, each of the Income,
Income Equity, Ohio Tax-Free, Stock Appreciation, Large Company and Balanced
Funds may purchase put and call options written by third parties covering those
types of financial instruments in which such Fund may invest to attempt to
provide protection against adverse price effects from anticipated changes in
prevailing prices for such instruments. The purchase of a put option is
intended to protect the value of a Fund's holdings in a falling market while
the purchase of a call option is intended to protect the value of a Fund's
positions in a rising market.
In purchasing a call option, a Fund would be in a position to realize
a gain if, during the option period, the price of the underlying security,
index or futures contract increased by an amount in excess of the premium paid
for the call option. It would realize a loss if the price of the underlying
security, index or futures contract declined or remained the same or did not
increase during the period by more than the amount of the premium. By
purchasing a put option, a Fund would be in a position to realize a gain if,
during the option period, the price of the security, index or futures contract
declined by an amount in excess of the premium paid. It would realize a loss if
the price of the security, index or futures contract increased or remained the
same or did not decrease during that period by more than the amount of the
premium. If a put or call option purchased by a Fund were permitted to expire
without being sold or exercised, its premium would represent a realized loss to
a Fund.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options
typically have similar structural characteristics and operational mechanics
regardless of the underlying instrument on which they are purchased or sold.
Thus, the following general discussion relates to each of the particular types
of options discussed below and in the Prospectus. In addition, many hedging
transactions involving options require segregation of a Fund's assets in
special accounts, as described further below. The Funds that are authorized to
engage in options transactions will only deal with exchange traded options, as
opposed to over-the-counter traded options. Exchange traded options, unlike
over-the-counter traded options, have standardized terms and performance
mechanics. Exchange-traded options generally are guaranteed by the clearing
agency which is the issuer or counterparty to such options. This guarantee
usually is supported by a daily payment system (i.e., variation margin
requirements) operated by the clearing agency in order to reduce overall credit
risk. As a result, unless the clearing agency defaults, there is relatively
little counterparty credit risk associated with options purchased on an
exchange.
With certain exceptions, exchange-listed options generally settle by
physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options are cash settled for
the net amount, if any, by which the
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<PAGE> 15
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option. A Fund's ability to close out its position as a
purchaser or seller of a put or call option is dependent in part, upon the
liquidity of the option market. In addition, the hours of trading for listed
options may not coincide with the hours during which the underlying financial
instruments are traded. To the extent that the option markets close before the
markets for the underlying financial instruments, significant price and rate
movements can take place in the underlying markets that cannot be reflected in
the option markets.
All options written by a Fund must be "covered" (i.e., the Fund must
own the securities or futures contract subject to a call option or must meet
the asset segregation requirements) as long as the call option is outstanding.
Even though a Fund will receive the option premium to help protect it against
loss, a call option written by a Fund exposes the Fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying security or instrument and may require the Fund to hold
a security or instrument which it might otherwise have sold. With respect to
put options written by a Fund, such Fund will place liquid securities in a
segregated account to cover its obligations under such put option and will
monitor the value of the assets in such account and its obligations under the
put option daily.
FUTURES CONTRACTS. Each of the Income, Income Equity, Ohio Tax-Free,
Large Company and Balanced Funds may purchase or sell contracts for the future
delivery of the specific financial instruments in which the particular Fund may
invest, and indices based upon the types of securities in which the particular
Fund may invest (collectively, "Futures Contracts"). A Fund may use this
investment technique to hedge against anticipated future changes in market
interest rates, which otherwise might adversely affect either the value of the
Fund's securities or the prices of securities which the Fund intends to
purchase at a later date. Alternatively, the Funds may purchase or sell futures
contracts to hedge against changes in market interest rates which may result in
the premature call at par value of certain securities which the Fund has
purchased at a premium.
The Income Equity Fund and the Large Company Fund may purchase or sell
futures contracts based upon an equity index, commonly referred to as "equity
index futures contracts." This type of futures contract is an agreement by the
Fund to buy or sell by a specified date and at a specified price the market
value of equity
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<PAGE> 16
securities included in a particular equity index. No payment is made for the
index or securities when the Fund buys an equity index futures contract and
neither the index nor any securities are delivered when the Fund sells an equity
index futures contract. Instead, the Fund makes a deposit of "initial margin"
equal to a percentage of the value of the futures contract. Payment or delivery
is made upon the closing out of the futures position or the expiration of the
equity index futures contract. Equity index futures contracts will be used only
as a hedge against anticipated changes in the level of stock prices.
The Income Fund may purchase or sell futures contracts based upon
fixed income securities, commonly referred to as "interest rate futures
contracts." An interest rate futures contract is an agreement by the Fund to
buy or sell, by a specified date and at a specified price, the market value of
fixed income securities included in a particular fixed income index. As with
the futures contracts, no payment is made for securities when the Fund buys an
interest rate futures contract and no securities are delivered when the Fund
sells an interest rate futures contract; instead, the Fund makes an initial
margin deposit and payment or delivery is made upon the closing out of the
futures position or the expiration of the interest rate futures contract.
Interest rate futures contracts will be used only as a hedge against
anticipated changes in the level of interest rates.
In general, the value of futures contracts sold by a Fund to offset
declines in its portfolio securities will not exceed the total market value of
the portfolio securities to be hedged, and futures contracts purchased by the
Fund will be covered by a segregated account consisting of cash or liquid
securities in an amount equal to the total market value of such futures
contracts, less the initial margin deposited therefor.
When selling futures contracts short, when buying futures contracts
and when writing put options, a Fund will be required to segregate in a
separate account cash and/or liquid securities in an amount sufficient to meets
its obligations. When writing call options, a Fund will be required to own the
financial instrument or futures contract underlying the option or segregate
cash and/or liquid securities in an amount sufficient to meet its obligations
under written calls.
This investment technique is designed primarily to hedge against
anticipated future changes in market conditions or interest rates which
otherwise might adversely affect the value of securities which such a Fund
holds or intends to purchase. For example, when interest rates are expected to
rise or market values of portfolio securities are expected to fall, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its portfolio securities. When interest rates are expected to fall or market
values are expected to rise, a Fund,
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<PAGE> 17
through the purchase of such contracts, can attempt to secure better rates or
prices for the Fund than might later be available in the market when it effects
anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. Government securities or other
liquid securities, to cover its performance under such contracts. A Fund may
lose the expected benefit of futures transactions if interest rates or
securities prices move in an unanticipated manner. Such unanticipated changes
may also result in poorer overall performance than if the Fund had not entered
into any futures transactions. In addition, the value of a Fund's futures
positions may not prove to be perfectly or even highly correlated with the
value of its portfolio securities, limiting the Fund's ability to hedge
effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market
for purposes of closing out futures positions.
REGULATORY RESTRICTIONS. To the extent required to comply with
Securities and Exchange Commission Release No. IC-10666, when purchasing a
futures contract or writing a put option, a Fund will maintain in a segregated
account cash or liquid high-grade securities equal to the value of such
contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of the liquidation value of such Fund's total assets after
taking into account unrealized profits and unrealized losses on any contracts
entered into. Such Fund will not engage in transactions in futures contracts or
options thereon for speculation, but only to attempt to hedge against changes in
market conditions affecting the values of securities which such Fund holds or
intends to purchase.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVES
The investment objective of each of the Funds is fundamental and may
not be changed without approval of the holders of a major ity of such Fund's
outstanding voting shares (which means the lesser of (1) 67% of the shares
represented at a meeting at which
B - 16
<PAGE> 18
more than 50% of the outstanding shares are represented or (2) more than 50% of
the outstanding shares).
In addition to the investment restrictions set forth in the
Prospectuses, the Money Market Fund may not:
1. Invest more than 5% of its total assets in securities of any
company having a record, together with its predecessors, of less than three
years of continuous operation;
2. Make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short; and
3. Underwrite securities of other issuers, except that the Money
Market Fund may purchase securities from the issuer or others and dispose of
such securities in a manner consistent with its investment objective.
Each of the Income Fund and the Income Equity Fund may not:
1. Invest in securities of an issuer (other than an agency or
instrumentality of the U.S. Government) which, together with any predecessor of
the issuer, has been in operation for less than three years if, immediately
after and as a result of such investment, more than 5% of the value of the
Fund's total assets would then be invested in the securities of such issuer; and
2. Invest more than 10% of the value of the Fund's net assets in fixed
time deposits which are non-negotiable and/or which impose a penalty for early
withdrawal and which have maturities of more than 7 days.
Finally, each of the Ohio Tax-Free Fund, the Stock Appreciation Fund,
the Large Company Fund and the Balanced Fund may not:
1. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities and except as may
be necessary to make margin payments in connection with derivative securities
transactions;
2. Underwrite the securities issued by other persons, except to the
extent that a Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
B - 17
<PAGE> 19
3. Purchase or sell commodities or commodity contracts, except to
the extent disclosed in the current Prospectus of the Fund; and
4. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction).
In addition to the investment restrictions contained in the
Prospectus, each Fund has adopted the following additional restrictions, which
may be changed by the Board of Directors without the vote of a Fund's
shareholders:
1. A Fund may not purchase or retain securities of an issuer if, to the
knowledge of the Company, officers, Trustees or Directors of the Company,
Provident, any sub-adviser or the Distributor, each owning beneficially more
than 1/2 of 1% of the securities of such issuer, own in the aggregate more than
5% of the securities of such issuer, or such persons or management personnel of
the Company, Provident, any sub-adviser or the Distributor have a substantial
beneficial interest in the securities of such issuer. Provident, any
sub-adviser, the Distributor or any affiliates thereof or any of their Trustees,
Directors, officers or employees may not purchase or sell as principal any
securities of the Funds. Nor may securities of any of the Funds be loaned to
Provident, any sub-adviser, the Distributor or any affiliates or any of their
Trustees, Directors, officers or employees.
In addition, each of the Ohio Tax-Free Fund, the Stock Appreciation
Fund, the Large Company Fund and the Balanced Fund may not:
1. Engage in any short sales, except to the extent disclosed in
the current Prospectus of the Fund;
2. Invest more than 10% of total assets in the securities of issuers,
which together with any predecessors, have a record of less than three years of
continuous operation;
3. Purchase participation or direct interests in oil, gas or other
mineral exploration or development programs (although investments by such Funds
in marketable securities of companies engaged in such activities are not
prohibited by this restriction);
4. Purchase securities of other investment companies, except (a)
in connection with a merger, consolidation, acquisition or reorganization, and
(b) to the extent permitted by the 1940 Act or pursuant to any exemptions
therefrom; and
5. Mortgage or hypothecate the Fund's assets in excess of one
third of the Fund's total assets.
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<PAGE> 20
In order to permit the sale of a Fund's shares in certain states, the
Company may make commitments more restrictive than the investment restrictions
described in the Prospectus. Should the Company determine that any such
commitment is no longer in the best interests of a Fund, it will revoke the
commitment by terminating sales of a Fund's shares in the state involved.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in asset value
is not a violation of the limit.
PORTFOLIO TURNOVER
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities for
the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose remaining maturities at the time of
acquisition were one year or less.
Because the Money Market Fund invests entirely in securities with
maturities of less than one year and because the Commission requires such
securities to be excluded from the calculation of portfolio turnover rate, the
portfolio turnover rate with respect to the Money Market Fund is expected to be
zero percent for regulatory purposes.
The portfolio turnover rates for each of the Funds (other than the
Money Market Fund and the Large Company Fund) for the two fiscal years ended
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund 12/31/96 12/31/95
---- -------- --------
<S> <C> <C>
Income Fund 53% 75%
Income Equity Fund 166% 180%
Ohio Tax-Free Fund 6% 34%
Balanced Fund 98%(1) 13%
Stock Appreciation 162% 46%(2)
Fund
- --------------------
</TABLE>
(1) The portfolio turnover rate of the Balanced Fund increased materially
for the fiscal year ended December 31, 1996, from the previous fiscal
year as such Fund's portfolio was realigned by its portfolio manager
in response to then current market conditions.
(2) Reflects operations for the fiscal period from October 1, 1995 through
December 31, 1995. For the fiscal year ended September 30, 1995, the
portfolio turnover rate for the Stock Appreciation Fund was 197%.
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<PAGE> 21
Portfolio turnover rates are not yet available for the Large Company
Fund because it commenced operations on January 2, 1997. However, the Large
Company Fund's portfolio turnover rate is not expected to exceed 30% for the
fiscal year ending December 31, 1997.
The portfolio turnover rate for each Fund may vary greatly from year
to year, as well as within a particular year, and may also be affected by cash
requirements for redemptions of shares. High portfolio turnover rates will
generally result in higher transaction costs, including brokerage commissions
to a Fund, and may result in additional tax consequences to such Fund's
shareholders. Portfolio turnover will not be a limiting factor in making
investment decisions.
- -------------------------------------------------------------------------------
DIVIDENDS AND TAXES
- -------------------------------------------------------------------------------
Each Fund intends to distribute to its shareholders dividends from net
investment income monthly and all net realized long-term capital gains annually
in shares of the Fund or, at the option of the shareholder, in cash.
Shareholders who have not opted prior to the record date for any distribution
to receive cash will have the number of such shares determined on the basis of
the Fund's net asset value per share computed at the end of the next business
day following the record date. Net asset value is used in computing the number
of shares in both gains and income distribution reinvestments. Account
statements and/or checks as appropriate will be mailed to shareholders within
seven days after a Fund pays the distribution. Unless a Fund receives
instructions to the contrary from a shareholder before the record date, it will
assume that the shareholder wishes to receive that distribution and all future
gains and income distributions in shares. Instructions continue in effect until
changed in writing.
It is not expected that the Income Fund, the Money Market Fund or the
Ohio Tax-Free Fund's income dividends will be eligible for the corporate
dividends received deduction. It is expected that a portion of the Income
Equity Fund, the Stock Appreciation Fund, the Large Company Fund and the
Balanced Fund's income distributions will be eligible for the 70% corporate
dividends received deduction.
ADDITIONAL TAX INFORMATION
Each of the Funds of the Company is treated as a separate entity for
federal income tax purposes and intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code") for
so long as such qualification is in the best interest of that Fund's
shareholders. In order to qualify as a regulated investment company, each Fund
must, among other things: derive at least 90% of its gross income from
B - 20
<PAGE> 22
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock or securities or foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities, or currencies; derive less than 30% of its gross income from the
sale or other disposition of stock, securities, options, futures, forward
contracts or foreign currencies held less than three months; and diversify its
investments within certain prescribed limits. In addition, to utilize the tax
provisions specially applicable to regulated investment companies, each Fund
must distribute to its shareholders at least 90% of its investment company
taxable income for the year and 90% of its interest income which is excludable
from income under Section 103(a) of the Code. In general, a Fund's investment
company taxable income will be its taxable income subject to certain
adjustments and excluding the excess of any net long-term capital gain for the
taxable year over the net short-term capital loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year.
Dividends declared in October, November and December in any year and
distributed in January of the following year will be treated as having been
paid in the prior year. If distributions during a calendar year were less than
the required amount, a Fund would be subject to a non-deductible excise tax
equal to 4% of the deficiency.
Although each such Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if for
any taxable year a Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
federal tax at regular corporate rates (without any deduction for distributions
to its shareholders). In such event, dividend distributions would be taxable to
shareholders to the extent of earnings and profits and would be eligible for the
dividends received deduction for corporations.
THE MONEY MARKET FUND, THE INCOME FUND, THE INCOME EQUITY FUND, THE
STOCK APPRECIATION FUND, THE LARGE COMPANY FUND AND THE BALANCED FUND. It Is
expected that each such Fund will distribute annually to shareholders all or
substantially all of the Fund's net ordinary income and net realized capital
gains and that such
B - 21
<PAGE> 23
distributed net ordinary income and distributed net realized capital gains will
be taxable income to shareholders for federal income tax purposes, even if paid
in additional shares of the Fund and not in cash.
Distribution by a Fund of the excess of net long-term capital gain
over net short-term capital loss is taxable to shareholders as long-term
capital gain in the year in which it is received, regardless of how long the
shareholder has held the shares. Such distributions are not eligible for the
dividends-received deduction.
Federal taxable income of individuals is subject to graduated tax
rates of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be in
excess of 39.6%, because adjustments reduce or eliminate the benefit of the
personal exemption and itemized deductions for individuals with gross income in
excess of certain threshold amounts.
Capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on capital gains of
individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss
each year to offset ordinary income. Excess net capital loss may be carried
forward to future years.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is subject to
an additional tax equal to 3% of taxable income over $15 million, but not more
than $100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset
capital gains and excess net capital loss may be carried back three years and
forward five years.
Certain corporations are entitled to a 70% dividends received
deduction for distributions from certain domestic corporations. Each Fund will
designate the portion of any distributions which qualify for the 70% dividends
received deduction. The amount so designated may not exceed the amount received
by the Fund for its taxable year that qualifies for the dividends received
deduction. Because all of the Money Market Fund's and Income Fund's net
investment income is expected to be derived from earned interest, it is
anticipated that no distributions from those Funds will qualify for the 70%
dividends received deduction.
B - 22
<PAGE> 24
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities, if any. Since less than 50% of
the value of any Fund's total assets at the end of its fiscal year is expected
to be invested in stock or securities of foreign corporations, a Fund will not
be entitled under the Code to pass through to its shareholders their pro rata
share of the foreign taxes paid by the Fund, if any. These taxes will be taken
as a deduction by such Fund.
THE OHIO TAX-FREE FUND. The Code permits a regulated investment
company which invests in Exempt Securities to pay to its shareholders
"exempt-interest dividends," which are excluded from gross income for federal
income tax purposes, if at the close of each quarter at least 50% of the value
of its total assets consist of Exempt Securities.
An exempt-interest dividend is any dividend or part thereof (other
than a capital gain dividend) paid by the Ohio Tax-Free Fund that is derived
from interest received by the Ohio Tax-Free Fund that is excluded from gross
income for federal income tax purposes, net of certain deductions, provided the
dividend is designated as an exempt-interest dividend in a written notice
mailed to share holders not later than sixty days after the close of the Ohio
Tax-Free Fund's taxable year. The percentage of the total dividends paid by
the Ohio Tax-Free Fund during any taxable year that qualifies as
exempt-interest dividends will be the same for all shareholders receiving
dividends during such year. Exempt-interest dividends shall be treated by the
Ohio Tax-Free Fund's shareholders as items of interest excludable from their
gross income for Federal income tax purposes under Section 103(a) of the Code.
However, a shareholder is advised to consult his tax adviser with respect to
whether exempt-interest dividends retain the exclusion under Section 103(a) of
the Code if such shareholder is a "substantial user" or a "related person" to
such user under Section 147(a) of the Code with respect to any of the Exempt
Securities held by the Ohio Tax-Free Fund. If a shareholder receives an
exempt-interest dividend with respect to any share and such share is held by
the shareholder for six months or less, any loss on the sale or exchange of
such share shall be disallowed to the extent of the amount of such
exempt-interest dividend.
In general, interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares is not deductible for federal income
tax purposes if the Ohio Tax-Free Fund distributes exempt-interest dividends
during the shareholder's taxable year. A shareholder of the Ohio Tax-Free Fund
that is a financial institution may not deduct interest expense attributable to
indebtedness incurred or continued to purchase or carry shares of the Ohio
Tax-Free Fund if the Ohio Tax-Free Fund distributes exempt-interest dividends
during the shareholder's taxable year. Certain federal income tax deductions of
property and casualty insurance companies holding shares of the Ohio Tax-Free
Fund and receiving exempt-interest dividends may also be adversely affected.
B - 23
<PAGE> 25
In certain limited instances, the portion of Social Security benefits received
by a shareholder which may be subject to federal income tax may be affected by
the amount of tax-exempt interest income, including exempt-interest dividends
received by shareholders of the Ohio Tax-Free Fund.
In the unlikely event the Ohio Tax-Free Fund realizes long-term
capital gains, the Ohio Tax-Free Fund intends to distribute any realized net
long-term capital gains annually. If the Ohio Tax-Free Fund distributes such
gains, the Ohio Tax-Free Fund will have no tax liability with respect to such
gains, and the distributions will be taxable to shareholders as long-term
capital gains regardless of how long the shareholders have held shares. Any
such distributions will be designated as a capital gain dividend in a written
notice mailed by the Ohio Tax-Free Fund to the shareholders not later than
sixty days after the close of the Ohio Tax-Free Fund's taxable year. It should
be noted, however, that capital gains are taxed like ordinary income except
that net capital gains of individuals are subject to a maximum federal income
tax rate of 28%. Net capital gains are the excess of net long-term capital
gains over net short-term capital losses. Any net short-term capital gains are
taxed at ordinary income tax rates. If a shareholder receives a capital gain
dividend with respect to any share and then sells the share before he has held
it for more than six months, any loss on the sale of the share is treated as
long-term capital loss to the extent of the capital gain dividend received.
Although it is expected that under normal market conditions at least
80% of the net assets of the Ohio Tax-Free Fund will be invested in bonds,
notes, debentures, commercial paper and other obligations, the interest on
which is not a preference item for individuals for the federal alternative
minimum tax, exempt-interest dividends attributable to interest on certain
municipal obligations in which the Ohio Tax-Free Fund may invest, including
those issued on or after August 8, 1986 to finance certain private activities,
will be treated as tax preference items in computing an individual's
alternative minimum tax. For individuals, the alternative minimum tax rate is
26% on alternative minimum taxable income up to $175,000 and 28% on the excess
of $175,000.
Also, all exempt-interest dividends of the Ohio Tax-Free Fund may
subject corporations to alternative minimum tax as a result of the inclusion of
such dividends in alternative minimum taxable income of 75% of the excess of
the adjusted current earnings over pre-adjustment alternative minimum taxable
income. Adjusted current earnings would include exempt-interest dividends of
the Ohio Tax-Free Fund. For corporations the alternative minimum tax rate
is 20%.
As indicated in the Prospectus, the Ohio Tax-Free Fund may acquire
rights regarding specified portfolio securities under puts. See "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments -
Puts" in this Statement of Additional
B - 24
<PAGE> 26
Information. The policy of the Ohio Tax-Free Fund is to limit its acquisition of
puts to those under which it will be treated for federal income tax purposes as
the owner of the Exempt Securities acquired subject to the put and the interest
on the Exempt Securities will be tax-exempt to it. Although the Internal Revenue
Service has issued a published ruling that provides some guidance regarding the
tax consequences of the purchase of puts, there is currently no guidance
available from the Internal Revenue Service that definitively establishes the
tax consequences of many of the types of puts that the Ohio Tax-Free Fund could
acquire under the 1940 Act. Therefore, although the Ohio Tax-Free Fund will
only acquire a put after concluding that it will have the tax consequences
described above, the Internal Revenue Service could reach a different
conclusion.
Distributions of exempt-interest dividends by the Ohio Tax-Free Fund
may be subject to local taxes even though a substantial portion of such
distributions may be derived from interest on obligations which, if received
directly, would be exempt from such taxes. The Ohio Tax-Free Fund will report
to its shareholders annually after the close of its taxable year the percentage
and source of interest income earned on municipal obligations held by the Ohio
Tax-Free Fund during the preceding year. Shareholders are advised to consult
their tax advisers concerning the application of state and local taxes.
GENERAL
Each Fund may be required by federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
to any shareholder, and the proceeds of redemption or the values of any
exchanges of shares of the Fund, if such shareholder (1) fails to furnish the
Fund with a correct taxpayer identification number, (2) under-reports dividend
or interest income, or (3) fails to certify to the Fund that he or she is not
subject to such withholding. An individual's taxpayer identification number is
his or her Social Security number.
Information set forth in the Prospectus and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of shares of a Fund. No attempt has been made to present a detailed explanation
of the federal income tax treatment of a Fund or its shareholders and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation. In addition,
the tax discussion in the Prospectus and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the date
of the Prospectus and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.
B - 25
<PAGE> 27
Information as to the federal income tax status of all distributions
will be mailed annually to each shareholder.
FISCAL YEAR
Each Fund's fiscal year ends December 31.
- -------------------------------------------------------------------------------
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
- -------------------------------------------------------------------------------
Shares of each of the Company's Funds are sold on a continuous basis
by the Distributor, and the Distributor has agreed to use appropriate efforts
to solicit all purchase orders. In addition to purchasing shares directly from
the Distributor, shares may be purchased through procedures established by the
Distributor in connection with the requirements of accounts at Provident or
Provident's affiliated entities (collectively, "Entities"). Customers
purchasing shares of the Funds may include officers, directors, or employees of
Provident or the Entities.
The Company may suspend the right of redemption or postpone the date
of payment for shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension, or
(d) an emergency exists as a result of which (i) disposal by the Company of
securities owned by it is not reasonably practical, or (ii) it is not reasonably
practical for the Company to determine the fair value of its net assets.
- ------------------------------------------------------------------------------
VALUATION OF SECURITIES
- ------------------------------------------------------------------------------
THE RIVERFRONT U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
The Directors have determined that the amortized cost method for
valuing the Money Market Fund's securities is the best method currently
available. The Directors review this method of valuation to ensure that such
Fund's securities are valued at their fair value, as determined by the
Directors in good faith. The Directors are obligated, as a particular
responsibility within the overall duty of care owed to shareholders, to
establish procedures reason ably designed, taking into account current market
conditions and the Money Market Fund's investment objective, to stabilize
the net
B - 26
<PAGE> 28
asset value per share as computed for the purposes of distribution and
redemption at $1.00 per share.
The Directors' procedures include periodically monitoring, as
appropriate and at such intervals as are reasonable in light of current market
conditions, the relationship between the amortized cost value per share and a
net asset value per share based upon available indications of market value. The
Directors will consider what steps should be taken, if any, in the event of a
difference of more than one-half of one percent between the two. The Directors
will take such steps as they consider appropriate including (1) the sale of the
Money Market Fund's instruments prior to maturity to realize capital gains or
losses or to shorten the average portfolio maturity; (2) withholding dividends
or payment of distributions from capital or capital gains; (3) redemptions of
shares in kind; or (4) establishing a net asset value per share by using
available market quotations or equivalents in order to minimize any material
dilution or other unfair results which might arise from differences between the
two.
The Money Market Fund limits its investments to instruments which the
Directors have determined present minimal credit risk and which are "Eligible
Securities" as defined by Rule 2a-7 of the 1940 Act. The Money Market Fund is
also required to maintain a dollar weighted average portfolio maturity (not more
than 90 days) appropriate to its objective of maintaining a stable net asset
value of $1.00 per share, and this precludes the purchase of any security with a
remaining maturity of more than 397 days. Should the disposition of a security
result in a dollar weighted average portfolio maturity of more than 90 days, the
Money Market Fund will invest its available cash in such a manner as to reduce
such maturity to 90 days or less as soon as practicable. For the purpose of
determining the dollar weighted average, any instrument with a stated maturity
of six months or less which has a coupon (or yield) which is subject to
renegotiation at designated periods of time (e.g., every 30 days), or any
instrument having a coupon (or yield) which fluctuates with the change in a
predetermined standard (e.g., the so-called "Prime Rate"), shall be deemed to
have a maturity equivalent to the time remaining to the next date of
renegotiation or the next date on which the predetermined standard may change.
It is the normal practice of the Money Market Fund to hold securities
to maturity and realize par therefor, unless a sale or other disposition is
mandated by redemption requirements or other extraordinary circumstances. Under
the amortized cost method of valuation traditionally employed by institutions
for valuation of money market instruments, neither the amount of daily income
nor the net asset value is affected by any unrealized appreciation or
depreciation of the Money Market Fund. In periods of declining interest rates,
the indicated daily yield on shares of the Money Market Fund, computed by
dividing its annualized daily income by the net asset value computed as above,
may tend to be lower than
B - 27
<PAGE> 29
similar computations made by utilizing a method of valuation based upon market
prices and estimates. In periods of rising interest rates, the daily yield of
shares at the value computed as described above may tend to be higher than a
similar computation made by utilizing a method of calculation based upon market
prices and estimates.
Since the net income of the Money Market Fund is declared as a
dividend each time net income is determined, the net asset value per share
remains at $1.00 per share immediately after each dividend declaration. The
Money Market Fund expects to have net income at the time of each dividend
determination made at the close of the Exchange. If for any reason there is a
net loss which would result in the Money Market Fund's not being able to price
its shares at $1.00 per share, the Money Market Fund will first offset such
amount pro rata against dividends accrued during the month in each shareholder
account. To the extent that such a net loss would exceed such accrued dividends,
the Money Market Fund will reduce the number of its outstanding shares by having
each shareholder contribute to the Money Market Fund's capital his pro rata
portion of the total number of shares required to be cancelled in order to
maintain a net asset value of $1.00. EACH SHAREHOLDER WILL BE DEEMED TO HAVE
AGREED TO SUCH A CONTRIBUTION IN THESE CIRCUMSTANCES BY HIS INVESTMENT IN THE
MONEY MARKET FUND.
THE RIVERFRONT U.S. GOVERNMENT INCOME FUND, THE RIVERFRONT INCOME
EQUITY FUND, THE RIVERFRONT OHIO TAX-FREE BOND FUND, THE RIVERFRONT
STOCK APPRECIATION FUND, THE RIVERFRONT LARGE COMPANY FUND AND THE
RIVERFRONT BALANCED FUND
Current values for such Funds' securities are determined as follows:
(1) Securities that are traded on a securities exchange or the
over-the-counter National Market System (NMS) are valued on the basis of the
closing sales price on the exchange where primarily traded or NMS prior to the
time of the valuation, provided that a sale has occurred and that this price
reflects current market value according to procedures established by the Board
of Directors;
(2) Securities traded in the over-the-counter market, other than on
NMS, for which market quotations are readily available, or in the event no sale
has occurred under (1) above, are valued at the mean of the bid and asked
prices at the time of valuation;
(3) Short-term instruments which are purchased with maturities of
sixty days or less are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount) which, when
combined with accrued interest, approximates market; short-term instruments
maturing in more than sixty days when purchased which are held on the sixtieth
day prior to maturity are valued at amortized cost (market value on the
sixtieth day adjusted for amortization of premium or accretion of
B - 28
<PAGE> 30
discount) which, when combined with accrued interest, approximates market; and
which in either case reflects fair value as determined by the Board of
Directors;
(4) Short-term money market instruments having maturities of more than
sixty days for which market quotations are readily available are valued at
current market value; where market quotations are not available, such
instruments are valued at fair value as determined by the Board of Directors;
and
(5) The following are valued at prices deemed in good faith to be fair
under procedures established by the Board of Directors: (a) securities,
including restricted securities, for which complete quotations are not readily
available, (b) listed securities or those on NMS if, in the Company's opinion,
the last sales price does not reflect a current market value or if no sale
occurred, and (c) other assets.
- ------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
- ------------------------------------------------------------------------------
The Directors and officers of the Company are:
J. VIRGIL EARLY, Age 59, Director; Principal in J. Virgil Early &
Associates and former Executive Vice President of Huntington Bankshares, Inc.
Mr. Early's business address is J. Virgil Early & Associates, 11 Bliss Lane,
Jekyll Island, Georgia 31527.
WILLIAM M. HIGGINS, Age 53, Director; President and Director of Sena
Weller Rohs Williams Inc.; former President and Director of Reynolds DeWitt
Advisers, Inc. and former Vice President of Reynolds DeWitt Securities Co. Mr.
Higgins' business address is Sena Weller Rohs Williams, Inc., 300 Main Street,
4th Fl., Cincinnati, OH 45202.
STEPHEN G. MINTOS, Age 43, Director and President of the Company;
Executive Vice President, BISYS Fund Services Limited Partnership.*
HARVEY M. SALKIN, PH.D., Age 51, Director; Retired; former President
and major shareholder of Mathematical Investing Systems, Inc.* Dr. Salkin's
business address is Case Western Reserve University, Department of Operations
Research, 10900 Euclid Avenue, Cleveland, Ohio 44106-7235.
GEORGE O. MARTINEZ, Age 38, Vice President; employee of BISYS Fund
Services Limited Partnership since April, 1995; prior to
B - 29
<PAGE> 31
April, 1995, Vice President and Associate General Counsel of Alliance Capital
Management L.P. (investment firm).
WALTER B. GRIMM, Age 51, Vice President and Treasurer; employee of
BISYS Fund Services Limited Partnership since June, 1992; prior to June, 1992,
President of Leigh Investments Consulting (investment firm).
JAMES E. WHITE, Age 42, Secretary; employee of BISYS Fund Services
Limited Partnership since December, 1995; prior to December, 1995, Sales
Director/Variable Products at Financial Horizons Distributors Agency, Inc.
(third party products marketer to banks).
ALAINA V. METZ, Age 30, Assistant Secretary; employee of BISYS Fund
Services Limited Partnership since June, 1995; prior to June, 1995, supervisor
at Alliance Capital Management, L.P. (investment firm).
*These Directors are interested persons of the Company as defined
under the 1940 Act.
Except as set forth above, the address of all Directors and officers
of the Company is 3435 Stelzer Road, Columbus, Ohio 43219.
During the fiscal year ended December 31, 1996, no Director or officer
affiliated with Provident, DRZ, any other sub-adviser, the Distributor or BISYS
Fund Services Ohio, Inc. received any direct remuneration from the Company.
The following table sets forth information regarding all compensation
paid by the Company to its directors for their services as directors during the
fiscal year ended December 31, 1996. The Company has no pension or retirement
plans.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total Compensation
Aggregate from the Company
Name and Position Compensation from and the Fund
with the Company the Company Complex*
----------------- ----------------- ------------------
<S> <C> <C>
J. Virgil Early, $8,500 $8,500
Director
William M. Higgins, 8,500 8,500
Director
Harvey M. Salkin, 8,500 8,500
Director
Stephen G. Mintos, -0- -0-
Director
</TABLE>
B - 30
<PAGE> 32
* For purposes of this Table, Fund Complex means one or more mutual
funds, including the Funds, which have a common investment adviser or
affiliated investment advisers or which hold themselves out to the
public as being related.
- -----------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
- -----------------------------------------------------------------------------
INVESTMENT ADVISER
Subject to the general supervision of the Company's Board of Directors
and in accordance with the Funds' investment objectives, policies and
restrictions, investment advisory services are provided to the Funds of the
Company by The Provident Bank, One East Fourth Street, Cincinnati, Ohio 45202
("Provident") pursuant to the Investment Advisory Agreement dated as of August
1, 1994, as amended as of January 1, 1997 (the "Investment Advisory
Agreement"). Prior to August 1, 1994, such services were provided to the Money
Market Fund, the Income Fund and the Income Equity Fund pursuant to a
Management Agreement dated August 6, 1992, between the Company and Provident
(the "Prior Management Agreement"), an Investment Advisory Agreement between
the Company and Provident with respect to the Income Fund dated April 30, 1993
(the "Provident Advisory Agreement"), and an Investment Advisory Agreement
between the Company and SunBank Capital Management, N.A. ("SunBank") with
respect to the Income Equity Fund dated August 1, 1992 (the "SunBank
Agreement").
Provident's services as investment adviser are provided through its
Capital Management Group. Provident's Trust and Financial Services Group
currently manages assets of approximately $800 million. The Company is the
first registered investment company for which Provident has provided investment
advisory services.
Provident is an Ohio banking corporation which, with its affiliates,
on December 31, 1996, provided commercial lending, lease financing, consumer
credit, credit card, discount brokering, data processing, personal loan
financing and trust and asset management services through over 70 branch
offices located in Ohio and Kentucky. Provident is a subsidiary of Provident
Bancorp, Inc., a bank holding company headquartered in Cincinnati, Ohio, with
approximately $6.8 billion in total consolidated assets as of December 31,
1996. Through its Ohio and Kentucky banking subsidiaries, Provident Bancorp,
Inc. provides a wide range of banking services to individuals and businesses.
Provident's Capital Management Group employs an experienced staff of
professional investment analysts, portfolio managers and traders and uses
several proprietary computer-based systems in
B - 31
<PAGE> 33
conjunction with fundamental analysis to identify investment opportunities.
Under the Investment Advisory Agreement, Provident has agreed to
provide, either directly or through one or more sub-advisers, investment
advisory services for each of the Company's Funds as described in the
Prospectus. For the services provided and expenses assumed pursuant to the
Investment Advisory Agreement, each of the Company's Funds pays Provident a
fee, computed daily and paid monthly, at an annual rate calculated as a
percentage of the average daily net assets of that Fund. The annual rates for
the Funds are as follows: fifteen one-hundredths of one percent (.15%) for the
Money Market Fund; forty one-hundredths of one percent (.40%) for the Income
Fund; ninety-five one-hundredths of one percent (.95%) for the Income Equity
Fund; fifty one-hundredths of one percent (.50%) for the Ohio Tax-Free Fund;
eighty one-hundredths of one percent (.80%) for the Stock Appreciation Fund;
eighty one-hundredths of one percent (.80%) for the Large Company Fund; and
ninety one-hundredths of one percent (.90%) for the Balanced Fund. Provident may
periodically voluntarily reduce all or a portion of its advisory fee with
respect to a Fund to increase the net income of that Fund available for
distribution as dividends.
Under the Prior Management Agreement, for the period from January 1,
1994 to July 31, 1994, the Income Fund incurred $58,055 in management fees, the
Income Equity Fund incurred $69,030 in management fees, and the Money Market
Fund incurred $130,493 in management fees. Under the Investment Advisory
Agreement, for the fiscal years ended December 31, 1996 and 1995, and for the
period from August 1, 1994 to December 31, 1994, the Funds incurred the
following investment advisory fees:
<TABLE>
<CAPTION>
Period from
Year Ended Year Ended 8/01/94 to
Fund 12/31/96 12/31/95 12/31/94
---- ---------- ---------- -----------
<S> <C> <C> <C>
Money Market $259,214 $221,912 $96,715
Income 143,483 144,461 68,703
Income Equity 688,484 407,229 59,054
Ohio Tax-Free 56,870 56,114 20,864
Stock 294,183 83,982(1) N/A(1)
Appreciation
Balanced 183,256 76,231 2,255(2)
- --------------------
</TABLE>
(1) Commenced operations on September 30, 1995.
(2) Commenced operations on September 1, 1994.
B - 32
<PAGE> 34
The Company paid no investment advisory fees to Provident with respect
to the Large Company Fund for the fiscal periods listed in the foregoing table
because the Large Company Fund did not commence operations until January 2,
1997.
For the fiscal years ended December 31, 1996, 1995 and 1994, Provident
waived investment advisory fees or reimbursed the Funds for certain expenses in
the following amounts:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 12/31/96 12/31/95 12/31/94
---- ---------- ---------- -----------
<S> <C> <C> <C>
Money Market -- -- --
Income -- $548 --
Income Equity $36,661 73,635 --
Ohio Tax-Free 11,373 11,778 $4,394
Stock Appreciation -- 900 --
Balanced 28,720 69,745 16,264
</TABLE>
The Directors of Provident are Allen L. Davis, Jack M. Cook, Thomas D.
Grote, Jr., Philip R. Myers, Joseph A. Pedoto, Sidney A. Peerless, M.D., and
Joseph A. Steger.
The principal executive officers of Provident are Allen L. Davis,
President and Chief Executive Officer; Philip R. Myers, Senior Executive Vice
President; Robert L. Hoverson, Executive Vice President; John R. Farrenkopf,
Senior Vice President and Chief Financial Officer; and Mark E. Magee, Senior
Vice President, General Counsel and Secretary.
Unless sooner terminated, the Investment Advisory Agreement and the
Sub-Investment Advisory Agreement (as described below) continue in effect as to
a particular Fund for successive one-year periods ending December 31 of each
year if such continuance is approved at least annually by the Company's Board
of Directors or by vote of a majority of the outstanding shares of such Fund
(as defined under "The Company and its Funds" in the Prospectus) and a majority
of the Directors who are not parties to the Investment Advisory Agreement or
the Sub-Investment Advisory Agreement or interested persons (as defined in the
1940 Act) of any party to the Investment Advisory Agreement or the
Sub-Investment Advisory Agreement by votes cast in person at a meeting called
for such purpose. The Investment Advisory Agreement and the Sub-Investment
Advisory Agreement are terminable as to a particular Fund at any time on 60
days' written notice without penalty by the Fund, by vote of a majority of the
outstanding shares of that Fund, or by Provident, or, in the case of a
sub-adviser, on 60 days' prior written notice from such sub-adviser. Such
Agreements also terminate automatically in the event of any assignment, as
defined in the 1940 Act.
B - 33
<PAGE> 35
The Investment Advisory Agreement and the Sub-Investment Advisory
Agreement provide that the respective investment adviser or sub-investment
adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Company in connection with the performance of their
duties, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the respective
investment advisers or sub-investment adviser in the performance of their
duties, or from reckless disregard of their duties and obligations thereunder.
SUB-ADVISER
Pursuant to the terms of the Investment Advisory Agreement, Provident
has entered into a Sub-Investment Advisory Agreement dated as of August 15,
1995, as amended as of January 1, 1997, with DePrince, Race & Zollo, Inc., 201
South Orange Avenue, Suite 850, Orlando, Florida 32801 ("DRZ"). Pursuant to the
terms of such Sub-Investment Advisory Agreement, DRZ has been retained by
Provident to manage the investment and reinvestment of that portion of the
assets of the Income Equity Fund allocated to DRZ by the Company's Board of
Directors subject to the direction and control of the Company's Board of
Directors.
Under this arrangement, DRZ is responsible for the day-to-day
management of that specified portion of the Income Equity Fund's assets,
investment performance, policies and guidelines, and maintaining certain books
and records, and Provident is responsible for selecting and monitoring the
performance of DRZ, the day-to-day management of that portion of the Income
Equity Fund's assets allocated to it by the Company's Board of Directors, and
for reporting the activities of DRZ in managing the Income Equity Fund to the
Company's Board of Directors.
For its services provided and expenses assumed pursuant to its
Sub-Investment Advisory Agreement with Provident, DRZ receives from Provident,
a fee computed daily and paid monthly, at the annual rate of fifty
one-hundredths of one percent (0.50%) of the Income Equity Fund's average daily
net assets of up to $55 million and fifty-five one-hundredths of one percent
(0.55%) of the Income Equity Fund's average daily net assets of $55 million and
above. In addition, DRZ has indicated a willingness to manage net assets of the
Income Equity Fund up to $75 million (exclusive of capital appreciation and
depreciation and reinvestment of dividends), but not beyond. The Board of
Directors have considered and shall continue to consider such limitation in
determining what portion of the Income Equity Fund's assets should be allocated
to DRZ to be managed.
DRZ is owned jointly by Gregory M. DePrince, John D. Race and Victor
A. Zollo, Jr. DRZ was established on March 1, 1995, to provide mutual funds
and other institutional investors with
B - 34
<PAGE> 36
investment management services. Prior to April 1995, Messrs. DePrince, Race and
Zollo were officers and directors of SunBank Capital Management, N.A., 200 South
Orange Avenue, Orlando, Florida 32801 ("SunBank"), and now serve as the
directors and officers of DRZ.
From August 1, 1994, to August 14, 1995, SunBank served as the
sub-investment adviser to the Income Equity Fund pursuant to a Sub-Investment
Advisory Agreement dated August 1, 1994 (the "SunBank Sub-Advisory Agreement").
From August 1, 1992 to July 31, 1994, SunBank served as investment adviser to
the Income Equity Fund pursuant to the SunBank Agreement. Pursuant to the
SunBank Sub-Advisory Agreement and the SunBank Agreement, SunBank received a
fee, computed daily and paid monthly, at the annual rate of thirty-five
one-hundredths of one percent (0.35%) of the Income Equity Fund's average daily
net assets.
For the period from January 1, 1994 to July 31, 1994, the Income
Equity Fund paid SunBank $67,502 in advisory fees. Pursuant to the terms of the
SunBank Sub-Advisory Agreement, for the period from August 1, 1994, to December
31, 1994, and for the period from January 1, 1995, to August 14, 1995,
Provident paid $51,630 and $92,579, respectively, to SunBank in sub-investment
advisory fees. For the year ended December 31, 1996 and for the period from
August 15, 1995 to December 31, 1995, Provident paid $298,193 and $77,303,
respectively, to DRZ in sub-investment advisory fees.
From August 1, 1994 to December 31, 1996, James Investment Research,
Inc., 1349 Fairground Road, Beavercreek, Ohio 45385 ("JIR"), served as the
sub-investment adviser to the Balanced Fund pursuant to a Sub-Investment
Advisory Agreement dated August 1, 1994 (the "JIR Sub-Advisory Agreement"). For
its services provided and expenses assumed pursuant to the JIR Sub-Advisory
Agreement with Provident, JIR received from Provident a fee, computed daily and
paid monthly, at the annual rate of fifty one-hundredths of one percent (.50%)
of the Balanced Fund's average daily net assets. Pursuant to the terms of the
JIR Sub-Advisory Agreement, for the fiscal years ended December 31, 1996 and
1995, and for the period of September 1, 1994, through December 31, 1994,
Provident paid JIR a total of $77,267, $25,332 and $2,819, respectively, in sub-
investment advisory fees.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
In addition to serving as investment adviser, Provident has entered
into an Amended and Restated Custodian, Fund Accounting and Recordkeeping
Agreement with the Company to provide custody and certain fund accounting
services to the Funds. Under the Amended and Restated Custodian, Fund
Accounting and Recordkeeping Agreement dated as of August 1, 1994, as amended
as of January 1, 1997, Provident receives an annual fee from each Fund,
computed daily and paid monthly, at an annual rate calculated as a percentage
of the average daily net assets of that Fund. The annual rates for the
B - 35
<PAGE> 37
Funds are as follows: .05% for the Money Market Fund; .10% for the Income Fund;
.15% for each of the Income Equity Fund, the Balanced Fund, the Large Company
Fund and the Stock Appreciation Fund; and .14% for the Ohio Tax-Free Fund. As
custodian, Provident is responsible for safeguarding all securities and cash of
the Funds.
The following table sets forth the fees incurred by the Funds for the
custody and fund accounting services provided by Provident for the fiscal years
ended December 31, 1996, and 1995, and for the period of August 1, 1994 through
December 31, 1994. No such fees were paid by the Large Company Fund during
these periods because the Large Company Fund did not commence operations until
January 2, 1997.
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31, August 1, 1994
----------------- through
Fund 1996 1995 December 31, 1994
---- ---- ---- ------------------
<S> <C> <C> <C>
Money Market $86,401 $73,973 $60,632
Income 35,870 36,115 21,295
Income Equity 108,638 72,596 38,288
Balanced 30,516 12,666 835(2)
Stock Appreciation 55,160 15,578(1) N/A
Ohio Tax-Free 15,923 15,708 5,764
</TABLE>
- ------------------------------------
(1) Commenced operations September 30, 1995.
(2) Commenced operations September 1, 1994.
Under the Master Transfer and Recordkeeping Agreement dated February
24, 1992, as amended as of January 1, 1997, the Funds pay Provident the
following fees for transfer agency services. The Money Market Fund pays a
minimum annual fee of $24,000 for the first 500 shareholder accounts. For
shareholder accounts of the Money Market Fund in excess of 500, the Money
Market Fund pays an additional annual fee of $24 for each open shareholder
account and $12 for each closed shareholder account. The Stock Appreciation
Fund pays a minimum annual fee of $18,000 for the first 500 shareholder
accounts. For shareholder accounts in excess of 500, the Stock Appreciation
Fund pays an additional annual fee of $12 for each open shareholder account and
$9 for each closed shareholder account. All other Funds pay a minimum annual
fee of $20,000 for the first 500 shareholder accounts and, for shareholder
accounts in excess of 500, an additional annual fee of $20 for each open
shareholder account and $10 for each closed shareholder account. Such fees are
calculated and paid on a per class basis.
B - 36
<PAGE> 38
The following table sets forth the total amount of fees incurred by
the Funds with respect to transfer agency and recordkeeping services for the
fiscal years ended December 31, 1996, 1995 and 1994. No such fees were paid by
the Large Company Fund during these periods because the Large Company Fund did
not commence operations until January 2, 1997.
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
Fund 12/31/96 12/31/95 12/31/94
---- -------- -------- --------
<S> <C> <C> <C>
Money Market $79,137 $59,257 $30,122
Income 38,891 37,402 11,528
Income Equity 58,165 42,860 12,105
Balanced 44,600 22,857 263(1)
Stock Appreciation 38,988 9,834(2) N/A
Ohio Tax-Free 26,007 25,445 1,686(3)
</TABLE>
- -------------------------------
(1) Commenced operations August 1, 1994
(2) Commenced operations September 30, 1995.
(3) Commenced operations September 1, 1994.
- ----------------------------------------------------------------------------
SECURITIES TRANSACTIONS
- ----------------------------------------------------------------------------
Each adviser, under policies established by the Board of Directors,
selects broker-dealers to execute transactions for the Funds. It is the policy
of the Company, in effecting transactions in portfolio securities, to seek best
execution of and best price for orders. The determination of what may
constitute best execution and price in the execution of a transaction by a
broker involves a number of considerations, including, without limitation, the
overall direct net economic result to a Fund, involving both the price paid or
received and any commissions and other costs paid, the breadth of the market
where executed, the efficiency with which the transaction is effected, the
ability to effect the transaction at all where a large block is involved, the
availability of the broker to stand ready to execute potentially difficult
transactions in the future and the financial strength and stability of the
broker. Such considerations are judgmental and are weighed by the Board of
Directors in determining the overall reasonableness of brokerage commissions
paid. In determining best execution and selecting brokers to execute
transactions, the advisers may consider brokerage and research services, such
as analyses and reports concerning issuers, industries, securities, economic
factors and trends and other statistical and factual
B - 37
<PAGE> 39
information provided to the Funds or to any other account over which the
advisers or their affiliates exercise investment discretion. Each adviser is
authorized to pay broker-dealers who provide such brokerage and research
services a commission for executing each such Fund's transactions which is in
excess of the amount of commission another broker would have charged for
effecting that transaction if, but only if, the adviser determines in good faith
that such commission was reasonable in relation to the value of the brokerage
and research services provided by such broker viewed in terms of that particular
transaction or in terms of all of the accounts over which it exercises
investment discretion. Any such research and other statistical and factual
information provided by brokers to a Fund or to the adviser is considered to be
in addition to and not in lieu of services required to be performed by such
adviser under its agreement with the Company. The cost, value and specific
application of such information are indeterminable and hence are not practicably
allocable among the Funds and other clients of the adviser who may indirectly
benefit from the availability of such information. Similarly, the Funds may
indirectly benefit from information made available as a result of transactions
effected for such other clients. Under the Investment Advisory Agreements, the
advisers are permitted to pay higher brokerage commissions for brokerage and
research services in accordance with Section 28(e) of the Securities Exchange
Act of 1934. In the event the advisers do follow such a practice, they will do
so on a basis which is fair and equitable to the Company and its Funds.
From time to time DRZ may direct brokerage transactions for the Income
Equity Fund to brokerage firms in return for research services from such firms.
Such research services include performance measurement services, databases
containing financial and other information on companies, news retrieval
systems, stock quote systems, and computer software programs that measure
performance, identify companies on the basis of certain selection criteria, and
allocate trades. For the fiscal year ended December 31, 1996, DRZ directed such
transactions to the following brokers in the following amounts and paid the
following brokerage commissions:
<TABLE>
<CAPTION> Brokerage
Broker Amount of Transaction Commissions
------ --------------------- -----------
<S> <C> <C>
Alpha Management $964,173 $1,551
Donaldson, Lufkin & 8,221,133 12,455
Jenrette
Donaldson and Company 635,817 814
Factset 4,261,816 6,396
First Boston Co. 4,956,443 7,975
Merill Lynch Co. 1,884,699 2,793
</TABLE>
B - 38
<PAGE> 40
<TABLE>
<CAPTION> Brokerage
Broker Amount of Transaction Commissions
------ --------------------- -----------
<S> <C> <C>
Paine Webber Co. 5,198,062 7,810
Robertson, Stephens 174,167 258
Company
Standard & Poors Co. 3,436,240 4,694
----------- -------
TOTAL $29,732,550 $44,746
=========== =======
</TABLE>
In addition, DRZ, on behalf of the Income Equity Fund, in the past has
directed brokerage transactions to First Boston Corporation, which participates
in fee recapture programs whereby such brokerage firms refund a portion of the
Income Equity Fund's brokerage commissions to the Income Equity Fund. For the
fiscal year ended December 31, 1995, the total amount of brokerage transactions
directed by DRZ to First Boston Corp. was $29,487,974, and the total amount of
brokerage commissions paid to First Boston Corp. under this arrangement was
$50,199.
On behalf of the Stock Appreciation Fund, Provident from time to time
directs brokerage transactions to Autranet (a subsidiary of Donaldson, Lufkin &
Jenrette), to William O'Neill & Company, and to Kalb Vorrhis & Company in
return for fundamental and technical research on equity securities. For the
fiscal year ended December 31, 1996, Provident directed brokerage transactions
to these firms in the following amounts: $37,016,998, $28,391,761, and
$2,296,553, respectively, and paid to such brokers on behalf of the Stock
Appreciation Fund the following brokerage commissions for those transactions:
$84,283, $60,054 and $5,100, respectively.
The Money Market Fund, the Income Fund and the Ohio Tax-Free Fund
expect that purchases and sales of income securities usually will be principal
transactions. Income securities are normally purchased directly from the issuer
or from an underwriter or market maker for the securities. There usually will
be no brokerage commissions paid by such Fund for such purchases. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark up
or reflect a dealer's mark down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
The Income Fund may seek to maximize the rate of return on its
portfolio by engaging in short-term trading consistent with its investment
objective. Trading will occur primarily in anticipation of or in response to
market developments or to take advantage of a market decline (a rise in
interest rates) or to purchase in anticipation of a market rise (a decline in
interest rates) and later sell. In addition, a security may be sold and another
purchased at approximately the same time to take advantage of what
B - 39
<PAGE> 41
the adviser believes to be a temporary disparity in the normal yield
relationship between the two securities. Yield disparities may occur for reasons
not directly related to the investment quality of particular issues or the
general movement of interest rates, due to such things as changes in the overall
demand for, or supply of, various types of U.S. government securities and other
eligible securities or changes in the investment objectives of investors. This
policy of short-term trading may result in a higher portfolio turnover and
increased expenses.
The Income Equity Fund, the Stock Appreciation Fund, the Large Company
Fund and the Balanced Fund expect that purchases and sales of equity securities
usually will be effected through brokerage transactions for which commissions
will be payable. Purchases from underwriters will include the underwriting
commission or concession, and purchases from dealers serving as market makers
will include a dealer's mark up or mark down. Where transactions are made in
the over-the-counter market, such Fund will deal with primary market makers
unless more favorable prices are otherwise obtainable.
The Income Equity Fund may participate, if and when practicable, in
group bidding for the purchase directly from an issuer of certain securities
for such Fund in order to take advantage of the lower purchase price available
to members of such a group.
The Company's Board of Directors has determined that each Fund may
follow a policy of considering sales of shares as a factor in the selection of
broker-dealers to execute portfolio transactions, subject to the requirements of
best execution, including best price, described above.
The policy of the Company with respect to brokerage is and will be
reviewed by the Board of Directors from time to time. Because of the
possibility of further regulatory developments affecting the securities
exchanges and brokerage practices generally, the foregoing practices may be
changed, modified or eliminated.
Investment decisions for the Funds are made independently from similar
accounts managed by the advisers. Such similar accounts may also invest in the
same securities as the Funds. When a purchase or sale of the same security is
made at substantially the same time on behalf of a Fund and such accounts
managed by the advisers, the transaction will be averaged as to price and
available investments allocated as to amount in the manner which each adviser
believes to be equitable to a Fund and such accounts. In some instances, these
investment procedures may adversely affect the price paid or received by a Fund
or the size of the position obtained by a Fund. To the extent permitted by law,
each adviser may aggregate the securities to be sold or purchased for a Fund
with those to be sold or purchased for its similar accounts in order to obtain
best execution.
B - 40
<PAGE> 42
The following table sets forth brokerage commissions paid by the Funds
for the past three fiscal years:
<TABLE>
<CAPTION>
For the Year Ended(1)
Fund 12/31/96 12/31/95 12/31/94
---- -------- -------- --------
<S> <C> <C> <C>
Money Market $ -0- $ -0- $ -0-
Income -0- -0- -0-
Income Equity 304,979(2) 269,007(3) 93,502
Balanced 27,535 15,465 2,217
Stock 218,171 446,816(4) 557,458(5)
Appreciation
Ohio Tax-Free -0- -0- -0-
- --------------------
</TABLE>
(1) Unless otherwise indicated, no brokerage commissions were paid to an
affiliated broker-dealer.
(2) Of this amount, $76,751 was paid to Provident Securities & Investment
Company, an affiliate of Provident.
(3) Of this amount, $67,723 was paid to Provident Securities & Investment
Company, an affiliate of Provident.
(4) Includes the fiscal year ended September 30, 1995 and the fiscal
period of October 1, 1995, through December 30, 1995.
(5) For the fiscal year ended September 30, 1994.
No brokerage commissions were paid by the Large Company Fund during
any of the foregoing periods, because the Large Company Fund did not commence
operations until January 2, 1997.
During the fiscal year ended December 31, 1996, the Money Market Fund,
the Income Fund, the Ohio Tax-Free Fund and the Stock Appreciation Fund held
securities of their regular brokers or dealers, as defined in Rule 10b-1 under
the 1940 Act, or their parent companies, including those of Dean Witter,
Donaldson Lufkin & Jenrette, Goldman Sachs & Co., Lehman Brothers Holdings,
Inc., Merrill Lynch & Co., Inc., PaineWebber Group, Inc. and Prudential. At
December 31, 1996, the Money Market Fund held approximately $7,000,000 of
Merrill Lynch discount notes, an $18,295,000 repurchase agreement with Dean
Witter and a $35,000,000 repurchase agreement with Prudential Funding Corp. At
December 31, 1996, the Income Fund held approximately $540,000 of Lehman
Brothers Holdings corporate bonds, and the Ohio Tax-Free Fund held
approximately $443,000 of the Goldman Tax-Free Fund.
B - 41
<PAGE> 43
- -------------------------------------------------------------------------------
ADMINISTRATOR
- ------------------------------------------------------------------------------
BISYS Fund Services Limited Partnership (formerly The Winsbury
Company) serves as administrator (the "Administrator") to the Company and each
Fund pursuant to the Administration Agreement dated February 1, 1996, as
amended as of January 1, 1997 (the "Administration Agreement"). The
Administrator assists in supervising all operations of each Fund (other than
those performed by Provident and DRZ under the Investment Advisory Agreement
and Sub-Investment Advisory Agreement, as applicable, and by Provident
under the Custodian, Fund Accounting and Recordkeeping Agreement and under the
Master Transfer and Recordkeeping Agreement). The Administrator is a
broker-dealer registered with the Commission, and is a member of the National
Association of Securities Dealers, Inc. The Administrator provides financial
services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities for the Company, furnish statistical and research
data, clerical and certain bookkeeping services and stationery and office
supplies; prepare the periodic reports to the Commission on Form N-SAR or any
replacement forms therefor; compile data for, prepare for execution by the
Funds and file all the Funds' federal and state tax returns and required tax
filings other than those required to be made by the Funds' custodian and
transfer agent; prepare compliance filings pursuant to state securities laws;
assist to the extent requested by the Company with the Company's preparation of
its Annual and SemiAnnual Reports to Shareholders and its Registration
Statements (on Form N-1A or any replacement therefor); compile data for,
prepare and file timely Notices to the Commission required pursuant to Rule
24f-2 under the 1940 Act; keep and maintain the financial accounts and records
of the Funds, including calculation of daily expense accruals; in the case of
the Money Market Fund, periodic review of the amount of the deviation, if any,
of the current net asset value per share (calculated using available market
quotations or an appropriate substitute that reflects current market
conditions) from the Money Market Fund's amortized cost price per share; and
generally assist in all aspects of the Company's operations other than those
performed by Provident and DRZ under the Investment Advisory Agreement and
Sub-Investment Advisory Agreement, and by Provident under the Custodian, Fund
Accounting and Recordkeeping Agreement and under the Master Transfer and
Recordkeeping Agreement. Under the Administration Agreement, the Administrator
may delegate all or any part of its responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
calculated daily and paid periodically,
B - 42
<PAGE> 44
at the annual rate of 0.20% of that Fund's average daily net assets. The
Administrator may voluntarily reduce all or a portion of its fee with respect to
any Fund in order to increase the net income of one or more of the Funds
available for distribution as dividends.
Unless sooner terminated as provided therein, the Administration
Agreement will continue in effect until December 31, 1997. The Administration
Agreement thereafter shall be renewed automatically for successive two-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term. The Administrative Agreement is terminable with respect to a particular
Fund only upon mutual agreement of the parties to the Administration Agreement
and for cause (as defined in the Administration Agreement) by the party
alleging cause, on no less than 60 days' written notice by the Company's Board
of Directors or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error or judgment or mistake of law or any loss suffered by
the Company in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or from the reckless
disregard by the Administrator of its obligations and duties thereunder.
The following table sets forth the fees paid by the Funds for
administrative services for the past two fiscal years and the period of
February 1, 1994 through December 31, 1994:
<TABLE>
<CAPTION>
From 2/1/94
Year Ended Year Ended through
Fund 12/31/96 12/31/95 12/31/94
---- -------- -------- --------
<S> <C> <C> <C>
Money Market $345,611 $296,225 282,711(1)
Income 71,742 72,231 53,444(1)
Income Equity 144,850 96,796 59,369(1)
Ohio Tax-Free 22,744 22,439 8,346(2)
Stock Appreciation 73,546 20,771(3) N/A
Balanced 40,688 16,888 1,113(4)
- --------------------
</TABLE>
(1) Keystone Custodian Funds, Inc., 200 Berkeley Street, Boston,
Massachusetts 02116 ("Keystone") provided administration services for
the one-month period ended January 31, 1994. For such period the
Income Fund paid Keystone an administration fee of $8,178, the Income
Equity Fund paid Keystone an administration fee of $8,904, and the
Money Market Fund paid
B - 43
<PAGE> 45
to or accrued for the account of Keystone an
administration fee of $12,019.
(2) Commenced operations August 1, 1994.
(3) Commenced operations October 1, 1995.
(4) Commenced operations September 1, 1994.
The Large Company Fund did not pay administration fees to the
Administrator for any of the foregoing periods because it did not commence
operations until January 2, 1997.
- -------------------------------------------------------------------------------
DISTRIBUTOR
- -------------------------------------------------------------------------------
The Distributor serves as distributor to the Company and each of the
Funds pursuant to the Distribution Agreement dated February 1, 1994, as amended
as of January 1, 1997 (the "Distribution Agreement"). Unless otherwise
terminated, the Distribution Agreement continues for successive one-year
periods ending December 31 of each year if approved at least annually by the
Company's Board of Directors or by the vote of a majority of the outstanding
shares of the Company, and by the vote of a majority of the Directors of the
Company who are not parties to the Distribution Agreement or interested persons
(as defined in the 1940 Act) of any party to the Distribution Agreement, cast
in person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement may be terminated in the event of any assignment, as
defined in the 1940 Act.
For the fiscal years ended December 31, 1996 and 1995 and for the
period from February 1, 1994 to December 31, 1994, commissions paid to the
Distributor under the Distribution Agreement with respect to the sale of shares
of the Company, after discounts to dealers, were $675,842, $314,870 and
$311,412, respectively. For such periods, $634,802, $190,064 and $276,225 were
reallowed by the Distributor to Provident Securities & Investment Company, an
affiliate of Provident.
For the one-month period ended January 31, 1994, Fiduciary Investment
Company, Inc. ("FICO") served as principal underwriter for the Company pursuant
to a Principal Underwriting Agreement (the "Underwriting Agreement") between
the Company and FICO. For the one-month period ended January 31, 1994, FICO
received no payments from the Money Market Fund, the Income Fund or the Income
Equity Fund.
B - 44
<PAGE> 46
- -------------------------------------------------------------------------------
DISTRIBUTION PLANS
- -------------------------------------------------------------------------------
Each Fund has adopted a Distribution and Shareholder Service Plan and
Agreement relating to its Investor A class of shares (the "Investor A Plan")
pursuant to Rule 12b-1 under the 1940 Act. In addition, each of the Income
Fund, the Income Equity Fund, the Ohio Tax-Free Fund, the Stock Appreciation
Fund, the Large Company Fund and the Balanced Fund has adopted a Distribution
and Shareholder Service Plan and Agreement pursuant to Rule 12b-1 under the
1940 Act relating to its Investor B Class of Shares (the "Investor B Plan").
The Investor A Plan and the Investor B Plan are hereinafter referred to as the
"Plans." Rule 12b-1 regulates circumstances under which an investment company
may bear expenses associated with the distribution of its shares. Each Fund
adopted both its Investor A Plan and Investor B Plan prior to the public
offering of its shares of that class. The Investor A Plan provides that a Fund
may incur certain expenses which may not exceed a maximum amount up to 0.25% of
such Fund's average daily net assets for any fiscal year occurring after the
inception of the Investor A Plan. Amounts paid under the Investor A Plan are to
be paid to the Distributor in order to pay costs of distribution of a Fund's
Investor A shares, including payment to the Distributor for efforts expended in
respect of or in furtherance of sales of Investor A shares of the Fund and to
enable the Distributor to pay or to have paid to others who sell or have sold
Fund Investor A shares a maintenance or other fee, at such intervals as the
Distributor may determine in respect of Fund Investor A shares previously sold
by any such others at any time and remaining outstanding during the period in
respect of which such fee is or has been paid. Such payments would be made
through the Distributor to compensate broker-dealers and others whose clients
invest in Investor A shares of a Fund for continuing services to their clients
based on the average daily net asset value of such accounts remaining
outstanding on the books of the Fund for specified periods.
The Investor B Plan authorizes a Fund to make payments to the
Distributor in an amount not in excess, on an annual basis, of 1.00% of the
average daily net asset value of the Investor B shares of that Fund. Pursuant
to the Investor B Plan, a Fund is authorized to pay or reimburse the
Distributor (a) a distribution fee in an amount not to exceed on an annual
basis .75% of the average daily net asset value of Investor B shares of that
Fund (the "Distribution Fee") and (b) a service fee in an amount not to exceed
on an annual basis .25% of the average daily net asset value of the Investor B
shares of such Fund (the "Service Fee"). Payments of the Distribution Fee to
the Distributor pursuant to the Investor B Plan will be used (i) to compensate
Participating Organizations (as defined below) for providing distribution
assistance relating to Investor B shares, and (ii) for promotional
B - 45
<PAGE> 47
activities intended to result in the sale of Investor B shares such as to pay
for the preparation, printing and distribution of prospectuses to other than
current shareholders. Payments of the Service Fee to the Distributor pursuant to
the Investor B Plan will be used to compensate Participating Organizations for
providing shareholder services with respect to their customers who are, from
time to time, beneficial and record holders of Investor B shares. Participating
Organizations include banks (including Provident and its affiliates),
broker-dealers and other institutions.
The Funds make no payments in connection with the sales of their
shares other than the fees paid to the Distributor under the respective Plans.
As a result, the Funds do not pay for unreimbursed expenses of the Distributor,
including amounts expended by the Distributor in excess of amounts received by
it from the Funds, or interest, carrying or other financing charges in
connection with excess amounts expended.
All persons authorized to direct the disposition of monies paid or
payable by a Fund pursuant to a Plan or any related agreement must provide to
the Company's Board of Directors at least quarterly a written report of the
amounts so expended and the purposes for which such expenditures were made.
Representatives, brokers, dealers or others receiving payments from the
Distributor pursuant to a Plan must determine that such payments and the
services provided in connection with such payments are appropriate for such
persons and are not in violation of regulatory limitations applicable to such
persons.
While each Plan is in effect, the selection and nomination of
Directors of the Company who are not "interested persons" as defined by the
1940 Act ("Independent Directors") is committed to the discretion of the
Independent Directors then in office.
Each Plan was approved by the Board of Directors and by those
Independent Directors who have no direct or indirect financial interest in the
operation of each Plan or any agreements of the Company or any other person
related to a Plan ("Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Each Plan may be continued annually if
approved by a majority vote of the Directors, and by a majority of the Rule
12b-1 Directors, cast in person at a meeting called for that purpose. Each Plan
may not be amended in order to increase materially the amount of distribution
expenses permitted under a Plan without being approved by a majority vote of
the outstanding voting shares of that class of the Fund. Each Plan may be
terminated as to a specific class of a Fund at any time by a majority vote of
the Rule 12b-1 Directors or a majority of the outstanding voting shares of the
effected class of that Fund.
For the fiscal year ended December 31, 1996, the following amounts
were payable by the Funds (except for the Large Company Fund, which did not
commence operations until January 2, 1997) to
B - 46
<PAGE> 48
the Distributor and waived by the Distributor, respectively, under the Plans.
<TABLE>
<CAPTION>
Investor A Plan Investor B Plan
--------------- ---------------
Fund Payable Waived Payable Waived
---- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Money Market Fund $432,174 $432,174 N/A(1)
Income Fund 86,548 30,720 $12,436 $0
Income Equity Fund 168,345 30,199 51,209 0
Ohio Tax-Free Fund 26,681 N/A 7,017 0
Stock Appreciation Fund 90,637 N/A 5,182 0
Balanced Fund 30,170 11,929 82,801 0
</TABLE>
- -----------------------------
(1) The Money Market Fund does not offer Investor B shares and therefore
does not make payments under the Investor B Plan.
- -------------------------------------------------------------------------------
CAPITAL STOCK
- -------------------------------------------------------------------------------
The Company has authorized capital of 3,000,000,000 shares, $.001 par
value. The Company's Articles of Incorporation authorizes the Board of
Directors to divide the Company's capital stock into unlimited series and
classes. The Company presently has seven series of shares which represent
interests in the Funds of the Company. The shares of each Fund, other than the
Money Market Fund, are offered in two separate Classes: Investor A shares and
Investor B shares. Shares of the Money Market Fund are only offered in the
Investor A class of shares. Each share of the Company is entitled to one vote.
Fractional shares have proportionate voting rights and participate pro rata in
dividends and distributions. Shares are fully paid and non-assessable when
issued and have no preemptive, conversion or exchange rights except as
otherwise described in the Prospectus. Shareholders are entitled to redeem
their shares as set forth under "How to Redeem Shares" in the Prospectus. The
shares are transferable without restriction. The Company does not issue
certificates representing shares.
Company shares have non-cumulative rights, which means that the
holders of more than 50% of shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so and, in such event, the
holders of the remaining shares so voting are not able to elect any Directors.
B - 47
<PAGE> 49
- -------------------------------------------------------------------------------
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- -------------------------------------------------------------------------------
TOTAL RETURN
Total return quotations for each of the Income Fund, the Income Equity
Fund, the Ohio Tax-Free Fund, the Stock Appreciation Fund, the Large Company
Fund and the Balanced Fund as they may appear from time to time in
advertisements are calculated by finding the average annual compounded rates of
return over one, five and ten year periods, or the time periods for which a
Fund has had operations, whichever is relevant, on a hypothetical $1,000
investment that would equate the initial amount invested to the ending
redeemable value. To the initial investment all dividends and distributions are
added, and all recurring fees charged to all shareholder accounts are deducted.
The ending redeemable value assumes a complete redemption at the end of the
relevant periods. Aggregate total return is a measure of the change in value of
an investment in a Fund over the relevant period and is calculated similarly to
average annual total return except that the result is not annualized.
The average annual total returns of each of the Investor A Shares of
the Funds are as follows:
<TABLE>
<CAPTION>
Investor A Shares
With Front-End Sales Loads Without Front-End Sales Loads
-------------------------- -----------------------------
One Year Five Years Inception One Year Five Years Inception
Ended Ended to Ended Ended to
Fund 12/31/96 12/31/96 12/31/96(1) 12/31/96 12/31/96 12/31/96(1)
---- -------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Money Market 4.89% N/A 4.21% 4.89% N/A 4.21%
Income (2.12%) N/A 3.13% 2.51% N/A 4.25%
Income Equity 14.52% N/A 16.25% 19.88% N/A 17.52%
Ohio Tax-Free (1.72%) N/A 3.47% 2.95% N/A 5.45%
Stock
Appreciation2 5.19% 7.08% 9.47% 10.17% 8.08% 10.01%
Balanced 0.96% N/A 8.53% 5.76% N/A 10.69%
</TABLE>
- ------------------
(1) Dates of Inception: Money Market and Income Funds -- 10/1/92; Income
Equity Fund -- 10/8/92; Ohio Tax-Free Fund -- 8/1/94; Stock
Appreciation Fund -- 7/23/87; and the Balanced Fund -- 9/1/94.
(2) The performance for the Stock Appreciation Fund includes the
performance of the MIM Stock Appreciation Fund, the Stock Appreciation
Fund's predecessor.
B - 48
<PAGE> 50
The average annual total returns of each of the Investor B Shares of
the Funds are as follows:
<TABLE>
<CAPTION>
Investor B Shares
Fund One Year Ended 12/31/96 Inception to 12/31/96(3)(4)
---- ----------------------- ---------------------------
<S> <C> <C>
Income (2.17%) 3.37%
Income Equity 15.67% 16.72%
Ohio Tax-Free (1.76%) 3.23%
Stock Appreciation 5.10% 9.93%
Balanced 1.27% 8.83%
</TABLE>
- ----------------
(3) Dates of Inception -- the Income, Income Equity, Tax-Free and Balanced
Funds -- 1/15/95; and the Stock Appreciation Fund -- 10/1/95.
(4) Includes the total return for the Investor A shares from January 1,
1995 to January 16, 1995.
Without reimbursement of expenses and/or waiver of fees by Provident,
the average annual total returns of the Money Market Fund, the Income Fund, the
Income Equity Fund, the Ohio Tax-Free Fund and the Balanced Fund for such
periods would have been lower.
For the one year, five year and ten year periods ended December 31,
1996, the average annual total returns for the CIFs (the predecessors to the
Large Company Fund) have been restated to reflect the estimated fees for the
Large Company Fund for the current fiscal year and are as follows:
<TABLE>
<CAPTION>
Investor A Shares
-----------------
With Front-End Sales Loads Without Front-End Sales Loads
-------------------------- -----------------------------
One Year Five Year Ten Year One Year Five Year Ten Year
-------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
18.76% 13.76% 12.39% 24.34% 14.30% 12.91%
</TABLE>
<TABLE>
<CAPTION>
Investor B Shares
-----------------
Without Contingent Deferred Sales Loads
---------------------------------------
One Year Five Year Ten Year
-------- --------- --------
<S> <C> <C>
23.43% 13.45% 12.07%
</TABLE>
These performance figures are not those of the Large Company Fund. And,
of course, past performance is no guarantee as to future performance.
B - 49
<PAGE> 51
30-DAY YIELD
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a recent 30-day period,
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the base
period.
The current yields of the Investor A shares of the Income Fund, the
Income Equity Fund, the Ohio Tax-Free Fund and the Balanced Fund, assuming the
imposition of a sales load, were 5.14%, 1.33%, 3.32% and 1.53%, respectively,
for the 30-day period ended December 31, 1996, and, assuming the imposition of
no sales load, 5.39%, 1.40%, 3.48% and 1.60%, respectively. For such period,
the current yields of the Investor B Shares of the Income Fund, the Income
Equity Fund, the Ohio Tax-Free Fund and the Balanced Fund, assuming the
imposition of the maximum contingent deferred sales charge, were 4.52%, 0.56%,
2.71% and 0.78%, respectively. Without reimbursement of expenses and/or waiver
of fees by Provident, the current yields of the Income Fund, the Income Equity
Fund, the Ohio Tax-Free Fund and the Balanced Fund for the same period would
have been lower.
In addition, with respect to the Ohio Tax-Free Fund, tax equivalent
yields will be computed by dividing that portion of the Ohio Tax-Free Fund's
yield (as computed above) which is tax-exempt by one minus a stated income tax
rate and adding that result to that portion, if any, of the yield of the Ohio
Tax-Free Fund which is not tax-exempt. For the 30-day period ended December 31,
1996, the tax-equivalent yield for the Investor A shares of the Ohio Tax-Free
Fund (assuming a 39.6% federal tax rate) was 5.49%, assuming the imposition of
the maximum sales charge, and 5.75%, excluding the effect of a sales charge. For
that same period, the tax-equivalent yield for the Investor B shares of the
Ohio Tax-Free Fund (assuming a 39.6% federal tax rate) was 4.48%.
SEVEN-DAY YIELD
The yield for the Money Market Fund as it may appear from time to time
in advertisements will be calculated by determining the net change, exclusive
of capital changes (all realized and unrealized gains and losses), in the value
of a hypothetical pre-existing account having a balance of one share at the
beginning of the period, dividing the net change in account value by the value
of the account at the beginning of the base period to obtain the base period
return, multiplying the base period return by (365/7) and carrying the
resulting yield figure to the nearest hundredth of one percent. The
determination of net change in account value will reflect the value of
additional shares purchased with dividends from the original share and
dividends declared on both the original share and any such additional shares
and all fees charged to all shareholder accounts in proportion to the length of
the base period and the Money Market Fund's average account size.
B - 50
<PAGE> 52
If realized and unrealized gains and losses were included in the yield
calculation, the yield of the Money Market Fund might vary materially from that
reported in advertisements. For the seven-day period ended December 31, 1996,
the current yield of the Money Market Fund was 4.94%.
In addition to the yield of the Money Market Fund, its effective yield
may appear from time to time in advertisements. The effective yield will be
calculated by compounding the unannualized base period yield by adding 1 to the
quotient, raising the sum to a power equal to 365 divided by 7, subtracting 1
from the result and carrying the resulting effective yield figure to the
nearest hundredth of one percent. For the seven-day period ended December 31,
1996, the effective yield of the Money Market Fund was 5.06%.
The yield and effective yield as quoted in such advertisements will
not be based on information as of a date more than fourteen days prior to the
date of their publication. Each yield will vary depending on market conditions
and principal. Each yield also depends on the quality, maturity and type of
instruments held and operating expenses. The advertisements will include, among
other things, the length of the base period and the date of the last day in the
base period used in computing the quotation.
DISTRIBUTION RATES
Each of the Income Fund, the Income Equity Fund, the Ohio Tax-Free
Fund, the Balanced Fund and the Stock Appreciation Fund may from time to time
advertise current distribution rates which are calculated in accordance with
the method disclosed in the Prospectus. The following table sets forth the
distribution rates of the Investor A and B Shares for the year ended December
31, 1996.
<TABLE>
<CAPTION>
Investor A Shares
With Front-End Sales Loads Without Front-End Sales Loads
Includes Excludes Includes Excludes
Fund Capital Gains Capital Gains Capital Gains Capital Gains
- ---- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income 5.18% 5.18% 5.42% 5.42%
Income Equity 16.86% 1.65% 17.65% 1.73%
Ohio Tax-Free 3.67% 3.67% 3.84% 3.84%
Balanced 2.52% 2.52% 2.64% 2.64%
Stock Appreciation 10.48% 0.00% 10.97% 0.00%
</TABLE>
B - 51
<PAGE> 53
<TABLE>
<CAPTION>
Investor B Shares
Fund Includes Capital Gains Excludes Capital Gains
- ---- ---------------------- ----------------------
<S> <C> <C>
Income 4.58% 4.58%
Income Equity 16.57% 0.97%
Ohio Tax-Free 3.01% 3.01%
Balanced 2.12% 2.12%
Stock Appreciation 10.59% 0.00%
</TABLE>
GENERAL
The yield and total return of any investment are generally a function
of quality and maturity, type of investment and operating expenses. A Fund's
yields and total return will fluctuate from time to time and are not
necessarily representative of future results.
Yield and total return information is useful in reviewing a Fund's
performance, but because yield and total return will fluctuate, such
information may not provide a basis for comparison with bank deposits or other
investments that pay a fixed yield for a stated period of time. An investor's
principal is not guaranteed by the Fund.
From time to time, the Company may include the following types of
information in advertisements, supplemental sales literature and reports to
shareholders: (a) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (b) discussions of general economic trends; (c)
presentations of statistical data to supplement such discussions; (d)
descriptions of past or anticipated portfolio holdings for one or more of the
Funds within the Company; (e) descriptions of investment strategies for one or
more of the Funds within the Company; (f) descriptions of investment strategies
for one or more of such Funds; (g) descriptions or comparisons of various
investment products, which may or may not include the Funds; (h) comparisons of
investments products (including the Funds) with relevant market or industry
indices or other appropriate benchmarks; (i) discussions of fund rankings or
ratings by recognized rating organizations; and (j) testimonials describing the
experience of persons who have invested in one or more of the Funds.
B - 52
<PAGE> 54
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
PRINCIPAL HOLDERS OF SECURITIES
To the knowledge of the Company, as of April 3, 1997, the persons
listed below owned of record 5% or more of the following Funds:
<TABLE>
<CAPTION>
Name and Address
Fund of Owner of Record % Ownership
- ---- ------------------ -----------
<S> <C> <C>
Money Market, The Provident Bank
Investor A Shares P.O. Box 691198
Cincinnati, Ohio 45269-1198 68.40%
BHC Securities, Inc.
One Commerce Square
Philadelphia, Pennsylvania 19103 26.51%
Balanced, BHC Securities, Inc.
Investor A Shares One Commerce Square
Philadelphia, Pennsylvania 19103 55.60%
The Provident Bank as
Trustee for Provident Bancorp
401K Equity
P.O. Box 691198
Cincinnati, Ohio 45269-1198 11.55%
The Provident Bank as
Trustee for Trustmark 401K Daily
P.O. Box 691198
Cincinnati, Ohio 45269-1198 8.57%
Provident Bank Trust Department
Employees Benefit Plan
P.O. Box 691198
Cincinnati, Ohio 45269-1198 15.59%
Ohio Tax-Free, Provident Bank Trust Department
Investor A Shares P.O. Box 691198
Cincinnati, Ohio 45269-1198 98.60%
Ohio Tax-Free, BHC Securities, Inc.
Investor B Shares One Commerce Square
Philadelphia, Pennsylvania 19103 (1) 56.47%
Large Company, Provident Bank Trust Department
Investor A Shares P.O. Box 691198
Cincinnati, Ohio 45269-1198 99.62%
Large Company, BHC Securities, Inc.
Investor B Shares One Commerce Square
Philadelphia, Pennsylvania 19103 (1) 87.21%
</TABLE>
B - 53
<PAGE> 55
<TABLE>
<CAPTION>
Name and Address
Fund of Owner of Record % Ownership
- ---- ------------------ -----------
<S> <C> <C>
Income Equity, Chase Manhattan Bank as Trustee
Investor A Shares for The General Cable Corporation
4 Tesseneer Drive
Highland Heights, Kentucky 41076 41.78%
BHC Securities, Inc.
One Commerce Square
Philadelphia, Pennsylvania 19103 26.47%
Provident Bank Trust Department
Employees Benefit Plan
P.O. Box 691198
Cincinnati, Ohio 45269-1198 7.53%
Income, The Provident Bank
Investor A Shares One East Fourth Street
Cincinnati, Ohio 45202 45.87%
Provident Bank Trust Department
P.O. Box 691198
Cincinnati, Ohio 45269-1198 39.39%
Provident Bank Trust Department
Employees Benefit Plan
P.O. Box 691198
Cincinnati, Ohio 45269-1198 10.55%
Income, Fifth Third Bank as Trustee for
Investor B Shares Cincinnati Institute of Fine Arts
P.O. Box 630074
Cincinnati, Ohio 45263 17.74%
Stock BHC Securities, Inc.
Appreciation, One Commerce Square
Investor B Shares Philadelphia, Pennsylvania 19103 (1) 17.63%
- -------------------
</TABLE>
(1) BCH Securities, Inc. holds such shares for various underlying
beneficial owners.
AUDITORS
The financial statements of each of the Funds, except the Large
Company Fund, at and for the fiscal year ended December 31, 1996, appearing in
this Statement of Additional Information have been audited by Ernst & Young
LLP, 1300 Chiquita Center, 250 East Fifth Street, Cincinnati, Ohio 45202,
independent certified public accountants as set forth in their report appearing
elsewhere herein and are included in reliance upon such report given on the
authority of Ernst & Young LLP as experts in auditing and accounting.
B - 54
<PAGE> 56
LEGAL COUNSEL
Baker & Hostetler LLP, 65 East State Street, Columbus, Ohio 43215, is
counsel to the Company and will pass upon the legality of the shares offered
hereby.
GENERAL
Except as otherwise stated in the Prospectus, this Statement of
Additional Information, or required by law, the Company reserves the right to
change the terms of the offer stated in the Prospectus or this Statement of
Additional Information without shareholder approval, including the right to
impose or change fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Prospectus, this
Statement of Additional Information or in supplemental sales literature issued
by the Company or the Distributor, and no person is entitled to rely on any
information or representation not contained therein.
The Prospectus and this Statement of Additional Information omit
certain information contained in the registration statement filed with the
Securities and Exchange Commission (the "Commission") which may be obtained
from the Commission's principal office in Washington, D.C. upon payment of the
fee prescribed by the Rules and Regulations promulgated by the Commission.
B - 55
<PAGE> 57
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The following financial statements relate to each of the Funds, except
the Large Company Fund, at and for the fiscal year ended December 31, 1996.
Effective January 2, 1997, The Riverfront Flexible Growth Fund changed its name
to The Riverfront Balanced Fund. Financial statements of the Large Company Fund
are not included in this Statement of Additional Information because the Large
Company Fund did not commence operations until January 2, 1997.
B - 56
<PAGE> 58
Report of Independent Accountants
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
To the Shareholders and Directors
The Riverfront Funds, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments of The Riverfront Funds, Inc.
(comprising, respectively, U.S. Government Securities Money Market Fund, U.S.
Government Income Fund, Income Equity Fund, Ohio Tax-Free Bond Fund, Flexible
Growth Fund, and Stock Appreciation Fund) as of December 31, 1996, the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended of the U.S.
Government Securities Money Market Fund, U.S. Government Income Fund, Income
Equity Fund, Ohio Tax-Free Bond Fund, and Flexible Growth Fund, and from October
1, 1995 to December 31, 1995 of the Stock Appreciation Fund, and financial
highlights for each of the two years ended December 31, 1996 of the U.S.
Government Securities Money Market Fund, U.S. Government Income Fund, Income
Equity Fund, Ohio Tax-Free Bond Fund, and Flexible Growth Fund and for the year
ended December 31, 1996 and the period October 1, 1995 to December 31, 1995 of
the Stock Appreciation Fund. 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 of the Stock
Appreciation Fund for the periods and years ended prior to October 1, 1995, were
audited by other auditors whose report dated October 11, 1995, expressed an
unqualified opinion on those statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting The Riverfront Funds, Inc. at December
31, 1996, the results of their operations, the changes in their net assets and
the financial highlights for the respective periods ended December 31, 1996 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
------------------
Cincinnati, Ohio
February 20, 1997
B-57
<PAGE> 59
Statements of Assets and Liabilities
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
<TABLE>
<CAPTION>
U.S. GOVERNMENT U.S. GOVERNMENT
SECURITIES MONEY INCOME
MARKET FUND FUND
----------- ----
<S> <C> <C>
Assets:
Investments, at value (Cost $128,546,762; $34,345,949; and $77,468,431, respectively)... $128,546,762 $34,599,514
Repurchase agreements (Cost $53,295,000; $0; and $0, respectively)...................... 53,295,000
------------ -----------
TOTAL INVESTMENTS ...................................................................... 181,841,762 34,599,514
Interest and dividends receivable ...................................................... 53,298 424,677
Receivable for capital shares issued ................................................... 71
Receivable from brokers for investments sold ...........................................
Prepaid expenses and other assets ...................................................... 1,426 26,993
------------ -----------
TOTAL ASSETS ........................................................................... 181,896,486 35,051,255
------------ -----------
Liabilities:
Dividends payable ...................................................................... 708,084 412
Payable for capital shares redeemed .................................................... 7,558
Payable to brokers for investments purchased ...........................................
Accrued expenses AND other payables:
Investment advisory fees ........................................................... 21,577 11,883
Administration fees ................................................................ 28,769 5,943
12b-1 fees (Investor A) ............................................................ 4,314
12b-1 fees (Investor B) ............................................................ 1,100
Registration and filing fees ....................................................... 35,059 6,289
Transfer agent fees ................................................................ 6,368 3,345
Audit and legal fees ............................................................... 42,052 9,117
Printing fees ...................................................................... 26,134 7,306
Other .............................................................................. 11,184 3,155
------------ -----------
TOTAL LIABILITIES ...................................................................... 879,227 60,422
------------ -----------
Net Assets:
Capital ................................................................................ 181,019,549 36,562,678
Undistributed (distributions in excess of) net investment income (loss) ................ 30,029
Net unrealized apppreciation on investments ............................................ 253,565
Accumulated undistributed net realized gains (losses) on investment
transactions ........................................................................... (2,290) (1,855,439)
------------ -----------
NET ASSETS ......................................................................... $181,017,259 $34,990,833
============ ===========
Net Assets
Investor A Shares .................................................................. $181,017,259 $33,694,340
Investor B Shares .................................................................. NA 1,296,493
------------ -----------
Total .......................................................................... $181,017,259 $34,990,833
============ ===========
Shares of capital stock
Investor A Shares .................................................................. 181,019,549 3,571,637
Investor B Shares .................................................................. NA 121,807
------------ -----------
Total .......................................................................... 181,019,549 3,693,444
============ ===========
Net asset value
Investor A Shares -- redemption price per share .................................... $ 1.00 $ 9.43
Investor B Shares -- offering price per share* ..................................... NA 10.64
============ ===========
Maximum Sales Charge (Investor A) ...................................................... NA 4.50%
============ ===========
Maximum Offering Price per share (100%/(100%-Maximum Sales Charge) of net asset
value adjusted to nearest cent) (Investor A) (a) ..................................... $ 1.00 $ 9.87
============ ===========
</TABLE>
<TABLE>
<CAPTION>
INCOME
EQUITY
FUND
----
<S> <C>
Assets:
Investments, at value (Cost $128,546,762; $34,345,949; and $77,468,431, respectively) $81,452,789
Repurchase agreements (Cost $53,295,000; $0; and $0, respectively)
-----------
TOTAL INVESTMENTS ...................................................................... 81,452,789
Interest and dividends receivable ...................................................... 244,834
Receivable for capital shares issued ................................................... 44,285
Receivable from brokers for investments sold ........................................... 83,107
Prepaid expenses and other assets ...................................................... 19,622
-----------
TOTAL ASSETS ........................................................................... 81,844,637
-----------
Liabilities:
Dividends payable ......................................................................
Payable for capital shares redeemed .................................................... 11,492
Payable to brokers for investments purchased ........................................... 690,245
Accrued expenses and other payables:
Investment advisory fees ........................................................... 60,830
Administration fees ................................................................ 12,986
12b-1 fees (Investor A) ............................................................ 12,172
12b-1 fees (Investor B) ............................................................ 6,300
Registration and filing fees ....................................................... 12,246
Transfer agent fees ................................................................ 999
Audit and legal fees ............................................................... 14,209
Printing fees ...................................................................... 12,863
Other .............................................................................. 10,271
-----------
TOTAL LIABILITIES ...................................................................... 844,613
-----------
Net Assets:
Capital ................................................................................ 74,654,539
Undistributed (distributions in excess of) net investment income (loss) ................
Net unrealized apppreciation on investments ............................................ 3,984,358
Accumulated undistributed net realized gains (losses) on investment
transactions ........................................................................... 2,361,127
-----------
NET ASSETS ......................................................................... $81,000,024
===========
Net Assets
Investor A Shares .................................................................. $73,368,104
Investor B Shares .................................................................. 7,631,920
-----------
Total .......................................................................... $81,000,024
===========
Shares of capital stock
Investor A Shares .................................................................. 6,154,052
Investor B Shares .................................................................. 627,857
-----------
Total........................................................................... 6,781,909
===========
Net asset value
Investor A Shares -- redemption price per share .................................... $ 11.92
Investor B Shares -- offering price per share* ..................................... 12.16
===========
Maximum Sales Charge (Investor A) ...................................................... 4.50%
===========
Maximum Offering Price per share (100%/(100%-Maximum Sales Charge) of net asset
value adjusted to nearest cent) (Investor A) (a) ..................................... $ 12.48
===========
</TABLE>
(a) Offering price and redemption price are the same for the U.S. Government
Securities Money Market Fund.
* Redemption price of Investor B shares varies based on length of time shares
are held.
NA Not applicable
See Notes to Financial Statements.
B-58
<PAGE> 60
Statements of Assets and Liabilities
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
<TABLE>
<CAPTION>
OHIO TAX-FREE FLEXIBLE GROWTH
BOND FUND FUND
--------- ----
<S> <C> <C>
ASSETS:
Investments, at value (Cost $11,126,979; $18,999,696;
and $26,843,438, respectively).................................................... $11,577,458 $21,053,295
Cash ............................................................................... 1,912
Interest and dividends receivable .................................................. 70,747 116,765
Receivable for capital shares issued ............................................... 50,000 44,095
Receivable from brokers for investments sold .......................................
Unamortized organization costs .....................................................
Prepaid expenses and other assets
................................................................................... 729 24,321
----------- -----------
Total Assets ....................................................................... 11,700,846 21,238,476
----------- -----------
Liabilities:
Cash Overdraft ..................................................................... 364,681
Payable for capital shares redeemed ................................................ 28,247
Payable to brokers for investments purchased .......................................
Accrued expenses and other payables:
Investment advisory fees ....................................................... 3,935 14,917
Administration fees ............................................................ 1,964 3,728
12b-1 fees (Investor A) ........................................................ 2,413 1,460
12b-1 fees (Investor B) ........................................................ 807 8,469
Transfer agent fees ............................................................ 2,933 5,235
Audit and legal fees ........................................................... 3,723 5,259
Printing fees .................................................................. 3,000 5,394
Custodian fees ................................................................. 1,377 2,797
Organizational fees ............................................................ 3,456 983
Other .......................................................................... 214 2,828
----------- -----------
TOTAL LIABILITIES .................................................................. 23,822 443,998
----------- -----------
NET ASSETS:
Capital ............................................................................ 11,222,517 18,891,988
Undistributed (distributions in excess of) net investment income (loss) ............ 6,757 2,553
Net unrealized appreciation on investments ......................................... 450,479 2,053,599
Accumulated undistributed net realized gains (losses) on investment
transactions ..................................................................... (2,729) (153,662)
----------- -----------
Net Assets ..................................................................... $ 11,677,024 $ 20,794,478
============ ============
Net Assets
Investor A Shares .............................................................. $ 10,693,087 $ 10,786,341
Investor B Shares .............................................................. 983,937 10,008,137
----------- -----------
Total ........................................................................ $11,677,024 $ 20,794,478
=========== ============
Shares of capital stock
Investor A Shares .............................................................. 1,027,469 922,900
Investor B Shares .............................................................. 92,478 831,165
----------- -----------
Total ........................................................................ 1,119,947 1,754,065
=========== ============
Net asset value
Investor A Shares -- redemption price per share ................................ $ 10.41 $ 11.69
Investor B Shares -- offering price per share* ................................. 10.64 12.04
=========== ============
Maximum Sales Charge (Investor A) 4.50% 4.50%
=========== ============
Maximum Offering Price per share (100%/(100%-Maximum Sales Charge) of net asset
value adjusted to nearest cent) (Investor A) ..................................... $ 10.90 $ 12.24
=========== ============
</TABLE>
<TABLE>
<CAPTION>
STOCK APPRECIATION
FUND
----
<S> <C>
ASSETS:
Investments, at value (Cost $11,126,979; $18,999,696;
and $26,843,438, respectively) ................................................... $32,286,516
Cash ...............................................................................
Interest and dividends receivable .................................................. 5,883
Receivable for capital shares issued ............................................... 1,086
Receivable from brokers for investments sold ....................................... 171,819
Unamortized organization costs ..................................................... 11,408
Prepaid expenses and other assets .................................................. 8,546
-----------
Total Assets ....................................................................... 32,485,258
-----------
Liabilities:
Cash Overdraft .....................................................................
Payable for capital shares redeemed ................................................ 226
Payable to brokers for investments purchased ....................................... 503,806
Accrued expenses and other payables:
Investment advisory fees ....................................................... 21,791
Administration fees ............................................................ 5,448
12b-1 fees (Investor A) ........................................................ 6,663
12b-1 fees (Investor B) ........................................................ 568
Transfer agent fees ............................................................ 3,798
Audit and legal fees ........................................................... 8,709
Printing fees .................................................................. 7,579
Custodian fees ................................................................. 4,086
Organizational fees ............................................................
Other .......................................................................... 8,247
-----------
TOTAL LIABILITIES .................................................................. 570,921
-----------
NET ASSETS:
Capital ............................................................................ 24,464,920
Undistributed (distributions in excess of) net investment income (loss) ............ (29,793)
Net unrealized appreciation on investments ......................................... 5,443,078
Accumulated undistributed net realized gains (losses) on investment
transactions ..................................................................... 2,036,132
-----------
Net Assets ..................................................................... $ 31,914,337
============
Net Assets
Investor A Shares .............................................................. $ 31,227,057
Investor B Shares .............................................................. 687,280
-----------
Total ........................................................................ $ 31,914,337
============
Shares of capital stock
Investor A Shares .............................................................. 3,312,660
Investor B Shares .............................................................. 70,378
-----------
Total ........................................................................ 3,383,038
============
Net asset value
Investor A Shares -- redemption price per share ................................ $ 9.43
Investor B Shares -- offering price per share* ................................. 9.77
============
Maximum Sales Charge (Investor A) 4.50%
============
Maximum Offering Price per share (100%/(100%-Maximum Sales Charge) of net asset
value adjusted to nearest cent) (Investor A) ....................................... $ 9.87
============
</TABLE>
* Redemption price of Investor B shares varies based on length of time shares
are held.
See Notes to Financial Statements
B-59
<PAGE> 61
Statements of Operations
FOR THE YEAR ENDED
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
<TABLE>
<CAPTION>
U.S. GOVERNMENT U.S. GOVERNMENT INCOME
SECURITIES MONEY INCOME EQUITY
MARKET FUND FUND FUND
----------- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income ....................................................... $ 9,283,151 $ 2,350,114 $ 150,338
Dividend income ....................................................... 2,293,321
----------- ------------ ------------
TOTAL INCOME .......................................................... 9,283,151 2,350,114 2,443,659
----------- ------------ ------------
EXPENSES:
Investment advisory fees .............................................. 259,214 143,483 688,484
Administration fees ................................................... 345,611 71,742 144,850
12b-1 fees (Investor A) ............................................... 432,174 86,548 168,345
12b-1 fees (Investor B) ............................................... 12,436 51,209
Custodian and accounting fees ......................................... 86,401 35,870 108,638
Audit and legal fees .................................................. 102,687 20,450 51,060
Directors' fees and expenses .......................................... 17,526 3,033 7,296
Transfer agent fees ................................................... 79,137 38,891 58,165
Registration and filing fees .......................................... 53,745 10,751 42,059
Printing costs ........................................................ 51,497 10,848 25,038
Other ................................................................. 18,711 4,545 31,108
----------- ------------ ------------
TOTAL EXPENSES ........................................................ 1,446,703 438,597 1,376,252
Less: Fee waivers and expense reimbursements ..................... (432,174) (30,720) (66,860)
----------- ------------ ------------
Net Expenses ................................................ 1,014,529 407,877 1,309,392
----------- ------------ ------------
Net Investment Income ................................................. 8,268,622 1,942,237 1,134,267
----------- ------------ ------------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
Net realized gains from investment transactions ....................... 90,347 13,473,952
Net change in unrealized appreciation (depreciation) from investments . (1,183,269) (1,397,638)
----------- ------------ ------------
Net realized/unrealized gains (losses) from investments ............... (1,092,922) 12,076,314
----------- ------------ ------------
Change in net assets resulting from operations ........................ $ 8,268,622 $ 849,315 $ 13,210,581
=========== ============ ============
</TABLE>
See Notes to Financial Statements
B-60
<PAGE> 62
Statements of Operations
THE RIVERFRONT FUNDS, IND. FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
OHIO FLEXIBLE STOCK
TAX-FREE GROWTH APPRECIATION
BOND FUND FUND FUND
--------- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income........................................................ $605,629 $ 662,585 $ 151,227
Dividend income........................................................ 268,337 91,741
-------- ----------- -----------
TOTAL INCOME........................................................... 605,629 930,922 242,968
-------- ----------- -----------
EXPENSES:
Investment advisory fees............................................... 56,870 183,256 294,183
Administration fees.................................................... 22,744 40,688 73,546
12b-1 fees (Investor A)................................................ 26,681 30,170 90,637
12b-1 fees (Investor B)................................................ 7,017 82,801 5,182
Custodian and accounting fees.......................................... 15,923 30,516 55,160
Audit and legal fees................................................... 6,894 11,351 30,631
Organization costs..................................................... 9,282 3,032 36,823
Directors' fees and expenses........................................... 1,178 2,077 4,093
Transfer agent fees.................................................... 26,007 44,600 38,988
Registration and filing fees........................................... 4,000 4,979 34,935
Printing costs......................................................... 3,745 15,967 36,655
Other.................................................................. 1,748 7,596 4,612
-------- ----------- -----------
TOTAL EXPENSES......................................................... 182,089 457,033 705,445
Less: fee waivers and expense reimbursements...................... (11,373) (40,649)
-------- ----------- -----------
Net Expenses................................................... 170,716 416,384 705,445
-------- ----------- -----------
Net Investment Income (Loss)........................................... 434,913 514,538 (462,477)
-------- ----------- -----------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
Net realized gains (losses) from investment transactions............... (2,919) (153,623) 5,645,154
Net change in unrealized appreciation (depreciation) from investments.. (107,900) 853,589 (1,674,745)
-------- ----------- -----------
Net realized/unrealized gains (losses) from investments................ (110,819) 699,966 3,970,409
-------- ----------- -----------
Change in net assets resulting from operations......................... $324,094 $1,214,504 $3,507,932
======== ========== ==========
</TABLE>
See Notes to Financial Statements.
B-61
<PAGE> 63
STATEMENTS OF CHANGES IN NET ASSETS
THE RIVERFRONT FUNDS, INC.
<TABLE>
<CAPTION>
U.S. Government U.S. Government
Securities Money Market Income
Fund Fund
-------------------------------- ---------------------------------
Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income .................... $ 8,268,622 $ 7,906,286 $ 1,942,237 $ 2,067,824
Net realized gains (losses) from
investment transactions ................ (1,415) 90,347 (517,451)
Net change in unrealized appreciation
(depreciation) from investments ........ (1,183,269) 3,520,908
------------- ------------- ------------ ------------
Change in net assets resulting from operations 8,268,622 7,904,871 849,315 5,071,281
------------- ------------- ------------ ------------
DISTRIBUTIONS TO INVESTOR A SHAREHOLDERS:
From net investment income ............... (8,268,622) (7,906,286) (1,865,718) (2,032,120)
In excess of net investment income .......
From net realized gains from investments .
DISTRIBUTIONS TO INVESTOR B SHAREHOLDERS:
From net investment income ............... (56,824) (22,977)
In excess of net investment income .......
From net realized gains from investments .
In excess of net realized gains ..........
------------- ------------- ------------ ------------
Change in net assets from shareholder
distributions .............................. (8,268,622) (7,906,286) (1,922,542) (2,055,097)
------------- ------------- ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued .............. 413,837,358 331,872,719 2,867,087 5,670,500
Proceeds from shares issued in
connection with acquisition ........... 4,865,634
Dividends reinvested ..................... 2,193,920 1,518,099 486,495 578,837
Cost of shares redeemed .................. (392,509,518) (330,133,820) (5,090,697) (4,185,229)
------------- ------------- ------------ ------------
Change in net assets from capital transactions 23,521,760 8,122,632 (1,737,115) 2,064,108
------------- ------------- ------------ ------------
Change in net assets ......................... 23,521,760 8,121,217 (2,810,342) 5,080,292
NET ASSETS:
Beginning of period ...................... 157,495,499 149,374,282 37,801,175 32,720,883
------------- ------------- ------------ ------------
End of period ............................ $ 181,017,259 $ 157,495,499 $ 34,990,833 $ 37,801,175
============= ============= ============ ============
SHARE TRANSACTIONS:
Issued ................................... 413,837,358 331,872,719 299,041 592,903
Issued in connection with acquisition .... 4,865,634
Reinvested ............................... 2,193,920 1,518,099 51,049 61,636
Redeemed ................................. (392,509,518) (330,133,820) (534,677) (444,444)
------------- ------------- ------------ ------------
Change in shares ............................. 23,521,760 8,122,632 (184,587) 210,095
============= ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
Income Equity
Fund
----------------------------------
Year ended Year ended
December 31, December 31,
1996 1995
---- ----
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
<S> <C> <C>
Net investment income .................... $ 1,134,267 $ 1,082,073
Net realized gains (losses) from
investment transactions ................ 13,473,952 6,655,045
Net change in unrealized appreciation
(depreciation) from investments ........ (1,397,638) 5,311,784
------------ -------------
Change in net assets resulting from operations 13,210,581 13,048,902
------------ -------------
DISTRIBUTIONS TO INVESTOR A SHAREHOLDERS:
From net investment income ............... (1,089,197) (1,065,510)
In excess of net investment income ....... (11,775) (6,742)
From net realized gains from investments . (10,109,545) (6,293,075)
DISTRIBUTIONS TO INVESTOR B SHAREHOLDERS:
From net investment income ............... (45,070) (16,563)
In excess of net investment income ....... (1,105) (105)
From net realized gains from investments . (941,583) (222,170)
In excess of net realized gains .......... (94,220)
------------ -------------
Change in net assets from shareholder
distributions .............................. (12,292,495) (7,604,165)
----------- -------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued .............. 12,638,065 12,155,416
Proceeds from shares issued in
connection with acquisition ........... 9,727,219
Dividends reinvested ..................... 12,143,803 8,648,647
Cost of shares redeemed .................. (8,378,319) (7,262,834)
------------ -------------
Change in net assets from capital transactions 16,403,549 23,268,448
------------ -------------
Change in net assets ......................... 17,321,635 28,713,185
NET ASSETS:
Beginning of period ...................... 63,678,389 34,965,204
------------ -------------
End of period ............................ $ 81,000,024 $ 63,678,389
============ =============
SHARE TRANSACTIONS:
Issued ................................... 997,947 1,069,857
Issued in connection with acquisition .... 793,942
Reinvested ............................... 1,001,471 764,131
Redeemed ................................. (656,491) (634,159)
------------ -------------
Change in shares ............................. 1,342,927 1,993,771
============ =============
</TABLE>
See Notes to Financial Statements.
B-62
<PAGE> 64
STATEMENT OF CHANGES IN NET ASSETS
THE RIVERFRONT FUNDS, INC.
<TABLE>
<CAPTION>
OHIO TAX-FREE BOND FUND FLEXIBLE GROWTH FUND
----------------------- --------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income (loss).... $ 434,913 $ 419,775 $ 514,538 $ 275,589
Net realized gains (losses) from
investment transactions....... (2,919) 8,848 (153,623) 131,879
Net change in unrealized appreciation
(depreciation) from investments (107,900) 713,315 853,589 1,230,202
------------- ------------- ------------- -------------
Change in net assets resulting
from operations................... 324,094 1,141,938 1,214,504 1,637,670
------------- ------------- ------------- -------------
Distributions to Investor A Shareholders:
From net investment income...... (412,215) (401,164) (346,017) (202,502)
In excess of net investment income (1,775)
From net realized gains from
investments................... (85,787)
Tax return of capital...........
Distributions to Investor B Shareholders:
From net investment income...... (21,400) (13,152) (168,520) (63,921)
In excess of net investment income (1,028)
From net realized gains from
investments................... (43,216)
------------- ------------- ------------- -------------
Change in net assets from shareholder
distributions..................... (433,615) (414,316) (517,340) (395,426)
------------- ------------- ------------- -------------
Capital Transactions:
Proceeds from shares issued..... 632,048 895,943 11,628,310 11,076,750
Dividends reinvested............ 26,194 18,208 546,821 334,888
Cost of shares redeemed......... (588,738) (114,312) (6,534,711) (906,216)
------------- ------------- ------------- -------------
Change in net assets from capital
transactions...................... 69,504 799,839 5,640,420 10,505,422
------------- ------------- ------------- -------------
Change in net assets................ (40,017) 1,527,461 6,337,584 11,747,666
Net Assets:
Beginning of period............. 11,717,041 10,189,580 14,456,894 2,709,228
------------- ------------- ------------- -------------
End of period................... $ 11,677,024 $ 11,717,041 $ 20,794,478 $ 14,456,894
============= ============= ============= =============
Share Transactions:
Issued.......................... 59,532 87,181 1,017,399 1,035,102
Reinvested...................... 2,490 1,760 47,842 30,561
Redeemed........................ (55,955) (11,223) (571,147) (82,394)
------------- ------------- ------------- -------------
Change in shares.................... 6,067 77,718 494,094 983,269
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
STOCK APPRECIATION FUND
-----------------------
PERIOD FROM PERIOD FROM
OCTOBER 1, OCTOBER 1,
YEAR ENDED 1995 THROUGH 1994 THROUGH
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1995 (A) 1995 (B)
---- -------- --------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $ (462,477) $ (51,131) $ (292,270)
Net realized gains (losses) from
investment transactions....... 5,645,154 1,556,383 3,024,858
Net change in unrealized appreciation
(depreciation) from investments (1,674,745) (2,070,853) 5,538,265
------------- ------------- -------------
Change in net assets resulting
from operations................... 3,507,932 (565,601) 8,270,853
------------- ------------- -------------
DISTRIBUTIONS TO INVESTOR A SHAREHOLDERS:
From net investment income...... (1,166,721)
In excess of net investment income (289)
From net realized gains from
investments................... (3,106,226) (1,556,383)
Tax return of capital........... (6,824)
DISTRIBUTIONS TO INVESTOR B SHAREHOLDERS:
From net investment income......
In excess of net investment income
From net realized gains from
investments................... (65,866)
------------- ------------- -------------
Change in net assets from shareholder
distributions..................... (3,172,381) (1,563,207) (1,166,721)
------------- ------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued..... 3,709,128 810,508
Dividends reinvested............ 2,969,201 1,542,781
Cost of shares redeemed......... (16,166,715) (3,611,887)
------------- ------------- -------------
Change in net assets from capital
transactions...................... (9,488,386) (1,258,598) (10,529,141)
------------- ------------- -------------
Change in net assets................ (9,152,835) (3,387,406) (3,425,009)
NET ASSETS:
Beginning of period............. 41,067,172 44,454,578 47,879,587
------------- ------------- -------------
End of period................... $ 31,914,337 $ 41,067,172 $ 44,454,578
============= ============= ============
SHARE TRANSACTIONS:
Issued.......................... 373,503 83,381
Reinvested...................... 315,294 164,279
Redeemed........................ (1,628,669) (370,208)
------------- ------------- -------------
Change in shares.................... (939,872) (122,548)
============= ============= =============
</TABLE>
- ------------
(a) Period from date acquired by Riverfront Stock Appreciation Fund.
(b) Represents statements of changes in net assets for the MIM Stock
Appreciation Fund. Audited by other auditors.
See Notes to Financial Statements.
B-63
<PAGE> 65
SCHEDULE OF PORTFOLIO INVESTMENTS
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
------ ----------- ----
U.S. GOVERNMENT AGENCIES (44.4%):
Federal Farm Credit Bank:
<S> <C> <C> <C>
$ 2,000,000 Discount Note, 1/6/97....... $ 1,998,549
1,340,000 Discount Note, 1/10/97...... 1,338,255
3,000,000 Discount Note, 1/27/97...... 2,988,690
1,000,000 Discount Note, 3/6/97....... 990,720
2,000,000 Discount Note, 3/21/97...... 1,976,783
Federal Home Loan Bank:
10,000,000 Discount Note, 1/2/97....... 9,998,194
4,000,000 Discount Note, 1/9/97....... 3,995,333
2,000,000 Discount Note, 1/16/97...... 1,995,483
3,000,000 Discount Note, 1/27/97...... 2,988,560
Federal Home Loan Mortgage Corp.:
5,000,000 Discount Note, 1/3/97....... 4,998,520
1,000,000 Discount Note, 1/6/97....... 999,257
2,000,000 Discount Note, 1/15/97...... 1,995,854
1,630,000 Discount Note, 1/23/97...... 1,624,810
5,000,000 Discount Note, 1/31/97...... 4,978,033
2,433,000 Discount Note, 2/5/97....... 2,420,676
2,000,000 Discount Note, 2/6/97....... 1,989,480
2,000,000 Discount Note, 2/21/97...... 1,985,153
2,000,000 Discount Note, 2/24/97...... 1,984,310
Federal National Mortgage Assoc.:
3,000,000 Discount Note, 1/7/97....... 2,997,370
2,000,000 4.38%, 1/21/97.............. 1,998,794
1,000,000 Discount Note, 1/28/97...... 996,070
2,840,000 Discount Note, 2/6/97....... 2,824,664
3,000,000 Discount Note, 2/7/97....... 2,983,874
2,000,000 Discount Note, 2/11/97...... 1,988,156
2,000,000 Discount Note, 2/14/97...... 1,987,167
4,000,000 Discount Note, 2/20/97...... 3,970,778
2,000,000 Discount Note, 2,26,97...... 1,983,729
4,000,000 Discount Note, 3/27/97...... 3,949,378
2,000,000 5.36%*, 9/2/97.............. 2,000,000
1,500,000 5.43%*, 9/12/97............. 1,499,541
----------
Total U.S. Government Agencies 80,426,181
COMMERCIAL PAPER (26.6%):
Aerospace/Defense (3.9%):
3,000,000 International Lease Finance
Corp.,
Discount Note, 1/7/97....... 2,997,350
4,000,000 International Lease Finance
Corp.,
Discount Note, 1/23/97...... 3,987,044
----------
6,984,394
----------
Banking (6.2%):
6,300,000 Bank One Corp.,
Discount Note, 1/10/97......
6,291,652
5,000,000 Bankers Trust,
Discount Note, 3/3/97.......
4,955,606
----------
11,247,258
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
------ ----------- ----
Commercial Paper, continued:
Building Materials (1.7%):
<S> <C> <C> <C>
$ 3,000,000 Sherwin-Williams Co.,
Discount Note, 1/6/97......... $2,997,788
------------
Entertainment (3.3%):
4,000,000 Walt Disney,
Discount Note, 1/15/97........
3,991,802
2,000,000 Walt Disney,
Discount Note, 2/18/97........ 1,985,920
------------
5,977,722
------------
Financial Services (6.6%):
4,000,000 Merrill Lynch,
Discount Note, 1/22/97........ 3,987,563
3,000,000 Merrill Lynch,
Discount Note, 2/5/97......... 2,984,425
5,000,000 Safeco Corp.,
Discount Note, 2/14/97........ 4,967,489
------------
11,939,477
------------
Pharmaceuticals (3.3%):
5,000,000 Glaxo Wellcome PLC,
Discount Note, 1/24/97........ 4,963,070
1,000,000 Glaxo Wellcome PLC,
Discount Note, 1/27/97........ 996,172
------------
5,979,242
------------
Tobacco (1.6%):
3,000,000 Philip Morris Co., Inc.,
Discount Note, 1/13/97........ 2,994,700
------------
Total Commercial Paper 48,120,581
------------
Repurchase Agreements (29.4%):
18,295,000 Dean Witter, 6.45%, 1/2/97,
(Collateralized by various U.S.
Treasury and U.S. Government
Agency Securities,
6.09%-11.00%,
1/15/97-8/1/29, market value --
$18,561,852).................. 18,295,000
35,000,000 Prudential Funding Corp., 6.45%,
1/2/97, (Collateralized by various
U.S. Government Agency Securities,
6.00%-9.50%, 3/15/07-12/20/26,
market value -- $35,480,423).. 35,000,000
------------
Total Repurchase Agreements 53,295,000
------------
Total (Cost -- $181,841,762)(a) $181,841,762
============
</TABLE>
The percentages indicated are based on net assets of $181,017,259.
* Adjustable Rate Mortgage.
(a) Cost and value for federal income tax reporting purposes are the same.
See Notes to Financial Statements.
B-64
<PAGE> 66
SCHEDULE OF PORTFOLIO INVESTMENTS
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
U.S. GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
------ ----------- -----
<S> <C> <C>
CORPORATE BONDS (26.1%):
Banking (7.0%):
$1,000,000 MBNA Master Credit Card Trust,
6.05%, 11/15/02................... $ 995,190
500,000 Mellon Capital, 7.72% 12/1/26....... 489,375
1,000,000 Midland Bank PLC, (HSBC),
6.95%, 3/15/11.................... 978,750
---------
2,463,315
---------
Financial Services (16.2%):
1,000,000 Boatmen's Auto Trust, 6.75% 1/15/03.. 1,011,830
1,000,000 Chase Manhattan Corp., 8.50%, 2/15/02. 1,078,750
1,000,000 First Chicago Master Trust, Series L,
Class A 1994 7.15%, 4/15/01...... 1,025,480
500,000 Ford Motor Credit Corp.,
6.25%, 12/8/05................... 473,750
500,000 Grand Metropolitian Investment
Co., 7.45%, 4/15/35.............. 522,500
500,000 Lehman Brothers Holdings,
8.50%, 5/1/07.................... 538,750
1,000,000 Premier Auto Trust, 6.85% 5/22/99,
Series 1994-4.................... 1,012,488
---------
5,663,548
---------
Telecommunication (2.9%):
1,000,000 U.S. West Capital Corp.,
6.31%, 11/1/05................... 993,750
---------
Total Corporate Bonds 9,120,613
---------
U.S. GOVERNMENT AGENCIES (56.0%):
Federal Home Loan Bank:
1,000,000 5.60%, 7/24/97....................... 1,000,160
500,000 8.07%, 2/27/02....................... 507,900
875,000 6.38%, 4/29/03....................... 850,351
690,000 9.50%, 2/25/04........................ 804,160
Federal Home Loan Mortgage Corp.:
1,000,000 Discount Note, 1/2/97................ 999,700
1,000,000 6.55%, 1/4/00........................ 1,008,360
500,000 7.50%, 3/15/15....................... 504,030
1,000,000 6.00%, 1/15/18....................... 991,660
1,000,000 7.20%, 6/15/18....................... 1,004,840
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
------ ----------- -----
U.S. GOVERNMENT AGENCIES, CONTINUED:
Federal National Mortgage Assoc.:
<S> <C> <C>
$1,000,000 5.33%, 6/26/98..................... $ 990,470
500,000 9.05%, 4/10/00..................... 540,150
1,310,278 6.00%, 2/1/03...................... 1,281,413
625,000 6.38%, 6/25/03..................... 610,300
625,000 6.05%, 6/30/03..................... 610,144
351,767 6.75%, 8/25/04,
Series 1992-152 Class H......... 351,281
1,050,000 8.50%, 2/1/05...................... 1,103,214
1,000,000 7.00%, 9/25/05,
Series 1992-1110 Class G........ 1,007,830
749,864 7.00%, 9/25/19..................... 748,627
Government National Mortgage Assoc.:
712,881 8.00%, 5/15/03..................... 726,647
Private Export Funding Corp.:
1,000,000 6.24%, 5/15/02..................... 995,000
Student Loan Marketing Assoc.:
1,000,000 6.05%, 9/14/00..................... 991,410
959,177 5.54%*, 10/25/04................... 959,753
Tennessee Valley Authority:
1,000,000 6.24%, 7/15/45..................... 1,000,000
----------
Total U.S. Government Agencies 19,587,400
----------
U.S. TREASURY NOTES (11.5%):
1,000,000 6.00%, 11/30/97.................... 1,002,290
2,000,000 5.88%, 3/31/99..................... 1,997,900
1,000,000 6.63% 7/31/01...................... 1,015,630
----------
Total U.S. Treasury Notes 4,015,820
----------
YANKEE DOLLAR BONDS (1.1%):
365,000 Montreal Urban Community,
9.13%, 3/15/01......................... 395,569
----------
Total Yankee Dollar Bonds 395,569
----------
INVESTMENT COMPANIES (4.2%):
1,480,112 Dreyfus Treasury Prime Fund........... 1,480,112
----------
Total Investment Companies 1,480,112
-----------
Total (Cost -- $34,345,949)(a) $34,599,514
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $34,990,833.
* Variable Rate.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C> <C>
Unrealized appreciation........... $ 424,863
Unrealized depreciation........... (171,298)
---------
Net unrealized appreciation....... $ 253,565
=========
</TABLE>
See Notes to Financial Statements.
B-65
<PAGE> 67
SCHEDULE OF PORTFOLIO INVESTMENTS
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
INCOME EQUITY FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- -------------- -------------------------------- ----------
<S> <C> <C>
COMMON STOCK (97.2%):
Apparel (0.7%):
33,000 Intimate Brands, Inc............. $ 561,000
-----------
Automobile (0.8%):
28,200 Volvo AB-ADR..................... 613,350
-----------
Auto Parts (5.1%):
18,400 Briggs & Stratton Corp........... 809,600
53,600 Dana Corp........................ 1,748,700
49,100 Echlin, Inc...................... 1,552,788
-----------
4,111,088
-----------
Banks (4.3%):
46,600 Central Fidelity Banks, Inc...... 1,199,950
38,400 Crestar Financial Corp........... 1,428,000
14,900 First American Corp.--Tennessee.. 858,612
-----------
3,486,562
Broadcast/Radio, TV (0.0%):
1,500 U.S. West Media Group, Inc. (b).. 27,750
Chemicals (5.7%): -----------
18,500 Akzo Nobel N.V. ADR.............. 1,248,750
3,500 E. I. du Pont deNemours & Co..... 330,312
111,700 Ethyl Corp....................... 1,075,113
26,500 Lawter International, Inc........ 334,562
3,000 PPG Industries, Inc.............. 168,375
47,200 Witco Corp....................... 1,439,600
-----------
4,596,712
-----------
Confections & Beverages (1.2%):
29,000 Cadbury Schweppes PLC-ADR........ 989,625
-----------
Consumer Products (1.7%):
52,100 Stanley Works.................... 1,406,700
-----------
Cosmetics (2.1%):
37,100 International Flavors &
Fragrances, Inc.................. 1,669,500
-----------
Department Stores (4.8%):
35,600 May Department Stores Co......... 1,664,300
8,000 Mercantile Stores Co., Inc....... 395,000
34,900 J.C. Penney Co., Inc............. 1,701,375
3,000 Sears Roebuck & Co............... 138,375
-----------
3,899,050
-----------
Electrical (4.2%):
51,000 AMP, Inc......................... 1,957,125
33,400 Thomas & Betts Corp.............. 1,482,125
-----------
3,439,250
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------------- ----------------- -----------
<S> <C> <C>
COMMON STOCK, CONTINUED:
Electronics (3.7%):
44,600 National Service Industries, Inc. $ 1,666,925
33,800 Phillips Electronics N.V......... 1,352,000
-----------
3,018,925
-----------
Engineering & Construction (1.5%):
32,000 Foster Wheeler Corp.............. 1,188,000
-----------
Financial Services (4.1%):
52,900 H & R Block, Inc................. 1,534,100
71,500 ITT Industries, Inc.............. 1,751,750
-----------
3,285,850
-----------
Food Processing (0.2%):
9,500 Tasty Baking Co.................. 130,625
-----------
Forest Products (3.9%):
38,600 International Paper Co........... 1,558,475
15,500 Rayonier, Inc.................... 594,813
20,900 Union Camp Corp.................. 997,975
-----------
3,151,263
-----------
Grocery Stores (0.7%):
11,500 Giant Food--Class A............... 396,750
5,000 Winn-Dixie Stores, Inc........... 158,125
-----------
554,875
-----------
Health Products/Care (2.0%):
56,700 Bard (C. R.), Inc................ 1,587,600
-----------
Household Products/Wares (1.1%):
1,500 Colgate-Palmolive Co............. 138,375
32,100 Rubbermaid, Inc.................. 730,275
-----------
868,650
-----------
Insurance (1.6%):
1,500 American International Group, Inc. 162,375
11,100 ITT Hartford Group, Inc.......... 749,250
7,300 Lincoln National Corp............ 383,250
-----------
1,294,875
-----------
Manufacturing (0.3%):
3,500 Minnesota Mining & Manufacturing
Co............................... 290,062
-----------
Medical Supplies (0.2%):
3,000 Becton Dickinson & Co............ 130,125
-----------
Medical Products (2.2%):
43,800 Baxter International............. 1,795,800
-----------
Metal Fabricate/Hardware (1.4%):
25,100 Timken Co........................ 1,151,462
-----------
</TABLE>
Continued
B-66
<PAGE> 68
SCHEDULE OF PORTFOLIO INVESTMENTS
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
INCOME EQUITY FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------------ ----------- ----------
<S> <C> <C>
COMMON STOCK, CONTINUED:
Metals (3.8%):
27,700 Reynolds Metals Co................ $ 1,561,588
33,200 Tenneco, Inc. (b)................. 1,498,150
-----------
3,059,738
-----------
Mining (1.4%):
37,500 Freeport-McMoRan Copper & Gold,
Inc............................... 1,120,313
-----------
Office Equipment & Supplies (1.9%):
23,000 Harris Corp....................... 1,578,375
-----------
Oil & Gas Producers (4.3%):
21,600 Amoco Corp........................ 1,741,500
11,300 LG&E Energy Corp.................. 276,850
12,200 Mobil Corp........................ 1,491,450
-----------
3,509,800
-----------
Oil--Domestic (1.6%):
53,800 Sun Company, Inc.................. 1,311,375
-----------
Oil--International (0.4%):
5,000 Chevron Corp...................... 325,000
-----------
Packaged Food (1.0%):
38,000 Lance, Inc........................ 684,000
2,500 Sara Lee Corp..................... 93,125
-----------
777,125
-----------
Packaging & Container (1.0%):
14,900 Temple-Inland, Inc................ 806,462
-----------
Paper (2.9%):
19,900 Consolidated Papers, Inc.......... 977,587
46,600 Westvaco Corp..................... 1,339,750
-----------
2,317,337
-----------
Pharmaceuticals (2.2%):
3,000 Abbott Laboratories............... 152,250
42,100 Pharmacia & Upjohn, Inc........... 1,668,212
-----------
1,820,462
-----------
Photography (0.3%):
3,500 Eastman Kodak Co.................. 280,875
-----------
Printing & Publishing (3.3%):
34,100 Dow Jones & Co., Inc.............. 1,155,137
33,300 McGraw-Hill Cos., Inc............. 1,535,963
-----------
2,691,100
-----------
Real Estate (0.1%):
3,200 New Plan Realty Trust............. 81,200
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ----------------- ----------- --------
<S> <C> <C>
COMMON STOCK, CONTINUED:
Savings & Loans (0.5%):
9,700 First Commerce Corp......... $377,087
---------
Steel (0.5%):
17,000 Allegheny Teledyne, Inc..... 391,000
---------
Telecommunications (4.0%):
47,200 Alltel Corp................. 1,480,900
24,500 Federal Signal Corp......... 633,937
48,400 Frontier Corp............... 1,095,050
---------
3,209,887
---------
Textiles (1.1%):
81,100 Shaw Industries, Inc........ 952,925
---------
Tobacco (0.3%):
5,000 American Brands, Inc........ 248,125
---------
Tools (1.4%):
32,500 Snap-On, Inc................ 1,157,813
---------
Transportation--Airlines (1.3%):
36,700 KLM Royal Dutch Air Lines
N.V......................... 1,023,013
---------
Transportation--Rail (1.5%):
38,400 Illinois Central Corp....... 1,228,800
---------
Utilities--Electric (4.9%):
33,200 Central & South West Corp... 850,750
26,500 Chilgener S.A., ADR......... 553,188
24,200 CINergy Corp................ 807,675
10,800 DPL, Inc.................... 264,600
14,500 Illinova Corp............... 398,750
1,000 KU Energy Corp.............. 30,000
9,600 Scana Corp.................. 256,800
27,200 Western Resources, Inc...... 839,800
---------
4,001,563
---------
Utilities--Gas (0.7%):
19,000 Brooklyn Union Gas Co....... 572,375
---------
Utilities--Telecommunications (3.3%):
26,200 GTE Corp.................... 1,188,825
36,300 Southern New England
Telecommunications Corp..... 1,411,163
1,500 U S West Communications Group 48,375
---------
2,648,363
----------
Total Common Stock 78,738,812
----------
</TABLE>
Continued
B-67
<PAGE> 69
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
INCOME EQUITY FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ----------- ---------
<S> <C> <C>
CORPORATE BONDS (0.8%):
100,000 Hasbro, Inc., 6.00%, 11/15/98... $ 135,500
50,000 Liebert Corp., 8.00%, 11/15/10.. 182,125
100,000 Pennzoil Co., 6.50%, 1/15/03.... 154,000
50,000 South Carolina National Corp.,
6.50%, 5/15/01.................. 147,375
---------
Total Corporate Bonds 619,000
---------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------------- ----------- -----------
<S> <C> <C>
INVESTMENT COMPANIES (2.6%):
1,930,357 Dreyfus Treasury Prime Fund...... $ 1,930,357
164,620 Federated Short Term Government
Fund............................. 164,620
-----------
Total Investment Companies 2,094,977
-----------
Total (Cost--$77,468,431)(a)....................... $81,452,789
===========
</TABLE>
- -------------------
Percentages indicated are based on net assets of $81,000,024.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........... $5,615,970
Unrealized depreciation .......... (1,631,612)
----------
Net unrealized appreciation ...... $3,984,358
==========
</TABLE>
(b) Non-income producing security.
ADR--American Depository Receipt
NV--Naamloze Vennootschap (Dutch Corporation)
PLC--Public Limited Company (British)
See Notes to Financial Statements.
B-68
<PAGE> 70
Schedule of Portfolio Investments
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
Ohio Tax-Free Bond Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL Security Market
AMOUNT Description Value
- -------- -------------------------------------------------------------------------------------------------- --------
<S> <C> <C>
OHIO MUNICIPAL BONDS (91.7%):
$100,000 Aurora City School District, 5.40%, 12/1/06 ......................................................... $104,375
200,000 Beavercreek Local School District, GO, 5.30%, 12/1/08 ............................................... 203,500
100,000 Bowling Green City School District, GO, 5.70%, 12/1/11 .............................................. 101,500
230,000 Butler County Hospital Facilities, 6.00%, 11/15/10, Callable 5/15/04 @ 101 .......................... 242,650
200,000 Butler County Sewer System Revenue, 5.40%, 12/1/09 .................................................. 204,250
250,000 Butler County Sewer System Revenue, Series B, 6.20%, 12/1/09 ........................................ 264,375
250,000 Canton Waterworks System, GO, 5.75%, 12/1/10 ........................................................ 259,375
100,000 Chillicothe Water System Revenue, 5.10%, 12/1/05 .................................................... 101,500
250,000 Cincinnati, GO, 5.25%, 12/1/01 ...................................................................... 259,375
250,000 Clermont County Waterworks Revenue, 6.63%, 12/1/16 .................................................. 278,437
100,000 Cleveland, GO, 5.38%, 9/1/09 ........................................................................ 101,000
250,000 Columbus, GO, 5.50%, 5/15/08, Callable 5/15/06 @ 102 ................................................ 258,750
200,000 Columbus, GO, 5.65%, 6/15/11 ........................................................................ 205,500
250,000 Columbus Sewer Revenue, 6.13%, 6/1/03 ............................................................... 271,250
100,000 Delaware County, GO, 5.60%, 12/1/10 ................................................................. 101,000
100,000 Dover Municipal Electric System Revenue, 5.35%, 12/1/06 ............................................. 103,375
250,000 Franklin County Hospital Revenue, 5.25%, 6/1/08 ..................................................... 250,937
250,000 Franklin County Hospital Revenue, Refunding, Riverside United Methodist, Series A, 5.30%, 5/15/02 ... 256,875
250,000 Fremont, GO, 5.45%, 12/15/07 ........................................................................ 258,125
250,000 Gahanna, GO, 5.85%, 6/1/08 .......................................................................... 263,750
170,000 Hamilton County Sewer System Unrefunded, Series A, 6.40%, 12/1/04 ................................... 183,812
80,000 Hamilton County Sewer Systems, Series A, 6.40%, 12/1/04 ............................................. 87,500
250,000 Hamilton County, Building Improvement & Refunding, Museum Center, GO, 5.75%, 12/1/00 ................ 262,187
250,000 Hilliard School District, GO, 5.35%, 12/1/04 ........................................................ 257,500
250,000 Kings Local School District, GO, 5.75%, 12/1/10 ..................................................... 258,125
100,000 Lake County Human Services Building, GO, 5.70%, 12/1/15 ............................................. 101,000
250,000 Lakota Local School District, 6.00%, 12/1/07, Callable 12/1/02 @101 ................................. 262,187
250,000 Mahoning County, GO, 5.60%, 12/1/02 ................................................................. 263,437
250,000 Mahoning County, GO, 5.70%, 12/1/08 ................................................................. 261,250
100,000 Marysville Exempt Village School District, GO, 5.30%, 12/1/09 ....................................... 100,875
200,000 Mason City School Disctrict, GO, 5.20%, 12/1/08 ..................................................... 201,250
250,000 Middletown Capital Facilities Improvement, 5.60%, 12/1/05 ........................................... 256,875
100,000 Montgomery County, GO, 5.40%, 9/1/09 ................................................................ 100,375
250,000 Olentangy Local School District, GO, Series A, 5.70%, 12/1/05 ....................................... 265,312
100,000 Solon, GO, 5.25%, 12/1/07 ........................................................................... 101,875
100,000 State, GO, 5.60%, 8/1/02 ............................................................................ 105,250
250,000 State Building Authority, 5.70%, 9/1/01 ............................................................. 263,438
250,000 State Building Authority, 6.00%, 10/1/07 ............................................................ 267,188
245,000 State Building Authority, 6.13%, 10/1/09 ............................................................ 260,925
95,000 State Building Authority, 6.25%, 6/1/11 ............................................................. 99,156
250,000 State Elementary & Secondary Capital Facilities, 5.45%, 6/1/99 ...................................... 257,500
200,000 State Public Facilities Commission, Higher Education Capital Facilities, Series II-A, 5.20%, 5/1/05.. 205,500
250,000 State Public Facilities Commission, Higher Education Capital Facilities, Series II-B, 5.70% 11/1/03.. 265,938
250,000 State Public Facilities Commission, Parks & Recreations, Series II-A, 5.25%, 6/1/06 ................. 255,313
250,000 State Water Development Authority Revenue, 5.75%, 6/1/03 ............................................ 265,625
</TABLE>
Continued
B-69
<PAGE> 71
Schedule of Portfolio Investments
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
Ohio Tax-Free Bond Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL Security Market
AMOUNT Description Value
- -------- ------------------------------------------------------------------------------------ -----------
<S> <C> <C>
$250,000 State Water Development Authority Revenue, 5.75%, 12/1/05, Callable 12/1/02 @ 102... $ 266,563
150,000 State Water Development Authority, 5.70%, 12/1/11 .................................. 153,750
100,000 Summit County, 5.45%, 12/1/10 ...................................................... 101,250
250,000 University of Cincinnati, Series R3, 5.80%, 6/1/04 ................................. 263,438
250,000 Warren County Waterworks, 5.75%, 12/1/09 ........................................... 257,188
100,000 West Clermont Local School District, 5.55%, 12/1/06 ................................ 104,500
250,000 Woodridge Local School District, GO, 5.75%, 12/1/07, Callable 12/1/04 @ 102 ........ 263,750
----------
Total Ohio Municipal Bonds 10,709,731
-----------
INVESTMENT COMPANIES (7.4%):
425,000 Dreyfus Municipal Money Market Fund ................................................ 425,000
442,727 Goldman Tax Free Fund .............................................................. 442,727
-----------
Total Investment Companies 867,727
-----------
Total (Cost--$11,126,979)(a) $11,577,458
===========
</TABLE>
- ----------------
Percentages indicated are based on net assets of $11,677,024.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.............. $450,479
Unrealized depreciation.............. 0
--------
Net unrealized appreciation ......... $450,479
========
</TABLE>
GO--General Obligation
See Notes to Financial Statements.
B-70
<PAGE> 72
Schedule of Portfolio Investments
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
Flexible Growth Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL Security Market
AMOUNT Description Value
- -------------- ----------------------- --------
<S> <C> <C>
COMMON STOCK (52.6%):
Aerospace (1.8%):
4,200 Lockheed Martin Corp................ $384,300
--------
Agricultural Machinery (2.1%):
8,000 Case Corp........................... 436,000
--------
Apparel (1.4%):
8,000 Jones Apparel Group (b)............. 299,000
--------
Banks (0.9%):
2,000 Chase Manhattan Corp................ 178,500
--------
Building Materials (1.0%):
4,000 Texas Industries, Inc............... 202,500
--------
Chemicals (3.2%):
7,000 E. I. du Pont de Nemours &
Co.................................. 660,625
--------
Confections & Beverages (1.2%):
4,000 Anheuser-Busch Cos., Inc............ 160,000
2,000 Hershey Foods Corp.................. 87,500
--------
247,500
--------
Computers & Software ( 4.4%):
4,000 Compaq Computer Corp. (b)........... 297,500
3,000 Intel Corp.......................... 392,812
5,600 Seagate Technology, Inc. (b)........ 221,200
--------
911,512
--------
Finance--Mortgage Loan/Banker (1.3%):
7,000 Federal National Mortgage
Assoc............................... 263,375
--------
Forest Products (0.9%):
4,500 International Paper Co.............. 181,688
--------
Grocery (1.3%):
6,000 Kroger Co........................... 279,000
--------
Household Products/Wares (1.6%):
3,000 Procter & Gamble Co................. 322,875
--------
Industrial Machinery (1.2%):
3,400 Caterpillar, Inc.................... 255,850
--------
Metals (1.6%):
15,500 Placer Dome, Inc.................... 337,125
--------
Mining (2.7%):
12,000 Barrick Gold Corp................... 345,000
14,000 Santa Fe Pacific Gold Corp.......... 215,250
--------
560,250
Oil & Gas Producers (2.6%):
2,500 British Petroleum PLC, ADR.......... 353,438
--------
2,000 Texaco, Inc......................... 196,250
--------
549,688
--------
Oil--Domestic (3.7%):
8,000 Panenergy Corp.................... $ 360,000
16,000 YPF Sociedad Anonima-Sponsored ADR 404,000
----------
764,000
----------
Oil--International (1.1%):
2,300 Exxon Corp........................ 225,400
----------
Pharmaceuticals (2.9%):
3,000 Amgen, Inc. (b)................... 163,125
4,000 Bristol-Myers Squibb Co........... 435,000
----------
598,125
----------
Photography (1.5%):
4,000 Eastman Kodak Co.................. 321,000
----------
Printing & Publishing (1.6%):
9,000 New York Times Co--Class A......... 342,000
----------
Real Estate (3.3%):
4,000 Healthcare Properties Investment,
Inc............................... 140,000
17,000 Health & Retirement Properties
Trust............................. 329,375
7,000 Public Storage, Inc............... 217,000
----------
686,375
----------
Retail (0.6%):
3,000 Walgreen Co....................... 120,000
----------
Tobacco (2.3%):
4,300 Philip Morris Cos., Inc........... 485,900
----------
Telecommunications (5.4%):
6,500 Ameritech Corp.................... 394,062
4,000 CIA Telecomunicacion Chile, ADR... 404,500
4,000 Telecom of New Zealand, ADR....... 324,000
----------
1,122,562
----------
Utilities--Electric (1.0%):
4,500 Duke Power Co..................... 208,125
----------
Total Common Stock 10,943,275
----------
U.S. GOVERNMENT AGENCIES (10.5%):
Federal Home Loan Bank:
100,000 5.97%, 12/14/98................... 99,668
200,000 6.11%, 1/18/01.................... 195,964
300,000 6.04%, 2/14/01.................... 293,100
----------
588,732
----------
Federal National Mortgage Assoc.:
300,000 6.95%, 11/06...................... 296,430
----------
Government National Mortgage Assoc.:
503,671 7.50%, 9/15/26.................... 798,778
798,530 7.50%, 9/15/26.................... 503,826
----------
1,302,604
----------
Total U.S. Government Agencies 2,187,766
----------
</TABLE>
B-71
<PAGE> 73
Schedule of Portfolio Investments, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
Flexible Growth Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL Security Market
AMOUNT Description Value
- ------------- ----------- ---------
<S> <C> <C>
U.S. TREASURY BILLS (4.8%):
1,000,000 Discount Note,3/6/97..... $ 991,020
---------
U.S. TREASURY NOTES (23.7%):
500,000 6.07%, 8/31/98........... 502,250
700,000 6.25%, 5/31/00........... 702,919
3,100,000 6.88%, 5/15/06........... 3,193,651
500,000 6.53%, 7/15/06........... 519,380
---------
Total U.S. Treasury Notes 4,918,200
=========
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL Security Market
AMOUNT Description Value
- ---------------- ----------- -----------
<S> <C> <C>
INVESTMENT COMPANIES (9.7%):
1,896,034 Dreyfus Treasury Prime Fund.... $ 1,896,034
8,000 Southern Africa Fund, Inc...... 117,000
-----------
Total Investment Companies 2,013,034
-----------
Total (Cost--$18,999,696)(a) $21,053,295
===========
</TABLE>
- ----------------
The percentages indicated are based on net assets of $20,794,478.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation. $2,252,044
Unrealized depreciation (198,445)
----------
Net unrealized appreciation $2,053,599
==========
</TABLE>
(b) Non-income producing security.
ADR--American Depository Receipt
See Notes to Financial Statements.
B-72
<PAGE> 74
Schedule of Portfolio Investments
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
Stock Appreciation Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- --------------- ----------- ----------
<S> <C> <C>
COMMON STOCK (90.2%):
Apparel (6.4%):
2,400 Gymboree Corp. (b).......... $ 54,900
6,250 Intimate Brands, Inc........ 106,250
25,000 Jones Apparel Group (b)..... 934,375
15,000 Nautica Enterprises, Inc. (b) 378,750
12,000 TJX Cos., Inc............... 568,500
----------
2,042,775
----------
Automobile & Parts (1.0%):
15,000 Gentex Corp. (b)............ 301,875
2,500 Simpson Industries, Inc..... 27,227
----------
329,102
----------
Banks (0.7%):
2,000 Colonial BancGroup, Inc..... 80,000
4,700 Sterling Bancorp............ 69,325
2,100 Vermont Financial Services
Corp........................ 74,550
----------
223,875
----------
Beer, Wine & Distilled Beverages (0.2%):
2,200 Boston Beer Co., Inc. (b)... 22,550
3,800 Pete's Brewing Co. (b)...... 30,400
----------
52,950
----------
Building & Construction (0.1%):
2,000 Drew Industries, Inc. (b)... 44,000
----------
Building--Mobile Home (1.9%):
22,000 Coachmen Industries, Inc.... 624,250
----------
Building Materials (0.5%):
3,000 Medusa Corp................. 103,125
1,500 National Service Industries,
Inc......................... 56,062
----------
159,187
Chemicals (0.7%):
14,500 CFC International (b)....... 163,125
4,000 Lawter International, Inc... 50,500
----------
213,625
----------
Commercial Services (2.4%):
8,500 Paychex, Inc................ 437,219
12,000 Service Corp. International. 336,000
----------
773,219
----------
Computer, Software & Services (18.8%):
8,000 3 Com Corp. (b)............. 587,000
2,000 Broderbund Software, Inc. (b) 59,500
10,000 Cisco Systems, Inc. (b)..... 636,250
7,500 Compuware Corp. (b)......... 375,937
10,000 Comverse Technology, Inc. (b) 378,125
14,000 Dell Computer Corp. (b)..... 743,750
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------------- ----------- ---------
<S> <C> <C>
COMMON STOCK, CONTINUED:
Computer, Software & Services, continued:
8,000 Gateway 2000, Inc. (b)........... $ 428,500
13,200 Microsoft Corp. (b).............. 1,090,650
13,000 Oracle Corp. (b)................. 542,750
9,000 Parametric Technology Corp. (b).. 462,375
20,000 Structural Dynamics Research
Corp. (b)........................ 400,000
10,000 Sun Microsystems, Inc. (b)....... 256,875
3,300 The Learning Co. (b)............. 47,438
---------
6,009,150
---------
Data Processing (1.0%):
7,500 National Data Corp............... 326,250
---------
Department Stores (2.4%):
15,000 Dollar Tree Stores, Inc. (b)..... 573,750
5,000 Kohl's Corp. (b)................. 196,250
---------
770,000
---------
Direct Marketing (0.9%):
5,000 Catalina Marketing Corp. (b)..... 275,625
---------
Electronics (2.1%):
5,000 ADFlex Solutions, Inc. (b)....... 51,250
10,000 Micron Technology, Inc........... 291,250
20,000 S 3, Inc. (b).................... 325,000
---------
667,500
---------
Environmental Control (4.3%):
12,000 United Waste Systems, Inc. (b)... 412,500
10,200 USA Waste Services, Inc. (b)..... 325,125
20,000 U.S. Filter Corp. (b)............ 635,000
---------
1,372,625
Financial Services (1.2%):
10,000 Green Tree Financial Corp........ 386,250
---------
Firearms & Ammunition (0.2%):
4,000 Sturm Ruger & Co. Inc............ 77,500
---------
Home Improvement (1.3%):
20,000 Eagle Hardware & Garden, Inc. (b) 415,000
Hotel/Motel (1.8%):
8,000 Renaissance Hotel Group N.V. (b). 188,000
200 HFS, Inc. (b).................... 11,950
15,000 Hilton Hotels Corp............... 391,875
---------
591,825
---------
Human Resources (2.0%):
16,600 Alternative Resources, Inc. (b).. 288,425
4,000 Olsten Corp...................... 60,500
15,000 Employee Solutions, Inc. (b)..... 307,500
---------
656,425
---------
</TABLE>
B-73
<PAGE> 75
Schedule of Portfolio Investments, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
Stock Appreciation Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
-------------- ----------- ---------
<S> <C> <C>
COMMON STOCK, CONTINUED:
Industrial Machinery (2.2%):
4,000 AGCO Corp........................ $ 114,500
17,500 Cincinnati Milacron, Inc......... 382,812
3,500 Greenfield Industries, Inc....... 107,187
3,400 Lincoln Electric Co.--Class A..... 102,850
---------
707,349
---------
Instruments--Scientific (0.8%):
6,600 Millipore Corp................... 273,075
---------
Insurance (1.2%):
6,000 Progressive Corp................. 404,250
---------
Manufacturing (0.3%):
5,000 Optical Coating Laboratories, Inc. 53,750
2,500 Westinghouse Air Brake Co........ 31,563
---------
85,313
---------
Medical--Transportation (0.2%):
1,850 American Medical Response, Inc.
(b).............................. 60,125
---------
Medical--Information Systems (0.2%):
4,600 PHAMIS, Inc. (b)................. 59,225
---------
Medical--Instruments/Products (2.9%):
10,000 Boston Scientific Corp. (b)...... 600,000
3,000 CNS, Inc. (b).................... 43,125
12,200 Physio-Control International
Corp. (b)........................ 274,500
---------
917,625
---------
Mining (1.6%):
10,000 Barrick Gold Corp................ 287,500
5,000 Newmont Gold Co.................. 218,750
---------
506,250
---------
Minerals (0.3%):
12,500 Uranium Resources, Inc. (b)...... 98,438
---------
Motorcycle (1.5%):
10,000 Harley-Davidson, Inc............. 470,000
---------
Oil Equipment, Wells & Services (8.2%):
12,000 ENSCO International, Inc. (b).... 582,000
30,000 Global Marine, Inc. (b).......... 618,750
7,500 Nuevo Energy Co. (b)............. 390,000
11,000 Ranger Oil Ltd................... 108,625
20,000 Reading & Bates Corp. (b)........ 530,000
5,000 Transocean Offshore, Inc......... 313,125
4,000 Tuboscope Vetco International
Corp. (b)........................ 62,000
---------
2,604,500
---------
Pharmaceuticals (1.1%):
10,000 Jones Medical Industries, Inc.... 366,250
---------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------------- ----------- ---------
<S> <C> <C>
COMMON STOCK, CONTINUED:
Power Conversion--Supply Equipment (0.9%):
10,000 American Power Conversion (b)... $272,500
---------
Printing & Publishing (0.2%):
2,650 World Color Press, Inc. (b)..... 51,012
---------
Recreational Equipment (0.9%):
10,000 Callaway Golf Co................ 287,500
---------
Recreational Vehicles (0.4%):
5,000 Polaris Industries Inc.......... 118,750
---------
Restaurant (2.3%):
3,000 Bob Evans Farms................. 40,500
10,000 Dave & Buster's, Inc. (b)....... 201,250
10,000 Landry's Seafood Restaurants, 213,750
Inc. (b)........................ 41,500
4,000 Rock Bottom Restaurants, Inc. (b)
11,000 Wendy's International, Inc...... 225,500
---------
722,500
---------
Retail (4.3%):
5,000 Best Buy Co, Inc. (b)........... 53,125
22,000 PETsMART, Inc. (b).............. 481,250
7,000 Sunglass Hut International (b).. 50,750
10,000 Tiffany & Co.................... 366,250
15,000 Tech Data Corp. (b)............. 410,625
---------
1,362,000
---------
Savings & Loans (1.5%):
7,000 Astoria Financial Corp.......... 258,125
5,000 Charter One Financial, Inc...... 210,000
---------
468,125
---------
Sporting Goods (0.9%):
12,600 Cannondale Corp. (b)............ 283,500
---------
Steel (2.1%):
10,000 Carpenter Technology Corp....... 366,250
16,400 Worthington Industries, Inc..... 297,250
---------
663,500
---------
Textiles (0.7%):
10,000 Mohawk Industries, Inc. (b)..... 220,000
---------
Telecommunications (2.9%):
8,000 Aspect Telecommunications Corp.
(b)............................. 508,000
5,900 Federal Signal Corp............. 152,663
12,500 LCI International, Inc. (b)..... 268,750
---------
929,413
---------
Tools (1.0%):
10,500 Black & Decker Corp............. 316,312
---------
</TABLE>
B-74
<PAGE> 76
Schedule of Portfolio Investments, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
Stock Appreciation Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- -------------- ----------- ----------
<S> <C> <C>
COMMON STOCK, CONTINUED:
Tobacco (0.4%):
5,000 Dimon, Inc.................... $ 115,625
----------
Utilities--Electric (1.3%):
9,000 Commonwealth Energy System Cos. 211,500
4,900 Oklahoma Gas & Electric....... 204,575
----------
416,075
----------
Total Common Stock 28,790,345
----------
CORPORATE BONDS (1.3%):
Cosmetics & Toiletries (1.3%):
22,500 NBTY, Inc. (b)................ 427,500
----------
Total Corporate Bonds 427,500
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ------------- ----------- -----------
<S> <C> <C>
U.S. GOVERNMENT AGENCIES (3.1%):
Federal National Mortgage Assoc.:
$1,000,000 Discount Note, 1/2/97........... $ 999,700
-----------
Total U.S. Government Agencies 999,700
-----------
INVESTMENT COMPANIES (6.5%):
826,595 Dreyfus Treasury Prime Fund..... 826,595
1,242,376 Federated U.S. Treasury Services
#125............................ 1,242,376
-----------
Total Investment Companies 2,068,971
-----------
Total (Cost--$26,843,438)(a) $32,286,516
===========
</TABLE>
- ------------
The percentages indicated are based on net assets of $31,914,337.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation. ................. $5,885,080
Unrealized depreciation. ................. (442,002)
----------
Net unrealized appreciation .............. $5,443,078
==========
</TABLE>
(b) Non-income producing security.
See Notes to Financial Statements.
B-75
<PAGE> 77
Notes to Financial Statements
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
1. ORGANIZATION:
The Riverfront Funds, Inc. (the "Fund"), was organized as a Maryland
corporation on March 27, 1990, and is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. The Fund is authorized to issue six series
of shares of capital stock, representing interests in different portfolios
of securities as follows: The Riverfront U.S. Government Securities Money
Market Fund, The Riverfront U.S. Government Income Fund, The Riverfront
Income Equity Fund, The Riverfront Ohio Tax-Free Bond Fund, The Riverfront
Flexible Growth Fund and The Riverfront Stock Appreciation Fund (each, a
"Portfolio"; and collectively, the "Portfolios").
The investment objective of the U.S. Government Securities Money Market
Fund is to seek current income from U.S. Government short-term securities
while preserving capital and maintaining liquidity. The investment
objective of the U.S. Government Income Fund is to seek a high level of
current income, consistent with preservation of capital, by investing
primarily in securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities. The investment objective of the Income
Equity Fund is to seek a high level of investment income through
investment primarily in income-producing equity securities of U.S.
issuers. The investment objective of the Ohio Tax-Free Bond Fund is to
seek income exempt from federal and Ohio state income taxes and
preservation of capital. The investment objective of the Flexible Growth
Fund is to seek long-term growth of capital with some current income as a
secondary objective. The investment objective of the Stock Appreciation
Fund is to seek capital growth.
The Fund is authorized to issue 3,000,000,000 shares with a par value of
$.001 per share. Sales of shares of the Portfolios may be made to
customers of The Provident Bank ("Provident") and its affiliates, to all
accounts of correspondent banks of Provident and to the general public.
The U.S. Government Income Fund, the Income Equity Fund, the Ohio Tax-Free
Bond Fund, the Flexible Growth Fund and the Stock Appreciation Fund
(collectively, "the variable net asset value funds") each offers two share
classes: Investor A Shares and Investor B Shares. The U.S. Government
Securities Money Market Fund (the "money market fund") offers only the
Investor A Shares. Investor A Shares of the variable net asset value funds
are subject to initial sales charges imposed at the time of purchase, in
accordance with the Portfolios' prospectus. Certain redemptions of the
Investor B Shares of the variable net asset value funds made within six
years of purchase are subject to varying contingent deferred sales charges
in accordance with the Portfolios' prospectus. Each share class has
identical rights and privileges, except with respect to distribution and
services (12b-1) fees paid by each share class, voting rights on matters
affecting a single share class, and the exchange privileges of each share
class.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Fund in preparation of its financial statements. The 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.
SECURITIES VALUATION:
Investments of the money market fund are valued at either amortized cost, which
approximates market value, or at original cost which, combined with accrued
interest, approximates market value. Under the amortized cost method, discount
or premium is amortized on a constant basis to the maturity of the security. In
addition, the money market
B-76
<PAGE> 78
Notes to Financial Statements (Continued)
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
fund may not (a) purchase any instrument with a remaining maturity
greater than 397 days unless such investment is subject to a demand
feature, or (b) maintain a dollar-weighted-average portfolio maturity
which exceeds 90 days.
Investments in common and preferred stocks, corporate bonds,
commercial paper and U.S. Government securities of the variable net
asset value funds are valued at their market values determined on the
basis of the mean of the latest available bid and asked quotations or
closing sale prices on the principal exchange (closing sales prices
on the over-the-counter National Market System) in which such
securities are normally traded. Municipal bonds are valued by using
market quotations or independent services that use prices provided by
market makers or estimates of market values obtained from yield data
relating to instruments or securities with similar characteristics.
Short-term investments maturing in 60 days or less are valued at
amortized cost, which approximates market value. Investments in
investment companies are valued at their net asset values as reported
by such investment companies. Other securities for which quotations
are not readily available are valued at their fair value as
determined in good faith by the investment adviser under the
supervision of the Fund's Board of Directors. The differences between
the cost and market values of investments held by the variable net
asset value funds are reflected as either unrealized appreciation or
depreciation.
SECURITY TRANSACTIONS AND RELATED INCOME:
Security 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. Realized gains or losses from sales of
securities are determined on an identified cost basis.
REPURCHASE AGREEMENTS:
The Portfolios may acquire repurchase agreements from financial
institutions such as banks and broker dealers which Provident, as
investment adviser or the Portfolio's sub-investment adviser deems
creditworthy under guidelines approved by the Board of Directors,
subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price generally
equals the price paid by each Portfolio plus interest negotiated on
the basis of current short-term rates, which may be more or less than
the rate on the underlying portfolio securities. The seller, under a
repurchase agreement, is required to maintain the value of collateral
held pursuant to the agreement at not less than the repurchase price
(including accrued interest). Securities subject to repurchase
agreements are held by each Portfolio's custodian or another
qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by the
Portfolios under the 1940 Act.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and paid
monthly for the money market fund. Dividends from net investment
income are declared and paid monthly for the variable net asset
value funds.
Distributable net realized capital gains, if any, are declared and
distributed at least annually. Any taxable distributions declared in
December and paid in the following fiscal year will be taxable to
shareholders in the year declared.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. Timing differences relating to shareholder distributions are
reflected in the components of net assets and permanent book and tax basis
differences relating to shareholder
B-77
<PAGE> 79
Notes to Financial Statements, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
distributions have been reclassified to capital. These differences
are due primarily to differing treatments for dollar roll
transactions, the deferral of certain losses and expiring capital
loss carryforwards.
FEDERAL INCOME TAXES:
It is the policy of the Funds to comply with all requirements of the
Internal Revenue Code (the "code") applicable to regulated investment
companies and to distribute substantially all of their taxable income
to their shareholders. The Portfolios have met the requirements of
the Code applicable to regulated investment companies for the year
ended December 31, 1996, therefore, no federal tax provision was
required.
EXPENSE ALLOCATIONS:
Expenses that are directly related to one of the Portfolios are
charged directly to that Portfolio. Other operating expenses of the
Fund are prorated to the Portfolios, generally on the basis of
relative net assets.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for
the year ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
U.S. Government Income Fund .... $ 17,096,653 $ 21,823,848
Income Equity Fund ............. $118,606,552 $115,043,248
Ohio Tax-Free Bond Fund ........ $ 607,267 $ 716,491
Flexible Growth Fund ........... $ 21,993,742 $ 17,772,833
Stock Appreciation Fund ........ $ 54,802,922 $ 76,115,297
</TABLE>
B-78
<PAGE> 80
Notes to Financial Statements, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares for the Fund were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES
MONEY MARKET FUND U.S. GOVERNMENT INCOME FUND
-------------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares issued .............. $ 413,837,358 $ 331,872,719 $ 2,494,252 $ 4,352,572
Proceeds from shares issued in connection
with acquisition .................... 4,865,634
Dividends reinvested ..................... 2,193,920 1,518,099 440,531 569,125
Shares redeemed .......................... (392,509,518) (330,133,820) (4,741,047) (4,089,227)
------------- ------------- ----------- -----------
Change in net assets from Investor A share
transactions ........................ $ 23,521,760 $ 8,122,632 $(1,806,264) $ 832,470
============= ============= =========== ===========
Investor B Shares:
Proceeds from shares issued .............. $ 372,835 $ 1,317,928
Dividends reinvested ..................... 45,964 9,712
Shares redeemed .......................... (349,650) (96,002)
----------- -----------
Change in net assets from Investor B share
transactions ........................ $ 69,149 $ 1,231,638
=========== ===========
SHARE TRANSACTIONS:
Investor A Shares:
Issued ................................... 413,837,358 331,872,719 264,167 469,561
Issued in connection with acquisition .... 4,865,634
Reinvested ............................... 2,193,920 1,518,099 46,735 60,733
Redeemed ................................. (392,509,518) (330,133,820) (502,013) (435,482)
============= ============= =========== ===========
Change in Investor A Shares .............. 23,521,760 8,122,632 (191,111) 94,812
============= ============= =========== ===========
Investor B Shares:
Issued ................................... 34,874 123,342
Reinvested ............................... 4,314 903
Redeemed ................................. (32,664) (8,962)
----------- -----------
Change in Investor B Shares .............. 6,524 115,283
=========== ===========
</TABLE>
B-79
<PAGE> 81
Notes to Financial Statements, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
4. CAPITAL SHARE TRANSACTIONS, CONTINUED:
<TABLE>
<CAPTION>
INCOME EQUITY FUND OHIO TAX-FREE FUND
-------------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares issued .............. $ 8,709,609 $ 9,389,602 $ 39,457 $ 297,450
Proceeds from shares issued in connection
with acquisition .................... 9,727,219
Dividends reinvested ..................... 10,845,880 8,635,353 6,134 8,453
Shares redeemed .......................... (7,958,218) (7,219,484) (340,435) (109,278)
------------ ------------ --------- ---------
Change in net assets from Investor A share
transactions ........................ $ 11,597,271 $ 20,532,690 $(294,844) $ 196,625
============ ============ ========= =========
Investor B Shares:
Proceeds from shares issued .............. $ 3,928,456 $ 2,765,814 $ 592,591 $ 598,493
Dividends reinvested ..................... 1,297,923 13,294 20,060 9,755
Shares redeemed .......................... (420,101) (43,350) (248,303) (5,034)
------------ ------------ --------- ---------
Change in net assets from Investor B share
transactions ........................ $ 4,806,278 $ 2,735,758 $ 364,348 $ 603,214
============ ============ ========= =========
SHARE TRANSACTIONS:
Investor A Shares:
Issued ................................... 680,679 828,287 3,737 29,259
Issued in connection with acquisition .... 793,942
Reinvested ............................... 898,119 763,006 593 833
Redeemed ................................. (624,637) (630,554) (32,383) (10,732)
------------ ------------ --------- ---------
Change in Investor A Shares .............. 954,161 1,754,681 (28,053) 19,360
============ ============ ========= =========
Investor B Shares:
Issued ................................... 317,268 241,570 55,795 57,922
Reinvested ............................... 103,352 1,125 1,897 927
Redeemed ................................. (31,854) (3,605) (23,572) (491)
------------ ------------ --------- ---------
Change in Investor B Shares .............. 388,766 239,090 34,120 58,358
============ ============ ========= =========
</TABLE>
B-80
<PAGE> 82
Notes to Financial Statements, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
4. CAPITAL SHARE TRANSACTIONS, CONTINUED:
<TABLE>
<CAPTION>
FLEXIBLE GROWTH FUND STOCK APPRECIATION FUND
------------------------------ -------------------------------
OCTOBER 1,
YEAR ENDED YEAR ENDED YEAR ENDED 1995 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 (a)
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares issued .............. $ 5,979,948 $ 6,257,968 $ 3,225,171 $ 738,522
Dividends reinvested ..................... 318,997 282,271 2,903,615 1,542,781
Shares redeemed .......................... (5,316,451) (717,635) (16,060,775) (3,611,887)
----------- ----------- ------------ -----------
Change in net assets from Investor A share
transactions ........................ $ 982,494 $ 5,822,604 $ (9,931,989) $(1,330,584)
=========== =========== ============ ===========
Investor B Shares:
Proceeds from shares issued .............. $ 5,648,362 $ 4,818,782 $ 483,957 $ 71,986
Dividends reinvested ..................... 227,824 52,617 65,586
Shares redeemed .......................... (1,218,260) (188,581) (105,940)
----------- ----------- ------------ -----------
Change in net assets from Investor B share
transactions ........................ $ 4,657,926 $ 4,682,818 $ 443,603 $ 71,986
=========== =========== ============ ===========
SHARE TRANSACTIONS:
Investor A Shares:
Issued ................................... 531,651 593,056 307,057 76,082
Reinvested ............................... 28,295 25,863 308,567 164,279
Redeemed ................................. (466,939) (65,727) (1,618,575) (370,208)
----------- ----------- ------------ -----------
Change in Investor A Shares .............. 93,007 553,192 (1,002,951) (129,847)
=========== =========== ============ ===========
Investor B Shares:
Issued ................................... 485,748 442,046 66,446 7,299
Reinvested ............................... 19,547 4,698 6,727
Redeemed ................................. (104,208) (16,667) (10,094)
----------- ----------- ------------ -----------
Change in Investor B Shares .............. 401,087 430,077 63,079 7,299
=========== =========== ============ ===========
</TABLE>
(a) Period from date acquired by Riverfront Stock Appreciation Fund.
B-81
<PAGE> 83
Notes to Financial Statements, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
5. RELATED PARTY TRANSACTIONS
Provident has entered into an Investment Advisory Agreement with the Fund
whereby Provident supervises and manages the investment and reinvestment
of the assets of the U.S. Government Securities Money Market Fund, the
U.S. Government Income Fund, the Ohio Tax-Free Bond Fund and the Stock
Appreciation Fund. Under the terms of the Investment Advisory Agreement,
Provident is entitled to receive fees based on a percentage of the average
net assets of each Portfolio.
Pursuant to the terms of the Investment Advisory Agreement with the Fund,
Provident has entered into Sub-Investment Advisory Agreements with
DePrince, Race & Zollo, Inc. ("DRZ"), for the Income Equity Fund and with
James Investment Research, Inc. ("JIR") for the Flexible Growth Fund. DRZ
and JIR provide investment advice to and supervise the investment program
of the Income Equity Fund and the Flexible Growth Fund, respectively.
Under the terms of the Sub-Investment Advisory Agreements, JIR receives
from Provident fees calculated at 0.50% of the average daily net assets of
the Flexible Growth Fund, and DRZ receives from Provident fees calculated
at 0.50% of average daily net assets up to $55 million of the Income
Equity Fund and 0.55% of average daily net assets above $55 million for
this Portfolio.
SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders was held on December 30, 1996. At the
Meeting, shareholders voted (i) on an Amendment to the Investment Advisory
Agreement between the Fund and Provident to permit Provident to manage
directly that portion of the Income Equity Fund's portfolio allocated to
it by the Fund's Board of Directors; (ii) to approve the amendment to the
Sub-Investment Advisory Agreement between Provident and DRZ with respect
to the Income Equity Fund to clarify that DRZ will manage directly that
portion of the Income Equity Fund's portfolio allocated to it by the
Fund's Board of Directors; (iii) to approve an Amendment to the Investment
Advisory Arrangements for the Flexible Growth Fund with respect to the
management of its portfolio such that Provident will become the sole
manager of the Flexible Growth Fund's portfolio; (iv) to amend the
Articles of Incorporation of the Fund to reclassify (change the name of)
the currently issued and outstanding shares of The Flexible Growth Fund as
shares of The Riverfront Balanced Fund.
The results of all matters voted on by shareholders at the Special Meeting
held on December 30, 1996 were as follows:
A. Approval of Amendments to the Investment Advisory Agreement
between the Fund and Provident for the Income Equity Fund.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
2,891,190 25,646 65,981
</TABLE>
B. Approval of the Amendment to the Sub-Investment Advisory
Agreement between Provident and DRZ for the Income Equity
Fund.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
2,849,578 33,459 99,780
</TABLE>
B-82
<PAGE> 84
Notes to Financial Statements, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
5. RELATED PARTY TRANSACTIONS, CONTINUED:
C. Approval of an Amendment to the Investment Advisory
Arrangements concerning the appointment of Provident as the
sole manager of the Flexible Growth Fund.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
1,710,471 15,186 25,864
</TABLE>
D. Approval of the Amendment to the Articles of Incorporation of
the Fund with respect to the Flexible Growth Fund.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
1,714,185 11,546 25,790
</TABLE>
All changes are to become effective January 1, 1997.
In addition to serving as Investment Adviser, Provident serves as
custodian and fund accountant to the Portfolios. Under the terms of the
Custodian, Fund Accounting and Recordkeeping Agreement, Provident is
entitled to receive fees based on a percentage of the average daily net
assets of each Portfolio.
During the year ended December 31, 1996, Provident Securities & Investment
Company ("PSI"), an affiliate of Provident which is a registered broker
dealer, executed transactions to purchase and sell portfolio investments
on behalf of the Fund. The Fund paid PSI approximately $90,000 that has
been included in investments at cost, as commissions for such
transactions.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS") is an Ohio limited partnership. BISYS Fund Services Ohio, Inc.
("BISYS Ohio"), and BISYS are subsidiaries of the BISYS Group, Inc.
BISYS, with whom certain officers and a director of the Fund are
affiliated, serves the Fund as administrator, principal underwriter and
distributor. Such officers and director are paid no fees directly by the
Portfolios for serving as officers and as director of the Fund. Under the
terms of the Administration Agreement, BISYS' fees are computed at 0.20%
of the average daily net assets of each Portfolio.
Provident also serves as transfer agent and shareholder servicing agent to
the Fund and BISYS Ohio serves as sub-transfer agent for the Investor B
Shares. Under the terms of the Master Transfer and Record keeping
Agreement, Provident is entitled to receive fees based on the number of
shareholders of each Portfolio and certain out-of-pocket expenses. Under
the terms of the Shareholder Servicing Agreement, Provident may receive a
fee computed daily at an annual rate of up to 0.25% of the average daily
net assets of certain shares of each Portfolio. This fee may be used to
reimburse BISYS or other providers of record keeping and/or administrative
support services. As of December 31, 1996, there were no shareholder
servicing agreements entered into on behalf of any of the Portfolios.
The Fund has adopted an Investor A Distribution and Shareholder Service
Plan and Agreement ("Investor A Plan") and an Investor B Distribution and
Shareholder Services Plan and Agreement ("Investor B Plan"), each in
accordance with Rule 12b-1 under the 1940 Act. Pursuant to the Investor A
Plan, each Portfolio is authorized to pay or reimburse BISYS, as
distributor of Investor A Shares, a periodic amount, calculated at an
annual rate not to exceed 0.25% of the average daily net asset value of
Investor A Shares of each Portfolio.
B-83
<PAGE> 85
Notes to Financial Statements, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
5. RELATED PARTY TRANSACTIONS, CONTINUED:
Pursuant to the Investor B Plan, each variable net asset value fund is
authorized to pay or reimburse BISYS, as distributor of Investor B Shares,
(a) a distribution fee in an amount not to exceed, on an annual basis,
0.75% of the average daily net asset value of Investor B Shares of that
Portfolio and (b) a service fee in an amount not to exceed 0.25% of the
average daily net asset value of Investor B Shares of that Portfolio.
These fees may be used by BISYS to pay banks, broker dealers and other
institutions, including Provident, or to reimburse BISYS or its
affiliates, to finance any activity which is principally intended to
result in the sale of shares or to compensate for providing shareholder
services.
For the year ended December 31, 1996, BISYS received $675,842 from
commissions on sales of capital shares, of which $634,802 was reallowed to
brokers affiliated with Provident.
Provident and certain of its affiliates own shares of Portfolios of the
Fund. As of December 31, 1996, the aggregate value of capital shares owned
by Provident and its affiliates were as follows (amounts in thousands):
<TABLE>
<S> <C>
U.S. Government Securities Money Market........................................................ $ 121,952
U.S. Government Income Fund.................................................................... $ 8,930
Income Equity Fund............................................................................. $ 12,002
Ohio Tax-Free Bond Fund........................................................................ $ 10,567
Flexible Growth Fund........................................................................... $ 4,054
Stock Appreciation Fund........................................................................ $ 589
</TABLE>
Fees may be voluntarily reduced or reimbursed to assist the Portfolios in
maintaining competitive expense ratios. Information regarding these
transactions is as follows for the year ended December 31, 1996:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME
SECURITIES MONEY U.S. GOVERNMENT EQUITY
MARKET FUND INCOME FUND FUND
---------------- --------------- ------
<S> <C> <C> <C>
INVESTMENT ADVISER FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets) ..... 0.15% 0.40% 0.95%
Voluntary fee reductions .................... NA NA $ 36,661
ADMINISTRATION FEES:
Annual fee (percentage of average net assets) 0.20% 0.20% 0.20%
12B-1 FEES (INVESTOR A):
Annual fee before voluntary fee reductions
(percentage of average net assets) ..... 0.25% 0.25% 0.25%
Voluntary fee reductions .................... $ 432,174 $ 30,720 $ 30,199
12B-1 FEES (INVESTOR B):
Annual fee (percentage of average net assets) NA 1.00% 1.00%
CUSTODIAN AND ACCOUNTING FEES ............... $ 86,401 $ 35,870 $ 108,638
TRANSFER AGENT FEES ......................... $ 79,137 $ 38,891 $ 58,165
</TABLE>
B-84
<PAGE> 86
Notes to Financial Statements, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
5. RELATED PARTY TRANSACTIONS, CONTINUED:
<TABLE>
<CAPTION>
OHIO TAX-FREE FLEXIBLE STOCK
BOND FUND GROWTH FUND APPRECIATION FUND
------------- ----------- -----------------
<S> <C> <C> <C>
INVESTMENT ADVISER FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets) ..... 0.50% 0.90% 0.80%
Voluntary fee reductions .................... $ 11,373 $ 28,720 NA
ADMINISTRATION FEES:
Annual fee (percentage of average net assets) 0.20% 0.20% 0.20%
12B-1 FEES (INVESTOR A):
Annual fee before voluntary fee reductions
(percentage of average net assets) ..... 0.25% 0.25% 0.25%
Voluntary fee reductions .................... NA $ 11,929 NA
12B-1 FEES (INVESTOR B):
Annual fee (percentage of average net assets) 1.00% 1.00% 1.00%
CUSTODIAN AND ACCOUNTING FEES ............... $ 15,923 $ 30,516 $ 55,160
TRANSFER AGENT FEES ......................... $ 26,007 $ 44,600 $ 38,988
</TABLE>
NA--Not applicable
6. ELIGIBLE DISTRIBUTIONS (UNAUDITED):
The Riverfront Funds, Inc. designated the following eligible distributions
for the dividends received deduction for corporations for the taxable year
ended December 31, 1996:
<TABLE>
<CAPTION>
STOCK INCOME FLEXIBLE
APPRECIATION EQUITY GROWTH
------------ ------ -------
<S> <C> <C> <C>
Dividend Income...................... $ 36,453 $2,153,446 $227,745
</TABLE>
7. EXEMPT-INTEREST INCOME DESIGNATION (UNAUDITED):
The Riverfront Funds, Inc. designates the following exempt-interest income
for the Ohio Tax-Free Bond Fund for the taxable year ended December 31,
1996:
<TABLE>
<S> <C>
Exempt-interest distributions................................................. $433,425
Exempt-interest distribution per share........................................ $ 0.387
</TABLE>
The percentage break-down of the exempt-interest by state for the Ohio
Tax-Free Bond Fund's taxable year ended December 31, 1996 was as follows:
<TABLE>
<S> <C>
Ohio....... 100%
----
100%
====
</TABLE>
B-85
<PAGE> 87
Notes to Financial Statements, continued
THE RIVERFRONT FUNDS, INC. DECEMBER 31, 1996
8. FEDERAL INCOME TAXES:
For federal income tax purposes, the following Portfolios have capital
loss carryforwards as of December 31, 1996, which are available to offset
future capital gains, if any:
<TABLE>
<CAPTION>
EXPIRES AMOUNT
------- ------
<S> <C> <C>
U.S. Government Securities Money Market Fund..................... 2002 $ 875
U.S. Government Securities Money Market Fund..................... 2003 $ 1,415
U.S. Government Income Fund...................................... 2002 $1,348,718
U.S. Government Income Fund...................................... 2003 $ 516,479
Flexible Growth Fund............................................. 2004 $ 153,639
</TABLE>
9. CAPITAL GAINS DISTRIBUTIONS (UNAUDITED):
The Fund declared and distributed capital gains to shareholders in the
following amounts per share for the taxable year ended December 31, 1996:
<TABLE>
<CAPTION>
LONG-TERM SHORT-TERM
--------- ----------
<S> <C> <C>
Income Equity Fund................................... 0.6894 1.2127
Stock Appreciation Fund.............................. 0.8897 0.1448
</TABLE>
B-86
<PAGE> 88
Financial Highlights
THE RIVERFRONT FUNDS, INC.
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
--------------------------------------------------------------------
OCTOBER 1,
YEARS ENDED DECEMBER 31, 1992 TO
------------------------------------------------------ DECEMBER 31,
1996 1995 1994 (d) 1993(d) 1992 (a)(d)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment Activities
Net investment income ........................... 0.046 0.050 0.04 0.03 0.01
-------- -------- -------- -------- --------
Distributions
Net investment income ........................... (0.046) (0.050) (0.04) (0.03) (0.01)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD.................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ........................................ 4.89% 5.52% 3.78% 2.90% 0.80%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ................... $181,017 $157,495 $149,374 $133,207 $ 37,083
Ratio of expenses to average net assets ............. 0.59% 0.58% 0.51% 0.32% 0.01%(c)
Ratio of net investment income to average net assets 4.78% 5.34% 3.70% 2.85% 3.09%(c)
Ratio of expenses to average net assets* ............ 0.84% 0.83% 0.80% 0.42% 0.68%(c)
Ratio of net investment income to average net assets* 4.53% 5.09% 3.41% 2.75% 2.42%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or expense reimbursements
had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Audited by other auditors.
See Notes to Financial Statements.
B-87
<PAGE> 89
Financial Highlights
THE RIVERFRONT FUNDS, INC.
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
-------------------------------------------------------------------
JANUARY 17,
YEAR ENDED YEAR ENDED 1995 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 (a)
---------------------------- ---------- ----------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ....................... $ 9.71 $ 10.95 $ 8.92 $ 10.00
--------- --------- --------- ---------
Investment Activities
Net investment income ..................... 0.52 0.49 0.54 0.43
Net realized and unrealized gains (losses)
from investments .................. (0.29) (0.31) 0.79 0.94
--------- --------- --------- ---------
Total from Investment Activities ...... 0.23 0.18 1.33 1.37
--------- --------- --------- ---------
Distributions
Net investment income ..................... (0.51) (0.49) (0.54) (0.42)
In excess of net investment income ........
--------- --------- --------- ---------
Total Distributions ................... (0.51) (0.49) (0.54) (0.42)
--------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD ............................. $ 9.43 $ 10.64 $ 9.71 $ 10.95
========= ========= ========= =========
Total Return
(excludes sales/redemption charge)......... 2.51% 1.72% 15.22% 13.96%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ............. $ 33,694 $ 1,296 $ 36,538 $ 1,263
Ratio of expenses to average net assets ....... 1.11% 1.96% 1.09% 1.90%(c)
Ratio of net investment income to ............. 5.45% 4.59% 5.74% 4.80%(c)
average net assets
Ratio of expenses to average net assets* ...... 1.20% 1.96% 1.18% 1.90%(c)
Ratio of net investment income to ............. 5.36% 4.59% 5.65% 4.80%(c)
average net assets*
Portfolio Turnover ............................ 53%(d) 53%(d) 75%(d) 75%(d)
<CAPTION>
U.S. GOVERNMENT INCOME FUND
---------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------------
1994 (f) 1993 (f) 1992 (b)(f)
--------- -------- -----------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ....................... $ 9.91 $ 9.76 $ 10.00
--------- --------- ---------
Investment Activities
Net investment income ..................... 0.54 0.51 0.10
Net realized and unrealized gains
(losses) from investments ......... (0.99) 0.20 (0.23)
--------- --------- ---------
Total from Investment Activities ...... (0.45) 0.71 (0.13)
--------- --------- ---------
Distributions
Net investment income ..................... (0.54) (0.50) (0.10)
In excess of net investment income ........ (0.06) (0.01)
--------- --------- ---------
Total Distributions ................... (0.54) (0.56) (0.11)
--------- --------- ---------
NET ASSET VALUE,
END OF PERIOD.............................. $ 8.92 $ 9.91 $ 9.76
========= ========= =========
Total Return
(excludes sales/redemption charge)......... (4.64)% 7.38% (1.31)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ............. $ 32,721 $ 30,078 $ 24,588
Ratio of expenses to average net assets ....... 0.86% 0.65% 0.66%
Ratio of net investment income to.............. 5.78% 5.05% 4.00%
average net assets
Ratio of expenses to average net a
Ratio of net investment income to ............. 5.49% 4.62% 3.60%
average net assets*
Portfolio Turnover ............................ 83%(d) 220%(d) 117%(d)
</TABLE>
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or expense reimbursements
had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Investment operations and sales of shares to the public began on October
1, 1992.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(e) Represents total return for the Investor A Shares from January 1, 1995 to
January 16, 1995 plus the total return for the Investor B Shares from
January 17, 1995 to December 31, 1995.
(f) Audited by other auditors.
See Notes to Financial Statements.
B-88
<PAGE> 90
Financial Highlights
THE RIVERFRONT FUNDS, INC.
<TABLE>
<CAPTION>
INCOME EQUITY FUND
------------------------------------------------------------------
JANUARY 17,
YEAR ENDED YEAR ENDED 1995 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 (a)
---------------------------- ---------- ----------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................................. $ 11.70 $ 11.85 $ 10.15 $ 10.00
---------- ---------- ---------- ----------
Investment Activities
Net investment income ............................... 0.21 0.12 0.27 0.13
Net realized and unrealized gains
from investments .................................. 2.12 2.21 2.89 2.78
---------- ---------- ---------- ----------
Total from Investment Activities ................ 2.33 2.33 3.16 2.91
---------- ---------- ---------- ----------
Distributions
Net investment income ............................... (0.21) (0.12) (0.27) (0.13)
In excess of net investment income ..................
Net realized gains .................................. (1.90) (1.90) (1.34) (0.93)
In excess of net realized gains .....................
---------- ---------- ---------- ----------
Total Distributions ............................. (2.11) (2.02) (1.61) (1.06)
---------- ---------- ---------- ----------
NET ASSET VALUE, ........................................ $ 11.92 $ 12.16 $ 11.70 $ 11.85
========== ========== ========== ==========
END OF PERIOD
Total Return (excludes sales/redemption charge) ......... 19.88% 19.67% 31.45% 29.28%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ....................... $ 73,368 $ 7,632 $ 60,845 $ 2,833
Ratio of expenses to average net assets ................. 1.76% 2.48% 1.49% 2.46%(c)
Ratio of net investment income to average net assets .... 1.62% 0.88% 2.27% 1.12%(c)
Ratio of expenses to average net assets* ................ 1.85% 2.54% 1.74% 2.51%(c)
Ratio of net investment income to average net assets* ... 1.53% 0.82% 2.02% 1.07%(c)
Portfolio Turnover ...................................... 166%(d) 166%(d) 180%(d) 180%(d)
Average commission rate paid (h) ........................ $ 0.0541 $ 0.0541
<CAPTION>
INCOME EQUITY FUND
---------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------------
1994 (f) 1993 (f) 1992 (b)(f)
--------- -------- ------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.................................. $ 10.63 $ 10.78 $ 10.00
---------- ---------- ----------
Investment Activities
Net investment income ............................... 0.32 0.28 0.08
Net realized and unrealized gains
from investments .................................. 1.01 0.80
---------- ---------- ----------
Total from Investment Activities ................ 0.32 1.29 0.88
---------- ---------- ----------
Distributions
Net investment income ............................... (0.31) (0.27) (0.08)
In excess of net investment income .................. (0.03) (0.01)
Net realized gains .................................. (0.49) (1.14)
In excess of net realized gains ..................... (0.01)
---------- ---------- ----------
Total Distributions ............................. (0.80) (1.44) (0.10)
---------- ---------- ----------
NET ASSET VALUE,
END OF PERIOD........................................ $ 10.15 $ 10.63 $ 10.78
========== ========== ==========
Total Return (excludes sales/redemption charge) ......... 3.08% 12.11% 8.74%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ....................... $ 34,965 $ 24,387 $ 12,262
Ratio of expenses to average net assets ................. 1.30% 1.47% 1.48%
Ratio of net investment income to average net assets .... 2.93% 2.55% 3.16%
Ratio of expenses to average net assets* ................ 1.58% 1.64% 2.02%
Ratio of net investment income to average net assets* ... 2.65% 2.38% 2.62%
Portfolio Turnover ...................................... 119%(d) 145%(d) 12%(d)
Average commission rate paid (h) ........................
</TABLE>
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or expense reimbursements
had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Investment operations and sales of shares to the public began on October
1, 1992.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(e) Represents total return for the Investor A Shares from January 1, 1995 to
January 16, 1995 plus the total return for the Investor B Shares from
January 17, 1995 to December 31, 1995.
(f) Audited by other auditors.
(h) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for
which commissions were charged and is calculated on the basis of the fund
as a whole without distinguishing between the classes of shares issued.
See Notes to Financial Statements.
B-89
<PAGE> 91
Financial Highlights
THE RIVERFRONT FUNDS, INC.
<TABLE>
<CAPTION>
OHIO TAX-FREE BOND FUND
------------------------------------------------------------------
JANUARY 17, FROM AUGUST 1,
YEAR ENDED YEAR ENDED 1995 TO 1994 THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 (a) 1994 (a)(e)
----------------------- ------------ ------------ ------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD........................................ $ 10.51 $ 10.73 $ 9.83 $ 10.00 $ 10.00
-------- ------- -------- ------- --------
Investment Activities
Net investment income ..................................... 0.40 0.32 0.39 0.27 0.12
Net realized and unrealized gains (losses)
from investments......................................... (0.10) (0.09) 0.67 0.73 (0.17)
-------- ------- -------- ------- --------
Total from Investment Activities ...................... 0.30 0.23 1.06 1.00 (0.05)
-------- ------- -------- ------- --------
Distributions
Net investment income ..................................... (0.40) (0.32) (0.38) (0.27) (0.12)
-------- ------- -------- ------- --------
NET ASSET VALUE,
END OF PERIOD.............................................. $ 10.41 $ 10.64 $ 10.51 $ 10.73 $ 9.83
======== ======= ======== ======= ========
Total Return (excludes sales/redemption charge) ............... 2.95% 2.21% 10.96% 10.10%(d) (0.47)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ............................. $ 10,693 $ 984 $ 11,091 $ 626 $ 10,190
Ratio of expenses to average net assets ....................... 1.45% 2.25% 1.49% 2.27%(c) 1.08%(c)
Ratio of net investment income to average net assets .......... 3.87% 3.07% 3.77% 3.01%(c) 2.92%(c)
Ratio of expenses to average net assets* ...................... 1.55% 2.36% 1.64% 2.41%(c) 1.44%(c)
Ratio of net investment income to average net assets* ......... 3.77% 2.96% 3.62% 2.87%(c) 2.56%(c)
Portfolio Turnover ............................................ 6%(b) 6%(b) 34%(b) 34%(b) 29%(b)
</TABLE>
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or expense reimbursements
had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(c) Annualized.
(d) Not annualized.
(e) Audited by other auditors.
See Notes to Financial Statements.
B-90
<PAGE> 92
Financial Highlights
THE RIVERFRONT FUNDS, INC.
<TABLE>
<CAPTION>
FLEXIBLE GROWTH FUND
-------------------------------------------------------------------------
JANUARY 17, FROM SEPTEMBER 1,
YEAR ENDED YEAR ENDED 1995 TO 1994 THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 (a) 1994 (a)(f)
------------------------- ----------- ----------- ---------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................................. $ 11.36 $ 11.70 $ 9.79 $10.00 $10.00
------- ------- ------ ------ ------
Investment Activities
Net investment income .............................. 0.31 0.26 0.35 0.25 0.10
Net realized and unrealized gains (losses)
from investments ................................ 0.33 0.34 1.66 1.79 (0.18)
------- ------- ------ ------ ------
Total from Investment Activities ............... 0.64 0.60 2.01 2.04 (0.08)
------- ------- ------ ------ ------
Distributions
Net investment income .............................. (0.31) (0.26) (0.34) (0.24) (0.13)
Net realized gains ................................. 0 0 (0.10) (0.10)
------- ------- ------ ------ ------
Total Distributions ............................ (0.31) (0.26) (0.44) (0.34) (0.13)
------- ------- ------ ------ ------
NET ASSET VALUE,
END OF PERIOD....................................... $ 11.69 $ 12.04 $11.36 $11.70 $ 9.79
======= ======= ====== ====== ======
Total Return (excludes sales/redemption charge) ........ 5.76% 5.27% 20.83% 20.53%(c) (0.82)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ...................... $10,786 $10,008 $9,427 $5,030 $2,709
Ratio of expenses to average net assets ................ 1.70% 2.54% 1.28% 2.04%(d) 1.48%(d)
Ratio of net investment income to average net assets ... 2.87% 2.03% 3.48% 2.69%(d) 4.01%(d)
Ratio of expenses to average net assets* ............... 1.94% 2.68% 1.67% 2.84%(d) 4.61%(d)
Ratio of net investment income to average net assets* .. 2.63% 1.89% 3.09% 1.89%(d) 0.88%(d)
Portfolio Turnover ..................................... 98%(b) 98%(b) 13%(b) 13%(b) 1%(b)
Average commission rate paid (g) ....................... $0.0891 $0.0891
</TABLE>
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or expense reimbursements
had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(c) Represents total return for the Investor A Shares from January 1, 1995 to
January 16, 1995 plus the total return for the Investor B Shares from
January 17, 1995 to December 31, 1995.
(d) Annualized.
(e) Not Annualized.
(f) Audited by other auditors.
(g) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for
which commissions were charged and is calculated on the basis of the fund
as a whole without distinguishing between the classes of shares issued.
See Notes to Financial Statements.
B-91
<PAGE> 93
Financial Highlights
THE RIVERFRONT FUNDS, INC.
<TABLE>
<CAPTION>
STOCK APPRECIATION FUND
----------------------------------------------------------------------------------
FROM OCTOBER 1, FROM OCTOBER 1,
YEAR ENDED 1995 THROUGH 1995 THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 (b) 1995 (a)(b)
----------------------------------- --------------- ---------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................. $ 9.50 $ 9.91 $ 10.00 $ 10.00
------------ ---------- ---------- ----------
Investment Activities
Net investment income .............. (0.14) (0.15) (0.01) (0.01)
Net realized and unrealized gains
(losses) from investments ...... 1.10 1.04 (0.12) (0.08)
------------ ---------- ---------- ----------
Total from Investment Activities 0.96 0.89 (0.13) (0.09)
------------ ---------- ---------- ----------
Distributions
Net realized gains ................. (1.03) (1.03) (0.37)
------------ ---------- ---------- ----------
NET ASSET VALUE,
END OF PERIOD....................... $ 9.43 $ 9.77 $ 9.50 $ 9.91
============ ========== ========== ==========
Total Return
(excludes sales/redemption charge) . 10.17% 9.05% (1.20)%(c) (0.90)%(c)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ...... $ 31,227 $ 687 $ 40,995 $ 72
Ratio of expenses to average net assets 1.91% 2.64% 1.76%(d) 2.30%(d)
Ratio of net investment income ......... (1.25)% (2.01)% (0.49)%(d) (1.69)%(d)
to average net assets
Ratio of expenses to average net assets* 1.91% 2.64% 1.77%(d) 2.39%(d)
Ratio of net investment income ......... (1.25)% (2.01)% (0.50)%(d) (1.78)%(d)
to average net assets*
Portfolio Turnover ..................... 162%(e) 162%(e) 46%(e) 46%(e)
Average commission rate paid (h) ....... $ 0.0597 $ 0.0597
<CAPTION>
STOCK APPRECIATION FUND
--------------------------------------------------------------------
YEARS ENDED SEPEMBER 30,
-------------------------------------------------------------------
1995 (f) 1994 (f) 1993 (f) 1992 (f)
---------- -------- -------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................. $ 8.25 $ 10.18 $ 7.98 $ 7.70
---------- ---------- ---------- ----------
Investment Activities
Net investment income .............. (0.07) (0.12) (0.17) (0.08)
Net realized and unrealized gains
(losses) from investments ...... 2.14 (1.26) 2.57 1.41
---------- ---------- ---------- ----------
Total from Investment Activities 2.07 (1.38) 2.40 1.33
---------- ---------- ---------- ----------
Distributions
Net realized gains ................. (0.32) (0.55) (0.20) (1.05)
---------- ---------- ---------- ----------
NET ASSET VALUE,
END OF PERIOD....................... $ 10.00 $ 8.25 $ 10.18 $ 7.98
========== ========== ========== ==========
Total Return
(excludes sales/redemption charge) . 25.12% (13.91)% 30.61% 16.69%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) ...... $ 44,500 $ 47,880 $ 59,330 $ 28,750
Ratio of expenses to average net assets 2.61% 2.44% 2.47% 2.70%
Ratio of net investment income ......... (0.73)% (1.35)% (1.85)% (1.00)%
to average net assets
Ratio of expenses to average net assets* (g) (g) (g) (g)
Ratio of net investment income ......... (g) (g) (g) (g)
to average net assets*
Portfolio Turnover ..................... 197% 254% 216% 288%
Average commission rate paid (h) .......
</TABLE>
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or expense reimbursements
had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) As of September 30, 1995, the Stock Appreciation Fund acquired all of the
assets of the MIM Stock Appreciation Fund and the MIM Stock Growth Fund.
Financial highlights for periods prior to September 30, 1995 represent the
performance of the MIM Stock Appreciation Fund. The per share data for the
periods prior to September 30, 1995 have been restated to reflect the
impact of the change of net asset value of the Stock Appreciation Fund on
September 30, 1995 from $17.34 to $10.00.
(c) Not annualized.
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(f) Audited by other auditors.
(g) There were no waivers or reimbursements during the period.
(h) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for
which commissions were charged and is calculated on the basis of the fund
as a whole without distinguishing between the classes of shares issued.
See Notes to Financial Statements.
B-92
<PAGE> 94
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APPENDIX
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The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by the Fund with regard to
portfolio investments for the Funds including Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited and its
affiliate, IBCA Inc. (collectively, "IBCA"), and Thomson BankWatch, Inc.
("Thomson"). Set forth below is a description of the relevant ratings of each
such NRSRO. The NRSROs that may be utilized by the Fund and the description of
each NRSRO's ratings is as of the date of this Statement of Additional
Information, and may subsequently change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and
municipal bonds)
Description of the six highest long-term debt ratings by Moody's
(Moody's applies numerical modifiers (1, 2, and 3) in each rating category to
indicate the security's ranking within the category):
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
or 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 risk 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 some time in the future.
Baa Bonds 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
A-1
<PAGE> 95
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba Bonds which are rate Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Description of the six highest long-term debt ratings by S&P (S&P may
apply a plus (+) or minus (-) to a particular rating classification to show
relative standing within that classification):
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 circumstances.
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.
BB Bonds which are rated BB have less near-term vulnerability to
default than other speculative issues. However, they face
major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied BBB rating.
A-2
<PAGE> 96
B Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and
principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Description of six highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk factors are negligible
being only slightly more than for risk-free U.S. Treasury
debt.
AA+ High credit quality. Protection factors are strong.
AA Risk is modest but may vary slightly from time to time
A- because of economic conditions.
A+ Protection factors are average but adequate. However, A
risk factors are more variable and greater in periods
A- of economic stress.
BBB Debt has below average protection factors but is still
considered sufficient for prudent investment. However,
there is considerable variability in risk during economic
cycles.
Description of the six highest long-term debt ratings by Fitch (plus
or minus signs are used with a rating symbol to indicate the relative position
of the credit within the rating category):
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
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issues is generally rated "[-]+."
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.
A-3
<PAGE> 97
BBB Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood
that the ratings for these bonds will fall below investment
grade is higher than for bonds with higher ratings.
BB Bonds rated BB are considered speculative. The obligor's
ability to pay interest and repay principal may be affected
over time by adverse economic changes. However, business and
financial alternatives can be identified which could assist
the obligor in satisfying its debt service requirements.
B Bonds rated B are considered highly speculative. While bonds
in this class are currently meeting debt service
requirements, the probability of continued timely payments of
principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic
activity throughout the life of the issue.
IBCA's description of its six highest long-term debt ratings:
AAA Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial such that adverse changes in
business, economic or financial conditions are unlikely to
increase investment risk significantly.
AA Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial. Adverse changes in business,
economic, or financial conditions may increase investment
risk albeit not very significantly.
A Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal
and interest is strong, although adverse changes in business,
economic or financial conditions may lead to increased
investment risk.
BBB Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal
and interest is adequate, although adverse changes in
business, economic, or financial conditions are more likely
to lead to increased investment risk than for obligations in
other categories.
A-4
<PAGE> 98
BB Obligations for which there is a possibility of investment
risk developing. Capacity for timely repayment of principal
and interest exists, but is susceptible over time to adverse
changes in business, economic, or financial conditions.
B Obligations for which investment risk exists. Timely
repayment of principal and interest is not sufficiently
protected against adverse changes in business, economic or
financial conditions.
Thomson's description of its six highest long-term debt ratings
(Thomson may include a plus (+) or minus (-) designation to indicated where
within the respective category the issue is placed):
AAA The highest category; indicates ability to repay principal
and interest on a timely basis is very high.
AA The second highest category; indicates a superior ability to
repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category.
A The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be
more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
BBB The lowest investment grade category and indicates an
acceptable capacity to repay principal and interest. Issues
rated BBB are, however, more vulnerable to adverse
developments (both internal and external) than obligations
with higher ratings.
BB While not investment grade, the BB rating suggests that the
likelihood of default is considerably less than for
lower-rated issues. However, there are significant
uncertainties that could affect the ability to adequately
service debt obligations.
B Issues rated B show a higher degree of uncertainty and
therefore greater likelihood of default than higher-rated
issues. Adverse developments could well negatively affect the
payment of interest and principal on a timely basis.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
A-5
<PAGE> 99
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions)
have a superior capacity for repayment of senior
short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by many of the
following characteristics:
- Leading market positions in
well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with
moderate reliance on debt and ample asset
protection.
- Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
- Well-established access to a range of
financial markets and assured sources of
alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions)
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.
Prime-3 Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior
short-term obligations. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and
profitability may result in changes in the level of
debt protection measurements and may require
relatively high financial leverage. Adequate
liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety
regarding timely payment is strong. Those issues
A-6
<PAGE> 100
determined to have extremely strong safety characteristics are
denoted with a plus sign (+).
A-2 Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is
not as high as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors
and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are
minor.
Duff 1- High certainty of timely payment. Liquidity
factors are strong and supported by good fundamental
protection factors. Risk factors are very small.
Duff 2 Good certainty of timely payment. Liquidity
factors and company fundamentals are sound.
Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is
good. Risk factors are small.
Duff 3 Satisfactory liquidity and other protection factors
qualify issue as to investment grade. Risk factors
are larger and subject to more variation.
Nevertheless, timely payment is expected.
Fitch's description of its three highest short-term debt ratings:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree
of assurance for timely payment.
A-7
<PAGE> 101
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 assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-1+
or F-1 ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse
changes could cause these securities to be rated below
investment grade.
IBCA's description of its three highest short-term debt ratings:
A+ Obligations supported by the highest capacity for timely
repayment.
A1 Obligations supported by a very strong capacity for timely
repayment.
A2 Obligations supported by a strong capacity for timely
repayment, although such capacity may be susceptible to
adverse changes in business, economic or financial
conditions.
Thomson's description of its three highest short-term ratings:
TBW-1 The highest category; indicates a very high degree
of likelihood that principal and interest will be
paid on a timely basis.
TBW-2 The second highest category; while the degree of
safety regarding timely repayment of principal and
interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
MUNICIPAL OBLIGATIONS RATINGS
The following summarizes the three highest ratings used by Moody's for
state and municipal short-term obligations. Obligations bearing MIG-1 or
VMIG-1 designations are of the best quality, enjoying strong protection by
established cash flows, superior
A-8
<PAGE> 102
liquidity support or demonstrated broad-based access to the market for
refinancing. Obligations rated MIG-2 or VMIG-2 denote high quality with ample
margins of protection although not so large as in the preceding rating group.
Obligations bearing MIG-3 or VMIG-3 denote favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
S&P SP-1, SP-2, and SP-3 municipal note ratings (the three highest
ratings assigned) are described as follows:
"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 (+) designation.
"SP-2": Satisfactory capacity to pay principal and interest.
"SP-3": Speculative capacity to pay principal and interest.
The following summarizes the four highest ratings used by Moody's for
state and municipal bonds:
"Aaa": Bonds judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred
to as "gilt edge." 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 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 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.
A-9
<PAGE> 103
"Baa": Bonds which 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.
The following summarizes the four highest ratings used by S&P for
state and municipal bonds:
"AAA": Debt which has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
"AA": Debt which has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues
only in small degree.
"A": Debt which 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 which has 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 then in higher rated categories.
A-10
