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Rule 497(c)
File No. 33-34154
811-6082
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 BALANCED FUND
THE RIVERFRONT STOCK APPRECIATION FUND
THE RIVERFRONT LARGE COMPANY SELECT FUND
April 30, 1998
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 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 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 six series or portfolios of The Riverfront Funds, Inc. (the
"Company"). 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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THE COMPANY AND ITS FUNDS....................................................................................B - 1
INVESTMENT OBJECTIVES AND POLICIES...........................................................................B - 2
DIVIDENDS AND TAXES..........................................................................................B - 16
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................................................B - 20
VALUATION OF SECURITIES......................................................................................B - 20
DIRECTORS AND OFFICERS.......................................................................................B - 23
MANAGEMENT OF THE FUNDS......................................................................................B - 24
SECURITIES TRANSACTIONS......................................................................................B - 30
ADMINISTRATOR................................................................................................B - 34
DISTRIBUTOR..................................................................................................B - 36
DISTRIBUTION PLANS...........................................................................................B - 37
CAPITAL STOCK................................................................................................B - 39
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS...............................................................B - 40
ADDITIONAL INFORMATION.......................................................................................B - 45
FINANCIAL STATEMENTS.........................................................................................B - 48
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 six
series of shares of capital stock which are described in this Statement of
Additional Information (the "Funds"). Each Fund of the Company is diversified.
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 record keeping 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 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 Information 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 Prospectus of the Funds.
Capitalized terms not defined herein are
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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 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 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
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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 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 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.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Income Fund, the Income Equity 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
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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-
sponsored agencies or instrumentalities if it is not obligated to do so by law.
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,
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at any time, can reasonably be expected to have a market value that approximates
its par value. Such notes are frequently not rated by 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.
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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 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
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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 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.
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WRITING COVERED CALL AND PUT OPTIONS. Each of the Income, Income
Equity, 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 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.
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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.
OPTIONS AND FUTURES STRATEGIES. In addition, each of the Income, Income
Equity, 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
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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 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" (e.g., 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 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, 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
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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 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.
B - 12
<PAGE> 14
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, 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 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
B - 13
<PAGE> 15
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 majority of such Fund's
outstanding voting shares (which means the lesser of (1) 67% of the shares
represented at a meeting at which 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 Prospectus,
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 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;
B - 14
<PAGE> 16
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";
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,
the Stock Appreciation Fund, the Large Company fund and the Balanced Fund have
adopted the following additional restrictions, which may be changed by the Board
of Directors without the vote of that Fund's shareholders:
1. Engage in any short sales, except to the extent disclosed
in the current Prospectus of the Fund;
2. 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);
3. 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
4. Mortgage or hypothecate the Fund's assets in excess of one third of
the Fund's total assets.
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
B - 15
<PAGE> 17
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) for the two fiscal years ended December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
FUND 12/31/97 12/31/96
---- -------- --------
<S> <C> <C>
Income Fund 71% 53%
Income Equity Fund 157% 166%
Balanced Fund 102% 98%
Stock Appreciation 67%(1) 162%
Fund
Large Company Fund 39%(2) N/A
<FN>
- --------------------
(1) The portfolio turnover rate for the Stock Appreciation Fund decreased
materially for the fiscal year ended December 31, 1997 as a result of a
change in strategy of the management of such Fund.
(2) The Large Company Fund commenced operations January 2, 1997.
</TABLE>
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 or substantially all of any net realized
mid-term or 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 state-
B - 16
<PAGE> 18
ments 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.
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 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; 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 mid-term or
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
B - 17
<PAGE> 19
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.
It is expected that each Fund will distribute annually to shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal income
tax purposes, even if paid in additional shares of the Fund and not in cash.
Distribution by a Fund of the excess of net mid-term or net long-term
capital gain over net short-term capital loss is taxable to shareholders as
mid-term or long-term capital gain, respectively, in the year in which it is
received, regardless of how long the shareholder has held the shares. Such
distributions are not eligible for the dividends-received deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be in excess
of 39.6%, because adjustments reduce or eliminate the benefit of the personal
exemption and itemized deductions for individuals with gross income in excess of
certain threshold amounts.
Long-term capital gains of individuals are subject to a maximum tax
rate of 20% (10% for individuals in the 15% ordinary income tax bracket).
Mid-term capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on mid-term capital gains
of individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss each
year to offset ordinary income. Excess net capital loss may be carried forward
to future years. The holding period for mid-term capital gains is more than one
year, but not more than eighteen months; the holding period for long-term
capital gains is more than eighteen months.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
B - 18
<PAGE> 20
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.
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.
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
B - 19
<PAGE> 21
may be changed by legislative or administrative action. As of the date hereof,
several proposals have been introduced by the 105th Congress which, if enacted,
could affect much of the information contained in this section. However, it is
not possible at this time to assess which, if any, of such proposals will be
acted upon and the effect thereof, if any, on this information.
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.
B - 20
<PAGE> 22
- -------------------------------------------------------------------------------
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
reasonably designed, taking into account current market conditions and the Money
Market Fund's investment objective, to stabilize the net 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.
It is the normal practice of the Money Market Fund to hold securities
to maturity and realize par therefor, unless a sale or
B - 21
<PAGE> 23
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 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 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;
B - 22
<PAGE> 24
(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 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 60, Director; Principal in J. Virgil
Early & Associates (business consulting); 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.
*WALTER B. GRIMM, Age 52, Director and President; employee of
BISYS Fund Services Limited Partnership since June, 1992.
WILLIAM M. HIGGINS, Age 54, Director; Senior Vice President
and Director of Sena Weller Rohs Williams Inc. (investment advisory services);
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.
B - 23
<PAGE> 25
*HARVEY M. SALKIN, PH.D., Age 52, Director; Professor, Case
Western Reserve University; 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.
DONALD C. SIEKMANN, Age 59, Director; retired; former partner
of Arthur Andersen (independent public accountants). Mr. Siekmann's
business address is 425 Walnut Street, Cincinnati, Ohio 45243.
CHARLES L. BOOTH, Age 38, Vice President, employee of BISYS Fund
Services Limited Partnership since April, 1988.
THOMAS E. LINE, Age 29, Treasurer; employee of BISYS Fund Services
Limited Partnership since January, 1997; prior to January, 1997, Senior Audit
Manager for KPMG Peat Marwick LLP (independent public accountants).
C. DAVID BUNSTINE, Age 31, Secretary; employee of BISYS Fund
Services Limited Partnership since December, 1987.
ALAINA V. METZ, Age 31, Assistant Secretary; employee of BISYS Fund
Services Limited Partnership since June, 1995; prior to June, 1995, supervisor
at Alliance Capital Management, L.P. (investment management 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, 1997, 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, 1997. 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, $7,000 $7,000
Director
William M. Higgins, 7,000 7,000
Director
</TABLE>
B - 24
<PAGE> 26
<TABLE>
<S> <C> <C>
Harvey M. Salkin, 7,000 7,000
Director
Donald C. Siekmann, -0- -0-
Director (1)
Stephen G. Mintos, -0- -0-
Director (2)
</TABLE>
* 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.
(1) Mr. Siekmann did not become a Director of the Company until
February 27, 1998.
(2) Mr. Mintos served as a Director of the Company until January 30, 1998,
when Mr. Grimm was elected to fill such position.
- --------------------------------------------------------------------------------
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").
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, as
of December 31, 1997, 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 Financial
Group, Inc., a bank holding company headquartered in Cincinnati, Ohio, with
approximately $7.1 billion in total consolidated assets as of December 31, 1997.
Through its Ohio and Kentucky banking
B - 25
<PAGE> 27
subsidiaries, Provident Financial Group, 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 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; eighty
one-hundredths of one percent (.80%) for each of the Stock Appreciation Fund and
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 Investment Advisory Agreement, for the fiscal years ended
December 31, 1997, 1996 and 1995, the Funds incurred the following investment
advisory fees:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
FUND 12/31/97 12/31/96 12/31/95
---- -------- -------- --------
<S> <C> <C> <C>
Money Market $ 242,900 $ 259,214 $ 221,912
Income 200,909 143,483 144,461
Income Equity 898,800 688,484 407,229
Stock Appreciation 214,758 294,183 83,982(1)
Balanced 185,950 183,256 76,231
Large Company 251,705(2) N/A N/A
<FN>
- --------------------
(1) Commenced operations on September 30, 1995.
(2) Commenced operations on January 2, 1997.
</TABLE>
B - 26
<PAGE> 28
For the fiscal years ended December 31, 1997, 1996, and 1995, 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 12/31/97 12/31/96 12/31/95
---- -------- -------- --------
<S> <C> <C> <C>
Money Market -- -- --
Income -- -- $548
Income Equity -- $36,661 73,635
Stock Appreciation -- -- 900
Balanced $20,662 28,720 69,745
Large Company -- N/A(1) N/A(1)
<FN>
- --------------------
(1) Commenced operations on January 2, 1997.
</TABLE>
The Directors of Provident are Robert L. Hoverson, Jack M. Cook, Allen
L. Davis, 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 Robert L. Hoverson,
President and Chief Executive Officer; Philip R. Myers, Senior 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 - 27
<PAGE> 29
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
B - 28
<PAGE> 30
provide mutual funds and other institutional investors with 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").
Pursuant to the SunBank Sub-Advisory 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.
Pursuant to the terms of the SunBank Sub-Advisory Agreement, 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
fiscal years ended December 31, 1997 and 1996 and for the period from August 15,
1995 to December 31, 1995, Provident paid $470,539, $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, Provident paid JIR a total of $77,267 and $25,332, 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 Funds are as follows: .05% for
the Money Market Fund; .10% for the Income Fund; and .15% for each of the Income
Equity Fund, the Balanced Fund, the Large Company Fund and the Stock
Appreciation
B - 29
<PAGE> 31
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, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
---------------------
FUND 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C>
Money Market $81,531 $86,401 $73,973
Income 55,655 35,870 36,115
Income Equity 144,048 108,638 72,596
Balanced 33,160 30,516 12,666
Stock Appreciation 42,139 55,160 15,578(1)
Large Company 49,119(2) N/A N/A
<FN>
- --------------------------
(1) Commenced operations September 30, 1995.
(2) Commenced operations January 2, 1997.
</TABLE>
Under the Master Transfer and Recordkeeping Agreement dated February
24, 1992, as amended as of March 23, 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 $36,000 for the first 750 shareholder accounts. For shareholder accounts
in excess of 750, the Stock Appreciation Fund pays an additional annual fee of
$18 for each open shareholder account and $9 for each closed shareholder
account. All other Funds pay a minimum annual fee of $40,000 for the first 750
shareholder accounts and, for shareholder accounts in excess of 750, an
additional annual fee of $20 for each open shareholder account and $10 for each
closed shareholder account.
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, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
FUND 12/31/97 12/31/96 12/31/95
---- -------- -------- --------
<S> <C> <C> <C>
Money Market $33,896 $79,137 $59,257
Income 50,879 38,891 37,402
</TABLE>
B - 30
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
Income Equity 96,037 58,165 42,860
Balanced 61,796 44,600 22,857
Stock Appreciation 118,492 38,988 9,834(1)
Large Company 41,424(2) N/A N/A
<FN>
- -----------------------------
(1) Commenced operations September 30, 1995.
(2) Commenced operations January 2, 1997.
</TABLE>
- -------------------------------------------------------------------------------
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 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
B - 31
<PAGE> 33
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, 1997, DRZ directed such
transactions to the following brokers in the following amounts and paid the
following brokerage commissions:
<TABLE>
<CAPTION>
AMOUNT OF BROKERAGE
BROKER TRANSACTION COMMISSIONS
<S> <C> <C>
Alpha Management $ 63,453 $ 1,300
Bear Stearns 1,384,457 1,740
Cantor Fitzgerald 1,484,117 2,385
First Boston Co. 17,739,821 23,356
Merrill Lynch Co. 3,584,547 5,665
Paine Webber Co. 7,752,097 13,128
Robertson, Stephens 11,638,800 18,523
Company
Standard & Poors Co. 762,219 875
----------- -------
TOTAL $44,409,511 $66,972
=========== =======
</TABLE>
In addition, DRZ, on behalf of the Income Equity Fund, in the past has
directed brokerage transactions to certain brokerage firms, including First
Boston Corporation, which participate in a "step-out" program. In such program,
the brokerage firm initiates the trade for the Fund and then steps away from a
portion of that trade and its related commission. Another broker then steps in
to complete the "stepped-out" trade, receives the commission and then refunds a
portion of such commissions to the Income Equity Fund. To date, Provident
Securities & Investment Company, an affiliate of Provident, has been the broker
which has stepped in to complete such trades. For the fiscal year ended December
31, 1997, the total amount of brokerage transactions so directed by DRZ was
$63,479,843, and the total amount of brokerage commissions paid on such
transactions was $94,429.
On behalf of the Stock Appreciation Fund, Provident from time to time
directs brokerage transactions to Autranet (a subsidiary of Donaldson, Lufkin &
Jenrette)
B - 32
<PAGE> 34
in return for fundamental and technical research on equity securities. For the
fiscal year ended December 31, 1997, Provident directed brokerage transactions
to Autranet in the aggregate amount of $2,074,409 and paid in connection
therewith, on behalf of the Stock Appreciation Fund, $3,264 in brokerage
commissions for those transactions.
The Money Market Fund and the Income 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 Provident 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.
B - 33
<PAGE> 35
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.
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 12/31/97 12/31/96 12/31/95
---- -------- -------- --------
<S> <C> <C> <C>
Money Market $ -0- $ -0- $ -0-
Income -0- -0- -0-
Income Equity 405,332(2) 304,979(3) 269,007(4)
Balanced 31,075 27,535 15,465
Stock Appreciation 55,999 218,171 446,816(5)
Large Company (6) 49,791 N/A N/A
<FN>
- --------------------
(1) Unless otherwise indicated, no brokerage commissions were paid to an
affiliated broker-dealer.
(2) Of this amount, $94,429 was paid to Provident Securities & Investment
Company, an affiliate of Provident ("PSI"). Such amount does not
reflect any commissions refunded to such Fund as described above. Such
commissions paid to PSI constituted approximately 23.3% of all
brokerage commissions paid by such Fund during the past fiscal year.
Approximately 22.2% of the aggregate dollar amount of brokerage
transactions, as a percentage of such Fund's total brokerage
transactions, were effected through PSI.
(3) Of this amount, $76,751 was paid to PSI.
(4) Of this amount, $67,723 was paid to PSI.
(5) Includes the fiscal year ended September 30, 1995 and the fiscal period
of October 1, 1995, through December 30, 1995.
The amount of brokerage commissions paid by the Stock Appreciation
Fund has decreased substantially from previous fiscal years as a result of such
Fund's decreased portfolio turnover due to a change in the strategy for managing
such Fund.
</TABLE>
B - 34
<PAGE> 36
(5) Commenced operations January 2, 1997.
During the fiscal year ended December 31, 1997, each of the Funds,
other than the Stock Appreciation Fund, held securities of the Company's regular
brokers or dealers, as defined in Rule 10b-1 under the 1940 Act, or their parent
companies, including those of Morgan Stanley Dean Witter Discover & Co., Lehman
Brothers Holdings, Inc., Travelers Insurance, Merrill Lynch & Co., Inc., A.G.
Edwards and Prudential Funding Corp. At December 31, 1997, the Money Market Fund
held approximately $5,500,000 of Merrill Lynch discount notes, a $15,000,000
repurchase agreement with Merrill Lynch, a $16,408,000 repurchase agreement with
Dean Witter and approximately $6,000,000 of Morgan Stanley, Dean Witter Discover
& Co. discount notes. As of such date, the Income Fund held approximately
$335,000 of Discover Card Trust bonds, the Income Equity Fund held approximately
$785,000 of A.G. Edwards common stock, the Large Company Fund held approximately
$485,000 of Travelers Common Stock and the Balanced Fund held approximately
$165,000 of Merrill Lynch & Co., Inc. bonds.
- -------------------------------------------------------------------------------
ADMINISTRATOR
- -------------------------------------------------------------------------------
BISYS Fund Services Limited Partnership 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
B - 35
<PAGE> 37
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, 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, 1999. 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 Administration 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 three fiscal years:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
FUND 12/31/97 12/31/96 12/31/95
---- -------- -------- --------
<S> <C> <C> <C>
Money Market $323,868 $345,611 $296,255
Income 100,455 71,742 72,231
Income Equity 189,223 144,850 96,796
Stock Appreciation 53,690 73,546 20,771(1)
Balanced 41,323 40,688 16,888
</TABLE>
B - 36
<PAGE> 38
<TABLE>
<S> <C> <C> <C>
Large Company 62,927(2) N/A N/A
<FN>
- --------------------
(1) Commenced operations October 1, 1995.
(2) Commenced operations January 2, 1997.
</TABLE>
- -------------------------------------------------------------------------------
DISTRIBUTOR
- -------------------------------------------------------------------------------
The Distributor serves as distributor to the Company and each of the
Funds pursuant to a 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, 1997, 1996 and 1995,
commissions paid to the Distributor under the Distribution Agreement with
respect to the sale of shares of the Company, after discounts to dealers, were
$279,254, $675,842 and $314,870, respectively. For the fiscal year ended
December 31, 1997, $386 were reallowed by the Distributor to PSI.
- -------------------------------------------------------------------------------
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 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
B - 37
<PAGE> 39
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 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.
B - 38
<PAGE> 40
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, 1997, the following amounts were
payable by the Funds to 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>
Money Market Fund $404,830 $242,899 N/A(1)
Income Fund 122,072 29,297 $13,985 $0
Income Equity Fund 202,966 41,154 134,238 0
Stock Appreciation Fund 64,711 0 9,604 0
Balanced Fund 24,764 10,678 107,557 0
Large Company Fund(2) 76,802 0 7,423 0
<FN>
- -----------------------------
(1) The Money Market Fund does not offer Investor B shares and therefore
does not make payments under the Investor B Plan.
(2) Commenced operations January 2, 1997.
</TABLE>
B - 39
<PAGE> 41
- -------------------------------------------------------------------------------
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 issued and outstanding six 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.
- -------------------------------------------------------------------------------
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- -------------------------------------------------------------------------------
TOTAL RETURN
Total return quotations for each of the Income Fund, the Income Equity
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.
The average annual total returns of each of the Investor A Shares of
the Funds are as follows:
Investor A Shares
B - 40
<PAGE> 42
<TABLE>
<CAPTION>
WITH FRONT-END SALES LOADS*
--------------------------
One Year Five Years Ten Years Inception
Ended Ended Ended to
FUND 12/31/97 12/31/97 12/31/97 12/31/97(1)
---- -------- -------- -------- -----------
<S> <C> <C> <C> <C>
Money Market 5.02% 4.42% N/A 4.36%
Income 2.17% 4.31% N/A 3.86%
Income Equity 22.48% 17.41% N/A 18.44%
Stock 13.50% 9.60% 13.48% 10.33%
Appreciation(2)
Balanced 11.53% N/A N/A 10.93%
</TABLE>
<TABLE>
<CAPTION>
Investor A Shares
WITHOUT FRONT-END SALES LOADS*
-----------------------------
One Year Five Years Ten Years Inception
Ended Ended Ended to
FUND 12/31/97 12/31/97 12/31/97 12/31/97(1)
---- -------- -------- -------- -----------
<S> <C> <C> <C> <C>
Money Market 5.02% 4.42% N/A 4.36%
Income 6.94% 5.28% N/A 4.77%
Income Equity 28.20% 18.48% N/A 19.48%
Stock 18.79% 10.61% 14.01% 10.82%
Appreciation(2)
Balanced 16.77% N/A N/A 12.47%
<FN>
- -------------------------
* Investor A Shares of the Money Market Fund are not subject to a
front-end sales load.
(1) Dates of Inception: Money Market and Income Funds -- 10/1/92; Income
Equity Fund -- 10/8/92; 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.
</TABLE>
The average annual total returns of each of the Investor B Shares of
the Funds are as follows:
<TABLE>
<CAPTION>
Investor B Shares
(with Contingent Deferred Sales Load)
FUND ONE YEAR ENDED 12/31/97 INCEPTION TO 12/31/97(3)(4)
---- ----------------------- ---------------------------
<S> <C> <C>
Income 2.07% 4.07%
Income Equity 23.23% 18.78%
Stock Appreciation 13.97% 9.85%
Balanced 11.82% 11.25%
</TABLE>
<TABLE>
<CAPTION>
Investor B Shares
(without Contingent Deferred Sales Load)
Fund One Year Ended 12/31/97 Inception to 12/31/97(3)(4)
- ---- ----------------------- ---------------------------
<S> <C> <C>
Income 6.07% 4.23%
Income Equity 27.17% 18.87%
Stock Appreciation 17.86% 11.34%
Balanced 15.82% 11.95%
</TABLE>
B - 41
<PAGE> 43
- -------------
(3) Dates of Inception -- the Income, Income Equity 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 and the Balanced Fund for such periods would have been lower.
For the one year, five year and ten year periods ended December 31,
1997, the average annual total returns for the Large Company Fund including the
CIFs (the predecessors to the Large Company Fund whose returns have been
restated to reflect the estimated fees for the Large Company Fund for the past
fiscal year) 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> <C>
22.19% 17.38% 14.72% 27.93% 18.46% 15.26%
</TABLE>
<TABLE>
<CAPTION>
INVESTOR B SHARES
WITH CONTINGENT DEFERRED SALES LOADS WITHOUT CONTINGENT DEFERRED SALES LOADS
ONE YEAR FIVE YEAR TEN YEAR ONE YEAR FIVE YEAR TEN YEAR
-------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
22.97% 17.37% 14.41% 26.97% 17.50% 14.30%
</TABLE>
These performance figures for periods prior to January 2, 1997, are not
those of the Large Company Fund. And, of course, past performance is no
guarantee as to future performance.
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.
For the 30-day period ended December 31, 1997, the yields of the
indicated Funds are as follows:
<TABLE>
<CAPTION>
INVESTOR A SHARES INVESTOR B SHARES
With Front- Without Without Contingent
End Sales Front-End Deferred Sales
LOADS SALES LOADS LOAD
<S> <C> <C> <C>
Income Fund 4.60% 4.82% 4.12%
</TABLE>
B - 42
<PAGE> 44
<TABLE>
<S> <C> <C> <C>
Balanced Fund 1.26% 1.32% 0.41%
Income Equity 0.93% 0.97% 0.04%
Fund
Large Company (0.13)% (0.13)% (1.28)%
Fund
</TABLE>
Without reimbursement of expenses and/or waiver of fees, the current
yields of the Income Fund, the Income Equity Fund and the Balanced Fund for
the same period would have been lower.
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.
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, 1997,
the current yield of the Money Market Fund was 5.01%.
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, 1997, the
effective yield of the Money Market Fund was 5.13%.
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.
B - 43
<PAGE> 45
DISTRIBUTION RATES
Each of the Income Fund, the Income Equity Fund, the Balanced Fund, the
Stock Appreciation Fund and the Large Company 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, 1997.
<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 5.87% 5.87% 6.14% 6.14%
Income Equity 28.76% 1.34% 30.11% 1.40%
Balanced 10.29% 1.78% 10.77% 1.86%
Stock Appreciation 20.50% 0% 21.46% 0%
Large Company 11.99% 0.24% 12.55% 0.25%
</TABLE>
<TABLE>
<CAPTION>
Without Contingent Deferred Sales Loads
INCLUDES CAPITAL GAINS EXCLUDES CAPITAL GAINS
FUND
<S> <C> <C>
Income 5.47% 5.47%
Income Equity 28.47% 0.48%
Balanced 10.03% 1.41%
Stock Appreciation 20.74% 0%
Large Company 12.37% 0%
</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
B - 44
<PAGE> 46
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.
ADDITIONAL INFORMATION
PRINCIPAL HOLDERS OF SECURITIES
To the knowledge of the Company, as of April 20, 1998, the persons
listed below owned of record 5% or more of the outstanding shares of the
following Funds:
<TABLE>
<CAPTION>
Name and Address
FUND OF OWNER OF RECORD % OWNERSHIP
- ---- ------------------ -----------
<S> <C> <C>
Money Market, The Provident Bank Trust Department(1)
Investor A Shares P.O. Box 691198
Cincinnati, Ohio 45269-1198 69.19%
BHC Securities, Inc.(2)
One Commerce Square
Philadelphia, Pennsylvania 19103 19.64%
Balanced, BHC Securities, Inc.(2)
Investor A Shares One Commerce Square
Philadelphia, Pennsylvania 19103 59.81%
The Provident Bank(1)
RPO Provident Bancorp
Retirement Plan
One East Fourth Street
Cincinnati, Ohio 45202 15.49%
The Provident Bank as
Trustee FBO Provident Bancorp.
401K Equity(1)
P.O. Box 691198
Cincinnati, Ohio 45269-1198 14.26%
Large Company, Provident Bank Trust Department(1)
Investor A Shares P.O. Box 691198
Cincinnati, Ohio 45269-1198 93.58%
</TABLE>
B - 45
<PAGE> 47
<TABLE>
<CAPTION>
Name and Address
FUND OF OWNER OF RECORD % OWNERSHIP
- ---- ------------------ -----------
<S> <C> <C>
Large Company, The Provident Bank
Investor B Shares Custodian FBO
John W. Coveyou IRA
7931 Gimmick Road
Cincinnati, Ohio 45241 6.08%
Income Equity, The Chase Manhattan Bank as
Investor A Shares Trustee for The General Cable
Corporation
4 Tesseneer Drive
Highland Heights, Kentucky 41076 47.43%
BHC Securities, Inc.(2)
One Commerce Square
Philadelphia, Pennsylvania 19103 29.02%
The Provident Bank(1)
RPO Provident Retirement Plan
P.O. Box 691198
Cincinnati, Ohio 45269-1198 5.24%
Income, The Provident Bank
Investor A Shares One East Fourth Street
Cincinnati, Ohio 45202 51.85%
Provident Bank Trust Department(1)
P.O. Box 691198
Cincinnati, Ohio 45269-1198 38.54%
Income, Fifth Third Bank as Trustee for
Investor B Shares Cincinnati Institute of Fine Arts
P.O. Box 630074
Cincinnati, Ohio 45263 21.24%
<FN>
- --------------------
(1) The designated owner of record may possess on behalf of its
underlying accounts voting or investment power with respect to
these Shares.
(2) BCH Securities, Inc. holds such shares for various underlying
beneficial owners.
</TABLE>
AUDITORS
The financial statements of each of the Funds at and for the fiscal
year ended December 31, 1997, 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
B - 46
<PAGE> 48
such report given on the authority of Ernst & Young LLP as experts in auditing
and accounting.
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 - 47
<PAGE> 49
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The following financial statements relate to each of the Funds and to
The Riverfront Ohio Tax-Free Bond Fund at and for the fiscal year ended December
31, 1997. Effective April 30, 1998, The Riverfront Ohio Tax-Free Bond Fund
ceased operations and was liquidated and dissolved.
B - 48
<PAGE> 50
- --------------------------------------------------------------------------------
Report of Independent Auditors
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
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, Balanced
Fund, Stock Appreciation Fund, and Large Company Select Fund) as of December
31, 1997, the related statements of operations for the year then ended of the
U.S. Government Securities Money Market Fund, U.S. Government Income Fund,
Income Equity Fund, Ohio Tax-Free Bond Fund, Balanced Fund, and Stock
Appreciation Fund and for the period January 2, 1997 to December 31, 1997 for
the Large Company Select Fund and 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, Balanced Fund, and Stock Appreciation Fund, and for
the period January 2, 1997 to December 31, 1997 of the Large Company Select
Fund, and the financial highlights for each of the three 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 Balanced Fund,
and for the two years ended December 31, 1997 and for the period October 1,
1995 to December 31, 1995 of the Stock Appreciation Fund, and for the period
January 2, 1997 to December 31, 1997 of the Large Company Select 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting The Riverfront Funds, Inc. at
December 31, 1997, the results of their operations, the changes in their net
assets and the financial highlights for the respective periods ended December
31, 1997 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
February 13, 1998
B-49
<PAGE> 51
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT U.S. GOVERNMENT INCOME
SECURITIES MONEY INCOME EQUITY
MARKET FUND FUND FUND
---------------- --------------- ------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (Cost
$111,358,087; $49,153,218; and
$96,679,453, respectively)..... $111,358,087 $49,741,917 $101,416,249
Repurchase agreements (Cost
$31,408,000; $0; and $0,
respectively).................. 31,408,000 -- --
------------ ----------- ------------
TOTAL INVESTMENTS............... 142,766,087 49,741,917 101,416,249
Cash............................ 439 -- --
Interest and dividends
receivable..................... 484,466 631,997 283,533
Receivable for capital shares
issued......................... -- 76 104,504
Receivable for investments sold. -- -- 468,154
Prepaid expenses and other
assets......................... 10,642 5,482 21,273
------------ ----------- ------------
TOTAL ASSETS.................... 143,261,634 50,379,472 102,293,713
------------ ----------- ------------
LIABILITIES:
Dividends payable............... 615,066 412 --
Payable for capital shares
redeemed....................... -- -- 1,534
Payable for investments
purchased...................... -- -- 743,993
Accrued expenses and other
payables:
Investment advisory fees....... 18,229 17,134 80,325
Administration fees............ 3,812 1,381 2,621
Custodian and accounting fees.. 5,937 6,420 13,363
12b-1 fees (Investor A)........ 12,152 8,022 12,562
12b-1 fees (Investor B)........ -- 1,115 14,485
Transfer agent fees............ -- 3,841 1,626
Audit and legal fees........... 36,872 11,007 19,414
Other.......................... 809 3,712 --
------------ ----------- ------------
TOTAL LIABILITIES............... 692,877 53,044 889,923
------------ ----------- ------------
NET ASSETS:
Capital......................... 142,572,510 50,806,345 95,815,203
Accumulated undistributed
(distributions in excess of)
net investment income.......... -- -- 534
Net unrealized appreciation/
depreciation on investments.... -- 588,699 4,736,796
Accumulated undistributed net
realized gains (losses) on
investment transactions........ (3,753) (1,068,616) 851,257
------------ ----------- ------------
NET ASSETS..................... $142,568,757 $50,326,428 $101,403,790
============ =========== ============
Net Assets
Investor A Shares.............. $142,568,757 $49,017,391 $ 83,840,700
Investor B Shares.............. NA 1,309,037 17,563,090
------------ ----------- ------------
Total........................ $142,568,757 $50,326,428 $101,403,790
============ =========== ============
Shares of capital stock
Investor A Shares.............. 142,572,510 5,168,697 7,175,136
Investor B Shares.............. NA 122,570 1,466,214
------------ ----------- ------------
Total........................ 142,572,510 5,291,267 8,641,350
============ =========== ============
Net asset value
Investor A Shares--redemption
price per share............... $ 1.00 $ 9.48 $ 11.68
Investor B Shares--offering
price per share*.............. NA 10.68 11.98
============ =========== ============
Maximum Sales Charge (Investor
A)............................. NA 4.50% 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 $ 9.93 $ 12.23
============ =========== ============
</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-50
<PAGE> 52
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
<TABLE>
<CAPTION>
STOCK LARGE COMPANY
OHIO TAX-FREE BALANCED APPRECIATION SELECT
BOND FUND FUND FUND FUND
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value
(Cost $3,289,469;
$18,057,693;
$18,089,347; and
$20,020,952,
respectively)........... $3,512,105 $20,982,175 $22,127,696 $36,027,913
Interest and dividends
receivable.............. 34,701 97,044 11,588 46,735
Receivable for capital
shares issued........... -- 8,434 481 37,836
Receivable for
investments sold........ -- -- 5,138,936 --
Unamortized organization
costs................... -- -- -- 4,944
Prepaid expenses and
other assets............ 8,385 7,734 -- 6,576
---------- ----------- ----------- -----------
TOTAL ASSETS............. 3,555,191 21,095,387 27,278,701 36,124,004
---------- ----------- ----------- -----------
LIABILITIES:
Payable for capital
shares redeemed......... -- 7,725 1,540 --
Payable for investments
purchased............... -- -- 1,650,192 --
Accrued expenses and
other payables:
Investment advisory
fees................... 1,317 14,221 17,129 24,009
Administration fees..... 102 562 668 943
Custodian and
accounting fees........ 1,303 3,390 3,860 5,481
12b-1 fees (Investor
A)..................... 749 1,039 5,263 6,075
12b-1 fees (Investor
B)..................... 1,007 9,622 1,051 1,900
Transfer agent fees..... 1,751 3,738 7,541 1,832
Audit and legal fees.... 2,589 3,995 5,489 6,067
Other................... 198 5,247 8,389 108
---------- ----------- ----------- -----------
TOTAL LIABILITIES........ 9,016 49,539 1,701,122 46,415
---------- ----------- ----------- -----------
NET ASSETS:
Capital.................. 3,178,243 17,990,174 18,568,291 20,059,805
Accumulated undistributed
net investment income
(loss).................. 93,730 3,979 (2,194) --
Net unrealized
appreciation/
depreciation on
investments............. 222,636 2,924,482 4,038,349 16,006,961
Accumulated undistributed
net realized gains
(losses) on investment
transactions............ 51,566 127,213 2,973,133 10,823
---------- ----------- ----------- -----------
NET ASSETS.............. $3,546,175 $21,045,848 $25,577,579 $36,077,589
========== =========== =========== ===========
Net Assets
Investor A Shares....... $2,410,683 $ 9,562,897 $24,312,196 $33,613,506
Investor B Shares....... 1,135,492 11,482,951 1,265,383 2,464,083
---------- ----------- ----------- -----------
Total................. $3,546,175 $21,045,848 $25,577,579 $36,077,589
========== =========== =========== ===========
Shares of capital stock
Investor A Shares....... 268,544 777,175 2,651,012 2,964,154
Investor B Shares....... 123,530 903,237 133,340 218,535
---------- ----------- ----------- -----------
Total................. 392,074 1,680,412 2,784,352 3,182,689
========== =========== =========== ===========
Net asset value
Investor A Shares--
redemption price per
share.................. $ 8.98 $ 12.30 $ 9.17 $ 11.34
Investor B Shares--
offering price per
share*................. 9.19 12.71 9.49 11.28
========== =========== =========== ===========
Maximum Sales Charge
(Investor A)............ 4.50% 4.50% 4.50% 4.50%
========== =========== =========== ===========
Maximum Offering Price
per share (100%/(100%--
Maximum Sales Charge)
of net asset value
adjusted to nearest
cent) (Investor A)...... $ 9.40 $ 12.88 $ 9.60 $ 11.87
========== =========== =========== ===========
</TABLE>
- -------
*Redemption price of Investor B shares varies based on length of time shares
are held.
See Notes to Financial Statements.
B-51
<PAGE> 53
- --------------------------------------------------------------------------------
Statements of Operations
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. For the Year Ended December 31, 1997
<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................... $8,966,454 $3,195,536 $ 114,843
Dividend income................... -- 85,440 2,688,652
---------- ---------- -----------
TOTAL INCOME...................... 8,966,454 3,280,976 2,803,495
---------- ---------- -----------
EXPENSES:
Investment advisory fees.......... 242,900 200,909 898,800
Administration fees............... 323,868 100,455 189,223
12b-1 fees (Investor A)........... 404,830 122,072 202,966
12b-1 fees (Investor B)........... -- 13,985 134,238
Custodian and accounting fees..... 81,531 55,655 144,048
Audit and legal fees.............. 77,217 32,257 65,211
Directors' fees and expenses...... 9,635 3,922 5,554
Transfer agent fees............... 33,896 50,879 96,037
Registration and filing fees...... 9,072 8,076 2,324
Printing costs.................... 79,667 19,245 48,278
Other............................. 14,832 4,530 18,091
---------- ---------- -----------
GROSS EXPENSES.................... 1,277,448 611,985 1,804,770
Less: Fee waivers............... (242,899) (29,297) (41,154)
---------- ---------- -----------
Net Expenses.................. 1,034,549 582,688 1,763,616
---------- ---------- -----------
Net Investment Income............. 7,931,905 2,698,288 1,039,879
---------- ---------- -----------
REALIZED/UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains (losses) from
investment transactions.......... (1,463) 781,702 21,576,605
Net change in unrealized
appreciation/depreciation from
investments...................... -- (56,510) 752,438
---------- ---------- -----------
Net realized/unrealized gains
(losses) from investments........ (1,463) 725,192 22,329,043
---------- ---------- -----------
Change in net assets resulting
from operations.................. $7,930,442 $3,423,480 $23,368,922
========== ========== ===========
</TABLE>
See Notes to Financial Statements.
B-52
<PAGE> 54
- --------------------------------------------------------------------------------
Statements of Operations
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
OHIO STOCK LARGE
TAX-FREE BALANCED APPRECIATION COMPANY
BOND FUND FUND FUND SELECT FUND*
--------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income................. $ 436,799 $ 520,993 $ 84,507 $ 67,812
Dividend income................. 15,627 233,985 365,157 461,398
--------- ---------- ----------- ----------
TOTAL INCOME.................... 452,426 754,978 449,664 529,210
--------- ---------- ----------- ----------
EXPENSES:
Investment advisory fees........ 40,980 185,950 214,758 251,705
Administration fees............. 16,689 41,323 53,690 62,927
12b-1 fees (Investor A)......... 17,534 24,764 64,711 76,802
12b-1 fees (Investor B)......... 11,823 107,557 9,604 7,423
Custodian and accounting fees... 13,711 33,160 42,139 49,119
Audit and legal fees............ 9,985 20,656 15,518 21,646
Organization costs.............. -- 56 14,394 3,872
Directors' fees and expenses.... 594 1,235 1,556 2,026
Transfer agent fees............. 39,534 61,796 118,492 41,424
Registration and filing fees.... 4,199 6,474 15,908 7,294
Printing costs.................. 3,513 11,766 19,283 10,459
Other........................... 727 13,622 2,748 2,445
--------- ---------- ----------- ----------
GROSS EXPENSES.................. 159,289 508,359 572,801 537,142
Less: Fee waivers............. (8,196) (31,340) -- --
Less: Expense reimbursements.. (23,066) -- -- --
--------- ---------- ----------- ----------
Net Expenses................ 128,027 477,019 572,801 537,142
--------- ---------- ----------- ----------
Net Investment Income (Loss).... 324,399 277,959 (123,137) (7,932)
--------- ---------- ----------- ----------
REALIZED/UNREALIZED GAINS
(LOSSES) FROM INVESTMENTS:
Net realized gains (losses) from
investment transactions........ 656,758 1,983,851 5,867,571 4,033,588
Net change in unrealized
appreciation/depreciation from
investments.................... (692,569) 870,883 (1,404,729) 3,414,575
--------- ---------- ----------- ----------
Net realized/unrealized gains
(losses) from investments...... (35,811) 2,854,734 4,462,842 7,448,163
--------- ---------- ----------- ----------
Change in net assets resulting
from operations................ $ 288,588 $3,132,693 $ 4,339,705 $7,440,231
========= ========== =========== ==========
</TABLE>
- -------
* For the period January 2, 1997 (commencement of operations) through December
31, 1997.
See Notes to Financial Statements.
B-53
<PAGE> 55
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc.
<TABLE>
<CAPTION>
U.S. GOVERNMENT U.S. GOVERNMENT
SECURITIES MONEY MARKET INCOME INCOME EQUITY
FUND FUND FUND
---------------------------- -------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income.. $ 7,931,905 $ 8,268,622 $ 2,698,288 $ 1,942,237 $ 1,039,879 $ 1,134,267
Net realized gains
(losses) from
investment
transactions.......... (1,463) -- 781,702 90,347 21,576,605 13,473,952
Net change in
unrealized
appreciation/
depreciation from
investments........... -- -- (56,510) (1,183,269) 752,438 (1,397,638)
------------- ------------- ----------- ----------- ------------ -----------
Change in net assets
resulting from
operations............. 7,930,442 8,268,622 3,423,480 849,315 23,368,922 13,210,581
------------- ------------- ----------- ----------- ------------ -----------
DISTRIBUTIONS TO
INVESTOR A SHAREHOLDERS:
From net investment
income................ (7,931,905) (8,268,622) (2,663,877) (1,865,718) (981,986) (1,089,197)
In excess of net
investment income..... -- -- (412,137) -- -- (11,775)
From net realized gains
from investments...... -- -- -- -- (19,246,795) (10,109,545)
DISTRIBUTIONS TO
INVESTOR B SHAREHOLDERS:
From net investment
income................ -- -- (64,440) (56,824) (57,359) (45,070)
In excess of net
investment income..... -- -- (11,526) -- -- (1,105)
From net realized gains
from investments...... -- -- -- -- (3,879,842) (941,583)
In excess of net
realized gains........ -- -- -- -- -- (94,220)
------------- ------------- ----------- ----------- ------------ -----------
Change in net assets
from shareholder
distributions.......... (7,931,905) (8,268,622) (3,151,980) (1,922,542) (24,165,982) (12,292,495)
------------- ------------- ----------- ----------- ------------ -----------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 374,303,813 413,837,358 4,236,017 2,867,087 15,853,924 12,638,065
Proceeds from shares
issued in connection
with common trust fund
acquisition........... -- -- 16,606,766 -- -- --
Dividends reinvested... 2,327,411 2,193,920 506,586 486,495 23,523,261 12,143,803
Cost of shares
redeemed.............. (415,078,263) (392,509,518) (6,285,274) (5,090,697) (18,176,359) (8,378,319)
------------- ------------- ----------- ----------- ------------ -----------
Change in net assets
from capital
transactions........... (38,447,039) 23,521,760 15,064,095 (1,737,115) 21,200,826 16,403,549
------------- ------------- ----------- ----------- ------------ -----------
Change in net assets.... (38,448,502) 23,521,760 15,335,595 (2,810,342) 20,403,766 17,321,635
NET ASSETS:
Beginning of period.... 181,017,259 157,495,499 34,990,833 37,801,175 81,000,024 63,678,389
------------- ------------- ----------- ----------- ------------ -----------
End of period.......... $ 142,568,757 $ 181,017,259 $50,326,428 $34,990,833 $101,403,790 $81,000,024
============= ============= =========== =========== ============ ===========
SHARE TRANSACTIONS:
Issued................. 374,303,813 413,837,358 448,161 299,041 1,186,068 997,947
Issued in connection
with common trust fund
acquisition........... -- -- 1,761,057 -- -- --
Reinvested............. 2,327,411 2,193,920 53,203 51,049 1,989,492 1,001,471
Redeemed............... (415,078,263) (392,509,518) (664,598) (534,677) (1,316,119) (656,491)
------------- ------------- ----------- ----------- ------------ -----------
Change in shares........ (38,447,039) 23,521,760 1,597,823 (184,587) 1,859,441 1,342,927
============= ============= =========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements.
B-54
<PAGE> 56
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc.
<TABLE>
<CAPTION>
STOCK LARGE
APPRECIATION COMPANY
OHIO TAX-FREE BOND FUND BALANCED FUND FUND SELECT FUND
-------------------------- -------------------------- -------------------------- -------------
FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1997 1996 1997*
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income
(loss).............. $ 324,399 $ 434,913 $ 277,959 $ 514,538 $ (123,137) $ (462,477) $ (7,932)
Net realized gains
(losses) from
investment
transactions......... 656,758 (2,919) 1,983,851 (153,623) 5,867,571 5,645,154 4,033,588
Net change in
unrealized
appreciation/depreciation
from investments..... (692,569) (107,900) 870,883 853,589 (1,404,729) (1,674,745) 3,414,575
------------ ----------- ----------- ----------- ------------ ------------ -----------
Change in net assets
resulting from
operations............ 288,588 324,094 3,132,693 1,214,504 4,339,705 3,507,932 7,440,231
------------ ----------- ----------- ----------- ------------ ------------ -----------
DISTRIBUTIONS TO
INVESTOR A
SHAREHOLDERS:
From net investment
income............... (200,793) (412,215) (180,288) (346,017) -- -- --
In excess of net
investment income.... (113,570) -- -- (1,775) -- (289) --
From net realized
gains from
investments.......... (446,337) -- (786,461) -- (4,562,955) (3,106,226) (3,675,987)
From tax return of
capital.............. (32,451) -- -- -- -- -- (76,753)
DISTRIBUTIONS TO
INVESTOR B
SHAREHOLDERS:
From net investment
income............... (36,634) (21,400) (99,558) (168,520) -- -- --
In excess of net
investment income.... (8,728) -- -- (1,028) -- -- --
From net realized
gains from
investments.......... (156,126) -- (913,202) -- (216,879) (65,866) (270,025)
From tax return of
capital.............. (2,494) -- -- -- -- -- --
------------ ----------- ----------- ----------- ------------ ------------ -----------
Change in net assets
from shareholder
distributions......... (997,133) (433,615) (1,979,509) (517,340) (4,779,834) (3,172,381) (4,022,765)
------------ ----------- ----------- ----------- ------------ ------------ -----------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued............... 516,123 632,048 2,623,393 11,628,310 3,536,148 3,709,128 4,882,547
Proceeds from shares
issued in connection
with common trust
fund acquisition..... 11,399,841 -- -- -- -- -- 27,813,338
Dividends reinvested.. 201,688 26,194 1,948,716 546,821 4,580,891 2,969,201 3,939,671
Cost of shares
redeemed............. (19,539,956) (588,738) (5,473,923) (6,534,711) (14,013,668) (16,166,715) (3,975,433)
------------ ----------- ----------- ----------- ------------ ------------ -----------
Change in net assets
from capital
transactions.......... (7,422,304) 69,504 (901,814) 5,640,420 (5,896,629) (9,488,386) 32,660,123
------------ ----------- ----------- ----------- ------------ ------------ -----------
Change in net assets... (8,130,849) (40,017) 251,370 6,337,584 (6,336,758) (9,152,835) 36,077,589
NET ASSETS:
Beginning of period... 11,677,024 11,717,041 20,794,478 14,456,894 31,914,337 41,067,172 --
------------ ----------- ----------- ----------- ------------ ------------ -----------
End of period......... $ 3,546,175 $11,677,024 $21,045,848 $20,794,478 $ 25,577,579 $ 31,914,337 $36,077,589
============ =========== =========== =========== ============ ============ ===========
SHARE TRANSACTIONS:
Issued................ 49,102 59,532 207,417 1,017,399 359,468 373,503 403,509
Issued in connection
with common trust
fund acquisition..... 1,097,194 -- -- -- -- -- 2,781,335
Reinvested............ 20,948 2,490 156,705 47,842 490,460 315,294 353,440
Redeemed.............. (1,895,117) (55,955) (437,775) (571,147) (1,448,614) (1,628,669) (355,595)
------------ ----------- ----------- ----------- ------------ ------------ -----------
Change in shares....... (727,873) 6,067 (73,653) 494,094 (598,686) (939,872) 3,182,689
============ =========== =========== =========== ============ ============ ===========
</TABLE>
- -------
* For the period January 2, 1997 (commencement of operations) through December
31, 1997.
See Notes to Financial Statements.
B-55
<PAGE> 57
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
U.S. Government Securities Money Market Fund
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
----------- --------------------------------------------------- ------------
<C> <S> <C>
COMMERCIAL PAPER (31.8%)
Agriculture (1.8%)
$ 2,500,000 Cargill, Inc., Discount Note, 1/9/98............... $ 2,496,894
------------
Automotive (1.4%)
2,000,000 Ford Motor Co., Discount Note, 1/7/98.............. 1,998,137
------------
Banks (2.8%)
4,000,000 Bankers Trust, Discount Note, 4/6/98............... 3,941,628
------------
Brokerage Services (8.0%)
4,000,000 Merrill Lynch & Co., Inc., Discount Note, 1/5/98... 3,997,531
1,500,000 Merrill Lynch & Co., Inc., Discount Note, 3/27/98.. 1,479,813
2,000,000 Morgan Stanley, Dean Witter Discover & Co.,
Discount Note, 1/23/98............................ 1,993,033
4,000,000 Morgan Stanley, Dean Witter Discover & Co.,
Discount Note, 2/13/98............................ 3,972,432
------------
11,442,809
------------
Financial Services (9.1%)
2,000,000 Associates Corp., N.A., Discount Note, 3/23/98..... 1,975,340
2,900,000 General Electric Capital Corp., Discount Note,
1/21/98........................................... 2,890,834
500,000 General Electric Capital Corp., Discount Note,
2/2/98............................................ 497,533
1,000,000 General Electric Capital Corp., Discount Note,
2/5/98............................................ 994,604
1,500,000 General Electric Capital Corp., Discount Note,
3/13/98........................................... 1,483,315
1,750,000 IBM Credit Corp., Discount Note, 1/16/98........... 1,745,858
1,500,000 Sunbelt-Dix, Inc., Discount Note, 1/6/98........... 1,498,829
2,000,000 Sunbelt-Dix, Inc., Discount Note, 1/20/98.......... 1,994,089
------------
13,080,402
------------
Food Distributors, Supermarkets & Wholesalers (2.4%)
1,500,000 Winn Dixie Stores, Inc., Discount Note, 1/13/98.... 1,497,215
2,000,000 Winn Dixie Stores, Inc., Discount Note, 2/10/98.... 1,987,400
------------
3,484,615
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
----------- --------------------------------------------------- ------------
<C> <S> <C>
COMMERCIAL PAPER, CONTINUED:
Manufacturing--Consumer Goods (2.1%)
$ 3,000,000 Eaton Corp., Discount Note, 2/9/98................. $ 2,981,172
------------
Pharmaceuticals (4.2%)
1,000,000 Glaxo Wellcome PLC, Discount Note, 1/12/98......... 998,298
1,500,000 Glaxo Wellcome PLC, Discount Note, 1/16/98......... 1,496,456
3,500,000 Glaxo Wellcome PLC, Discount Note, 1/27/98......... 3,485,895
------------
5,980,649
------------
Total Commercial Paper (Amortized Cost $45,406,306) 45,406,306
------------
REPURCHASE AGREEMENTS (22.0%)
16,408,000 Dean Witter, 6.70%, 1/2/98, (Collateralized by
$16,277,000 various U.S. Treasury and U.S.
Government Agency Securities, 0.00%-9.38%, 1/2/98-
10/17/16, market value--$16,736,802).............. 16,408,000
15,000,000 Merrill Lynch, 6.50%, 1/2/98, (Collateralized by
$56,704,342 various U.S Government Agency
Securities, 6.95%-8.00%, 7/1/15-7/1/20, market
value--$15,300,307)............................... 15,000,000
------------
Total Repurchase Agreements
(Cost $31,408,000) 31,408,000
------------
U.S. GOVERNMENT AGENCIES (46.3%)
Federal Agricultural Mortgage Corp. (1.4%)
2,000,000 Discount Note, 1/6/98.............................. 1,998,478
------------
Federal Farm Credit Bank (4.9%)
2,000,000 5.50%, 1/2/98...................................... 2,000,000
3,000,000 5.65%, 2/2/98...................................... 3,000,000
2,000,000 5.55%, 3/2/98...................................... 2,000,000
------------
7,000,000
------------
Federal Home Loan Bank (2.1%)
3,000,000 Discount Note, 1/5/98.............................. 2,998,197
------------
Federal Home Loan Mortgage Corp. (5.2%)
2,500,000 Discount Note, 1/2/98.............................. 2,499,625
3,000,000 Discount Note, 2/17/98............................. 2,978,419
2,000,000 5.84%, 4/8/98...................................... 1,999,063
------------
7,477,107
------------
</TABLE>
Continued
B-56
<PAGE> 58
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
U.S. Government Securities Money Market Fund
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
----------- ----------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Federal National Mortgage Assoc. (30.7%)
$ 1,000,000 4.01%*, 1/6/98....................................... $ 999,785
1,100,000 6.06%*, 1/8/98....................................... 1,100,064
4,000,000 Discount Note, 1/9/98................................ 3,995,119
3,000,000 Discount Note, 1/15/98............................... 2,993,677
2,000,000 Discount Note, 1/16/98............................... 1,995,442
3,000,000 Discount Note, 1/20/98............................... 2,991,418
4,000,000 Discount Note, 1/21/98............................... 3,987,856
3,000,000 Discount Note, 2/5/98................................ 2,984,046
3,000,000 Discount Note, 2/13/98............................... 2,980,363
1,500,000 4.50%*, 2/25/98...................................... 1,497,549
4,000,000 5.71%, 3/18/98, MTN.................................. 3,998,474
2,190,000 8.15%, 5/11/98....................................... 2,208,916
3,000,000 5.63%, 8/14/98, MTN.................................. 2,996,760
2,000,000 Series 98-AA, 5.54%, 3/12/98......................... 2,000,000
2,000,000 Series 98-AC, 5.74%, 6/9/98.......................... 2,000,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
----------- --------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Federal National Mortgage Assoc., continued:
$ 2,000,000 Series 98-Y, 5.52%, 1/15/98........................ $ 2,000,000
3,000,000 Series 98-Z, 5.63%, 2/12/98........................ 3,000,000
------------
43,729,469
------------
Student Loan Marketing Assoc. (1.1%)
1,500,000 5.73%*, 1/6/98..................................... 1,499,597
------------
Tennessee Valley Authority (0.9%)
1,250,000 5.13%, 3/4/98, Continuously callable @ 100......... 1,248,933
------------
Total U.S. Government Agencies (Amortized Cost $65,951,781) 65,951,781
------------
Total Investments (Amortized Cost $142,766,087) (a)--100.1% 142,766,087
Liabilities in excess of other assets (0.1)% (197,330)
------------
Total Net Assets--100.0% $142,568,757
============
</TABLE>
- -------
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
* Variable Rate. Rate presented represents rate in effect at December 31, 1997.
Maturity date reflects the next rate change date.
MTN--Medium Term Note.
PLC--Public Liability Co.
See Notes to Financial Statements.
B-57
<PAGE> 59
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
U.S. Government Income Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
COMMERCIAL PAPER (1.0%)
Financial Services (1.0%)
500,000 Sunbelt-Dix. Inc., Discount Note, 1/27/98............. $ 497,967
-----------
Total Commercial Paper (Cost $497,967) 497,967
-----------
CORPORATE BONDS (27.0%)
Banks (7.2%)
600,000 Chase Capital I, Series A, 7.67%, 12/1/26, Callable
12/1/06 @ 103.84, Guaranteed by Chase Manhattan
Corp................................................. 621,000
500,000 Mellon Capital I, 7.72%, 12/1/26, Callable 12/1/06 @
103.86, Guaranteed by Mellon Bank Corp............... 518,125
1,000,000 Midland Bank PLC (HSBC), 6.95%, 3/15/11............... 1,026,250
1,461,382 PNC Mortgage Securities Corp., Series 1997-3, Class
2A3, 7.50%, 5/25/27 CMO.............................. 1,474,271
-----------
3,639,646
-----------
Computers & Peripherals (2.0%)
1,000,000 International Business Machines Corp., 6.22%, 8/1/27,
Putable 8/1/04 @ 100................................. 1,012,500
-----------
Financial Services (9.3%)
200,000 American Express Master Trust, Series 1994-1, Class A,
7.15%, 8/15/99 ABS................................... 201,556
200,000 Associates Corp., N.A., 5.25%, 3/30/00................ 196,500
1,000,000 Boatmen's Auto Trust, Series 1996-A, Class A3, 6.75%,
1/15/03 ABS.......................................... 1,019,800
345,000 Discover Card Trust, Series 1992-B, Class A, 6.80%,
6/16/00 ABS.......................................... 344,762
500,000 Ford Motor Credit Co., 6.25%, 12/8/05................. 493,125
1,000,000 Premier Auto Trust, Series 1994-4, Class CTFS, 6.85%,
5/2/99 ABS........................................... 1,007,340
650,000 Security Pacific Acceptance Corp., Series 1995-1,
Class A2, 6.70%, 4/10/20 ABS......................... 655,824
430,424 The Money Store Home Equity Trust, Series 1995-A,
Class A2, 7.93%, 2/15/14 ABS......................... 432,202
250,000 Toyota Motor Credit Corp., 7.13%, 9/26/06, Callable
9/26/99 @ 100, MTN................................... 264,063
-----------
4,615,172
-----------
Food Processing & Packaging (1.1%)
500,000 McCormick & Co., Inc., 8.95%, 7/1/01.................. 542,500
-----------
Office Equipment & Supplies (Non-Computer Related) (2.9%)
1,455,000 Pitney Bowes Credit Corp., 6.63%, 6/1/02.............. 1,484,100
-----------
Oil & Gas Exploration, Production & Services (1.0%)
500,000 Kerr-McGee Corp., 6.63%, 10/15/07..................... 514,375
-----------
Oil & Gas Transmission (0.7%)
356,000 Trans-Canada Pipelines Ltd., 6.77%, 4/30/01, MTN...... 363,565
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Steel (0.4%)
200,000 Worthington Industries, Inc., 7.13%, 5/15/06.......... $ 210,000
-----------
Telecommunications (2.0%)
1,000,000 U.S. West Capital Funding, Inc., 6.31%, 11/1/05,
Putable 11/1/00 @ 100................................ 1,005,000
-----------
Utilities--Electric & Gas (0.4%)
200,000 Oklahoma Gas & Electric Co., 6.25%, 10/15/00.......... 201,000
-----------
Total Corporate Bonds (Cost $13,409,547) 13,587,858
-----------
U.S. GOVERNMENT AGENCIES (48.9%)
Federal Home Loan Bank (5.9%)
300,000 5.88%*, 5/26/98, Series BR98.......................... 299,970
1,000,000 5.95%, 3/5/01, Series ID01, Callable 3/5/98 @ 100..... 997,180
875,000 6.38%, 4/29/03, Series A-03, Callable 4/29/98 @ 100... 874,816
690,000 9.50%, 2/25/04........................................ 810,895
-----------
2,982,861
-----------
Federal Home Loan Mortgage Corp. (5.3%)
300,000 Discount Note, 1/14/98................................ 299,427
1,226,320 6.00%, 12/1/99, Gold Pool #M80147..................... 1,216,436
700,000 6.80%, 9/18/02, Continuously Callable @ 100, (Called
2/4/98).............................................. 699,930
225,000 6.20%, 4/15/03........................................ 227,108
242,742 7.50%, 3/15/15, Series 1262, Class F CMO.............. 243,048
-----------
2,685,949
-----------
Federal National Mortgage Assoc. (28.3%)
500,000 9.05%, 4/10/00........................................ 533,715
1,500,000 6.45%, 4/12/01, Series 01-M, Callable 4/12/99 @ 100... 1,505,490
1,000,000 6.71%, 3/13/02, Callable 3/13/00 @ 100, MTN........... 1,011,330
1,500,000 6.54%, 10/8/02, Callable 10/8/98 @ 100, MTN........... 1,497,900
1,039,823 6.00%, 2/1/03, Pool #335463........................... 1,029,882
1,221,329 6.00%, 5/1/03, Pool #347156........................... 1,208,566
625,000 6.38%, 6/25/03, Continuously Callable @ 100, MTN...... 623,844
1,000,000 6.38%, 7/8/03, Continuously Callable @ 100 (Called
2/13/98), MTN........................................ 998,130
300,000 6.85%, 4/5/04......................................... 313,362
1,000,000 7.00%, 9/25/05, Series 1992-110, Class G CMO.......... 1,006,030
1,000,000 7.55%, 3/27/07, Series 07-B, Callable 3/27/00 @ 100... 1,029,370
912,341 7.50%, 3/17/14, Series 1997-39, Class A CMO........... 922,404
</TABLE>
Continued
B-58
<PAGE> 60
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
U.S. Government Income Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Federal National Mortgage Assoc., continued:
515,675 7.00%, 9/25/19, Series 1991-155, Class PE CMO......... $ 517,696
2,000,000 6.50%, 8/18/20, Series 1997-57, Class PM CMO.......... 2,018,672
-----------
14,216,391
-----------
Government National Mortgage Assoc. (1.3%)
618,267 8.00%, 5/15/23, Pool #351752.......................... 639,789
-----------
Private Export Funding Corp. (2.0%)
1,000,000 6.24%, 5/15/02, Series VV, Guaranteed by Export-Import
Bank of The United States............................ 1,008,750
-----------
Student Loan Marketing Assoc. (3.5%)
1,000,000 6.05%, 9/14/00........................................ 1,004,070
762,235 5.92%*, 10/25/04, Series 1996-3, Class A1 ABS......... 761,549
-----------
1,765,619
-----------
Tennessee Valley Authority (2.6%)
1,250,000 6.24%, 7/15/45, Series B, Callable 7/15/20 @ 100,
Putable 7/15/01 @ 100................................ 1,290,625
-----------
Total U.S. Government Agencies (Cost $24,365,654) 24,589,984
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
U.S. TREASURY BONDS (2.0%)
1,000,000 6.25%, 8/15/23......................................... $ 1,029,140
-----------
Total U.S. Treasury Bonds (Cost $977,561) 1,029,140
-----------
U.S. TREASURY NOTES (17.9%)
1,000,000 5.88%, 3/31/99......................................... 1,002,680
4,000,000 6.50%, 5/31/01......................................... 4,093,960
1,000,000 6.38%, 9/30/01......................................... 1,020,330
1,000,000 6.25%, 8/31/02......................................... 1,020,300
850,000 6.25%, 2/15/03......................................... 869,134
950,000 7.00%, 7/15/06......................................... 1,025,259
-----------
Total U.S. Treasury Notes (Cost $8,897,184) 9,031,663
-----------
INVESTMENT COMPANIES (2.0%)
169,434 Dreyfus Treasury Prime Fund............................ 169,434
835,871 Federated U.S. Treasury Services Fund.................. 835,871
-----------
Total Investment Companies (Cost $1,005,305) 1,005,305
-----------
Total Investments (Cost $49,153,218) (a)--98.8% 49,741,917
Other assets in excess of liabilities 1.2% 584,511
-----------
Total Net Assets--100.0% $50,326,428
===========
</TABLE>
- -------
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation...................................... $669,355
Unrealized depreciation...................................... (80,656)
--------
Net unrealized appreciation.................................. $588,699
========
</TABLE>
*Variable Rate.
ABS--Asset Backed Security
CMO--Collateralized Mortgage Obligation
MTN--Medium Term Note
PLC--Public Liability Co.
See Notes to Financial Statements.
B-59
<PAGE> 61
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
Income Equity Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (99.3%)
Aerospace/Defense (2.1%)
48,200 B.F. Goodrich Co...................................... $ 1,997,288
1,900 Boeing Co............................................. 92,981
------------
2,090,269
------------
Aluminum (1.4%)
23,700 Reynolds Metal Co..................................... 1,422,000
------------
Automotive (0.1%)
3,000 Ford Motor Co......................................... 146,063
------------
Automotive Parts (3.6%)
3,100 Dana Corp............................................. 147,250
56,000 Echlin, Inc........................................... 2,026,500
28,300 TRW, Inc.............................................. 1,510,513
------------
3,684,263
------------
Banks (3.1%)
1,750 BankAmerica Corp...................................... 127,750
2,050 BankBoston Corp....................................... 192,572
23,100 Crestar Financial Corp................................ 1,316,699
10,700 Magna Group, Inc...................................... 489,525
3,000 Wells Fargo & Co...................................... 1,018,313
------------
3,144,859
------------
Beverages (2.0%)
10,700 Brown-Forman Corp., Class B........................... 591,175
44,100 Seagram Co. Ltd....................................... 1,424,981
------------
2,016,156
------------
Brokerage Services (0.8%)
19,750 Edwards (A.G.), Inc................................... 785,063
------------
Building Materials (1.5%)
20,100 Armstrong World Industries, Inc....................... 1,502,475
------------
Chemicals--General (3.3%)
30,300 Hercules, Inc......................................... 1,516,894
31,850 PPG Industries, Inc................................... 1,819,431
------------
3,336,325
------------
Chemicals--Specialty (2.2%)
23,200 Eastman Chemical Co................................... 1,381,850
49,900 Engelhard Corp........................................ 867,013
------------
2,248,863
------------
Computers & Peripherals (0.1%)
750 Cisco Systems, Inc.(b)................................ 41,813
770 Compaq Computer Corp.................................. 43,456
------------
85,269
------------
Consumer Goods & Services (3.1%)
20,500 Newell Co............................................. 871,250
1,600 Procter & Gamble Co................................... 127,700
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Consumer Goods & Services, continued:
85,400 Rubbermaid, Inc....................................... $ 2,135,000
------------
3,133,950
------------
Containers & Packaging (2.1%)
41,900 Crown Cork & Seal Co., Inc............................ 2,100,238
------------
Cosmetics & Toiletries (1.9%)
38,200 International Flavors & Fragrances, Inc............... 1,967,300
------------
Diversified (2.7%)
1,800 General Electric Co................................... 132,075
13,500 National Service Industries, Inc...................... 669,094
47,800 Tenneco, Inc.......................................... 1,888,100
------------
2,689,269
------------
Electrical Equipment (4.3%)
2,200 Emerson Electric Co................................... 124,163
25,500 Hubbell, Inc., Class B................................ 1,257,469
31,200 Johnson Controls, Inc................................. 1,489,800
30,900 Tecumseh Products Co., Class A........................ 1,506,374
------------
4,377,806
------------
Electronic & Electrical--General (7.6%)
57,900 General Signal Corp................................... 2,442,655
44,200 Harris Corp........................................... 2,027,675
27,900 Honeywell, Inc........................................ 1,911,150
28,900 Thomas & Betts Corp................................... 1,365,525
------------
7,747,005
------------
Financial Services (1.9%)
3,600 Federal National Mortgage Assoc....................... 205,425
16,100 TransAmerica Corp..................................... 1,714,650
------------
1,920,075
------------
Food Distributors, Supermarkets & Wholesalers (2.2%)
56,300 Food Lion, Inc., Class A.............................. 475,031
45,300 Giant Food, Inc., Class A............................. 1,526,044
5,000 Winn-Dixie Stores, Inc................................ 218,438
------------
2,219,513
------------
Forest Products--Lumber & Paper (9.0%)
27,900 Consolidated Papers, Inc.............................. 1,489,163
51,100 Fort James Corp....................................... 1,954,574
11,600 International Paper Co................................ 500,250
39,800 Kimberly-Clark Corp................................... 1,962,637
13,800 Rayonier, Inc......................................... 587,363
17,600 Temple-Inland, Inc.................................... 920,700
18,800 Union Camp Corp....................................... 1,009,325
20,000 Westvaco Corp......................................... 628,750
------------
9,052,762
------------
</TABLE>
Continued
B-60
<PAGE> 62
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
Income Equity Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Heavy Machinery (0.2%)
2,650 Deere & Co............................................ $ 154,528
------------
Industrial Goods & Services (1.9%)
57,200 Federal Signal Corp................................... 1,236,950
16,200 Harsco Corp........................................... 698,625
------------
1,935,575
------------
Insurance (1.4%)
42,500 TIG Holdings, Inc..................................... 1,410,469
------------
Leisure--Recreation, Gaming (1.0%)
33,200 Brunswick Corp........................................ 1,006,375
------------
Manufacturing--Miscellaneous (1.9%)
93,200 Pall Corp............................................. 1,928,075
------------
Medical Supplies (2.7%)
47,500 Bard (C.R.), Inc...................................... 1,487,344
1,750 Johnson & Johnson..................................... 115,281
30,500 Mallinckrodt, Inc..................................... 1,159,000
------------
2,761,625
------------
Metals--Nonferrous (0.2%)
6,900 Oregon Metallurgical Corp. (b)........................ 230,288
------------
Mining (0.2%)
2,000 Potash Corp. of Saskatchewan, Inc..................... 166,000
------------
Oil & Gas Exploration, Production & Services (5.9%)
28,700 Kerr McGee Corp....................................... 1,817,068
46,000 Mitchell Energy & Development, Class A................ 1,351,250
9,600 Mitchell Energy & Development, Class B................ 279,600
14,600 National Fuel Gas Co.................................. 710,838
15,900 Sonat, Inc............................................ 727,425
34,400 Ultramar Diamond Shamrock Corp........................ 1,096,500
------------
5,982,681
------------
Oil--Integrated Companies (2.8%)
1,750 Amoco Corp............................................ 148,969
6,000 Atlantic Richfield Co................................. 480,750
1,800 Exxon Corp............................................ 110,138
7,800 Mobil Corp............................................ 563,063
2,300 Royal Dutch Petroleum Co.--New York Shares............ 124,631
26,300 Texaco, Inc........................................... 1,430,062
------------
2,857,613
------------
Pharmaceuticals (4.3%)
25,500 American Home Products Corp........................... 1,950,750
1,500 Bristol-Myers Squibb Co............................... 141,938
1,200 Merck & Co., Inc...................................... 127,500
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Pharmaceuticals, continued:
59,500 Pharmacia & Upjohn, Inc............................... $ 2,179,187
------------
4,399,375
------------
Precision Instruments & Related (1.0%)
36,800 Flowserve Corp........................................ 1,028,100
------------
Publishing (0.1%)
2,000 McGraw-Hill Cos., Inc................................. 148,000
------------
Railroads (1.7%)
50,300 Illinois Central Corp................................. 1,713,344
------------
Real Estate Investment Trusts (0.7%)
18,900 FelCor Suite Hotels, Inc.............................. 670,950
------------
Retail--Department Stores (1.9%)
15,400 J.C. Penney Co........................................ 928,813
15,600 Mercantile Stores Co., Inc............................ 949,650
------------
1,878,463
------------
Retail--Specialty Stores (0.1%)
5,700 Intimate Brands, Inc.................................. 137,156
------------
Semiconductors (0.0%)
600 Intel Corp............................................ 42,150
------------
Steel (2.6%)
35,000 Allegheny Teledyne, Inc............................... 905,625
60,000 British Steel PLC-Sponsored ADR....................... 1,286,250
4,500 Carpenter Technology Corp............................. 216,281
12,100 Worthington Industries, Inc........................... 199,650
------------
2,607,806
------------
Tax Return Preparation (1.9%)
42,900 H&R Block, Inc........................................ 1,922,456
------------
Tobacco & Tobacco Products (0.3%)
5,000 Fortune Brands, Inc................................... 185,312
2,300 Philip Morris Cos., Inc............................... 104,219
------------
289,531
------------
Utilities--Electric (2.2%)
6,250 CINergy Corp.......................................... 239,453
15,300 DPL, Inc.............................................. 439,875
7,300 KU Energy Corp........................................ 286,525
17,500 PacifiCorp............................................ 477,968
16,600 Potomac Electric Power................................ 428,488
13,200 SCANA Corp............................................ 395,175
------------
2,267,484
------------
Utilities--Electric & Gas (0.9%)
28,800 LG&E Energy Corp...................................... 665,946
4,900 OGE Energy Corp....................................... 267,969
------------
933,915
------------
</TABLE>
Continued
B-61
<PAGE> 63
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
Income Equity Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Utilities--Natural Gas (2.5%)
36,000 AGL Resources, Inc.................................... $ 735,750
17,100 NICOR, Inc............................................ 721,406
26,800 People's Energy Corp.................................. 1,055,250
------------
2,512,406
------------
Utilities--Telecommunications (5.9%)
33,800 Alltel Corp........................................... 1,387,913
10,800 Cincinnati Bell, Inc.................................. 334,800
38,900 Frontier Corp......................................... 936,031
33,500 GTE Corp.............................................. 1,750,374
32,000 Southern New England Telecommunications Corp.......... 1,610,000
------------
6,019,118
------------
Total Common Stocks (Cost $95,936,210) 100,673,006
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------------------------------- ------------
<C> <S> <C>
INVESTMENT COMPANIES (0.7%)
18,888 Dreyfus Treasury Prime Fund.......................... $ 18,888
724,355 Federated U.S. Treasury Services Fund................ 724,355
------------
Total Investment Companies (Cost $743,243) 743,243
------------
Total Investments (Cost $96,679,453) (a)--100.0% 101,416,249
Liabilities in excess of other assets 0.0% (12,459)
------------
Total Net Assets--100.0% $101,403,790
============
</TABLE>
- -------
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax reporting
of approximately $214,353. Cost for federal income tax purposes differs
from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................... $ 7,422,288
Unrealized depreciation................................... (2,899,845)
-----------
Net unrealized appreciation............................... $ 4,522,443
===========
</TABLE>
(b) Represents non-income producing securities.
See Notes to Financial Statements.
B-62
<PAGE> 64
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
Ohio Tax-Free Bond Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- ----------
<C> <S> <C>
MUNICIPAL BONDS (93.8%)
Indiana (3.1%)
100,000 Columbus, Multi-School Building Corp., 7.15%, 1/15/02,
Pre-Refunded 1/15/01 @ 102............................ $ 110,250
----------
Ohio (85.1%)
130,000 Butler County, Hospital Facilities Revenue, Middletown
Regional Hospital Project, 6.00%, 11/15/10,
Callable 5/15/04 @ 101, FGIC.......................... 140,238
150,000 Clermont County, Hospital Facilities Revenue, Mercy
Health System, 6.38%, 9/1/01, AMBAC................... 161,063
100,000 Clermont County, Waterworks Revenue, 6.63%, 12/1/16,
Pre-Refunded 12/1/01 @ 102, AMBAC..................... 110,750
250,000 Columbus, Sewer Revenue, 6.13%, 6/1/03, Callable 6/1/02
@ 102................................................. 275,312
175,000 Edgewood, City School District, GO, 6.30%, 12/1/02,
Callable 12/1/01 @ 102, FGIC.......................... 191,406
100,000 Franklin County, Hospital Revenue, Children's Hospital
Project, Series A, GO, 6.40%, 11/1/06,
Pre-Refunded 11/1/01 @ 102............................ 109,625
155,000 Hamilton County, Sewer System Revenue, Series A, 6.40%,
12/1/03, Callable 6/1/01 @ 102........................ 168,756
100,000 Mentor, GO, 5.25%, 12/1/09, Callable 12/1/06 @ 102..... 104,625
100,000 Montgomery County, Issue I, Series A, Limited GO,
6.55%, 9/1/06, Pre-Refunded 9/1/01
@ 100................................................. 108,000
160,000 Olentangy Local School District, Series A, GO, 5.70%,
12/1/05, Callable 12/1/04 @ 102....................... 174,200
100,000 Springboro City School District, GO, 6.60%, 12/1/02,
Pre-Refunded 12/1/01 @ 102............................ 110,500
95,000 State Building Authority, State Facilities, James
Rhodes Project, 6.25%, 6/1/11, Callable 6/1/01 @ 102,
MBIA-IBC.............................................. 101,650
100,000 State Building Authority, State Transportation
Facilities, Series A, 7.00%, 9/1/07, Callable 9/1/00 @
102, MBIA............................................. 108,875
155,000 State Housing Finance Agency, Single Family Mortgage
Revenue, Series D, 6.80%, 9/1/05, Callable 9/1/01 @
102,
GNMA Coll............................................. 165,463
100,000 State Public Facilities Commission, Higher Education
Capital Facilities, Series II-B, 4.50%, 11/1/05....... 100,750
100,000 State Public Facilities Commission, Higher Education
Public Facilities, Series II-B, 4.50%, 11/1/08,
Callable 11/1/07 @ 100................................ 99,500
175,000 State Public Facilities Commission, Higher Educational
Facilities, Series B, 6.50%, 12/1/02,
Pre-Refunded 12/1/99 @ 102, AMBAC..................... 186,375
160,000 State Water Development Authority Revenue, 5.75%,
6/1/03, Callable 12/1/02 @ 102, MBIA.................. 171,600
200,000 University of Cincinnati, General Receipts, Series I-1,
6.95%, 6/1/00, Pre-Refunded 6/1/99
@ 102................................................. 212,000
200,000 University of Toledo, 7.00%, 6/1/03, Pre-Refunded
6/1/00 @ 102, MBIA.................................... 217,250
----------
3,017,938
----------
Oregon (5.6%)
185,000 Tri-County Metropolitan Transportation District, Light
Rail Extension, Series A, GO, 5.70%, 7/1/04,
Callable 7/1/02 @ 101................................. 198,875
----------
Total Municipal Bonds (Cost $3,104,427) 3,327,063
----------
</TABLE>
Continued
B-63
<PAGE> 65
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
Ohio Tax-Free Bond Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ---------------------------------------------------- ----------
INVESTMENT COMPANIES (5.2%)
<C> <S> <C>
100,000 Dreyfus Municipal Money Market Fund................. $ 100,000
85,042 Federated Tax Free Money Market Fund................ 85,042
----------
Total Investment Companies (Cost $185,042) 185,042
----------
Total Investments (Cost $3,289,469) (a)--99.0% 3,512,105
Other assets in excess of liabilities 1.0% 34,070
----------
Total Net Assets--100.0% $3,546,175
==========
</TABLE>
- -------
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation....................................... $222,636
Unrealized depreciation....................................... 0
--------
Net unrealized appreciation................................... $222,636
========
</TABLE>
AMBAC--Insured by AMBAC Indemnity Corp.
FGIC--Insured by Financial Guaranty Insurance Corp.
GNMA--Government National Mortgage Assoc.
GO--General Obligation.
MBIA--Insured by Municipal Bond Insurance Assoc.
See Notes to Financial Statements.
B-64
<PAGE> 66
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
Balanced Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (64.0%)
Aerospace/Defense (0.8%)
3,400 Boeing Co.............................................. $ 166,388
-----------
Apparel/Footwear (0.8%)
4,100 Nike, Inc., Class B.................................... 160,925
-----------
Automotive (1.0%)
4,350 Ford Motor Co.......................................... 211,791
-----------
Banks (4.3%)
4,600 BankBoston Corp........................................ 432,112
1,500 Chase Manhattan Corp................................... 164,250
2,650 J.P. Morgan & Co....................................... 299,118
-----------
895,480
-----------
Beverages (2.3%)
4,000 Anheuser-Busch Cos., Inc............................... 176,000
4,600 Coca-Cola Co........................................... 306,475
-----------
482,475
-----------
Chemicals--General (0.9%)
3,000 E.I. du Pont de Nemours & Co........................... 180,188
-----------
Chemicals--Specialty (0.7%)
3,500 Praxair, Inc........................................... 157,500
-----------
Computers & Peripherals (6.0%)
8,000 Cisco Systems, Inc.(b)................................. 445,999
7,000 Compaq Computer Corp................................... 395,062
2,400 Hewlett-Packard Co..................................... 150,000
7,500 Sun Microsystems, Inc.(b).............................. 299,063
-----------
1,290,124
-----------
Consumer Goods & Services (2.3%)
6,000 Procter & Gamble Co.................................... 478,875
-----------
Cosmetics & Toiletries (2.7%)
4,400 Avon Products, Inc..................................... 270,050
3,000 Gillette Co............................................ 301,313
-----------
571,363
-----------
Diversified (2.0%)
5,600 General Electric Co.................................... 410,900
-----------
Financial Services (4.5%)
7,000 Federal National Mortgage Assoc........................ 399,437
3,200 FINOVA Group, Inc...................................... 159,000
2,750 SLM Holding Corp....................................... 382,593
-----------
941,030
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCK, CONTINUED:
Heavy Machinery (2.7%)
3,400 Caterpillar, Inc....................................... $ 165,113
6,800 Deere & Co............................................. 396,525
-----------
561,638
-----------
Hotels & Motels (1.3%)
12,000 Mirage Resorts, Inc.(b)................................ 273,000
-----------
Insurance (2.0%)
10,050 SunAmerica, Inc........................................ 429,638
-----------
Medical Supplies (0.9%)
2,800 Johnson & Johnson...................................... 184,450
-----------
Newspapers (0.9%)
2,800 New York Times Co., Class A............................ 185,150
-----------
Oil--Integrated Companies (5.6%)
4,600 Amoco Corp............................................. 391,574
3,500 British Petroleum PLC, ADR............................. 278,906
4,600 Exxon Corp............................................. 281,463
4,000 Texaco, Inc............................................ 217,500
-----------
1,169,443
-----------
Pharmaceuticals (5.8%)
4,000 Bristol-Myers Squibb Co................................ 378,500
4,900 Merck & Co., Inc....................................... 520,624
4,600 Pfizer, Inc............................................ 342,988
-----------
1,242,112
-----------
Real Estate Investment Trusts (1.6%)
17,000 Health & Retirement Property Trust..................... 340,000
-----------
Restaurants (1.4%)
12,150 Wendy's International, Inc............................. 292,359
-----------
Rubber & Rubber Products (0.8%)
2,550 Goodyear Tire & Rubber Co.............................. 162,244
-----------
Semiconductors (1.7%)
5,000 Intel Corp............................................. 351,250
-----------
Software & Computer Services (2.1%)
3,150 Computer Associates International, Inc................. 166,556
2,150 Microsoft Corp.(b)..................................... 277,888
-----------
444,444
-----------
Steel (0.6%)
8,000 Worthington Industries, Inc............................ 132,000
-----------
Telecommunications (1.0%)
5,500 Ericsson (L.M.) Telefonaktiebolaget, Sponsored ADR..... 205,219
-----------
</TABLE>
Continued
B-65
<PAGE> 67
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
Balanced Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
COMMON STOCK, CONTINUED:
Tobacco & Tobacco Products (0.8%)
3,900 Philip Morris Cos., Inc............................... $ 176,719
-----------
Tools & Hardware Manufacturing (1.0%)
5,400 Black & Decker Corp................................... 210,938
-----------
Utilities--Electric (2.3%)
6,000 CINergy Corp.......................................... 229,875
4,500 Duke Energy Corp...................................... 249,188
-----------
479,063
-----------
Utilities--Telecommunications (3.2%)
14,600 Cincinnati Bell, Inc.................................. 452,600
4,300 GTE Corp.............................................. 224,675
-----------
677,275
-----------
Total Common Stocks (Cost $10,610,807) 13,463,981
-----------
CORPORATE BONDS (6.6%)
Banks (2.0%)
400,000 Chase Capital I, Series A, 7.67%, 12/1/26, Callable
12/1/06 @ 103.84, Guaranteed by Chase Manhattan
Corp................................................. 414,000
-----------
Brokerage Services (0.8%)
163,000 Merrill Lynch & Co., Inc., 9.00%, 5/1/98.............. 164,566
-----------
Financial Services (2.9%)
615,000 Green Tree Financial Corp., Series 1997-6, Class A3,
6.32%, 1/15/29 ABS................................... 616,901
-----------
Retail--Department Stores (0.9%)
200,000 Sears Roebuck & Co., Series 7, 5.82%, 2/22/99 MTN..... 199,500
-----------
Total Corporate Bonds (Cost $1,384,366) 1,394,967
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (7.2%)
Federal Home Loan Bank (1.4%)
300,000 6.04%, 2/14/01, Callable 2/14/98 @ 100................. $ 298,884
-----------
Federal Home Loan Mortgage Corp. (1.9%)
410,000 5.69% 11/29/00, Continuously Callable @ 100............ 406,946
-----------
Federal National Mortgage Assoc. (3.9%)
500,000 6.89%, 7/12/04, Callable 7/12/00 @ 100, MTN............ 505,380
300,000 6.95%, 11/13/06, Callable 11/13/01 @ 100............... 306,750
-----------
812,130
-----------
Total U.S. Government Agencies (Cost $1,505,941) 1,517,960
-----------
U.S. TREASURY NOTES (18.2%)
1,000,000 5.75%, 12/31/98........................................ 1,001,520
700,000 6.25%, 5/31/00......................................... 708,512
300,000 6.25%, 10/31/01........................................ 304,956
300,000 6.38%, 8/15/02......................................... 307,668
1,000,000 5.88%, 9/30/02......................................... 1,005,220
500,000 5.75%, 8/15/03......................................... 500,115
-----------
Total U.S. Treasury Notes (Cost $3,779,303) 3,827,991
-----------
INVESTMENT COMPANIES (3.7%)
777,276 Federated U.S. Treasury Services Fund.................. 777,276
-----------
Total Investment Companies (Cost $777,276) 777,276
-----------
Total Investments (Cost $18,057,693)(a)--99.7% 20,982,175
Other assets in excess of liabilities 0.3% 63,673
-----------
Total Net Assets--100.0% $21,045,848
===========
</TABLE>
- -------
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................................... $3,102,778
Unrealized depreciation.................................... (178,296)
----------
Net unrealized appreciation................................ $2,924,482
==========
</TABLE>
(b) Represents non-income producing securities.
ABS--Asset Backed Security
ADR--American Depositary Receipt
MTN--Medium Term Note
PLC--Public Liability Co.
See Notes to Financial Statements.
B-66
<PAGE> 68
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
Stock Appreciation Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (85.1%)
Advertising (1.3%)
7,000 Catalina Marketing Corp. (b)........................... $ 323,750
-----------
Aerospace/Defense (1.8%)
17,500 BE Aerospace, Inc. (b)................................. 468,125
-----------
Apparel/Footwear (3.1%)
18,600 Jones Apparel Group, Inc. (b).......................... 799,800
-----------
Automotive Parts (2.1%)
16,000 Gentex Corp. (b)....................................... 430,000
10,000 Simpson Industries, Inc................................ 117,500
-----------
547,500
-----------
Banks (7.3%)
20,000 Colonial BancGroup, Inc................................ 688,750
10,920 HUBCO, Inc............................................. 427,245
17,000 Sterling Bancorp....................................... 408,000
12,000 Vermont Financial Services Corp........................ 333,000
-----------
1,856,995
-----------
Building Materials (0.7%)
4,500 Medusa Corp............................................ 188,156
-----------
Chemicals--General (1.5%)
33,000 CFC International, Inc. (b)............................ 387,750
-----------
Chemicals--Specialty (0.6%)
6,000 Cabot Corp............................................. 165,750
-----------
Commercial Services (2.9%)
10,000 Alternative Resources Corp. (b)........................ 230,625
10,000 Healthcare Compare Corp. (b) (c)....................... 511,250
-----------
741,875
-----------
Computers & Peripherals (1.3%)
3,200 Adaptec, Inc. (b)...................................... 118,800
2,000 Complete Business Solutions, Inc. (b).................. 87,000
3,500 Comverse Technology, Inc. (b).......................... 136,500
-----------
342,300
-----------
Cosmetics & Toiletries (1.5%)
15,000 Nature's Sunshine Products, Inc........................ 390,000
-----------
Electronic & Electrical--General (5.3%)
15,000 ADFlex Solutions, Inc. (b)............................. 241,875
18,000 American Power Conversion Corp. (b).................... 425,250
15,000 Chicago Miniature Lamp, Inc. (b)....................... 506,250
10,000 Nimbus CD International, Inc. (b)...................... 107,500
5,000 Optical Coating Laboratory, Inc........................ 68,750
-----------
1,349,625
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCK, CONTINUED:
Environmental Control (1.6%)
13,400 U.S. Filter Corp. (b).................................. $ 401,163
-----------
Financial Services (1.5%)
7,000 Astoria Financial Corp................................. 390,250
-----------
Heavy Machinery (2.0%)
8,000 AGCO Corp.............................................. 234,000
19,250 JLG Industries, Inc.................................... 271,906
-----------
505,906
-----------
Hotels & Motels (0.9%)
6,500 MGM Grand, Inc. (b).................................... 234,406
-----------
Industrial Goods & Services (0.7%)
7,900 Federal Signal Corp.................................... 170,838
-----------
Insurance (1.0%)
4,000 Life Re Corp........................................... 260,750
-----------
Leisure--Recreation, Gaming (3.2%)
12,000 Callaway Golf Co....................................... 342,750
22,000 Cannondale Corp. (b)................................... 478,500
-----------
821,250
-----------
Manufactured Housing (1.2%)
9,000 National R.V. Holdings, Inc. (b)....................... 295,875
-----------
Medical Supplies (3.5%)
11,000 STERIS Corp. (b)....................................... 530,750
12,000 U.S. Surgical Corp..................................... 351,750
-----------
882,500
-----------
Metals--Fabrication (0.3%)
2,200 Wolverine Tube, Inc. (b)............................... 68,200
-----------
Oilfield Services & Equipment (2.2%)
23,350 Tuboscope, Inc. (b).................................... 561,859
-----------
Pharmaceuticals (4.1%)
8,000 Jones Medical Industries, Inc.......................... 306,000
22,000 NBTY, Inc. (b)......................................... 734,250
-----------
1,040,250
-----------
Precision Instruments & Related (0.9%)
6,600 Millipore Corp......................................... 223,988
-----------
Printing & Publishing (0.6%)
5,000 Multi-Color Corp. (b).................................. 31,875
5,000 World Color Press, Inc. (b)............................ 132,813
-----------
164,688
-----------
</TABLE>
Continued
B-67
<PAGE> 69
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
Stock Appreciation Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCK, CONTINUED:
Real Estate Investment Trusts (14.4%)
4,200 American Health Properties, Inc........................ $ 115,763
4,200 Amli Residential Properties Trust...................... 93,450
3,200 CarrAmerica Realty Corp................................ 101,400
2,800 Chelsea GCA Realty, Inc................................ 106,925
20,000 Duke Realty Investments, Inc........................... 484,999
3,500 Essex Property Trust, Inc.............................. 122,500
2,700 FelCor Suite Hotels, Inc............................... 95,850
8,000 Health & Retirement Property Trust..................... 159,999
2,800 Health Care Property Investors, Inc.................... 105,875
2,900 Highwoods Properties, Inc.............................. 107,844
10,000 Jameson Inns, Inc...................................... 116,875
4,000 JP Realty, Inc......................................... 103,750
3,000 Mack-Cali Realty Corp.................................. 123,000
4,500 Manufactured Home Communities, Inc..................... 121,500
8,000 National Golf Properties, Inc.......................... 262,499
3,000 OMEGA Healthcare Investors, Inc........................ 115,875
5,000 Pacific Gulf Properties, Inc........................... 118,750
3,000 Realty Income Corp..................................... 76,313
4,400 Reckson Associates Realty Corp......................... 111,650
4,200 Security Capital Pacific Trust......................... 101,850
3,300 Shurgard Storage Centers, Inc. Class A................. 95,700
3,200 Sovran Self Storage, Inc............................... 103,800
4,450 Storage Trust Realty................................... 117,091
8,500 Summit Properties, Inc................................. 179,562
5,000 Tanger Factory Outlet Centers, Inc..................... 152,813
3,400 Urban Shopping Centers, Inc............................ 118,575
6,000 Walden Residential Properties, Inc..................... 153,000
-----------
3,667,208
-----------
Restaurants (3.1%)
6,000 Papa John's International, Inc. (b).................... 209,250
24,000 Wendy's International, Inc............................. 577,500
-----------
786,750
-----------
Software & Computer Services (1.6%)
5,000 National Data Corp..................................... 180,625
10,000 Structural Dynamics Research Corp. (b)................. 225,000
-----------
405,625
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCK, CONTINUED:
Steel (2.7%)
9,000 Carpenter Technology Corp.............................. $ 432,563
16,400 Worthington Industries, Inc............................ 270,600
-----------
703,163
-----------
Telecommunications (1.3%)
16,000 Aspect Telecommunications Corp. (b).................... 334,000
-----------
Tobacco & Tobacco Products (0.5%)
5,000 DIMON, Inc............................................. 131,250
-----------
Tools & Hardware Manufacturing (1.2%)
8,000 Black & Decker Corp.................................... 312,500
-----------
Utilities--Telecommunications (4.8%)
20,000 Cincinnati Bell, Inc................................... 620,000
20,000 LCI International, Inc. (b)............................ 615,000
-----------
1,235,000
-----------
Wholesale Distribution (2.4%)
16,000 Tech Data Corp. (b).................................... 622,000
-----------
Total Common Stocks (Cost $17,743,856) 21,781,045
-----------
WARRANTS (0.0%)
Real Estate Investment Trusts (0.0%)
221 Security Capital Group, expire
9/19/98 (b)........................................... 1,160
-----------
Total Warrants (Cost $0) 1,160
-----------
INVESTMENT COMPANIES (1.4%)
19,744 Dreyfus Treasury Prime Fund............................ 19,744
325,747 Federated U.S. Treasury Services Fund.................. 325,747
-----------
Total Investment Companies (Cost $345,491) 345,491
-----------
Total Investments (Cost $18,089,347) (a)--86.5% 22,127,696
Other assets in excess of liabilities 13.5% 3,449,883
-----------
Total Net Assets--100.0% $25,577,579
===========
</TABLE>
- -------
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................................... $4,517,684
Unrealized depreciation.................................... (479,335)
----------
Net unrealized appreciation................................ $4,038,349
==========
</TABLE>
(b) Represents non-income producing securities.
(c) Name changed to First Health Group Corp. 1/2/98.
See Notes to Financial Statements.
B-68
<PAGE> 70
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
Large Company Select Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (94.0%)
Aerospace/Defense (1.8%)
13,600 Boeing Co.............................................. $ 665,550
-----------
Apparel/Footwear (1.5%)
5,500 Jones Apparel Group, Inc. (b).......................... 236,500
7,500 Nike, Inc., Class B.................................... 294,375
-----------
530,875
-----------
Automotive (1.9%)
14,150 Ford Motor Co.......................................... 688,928
-----------
Banks (4.1%)
6,900 BankAmerica Corp....................................... 503,700
5,400 BankBoston Corp........................................ 507,263
5,200 KeyCorp................................................ 368,225
1,600 Mellon Bank Corp....................................... 97,000
-----------
1,476,188
-----------
Beverages (2.7%)
11,600 Coca-Cola Co........................................... 772,850
6,000 PepsiCo, Inc........................................... 218,625
-----------
991,475
-----------
Chemicals--Specialty (1.2%)
10,000 Praxair, Inc........................................... 450,000
-----------
Commercial Services (0.5%)
2,800 Federal Express Corp. (b).............................. 170,975
-----------
Computers & Peripherals (9.2%)
17,775 Cisco Systems, Inc. (b)................................ 990,955
13,500 Compaq Computer Corp................................... 761,906
10,000 Hewlett-Packard Co..................................... 625,000
2,700 International Business Machines Corp................... 282,319
9,500 Quantum Corp. (b)...................................... 190,594
12,000 Sun Microsystems, Inc. (b)............................. 478,500
-----------
3,329,274
-----------
Consumer Goods & Services (2.6%)
11,600 Procter & Gamble Co.................................... 925,825
-----------
Cosmetics & Toiletries (3.4%)
4,900 Avon Products, Inc..................................... 300,738
9,200 Gillette Co............................................ 924,025
-----------
1,224,763
-----------
Diversified (3.3%)
16,100 General Electric Co.................................... 1,181,338
-----------
Electrical Equipment (1.0%)
6,200 Emerson Electric Co.................................... 349,913
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCK, CONTINUED:
Entertainment (1.5%)
5,600 The Walt Disney Co..................................... $ 554,750
-----------
Financial Services (7.6%)
8,000 American Express Co.................................... 714,000
15,200 Federal National Mortgage Assoc........................ 867,349
5,200 FINOVA Group, Inc...................................... 258,375
2,900 SLM Holding Corp....................................... 403,463
8,998 Travelers Group, Inc................................... 484,767
-----------
2,727,954
-----------
Food Processing & Packaging (2.3%)
7,800 CPC International, Inc. (c)............................ 840,450
-----------
Heavy Machinery (3.6%)
6,000 Caterpillar, Inc....................................... 291,375
17,000 Deere & Co............................................. 991,313
-----------
1,282,688
-----------
Hotels & Motels (1.1%)
18,200 Mirage Resorts, Inc. (b)............................... 414,050
-----------
Insurance (4.9%)
6,600 American International Group, Inc...................... 717,749
3,200 Chubb Corp............................................. 242,000
4,800 Marsh & McLennan Cos., Inc............................. 357,900
10,650 SunAmerica, Inc........................................ 455,288
-----------
1,772,937
-----------
Medical Supplies (0.9%)
5,000 Johnson & Johnson...................................... 329,375
-----------
Mining (0.9%)
4,000 Potash Corp. of Saskatchewan, Inc...................... 332,000
-----------
Newspapers (1.4%)
8,000 Gannett Co., Inc....................................... 494,500
-----------
Oil--Integrated Companies (6.0%)
3,100 Amoco Corp............................................. 263,888
11,600 Exxon Corp............................................. 709,774
7,200 Mobil Corp............................................. 519,750
12,400 Royal Dutch Petroleum Co.--New York Shares............. 671,925
-----------
2,165,337
-----------
Oilfield Services & Equipment (2.2%)
9,800 Schlumberger, Ltd...................................... 788,900
-----------
Pharmaceuticals (6.9%)
6,100 Bristol-Myers Squibb Co................................ 577,213
</TABLE>
Continued
B-69
<PAGE> 71
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
Large Company Select Fund
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCK, CONTINUED:
Pharmaceuticals, continued
8,300 Merck & Co., Inc....................................... $ 881,875
13,700 Pfizer, Inc............................................ 1,021,505
-----------
2,480,593
-----------
Real Estate Investment Trusts (2.1%)
19,000 Duke Realty Investments, Inc........................... 460,750
6,000 Equity Residential Properties Trust.................... 303,375
-----------
764,125
-----------
Restaurants (2.2%)
32,325 Wendy's International, Inc............................. 777,820
-----------
Retail (0.7%)
6,600 Wal-Mart Stores, Inc................................... 260,288
-----------
Rubber & Rubber Products (2.0%)
11,100 Goodyear Tire & Rubber Co.............................. 706,238
-----------
Semiconductors (3.4%)
17,500 Intel Corp............................................. 1,229,375
-----------
Software & Computer Services (4.0%)
12,000 Computer Associates International, Inc................. 634,500
6,200 Microsoft Corp. (b).................................... 801,350
-----------
1,435,850
-----------
Steel (0.9%)
3,000 Carpenter Technology Corp.............................. 144,188
10,250 Worthington Industries, Inc............................ 169,125
-----------
313,313
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCK, CONTINUED:
Telecommunications (2.1%)
14,000 Ericsson (L.M.) Telefonaktiebolaget, Sponsored ADR..... $ 522,375
3,000 Lucent Technologies, Inc............................... 239,625
-----------
762,000
-----------
Tobacco & Tobacco Products (1.0%)
7,800 Philip Morris Cos., Inc................................ 353,438
-----------
Tools & Hardware Manufacturing (0.4%)
4,000 Black & Decker Corp.................................... 156,250
-----------
Utilities--Telecommunications (2.7%)
31,800 Cincinnati Bell, Inc................................... 985,800
-----------
Total Common Stocks (Cost $17,906,174) 33,913,135
-----------
INVESTMENT COMPANIES (5.9%)
1,263,213 Dreyfus Treasury Prime Fund............................ 1,263,213
851,565 Federated U.S. Treasury Services Fund.................. 851,565
-----------
Total Investment Companies (Cost $2,114,778) 2,114,778
-----------
Total Investments (Cost $20,020,952) (a)--99.9% 36,027,913
Other assets in excess of liabilities 0.1% 49,676
-----------
Total Net Assets--100.0% $36,077,589
===========
</TABLE>
- -------
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................... $16,403,931
Unrealized depreciation................................... (396,970)
-----------
Net unrealized appreciation............................... $16,006,961
===========
</TABLE>
(b) Represents non-income producing securities.
(c) Name changed to BestFoods 1/2/98.
See Notes to Financial Statements.
B-70
<PAGE> 72
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
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 seven 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 Balanced Fund
(formerly the Riverfront Flexible Growth Fund), The Riverfront Stock
Appreciation Fund and The Riverfront Large Company Select 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 and in high quality fixed rate and adjustable rate
mortgaged back securities and other asset-backed securities. The investment
objective of the Income Equity Fund is to seek 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.
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 Balanced 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
investment objective of the Large Company Select Fund is to seek long term
growth of capital with some current income as a secondary objective.
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 Balanced Fund, The Stock Appreciation Fund and The Large
Company Select Fund (collectively, "the variable net asset value funds") each
offer 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 (i) distribution and
shareholder services (12b-1) fees paid by each share class, (ii) voting
rights on matters specifically affecting a single share class, (iii) and the
exchange privileges.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Portfolios in preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
Continued
B-71
<PAGE> 73
- --------------------------------------------------------------------------------
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
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 amortized cost. 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 fund
may not (a) purchase any instrument with a remaining maturity greater than
397 days unless such investment is subject to an appropriate 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 Provident, as the investment adviser, or by the sub-investment
advisor, as the case may be, 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 enter into repurchase agreements from financial
institutions such as banks and broker dealers which Provident, as
investment adviser or the Portfolio's sub-investment adviser, as
applicable, deems creditworthy under guidelines approved by the Fund'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
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.
Continued
B-72
<PAGE> 74
- --------------------------------------------------------------------------------
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
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 generally paid monthly for each variable net asset value fund
with the exception of the Stock Appreciation Fund which declares and pays
any dividends semi annually.
Distributable net realized capital gains, if any, are declared and
distributed at least annually for each of the Portfolios. Any taxable
distributions declared in December and paid in the following fiscal year
will be taxable to shareholders in the year declared.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the composition of net assets
based on their federal tax-basis treatment; temporary differences do not
require reclassification. Dividends and distributions to shareholders which
exceed net investment income and net realized capital gains for financial
reporting purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized gains. To the extent they
exceed net investment income and net realized gains for tax purposes, they
are reported as distributions of capital.
As of December 31, 1997, the following reclassifications have been made to
increase (decrease) the following components of net assets with offsetting
adjustments made to paid-in capital:
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED ACCUMULATED NET
NET INVESTMENT REALIZED GAINS
INCOME ON INVESTMENTS
-------------- ---------------
<S> <C> <C>
U.S. Government Income Fund.................... $423,663 $ 5,121
Income Equity Fund............................. $ -- $ 40,162
Ohio Tax-Free Fund............................. $157,244 $ --
Balanced Fund.................................. $ 3,313 $ (3,313)
Stock Appreciation Fund........................ $150,736 $(150,736)
Large Company Select Fund...................... $ 84,685 $ (76,753)
</TABLE>
FEDERAL INCOME TAXES:
It is the policy of each Portfolio to qualify as a regulated investment
company by complying with the provisions available to certain investment
companies, as defined in the Internal Revenue Code of 1986, as amended, and
to make distributions of net investment income and net realized capital
gains sufficient to relieve it from all, or substantially all, Federal
income taxes.
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.
Fees paid under a Portfolio's shareholder servicing or distribution plans
are borne by the specific class of shares to which they apply.
Continued
B-73
<PAGE> 75
- --------------------------------------------------------------------------------
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
U.S. Government Income Fund........................ $ 41,906,699 $ 32,091,752
Income Equity Fund................................. $145,292,462 $146,249,889
Ohio Tax-Free Bond Fund............................ $ 301,373 $ 17,617,471
Balanced Fund...................................... $ 19,491,370 $ 20,305,049
Stock Appreciation Fund............................ $ 16,980,604 $ 28,878,942
Large Company Select Fund.......................... $ 11,725,461 $ 12,289,867
</TABLE>
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares for the Fund were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND INCOME EQUITY FUND
----------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued............... $ 3,965,162 $ 2,494,252 $ 7,333,378 $ 8,709,609
Proceeds from shares
issued in connection
with common trust
fund acquisition..... 16,606,766 -- -- --
Dividends reinvested.. 447,813 440,531 19,742,254 10,845,880
Shares redeemed....... (5,969,304) (4,741,047) (16,662,273) (7,958,218)
------------- ------------- ------------ -----------
Change in net assets
from Investor A share
transactions......... $ 15,050,437 $ (1,806,264) $ 10,413,359 $11,597,271
============= ============= ============ ===========
Investor B Shares:
Proceeds from shares
issued............... $ 270,855 $ 372,835 $ 8,520,546 $ 3,928,456
Dividends reinvested.. 58,773 45,964 3,781,007 1,297,923
Shares redeemed....... (315,970) (349,650) (1,514,086) (420,101)
------------- ------------- ------------ -----------
Change in net assets
from Investor B share
transactions......... $ 13,658 $ 69,149 $ 10,787,467 $ 4,806,278
============= ============= ============ ===========
SHARE TRANSACTIONS:
Investor A Shares:
Issued................ 423,205 264,167 552,976 680,679
Issued in connection
with common trust
fund acquisition..... 1,761,057 -- -- --
Reinvested............ 47,635 46,735 1,674,497 898,119
Redeemed.............. (634,837) (502,013) (1,206,389) (624,637)
------------- ------------- ------------ -----------
Change in Investor A
Shares............... 1,597,060 (191,111) 1,021,084 954,161
============= ============= ============ ===========
Investor B Shares:
Issued................ 24,956 34,874 633,092 317,268
Reinvested............ 5,568 4,314 314,995 103,352
Redeemed.............. (29,761) (32,664) (109,730) (31,854)
------------- ------------- ------------ -----------
Change in Investor B
Shares............... 763 6,524 838,357 388,766
============= ============= ============ ===========
</TABLE>
Continued
B-74
<PAGE> 76
- --------------------------------------------------------------------------------
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
4. CAPITAL SHARE TRANSACTIONS, CONTINUED:
<TABLE>
<CAPTION>
OHIO TAX-FREE FUND BALANCED FUND
-------------------------- --------------------------
<S> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued............... $ 119,446 $ 39,457 $ 1,140,421 $ 5,979,948
Proceeds from shares
issued in connection
with common trust
fund acquisition..... 11,399,841 -- -- --
Dividends reinvested.. 20,138 6,134 969,400 318,997
Shares redeemed....... (19,309,599) (340,435) (3,919,227) (5,316,451)
------------ ------------ ------------ ------------
Change in net assets
from Investor A share
transactions......... $ (7,770,174) $ (294,844) $ (1,809,406) $ 982,494
============ ============ ============ ============
Investor B Shares:
Proceeds from shares
issued............... $ 396,677 $ 592,591 $ 1,482,972 $ 5,648,362
Dividends reinvested.. 181,550 20,060 979,316 227,824
Shares redeemed....... (230,357) (248,303) (1,554,696) (1,218,260)
------------ ------------ ------------ ------------
Change in net assets
from Investor B share
transactions......... $ 347,870 $ 364,348 $ 907,592 $ 4,657,926
============ ============ ============ ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................ 14,309 3,737 91,585 531,651
Issued in connection
with common trust
fund acquisition..... 1,097,194 -- -- --
Reinvested............ 2,125 593 79,188 28,295
Redeemed.............. (1,872,553) (32,383) (316,498) (466,939)
------------ ------------ ------------ ------------
Change in Investor A
Shares............... (758,925) (28,053) (145,725) 93,007
============ ============ ============ ============
Investor B Shares:
Issued................ 34,793 55,795 115,832 485,748
Reinvested............ 18,823 1,897 77,517 19,547
Redeemed.............. (22,564) (23,572) (121,277) (104,208)
------------ ------------ ------------ ------------
Change in Investor B
Shares............... 31,052 34,120 72,072 401,087
============ ============ ============ ============
</TABLE>
Continued
B-75
<PAGE> 77
- --------------------------------------------------------------------------------
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
4. CAPITAL SHARE TRANSACTIONS, CONTINUED:
<TABLE>
<CAPTION>
LARGE COMPANY
STOCK APPRECIATION FUND SELECT FUND
-------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997*
------------ ------------ -------------
<S> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares issued........ $ 3,009,538 $ 3,225,171 $ 2,486,334
Proceeds from shares issued in
connection with common
trust fund acquisition............ -- -- 27,813,338
Dividends reinvested............... 4,366,182 2,903,615 3,676,075
Shares redeemed.................... (13,898,332) (16,060,775) (3,937,879)
------------ ------------ -----------
Change in net assets from Investor
A share transactions.............. $ (6,522,612) $ (9,931,989) $30,037,868
============ ============ ===========
Investor B Shares:
Proceeds from shares issued........ $ 526,610 $ 483,957 $ 2,396,213
Dividends reinvested............... 214,709 65,586 263,596
Shares redeemed.................... (115,336) (105,940) (37,554)
------------ ------------ -----------
Change in net assets from Investor
B share transactions.............. $ 625,983 $ 443,603 $ 2,622,255
============ ============ ===========
SHARE TRANSACTIONS:
Investor A Shares:
Issued............................. 307,000 307,057 205,316
Issued in connection with common
trust fund acquisition............ -- -- 2,781,335
Reinvested......................... 468,165 308,567 329,693
Redeemed........................... (1,436,813) (1,618,575) (352,190)
------------ ------------ -----------
Change in Investor A Shares........ (661,648) (1,002,951) 2,964,154
============ ============ ===========
Investor B Shares:
Issued............................. 52,468 66,446 198,193
Reinvested......................... 22,295 6,727 23,747
Redeemed........................... (11,801) (10,094) (3,405)
------------ ------------ -----------
Change in Investor B Shares........ 62,962 63,079 218,535
============ ============ ===========
</TABLE>
- -------
* For the period January 2, 1997 (commencement of operations) through December
31, 1997.
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 Income Equity Fund, the Ohio Tax-Free Bond Fund,
the Balanced Fund, the Stock Appreciation Fund and the Large Company Select
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.
Continued
B-76
<PAGE> 78
- --------------------------------------------------------------------------------
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
5. RELATED PARTY TRANSACTIONS, CONTINUED:
Pursuant to the terms of the Investment Advisory Agreement with the Fund,
Provident has entered into a Sub-Investment Advisory Agreement with DePrince,
Race & Zollo, Inc. ("DRZ") for the Income Equity Fund. DRZ provides
investment advice to and supervises the investment program of that portion of
the assets of the Income Equity Fund allocated to DRZ by the Fund's Board of
Directors. Under the terms of the Sub-Investment Advisory Agreements, DRZ
receives from Provident fees calculated at 0.50% of average daily net assets
up to $55 million of the Income Equity Fund managed by DRZ and 0.55% of
average daily net assets above $55 million for this Portfolio managed by DRZ.
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, 1997, Provident Securities & Investment
Company ("PSI"), an affiliate of Provident which is a registered broker
dealer, executed transactions to purchase and sell portfolio investments on
an agency basis on behalf of the Fund. The Fund paid PSI approximately
$92,057 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 the 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. BISYS Ohio served as sub-transfer agent for the Investor B Shares
through March 24, 1997. On March 25, 1997, Provident became the Transfer
Agent for all shares of the Fund. 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 Services Plan, each Portfolio is
authorized to pay compensation to banks and other financial institutions,
including Provident and BISYS or other providers for record keeping and/or
administrative support services. As of December 31, 1997, 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. 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
Continued
B-77
<PAGE> 79
- --------------------------------------------------------------------------------
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
5. RELATED PARTY TRANSACTIONS, CONTINUED:
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, 1997, BISYS received $279,254 from
commissions on sales of capital shares, of which $386 was reallowed to
brokers affiliated with Provident.
Provident and certain of its affiliates own shares in the U.S. Government
Income Fund. As of December 31, 1997, Provident owns $23,842,765 or 47% of
the Portfolio.
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, 1997:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME
SECURITIES MONEY U.S. GOVERNMENT EQUITY
MARKET FUND INCOME FUND FUND
---------------- --------------- --------
<S> <C> <C> <C>
INVESTMENT ADVISOR FEES:
Annual fee before voluntary fee
reductions
(percentage of average net
assets).......................... 0.15% 0.40% 0.95%
Voluntary fee reductions.......... NA NA 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.......... $242,899 $29,297 $ 41,154
12B-1 FEES (INVESTOR B):
Annual fee (percentage of average
net assets)...................... NA 1.00% 1.00%
Custodian and Accounting Fees:.... $ 81,531 $55,655 $144,048
Transfer Agent Fees:.............. $ 33,896 $50,879 $ 96,037
</TABLE>
Continued
B-78
<PAGE> 80
- --------------------------------------------------------------------------------
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
5. RELATED PARTY TRANSACTIONS, CONTINUED:
<TABLE>
<CAPTION>
OHIO
TAX-FREE BALANCED
BOND FUND FUND
--------- --------
<S> <C> <C>
INVESTMENT ADVISOR FEES:
Annual fee before voluntary fee reductions (percentage of
average net assets)...................................... 0.50% 0.90%
Voluntary fee reductions.................................. $ 8,196 $20,662
ADMINISTRATION FEES:
Annual fee (percentage of average net assets)............. 0.20% 0.20%
12B-1 FEES (INVESTOR A):
Annual fee before voluntary fee reductions (percentage of
average net assets)...................................... 0.25% 0.25%
Voluntary fee reductions.................................. NA $10,678
12B-1 FEES (INVESTOR B):
Annual fee (percentage of average net assets)............. 1.00% 1.00%
CUSTODIAN AND ACCOUNTING FEES:............................ $13,711 $33,160
TRANSFER AGENT FEES:...................................... $39,534 $61,796
EXPENSE REIMBURSEMENTS:................................... $23,066 NA
</TABLE>
<TABLE>
<CAPTION>
STOCK
APPRECIATION LARGE COMPANY
FUND SELECT FUND
------------ -------------
<S> <C> <C>
INVESTMENT ADVISOR FEES:
Annual fee before voluntary fee reductions
(percentage of average net assets)............... 0.80% 0.80%
ADMINISTRATION FEES:
Annual fee (percentage of average net assets)..... 0.20% 0.20%
12B-1 FEES (INVESTOR A):
Annual fee before voluntary fee reductions
(percentage of average net assets)............... 0.25% 0.25%
12B-1 FEES (INVESTOR B):
Annual fee (percentage of average net assets)..... 100% 1.00%
CUSTODIAN AND ACCOUNTING FEES:.................... $42,139 $49,119
TRANSFER AGENT FEES:.............................. $118,492 $41,424
Expense reimbursements............................ NA NA
</TABLE>
NA--Not applicable
6. ACQUISITION OF COMMON TRUST FUNDS A, B, C, F-1 AND G
On January 2, 1997, the Large Company Select Fund issued Investor A shares in
a tax free conversion to acquire the assets and liabilities, including
distributions payable of $26,562, of the Common Trust A and Common Trust G of
The Provident Bank. The following is a summary of Investor A shares issued,
net assets acquired, net asset value per share and unrealized appreciation as
of the date acquired:
<TABLE>
<S> <C>
Investor A Shares (000)'s............................................ 2,781
Net assets acquired (000)'s.......................................... $27,813
Net asset value...................................................... $ 10.00
Unrealized appreciation (000)'s...................................... $12,592
Net assets of mutual fund before acquisition......................... $ 0
</TABLE>
Continued
B-79
<PAGE> 81
- --------------------------------------------------------------------------------
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
6. ACQUISITION OF COMMON TRUST FUNDS A, B, C, F-1 AND G, CONTINUED:
On January 9, 1997, the Ohio Tax Free Fund issued Investor A shares in a tax
free conversion to acquire the assets and liabilities, including
distributions payable of $15,577, of the Common Trust Fund B of The Provident
Bank. The following is a summary of Investor A shares issued, net assets
acquired, net asset value per share and unrealized appreciation as of the
date acquired.
<TABLE>
<S> <C>
Investor A Shares (000)'s............................................ 1,097
Net assets acquired (000)'s.......................................... $11,400
Net asset value...................................................... $ 10.39
Unrealized appreciation (000)'s...................................... $ 465
Net assets of mutual fund before acquisition......................... $11,624
</TABLE>
On January 23, 1997, the U.S. Government Income Fund issued Investor A shares
in a tax free conversion to acquire the assets and liabilities, including
distributions payable of $26,148, of the Common Trust Fund C and Common Trust
Fund F-1 of The Provident Bank. The following is a summary of Investor A
shares issued, net assets acquired, net asset value per share and unrealized
appreciation as of the date acquired.
<TABLE>
<S> <C>
Investor A Shares (000)'s............................................ 1,761
Net assets acquired (000)'s.......................................... $16,607
Net asset value...................................................... $ 9.43
Unrealized appreciation (000)'s...................................... $ 392
Net assets of mutual fund before acquisition......................... $34,983
</TABLE>
7. SUBSEQUENT EVENTS
The Company has entered into an Agreement and Plan of Reorganization and
Liquidation, dated as of March 21, 1997 (the "Plan"), with The Riverfront
Funds, an Ohio business trust (the "Trust"), whereby each Fund of the Company
will become a separate series of an Ohio business trust rather than a
separate series of a Maryland corporation (the "Conversion").
The Conversion is subject to certain regulatory approvals and to approval by
the shareholders of the Funds as a special Shareholder Meeting which has been
adjourned to seek further proxies and is currently expected to be held in the
first quarter of 1998. If the shareholders approve the Conversion and the
necessary regulatory approval is obtained, it is expected that the Conversion
will take place.
8. ELIGIBLE DISTRIBUTIONS (UNAUDITED):
The Riverfront Funds designates the following percentage of distributions
eligible for the dividends received deductions for the following funds:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
Income Equity Fund................................................. 12.79%
Balanced Fund...................................................... 39.26%
Stock Appreciation Fund............................................ 10.60%
</TABLE>
Continued
B-80
<PAGE> 82
- --------------------------------------------------------------------------------
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc. December 31, 1997
9. EXEMPT-INTEREST INCOME DESIGNATIONS (UNAUDITED):
The Riverfront Funds designate the following exempt-interest dividends for
the taxable year ended December 31, 1997:
<TABLE>
<CAPTION>
TAX-
EXEMPT
DISTRIBUTION
------------
<S> <C>
Ohio Tax-Free Bond Fund......................................... $312,690
</TABLE>
10. FEDERAL INCOME TAX INFORMATION (UNAUDITED):
The accompanying table details distributions from mid-term and long-term
capital gains for the following Portfolios for the period ended December 31,
1997:
<TABLE>
<CAPTION>
MID-TERM LONG-TERM
28% 20%
---------- ----------
<S> <C> <C>
Income Equity Fund..................................... $3,522,442 $3,052,514
Ohio Tax-Free Fund..................................... $ 377,842 $ 219,421
Balanced Fund.......................................... $1,065,887 $ 486,992
Stock Appreciation Fund................................ $2,032,827 $ 291,201
Large Company Select Fund.............................. $2,117,560 $1,905,205
</TABLE>
At December 31, 1997, the following Portfolios have capital loss
carryforwards for tax purposes which are available to offset future capital
gains, if any:
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYFORWARD EXPIRES
------------ -------
<S> <C> <C>
U.S. Government Securities Money Market Fund............. $ 875 2002
U.S. Government Securities Money Market Fund............. $ 1,415 2003
U.S. Government Securities Money Market Fund............. $ 31 2005
U.S. Government Income Fund.............................. $552,136 2002
U.S. Government Income Fund.............................. $516,479 2003
</TABLE>
Under current tax law, capital losses realized October 31 may be deferred and
treated as occurring on the first day of the following fiscal year. The
following deferred losses will be treated as arising on the first day of the
fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
POST-OCTOBER
CAPITAL LOSSES
--------------
<S> <C>
U.S. Government Securities Money Market Fund................... $ 1,432
Income Equity Fund............................................. $119,866
</TABLE>
Continued
B-81
<PAGE> 83
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc.
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES MONEY MARKET FUND
------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 (A) 1993 (A)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Investment Activities
Net investment income... 0.049 0.046 0.050 0.040 0.030
-------- -------- -------- -------- --------
Distributions
Net investment income... (0.049) (0.046) (0.050) (0.040) (0.030)
-------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD........... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total Return............. 5.02% 4.89% 5.52% 3.78% 2.90%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of $142,569 $181,017 $157,495 $149,374 $133,207
period (000)............
Ratio of expenses to 0.64% 0.59% 0.58% 0.51% 0.32%
average net assets......
Ratio of net investment 4.90% 4.78% 5.34% 3.70% 2.85%
income to average net
assets..................
Ratio of expenses to 0.79% 0.84% 0.83% 0.80% 0.42%
average net assets*.....
Ratio of net investment 4.75% 4.53% 5.09% 3.41% 2.75%
income to average net
assets*.................
</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)Audited by other auditors.
See Notes to Financial Statements.
B-82
<PAGE> 84
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc.
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
------------------------------------------------------------------------------------------
JANUARY 17, YEARS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED 1995 TO DECEMBER 31,
------------------------------------------- DECEMBER 31, DECEMBER 31, -------------------
1997 1996 1995 1995 (A) 1994 (E) 1993 (E)
--------------------- --------------------- ------------ ------------ -------- --------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 9.43 $10.64 $ 9.71 $10.95 $ 8.92 $10.00 $ 9.91 $ 9.76
------- ------ ------- ------ ------- ------ ------- -------
Investment Activities
Net investment income.. 0.49 0.48 0.52 0.49 0.54 0.43 0.54 0.51
Net realized and
unrealized gains
(losses) from
investments........... 0.14 0.14 (0.29) (0.31) 0.79 0.94 (0.99) 0.20
------- ------ ------- ------ ------- ------ ------- -------
Total from Investment
Activities............ 0.63 0.62 0.23 0.18 1.33 1.37 (0.45) 0.71
------- ------ ------- ------ ------- ------ ------- -------
Distributions
Net investment income.. (0.50) (0.49) (0.51) (0.49) (0.54) (0.42) (0.54) (0.50)
In excess of net
investment income..... (0.08) (0.09) -- -- -- -- -- (0.06)
------- ------ ------- ------ ------- ------ ------- -------
Total Distributions.... (0.58) (0.58) (0.51) (0.49) (0.54) (0.42) (0.54) (0.56)
------- ------ ------- ------ ------- ------ ------- -------
NET ASSET VALUE,
END OF PERIOD.......... $ 9.48 $10.68 $ 9.43 $10.64 $ 9.71 $10.95 $ 8.92 $ 9.91
======= ====== ======= ====== ======= ====== ======= =======
Total Return (excludes
sales/redemption
charge)................ 6.94% 6.07% 2.51% 1.72% 15.22% 13.96%(d) (4.64)% 7.38%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)........... $49,017 $1,309 $33,694 $1,296 $36,538 $1,263 $32,721 $30,078
Ratio of expenses to
average net assets..... 1.14% 1.95% 1.11% 1.96% 1.09% 1.90%(b) 0.86% 0.65%
Ratio of net investment
income to average net
assets................. 5.40% 4.56% 5.45% 4.59% 5.74% 4.80%(b) 5.78% 5.05%
Ratio of expenses to
average net assets*.... 1.20% 1.95% 1.20% 1.96% 1.18% 1.90%(b) 1.14% 1.08%
Ratio of net investment
income to average net
assets*................ 5.34% 4.56% 5.36% 4.59% 5.65% 4.80%(b) 5.49% 4.62%
Portfolio turnover rate
(c).................... 71% 71% 53% 53% 75% 75% 83% 220%
</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) Annualized.
(c) Portfolio turnover rate is calculated on the basis of the Portfolio as a
whole without distinguishing between the classes of shares issued.
(d) 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.
(e) Audited by other auditors.
See Notes to Financial Statements.
B-83
<PAGE> 85
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc.
<TABLE>
<CAPTION>
INCOME EQUITY FUND
----------------------------------------------------------------------------------------
JANUARY 17, YEARS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED 1995 TO DECEMBER 31,
------------------------------------------- DECEMBER 31 DECEMBER 31, ------------------
1997 1996 1995 1995 (A) 1994 (E) 1993 (E)
--------------------- --------------------- ----------- ------------ -------- --------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 11.92 $ 12.16 $ 11.70 $ 11.85 $ 10.15 $10.00 $ 10.63 $ 10.78
------- ------- ------- ------- ------- ------ ------- -------
Investment Activities
Net investment income.. 0.16 0.06 0.21 0.12 0.27 0.13 0.32 0.28
Net realized and
unrealized gains
from investments...... 3.11 3.17 2.12 2.21 2.89 2.78 -- 1.01
------- ------- ------- ------- ------- ------ ------- -------
Total from Investment
Activities............ 3.27 3.23 2.33 2.33 3.16 2.91 0.32 1.29
------- ------- ------- ------- ------- ------ ------- -------
Distributions
Net investment income.. (0.16) (0.06) (0.21) (0.12) (0.27) (0.13) (0.31) (0.27)
In excess of net
investment income..... -- -- -- -- -- -- -- (0.03)
Net realized gains..... (3.35) (3.35) (1.90) (1.90) (1.34) (0.93) (0.49) (1.14)
------- ------- ------- ------- ------- ------ ------- -------
Total Distributions.... (3.51) (3.41) (2.11) (2.02) (1.61) (1.06) (0.80) (1.44)
------- ------- ------- ------- ------- ------ ------- -------
NET ASSET VALUE,
END OF PERIOD.......... $ 11.68 $ 11.98 $ 11.92 $ 12.16 $ 11.70 $11.85 $ 10.15 $ 10.63
======= ======= ======= ======= ======= ====== ======= =======
Total Return (excludes
sales/redemption
charge)................ 28.20% 27.19% 19.88% 19.67% 31.45% 29.28%(d) 3.08% 12.11%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)........... $83,841 $17,563 $73,368 $ 7,632 $60,845 $2,833 $34,965 $24,387
Ratio of expenses to
average net assets..... 1.75% 2.55% 1.76% 2.48% 1.49% 2.46%(b) 1.30% 1.47%
Ratio of net investment
income to
average net assets..... 1.21% 0.40% 1.62% 0.88% 2.27% 1.12%(b) 2.93% 2.55%
Ratio of expenses to
average net assets*.... 1.80% 2.55% 1.85% 2.54% 1.74% 2.51%(b) 1.58% 1.64%
Ratio of net investment
income to
average net assets*.... 1.16% 0.40% 1.53% 0.82% 2.02% 1.07%(b) 2.65% 2.38%
Portfolio turnover rate
(c).................... 157% 157% 166% 166% 180% 180% 119% 145%
Average commission rate
paid (f)............... $0.0544 $0.0544 $0.0541 $0.0541
</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) Annualized.
(c) Portfolio turnover rate is calculated on the basis of the Portfolio as a
whole without distinguishing between the classes of shares issued.
(d) 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.
(e) Audited by other auditors.
(f) 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
portfolio as a whole without distinguishing between the classes of shares
issued. Disclosure is not required for periods ending prior to September 1,
1996.
See Notes to Financial Statements.
B-84
<PAGE> 86
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc.
<TABLE>
<CAPTION>
OHIO TAX-FREE BOND FUND
-------------------------------------------------------------------------------------
JANUARY 17, FROM AUGUST 1,
YEAR ENDED DECEMBER 31, YEAR ENDED 1995 TO 1994 THROUGH
------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1995 (A) 1994 (A)(E)
--------------------- --------------------- ------------ ------------ --------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $10.41 $10.64 $ 10.51 $10.73 $ 9.83 $10.00 $ 10.00
------ ------ ------- ------ ------- ------ -------
Investment Activities
Net investment income.. 0.42** 0.35** 0.40 0.32 0.39 0.27 0.12
Net realized and
unrealized gains
(losses) from
investments........... -- (0.02) (0.10) (0.09) 0.67 0.73 (0.17)
------ ------ ------- ------ ------- ------ -------
Total from Investment
Activities............ 0.42 0.33 0.30 0.23 1.06 1.00 (0.05)
------ ------ ------- ------ ------- ------ -------
Distributions
Net investment income.. (0.38) (0.31) (0.40) (0.32) (0.38) (0.27) (0.12)
In excess of net
investment income..... (0.09) (0.09) -- -- -- -- --
Net realized gains..... (1.35) (1.35) -- -- -- -- --
Tax return of capital.. (0.03) (0.03) -- -- -- -- --
------ ------ ------- ------ ------- ------ -------
Total Distributions.... (1.85) (1.78) (0.40) (0.32) (0.38) (0.27) (0.12)
------ ------ ------- ------ ------- ------ -------
NET ASSET VALUE,
END OF PERIOD.......... $ 8.98 $ 9.19 $ 10.41 $10.64 $ 10.51 $10.73 $ 9.83
====== ====== ======= ====== ======= ====== =======
Total Return (excludes
sales/redemption
charge)................ 4.27% 3.24% 2.95% 2.21% 10.96% 10.10%(b) (0.47)%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)........... $2,411 $1,135 $10,693 $ 984 $11,091 $ 626 $10,190
Ratio of expenses to
average net assets..... 1.34% 2.14% 1.45% 2.25% 1.49% 2.27%(c) 1.08%(c)
Ratio of net investment
income to
average net assets..... 4.19% 3.39% 3.87% 3.07% 3.77% 3.01%(c) 2.92%(c)
Ratio of expenses to
average net assets*.... 1.96% 2.77% 1.55% 2.36% 1.64% 2.41%(c) 1.44%(c)
Ratio of net investment
income to
average net assets*.... 3.57% 2.76% 3.77% 2.96% 3.62% 2.87%(c) 2.56%(c)
Portfolio turnover rate
(d).................... 4% 4% 6% 6% 34% 34% 29%
</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.
** Calculated using average shares outstanding throughout the year.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover rate is calculated on the basis of the Portfolio as a
whole without distinguishing between the classes of shares issued.
(e) Audited by other auditors.
See Notes to Financial Statements.
B-85
<PAGE> 87
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc.
<TABLE>
<CAPTION>
BALANCED FUND
----------------------------------------------------------------------------------------
JANUARY 17, FROM SEPTEMBER 1,
YEAR ENDED DECEMBER 31, YEAR ENDED 1995 TO 1994 THROUGH
------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1995 (A) 1994 (A)(F)
--------------------- --------------------- ------------ ------------ -----------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 11.69 $ 12.04 $ 11.36 $ 11.70 $ 9.79 $10.00 $10.00
------- ------- ------- ------- ------ ------ ------
Investment Activities
Net investment income.. 0.23 0.12 0.31 0.26 0.35 0.25 0.10
Net realized and
unrealized gains
(losses) from
investments........... 1.71 1.77 0.33 0.34 1.66 1.79 (0.18)
------- ------- ------- ------- ------ ------ ------
Total from Investment
Activities............. 1.94 1.89 0.64 0.60 2.01 2.04 (0.08)
------- ------- ------- ------- ------ ------ ------
Distributions
Net investment income.. (0.23) (0.12) (0.31) (0.26) (0.34) (0.24) (0.13)
Net realized gains..... (1.10) (1.10) -- -- (0.10) (0.10) --
------- ------- ------- ------- ------ ------ ------
Total Distributions.... (1.33) (1.22) (0.31) (0.26) (0.44) (0.34) (0.13)
------- ------- ------- ------- ------ ------ ------
NET ASSET VALUE,
END OF PERIOD.......... $ 12.30 $ 12.71 $ 11.69 $ 12.04 $11.36 $11.70 $ 9.79
======= ======= ======= ======= ====== ====== ======
Total Return (excludes
sales/redemption
charge)................ 16.77% 15.82% 5.76% 5.27% 20.83% 20.53%(b) (0.82)%(c)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)........... $ 9,563 $11,483 $10,786 $10,008 $9,427 $5,030 $2,709
Ratio of expenses to
average net assets..... 1.86% 2.72% 1.70% 2.54% 1.28% 2.04%(d) 1.48%(d)
Ratio of net investment
income to average net
assets................. 1.80% 0.93% 2.87% 2.03% 3.48% 2.69%(d) 4.01%(d)
Ratio of expenses to
average net assets*.... 2.07% 2.82% 1.94% 2.68% 1.67% 2.84%(d) 4.61%(d)
Ratio of net investment
income to average net
assets*................ 1.59% 0.83% 2.63% 1.89% 3.09% 1.89%(d) 0.88%(d)
Portfolio turnover rate
(e).................... 102% 102% 98% 98% 13% 13% 1%
Average commission rate
paid (g)............... $0.0627 $0.0627 $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) 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.
(c) Not annualized.
(d) Annualized.
(e) Portfolio turnover rate 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) 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
portfolio as a whole without distinguishing between the classes of shares
issued. Disclosure is not required for periods ending prior to September 1,
1996.
See Notes to Financial Statements.
B-86
<PAGE> 88
- --------------------------------------------------------------------------------
[This Page Intentionally Left Blank]
B-87
<PAGE> 89
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc.
<TABLE>
<CAPTION>
STOCK APPRECIATION FUND
------------------------------------------------------------------------------------
FROM OCTOBER 1, FROM OCTOBER 1,
YEAR ENDED DECEMBER 31, 1995 THROUGH 1995 THROUGH
------------------------------------------------- DECEMBER 31, DECEMBER 31,
1997 1996 1995 (B) 1995 (A)(B)
----------------------- ----------------------- --------------- ---------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 9.43 $ 9.77 $ 9.50 $ 9.91 $ 10.00 $10.00
------- ------- ------- ------- ------- ------
Investment Activities
Net investment loss.... (0.04) (0.08) (0.14) (0.15) (0.01) (0.01)
Net realized and
unrealized gains
(losses) from
investments........... 1.75 1.77 1.10 1.04 (0.12) (0.08)
------- ------- ------- ------- ------- ------
Total from Investment
Activities............ 1.71 1.69 0.96 0.89 (0.13) (0.09)
------- ------- ------- ------- ------- ------
Distributions
Net realized gains..... (1.97) (1.97) (1.03) (1.03) (0.37) --
------- ------- ------- ------- ------- ------
NET ASSET VALUE,
END OF PERIOD.......... $ 9.17 $ 9.49 $ 9.43 $ 9.77 $ 9.50 $ 9.91
======= ======= ======= ======= ======= ======
Total Return (excludes
sales/redemption
charge)................ 18.79% 17.86% 10.17% 9.05% (1.20)%(c) (0.90)%(c)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)........... $24,312 $ 1,265 $31,227 $ 687 $40,995 $ 72
Ratio of expenses to
average net assets..... 2.11% 2.86% 1.91% 2.64% 1.76%(d) 2.30%(d)
Ratio of net investment
loss to average net
assets................. (0.43)% (1.20)% (1.25)% (2.01)% (0.49)%(d) (1.69)%(d)
Ratio of expenses to
average net assets*.... (g) (g) (g) (g) 1.77%(d) 2.39%(d)
Ratio of net investment
loss to average net
assets*................ (g) (g) (g) (g) (0.50)%(d) (1.78)%(d)
Portfolio turnover rate
(e).................... 67% 67% 162% 162% 46% 46%
Average commission rate
paid (h)............... $0.0601 $0.0601 $0.0597 $0.0597
</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 rate 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
portfolio as a whole without distinguishing between the classes of shares
issued. Disclosure is not required for periods ending prior to September 1,
1996.
See Notes to Financial Statements.
B-88
<PAGE> 90
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Financial Highlights
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc.
<TABLE>
<CAPTION>
STOCK APPRECIATION FUND
--------------------------------
YEARS ENDED SEPTEMBER 30,
--------------------------------
1995 (F) 1994 (F) 1993 (F)
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD....................... $ 8.25 $ 10.18 $ 7.98
------- ------- -------
Investment Activities
Net investment loss....................... (0.07) (0.12) (0.17)
Net realized and unrealized gains
(losses) from investments................ 2.14 (1.26) 2.57
------- ------- -------
Total from Investment Activities.......... 2.07 (1.38) 2.40
------- ------- -------
Distributions
Net realized gains........................ (0.32) (0.55) (0.20)
------- ------- -------
NET ASSET VALUE,
END OF PERIOD............................. $ 10.00 $ 8.25 $ 10.18
======= ======= =======
Total Return (excludes sales/redemption
charge)................................... 25.12% (13.91)% 30.61%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).......... $44,500 $47,880 $59,330
Ratio of expenses to average net assets.... 2.61% 2.44% 2.47%
Ratio of net investment loss to average net (0.73)% (1.35)% (1.85)%
assets....................................
Ratio of expenses to average net assets*... (g) (g) (g)
Ratio of net investment loss to average net (g) (g) (g)
assets*...................................
Portfolio turnover rate (e)................ 197% 254% 216%
</TABLE>
See Notes to Financial Statements.
B-89
<PAGE> 91
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Financial Highlights
- --------------------------------------------------------------------------------
The Riverfront Funds, Inc.
<TABLE>
<CAPTION>
LARGE COMPANY
SELECT FUND
------------------------
FROM JANUARY 2, 1997
THROUGH DECEMBER 31,
1997 (A)
------------------------
INVESTOR A INVESTOR B
---------- ----------
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD............................... $ 10.00 $ 10.00
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Investment Activities
Net investment income (loss)...................... -- (0.04)
Net realized and unrealized gains (losses) from
investments...................................... 2.77 2.72
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Total from Investment Activities.................. 2.77 2.68
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Distributions
Net realized gains................................ (1.40) (1.40)
Tax return of capital............................. (0.03) --
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Total Distributions............................... (1.43) (1.40)
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NET ASSET VALUE,
END OF PERIOD..................................... $ 11.34 $ 11.28
======= =======
Total Return (excludes sales/redemption charge).... 27.93%(b) 26.97%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................. $33,614 $ 2,464
Ratio of expenses to average net assets............ 1.69%(c) 2.47%(c)
Ratio of net investment income (loss) to average 0.00%(c) (1.10)%(c)
net assets........................................
Ratio of expenses to average net assets............ (f) (f)
Ratio of net investment income to average net (f) (f)
assets............................................
Portfolio turnover rate (d)........................ 39% 39%
Average commission rate paid (e)................... $0.0960 $0.0960
</TABLE>
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(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover rate is calculated on the basis of the Portfolio as a
whole without distinguishing between the classes of shares issued.
(e) 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
portfolio as a whole without distinguishing between the classes of shares
issued.
(f) There were no waivers or reimbursements during the period.
See Notes to Financial Statements.
B-90
<PAGE> 92
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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 IBCA Information
Services, Inc. ("Fitch") 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
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 characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
A-1
<PAGE> 93
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 vulner-
ability 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.
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
A-2
<PAGE> 94
senior debt that is assigned an actual or implied BB or
BB- rating.
Description of the four 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 (Highest credit quality). This rating denotes the lowest
expectation of credit risk. This rating is assigned only in
case of exceptionally strong capacity for timely payment of
financial commitments, a capacity that is highly unlikely to
be adversely affected by foreseeable events.
AA (Very high credit quality). This rating denotes a very low
expectation of credit risk. This rating indicates very strong
capacity for timely payment of financial commitments, a
capacity that is not significantly vulnerable to foreseeable
events.
A (High credit quality). This rating denotes a low expectation
of credit risk. This rating indicates a strong capacity for
timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for long-term debt
rate "AAA" or "AA."
BBB (Good credit quality). This rating indicates that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. The "BBB"
category is the lowest investment-grade category.
A-3
<PAGE> 95
BB (Speculative). This rating indicates that there is a
possibility of credit risk developing, particularly as the
result of adverse economic change over time; however, business
or financial alternatives may be available to allow financial
commitments to be met. Securities rated in the "BB" category
are not investment grade.
B (Highly speculative). This rating indicates that significant
credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon a
sustained, favorable business and economic environment.
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-4
<PAGE> 96
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 profit-
ability 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 determined to have
extremely strong safety characteristics are denoted with a
plus sign (+).
A-5
<PAGE> 97
A-2 Capacity for timely payment on issues with this designa-
tion 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:
F1+ Issues assigned this rating are regarded as having the
strongest capacity for timely payment of financial
commitments; an added "+" denotes any exceptionally strong
credit feature.
F1 Issues assigned this rating are regarded as having a capacity
for timely payment only slightly less than the highest rating,
i.e., F1+.
F2 Issues assigned this rating have a satisfactory capacity
for timely payment of financial commitments, but the
A-6
<PAGE> 98
margin of safety is not as great as it is for issues
assigned ratings of F1+ or F1.
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.
A-7
