<PAGE> 1
THE PARKSTONE GROUP OF FUNDS
GROWTH FUNDS INCOME FUNDS
Parkstone Equity Funds Parkstone Bond Funds
Parkstone Small Capitalization Fund Parkstone Intermediate Government
Parkstone International Discovery Fund Obligations Fund
Parkstone U.S. Government Income
Fund
GROWTH AND INCOME FUNDS
Parkstone Balanced Fund TAX-FREE INCOME FUNDS
Parkstone High Income Equity Fund Parkstone Municipal Bond Fund
Parkstone Michigan Municipal Bond Fund
================================================================================
Supplement dated January 12, 1996
to Prospectuses dated October 13, 1995
1. Investors are advised that the address for Gulfstream Global Investors,
Ltd., the Sub-Investment Adviser of the Parkstone International Discovery Fund
and the Parkstone Balanced Fund, has changed. Gulfstream's new address is 100
Crescent Court, Suite 550, Dallas, Texas 75201.
2. Investor A Shares
The first paragraph of the section of the Investment A Shares
Prospectus entitled "REDUCED SALES CHARGES - Sales Charge Waivers," on page 58,
has been revised to read as follows:
The Distributor may waive sales charges for the purchase of Investor A
Shares of a Fund by or on behalf of (1) employees and retired employees
(including spouses, children and parents of employees and retired employees) of
First of America Bank Corporation, BISYS and any affiliates thereof, (2)
Trustees of the Group, (3) directors and retired directors (including spouses
and children of directors and retired directors) of First of America Bank
Corporation and any affiliate thereof, (4) employees (and their spouses and
children under the age of 21) of any broker-dealer with which the Distributor
enters into an agreement to sell shares of the Fund, (5) orders placed on
behalf of other investment companies distributed by the Distributor and (6)
qualified orders placed by broker-dealers, investment advisers or financial
planners who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their services;
and clients of such broker-dealers, investment advisers or financial planners
who place trades for their own accounts if the accounts are linked to the master
account of such broker-dealer, investment adviser or financial planner on the
books and records of the broker or agent. Investors may be charged a fee if
they effect transactions in Investor A Shares through a broker or agent. In
addition, the Distributor may waive sales charges for the purchase of a Fund's
Investor A Shares with the proceeds from the recent redemption of shares of a
non-money market mutual fund (including the Investor A Shares of the other
non-money market Funds of the Group, but excluding the Investor B and Investor
C Shares of such Funds). The purchase must be made within 60 days of the
redemption, and the Distributor must be notified in writing by the investor, or
by his financial institution, at the time the purchase is made. A copy of the
investor's account statement showing such redemption must accompany such
notice.
<PAGE> 2
3. Investor C Shares
Investors are advised that, currently, Investor C Shares of the Funds
are available for purchase only by employee benefit plans qualified under
Section 401 of the Internal Revenue Code, subject to certain requirements with
respect to the number of employees or amount of purchase which may be
established by the Distributor. Consequently, the Investor C Shares Prospectus
is hereby amended to add the following sentence to the end of the first
paragraph on Page 1 and at the beginning of the first full paragraph under the
heading "HOW TO BUY INVESTOR C SHARES," on Page 54:
Investor C Shares are currently offered only to employee benefit
plans qualified under Section 401 of the Internal Revenue Code,
subject to the requirements established by the Distributor.
On Page 56 of the Investor C Shares Prospectus, in the first sentence
under the heading "SALES CHARGES," the references to "4.00%" and "four years"
are changed to "1.00%" and "one year," respectively.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT
WITH THEIR PROSPECTUS FOR FUTURE REFERENCE
<PAGE> 3
- --------------------------------------------------------------------------------
THE PARKSTONE
GROUP OF FUNDS
INVESTOR A SHARES
- --------------------------------------------------------------------------------
GROWTH FUNDS
PARKSTONE EQUITY FUND
PARKSTONE SMALL CAPITALIZATION FUND
PARKSTONE INTERNATIONAL DISCOVERY FUND
GROWTH AND INCOME FUNDS
PARKSTONE BALANCED FUND
PARKSTONE HIGH INCOME EQUITY FUND
INCOME FUNDS
PARKSTONE BOND FUND
PARKSTONE LIMITED MATURITY BOND FUND
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
PARKSTONE MUNICIPAL BOND FUND
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
MONEY MARKET FUNDS
PARKSTONE PRIME OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT OBLIGATIONS FUND
PARKSTONE TREASURY FUND
PARKSTONE TAX-FREE FUND
Prospectus dated October 13, 1995
PARKSTONE
MUTUAL FUNDS
-------------------------
NOT FDIC INSURED
<PAGE> 4
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 5
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES PROSPECTUS DATED OCTOBER 13, 1995
<TABLE>
<S> <C>
GROWTH FUNDS For more information call:
Parkstone Equity Fund (800) 451-8377
Parkstone Small Capitalization Fund or write to:
Parkstone International Discovery Fund 3435 Stelzer Road
Columbus, Ohio 43219
GROWTH AND INCOME FUNDS
Parkstone Balanced Fund
Parkstone High Income Equity Fund THESE SECURITIES HAVE NOT
BEEN APPROVED OR
INCOME FUNDS DISAPPROVED BY THE
Parkstone Bond Fund SECURITIES AND EXCHANGE
Parkstone Limited Maturity Bond Fund COMMISSION OR ANY STATE
Parkstone Intermediate Government Obligations SECURITIES COMMISSION NOR
Fund HAS THE COMMISSION OR ANY
Parkstone U.S. Government Income Fund STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR
TAX-FREE INCOME FUNDS ADEQUACY OF THIS
Parkstone Municipal Bond Fund PROSPECTUS. ANY
Parkstone Michigan Municipal Bond Fund REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
MONEY MARKET FUNDS OFFENSE
Parkstone Prime Obligations Fund
Parkstone U.S. Government Obligations Fund
Parkstone Treasury Fund
Parkstone Tax-Free Fund
</TABLE>
The Funds listed above are each of the fifteen currently-offered series of The
Parkstone Group of Funds (the "Group") which offer Investor A Shares. This
Prospectus explains concisely what you should know before investing in the
Investor A Shares of the Funds listed above. Please read it carefully and keep
it for future reference. You can find more detailed information about the Fund
in the October 13, 1995 Statement of Additional Information, as amended from
time to time. For a free copy of the Statement of Additional Information or
other information, contact the Group at the number specified above. The
Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference.
THE SHARES OF THE THE PARKSTONE GROUP OF FUNDS ARE NOT OBLIGATIONS OR DEPOSITS
OF FIRST OF AMERICA INVESTMENT CORPORATION OR ITS PARENT, AND THE INVESTMENTS
DESCRIBED IN THIS PROSPECTUS ARE NOT ENDORSED, INSURED OR GUARANTEED BY FIRST OF
AMERICA INVESTMENT CORPORATION, ITS PARENT OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVOLVED.
PROSPECTUS--Investor A Shares
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
---
Prospectus Summary........................................................... 5
Fee Tables................................................................... 9
Financial Highlights......................................................... 12
Investment Objectives and Policies........................................... 25
Risk Factors and Investment Techniques....................................... 37
Investment Restrictions...................................................... 48
Management of the Funds...................................................... 50
How to Buy Investor A Shares................................................. 55
Sales Charges................................................................ 57
Reduced Sales Charges........................................................ 58
Directed Dividend Option..................................................... 60
Exchange Privilege........................................................... 60
Parkstone Individual Retirement Accounts..................................... 60
How to Redeem Your Investor A Shares......................................... 61
How Shares Are Valued........................................................ 63
Dividends and Taxes.......................................................... 63
Performance Information...................................................... 66
Fundata(R)................................................................... 67
General Information.......................................................... 67
</TABLE>
PROSPECTUS--Investor A Shares 2
<PAGE> 7
PROSPECTUS ROADMAP
For information about the following subjects, consult the pages indicated on the
table below.
<TABLE>
<CAPTION>
INVESTMENT
OBJECTIVES
FINANCIAL AND RISK FACTORS AND
FUND HIGHLIGHTS POLICIES INVESTMENT TECHNIQUES
<S> <C> <C> <C>
Equity Fund 12 25 26
Small Capitalization Fund 13 25 26
International Discovery Fund 14 26 27
Balanced Fund 14 27 29
High Income Equity Fund 15 29 30
Bond Fund 16 30 31
Limited Maturity Bond Fund 17 30 31
Intermediate Government Obligations Fund 18 31 32
Government Income Fund 19 32 33
Municipal Bond Fund 20 33 35
Michigan Municipal Bond Fund 21 33 35
Prime Obligations Fund 22 35 37
U.S. Government Obligations Fund 23 35 37
Treasury Fund 23 35 37
Tax-Free Fund 24 35 37
</TABLE>
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which offers to the public fifteen separate investment portfolios,
fourteen of which are diversified portfolios and one of which is a
non-diversified portfolio, each with different investment objectives. These
funds enable the Group to meet a wide range of investment needs.
This Prospectus relates only to the Investor A Shares of the following Funds:
Parkstone Equity Fund (the "Equity Fund")
Parkstone Small Capitalization Fund (the "Small Capitalization Fund")
Parkstone International Discovery Fund (the "International Fund")
Parkstone Balanced Fund (the "Balanced Fund")
Parkstone High Income Equity Fund (the "High Income Equity Fund")
Parkstone Bond Fund (the "Bond Fund")
Parkstone Limited Maturity Bond Fund (the "Limited Maturity Bond Fund")
Parkstone Intermediate Government Obligations Fund (the "Intermediate
Government
Obligations Fund")
Parkstone U.S. Government Income Fund (the "Government Income Fund")
Parkstone Municipal Bond Fund (the "Municipal Bond Fund")
Parkstone Michigan Municipal Bond Fund (the "Michigan Fund")
Parkstone Prime Obligations Fund (the "Prime Obligations Fund")
Parkstone U.S. Government Obligations Fund (the "U.S. Government
Obligations Fund")
Parkstone Treasury Fund (the "Treasury Fund")
Parkstone Tax-Free Fund (the "Tax-Free Fund")
3 PROSPECTUS--Investor A Shares
<PAGE> 8
For convenience of reference, the above Funds are sometimes referred to as part
of a general grouping. The Equity, Small Capitalization and International Funds
are collectively referred to as the "Growth Funds". The Balanced and High Income
Equity Funds are collectively referred to as the "Growth and Income Funds". The
Bond, Limited Maturity Bond, Intermediate Government Obligations and Government
Income Funds are collectively referred to as the Income Funds. The Municipal
Bond and Michigan Funds are collectively referred to as "Tax-Free Income Funds".
Finally, the Prime Obligations, U.S. Government Obligations, Treasury and
Tax-Free Funds are collectively referred to as the "Money Market Funds".
The Trustees of the Group have divided each of the Funds' beneficial ownership
into an unlimited number of transferable units called shares (the "Shares").
Each Fund of the Group offers multiple classes of Shares. This Prospectus
describes one class of Shares of each Fund-Investor A Shares. Interested persons
who wish to obtain a copy of the Prospectus of the other Classes of Shares of
the Funds or a copy of the Group's most recent annual report may contact the
Group at the telephone number shown above.
The investment objectives of each of the Funds are described in this Prospectus
and are summarized in the Prospectus Summary. First of America Investment
Corporation, Kalamazoo, Michigan ("First of America"), acts as the investment
adviser to each of the Funds of the Group. To provide investment advisory
services for the International and Balanced Funds for investments in foreign
securities, First of America has entered into a sub-investment advisory
agreement with Gulfstream Global Investors, Ltd., Dallas, Texas ("Gulfstream" or
"Subadviser").
PROSPECTUS--Investor A Shares 4
<PAGE> 9
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Investor A Shares of the following funds of the
Group:
GROWTH FUNDS
Equity Fund
Small Capitalization Fund
International Fund
GROWTH AND INCOME FUNDS
Balanced Fund
High Income Equity Fund
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
TAX-FREE INCOME FUNDS
Municipal Bond Fund
Michigan Fund
MONEY MARKET FUNDS
Prime Obligations Fund
U.S. Government Obligations Fund
Treasury Fund
Tax-Free Fund
These Funds represent fifteen separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust (the "Group") which is registered
as an open-end, management investment company.
Offering Price and Sales Charges
The public offering price of Investor A Shares of each of the Growth Funds and
each of the Growth and Income Funds is equal to the net asset value per share
plus a sales charge equal to 4.50% of the public offering price (4.71% of the
net amount invested). The public offering price of Investor A Shares of each of
the Income Funds and each of the Tax-Free Income Funds is equal to the net asset
value per share plus a sales charge equal to 4.00% of the public offering price
(4.17% of the net amount invested). The public offering price is reduced when
the amount of the transaction at the total public offering price is $50,000 or
more (see "SALES CHARGES"). Under certain circumstances, the sales charge may be
eliminated (see "REDUCED SALES CHARGES--Sales Charge Waivers"). The public
offering price of each Money Market Fund is equal to the net asset value per
share, which the Group will seek to maintain at $1.00.
5 PROSPECTUS--Investor A Shares
<PAGE> 10
Minimum Purchase
$1,000 minimum initial purchase (based upon the public offering price) per Fund
with no minimum subsequent investments. Such minimum initial investment may be
waived for certain purchasers and is reduced to $100 for investors using the
Auto Invest Plan described herein, although such investors are subject to a $50
minimum for each subsequent investment in such Fund.
Investment Objectives
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
Equity Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks
Small Capitalization seeks growth of capital by investing primarily in a
Fund diversified portfolio of common stocks and securities
convertible into common stocks of small-to medium-sized
companies
International Fund seeks the long-term growth of capital
Balanced Fund seeks current income, long-term capital growth and
conservation of capital
High Income Equity primarily seeks current income by investing in a
Fund diversified portfolio of high quality, dividend-paying
stocks and securities convertible into common stocks; a
secondary objective is growth of capital
Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high- and
medium-grade fixed-income securities
Limited Maturity Bond seeks to provide current income and preservation of
Fund capital by investing in a portfolio of high- and
medium-grade fixed income securities with remaining
maturities of six years or less
Intermediate seeks to provide current income with preservation of
Government capital by investing in a diversified portfolio of U.S.
Obligations Fund Government securities with remaining maturities of twelve
years or less
Government Income Fund seeks to provide shareholders with a high level of current
income consistent with prudent investment risk
Municipal Bond Fund seeks to provide current interest income which is exempt
from federal income taxes as well as preservation of
capital
Michigan Fund seeks income which is exempt from federal income tax and
Michigan state income and intangibles tax, although such
income may be subject to the federal alternative minimum
tax when received by certain shareholders; also seeks
preservation of capital
Prime Obligations Fund seeks to provide current income, with liquidity and
stability of principal
U.S. Government seeks to provide current income, with liquidity and
Obligations Fund stability of principal
Treasury Fund seeks to provide current income, with liquidity and
stability of principal
Tax-Free Fund seeks to provide current income free from federal income
taxes, preservation of capital and relative stability of
principal
</TABLE>
PROSPECTUS--Investor A Shares 6
<PAGE> 11
Investment Policies
Under normal market conditions, each Fund will invest as described in the
following table:
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Equity Fund at least 80% of their total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized by
sound management and the ability to finance expected
growth
Small Capitalization at least 80% of their total assets in common stocks, and
Fund securities convertible into common stocks, of small- to
medium-sized companies believed by the investment adviser
to be characterized by sound management and the ability to
finance expected growth
International Fund at least 65% of its total assets in an internationally
diversified portfolio of equity securities which trade on
markets in countries other than the United States and
which are issued by companies (i) domiciled in countries
other than the United States, or (ii) that derive at least
50% of either their revenues or pre-tax income from
activities outside of the United States, and (iii) which
are ranked as small- or medium-sized companies on the
basis of their capitalization
Balanced Fund in any type or class of securities, including all types of
common stocks, fixed income securities and securities
convertible into common stocks. At least 25% of the value
of the Fund's total assets will be invested in fixed
income senior securities and up to 15% of the Fund's total
assets may be invested in foreign securities
High Income Equity at least 80% of its total assets in common stocks, and
Fund securities convertible into common stocks, of companies
believed by the investment adviser to be characterized by
sound management, the ability to finance expected growth
and the ability to pay above average dividends
Bond Fund at least 80% of its total assets in bonds, debentures and
certain other debt securities specified herein
Limited Maturity Bond at least 80% of the value of its total assets in bonds,
Fund debentures and certain other debt securities specified
herein with remaining maturities of six years or less
Intermediate at least 80% of its total assets in obligations issued or
Government guaranteed by the U.S. Government or its agencies or
Obligations Fund instrumentalities and with remaining maturities of twelve
years or less
Government Income Fund at least 65% of its total assets in obligations issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities; under current market conditions; up to
80% of its total assets in mortgage-related securities,
which are issued or guaranteed by the U.S. Government, its
agencies and instrumentalities and by nongovernmental
entities, or greater amounts as conditions warrant
Municipal Bond Fund at least 80% of its total assets in tax-exempt obligations
Michigan Fund at least 80% of its total assets in debt securities of all
types; at least 65% of the net assets will be invested in
municipal securities issued by or on behalf of the State
of Michigan, its political subdivisions, municipalities
and public authorities
</TABLE>
7 PROSPECTUS--Investor A Shares
<PAGE> 12
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Prime Obligations Fund invests in high quality money market instruments and other
comparable investments
U.S. Government invests at least 65% of its total assets in short-term
Obligations Fund U.S. Treasury bills, notes and other obligations issued by
the U.S. Government or its agencies or instrumentalities
Treasury Fund invests exclusively in obligations issued or guaranteed by
the U.S. Treasury and in repurchase agreements backed by
such securities
Tax-Free Fund at least 80% of its total assets in municipal obligations
the interest on which is both exempt from federal income
tax and not treated as a preference item for alternative
minimum tax purposes
</TABLE>
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a certain
amount of risk and may not be suitable for all investors. In addition, some
investment policies of the Funds may entail certain risks (see "RISK FACTORS AND
INVESTMENT TECHNIQUES").
Investment Adviser
First of America Investment Corporation ("First of America") serves as
investment adviser, and, with respect to the International Fund and a portion of
the Balanced Fund, Gulfstream Global Investors, Ltd. ("Gulfstream") or
"Subadviser" serves as subadviser.
Dividends and Capital Gains
Dividends from net income are declared and paid monthly. Net realized capital
gains are distributed at least annually.
Distributor
BISYS Fund Services, formerly known as The Winsbury Company, ("BISYS") a
partnership owned by The BISYS Group, Inc.
Transfer Agent
BISYS Fund Services Ohio, Inc., formerly known as The Winsbury Service
Corporation (the "Transfer Agent"), a subsidiary of The BISYS Group, Inc.
PROSPECTUS--Investor A Shares 8
<PAGE> 13
FEE TABLES (INVESTOR A SHARES)
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge (as a percentage of the offering price)(1)
<TABLE>
<S> <C>
- --Growth Funds.............................................................. 4.50%
- --Growth and Income Funds................................................... 4.50%
- --Income Funds.............................................................. 4.00%
- --Tax-Free Income Funds..................................................... 4.00%
- --Money Market Funds........................................................ None
Sales Charge on Reinvested Distributions.................................... None
Deferred Sales Charge on Redemptions........................................ None
Redemption Fees(2).......................................................... None
Exchange Fees............................................................... None
</TABLE>
- ------------
(1) The sales charge may be eliminated under certain circumstances. (See
"REDUCED SALES CHARGES--Sales Charge Waivers.")
(2) Although no such fee currently is in place, the Transfer Agent has reserved
the right in the future to charge a fee for wire transfers of redemption
proceeds.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)*
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES(1) EXPENSES EXPENSES
---------- ------ ------- -------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Equity Fund........................................ 1.00% 0.25% 0.26% 1.51%
Small Capitalization Fund.......................... 1.00% 0.25% 0.30% 1.55%
International Fund................................. 1.17% 0.25% 0.36% 1.78%
GROWTH AND INCOME FUNDS:
Balanced Fund...................................... 0.75% 0.25% 0.47% 1.47%
High Income Equity Fund............................ 1.00% 0.25% 0.29% 1.54%
INCOME FUNDS:
Bond Fund.......................................... 0.70% 0.25% 0.29% 1.24%
Limited Maturity Bond Fund......................... 0.55% 0.25% 0.25% 1.05%
Intermediate Government Obligations Fund........... 0.70% 0.25% 0.30% 1.25%
Government Income Fund............................. 0.45% 0.25% 0.34% 1.04%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund................................ 0.55% 0.25% 0.22% 1.02%
Michigan Fund...................................... 0.55% 0.25% 0.20% 1.00%
MONEY MARKET FUNDS:
Prime Obligations Fund............................. 0.40% 0.10% 0.25% 0.75%
U.S. Government Obligations Fund................... 0.40% 0.10% 0.27% 0.77%
Treasury Fund...................................... 0.40% 0.10% 0.25% 0.75%
Tax-Free Fund...................................... 0.40% 0.10% 0.24% 0.74%
</TABLE>
- ------------
* after expense reductions
(1) Pursuant to the Investor A Distribution and Shareholder Service Plan, each
Fund is authorized to make payments under such Plan of up to an annual rate of
.25% of the average daily net asset value of such Fund's Investor A Shares.
However, currently only payments of .10% are being charged under such Plan with
respect to the Money Market Funds.
Absent the voluntary reduction of advisory fees, Management Fees and Total
Expenses as a percentage of average net assets for the Balanced Fund would have
been 1.00% and 1.72%, respectively. Absent the voluntary reduction of
administration fees and advisory fees, Management Fees, Other Expenses and Total
9 PROSPECTUS--Investor A Shares
<PAGE> 14
Expenses as a percentage of average net assets for the Bond Fund would have been
.74%, .34% and 1.33%, respectively. For the Limited Maturity Bond Fund they
would have been .74%, .30% and 1.29%, respectively. For the Intermediate
Government Obligations Fund they would have been .74%, .35% and 1.34%,
respectively. For the Government Income Fund they are estimated to be .74%, .39%
and 1.38%, respectively. For the Municipal Bond Fund they would have been .74%,
.32% and 1.31%, respectively. For the Michigan Fund they would have been .74%,
.30% and 1.29%, respectively. Absent the voluntary reduction of 12b-1 Fees and
administration fees, 12b-1 Fees, Other Expenses and Total Fund Operating
Expenses as a percentage of average net assets for the Prime Obligations Fund
would be .25%, .27% and .92%, respectively. For the U.S. Government Obligations
Fund, they would be .25%, .29% and .94%, respectively. For the Treasury Fund
they would be .25%, .35% and 1.00%, respectively. For the Tax-Free Fund, they
would be .25%, .26% and .91%, respectively. (See "MANAGEMENT OF THE FUNDS--
Investment Adviser and Subadviser" and "Administrator, Sub-Administrator and
Distributor.")
EXPENSE EXAMPLES
You would pay the following expenses on a $1,000 investment in Investor A
Shares, assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----- ------ ------ -------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Equity Fund............................................. $ 60 $91 $ 124 $217
International Fund...................................... $ 62 $99 $ 137 $245
Small Capitalization Fund............................... $ 60 $92 $ 126 $221
GROWTH AND INCOME FUNDS:
Balanced Fund........................................... $ 59 $89 $ 122 $213
High Income Equity Fund................................. $ 60 $91 $ 125 $220
INCOME FUNDS:
Bond Fund............................................... $ 52 $78 $ 105 $184
Limited Maturity Bond Fund.............................. $ 40 $72 $ 186 $154
Intermediate Government Obligations Fund................ $ 52 $78 $ 106 $185
Government Income Fund.................................. $ 50 $72 $ 95 $162
TAX-FREE INCOME FUNDS:
Municipal Bond Fund..................................... $ 50 $71 $ 94 $160
Michigan Fund........................................... $ 50 $71 $ 93 $158
MONEY MARKET FUNDS:
Prime Obligations Fund.................................. $ 8 $24 $ 42 $ 93
U.S. Government Obligations Fund........................ $ 8 $25 $ 43 $ 95
Treasury Fund........................................... $ 8 $24 $ 42 $ 93
Tax-Free Fund........................................... $ 8 $24 $ 41 $ 92
</TABLE>
The information set forth in the foregoing Fee Tables and examples relates only
to Investor A Shares of the Funds. Each of the Funds also may offer other
classes of Shares. The other classes of Shares of the Funds are subject to the
same expenses except that the sales charges and level of Rule 12b-1 fees paid by
holders of the different classes will differ.
As a result of the payment of sales charges and 12b-1 fees, long-term
shareholders may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers, Inc.
(the "NASD"). The NASD has adopted rules effective July 7, 1993, which generally
limit the aggregate sales charges and payments under the Group's Investor A
Distribution and Shareholder Service Plan to a certain percent of total new
gross share sales, plus interest. The Funds would stop accruing 12b-1 fees if,
to the extent, and for as long as, such limit would otherwise be exceeded.
PROSPECTUS--Investor A Shares 10
<PAGE> 15
The purpose of the above tables is to assist a potential purchaser of Investor A
Shares of any Fund in understanding the various costs and expenses that an
investor in a Fund will bear directly or indirectly. Such expenses do not
include any fees charged by First of America or any of its affiliates to its
customer accounts which may have invested in Investor A Shares of the Funds. See
"MANAGEMENT OF THE FUNDS," "GENERAL INFORMATION" and "SALES CHARGES" for a more
complete discussion of the Shareholder transaction expenses and annual operating
expenses of each of the Funds. The expense information for Investor A Shares
reflects current fees. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
11 PROSPECTUS--Investor A Shares
<PAGE> 16
FINANCIAL HIGHLIGHTS
The table below sets forth certain information concerning the investment results
of the Investor A Shares of each of the Funds since its inception. Further
financial information is included in the Statement of Additional Information and
the Group's June 30, 1995 Annual Report to Shareholders.
The Financial Highlights for the periods presented below have been derived from
financial statements audited by Coopers & Lybrand L.L.P. (Limited Liability
Partnership), independent accountants for the Group, whose report thereon is
included in the Annual Report.
On March 31, 1993, the Shareholders of all of the then-outstanding Funds of the
Group approved the reclassification of such Fund's outstanding Shares into
Investor A Shares and Institutional Shares. The financial information provided
below and in the Annual Report include periods prior to such reclassification.
EQUITY FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
----------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $14.69 $15.11 $12.80 $11.69 $12.37 $11.48 $10.00
------ ------ ------ ------ ------ ------ -----------
Investment Activities
Net investment income
(loss)................ (0.12) (0.10) (0.01) 0.17 0.45 0.30 0.20
Net realized and
unrealized gain (loss)
on investments........ 3.46 (0.28) 2.74 1.59 (0.53) 1.86 1.47
--- ----- --- --- ----- --- --------
Total from Investment
Activities............ 3.34 (0.38) 2.73 1.76 (0.08) 2.16 1.67
--- ----- --- --- ----- --- --------
Distributions
Net investment income... (0.02) (0.17) (0.45) (0.28) (0.19)
Net realized gains...... (0.48) (0.04) (0.40) (0.48) (0.15) (0.99)
In excess of net
realized gains........ (0.99)
Total Distributions..... (1.47) (0.04) (0.42) (0.65) (0.60) (1.27) (0.19)
----- ----- ----- ----- ----- ----- ----------
NET ASSET VALUE, END OF
PERIOD.................... $16.56 $14.69 $15.11 $12.80 $11.69 $12.37 $11.48
------ ------ ------ ------ ------ ------ -----------
------ ------ ------ ------ ------ ------ -----------
Total Return (excluding
sales and redemption
charges).................. 24.85% (2.57)% 21.42% 15.18% (0.45)% 19.23% 16.83%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000).......... $43,803 $36,108 $26,460 $407,782 $298,655 $247,683 $180,124
Ratio of expenses to
average net assets.... 1.51% 1.38% 1.28% 1.18% 1.10% 1.07% 1.06%(c)
Ratio of net investment
income to average net
assets................ (0.87)% (0.75)% (0.12)% 1.24% 3.87% 2.51% 2.80%(c)
Ratio of expenses to
average net assets*... 1.54% 1.53% 1.35% 1.26% 1.28% 1.29% 1.31%(c)
Ratio of net investment
income to average net
assets*............... (0.90)% (0.90)% (0.19)% 1.15% 3.69% 2.29% 2.55%(c)
Portfolio turnover...... 46.39%(d) 70.87%(d) 66.48%(d) 93.76% 189.26% 136.95% 87.30%
</TABLE>
PROSPECTUS--Investor A Shares 12
<PAGE> 17
SMALL CAPITALIZATION FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
----------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
------- ------- ------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $19.75 $20.31 $14.64 $13.58 $14.82 $11.59 $10.00
------ ------ ------ ------ ------ ------ -----------
Investment Activities
Net investment income
(loss)................ (0.18) (0.15) (0.13) (0.08) 0.14 0.04 0.06
Net realized and
unrealized gain (loss)
on investments........ 8.46 0.09 6.75 1.89 (1.24) 3.23 1.59
--- --- --- --- ----- --- --------
Total from
Investment
Activities....... 8.28 (0.06) 6.62 1.81 (1.10) 3.27 1.65
--- ----- --- --- ----- --- --------
Distributions
Net investment income...
Net realized gains...... (2.15) (0.50) (0.95) (0.75)
Total
Distributions.... (2.15) (0.50) (0.95) (0.75) (0.14) (0.04) (0.06)
----- ----- ----- ----- ----- ----- ----------
NET ASSET VALUE, END OF
PERIOD.................... $25.88 $19.75 $20.31 $14.64 $13.58 $14.82 $11.59
------ ------ ------ ------ ------ ------ -----------
------ ------ ------ ------ ------ ------ -----------
Total Return (excluding
sales and redemption
charges).................. 44.88% (0.55)% 45.77% 12.95% (6.76)% 28.28% 16.60%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000).......... $71,984 $42,791 $27,976 $180,079 $107,500 $94,517 $53,917
Ratio of expenses to
average net assets.... 1.55% 1.40% 1.29% 1.19% 1.15% 1.11% 1.29%(c)
Ratio of net investment
income to average net
assets................ (1.27)% (1.24)% (1.02)% (0.61)% 1.08% 0.37% 0.80%(c)
Ratio of expenses to
average net assets*... 1.58% 1.55% 1.36% 1.28% 1.33% 1.33% 1.54%(c)
Ratio of net investment
income to average net
assets*............... (1.30)% (1.39)% (1.09)% (0.70)% 0.90% 0.15% 0.55%(c)
Portfolio turnover...... 50.53%(d) 72.64%(d) 71.21%(d) 95.02% 139.66% 83.10% 51.79%
</TABLE>
13 PROSPECTUS--Investor A Shares
<PAGE> 18
INTERNATIONAL DISCOVERY FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, DECEMBER 29, 1992
-------------------- TO
1995 1994 JUNE 30, 1993(A)(B)
------- ------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $13.18 $11.50 $10.00
------ ------ ------------
Investment Activities
Net investment income (loss)............................. 0.03 (0.02) 0.03
Net realized and unrealized gain (loss) on investments
and foreign currency transactions...................... (0.36) 1.74 1.48
----- --- ---------
Total from Investment Activities.................... (0.33) 1.72 1.51
----- --- ---------
Distributions
Net investment income.................................... (0.02) (0.01)
Net realized gains....................................... (0.02)
In excess of net realized gains.......................... (0.62)
----- ----- -----------
Total Distributions................................. (0.62) (0.04) (0.01)
----- ----- -----------
NET ASSET VALUE, END OF PERIOD............................... $12.23 $13.18 $11.50
------ ------ ------------
------ ------ ------------
Total Return (excluding sales and redemption charges)........ (2.19)% 14.99% 15.11%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........................ $34,228 $36,297 $8,353
Ratio of expenses to average net assets.................. 1.78% 1.63% 1.64%(c)
Ratio of net investment income to average net assets..... 0.08% (0.29)% 1.02%(c)
Ratio of expenses to average net assets*................. 1.91% 1.84% 1.81%(c)
Ratio of net investment income to average net assets*.... (0.06)% (0.49)% 0.85%(c)
Portfolio turnover (d)................................... 104.39% 37.23% 12.47%
</TABLE>
BALANCED FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
INVESTOR A SHARES JANUARY 31, 1992
------------------------------------- TO
1995 1994 1993(B) JUNE 30, 1992(A)
------- ------- ------ ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $10.67 $11.09 $ 9.68 $10.00
------ ------ ----- ----------
Investment Activities
Net investment income......................... 0.28 0.26 0.28 0.14
Net realized and unrealized gain (loss) on
investments................................. 1.69 (0.43) 1.42 (0.34)
--- ----- --- ---------
Total from Investment Activities......... 1.97 (0.17) 1.70 (0.20)
--- ----- --- -------
Distributions
Net investment income......................... (0.29) (0.25) (0.29) (0.12)
Net realized gains............................ (0.01)
In excess of net realized gains............... (0.15)
----- ----- ----- ---------
Total Distributions...................... (0.45) (0.25) (0.29) (0.12)
----- ----- ----- ---------
NET ASSET VALUE, END OF PERIOD.................... $12.19 $10.67 $11.09 $9.68
------ ------ ------ ---------
------ ------ ------ ---------
Total Return (excluding sales and redemption
charges)........................................ 18.96% $(1.63)% 17.74% (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)............. $12,849 $11,901 $6,115 $38,136
Ratio of expenses to average net assets....... 1.47% 1.18% 1.18% 1.19%(c)
Ratio of net investment income to average net
assets...................................... 2.56% 2.38% 2.66% 3.46%(c)
Ratio of expenses to average net assets*...... 1.78% 1.63% 1.53% 1.50%(c)
Ratio of net investment income to average net
assets*..................................... 2.23% 1.93% 2.31% 3.13%(c)
Portfolio turnover............................ 250.66%(d) 192.39%(d) 177.99%(d) 47.58%
</TABLE>
PROSPECTUS--Investor A Shares 14
<PAGE> 19
HIGH INCOME EQUITY FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
----------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
------- ------- ------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $13.50 $14.69 $13.14 $12.48 $12.19 $11.35 $10.00
------ ------ ------ ------ ------ ------ -----------
Investment Activities
Net investment
income............... 0.36 0.37 0.45 0.54 0.57 0.56 0.35
Net realized and
unrealized gain
(loss) on
investments.......... 1.00 (0.56) 1.69 0.99 0.38 1.04 1.32
--- ------ --- --- --- --- --------
Total from
Investment
Activities...... 1.36 (0.19) 2.14 1.53 0.95 1.60 1.67
--- ------ --- --- --- --- --------
Distributions
Net investment
income............... (0.36) (0.37) (0.45) (0.54) (0.59) (0.54) (0.32)
In excess of net
investment income.... (0.01)
Net realized gains..... (0.24) (0.14) (0.33) (0.07) (0.22)
In excess of net
realized gains....... (0.39)
------ ------ ------ ------ ------ ------ -----------
Total
Distributions... (0.37) (1.00) (0.59) (0.87) (0.66) (0.76) (0.32)
------ ------ ------ ------ ------ ------ -----------
NET ASSET VALUE, END OF
PERIOD................... $14.49 $13.50 $14.69 $13.14 $12.48 $12.19 $11.35
------ ------ ------ ------ ------ ------ -----------
------ ------ ------ ------ ------ ------ -----------
Total Return (excluding
sales and redemption
charges)................. 10.32% (1.63)% 16.71% 12.56% 8.22% 14.37% 16.97%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)......... $71,063 $76,108 $50,000 $270,549 $150,980 $96,344 $66,367
Ratio of expenses to
average net assets... 1.54% 1.40% 1.29% 1.19% 1.13% 1.11% 1.16%(c)
Ratio of net investment
income to average net
assets............... 2.65% 2.56% 3.24% 4.12% 4.75% 4.69% 4.92%(c)
Ratio of expenses to
average net
assets*.............. 1.57% 1.55% 1.36% 1.27% 1.31% 1.33% 1.41%(c)
Ratio of net investment
income to average net
assets*.............. 2.61% 2.41% 3.17% 4.03% 4.57% 4.47% 4.67%(c)
Portfolio turnover..... 77.70%(d) 69.35%(d) 67.26%(d) 68.42% 115.68% 53.08% 29.55%
</TABLE>
15 PROSPECTUS--Investor A Shares
<PAGE> 20
BOND FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
------- ------- ------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD............... $9.30 $10.54 $10.54 $10.07 $10.00 $10.11 $10.00
----- ------ ------ ------ ------ ------ ----------
Investment Activities
Net investment
income.............. 0.58 0.59 0.71 0.75 0.77 0.78 0.53
Net realized and
unrealized gain
(loss) on
investments......... 0.38 (0.72) 0.47 0.56 0.08 (0.11) 0.09
--- ----- --- --- --- ----- -------
Total from Investment
Activities.......... 0.96 (0.13) 1.18 1.31 0.85 0.67 0.62
--- ----- --- --- --- --- -------
Distributions
Net investment
income.............. (0.58) (0.57) (0.73) (0.76) (0.78) (0.78) (0.51)
In excess of net
investment income... (0.01)
Net realized gains.... (0.45) (0.08)
In excess of net
realized gains...... (0.54)
----- ----- ----- ----- ----- ----- ---------
Total Distributions... (0.59) (1.11) (1.18) (0.84) (0.78) (0.78) (0.51)
----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD.................. $9.67 $9.30 $10.54 $10.54 $10.07 $10.00 $10.11
----- ----- ------ ------ ------ ------ ----------
----- ----- ------ ------ ------ ------ ----------
Total Return (excluding
sales and redemption
charges)................ 10.85% (1.62)% 11.93% 13.47% 8.80% 6.94% 6.42%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)........ $17,572 $18,391 $18,562 $477,526 $432,225 $316,477 $123,928
Ratio of expenses to
average net
assets.............. 1.24% 0.98% 0.89% 0.87% 0.84% 0.81% 0.82%(c)
Ratio of net
investment income to
average net
assets.............. 6.32% 5.86% 6.47% 7.19% 7.72% 8.04% 8.06%(c)
Ratio of expenses to
average net
assets*............. 1.39% 1.27% 1.07% 1.01% 1.02% 1.02% 1.06%(c)
Ratio of net
investment income to
average net
assets*............. 6.17% 5.57% 6.29% 7.05% 7.54% 7.83% 7.82%(c)
Portfolio turnover.... 1010.64%(d) 893.27%(d) 443.98%(d) 289.38% 339.74% 314.71% 121.08%
</TABLE>
PROSPECTUS--Investor A Shares 16
<PAGE> 21
LIMITED MATURITY BOND FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------- OCT. 31,
INVESTOR A SHARES 1988 TO
------------------------------- JUNE 30,
1995 1994 1993(B) 1992 1991 1990 1989(A)
------- ------- ------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $9.57 $10.18 $10.25 $9.93 $9.88 $10.08 $10.00
----- ------ ------ ----- ----- ------ ----------
Investment Activities
Net investment
income............... 0.56 0.62 0.65 0.71 0.72 0.83 0.53
Net realized and
unrealized gain
(loss) on
investments.......... 0.13 (0.58) 0.13 0.35 0.10 (0.15) 0.02
--- ------ --- --- --- ------ -------
Total from
Investment
Activities...... 0.69 0.04 0.78 1.06 0.82 0.68 0.55
--- --- --- --- --- --- -------
Distributions
Net investment
income............... (0.55) (0.61) (0.69) (0.71) (0.73) (0.83) (0.47)
Net realized gains..... (0.16) (0.03) (0.04) (0.05)
In excess of net
realized gains....... (0.04)
----- ----- ----- ----- ----- ----- ---------
Total
Distributions... (0.55) (0.65) (0.85) (0.74) (0.77) (0.88) (0.47)
----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD................... $9.71 $9.57 $10.18 $10.25 $9.93 $9.88 $10.08
----- ----- ------ ------ ----- ----- ----------
----- ----- ------ ------ ----- ----- ----------
Total Return (excluding
sales and redemption
charges)................. 7.53% 0.32% 7.96% 11.00% 8.66% 7.10% 5.70%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)......... $18,930 $24,907 $18,060 $117,241 $70,870 $43,696 $71,627
Ratio of expenses to
average net assets... 1.05% 0.86% 0.75% 0.83% 0.91% 0.92% 0.88%(c)
Ratio of net investment
income to average net
assets............... 5.89% 6.22% 6.41% 7.13% 7.47% 8.01% 8.19%(c)
Ratio of expenses to
average net
assets*.............. 1.36% 1.30% 1.08% 1.05% 1.10% 1.14% 1.12%(c)
Ratio of net investment
income to average net
assets*.............. 5.58% 5.78% 6.08% 6.91% 7.28% 7.79% 7.95%(c)
Portfolio turnover..... 397.97%(d) 353.28%(d) 123.10%(d) 87.75% 161.32% 319.11% 117.37%
</TABLE>
17 PROSPECTUS--Investor A Shares
<PAGE> 22
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD............... $9.62 $10.53 $10.42 $10.05 $9.91 $10.05 $10.00
----- ------ ------ ------ ----- ------ ----------
Investment Activities
Net investment income
(loss).............. 0.50 0.59 0.68 0.71 0.74 0.79 0.50
Net realized and
unrealized gain
(loss) on
investments......... 0.31 (0.66) 0.21 0.46 0.15 (0.11) (0.02)
--- ----- --- --- --- ----- ---------
Total from Investment
Activities.......... 0.81 (0.07) 0.89 1.17 0.89 0.68 0.48
--- ----- --- --- --- --- -------
Distributions
Net investment
income.............. (0.50) (0.59) (0.73) (0.71) (0.75) (0.79) (0.43)
Net realized gains.... (0.05) (0.09) (0.03)
In excess of net
realized gains...... (0.25)
----- ----- ----- ----- ----- ----- ---------
Total Distributions... (0.50) (0.84) (0.78) (0.80) (0.75) (0.82) (0.43)
----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD.................. $9.93 $9.62 $10.53 $10.42 $10.05 $9.91 $10.05
----- ----- ------ ------ ------ ----- ----------
----- ----- ------ ------ ------ ----- ----------
Total Return (excluding
sales and redemption
charges)................ 8.69% (0.90)% 8.92% 12.03% 9.32% 7.07% 4.92%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)........ $27,521 $36,106 $37,055 $234,906 $142,864 $100,205 $83,212
Ratio of expenses to
average net
assets.............. 1.25% 1.00% 0.90% 0.87% 0.86% 0.85% 0.87%(c)
Ratio of net
investment income to
average net
assets.............. 5.22% 5.80% 6.51% 7.07% 7.48% 8.04% 7.79%(c)
Ratio of expenses to
average net
assets*............. 1.41% 1.29% 1.08% 1.01% 1.04% 1.06% 1.11%(c)
Ratio of net
investment income to
average net
assets*............. 5.07% 5.51% 6.33% 6.93% 7.30% 7.83% 7.55%(c)
Portfolio turnover.... 549.13%(d) 546.06%(d) 225.90%(d) 114.76% 164.59% 294.62% 111.96%
</TABLE>
PROSPECTUS--Investor A Shares 18
<PAGE> 23
GOVERNMENT INCOME FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 12, 1992
-------------------- TO
1995 1994 JUNE 30, 1993(A)(B)
---- ---- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................ $9.41 $10.04 $10.00
----- ------ ------------
Investment Activities
Net investment income....................................... 0.75 0.74 0.48
Net realized and unrealized gain (loss) on investments...... (0.64) 0.04
--- ----- ---------
Total from Investment Activities............................ 0.75 0.10 0.52
--- --- ---------
Distributions
Net investment income....................................... (0.66) (0.72) (0.48)
Tax return of capital....................................... (0.08) (0.01)
----- ----- -----------
Total Distributions......................................... (0.74) (0.73) (0.48)
----- ----- -----------
NET ASSET VALUE, END OF PERIOD.................................. $9.42 $9.41 $10.04
----- ----- ------------
----- ----- ------------
Total Return (excluding sales and redemption charges)........... 8.46% 0.94% 5.35%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........................... $50,931 $54,027 $32,633
Ratio of expenses to average net assets..................... 1.04% 0.82% 0.75%(c)
Ratio of net investment income to average net assets........ 8.03% 7.42% 7.41%(c)
Ratio of expenses to average net assets*.................... 1.44% 1.36% 1.23%(c)
Ratio of net investment income to average net assets*....... 7.63% 6.87% 6.93%(c)
Portfolio turnover(d)....................................... 114.71% 102.24% 135.06%
</TABLE>
19 PROSPECTUS--Investor A Shares
<PAGE> 24
MICHIGAN FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
INVESTOR A SHARES JULY 2, 1990
------------------------------ TO
1995 1994 1993(B) 1992 JUNE 30, 1991(A)
---- ---- ------- ---- --------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $10.53 $10.97 $10.58 $10.14 $10.00
------ ------ ------ ------ ----------
Investment Activities
Net investment income (loss)............. 0.48 0.47 0.50 0.52 0.55
Net realized and unrealized gain (loss)
on investments......................... 0.23 (0.36) 0.47 0.44 0.11
--- ----- --- --- -------
Total from Investment Activities......... 0.71 0.11 0.97 0.96 0.66
--- --- --- --- -------
Distributions
Net investment income.................... (0.40) (0.45) (0.54) (0.52) (0.52)
In excess of net investment income....... (0.01)
Net realized gains....................... (0.01) (0.04)
In excess of net realized gains.......... (0.09)
----- ----- ----- ----- ---------
Total Distributions...................... (0.49) (0.55) (0.58) (0.52) (0.52)
----- ----- ----- ----- ---------
NET ASSET VALUE, END OF PERIOD............... $10.75 $10.53 $10.97 $10.58 $10.14
------ ------ ------ ------ ----------
------ ------ ------ ------ ----------
Total Return (excluding sales and redemption
charges)................................... 6.99% 0.92% 9.40% 9.73% 6.77%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........ $37,874 $42,204 $32,778 $146,782 $90,182
Ratio of expenses to average net
assets................................. 1.00% 0.85% 0.78% 0.84% 0.57%(c)
Ratio of net investment income to average
net assets............................. 4.57% 4.25% 4.67% 5.15% 5.67%(c)
Ratio of expenses to average net
assets*................................ 1.32% 1.29% 1.12% 1.05% 1.15%(c)
Ratio of net investment income to average
net assets*............................ 4.25% 3.81% 4.33% 4.93% 5.18%(c)
Portfolio turnover....................... 26.06%(d) 6.69%(d) 35.81%(d) 19.97% 45.30%
</TABLE>
PROSPECTUS--Investor A Shares 20
<PAGE> 25
MUNICIPAL BOND FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF
PERIOD.................. $10.29 $10.92 $10.58 $10.20 $10.03 $10.18 $10.00
------ ------ ------ ------ ------ ------ ----------
Investment Activities
Net investment income
(loss).............. 0.41 0.40 0.49 0.52 0.55 0.57 0.40
Net realized and
unrealized gain
(loss) on
investments......... 0.27 (0.31) 0.48 0.39 0.18 (0.12) (0.14)
--- ----- --- --- --- ----- ---------
Total from Investment
Activities.......... 0.68 0.09 0.97 0.91 0.73 0.45 0.54
--- --- --- --- --- --- -------
Distributions
Net investment
income.............. (0.41) (0.39) (0.53) (0.52) (0.56) (0.58) (0.36)
Net realized gains.... (0.21) (0.10) (0.01) (0.02)
In excess of net
realized gains...... (0.17) (0.12)
----- ----- ----- ----- --- ----- ---------
Total Distributions... (0.58) (0.72) (0.63) (0.53) (0.56) (0.60) (0.36)
----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD.................. $10.39 $10.29 $10.92 $10.58 $10.20 $10.03 $10.18
------ ------ ------ ------ ------ ------ ----------
------ ------ ------ ------ ------ ------ ----------
Total Return (excluding
sales and redemption
charges)................ 7.02% 0.71% 9.46% 9.11% 7.51% 4.57% 5.52%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)........ $11,378 $13,123 $9,333 $130,788 $98,186 $100,445 $68,256
Ratio of expenses to
average net
assets.............. 1.02% 0.87% 0.76% 0.81% 0.87% 0.85% 0.85%(c)
Ratio of net
investment income to
average net
assets.............. 4.00% 3.72% 4.56% 5.09% 5.49% 5.78% 6.11%(c)
Ratio of expenses to
average net
assets*............. 1.33% 1.32% 1.09% 1.03% 1.06% 1.06% 1.09%(c)
Ratio of net
investment income to
average net
assets*............. 3.68% 3.27% 4.23% 4.88% 5.29% 5.57% 5.87%(c)
Portfolio turnover.... 35.15%(d) 44.39%(d) 67.26%(d) 66.31% 76.55% 113.12% 82.22%
</TABLE>
21 PROSPECTUS--Investor A Shares
<PAGE> 26
PRIME OBLIGATIONS FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
INVESTOR A SHARES AUGUST 24, 1987
--------------------------- TO
1995 1994 1993(B) 1992 1991 1990 1989 JUNE 30, 1988(A)
---- ---- ------- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD............... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ----------
Investment Activities
Net investment
income.............. 0.047 0.027 0.028 0.046 0.069 0.080 0.083 0.056
----- ----- ----- ----- ------ ----- ----- ---------
Distributions
Net investment
income.............. (0.047) (0.027) (0.028) (0.046) (0.069) (0.080) (0.083) (0.056)
------ ------ ------ ------ ------ ------ ------ ----------
NET ASSET VALUE, END OF
PERIOD.................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ----------
------ ------ ------ ------ ------ ------ ------ ----------
Total Return.............. 4.81% 2.75% 2.89% 4.75% 7.15% 8.32% 8.58% 5.76%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)........ $108,565 $105,611 $129,433 $690,908 $702,340 $547,351 $526,450 $241,545
Ratio of expenses to
average net
assets.............. 0.75% 0.74% 0.66% 0.64% 0.64% 0.65% 0.62% 0.60%(c)
Ratio of net
investment income to
average net
assets.............. 4.71% 2.71% 2.86% 4.61% 6.86% 8.03% 8.26% 6.48%(c)
Ratio of expenses to
average net
assets*............. 0.92% 0.91% 0.71% 0.66% 0.66% 0.67% 0.66% 0.70%(c)
Ratio of net
investment income to
average net
assets*............. 4.54% 2.54% 2.81% 4.59% 6.84% 8.01% 8.22% 6.38%(c)
</TABLE>
PROSPECTUS--Investor A Shares 22
<PAGE> 27
U.S. GOVERNMENT OBLIGATIONS FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
INVESTOR A SHARES AUGUST 24, 1987
---------------------------- TO
1995 1994 1993(B) 1992 1991 1990 1989 JUNE 30, 1988(A)
-------- -------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ----------
Investment Activities
Net investment
income........... 0.047 0.027 0.028 0.044 0.066 0.078 0.080 0.055
----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net investment
income........... (0.047) (0.027) (0.028) (0.044) (0.066) (0.078) (0.080) (0.055)
------ ------ ------ ------ ------ ------ ------ ----------
NET ASSET VALUE, END OF
PERIOD............... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ----------
------ ------ ------ ------ ------ ------ ------ ----------
Total Return........... 4.76% 2.69% 2.84% 4.78% 6.82% 8.10% 8.31% 5.66%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end
of period
(000)............ $169,179 $172,482 $208,311 $400,242 $341,903 $248,671 $201,012 $136,823
Ratio of expenses
to average net
assets........... 0.77% 0.77% 0.66% 0.64% 0.65% 0.65% 0.63% 0.62%(c)
Ratio of net
investment income
to average net
assets........... 4.62% 2.64% 2.79% 4.43% 6.54% 7.79% 8.00% 6.25%(c)
Ratio of expenses
to average net
assets*.......... 0.94% 0.94% 0.72% 0.66% 0.67% 0.67% 0.68% 0.73%(c)
Ratio of net
investment income
to average net
assets*.......... 4.45% 2.47% 2.73% 4.41% 6.52% 7.77% 7.95% 6.14%(c)
</TABLE>
TREASURY FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 1,
JUNE 30, 1993 TO JUNE 30,
1995 1994(A)
--------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $1.000 $1.000
------- ----------
Investment Activities
Net investment income................................................. 0.047 0.016
------ ---------
Distributions
Net investment income................................................. (0.047) (0.016)
------- ----------
NET ASSET VALUE, END OF PERIOD............................................ $1.000 $1.000
------- ----------
------- ----------
Total Return.............................................................. 4.81% 1.66%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..................................... $105,391 $56,535
Ratio of expenses to average net assets............................... 0.75% 0.64%(c)
Ratio of net investment income to average net assets.................. 4.82% 2.84%(c)
Ratio of expenses to average net assets*.............................. 1.04% 0.99%(c)
Ratio of net investment income to average net assets*................. 4.52% 2.49%(c)
</TABLE>
23 PROSPECTUS--Investor A Shares
<PAGE> 28
TAX-FREE FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
INVESTOR A SHARES JULY 30, 1987
-------------------------- TO
1995 1994 1993(B) 1992 1991 1990 1989 JUNE 30, 1988(A)
---- ---- ------- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ----------
Investment Activities
Net investment
income........... 0.029 0.018 0.019 0.033 0.046 0.054 0.055 0.040
----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net investment
income........... (0.029) (0.018) (0.019) (0.033) (0.046) (0.054) (0.055) (0.040)
------ ------ ------ ------ ------ ------ ------ ----------
NET ASSET VALUE, END OF
PERIOD............... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ----------
------ ------ ------ ------ ------ ------ ------ ----------
Total Return........... 2.90% 1.81% 2.07% 3.34% 4.73% 5.75% 5.62% 4.08%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end
of period
(000)............ $45,102 $48,256 $54,886 $141,913 $139,615 $142,004 $120,031 $107,199
Ratio of expenses
to average net
assets........... 0.74% 0.68% 0.58% 0.59% 0.60% 0.61% 0.63% 0.64%(c)
Ratio of net
investment income
to average net
assets........... 2.88% 1.81% 2.05% 3.29% 4.63% 5.43% 5.46% 4.34%(c)
Ratio of expenses
to average net
assets*.......... 0.95% 0.93% 0.72% 0.69% 0.70% 0.70% 0.73% 0.75%(c)
Ratio of net
investment income
to average net
assets*.......... 2.67% 1.56% 1.91% 3.19% 4.53% 5.34% 5.36% 4.23%(c)
</TABLE>
- ------------
FOOTNOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993 the shareholders of the Group exchanged their shares for
either the Group's Investor A Shares or Institutional Shares. For the year
ended June 30, 1993 the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities
and distributions are presented on the basis whereby the Fund's net
investment income, expenses, and distributions for the period July 1, 1992
through March 31, 1993 were allocated to each class of shares based upon the
relative net assets of each class of shares as of April 1, 1993 and the
results combined therewith the results of operations and distributions for
each applicable class for the period April 1, 1993 through June 30, 1993.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between classes of shares issued.
(e) Not annualized.
PROSPECTUS--Investor A Shares 24
<PAGE> 29
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds is set forth below under the
headings describing the Funds. The investment objectives of each Fund are
fundamental policies and may not be changed without a vote of the holders of a
majority of the outstanding Shares of that Fund (as defined in the Statement of
Additional Information). Other policies of a Fund may be changed without a vote
of the holders of a majority of outstanding Shares of that Fund unless the
policy is expressly deemed to be a fundamental policy or changeable only by such
majority vote. There can be no assurance that the investment objectives of any
Fund will be achieved. Depending upon the performance of a Fund's investments,
the net asset value per share of that Fund may decrease instead of increase.
During temporary defensive periods as determined by First of America or the
Subadviser, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic bank certificates of
deposit, bankers' acceptances and repurchase agreements secured by bank
instruments. However, to the extent that a Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
GROWTH FUNDS
THE EQUITY FUND AND SMALL CAPITALIZATION FUND
The investment objective of the Equity Fund is to seek growth of capital by
investing primarily in a diversified portfolio of common stocks and securities
convertible into common stocks. The investment objective of the Small
Capitalization Fund is to seek growth of capital by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stocks of small to medium-sized companies.
Under normal market conditions, each of the Equity and Small Capitalization
Funds will invest at least 80% of the value of its total assets in common stocks
and securities convertible into common stocks of companies believed by First of
America to be characterized by sound management and the ability to finance
expected long-term growth. In addition, under normal market conditions, the
Small Capitalization Fund will invest at least 65% of the value of its total
assets in common stocks and securities convertible into common stocks of
companies considered by First of America to have a market capitalization of less
than $1 billion. Each of the Equity and Small Capitalization Funds may also
invest up to 20% of the value of its total assets in preferred stocks, corporate
bonds, notes, units of real estate investment trusts, warrants, and short-term
obligations (with maturities of 12 months or less) consisting of commercial
paper (including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and demand and time
deposits of domestic and foreign banks and savings and loan associations. Each
of the Equity and Small Capitalization Funds may also hold securities of other
investment companies and depositary or custodial receipts representing
beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, each of the Equity and Small Capitalization
Funds may also invest up to 25% of its net assets in foreign securities either
directly or through the purchase of ADRs and may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper. For a discussion of risks associated with foreign securities, see
"RISK FACTORS AND INVESTMENT TECHNIQUES--Foreign Securities" herein.
The Equity Fund anticipates investing in growth-oriented, medium capitalization
companies. These companies have typically exhibited consistent, above average
growth in revenues and earnings, strong management, and sound and improving
financial fundamentals. Often, these companies are market or industry leaders,
have excellent products and/or services, and exhibit the potential for growth.
Core holdings of the Equity Fund are in companies that participate in long-term
growth industries, although these will be supplemented by holdings in non-growth
industries that exhibit the desired characteristics.
25 PROSPECTUS--Investor A Shares
<PAGE> 30
The Small Capitalization Fund anticipates investing in dynamic small- to
medium-sized companies that exhibit outstanding potential for superior growth.
For purposes of the foregoing sentence, small-sized companies are considered to
be those with capitalization of less than $1 billion and medium-sized companies
are considered to be those with capitalization of $1 billion or more but less
than $5 billion. The Small Capitalization Fund will limit its investment in
securities of medium-sized companies to not more than 35% of the value of its
total assets. Companies that participate in sectors that are identified as
having long-term growth potential generally make up a substantial portion of
such Fund's holdings. These companies often have established a market niche or
have developed unique products or technologies that are expected to produce
superior growth in revenues and earnings. As smaller capitalization stocks are
quite volatile and subject to wide fluctuations in both the short and medium
term, the Small Capitalization Fund may be fairly characterized more aggressive
than a general equity fund such as the Equity Fund.
Consistent with the foregoing, each of the Equity and Small Capitalization Funds
will focus its investments in those companies and types of companies that First
of America believes will enable such Fund to achieve its investment objective.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE EQUITY FUND AND SMALL CAPITALIZATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Other Mutual Funds -Put and Call Options -Restricted Securities
-When-Issued and -Repurchase Agreements -Reverse Repurchase Agreements
Delayed-Delivery -Portfolio Turnover and Dollar Roll Agreements
Transactions
</TABLE>
- --------------------------------------------------------------------------------
THE INTERNATIONAL FUND
The investment objective of the International Fund is the long-term growth of
capital.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States, or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States, and (iii) which are small-
or medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRs.
Companies are deemed to be small- or medium-sized which at the time of purchase
are of a size which would rank them in the lower half of a major market index in
each country by weighted market capitalization and all equity securities listed
in recognized secondary markets where such markets exist. In addition, in
countries with less well-developed stock markets, where the range of investment
opportunities is more restrictive, the equity securities of all listed companies
will be eligible for investment. In major markets issuers could have
capitalizations of up to approximately $10 billion while in smaller markets
issuers would be eligible with capitalizations as low as approximately $200
million.
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and United Kingdom. Normally the
International Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
International Fund's assets could be invested in U.S. companies. In addition,
the International
PROSPECTUS--Investor A Shares 26
<PAGE> 31
Fund temporarily may invest cash in short-term debt instruments of U.S. and
foreign issuers for cash management purposes or pending investment.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE INTERNATIONAL FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Lending Portfolio Securities -Other Mutual Funds
-Put and Call Options -Repurchase Agreements -Restricted Securities
-Reverse Repurchase Agreements -When-Issued and -Portfolio Turnover
and Dollar Roll Agreements Delayed-Delivery
Transactions
</TABLE>
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUNDS
THE BALANCED FUND
The investment objectives of the Balanced Fund are to seek current income,
long-term capital growth and conservation of capital.
The Balanced Fund may invest in any type or class of security. Under normal
market conditions the Balanced Fund will invest in common stocks, fixed income
securities and securities convertible into common stocks (i.e., warrants,
convertible preferred stock, fixed rate preferred stock, convertible fixed-
income securities, options and rights). At least 25% of the value of the
Balanced Fund's total assets will be invested in fixed income senior securities.
Up to 15% of the value of the Balanced Fund's total assets may be invested in
foreign securities.
The Balanced Fund's common stocks are held for the purpose of providing dividend
income and long-term growth of capital. The Balanced Fund will invest in the
common and preferred stocks of companies with capitalization of at least $100
million and which are traded either in established over-the-counter markets or
on national exchanges. The Balanced Fund intends to invest primarily in those
companies which are growth oriented and have exhibited consistent, above average
growth in revenues and earnings. When choosing such stocks, the potential for
long term capital appreciation will be the primary basis for selection.
The Balanced Fund's fixed income senior securities consist of bonds, debentures,
notes, zero-coupon securities, mortgage-related securities, state, municipal or
industrial revenue bonds, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, certificates of deposit, time
deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand notes. In addition, a portion of the Balanced Fund may from
time to time be invested in first mortgage loans and participation certificates
in pools of mortgages issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Some of the securities in which the Balanced Fund
invests may have warrants or options attached. The Balanced Fund may also invest
in repurchase agreements.
The Balanced Fund expects to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, as well as
"stripped" U.S. Treasury obligations such as Treasury Receipts issued by the
U.S. Treasury representing either future interest or principal payments
("Stripped Treasury Obligations"), and other obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. See "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations" below.
The Balanced Fund also expects to invest in bonds, notes and debentures of a
wide range of U.S. corporate issuers. Such obligations, in the case of
debentures, will represent unsecured promises to pay, in the case of notes and
bonds, may be secured by mortgages on real property or security interests in
personal property and will in most cases differ in their interest rates,
maturities and times of issuance.
27 PROSPECTUS--Investor A Shares
<PAGE> 32
The Balanced Fund will invest only in corporate fixed income securities which
are rated at the time of purchase within the four highest rating groups assigned
by a nationally-recognized statistical rating organization ("NRSRO") or, if
unrated, which First of America deems present attractive opportunities and are
of comparable quality. For a description of the rating symbols of the NRSROs,
see the Appendix to the Statement of Additional Information. For a discussion of
fixed income securities rated within the fourth highest rating group assigned by
an NRSRO, see "RISK FACTORS AND INVESTMENT TECHNIQUES-- Medium Grade Securities"
herein.
The Balanced Fund may hold some short-term obligations (with maturities of 12
months or less) consisting of domestic and foreign commercial paper, variable
amount master demand notes, bankers' acceptances, certificates of deposit and
time deposits of domestic and foreign branches of U.S. banks and foreign banks,
and repurchase agreements. The Balanced Fund may also invest in securities of
other investment companies.
The Balanced Fund may also invest in obligations of the Export-Import Bank of
the United States, in U.S. dollar denominated international bonds for which the
primary trading market is in the United States ("Yankee Bonds"), or for which
the primary trading market is abroad ("Eurodollar Bonds"), and in Canadian Bonds
and bonds issued by institutions, such as the World Bank and the European
Economic Community, organized for a specific purpose by two or more sovereign
governments ("Supranational Agency Bonds"). The Balanced Fund's investments in
foreign securities may be made either directly or through the purchase of
American Depositary Receipts ("ADRs") and may also invest in securities issued
by foreign branches of U.S. banks and foreign banks, in Canadian commercial
paper ("CCP"), and in Europaper (U.S. dollar denominated commercial paper of a
foreign issuer).
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon First of America's assessment of business, economic and
market conditions, including any potential advantage of price shifts between the
stock market and the bond market. The Balanced Fund reserves the right to hold
short-term securities in whatever proportion deemed desirable for temporary
defensive periods during adverse market conditions as determined by First of
America. However, to the extent that the Balanced Fund is so invested, its
investment objectives may not be achieved during that time.
Like any investment program, the Balanced Fund entails certain risks. As a Fund
investing primarily in common stocks the Balanced Fund is subject to stock
market risk, i.e., the possibility that stock prices in general will decline
over short or even extended periods.
Since the Balanced Fund also invests in bonds, investors in the Balanced Fund
are also exposed to bond market risk, i.e., fluctuations in the market value of
bonds. Bond prices are influenced primarily by changes in the level of interest
rates. When interest rates rise, the prices of bonds generally fall; conversely,
when interest rates fall, bond prices generally rise. While bonds normally
fluctuate less in price than stock, there have been extended periods of cyclical
increases in interest rates that have caused significant declines in bond
prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result the Balanced
Fund, with its balance of common stock and bond investments, is expected to
entail less investment risk (and a potentially smaller investment return) than a
mutual fund investing exclusively in common stocks.
PROSPECTUS--Investor A Shares 28
<PAGE> 33
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE BALANCED FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Medium-Grade Securities -Mortgage-Related Securities -Other Mutual Funds
-Put and Call Options -Repurchase Agreements -Restricted Securities
-Reverse Repurchase Agreements -When-Issued and -Portfolio Turnover
and Dollar Roll Agreements Delayed-Delivery
Transactions
</TABLE>
- --------------------------------------------------------------------------------
THE HIGH INCOME EQUITY FUND
The investment objective of the High Income Equity Fund is to seek current
income by investing in a diversified portfolio of high quality, dividend-paying
common stocks and securities convertible into common stocks. A secondary
investment objective of High Income Equity Fund is growth of capital.
The High Income Equity Fund, under normal market conditions, will invest at
least 80% of the value of its total assets in common stocks and securities
convertible into common stocks of companies believed by First of America to be
characterized by sound management, the ability to finance expected growth and
the ability to pay above average dividends. The High Income Equity Funds may
also invest up to 20% of the value of its total assets in preferred stocks,
corporate bonds, notes, units of real estate investment trusts, warrants, and
short-term obligations (with maturities of 12 months or less) consisting of
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit, repurchase agreements, obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, and
demand and time deposits of domestic and foreign banks and savings and loan
associations. The High Income Equity Funds may also hold securities of other
investment companies and depositary or custodial receipts representing
beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, the High Income Equity Funds may also invest
up to 25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Foreign Securities" herein.
The High Income Equity Fund anticipates investing in securities that currently
have a high dividend yield, with the anticipation that the dividend will remain
constant or be increased in the future. These securities generally represent the
core holdings of this Fund. However, these holdings are balanced with lower
yielding but higher growth-oriented securities to achieve portfolio balance. All
securities must provide current income. Given its bias towards income, the High
Income Equity Fund may be considered the more conservative than growth-oriented
equity funds such as the Group's Equity and Small Capitalization Funds.
Consistent with the foregoing, the High Income Equity Fund will focus its
investments in those companies and types of companies that First of America
believes will enable such Fund to achieve its investment objective.
29 PROSPECTUS--Investor A Shares
<PAGE> 34
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE HIGH INCOME EQUITY FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Other Mutual Funds -Put and Call Options -Reverse Repurchase Agreements
-Repurchase Agreements -Restricted Securities and Dollar Roll Agreements
-When-Issued and -Portfolio Turnover
Delayed-Delivery
Transactions
</TABLE>
- --------------------------------------------------------------------------------
INCOME FUNDS
THE BOND FUND AND LIMITED MATURITY BOND FUND
The investment objective of the Bond Fund is to seek current income as well as
preservation of capital by investing in a portfolio of high and medium grade
fixed-income securities. The investment objective of the Limited Maturity Bond
Fund is to seek current income as well as preservation of capital by investing
in a portfolio of high and medium grade fixed-income securities with remaining
maturities of six years or less.
Under normal market conditions, the Bond Fund will invest at least 80% of the
value of its total assets in bonds, debentures, notes with remaining maturities
at the time of purchase of one year or more, zero-coupon securities,
mortgage-related securities, state, municipal or industrial revenue bonds,
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, debt securities convertible into, or exchangeable for, common
stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Bond Fund will invest in state and municipal securities
when, in the opinion of First of America, their yields are competitive with
comparable taxable debt obligations. In addition, up to 20% of the value of the
Bond Fund's total assets may be invested in preferred stocks, notes with
remaining maturities at the time of purchase of less than one year, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies,
and Guaranteed Investment Contracts ("GICs") issued by insurance companies, as
more fully described below. The Bond Fund intends that under normal market
conditions its portfolio will maintain an average weighted maturity of
approximately eight to twelve years. However, the Bond Fund may extend or
shorten the average weighted maturity of its portfolio depending upon
anticipated changes in interest rates or other relevant market factors. Some of
the securities in which the Bond Fund invests may have warrants or options
attached.
Under normal market conditions, the Limited Maturity Bond Fund will invest at
least 80% of the value of its total assets in the following securities which
have remaining maturities of six years or less: bonds, debentures, notes with
remaining maturities at the time of purchase of one year or more, zero-coupon
securities, mortgage related securities, state, municipal or industrial revenue
bonds, obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, debt securities convertible into, or exchangeable for,
common stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Limited Maturity Bond Fund will invest in state and
municipal securities when, in the opinion of First of America, their yields are
competitive with comparable taxable debt obligations. In addition, up to 20% of
the value of the Limited Maturity Bond Fund's total assets may be invested in
the debt securities listed above without regard to maturity, preferred stocks,
notes with remaining maturities at the time of purchase of less than one year,
short-term debt obligations consisting of domestic and foreign commercial paper
(including variable amount master demand notes), bankers' acceptances,
certificates of deposit and time deposits of domestic and foreign branches of
U.S. banks and foreign banks, repurchase agreements, securities of other
investment companies and GICs. Under normal market conditions, the Limited
Maturity
PROSPECTUS--Investor A Shares 30
<PAGE> 35
Bond Fund expects to maintain a dollar-weighted average portfolio maturity of
its debt securities of three years or less. Some of the securities in which the
Limited Maturity Bond Fund invests may have warrants or options attached.
The Bond Fund and Limited Maturity Bond Fund each expects to invest in a variety
of U.S. Treasury obligations, differing in their interest rates, maturities, and
times of issuance, as well as Stripped Treasury Obligations, and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES--Government
Obligations" below.
The Bond Fund and the Limited Maturity Bond Fund each also expects to invest in
bonds, notes and debentures of a wide range of U.S. corporate issuers. Such
obligations, in the case of debentures, will represent unsecured promises to
pay, in the case of notes and bonds, may be secured by mortgages on real
property or security interests in personal property and will in most cases
differ in their interest rates, maturities and times of issuance.
The Bond Fund and the Limited Maturity Bond Fund each will invest only in
corporate debt securities which are rated at the time of purchase within the
four highest rating groups assigned by an NRSRO or, if unrated, which First of
America deems present attractive opportunities and are of comparable quality.
For a discussion of debt securities rated within the fourth highest rating group
assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Medium-Grade
Securities" herein.
The Bond Fund and the Limited Maturity Bond Fund each may hold some short-term
obligations (with maturities of 12 months or less) consisting of domestic and
foreign commercial paper (including variable amount master demand notes),
bankers' acceptances, certificates of deposit and time deposits of domestic and
foreign branches of U.S. banks and foreign banks, and repurchase agreements. The
Bond Fund and the Limited Maturity Bond Fund each may also invest in securities
of other investment companies or in GICs.
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian Bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond Fund may also invest up to 25% of its
net assets in foreign securities either directly or through the purchase of ADRs
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper.
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, First of America may purchase debt securities at a
discount from face value, which produces a yield greater than the coupon rate.
Conversely, if debt securities are purchased at a premium over face value, the
yield will be lower than the coupon rate. In making investment decisions for the
Bond Fund, First of America will consider many factors other than current yield,
including the preservation of capital, the potential for realizing capital
appreciation, maturity, and yield to maturity. In making investment decisions
for the Limited Maturity Bond Fund, First of America will consider many factors
other than current yield, including the preservation of capital, maturity, and
yield to maturity.
By seeking to maintain a dollar-weighted average portfolio maturity of three
years or less, the Limited Maturity Bond Fund attempts to minimize the
fluctuation in its Shares' net asset value relative to those funds which invest
in longer term obligations.
31 PROSPECTUS--Investor A Shares
<PAGE> 36
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THE BOND FUND AND LIMITED MATURITY BOND FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Guaranteed Investment Contracts -Lending Portfolio Securities
-Medium-Grade Securities -Mortgage-Related Securities -Municipal Securities
-Other Mutual Funds -Put and Call Options -Repurchase Agreements
-Restricted Securities -Reverse Repurchase Agreements -When-Issued and
-Portfolio Turnover and Delayed-Delivery
Dollar Roll Agreements Transactions
</TABLE>
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THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
The investment objective of the Intermediate Government Obligations Fund is to
seek current income with preservation of capital by investing in U.S. Government
securities with remaining maturities of twelve years or less.
Under normal market conditions, the Intermediate Government Obligations Fund
will invest at least 80% of its total assets in obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and with remaining
maturities of twelve years or less, although up to 20% of the value of its total
assets may be invested in debt securities, preferred stocks and other
investments without regard to maturity, except as set forth below. Under normal
market conditions, the Intermediate Government Obligations Fund expects to
maintain a dollar-weighted average portfolio maturity of its debt securities of
three to ten years.
The types of U.S. Government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and Government securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES-- Government Obligations."
The Intermediate Government Obligations Fund may also invest in mortgage-related
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, as more fully described below under "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations."
By seeking to maintain a dollar-weighted average portfolio maturity of three to
ten years, the Intermediate Government Obligations Fund attempts to minimize the
fluctuation in its Shares' net asset value relative to those funds which invest
in longer term obligations.
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THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Currency Transactions -Futures Contracts
-Government Obligations -Guaranteed Investment Contracts -Lending Portfolio Securities
-Other Mutual Funds -Private Activity Bonds -Put and Call Options
-Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements
-When-Issued and -Portfolio Turnover and Dollar Roll Agreements
Delayed-Delivery
Transactions
</TABLE>
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THE GOVERNMENT INCOME FUND
The investment objective of the Government Income Fund is to provide
shareholders with a high level of current income consistent with prudent
investment risk.
PROSPECTUS--Investor A Shares 32
<PAGE> 37
Under normal market conditions, the Government Income Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
nongovernmental issuers. Consistent with the foregoing, under current market
conditions, the Government Income Fund intends to invest up to 80% of the value
of its total assets in mortgage-related securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. The Government Income Fund
also may invest up to 35% of its total assets in mortgage-related securities
issued by nongovernmental entities and in other securities described below. For
more information, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Mortgage-Related
Securities," below.
The types of U.S. Government obligations, including mortgage-related securities,
invested in by the Government Income Fund will include obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Treasury, such as Treasury bills, notes and bonds, Stripped Treasury
Obligations and Government Securities, as described below in "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations".
The Government Income Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper rated
at the time of purchase within the top two categories by an NRSRO or, if
unrated, which First of America deems to present attractive opportunities and
are of comparable quality (including variable amount master demand notes),
bankers' acceptances, certificates of deposit and time deposits of domestic and
foreign branches of U.S. banks and foreign banks, and repurchase and reverse
repurchase agreements. The Government Income Fund may also invest in corporate
debt securities which are rated at the time of purchase within the top three
categories of an NRSRO or, if unrated, which First of America deems to present
attractive opportunities and are of comparable quality.
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THE GOVERNMENT INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Government Obligations -Lending Portfolio Securities
-Mortgage-Related Securities -Other Mutual Funds -Restricted Securities
-Put and Call Options -Repurchase Agreement -Reverse Repurchase Agreements
-When-Issued and -Portfolio Turnover and Dollar Roll Agreements
Delayed-Delivery
Transactions
</TABLE>
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TAX-FREE INCOME FUNDS
The investment objective of the Municipal Bond Fund is to seek current interest
income which is exempt from federal income taxes as well as preservation of
capital. The investment objectives of the Michigan Fund are to seek income which
is exempt from federal income tax and Michigan state income and intangibles tax,
although such income may be subject to the federal alternative minimum tax when
received by certain Shareholders, and to seek preservation of capital.
Under normal market conditions and as a fundamental policy, at least 80% of the
net assets of the Municipal Bond Fund will be invested in a diversified
portfolio of Municipal Securities and at 80% of the net assets of the Michigan
Fund will be invested in a portfolio of Michigan Municipal Securities.
"Municipal Securities" include obligations consisting of bonds, notes and
commercial paper, issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and other political subdivisions,
agencies, instrumentalities and authorities, the interest on which is both
exempt from federal income taxes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. "Michigan
Municipal Securities" include debt obligations, consisting of notes, bonds and
commercial paper, issued by or on behalf of the State of Michigan, its political
subdivisions, municipalities and public authorities, the interest on which is,
in the opinion of bond counsel to the issuer, exempt from federal income tax and
Michigan state income and intangibles taxes (but may be treated as
33 PROSPECTUS--Investor A Shares
<PAGE> 38
a preference item for individuals for purposes of the federal alternative
minimum tax) and debt obligations issued by the Government of Puerto Rico or the
U.S. territories and possessions of Guam and the U.S. Virgin Islands and such
other governmental entities whose debt obligations, either by law or treaty,
generate interest income which is exempt from federal and Michigan state income
and intangibles tax. For more information regarding Municipal Securities and
Michigan Municipal Securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Municipal Securities," below.
Under normal market conditions, at least 65% of the net assets of each of the
Municipal Bond Fund and the Michigan Fund will be invested in Municipal
Securities (Michigan Municipal Securities in the case of the Michigan Fund)
consisting of bonds and notes with remaining maturities at the time of purchase
of one year or more. Quality is the primary consideration in selecting Michigan
Municipal Securities for investment by the Michigan Fund.
The Municipal Bond Fund also intends that under normal market conditions its
portfolio will maintain an average weighted maturity of approximately eight to
ten years and an average weighted rating of AA/Aa. The Michigan Fund, under
normal market conditions, will be invested in long-term Michigan Municipal
Securities and that the average weighted maturity of such investments will be 5
to 12 years, although the Michigan Fund may invest in Michigan Municipal
Securities of any maturity. However, First of America may extend or shorten the
average weighted maturity of its portfolio depending upon anticipated changes in
interest rates or other relevant market factors. In addition, the average
weighted rating of a Tax-Free Income Fund's portfolio may vary depending upon
the availability of suitable Municipal Securities or other relevant market
factors.
The Michigan Fund invests in Michigan Municipal Securities which are rated at
the time of purchase within the four highest rating groups assigned by an NRSRO
or rated within the two highest rating groups assigned by an NRSRO in the case
of notes, tax-exempt commercial paper or variable rate demand obligations. The
Michigan Fund may also purchase Michigan Municipal Securities which are unrated
at the time of purchase but are determined to be of comparable quality by First
of America pursuant to guidelines approved by the Group's Board of Trustees. The
applicable Michigan Municipal Securities ratings are described in the Appendix
to the Statement of Additional Information. For a description of debt securities
rated within the fourth highest rating group assigned by the NRSROs, see "RISK
FACTORS AND INVESTMENT TECHNIQUES--Medium-Grade Securities" herein.
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Tax-Free Income Funds will not treat these
bonds as "Municipal Securities" or "Michigan Municipal Securities" for purposes
of measuring compliance with the 80% tests described above. To the extent the
Tax-Free Income Funds invests in these bonds, individual shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Tax-Free Income Fund's distributions derived from these bonds. For
further information relating to the types of municipal securities which will be
included in income subject to alternative minimum tax, see "ADDITIONAL
INFORMATION-- Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Fund" in the Statement of Additional
Information.
In addition, investments may be made in taxable obligations if, for example,
suitable tax-exempt obligations are unavailable or if acquisition of U.S.
Government or other taxable securities is deemed appropriate for temporary
defensive purposes as determined by First of America to be warranted due to
market conditions. Such taxable obligations consist of Government Securities,
certificates of deposit, time deposits and bankers' acceptances of selected
banks, commercial paper meeting the Tax-Free Income Fund's quality standards (as
described above) for tax-exempt commercial paper, and such taxable obligations
as may be subject to repurchase agreements. These obligations are described
further in the Statement of Additional Information. Under such circumstances and
during the period of such investment, the affected Tax-Free Income Fund may not
achieve its stated investment objectives.
Although the Municipal Bond Fund may invest more than 25% of its net assets in
(i) Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, it does not presently intend to do
so on a regular basis. To the extent the Municipal Bond Fund's assets are
concentrated in Municipal Securities
PROSPECTUS--Investor A Shares 34
<PAGE> 39
that are payable from the revenues of similar projects or are issued by issuers
located in the same state, or are concentrated in private activity bonds, the
Municipal Bond Fund will be subject to the peculiar risks presented by the laws
and economic conditions relating to such states, projects and bonds to a greater
extent than it would be if its assets were not so concentrated.
SPECIAL CONSIDERATIONS RELATING TO THE MICHIGAN FUND
Because the Michigan Fund invests primarily in securities issued by the State of
Michigan and its political subdivisions, municipalities and public authorities,
the Michigan Fund's performance is closely tied to the general economic
conditions within the State as a whole and to the economic conditions within
particular industries and geographic areas represented or located within the
State. However, the Michigan Fund attempts to diversify, to the extent First of
America deems appropriate, among issuers and geographic areas in the State of
Michigan.
The Michigan Fund's classification as a "non-diversified" investment company
means that the proportion of the Michigan Fund's assets that may be invested in
the securities of a single issuer is not limited by the 1940 Act. However, the
Michigan Fund intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended, which requires the Michigan Fund generally to invest, with respect to
50% of its total assets, not more than 5% of such assets in the obligations of a
single issuer; as to the remaining 50% of its total assets, the Michigan Fund is
not so restricted. In no event, however, may the Michigan Fund invest more than
25% of its total assets in the obligations of any one issuer. Compliance with
this requirement is measured at the close of each quarter of the Michigan Fund's
taxable year. Since a relatively high percentage of the Michigan Fund's assets
may be invested in the obligations of a limited number of issuers, some of which
may be within the same economic sector, the Michigan Fund's portfolio securities
may be more susceptible to any single economic, political or regulatory
occurrence than the portfolio securities of a diversified investment company.
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TAX-FREE INCOME FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Currency Transactions -Futures Contracts
-Government Obligations -Lending Portfolio Securities -Medium-Grade Securities
-Municipal Securities -Other Mutual Funds -Put and Call Options
-When-Issued and -Repurchase Agreements -Restricted Securities
Delayed-Delivery -Portfolio Turnover -Reverse Repurchase Agreements
Transactions and Dollar Roll Agreements
</TABLE>
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MONEY MARKET FUNDS
The investment objective of each of the Prime Obligations Fund, the U.S.
Government Obligations Fund, and the Treasury Fund is to seek current income
with liquidity and stability of principal. The investment objective of the
Tax-Free Fund is to seek as high a level of current interest income free from
federal income taxes as is consistent with the preservation of capital and
relative stability of principal.
The Prime Obligations Fund invests in high-quality money market instruments,
including Municipal Securities and other instruments deemed to be of comparable
high quality as determined by the Board of Trustees. Under normal market
conditions, the U.S. Government Obligations Fund invests at least 65% of the
value of its total assets in short-term U.S. Treasury bills, notes, and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Treasury Fund, under normal market conditions, invests
exclusively in obligations issued or guaranteed by the U.S. Treasury, its
agencies or instrumentalities and in repurchase agreements related to such
securities. As a matter of fundamental policy, under normal market conditions,
at least 80% of the Tax-Free Fund's total assets will be invested in Municipal
Securities.
35 PROSPECTUS--Investor A Shares
<PAGE> 40
The U.S. Government Obligations Fund may invest up to 35% of the value of its
total assets in high-quality money market instruments, including Municipal
Securities, and other instruments deemed to be of comparable high quality as
determined by the Board of Trustees.
The Tax-Free Fund may invest up to 20% of its total assets in obligations, the
interest on which is either subject to federal income taxation or treated as a
preference item for purposes of the federal alternative minimum tax ("Taxable
Obligations"). If deemed appropriate for temporary defensive purposes, the Tax-
Free Fund may increase its holdings in Taxable Obligations to over 20% of its
total assets and may also hold uninvested cash reserves pending investment.
Taxable Obligations may include obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (some of which may be subject to
repurchase agreements), certificates of deposit and bankers' acceptances of
selected banks, and commercial paper meeting the Tax-Free Fund's quality
standards (as described below) for tax-exempt commercial paper. These
obligations are described further in the Statement of Additional Information.
As a money market fund, each Money Market Fund invests exclusively in United
States dollar denominated instruments which the Trustees of the Group and the
Money Market Fund's investment adviser determine present minimal credit risks
and which at the time of acquisition are rated by one or more appropriate
nationally recognized statistical rating organizations ("NRSRO") (e.g., Standard
& Poor's Corporation and Moody's Investors Service, Inc.) in one of the two
highest rating categories for short-term debt obligations or, if unrated, are of
comparable quality. In addition, the U.S. Government Obligations Fund, the Prime
Obligations Fund and the Treasury Fund each diversify its investments so that,
with minor exceptions and except for United States Government securities, not
more than five percent of its total assets is invested in the securities of any
one issuer, not more than five percent of its total assets is invested in
securities of all issuers rated by the NRSRO at the time of investment in the
second highest rating category for short-term debt obligations or deemed to be
of comparable quality to securities rated in the second highest rating
categories for short-term debt obligations ("Second Tier Securities") and not
more than the greater of one percent of total assets or one million dollars is
invested in the securities of one issuer that are Second Tier Securities. All
securities or instruments in which a Money Market Fund invests have remaining
maturities of 397 calendar days (thirteen months) or less. The dollar-weighted
average maturity of the obligations in a Money Market Fund will not exceed 90
days.
The Prime Obligations Fund and, within the limitations described above, the U.S.
Government Obligations Fund may invest in short-term promissory notes issued by
corporations (including variable amount master demand notes) rated at the time
of purchase within the two highest categories assigned by an NRSRO or, if not
rated, found by the Group's Board of Trustees to be of comparable quality to
instruments that are so rated. Instruments may be purchased in reliance upon a
rating only when the rating organization is not affiliated with the issuer or
guarantor of the instrument. For a description of the rating symbols of the
NRSROs as used in this paragraph, see the Appendix to the Statement of
Additional Information. The Prime Obligations Fund may also invest in CCP and in
Europaper.
The Tax-Free Fund may acquire zero coupon obligations, which have greater price
volatility than coupon obligations and which will not result in the payment of
interest until maturity.
Although the Tax-Free Fund presently does not intend to do so on a regular
basis, it may invest more than 25% of its assets in Municipal Securities which
are related in such a way that an economic, business, or political development
or change affecting one such security would likewise affect the other Municipal
Securities. Examples of such securities are obligations the repayment of which
is dependent upon similar types of projects or projects located in the same
state. Such investments would be made only if deemed necessary or appropriate by
the Tax-Free Fund's investment adviser. To the extent that the Tax-Free Fund's
assets are concentrated in Municipal Securities that are so related, the
Tax-Free Fund will be subject to the peculiar risks presented by such Municipal
Securities, such as negative developments in a particular industry or state, to
a greater extent than it would be if the Tax-Free Fund's assets were not so
concentrated.
Variable amount master demand notes in which the Prime Obligations Fund and U.S.
Government Obligations Fund may invest are unsecured demand notes that permit
the indebtedness thereunder to vary, and that provide for periodic adjustments
in the interest rate according to the terms of the
PROSPECTUS--Investor A Shares 36
<PAGE> 41
instrument. Because master demand notes are direct lending arrangements between
the Fund and the issuer, they are not normally traded. Although there is no
secondary market in the notes, the Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes (which are
normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for commercial paper. First of
America 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 period of time remaining until the principal amount can
be recovered from the issuer through demand. The period of time remaining until
the principal amount can be recovered under a variable master demand note shall
not exceed seven days.
Similarly, the Tax-Free Fund, within the limitations described above and subject
to the quality standards for tax-exempt commercial paper described below, may
invest in commercial paper.
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MONEY MARKET FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities (except -Foreign Currency Transactions -Government Obligations
Treasury) -Municipal Securities (except -Put and Call Options (Tax-Free
-Lending Portfolio Securities Treasury) Fund Only)
-Repurchase Agreements -Restricted Securities (except -Reverse Repurchase Agreements
-When-Issued and Delayed Treasury) and
Delivery Transactions -Portfolio Turnover Dollar Roll Agreements
(except Treasury)
</TABLE>
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RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase or dollar roll agreements with
First of America Bank-Michigan, N.A. (the parent corporation of First of
America), BISYS, or their affiliates, and will not give preference to First of
America Bank-Michigan, N.A.'s correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements, reverse repurchase
agreements and dollar roll agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by First of America and, in the case
of the International and Balanced Funds, the Subadviser in the management of
each of the Funds (with the exception of the Treasury Fund) involve complex
securities sometimes referred to as "derivatives." Among such securities are put
and call options, foreign currency transactions and futures contracts, all of
which are described below. The Adviser and Subadviser believe that such complex
securities may, in some circumstances, play a valuable role in successfully
implementing each Fund's investment strategy and achieving its goals. However,
because complex securities and the strategies for which they are used, are by
their nature complicated, they present substantial opportunities for
misunderstanding and misuse. To guard against these risks, the Adviser and
Subadviser will utilize complex securities primarily for hedging, not
speculative, purposes and only after careful review of the unique risk factors
associated with each such security.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Fund may invest up to 15% of its total assets in foreign
securities. The Equity, Small Capitalization and High Income Equity Funds may
also invest in foreign securities as permitted by their respective investment
policies. Each of the Bond Fund and Limited Maturity Bond Fund may also invest
up to 25% of its net assets in foreign
37 PROSPECTUS--Investor A Shares
<PAGE> 42
securities either directly or through the purchase of ADRs and may also invest
in securities issued by foreign branches of U.S. banks and foreign banks, in
CCP, and in Europaper. The U.S. Government Obligations Fund, the Prime
Obligations Fund and the Tax-Free Fund may invest in foreign securities by
purchasing ECDs, ETDs, CTDs, Yankee CDs, CCP, and Europaper.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the U.S. In addition, there may be less publicly
available information about a foreign company than about a U.S. domiciled
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies abroad than in the U.S.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries. In addition, foreign branches of U.S. banks, foreign banks and
foreign issuers may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after such Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater.
For many foreign securities, U.S. dollar-denominated American Depositary
Receipts, or ADR's, which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. ADR's represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADR's do not eliminate all the risk inherent in investing in
the securities of foreign issuers. However, by investing in ADR's rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for many ADR's. The information available for
ADR's is subject to the accounting, auditing and financial reporting standards
of the domestic market or exchange on which they are traded, which standards are
more uniform and more exacting than those to which many foreign issuers may be
subject. The International and Balanced Funds may also invest in European
Depository Receipts, or EDR's, which are receipts evidencing an arrangement with
a European bank similar to that for ADR's and are designed for use in the
European securities markets. EDR's are not necessarily denominated in the
currency of the underlying security.
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Certain of the ADR's and EDR's, typically those denominated as unsponsored,
require the holders thereof to bear most of the costs of such facilities while
issuers of sponsored facilities normally pay more of the costs thereof. The
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders in respect
to the deposited securities, whereas the depository of a sponsored facility
typically distributes shareholder communications and passes through the voting
rights.
Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the ECU,
which is a "basket" consisting of specified amounts of the currencies of certain
of the twelve member states of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. Such adjustments may adversely affect holders of ECU-denominated
obligations or the marketability of such securities. European governments and
supranationals, in particular, issue ECU-denominated obligations.
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds, with the exception of the Money Market Funds and the Michigan
Fund, may utilize foreign currency transactions in its portfolio. The value of
the assets of a Fund as measured in United States dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract ("forward currency contracts") involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These forward currency contracts are traded directly
between currency traders (usually large commercial banks) and their customers.
The Funds may enter into forward currency contracts in order to hedge against
adverse movements in exchange rates between currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency, or when a Fund believes that the U.S. dollar may suffer a substantial
decline against a foreign currency, it may enter into a forward currency
purchase contract to buy that foreign currency for a fixed U.S. dollar amount.
However, this tends to limit potential gains which might result from a positive
change in such currency relationships. A Fund may also hedge its foreign
currency exchange rate risk by engaging in currency financial futures and
options transactions. The forecasting of short-term currency market movement is
extremely difficult and whether such a short-term hedging strategy will be
successful is highly uncertain.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a forward currency contract. Accordingly, it may
be necessary for a Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency such Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
such Fund is obligated to deliver.
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If the Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. Should forward prices
decline during the period between a Fund's entering into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, such Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
The Funds will have to convert their holdings of foreign currencies into United
States dollars from time to time. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies.
The International Fund does not intend to enter into forward currency contracts
if the International Fund would have more than 15% of the value of its total
assets committed to such contracts on a regular or continuous basis. The
International Fund does not intend to enter into forward currency contracts or
maintain a net exposure in such contracts where the International Fund would be
obligated to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES--Additional Information on Portfolio Instruments" in the
Statement of Additional Information.
FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds, the Bond Fund, the Limited
Maturity Bond Fund, the Intermediate Government, Government Obligations Fund,
the Municipal Bond Fund and the Parkstone Government Income Fund may also enter
into contracts for the future delivery of securities or foreign currencies and
futures contracts based on a specific security, class of securities, foreign
currency or an index, purchase or sell options on any such futures contracts and
engage in related closing transactions. A futures contract on a securities index
is an agreement obligating either party to pay, and entitling the other party to
receive, while the contract is outstanding, cash payments based on the level of
a specified securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. 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.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed one-third of the market value of a Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such
PROSPECTUS--Investor A Shares 40
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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 or foreign currencies, limiting the
Fund's ability to hedge effectively against interest rate, exchange 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.
GOVERNMENT OBLIGATIONS
The U.S. Government Obligations Fund will invest primarily in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Subject to the investment parameters described above, each of the remaining
Funds may also invest in such obligations. The Treasury Fund, however, will
invest exclusively in obligations issued or guaranteed by the U.S. Treasury and
in repurchase agreements backed by such securities. The remaining Funds may
invest in government obligations as permitted by the investment parameters.
The types of U.S. Government obligations in which each of these Funds may invest
include U.S. Treasury notes, bills, bonds, and any other securities directly
issued by the U.S. Government that are available for public investment, which
differ only in their interest rates, maturities, and times of issuance, as well
as "stripped" U.S. Treasury obligations, such as Treasury Receipts issued by the
U.S. Treasury and representing either future interest or principal payments,
and, except for the Treasury Fund, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Stripped securities are issued
at a discount to their "face value" and may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal and
interest are returned to investors. The stripped Treasury obligations in which
the Money Market Funds may invest do not include certificates of accrual on
treasury securities (CATS) or treasury income growth receipts (TIGRs).
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the Student Loan Marketing
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Farm Credit Banks or the Federal Home Loan Mortgage Corporation, 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. The Funds
which may invest in these government obligations will invest in the obligations
of such agencies or instrumentalities only when First of America believes that
the credit risk with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS
The Bond Fund and the Limited Maturity Bond Fund may invest in guaranteed
investment contracts (GICs). When investing in GICs, the Bond Fund and the
Limited Maturity Bond Fund make cash contributions to a deposit fund of an
insurance company's general account. The insurance company then credits to the
deposit fund on a monthly basis guaranteed interest. The GICs provide that this
guaranteed interest will not be less than a certain minimum rate. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and the charges will be deducted from the value of the deposit
fund. The Bond Fund and the Limited Maturity Bond Fund may invest in GICs of
insurance companies without regard to the ratings, if any, assigned to such
insurance companies' outstanding debt securities. Because a Fund may not receive
the principal amount of a GIC from the insurance company on seven days notice or
less, the GIC is considered an illiquid investment, and, together with other
instruments in that Income Fund which are deemed to be illiquid, will not exceed
15% of its total assets. In determining average portfolio maturity, GICs will be
deemed to have a maturity equal to the period of time remaining until the next
readjustment of the guaranteed interest rate.
41 PROSPECTUS--Investor A Shares
<PAGE> 46
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks, or institutional borrowers of
securities. A Fund must receive 100% collateral in the form of cash or U.S.
Government securities. This collateral will be valued daily by First of America
or by the Subadvisers, as the case may be. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to that
Fund. During the time portfolio securities are on loan, the borrower pays that
Fund any dividends or interest received on such securities. Loans are subject to
termination by the Fund or the borrower at any time. While a Fund does not have
the right to vote securities on loan, each Fund intends to terminate the loan
and regain the right to vote if that is considered important with respect to the
investment. In the event the borrower defaults in its obligation to a Fund, such
Fund bears the risk of delay in the recovery of its portfolio securities and the
risk of loss of rights in the collateral. The Funds will enter into loan
agreements only with broker-dealers, banks, or other institutions that the
Adviser or the Subadvisers, as the case may be, have determined are creditworthy
under guidelines established by the Group's Board of Trustees.
MEDIUM-GRADE SECURITIES
As described above, the Balanced, Bond, Limited Maturity Bond, Municipal Bond
and the Michigan Funds may invest in fixed income securities within the fourth
highest rating group assigned by an NRSRO (i.e., BBB or Baa by S&P and Moody's,
respectively) and comparable unrated securities. These types of fixed income
securities are considered by the NRSROs to have some speculative
characteristics, and are more vulnerable to changes in economic conditions,
higher interest rates or adverse issuer-specific developments which are more
likely to lead to a weaker capacity to make principal and interest payments than
comparable higher rated debt securities.
Should subsequent events cause the rating of a fixed income security purchased
by any of the Funds listed above to fall below the fourth highest rating, First
of America will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would the Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
MORTGAGE-RELATED SECURITIES
As indicated above, the Government Income Fund intends to invest up to 80% of
the value of its total assets and the Balanced Fund, Bond Fund, Limited Maturity
Bond Fund, Intermediate Government Obligations Fund, Prime Obligations Fund and
U.S. Government Obligations Fund may invest in mortgage-related securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Such agencies or instrumentalities include the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"),
and in mortgage-related securities issued by nongovernmental entities which are
rated, at the time of purchase, within the three highest bond rating categories
assigned by an NRSRO or, if unrated, which First of America deems to present
attractive opportunities and are of comparable quality. However, the Government
Income Fund may invest greater amounts as conditions warrant.
The mortgage-related securities in which the these Funds may invest have
mortgage obligations backing such securities, consisting of conventional thirty
year fixed rate mortgage obligations, graduated payment mortgage obligations,
fifteen year mortgage obligations and adjustable rate mortgage obligations. All
of these mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics
PROSPECTUS--Investor A Shares 42
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of the underlying mortgage obligations vary, it is not possible to predict
accurately the realized yield or average life of a particular issue of
pass-through certificates. Prepayment rates are important because of their
effect on the yield and price of the securities. Accelerated prepayments have an
adverse impact on yields for pass-throughs purchased at a premium (i.e., a price
in excess of principal amount) and may involve additional risk of loss of
principal because the premium may not have been fully amortized at the time the
obligation is repaid. The opposite is true for pass-throughs purchased at a
discount. The Fund may purchase mortgage-related securities at a premium or at a
discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, though, the rate of prepayment tends to decrease, thereby lengthening
the period of time over which income at the lower rate is received. For these
and other reasons, a mortgage-related security's average maturity may be
shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Fund. In addition, regular payments received with respect to mortgage-related
securities include both interest and principal. No assurance can be given as to
the return a Fund will receive when these amounts are reinvested.
The principal governmental (i.e., backed by the full faith and credit of the
United States Government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages.
Government-related (i.e., not backed by the full faith and credit of the United
States Government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States Government. FHLMC is a corporate instrumentality of the
United States Government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States Government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by nongovernmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such nongovernmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if through an
examination of the loan experience and practices of the poolers First of America
determines that the securities meet the Government Income Fund's quality
standards. Although the
43 PROSPECTUS--Investor A Shares
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market for such securities is becoming increasingly liquid, securities issued by
certain private organizations may not be readily marketable. The Government
Income Fund will not purchase mortgage-related securities or any other assets
which in First of America's opinion are illiquid, if as a result, more than 15%
of the value of the Government Income Fund's total assets will be illiquid.
Mortgage-related securities in which the above-named Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed rate mortgages. As new types
of mortgage-related securities are developed and offered to investors, First of
America will, consistent with the Government Income Fund's investment objective,
policies and quality standards, consider making investments in such new types of
securities.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities (Michigan Municipal
Securities, in the case of the Michigan Fund) which may be held by the Bond,
Limited Maturity Bond, Municipal Bond Fund, Michigan Fund, Prime Obligations,
U.S. Government Obligations and Tax-Free Funds are "general obligation"
securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from proceeds of a special excise tax or other specific revenue source
such as the user of the facility being financed. Private activity bonds held by
the Municipal Bond and Michigan Fund are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
The above-named Funds may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Each of the above-named Funds invests primarily in Municipal Securities which
are rated at the time of purchase within the four highest rating groups assigned
by an NRSRO or in the highest rating group assigned by an NRSRO in the case of
notes, tax-exempt commercial paper or variable rate demand obligations. The
Funds may also purchase Municipal Securities which are unrated at the time of
purchase but are determined to be of comparable quality by First of America
pursuant to guidelines approved by the Group's Board of Trustees. The applicable
Municipal Securities ratings are described in the Appendix to the Statement of
Additional Information. For a discussion of debt securities rated within the
fourth highest rating group assigned by an NRSRO, see "RISK FACTORS AND
INVESTMENT TECHNIQUES--Medium Grade Securities" herein.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. No Fund nor First of America will
review the proceedings relating to the issuance of Municipal Securities or the
basis for such opinions.
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Municipal Securities and Michigan Municipal Securities purchased by the Tax-Free
Income Funds may include rated and unrated variable and floating rate tax-exempt
notes. A variable rate note is one whose terms provide for the adjustment of its
interest rate on set dates and which, upon such adjustment, can reasonably be
expected to have a market value that approximates its par value. A floating rate
note is one whose terms provide for the adjustment of its interest rate whenever
a specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. Such notes are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate notes purchased by the Tax-Free Income Funds will be determined by
First of America, under guidelines established by the Group's Board of Trustees,
to be of comparable quality at the time of purchase to rated instruments
eligible for purchase under the Fund's investment policies. In making such
determinations, First of America 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. There may be no active secondary
market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to the Tax-Free Income Fund will approximate their par value.
The Tax-Free Income Funds will not purchase variable and floating rate notes or
any other securities which in First of America's opinion are illiquid, if as a
result, more than 15% of the Tax-Free Income Fund's total assets will be
illiquid.
OTHER MUTUAL FUNDS
Each of the Funds may invest up to 5% of the value of its total assets in the
securities of any one money market mutual fund (including shares of the
Parkstone Prime Obligations Fund, the Parkstone U.S. Government Obligations
Fund, the Parkstone Tax-Free Fund, the Parkstone Municipal Investor Fund, and
the Parkstone Treasury Fund), provided that no more than 10% of the Fund's total
assets may be invested in the securities of mutual funds in the aggregate. In
order to avoid the imposition of additional fees as a result of investments by a
Fund in Shares of the money market funds of the Group, the Investment Adviser,
Administrator and their affiliates (See "MANAGEMENT OF THE FUNDS--Investment
Adviser and Subadvisers" and "Administrator, Sub-Administrator and Distributor"
and "GENERAL INFORMATION--Transfer Agency and Fund Accounting Services") will
not retain any portion of their usual asset-based service fees from a Fund that
are attributable to investments by the Fund in Shares of those money market
mutual funds if the fee is being taken in the Fund. The Investment Adviser and
the Administrator will promptly forward such fees to the appropriate Fund. Each
Fund will incur additional expenses due to the duplication of expenses as a
result of any investment in securities of unaffiliated mutual funds. Additional
restrictions regarding the Funds' investments in securities of unaffiliated
mutual funds and/or money market funds of the Group are contained in the
Statement of Additional Information.
PRIVATE ACTIVITY BONDS
The Tax-Free Fund may also invest in private activity bonds. It should be noted
that the Tax Reform Act of 1986 substantially revised provisions of prior
federal law affecting the issuance and use of proceeds of certain tax-exempt
obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Any reference herein to private activity bonds includes industrial development
bonds. Interest on private activity bonds is tax-exempt (and such bonds will be
considered Municipal Securities for purposes of this Prospectus) only if the
bonds fall within certain defined categories of qualified private activity bonds
and meet the requirements specified in those respective categories. If the
Tax-Free Fund invests in private activity bonds which fall outside these
categories, Shareholders may become subject to the alternative minimum tax on
that part of the Tax-Free Fund's distributions derived from interest on such
bonds. The Tax Reform Act generally does not change the federal tax treatment of
bonds issued to finance government operations. For further information relating
to the types of private activity bonds which will be included in income subject
to the alternative minimum tax, see "ADDITIONAL INFORMATION--Additional Tax
Information Concerning the Tax-Free Fund and the Municipal Bond Fund" in the
Statement of Additional Information.
45 PROSPECTUS--Investor A Shares
<PAGE> 50
PUT AND CALL OPTIONS
Each of the Growth Funds, the Growth and Income Funds, the Income Funds and the
Tax-Free Income Funds may purchase put and call options on securities and on
foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. Each Fund
may also engage in writing call options from time to time as First of America or
the Subadvisers, as the case may be with respect to the International Fund, deem
appropriate. The Funds will write only covered call options (options on
securities or currencies owned by the particular Fund). In order to close out a
call option it has written, the Fund will enter into a "closing purchase
transaction"--the purchase of a call option on the same security or currency
with the same exercise price and expiration date as the call option which such
Fund previously has written. When a portfolio security or currency subject to a
call option is sold, the Fund will effect a closing purchase transaction to
close out any existing call option on that security or currency. If such Fund is
unable to effect a closing purchase transaction, it will not be able to sell the
underlying security or currency until the option expires or that Fund delivers
the underlying security or currency upon exercise. In addition, upon the
exercise of a call option by the holder thereof, the Fund will forego the
potential benefit represented by market appreciation over the exercise price.
Under normal conditions, it is not expected that the Funds will cause the
underlying value of portfolio securities and currencies subject to such options
to exceed 50% of its net assets, and with respect to each of the Balanced and
International Funds, 20% of its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its option transactions, also may purchase index put and call
options and write index options. As with options on individual securities, a
Fund will write only covered index call options. Through the writing or purchase
of index options a Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash 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.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
In addition, the Tax-Free Fund, the Municipal Bond Fund and the Michigan Fund
may each acquire "puts" with respect to Municipal Securities or Michigan
Municipal Securities, as the case may be, held in its portfolio. Under a put,
such a Fund would have the right to sell a specified Municipal Security (or
Michigan Municipal Security, as the case may be) within a specified period of
time at a specified price. A put would be sold, transferred, or assigned only
with the underlying security. The Municipal Bond, the Michigan and the Tax-Free
Funds will acquire puts solely to either facilitate portfolio liquidity, shorten
the maturity of the underlying securities, or permit the investment of its funds
at a more favorable rate of return. Each of the Municipal Bond Fund, the
Michigan Fund and the Tax-Free Fund expects that it will generally acquire puts
only where the puts are available without the payment of any direct or indirect
consideration. However, if necessary or advisable, such Fund may pay for a put
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to the puts (thus reducing the yield to maturity
otherwise available for the same securities).
PROSPECTUS--Investor A Shares 46
<PAGE> 51
REPURCHASE AGREEMENTS
Securities held by a Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as member banks of the Federal Deposit Insurance Corporation
or registered broker-dealers which First of America or the Subadvisers, as the
case may be, deem creditworthy under guidelines approved by the Group's Board of
Trustees, 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. Securities subject to repurchase agreements will be held
in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, the Fund 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 that Fund were delayed pending court action. Repurchase
agreements are considered to be loans by an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). For further
information about repurchase agreements, see "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments-Repurchase Agreements"
in the Statement of Additional Information.
RESTRICTED SECURITIES
Securities in which each of the Funds, with the exception of the Treasury Fund,
may invest include securities issued by corporations without registration under
the Securities Act of 1933, as amended (the "1933 Act"), in reliance on the
exemption from such registration afforded by Section 3(a)(3) thereof, and
securities issued in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) securities"). Section 4(2) securities are restricted as to disposition
under the Federal securities laws, and generally are sold to institutional
investors such as the Funds who agree that they are purchasing the securities
for investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in such Section 4(2) securities,
thus providing liquidity. Pursuant to procedures adopted by the Board of
Trustees of the Group, First of America may determine Section 4(2) securities to
be liquid if such securities are eligible for resale under Rule 144A under the
1933 Act and are readily saleable.
Thus, subject to the limitations described above, the Funds may acquire
investments that are illiquid or of limited liquidity, such as private
placements or investments that are not registered under the 1993 Act. An
illiquid investment is any investment that cannot be disposed of within seven
(7) days in the normal course of business at approximately the amount at which
it is valued by a Fund. The price a Fund pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly, the valuation of these
securities will reflect any limitations on their liquidity. A Fund may not
invest in additional illiquid securities if, as a result, more than 15% (10% in
the case of the Money Market Funds) of the market value of its net assets would
be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Each of the Funds may borrow funds by entering into reverse repurchase
agreements and, in the case of the Income and the Tax-Free Income Funds, dollar
roll agreements in accordance with the investment restrictions described below.
Pursuant to such agreements, a Fund would sell certain of its securities to
financial institutions such as banks and broker-dealers, and agree to repurchase
the securities, or substantially similar securities in the case of a dollar roll
agreement, at a mutually agreed upon date and price. Dollar roll agreements
utilized by the Income and Tax-Free Income Funds are identical to reverse
repurchase agreements except for the fact that substantially similar securities
may be repurchased. At the time a Fund enters into a reverse repurchase
agreement or a dollar roll agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid high grade
debt securities consistent with its investment restrictions having a value equal
to the repurchase price
47 PROSPECTUS--Investor A Shares
<PAGE> 52
(including accrued interest), and will subsequently continually monitor the
account to ensure that such equivalent value is maintained at all times. Reverse
repurchase agreements and dollar roll agreements involve the risk that the
market value of securities sold by a Fund may decline below the price at which
it is obligated to repurchase the securities. Reverse repurchase agreements and
dollar roll agreements are considered to be borrowings by an investment company
under the 1940 Act and therefore a form of leverage. A Fund may experience a
negative impact on its net asset value if interest rates rise during the term of
a reverse repurchase agreement or dollar roll agreement. A Fund generally will
invest the proceeds of such borrowings only when such borrowings will enhance a
Funds's liquidity or when the Fund reasonably expects that the interest income
to be earned from the investment of the proceeds is greater than the interest
expense of the transaction. For further information about reverse repurchase
agreements and dollar roll agreements, see "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments--Reverse Repurchase
Agreements and Dollar Roll Agreements" in the Statement of Additional
Information.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds, with the exception of the Treasury Fund, may each purchase
securities on a when-issued or delayed-delivery basis. Such Funds will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objectives and policies, not
for investment leverage although such transactions represent a form of
leveraging. When-issued securities are securities purchased for delivery beyond
the normal settlement date at a stated price and yield and thereby involve a
risk that the yield obtained in the transaction will be less than those
available in the market when delivery takes place. A Fund will not pay for such
securities or start earning interest on them until they are received. When a
Fund agrees to purchase such securities, its custodian will set aside cash or
liquid securities equal to the amount of the commitment in a separate account.
Securities purchased on a when-issued basis are recorded as an asset and are
subject to changes in the value based upon changes in the general level of
interest rates. In when-issued and delayed-delivery transactions, a Fund relies
on the seller to complete the transaction; the seller's failure to do so may
cause such Fund to miss a price or yield considered to be advantageous. The
Prime Obligations, U.S. Government Obligations and Tax-Free Funds will purchase
only Municipal Securities on a when-issued or delayed delivery basis. No Fund's
commitments to purchase "when-issued" securities will exceed 25% of the value of
its total assets under normal market conditions, and a commitment by a Fund to
purchase "when-issued" securities will not exceed 60 days. In the event its
commitments to purchase "when-issued" securities ever exceeded 25% of the value
of its assets, a Fund's liquidity and the investment adviser's ability to manage
it might be adversely affected. The Funds intend only to purchase "when-issued"
securities for the purpose of acquiring portfolio securities, not for investment
leverage although such transactions represent a form of leveraging.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund 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 Securities and Exchange
Commission requires that the calculation exclude all securities whose remaining
maturities at the time of acquisition are one year or less. The portfolio
turnover rate for a 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 a Fund's shareholders. Portfolio turnover will
not be a limiting factor in making investment decisions.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding Shares of that Fund (as defined
in the Statement of Additional Information).
PROSPECTUS--Investor A Shares 48
<PAGE> 53
None of the Funds, with the exception of the Michigan Fund, may:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in such issuer, or the Fund would hold more
than 10% of the outstanding voting securities of the issuer, except that
25% or less of the value of such Fund's total assets may be invested
without regard to such limitations. There is no limit to the percentage of
assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
Irrespective of the investment restriction above, and pursuant to Rule 2a-7
under the 1940 Act, the U.S. Government Obligations Fund, the Prime Obligations
Fund and the Treasury Fund each will, with respect to 100% of its total assets,
limit its investment in the securities of any one issuer in the manner provided
by such Rule, which limitations are referred to above under the caption
"INVESTMENT OBJECTIVES AND POLICIES--The Money Market Funds."
The Michigan Fund may not:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, (a) more than 5% of the value of the
Fund's total assets (taken at current value) would be invested in such
issuer (except that up to 50% of the value of the Fund's total assets may
be invested without regard to such 5% limitation), and (b) more than 25% of
its total assets (taken at current value) would be invested in the
securities of a single issuer.
For purposes of the investment limitations above, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues back
the security and, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, a security is considered to
be issued by such non-governmental user.
None of the Funds will:
1. Purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the
U.S. Government or its agencies or instrumentalities; (b) wholly owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
2. (a) Borrow money (not including reverse repurchase agreements or dollar roll
agreements), except that the Funds may borrow from banks for temporary or
emergency purposes and then only in amounts up to 30% (10% in the case of the
Money Market Funds) of its total assets at the time of borrowing (and
provided that such bank borrowings and reverse repurchase agreements and
dollar roll agreements do not exceed in the aggregate one-third of the Fund's
total assets less liabilities other than the obligations represented by the
bank borrowings, reverse repurchase agreements and dollar roll agreements),
or mortgage, pledge or hypothecate any assets except in connection with a
bank borrowing in amounts not to exceed 30% of the Fund's net assets at the
time of borrowing; (b) enter into reverse repurchase agreements, dollar roll
agreements and other permitted borrowings in amounts exceeding in the
aggregate one-third of the Fund's total assets less liabilities other than
the obligations represented by such reverse repurchase and dollar roll
agreements; and (c) issue senior securities except as permitted by the 1940
Act rule, order or interpretation thereunder.
3. Make loans, except that the Fund may purchase or hold debt instruments and
lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
49 PROSPECTUS--Investor A Shares
<PAGE> 54
For purposes only of investment limitation number 1 above, such limitation shall
not apply to Municipal Securities or governmental guarantees of Municipal
Securities, and industrial development bonds or private activity bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding Shares of a Fund.
Each Fund may not:
1. Purchase or otherwise acquire any securities, if as a result, more than 15%
(10% in the case of the Money Market Funds) of the Fund's net assets would be
invested in securities that are illiquid.
In addition to the above investment restrictions, the Funds are subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES--Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
TRUSTEES
Overall responsibility for management of the Group rests with its Board of
Trustees, who are elected by the shareholders of all of the Group's Funds. The
Group will be managed by the Trustees in accordance with the laws of the
Commonwealth of Massachusetts governing business trusts. There are currently
five Trustees, three of whom are not "interested persons" of the Group within
the meaning of that term under the 1940 Act. The Trustees, in turn, elect the
officers of the Group to supervise actively its day-to-day operations.
The Trustees of the Group are Stephen G. Mintos* (Chairman), George R.
Landreth*, Robert M. Beam, Lawrence D. Bryan and Adrian Charles Edwards. The
addresses, and principal occupations during the past five years of the Trustees
are set forth in the Statement of Additional Information. Those Trustees
designated with an asterisk (*) are considered to be "interested persons" of the
Group as defined in the 1940 Act.
The Trustees of the Group receive quarterly fees and fees and expenses for each
meeting of the Board of Trustees attended. However, no officer or employee of
BISYS, The BISYS Group, Inc. or BISYS Fund Services Ohio, Inc. receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. BISYS receives fees from the Group for acting as
Administrator and may receive fees from each of the Funds pursuant to the
Investor A Distribution and Shareholder Service Plan described below. BISYS Fund
Services Ohio, Inc., an affiliate of BISYS, receives fees from the Group for
acting as Transfer Agent and for providing certain fund accounting services. Mr.
Mintos and Mr. Landreth are employees of BISYS.
INVESTMENT ADVISER AND SUBADVISERS
First of America was established in 1932 and is the investment adviser of the
Group. First of America, a registered investment adviser, is a wholly owned
subsidiary of First of America Bank-Michigan, N.A., which is a wholly owned
subsidiary of First of America Bank Corporation. First of America Bank
Corporation currently has over $25 billion in assets and provides financial
services to over 300 communities in Michigan, Indiana, Illinois and Florida. As
of June 30, 1995, First of America managed over $10 billion on behalf of both
taxable and tax-exempt clients, including pensions, endowments, corporations and
individual portfolios. First of America also acts as investment adviser to the
Trust Division of First of America Bank Corporation with respect to an
additional $2.3 billion in discretionary assets, providing equity, fixed income,
balanced and money management services.
Subject to such policies as the Group's Board of Trustees may determine, First
of America, either directly or, with respect to the International Fund and the
Balanced Fund, through one or more subadvisers, furnishes a continuous
investment program for each Fund and makes investment decisions on behalf of
each Fund.
PROSPECTUS--Investor A Shares 50
<PAGE> 55
First of America utilizes a team approach to the investment management of the
Funds, with up to three professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
each Fund's investment objectives. Roger H. Stamper, Managing Director of First
of America, is primarily responsible for the day-to-day management of each of
the Growth Funds (except the International Fund) and the Growth and Income
Funds. Mark R. Kummerer, Managing Director-Fixed Income of First of America, is
primarily responsible for the day-to-day management of the Income Funds.
Christian S. Swantek, Vice President of First of America, is primarily
responsible for the day-to-day management of the Tax-Free Income Funds. Messrs.
Stamper and Kummerer have held their respective positions with First of America
since 1988 and 1986, respectively. Prior to June 1993, Mr. Swantek was a
portfolio manager at PNC Investment Management & Research and its various
investment management affiliates.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, First of America receives a fee from each of
the Equity, Small Capitalization, High Income Equity and Balanced Funds,
computed daily and paid monthly, at the annual rate of one percent (1%) of that
Fund's average daily net assets. For its services in connection with the
International Fund, First of America's fee is computed daily and paid monthly at
the annual rate of one and twenty-five hundredths percent (1.25%) of the first
$50 Million of the International Fund's average daily net assets, one and twenty
hundredths percent (1.20%) of average daily net assets between $50 Million and
$100 Million, one and fifteen hundredths percent (1.15%) of average daily net
assets between $100 Million and $400 Million and one and five hundredths percent
(1.05%) of average daily net assets above $400 Million. For its services in
connection with each Income Fund and Tax-Free Income Fund, First of America's
fee is computed daily and paid monthly at the annual rate of seventy-four
one-hundredths of one percent (.74%) of each Income Fund's and Tax-Free Income
Fund's average daily net assets. For its services in connection with the Money
Market Funds, First of America's fee is computed daily and paid monthly, at the
annual rate of forty one-hundredths of one percent (.40%) of each Money Market
Fund's average daily net assets. First of America 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. The
voluntary fee reduction will cause the yield of that Fund to be higher than it
would otherwise be in the absence of such a reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream
Global Investors, Ltd., 300 Crescent Court, Suite 1605, Dallas, Texas 75201
("Gulfstream"). Pursuant to the terms of such Sub-Investment Advisory Agreement
Gulfstream has been retained by First of America to manage the investment and
reinvestment of the assets of the International Fund and to manage the
investment and reinvestment of those assets of the Balanced Fund which are
invested in foreign securities, subject to the direction and control of the
Group's Board of Trustees.
Under this arrangement, Gulfstream is responsible for the day-to-day management
of the International Fund's assets, reviews investment performance policies and
guidelines and maintains certain books and records, and First of America is
responsible for selecting and monitoring the performance of Gulfstream and for
reporting the activities of Gulfstream in managing the International Fund to the
Group's Board of Trustees. Gulfstream utilizes a team approach to the investment
management of the International Fund to ensure a disciplined investment process
designed to result in long-term performance consistent with its investment
objective. No one person is responsible for the Fund's management. First of
America may also render advice with respect to the International Fund's
investments in the U.S.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with First of America, Gulfstream receives from First of
America a fee, computed daily and paid monthly, at the annual rate of one-half
percent (.50%) of the first $50 million of the International Fund's average
daily net assets and the average daily net assets of the Balanced Fund which are
invested in foreign securities, forty-five one hundredths percent (.45%) of such
average daily net assets between $50 million and $100 million, forty one
hundredths percent (.40%) of such average daily net assets between $100 million
and $400 million and thirty one hundredths percent (.30%) of such average daily
net assets above $400 million, provided the minimum annual fee shall be $75,000.
51 PROSPECTUS--Investor A Shares
<PAGE> 56
Gulfstream, 300 Crescent Court, Suite 1605, Dallas, Texas 75201, was organized
in 1991 as a Texas limited partnership by Tull, Doud, Marsh & Triltsch, Inc., a
Texas corporation ("TDMT"). TDMT is the sole general partner of Gulfstream. TDMT
is owned by C. Thomas Tull, Stephen C. Doud, James P. Marsh and Reiner M.
Triltsch. Messrs. Tull, Doud and Triltsch are the portfolio managers and Mr.
Marsh is responsible for client services with Gulfstream. First of America is
the sole limited partner, holding a forty nine (49) percent interest in
Gulfstream with options which would under certain circumstances permit it to
acquire up to a seventy two (72) percent interest. Gulfstream has over $360
million in assets of institutional, investment company, governmental, pension
fund and high net worth individual clients under its investment management.
Gulfstream's portfolio management personnel average twenty (20) years of
investment experience and nine (9) years of international investment experience.
As of January 3, 1994, Gulfstream managed over $300 million in international
investment portfolios.
Prior to January 1, 1995, Ivory & Sime International, Inc. ("ISI" and Ivory &
Sime plc ("ISplc" together with ISI, "Ivory & Sime") served as subadvisers to
the International Fund. The Trustees voted unanimously to terminate this
arrangement and replace it with the current subadvisory arrangement with
Gulfstream. As required by the 1940 Act, the Shareholders of the International
Discovery Fund and the Balanced Fund each approved the appointment of Gulfstream
as subadviser, as well as the related Sub-Investment Advisory Agreements, at a
meeting held on February 28, 1995.
Under Gulfstream's partnership agreement, First of America possesses veto
authority over the general budgetary affairs of Gulfstream. Because of its
current 49 percent ownership interest and its possession of options enabling it
to acquire up to a 72 percent ownership interest, First of America may be deemed
to control Gulfstream for purposes of the 1940 Act.
For further information regarding the relationship between Gulfstream and First
of America, see "MANAGEMENT OF THE GROUP--INVESTMENT ADVISER" in the Statement
of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
fund of the Group, and also acts as the Group's principal underwriter and
distributor (the "Administrator" or the "Distributor," as the context
indicates). First of America serves as Sub-Administrator for each Fund of the
Group and provides certain services as may be requested by BISYS from time to
time. BISYS and its affiliated companies, including BISYS Fund Services Ohio,
Inc. are wholly-owned by The BISYS Group, Inc., a publicly-held company which is
a provider of information processing, loan servicing and 401(k) administration
and recordkeeping services to and through banking and other financial
organizations.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from each Fund equal to the lesser of a fee, computed daily and
paid periodically, at an annual rate of twenty one-hundredths of one percent
(.20%) of the Fund's average daily net assets, or such other fee as may be
agreed upon from time to time in writing by the Group and the Administrator. For
its services as Subadministrator First of America receives, from the
Administrator, pursuant to its Sub-Administration Agreement with BISYS, a fee
not to exceed five one hundredths of one percent (.05%) of each Fund's average
daily net assets. The Administrator may periodically voluntarily reduce all or a
portion of its administrative fee with respect to a Fund to increase the net
income of that Fund available for distribution as dividends. The voluntary fee
reduction will cause the return of that Fund to be higher than it would
otherwise be in the absence of such reduction.
The Distributor acts as agent for the Funds in the distribution of each of their
Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the cost of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but may retain some or all of any sales
charge imposed upon the Investor Shares and may receive compensation under the
Distribution and Shareholder Service Plans described below.
PROSPECTUS--Investor A Shares 52
<PAGE> 57
EXPENSES
First of America, the Subadvisers and the Administrator each bear all expenses
in connection with the performance of its services as investment adviser,
subadviser and administrator, respectively, other than the cost of securities
(including brokerage commissions) purchased for the Group. Each Fund will bear
the following expenses relating to its operation: organizational expenses,
taxes, interest, brokerage fees and commissions, fees of the Trustees of the
Group, Securities and Exchange Commission fees, state securities qualification
fees, costs of preparing and printing prospectuses for regulatory purposes and
for distribution to current Shareholders, outside auditing and legal expenses,
advisory and administration fees, fees and out-of-pocket expenses of the
custodian, Transfer Agent and fund accountant, certain insurance premiums, costs
of maintenance of the Group's existence, costs of Shareholders' reports and
meetings, and any extraordinary expenses incurred in each Fund's operation. As a
general matter, expenses are allocated to the Investor A Shares and the other
Classes of Shares of the Funds on the basis of the relative net asset value of
each class. The various Classes may bear certain additional retail transfer
agency expenses and may also bear certain additional shareholder service and
distribution costs incurred pursuant to a Distribution and Shareholder Service
Plans.
The Trustees reserve the right, subject to the receipt of relevant regulatory
approvals or rulings, if needed, to allocate certain other expenses to the
Shareholders of a particular class, including Investor Shares, on a basis other
than relative net asset value, as they deem appropriate ("Class Expenses"). In
such event, Class Expenses would be limited to: transfer agency fees identified
by the Transfer Agent as attributable to a specific class; printing and postage
expenses related to preparing and distributing materials such as Shareholder
reports, prospectuses and proxies to current Shareholders; Blue Sky registration
fees incurred by a class of Shares; Securities and Exchange Commission
registration fees incurred by a class of Shares; expenses related to
administrative personnel and services as required to support the Shareholders of
a specific class; litigation or other legal expenses relating solely to one
class of Shares; and Trustees' fees incurred as a result of issues relating
solely to one class of Shares.
DISTRIBUTION PLAN FOR INVESTOR A SHARES
Rule 12b-1 adopted by the Securities and Exchange Commission under the 1940 Act
permits an investment company to pay directly or indirectly expenses associated
with the distribution of its shares in accordance with a plan adopted by an
investment company's trustees and approved by its shareholders. Pursuant to such
Rule, the Group has adopted an Investor A Distribution and Shareholder Service
Plan (the "Investor A Plan") with respect to the Investor A Shares of each Fund.
Pursuant to the Investor A Plan, each Fund is authorized to pay or reimburse
BISYS, as Distributor of the Investor A Shares, for certain expenses that are
incurred in connection with Shareholder and distribution services. Payments
under the Plan will be calculated daily and paid monthly at an annual rate not
to exceed twenty-five one-hundredths of one percent (.25%) of the average daily
net asset value of Investor A Shares of that Fund. Such amount may be used by
BISYS to pay banks and their affiliates (including First of America Bank-
Michigan, N.A., and its affiliates), and other institutions, including
broker-dealers (a "Participating Organization") for administration,
distribution, and/or Shareholder service assistance pursuant to an agreement
between BISYS and the Participating Organization. Under the Investor A Plan, a
Participating Organization may include BISYS, its subsidiaries, and its
affiliates.
Payments to the Distributor pursuant to the Investor A Plan will be used (i) to
compensate Participating Organizations for providing distribution assistance
relating to Investor A Shares, (ii) for promotional activities intended to
result in the sale of Investor A Shares such as to pay for the preparation,
printing and distribution of prospectuses to other than current Shareholders,
and (iii) 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 A Shares.
Fees paid pursuant to the Investor A Plan are accrued daily and paid monthly,
and are charged as expenses of Investor A Shares of a Fund as accrued.
Pursuant to the Investor A Plan, the Distributor may enter into Rule 12b-1
Agreements with Participating Organizations for providing Shareholder and
distribution services to their customers who are the record or
53 PROSPECTUS--Investor A Shares
<PAGE> 58
beneficial owners of Investor A Shares. Such Participating Organizations will be
compensated at the annual rate of up to .25% of the average daily net asset
value of the Investor A Shares held of record or beneficially by such customers.
The Shareholder and distribution services provided by Participating
Organizations may include promoting the purchase of Investor A Shares of a Fund
by their customers; processing purchase, exchange, and redemption requests from
customers and placing orders with the Distributor or the Transfer Agent;
processing dividend and distribution payments from a Fund on behalf of
customers; providing information periodically to customers, including
information showing their positions in Investor A Shares; providing
sub-accounting with respect to Investor A Shares beneficially owned by customers
or the information necessary for sub-accounting; responding to inquiries from
customers concerning their investment in Investor A Shares; arranging for bank
wires; and providing other similar services as may be reasonably requested.
Conflicts of interest restrictions may apply to the receipt by Participating
Organizations of compensation from BISYS in connection with the investment of
fiduciary assets in Investor A Shares. Institutions, including banks regulated
by the Comptroller of the Currency, the Federal Reserve Board, or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission (the
"Commission"), the Department of Labor, or state securities commissions, are
urged to consult their legal advisers before investing such assets in Investor A
Shares.
As authorized by the Investor A Plan, BISYS has entered into a Participating
Organization Agreement with First of America Securities, Inc., a wholly owned
subsidiary of First of America Bank Corporation ("FSI"), pursuant to which FSI
has agreed to provide certain Shareholder and distribution services in
connection with Investor A Shares of the Funds purchased and held by FSI for the
accounts of its customers and Investor A Shares of the Funds purchased and held
by customers of FSI directly, including, but not limited to printing and
distributing prospectuses to persons other than holders of Investor A Shares of
the Funds and printing and distributing advertising and sales literature in
connection with the sale of Investor A Shares; answering routine customer
questions concerning the Funds and providing such personnel and communication
equipment as is necessary and appropriate to accomplish such matters. In
consideration of such services BISYS has agreed to pay FSI a monthly fee,
computed at the annual rate of .25% of the average aggregate net asset value of
Investor A Shares held during the period in customer accounts for which FSI has
provided services under this Agreement. BISYS will be compensated by the Funds
in an amount equal to its payments to FSI under the Participating Organization
Agreement. Such fee may exceed the actual costs incurred by FSI in providing
such services.
The Group understands that Participating Organizations may charge fees to their
customers who are the owners of Investor A Shares for additional services
provided in connection with their customer accounts. These fees would be in
addition to any amounts which may be received by a Participating Organization
under its Agreement with BISYS. Customers of Participating Organizations should
read this Prospectus in light of the terms governing their accounts with their
Participating Organizations.
The Investor A Plan requires the officers of the Group to provide the Board of
Trustees at least quarterly with a written report of the amounts expended
pursuant to the Plans and the purposes for which such expenditures were made.
The Board reviews these reports in connection with their decisions with respect
to the Plans.
As required by Rule 12b-1, each Plan was approved by the Trustees of the Group,
including a majority of the trustees who are not "interested persons" (as
defined in the 1940 Act) of the Group and who have no direct or indirect
financial interest in the operation of the Plans or in any agreements related to
the Plan ("Independent Trustees"). The Plans continue in effect as long as such
continuance is specifically approved at least annually by the Group's Trustees,
including a majority of the Independent Trustees.
The Plans may be terminated by a vote of a majority of the Independent Trustees,
or by a vote of a majority of the holders of the outstanding voting securities
of the class of Shares subject thereto. Any change in the Plans that would
increase materially the distribution expenses paid by a Fund requires
shareholder approval; otherwise, the Plans may be amended by the Trustees,
including a majority of the Independent Trustees by a vote cast in person at a
meeting called for the purpose of voting upon the
PROSPECTUS--Investor A Shares 54
<PAGE> 59
amendment. As long as any Plan is in effect, the selection or nomination of the
Independent Trustees is committed to the discretion of the Independent Trustees.
BANKING LAWS
First of America believes that it may perform the investment advisory services
for the Group's Funds contemplated by the Investment Advisory Agreement and by
this Prospectus without violating applicable banking laws or regulations. FSI
believes that it may provide the distribution and shareholder services
contemplated by its Participating Organization Agreements with BISYS and by this
Prospectus without violating applicable banking laws or regulations. Future
changes in federal or state statutes and regulations relating to permissible
activities of banks or bank holding companies and their subsidiaries and
affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which First of America or FSI could continue to perform such services
for the Group. See the Statement of Additional Information ("MANAGEMENT OF THE
GROUP--Glass-Steagall Act") for further discussion.
HOW TO BUY INVESTOR A SHARES
Investor A Shares of each Fund are continuously offered and may be purchased
directly either by mail, by telephone, or by wire. Investor A Shares may also be
purchased through a broker-dealer who has established a dealer agreement with
the Distributor. Except as otherwise discussed below under "Other Information
Regarding Purchases" and "Auto Invest Plan," the minimum initial investment in a
Fund, based upon the public offering price, is $1,000; however, there is no
minimum subsequent purchase. Shareholders will pay the next calculated net asset
value after the receipt by the Distributor of an order to purchase Investor A
Shares, plus any applicable sales charge as described below (see "SALES
CHARGES"). In the case of an order for the purchase of Shares placed through a
broker-dealer, it is the responsibility of the broker-dealer to transmit the
order to the Distributor promptly.
BY MAIL
To purchase Investor A Shares of any of the Funds by mail, complete an Account
Application Form and return it along with a check or money order made payable to
The Parkstone Group of Funds at the following address:
The Parkstone Group of Funds
Dept. L-1270
Columbus, Ohio 43260
An Account Application Form can be obtained by calling the Group at (800)
451-8377.
BY TELEPHONE OR BY WIRE
To purchase Investor A Shares of any of the Funds by telephone or by wire, your
Account Application Form must have been previously received by the Distributor.
To place an order by telephone or by wire call the Group's toll-free number
(800) 451-8377. Payment for such Investor A Shares ordered by telephone may be
made by check and must be received by the Group's custodian within seven
calendar days of the telephone order. If payment for such Investor A Shares is
not received within seven days, or if a check timely received does not clear,
the purchase may be canceled and the investor could be liable for any losses or
fees incurred. When purchasing Investor A Shares by wire, contact the
Distributor for wire instructions.
OTHER INFORMATION REGARDING PURCHASES
Investor A Shares may also be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by First of America Bank
Corporation or one of its affiliates. Investor A Shares of the Funds sold to
First of America Bank Corporation or the affiliate acting in a fiduciary,
advisory, custodial, or other similar capacity
55 PROSPECTUS--Investor A Shares
<PAGE> 60
on behalf of Customers will normally be held of record by First of America Bank
Corporation or the affiliate. With respect to such Investor A Shares so sold, it
is the responsibility of the holder of record to transmit purchase or redemption
orders to the Distributor and to deliver funds for the purchase thereof on a
timely basis. Beneficial ownership of such Investor A Shares of the Funds will
be recorded by First of America Bank Corporation or one of its affiliates and
reflected in the account statements provided to Customers. First of America Bank
Corporation or one of its affiliates may exercise voting authority for those
Investor A Shares for which it has been granted authority by the Customer.
Investor A Shares of the Funds are purchased at the net asset value per share
(see "VALUATION OF SHARES") next determined after receipt by the Distributor of
an order to purchase Shares plus any applicable sales charge as described below.
Purchases of Investor A Shares in any of the Funds will be effected only on a
Business Day (as defined in "VALUATION OF SHARES") of the Funds. An order
received prior to the Valuation Time on any Business Day will be executed at the
net asset value determined as of the Valuation Time on the date of receipt. An
order received after the last Valuation Time on any Business Day will be
executed at the net asset value determined as of the next Valuation Time on the
next Business Day of that Fund. Investor A Shares of the Money Market Funds
purchased before 12:00 noon, Eastern Time, begin earning dividends on the same
Business Day. Investor A Shares of the Money Market Funds continue to earn
dividends through the day before their redemption.
An order to purchase Investor A Shares of the Money Market Funds will be deemed
to have been received by the Distributor only when federal funds with respect
thereto are available to the Group's custodian for investment. Federal funds are
monies credited to a bank's account within a Federal Reserve Bank. Payment for
an order to purchase any of the Money Market Funds which is transmitted by
federal funds wire will be available the same day for investment by the Group's
custodian, if received prior to the last Valuation Time (see "VALUATION OF
SHARES"). Payments transmitted by other means (such as by check drawn on a
member of the Federal Reserve System) will normally be converted into federal
funds within two banking days after receipt. The Group strongly recommends that
investors of substantial amounts use federal funds to purchase Investor A Shares
of the Money Market Funds.
The minimum initial investment amount referred to above may be waived if
purchases are made in connection with Individual Retirement Accounts (IRAs),
Keoghs or similar plans. For information on IRAs, Keoghs or similar plans,
contact First of America Bank Corporation at (800) 544-6155. Due to the
relatively high cost of handling small investments, the Group reserves the right
to redeem involuntarily, at net asset value, the Investor A Shares of any
Shareholder if, because of redemptions of Investor A Shares by or on behalf of
the Shareholder (but not as a result of a decrease in the market price of such
Investor A Shares, the deduction of any sales charge or the establishment of an
account with less than $1,000 using the Auto Invest Plan), the account of such
Shareholder in that Fund has a value of less than $1,000. Accordingly, an
investor purchasing Investor A Shares of a Fund in only the minimum investment
amount may be subject to such involuntary redemption if the investor thereafter
redeems any such Investor A Shares. Before the Group exercises its right to
redeem such Investor A Shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of the Investor A Shares in the
Shareholder's account is less than the minimum amount and will be allowed 60
days to make an additional investment in the appropriate Fund in an amount which
will increase the value of the account to at least $1,000.
Depending upon the terms of a particular Customer account, First of America Bank
Corporation or one of its affiliates may charge a Customer account fees for
services provided in connection with investment in a Fund. Information
concerning these services and any charges may be obtained from First of America
Bank Corporation or the affiliate. This Prospectus should be read in conjunction
with any such information so received.
The Group reserves the right to reject any order for the purchase of its Shares
in whole or in part.
Every Shareholder will receive a confirmation of each new transaction in the
Shareholder's account, which will also show the total number of Investor A
Shares of the respective Fund of the Group owned by the Shareholder.
Confirmation of purchases and redemptions of Investor A Shares of the Funds by
First of America Bank Corporation or one of its affiliates on behalf of a
Customer may be obtained from First of
PROSPECTUS--Investor A Shares 56
<PAGE> 61
America Bank Corporation or the affiliate. Shareholders may rely on these
statements in lieu of certificates. Certificates representing Investor A Shares
of the Funds will not be issued.
AUTO INVEST PLAN
The Parkstone Group of Funds Auto Invest Plan enables Shareholders to make
regular monthly or quarterly purchases of Investor A Shares through automatic
deduction from their bank accounts. With Shareholder authorization, the Group's
Transfer Agent will deduct the amount specified (subject to the applicable
minimums) from the Shareholder's bank account which will automatically be
invested in Shares at the public offering price on the date of such deduction
(or the next Business Day thereafter, as defined under "VALUATION OF SHARES"
below). The required minimum initial investment when opening an account using
the Auto Invest Plan is $100; the minimum amount for subsequent investments in a
Fund is $50. To participate in the Auto Invest Plan, Shareholders should
complete the appropriate section of the account application or a supplemental
Auto Invest application that can be acquired by calling the Group at (800)
451-8377. For a Shareholder to change the Auto Invest instructions, the request
must be made in writing to the Group, c/o The Parkstone Group of Funds, 3435
Stelzer Road, Columbus, Ohio 43219 and may take up to 15 days to implement.
SALES CHARGES
The public offering price of Investor A Shares of the Funds equals net asset
value plus the applicable sales charge. BISYS receives this sales charge as
Distributor and may reallow it as dealer discounts and brokerage commissions as
follows:
GROWTH FUNDS
GROWTH AND INCOME FUNDS
<TABLE>
<CAPTION>
SALES DEALER DISCOUNTS
CHARGE SALES AND BROKERAGE
AS % OF CHARGE AS COMMISSIONS AS
AMOUNT OF TRANSACTION AT NET AMOUNT % OF PUBLIC % OF PUBLIC
PUBLIC OFFERING PRICE INVESTED OFFERING PRICE OFFERING PRICE
-------------------- --------- ----------- -------------
<S> <C> <C> <C>
Less than $50,000.............................................. 4.71% 4.50% 4.00%
$50,000 but less than $100,000................................. 4.17 4.00 3.50
$100,000 but less than $250,000................................ 3.09 3.00 2.50
$250,000 but less than $500,000................................ 2.04 2.00 1.50
$500,000 but less than $1,000,000.............................. 1.01 1.00 1.00
$1,000,000 or more............................................. 0.00 0.00 0.00
</TABLE>
INCOME FUNDS
TAX-FREE INCOME FUNDS
<TABLE>
<CAPTION>
SALES DEALER DISCOUNTS
CHARGE SALES AND BROKERAGE
AS % OF CHARGE AS COMMISSIONS AS
AMOUNT OF TRANSACTION AT NET AMOUNT % OF PUBLIC % OF PUBLIC
PUBLIC OFFERING PRICE INVESTED OFFERING PRICE OFFERING PRICE
-------------------- --------- ----------- -------------
<S> <C> <C> <C>
Less than $50,000.............................................. 4.17% 4.00% 3.75%
$50,000 but less than $100,000................................. 3.63 3.50 3.25
$100,000 but less than $250,000................................ 3.09 3.00 2.50
$250,000 but less than $500,000................................ 2.04 2.00 1.50
$500,000 but less than $1,000,000.............................. 1.01 1.00 1.00
$1,000,000 or more............................................. 0.00 0.00 0.00
</TABLE>
57 PROSPECTUS--Investor A Shares
<PAGE> 62
IN GENERAL
From time to time dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers.
In addition to amounts paid to dealers as a dealer concession out of the sales
charge paid by investors, if any, the Distributor may, from time to time, at its
expense or as an expense for which it may be reimbursed under the Plans, pay a
bonus or other consideration or incentive to dealers who sell a minimum dollar
amount of shares of a Fund during a specified period of time. Any such
additional consideration or incentive program may be terminated at any time by
the Distributor.
The Dealer Discounts and Brokerage Commissions schedule above applies to all
dealers who have agreements with the Distributor except FSI, to which the
Distributor reallows all of the sales charge on the Shares sold by FSI. The
Distributor, at its expense, may also provide additional compensation to dealers
in connection with sales of Shares of any of the Funds and other Funds of the
Group. Compensation may include financial assistance to dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns regarding one or more Funds of the Group,
and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to exotic locations within or outside of the
United States for meetings or seminars of a business nature. The Distributor, at
its expense, currently conducts an annual sales contest for dealers, including
FSI, in connection with their sales of Shares of the Funds. Dealers may not use
sales of a Fund's Shares to qualify for this compensation to the extent such may
be prohibited by the laws of any state or any self-regulatory agency, such as
the National Association of Securities Dealers, Inc.
REDUCED SALES CHARGES
SALES CHARGE WAIVERS
The Distributor may waive sales charges for the purchase of Investor A Shares of
a Fund by or on behalf of (1) employees and retired employees (including
spouses, children and parents of employees and retired employees) of First of
America Bank Corporation, BISYS and any affiliates thereof, (2) Trustees of the
Group, (3) directors and retired directors (including spouses and children of
directors and retired directors) of First of America Bank Corporation and any
affiliate thereof, (4) employees (and their spouses and children under the age
of 21) of any broker-dealer with which the Distributor enters into an agreement
to sell shares of the Funds, (5) orders placed on behalf of other investment
companies distributed by the Distributor and (6) qualified orders placed by
broker-dealers and investment advisers for the account of customers who
participate in a fee-based program for the investment of customer funds in
various mutual funds. In addition, the Distributor may waive sales charges for
the purchase of a Fund's Investor A Shares with the proceeds from the recent
redemption of shares of a non-money market mutual fund (including the Investor A
Shares of the other non-money market Funds of the Group, but excluding the
Investor B and Investor C Shares of such Funds). The purchase must be made
within 60 days of the redemption, and the Distributor must be notified in
writing by the investor, or by his financial institution, at the time the
purchase is made. A copy of the investor's account statement showing such
redemption must accompany such notice.
The Distributor may also waive sales charges for the purchase of Investor A
Shares of a Fund by employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans qualified under Section
401(k) of the Internal Revenue Code, subject to minimum requirements with
respect to number of employees or amount of purchase, which may be established
by the Distributor. Currently, those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested or
to be invested during the subsequent thirteen-month period in the Funds or the
Investor A Shares of the other Funds of the Group totals at least $1,000,000.00.
PROSPECTUS--Investor A Shares 58
<PAGE> 63
Participating Organizations through which employee benefit plans purchase
Investor A Shares may be compensated by the Distributor under the Investor A
Plan.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining "concurrent purchases" of Investor A Shares of a Fund and
of one or more of the other Funds of the Group sold with a sales charge. For
example, if a shareholder concurrently purchases Investor A Shares in one of the
other Funds of the Group sold with a sales charge at the total public offering
price of $25,000 and Investor A Shares in a Fund at the total public offering
price of $25,000, the sales charge would be that applicable to a $50,000
purchase as shown in the appropriate table above. The investor's "concurrent
purchases" described above shall include the combined purchases of the investor,
the investor's spouse and children under the age of 21 and the purchaser's
retirement plan accounts. To receive the applicable public offering price
pursuant to this privilege, Shareholders must, at the time of purchase, give the
Transfer Agent or the Distributor sufficient information to permit confirmation
of qualification. This privilege, however, may be modified or eliminated at any
time or from time to time by the Group without notice thereof.
LETTERS OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter of
Intent which expresses the intention of such investor to purchase Investor A
Shares of a Fund at a designated total public offering price within a designated
13-month period. Each purchase of Investor A Shares under a Letter of Intent
will be made at the net asset value plus the sales charge applicable at the time
of such purchase to a single transaction of the total dollar amount indicated in
the Letter of Intent (the "Applicable Sales Charge"). A Letter of Intent may
include purchases of Investor A Shares made not more than 90 days prior to the
date such investor signs a Letter of Intent; however, the 13-month period during
which the Letter of Intent is in effect will begin on the date of the earliest
purchase to be included. An investor will receive as a credit against his/her
initial purchase(s) of Shares at the end of the 13-month period the difference,
if any, between the sales load paid on previous purchases qualifying under the
Letter of Intent and the Applicable Sales Charge.
A Letter of Intent is not a binding obligation upon the investor to purchase the
full amount indicated. The minimum initial investment under a Letter of Intent
is 5% of such amount. Investor A Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the name of the
investor) to secure payment of the higher sales charge applicable to the
Investor A Shares actually purchased if the full amount indicated is not
purchased, and such escrowed Investor A Shares will be involuntarily redeemed to
pay the additional sales charge, if necessary. Dividends on escrowed Investor A
Shares, whether paid in cash or reinvested in additional Investor A Shares, are
not subject to escrow. The escrowed Investor A Shares will not be available for
disposal by the investor until all purchases pursuant to the Letter of Intent
have been made or the higher sales charge has been paid. When the full amount
indicated has been purchased, the escrow will be released. To the extent that an
investor purchases more than the dollar amount indicated on the Letter of Intent
and qualifies for a further reduced sales charge, the sales charge will be
adjusted for the entire amount purchased, along with any purchases made during
the 90 days prior to the date such investor signs the Letter of Intent, at the
applicable public offering price at the end of the 13-month period. The
difference in sales charge will be used to purchase additional Investor A Shares
of such Fund subject to the rate of sales charge applicable to the actual amount
of the aggregate purchases.
For further information about Letters of Intent, interested investors should
contact the Group at (800) 451-8377. This program, however, may be modified or
eliminated at any time or from time to time by the Group without notice.
RIGHTS OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Investor A Shares of a Fund at the public offering price applicable to the total
of (a) the total public offering price of the Investor A
59 PROSPECTUS--Investor A Shares
<PAGE> 64
Shares of the Fund then being purchased plus (b) an amount equal to the then
current net asset value of the "purchaser's combined holdings" of the Investor A
Shares of all of the Funds of the Group sold with a sales charge. The
"purchaser's combined holdings" described in the preceding sentence shall
include the combined holdings of the purchaser, the purchaser's spouse and
children under the age of 21 and the purchaser's retirement plan accounts. To
receive the applicable public offering price pursuant to the right of
accumulation, Shareholders must, at the time of purchase, give the Transfer
Agent or the Distributor sufficient information to permit confirmation of
qualification. This right of accumulation, however, may be modified or
eliminated at any time or from time to time by the Group without notice.
DIRECTED DIVIDEND OPTION
A Shareholder may elect to have all income dividends and capital gains
distributions paid by check, reinvested in the Fund or reinvested in any of the
Group's other Funds, without the payment of a sales charge (provided the other
Fund is maintained at the minimum required balance).
The Directed Dividend Option may be modified or terminated by the Group at any
time after notice to participating Shareholders. Participation in the Directed
Dividend Option may be terminated or changed by the Shareholder at any time by
writing the Distributor. The Directed Dividend Option is not available to
participants in any of the Parkstone IRA's.
EXCHANGE PRIVILEGE
The exchange privilege enables Shareholders of Investor A Shares to acquire
Investor A Shares that are offered by another fund of the Group with a different
investment objective. This exchange privilege does not apply to other classes of
Shares of a Fund. For example, holders of a Fund's Investor B Shares may not
exchange their Shares for Investor A Shares, and holders of a Fund's Investor A
Shares may not exchange their Shares for Investor B Shares.
Holders of Investor A Shares of one of the Group's Funds (including Investor A
Shares acquired through reinvestment of dividends and distributions on such
shares) may exchange those Investor A Shares at net asset value without any
sales charge for Investor A Shares offered by any of the Group's other Funds,
provided that the amount to be exchanged meets the applicable minimum investment
requirements and the exchange is made in states where it is legally authorized.
An exchange is considered a sale of Shares and will result in a capital gain or
loss for federal income tax purposes. A Shareholder may not include any sales
charge on Shares of a Fund as a part of the cost of those Shares for purposes of
calculating the gain or loss realized on an exchange of those Shares within 90
days of their purchase.
A Shareholder wishing to exchange his or her Shares may do so by contacting the
Group at (800) 451-8377 or by providing written instructions to the Transfer
Agent. Any Shareholder who wishes to make an exchange should obtain and review
the current prospectus of the Fund of the Group in which the Shareholder wishes
to invest before making the exchange. For a discussion of risks associated with
unauthorized telephone exchanges, see "HOW TO REDEEM YOUR INVESTOR A SHARES--By
Telephone" below.
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS
Investor A Shares of the Funds are available to Shareholders on a tax-deferred
basis through the following retirement plans:
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A Parkstone IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Parkstone IRA contributions may be tax-deductible and earnings are tax-deferred.
Under the Tax Reform Act of 1986, the tax deductibility of IRA contributions is
restricted or eliminated for individuals who participate in certain employer
pension plans and whose annual income
PROSPECTUS--Investor A Shares 60
<PAGE> 65
exceeds certain limits. Existing IRA's and future contributions up to the IRA
maximums, whether deductible or not, still earn income on a tax-deferred basis.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP/IRA")
A Parkstone SEP/IRA may be established on a group basis by an employer who
wishes to sponsor a tax-sheltered retirement program by making contributions
into IRA's on behalf of all eligible employees.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR-SEP/IRA")
A Parkstone SAR-SEP/IRA offers employers with 25 or fewer eligible employees the
ability to establish a SEP/IRA that permits salary reduction contributions.
All Parkstone IRA distribution requests must be made in writing to BISYS Ohio.
Any additional deposits to a Parkstone IRA must distinguish the type and year of
the contribution.
For more information on any of the Parkstone IRA's or other retirement plan
options available (401(k) Defined Contribution Plans, 403(b)(7) Defined
Compensation Plans, etc.), call the Group at (800) 451-8377. Shareholders are
advised to consult a tax adviser on Parkstone IRA contribution and withdrawal
requirements and restrictions.
HOW TO REDEEM YOUR INVESTOR A SHARES
Shareholders may redeem their Investor A Shares without charge on any day that
net asset value is calculated (see "VALUATION OF SHARES"). Redemptions will be
effected at the net asset value per share next determined after receipt of a
redemption request. Redemptions may be requested by mail or by telephone.
BY MAIL
A written request for redemption must be received by the Transfer Agent in order
to honor the request. The Transfer Agent's address is: BISYS Fund Services Ohio,
Inc., c/o The Parkstone Group of Funds, Department L-1270, Columbus, Ohio
43260-1270. The Transfer Agent will require a signature guarantee by an eligible
guarantor institution. The signature guarantee requirement will be waived if all
of the following conditions apply: (1) the redemption check is payable to the
Shareholder(s) of record, and (2) the redemption check is mailed to the
Shareholder(s) at the address of record. The Shareholder may also have the
proceeds mailed to a commercial bank account previously designated on the
Account Application. There is no charge for having redemption proceeds mailed to
a designated bank account. To change the address to which a redemption check is
to be mailed, a written request therefor must be received by the Transfer Agent.
In connection with such request, the Transfer Agent will require a signature
guarantee by an eligible guarantor institution.
For purposes of this policy, the term "eligible guarantor institution" shall
include banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings associations as those terms are
defined in the Securities Exchange Act of 1934. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
BY TELEPHONE
Investor A Shares may be redeemed by telephone if the Account Application Form
reflects that the Shareholder has that capability. The Shareholder may have the
proceeds mailed to his or her address or mailed or sent electronically to a
commercial bank account previously designated on the Account Application Form.
Under most circumstances, payments will be transmitted on the next Business Day.
Electronic payment requests may be made by the Shareholder by telephone to the
Group at (800) 451-8377. While the Transfer Agent currently does not charge a
wire redemption fee, the Transfer Agent reserves the right to impose such a fee
in the future.
61 PROSPECTUS--Investor A Shares
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The Group's Account Application Form provides that none of BISYS, the Transfer
Agent, the Group or any of their affiliates or agents will be liable for any
loss, expense or cost when acting upon any oral, wired or electronically
transmitted instructions or inquiries believed by them to be genuine. While
precautions will be taken, Shareholders bear the risk of any loss as the result
of unauthorized telephone redemptions or exchanges believed by the Transfer
Agent to be genuine. If the telephone feature was not originally selected, the
Shareholder must provide written instructions to the Group to add it. The Group
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; if these procedures are not followed, the Group may be
liable for any losses due to unauthorized or fraudulent instructions. These
procedures include recording all phone conversations, sending confirmations to
Shareholders within 72 hours of the telephone transaction, verifying the account
name and a shareholder's account number or tax identification number and sending
redemption proceeds only to the address of record or to a previously authorized
bank account. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, shareholders may mail the request to the Transfer
Agent.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund to make regular monthly
or quarterly redemptions of Investor A Shares. With Shareholder authorization,
the Transfer Agent will automatically redeem such Investor Shares at the net
asset value on the fifteenth day of the month or quarter (or the next Business
Day thereafter) and have the amount specified transferred according to the
written instructions of the Shareholder. Shareholders participating in this Plan
must maintain a minimum account balance of $1,000. The required minimum
withdrawal is $100, monthly or quarterly.
The Auto Withdrawal Plan may be modified or terminated without notice. In
addition, the Group may suspend a Shareholder's withdrawal plan without notice
if the account contains insufficient funds to effect a withdrawal or in the
event that the account balance is less than the minimum $1,000 amount.
To participate in the Auto Withdrawal Plan, Shareholders should call (800)
451-8377 for more information. Purchases of additional Investor Shares
concurrently with withdrawals may be disadvantageous to certain Shareholders
because of tax liabilities and sales charges. For a Shareholder to change the
Auto Withdrawal instructions, the request must be made in writing to the
Distributor and may take up to 15 days to implement.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a Customer's Investor A Shares may be redeemed in accordance with
instructions and limitations pertaining to his or her account at First of
America Bank Corporation or one of its affiliates.
All redemption orders are effected at the net asset value per share next
determined after the Investor Shares are properly tendered for redemption, as
described above. The proceeds paid upon redemption of such Investor Shares in
the Funds, less any applicable contingent deferred sales charge, may be more or
less than the amount invested. Payment to Shareholders for such Investor Shares
redeemed will be made within seven days after receipt by the Transfer Agent of
the request for redemption. However, to the greatest extent possible, requests
from Shareholders for next day payments upon redemption of Investor Shares will
be honored if received by the Transfer Agent before the last Valuation Time on a
Business Day or, if received after the last Valuation Time, within two Business
Days, unless it would be disadvantageous to that Fund or its Shareholders to
sell or liquidate portfolio securities in an amount sufficient to satisfy
requests for payments in that manner.
At various times, the Group may be requested to redeem Investor A Shares for
which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed until payment has been collected for the
purchase of such Investor Shares which delay may be for 15 days or more. Such
delay may be avoided if such Investor Shares are purchased by wire transfer of
federal funds. The Group intends to pay cash for all Investor Shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in portfolio securities at their then market
PROSPECTUS--Investor A Shares 62
<PAGE> 67
value equal to the redemption price. In such cases, an investor may incur
brokerage costs in converting such securities to cash.
See the Statement of Additional Information ("ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION") for examples of when the right of redemption may be suspended.
HOW SHARES ARE VALUED
The net asset value of each class of Shares of the Funds, with the exception of
the Money Market Funds, is determined and their Shares are priced as of the
close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern
Time) on each Business Day (the "Valuation Time"). The net asset value of each
class of Shares of Money Market Funds is determined and their Shares are priced
as of noon and as of the close of trading on the New York Stock Exchange on each
Business Day (the "Valuation Time"). A "Business Day" is a day on which the New
York Stock Exchange is open for trading and the Federal Reserve Bank of Chicago,
and any other day (other than a day on which no Shares are tendered for
redemption and no order to purchase any Shares is received) during which there
is sufficient trading in its portfolio instruments that its net asset value per
share might be materially affected. Currently, the New York Stock Exchange or
the Federal Reserve Bank of Chicago will not open in observance of the following
holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day,
Thanksgiving and Christmas.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding Shares of such class.
The net asset value per share will fluctuate as the value of the investment
portfolio of a Fund changes. However, the assets in each Money Market Fund are
valued based upon the amortized cost method. Pursuant to the rules and
regulations of the Securities and Exchange Commission regarding the use of the
amortized cost method, each Money Market Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less. Although the Group seeks to
maintain each Money Market Fund's net asset value per share at $1.00, there can
be no assurance that net asset value will not vary.
The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. Foreign securities are valued
based on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income is declared monthly as a dividend to Shareholders at the close of
business on the day of declaration and is generally paid monthly. Distributable
net realized capital gains are distributed at least annually. A Shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional Shares at net asset value as of the date of
declaration, unless the Shareholder elects to receive dividends or distributions
in cash or elects to participate in the Parkstone Directed Dividend Option. Such
election, or any revocation thereof, must be made in writing to the Transfer
Agent at 3435 Stelzer Road, Columbus, Ohio 43219, and will become effective with
respect to dividends and distributions having record dates after its receipt by
the Transfer Agent.
Each Fund's net investment income available for distribution to the holders of
Investor A Shares will be reduced by the amount of Rule 12b-1 fees payable to
Participating Organizations under the Investor A Plan. Each Fund's net
investment income available for distribution to the holders of Investor A Shares
may also be reduced by the amount of retail transfer agency fees payable to the
Transfer Agent applicable to the Investor A Shares.
63 PROSPECTUS--Investor A Shares
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Each of the Funds of the Group is treated as a separate entity for Federal
income tax purposes, 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 its shareholders and intends to
distribute all of its net income and capital gains so that it is not required to
pay Federal income taxes on amounts so distributed to shareholders.
To avoid Federal income tax, the Code requires each Fund to distribute each
taxable year at least 90% of its investment company taxable income and at least
90% of its exempt-interest income. In addition, to avoid imposition of a
nondeductible 4% excise tax, each Fund is required annually to distribute, prior
to calendar year end, 98% of taxable ordinary income on a calendar year basis,
98% of capital gain net income realized in the twelve months preceding October
31, and the balance of undistributed taxable ordinary income and capital gain
net income from the prior calendar year. Finally, in order to permit the
Municipal Bond Fund and the Michigan Fund each to distribute exempt-interest
dividends which Shareholders may exclude from their gross taxable income for
federal income tax purposes, at least 50% of such Fund's total assets must
consist of obligations the interest on which is exempt from federal income tax
as of the close of each fiscal quarter of such Fund.
A Shareholder receiving a distribution of ordinary income and/or an excess of
short-term capital gain over net long-term loss would treat it as a receipt of
ordinary income. The dividends-received deduction for corporations will apply to
the aggregate of such ordinary income distributions in the same proportion as
the aggregate dividends from domestic corporations, if any, received by that
Fund bear to its gross income. A Shareholder will not be able to take the
dividends-received deduction unless that Shareholder holds the Shares for at
least 46 days.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to its Shareholders as long-term capital gain
in the year in which it is received, regardless of how long the Shareholder has
held Shares. Such distributions are not eligible for the dividends-received
deduction.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
Taxes may be imposed on the Funds, particularly the Balanced and International
Funds, by foreign countries with respect to income received on foreign
securities. If more than 50% of the value of a Fund's assets at the close of its
taxable year consists of stocks or securities of foreign corporations, the Fund
may elect to treat any foreign income taxes it paid as paid by its Shareholders.
In this case, Shareholders generally will be required to include in income their
pro rata share of such taxes, but will then be entitled to claim a credit or
deduction for their share of such taxes. However, a particular Shareholder's
ability to utilize such a credit will be subject to certain limitations imposed
by the Code. The Funds will report to its Shareholders each year the amount, if
any, of foreign taxes per share that it has elected to have treated as paid by
its Shareholders.
Shareholders will be advised at least annually as to the Federal income tax
consequences of distributions made during the year.
THE MUNICIPAL BOND FUND, THE MICHIGAN FUND AND THE TAX-FREE FUND (THE "EXEMPT
FUNDS")
Dividends derived from exempt-interest income may be treated by an Exempt Fund's
Shareholders as items of interest excludable from their gross income. However,
such dividends may be taxable to Shareholders of the Municipal Bond Fund and the
Tax-Free Fund under state or local law as ordinary income even though all or a
portion of the amounts may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such taxes. In determining net
exempt-interest income, expenses of the Exempt Fund are allocated to gross
tax-exempt interest income in the
PROSPECTUS--Investor A Shares 64
<PAGE> 69
proportion that the gross amount of such interest income bears to the Exempt
Fund's total gross income, excluding net capital gains. (Shareholders are
advised to consult a tax adviser with respect to whether exempt-interest
dividends retain the exclusion if such Shareholder would be treated as a
"substantial user" or a "related person" to such user under the Code.) Interest
on indebtedness incurred or continued by a Shareholder to purchase or carry
Shares is not deductible for federal income tax purposes if an Exempt Fund
distributes exempt-interest dividends during the Shareholder's taxable year. It
is anticipated that distributions from the Exempt Funds will not be eligible for
the dividends received deduction for corporations.
Under the Code, if a Shareholder receives an exempt-interest dividend with
respect to any Share and such Share is held for six months or less, any loss on
the sale or exchange of such Share will be disallowed to the extent of the
amount of such exempt-interest dividend, although the Treasury Department is
authorized to issue regulations reducing the period to not less than 31 days for
regulated investment companies that regularly distribute at least 90% of their
net tax-exempt interest. No such regulations have been issued as of the date of
this Prospectus. In addition, dividends attributable to interest on certain
private activity bonds may have to be included in Shareholders' income for
purposes of calculating alternative minimum tax. See "ADDITIONAL
INFORMATION--Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Fund" in the Statement of Additional
Information for more information regarding the federal alternative minimum tax.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase agreements)
or from long-term or short-term capital gains, such dividends will be subject to
federal income tax. A Shareholder should consult his or her own tax adviser for
any special advice.
Distributions by the Michigan Fund to holders of Shares who are subject to the
Michigan personal income tax and/or single business tax will not be subject to
the Michigan personal income tax, single business tax or any Michigan city
income tax to the extent that the distributions are attributable to income
received by the Michigan Fund as interest from Michigan Municipal Securities or
to the extent that the distributions are attributable to interest income and
gains from the sale or disposal of United States obligations exempted from state
taxation by the United States Constitution, treaties, and statutes. However,
some or all of the other distributions by the Michigan Fund may be taxable by
the State of Michigan or subject to applicable city income taxes, even if the
distributions are attributable to income of the Michigan Fund derived from
obligations of the United States or its agencies and instrumentalities. In
addition, to the extent that a Shareholder of the Michigan Fund is obligated to
pay state or local taxes outside of Michigan, dividends earned by an investment
in the Michigan Fund may represent taxable income. Investments held in the
Michigan Fund by a Michigan resident are not subject to the Michigan intangible
personal property tax to the extent that the investments are attributable to
bonds or other similar obligations of the State of Michigan or a political
subdivision thereof, or obligations of the United States.
The Michigan Department of Treasury in a 1986 Revenue Administrative Bulletin
has taken the position that the tax attributes of the securities held by a
mutual fund flow through to the investors. Based on this position, the Michigan
Department of Treasury has stated that mutual fund distributions attributable to
interest from the fund's investment in direct U.S. government securities, as
well as Municipal Securities, will not be subject to the Michigan personal
income tax. The Michigan Department of Treasury also has stated that an owner of
a share of a mutual fund will not be subject to intangible personal property tax
to the extent that the pro rata share of the securities underlying the mutual
fund would be exempt.
For Michigan personal income tax and intangible personal property tax purposes,
taxable distributions from investment income and short term capital gains, if
any, are taxable as ordinary income, whether received in cash or additional
Shares, and are subject to the Michigan intangible personal property tax and to
applicable Michigan city income taxes. The Michigan single business tax, a
modified value added tax, is computed by applying the tax rate to a tax base
determined by making certain adjustments to federal taxable income. Taxable
distributions from investment income and gains, if any, may be included in
federal taxable income or may comprise one of the adjustments made to the tax
base. Distributions of cash, other property or additional Shares by the Michigan
Fund to a Michigan single business taxpayer
65 PROSPECTUS--Investor A Shares
<PAGE> 70
attributable to any gain realized from the sale, exchange or other disposition
of Michigan Municipal Securities are includable in the Michigan single business
taxpayer's adjusted tax base for purposes of the Michigan single business tax to
the extent included in federal taxable income. Distributions of cash, other
property or additional Shares by the Michigan Fund to a Michigan single business
taxpayer are not subject to the Michigan single business tax to the extent that
the distributions are attributable to interest income from and any gain realized
from the sale, exchange or other disposition of U.S. Securities. Taxable long-
term capital gains distributions are taxable as long-term capital gains for
Michigan purposes irrespective of how long a Shareholder has held the Shares,
except that such distributions reinvested in Shares of the Michigan Fund are
exempt from the Michigan intangible personal property tax.
U.S. GOVERNMENT OBLIGATIONS FUND, PRIME OBLIGATIONS FUND AND TREASURY FUND
Since all of the net investment income of the U.S. Government Obligations Fund,
the Prime Obligations Fund and the Treasury Fund is expected to be derived from
earned interest, it is anticipated that no part of any distribution will be
eligible for the dividends received deduction for corporations. The U.S.
Government Obligations Fund, the Prime Obligations Fund and the Treasury Fund do
not expect to realize any long-term capital gains and, therefore, do not foresee
paying any "capital gains dividends" as described in the Code.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Funds and their Shareholders. Potential
investors are advised to consult their tax advisers concerning state and local
taxes, which may differ from the Federal income taxes described above.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a class of Shares in a Fund will be
calculated for the period since the establishment of the Funds and will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a class of Shares in a
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions) and annualizing the result. Aggregate
total return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of annualized.
Yield of a class of Shares will be computed by dividing a class of Shares' net
investment income per share earned during a recent one-month period by that
class of Shares' per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result. Each Fund may also present its average annual
total return, aggregate total return and yield, as the case may be, excluding
the effect of a sales charge, if any.
In addition, from time to time the Funds may present their respective
distribution rates for a class of Shares in supplemental sales literature which
is accompanied or preceded by a prospectus and in Shareholder reports.
Distribution rates will be computed by dividing the distribution per share of a
class made by a Fund over a twelve-month period by the maximum offering price
per share. The calculation of income in the distribution rate includes both
income and capital gain dividends and does not reflect unrealized gains or
losses, although a Fund may also present a distribution rate excluding the
effect of capital gains. The distribution rate differs from the yield, because
it includes capital gains which are often non-recurring in nature, whereas yield
does not include such items. Distribution rates may also be presented excluding
the effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Investor A Shares and the other classes of the Funds. Because of differences in
the fees and/or expenses borne by different classes of Shares of the Funds, the
net yield and total return on Investor A Shares may be different from that for
another class of the same Fund. For example, net yield and total return on
Investor A Shares is expected,
PROSPECTUS--Investor A Shares 66
<PAGE> 71
at any given time, to be lower than the net yield and total return on
Institutional Shares for the same period.
Investors may also judge the performance of any class of Shares or Fund by
comparing or referencing it to the performance of other mutual funds with
comparable investment objectives and policies through various mutual fund or
market indices such as those prepared by various services which indices may be
published by such services or by other services or publications, including, but
not limited to, ratings published by Morningstar, Inc. In addition to
performance information, general information about the Funds that appears in
such publications may be included in advertisements, in sales literature and in
reports to Shareholders. For further information regarding such services and
publications, see "ADDITIONAL INFORMATION--Performance Comparisons" in the
Statement of Additional Information.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, operating expenses, and market conditions. Consequently, total
return and yield will fluctuate and are not necessarily representative of future
results. Any fees charged by First of America Bank Corporation or any of its
affiliates with respect to customer accounts for investing in shares of the
Funds will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted. In addition, if First of
America and BISYS voluntarily reduce all or a part of their respective fees, as
further discussed below, the total return of such Fund will be higher than it
would otherwise be in the absence of such voluntary fee reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's funds through FUNDATA(R), an Automated Voice
Response System, 24 hours a day by calling (800) 451-8377 from any touch-tone
phone. Shareholders may also speak directly with a Group representative,
employed by BISYS, during regular business hours.
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in 1987 and currently
offers fifteen Funds. The shares of each of the Funds of the Group, other than
its four Money Market Funds, are offered in four separate classes: Investor A
Shares, Investor B Shares, Investor C Shares and Institutional Shares. Shares of
each of the four Money Market Funds of the Group are offered in two separate
classes: Investor A Shares and Institutional Shares. Each Share represents an
equal proportionate interest in a fund with other shares of the same fund, and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Trustees.
Shares are without par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by fund except as otherwise
expressly required by law. For example, Shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of trustees and ratification of the selection of independent accountants.
However, Shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement. In addition, holders of Investor A Shares of a
Fund will vote as a class and not with holders of another class of that Fund
with respect to the approval of its Investor A Plan.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve an investment and sub-investment advisory agreements and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Group may elect not to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request
67 PROSPECTUS--Investor A Shares
<PAGE> 72
therefor from shareholders holding not less than 10% of the outstanding votes of
the Group. At such a meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
As of June 30, 1995, First of America Bank Corporation, through its wholly owned
subsidiaries, possessed on behalf of its underlying accounts voting or
investment power with respect to more than 25% of the Shares of each of the
Funds, and therefore may be presumed to control each Fund within the meaning of
the 1940 Act.
MULTIPLE CLASSES OF SHARES
In addition to Investor A Shares, the Group also offers Investor B, Investor C
and Institutional Shares of the Funds under an exemptive order granted by the
Commission. A salesperson or other person entitled to receive compensation for
selling or servicing the Shares may receive different compensation with respect
to one particular class of Shares over another in the same Fund. The amount of
dividends payable with respect to other Classes of Shares will differ from
dividends on Investor A Shares as a result of the Investor A Plan fees
applicable to Investor A Shares and because Investor A Shares may bear different
retail transfer agency expenses. For further details regarding these other
Classes of Shares, call the Group at (800) 451-8377.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc., formerly known as The Winsbury Service
Corporation, 3435 Stelzer Road, Columbus, Ohio 43219, serves as the Group's
Transfer Agent pursuant to a Transfer Agency Agreement with the Group and
receives a fee for such services. BISYS Fund Services Ohio, Inc. also provides
certain accounting services for each of the Funds and receives a fee for such
services. See "MANAGEMENT OF THE GROUP--Custodian, Transfer Agent and Fund
Accounting Services" in the Statement of Additional Information for further
information.
While BISYS Fund Services Ohio, Inc. is a distinct legal entity from BISYS (the
Group's administrator and distributor), BISYS Fund Services Ohio, Inc. is
considered to be an affiliated person of BISYS under the 1940 Act due to, among
other things, the fact that BISYS Fund Services Ohio, Inc. and BISYS are both
owned by The BISYS Group, Inc.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free
(800) 451-8377.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
PROSPECTUS--Investor A Shares 68
<PAGE> 73
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THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
First of America Investment Corporation
Suite 500
303 North Rose Street
Kalamazoo, Michigan 49007
SUB-INVESTMENT ADVISER (INTERNATIONAL AND BALANCED FUNDS)
Gulfstream Global Investors, Ltd.
Suite 1605
300 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
The Bank of California, N.A.
400 California Street
San Francisco, California 94145
LEGAL COUNSEL
Howard & Howard Attorneys, P.C.
Suite 400
107 E. Michigan Avenue
Kalamazoo, Michigan 49007
<PAGE> 75
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THE PARKSTONE
GROUP OF FUNDS
INVESTOR B SHARES
- --------------------------------------------------------------------------------
GROWTH FUNDS
PARKSTONE EQUITY FUND
PARKSTONE SMALL CAPITALIZATION FUND
PARKSTONE INTERNATIONAL DISCOVERY FUND
GROWTH AND INCOME FUNDS
PARKSTONE BALANCED FUND
PARKSTONE HIGH INCOME EQUITY FUND
INCOME FUNDS
PARKSTONE BOND FUND
PARKSTONE LIMITED MATURITY BOND FUND
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
PARKSTONE MUNICIPAL BOND FUND
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
Prospectus dated October 13, 1995
PARKSTONE
MUTUAL FUNDS
-------------------------
NOT FDIC INSURED
<PAGE> 76
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 77
THE PARKSTONE GROUP OF FUNDS
INVESTOR B SHARES PROSPECTUS DATED OCTOBER 13, 1995
<TABLE>
<S> <C>
GROWTH FUNDS For more information call:
Parkstone Equity Fund (800) 451-8377
Parkstone Small Capitalization Fund or write to:
Parkstone International Discovery Fund 3435 Stelzer Road
Columbus, Ohio 43219
GROWTH AND INCOME FUNDS
Parkstone Balanced Fund
Parkstone High Income Equity Fund THESE SECURITIES HAVE NOT
BEEN APPROVED OR
INCOME FUNDS DISAPPROVED BY THE
Parkstone Bond Fund SECURITIES AND EXCHANGE
Parkstone Limited Maturity Bond Fund COMMISSION OR ANY STATE
Parkstone Intermediate Government Obligations SECURITIES COMMISSION NOR
Fund HAS THE COMMISSION OR ANY
Parkstone U.S. Government Income Fund STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR
TAX-FREE INCOME FUNDS ADEQUACY OF THIS
Parkstone Municipal Bond Fund PROSPECTUS. ANY
Parkstone Michigan Municipal Bond Fund REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE
</TABLE>
The Funds listed above are each of the eleven currently-offered series of The
Parkstone Group of Funds (the "Group") which offer Investor B Shares. This
Prospectus explains concisely what you should know before investing in the
Investor B Shares of the Funds listed above. Please read it carefully and keep
it for future reference. You can find more detailed information about the Fund
in the October 13, 1995 Statement of Additional Information, as amended from
time to time. For a free copy of the Statement of Additional Information or
other information, contact the Group at the number specified above. The
Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference.
THE SHARES OF THE PARKSTONE GROUP OF FUNDS ARE NOT OBLIGATIONS OR DEPOSITS OF
FIRST OF AMERICA INVESTMENT CORPORATION OR ITS PARENT, AND THE INVESTMENTS
DESCRIBED IN THIS PROSPECTUS ARE NOT ENDORSED, INSURED OR GUARANTEED BY FIRST OF
AMERICA INVESTMENT CORPORATION, ITS PARENT OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVOLVED.
PROSPECTUS--Investor B Shares
<PAGE> 78
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................... 4
Fee Tables................................................................... 8
Financial Highlights......................................................... 11
Investment Objectives and Policies........................................... 26
Risk Factors and Investment Techniques....................................... 37
Investment Restrictions...................................................... 48
Management of the Funds...................................................... 49
How To Buy Investor B Shares................................................. 54
Sales Charges................................................................ 56
Contingent Deferred Sales Charge............................................. 57
Directed Dividend Option..................................................... 58
Exchange Privilege........................................................... 58
Factors To Consider When Selecting Investor B Shares......................... 58
Conversion Feature........................................................... 59
Parkstone Individual Retirement Accounts..................................... 59
How To Redeem Your Investor B Shares......................................... 60
How Shares Are Valued........................................................ 62
Dividends and Taxes.......................................................... 62
Performance Information...................................................... 65
Fundata(R)................................................................... 66
General Information.......................................................... 66
</TABLE>
PROSPECTUS--Investor B Shares 2
<PAGE> 79
PROSPECTUS ROADMAP
For information about the following subjects, consult the pages indicated on the
table below.
<TABLE>
<CAPTION>
INVESTMENT
FINANCIAL OBJECTIVES RISK FACTORS AND
FUND HIGHLIGHTS AND POLICIES INVESTMENT TECHNIQUES
<S> <C> <C> <C>
Equity Fund 11 27 28
Small Capitalization Fund 12 27 28
International Discovery Fund 12 28 29
Balanced Fund 13 29 30
High Income Equity Fund 13 30 31
Bond Fund 14 31 33
Limited Maturity Bond Fund 14 31 33
Intermediate Government Obligations Fund 15 33 34
Government Income Fund 15 34 35
Municipal Bond Fund 16 35 37
Michigan Municipal Bond Fund 16 35 37
</TABLE>
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which offers to the public fifteen separate investment portfolios,
fourteen of which are diversified portfolios and one of which is a
non-diversified portfolio, each with different investment objectives. These
Funds enable the Group to meet a wide range of investment needs.
This Prospectus relates only to the Investor B Shares of the following Funds:
Parkstone Equity Fund (the "Equity Fund")
Parkstone Small Capitalization Fund (the "Small Capitalization Fund")
Parkstone International Discovery Fund (the "International Fund")
Parkstone Balanced Fund (the "Balanced Fund")
Parkstone High Income Equity Fund (the "High Income Equity Fund")
Parkstone Bond Fund (the "Bond Fund")
Parkstone Limited Maturity Bond Fund (the "Limited Maturity Bond Fund")
Parkstone Intermediate Government Obligations Fund (the "Intermediate
Government Obligations Fund")
Parkstone U.S. Government Income Fund (the "Government Income Fund")
Parkstone Municipal Bond Fund (the "Municipal Bond Fund")
Parkstone Michigan Municipal Bond Fund (the "Michigan Fund")
For convenience of reference, the above Funds are sometimes referred to as part
of a general grouping. The Equity, Small Capitalization and International Funds
are collectively referred to as the "Growth Funds". The Balanced and High Income
Equity Funds are collectively referred to as the "Growth and Income Funds". The
Bond, Limited Maturity Bond, Intermediate Government Obligations and Government
Income Funds are collectively referred to as the Income Funds. Finally, the
Municipal Bond and Michigan Funds are collectively referred to as "Tax-Free
Income Funds".
The Trustees of the Group have divided each of the Funds beneficial ownership
into an unlimited number of transferable units called shares (the "Shares").
Each Fund of the Group offers multiple classes of
3 PROSPECTUS--Investor B Shares
<PAGE> 80
Shares. This Prospectus describes one class of Shares of each Fund-Institutional
Shares. Interested persons who wish to obtain a copy of the Prospectus of the
other Classes of Shares of the Funds or a copy of the Group's most recent annual
report may contact the Group at the telephone number shown above.
The investment objectives of each of the Funds are described in this Prospectus
and are summarized in the Prospectus Summary. First of America Investment
Corporation, Kalamazoo, Michigan ("First of America"), acts as the investment
adviser to each of the Funds of the Group. To provide investment advisory
services for the International and Balanced Funds for investments in foreign
securities, First of America has entered into a sub-investment advisory
agreement with Gulfstream Global Investors, Ltd., Dallas, Texas ("Gulfstream" or
"Subadviser").
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Investor B Shares of the following funds of the
Group:
GROWTH FUNDS
Equity Fund
Small Capitalization Fund
International Fund
GROWTH AND INCOME FUNDS
Balanced Fund
High Income Equity Fund
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
TAX-FREE INCOME FUNDS
Municipal Bond Fund
Michigan Fund
These Funds represent eleven separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust (the "Group") which is registered
as an open-end, management investment company.
Offering Price and Sales Charges
The public offering price of Investor B Shares of each Fund is equal to the net
asset value per share, but investors may be subject to a contingent deferred
sales charge of up to 4.00% when Investor B Shares are redeemed within four
years of purchase.
Minimum Purchase
$1,000 minimum initial purchase (based upon the public offering price) per Fund
with no minimum subsequent investments. Such minimum initial investment may be
waived for certain purchasers and is reduced to $100 for investors using the
Auto Invest Plan described herein, although such investors are subject to a $50
minimum for each subsequent investment in such Fund. Investor B Shares must be
purchased in amounts less than $250,000.
PROSPECTUS--Investor B Shares 4
<PAGE> 81
Investment Objectives
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
Equity Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks
Small Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks of small to medium-sized
companies
International Fund seeks the long-term growth of capital
Balanced Fund seeks current income, long-term capital growth and
conservation of capital
High Income Equity Fund primarily seeks current income by investing in a
diversified portfolio of high quality, dividend-paying
stocks and securities convertible into common stocks; a
secondary objective is growth of capital
Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high and medium
grade fixed-income securities
Limited Maturity Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high and
medium-grade fixed income securities, with remaining
maturities of six years or less
Intermediate Government seeks to provide current income with preservation of
Obligations Fund capital by investing in a diversified portfolio of U.S.
Government securities with remaining maturities of
twelve years or less
Government Income Fund seeks to provide shareholders with a high level of
current income consistent with prudent investment risk
Municipal Bond Fund seeks to provide current interest income which is
exempt from federal income taxes as well as
preservation of capital
Michigan Fund seeks income which is exempt from federal income tax
and Michigan state income and intangibles tax, although
such income may be subject to the federal alternative
minimum tax when received by certain shareholders; also
seeks preservation of capital
</TABLE>
5 PROSPECTUS--Investor B Shares
<PAGE> 82
Investment Policies
Under normal market conditions, each Fund will invest as described in the
following table:
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Equity Fund at least 80% of their total assets in common stocks,
and securities convertible into common stocks, of
companies believed by the investment adviser to be
characterized by sound management and the ability to
finance expected growth
Small Capitalization Fund at least 80% of their total assets in common stocks,
and securities convertible into common stocks, of small
to medium-sized companies believed by the investment
adviser to be characterized by sound management and the
ability to finance expected growth
International Fund at least 65% of its total assets in an internationally
diversified portfolio of equity securities which trade
on markets in countries other than the United States
and which are issued by companies (i) domiciled in
countries other than the United States, or (ii) that
derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States,
and (iii) which are ranked as small- or medium-sized
companies on the basis of their capitalization
Balanced Fund in any type or class of securities, including all types
of common stocks, fixed income securities and
securities convertible into common stocks. At least 25%
of the value of the Fund's total assets will be
invested in fixed income senior securities and up to
15% of the Fund's total assets may be invested in
foreign securities
High Income Equity Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management, the ability to finance expected
growth and the ability to pay above average dividends
Bond Fund at least 80% of its total assets in bonds, debentures
and certain other debt securities specified herein
Limited Maturity Bond Fund at least 80% of the value of its total assets in bonds,
debentures and certain other debt securities specified
herein with remaining maturities of six years or less
Intermediate Government at least 80% of its total assets in obligations issued
Obligations Fund or guaranteed by the U.S. Government or its agencies or
instrumentalities and with remaining maturities of
twelve years or less
Government Income Fund at least 65% of its total assets in obligations issued
or guaranteed by the U.S. Government or its agencies or
instrumentalities; under current market conditions; up
to 80% of its total assets in mortgage-related
securities, which are issued or guaranteed by the U.S.
Government, its agencies and instrumentalities and by
nongovernmental entities, or greater amounts as
conditions warrant
Municipal Bond Fund at least 80% of its total assets in tax-exempt
obligations
</TABLE>
PROSPECTUS--Investor B Shares 6
<PAGE> 83
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Michigan Fund at least 80% of its total assets in debt securities of
all types; at least 65% of the net assets will be
invested in municipal securities issued by or on behalf
of the State of Michigan, its political subdivisions,
municipalities and public authorities
</TABLE>
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a certain
amount of risk and may not be suitable for all investors. In addition, some
investment policies of the Funds may entail certain risks (see "RISK FACTORS AND
INVESTMENT TECHNIQUES").
Investment Adviser
First of America Investment Corporation ("First of America") serves as
investment adviser, and, with respect to the International Fund and a portion of
the Balanced Fund, Gulfstream Global Investors, Ltd. ("Gulfstream") or
"Subadviser" serves as subadviser.
Dividends and Capital Gains
Dividends from net income are declared and paid monthly. Net realized capital
gains are distributed at least annually.
Distributor
BISYS Fund Services, formerly known as The Winsbury Company, ("BISYS") a
partnership owned by The BISYS Group, Inc.
Transfer Agent
BISYS Fund Services Ohio, Inc., formerly known as The Winsbury Service
Corporation (the "Transfer Agent"), a subsidiary of The BISYS Group, Inc.
7 PROSPECTUS--Investor B Shares
<PAGE> 84
FEE TABLES (INVESTOR B SHARES)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge (as a percentage of the offering price)................. None
Sales Charge on Reinvested Distributions..................................... None
Maximum Deferred Sales Charge on Redemptions(1).............................. 4.00%
Redemption Fees(2)........................................................... None
Exchange Fees................................................................ None
</TABLE>
- ------------
(1) A Contingent Deferred Sales Load is charged only with respect to Investor B
Shares redeemed within four years of the date of purchase. (See "CONTINGENT
DEFERRED SALES CHARGE" herein.)
(2) Although no such fee currently is in place, the Transfer Agent has reserved
the right in the future to charge a fee for wire transfers of redemption
proceeds.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)*
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES(1) EXPENSES EXPENSES
---------- ----- ------- -------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Equity Fund........................................ 1.00% 1.00% 0.29% 2.29%
Small Capitalization Fund.......................... 1.00% 1.00% 0.32% 2.32%
International Fund................................. 1.17% 1.00% 0.40% 2.57%
GROWTH AND INCOME FUNDS:
Balanced Fund...................................... 0.75% 1.00% 0.50% 2.25%
High Income Equity Fund............................ 1.00% 1.00% 0.32% 2.32%
INCOME FUNDS:
Bond Fund.......................................... 0.70% 1.00% 0.33% 2.03%
Limited Maturity Bond Fund......................... 0.55% 1.00% 0.30% 1.85%
Intermediate Government Obligations Fund........... 0.70% 1.00% 0.36% 2.06%
Government Income Fund............................. 0.45% 1.00% 0.38% 1.83%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund................................ 0.55% 1.00% 0.25% 1.80%
Michigan Fund...................................... 0.55% 1.00% 0.23% 1.78%
</TABLE>
- ------------
* after expense reductions
(1) Pursuant to the Investor B Distribution and Shareholder Service Plan, each
Fund is authorized to make payments under such Plan of up to an annual rate of
1.00% of the average daily net asset value of such Fund's Investor B Shares.
Absent the voluntary reduction of advisory fees and Other Expenses, Management
Fees, Other Expenses and Total Expenses as a percentage of average net assets
for the Balanced Fund would have been 1.00%, 1.00% and 2.75%, respectively.
Absent the voluntary reduction of administration fees and advisory fees,
Management Fees, Other Expenses and Total Expenses as a percentage of average
net assets for the Bond Fund would have been .74%, .63% and 2.37%, respectively.
For the Limited Maturity Bond Fund they would have been .74%, .60% and 2.34%,
respectively. For the Intermediate Government Obligations Fund they would have
been .74%, .66% and 2.40%, respectively. For the Government Income Fund they are
estimated to be .74%, .68% and 2.42%, respectively. For the Municipal Bond Fund
they would have been .74%, .60% and 2.34%, respectively. For the Michigan Fund
they would have been .74%, .58% and 2.32%, respectively. Absent the voluntary
reduction of Other Expenses, Other Expenses and Total Expenses for the Equity
Fund would have been .54% and 2.54%, respectively. For the Small Capitalization
Fund they would have been .57% and 2.57%, respectively. For the High Income
Equity Fund they would
PROSPECTUS--Investor B Shares 8
<PAGE> 85
have been .57% and 2.57%, respectively. (See "MANAGEMENT OF THE
FUNDS--Investment Adviser and Subadviser" and "Administrator, Sub-Administrator
and Distributor.")
EXPENSE EXAMPLES
You would pay the following expenses on a $1,000 investment in Investor B
Shares, assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--- ---- ---- ----
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Equity Fund.................................................... $ 63 $ 102 $ 123 $ 263
International Fund............................................. $ 66 $ 110 $ 137 $ 290
Small Capitalization Fund...................................... $ 64 $ 102 $ 124 $ 266
GROWTH AND INCOME FUNDS:
Balanced Fund.................................................. $ 63 $ 100 $ 120 $ 258
High Income Equity Fund........................................ $ 64 $ 102 $ 124 $ 266
INCOME FUNDS:
Bond Fund...................................................... $ 61 $ 94 $ 109 $ 236
Limited Maturity Bond Fund..................................... $ 59 $ 98 $ 100 $ 215
Intermediate Government Obligations Fund....................... $ 61 $ 99 $ 111 $ 237
Government Income Fund......................................... $ 59 $ 88 $ 99 $ 215
TAX-FREE INCOME FUNDS:
Municipal Bond Fund............................................ $ 58 $ 87 $ 97 $ 212
Michigan Fund.................................................. $ 58 $ 86 $ 96 $ 209
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor B
Shares, assuming (1) 5% annual return and (2) no redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--- ---- ---- ----
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Equity Fund.................................................... $ 23 $ 72 $ 123 $ 263
International Fund............................................. $ 26 $ 80 $ 137 $ 290
Small Capitalization Fund...................................... $ 24 $ 72 $ 124 $ 266
GROWTH AND INCOME FUNDS:
Balanced Fund.................................................. $ 23 $ 70 $ 120 $ 258
High Income Equity Fund........................................ $ 24 $ 72 $ 124 $ 266
INCOME FUNDS:
Bond Fund...................................................... $ 21 $ 64 $ 109 $ 236
Limited Maturity Bond Fund..................................... $ 19 $ 58 $ 100 $ 215
Intermediate Government Obligations Fund....................... $ 21 $ 65 $ 111 $ 237
Government Income Fund......................................... $ 19 $ 58 $ 99 $ 215
TAX-FREE INCOME FUNDS:
Municipal Bond Fund............................................ $ 18 $ 57 $ 97 $ 212
Michigan Fund.................................................. $ 18 $ 56 $ 96 $ 209
</TABLE>
The information set forth in the foregoing Fee Tables and examples relates only
to Investor B Shares of the Funds. Each of the Funds also may offer other
classes of Shares. The other classes of Shares of the Funds are subject to the
same expenses except that the sales charges and level of Rule 12b-1 fees paid by
holders of the different classes will differ.
As a result of the payment of sales charges and 12b-1 fees, long-term
shareholders may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of
9 PROSPECTUS--Investor B Shares
<PAGE> 86
Securities Dealers, Inc. (the "NASD"). The NASD has adopted rules effective July
7, 1993, which generally limit the aggregate sales charges and payments under
the Group's Investor B Distribution and Shareholder Service Plan to a certain
percent of total new gross share sales, plus interest. The Funds would stop
accruing 12b-1 fees if, to the extent, and for as long as, such limit would
otherwise be exceeded.
The purpose of the above tables is to assist a potential purchaser of Investor B
Shares of any Fund in understanding the various costs and expenses that an
investor in a Fund will bear directly or indirectly. Such expenses do not
include any fees charged by First of America or any of its affiliates to its
customer accounts which may have invested in Investor B Shares of the Funds. See
"MANAGEMENT OF THE FUNDS," "GENERAL INFORMATION" and "SALES CHARGES" for a more
complete discussion of the Shareholder transaction expenses and annual operating
expenses of each of the Funds. The expense information for Investor B Shares
reflects current fees. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
PROSPECTUS--Investor B Shares 10
<PAGE> 87
FINANCIAL HIGHLIGHTS
The table below sets forth certain information concerning the investment results
of the Investor B Shares of each of the Funds since its inception. Further
financial information is included in the Statement of Additional Information and
the Group's June 30, 1995 Annual Report to Shareholders.
The Financial Highlights for the periods presented below have been derived from
financial statements audited by Coopers & Lybrand L.L.P. (Limited Liability
Partnership), independent accountants for the Group, whose report thereon is
included in the Annual Report.
Also included for the information of Shareholders is information concerning the
investment results of the Investor A Shares of the Group. This information is
made available to allow Shareholders to evaluate the Investor A Shares into
which the Investor B Shares will convert. See "CONVERSION FEATURE" below. With
respect to the financial information regarding the Investor A Shares, on March
31, 1993, the Shareholders of all of the then-outstanding Funds of the Group
approved the reclassification of such Fund's outstanding Shares into Investor A
Shares and Institutional Shares. The financial information provided below with
respect to the Investor A Shares and in the Annual Report include periods prior
to such reclassification.
EQUITY FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(F)
----------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $14.63 $16.66
--------- -----------
Investment Activities
Net investment income (loss)....................................... (0.11) (0.05)
Net realized and unrealized gain (loss) on investments............. 3.30 (1.98)
------ ----------
Total from Investment Activities.............................. 3.19 (2.03)
------ ----------
Distributions
Net investment income..............................................
Net realized gains................................................. (0.48)
In excess of net realized gains.................................... (0.99)
-------- -----------
Total Distributions........................................... (1.47)
-------- -----------
NET ASSET VALUE, END OF PERIOD......................................... $16.35 $14.63
--------- -----------
--------- -----------
Total Return (excluding sales and redemption charges).................. 23.88% (12.18)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................................. $6,073 $1,616
Ratio of expenses to average net assets............................ 2.29% 2.30%(c)
Ratio of net investment income to average net assets............... (1.61)% (1.57)%(c)
Ratio of expenses to average net assets*........................... 2.54% 2.56%(c)
Ratio of net investment income to average net assets*.............. (1.87)% (1.83)%(c)
Portfolio turnover................................................. 46.39%(d) 70.87%(d)
</TABLE>
11 PROSPECTUS--Investor B Shares
<PAGE> 88
SMALL CAPITALIZATION FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(F)
----------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $19.83 $22.71
--------- -----------
Investment Activities
Net investment income (loss)...................................... (0.19) (0.09)
Net realized and unrealized gain (loss) on investments............ 8.30 (2.79)
------ ----------
Total from Investment Activities............................. 8.11 (2.88)
------ ----------
Distributions
Net investment income.............................................
Net realized gains................................................ (2.15)
-------- -----------
Total Distributions.......................................... (2.15)
-------- -----------
NET ASSET VALUE, END OF PERIOD........................................ $25.79 $19.83
--------- -----------
--------- -----------
Total Return (excluding sales and redemption charges)................. 43.87% (12.68)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................................. $9,990 $2,130
Ratio of expenses to average net assets........................... 2.32% 2.35%(c)
Ratio of net investment income to average net assets.............. (2.03)% (2.19)%(c)
Ratio of expenses to average net assets*.......................... 2.55% 2.61%(c)
Ratio of net investment income to average net assets*............. (2.26)% (2.45)%(c)
Portfolio turnover................................................ 50.53%(d) 72.64%(d)
</TABLE>
INTERNATIONAL DISCOVERY FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(F)
----------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $13.21 $14.12
--------- -----------
Investment Activities
Net investment income (loss)...................................... (0.04) (0.01)
Net realized and unrealized gain (loss) on investments and foreign
currency transactions........................................... (0.40) (0.90)
-------- ----------
Total from Investment Activities............................. (0.44) (0.91)
-------- ----------
Distributions
Net investment income.............................................
Net realized gains................................................
In excess of net realized gains................................... (0.62)
-------- -----------
Total Distributions.......................................... (0.62)
-------- -----------
NET ASSET VALUE, END OF PERIOD........................................ $12.15 $13.21
--------- -----------
--------- -----------
Total Return (excluding sales and redemption charges)................. (3.03%) (6.44)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................................. $5,469 $2,680
Ratio of expenses to average net assets........................... 2.57% 2.56%(c)
Ratio of net investment income to average net assets.............. (0.49)% (0.22)%(c)
Ratio of expenses to average net assets*.......................... 2.92% 2.61%(c)
Ratio of net investment income to average net assets*............. (0.84)% (0.27)%(c)
Portfolio turnover................................................ 104.39%(d) 37.23%(d)
</TABLE>
PROSPECTUS--Investor B Shares 12
<PAGE> 89
BALANCED FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(F)
----------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $10.67 $11.71
--------- -----------
Investment Activities
Net investment income.............................................. 0.20 0.10
Net realized and unrealized gain (loss) on investments............. 1.67 (1.05)
------ ----------
Total from Investment Activities.............................. 1.87 (0.95)
------ ----------
Distributions
Net investment income.............................................. (0.20) (0.09)
Net realized gains................................................. (0.06)
In excess of net realized gains.................................... (1.10)
-------- ----------
Total Distributions........................................... (0.36) (0.09)
-------- ----------
NET ASSET VALUE, END OF PERIOD......................................... $12.18 $10.67
--------- -----------
--------- -----------
Total Return (excluding sales and redemption charges).................. 17.96% (8.16)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................................. $1,291 $744
Ratio of expenses to average net assets............................ 2.25% 2.05%(c)
Ratio of net investment income to average net assets............... 1.74% 1.94%(c)
Ratio of expenses to average net assets*........................... 2.77% 2.61%(c)
Ratio of net investment income to average net assets*.............. 1.22% 1.38%(c)
Portfolio turnover................................................. 250.66%(d) 192.39%(d)
</TABLE>
HIGH INCOME EQUITY FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(F)
----------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $13.49 $14.92
--------- -----------
Investment Activities
Net investment income.............................................. 0.26 0.13
Net realized and unrealized gain (loss) on investments............. 0.99 (1.43)
------ ----------
Total from Investment Activities.............................. 1.25 (1.30)
------ ----------
Distributions
Net investment income.............................................. (0.26) (0.13)
In excess of net investment income................................. (0.01)
Net realized gains.................................................
In excess of net realized gains....................................
-------- ----------
Total Distributions........................................... (0.27) (0.13)
-------- ----------
NET ASSET VALUE, END OF PERIOD......................................... $14.47 $13.49
--------- -----------
--------- -----------
Total Return (excluding sales and redemption charges).................. 9.41% (8.76)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................................. $7,131 $3,836
Ratio of expenses to average net assets............................ 2.32% 2.33%(c)
Ratio of net investment income to average net assets............... 1.86% 1.87%(c)
Ratio of expenses to average net assets*........................... 2.57% 2.59%(c)
Ratio of net investment income to average net assets*.............. 1.61% 1.61%(c)
Portfolio turnover................................................. 77.70%(d) 69.35%(d)
</TABLE>
13 PROSPECTUS--Investor B Shares
<PAGE> 90
BOND FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(F)
----------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $9.26 $9.95
-------- ----------
Investment Activities
Net investment income.............................................. 0.52 0.22
Net realized and unrealized gain (loss) on investments............. 0.42 (0.70)
------ ----------
Total from Investment Activities.............................. 0.94 (0.48)
------ ----------
Distributions
Net investment income.............................................. (0.52) (0.21)
In excess of net investment income.................................
Net realized gains.................................................
In excess of net realized gains....................................
-------- ----------
Total Distributions........................................... (0.52) (0.21)
-------- ----------
NET ASSET VALUE, END OF PERIOD......................................... $9.68 $9.26
-------- ----------
-------- ----------
Total Return (excluding sales and redemption charges).................. 10.62% (4.84)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................................. $1,330 $485
Ratio of expenses to average net assets............................ 2.03% 1.89%(c)
Ratio of net investment income to average net assets............... 5.54% 5.34%(c)
Ratio of expenses to average net assets*........................... 2.39% 2.29%(c)
Ratio of net investment income to average net assets*.............. 5.18% 4.94%(c)
Portfolio turnover................................................. 1010.64%(d) 893.27%(d)
</TABLE>
LIMITED MATURITY BOND FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(F)
----------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $9.56 $9.99
-------- ----------
Investment Activities
Net investment income.............................................. 0.49 0.23
Net realized and unrealized gain (loss) on investments............. 0.12 (0.44)
------ ----------
Total from Investment Activities.............................. 0.61 (0.21)
------ ----------
Distributions
Net investment income.............................................. (0.47) (0.22)
Net realized gains.................................................
In excess of net realized gains....................................
-------- ----------
Total Distributions........................................... (0.46) (0.22)
-------- ----------
NET ASSET VALUE, END OF PERIOD......................................... $9.70 $9.56
-------- ----------
-------- ----------
Total Return (excluding sales and redemption charges).................. 6.68% (2.09)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................................. $892 $629
Ratio of expenses to average net assets............................ 1.85% 1.78%(c)
Ratio of net investment income to average net assets............... 5.14% 5.36%(c)
Ratio of expenses to average net assets*........................... 2.36% 2.33%(c)
Ratio of net investment income to average net assets*.............. 4.62% 4.81%(c)
Portfolio turnover................................................. 397.97%(d) 353.28%(d)
</TABLE>
PROSPECTUS--Investor B Shares 14
<PAGE> 91
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(F)
----------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $9.60 $10.14
-------- -----------
Investment Activities
Net investment income.............................................. 0.43 0.21
Net realized and unrealized gain (loss) on investments............. 0.30 (0.54)
------ ----------
Total from Investment Activities.............................. 0.73 (0.33)
------ ----------
Distributions
Net investment income.............................................. (0.44) (0.21)
Net realized gains.................................................
In excess of net realized gains....................................
-------- ----------
Total Distributions........................................... (0.44) (0.21)
-------- ----------
NET ASSET VALUE, END OF PERIOD......................................... $9.89 $9.60
-------- ----------
-------- ----------
Total Return (excluding sales and redemption charges).................. 7.84% (3.31)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................................. $977 $531
Ratio of expenses to average net assets............................ 2.06% 1.92%(c)
Ratio of net investment income to average net assets............... 4.41% 4.80%(c)
Ratio of expenses to average net assets*........................... 2.42% 2.32%(c)
Ratio of net investment income to average net assets*.............. 4.05% 4.41%(c)
Portfolio turnover................................................. 549.13%(d) 546.06%(d)
</TABLE>
GOVERNMENT INCOME FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(F)
----------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $9.38 $9.88
-------- ----------
Investment Activities
Net investment income.............................................. 0.68 0.28
Net realized and unrealized gain (loss) on investments............. 0.01 (0.50)
------ ----------
Total from Investment Activities.............................. 0.69 (0.22)
------ ----------
Distributions
Net investment income.............................................. (0.61) (0.27)
Tax return of capital.............................................. (0.07) (0.01)
-------- ----------
Total Distributions........................................... (0.68) (0.28)
-------- ----------
NET ASSET VALUE, END OF PERIOD......................................... $9.39 $9.38
-------- ----------
-------- ----------
Total Return (excluding sales and redemption charges).................. 7.71% (2.26)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................................. $8,478 $2,787
Ratio of expenses to average net assets............................ 1.83% 1.77%(c)
Ratio of net investment income to average net assets............... 7.28% 6.72%(c)
Ratio of expenses to average net assets*........................... 2.44% 2.42%(c)
Ratio of net investment income to average net assets*.............. 6.67% 6.08%(c)
Portfolio turnover................................................. 114.71%(d) 102.24%(d)
</TABLE>
15 PROSPECTUS--Investor B Shares
<PAGE> 92
MICHIGAN FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(F)
----------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $10.52 $11.09
--------- -----------
Investment Activities
Net investment income (loss)....................................... 0.40 0.16
Net realized and unrealized gain (loss) on investments............. 0.24 (0.57)
------ ----------
Total from Investment Activities.............................. 0.64 (0.41)
------ ----------
Distributions
Net investment income.............................................. (0.40) (0.16)
In excess of net investment income................................. (0.01)
Net realized gains.................................................
In excess of net realized gains....................................
-------- ----------
Total Distributions........................................... (0.41) (0.16)
-------- ----------
NET ASSET VALUE, END OF PERIOD......................................... $10.75 $10.52
--------- -----------
--------- -----------
Total Return (excluding sales and redemption charges).................. 6.28% (3.69)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................................. $2,270 $1,302
Ratio of expenses to average net assets............................ 1.78% 1.77%(c)
Ratio of net investment income to average net assets............... 3.80% 3.51%(c)
Ratio of expenses to average net assets*........................... 2.32% 2.32%(c)
Ratio of net investment income to average net assets*.............. 3.25% 2.97%(c)
Portfolio turnover................................................. 26.06%(d) 6.69%(d)
</TABLE>
MUNICIPAL BOND FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(F)
----------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $10.26 $10.76
--------- -----------
Investment Activities
Net investment income (loss)....................................... 0.33 0.13
Net realized and unrealized gain (loss) on investments............. 0.27 (0.50)
------ ----------
Total from Investment Activities.............................. 0.60 (0.37)
------ ----------
Distributions
Net investment income.............................................. (0.33) (0.13)
Net realized gains.................................................
In excess of net realized gains.................................... (0.17)
-------- ----------
Total Distributions........................................... (0.50) (0.13)
-------- ----------
NET ASSET VALUE, END OF PERIOD......................................... $10.36 $10.26
--------- -----------
--------- -----------
Total Return (excluding sales and redemption charges).................. 6.17% (3.41)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).................................. $447 $359
Ratio of expenses to average net assets............................ 1.80% 1.80%(c)
Ratio of net investment income to average net assets............... 3.22% 2.88%(c)
Ratio of expenses to average net assets*........................... 2.33% 2.37%(c)
Ratio of net investment income to average net assets*.............. 2.68% 2.31%(c)
Portfolio turnover................................................. 35.15%(d) 44.39%(d)
</TABLE>
PROSPECTUS--Investor B Shares 16
<PAGE> 93
EQUITY FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $14.69 $15.11 $12.80 $11.69 $12.37 $11.48 $10.00
----- ----- ----- ----- ----- ----- ---------
Investment Activities
Net investment income
(loss)................ (0.12) (0.10) (0.01) 0.17 0.45 0.30 0.20
Net realized and
unrealized gain (loss)
on investments........ 3.46 (0.28) 2.74 1.59 (0.53) 1.86 1.47
--- ---- --- --- ---- --- -------
Total from Investment
Activities............ 3.34 (0.38) 2.73 1.76 (0.08) 2.16 1.67
--- ---- --- --- ---- --- -------
Distributions
Net investment income... (0.02) (0.17) (0.45) (0.28) (0.19)
Net realized gains...... (0.48) (0.04) (0.40) (0.48) (0.15) (0.99)
In excess of net
realized gains........ (0.99)
---- ---- ---- ---- ---- ---- --------
Total Distributions..... (1.47) (0.04) (0.42) (0.65) (0.60) (1.27) (0.19)
---- ---- ---- ---- ---- ---- --------
NET ASSET VALUE, END OF
PERIOD.................... $16.56 $14.69 $15.11 $12.80 $11.69 $12.37 $11.48
----- ----- ----- ----- ----- ----- ---------
----- ----- ----- ----- ----- ----- ---------
Total Return (excluding
sales and redemption
charges).................. 24.85% (2.57)% 21.42% 15.18% (0.45)% 19.23% 16.83%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000).......... $43,803 $36,108 $26,460 $407,782 $298,655 $247,683 $180,124
Ratio of expenses to
average net assets.... 1.51% 1.38% 1.28% 1.18% 1.10% 1.07% 1.06%(c)
Ratio of net investment
income to average net
assets................ (0.87)% (0.75)% (0.12)% 1.24% 3.87% 2.51% 2.80%(c)
Ratio of expenses to
average net assets*... 1.54% 1.53% 1.35% 1.26% 1.28% 1.29% 1.31%(c)
Ratio of net investment
income to average net
assets*............... (0.90)% (0.90)% (0.19)% 1.15% 3.69% 2.29% 2.55%(c)
Portfolio turnover...... 46.39%(d) 70.87%(d) 66.48%(d) 93.76% 189.26% 136.95% 87.30%
</TABLE>
17 PROSPECTUS--Investor B Shares
<PAGE> 94
SMALL CAPITALIZATION FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD..................... $19.75 $20.31 $14.64 $13.58 $14.82 $11.59 $10.00
----- ----- ----- ----- ----- ----- ----------
Investment Activities
Net investment income
(loss)................. (0.18) (0.15) (0.13) (0.08) 0.14 0.04 0.06
Net realized and
unrealized gain (loss)
on
investments............ 8.46 0.09 6.75 1.89 (1.24) 3.23 1.59
--- --- --- --- ---- --- --------
Total from Investment
Activities............. 8.28 (0.06) 6.62 1.81 (1.10) 3.27 1.65
--- ---- --- --- ---- --- --------
Distributions
Net investment income.... (0.14)
Net realized gains....... (2.15) (0.50) (0.95) (0.75)
---- ---- ---- ---- ---- ---- ---------
Total
Distributions...... (2.15) (0.50) (0.95) (0.75) (0.14) (0.04) (0.06)
---- ---- ---- ---- ---- ---- ---------
NET ASSET VALUE, END OF
PERIOD..................... $25.88 $19.75 $20.31 $14.64 $13.58 $14.82 $11.59
----- ----- ----- ----- ----- ----- ----------
----- ----- ----- ----- ----- ----- ----------
Total Return (excluding sales
and redemption charges).... 44.88% (0.55)% 45.77% 12.95% (6.76)% 28.28% 16.60%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)........... $71,984 $42,791 $27,976 $180,079 $107,500 $94,517 $53,917
Ratio of expenses to
average net assets..... 1.55% 1.40% 1.29% 1.19% 1.15% 1.11% 1.29%(c)
Ratio of net investment
income to average net
assets................. (1.27)% (1.24)% (1.02)% (0.61)% 1.08% 0.37% 0.80%(c)
Ratio of expenses to
average net assets*.... 1.58% 1.55% 1.36% 1.28% 1.33% 1.33% 1.54%(c)
Ratio of net investment
income to average net
assets*................ (1.30)% (1.39)% (1.09)% (0.70)% 0.90% 0.15% 0.55%(c)
Portfolio turnover....... 50.53%(d) 72.64%(d) 71.21%(d) 95.02% 139.66% 83.10% 51.79%
</TABLE>
PROSPECTUS--Investor B Shares 18
<PAGE> 95
INTERNATIONAL DISCOVERY FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, DECEMBER 29, 1992
------------------- TO
1995 1994 JUNE 30, 1993(A)(B)
---- ---- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $13.18 $11.50 $10.00
------ ------ ------------
Investment Activities
Net investment income (loss).............................. 0.03 (0.02) 0.03
Net realized and unrealized gain (loss) on investments and
foreign currency transactions........................... (0.36) 1.74 1.48
----- --- ---------
Total from Investment Activities..................... (0.33) 1.72 1.51
----- --- ---------
Distributions
Net investment income..................................... (0.02) (0.01)
Net realized gains........................................ (0.02)
In excess of net realized gains........................... (0.62)
----- ----- -----------
Total Distributions.................................. (0.62) (0.04) (0.01)
----- ----- -----------
NET ASSET VALUE, END OF PERIOD................................ $12.23 $13.18 $11.50
------ ------ ------------
------ ------ ------------
Total Return (excluding sales and redemption charges)......... (2.19)% 14.99% 15.11%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $34,228 $36,297 $8,353
Ratio of expenses to average net assets................... 1.78% 1.63% 1.64%(c)
Ratio of net investment income to average net assets...... 0.08% (0.29)% 1.02%(c)
Ratio of expenses to average net assets*.................. 1.91% 1.84% 1.81%(c)
Ratio of net investment income to average net assets*..... (0.06)% (0.49)% 0.85%(c)
Portfolio turnover(d)..................................... 104.39% 37.23% 12.47%
</TABLE>
BALANCED FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
INVESTOR A SHARES JANUARY 31, 1992
------------------------------- TO
1995 1994 1993(B) JUNE 30, 1992(A)
---- ---- ------- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $10.67 $11.09 $9.68 $10.00
------ ------ ------ ----------
Investment Activities
Net investment income.......................... 0.28 0.26 0.28 0.14
Net realized and unrealized gain (loss) on
investments.................................. 1.69 (0.43) 1.42 (0.34)
--- ----- ---- ---------
Total from Investment Activities.......... 1.97 (0.17) 1.70 (0.20)
--- ----- ---- ---------
Distributions
Net investment income.......................... (0.29) (0.25) (0.29 ) (0.12)
Net realized gains............................. (0.01)
In excess of net realized gains................ (0.15)
----- ----- ------ ---------
Total Distributions....................... (0.45) (0.25) (0.29 ) (0.12)
----- ----- ------ ---------
NET ASSET VALUE, END OF PERIOD..................... $12.19 $10.67 $11.09 $9.68
------ ------ ------- ---------
------ ------ ------- ---------
Total Return (excluding sales and redemption
charges)......................................... 18.96% (1.63)% 17.74 % (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).............. $12,849 $11,901 $6,115 $38,136
Ratio of expenses to average net assets........ 1.47% 1.18% 1.18 % 1.19%(c)
Ratio of net investment income to average net
assets....................................... 2.54% 2.38% 2.66 % 3.46%(c)
Ratio of expenses to average net assets*....... 1.78% 1.63% 1.53 % 1.50%(c)
Ratio of net investment income to average net
assets*...................................... 2.23% 1.93% 2.31 % 3.13%(c)
Portfolio turnover............................. 250.66%(d) 192.39%(d) 177.99 %(d) 47.58%
</TABLE>
19 PROSPECTUS--Investor B Shares
<PAGE> 96
HIGH INCOME EQUITY FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $13.50 $14.69 $13.14 $12.48 $12.19 $11.35 $10.00
----- ----- ----- ----- ----- ----- ----------
Investment Activities
Net investment income..... 0.36 0.37 0.45 0.54 0.57 0.56 0.35
Net realized and
unrealized gain (loss)
on
investments............. 1.00 (0.56) 1.69 0.99 0.38 1.04 1.32
--- ---- --- --- --- --- --------
Total from Investment
Activities.......... 1.36 (0.19) 2.14 1.53 0.95 1.60 1.67
--- ---- --- --- --- --- --------
Distributions
Net investment income..... (0.36) (0.37) (0.45) (0.54) (0.59) (0.54) (0.32)
In excess of net
investment income....... (0.01)
Net realized gains........ (0.24) (0.14) (0.33) (0.07) (0.22)
In excess of net realized
gains................... (0.39)
---- ---- ---- ---- ---- ---- ---------
Total Distributions... (0.37) (1.00) (0.59) (0.87) (0.66) (0.76) (0.32)
---- ---- ---- ---- ---- ---- ---------
NET ASSET VALUE, END OF
PERIOD...................... $14.49 $13.50 $14.69 $13.14 $12.48 $12.19 $11.35
----- ----- ----- ----- ----- ----- ----------
----- ----- ----- ----- ----- ----- ----------
Total Return (excluding sales
and redemption charges)..... 10.32% (1.63)% 16.71% 12.56% 8.22% 14.37% 16.97%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)............ $71,063 $76,108 $50,000 $270,549 $150,980 $96,344 $66,367
Ratio of expenses to
average net assets...... 1.54% 1.40% 1.29% 1.19% 1.13% 1.11% 1.16%(c)
Ratio of net investment
income to average net
assets.................. 2.65% 2.56% 3.24% 4.12% 4.75% 4.69% 4.92%(c)
Ratio of expenses to
average net assets*..... 1.57% 1.55% 1.36% 1.27% 1.31% 1.33% 1.41%(c)
Ratio of net investment
income to average net
assets*................. 2.61% 2.41% 3.17% 4.03% 4.57% 4.47% 4.67%(c)
Portfolio turnover........ 77.70%(d) 69.35%(d) 67.26%(d) 68.42% 115.68% 53.08% 29.55%
</TABLE>
PROSPECTUS--Investor B Shares 20
<PAGE> 97
BOND FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $9.30 $10.54 $10.54 $10.07 $10.00 $10.11 $10.00
---- ----- ----- ----- ----- ----- ---------
Investment Activities
Net investment income... 0.58 0.59 0.71 0.75 0.77 0.78 0.53
Net realized and
unrealized gain (loss)
on
investments........... 0.38 (0.72) 0.47 0.56 0.08 (0.11) 0.09
--- ---- --- --- --- ---- -------
Total from
Investment
Activities........ 0.96 (0.13) 1.18 1.31 0.85 0.67 0.62
--- ---- --- --- --- --- -------
Distributions
Net investment income... (0.58) (0.57) (0.73) (0.76) (0.78) (0.78) (0.51)
In excess of net
investment income..... (0.01)
Net realized gains...... (0.45) (0.08)
In excess of net
realized gains........ (0.54)
---- ---- ---- ---- ---- ---- --------
Total
Distributions..... (0.59) (1.11) (1.18) (0.84) (0.78) (0.78) (0.51)
---- ---- ---- ---- ---- ---- --------
NET ASSET VALUE, END OF
PERIOD.................... $9.67 $9.30 $10.54 $10.54 $10.07 $10.00 $10.11
---- ---- ----- ----- ----- ----- ---------
---- ---- ----- ----- ----- ----- ---------
Total Return (excluding
sales and redemption
charges).................. 10.85% (1.62)% 11.93% 13.47% 8.80% 6.94% 6.42%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000).......... $17,572 $18,391 $18,562 $477,526 $432,225 $316,477 $123,928
Ratio of expenses to
average net assets.... 1.24% 0.98% 0.89% 0.87% 0.84% 0.81% 0.82%(c)
Ratio of net investment
income to average net
assets................ 6.32% 5.86% 6.47% 7.19% 7.72% 8.04% 8.06%(c)
Ratio of expenses to
average net assets*... 1.39% 1.27% 1.07% 1.01% 1.02% 1.02% 1.06%(c)
Ratio of net investment
income to average net
assets*............... 6.17% 5.57% 6.29% 7.05% 7.54% 7.83% 7.82%(c)
Portfolio turnover...... 1010.64%(d) 893.27%(d) 443.98%(d) 289.38% 339.74% 314.71% 121.08%
</TABLE>
21 PROSPECTUS--Investor B Shares
<PAGE> 98
LIMITED MATURITY BOND FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $9.57 $10.18 $10.25 $9.93 $9.88 $10.08 $10.00
---- ----- ----- ---- ---- ----- ----------
Investment Activities
Net investment income...... 0.56 0.62 0.65 0.71 0.72 0.83 0.53
Net realized and unrealized
gain (loss) on
investments.............. 0.13 (0.58) 0.13 0.35 0.10 (0.15) 0.02
--- ---- --- --- --- ---- --------
Total from Investment
Activities........... 0.69 0.04 0.78 1.06 0.82 0.68 0.55
--- --- --- --- --- --- --------
Distributions
Net investment income...... (0.55) (0.61) (0.69) (0.71) (0.73) (0.83) (0.47)
Net realized gains......... (0.16) (0.03) (0.04) (0.05)
In excess of net realized
gains.................... (0.04)
---- ---- ---- ---- ---- ---- ---------
Total Distributions.... (0.55) (0.65) (0.85) (0.74) (0.77) (0.88) (0.47)
---- ---- ---- ---- ---- ---- ---------
NET ASSET VALUE, END OF
PERIOD....................... $9.71 $9.57 $10.18 $10.25 $9.93 $9.88 $10.08
---- ---- ----- ----- ---- ---- ----------
---- ---- ----- ----- ---- ---- ----------
Total Return (excluding sales
and redemption charges)...... 7.53% 0.32% 7.96% 11.00% 8.66% 7.10% 5.70%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000).................... $18,930 $24,907 $18,060 $117,241 $70,870 $43,696 $71,627
Ratio of expenses to
average net assets....... 1.05% 0.86% 0.75% 0.83% 0.91% 0.92% 0.88%(c)
Ratio of net investment
income to average net
assets................... 5.89% 6.22% 6.41% 7.13% 7.47% 8.01% 8.19%(c)
Ratio of expenses to
average net assets*...... 1.36% 1.30% 1.08% 1.05% 1.10% 1.14% 1.12%(c)
Ratio of net investment
income to average net
assets*.................. 5.58% 5.78% 6.08% 6.91% 7.28% 7.79% 7.95%(c)
Portfolio turnover......... 397.97%(d) 353.28%(d) 123.10%(d) 87.75% 161.32% 319.11% 117.37%
</TABLE>
PROSPECTUS--Investor B Shares 22
<PAGE> 99
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $9.62 $10.53 $10.42 $10.05 $9.91 $10.05 $10.00
---- ----- ----- ----- ---- ----- ----------
Investment Activities
Net investment income
(loss)................ 0.50 0.59 0.68 0.71 0.74 0.79 0.50
Net realized and
unrealized gain (loss)
on
investments........... 0.31 (0.66) 0.21 0.46 0.15 (0.11) (0.02)
--- ---- --- --- --- ---- ---------
Total from
Investment
Activities........ 0.81 (0.07) 0.89 1.17 0.89 0.68 0.48
--- ---- --- --- --- --- --------
Distributions
Net investment income... (0.50) (0.59) (0.73) (0.71) (0.75) (0.79) (0.43)
Net realized gains...... (0.05) (0.09) (0.03)
In excess of net
realized
gains................. (0.25)
---- ---- ---- ---- ---- ---- ---------
Total
Distributions..... (0.50) (0.84) (0.78) (0.80) (0.75) (0.82) (0.43)
---- ---- ---- ---- ---- ---- ---------
NET ASSET VALUE, END OF
PERIOD.................... $9.93 $9.62 $10.53 $10.42 $10.05 $9.91 $10.05
---- ---- ----- ----- ----- ---- ----------
---- ---- ----- ----- ----- ---- ----------
Total Return (excluding
sales and redemption
charges).................. 8.69% (0.90)% 8.92% 12.03% 9.32% 7.07% 4.92%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000).......... $27,521 $36,106 $37,055 $234,906 $142,864 $100,205 $83,212
Ratio of expenses to
average net assets.... 1.25% 1.00% 0.90% 0.87% 0.86% 0.85% 0.87%(c)
Ratio of net investment
income to average net
assets................ 5.22% 5.80% 6.51% 7.07% 7.48% 8.04% 7.79%(c)
Ratio of expenses to
average net assets*... 1.41% 1.29% 1.08% 1.01% 1.04% 1.06% 1.11%(c)
Ratio of net investment
income to average net
assets*............... 5.07% 5.51% 6.33% 6.93% 7.30% 7.83% 7.55%(c)
Portfolio turnover...... 549.13%(d) 546.06%(d) 225.90%(d) 114.76% 164.59% 294.62% 111.96%
</TABLE>
23 PROSPECTUS--Investor B Shares
<PAGE> 100
GOVERNMENT INCOME FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 12, 1992
------------------- TO
1995 1994 JUNE 30, 1993(A)(B)
---- ---- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $9.41 $10.04 $10.00
----- ------ ------------
Investment Activities
Net investment income..................................... 0.75 0.74 0.48
Net realized and unrealized gain (loss) on investments.... (0.64) 0.04
--- ----- ---------
Total from Investment Activities..................... 0.75 0.10 0.52
--- --- ---------
Distributions
Net investment income..................................... (0.66) (0.72) (0.48)
Tax return of capital..................................... (0.08) (0.01)
----- ----- -----------
Total Distributions.................................. (0.74) (0.73) (0.48)
----- ----- -----------
NET ASSET VALUE, END OF PERIOD................................ $9.42 $9.41 $10.04
----- ----- ------------
----- ----- ------------
Total Return (excluding sales and redemption charges)......... 8.46% 0.94% 5.35%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $50,931 $54,027 $32,633
Ratio of expenses to average net assets................... 1.04% 0.82% 0.75%(c)
Ratio of net investment income to average net assets...... 8.03% 7.42% 7.41%(c)
Ratio of expenses to average net assets*.................. 1.44% 1.36% 1.23%(c)
Ratio of net investment income to average net assets*..... 7.63% 6.87% 6.93%(c)
Portfolio turnover(d)..................................... 114.71% 102.24% 135.06%
</TABLE>
PROSPECTUS--Investor B Shares 24
<PAGE> 101
MUNICIPAL BOND FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------ TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD..................... $10.29 $10.92 $10.58 $10.20 $10.03 $10.18 $10.00
----- ----- ------ ----- ----- ----- ----------
Investment Activities
Net investment income
(loss)................. 0.41 0.40 0.49 0.52 0.55 0.57 0.40
Net realized and
unrealized
gain (loss) on
investments............ 0.27 (0.31) 0.48 0.39 0.18 (0.12) (0.14)
--- ---- ---- --- --- ---- ---------
Total from Investment
Activities......... 0.68 0.09 0.97 0.91 0.73 0.45 0.54
--- --- ---- --- --- --- --------
Distributions
Net investment income.... (0.41) (0.39) (0.53 ) (0.52) (0.56) (0.58) (0.36)
Net realized gains....... (0.21) (0.10 ) (0.01) (0.02)
In excess of net realized
gains.................. (0.17) (0.12)
---- ---- ----- ---- ---- ---- ---------
Total
Distributions...... (0.58) (0.72) (0.63 ) (0.53) (0.56) (0.60) (0.36)
---- ---- ----- ---- ---- ---- ---------
NET ASSET VALUE, END OF
PERIOD..................... $10.39 $10.29 $10.92 $10.58 $10.20 $10.03 $10.18
----- ----- ------ ----- ----- ----- ----------
----- ----- ------ ----- ----- ----- ----------
Total Return (excluding sales
and redemption charges).... 7.02% 0.71% 9.46 % 9.11% 7.51% 4.57% 5.52%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period
(000).................. $11,378 $13,123 $9,333 $130,788 $98,186 $100,445 $68,256
Ratio of expenses to
average net assets..... 1.02% 0.87% 0.76 % 0.81% 0.87% 0.85% 0.85%(c)
Ratio of net investment
income to average net
assets................. 4.00% 3.72% 4.56 % 5.09% 5.49% 5.78% 6.11%(c)
Ratio of expenses to
average net assets*.... 1.33% 1.32% 1.09 % 1.03% 1.06% 1.06% 1.09%(c)
Ratio of net investment
income to average net
assets*................ 3.68% 3.27% 4.23 % 4.88% 5.29% 5.57% 5.87%(c)
Portfolio turnover....... 35.15%(d) 44.39%(d) 67.26 %(d) 66.31% 76.55% 113.12% 82.22%
</TABLE>
25 PROSPECTUS--Investor B Shares
<PAGE> 102
MICHIGAN FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
INVESTOR A SHARES JULY 2, 1990
---------------------------------- TO
1995 1994 1993(B) 1992 JUNE 30, 1991(A)
---- ---- ------- ---- --------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $10.53 $10.97 $10.58 $10.14 $10.00
------ ------ ------ ------ -----------
Investment Activities
Net investment income (loss)...... 0.48 0.47 0.50 0.52 0.55
Net realized and unrealized gain
(loss) on investments........... 0.23 (0.36) 0.47 0.44 0.11
--- ----- --- --- --------
Total from Investment
Activities................. 0.71 0.11 0.97 0.96 0.66
--- --- --- --- --------
Distributions
Net investment income............. (0.40) (0.45) (0.54) (0.52) (0.52)
In excess of net investment
income.......................... (0.01)
Net realized gains................ (0.01) (0.04)
In excess of net realized gains... (0.09)
----- ----- ----- ----- ----------
Total Distributions.......... (0.49) (0.55) (0.58) (0.52) (0.52)
----- ----- ----- ----- ----------
NET ASSET VALUE, END OF PERIOD........ $10.75 $10.53 $10.97 $10.58 $10.14
------ ------ ------ ------ -----------
------ ------ ------ ------ -----------
Total Return (excluding sales and
redemption charges)................. 6.99% 0.92% 9.40% 9.73% 6.77%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000)........................... $37,874 $42,204 $32,778 $146,782 $90,182
Ratio of expenses to average
net assets...................... 1.00% 0.85% 0.78% 0.84% 0.57%(c)
Ratio of net investment income to
average net assets.............. 4.57% 4.25% 4.67% 5.15% 5.76%(c)
Ratio of expenses to average
net assets*..................... 1.32% 1.29% 1.12% 1.05% 1.15%(c)
Ratio of net investment income to
average net assets*............. 4.25% 3.81% 4.33% 4.93% 5.18%(c)
Portfolio turnover................ 26.06%(d) 6.69%(d) 35.81%(d) 19.97% 45.30%
</TABLE>
- ------------
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993 the shareholders of the Group exchanged their shares for
either the Group's Investor A Shares or Institutional Shares. For the year
ended June 30, 1993 the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities
and distributions are presented on the basis whereby the Fund's net
investment income, expenses, and distributions for the period July 1, 1992
through March 31, 1993 were allocated to each class of shares based upon the
relative net assets of each class of shares as of April 1, 1993 and the
results combined therewith the results of operations and distributions for
each applicable class for the period April 1, 1993 through June 30, 1993.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between classes of shares issued.
(e) Not annualized.
(f) Period from commencement of offering of Investor B shares.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds is set forth below under the
headings describing the Funds. The investment objectives of each Fund are
fundamental policies and may not be changed without a vote of the holders of a
majority of the outstanding Shares of that Fund (as defined in the Statement of
Additional Information). Other policies of a Fund may be changed without a vote
of the holders of a majority of outstanding Shares of that Fund unless the
policy is expressly deemed to be a fundamental policy or changeable only by such
majority vote. There can be no assurance that the investment
PROSPECTUS--Investor B Shares 26
<PAGE> 103
objectives of any Fund will be achieved. Depending upon the performance of a
Fund's investments, the net asset value per share of that Fund may decrease
instead of increase.
During temporary defensive periods as determined by First of America or the
Subadviser, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic bank certificates of
deposit, bankers acceptances and repurchase agreements secured by bank
instruments. However, to the extent that a Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
GROWTH FUNDS
THE EQUITY FUND AND SMALL CAPITALIZATION FUND
The investment objective of the Equity Fund is to seek growth of capital by
investing primarily in a diversified portfolio of common stocks and securities
convertible into common stocks. The investment objective of the Small
Capitalization Fund is to seek growth of capital by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stocks of small to medium-sized companies.
Under normal market conditions, each of the Equity and Small Capitalization
Funds will invest at least 80% of the value of its total assets in common stocks
and securities convertible into common stocks of companies believed by First of
America to be characterized by sound management and the ability to finance
expected long-term growth. In addition, under normal market conditions, the
Small Capitalization Fund will invest at least 65% of the value of its total
assets in common stocks and securities convertible into common stocks of
companies considered by First of America to have a market capitalization of less
than $1 billion. Each of the Equity and Small Capitalization Funds may also
invest up to 20% of the value of its total assets in preferred stocks, corporate
bonds, notes, units of real estate investment trusts, warrants, and short-term
obligations (with maturities of 12 months or less) consisting of commercial
paper (including variable amount master demand notes), bankers acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and demand and time
deposits of domestic and foreign banks and savings and loan associations. Each
of the Equity and Small Capitalization Funds may also hold securities of other
investment companies and depositary or custodial receipts representing
beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, each of the Equity and Small Capitalization
Funds may also invest up to 25% of its net assets in foreign securities either
directly or through the purchase of ADRs and may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper. For a discussion of risks associated with foreign securities, see
"RISK FACTORS AND INVESTMENT TECHNIQUES--Foreign Securities" herein.
The Equity Fund anticipates investing in growth-oriented, medium capitalization
companies. These companies have typically exhibited consistent, above average
growth in revenues and earnings, strong management, and sound and improving
financial fundamentals. Often, these companies are market or industry leaders,
have excellent products and/or services, and exhibit the potential for growth.
Core holdings of the Equity Fund are in companies that participate in long-term
growth industries, although these will be supplemented by holdings in non-growth
industries that exhibit the desired characteristics.
The Small Capitalization Fund anticipates investing in dynamic small- to
medium-sized companies that exhibit outstanding potential for superior growth.
For purposes of the foregoing sentence, small-sized companies are considered to
be those with capitalization of less than $1 billion and medium-sized companies
are considered to be those with capitalization of $1 billion or more but less
than $5 billion. The Small Capitalization Fund will limit its investment in
securities of medium-sized companies to not more than 35% of the value of its
total assets. Companies that participate in sectors that are identified as
having long-term growth potential generally make up a substantial portion of
such Fund's holdings. These companies often have established a market niche or
have developed unique products or technologies that are expected to produce
superior growth in revenues and earnings. As smaller capitalization stocks are
quite volatile and subject to wide fluctuations in both the short and medium
term, the Small Capitalization Fund may be fairly characterized more aggressive
than a general equity fund such as the Equity Fund.
27 PROSPECTUS--Investor B Shares
<PAGE> 104
Consistent with the foregoing, each of the Equity and Small Capitalization Funds
will focus its investments in those companies and types of companies that First
of America believes will enable such Fund to achieve its investment objective.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE EQUITY FUND AND SMALL CAPITALIZATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Other Mutual Funds -Put and Call Options -Repurchase Agreements
-Reverse Repurchase Agreements -Restricted Securities -Portfolio Turnover
and Dollar Roll Agreements -When-Issued and
Delayed-Delivery
Transactions
</TABLE>
- --------------------------------------------------------------------------------
THE INTERNATIONAL FUND
The investment objective of the International Fund is the long-term growth of
capital.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States, or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States, and (iii) which are small-
or medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRs.
Companies are deemed to be small- or medium-sized which at the time of purchase
are of a size which would rank them in the lower half of a major market index in
each country by weighted market capitalization and all equity securities listed
in recognized secondary markets where such markets exist. In addition, in
countries with less well-developed stock markets, where the range of investment
opportunities is more restrictive, the equity securities of all listed companies
will be eligible for investment. In major markets issuers could have
capitalizations of up to approximately $10 billion while in smaller markets
issuers would be eligible with capitalizations as low as approximately $200
million.
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and United Kingdom. Normally the
International Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
International Fund's assets could be invested in U.S. companies. In addition,
the International Fund temporarily may invest cash in short-term debt
instruments of U.S. and foreign issuers for cash management purposes or pending
investment.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE INTERNATIONAL FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Lending Portfolio Securities -Other Mutual Funds
-Put and Call Options -Repurchase Agreements -Restricted Securities
-Reverse Repurchase Agreements -When-Issued and -Portfolio Turnover
and Dollar Roll Agreements Delayed-Delivery
Transactions
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS--Investor B Shares 28
<PAGE> 105
GROWTH AND INCOME FUNDS
THE BALANCED FUND
The investment objectives of the Balanced Fund are to seek current income,
long-term capital growth and conservation of capital.
The Balanced Fund may invest in any type or class of security. Under normal
market conditions the Balanced Fund will invest in common stocks, fixed income
securities and securities convertible into common stocks (i.e., warrants,
convertible preferred stock, fixed rate preferred stock, convertible fixed-
income securities, options and rights). At least 25% of the value of the
Balanced Fund's total assets will be invested in fixed income senior securities.
Up to 15% of the value of the Balanced Fund's total assets may be invested in
foreign securities.
The Balanced Fund's common stocks are held for the purpose of providing dividend
income and long-term growth of capital. The Balanced Fund will invest in the
common and preferred stocks of companies with capitalization of at least $100
million and which are traded either in established over-the-counter markets or
on national exchanges. The Balanced Fund intends to invest primarily in those
companies which are growth oriented and have exhibited consistent, above average
growth in revenues and earnings. When choosing such stocks, the potential for
long term capital appreciation will be the primary basis for selection.
The Balanced Fund's fixed income senior securities consist of bonds, debentures,
notes, zero-coupon securities, mortgage-related securities, state, municipal or
industrial revenue bonds, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, certificates of deposit, time
deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand notes. In addition, a portion of the Balanced Fund may from
time to time be invested in first mortgage loans and participation certificates
in pools of mortgages issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Some of the securities in which the Balanced Fund
invests may have warrants or options attached. The Balanced Fund may also invest
in repurchase agreements.
The Balanced Fund expects to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, as well as
"stripped" U.S. Treasury obligations such as Treasury Receipts issued by the
U.S. Treasury representing either future interest or principal payments
("Stripped Treasury Obligations"), and other obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. See "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations" below.
The Balanced Fund also expects to invest in bonds, notes and debentures of a
wide range of U.S. corporate issuers. Such obligations, in the case of
debentures, will represent unsecured promises to pay, in the case of notes and
bonds, may be secured by mortgages on real property or security interests in
personal property and will in most cases differ in their interest rates,
maturities and times of issuance.
The Balanced Fund will invest only in corporate fixed income securities which
are rated at the time of purchase within the four highest rating groups assigned
by a nationally-recognized statistical rating organization ("NRSRO") or, if
unrated, which First of America deems present attractive opportunities and are
of comparable quality. For a description of the rating symbols of the NRSROs,
see the Appendix to the Statement of Additional Information. For a discussion of
fixed income securities rated within the fourth highest rating group assigned by
an NRSRO, see "RISK FACTORS AND INVESTMENT TECHNIQUES-- Medium Grade Securities"
herein.
The Balanced Fund may hold some short-term obligations (with maturities of 12
months or less) consisting of domestic and foreign commercial paper, variable
amount master demand notes, bankers' acceptances, certificates of deposit and
time deposits of domestic and foreign branches of U.S. banks and foreign banks,
and repurchase agreements. The Balanced Fund may also invest in securities of
other investment companies.
29 PROSPECTUS--Investor B Shares
<PAGE> 106
The Balanced Fund may also invest in obligations of the Export-Import Bank of
the United States, in U.S. dollar denominated international bonds for which the
primary trading market is in the United States ("Yankee Bonds"), or for which
the primary trading market is abroad ("Eurodollar Bonds"), and in Canadian Bonds
and bonds issued by institutions, such as the World Bank and the European
Economic Community, organized for a specific purpose by two or more sovereign
governments ("Supranational Agency Bonds"). The Balanced Fund's investments in
foreign securities may be made either directly or through the purchase of
American Depositary Receipts ("ADRs") and may also invest in securities issued
by foreign branches of U.S. banks and foreign banks, in Canadian commercial
paper ("CCP"), and in Europaper (U.S. dollar denominated commercial paper of a
foreign issuer).
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon First of America's assessment of business, economic and
market conditions, including any potential advantage of price shifts between the
stock market and the bond market. The Balanced Fund reserves the right to hold
short-term securities in whatever proportion deemed desirable for temporary
defensive periods during adverse market conditions as determined by First of
America. However, to the extent that the Balanced Fund is so invested, its
investment objectives may not be achieved during that time.
Like any investment program, the Balanced Fund entails certain risks. As a Fund
investing primarily in common stocks the Balanced Fund is subject to stock
market risk, i.e., the possibility that stock prices in general will decline
over short or even extended periods.
Since the Balanced Fund also invests in bonds, investors in the Balanced Fund
are also exposed to bond market risk, i.e., fluctuations in the market value of
bonds. Bond prices are influenced primarily by changes in the level of interest
rates. When interest rates rise, the prices of bonds generally fall; conversely,
when interest rates fall, bond prices generally rise. While bonds normally
fluctuate less in price than stock, there have been extended periods of cyclical
increases in interest rates that have caused significant declines in bond
prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result the Balanced
Fund, with its balance of common stock and bond investments, is expected to
entail less investment risk (and a potentially smaller investment return) than a
mutual fund investing exclusively in common stocks.
<TABLE>
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THE BALANCED FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Medium-Grade Securities -Mortgage-Related Securities -Other Mutual Funds
-Put and Call Options -Repurchase Agreements -Restricted Securities
-Reverse Repurchase Agreements -When-Issued and -Portfolio Turnover
and Dollar Roll Agreements Delayed-Delivery
Transactions
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THE HIGH INCOME EQUITY FUND
The investment objective of the High Income Equity Fund is to seek current
income by investing in a diversified portfolio of high quality, dividend-paying
common stocks and securities convertible into common stocks. A secondary
investment objective of High Income Equity Fund is growth of capital.
The High Income Equity Fund, under normal market conditions, will invest at
least 80% of the value of its total assets in common stocks and securities
convertible into common stocks of companies believed by First of America to be
characterized by sound management, the ability to finance expected growth and
the ability to pay above average dividends. The High Income Equity Funds may
also invest up to 20% of the
PROSPECTUS--Investor B Shares 30
<PAGE> 107
value of its total assets in preferred stocks, corporate bonds, notes, units of
real estate investment trusts, warrants, and short-term obligations (with
maturities of 12 months or less) consisting of commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit, repurchase agreements, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, and demand and time deposits of
domestic and foreign banks and savings and loan associations. The High Income
Equity Funds may also hold securities of other investment companies and
depositary or custodial receipts representing beneficial interests in any of the
foregoing securities.
Subject to the foregoing policies, the High Income Equity Funds may also invest
up to 25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Foreign Securities" herein.
The High Income Equity Fund anticipates investing in securities that currently
have a high dividend yield, with the anticipation that the dividend will remain
constant or be increased in the future. These securities generally represent the
core holdings of this Fund. However, these holdings are balanced with lower
yielding but higher growth-oriented securities to achieve portfolio balance. All
securities must provide current income. Given its bias towards income, the High
Income Equity Fund may be considered the more conservative than growth-oriented
equity funds such as the Group's Equity and Small Capitalization Funds.
Consistent with the foregoing, the High Income Equity Fund will focus its
investments in those companies and types of companies that First of America
believes will enable such Fund to achieve its investment objective.
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THE HIGH INCOME EQUITY FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Other Mutual Funds -Put and Call Options -Repurchase Agreements
-Restricted Securities -Reverse Repurchase Agreements -When-Issued and
-Portfolio Turnover and Dollar Roll Agreements Delayed-Delivery
Transactions
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INCOME FUNDS
THE BOND FUND AND LIMITED MATURITY BOND FUND
The investment objective of the Bond Fund is to seek current income as well as
preservation of capital by investing in a portfolio of high and medium grade
fixed-income securities. The investment objective of the Limited Maturity Bond
Fund is to seek current income as well as preservation of capital by investing
in a portfolio of high and medium grade fixed-income securities with remaining
maturities of six years or less.
Under normal market conditions, the Bond Fund will invest at least 80% of the
value of its total assets in bonds, debentures, notes with remaining maturities
at the time of purchase of one year or more, zero-coupon securities,
mortgage-related securities, state, municipal or industrial revenue bonds,
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, debt securities convertible into, or exchangeable for, common
stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Bond Fund will invest in state and municipal securities
when, in the opinion of First of America, their yields are competitive with
comparable taxable debt obligations. In addition, up to 20% of the value of the
Bond Fund's total assets may be invested in preferred stocks, notes with
remaining maturities at the time of purchase of less than one year, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates
31 PROSPECTUS--Investor B Shares
<PAGE> 108
of deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies,
and Guaranteed Investment Contracts ("GICs") issued by insurance companies, as
more fully described below. The Bond Fund intends that under normal market
conditions its portfolio will maintain an average weighted maturity of
approximately eight to twelve years. However, the Bond Fund may extend or
shorten the average weighted maturity of its portfolio depending upon
anticipated changes in interest rates or other relevant market factors. Some of
the securities in which the Bond Fund invests may have warrants or options
attached.
Under normal market conditions, the Limited Maturity Bond Fund will invest at
least 80% of the value of its total assets in the following securities which
have remaining maturities of six years or less: bonds, debentures, notes with
remaining maturities at the time of purchase of one year or more, zero-coupon
securities, mortgage related securities, state, municipal or industrial revenue
bonds, obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, debt securities convertible into, or exchangeable for,
common stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Limited Maturity Bond Fund will invest in state and
municipal securities when, in the opinion of First of America, their yields are
competitive with comparable taxable debt obligations. In addition, up to 20% of
the value of the Limited Maturity Bond Fund's total assets may be invested in
the debt securities listed above without regard to maturity, preferred stocks,
notes with remaining maturities at the time of purchase of less than one year,
short-term debt obligations consisting of domestic and foreign commercial paper
(including variable amount master demand notes), bankers' acceptances,
certificates of deposit and time deposits of domestic and foreign branches of
U.S. banks and foreign banks, repurchase agreements, securities of other
investment companies and GICs. Under normal market conditions, the Limited
Maturity Bond Fund expects to maintain a dollar-weighted average portfolio
maturity of its debt securities of three years or less. Some of the securities
in which the Limited Maturity Bond Fund invests may have warrants or options
attached.
The Bond Fund and Limited Maturity Bond Fund each expects to invest in a variety
of U.S. Treasury obligations, differing in their interest rates, maturities, and
times of issuance, as well as Stripped Treasury Obligations, and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES--Government
Obligations" below.
The Bond Fund and the Limited Maturity Bond Fund each also expects to invest in
bonds, notes and debentures of a wide range of U.S. corporate issuers. Such
obligations, in the case of debentures, will represent unsecured promises to
pay, in the case of notes and bonds, may be secured by mortgages on real
property or security interests in personal property and will in most cases
differ in their interest rates, maturities and times of issuance.
The Bond Fund and the Limited Maturity Bond Fund each will invest only in
corporate debt securities which are rated at the time of purchase within the
four highest rating groups assigned by an NRSRO or, if unrated, which First of
America deems present attractive opportunities and are of comparable quality.
For a discussion of debt securities rated within the fourth highest rating group
assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Medium-Grade
Securities" herein.
The Bond Fund and the Limited Maturity Bond Fund each may hold some short-term
obligations (with maturities of 12 months or less) consisting of domestic and
foreign commercial paper (including variable amount master demand notes),
bankers' acceptances, certificates of deposit and time deposits of domestic and
foreign branches of U.S. banks and foreign banks, and repurchase agreements. The
Bond Fund and the Limited Maturity Bond Fund each may also invest in securities
of other investment companies or in GICs.
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian Bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond Fund may also invest up to 25% of its
net assets in foreign securities either directly or through the purchase of ADRs
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper.
PROSPECTUS--Investor B Shares 32
<PAGE> 109
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, First of America may purchase debt securities at a
discount from face value, which produces a yield greater than the coupon rate.
Conversely, if debt securities are purchased at a premium over face value, the
yield will be lower than the coupon rate. In making investment decisions for the
Bond Fund, First of America will consider many factors other than current yield,
including the preservation of capital, the potential for realizing capital
appreciation, maturity, and yield to maturity. In making investment decisions
for the Limited Maturity Bond Fund, First of America will consider many factors
other than current yield, including the preservation of capital, maturity, and
yield to maturity.
By seeking to maintain a dollar-weighted average portfolio maturity of three
years or less, the Limited Maturity Bond Fund attempts to minimize the
fluctuation in its Shares' net asset value relative to those funds which invest
in longer term obligations.
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THE BOND FUND AND LIMITED MATURITY BOND FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Guaranteed Investment Contracts -Lending Portfolio Securities
-Medium-Grade Securities -Mortgage-Related Securities -Municipal Securities
-Other Mutual Funds -Put and Call Options -Repurchase Agreements
-Restricted Securities -Reverse Repurchase Agreements -When-Issued and
-Portfolio Turnover and Dollar Roll Agreements Delayed-Delivery
Transactions
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THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
The investment objective of the Intermediate Government Obligations Fund is to
seek current income with preservation of capital by investing in U.S. Government
securities with remaining maturities of twelve years or less.
Under normal market conditions, the Intermediate Government Obligations Fund
will invest at least 80% of its total assets in obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and with remaining
maturities of twelve years or less, although up to 20% of the value of its total
assets may be invested in debt securities, preferred stocks and other
investments without regard to maturity, except as set forth below. Under normal
market conditions, the Intermediate Government Obligations Fund expects to
maintain a dollar-weighted average portfolio maturity of its debt securities of
three to ten years.
The types of U.S. Government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and Government Securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES-- Government Obligations."
The Intermediate Government Obligations Fund may also invest in mortgage-related
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, as more fully described below under "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations."
By seeking to maintain a dollar-weighted average portfolio maturity of three to
ten years, the Intermediate Government Obligations Fund attempts to minimize the
fluctuation in its Shares net asset value relative to those funds which invest
in longer term obligations.
33 PROSPECTUS--Investor B Shares
<PAGE> 110
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THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Currency Transactions -Futures Contracts
-Government Obligations -Guaranteed Investment Contracts -Lending Portfolio Securities
-Other Mutual Funds -Private Activity Bonds -Put and Call Options
-Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements
-When-Issued and -Portfolio Turnover and Dollar Roll Agreements
Delayed-Delivery
Transactions
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THE GOVERNMENT INCOME FUND
The investment objective of the Government Income Fund is to provide
shareholders with a high level of current income consistent with prudent
investment risk.
Under normal market conditions, the Government Income Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
nongovernmental issuers. Consistent with the foregoing, under current market
conditions, the Government Income Fund intends to invest up to 80% of the value
of its total assets in mortgage-related securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. The Government Income Fund
also may invest up to 35% of its total assets in mortgage-related securities
issued by nongovernmental entities and in other securities described below. For
more information, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Mortgage-Related
Securities," below.
The types of U.S. Government obligations, including mortgage-related securities,
invested in by the Government Income Fund will include obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Treasury, such as Treasury bills, notes and bonds, Stripped Treasury
Obligations and Government Securities, as described below in "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations".
The Government Income Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper rated
at the time of purchase within the top two categories by an NRSRO or, if
unrated, which First of America deems to present attractive opportunities and
are of comparable quality (including variable amount master demand notes),
bankers' acceptances, certificates of deposit and time deposits of domestic and
foreign branches of U.S. banks and foreign banks, and repurchase and reverse
repurchase agreements. The Government Income Fund may also invest in corporate
debt securities which are rated at the time of purchase within the top three
categories of an NRSRO or, if unrated, which First of America deems to present
attractive opportunities and are of comparable quality.
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THE GOVERNMENT INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Government Obligations -Lending Portfolio Securities
-Mortgage-Related Securities -Other Mutual Funds -Put and Call Options
-Repurchase Agreement -Restricted Securities -Reverse Repurchase Agreements
-When-Issued and -Portfolio Turnover and Dollar Roll Agreements
Delayed-Delivery
Transactions
</TABLE>
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PROSPECTUS--Investor B Shares 34
<PAGE> 111
TAX-FREE INCOME FUNDS
The investment objective of the Municipal Bond Fund is to seek current interest
income which is exempt from federal income taxes as well as preservation of
capital. The investment objectives of the Michigan Fund are to seek income which
is exempt from federal income tax and Michigan state income and intangibles tax,
although such income may be subject to the federal alternative minimum tax when
received by certain Shareholders, and to seek preservation of capital.
Under normal market conditions and as a fundamental policy, at least 80% of the
net assets of the Municipal Bond Fund will be invested in a diversified
portfolio of Municipal Securities and at 80% of the net assets of the Michigan
Fund will be invested in a portfolio of Michigan Municipal Securities.
"Municipal Securities" include obligations consisting of bonds, notes and
commercial paper, issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and other political subdivisions,
agencies, instrumentalities and authorities, the interest on which is both
exempt from federal income taxes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. "Michigan
Municipal Securities" include debt obligations, consisting of notes, bonds and
commercial paper, issued by or on behalf of the State of Michigan, its political
subdivisions, municipalities and public authorities, the interest on which is,
in the opinion of bond counsel to the issuer, exempt from federal income tax and
Michigan state income and intangibles taxes (but may be treated as a preference
item for individuals for purposes of the federal alternative minimum tax) and
debt obligations issued by the Government of Puerto Rico or the U.S. territories
and possessions of Guam and the U.S. Virgin Islands and such other governmental
entities whose debt obligations, either by law or treaty, generate interest
income which is exempt from federal and Michigan state income and intangibles
tax. For more information regarding Municipal Securities and Michigan Municipal
Securities, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Municipal Securities,"
below.
Under normal market conditions, at least 65% of the net assets of each of the
Municipal Bond Fund and the Michigan Fund will be invested in Municipal
Securities (Michigan Municipal Securities in the case of the Michigan Fund)
consisting of bonds and notes with remaining maturities at the time of purchase
of one year or more. Quality is the primary consideration in selecting Michigan
Municipal Securities for investment by the Michigan Fund.
The Municipal Bond Fund also intends that under normal market conditions its
portfolio will maintain an average weighted maturity of approximately eight to
ten years and an average weighted rating of AA/Aa. The Michigan Fund, under
normal market conditions, will be invested in long-term Michigan Municipal
Securities and that the average weighted maturity of such investments will be 5
to 12 years, although the Michigan Fund may invest in Michigan Municipal
Securities of any maturity. However, First of America may extend or shorten the
average weighted maturity of its portfolio depending upon anticipated changes in
interest rates or other relevant market factors. In addition, the average
weighted rating of a Tax-Free Income Fund's portfolio may vary depending upon
the availability of suitable Municipal Securities or other relevant market
factors.
The Michigan Fund invests in Michigan Municipal Securities which are rated at
the time of purchase within the four highest rating groups assigned by an NRSRO
or rated within the two highest rating groups assigned by an NRSRO in the case
of notes, tax-exempt commercial paper or variable rate demand obligations. The
Michigan Fund may also purchase Michigan Municipal Securities which are unrated
at the time of purchase but are determined to be of comparable quality by First
of America pursuant to guidelines approved by the Group's Board of Trustees. The
applicable Michigan Municipal Securities ratings are described in the Appendix
to the Statement of Additional Information. For a description of debt securities
rated within the fourth highest rating group assigned by the NRSROs, see "RISK
FACTORS AND INVESTMENT TECHNIQUES--Medium-Grade Securities" herein.
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Tax-Free Income Funds will not treat these
bonds as "Municipal Securities" or "Michigan Municipal Securities" for purposes
of measuring compliance with the 80% tests described above. To the extent the
Tax-Free Income Funds invests in these bonds, individual shareholders, depending
on their
35 PROSPECTUS--Investor B Shares
<PAGE> 112
own tax status, may be subject to alternative minimum tax on that part of the
Tax-Free Income Fund's distributions derived from these bonds. For further
information relating to the types of municipal securities which will be included
in income subject to alternative minimum tax, see "ADDITIONAL INFORMATION--
Additional Tax Information Concerning the Tax-Free Fund, the Municipal Bond Fund
and the Michigan Fund" in the Statement of Additional Information.
In addition, investments may be made in taxable obligations if, for example,
suitable tax-exempt obligations are unavailable or if acquisition of U.S.
Government or other taxable securities is deemed appropriate for temporary
defensive purposes as determined by First of America to be warranted due to
market conditions. Such taxable obligations consist of Government Securities,
certificates of deposit, time deposits and bankers' acceptances of selected
banks, commercial paper meeting the Tax-Free Income Fund's quality standards (as
described above) for tax-exempt commercial paper, and such taxable obligations
as may be subject to repurchase agreements. These obligations are described
further in the Statement of Additional Information. Under such circumstances and
during the period of such investment, the affected Tax-Free Income Fund may not
achieve its stated investment objectives.
Although the Municipal Bond Fund may invest more than 25% of its net assets in
(i) Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, it does not presently intend to do
so on a regular basis. To the extent the Municipal Bond Fund's assets are
concentrated in Municipal Securities that are payable from the revenues of
similar projects or are issued by issuers located in the same state, or are
concentrated in private activity bonds, the Municipal Bond Fund will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states, projects and bonds to a greater extent than it would be if its
assets were not so concentrated.
SPECIAL CONSIDERATIONS RELATING TO THE MICHIGAN FUND
Because the Michigan Fund invests primarily in securities issued by the State of
Michigan and its political subdivisions, municipalities and public authorities,
the Michigan Fund's performance is closely tied to the general economic
conditions within the State as a whole and to the economic conditions within
particular industries and geographic areas represented or located within the
State. However, the Michigan Fund attempts to diversify, to the extent First of
America deems appropriate, among issuers and geographic areas in the State of
Michigan.
The Michigan Fund's classification as a "non-diversified" investment company
means that the proportion of the Michigan Fund's assets that may be invested in
the securities of a single issuer is not limited by the 1940 Act. However, the
Michigan Fund intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended, which requires the Michigan Fund generally to invest, with respect to
50% of its total assets, not more than 5% of such assets in the obligations of a
single issuer; as to the remaining 50% of its total assets, the Michigan Fund is
not so restricted. In no event, however, may the Michigan Fund invest more than
25% of its total assets in the obligations of any one issuer. Compliance with
this requirement is measured at the close of each quarter of the Michigan Fund's
taxable year. Since a relatively high percentage of the Michigan Fund's assets
may be invested in the obligations of a limited number of issuers, some of which
may be within the same economic sector, the Michigan Fund's portfolio securities
may be more susceptible to any single economic, political or regulatory
occurrence than the portfolio securities of a diversified investment company.
PROSPECTUS--Investor B Shares 36
<PAGE> 113
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TAX-FREE INCOME FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Currency Transactions -Futures Contracts
-Government Obligations -Lending Portfolio Securities -Medium-Grade Securities
-Municipal Securities -Other Mutual Funds -Put and Call Options
-When-Issued and -Restricted Securities -Reverse Repurchase Agreements
Delayed-Delivery -Repurchase Agreements and Dollar Roll Agreements
Transactions -Portfolio Turnover
</TABLE>
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RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase or dollar roll agreements with
First of America Bank-Michigan, N.A. (the parent corporation of First of
America), BISYS, or their affiliates, and will not give preference to First of
America Bank-Michigan, N.A.'s correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements, reverse repurchase
agreements and dollar roll agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by First of America and, in the case
of the International and Balanced Funds, the Subadviser in the management of
each of the Funds (with the exception of the Treasury Fund) involve complex
securities sometimes referred to as "derivatives." Among such securities are put
and call options, foreign currency transactions and futures contracts, all of
which are described below. The Adviser and Subadviser believe that such complex
securities may, in some circumstances, play a valuable role in successfully
implementing each Fund's investment strategy and achieving its goals. However,
because complex securities and the strategies for which they are used, are by
their nature complicated, they present substantial opportunities for
misunderstanding and misuse. To guard against these risks, the Adviser and
Subadviser will utilize complex securities primarily for hedging, not
speculative, purposes and only after careful review of the unique risk factors
associated with each such security.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Fund may invest up to 15% of its total assets in foreign
securities. The Equity, Small Capitalization and High Income Equity Funds may
also invest in foreign securities as permitted by their respective investment
policies. Each of the Bond Fund and Limited Maturity Bond Fund may also invest
up to 25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the U.S. In addition, there may be less publicly
available information about a foreign company than about a U.S. domiciled
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is
37 PROSPECTUS--Investor B Shares
<PAGE> 114
generally less government regulation of securities exchanges, brokers and listed
companies abroad than in the U.S. Confiscatory taxation or diplomatic
developments could also affect investment in those countries. In addition,
foreign branches of U.S. banks, foreign banks and foreign issuers may be subject
to less stringent reserve requirements and to different accounting, auditing,
reporting, and recordkeeping standards than those applicable to domestic
branches of U.S. banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after such Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater.
For many foreign securities, U.S. dollar-denominated American Depositary
Receipts, or ADR's, which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. ADR's represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADR's do not eliminate all the risk inherent in investing in
the securities of foreign issuers. However, by investing in ADR's rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for many ADR's. The information available for
ADR's is subject to the accounting, auditing and financial reporting standards
of the domestic market or exchange on which they are traded, which standards are
more uniform and more exacting than those to which many foreign issuers may be
subject. The International and Balanced Funds may also invest in European
Depository Receipts, or EDR's, which are receipts evidencing an arrangement with
a European bank similar to that for ADR's and are designed for use in the
European securities markets. EDR's are not necessarily denominated in the
currency of the underlying security.
Certain of the ADR's and EDR's, typically those denominated as unsponsored,
require the holders thereof to bear most of the costs of such facilities while
issuers of sponsored facilities normally pay more of the costs thereof. The
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders in respect
to the deposited securities, whereas the depository of a sponsored facility
typically distributes shareholder communications and passes through the voting
rights.
Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the ECU,
which is a "basket" consisting of specified amounts of the currencies of certain
of the twelve member states of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. Such adjustments may adversely affect holders of ECU-denominated
obligations or the marketability of such securities. European governments and
supranationals, in particular, issue ECU-denominated obligations.
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FOREIGN CURRENCY TRANSACTIONS
Each of the Funds, with the exception of the Michigan Fund, may utilize foreign
currency transactions in its portfolio. The value of the assets of a Fund as
measured in United States dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
a Fund may incur costs in connection with conversions between various
currencies. A Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract ("forward
currency contracts") involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These forward currency contracts are traded directly between currency
traders (usually large commercial banks) and their customers. The Funds may
enter into forward currency contracts in order to hedge against adverse
movements in exchange rates between currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency, or when a Fund believes that the U.S. dollar may suffer a substantial
decline against a foreign currency, it may enter into a forward currency
purchase contract to buy that foreign currency for a fixed U.S. dollar amount.
However, this tends to limit potential gains which might result from a positive
change in such currency relationships. A Fund may also hedge its foreign
currency exchange rate risk by engaging in currency financial futures and
options transactions. The forecasting of short-term currency market movement is
extremely difficult and whether such a short-term hedging strategy will be
successful is highly uncertain.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a forward currency contract. Accordingly, it may
be necessary for a Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency such Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
such Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. Should forward prices
decline during the period between a Fund's entering into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, such Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
The Funds will have to convert their holdings of foreign currencies into United
States dollars from time to time. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies.
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The International Fund does not intend to enter into forward currency contracts
if the International Fund would have more than 15% of the value of its total
assets committed to such contracts on a regular or continuous basis. The
International Fund does not intend to enter into forward currency contracts or
maintain a net exposure in such contracts where the International Fund would be
obligated to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES--Additional Information on Portfolio Instruments" in the
Statement of Additional Information.
FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds, the Bond Fund, the Limited
Maturity Bond Fund, the Intermediate Government Obligations Fund, the Municipal
Bond Fund and the Parkstone Government Income Fund may also enter into contracts
for the future delivery of securities or foreign currencies and futures
contracts based on a specific security, class of securities, foreign currency or
an index, purchase or sell options on any such futures contracts and engage in
related closing transactions. A futures contract on a securities index is an
agreement obligating either party to pay, and entitling the other party to
receive, while the contract is outstanding, cash payments based on the level of
a specified securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. 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.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed one-third of the market value of a Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange 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 or foreign currencies,
limiting the Fund's ability to hedge effectively against interest rate, exchange
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.
GOVERNMENT OBLIGATIONS
Subject to the investment parameters described above, each of the Funds may
invest in government obligations. The types of U.S. Government obligations in
which each these Funds may invest include U.S. Treasury notes, bills, bonds, and
any other securities directly issued by the U.S. Government that are available
for public investment, which differ only in their interest rates, maturities,
and times of issuance, as well as "stripped" U.S. Treasury obligations, such as
Treasury Receipts issued by the U.S. Treasury and representing either future
interest or principal payments, and, except for the Treasury Fund, obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Stripped
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securities are issued at a discount to their "face value" and may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and interest are returned to investors. The stripped
Treasury obligations in which the Money Market Funds may invest do not include
certificates of accrual on treasury securities (CATS) or treasury income growth
receipts (TIGRs).
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the Student Loan Marketing
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Farm Credit Banks or the Federal Home Loan Mortgage Corporation, 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. The Funds
which may invest in these government obligations will invest in the obligations
of such agencies or instrumentalities only when First of America believes that
the credit risk with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS
The Bond Fund and the Limited Maturity Bond Fund may invest in guaranteed
investment contracts (GICs). When investing in GICs, the Bond Fund and the
Limited Maturity Bond Fund make cash contributions to a deposit fund of an
insurance company's general account. The insurance company then credits to the
deposit fund on a monthly basis guaranteed interest. The GICs provide that this
guaranteed interest will not be less than a certain minimum rate. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and the charges will be deducted from the value of the deposit
fund. The Bond Fund and the Limited Maturity Bond Fund may invest in GICs of
insurance companies without regard to the ratings, if any, assigned to such
insurance companies' outstanding debt securities. Because a Fund may not receive
the principal amount of a GIC from the insurance company on seven days notice or
less, the GIC is considered an illiquid investment, and, together with other
instruments in that Income Fund which are deemed to be illiquid, will not exceed
15% of its total assets. In determining average portfolio maturity, GICs will be
deemed to have a maturity equal to the period of time remaining until the next
readjustment of the guaranteed interest rate.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks, or institutional borrowers of
securities. A Fund must receive 100% collateral in the form of cash or U.S.
Government securities. This collateral will be valued daily by First of America
or by the Subadvisers, as the case may be. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to that
Fund. During the time portfolio securities are on loan, the borrower pays that
Fund any dividends or interest received on such securities. Loans are subject to
termination by the Fund or the borrower at any time. While a Fund does not have
the right to vote securities on loan, each Fund intends to terminate the loan
and regain the right to vote if that is considered important with respect to the
investment. In the event the borrower defaults in its obligation to a Fund, such
Fund bears the risk of delay in the recovery of its portfolio securities and the
risk of loss of rights in the collateral. The Funds will enter into loan
agreements only with broker-dealers, banks, or other institutions that the
Adviser or the Subadvisers, as the case may be, have determined are creditworthy
under guidelines established by the Group's Board of Trustees.
MEDIUM-GRADE SECURITIES
As described above, the Balanced, Bond, Limited Maturity Bond, Municipal Bond
and the Michigan Funds may invest in fixed income securities within the fourth
highest rating group assigned by an NRSRO (i.e., BBB or Baa by S&P and Moody's,
respectively) and comparable unrated securities. These types of fixed income
securities are considered by the NRSROs to have some speculative
characteristics, and are more
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vulnerable to changes in economic conditions, higher interest rates or adverse
issuer-specific developments which are more likely to lead to a weaker capacity
to make principal and interest payments than comparable higher rated debt
securities.
Should subsequent events cause the rating of a fixed income security purchased
by any of the Funds listed above to fall below the fourth highest rating, First
of America will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would the Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
MORTGAGE-RELATED SECURITIES
As indicated above, the Government Income Fund intends to invest up to 80% of
the value of its total assets and the Balanced Fund, Bond Fund, Limited Maturity
Bond Fund and Intermediate Government Obligations Fund may invest in
mortgage-related securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Such agencies or instrumentalities include the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"),
and in mortgage-related securities issued by nongovernmental entities which are
rated, at the time of purchase, within the three highest bond rating categories
assigned by an NRSRO or, if unrated, which First of America deems to present
attractive opportunities and are of comparable quality. However, the Government
Income Fund may invest greater amounts as conditions warrant.
The mortgage-related securities in which the these Funds may invest have
mortgage obligations backing such securities, consisting of conventional thirty
year fixed rate mortgage obligations, graduated payment mortgage obligations,
fifteen year mortgage obligations and adjustable rate mortgage obligations. All
of these mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. Accelerated prepayments have an adverse impact on yields for
pass-throughs purchased at a premium (i.e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, though, the rate of prepayment tends to decrease, thereby lengthening
the period of time over which income at the lower rate is received. For these
and other reasons, a mortgage-related security's average maturity may be
shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Fund. In addition, regular payments received with respect to mortgage-related
securities include both
PROSPECTUS--Investor B Shares 42
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interest and principal. No assurance can be given as to the return a Fund will
receive when these amounts are reinvested.
The principal governmental (i.e., backed by the full faith and credit of the
United States Government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages.
Government-related (i.e., not backed by the full faith and credit of the United
States Government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States Government. FHLMC is a corporate instrumentality of the
United States Government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States Government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by nongovernmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such nongovernmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if through an
examination of the loan experience and practices of the poolers First of America
determines that the securities meet the Government Income Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Government Income Fund will not purchase mortgage-related
securities or any other assets which in First of America's opinion are illiquid,
if as a result, more than 15% of the value of the Government Income Fund's total
assets will be illiquid.
Mortgage-related securities in which the above-named Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed rate mortgages. As new types
of mortgage-related securities are developed and
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offered to investors, First of America will, consistent with the Government
Income Fund's investment objective, policies and quality standards, consider
making investments in such new types of securities.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities (Michigan Municipal
Securities, in the case of the Michigan Fund) which may be held by the Bond,
Limited Maturity Bond, Municipal Bond Fund and Michigan Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
held by the Municipal Bond and Michigan Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
The above-named Funds may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Each of the above-named Funds invests primarily in Municipal Securities which
are rated at the time of purchase within the four highest rating groups assigned
by an NRSRO or in the highest rating group assigned by an NRSRO in the case of
notes, tax-exempt commercial paper or variable rate demand obligations. The
Funds may also purchase Municipal Securities which are unrated at the time of
purchase but are determined to be of comparable quality by First of America
pursuant to guidelines approved by the Group's Board of Trustees. The applicable
Municipal Securities ratings are described in the Appendix to the Statement of
Additional Information. For a discussion of debt securities rated within the
fourth highest rating group assigned by an NRSRO, see "RISK FACTORS AND
INVESTMENT TECHNIQUES--Medium Grade Securities" herein.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. No Fund nor First of America will
review the proceedings relating to the issuance of Municipal Securities or the
basis for such opinions.
Municipal Securities and Michigan Municipal Securities purchased by the Tax-Free
Income Funds may include rated and unrated variable and floating rate tax-exempt
notes. A variable rate note is one whose terms provide for the adjustment of its
interest rate on set dates and which, upon such adjustment, can reasonably be
expected to have a market value that approximates its par value. A floating rate
note is one whose terms provide for the adjustment of its interest rate whenever
a specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. Such notes are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate notes purchased by the Tax-Free Income Funds will be determined by
First of America, under guidelines established by the Group's Board of Trustees,
to be of comparable quality at the time of purchase to rated instruments
eligible for purchase under the Fund's investment policies. In making such
determinations, First of America 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. There may be no active secondary
market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to the Tax-Free Income Fund will approximate their par value.
The Tax-Free Income Funds will not purchase variable and floating rate notes or
any other securities which in First of America's opinion are illiquid, if as a
result, more than 15% of the Tax-Free Income Fund's total assets will be
illiquid.
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OTHER MUTUAL FUNDS
Each of the Funds may invest up to 5% of the value of its total assets in the
securities of any one money market mutual fund (including shares of the
Parkstone Prime Obligations Fund, the Parkstone U.S. Government Obligations
Fund, the Parkstone Tax-Free Fund, the Parkstone Municipal Investor Fund, and
the Parkstone Treasury Fund), provided that no more than 10% of the Fund's total
assets may be invested in the securities of mutual funds in the aggregate. In
order to avoid the imposition of additional fees as a result of investments by a
Fund in Shares of the money market funds of the Group, the Investment Adviser,
Administrator and their affiliates (See "MANAGEMENT OF THE FUNDS--Investment
Adviser and Subadvisers" and "Administrator, Sub-Administrator and Distributor"
and "GENERAL INFORMATION--Transfer Agency and Fund Accounting Services") will
not retain any portion of their usual asset-based service fees from a Fund that
are attributable to investments by the Fund in Shares of those money market
mutual funds if the fee is being taken in the Fund. The Investment Adviser and
the Administrator will promptly forward such fees to the appropriate Fund. Each
Fund will incur additional expenses due to the duplication of expenses as a
result of any investment in securities of unaffiliated mutual funds. Additional
restrictions regarding the Funds' investments in securities of unaffiliated
mutual funds and/or money market funds of the Group are contained in the
Statement of Additional Information.
PRIVATE ACTIVITY BONDS
The Tax-Free Income Funds may also invest in private activity bonds. It should
be noted that the Tax Reform Act of 1986 substantially revised provisions of
prior federal law affecting the issuance and use of proceeds of certain
tax-exempt obligations. A new definition of private activity bonds applies to
many types of bonds, including those which were industrial development bonds
under prior law. Any reference herein to private activity bonds includes
industrial development bonds. Interest on private activity bonds is tax-exempt
(and such bonds will be considered Municipal Securities for purposes of this
Prospectus) only if the bonds fall within certain defined categories of
qualified private activity bonds and meet the requirements specified in those
respective categories. If the Tax-Free Income Funds invest in private activity
bonds which fall outside these categories, Shareholders may become subject to
the alternative minimum tax on that part of the Tax-Free Income Fund's
distributions derived from interest on such bonds. The Tax Reform Act generally
does not change the federal tax treatment of bonds issued to finance government
operations. For further information relating to the types of private activity
bonds which will be included in income subject to the alternative minimum tax,
see "ADDITIONAL INFORMATION--Additional Tax Information Concerning the Tax-Free
Fund and the Municipal Bond Fund" in the Statement of Additional Information.
PUT AND CALL OPTIONS
Each of the Growth Funds, the Growth and Income Funds, the Income Funds and the
Tax-Free Income Funds may purchase put and call options on securities and on
foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. Each Fund
may also engage in writing call options from time to time as First of America or
the Subadvisers, as the case may be with respect to the International Fund, deem
appropriate. The Funds will write only covered call options (options on
securities or currencies owned by the particular Fund). In order to close out a
call option it has written, the Fund will enter into a "closing purchase
transaction"--the purchase of a call option on the same security or currency
with the same exercise price and expiration date as the call option which such
Fund previously has written. When a portfolio security or currency subject to a
call option is sold, the Fund will effect a closing purchase transaction to
close out any existing call option on that security or currency. If such Fund is
unable to effect a closing purchase transaction, it will not be able to sell the
underlying security or currency until the option expires or that Fund delivers
the underlying security or currency upon exercise. In addition, upon the
exercise of a call option by the holder thereof, the Fund will forego the
potential benefit represented by market appreciation over the exercise price.
Under normal conditions, it is not expected that the Funds will
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cause the underlying value of portfolio securities and currencies subject to
such options to exceed 50% of its net assets, and with respect to each of the
Balanced and International Funds, 20% of its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its option transactions, also may purchase index put and call
options and write index options. As with options on individual securities, a
Fund will write only covered index call options. Through the writing or purchase
of index options a Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash 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.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
In addition, the Tax-Free Income Funds may each acquire "puts" with respect to
Municipal Securities or Michigan Municipal Securities, as the case may be, held
in its portfolio. Under a put, such a Fund would have the right to sell a
specified Municipal Security (or Michigan Municipal Security, as the case may
be) within a specified period of time at a specified price. A put would be sold,
transferred, or assigned only with the underlying security. The Tax-Free Income
Funds will acquire puts solely to either facilitate portfolio liquidity, shorten
the maturity of the underlying securities, or permit the investment of its funds
at a more favorable rate of return. Each of the Tax-Free Income Funds expects
that it will generally acquire puts only where the puts are available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, such Fund may pay for a put either separately in cash or by paying a
higher price for portfolio securities which are acquired subject to the puts
(thus reducing the yield to maturity otherwise available for the same
securities).
REPURCHASE AGREEMENTS
Securities held by a Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as member banks of the Federal Deposit Insurance Corporation
or registered broker-dealers which First of America or the Subadvisers, as the
case may be, deem creditworthy under guidelines approved by the Group's Board of
Trustees, 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. Securities subject to repurchase agreements will be held
in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, the Fund 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 that Fund were delayed pending court action. Repurchase
agreements are considered to be loans by an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). For further
information about repurchase agreements, see "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments--Repurchase
Agreements" in the Statement of Additional Information.
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RESTRICTED SECURITIES
Securities in which each of the Funds may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the "1933 Act"), in reliance on the exemption from such registration afforded
by Section 3(a)(3) thereof, and securities issued in reliance on the so-called
"private placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2) securities are
restricted as to disposition under the Federal securities laws, and generally
are sold to institutional investors such as the Funds who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who make a
market in such Section 4(2) securities, thus providing liquidity. Pursuant to
procedures adopted by the Board of Trustees of the Group, First of America may
determine Section 4(2) securities to be liquid if such securities are eligible
for resale under Rule 144A under the 1933 Act and are readily saleable.
Thus, subject to the limitations described above, the Funds may acquire
investments that are illiquid or of limited liquidity, such as private
placements or investments that are not registered under the 1993 Act. An
illiquid investment is any investment that cannot be disposed of within seven
(7) days in the normal course of business at approximately the amount at which
it is valued by a Fund. The price a Fund pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly, the valuation of these
securities will reflect any limitations on their liquidity. A Fund may not
invest in additional illiquid securities if, as a result, more than 15% of the
market value of its net assets would be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Each of the Funds may borrow funds by entering into reverse repurchase
agreements and, in the case of the Income and the Tax-Free Income Funds, dollar
roll agreements in accordance with the investment restrictions described below.
Pursuant to such agreements, a Fund would sell certain of its securities to
financial institutions such as banks and broker-dealers, and agree to repurchase
the securities, or substantially similar securities in the case of a dollar roll
agreement, at a mutually agreed upon date and price. Dollar roll agreements
utilized by the Income and Tax-Free Income Funds are identical to reverse
repurchase agreements except for the fact that substantially similar securities
may be repurchased. At the time a Fund enters into a reverse repurchase
agreement or a dollar roll agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid high grade
debt securities consistent with its 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 and dollar roll
agreements involve the risk that the market value of securities sold by a Fund
may decline below the price at which it is obligated to repurchase the
securities. Reverse repurchase agreements and dollar roll agreements are
considered to be borrowings by an investment company under the 1940 Act and
therefore a form of leverage. A Fund may experience a negative impact on its net
asset value if interest rates rise during the term of a reverse repurchase
agreement or dollar roll agreement. A Fund generally will invest the proceeds of
such borrowings only when such borrowings will enhance a Funds's liquidity or
when the Fund reasonably expects that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. For further information about reverse repurchase agreements and
dollar roll agreements, see "INVESTMENT OBJECTIVES AND POLICIES--Additional
Information on Portfolio Instruments--Reverse Repurchase Agreements and Dollar
Roll Agreements" in the Statement of Additional Information.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis. Such Funds will engage in when-issued and delayed-delivery transactions
only for the purpose of acquiring portfolio securities consistent with its
investment objectives and policies, not for investment leverage although
47 PROSPECTUS--Investor B Shares
<PAGE> 124
such transactions represent a form of leveraging. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve a risk that the yield obtained in the
transaction will be less than those available in the market when delivery takes
place. A Fund will not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase such securities, its
custodian will set aside cash or liquid securities equal to the amount of the
commitment in a separate account. Securities purchased on a when-issued basis
are recorded as an asset and are subject to changes in the value based upon
changes in the general level of interest rates. In when-issued and
delayed-delivery transactions, a Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause such Fund to miss a price
or yield considered to be advantageous.
No Fund's commitments to purchase "when-issued" securities will exceed 25% of
the value of its total assets under normal market conditions, and a commitment
by a Fund to purchase "when-issued" securities will not exceed 60 days. In the
event its commitments to purchase "when-issued" securities ever exceeded 25% of
the value of its assets, a Fund's liquidity and the investment adviser's ability
to manage it might be adversely affected. The Funds intend only to purchase
"when-issued" securities for the purpose of acquiring portfolio securities, not
for investment leverage although such transactions represent a form of
leveraging.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund 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 Securities and Exchange
Commission requires that the calculation exclude all securities whose remaining
maturities at the time of acquisition are one year or less. The portfolio
turnover rate for a 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 a Fund's shareholders. Portfolio turnover will
not be a limiting factor in making investment decisions.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding Shares of that Fund (as defined
in the Statement of Additional Information).
None of the Funds, with the exception of the Michigan Fund, may:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
if, immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in such issuer, or the Fund would
hold more than 10% of the outstanding voting securities of the issuer,
except that 25% or less of the value of such Fund's total assets may be
invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes,
or other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
The Michigan Fund may not:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
if, immediately after such purchase, (a) more than 5% of the value of the
Fund's total assets (taken at current value) would be invested in such
issuer (except that up to 50% of the value of the Fund's total assets may
be invested without regard to such 5% limitation), and (b) more than 25%
of its total assets (taken at current value) would be invested in the
securities of a single issuer.
PROSPECTUS--Investor B Shares 48
<PAGE> 125
For purposes of the investment limitations above, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues back
the security and, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, a security is considered to
be issued by such non-governmental user.
None of the Funds will:
1. Purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the
U.S. Government or its agencies or instrumentalities; (b) wholly owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
2. (a) Borrow money (not including reverse repurchase agreements or dollar roll
agreements), except that the Funds may borrow from banks for temporary or
emergency purposes and then only in amounts up to 30% of its total assets at
the time of borrowing (and provided that such bank borrowings and reverse
repurchase agreements and dollar roll agreements do not exceed in the
aggregate one-third of the Fund's total assets less liabilities other than
the obligations represented by the bank borrowings, reverse repurchase
agreements and dollar roll agreements), or mortgage, pledge or hypothecate
any assets except in connection with a bank borrowing in amounts not to
exceed 30% of the Fund's net assets at the time of borrowing; (b) enter into
reverse repurchase agreements, dollar roll agreements and other permitted
borrowings in amounts exceeding in the aggregate one-third of the Fund's
total assets less liabilities other than the obligations represented by such
reverse repurchase and dollar roll agreements; and (c) issue senior
securities except as permitted by the 1940 Act rule, order or interpretation
thereunder.
3. Make loans, except that the Fund may purchase or hold debt instruments and
lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
For purposes only of investment limitation number 1 above, such limitation shall
not apply to Municipal Securities or governmental guarantees of Municipal
Securities, and industrial development bonds or private activity bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding Shares of a Fund.
Each Fund may not:
1. Purchase or otherwise acquire any securities, if as a result, more than 15%
of the Fund's net assets would be invested in securities that are illiquid.
In addition to the above investment restrictions, the Funds are subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES--Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
TRUSTEES
Overall responsibility for management of the Group rests with its Board of
Trustees, who are elected by the shareholders of all of the Group's Funds. The
Group will be managed by the Trustees in accordance with the laws of the
Commonwealth of Massachusetts governing business trusts. There are currently
five Trustees, three of whom are not "interested persons" of the Group within
the meaning of that term under
49 PROSPECTUS--Investor B Shares
<PAGE> 126
the 1940 Act. The Trustees, in turn, elect the officers of the Group to
supervise actively its day-to-day operations.
The Trustees of the Group are Stephen G. Mintos* (Chairman), George R.
Landreth*, Robert M. Beam, Lawrence D. Bryan and Adrian Charles Edwards. The
addresses, and principal occupations during the past five years of the Trustees
are set forth in the Statement of Additional Information. Those Trustees
designated with an asterisk (*) are considered to be "interested persons" of the
Group as defined in the 1940 Act.
The Trustees of the Group receive quarterly fees and fees and expenses for each
meeting of the Board of Trustees attended. However, no officer or employee of
BISYS, The BISYS Group, Inc. or BISYS Fund Services Ohio, Inc. receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. BISYS receives fees from the Group for acting as
Administrator and may receive fees from each of the Funds pursuant to the
Investor B Distribution and Shareholder Service Plan described below. BISYS Fund
Services Ohio, Inc., an affiliate of BISYS, receives fees from the Group for
acting as Transfer Agent and for providing certain fund accounting services. Mr.
Mintos and Mr. Landreth are employees of BISYS.
INVESTMENT ADVISER AND SUBADVISERS
First of America was established in 1932 and is the investment adviser of the
Group. First of America, a registered investment adviser, is a wholly owned
subsidiary of First of America Bank-Michigan, N.A., which is a wholly owned
subsidiary of First of America Bank Corporation. First of America Bank
Corporation currently has over $25 billion in assets and provides financial
services to over 300 communities in Michigan, Indiana, Illinois and Florida. As
of June 30, 1995, First of America managed over $10 billion on behalf of both
taxable and tax-exempt clients, including pensions, endowments, corporations and
individual portfolios. First of America also acts as investment adviser to the
Trust Division of First of America Bank Corporation with respect to an
additional $2.3 billion in discretionary assets, providing equity, fixed income,
balanced and money management services.
Subject to such policies as the Group's Board of Trustees may determine, First
of America, either directly or, with respect to the International Fund and the
Balanced Fund, through one or more subadvisers, furnishes a continuous
investment program for each Fund and makes investment decisions on behalf of
each Fund.
First of America utilizes a team approach to the investment management of the
Funds, with up to three professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
each Fund's investment objectives. Roger H. Stamper, Managing Director of First
of America, is primarily responsible for the day-to-day management of each of
the Growth Funds (except the International Fund) and the Growth and Income
Funds. Mark R. Kummerer, Managing Director--Fixed Income of First of America, is
primarily responsible for the day-to-day management of the Income Funds.
Christian S. Swantek, Vice President of First of America, is primarily
responsible for the day-to-day management of the Tax-Free Income Funds. Messrs.
Stamper and Kummerer have held their respective positions with First of America
since 1988 and 1986, respectively. Prior to June 1993, Mr. Swantek was a
portfolio manager at PNC Investment Management & Research and its various
investment management affiliates.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, First of America receives a fee from each of
the Equity, Small Capitalization, High Income Equity and Balanced Funds,
computed daily and paid monthly, at the annual rate of one percent (1%) of that
Fund's average daily net assets. For its services in connection with the
International Fund, First of America's fee is computed daily and paid monthly at
the annual rate of one and twenty-five hundredths percent (1.25%) of the first
$50 Million of the International Fund's average daily net assets, one and twenty
hundredths percent (1.20%) of average daily net assets between $50 Million and
$100 Million, one and fifteen hundredths percent (1.15%) of average daily net
assets between $100 Million and $400 Million and one and five hundredths percent
(1.05%) of average daily net assets above $400 Million. For
PROSPECTUS--Investor B Shares 50
<PAGE> 127
its services in connection with each Income Fund and Tax-Free Income Fund, First
of America's fee is computed daily and paid monthly at the annual rate of
seventy-four one-hundredths of one percent (.74%) of each Income Fund's and
Tax-Free Income Fund's average daily net assets. For its services in connection
with the Money Market Funds, First of America's fee is computed daily and paid
monthly, at the annual rate of forty one-hundredths of one percent (.40%) of
each Money Market Fund's average daily net assets. First of America 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. The voluntary fee reduction will cause the yield of
that Fund to be higher than it would otherwise be in the absence of such a
reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream
Global Investors, Ltd., 300 Crescent Court, Suite 1605, Dallas, Texas 75201
("Gulfstream"). Pursuant to the terms of such Sub-Investment Advisory Agreement
Gulfstream has been retained by First of America to manage the investment and
reinvestment of the assets of the International Fund and to manage the
investment and reinvestment of those assets of the Balanced Fund which are
invested in foreign securities, subject to the direction and control of the
Group's Board of Trustees.
Under this arrangement, Gulfstream is responsible for the day-to-day management
of the International Fund's assets, reviews investment performance policies and
guidelines and maintains certain books and records, and First of America is
responsible for selecting and monitoring the performance of Gulfstream and for
reporting the activities of Gulfstream in managing the International Fund to the
Group's Board of Trustees. Gulfstream utilizes a team approach to the investment
management of the International Fund to ensure a disciplined investment process
designed to result in long-term performance consistent with its investment
objective. No one person is responsible for the Fund's management. First of
America may also render advice with respect to the International Fund's
investments in the U.S.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with First of America, Gulfstream receives from First of
America a fee, computed daily and paid monthly, at the annual rate of one-half
percent (.50%) of the first $50 million of the International Fund's average
daily net assets and the average daily net assets of the Balanced Fund which are
invested in foreign securities, forty-five one hundredths percent (.45%) of such
average daily net assets between $50 million and $100 million, forty one
hundredths percent (.40%) of such average daily net assets between $100 million
and $400 million and thirty one hundredths percent (.30%) of such average daily
net assets above $400 million, provided the minimum annual fee shall be $75,000.
Gulfstream, 300 Crescent Court, Suite 1605, Dallas, Texas 75201, was organized
in 1991 as a Texas limited partnership by Tull, Doud, Marsh & Triltsch, Inc., a
Texas corporation ("TDMT"). TDMT is the sole general partner of Gulfstream. TDMT
is owned by C. Thomas Tull, Stephen C. Doud, James P. Marsh and Reiner M.
Triltsch. Messrs. Tull, Doud and Triltsch are the portfolio managers and Mr.
Marsh is responsible for client services with Gulfstream. First of America is
the sole limited partner, holding a forty nine (49) percent interest in
Gulfstream with options which would under certain circumstances permit it to
acquire up to a seventy two (72) percent interest. Gulfstream has over $360
million in assets of institutional, investment company, governmental, pension
fund and high net worth individual clients under its investment management.
Gulfstream's portfolio management personnel average twenty (20) years of
investment experience and nine (9) years of international investment experience.
As of January 3, 1994, Gulfstream managed over $300 million in international
investment portfolios.
Prior to January 1, 1995, Ivory & Sime International, Inc. ("ISI" and Ivory &
Sime plc ("ISplc" together with ISI, "Ivory & Sime") served as subadvisers to
the International Fund. The Trustees voted unanimously to terminate this
arrangement and replace it with the current subadvisory arrangement with
Gulfstream. As required by the 1940 Act, the Shareholders of the International
Discovery Fund and the Balanced Fund each approved the appointment of Gulfstream
as subadviser, as well as the related Sub-Investment Advisory Agreements, at a
meeting held on February 28, 1995.
Under Gulfstream's partnership agreement, First of America possesses veto
authority over the general budgetary affairs of Gulfstream. Because of its
current 49 percent ownership interest and its possession of
51 PROSPECTUS--Investor B Shares
<PAGE> 128
options enabling it to acquire up to a 72 percent ownership interest, First of
America may be deemed to control Gulfstream for purposes of the 1940 Act.
For further information regarding the relationship between Gulfstream and First
of America, see "MANAGEMENT OF THE GROUP--INVESTMENT ADVISER" in the Statement
of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
fund of the Group, and also acts as the Group's principal underwriter and
distributor (the "Administrator" or the "Distributor," as the context
indicates). First of America serves as Sub-Administrator for each Fund of the
Group and provides certain services as may be requested by BISYS from time to
time. BISYS and its affiliated companies, including BISYS Fund Services Ohio,
Inc. are wholly-owned by The BISYS Group, Inc., a publicly-held company which is
a provider of information processing, loan servicing and 401(k) administration
and recordkeeping services to and through banking and other financial
organizations.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from each Fund equal to the lesser of a fee, computed daily and
paid periodically, at an annual rate of twenty one-hundredths of one percent
(.20%) of the Fund's average daily net assets, or such other fee as may be
agreed upon from time to time in writing by the Group and the Administrator. For
its services as Subadministrator First of America receives, from the
Administrator, pursuant to its Sub-Administration Agreement with BISYS, a fee
not to exceed five one hundredths of one percent (.05%) of each Fund's average
daily net assets. The Administrator may periodically voluntarily reduce all or a
portion of its administrative fee with respect to a Fund to increase the net
income of that Fund available for distribution as dividends. The voluntary fee
reduction will cause the return of that Fund to be higher than it would
otherwise be in the absence of such reduction.
The Distributor acts as agent for the Funds in the distribution of each of their
Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the cost of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but may retain some or all of any sales
charge imposed upon the Investor Shares and may receive compensation under the
Distribution and Shareholder Service Plans described below.
EXPENSES
First of America, the Subadvisers and the Administrator each bear all expenses
in connection with the performance of its services as investment adviser,
subadviser and administrator, respectively, other than the cost of securities
(including brokerage commissions) purchased for the Group. Each Fund will bear
the following expenses relating to its operation: organizational expenses,
taxes, interest, brokerage fees and commissions, fees of the Trustees of the
Group, Securities and Exchange Commission fees, state securities qualification
fees, costs of preparing and printing prospectuses for regulatory purposes and
for distribution to current Shareholders, outside auditing and legal expenses,
advisory and administration fees, fees and out-of-pocket expenses of the
custodian, Transfer Agent and fund accountant, certain insurance premiums, costs
of maintenance of the Group's existence, costs of Shareholders' reports and
meetings, and any extraordinary expenses incurred in each Fund's operation. As a
general matter, expenses are allocated to the Investor B Shares and the other
Classes of Shares of the Funds on the basis of the relative net asset value of
each class. The various Classes may bear certain additional retail transfer
agency expenses and may also bear certain additional shareholder service and
distribution costs incurred pursuant to a Distribution and Shareholder Service
Plans.
The Trustees reserve the right, subject to the receipt of relevant regulatory
approvals or rulings, if needed, to allocate certain other expenses to the
Shareholders of a particular class, including Investor Shares, on a basis other
than relative net asset value, as they deem appropriate ("Class Expenses"). In
such event,
PROSPECTUS--Investor B Shares 52
<PAGE> 129
Class Expenses would be limited to: transfer agency fees identified by the
Transfer Agent as attributable to a specific class; printing and postage
expenses related to preparing and distributing materials such as Shareholder
reports, prospectuses and proxies to current Shareholders; Blue Sky registration
fees incurred by a class of Shares; Securities and Exchange Commission
registration fees incurred by a class of Shares; expenses related to
administrative personnel and services as required to support the Shareholders of
a specific class; litigation or other legal expenses relating solely to one
class of Shares; and Trustees' fees incurred as a result of issues relating
solely to one class of Shares.
DISTRIBUTION PLAN FOR INVESTOR B SHARES
Rule 12b-1 adopted by the Securities and Exchange Commission under the 1940 Act
permits an investment company to pay directly or indirectly expenses associated
with the distribution of its shares in accordance with a plan adopted by an
investment company's trustees and approved by its shareholders. Pursuant to such
Rule, the Group has adopted an Investor B Distribution and Shareholder Service
Plan (the "Investor B Plan") with respect to the Investor B Shares of each Fund.
Pursuant to the Investor B Plan, each Fund is authorized to pay or reimburse
BISYS, as Distributor of the Investor B Shares, for certain expenses that are
incurred in connection with Shareholder and distribution services. Pursuant to
the Investor B Plan, a 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 .75% of the average daily net asset value of Investor
B Shares of a 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 a Fund (the "Service Fee"). Payments under the Investor
B Plan will be calculated daily and paid monthly at a rate not to exceed the
limits described above, which rates are set from time to time by the Board of
Trustees. Payments of the Distribution Fee to the Distributor pursuant to the
Investor B Plan will be used (i) to compensate Participating Organizations 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, and 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.
Fees paid pursuant to the Investor B Plan are accrued daily and paid monthly,
and are charged as expenses of Investor B Shares of a Fund as accrued.
Pursuant to the Investor B Plan, the Distributor may enter into Rule 12b-1
Agreements with Participating Organizations for providing distribution
assistance and shareholder services with respect to the Investor B Shares. Such
Participating Organizations will be compensated at the annual rate of up to
1.00% of the average daily net asset value of the Investor B Shares held of
record or beneficially by such Customers. The distribution services provided by
Participating Organizations for which the Distribution Fee may be paid may
include promoting the purchase of Investor B Shares of a Fund by their
customers; processing purchase, exchange, and redemption requests from customers
and placing orders with the Distributor or the Transfer Agent; processing
dividend and distribution payments from a Fund on behalf of customers; providing
information periodically to customers, including information showing their
positions in Investor B Shares; responding to inquiries from customers
concerning their investment in Investor B Shares; and providing other similar
services as may be reasonably requested. The shareholder services provided by
Participating Organizations for which the Service Fee may be paid may include
providing sub-accounting with respect to Investor B Shares beneficially owned by
customers or the information necessary for sub-accounting; arranging for bank
wires; and other continuing personal services to holders of Investor B Shares.
Actual distribution expenses for Investor B Shares at any given time may exceed
the Rule 12b-1 fees and payments received pursuant to contingent deferred sales
charges. These unrecovered amounts plus interest thereon will be carried forward
and paid from future Rule 12b-1 fees and payments received from contingent
deferred sales charges. If the Investor B Plan were terminated or not continued,
the Group
53 PROSPECTUS--Investor B Shares
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would not be contractually obligated to pay for any expenses not previously
reimbursed by the Group or recovered through contingent deferred sales charges.
Conflicts of interest restrictions may apply to the receipt by Participating
Organizations of compensation from BISYS in connection with the investment of
fiduciary assets in Investor B Shares. Institutions, including banks regulated
by the Comptroller of the Currency, the Federal Reserve Board, or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission (the
"Commission"), the Department of Labor, or state securities commissions, are
urged to consult their legal advisers before investing such assets in Investor B
Shares.
As required by Rule 12b-1, the Investor B Plan was approved by the Trustees of
the Group, including a majority of the trustees who are not "interested persons"
(as defined in the 1940 Act) of the Group and who have no direct or indirect
financial interest in the operation of the Plans or in any agreements related to
the Plan ("Independent Trustees"). The Investor B Plan continues in effect as
long as such continuance is specifically approved at least annually by the
Group's Trustees, including a majority of the Independent Trustees.
The Investor B Plan may be terminated by a vote of a majority of the Independent
Trustees, or by a vote of a majority of the holders of the outstanding voting
securities of the Investor B Shares. Any change in the Investor B Plan that
would increase materially the distribution expenses paid by a Fund requires
shareholder approval; otherwise, the Plans may be amended by the Trustees,
including a majority of the Independent Trustees by a vote cast in person at a
meeting called for the purpose of voting upon the amendment. As long as the
Investor B Plan is in effect, the selection or nomination of the Independent
Trustees is committed to the discretion of the Independent Trustees.
BANKING LAWS
First of America believes that it may perform the investment advisory services
for the Group's Funds contemplated by the Investment Advisory Agreement and by
this Prospectus without violating applicable banking laws or regulations. Future
changes in federal or state statutes and regulations relating to permissible
activities of banks or bank holding companies and their subsidiaries and
affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which First of America could continue to perform such services for the
Group. See the Statement of Additional Information ("MANAGEMENT OF THE
GROUP--Glass-Steagall Act") for further discussion.
HOW TO BUY INVESTOR B SHARES
Investor B Shares of each Fund are continuously offered and may be purchased
directly either by mail, by telephone, or by wire. Investor B Shares may also be
purchased through a broker-dealer who has established a dealer agreement with
the Distributor. Except as otherwise discussed below under "Other Information
Regarding Purchases" and "Auto Invest Plan," the minimum initial investment in a
Fund, based upon the public offering price, is $1,000; however, there is no
minimum subsequent purchase. Shareholders will pay the next calculated net asset
value after the receipt by the Distributor of an order to purchase Investor B
Shares, plus any applicable sales charge as described below (see "SALES
CHARGES"). In the case of an order for the purchase of Shares placed through a
broker-dealer, it is the responsibility of the broker-dealer to transmit the
order to the Distributor promptly.
PROSPECTUS--Investor B Shares 54
<PAGE> 131
BY MAIL
To purchase Investor B Shares of any of the Funds by mail, complete an Account
Application Form and return it along with a check or money order made payable to
The Parkstone Group of Funds at the following address:
The Parkstone Group of Funds
Dept. L-1270
Columbus, Ohio 43260
An Account Application Form can be obtained by calling the Group at (800)
451-8377.
BY TELEPHONE OR BY WIRE
To purchase Investor B Shares of any of the Funds by telephone or by wire, your
Account Application Form must have been previously received by the Distributor.
To place an order by telephone or by wire call the Group's toll-free number
(800) 451-8377. Payment for such Investor B Shares ordered by telephone may be
made by check and must be received by the Group's custodian within seven
calendar days of the telephone order. If payment for such Investor B Shares is
not received within seven days, or if a check timely received does not clear,
the purchase may be canceled and the investor could be liable for any losses or
fees incurred. When purchasing Investor B Shares by wire, contact the
Distributor for wire instructions.
OTHER INFORMATION REGARDING PURCHASES
Investor B Shares may also be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by First of America Bank
Corporation or one of its affiliates. Investor B Shares of the Funds sold to
First of America Bank Corporation or the affiliate acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of Customers will
normally be held of record by First of America Bank Corporation or the
affiliate. With respect to such Investor B Shares so sold, it is the
responsibility of the holder of record to transmit purchase or redemption orders
to the Distributor and to deliver funds for the purchase thereof on a timely
basis. Beneficial ownership of such Investor B Shares of the Funds will be
recorded by First of America Bank Corporation or one of its affiliates and
reflected in the account statements provided to Customers. First of America Bank
Corporation or one of its affiliates may exercise voting authority for those
Investor B Shares for which it has been granted authority by the Customer.
Investor B Shares of the Funds are purchased at the net asset value per share
(see "VALUATION OF SHARES") next determined after receipt by the Distributor of
an order to purchase Shares plus any applicable sales charge as described below.
Purchases of Investor B Shares in any of the Funds will be effected only on a
Business Day (as defined in "VALUATION OF SHARES") of the Funds. An order
received prior to the Valuation Time on any Business Day will be executed at the
net asset value determined as of the Valuation Time on the date of receipt. An
order received after the Valuation Time on any Business Day will be executed at
the net asset value determined as of the next Valuation Time on the next
Business Day of that Fund.
The minimum initial investment amount referred to above may be waived if
purchases are made in connection with Individual Retirement Accounts (IRAs),
Keoghs or similar plans. For information on IRAs, Keoghs or similar plans,
contact First of America Bank Corporation at (800) 544-6155. Due to the
relatively high cost of handling small investments, the Group reserves the right
to redeem involuntarily, at net asset value, the Investor B Shares of any
Shareholder if, because of redemptions of Investor B Shares by or on behalf of
the Shareholder (but not as a result of a decrease in the market price of such
Investor B Shares, the deduction of any sales charge or the establishment of an
account with less than $1,000 using the Auto Invest Plan), the account of such
Shareholder in that Fund has a value of less than $1,000. Accordingly, an
investor purchasing Investor B Shares of a Fund in only the minimum investment
amount may be subject to such involuntary redemption if the investor thereafter
redeems any such Investor B
55 PROSPECTUS--Investor B Shares
<PAGE> 132
Shares. Before the Group exercises its right to redeem such Investor B Shares
and to send the proceeds to the Shareholder, the Shareholder will be given
notice that the value of the Investor B Shares in the Shareholder's account is
less than the minimum amount and will be allowed 60 days to make an additional
investment in the appropriate Fund in an amount which will increase the value of
the account to at least $1,000.
Depending upon the terms of a particular Customer account, First of America Bank
Corporation or one of its affiliates may charge a Customer account fees for
services provided in connection with investment in a Fund. Information
concerning these services and any charges may be obtained from First of America
Bank Corporation or the affiliate. This Prospectus should be read in conjunction
with any such information so received.
The Group reserves the right to reject any order for the purchase of its Shares
in whole or in part.
Every Shareholder will receive a confirmation of each new transaction in the
Shareholder's account, which will also show the total number of Investor B
Shares of the respective Fund of the Group owned by the Shareholder.
Confirmation of purchases and redemptions of Investor B Shares of the Funds by
First of America Bank Corporation or one of its affiliates on behalf of a
Customer may be obtained from First of America Bank Corporation or the
affiliate. Shareholders may rely on these statements in lieu of certificates.
Certificates representing Investor B Shares of the Funds will not be issued.
AUTO INVEST PLAN
The Parkstone Group of Funds Auto Invest Plan enables Shareholders to make
regular monthly or quarterly purchases of Investor B Shares through automatic
deduction from their bank accounts. With Shareholder authorization, the Group's
Transfer Agent will deduct the amount specified (subject to the applicable
minimums) from the Shareholder's bank account which will automatically be
invested in Shares at the public offering price on the date of such deduction
(or the next Business Day thereafter, as defined under "VALUATION OF SHARES"
below). The required minimum initial investment when opening an account using
the Auto Invest Plan is $100; the minimum amount for subsequent investments in a
Fund is $50. To participate in the Auto Invest Plan, Shareholders should
complete the appropriate section of the account application or a supplemental
Auto Invest application that can be acquired by calling the Group at (800)
451-8377. To participate in the Auto Invest Plan, Shareholders should complete
the appropriate section of the account application or a supplemental Auto Invest
application that can be acquired by calling the Group at (800) 451-8377. For a
Shareholder to change the Auto Invest instructions, the request must be made in
writing to the Group, c/o The Parkstone Group of Funds, 3435 Stelzer Road,
Columbus, Ohio 43219 and may take up to 15 days to implement.
SALES CHARGES
Investor B Shares may be purchased only in amounts of less than $250,000. There
is no sales charge imposed upon purchases of Investor B Shares, but investors
may be subject to a contingent deferred sales charge of up to 4.00% when
Investor B Shares are redeemed within four years after purchase. See "CONTINGENT
DEFERRED SALES CHARGE" below.
From time to time dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers.
In addition to amounts paid to dealers as a dealer concession out of the sales
charge paid by investors, if any, the Distributor may, from time to time, at its
expense or as an expense for which it may be reimbursed under the Plans, pay a
bonus or other consideration or incentive to dealers who sell a minimum dollar
amount of shares of a Fund during a specified period of time. The Distributor
also may, from time to time, arrange for the payment of additional consideration
to dealers not to exceed 6.25% of the offering price per share on all sales of
Investor B Shares as an expense of the Distributor or for which the Distributor
may be reimbursed under the Investor B Plan or upon receipt of a contingent
deferred sales
PROSPECTUS--Investor B Shares 56
<PAGE> 133
charge. Any such additional consideration or incentive program may be terminated
at any time by the Distributor.
The Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of Shares of any of the Funds and other Funds
of the Group. Compensation may include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding one or more Funds of
the Group, and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to exotic locations within or outside of the
United States for meetings or seminars of a business nature. The Distributor, at
its expense, currently conducts an annual sales contest for dealers in
connection with their sales of Shares of the Funds. Dealers may not use sales of
a Fund's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc.
CONTINGENT DEFERRED SALES CHARGE
Investor B Shares which are redeemed within four years of purchase will be
subject to a contingent deferred sales charge equal to a percentage of an amount
equal to the lesser of the net asset value at the time of purchase of the
Investor B Shares being redeemed or the net asset value of such Shares at the
time of redemption, as set forth in the chart below:
<TABLE>
<CAPTION>
YEAR OF CONTINGENT DEFERRED
REDEMPTION SALES CHARGE
<S> <C>
--------- ----------------
First 4.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
</TABLE>
Accordingly, a contingent deferred sales charge will not be imposed on amounts
representing increases in net asset value above the net asset value at the time
of purchase. In addition, a charge will not be assessed on Investor B Shares
purchased through reinvestment of dividends or capital gains distributions.
Solely for purposes of determining the number of years which have elapsed from
the time of purchase of any Investor B Shares, all purchases during a month will
be aggregated and deemed to have been made on the last day of the month. In
determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of Shares held for more than four years or Shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
For example, assume an investor purchased 100 Investor B Shares with a net asset
value of $10 per share (i.e., at an aggregate net asset value of $1,000) and in
the eleventh month after purchase, the net asset value per share is $12 and,
during such time, the investor has acquired five additional Investor B Shares
through dividend reinvestment. If at such time the investor makes his first
redemption of 50 Investor B Shares (producing proceeds of $600), five of such
Shares will not be subject to the charge because of dividend reinvestment. With
respect to the remaining 45 Investor B Shares being redeemed, the charge will be
applied only to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, $450 of the $600 redemption proceeds
will be subject to the charge of 4.00% ($18.00).
The contingent deferred sales charge is waived on redemptions of Investor B
Shares (i) following the death or disability (as defined in the Internal Revenue
Code of 1986, as amended, (the "Code")) of a shareholder (both shareholders in
the case of joint accounts), (ii) to the extent that the redemption represents a
minimum required distribution from an IRA or a Custodial Account under Code
57 PROSPECTUS--Investor B Shares
<PAGE> 134
Section 403(b)(7) to a shareholder who has reached age 70 1/2, and (iii) to the
extent the redemption represents the minimum distribution from retirement plans
under Code Section 401(a) where such redemptions are necessary to make
distributions to plan participants.
DIRECTED DIVIDEND OPTION
A Shareholder may elect to have all income dividends and capital gains
distributions paid by check, reinvested in the Fund or reinvested in any of the
Group's other Funds, without the payment of a sales charge (provided the other
Fund is maintained at the minimum required balance).
The Directed Dividend Option may be modified or terminated by the Group at any
time after notice to participating Shareholders. Participation in the Directed
Dividend Option may be terminated or changed by the Shareholder at any time by
writing the Distributor. The Directed Dividend Option is not available to
participants in any of the Parkstone IRA's.
EXCHANGE PRIVILEGE
The exchange privilege enables Shareholders of Investor B Shares to acquire
Investor B Shares that are offered by another fund of the Group with a different
investment objective. This exchange privilege does not apply to other classes of
Shares of a Fund. For example, holders of a Fund's Investor B Shares may not
exchange their Shares for Investor A Shares, and holders of a Fund's Investor A
Shares may not exchange their Shares for Investor B Shares.
Holders of Investor B Shares of one of the Group's Funds (including Investor B
Shares acquired through reinvestment of dividends and distributions on such
shares) may exchange those Investor B Shares at net asset value without any
sales charge for Investor B Shares offered by any of the Group's other Funds,
provided that the amount to be exchanged meets the applicable minimum investment
requirements and the exchange is made in states where it is legally authorized.
An exchange is considered a sale of Shares and will result in a capital gain or
loss for federal income tax purposes. A Shareholder may not include any sales
charge on Shares of a Fund as a part of the cost of those Shares for purposes of
calculating the gain or loss realized on an exchange of those Shares within 90
days of their purchase.
A Shareholder wishing to exchange his or her Shares may do so by contacting the
Group at (800) 451-8377 or by providing written instructions to the Transfer
Agent. Any Shareholder who wishes to make an exchange should obtain and review
the current prospectus of the Fund of the Group in which the Shareholder wishes
to invest before making the exchange. For a discussion of risks associated with
unauthorized telephone exchanges, see "REDEEMING SHARES--By Telephone" below.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR B SHARES
Before purchasing Investor B Shares of a Fund, investors should consider
whether, during the anticipated life of their investment in the Fund, the
accumulated Rule 12b-1 fee and potential contingent deferred sales charges on
Investor B Shares prior to conversion (as described below) would be less than
the initial sales charge and accumulated Rule 12b-1 fee on a
traditionally-priced fund (the Group's Investor A Shares are an example of such
a fund) purchased at the same time, and to what extent such differential would
be offset by the higher yield of a traditionally-priced fund. In this regard, to
the extent that the sales charge for the Investor A Shares is waived or reduced
by one of the methods described above, investments in Investor A Shares become
more desirable. The Group will refuse all purchase orders for Investor B Shares
of over $250,000.
Although Investor A Shares are subject to a Rule 12b-1 fee, they are not subject
to the higher Rule 12b-1 fee applicable to Investor B Shares. For this reason,
Investor A Shares can be expected to pay correspondingly higher dividends per
share. However, because initial sales charges are deducted at the time of
purchase, purchasers of Investor A Shares that do not qualify for waivers of or
reductions in the
PROSPECTUS--Investor B Shares 58
<PAGE> 135
initial sales charge would have less of their purchase price initially invested
in a Fund than purchasers of Investor B Shares.
As described above, purchasers of Investor B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Investor B Shares. Because the Group's future returns
cannot be predicted, there can be no assurance that this will be the case.
Investors in Investor B Shares would, however, own Shares that are subject to
higher annual expenses and, for a four-year period, such Shares would be subject
to a contingent deferred sales charge of up to 4.00% upon redemption, depending
upon the year of redemption. Investors expecting to redeem during this four-year
period should compare the cost of the contingent deferred sales charge plus the
aggregate annual Investor B Shares' Rule 12b-1 fees to the cost of the initial
sales charge and Rule 12b-1 fee on the Investor A Shares. Over time, the expense
of the annual Rule 12b-1 fee on the Investor B Shares may equal or exceed the
initial sales charge and annual Rule 12b-1 fee applicable to Investor A Shares.
For example, if net asset value remains constant, the aggregate Rule 12b-1 fees
with respect to Investor B Shares on the Funds would equal or exceed the initial
sales charge and aggregate Rule 12b-1 fees of Investor A Shares approximately
eight years after the purchase. In order to reduce such fees of investors that
hold Investor B Shares for more than eight years, Investor B Shares will be
automatically converted to Investor A Shares, as described below, at the end of
such eight-year period. This example assumes that the initial purchase of
Investor A Shares would be subject to the maximum initial sales charge of 4.50%.
This example does not take into account the time value of money which reduces
the impact of the Investor B Shares' administrative and Rule 12b-1 fee on the
investment, the benefit of having the additional initial purchase price invested
during the period before it is effectively paid out as an administrative and
Rule 12b-1 fee, fluctuations in net asset value or the effect of different
performance assumptions.
CONVERSION FEATURE
Investor B Shares which have been outstanding for eight years after the end of
the month in which the Shares were initially purchased will automatically
convert to Investor A Shares and, consequently, will no longer be subject to the
higher Rule 12b-1 fee of the Investor B Plan. Such conversion will be on the
basis of the relative net asset values of the two classes, without the
imposition of any sales charge or other charge except that the Rule 12b-1 fees
applicable to Investor A Shares shall thereafter be applied to such converted
Shares. Such investors will then benefit from the lower Rule 12b-1 fees of
Investor A Shares. Because the per share net asset value of the Investor A
Shares may be higher than that of the Investor B Shares at the time of
conversion, a Shareholder may receive fewer Investor A Shares than the number of
Investor B Shares converted, although the dollar value will be the same.
Reinvestments of dividends and distributions in Investor B Shares will not be
considered a new purchase for purposes of the conversion feature.
The Investor A Shares into which the Investor B Shares will convert will differ
only in the amount of the Rule 12b-1 fee assessed to the Shareholder. The Rule
12b-1 fee assessed to Investor A Shareholders is 0.25% of the average daily net
assets of the Investor A Shares owned, rather than 1.00%.
If a Shareholder effects one or more exchanges among Investor B Shares of the
Funds during the eight-year period, the holding period for Shares so exchanged
will be counted toward such period.
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS
Investor B Shares of the Fund are available to Shareholders on a tax-deferred
basis through the following retirement plans:
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A Parkstone IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Parkstone IRA contributions may be tax-deductible and earnings are tax-deferred.
Under the Tax Reform Act of 1986, the tax deductibility of IRA contributions is
restricted
59 PROSPECTUS--Investor B Shares
<PAGE> 136
or eliminated for individuals who participate in certain employer pension plans
and whose annual income exceeds certain limits. Existing IRA's and future
contributions up to the IRA maximums, whether deductible or not, still earn
income on a tax-deferred basis.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP/IRA")
A Parkstone SEP/IRA may be established on a group basis by an employer who
wishes to sponsor a tax-sheltered retirement program by making contributions
into IRA's on behalf of all eligible employees.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR-SEP/IRA")
A Parkstone SAR-SEP/IRA offers employers with 25 or fewer eligible employees the
ability to establish a SEP/IRA that permits salary reduction contributions.
All Parkstone IRA distribution requests must be made in writing to BISYS Fund
Services Ohio, Inc. Any additional deposits to a Parkstone IRA must distinguish
the type and year of the contribution.
For more information on any of the Parkstone IRA's or other retirement plan
options available (401(k) Defined Contribution Plans, 403(b)(7) Defined
Compensation Plans, etc.), call the Group at (800) 451-8377. Shareholders are
advised to consult a tax adviser on Parkstone IRA contribution and withdrawal
requirements and restrictions.
HOW TO REDEEM YOUR INVESTOR B SHARES
Shareholders may redeem their Investor B Shares, subject to the contingent
deferred sales charge described above, on any day that net asset value is
calculated (see "VALUATION OF SHARES"). Redemptions will be effected at the net
asset value per share next determined after receipt of a redemption request.
Redemptions may be requested by mail or by telephone.
BY MAIL
A written request for redemption must be received by the Transfer Agent in order
to honor the request. The Transfer Agent's address is: BISYS Fund Services Ohio,
Inc., c/o The Parkstone Group of Funds Department L-1270, Columbus, Ohio
43260-1270. The Transfer Agent will require a signature guarantee by an eligible
guarantor institution. The signature guarantee requirement will be waived if all
of the following conditions apply: (1) the redemption check is payable to the
Shareholder(s) of record, and (2) the redemption check is mailed to the
Shareholder(s) at the address of record. The Shareholder may also have the
proceeds mailed to a commercial bank account previously designated on the
Account Application. There is no charge for having redemption proceeds mailed to
a designated bank account. To change the address to which a redemption check is
to be mailed, a written request therefor must be received by the Transfer Agent.
In connection with such request, the Transfer Agent will require a signature
guarantee by an eligible guarantor institution.
For purposes of this policy, the term "eligible guarantor institution" shall
include banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings associations as those terms are
defined in the Securities Exchange Act of 1934. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
BY TELEPHONE
Investor B Shares may be redeemed by telephone if the Account Application Form
reflects that the Shareholder has that capability. The Shareholder may have the
proceeds mailed to his or her address or mailed or sent electronically to a
commercial bank account previously designated on the Account Application Form.
Under most circumstances, payments will be transmitted on the next Business Day.
Electronic payment requests may be made by the Shareholder by telephone to the
Group at
PROSPECTUS--Investor B Shares 60
<PAGE> 137
(800) 451-8377. While the Transfer Agent currently does not charge a wire
redemption fee, the Transfer Agent reserves the right to impose such a fee in
the future.
The Group's Account Application Form provides that none of BISYS, the Transfer
Agent, the Group or any of their affiliates or agents will be liable for any
loss, expense or cost when acting upon any oral, wired or electronically
transmitted instructions or inquiries believed by them to be genuine. While
precautions will be taken, Shareholders bear the risk of any loss as the result
of unauthorized telephone redemptions or exchanges believed by the Transfer
Agent to be genuine. If the telephone feature was not originally selected, the
Shareholder must provide written instructions to the Group to add it. The Group
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; if these procedures are not followed, the Group may be
liable for any losses due to unauthorized or fraudulent instructions. These
procedures include recording all phone conversations, sending confirmations to
Shareholders within 72 hours of the telephone transaction, verifying the account
name and a shareholder's account number or tax identification number and sending
redemption proceeds only to the address of record or to a previously authorized
bank account. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, shareholders may mail the request to the Transfer
Agent.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund to make regular monthly
or quarterly redemptions of Investor B Shares. With Shareholder authorization,
the Transfer Agent will automatically redeem such Investor Shares at the net
asset value on the fifteenth day of the month or quarter (or the next Business
Day thereafter) and have the amount specified transferred according to the
written instructions of the Shareholder. Shareholders participating in this Plan
must maintain a minimum account balance of $1,000. The required minimum
withdrawal is $100, monthly or quarterly.
The Auto Withdrawal Plan may be modified or terminated without notice. In
addition, the Group may suspend a Shareholder's withdrawal plan without notice
if the account contains insufficient funds to effect a withdrawal or in the
event that the account balance is less than the minimum $1,000 amount.
To participate in the Auto Withdrawal Plan, Shareholders should call (800)
451-8377 for more information. Purchases of additional Investor Shares
concurrently with withdrawals may be disadvantageous to certain Shareholders
because of tax liabilities and sales charges. For a Shareholder to change the
Auto Withdrawal instructions, the request must be made in writing to the
Distributor and may take up to 15 days to implement.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a Customer's Investor B Shares may be redeemed in accordance with
instructions and limitations pertaining to his or her account at First of
America Bank Corporation or one of its affiliates.
All redemption orders are effected at the net asset value per share next
determined after the Investor Shares are properly tendered for redemption, as
described above. The proceeds paid upon redemption of such Investor Shares in
the Funds, less any applicable contingent deferred sales charge, may be more or
less than the amount invested. Payment to Shareholders for such Investor Shares
redeemed will be made within seven days after receipt by the Transfer Agent of
the request for redemption. However, to the greatest extent possible, requests
from Shareholders for next day payments upon redemption of Investor Shares will
be honored if received by the Transfer Agent before the last Valuation Time on a
Business Day or, if received after the last Valuation Time, within two Business
Days, unless it would be disadvantageous to that Fund or its Shareholders to
sell or liquidate portfolio securities in an amount sufficient to satisfy
requests for payments in that manner.
At various times, the Group may be requested to redeem Investor B Shares for
which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed until payment has been collected for the
purchase of such Investor Shares which delay may be for 15 days or more. Such
delay may be avoided if such Investor Shares are purchased by wire transfer of
federal funds. The
61 PROSPECTUS--Investor B Shares
<PAGE> 138
Group intends to pay cash for all Investor Shares redeemed, but under abnormal
conditions which make payment in cash unwise, payment may be made wholly or
partly in portfolio securities at their then market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
See the Statement of Additional Information ("ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION") for examples of when the right of redemption may be suspended.
HOW SHARES ARE VALUED
The net asset value of each class of Shares of the Funds, with the exception of
the Money Market Funds, is determined and their Shares are priced as of the
close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern
Time) on each Business Day (the "Valuation Time"). The net asset value of each
class of Shares of Money Market Funds is determined and their Shares are priced
as of noon and as of the close of trading on the New York Stock Exchange on each
Business Day (the "Valuation Time"). A "Business Day" is a day on which the New
York Stock Exchange is open for trading and the Federal Reserve Bank of Chicago
is open and any other day (other than a day on which no Shares are tendered for
redemption and no order to purchase any Shares is received) during which there
is sufficient trading in its portfolio instruments that its net asset value per
share might be materially affected. Currently, the New York Stock Exchange or
the Federal Reserve Bank of Chicago will not open in observance of the following
holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day,
Thanksgiving and Christmas.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding Shares of such class.
The net asset value per share will fluctuate as the value of the investment
portfolio of a Fund changes. However, the assets in each Money Market Fund are
valued based upon the amortized cost method. Pursuant to the rules and
regulations of the Securities and Exchange Commission regarding the use of the
amortized cost method, each Money Market Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less. Although the Group seeks to
maintain each Money Market Fund's net asset value per share at $1.00, there can
be no assurance that net asset value will not vary.
The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. Foreign securities are valued
based on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income is declared monthly as a dividend to Shareholders at the close of
business on the day of declaration and is generally paid monthly. Distributable
net realized capital gains are distributed at least annually. A Shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional Shares at net asset value as of the date of
declaration, unless the Shareholder elects to receive dividends or distributions
in cash or elects to participate in the Parkstone Directed Dividend Option. Such
election, or any revocation thereof, must be made in writing to the Transfer
Agent at 3435 Stelzer Road, Columbus, Ohio 43219, and will become effective with
respect to dividends and distributions having record dates after its receipt by
the Transfer Agent.
Each Fund's net investment income available for distribution to the holders of
Investor B Shares will be reduced by the amount of Rule 12b-1 fees payable to
Participating Organizations under the Investor B
PROSPECTUS--Investor B Shares 62
<PAGE> 139
Plan. Each Fund's net investment income available for distribution to the
holders of Investor B Shares may also be reduced by the amount of retail
transfer agency fees payable to the Transfer Agent applicable to the Investor B
Shares.
Each of the Funds of the Group is treated as a separate entity for Federal
income tax purposes, 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 its shareholders and intends to
distribute all of its net income and capital gains so that it is not required to
pay Federal income taxes on amounts so distributed to shareholders.
To avoid Federal income tax, the Code requires each Fund to distribute each
taxable year at least 90% of its investment company taxable income and at least
90% of its exempt-interest income. In addition, to avoid imposition of a
nondeductible 4% excise tax, each Fund is required annually to distribute, prior
to calendar year end, 98% of taxable ordinary income on a calendar year basis,
98% of capital gain net income realized in the twelve months preceding October
31, and the balance of undistributed taxable ordinary income and capital gain
net income from the prior calendar year. Finally, in order to permit the
Municipal Bond Fund and the Michigan Fund each to distribute exempt-interest
dividends which Shareholders may exclude from their gross taxable income for
federal income tax purposes, at least 50% of such Fund's total assets must
consist of obligations the interest on which is exempt from federal income tax
as of the close of each fiscal quarter of such Fund.
A Shareholder receiving a distribution of ordinary income and/or an excess of
short-term capital gain over net long-term loss would treat it as a receipt of
ordinary income. The dividends-received deduction for corporations will apply to
the aggregate of such ordinary income distributions in the same proportion as
the aggregate dividends from domestic corporations, if any, received by that
Fund bear to its gross income. A Shareholder will not be able to take the
dividends-received deduction unless that Shareholder holds the Shares for at
least 46 days.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to its Shareholders as long-term capital gain
in the year in which it is received, regardless of how long the Shareholder has
held Shares. Such distributions are not eligible for the dividends-received
deduction.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
Taxes may be imposed on the Funds, particularly the Balanced and International
Funds, by foreign countries with respect to income received on foreign
securities. If more than 50% of the value of a Fund's assets at the close of its
taxable year consists of stocks or securities of foreign corporations, the Fund
may elect to treat any foreign income taxes it paid as paid by its Shareholders.
In this case, Shareholders generally will be required to include in income their
pro rata share of such taxes, but will then be entitled to claim a credit or
deduction for their share of such taxes. However, a particular Shareholder's
ability to utilize such a credit will be subject to certain limitations imposed
by the Code. The Funds will report to its Shareholders each year the amount, if
any, of foreign taxes per share that it has elected to have treated as paid by
its Shareholders.
Shareholders will be advised at least annually as to the Federal income tax
consequences of distributions made during the year.
THE MUNICIPAL BOND FUND AND THE MICHIGAN FUND (THE "EXEMPT FUNDS")
Dividends derived from exempt-interest income may be treated by an Exempt Fund's
Shareholders as items of interest excludable from their gross income. However,
such dividends may be taxable to
63 PROSPECTUS--Investor B Shares
<PAGE> 140
Shareholders of the Municipal Bond Fund under state or local law as ordinary
income even though all or a portion of the amounts may be derived from interest
on tax-exempt obligations which, if realized directly, would be exempt from such
taxes. In determining net exempt-interest income, expenses of the Exempt Fund
are allocated to gross tax-exempt interest income in the proportion that the
gross amount of such interest income bears to the Exempt Fund's total gross
income, excluding net capital gains. (Shareholders are advised to consult a tax
adviser with respect to whether exempt-interest dividends retain the exclusion
if such Shareholder would be treated as a "substantial user" or a "related
person" to such user under the Code.) Interest on indebtedness incurred or
continued by a Shareholder to purchase or carry Shares is not deductible for
federal income tax purposes if an Exempt Fund distributes exempt-interest
dividends during the Shareholder's taxable year. It is anticipated that
distributions from the Exempt Funds will not be eligible for the dividends
received deduction for corporations.
Under the Code, if a Shareholder receives an exempt-interest dividend with
respect to any Share and such Share is held for six months or less, any loss on
the sale or exchange of such Share will be disallowed to the extent of the
amount of such exempt-interest dividend, although the Treasury Department is
authorized to issue regulations reducing the period to not less than 31 days for
regulated investment companies that regularly distribute at least 90% of their
net tax-exempt interest. No such regulations have been issued as of the date of
this Prospectus. In addition, dividends attributable to interest on certain
private activity bonds may have to be included in Shareholders' income for
purposes of calculating alternative minimum tax. See "ADDITIONAL
INFORMATION--Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Fund" in the Statement of Additional
Information for more information regarding the federal alternative minimum tax.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase agreements)
or from long-term or short-term capital gains, such dividends will be subject to
federal income tax. A Shareholder should consult his or her own tax adviser for
any special advice.
Distributions by the Michigan Fund to holders of Shares who are subject to the
Michigan personal income tax and/or single business tax will not be subject to
the Michigan personal income tax, single business tax or any Michigan city
income tax to the extent that the distributions are attributable to income
received by the Michigan Fund as interest from Michigan Municipal Securities or
to the extent that the distributions are attributable to interest income and
gains from the sale or disposal of United States obligations exempted from state
taxation by the United States Constitution, treaties, and statutes. However,
some or all of the other distributions by the Michigan Fund may be taxable by
the State of Michigan or subject to applicable city income taxes, even if the
distributions are attributable to income of the Michigan Fund derived from
obligations of the United States or its agencies and instrumentalities. In
addition, to the extent that a Shareholder of the Michigan Fund is obligated to
pay state or local taxes outside of Michigan, dividends earned by an investment
in the Michigan Fund may represent taxable income. Investments held in the
Michigan Fund by a Michigan resident are not subject to the Michigan intangible
personal property tax to the extent that the investments are attributable to
bonds or other similar obligations of the State of Michigan or a political
subdivision thereof, or obligations of the United States.
The Michigan Department of Treasury in a 1986 Revenue Administrative Bulletin
has taken the position that the tax attributes of the securities held by a
mutual fund flow through to the investors. Based on this position, the Michigan
Department of Treasury has stated that mutual fund distributions attributable to
interest from the fund's investment in direct U.S. government securities, as
well as Municipal Securities, will not be subject to the Michigan personal
income tax. The Michigan Department of Treasury also has stated that an owner of
a share of a mutual fund will not be subject to intangible personal property tax
to the extent that the pro rata share of the securities underlying the mutual
fund would be exempt.
For Michigan personal income tax and intangible personal property tax purposes,
taxable distributions from investment income and short term capital gains, if
any, are taxable as ordinary income, whether received in cash or additional
Shares, and are subject to the Michigan intangible personal property tax and to
applicable Michigan city income taxes. The Michigan single business tax, a
modified value added tax, is computed by applying the tax rate to a tax base
determined by making certain adjustments to federal
PROSPECTUS--Investor B Shares 64
<PAGE> 141
taxable income. Taxable distributions from investment income and gains, if any,
may be included in federal taxable income or may comprise one of the adjustments
made to the tax base. Distributions of cash, other property or additional Shares
by the Michigan Fund to a Michigan single business taxpayer attributable to any
gain realized from the sale, exchange or other disposition of Michigan Municipal
Securities are includable in the Michigan single business taxpayer's adjusted
tax base for purposes of the Michigan single business tax to the extent included
in federal taxable income. Distributions of cash, other property or additional
Shares by the Michigan Fund to a Michigan single business taxpayer are not
subject to the Michigan single business tax to the extent that the distributions
are attributable to interest income from and any gain realized from the sale,
exchange or other disposition of U.S. Securities. Taxable long-term capital
gains distributions are taxable as long-term capital gains for Michigan purposes
irrespective of how long a Shareholder has held the Shares, except that such
distributions reinvested in Shares of the Michigan Fund are exempt from the
Michigan intangible personal property tax.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Funds and their Shareholders. Potential
investors are advised to consult their tax advisers concerning state and local
taxes, which may differ from the Federal income taxes described above.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a class of Shares in a Fund will be
calculated for the period since the establishment of the Funds and will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a class of Shares in a
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions) and annualizing the result. Aggregate
total return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of annualized.
Yield of a class of Shares will be computed by dividing a class of Shares' net
investment income per share earned during a recent one-month period by that
class of Shares' per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result. Each Fund may also present its average annual
total return, aggregate total return and yield, as the case may be, excluding
the effect of a sales charge, if any.
In addition, from time to time the Funds may present their respective
distribution rates for a class of Shares in supplemental sales literature which
is accompanied or preceded by a prospectus and in Shareholder reports.
Distribution rates will be computed by dividing the distribution per share of a
class made by a Fund over a twelve-month period by the maximum offering price
per share. The calculation of income in the distribution rate includes both
income and capital gain dividends and does not reflect unrealized gains or
losses, although a Fund may also present a distribution rate excluding the
effect of capital gains. The distribution rate differs from the yield, because
it includes capital gains which are often non-recurring in nature, whereas yield
does not include such items. Distribution rates may also be presented excluding
the effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Investor B Shares and the other classes of the Funds. Because of differences in
the fees and/or expenses borne by different classes of Shares of the Funds, the
net yield and total return on Investor B Shares may be different from that for
another class of the same Fund. For example, net yield and total return on
Investor B Shares is expected, at any given time, to be lower than the net yield
and total return on Institutional Shares for the same period.
Investors may also judge the performance of any class of Shares or Fund by
comparing or referencing it to the performance of other mutual funds with
comparable investment objectives and policies through various mutual fund or
market indices such as those prepared by various services which indices may be
published by such services or by other services or publications, including, but
not limited to, ratings
65 PROSPECTUS--Investor B Shares
<PAGE> 142
published by Morningstar, Inc. In addition to performance information, general
information about the Funds that appears in such publications may be included in
advertisements, in sales literature and in reports to Shareholders. For further
information regarding such services and publications, see "ADDITIONAL
INFORMATION--Performance Comparisons" in the Statement of Additional
Information.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, operating expenses, and market conditions. Consequently, total
return and yield will fluctuate and are not necessarily representative of future
results. Any fees charged by First of America Bank Corporation or any of its
affiliates with respect to customer accounts for investing in shares of the
Funds will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted. In addition, if First of
America and BISYS voluntarily reduce all or a part of their respective fees, as
further discussed below, the total return of such Fund will be higher than it
would otherwise be in the absence of such voluntary fee reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's funds through FUNDATA(R), an Automated Voice
Response System, 24 hours a day by calling (800) 451-8377 from any touch-tone
phone. Shareholders may also speak directly with a Group representative,
employed by BISYS, during regular business hours.
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in 1987 and currently
offers sixteen Funds. The shares of each of the Funds of the Group, other than
its four Money Market Funds, are offered in four separate classes: Investor A
Shares, Investor B Shares, Investor C Shares and Institutional Shares. Shares of
each of the four Money Market Funds of the Group are offered in two separate
classes: Investor A Shares and Institutional Shares. Each Share represents an
equal proportionate interest in a fund with other shares of the same fund, and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Trustees.
Shares are without par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by fund except as otherwise
expressly required by law. For example, Shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of trustees and ratification of the selection of independent accountants.
However, Shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement. In addition, holders of Investor B Shares of a
Fund will vote as a class and not with holders of another class of that Fund
with respect to the approval of its Investor B Plan.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve an investment and sub-investment advisory agreements and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Group may elect not to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group. At such a meeting, a quorum
of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Group), by majority vote, has the power to remove one
or more Trustees.
As of June 30, 1995, First of America Bank Corporation, through its wholly owned
subsidiaries, possessed on behalf of its underlying accounts voting or
investment power with respect to more than
PROSPECTUS--Investor B Shares 66
<PAGE> 143
25% of the Shares of each of the Funds, and therefore may be presumed to control
each Fund within the meaning of the 1940 Act.
MULTIPLE CLASSES OF SHARES
In addition to Investor B Shares, the Group also offers Investor A, Investor C
and Institutional Shares of the Funds under an exemptive order granted by the
Commission. A salesperson or other person entitled to receive compensation for
selling or servicing the Shares may receive different compensation with respect
to one particular class of Shares over another in the same Fund. The amount of
dividends payable with respect to other Classes of Shares will differ from
dividends on Investor B Shares as a result of the different Investor B Plan fees
applicable to Investor B Shares and because Investor B Shares may bear different
retail transfer agency expenses. For further details regarding these other
Classes of Shares, call the Group at (800) 451-8377.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc., formerly known as The Winsbury Service
Corporation, 3435 Stelzer Road, Columbus, Ohio 43219, serves as the Group's
Transfer Agent pursuant to a Transfer Agency Agreement with the Group and
receives a fee for such services. BISYS Fund Services Ohio, Inc. also provides
certain accounting services for each of the Funds and receives a fee for such
services. See "MANAGEMENT OF THE GROUP--Custodian, Transfer Agent and Fund
Accounting Services" in the Statement of Additional Information for further
information.
While BISYS Fund Services Ohio, Inc. is a distinct legal entity from BISYS (the
Group's administrator and distributor), BISYS Fund Services Ohio, Inc. is
considered to be an affiliated person of BISYS under the 1940 Act due to, among
other things, the fact that BISYS Fund Services Ohio, Inc. and BISYS are both
owned by The BISYS Group, Inc.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free
(800) 451-8377.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
67 PROSPECTUS--Investor B Shares
<PAGE> 144
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<PAGE> 145
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 146
THE PARKSTONE GROUP OF FUNDS
Investor B Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
First of America Investment Corporation
Suite 500
303 North Rose Street
Kalamazoo, Michigan 49007
SUB-INVESTMENT ADVISER (INTERNATIONAL AND BALANCED FUNDS)
Gulfstream Global Investors, Ltd.
Suite 1605
300 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
The Bank of California, N.A.
400 California Street
San Francisco, California 94145
LEGAL COUNSEL
Howard & Howard Attorneys, P.C.
Suite 400
107 E. Michigan Avenue
Kalamazoo, Michigan 49007
<PAGE> 147
- --------------------------------------------------------------------------------
THE PARKSTONE
GROUP OF FUNDS
INVESTOR C SHARES
- --------------------------------------------------------------------------------
GROWTH FUNDS
PARKSTONE EQUITY FUND
PARKSTONE SMALL CAPITALIZATION FUND
PARKSTONE INTERNATIONAL DISCOVERY FUND
GROWTH AND INCOME FUNDS
PARKSTONE BALANCED FUND
PARKSTONE HIGH INCOME EQUITY FUND
INCOME FUNDS
PARKSTONE BOND FUND
PARKSTONE LIMITED MATURITY BOND FUND
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
PARKSTONE MUNICIPAL BOND FUND
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
Prospectus dated October 13, 1995
PARKSTONE
MUTUAL FUNDS
-------------------------
NOT FDIC INSURED
<PAGE> 148
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 149
THE PARKSTONE GROUP OF FUNDS
INVESTOR C SHARES PROSPECTUS DATED OCTOBER 13, 1995
<TABLE>
<S> <C>
GROWTH FUNDS For more information call:
Parkstone Equity Fund (800) 451-8377
Parkstone Small Capitalization Fund or write to:
Parkstone International Discovery Fund 3435 Stelzer Road
Columbus, Ohio 43219
GROWTH AND INCOME FUNDS
Parkstone Balanced Fund
Parkstone High Income Equity Fund THESE SECURITIES HAVE NOT
BEEN APPROVED OR
INCOME FUNDS DISAPPROVED BY THE
Parkstone Bond Fund SECURITIES AND EXCHANGE
Parkstone Limited Maturity Bond Fund COMMISSION OR ANY STATE
Parkstone Intermediate Government Obligations SECURITIES COMMISSION NOR
Fund HAS THE COMMISSION OR ANY
Parkstone U.S. Government Income Fund STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR
TAX-FREE INCOME FUNDS ADEQUACY OF THIS
Parkstone Municipal Bond Fund PROSPECTUS. ANY
Parkstone Michigan Municipal Bond Fund REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE
</TABLE>
The Funds listed above are each of the eleven currently-offered series of The
Parkstone Group of Funds (the "Group") which offer Investor C Shares. This
Prospectus explains concisely what you should know before investing in the
Investor C Shares of the Funds listed above. Please read it carefully and keep
it for future reference. You can find more detailed information about the Fund
in the October 13, 1995 Statement of Additional Information, as amended from
time to time. For a free copy of the Statement of Additional Information or
other information, contact the Group at the number specified above. The
Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference.
THE SHARES OF THE THE PARKSTONE GROUP OF FUNDS ARE NOT OBLIGATIONS OR DEPOSITS
OF FIRST OF AMERICA INVESTMENT CORPORATION OR ITS PARENT, AND THE INVESTMENTS
DESCRIBED IN THIS PROSPECTUS ARE NOT ENDORSED, INSURED OR GUARANTEED BY FIRST OF
AMERICA INVESTMENT CORPORATION, ITS PARENT OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVOLVED.
PROSPECTUS--Investor C Shares
<PAGE> 150
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................... 4
Fee Tables................................................................... 8
Financial Highlights......................................................... 11
Investment Objectives and Policies........................................... 27
Risk Factors and Investment Techniques....................................... 37
Investment Restrictions...................................................... 48
Management of the Funds...................................................... 50
How to Buy Investor C Shares................................................. 54
Sales Charges................................................................ 56
Contingent Deferred Sales Charge............................................. 57
Directed Dividend Option..................................................... 57
Exchange Privilege........................................................... 58
Factors to Consider When Selecting Investor C Shares......................... 58
Conversion Feature........................................................... 59
How to Redeem Your Investor C Shares......................................... 59
How Shares Are Valued........................................................ 61
Dividends and Taxes.......................................................... 61
Performance Information...................................................... 64
Fundata(R)................................................................... 65
General Information.......................................................... 65
</TABLE>
PROSPECTUS--Investor C Shares 2
<PAGE> 151
PROSPECTUS ROADMAP
For information about the following subjects, consult the pages indicated on the
table below.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT
FINANCIAL OBJECTIVES RISK FACTORS AND
FUND HIGHLIGHTS AND POLICIES INVESTMENT TECHNIQUES
<CAPTION>
<S> <C> <C> <C>
Equity Fund 11 27 28
Small Capitalization Fund 12 27 28
International Discovery Fund 12 28 29
Balanced Fund 13 29 30
High Income Equity Fund 13 30 31
Bond Fund 14 31 33
Limited Maturity Bond Fund 14 31 33
Intermediate Government Obligations Fund 15 33 34
Government Income Fund 15 34 35
Municipal Bond Fund 16 35 37
Michigan Municipal Bond Fund 16 35 37
</TABLE>
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which offers to the public fifteen separate investment portfolios,
fourteen of which are diversified portfolios and one of which is a
non-diversified portfolio, each with different investment objectives. These
Funds enable the Group to meet a wide range of investment needs.
This Prospectus relates only to the Investor C Shares of the following Funds:
Parkstone Equity Fund (the "Equity Fund")
Parkstone Small Capitalization Fund (the "Small Capitalization Fund")
Parkstone International Discovery Fund (the "International Fund")
Parkstone Balanced Fund (the "Balanced Fund")
Parkstone High Income Equity Fund (the "High Income Equity Fund")
Parkstone Bond Fund (the "Bond Fund")
Parkstone Limited Maturity Bond Fund (the "Limited Maturity Bond Fund")
Parkstone Intermediate Government Obligations Fund (the "Intermediate
Government Obligations Fund")
Parkstone U.S. Government Income Fund (the "Government Income Fund")
Parkstone Municipal Bond Fund (the "Municipal Bond Fund")
Parkstone Michigan Municipal Bond Fund (the "Michigan Fund")
For convenience of reference, the above Funds are sometimes referred to as part
of a general grouping. The Equity, Small Capitalization and International Funds
are collectively referred to as the "Growth Funds". The Balanced and High Income
Equity Funds are collectively referred to as the "Growth and Income Funds". The
Bond, Limited Maturity Bond, Intermediate Government Obligations and Government
Income Funds are collectively referred to as the Income Funds. Finally, the
Municipal Bond and Michigan Funds are collectively referred to as "Tax-Free
Income Funds".
The Trustees of the Group have divided each of the Funds' beneficial ownership
into an unlimited number of transferable units called shares (the "Shares").
Each Fund of the Group offers multiple classes of
3 PROSPECTUS--Investor C Shares
<PAGE> 152
Shares. This Prospectus describes one class of Shares of each Fund-Institutional
Shares. Interested persons who wish to obtain a copy of the Prospectus of the
other Classes of Shares of the Funds or a copy of the Group's most recent annual
report may contact the Group at the telephone number shown above.
The investment objectives of each of the Funds are described in this Prospectus
and are summarized in the Prospectus Summary. First of America Investment
Corporation, Kalamazoo, Michigan ("First of America"), acts as the investment
adviser to each of the Funds of the Group. To provide investment advisory
services for the International and Balanced Funds for investments in foreign
securities, First of America has entered into a sub-investment advisory
agreement with Gulfstream Global Investors, Ltd., Dallas, Texas ("Gulfstream" or
"Subadviser").
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Investor C Shares of the following funds of the
Group:
GROWTH FUNDS
Equity Fund
Small Capitalization Fund
International Fund
GROWTH AND INCOME FUNDS
Balanced Fund
High Income Equity Fund
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
TAX-FREE INCOME FUNDS
Municipal Bond Fund
Michigan Fund
These Funds represent eleven separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust (the "Group") which is registered
as an open-end, management investment company.
Offering Price and Sales Charges
The public offering price of Investor C Shares of each Fund is equal to the net
asset value per share, but investors may be subject to a contingent deferred
sales charge of up to 1.00% when Investor C Shares are redeemed within one year
of purchase.
Minimum Purchase
$1,000 minimum initial purchase (based upon the public offering price) per Fund
with no minimum subsequent investments. Such minimum initial investment may be
waived for certain purchasers and is reduced to $100 for investors using the
Auto Invest Plan described herein, although such investors are subject to a $50
minimum for each subsequent investment in such Fund.
PROSPECTUS--Investor C Shares 4
<PAGE> 153
Investment Objectives
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
Equity Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks
Small Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks of small to medium-sized
companies
International Fund seeks the long-term growth of capital
Balanced Fund seeks current income, long-term capital growth and
conservation of capital
High Income Equity Fund primarily seeks current income by investing in a
diversified portfolio of high quality, dividend-paying
stocks and securities convertible into common stocks; a
secondary objective is growth of capital
Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high and medium
grade fixed-income securities
Limited Maturity Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high and
medium-grade fixed income securities with remaining
maturities of six years or less
Intermediate Government seeks to provide current income with preservation of
Obligations Fund capital by investing in a diversified portfolio of U.S.
Government securities with remaining maturities of
twelve years or less
Government Income Fund seeks to provide shareholders with a high level of
current income consistent with prudent investment risk
Municipal Bond Fund seeks to provide current interest income which is
exempt from federal income taxes as well as
preservation of capital
Michigan Fund seeks income which is exempt from federal income tax
and Michigan state income and intangibles tax, although
such income may be subject to the federal alternative
minimum tax when received by certain shareholders; also
seeks preservation of capital
</TABLE>
5 PROSPECTUS--Investor C Shares
<PAGE> 154
Investment Policies
Under normal market conditions, each Fund will invest as described in the
following table:
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Equity Fund at least 80% of their total assets in common stocks,
and securities convertible into common stocks, of
companies believed by the investment adviser to be
characterized by sound management and the ability to
finance expected growth
Small Capitalization Fund at least 80% of their total assets in common stocks,
and securities convertible into common stocks, of small
to medium-sized companies believed by the investment
adviser to be characterized by sound management and the
ability to finance expected growth
International Fund at least 65% of its total assets in an internationally
diversified portfolio of equity securities which trade
on markets in countries other than the United States
and which are issued by companies (i) domiciled in
countries other than the United States, or (ii) that
derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States,
and (iii) which are ranked as small- or medium-sized
companies on the basis of their capitalization
Balanced Fund in any type or class of securities, including all types
of common stocks, fixed income securities and
securities convertible into common stocks. At least 25%
of the value of the Fund's total assets will be
invested in fixed income senior securities and up to
15% of the Fund's total assets may be invested in
foreign securities
High Income Equity Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management, the ability to finance expected
growth and the ability to pay above average dividends
Bond Fund at least 80% of its total assets in bonds, debentures
and certain other debt securities specified herein
Limited Maturity Bond Fund at least 80% of the value of its total assets in bonds,
debentures and certain other debt securities specified
herein with remaining maturities of six years or less
Intermediate Government at least 80% of its total assets in obligations issued
Obligations Fund or guaranteed by the U.S. Government or its agencies or
instrumentalities and with remaining maturities of
twelve years or less
Government Income Fund at least 65% of its total assets in obligations issued
or guaranteed by the U.S. Government or its agencies or
instrumentalities; under current market conditions; up
to 80% of its total assets in mortgage-related
securities, which are issued or guaranteed by the U.S.
Government, its agencies and instrumentalities and by
nongovernmental entities, or greater amounts as
conditions warrant
Municipal Bond Fund at least 80% of its total assets in tax-exempt
obligations
</TABLE>
PROSPECTUS--Investor C Shares 6
<PAGE> 155
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Michigan Fund at least 80% of its total assets in debt securities of
all types; at least 65% of the net assets will be
invested in municipal securities issued by or on behalf
of the State of Michigan, its political subdivisions,
municipalities and public authorities
</TABLE>
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a certain
amount of risk and may not be suitable for all investors. In addition, some
investment policies of the Funds may entail certain risks (see "RISK FACTORS AND
INVESTMENT TECHNIQUES").
Investment Adviser
First of America Investment Corporation ("First of America") serves as
investment adviser, and, with respect to the International Fund and a portion of
the Balanced Fund, Gulfstream Global Investors, Ltd. ("Gulfstream") or
"Subadviser" serves as subadviser.
Dividends and Capital Gains
Dividends from net income are declared and paid monthly. Net realized capital
gains are distributed at least annually.
Distributor
BISYS Fund Services, formerly known as The Winsbury Company, ("BISYS") a
partnership owned by The BISYS Group, Inc.
Transfer Agent
BISYS Fund Services Ohio, Inc., formerly known as The Winsbury Service
Corporation (the "Transfer Agent"), a subsidiary of The BISYS Group, Inc.
7 PROSPECTUS--Investor C Shares
<PAGE> 156
FEE TABLES (INVESTOR C SHARES)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge (as a percentage of the offering price)................ None
Sales Charge on Reinvested Distributions.................................... None
Maximum Deferred Sales Charge on Redemptions(1)............................. None
Redemption Fees(2).......................................................... 1.00%
Exchange Fees............................................................... None
</TABLE>
- ------------
(1) A Contingent Deferred Sales Load is charged only with respect to Investor C
Shares redeemed within one year of the date of purchase. (See "CONTINGENT
DEFERRED SALES CHARGE" herein.)
(2) Although no such fee currently is in place, the Transfer Agent has reserved
the right in the future to charge a fee for wire transfers of redemption
proceeds.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)*
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES(1) EXPENSES EXPENSES
---------- ----- ------- -------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Equity Fund........................................ 1.00% 1.00% 0.29% 2.29%
Small Capitalization Fund.......................... 1.00% 1.00% 0.33% 2.33%
International Fund................................. 1.17% 1.00% 0.40% 2.57%
GROWTH AND INCOME FUNDS:
Balanced Fund...................................... 0.75% 1.00% 0.50% 2.25%
High Income Equity Fund............................ 1.00% 1.00% 0.32% 2.32%
INCOME FUNDS:
Bond Fund.......................................... 0.70% 1.00% 0.32% 2.02%
Limited Maturity Bond Fund......................... 0.55% 1.00% 0.29% 1.84%
Intermediate Government Obligations Fund........... 0.70% 1.00% 0.34% 2.04%
Government Income Fund............................. 0.45% 1.00% 0.38% 1.83%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund................................ 0.55% 1.00% 0.25% 1.80%
Michigan Fund...................................... 0.55% 1.00% 0.23% 1.78%
</TABLE>
- ------------
* after expense reductions
(1) Pursuant to the Investor C Distribution and Shareholder Service Plan, each
Fund is authorized to make payments under such Plan of up to an annual rate of
1.00% of the average daily net asset value of such Fund's Investor C Shares.
Absent the voluntary reduction of advisory fees and Other Expenses, Management
Fees, Other Expenses and Total Expenses as a percentage of average net assets
for the Balanced Fund would have been 1.00%, 1.00% and 2.75%, respectively.
Absent the voluntary reduction of administration fees and advisory fees,
Management Fees, Other Expenses and Total Expenses as a percentage of average
net assets for the Bond Fund would have been .74%, .62% and 2.36%, respectively.
For the Limited Maturity Bond Fund they would have been .74%, .59% and 2.33%,
respectively. For the Intermediate Government Obligations Fund they would have
been .74%, .64% and 2.38%, respectively. For the Government Income Fund they are
estimated to be .74%, .68% and 2.42%, respectively. For the Municipal Bond Fund
they would have been .74%, .60% and 2.34%, respectively. For the Michigan Fund
they would have been .74%, .58% and 2.32%, respectively. Absent the voluntary
reduction of Other Expenses, Other Expenses and Total Expenses for the Equity
Fund would have been .54% and 2.54%, respectively. For the Small Capitalization
Fund they would have been .58% and 2.58%, respectively. For the High Income Fund
they would have been .57% and 2.57%, respectively. (See "MANAGEMENT OF THE
FUNDS--Investment Adviser and Subadviser" and "Administrator, Sub-Administrator
and Distributor.")
PROSPECTUS--Investor C Shares 8
<PAGE> 157
EXPENSE EXAMPLES
You would pay the following expenses on a $1,000 investment in Investor C
Shares, assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------ -------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Equity Fund............................................. $33 $72 $ 123 $263
International Fund...................................... $36 $80 $ 137 $290
Small Capitalization Fund............................... $34 $73 $ 125 $267
GROWTH AND INCOME FUNDS:
Balanced Fund........................................... $33 $70 $ 120 $258
High Income Equity Fund................................. $34 $72 $ 124 $266
INCOME FUNDS:
Bond Fund............................................... $31 $63 $ 109 $235
Limited Maturity Bond Fund.............................. $29 $58 $ 100 $216
Intermediate Government Obligations Fund................ $31 $64 $ 110 $237
Government Income Fund.................................. $29 $58 $ 99 $215
TAX-FREE INCOME FUNDS:
Municipal Bond Fund..................................... $28 $57 $ 97 $212
Michigan Fund........................................... $28 $56 $ 96 $209
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C
Shares, assuming (1) 5% annual return and (2) no redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------ -------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Equity Fund............................................. $23 $72 $ 123 $263
International Fund...................................... $26 $80 $ 137 $290
Small Capitalization Fund............................... $24 $73 $ 125 $267
GROWTH AND INCOME FUNDS:
Balanced Fund........................................... $23 $70 $ 120 $258
High Income Equity Fund................................. $24 $72 $ 124 $266
INCOME FUNDS:
Bond Fund............................................... $21 $63 $ 109 $235
Limited Maturity Bond Fund.............................. $19 $58 $ 100 $216
Intermediate Government Obligations Fund................ $21 $64 $ 110 $237
Government Income Fund.................................. $19 $58 $ 99 $215
TAX-FREE INCOME FUNDS:
Municipal Bond Fund..................................... $18 $57 $ 97 $212
Michigan Fund........................................... $18 $56 $ 96 $209
</TABLE>
The information set forth in the foregoing Fee Tables and examples relates only
to Investor C Shares of the Funds. Each of the Funds also may offer other
classes of Shares. The other classes of Shares of the Funds are subject to the
same expenses except that the sales charges and level of Rule 12b-1 fees paid by
holders of the different classes will differ.
As a result of the payment of sales charges and 12b-1 fees, long-term
shareholders may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers, Inc.
(the "NASD"). The NASD has adopted rules effective July 7, 1993, which generally
limit the aggregate sales charges and payments under the Group's Investor C
Distribution and Shareholder Service Plan to a certain percent of total new
gross share sales, plus interest. The Funds
9 PROSPECTUS--Investor C Shares
<PAGE> 158
would stop accruing 12b-1 fees if, to the extent, and for as long as, such limit
would otherwise be exceeded.
The purpose of the above tables is to assist a potential purchaser of Investor C
Shares of any Fund in understanding the various costs and expenses that an
investor in a Fund will bear directly or indirectly. Such expenses do not
include any fees charged by First of America or any of its affiliates to its
customer accounts which may have invested in Investor C Shares of the Funds. See
"MANAGEMENT OF THE FIXED INCOME FUNDS," "GENERAL INFORMATION" and "SALES
CHARGES" for a more complete discussion of the Shareholder transaction expenses
and annual operating expenses of each of the Funds. The expense information for
Investor C Shares is based on estimates for the current fiscal year. THE
FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
PROSPECTUS--Investor C Shares 10
<PAGE> 159
FINANCIAL HIGHLIGHTS
The table below sets forth certain information concerning the investment results
of the Investor C Shares of each of the Funds since its inception. Further
financial information is included in the Statement of Additional Information and
the Group's June 30, 1995 Annual Report to Shareholders.
The Financial Highlights for the periods presented below have been derived from
financial statements audited by Coopers & Lybrand L.L.P. (Limited Liability
Partnership), independent accountants for the Group, whose report thereon is
included in the Annual Report.
Also included for the information of Shareholders is information concerning the
investment results of the Investor A Shares of the Group. This information is
made available to allow Shareholders to evaluate the Investor A Shares into
which the Investor C Shares will convert. See "CONVERSION FEATURE" below. With
respect to the financial information regarding the Investor A Shares, on March
31, 1993, the Shareholders of all of the then-outstanding Funds of the Group
approved the reclassification of such Fund's outstanding Shares into Investor A
Shares and Institutional Shares. The financial information provided below with
respect to the Investor A Shares and in the Annual Report include periods prior
to such reclassification.
EQUITY FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
NOVEMBER 16, 1994
TO
JUNE 30, 1995(F)
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................ $16.29
-----------
Investment Activities
Net investment income (loss).................................................... (0.02)
Net realized and unrealized gain (loss) on investments.......................... 1.60
--------
Total from Investment Activities........................................... 1.58
--------
Distributions
Net investment income...........................................................
Net realized gains..............................................................
In excess of net realized gains................................................. (1.47)
----------
Total Distributions........................................................ (1.47)
----------
NET ASSET VALUE, END OF PERIOD...................................................... $16.40
-----------
-----------
Total Return (excluding sales and redemption charges)............................... 23.56%(g)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)............................................... $153
Ratio of expenses to average net assets......................................... 2.27%(c)
Ratio of net investment income to average net assets............................ (1.43)%(c)
Ratio of expenses to average net assets*........................................ 2.53%(c)
Ratio of net investment income to average net assets*........................... (1.70)%(c)
Portfolio turnover.............................................................. 46.39%(d)
</TABLE>
11 PROSPECTUS--Investor C Shares
<PAGE> 160
SMALL CAPITALIZATION FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
NOVEMBER 16, 1994
TO
JUNE 30, 1995(F)
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................ $24.17
-----------------
Investment Activities
(0.05)
Net investment income (loss)....................................................
Net realized and unrealized gain (loss) on investments.......................... 3.94
-----------------
Total from Investment Activities........................................... 3.89
-----------------
Distributions
Net investment income...........................................................
(2.15)
Net realized gains..............................................................
----------
Total Distributions........................................................ (2.15)
----------
NET ASSET VALUE, END OF PERIOD...................................................... $25.91
================
Total Return (excluding sales and redemption charges)............................... 44.37%(g)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)............................................... $224
Ratio of expenses to average net assets......................................... 3.53%(c)
Ratio of net investment income to average net assets............................ (3.06)%(c)
Ratio of expenses to average net assets*........................................ 3.53%(c)
Ratio of net investment income to average net assets*........................... (3.06)%(c)
Portfolio turnover.............................................................. 50.53%(d)
</TABLE>
INTERNATIONAL DISCOVERY FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
NOVEMBER 16, 1994
TO
JUNE 30, 1995(F)
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................................... $12.97
-----------
Investment Activities
Net investment income (loss)................................................... 0.03
Net realized and unrealized gain (loss) on investments and
foreign currency transactions................................................ 0.04
--------
Total from Investment Activities.......................................... 0.07
--------
Distributions
Net investment income..........................................................
Net realized gains.............................................................
In excess of net realized gains................................................ (0.62)
----------
Total Distributions....................................................... (0.62)
----------
NET ASSET VALUE, END OF PERIOD..................................................... $12.42
-----------
-----------
Total Return (excluding sales and redemption charges).............................. (1.15)%(g)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).............................................. $82
Ratio of expenses to average net assets........................................ 2.32%(c)
Ratio of net investment income to average net assets........................... 1.74%(c)
Ratio of expenses to average net assets*....................................... 3.27%(c)
Ratio of net investment income to average net assets*.......................... 0.79%(c)
Portfolio turnover............................................................. 104.39%(d)
</TABLE>
PROSPECTUS--Investor C Shares 12
<PAGE> 161
BALANCED FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
NOVEMBER 16, 1994
TO
JUNE 30, 1995(F)
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................. $11.13
-----------
Investment Activities
Net investment income............................................................ 0.09
Net realized and unrealized gain (loss) on investments........................... 1.16
--------
Total from Investment Activities............................................ 1.25
--------
Distributions
Net investment income............................................................ (0.10)
Net realized gains...............................................................
In excess of net realized gains.................................................. (0.16)
----------
Total Distributions......................................................... (0.26)
----------
NET ASSET VALUE, END OF PERIOD....................................................... $12.12
-----------
-----------
Total Return (excluding sales and redemption charges)................................ 17.53%(g)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................................................ $114
Ratio of expenses to average net assets.......................................... 2.16%(c)
Ratio of net investment income to average net assets............................. 1.65%(c)
Ratio of expenses to average net assets*......................................... 2.68%(c)
Ratio of net investment income to average net assets*............................ 1.13%(c)
Portfolio turnover............................................................... 250.66%(d)
</TABLE>
HIGH INCOME EQUITY FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
NOVEMBER 16, 1994
TO
JUNE 30, 1995(F)
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................. $13.38
-----------
Investment Activities
Net investment income............................................................ 0.11
Net realized and unrealized gain (loss) on investments........................... 1.17
--------
Total from Investment Activities............................................ 1.28
--------
Distributions
Net investment income............................................................ (0.11)
In excess of net investment income............................................... (0.01)
Net realized gains...............................................................
In excess of net realized gains..................................................
----------
Total Distributions......................................................... (0.12)
----------
NET ASSET VALUE, END OF PERIOD....................................................... $14.54
-----------
-----------
Total Return (excluding sales and redemption charges)................................ 9.71%(g)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................................................ $25
Ratio of expenses to average net assets.......................................... 2.30%(c)
Ratio of net investment income to average net assets............................. 1.88%(c)
Ratio of expenses to average net assets*......................................... 2.55%(c)
Ratio of net investment income to average net assets*............................ 1.62%(c)
Portfolio turnover............................................................... 77.70%(d)
</TABLE>
13 PROSPECTUS--Investor C Shares
<PAGE> 162
BOND FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
NOVEMBER 16, 1994
TO
JUNE 30, 1995(F)
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................. $9.02
----------
Investment Activities
Net investment income............................................................ 0.22
Net realized and unrealized gain (loss) on investments........................... 0.62
--------
Total from Investment Activities............................................ 0.84
--------
Distributions
Net investment income............................................................ (0.22)
In excess of net investment income...............................................
Net realized gains...............................................................
In excess of net realized gains..................................................
----------
Total Distributions......................................................... (0.22)
----------
NET ASSET VALUE, END OF PERIOD....................................................... $9.64
----------
----------
Total Return (excluding sales and redemption charges)................................ 8.41%(g)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................................................ $28
Ratio of expenses to average net assets.......................................... 1.99%(c)
Ratio of net investment income to average net assets............................. 5.62%(c)
Ratio of expenses to average net assets*......................................... 2.26%(c)
Ratio of net investment income to average net assets*............................ 5.36%(c)
Portfolio turnover............................................................... 1010.64%(d)
</TABLE>
LIMITED MATURITY BOND FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
NOVEMBER 16, 1994
TO
JUNE 30, 1995(F)
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................. $9.35
----------
Investment Activities
Net investment income............................................................ 0.20
Net realized and unrealized gain (loss) on investments........................... 0.17
--------
Total from Investment Activities............................................ 0.37
--------
Distributions
Net investment income............................................................ (0.19)
Net realized gains...............................................................
In excess of net realized gains..................................................
----------
Total Distributions......................................................... (0.19)
----------
NET ASSET VALUE, END OF PERIOD....................................................... $9.53
----------
----------
Total Return (excluding sales and redemption charges)................................ 3.58%(g)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................................................
Ratio of expenses to average net assets.......................................... 1.18%(c)
Ratio of net investment income to average net assets............................. 5.61%(c)
Ratio of expenses to average net assets*......................................... 1.18%(c)
Ratio of net investment income to average net assets*............................ 5.61%(c)
Portfolio turnover............................................................... 397.97%(d)
</TABLE>
PROSPECTUS--Investor C Shares 14
<PAGE> 163
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
NOVEMBER 16, 1994
TO
JUNE 30, 1995(F)
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................. $9.42
----------
Investment Activities
Net investment income............................................................ 0.18
Net realized and unrealized gain (loss) on investments........................... 0.33
--------
Total from Investment Activities............................................ 0.51
--------
Distributions
Net investment income............................................................ (0.17)
Net realized gains...............................................................
In excess of net realized gains..................................................
----------
Total Distributions......................................................... (0.17)
----------
NET ASSET VALUE, END OF PERIOD....................................................... $9.76
----------
----------
Total Return (excluding sales and redemption charges)................................ 5.21%(g)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................................................ $9
Ratio of expenses to average net assets.......................................... 2.09%(c)
Ratio of net investment income to average net assets............................. 4.24%(c)
Ratio of expenses to average net assets*......................................... 2.36%(c)
Ratio of net investment income to average net assets*............................ 3.98%(c)
Portfolio turnover............................................................... 549.13%(d)
</TABLE>
GOVERNMENT INCOME FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
NOVEMBER 16, 1994
TO
JUNE 30, 1995(F)
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................................. $9.12
----------
Investment Activities
Net investment income............................................................ 0.28
Net realized and unrealized gain (loss) on investments........................... 0.24
--------
Total from Investment Activities............................................ 0.52
--------
Distributions
Net investment income............................................................ (0.25)
Tax return of capital............................................................ (0.03)
----------
Total Distributions......................................................... (0.28)
----------
NET ASSET VALUE, END OF PERIOD....................................................... $9.36
----------
----------
Total Return (excluding sales and redemption charges)................................ 5.26%(g)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................................................ $29
Ratio of expenses to average net assets.......................................... 2.88%(c)
Ratio of net investment income to average net assets............................. 11.54%(c)
Ratio of expenses to average net assets*......................................... 2.88%(c)
Ratio of net investment income to average net assets*............................ 11.54%(c)
Portfolio turnover............................................................... 114.71%(d)
</TABLE>
15 PROSPECTUS--Investor C Shares
<PAGE> 164
MUNICIPAL BOND FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
NOVEMBER 16, 1994
TO
JUNE 30, 1995(F)(H)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................................... $9.88
-------------------
Investment Activities
(0.03)
Net investment income (loss)...................................................
Net realized and unrealized gain (loss) on investments......................... 0.65
-------------------
Total from Investment Activities.......................................... 0.62
-------------------
Distributions
(0.14)
Net investment income..........................................................
Net realized gains
(0.16)
In excess of net realized gains................................................
-----------
Total Distributions....................................................... (0.30)
-----------
NET ASSET VALUE, END OF PERIOD..................................................... $10.20
------------
------------
Total Return (excluding sales and redemption charges).............................. 3.47%(g)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..............................................
Ratio of expenses to average net assets........................................ 0.71%(c)
Ratio of net investment income to average net assets........................... (0.54)%(c)
Ratio of expenses to average net assets*....................................... 0.71%(c)
Ratio of net investment income to average net assets*.......................... (0.54)%(c)
Portfolio turnover............................................................. 35.15%(d)
</TABLE>
MICHIGAN FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
NOVEMBER 16, 1994
TO
JUNE 30, 1995(F)(H)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................................... $10.11
-------------------
Investment Activities
(0.02)
Net investment income (loss)...................................................
Net realized and unrealized gain (loss) on investments......................... 0.62
-------------------
Total from Investment Activities.......................................... 0.60
-------------------
Distributions
Net investment income..........................................................
(0.17)
In excess of net investment income.............................................
Net realized gains.............................................................
In excess of net realized gains................................................
-----------
Total Distributions....................................................... (0.17)
-----------
NET ASSET VALUE, END OF PERIOD..................................................... $10.54
==================
Total Return (excluding sales and redemption charges).............................. 3.39%(g)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)..............................................
Ratio of expenses to average net assets........................................ 0.48%(c)
Ratio of net investment income to average net assets........................... (0.32)%(c)
Ratio of expenses to average net assets*....................................... 0.48%(c)
Ratio of net investment income to average net assets*.......................... (0.32)%(c)
Portfolio turnover............................................................. 26.06%(d)
</TABLE>
PROSPECTUS--Investor C Shares 16
<PAGE> 165
EQUITY FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
--------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
------- ------- ------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $14.69 $15.11 $12.80 $11.69 $12.37 $11.48 $10.00
----- ----- ----- ----- ----- ----- ---------
Investment Activities
Net investment income
(loss)............... (0.12) (0.10) (0.01) 0.17 0.45 0.30 0.20
Net realized and
unrealized gain
(loss) on
investments.......... 3.46 (0.28) 2.74 1.59 (0.53) 1.86 1.47
--- ---- --- --- ---- --- -------
Total from
Investment
Activities....... 3.34 (0.38) 2.73 1.76 (0.08) 2.16 1.67
--- ---- --- --- ---- --- -------
Distributions
Net investment
income............... (0.02) (0.17) (0.45) (0.28) (0.19)
Net realized gains..... (0.48) (0.04) (0.40) (0.48) (0.15) (0.99)
In excess of net
realized gains....... (0.99)
---- ---- ---- ---- ---- ---- --------
Total
Distributions.... (1.47) (0.04) (0.42) (0.65) (0.60) (1.27) (0.19)
---- ---- ---- ---- ---- ---- --------
NET ASSET VALUE, END OF
PERIOD................... $16.56 $14.69 $15.11 $12.80 $11.69 $12.37 $11.48
----- ----- ----- ----- ----- ----- ---------
----- ----- ----- ----- ----- ----- ---------
Total Return (excluding
sales and redemption
charges)................. 24.85% (2.57)% 21.42% 15.18% (0.45)% 19.23% 16.83%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)......... $43,803 $36,108 $26,460 $407,782 $298,655 $247,683 $180,124
Ratio of expenses to
average net assets... 1.51% 1.38% 1.28% 1.18% 1.10% 1.07% 1.06%(c)
Ratio of net investment
income to average net
assets............... (0.87)% (0.75)% (0.12)% 1.24% 3.87% 2.51% 2.80%(c)
Ratio of expenses to
average net
assets*.............. 1.54% 1.53% 1.35% 1.26% 1.28% 1.29% 1.31%(c)
Ratio of net investment
income to average net
assets*.............. (0.90)% (0.90)% (0.19)% 1.15% 3.69% 2.29% 2.55%(c)
Portfolio turnover..... 46.39%(d) 70.87%(d) 66.48%(d) 93.76% 189.26% 136.95% 87.30%
</TABLE>
17 PROSPECTUS--Investor C Shares
<PAGE> 166
SMALL CAPITALIZATION FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
--------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
------- ------- ------- -------- -------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $19.75 $20.31 $14.64 $13.58 $14.82 $11.59 $10.00
----- ----- ----- ----- ----- ----- ----------
Investment Activities
Net investment income
(loss)................ (0.18) (0.15) (0.13) (0.08) 0.14 0.04 0.06
Net realized and
unrealized gain (loss)
on investments........ 8.46 0.09 6.75 1.89 (1.24) 3.23 1.59
--- --- --- --- ---- --- --------
Total from
Investment
Activities........ 8.28 (0.06) 6.62 1.81 (1.10) 3.27 1.65
--- ---- --- --- ---- --- --------
Distributions
Net investment income...
Net realized gains...... (2.15) (0.50) (0.95) (0.75)
---- ---- ---- ----
Total
Distributions..... (2.15) (0.50) (0.95) (0.75) (0.14) (0.04) (0.06)
---- ---- ---- ---- ---- ---- ---------
NET ASSET VALUE, END OF
PERIOD.................... $25.88 $19.75 $20.31 $14.64 $13.58 $14.82 $11.59
----- ----- ----- ----- ----- ----- ----------
----- ----- ----- ----- ----- ----- ----------
Total Return (excluding
sales and redemption
charges).................. 44.88% (0.55)% 45.77% 12.95% (6.76)% 28.28% 16.60%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000).......... $71,984 $42,791 $27,976 $180,079 $107,500 $94,517 $53,917
Ratio of expenses to
average net assets.... 1.55% 1.40% 1.29% 1.19% 1.15% 1.11% 1.29%(c)
Ratio of net investment
income to average net
assets................ (1.27)% (1.24)% (1.02)% (0.61)% 1.08% 0.37% 0.80%(c)
Ratio of expenses to
average net assets*... 1.58% 1.55% 1.36% 1.28% 1.33% 1.33% 1.54%(c)
Ratio of net investment
income to average net
assets*............... (1.30)% (1.39)% (1.09)% (0.70)% 0.90% 0.15% 0.55%(c)
Portfolio turnover...... 50.53%(d) 72.64%(d) 71.21%(d) 95.02% 139.66% 83.10% 51.79%
</TABLE>
PROSPECTUS--Investor C Shares 18
<PAGE> 167
INTERNATIONAL DISCOVERY FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, DECEMBER 29, 1992
------------------- TO
1995 1994 JUNE 30, 1993(A)(B)
---- ---- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................ $13.18 $11.50 $10.00
------ ------ ------------
Investment Activities
Net investment income (loss)................................ 0.03 (0.02) 0.03
Net realized and unrealized gain (loss) on investments
and foreign currency transactions......................... (0.36) 1.74 1.48
----- --- ---------
Total from Investment Activities....................... (0.33) 1.72 1.51
----- --- ---------
Distributions
Net investment income....................................... (0.02) (0.01)
Net realized gains.......................................... (0.02)
In excess of net realized gains............................. (0.62)
----- ----- -----------
Total Distributions.................................... (0.62) (0.04) (0.01)
----- ----- -----------
NET ASSET VALUE, END OF PERIOD.................................. $12.23 $13.18 $11.50
------ ------ ------------
------ ------ ------------
Total Return (excluding sales and redemption charges)........... (2.19)% 14.99% 15.11%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)........................... $34,228 $36,297 $8,353
Ratio of expenses to average net assets..................... 1.78% 1.63% 1.64%(c)
Ratio of net investment income to average net assets........ 0.08% (0.29)% 1.02%(c)
Ratio of expenses to average net assets*.................... 1.91% 1.84% 1.81%(c)
Ratio of net investment income to average net assets*....... (0.06)% (0.49)% 0.85%(c)
Portfolio turnover(d)....................................... 104.39% 37.23% 12.47%
</TABLE>
BALANCED FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
INVESTOR A SHARES JANUARY 31, 1992
---------------------------------- TO
1995 1994 1993(B) JUNE 30, 1992(A)
------ ------- ------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $10.67 $11.09 $9.68 $10.00
------ ------ ----- -----------
Investment Activities
Net investment income........................... 0.28 0.26 0.28 0.14
Net realized and unrealized gain (loss) on
investments................................... 1.69 (0.43) 1.42 (0.34)
--- ----- --- ----------
Total from Investment Activities........... 1.97 (0.17) 1.70 (0.20)
--- ----- --- ----------
Distributions
Net investment income........................... (0.29) (0.25) (0.29) (0.12)
Net realized gains.............................. (0.01)
In excess of net realized gains................. (0.15)
----- ----- ----- ----------
Total Distributions........................ (0.45) (0.25) (0.29) (0.12)
----- ----- ----- ----------
NET ASSET VALUE, END OF PERIOD...................... $12.19 $10.67 $11.09 $9.68
------ ------ ------ ----------
------ ------ ------ ----------
Total Return (excluding sales and redemption
charges).......................................... 18.96% (1.63)% 17.74% (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)............... ...... $12,849 $11,901 $6,115
Ratio of expenses to average net assets......... 1.47% 1.18% 1.18% 1.19%(c)
Ratio of net investment income to average net
assets........................................ 2.56% 2.38% 2.66% 3.46%(c)
Ratio of expenses to average net assets*........ 1.78% 1.63% 1.53% 1.50%(c)
Ratio of net investment income to average net
assets*....................................... 2.23% 1.93% 2.31% 3.13%(c)
Portfolio turnover.............................. 250.66%(d) 192.39%(d) 177.99%(d) 47.58%
</TABLE>
19 PROSPECTUS--Investor C Shares
<PAGE> 168
HIGH INCOME EQUITY FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------ ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $13.50 $14.69 $13.14 $12.48 $12.19 $11.35 $10.00
----- ----- ----- ----- ----- ----- ----------
Investment Activities
Net investment income... 0.36 0.37 0.45 0.54 0.57 0.56 0.35
Net realized and
unrealized gain (loss)
on investments........ 1.00 (0.56) 1.69 0.99 0.38 1.04 1.32
--- ---- --- --- --- --- --------
Total from
Investment
Activities........ 1.36 (0.19) 2.14 1.53 0.95 1.60 1.67
--- ---- --- --- --- --- --------
Distributions
Net investment income... (0.36) (0.37) (0.45) (0.54) (0.59) (0.54) (0.32)
In excess of net
investment income..... (0.01)
Net realized gains...... (0.24) (0.14) (0.33) (0.07) (0.22)
In excess of net
realized gains........ (0.39)
---- ---- ---- ---- ---- ---- ---------
Total
Distributions..... (0.37) (1.02) (0.59) (0.87) (0.66) (0.76) (0.32)
---- ---- ---- ---- ---- ---- ---------
NET ASSET VALUE, END OF
PERIOD.................... $14.49 $13.50 $14.69 $13.14 $12.48 $12.19 $11.35
----- ----- ----- ----- ----- ----- ----------
----- ----- ----- ----- ----- ----- ----------
Total Return (excluding
sales and redemption
charges).................. 10.32% (1.63)% 16.71% 12.56% 8.22% 14.37% 16.97%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000).......... $71,063 $76,108 $50,000 $270,549 $150,980 $96,344 $66,367
Ratio of expenses to
average net assets.... 1.54% 1.40% 1.29% 1.19% 1.13% 1.11% 1.16%(c)
Ratio of net investment
income to average net
assets................ 2.65% 2.56% 3.24% 4.12% 4.75% 4.69% 4.92%(c)
Ratio of expenses to
average net assets*... 1.57% 1.55% 1.36% 1.27% 1.31% 1.33% 1.41%(c)
Ratio of net investment
income to average net
assets*............... 2.61% 2.41% 3.17% 4.03% 4.57% 4.47% 4.67%(c)
Portfolio turnover...... 77.70%(d) 69.35%(d) 67.26%(d) 68.42% 115.68% 53.08% 29.55%
</TABLE>
PROSPECTUS--Investor C Shares 20
<PAGE> 169
BOND FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $9.30 $10.54 $10.54 $10.07 $10.00 $10.11 $10.00
---- ----- ----- ----- ----- ----- ---------
Investment Activities
Net investment
income............... 0.58 0.59 0.71 0.75 0.77 0.78 0.53
Net realized and
unrealized gain
(loss) on
investments.......... 0.38 (0.72) 0.47 0.56 0.08 (0.11) 0.09
--- ---- --- --- --- ---- -------
Total from
Investment
Activities....... 0.96 (0.13) 1.18 1.31 0.85 0.67 0.62
--- ---- --- --- --- --- -------
Distributions
Net investment
income............... (0.58) (0.57) (0.73) (0.76) (0.78) (0.78) (0.51)
In excess of net
investment income.... (0.01)
Net realized gains..... (0.45) (0.08)
In excess of net
realized gains....... (0.54)
---- ---- ---- ---- ---- ---- --------
Total
Distributions.... (0.59) (1.11) (1.18) (0.84) (0.78) (0.78) (0.51)
---- ---- ---- ---- ---- ---- --------
NET ASSET VALUE, END OF
PERIOD................... $9.67 $9.30 $10.54 $10.54 $10.07 $10.00 $10.11
---- ---- ----- ----- ----- ----- ---------
---- ---- ----- ----- ----- ----- ---------
Total Return (excluding
sales and redemption
charges)................. 10.85% (1.62)% 11.93% 13.47% 8.80% 6.94% 6.42%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)......... $17,572 $18,391 $18,562 $477,526 $432,225 $316,477 $123,928
Ratio of expenses to
average net assets... 1.24% 0.98% 0.89% 0.87% 0.84% 0.81% 0.82%(c)
Ratio of net investment
income to average net
assets............... 6.32% 5.86% 6.47% 7.19% 7.72% 8.04% 8.06%(c)
Ratio of expenses to
average net
assets*.............. 1.39% 1.27% 1.07% 1.01% 1.02% 1.02% 1.06%(c)
Ratio of net investment
income of average net
assets*.............. 6.17% 5.57% 6.29% 7.05% 7.54% 7.83% 7.82%(c)
Portfolio turnover..... 1010.64%(d) 893.27%(d) 443.98%(d) 289.38% 339.74% 314.71% 121.08%
</TABLE>
21 PROSPECTUS--Investor C Shares
<PAGE> 170
LIMITED MATURITY BOND FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
--------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
------- ------- ------- -------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD..................... $9.57 $10.18 $10.25 $9.93 $9.88 $10.08 $10.00
---- ----- ----- ---- ---- ----- ----------
Investment Activities
Net investment income.... 0.56 0.62 0.65 0.71 0.72 0.83 0.53
Net realized and
unrealized gain (loss)
on investments......... 0.13 (0.58) 0.13 0.35 0.10 (0.15) 0.02
--- ---- --- --- --- ---- --------
Total from Investment
Activities......... 0.60 0.04 0.78 1.06 0.82 0.68 0.55
--- --- --- --- --- --- --------
Distributions
Net investment income.... (0.55) (0.61) (0.69) (0.71) (0.73) (0.83) (0.47)
Net realized gains....... (0.16) (0.03) (0.04) (0.05)
In excess of net realized
gains.................. (0.04)
---- ---- ---- ---- ---- ---- ---------
Total
Distributions...... (0.55) (0.65) (0.85) (0.74) (0.77) (0.88) (0.47)
---- ---- ---- ---- ---- ---- ---------
NET ASSET VALUE, END OF
PERIOD..................... $9.71 $9.57 $10.18 $10.25 $9.93 $9.88 $10.08
---- ---- ----- ----- ---- ---- ----------
---- ---- ----- ----- ---- ---- ----------
Total Return (excluding sales
and redemption charges).... 7.53% 0.32% 7.96% 11.00% 8.66% 7.10% 5.70%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)........... $18,930 $24,907 $18,060 $117.241 $70,870 $43,696 $71,627
Ratio of expenses to
average net assets..... 1.05% 0.86% 0.75% 0.83% 0.91% 0.92% 0.88%(c)
Ratio of net investment
Income to average net
assets................. 5.89% 6.22% 6.41% 7.13% 7.47% 8.01% 8.19%(c)
Ratio of expenses to
average net assets*.... 1.36% 1.30% 1.08% 1.05% 1.10% 1.14% 1.12%(c)
Ratio of net investment
income to average net
assets*................ 5.58% 5.78% 6.08% 6.91% 7.28% 7.79% 7.95%(c)
Portfolio turnover....... 397.97%(d) 353.28%(d) 123.10%(d) 87.75% 161.32% 319.11% 117.37%
</TABLE>
PROSPECTUS--Investor C Shares 22
<PAGE> 171
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
---- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $9.62 $10.53 $10.42 $10.05 $9.91 $10.05 $10.00
---- ----- ----- ----- ---- ----- ----------
Investment Activities
Net investment income
(loss)............... 0.50 0.59 0.68 0.71 0.74 0.79 0.50
Net realized and
unrealized gain
(loss) on
investments.......... 0.31 (0.66) 0.21 0.46 0.15 (0.11) (0.02)
--- ---- --- --- --- ---- ---------
Total from
Investment
Activities....... 0.81 (0.07) 0.89 1.17 0.89 0.68 0.48
--- ---- --- --- --- --- --------
Distributions
Net investment
income............... (0.50) (0.59) (0.73) (0.71) (0.75) (0.79) (0.43)
Net realized gains..... (0.05) (0.09) (0.03)
In excess of net
realized gains....... (0.25)
---- ---- ---- ---- ---- ---- ---------
Total
Distributions.... (0.50) (0.84) (0.78) (0.80) (0.75) (0.82) (0.43)
---- ---- ---- ---- ---- ---- ---------
NET ASSET VALUE, END OF
PERIOD................... $9.93 $9.62 $10.53 $10.42 $10.05 $9.91 $10.05
---- ---- ----- ----- ----- ---- ----------
---- ---- ----- ----- ----- ---- ----------
Total Return (excluding
sales and redemption
charges)................. 8.69% (0.90)% 8.92% 12.03% 9.32% 7.07% 4.92%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)......... $27,521 $36,106 $37,055 $234,906 $142,864 $100,205 $83,212
Ratio of expenses to
average net assets... 1.25% 1.00% 0.90% 0.87% 0.86% 0.85% 0.87%(c)
Ratio of net investment
income to average net
assets............... 5.22% 5.80% 6.51% 7.07% 7.48% 8.04% 7.79%(c)
Ratio of expenses to
average net
assets*.............. 1.41% 1.29% 1.08% 1.01% 1.04% 1.06% 1.11%(c)
Ratio of net investment
income to average net
assets*.............. 5.07% 5.51% 6.33% 6.93% 7.30% 7.83% 7.55%(c)
Portfolio turnover..... 549.13%(d) 546.06%(d) 225.90%(d) 114.76% 164.59% 294.62% 111.96%
</TABLE>
23 PROSPECTUS--Investor C Shares
<PAGE> 172
GOVERNMENT INCOME FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 12, 1992
------------------- TO
1995 1994 JUNE 30, 1993(A)(B)
---- ---- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $9.41 $10.04 $10.00
----- ------ ------------
Investment Activities
Net investment income..................................... 0.75 0.74 0.48
Net realized and unrealized gain (loss) on investments.... (0.64) 0.04
--- ----- ---------
Total from Investment Activities..................... 0.75 0.10 0.52
--- --- ---------
Distributions
Net investment income..................................... (0.66) (0.72) (0.48)
Tax return of capital..................................... (0.08) (0.01)
----- ----- -----------
Total Distributions.................................. (0.74) (0.73) (0.48)
----- ----- -----------
NET ASSET VALUE, END OF PERIOD................................ $9.42 $9.41 $10.04
----- ----- ------------
----- ----- ------------
Total Return (excluding sales and redemption charges)......... 8.46% 0.94% 5.35%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)......................... $50,931 $54,027 $32,633
Ratio of expenses to average net assets................... 1.04% 0.82% 0.75%(c)
Ratio of net investment income to average net assets...... 8.03% 7.42% 7.41%(c)
Ratio of expenses to average net assets*.................. 1.44% 1.36% 1.23%(c)
Ratio of net investment income to average net assets*..... 7.63% 6.87% 6.93%(c)
Portfolio turnover(d)..................................... 114.71% 102.24% 135.06%
</TABLE>
PROSPECTUS--Investor C Shares 24
<PAGE> 173
MUNICIPAL BOND FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------ TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
------- ---- ------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $10.29 $10.92 $10.58 $10.20 $10.03 $10.18 $10.00
----- ----- ------ ----- ----- ----- ----------
Investment Activities
Net investment income
(loss)................ 0.41 0.40 0.49 0.52 0.55 0.57 0.40
Net realized and
unrealized gain (loss)
on investments........ 0.27 (0.31) 0.48 0.39 0.18 (0.12) (0.14)
--- ---- ---- --- --- ---- ---------
Total from
Investment
Activities........ 0.68 0.09 0.97 0.91 0.73 0.45 0.54
--- --- ---- --- --- --- --------
Distributions
Net investment income... (0.41) (0.39) (0.53 ) (0.52) (0.56) (0.58) (0.36)
Net realized gains...... (0.21) (0.10 ) (0.01) (0.02)
In excess of net
realized gains........ (0.17) (0.12)
---- ---- ----- ---- ---- ---- ---------
Total
Distributions..... (0.58) (0.72) (0.63 ) (0.53) (0.56) (0.60) (0.36)
---- ---- ----- ---- ---- ---- ---------
NET ASSET VALUE, END OF
PERIOD.................... $10.39 $10.29 $10.92 $10.58 $10.20 $10.03 $10.18
----- ----- ------ ----- ----- ----- ----------
----- ----- ------ ----- ----- ----- ----------
Total Return (excluding
sales and redemption
charges).................. 7.02% 0.71% 9.46 % 9.11% 7.51% 4.57% 5.52%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000).......... $11,378 $13,123 $9,333 $130,788 $98,186 $100,445 $68,256
Ratio of expenses to
average net assets.... 1.02% 0.87% 0.76 % 0.81% 0.87% 0.85% 0.85%(c)
Ratio of net investment
income to average net
assets................ 4.00% 3.72% 4.56 % 5.09% 5.49% 5.78% 6.11%(c)
Ratio of expenses to
average net assets*... 1.33% 1.32% 1.09 % 1.03% 1.06% 1.06% 1.09%(c)
Ratio of net investment
income to average net
assets*............... 3.68% 3.27% 4.23 % 4.88% 5.29% 5.57% 5.87%(c)
Portfolio turnover...... 35.15%(d) 44.39%(d) 67.26 %(d) 66.31% 76.55% 113.12% 82.22%
</TABLE>
25 PROSPECTUS--Investor C Shares
<PAGE> 174
MICHIGAN FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
INVESTOR A SHARES JULY 2, 1990
----------------------------- TO
1995 1994 1993(B) 1992 JUNE 30, 1991(A)
---- ---- ------- ---- --------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $10.53 $10.97 $10.58 $10.14 $10.00
------ ------ ------- ------ ----------
Investment Activities
Net investment income (loss)...... 0.48 0.47 0.50 0.52 0.55
Net realized and unrealized gain
(loss) on investments........... 0.23 (0.36) 0.47 0.44 0.11
--- ----- ---- --- -------
Total from Investment
Activities................. 0.71 0.11 0.97 0.96 0.66
--- --- ---- --- -------
Distributions
Net investment income............. (0.40) (0.45) (0.54 ) (0.52) (0.52)
In excess of net investment
income.......................... (0.01)
Net realized gains................ (0.01) (0.04 )
In excess of net realized gains... (0.09)
----- ----- ------ ----- ---------
Total Distributions.......... (0.49) (0.55) (0.58 ) (0.52) (0.52)
----- ----- ------ ----- ---------
NET ASSET VALUE, END OF PERIOD........ $10.75 $10.53 $10.97 $10.58 $10.14
------ ------ ------- ------ ----------
------ ------ ------- ------ ----------
Total Return (excluding sales and
redemption charges)................. 6.99% 0.92% 9.40 % 9.73% 6.77%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000)........................... $37,874 $42,204 $32,778 $146,782 $90,182
Ratio of expenses to average net
assets.......................... 1.00% 0.85% 0.78 % 0.84% 0.57%(c)
Ratio of net investment income to
average net assets.............. 4.57% 4.25% 4.67 % 5.15% 5.76%(c)
Ratio of expenses to average net
assets*......................... 1.32% 1.29% 1.12 % 1.05% 1.15%(c)
Ratio of net investment income to
average net assets*............. 4.25% 3.81% 4.33 % 4.93% 5.18%(c)
Portfolio turnover................ 26.06%(d) 6.69%(d) 35.81 %(d) 19.97% 45.30%
</TABLE>
- ------------
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993 the shareholders of the Group exchanged their shares for
either the Group's Investor A Shares or Institutional Shares. For the year
ended June 30, 1993 the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities
and distributions are presented on the basis whereby the Fund's net
investment income, expenses, and distributions for the period July 1, 1992
through March 31, 1993 were allocated to each class of shares based upon the
relative net assets of each class of shares as of April 1, 1993 and the
results combined therewith the results of operations and distributions for
each applicable class for the period April 1, 1993 through June 30, 1993.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between classes of shares issued.
(e) Not annualized.
(f) Period from commencement of offering of Investor C shares.
(g) Represents total return for the Institutional Shares for the period from
July 1, 1994 to November 15, 1994 plus the total return for the Investor C
Shares for the period from November 16, 1994 to June 30, 1995.
(h) There was only one share outstanding for the Investor C shares at June 30,
1995.
PROSPECTUS--Investor C Shares 26
<PAGE> 175
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds is set forth below under the
headings describing the Funds. The investment objectives of each Fund are
fundamental policies and may not be changed without a vote of the holders of a
majority of the outstanding Shares of that Fund (as defined in the Statement of
Additional Information). Other policies of a Fund may be changed without a vote
of the holders of a majority of outstanding Shares of that Fund unless the
policy is expressly deemed to be a fundamental policy or changeable only by such
majority vote. There can be no assurance that the investment objectives of any
Fund will be achieved. Depending upon the performance of a Fund's investments,
the net asset value per share of that Fund may decrease instead of increase.
During temporary defensive periods as determined by First of America or the
Subadviser, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic bank certificates of
deposit, bankers' acceptances and repurchase agreements secured by bank
instruments. However, to the extent that a Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
GROWTH FUNDS
THE EQUITY FUND AND SMALL CAPITALIZATION FUND
The investment objective of the Equity Fund is to seek growth of capital by
investing primarily in a diversified portfolio of common stocks and securities
convertible into common stocks. The investment objective of the Small
Capitalization Fund is to seek growth of capital by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stocks of small to medium-sized companies.
Under normal market conditions, each of the Equity and Small Capitalization
Funds will invest at least 80% of the value of its total assets in common stocks
and securities convertible into common stocks of companies believed by First of
America to be characterized by sound management and the ability to finance
expected long-term growth. In addition, under normal market conditions, the
Small Capitalization Fund will invest at least 65% of the value of its total
assets in common stocks and securities convertible into common stocks of
companies considered by First of America to have a market capitalization of less
than $1 billion. Each of the Equity and Small Capitalization Funds may also
invest up to 20% of the value of its total assets in preferred stocks, corporate
bonds, notes, units of real estate investment trusts, warrants, and short-term
obligations (with maturities of 12 months or less) consisting of commercial
paper (including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and demand and time
deposits of domestic and foreign banks and savings and loan associations. Each
of the Equity and Small Capitalization Funds may also hold securities of other
investment companies and depositary or custodial receipts representing
beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, each of the Equity and Small Capitalization
Funds may also invest up to 25% of its net assets in foreign securities either
directly or through the purchase of ADRs and may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper. For a discussion of risks associated with foreign securities, see
"RISK FACTORS AND INVESTMENT TECHNIQUES--Foreign Securities" herein.
The Equity Fund anticipates investing in growth-oriented, medium capitalization
companies. These companies have typically exhibited consistent, above average
growth in revenues and earnings, strong management, and sound and improving
financial fundamentals. Often, these companies are market or industry leaders,
have excellent products and/or services, and exhibit the potential for growth.
Core holdings of the Equity Fund are in companies that participate in long-term
growth industries, although these will be supplemented by holdings in non-growth
industries that exhibit the desired characteristics.
27 PROSPECTUS--Investor C Shares
<PAGE> 176
The Small Capitalization Fund anticipates investing in dynamic small- to
medium-sized companies that exhibit outstanding potential for superior growth.
For purposes of the foregoing sentence, small-sized companies are considered to
be those with capitalization of less than $1 billion and medium-sized companies
are considered to be those with capitalization of $1 billion or more but less
than $5 billion. The Small Capitalization Fund will limit its investment in
securities of medium-sized companies to not more than 35% of the value of its
total assets. Companies that participate in sectors that are identified as
having long-term growth potential generally make up a substantial portion of
such Fund's holdings. These companies often have established a market niche or
have developed unique products or technologies that are expected to produce
superior growth in revenues and earnings. As smaller capitalization stocks are
quite volatile and subject to wide fluctuations in both the short and medium
term, the Small Capitalization Fund may be fairly characterized more aggressive
than a general equity fund such as the Equity Fund.
Consistent with the foregoing, each of the Equity and Small Capitalization Funds
will focus its investments in those companies and types of companies that First
of America believes will enable such Fund to achieve its investment objective.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE EQUITY FUND AND SMALL CAPITALIZATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Other Mutual Funds -Put and Call Options -Repurchase Agreements
-Restricted Securities -Reverse Repurchase Agreements -When-Issued and
-Portfolio Turnover and Dollar Roll Agreements Delayed-Delivery
Transactions
</TABLE>
- --------------------------------------------------------------------------------
THE INTERNATIONAL FUND
The investment objective of the International Fund is the long-term growth of
capital.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States, or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States, and (iii) which are small-
or medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRs.
Companies are deemed to be small- or medium-sized which at the time of purchase
are of a size which would rank them in the lower half of a major market index in
each country by weighted market capitalization and all equity securities listed
in recognized secondary markets where such markets exist. In addition, in
countries with less well-developed stock markets, where the range of investment
opportunities is more restrictive, the equity securities of all listed companies
will be eligible for investment. In major markets issuers could have
capitalizations of up to approximately $10 billion while in smaller markets
issuers would be eligible with capitalizations as low as approximately $200
million.
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and United Kingdom. Normally the
International Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
International Fund's assets could be invested in U.S. companies. In addition,
the International Fund temporarily may invest cash in short-term debt
instruments of U.S. and foreign issuers for cash management purposes or pending
investment.
PROSPECTUS--Investor C Shares 28
<PAGE> 177
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE INTERNATIONAL FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Lending Portfolio Securities -Other Mutual Funds
-Put and Call Options -Repurchase Agreements -Restricted Securities
-Reverse Repurchase Agreements -When-Issued and -Portfolio Turnover
and Dollar Roll Agreements Delayed-Delivery
Transactions
</TABLE>
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUNDS
THE BALANCED FUND
The investment objectives of the Balanced Fund are to seek current income,
long-term capital growth and conservation of capital.
The Balanced Fund may invest in any type or class of security. Under normal
market conditions the Balanced Fund will invest in common stocks, fixed income
securities and securities convertible into common stocks (i.e., warrants,
convertible preferred stock, fixed rate preferred stock, convertible fixed-
income securities, options and rights). At least 25% of the value of the
Balanced Fund's total assets will be invested in fixed income senior securities.
Up to 15% of the value of the Balanced Fund's total assets may be invested in
foreign securities.
The Balanced Fund's common stocks are held for the purpose of providing dividend
income and long-term growth of capital. The Balanced Fund will invest in the
common and preferred stocks of companies with capitalization of at least $100
million and which are traded either in established over-the-counter markets or
on national exchanges. The Balanced Fund intends to invest primarily in those
companies which are growth oriented and have exhibited consistent, above average
growth in revenues and earnings. When choosing such stocks, the potential for
long term capital appreciation will be the primary basis for selection.
The Balanced Fund's fixed income senior securities consist of bonds, debentures,
notes, zero-coupon securities, mortgage-related securities, state, municipal or
industrial revenue bonds, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, certificates of deposit, time
deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand notes. In addition, a portion of the Balanced Fund may from
time to time be invested in first mortgage loans and participation certificates
in pools of mortgages issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Some of the securities in which the Balanced Fund
invests may have warrants or options attached. The Balanced Fund may also invest
in repurchase agreements.
The Balanced Fund expects to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, as well as
"stripped" U.S. Treasury obligations such as Treasury Receipts issued by the
U.S. Treasury representing either future interest or principal payments
("Stripped Treasury Obligations"), and other obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. See "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations" below.
The Balanced Fund also expects to invest in bonds, notes and debentures of a
wide range of U.S. corporate issuers. Such obligations, in the case of
debentures, will represent unsecured promises to pay, in the case of notes and
bonds, may be secured by mortgages on real property or security interests in
personal property and will in most cases differ in their interest rates,
maturities and times of issuance.
The Balanced Fund will invest only in corporate fixed income securities which
are rated at the time of purchase within the four highest rating groups assigned
by a nationally-recognized statistical rating organization ("NRSRO") or, if
unrated, which First of America deems present attractive opportunities and
29 PROSPECTUS--Investor C Shares
<PAGE> 178
are of comparable quality. For a description of the rating symbols of the
NRSROs, see the Appendix to the Statement of Additional Information. For a
discussion of fixed income securities rated within the fourth highest rating
group assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT TECHNIQUES-- Medium
Grade Securities" herein.
The Balanced Fund may hold some short-term obligations (with maturities of 12
months or less) consisting of domestic and foreign commercial paper, variable
amount master demand notes, bankers' acceptances, certificates of deposit and
time deposits of domestic and foreign branches of U.S. banks and foreign banks,
and repurchase agreements. The Balanced Fund may also invest in securities of
other investment companies.
The Balanced Fund may also invest in obligations of the Export-Import Bank of
the United States, in U.S. dollar denominated international bonds for which the
primary trading market is in the United States ("Yankee Bonds"), or for which
the primary trading market is abroad ("Eurodollar Bonds"), and in Canadian Bonds
and bonds issued by institutions, such as the World Bank and the European
Economic Community, organized for a specific purpose by two or more sovereign
governments ("Supranational Agency Bonds"). The Balanced Fund's investments in
foreign securities may be made either directly or through the purchase of
American Depositary Receipts ("ADRs") and may also invest in securities issued
by foreign branches of U.S. banks and foreign banks, in Canadian commercial
paper ("CCP"), and in Europaper (U.S. dollar denominated commercial paper of a
foreign issuer).
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon First of America's assessment of business, economic and
market conditions, including any potential advantage of price shifts between the
stock market and the bond market. The Balanced Fund reserves the right to hold
short-term securities in whatever proportion deemed desirable for temporary
defensive periods during adverse market conditions as determined by First of
America. However, to the extent that the Balanced Fund is so invested, its
investment objectives may not be achieved during that time.
Like any investment program, the Balanced Fund entails certain risks. As a Fund
investing primarily in common stocks the Balanced Fund is subject to stock
market risk, i.e., the possibility that stock prices in general will decline
over short or even extended periods.
Since the Balanced Fund also invests in bonds, investors in the Balanced Fund
are also exposed to bond market risk, i.e., fluctuations in the market value of
bonds. Bond prices are influenced primarily by changes in the level of interest
rates. When interest rates rise, the prices of bonds generally fall; conversely,
when interest rates fall, bond prices generally rise. While bonds normally
fluctuate less in price than stock, there have been extended periods of cyclical
increases in interest rates that have caused significant declines in bond
prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result the Balanced
Fund, with its balance of common stock and bond investments, is expected to
entail less investment risk (and a potentially smaller investment return) than a
mutual fund investing exclusively in common stocks.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE BALANCED FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Medium-Grade Securities -Mortgage-Related Securities -Other Mutual Funds
-Put and Call Options -Repurchase Agreements -Restricted Securities
-Reverse Repurchase Agreements -When-Issued and -Portfolio Turnover
and Dollar Roll Agreements Delayed-Delivery
Transactions
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS--Investor C Shares 30
<PAGE> 179
THE HIGH INCOME EQUITY FUND
The investment objective of the High Income Equity Fund is to seek current
income by investing in a diversified portfolio of high quality, dividend-paying
common stocks and securities convertible into common stocks. A secondary
investment objective of High Income Equity Fund is growth of capital.
The High Income Equity Fund, under normal market conditions, will invest at
least 80% of the value of its total assets in common stocks and securities
convertible into common stocks of companies believed by First of America to be
characterized by sound management, the ability to finance expected growth and
the ability to pay above average dividends. The High Income Equity Funds may
also invest up to 20% of the value of its total assets in preferred stocks,
corporate bonds, notes, units of real estate investment trusts, warrants, and
short-term obligations (with maturities of 12 months or less) consisting of
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit, repurchase agreements, obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, and
demand and time deposits of domestic and foreign banks and savings and loan
associations. The High Income Equity Funds may also hold securities of other
investment companies and depositary or custodial receipts representing
beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, the High Income Equity Funds may also invest
up to 25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Foreign Securities" herein.
The High Income Equity Fund anticipates investing in securities that currently
have a high dividend yield, with the anticipation that the dividend will remain
constant or be increased in the future. These securities generally represent the
core holdings of this Fund. However, these holdings are balanced with lower
yielding but higher growth-oriented securities to achieve portfolio balance. All
securities must provide current income. Given its bias towards income, the High
Income Equity Fund may be considered the more conservative than growth-oriented
equity funds such as the Group's Equity and Small Capitalization Funds.
Consistent with the foregoing, the High Income Equity Fund will focus its
investments in those companies and types of companies that First of America
believes will enable such Fund to achieve its investment objective.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE HIGH INCOME EQUITY FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Other Mutual Funds -Put and Call Options -Repurchase Agreements
-Restricted Securities -Reverse Repurchase Agreements -When-Issued and
-Portfolio Turnover and Dollar Roll Agreements Delayed-Delivery
Transactions
</TABLE>
- --------------------------------------------------------------------------------
31 PROSPECTUS--Investor C Shares
<PAGE> 180
INCOME FUNDS
THE BOND FUND AND LIMITED MATURITY BOND FUND
The investment objective of the Bond Fund is to seek current income as well as
preservation of capital by investing in a portfolio of high and medium grade
fixed-income securities. The investment objective of the Limited Maturity Bond
Fund is to seek current income as well as preservation of capital by investing
in a portfolio of high and medium grade fixed-income securities with remaining
maturities of six years or less.
Under normal market conditions, the Bond Fund will invest at least 80% of the
value of its total assets in bonds, debentures, notes with remaining maturities
at the time of purchase of one year or more, zero-coupon securities,
mortgage-related securities, state, municipal or industrial revenue bonds,
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, debt securities convertible into, or exchangeable for, common
stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Bond Fund will invest in state and municipal securities
when, in the opinion of First of America, their yields are competitive with
comparable taxable debt obligations. In addition, up to 20% of the value of the
Bond Fund's total assets may be invested in preferred stocks, notes with
remaining maturities at the time of purchase of less than one year, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies,
and Guaranteed Investment Contracts ("GICs") issued by insurance companies, as
more fully described below. The Bond Fund intends that under normal market
conditions its portfolio will maintain an average weighted maturity of
approximately eight to twelve years. However, the Bond Fund may extend or
shorten the average weighted maturity of its portfolio depending upon
anticipated changes in interest rates or other relevant market factors. Some of
the securities in which the Bond Fund invests may have warrants or options
attached.
Under normal market conditions, the Limited Maturity Bond Fund will invest at
least 80% of the value of its total assets in the following securities which
have remaining maturities of six years or less: bonds, debentures, notes with
remaining maturities at the time of purchase of one year or more, zero-coupon
securities, mortgage related securities, state, municipal or industrial revenue
bonds, obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, debt securities convertible into, or exchangeable for,
common stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Limited Maturity Bond Fund will invest in state and
municipal securities when, in the opinion of First of America, their yields are
competitive with comparable taxable debt obligations. In addition, up to 20% of
the value of the Limited Maturity Bond Fund's total assets may be invested in
the debt securities listed above without regard to maturity, preferred stocks,
notes with remaining maturities at the time of purchase of less than one year,
short-term debt obligations consisting of domestic and foreign commercial paper
(including variable amount master demand notes), bankers' acceptances,
certificates of deposit and time deposits of domestic and foreign branches of
U.S. banks and foreign banks, repurchase agreements, securities of other
investment companies and GICs. Under normal market conditions, the Limited
Maturity Bond Fund expects to maintain a dollar-weighted average portfolio
maturity of its debt securities of three years or less. Some of the securities
in which the Limited Maturity Bond Fund invests may have warrants or options
attached.
The Bond Fund and Limited Maturity Bond Fund each expects to invest in a variety
of U.S. Treasury obligations, differing in their interest rates, maturities, and
times of issuance, as well as Stripped Treasury Obligations, and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES--Government
Obligations" below.
The Bond Fund and the Limited Maturity Bond Fund each also expects to invest in
bonds, notes and debentures of a wide range of U.S. corporate issuers. Such
obligations, in the case of debentures, will represent unsecured promises to
pay, in the case of notes and bonds, may be secured by mortgages on
PROSPECTUS--Investor C Shares 32
<PAGE> 181
real property or security interests in personal property and will in most cases
differ in their interest rates, maturities and times of issuance.
The Bond Fund and the Limited Maturity Bond Fund each will invest only in
corporate debt securities which are rated at the time of purchase within the
four highest rating groups assigned by an NRSRO or, if unrated, which First of
America deems present attractive opportunities and are of comparable quality.
For a discussion of debt securities rated within the fourth highest rating group
assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Medium-Grade
Securities" herein.
The Bond Fund and the Limited Maturity Bond Fund each may hold some short-term
obligations (with maturities of 12 months or less) consisting of domestic and
foreign commercial paper (including variable amount master demand notes),
bankers' acceptances, certificates of deposit and time deposits of domestic and
foreign branches of U.S. banks and foreign banks, and repurchase agreements. The
Bond Fund and the Limited Maturity Bond Fund each may also invest in securities
of other investment companies or in GICs.
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian Bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond Fund may also invest up to 25% of its
net assets in foreign securities either directly or through the purchase of ADRs
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper.
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, First of America may purchase debt securities at a
discount from face value, which produces a yield greater than the coupon rate.
Conversely, if debt securities are purchased at a premium over face value, the
yield will be lower than the coupon rate. In making investment decisions for the
Bond Fund, First of America will consider many factors other than current yield,
including the preservation of capital, the potential for realizing capital
appreciation, maturity, and yield to maturity. In making investment decisions
for the Limited Maturity Bond Fund, First of America will consider many factors
other than current yield, including the preservation of capital, maturity, and
yield to maturity.
By seeking to maintain a dollar-weighted average portfolio maturity of three
years or less, the Limited Maturity Bond Fund attempts to minimize the
fluctuation in its Shares' net asset value relative to those funds which invest
in longer term obligations.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE BOND FUND AND LIMITED MATURITY BOND FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Guaranteed Investment Contracts -Lending Portfolio Securities
-Medium-Grade Securities -Mortgage-Related Securities -Municipal Securities
-Other Mutual Funds -Put and Call Options -Repurchase Agreements
-Restricted Securities -Reverse Repurchase Agreements -When-Issued and
-Portfolio Turnover and Dollar Roll Agreements Delayed-Delivery
Transactions
</TABLE>
- --------------------------------------------------------------------------------
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
The investment objective of the Intermediate Government Obligations Fund is to
seek current income with preservation of capital by investing in U.S. Government
securities with remaining maturities of twelve years or less.
Under normal market conditions, the Intermediate Government Obligations Fund
will invest at least 80% of its total assets in obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and with remaining
maturities of twelve years or less, although up to 20% of the value of
33 PROSPECTUS--Investor C Shares
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its total assets may be invested in debt securities, preferred stocks and other
investments without regard to maturity, except as set forth below. Under normal
market conditions, the Intermediate Government Obligations Fund expects to
maintain a dollar-weighted average portfolio maturity of its debt securities of
three to ten years.
The types of U.S. Government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and Government Securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES-- Government Obligations."
The Intermediate Government Obligations Fund may also invest in mortgage-related
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, as more fully described below under "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations."
By seeking to maintain a dollar-weighted average portfolio maturity of three to
ten years, the Intermediate Government Obligations Fund attempts to minimize the
fluctuation in its Shares' net asset value relative to those funds which invest
in longer term obligations.
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THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Currency Transactions -Futures Contracts
-Government Obligations -Guaranteed Investment Contracts -Lending Portfolio Securities
-Other Mutual Funds -Private Activity Bonds -Put and Call Options
-Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements
-When-Issued and -Portfolio Turnover and Dollar Roll Agreements
Delayed-Delivery
Transactions
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THE GOVERNMENT INCOME FUND
The investment objective of the Government Income Fund is to provide
shareholders with a high level of current income consistent with prudent
investment risk.
Under normal market conditions, the Government Income Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
nongovernmental issuers. Consistent with the foregoing, under current market
conditions, the Government Income Fund intends to invest up to 80% of the value
of its total assets in mortgage-related securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. The Government Income Fund
also may invest up to 35% of its total assets in mortgage-related securities
issued by nongovernmental entities and in other securities described below. For
more information, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Mortgage-Related
Securities," below.
The types of U.S. Government obligations, including mortgage-related securities,
invested in by the Government Income Fund will include obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Treasury, such as Treasury bills, notes and bonds, Stripped Treasury
Obligations and Government Securities, as described below in "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations".
The Government Income Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper rated
at the time of purchase within the top two categories by an NRSRO or, if
unrated, which First of America deems to present attractive opportunities and
are of comparable quality (including variable amount master demand notes),
bankers' acceptances, certificates of deposit and time deposits of domestic and
foreign branches of U.S. banks and foreign banks, and repurchase and reverse
repurchase agreements. The Government Income Fund may
PROSPECTUS--Investor C Shares 34
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also invest in corporate debt securities which are rated at the time of purchase
within the top three categories of an NRSRO or, if unrated, which First of
America deems to present attractive opportunities and are of comparable quality.
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THE GOVERNMENT INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Government Obligations -Lending Portfolio Securities
-Mortgage-Related Securities -Other Mutual Funds -Put and Call Options
-Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements
-When-Issued and -Portfolio Turnover and Dollar Roll Agreements
Delayed-Delivery
Transactions
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TAX-FREE INCOME FUNDS
The investment objective of the Municipal Bond Fund is to seek current interest
income which is exempt from federal income taxes as well as preservation of
capital. The investment objectives of the Michigan Fund are to seek income which
is exempt from federal income tax and Michigan state income and intangibles tax,
although such income may be subject to the federal alternative minimum tax when
received by certain Shareholders, and to seek preservation of capital.
Under normal market conditions and as a fundamental policy, at least 80% of the
net assets of the Municipal Bond Fund will be invested in a diversified
portfolio of Municipal Securities and at 80% of the net assets of the Michigan
Fund will be invested in a portfolio of Michigan Municipal Securities.
"Municipal Securities" include obligations consisting of bonds, notes and
commercial paper, issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and other political subdivisions,
agencies, instrumentalities and authorities, the interest on which is both
exempt from federal income taxes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. "Michigan
Municipal Securities" include debt obligations, consisting of notes, bonds and
commercial paper, issued by or on behalf of the State of Michigan, its political
subdivisions, municipalities and public authorities, the interest on which is,
in the opinion of bond counsel to the issuer, exempt from federal income tax and
Michigan state income and intangibles taxes (but may be treated as a preference
item for individuals for purposes of the federal alternative minimum tax) and
debt obligations issued by the Government of Puerto Rico or the U.S. territories
and possessions of Guam and the U.S. Virgin Islands and such other governmental
entities whose debt obligations, either by law or treaty, generate interest
income which is exempt from federal and Michigan state income and intangibles
taxes. For more information regarding Municipal Securities and Michigan
Municipal Securities, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Municipal
Securities," below.
Under normal market conditions, at least 65% of the net assets of each of the
Municipal Bond Fund and the Michigan Fund will be invested in Municipal
Securities (Michigan Municipal Securities in the case of the Michigan Fund)
consisting of bonds and notes with remaining maturities at the time of purchase
of one year or more. Quality is the primary consideration in selecting Michigan
Municipal Securities for investment by the Michigan Fund.
The Municipal Bond Fund also intends that under normal market conditions its
portfolio will maintain an average weighted maturity of approximately eight to
ten years and an average weighted rating of AA/Aa. The Michigan Fund, under
normal market conditions, will be invested in long-term Michigan Municipal
Securities and that the average weighted maturity of such investments will be 5
to 12 years, although the Michigan Fund may invest in Michigan Municipal
Securities of any maturity. However, First of America may extend or shorten the
average weighted maturity of its portfolio depending upon anticipated changes in
interest rates or other relevant market factors. In addition, the average
weighted rating of a Tax-Free Income Fund's portfolio may vary depending upon
the availability of suitable Municipal Securities or other relevant market
factors.
35 PROSPECTUS--Investor C Shares
<PAGE> 184
The Michigan Fund invests in Michigan Municipal Securities which are rated at
the time of purchase within the four highest rating groups assigned by an NRSRO
or rated within the two highest rating groups assigned by an NRSRO in the case
of notes, tax-exempt commercial paper or variable rate demand obligations. The
Michigan Fund may also purchase Michigan Municipal Securities which are unrated
at the time of purchase but are determined to be of comparable quality by First
of America pursuant to guidelines approved by the Group's Board of Trustees. The
applicable Michigan Municipal Securities ratings are described in the Appendix
to the Statement of Additional Information. For a description of debt securities
rated within the fourth highest rating group assigned by the NRSROs, see "RISK
FACTORS AND INVESTMENT TECHNIQUES--Medium-Grade Securities" herein.
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Tax-Free Income Funds will not treat these
bonds as "Municipal Securities" or "Michigan Municipal Securities" for purposes
of measuring compliance with the 80% tests described above. To the extent the
Tax-Free Income Funds invests in these bonds, individual shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Tax-Free Income Fund's distributions derived from these bonds. For
further information relating to the types of municipal securities which will be
included in income subject to alternative minimum tax, see "ADDITIONAL
INFORMATION-- Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Fund" in the Statement of Additional
Information.
In addition, investments may be made in taxable obligations if, for example,
suitable tax-exempt obligations are unavailable or if acquisition of U.S.
Government or other taxable securities is deemed appropriate for temporary
defensive purposes as determined by First of America to be warranted due to
market conditions. Such taxable obligations consist of Government Securities,
certificates of deposit, time deposits and bankers' acceptances of selected
banks, commercial paper meeting the Tax-Free Income Fund's quality standards (as
described above) for tax-exempt commercial paper, and such taxable obligations
as may be subject to repurchase agreements. These obligations are described
further in the Statement of Additional Information. Under such circumstances and
during the period of such investment, the affected Tax-Free Income Fund may not
achieve its stated investment objectives.
Although the Municipal Bond Fund may invest more than 25% of its net assets in
(i) Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, it does not presently intend to do
so on a regular basis. To the extent the Municipal Bond Fund's assets are
concentrated in Municipal Securities that are payable from the revenues of
similar projects or are issued by issuers located in the same state, or are
concentrated in private activity bonds, the Municipal Bond Fund will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states, projects and bonds to a greater extent than it would be if its
assets were not so concentrated.
SPECIAL CONSIDERATIONS RELATING TO THE MICHIGAN FUND
Because the Michigan Fund invests primarily in securities issued by the State of
Michigan and its political subdivisions, municipalities and public authorities,
the Michigan Fund's performance is closely tied to the general economic
conditions within the State as a whole and to the economic conditions within
particular industries and geographic areas represented or located within the
State. However, the Michigan Fund attempts to diversify, to the extent First of
America deems appropriate, among issuers and geographic areas in the State of
Michigan.
The Michigan Fund's classification as a "non-diversified" investment company
means that the proportion of the Michigan Fund's assets that may be invested in
the securities of a single issuer is not limited by the 1940 Act. However, the
Michigan Fund intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended, which requires the Michigan Fund generally to invest, with respect to
50% of its total assets, not more than 5% of such assets in the obligations of a
single issuer; as to the remaining 50% of its total assets, the Michigan Fund is
not so restricted. In no event, however, may the Michigan Fund invest more than
25% of its total assets in the obligations of any one issuer. Compliance with
this requirement is measured at the close of each
PROSPECTUS--Investor C Shares 36
<PAGE> 185
quarter of the Michigan Fund's taxable year. Since a relatively high percentage
of the Michigan Fund's assets may be invested in the obligations of a limited
number of issuers, some of which may be within the same economic sector, the
Michigan Fund's portfolio securities may be more susceptible to any single
economic, political or regulatory occurrence than the portfolio securities of a
diversified investment company.
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TAX-FREE INCOME FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Currency Transactions -Futures Contracts
-Government Obligations -Lending Portfolio Securities -Medium-Grade Securities
-Municipal Securities -Other Mutual Funds -Put and Call Options
-Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements
-When-Issued and -Portfolio Turnover and Dollar Roll Agreements
Delayed-Delivery
Transactions
</TABLE>
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RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase or dollar roll agreements with
First of America Bank-Michigan, N.A. (the parent corporation of First of
America), BISYS, or their affiliates, and will not give preference to First of
America Bank-Michigan, N.A.'s correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements, reverse repurchase
agreements and dollar roll agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by First of America and, in the case
of the International and Balanced Funds, the Subadviser in the management of
each of the Funds (with the exception of the Treasury Fund) involve complex
securities sometimes referred to as "derivatives." Among such securities are put
and call options, foreign currency transactions and futures contracts, all of
which are described below. The Adviser and Subadviser believe that such complex
securities may, in some circumstances, play a valuable role in successfully
implementing each Fund's investment strategy and achieving its goals. However,
because complex securities and the strategies for which they are used, are by
their nature complicated, they present substantial opportunities for
misunderstanding and misuse. To guard against these risks, the Adviser and
Subadviser will utilize complex securities primarily for hedging, not
speculative, purposes and only after careful review of the unique risk factors
associated with each such security.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Fund may invest up to 15% of its total assets in foreign
securities. The Equity, Small Capitalization and High Income Equity Funds may
also invest in foreign securities as permitted by their respective investment
policies. Each of the Bond Fund and Limited Maturity Bond Fund may also invest
up to 25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may
37 PROSPECTUS--Investor C Shares
<PAGE> 186
be subject to greater fluctuations in price than securities issued by U.S.
corporations or issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The markets on which such securities trade may have less
volume and liquidity, and may be more volatile than securities markets in the
U.S. In addition, there may be less publicly available information about a
foreign company than about a U.S. domiciled company. Foreign companies generally
are not subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to U.S. domestic companies. There is
generally less government regulation of securities exchanges, brokers and listed
companies abroad than in the U.S. Confiscatory taxation or diplomatic
developments could also affect investment in those countries. In addition,
foreign branches of U.S. banks, foreign banks and foreign issuers may be subject
to less stringent reserve requirements and to different accounting, auditing,
reporting, and recordkeeping standards than those applicable to domestic
branches of U.S. banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after such Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater.
For many foreign securities, U.S. dollar-denominated American Depositary
Receipts, or ADR's, which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. ADR's represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADR's do not eliminate all the risk inherent in investing in
the securities of foreign issuers. However, by investing in ADR's rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for many ADR's. The information available for
ADR's is subject to the accounting, auditing and financial reporting standards
of the domestic market or exchange on which they are traded, which standards are
more uniform and more exacting than those to which many foreign issuers may be
subject. The International and Balanced Funds may also invest in European
Depository Receipts, or EDR's, which are receipts evidencing an arrangement with
a European bank similar to that for ADR's and are designed for use in the
European securities markets. EDR's are not necessarily denominated in the
currency of the underlying security.
Certain of the ADR's and EDR's, typically those denominated as unsponsored,
require the holders thereof to bear most of the costs of such facilities while
issuers of sponsored facilities normally pay more of the costs thereof. The
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders in respect
to the deposited securities, whereas the depository of a sponsored facility
typically distributes shareholder communications and passes through the voting
rights.
Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the ECU,
which is a "basket" consisting of specified amounts of the currencies of certain
of the twelve member states of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. Such adjustments
PROSPECTUS--Investor C Shares 38
<PAGE> 187
may adversely affect holders of ECU-denominated obligations or the marketability
of such securities. European governments and supranationals, in particular,
issue ECU-denominated obligations.
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds, with the exception of the Michigan Fund, may utilize foreign
currency transactions in its portfolio. The value of the assets of a Fund as
measured in United States dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
a Fund may incur costs in connection with conversions between various
currencies. A Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract ("forward
currency contracts") involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These forward currency contracts are traded directly between currency
traders (usually large commercial banks) and their customers. The Funds may
enter into forward currency contracts in order to hedge against adverse
movements in exchange rates between currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency, or when a Fund believes that the U.S. dollar may suffer a substantial
decline against a foreign currency, it may enter into a forward currency
purchase contract to buy that foreign currency for a fixed U.S. dollar amount.
However, this tends to limit potential gains which might result from a positive
change in such currency relationships. A Fund may also hedge its foreign
currency exchange rate risk by engaging in currency financial futures and
options transactions. The forecasting of short-term currency market movement is
extremely difficult and whether such a short-term hedging strategy will be
successful is highly uncertain.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a forward currency contract. Accordingly, it may
be necessary for a Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency such Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
such Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. Should forward prices
decline during the period between a Fund's entering into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, such Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
The Funds
39 PROSPECTUS--Investor C Shares
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will have to convert their holdings of foreign currencies into United States
dollars from time to time. Although foreign exchange dealers do not charge a fee
for conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
The International Fund does not intend to enter into forward currency contracts
if the International Fund would have more than 15% of the value of its total
assets committed to such contracts on a regular or continuous basis. The
International Fund does not intend to enter into forward currency contracts or
maintain a net exposure in such contracts where the International Fund would be
obligated to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES--Additional Information on Portfolio Instruments" in the
Statement of Additional Information.
FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds, the Bond Fund, the Limited
Maturity Bond Fund, the Intermediate Government Government Obligations Fund, the
Municipal Bond Fund and the Parkstone Government Income Fund may also enter into
contracts for the future delivery of securities or foreign currencies and
futures contracts based on a specific security, class of securities, foreign
currency or an index, purchase or sell options on any such futures contracts and
engage in related closing transactions. A futures contract on a securities index
is an agreement obligating either party to pay, and entitling the other party to
receive, while the contract is outstanding, cash payments based on the level of
a specified securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. 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.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed one-third of the market value of a Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange 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 or foreign currencies,
limiting the Fund's ability to hedge effectively against interest rate, exchange
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.
GOVERNMENT OBLIGATIONS
Subject to the investment parameters described above, each of the Funds may
invest in government obligations. The types of U.S. Government obligations in
which each these Funds may invest include
PROSPECTUS--Investor C Shares 40
<PAGE> 189
U.S. Treasury notes, bills, bonds, and any other securities directly issued by
the U.S. Government that are available for public investment, which differ only
in their interest rates, maturities, and times of issuance, as well as
"stripped" U.S. Treasury obligations, such as Treasury Receipts issued by the
U.S. Treasury and representing either future interest or principal payments,
and, except for the Treasury Fund, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Stripped securities are issued
at a discount to their "face value" and may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal and
interest are returned to investors. The stripped Treasury obligations in which
the Money Market Funds may invest do not include certificates of accrual on
treasury securities (CATS) or treasury income growth receipts (TIGRs).
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the Student Loan Marketing
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Farm Credit Banks or the Federal Home Loan Mortgage Corporation, 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. The Funds
which may invest in these government obligations will invest in the obligations
of such agencies or instrumentalities only when First of America believes that
the credit risk with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS
The Bond Fund and the Limited Maturity Bond Fund may invest in guaranteed
investment contracts (GICs). When investing in GICs, the Bond Fund and the
Limited Maturity Bond Fund make cash contributions to a deposit fund of an
insurance company's general account. The insurance company then credits to the
deposit fund on a monthly basis guaranteed interest. The GICs provide that this
guaranteed interest will not be less than a certain minimum rate. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and the charges will be deducted from the value of the deposit
fund. The Bond Fund and the Limited Maturity Bond Fund may invest in GICs of
insurance companies without regard to the ratings, if any, assigned to such
insurance companies' outstanding debt securities. Because a Fund may not receive
the principal amount of a GIC from the insurance company on seven days notice or
less, the GIC is considered an illiquid investment, and, together with other
instruments in that Income Fund which are deemed to be illiquid, will not exceed
15% of its total assets. In determining average portfolio maturity, GICs will be
deemed to have a maturity equal to the period of time remaining until the next
readjustment of the guaranteed interest rate.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks, or institutional borrowers of
securities. A Fund must receive 100% collateral in the form of cash or U.S.
Government securities. This collateral will be valued daily by First of America
or by the Subadvisers, as the case may be. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to that
Fund. During the time portfolio securities are on loan, the borrower pays that
Fund any dividends or interest received on such securities. Loans are subject to
termination by the Fund or the borrower at any time. While a Fund does not have
the right to vote securities on loan, each Fund intends to terminate the loan
and regain the right to vote if that is considered important with respect to the
investment. In the event the borrower defaults in its obligation to a Fund, such
Fund bears the risk of delay in the recovery of its portfolio securities and the
risk of loss of rights in the collateral. The Funds will enter into loan
agreements only with broker-dealers, banks, or other institutions that the
Advisers or the Subadvisers, as the case may be, have determined are
creditworthy under guidelines established by the Group's Board of Trustees.
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MEDIUM-GRADE SECURITIES
As described above, the Balanced, Bond, Limited Maturity Bond, Municipal Bond
and the Michigan Funds may invest in fixed income securities within the fourth
highest rating group assigned by an NRSRO (i.e., BBB or Baa by S&P and Moody's,
respectively) and comparable unrated securities. These types of fixed income
securities are considered by the NRSROs to have some speculative
characteristics, and are more vulnerable to changes in economic conditions,
higher interest rates or adverse issuer-specific developments which are more
likely to lead to a weaker capacity to make principal and interest payments than
comparable higher rated debt securities.
Should subsequent events cause the rating of a fixed income security purchased
by any of the Funds listed above to fall below the fourth highest rating, First
of America will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would the Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
MORTGAGE-RELATED SECURITIES
As indicated above, the Government Income Fund intends to invest up to 80% of
the value of its total assets and the Balanced Fund, Bond Fund, Limited Maturity
Bond Fund and Intermediate Government Obligations Fund may invest in
mortgage-related securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Such agencies or instrumentalities include the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"),
and in mortgage-related securities issued by nongovernmental entities which are
rated, at the time of purchase, within the three highest bond rating categories
assigned by an NRSRO or, if unrated, which First of America deems to present
attractive opportunities and are of comparable quality. However, the Government
Income Fund may invest greater amounts as conditions warrant.
The mortgage-related securities in which the these Funds may invest have
mortgage obligations backing such securities, consisting of conventional thirty
year fixed rate mortgage obligations, graduated payment mortgage obligations,
fifteen year mortgage obligations and adjustable rate mortgage obligations. All
of these mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. Accelerated prepayments have an adverse impact on yields for
pass-throughs purchased at a premium (i.e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, though, the rate of prepayment tends to decrease, thereby
PROSPECTUS--Investor C Shares 42
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lengthening the period of time over which income at the lower rate is received.
For these and other reasons, a mortgage-related security's average maturity may
be shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Fund. In addition, regular payments received with respect to mortgage-related
securities include both interest and principal. No assurance can be given as to
the return a Fund will receive when these amounts are reinvested.
The principal governmental (i.e., backed by the full faith and credit of the
United States Government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages.
Government-related (i.e., not backed by the full faith and credit of the United
States Government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States Government. FHLMC is a corporate instrumentality of the
United States Government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States Government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by nongovernmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such nongovernmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if through an
examination of the loan experience and practices of the poolers First of America
determines that the securities meet the Government Income Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Government Income Fund will not purchase mortgage-related
securities or any other assets which in First of America's opinion are illiquid,
if as a result, more than 15% of the value of the Government Income Fund's total
assets will be illiquid.
Mortgage-related securities in which the above-named Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
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The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed rate mortgages. As new types
of mortgage-related securities are developed and offered to investors, First of
America will, consistent with the Government Income Fund's investment objective,
policies and quality standards, consider making investments in such new types of
securities.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities (Michigan Municipal
Securities, in the case of the Michigan Fund) which may be held by the Bond,
Limited Maturity Bond, Municipal Bond Fund and Michigan Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
held by the Municipal Bond and Michigan Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
The above-named Funds may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Each of the above-named Funds invests primarily in Municipal Securities which
are rated at the time of purchase within the four highest rating groups assigned
by an NRSRO or in the highest rating group assigned by an NRSRO in the case of
notes, tax-exempt commercial paper or variable rate demand obligations. The
Funds may also purchase Municipal Securities which are unrated at the time of
purchase but are determined to be of comparable quality by First of America
pursuant to guidelines approved by the Group's Board of Trustees. The applicable
Municipal Securities ratings are described in the Appendix to the Statement of
Additional Information. For a discussion of debt securities rated within the
fourth highest rating group assigned by an NRSRO, see "RISK FACTORS AND
INVESTMENT TECHNIQUES--Medium Grade Securities" herein.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. No Fund nor First of America will
review the proceedings relating to the issuance of Municipal Securities or the
basis for such opinions.
Municipal Securities and Michigan Municipal Securities purchased by the Tax-Free
Income Funds may include rated and unrated variable and floating rate tax-exempt
notes. A variable rate note is one whose terms provide for the adjustment of its
interest rate on set dates and which, upon such adjustment, can reasonably be
expected to have a market value that approximates its par value. A floating rate
note is one whose terms provide for the adjustment of its interest rate whenever
a specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. Such notes are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate notes purchased by the Tax-Free Income Funds will be determined by
First of America, under guidelines established by the Group's Board of Trustees,
to be of comparable quality at the time of purchase to rated instruments
eligible for purchase under the Fund's investment policies. In making such
determinations, First of America 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. There may be no active secondary
market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to the Tax-Free Income Fund will approximate their par value.
The Tax-Free
PROSPECTUS--Investor C Shares 44
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Income Funds will not purchase variable and floating rate notes or any other
securities which in First of America's opinion are illiquid, if as a result,
more than 15% of the Tax-Free Income Fund's total assets will be illiquid.
OTHER MUTUAL FUNDS
Each of the Funds may invest up to 5% of the value of its total assets in the
securities of any one money market mutual fund (including shares of the
Parkstone Prime Obligations Fund, the Parkstone U.S. Government Obligations
Fund, the Parkstone Tax-Free Fund, the Parkstone Municipal Investor Fund, and
the Parkstone Treasury Fund), provided that no more than 10% of the Fund's total
assets may be invested in the securities of mutual funds in the aggregate. In
order to avoid the imposition of additional fees as a result of investments by a
Fund in Shares of the money market funds of the Group, the Investment Adviser,
Administrator and their affiliates (See "MANAGEMENT OF THE FUNDS--Investment
Adviser and Subadvisers" and "Administrator, Sub-Administrator and Distributor"
and "GENERAL INFORMATION--Transfer Agency and Fund Accounting Services") will
not retain any portion of their usual asset-based service fees from a Fund that
are attributable to investments by the Fund in Shares of those money market
mutual funds if the fee is being taken in the Fund. The Investment Adviser and
the Administrator will promptly forward such fees to the appropriate Fund. Each
Fund will incur additional expenses due to the duplication of expenses as a
result of any investment in securities of unaffiliated mutual funds. Additional
restrictions regarding the Funds' investments in securities of unaffiliated
mutual funds and/or money market funds of the Group are contained in the
Statement of Additional Information.
PRIVATE ACTIVITY BONDS
The Tax-Free Income Funds may also invest in private activity bonds. It should
be noted that the Tax Reform Act of 1986 substantially revised provisions of
prior federal law affecting the issuance and use of proceeds of certain
tax-exempt obligations. A new definition of private activity bonds applies to
many types of bonds, including those which were industrial development bonds
under prior law. Any reference herein to private activity bonds includes
industrial development bonds. Interest on private activity bonds is tax-exempt
(and such bonds will be considered Municipal Securities for purposes of this
Prospectus) only if the bonds fall within certain defined categories of
qualified private activity bonds and meet the requirements specified in those
respective categories. If the Tax-Free Income Funds invest in private activity
bonds which fall outside these categories, Shareholders may become subject to
the alternative minimum tax on that part of the Tax-Free Income Fund's
distributions derived from interest on such bonds. The Tax Reform Act generally
does not change the federal tax treatment of bonds issued to finance government
operations. For further information relating to the types of private activity
bonds which will be included in income subject to the alternative minimum tax,
see "ADDITIONAL INFORMATION--Additional Tax Information Concerning the Tax-Free
Fund and the Municipal Bond Fund" in the Statement of Additional Information.
PUT AND CALL OPTIONS
Each of the Growth Funds, the Growth and Income Funds, the Income Funds and the
Tax-Free Income Funds may purchase put and call options on securities and on
foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. Each Fund
may also engage in writing call options from time to time as First of America or
the Subadvisers, as the case may be with respect to the International Fund, deem
appropriate. The Funds will write only covered call options (options on
securities or currencies owned by the particular Fund). In order to close out a
call option it has written, the Fund will enter into a "closing purchase
transaction", the purchase of a call option on the same security or currency
with the same exercise price and expiration date as the call option which such
Fund previously has written. When a portfolio security or currency subject to a
call option is sold, the Fund will effect a closing purchase transaction to
close out any existing call option on that security or currency. If such Fund is
unable to
45 PROSPECTUS--Investor C Shares
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effect a closing purchase transaction, it will not be able to sell the
underlying security or currency until the option expires or that Fund delivers
the underlying security or currency upon exercise. In addition, upon the
exercise of a call option by the holder thereof, the Fund will forego the
potential benefit represented by market appreciation over the exercise price.
Under normal conditions, it is not expected that the Funds will cause the
underlying value of portfolio securities and currencies subject to such options
to exceed 50% of its net assets, and with respect to each of the Balanced and
International Funds, 20% of its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its option transactions, also may purchase index put and call
options and write index options. As with options on individual securities, a
Fund will write only covered index call options. Through the writing or purchase
of index options a Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash 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.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
In addition, the Tax-Free Income Funds may each acquire "puts" with respect to
Municipal Securities or Michigan Municipal Securities, as the case may be, held
in its portfolio. Under a put, such a Fund would have the right to sell a
specified Municipal Security (or Michigan Municipal Security, as the case may
be) within a specified period of time at a specified price. A put would be sold,
transferred, or assigned only with the underlying security. The Tax-Free Income
Funds will acquire puts solely to either facilitate portfolio liquidity, shorten
the maturity of the underlying securities, or permit the investment of its funds
at a more favorable rate of return. Each of the Tax-Free Income Funds expects
that it will generally acquire puts only where the puts are available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, such Fund may pay for a put either separately in cash or by paying a
higher price for portfolio securities which are acquired subject to the puts
(thus reducing the yield to maturity otherwise available for the same
securities).
REPURCHASE AGREEMENTS
Securities held by a Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as member banks of the Federal Deposit Insurance Corporation
or registered broker-dealers which First of America or the Subadvisers, as the
case may be, deem creditworthy under guidelines approved by the Group's Board of
Trustees, 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. Securities subject to repurchase agreements will be held
in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, the Fund 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 that Fund were delayed pending court action. Repurchase
agreements are considered to be loans by an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). For further
information about repurchase agreements, see "INVESTMENT OBJECTIVES AND
POLICIES--Additional
PROSPECTUS--Investor C Shares 46
<PAGE> 195
Information on Portfolio Instruments--Repurchase Agreements" in the Statement of
Additional Information.
RESTRICTED SECURITIES
Securities in which each of the Funds may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the "1933 Act"), in reliance on the exemption from such registration afforded
by Section 3(a)(3) thereof, and securities issued in reliance on the so-called
"private placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2) securities are
restricted as to disposition under the Federal securities laws, and generally
are sold to institutional investors such as the Funds who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who make a
market in such Section 4(2) securities, thus providing liquidity. Pursuant to
procedures adopted by the Board of Trustees of the Group, First of America may
determine Section 4(2) securities to be liquid if such securities are eligible
for resale under Rule 144A under the 1933 Act and are readily saleable.
Thus, subject to the limitations described above, the Funds may acquire
investments that are illiquid or of limited liquidity, such as private
placements or investments that are not registered under the 1993 Act. An
illiquid investment is any investment that cannot be disposed of within seven
(7) days in the normal course of business at approximately the amount at which
it is valued by a Fund. The price a Fund pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly, the valuation of these
securities will reflect any limitations on their liquidity. A Fund may not
invest in additional illiquid securities if, as a result, more than 15% of the
market value of its net assets would be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Each of the Funds may borrow funds by entering into reverse repurchase
agreements and, in the case of the Income and the Tax-Free Income Funds, dollar
roll agreements in accordance with the investment restrictions described below.
Pursuant to such agreements, a Fund would sell certain of its securities to
financial institutions such as banks and broker-dealers, and agree to repurchase
the securities, or substantially similar securities in the case of a dollar roll
agreement, at a mutually agreed upon date and price. Dollar roll agreements
utilized by the Income and Tax-Free Income Funds are identical to reverse
repurchase agreements except for the fact that substantially similar securities
may be repurchased. At the time a Fund enters into a reverse repurchase
agreement or a dollar roll agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid high grade
debt securities consistent with its 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 and dollar roll
agreements involve the risk that the market value of securities sold by a Fund
may decline below the price at which it is obligated to repurchase the
securities. Reverse repurchase agreements and dollar roll agreements are
considered to be borrowings by an investment company under the 1940 Act and
therefore a form of leverage. A Fund may experience a negative impact on its net
asset value if interest rates rise during the term of a reverse repurchase
agreement or dollar roll agreement. A Fund generally will invest the proceeds of
such borrowings only when such borrowings will enhance a Funds's liquidity or
when the Fund reasonably expects that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. For further information about reverse repurchase agreements and
dollar roll agreements, see "INVESTMENT OBJECTIVES AND POLICIES--Additional
Information on Portfolio Instruments--Reverse Repurchase Agreements and Dollar
Roll Agreements" in the Statement of Additional Information.
47 PROSPECTUS--Investor C Shares
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WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis. Such Funds will engage in when-issued and delayed-delivery transactions
only for the purpose of acquiring portfolio securities consistent with its
investment objectives and policies, not for investment leverage although such
transactions represent a form of leveraging. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve a risk that the yield obtained in the
transaction will be less than those available in the market when delivery takes
place. A Fund will not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase such securities, its
custodian will set aside cash or liquid securities equal to the amount of the
commitment in a separate account. Securities purchased on a when-issued basis
are recorded as an asset and are subject to changes in the value based upon
changes in the general level of interest rates. In when-issued and
delayed-delivery transactions, a Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause such Fund to miss a price
or yield considered to be advantageous.
No Fund's commitments to purchase "when-issued" securities will exceed 25% of
the value of its total assets under normal market conditions, and a commitment
by a Fund to purchase "when-issued" securities will not exceed 60 days. In the
event its commitments to purchase "when-issued" securities ever exceeded 25% of
the value of its assets, a Fund's liquidity and the investment adviser's ability
to manage it might be adversely affected. The Funds intend only to purchase
"when-issued" securities for the purpose of acquiring portfolio securities, not
for investment leverage although such transactions represent a form of
leveraging.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund 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 Securities and Exchange
Commission requires that the calculation exclude all securities whose remaining
maturities at the time of acquisition are one year or less. The portfolio
turnover rate for a 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 a Fund's shareholders. Portfolio turnover will
not be a limiting factor in making investment decisions.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding Shares of that Fund (as defined
in the Statement of Additional Information).
None of the Funds, with the exception of the Michigan Fund, may:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in such issuer, or the Fund would hold more
than 10% of the outstanding voting securities of the issuer, except that
25% or less of the value of such Fund's total assets may be invested
without regard to such limitations. There is no limit to the percentage of
assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
The Michigan Fund may not:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, (a) more than 5% of the value of the
Fund's total assets (taken at current value) would be invested in such
issuer (except that up to 50% of the value of the Fund's total assets may
be invested without regard
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<PAGE> 197
to such 5% limitation), and (b) more than 25% of its total assets (taken at
current value) would be invested in the securities of a single issuer.
For purposes of the investment limitations above, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues back
the security and, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, a security is considered to
be issued by such non-governmental user.
None of the Funds will:
1. Purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the
U.S. Government or its agencies or instrumentalities; (b) wholly owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
2. (a) Borrow money (not including reverse repurchase agreements or dollar roll
agreements), except that the Funds may borrow from banks for temporary or
emergency purposes and then only in amounts up to 30% of its total assets at
the time of borrowing (and provided that such bank borrowings and reverse
repurchase agreements and dollar roll agreements do not exceed in the
aggregate one-third of the Fund's total assets less liabilities other than
the obligations represented by the bank borrowings, reverse repurchase
agreements and dollar roll agreements), or mortgage, pledge or hypothecate
any assets except in connection with a bank borrowing in amounts not to
exceed 30% of the Fund's net assets at the time of borrowing; (b) enter into
reverse repurchase agreements, dollar roll agreements and other permitted
borrowings in amounts exceeding in the aggregate one-third of the Fund's
total assets less liabilities other than the obligations represented by such
reverse repurchase and dollar roll agreements; and (c) issue senior
securities except as permitted by the 1940 Act rule, order or interpretation
thereunder.
3. Make loans, except that the Fund may purchase or hold debt instruments and
lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
For purposes only of investment limitation number 1 above, such limitation shall
not apply to Municipal Securities or governmental guarantees of Municipal
Securities, and industrial development bonds or private activity bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding Shares of a Fund.
Each Fund may not:
1. Purchase or otherwise acquire any securities, if as a result, more than 15%
of the Fund's net assets would be invested in securities that are illiquid.
In addition to the above investment restrictions, the Funds are subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES--Investment Restrictions" in the Statement of Additional Information.
49 PROSPECTUS--Investor C Shares
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MANAGEMENT OF THE FUNDS
TRUSTEES
Overall responsibility for management of the Group rests with its Board of
Trustees, who are elected by the shareholders of all of the Group's Funds. The
Group will be managed by the Trustees in accordance with the laws of the
Commonwealth of Massachusetts governing business trusts. There are currently
five Trustees, three of whom are not "interested persons" of the Group within
the meaning of that term under the 1940 Act. The Trustees, in turn, elect the
officers of the Group to supervise actively its day-to-day operations.
The Trustees of the Group are Stephen G. Mintos* (Chairman), George R.
Landreth*, Robert M. Beam, Lawrence D. Bryan and Adrian Charles Edwards. The
addresses, and principal occupations during the past five years of the Trustees
are set forth in the Statement of Additional Information. Those Trustees
designated with an asterisk (*) are considered to be "interested persons" of the
Group as defined in the 1940 Act.
The Trustees of the Group receive quarterly fees and fees and expenses for each
meeting of the Board of Trustees attended. However, no officer or employee of
BISYS, The BISYS Group, Inc. or BISYS Fund Services Ohio, Inc. receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. BISYS receives fees from the Group for acting as
Administrator and may receive fees from each of the Funds pursuant to the
Investor C Distribution and Shareholder Service Plan described below. BISYS Fund
Services Ohio, Inc., an affiliate of BISYS, receives fees from the Group for
acting as Transfer Agent and for providing certain fund accounting services. Mr.
Mintos and Mr. Landreth are employees of BISYS.
INVESTMENT ADVISER AND SUBADVISERS
First of America was established in 1932 and is the investment adviser of the
Group. First of America, a registered investment adviser, is a wholly owned
subsidiary of First of America Bank-Michigan, N.A., which is a wholly owned
subsidiary of First of America Bank Corporation. First of America Bank
Corporation currently has over $25 billion in assets and provides financial
services to over 300 communities in Michigan, Indiana, Illinois and Florida. As
of June 30, 1995, First of America managed over $10 billion on behalf of both
taxable and tax-exempt clients, including pensions, endowments, corporations and
individual portfolios. First of America also acts as investment adviser to the
Trust Division of First of America Bank Corporation with respect to an
additional $2.3 billion in discretionary assets, providing equity, fixed income,
balanced and money management services.
Subject to such policies as the Group's Board of Trustees may determine, First
of America, either directly or, with respect to the International Fund and the
Balanced Fund, through one or more subadvisers, furnishes a continuous
investment program for each Fund and makes investment decisions on behalf of
each Fund.
First of America utilizes a team approach to the investment management of the
Funds, with up to three professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
each Fund's investment objectives. Roger H. Stamper, Managing Director of First
of America, is primarily responsible for the day-to-day management of each of
the Growth Funds (except the International Fund) and the Growth and Income
Funds. Mark R. Kummerer, Managing Director--Fixed Income of First of America, is
primarily responsible for the day-to-day management of the Income Funds.
Christian S. Swantek, Vice President of First of America, is primarily
responsible for the day-to-day management of the Tax-Free Income Funds. Messrs.
Stamper and Kummerer have held their respective positions with First of America
since 1988 and 1986, respectively. Prior to June 1993, Mr. Swantek was a
portfolio manager at PNC Investment Management & Research and its various
investment management affiliates.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, First of America receives a fee from each of
the Equity, Small Capitalization, High Income Equity
PROSPECTUS--Investor C Shares 50
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and Balanced Funds, computed daily and paid monthly, at the annual rate of one
percent (1%) of that Fund's average daily net assets. For its services in
connection with the International Fund, First of America's fee is computed daily
and paid monthly at the annual rate of one and twenty-five hundredths percent
(1.25%) of the first $50 Million of the International Fund's average daily net
assets, one and twenty hundredths percent (1.20%) of average daily net assets
between $50 Million and $100 Million, one and fifteen hundredths percent (1.15%)
of average daily net assets between $100 Million and $400 Million and one and
five hundredths percent (1.05%) of average daily net assets above $400 Million.
For its services in connection with each Income Fund and Tax-Free Income Fund,
First of America's fee is computed daily and paid monthly at the annual rate of
seventy-four one-hundredths of one percent (.74%) of each Income Fund's and
Tax-Free Income Fund's average daily net assets. For its services in connection
with the Money Market Funds, First of America's fee is computed daily and paid
monthly, at the annual rate of forty one-hundredths of one percent (.40%) of
each Money Market Fund's average daily net assets. First of America 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. The voluntary fee reduction will cause the yield of
that Fund to be higher than it would otherwise be in the absence of such a
reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream
Global Investors, Ltd., 300 Crescent Court, Suite 1605, Dallas, Texas 75201
("Gulfstream"). Pursuant to the terms of such Sub-Investment Advisory Agreement
Gulfstream has been retained by First of America to manage the investment and
reinvestment of the assets of the International Fund and to manage the
investment and reinvestment of those assets of the Balanced Fund which are
invested in foreign securities, subject to the direction and control of the
Group's Board of Trustees.
Under this arrangement, Gulfstream is responsible for the day-to-day management
of the International Fund's assets, reviews investment performance policies and
guidelines and maintains certain books and records, and First of America is
responsible for selecting and monitoring the performance of Gulfstream and for
reporting the activities of Gulfstream in managing the International Fund to the
Group's Board of Trustees. Gulfstream utilizes a team approach to the investment
management of the International Fund to ensure a disciplined investment process
designed to result in long-term performance consistent with its investment
objective. No one person is responsible for the Fund's management. First of
America may also render advice with respect to the International Fund's
investments in the U.S.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with First of America, Gulfstream receives from First of
America a fee, computed daily and paid monthly, at the annual rate of one-half
percent (.50%) of the first $50 million of the International Fund's average
daily net assets and the average daily net assets of the Balanced Fund which are
invested in foreign securities, forty-five one hundredths percent (.45%) of such
average daily net assets between $50 million and $100 million, forty one
hundredths percent (.40%) of such average daily net assets between $100 million
and $400 million and thirty one hundredths percent (.30%) of such average daily
net assets above $400 million, provided the minimum annual fee shall be $75,000.
Gulfstream, 300 Crescent Court, Suite 1605, Dallas, Texas 75201, was organized
in 1991 as a Texas limited partnership by Tull, Doud, Marsh & Triltsch, Inc., a
Texas corporation ("TDMT"). TDMT is the sole general partner of Gulfstream. TDMT
is owned by C. Thomas Tull, Stephen C. Doud, James P. Marsh and Reiner M.
Triltsch. Messrs. Tull, Doud and Triltsch are the portfolio managers and Mr.
Marsh is responsible for client services with Gulfstream. First of America is
the sole limited partner, holding a forty nine (49) percent interest in
Gulfstream with options which would under certain circumstances permit it to
acquire up to a seventy two (72) percent interest. Gulfstream has over $360
million in assets of institutional, investment company, governmental, pension
fund and high net worth individual clients under its investment management.
Gulfstream's portfolio management personnel average twenty (20) years of
investment experience and nine (9) years of international investment experience.
As of January 3, 1994, Gulfstream managed over $300 million in international
investment portfolios.
51 PROSPECTUS--Investor C Shares
<PAGE> 200
Prior to January 1, 1995, Ivory & Sime International, Inc. ("ISI" and Ivory &
Sime plc ("ISplc" together with ISI, "Ivory & Sime") served as subadvisers to
the International Fund. The Trustees voted unanimously to terminate this
arrangement and replace it with the current subadvisory arrangement with
Gulfstream. As required by the 1940 Act, the Shareholders of the International
Discovery Fund and the Balanced Fund each approved the appointment of Gulfstream
as subadviser, as well as the related Sub-Investment Advisory Agreements, at a
meeting held on February 28, 1995.
Under Gulfstream's partnership agreement, First of America possesses veto
authority over the general budgetary affairs of Gulfstream. Because of its
current 49 percent ownership interest and its possession of options enabling it
to acquire up to a 72 percent ownership interest, First of America may be deemed
to control Gulfstream for purposes of the 1940 Act.
For further information regarding the relationship between Gulfstream and First
of America, see "MANAGEMENT OF THE GROUP--INVESTMENT ADVISER" in the Statement
of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
fund of the Group, and also acts as the Group's principal underwriter and
distributor (the "Administrator" or the "Distributor," as the context
indicates). First of America serves as Sub-Administrator for each Fund of the
Group and provides certain services as may be requested by BISYS from time to
time. BISYS and its affiliated companies, including BISYS Fund Services Ohio,
Inc. are wholly-owned by The BISYS Group, Inc., a publicly-held company which is
a provider of information processing, loan servicing and 401(k) administration
and recordkeeping services to and through banking and other financial
organizations.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from each Fund equal to the lesser of a fee, computed daily and
paid periodically, at an annual rate of twenty one-hundredths of one percent
(.20%) of the Fund's average daily net assets, or such other fee as may be
agreed upon from time to time in writing by the Group and the Administrator. For
its services as Subadministrator First of America receives, from the
Administrator, pursuant to its Sub-Administration Agreement with BISYS, a fee
not to exceed five one hundredths of one percent (.05%) of each Fund's average
daily net assets. The Administrator may periodically voluntarily reduce all or a
portion of its administrative fee with respect to a Fund to increase the net
income of that Fund available for distribution as dividends. The voluntary fee
reduction will cause the return of that Fund to be higher than it would
otherwise be in the absence of such reduction.
The Distributor acts as agent for the Funds in the distribution of each of their
Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the cost of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but may retain some or all of any sales
charge imposed upon the Investor Shares and may receive compensation under the
Distribution and Shareholder Service Plans described below.
EXPENSES
First of America, the Subadvisers and the Administrator each bear all expenses
in connection with the performance of its services as investment adviser,
subadviser and administrator, respectively, other than the cost of securities
(including brokerage commissions) purchased for the Group. Each Fund will bear
the following expenses relating to its operation: organizational expenses,
taxes, interest, brokerage fees and commissions, fees of the Trustees of the
Group, Securities and Exchange Commission fees, state securities qualification
fees, costs of preparing and printing prospectuses for regulatory purposes and
for distribution to current Shareholders, outside auditing and legal expenses,
advisory and administration fees, fees and out-of-pocket expenses of the
custodian, Transfer Agent and fund accountant, certain insurance premiums, costs
of maintenance of the Group's existence, costs of Shareholders' reports and
PROSPECTUS--Investor C Shares 52
<PAGE> 201
meetings, and any extraordinary expenses incurred in each Fund's operation. As a
general matter, expenses are allocated to the Investor C Shares and the other
Classes of Shares of the Funds on the basis of the relative net asset value of
each class. The various Classes may bear certain additional retail transfer
agency expenses and may also bear certain additional shareholder service and
distribution costs incurred pursuant to a Distribution and Shareholder Service
Plans.
The Trustees reserve the right, subject to the receipt of relevant regulatory
approvals or rulings, if needed, to allocate certain other expenses to the
Shareholders of a particular class, including Investor Shares, on a basis other
than relative net asset value, as they deem appropriate ("Class Expenses"). In
such event, Class Expenses would be limited to: transfer agency fees identified
by the Transfer Agent as attributable to a specific class; printing and postage
expenses related to preparing and distributing materials such as Shareholder
reports, prospectuses and proxies to current Shareholders; Blue Sky registration
fees incurred by a class of Shares; Securities and Exchange Commission
registration fees incurred by a class of Shares; expenses related to
administrative personnel and services as required to support the Shareholders of
a specific class; litigation or other legal expenses relating solely to one
class of Shares; and Trustees' fees incurred as a result of issues relating
solely to one class of Shares.
DISTRIBUTION PLAN FOR INVESTOR C SHARES
Rule 12b-1 adopted by the Securities and Exchange Commission under the 1940 Act
permits an investment company to pay directly or indirectly expenses associated
with the distribution of its shares in accordance with a plan adopted by an
investment company's trustees and approved by its shareholders. Pursuant to such
Rule, the Group has adopted an Investor C Distribution and Shareholder Service
Plan (the "Investor C Plan") with respect to the Investor C Shares of each Fund.
Pursuant to the Investor C Plan, each Fund is authorized to pay or reimburse
BISYS, as Distributor of the Investor C Shares, for certain expenses that are
incurred in connection with Shareholder and distribution services. Pursuant to
the Investor C Plan, a Fund is authorized to pay or reimburse BISYS, as
Distributor of Investor C Shares, (a) a distribution fee in an amount not to
exceed on an annual basis .75% of the average daily net asset value of Investor
C Shares of a 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 C Shares of a Fund (the "Service Fee"). Payments under the Investor
C Plan will be calculated daily and paid monthly at a rate not to exceed the
limits described above, which rates are set from time to time by the Board of
Trustees. Payments of the Distribution Fee to the Distributor pursuant to the
Investor C Plan will be used (i) to compensate Participating Organizations for
providing distribution assistance relating to Investor C Shares, and (ii) for
promotional activities intended to result in the sale of Investor C Shares such
as to pay for the preparation, printing and distribution of prospectuses to
other than current Shareholders, and payments of the Service Fee to the
Distributor pursuant to the Investor C 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 C Shares.
Fees paid pursuant to the Investor C Plan are accrued daily and paid monthly,
and are charged as expenses of Investor C Shares of a Fund as accrued.
Pursuant to the Investor C Plan, the Distributor may enter into Rule 12b-1
Agreements with Participating Organizations for providing distribution
assistance and shareholder services with respect to the Investor C Shares. Such
Participating Organizations will be compensated at the annual rate of up to
1.00% of the average daily net asset value of the Investor C Shares held of
record or beneficially by such Customers. The distribution services provided by
Participating Organizations for which the Distribution Fee may be paid may
include promoting the purchase of Investor C Shares of a Fund by their
customers; processing purchase, exchange, and redemption requests from customers
and placing orders with the Distributor or the Transfer Agent; processing
dividend and distribution payments from a Fund on behalf of customers; providing
information periodically to customers, including information showing their
positions in Investor C Shares; responding to inquiries from customers
concerning their investment in Investor C Shares; and providing other similar
services as may be reasonably requested. The shareholder services provided by
Participating Organizations for which the Service Fee may be paid may include
providing sub-
53 PROSPECTUS--Investor C Shares
<PAGE> 202
accounting with respect to Investor C Shares beneficially owned by customers or
the information necessary for sub-accounting; arranging for bank wires; and
other continuing personal services to holders of Investor C Shares.
Actual distribution expenses for Investor C Shares at any given time may exceed
the Rule 12b-1 fees and payments received pursuant to contingent deferred sales
charges. These unrecovered amounts plus interest thereon will be carried forward
and paid from future Rule 12b-1 fees and payments received from contingent
deferred sales charges. If the Investor C Plan were terminated or not continued,
the Group would not be contractually obligated to pay for any expenses not
previously reimbursed by the Group or recovered through contingent deferred
sales charges.
Conflicts of interest restrictions may apply to the receipt by Participating
Organizations of compensation from BISYS in connection with the investment of
fiduciary assets in Investor C Shares. Institutions, including banks regulated
by the Comptroller of the Currency, the Federal Reserve Board, or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission (the
"Commission"), the Department of Labor, or state securities commissions, are
urged to consult their legal advisers before investing such assets in Investor C
Shares.
As required by Rule 12b-1, the Investor C Plan was approved by the Trustees of
the Group, including a majority of the trustees who are not "interested persons"
(as defined in the 1940 Act) of the Group and who have no direct or indirect
financial interest in the operation of the Plans or in any agreements related to
the Plan ("Independent Trustees"). The Investor C Plan continues in effect as
long as such continuance is specifically approved at least annually by the
Group's Trustees, including a majority of the Independent Trustees.
The Investor C Plan may be terminated by a vote of a majority of the Independent
Trustees, or by a vote of a majority of the holders of the outstanding voting
securities of the Investor C Shares. Any change in the Investor C Plan that
would increase materially the distribution expenses paid by a Fund requires
shareholder approval; otherwise, the Plans may be amended by the Trustees,
including a majority of the Independent Trustees by a vote cast in person at a
meeting called for the purpose of voting upon the amendment. As long as the
Investor C Plan is in effect, the selection or nomination of the Independent
Trustees is committed to the discretion of the Independent Trustees.
BANKING LAWS
First of America believes that it may perform the investment advisory services
for the Group's Funds contemplated by the Investment Advisory Agreement and by
this Prospectus without violating applicable banking laws or regulations. Future
changes in federal or state statutes and regulations relating to permissible
activities of banks or bank holding companies and their subsidiaries and
affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which First of America could continue to perform such services for the
Group. See the Statement of Additional Information ("MANAGEMENT OF THE
GROUP--Glass-Steagall Act") for further discussion.
HOW TO BUY INVESTOR C SHARES
Investor C Shares of each Fund are continuously offered and may be purchased
directly either by mail, by telephone, or by wire. Investor C Shares may also be
purchased through a broker-dealer who has established a dealer agreement with
the Distributor. Except as otherwise discussed below under "Other Information
Regarding Purchases" and "Auto Invest Plan," the minimum initial investment in a
Fund, based upon the public offering price, is $1,000; however, there is no
minimum subsequent purchase. Shareholders will pay the next calculated net asset
value after the receipt by the Distributor of an order to purchase Investor C
Shares. In the case of an order for the purchase of Shares placed through a
broker-dealer, it is the responsibility of the broker-dealer to transmit the
order to the Distributor promptly.
PROSPECTUS--Investor C Shares 54
<PAGE> 203
BY MAIL
To purchase Investor C Shares of any of the Funds by mail, complete an Account
Application Form and return it along with a check or money order made payable to
The Parkstone Group of Funds at the following address:
The Parkstone Group of Funds
Dept. L-1270
Columbus, Ohio 43260
An Account Application Form can be obtained by calling the Group at (800)
451-8377.
BY TELEPHONE OR BY WIRE
To purchase Investor C Shares of any of the Funds by telephone or by wire, your
Account Application Form must have been previously received by the Distributor.
To place an order by telephone or by wire call the Group's toll-free number
(800) 451-8377. Payment for such Investor C Shares ordered by telephone may be
made by check and must be received by the Group's custodian within seven
calendar days of the telephone order. If payment for such Investor C Shares is
not received within seven days, or if a check timely received does not clear,
the purchase may be canceled and the investor could be liable for any losses or
fees incurred. When purchasing Investor C Shares by wire, contact the
Distributor for wire instructions.
OTHER INFORMATION REGARDING PURCHASES
Investor C Shares may also be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by First of America Bank
Corporation or one of its affiliates. Investor C Shares of the Funds sold to
First of America Bank Corporation or the affiliate acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of Customers will
normally be held of record by First of America Bank Corporation or the
affiliate. With respect to such Investor C Shares so sold, it is the
responsibility of the holder of record to transmit purchase or redemption orders
to the Distributor and to deliver funds for the purchase thereof on a timely
basis. Beneficial ownership of such Investor C Shares of the Funds will be
recorded by First of America Bank Corporation or one of its affiliates and
reflected in the account statements provided to Customers. First of America Bank
Corporation or one of its affiliates may exercise voting authority for those
Investor C Shares for which it has been granted authority by the Customer.
Investor C Shares of the Funds are purchased at the net asset value per share
(see "VALUATION OF SHARES") next determined after receipt by the Distributor of
an order to purchase Shares plus any applicable sales charge as described below.
Purchases of Investor C Shares in any of the Funds will be effected only on a
Business Day (as defined in "VALUATION OF SHARES") of the Funds. An order
received prior to the Valuation Time on any Business Day will be executed at the
net asset value determined as of the Valuation Time on the date of receipt. An
order received after the Valuation Time on any Business Day will be executed at
the net asset value determined as of the next Valuation Time on the next
Business Day of that Fund.
The minimum initial investment amount referred to above may be waived if
purchases are made in connection with Individual Retirement Accounts (IRAs),
Keoghs or similar plans. For information on IRAs, Keoghs or similar plans,
contact First of America Bank Corporation at (800) 544-6155. Due to the
relatively high cost of handling small investments, the Group reserves the right
to redeem involuntarily, at net asset value, the Investor C Shares of any
Shareholder if, because of redemptions of Investor C Shares by or on behalf of
the Shareholder (but not as a result of a decrease in the market price of such
Investor C Shares, the deduction of any sales charge or the establishment of an
account with less than $1,000 using the Auto Invest Plan), the account of such
Shareholder in that Fund has a value of less than $1,000. Accordingly, an
investor purchasing Investor C Shares of a Fund in only the minimum investment
amount may be subject to such involuntary redemption if the investor thereafter
redeems any such Investor C Shares. Before the Group exercises its right to
redeem such Investor C Shares and to send the proceeds
55 PROSPECTUS--Investor C Shares
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to the Shareholder, the Shareholder will be given notice that the value of the
Investor C Shares in the Shareholder's account is less than the minimum amount
and will be allowed 60 days to make an additional investment in the appropriate
Fund in an amount which will increase the value of the account to at least
$1,000.
Depending upon the terms of a particular Customer account, First of America Bank
Corporation or one of its affiliates may charge a Customer account fees for
services provided in connection with investment in a Fund. Information
concerning these services and any charges may be obtained from First of America
Bank Corporation or the affiliate. This Prospectus should be read in conjunction
with any such information so received.
The Group reserves the right to reject any order for the purchase of its Shares
in whole or in part.
Every Shareholder will receive a confirmation of each new transaction in the
Shareholder's account, which will also show the total number of Investor C
Shares of the respective Fund of the Group owned by the Shareholder.
Confirmation of purchases and redemptions of Investor C Shares of the Funds by
First of America Bank Corporation or one of its affiliates on behalf of a
Customer may be obtained from First of America Bank Corporation or the
affiliate. Shareholders may rely on these statements in lieu of certificates.
Certificates representing Investor C Shares of the Funds will not be issued.
AUTO INVEST PLAN
The Parkstone Group of Funds Auto Invest Plan enables Shareholders to make
regular monthly or quarterly purchases of Investor C Shares through automatic
deduction from their bank accounts. With Shareholder authorization, the Group's
Transfer Agent will deduct the amount specified (subject to the applicable
minimums) from the Shareholder's bank account which will automatically be
invested in Shares at the public offering price on the date of such deduction
(or the next Business Day thereafter, as defined under "VALUATION OF SHARES"
below). The required minimum initial investment when opening an account using
the Auto Invest Plan is $100; the minimum amount for subsequent investments in a
Fund is $50. To participate in the Auto Invest Plan, Shareholders should
complete the appropriate section of the account application or a supplemental
Auto Invest application that can be acquired by calling the Group at (800)
451-8377. For a Shareholder to change the Auto Invest instructions, the request
must be made in writing to the Group, c/o The Parkstone Group of Funds, 3435
Stelzer Road, Columbus, Ohio 43219 and may take up to 15 days to implement.
SALES CHARGES
There is no sales charge imposed upon purchases of Investor C Shares, but
investors may be subject to a contingent deferred sales charge of up to 4.00%
when Investor C Shares are redeemed within four years after purchase. See
"CONTINGENT DEFERRED SALES CHARGE" below.
From time to time dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers.
In addition to amounts paid to dealers as a dealer concession out of the sales
charge paid by investors, if any, the Distributor may, from time to time, at its
expense or as an expense for which it may be reimbursed under the Plans, pay a
bonus or other consideration or incentive to dealers who sell a minimum dollar
amount of shares of a Fund during a specified period of time. The Distributor
also may, from time to time, arrange for the payment of additional consideration
to dealers not to exceed 6.25% of the offering price per share on all sales of
Investor C Shares as an expense of the Distributor or for which the Distributor
may be reimbursed under the Investor C Plan or upon receipt of a contingent
deferred sales charge. Any such additional consideration or incentive program
may be terminated at any time by the Distributor.
The Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of Shares of any of the Funds and other Funds
of the Group. Compensation may include financial
PROSPECTUS--Investor C Shares 56
<PAGE> 205
assistance to dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising campaigns regarding
one or more Funds of the Group, and/or other dealer-sponsored special events. In
some instances, this compensation may be made available only to certain dealers
whose representatives have sold or are expected to sell a significant amount of
such shares. Compensation may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to exotic locations within or
outside of the United States for meetings or seminars of a business nature. The
Distributor, at its expense, currently conducts an annual sales contest for
dealers in connection with their sales of Shares of the Funds. Dealers may not
use sales of a Fund's Shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc.
CONTINGENT DEFERRED SALES CHARGE
Investor C Shares which are redeemed within one year of purchase will be subject
to a contingent deferred sales charge equal to one percent of an amount equal to
the lesser of the net asset value at the time of purchase of the Investor C
Shares being redeemed or the net asset value of such Shares at the time of
redemption.
Accordingly, a contingent deferred sales charge will not be imposed on amounts
representing increases in net asset value above the net asset value at the time
of purchase. In addition, a charge will not be assessed on Investor C Shares
purchased through reinvestment of dividends or capital gains distributions.
Solely for purposes of determining the number of years which have elapsed from
the time of purchase of any Investor C Shares, all purchases during a month will
be aggregated and deemed to have been made on the last day of the month. In
determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of Shares held for more than one year or Shares acquired
pursuant to reinvestment of dividends or distributions. The charge will not be
applied to dollar amounts representing an increase in the net asset value since
the time of purchase.
For example, assume an investor purchased 100 Investor C Shares with a net asset
value of $10 per share (i.e., at an aggregate net asset value of $1,000) and in
the eleventh month after purchase, the net asset value per share is $12 and,
during such time, the investor has acquired five additional Investor C Shares
through dividend reinvestment. If at such time the investor makes his first
redemption of 50 Investor C Shares (producing proceeds of $600), five of such
Shares will not be subject to the charge because of dividend reinvestment. With
respect to the remaining 45 Investor C Shares being redeemed, the charge will be
applied only to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, $450 of the $600 redemption proceeds
will be subject to the charge of 1.00% ($4.50).
The contingent deferred sales charge is waived on redemptions of Investor C
Shares (i) following the death or disability (as defined in the Internal Revenue
Code of 1986, as amended, (the "Code")) of a shareholder (both shareholders in
the case of joint accounts), (ii) to the extent that the redemption represents a
minimum required distribution from an IRA or a Custodial Account under Code
Section 403(b)(7) to a shareholder who has reached age 70 1/2, and (iii) to the
extent the redemption represents the minimum distribution from retirement plans
under Code Section 401(a) where such redemptions are necessary to make
distributions to plan participants.
DIRECTED DIVIDEND OPTION
A Shareholder may elect to have all income dividends and capital gains
distributions paid by check, reinvested in the Fund or reinvested in any of the
Group's other Funds, without the payment of a sales charge (provided the other
Fund is maintained at the minimum required balance).
The Directed Dividend Option may be modified or terminated by the Group at any
time after notice to participating Shareholders. Participation in the Directed
Dividend Option may be terminated or changed by
57 PROSPECTUS--Investor C Shares
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the Shareholder at any time by writing the Distributor. The Directed Dividend
Option is not available to participants in any of the Parkstone IRA's.
EXCHANGE PRIVILEGE
The exchange privilege enables Shareholders of Investor C Shares to acquire
Investor C Shares that are offered by another fund of the Group with a different
investment objective. This exchange privilege does not apply to other classes of
Shares of a Fund. For example, holders of a Fund's Investor C Shares may not
exchange their Shares for Investor A Shares, and holders of a Fund's Investor A
Shares may not exchange their Shares for Investor C Shares.
Holders of Investor C Shares of one of the Group's Funds (including Investor C
Shares acquired through reinvestment of dividends and distributions on such
shares) may exchange those Investor C Shares at net asset value without any
sales charge for Investor C Shares offered by any of the Group's other Funds,
provided that the amount to be exchanged meets the applicable minimum investment
requirements and the exchange is made in states where it is legally authorized.
An exchange is considered a sale of Shares and will result in a capital gain or
loss for federal income tax purposes. A Shareholder may not include any sales
charge on Shares of a Fund as a part of the cost of those Shares for purposes of
calculating the gain or loss realized on an exchange of those Shares within 90
days of their purchase.
A Shareholder wishing to exchange his or her Shares may do so by contacting the
Group at (800) 451-8377 or by providing written instructions to the Transfer
Agent. Any Shareholder who wishes to make an exchange should obtain and review
the current prospectus of the Fund of the Group in which the Shareholder wishes
to invest before making the exchange. For a discussion of risks associated with
unauthorized telephone exchanges, see "REDEEMING SHARES--By Telephone" below.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR C SHARES
Before purchasing Investor C Shares of a Fund, investors should consider
whether, during the anticipated life of their investment in the Fund, the
accumulated Rule 12b-1 fee and potential contingent deferred sales charges on
Investor C Shares prior to conversion (as described below) would be less than
the initial sales charge and accumulated Rule 12b-1 fee on a
traditionally-priced fund (the Group's Investor A Shares are an example of such
a fund) purchased at the same time, and to what extent such differential would
be offset by the higher yield of of a traditionally-priced fund. In this regard,
to the extent that the sales charge for the Investor A Shares is waived or
reduced by one of the methods described above, investments in Investor A Shares
become more desirable.
Although Investor A Shares are subject to a Rule 12b-1 fee, they are not subject
to the higher Rule 12b-1 fee applicable to Investor C Shares. For this reason,
Investor A Shares can be expected to pay correspondingly higher dividends per
share. However, because initial sales charges are deducted at the time of
purchase, purchasers of Investor A Shares that do not qualify for waivers of or
reductions in the initial sales charge would have less of their purchase price
initially invested in a Fund than purchasers of Investor C Shares.
As described above, purchasers of Investor C Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Investor C Shares. Because the Group's future returns
cannot be predicted, there can be no assurance that this will be the case.
Investors in Investor C Shares would, however, own Shares that are subject to
higher annual expenses and, for a one-year period, such Shares would be subject
to a contingent deferred sales charge of 1.00% upon redemption. Investors
expecting to redeem during this one-year period should compare the cost of the
contingent deferred sales charge plus the aggregate annual Investor C Shares'
Rule 12b-1 fees to the cost of the initial sales charge and Rule 12b-1 fee on
the Investor A Shares. Over time, the expense of the annual Rule 12b-1 fee on
the Investor C Shares may equal or exceed the initial sales charge and annual
Rule 12b-1 fee applicable to Investor A Shares. For example, if net asset value
remains constant, the aggregate Rule 12b-1 fees with
PROSPECTUS--Investor C Shares 58
<PAGE> 207
respect to Investor C Shares on the Funds would equal or exceed the initial
sales charge and aggregate Rule 12b-1 fees of Investor A Shares approximately
eight years after the purchase. In order to reduce such fees of investors that
hold Investor C Shares for more than nine years, Investor C Shares will be
automatically converted to Investor A Shares, as described below, at the end of
such nine-year period. This example assumes that the initial purchase of
Investor A Shares would be subject to the maximum initial sales charge of 4.50%.
This example does not take into account the time value of money which reduces
the impact of the Investor B Shares' administrative and Rule 12b-1 fee on the
investment, the benefit of having the additional initial purchase price invested
during the period before it is effectively paid out as an administrative and
Rule 12b-1 fee, fluctuations in net asset value or the effect of different
performance assumptions.
CONVERSION FEATURE
Investor C Shares which have been outstanding for nine years after the end of
the month in which the Shares were initially purchased will automatically
convert to Investor A Shares and, consequently, will no longer be subject to the
higher Rule 12b-1 fee. Such conversion will be on the basis of the relative net
asset values of the two classes, without the imposition of any sales charge or
other charge except that the Rule 12b-1 fees applicable to Investor A Shares
shall thereafter be applied to such converted Shares. Such investors will then
benefit from the lower Rule 12b-1 fees of Investor A Shares. Because the per
share net asset value of the Investor A Shares may be higher than that of the
Investor C Shares at the time of conversion, a Shareholder may receive fewer
Investor A Shares than the number of Investor C Shares converted, although the
dollar value will be the same. Reinvestments of dividends and distributions in
Investor C Shares will not be considered a new purchase for purposes of the
conversion feature.
The Investor A Shares into which the Investor C Shares will convert will differ
only in the amount of the Rule 12b-1 fee assessed to the Shareholder. The Rule
12b-1 fee assessed to Investor A Shareholders is 0.25% of the average daily net
assets of the Investor A Shares owned, rather than 1.00%.
If a Shareholder effects one or more exchanges among Investor C Shares of the
Funds during the nine-year period, the holding period for Shares so exchanged
will be counted toward such period.
HOW TO REDEEM YOUR INVESTOR C SHARES
Shareholders may redeem their Investor C Shares, subject to the contingent
deferred sales charge described above, on any day that net asset value is
calculated (see "VALUATION OF SHARES"). Redemptions will be effected at the net
asset value per share next determined after receipt of a redemption request.
Redemptions may be requested by mail or by telephone.
BY MAIL
A written request for redemption must be received by the Transfer Agent in order
to honor the request. The Transfer Agent's address is: BISYS Fund Services Ohio,
Inc., c/o The Parkstone Group of Funds Department L-1270, Columbus, Ohio
43260-1270. The Transfer Agent will require a signature guarantee by an eligible
guarantor institution. The signature guarantee requirement will be waived if all
of the following conditions apply: (1) the redemption check is payable to the
Shareholder(s) of record, and (2) the redemption check is mailed to the
Shareholder(s) at the address of record. The Shareholder may also have the
proceeds mailed to a commercial bank account previously designated on the
Account Application. There is no charge for having redemption proceeds mailed to
a designated bank account. To change the address to which a redemption check is
to be mailed, a written request therefor must be received by the Transfer Agent.
In connection with such request, the Transfer Agent will require a signature
guarantee by an eligible guarantor institution.
For purposes of this policy, the term "eligible guarantor institution" shall
include banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings associations as those terms are
defined in the Securities Exchange Act of 1934. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason
59 PROSPECTUS--Investor C Shares
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to believe that the transaction would otherwise be improper, or (3) the
guarantor institution is a broker or dealer that is neither a member of a
clearing corporation nor maintains net capital of at least $100,000.
BY TELEPHONE
Investor C Shares may be redeemed by telephone if the Account Application Form
reflects that the Shareholder has that capability. The Shareholder may have the
proceeds mailed to his or her address or mailed or sent electronically to a
commercial bank account previously designated on the Account Application Form.
Under most circumstances, payments will be transmitted on the next Business Day.
Electronic payment requests may be made by the Shareholder by telephone to the
Group at (800) 451-8377. While the Transfer Agent currently does not charge a
wire redemption fee, the Transfer Agent reserves the right to impose such a fee
in the future.
The Group's Account Application Form provides that none of BISYS, the Transfer
Agent, the Group or any of their affiliates or agents will be liable for any
loss, expense or cost when acting upon any oral, wired or electronically
transmitted instructions or inquiries believed by them to be genuine. While
precautions will be taken, Shareholders bear the risk of any loss as the result
of unauthorized telephone redemptions or exchanges believed by the Transfer
Agent to be genuine. If the telephone feature was not originally selected, the
Shareholder must provide written instructions to the Group to add it. The Group
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; if these procedures are not followed, the Group may be
liable for any losses due to unauthorized or fraudulent instructions. These
procedures include recording all phone conversations, sending confirmations to
Shareholders within 72 hours of the telephone transaction, verifying the account
name and a shareholder's account number or tax identification number and sending
redemption proceeds only to the address of record or to a previously authorized
bank account. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, shareholders may mail the request to the Transfer
Agent.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund to make regular monthly
or quarterly redemptions of Investor C Shares. With Shareholder authorization,
the Transfer Agent will automatically redeem such Investor Shares at the net
asset value on the fifteenth day of the month or quarter (or the next Business
Day thereafter) and have the amount specified transferred according to the
written instructions of the Shareholder. Shareholders participating in this Plan
must maintain a minimum account balance of $1,000. The required minimum
withdrawal is $100, monthly or quarterly.
The Auto Withdrawal Plan may be modified or terminated without notice. In
addition, the Group may suspend a Shareholder's withdrawal plan without notice
if the account contains insufficient funds to effect a withdrawal or in the
event that the account balance is less than the minimum $1,000 amount.
To participate in the Auto Withdrawal Plan, Shareholders should call (800)
451-8377 for more information. Purchases of additional Investor Shares
concurrently with withdrawals may be disadvantageous to certain Shareholders
because of tax liabilities and sales charges. For a Shareholder to change the
Auto Withdrawal instructions, the request must be made in writing to the
Distributor and may take up to 15 days to implement.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a Customer's Investor C Shares may be redeemed in accordance with
instructions and limitations pertaining to his or her account at First of
America Bank Corporation or one of its affiliates.
All redemption orders are effected at the net asset value per share next
determined after the Investor Shares are properly tendered for redemption, as
described above. The proceeds paid upon redemption of such Investor Shares in
the Funds, less any applicable contingent deferred sales charge, may be more or
less than the amount invested. Payment to Shareholders for such Investor Shares
redeemed will be made within seven days after receipt by the Transfer Agent of
the request for redemption. However, to the
PROSPECTUS--Investor C Shares 60
<PAGE> 209
greatest extent possible, requests from Shareholders for next day payments upon
redemption of Investor Shares will be honored if received by the Transfer Agent
before the last Valuation Time on a Business Day or, if received after the last
Valuation Time, within two Business Days, unless it would be disadvantageous to
that Fund or its Shareholders to sell or liquidate portfolio securities in an
amount sufficient to satisfy requests for payments in that manner.
At various times, the Group may be requested to redeem Investor C Shares for
which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed until payment has been collected for the
purchase of such Investor Shares which delay may be for 15 days or more. Such
delay may be avoided if such Investor Shares are purchased by wire transfer of
federal funds. The Group intends to pay cash for all Investor Shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in portfolio securities at their then market value equal
to the redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
See the Statement of Additional Information ("ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION") for examples of when the right of redemption may be suspended.
HOW SHARES ARE VALUED
The net asset value of each class of Shares of the Funds is determined and their
Shares are priced as of the close of trading on the New York Stock Exchange
(generally 4:00 p.m. Eastern Time) on each Business Day (the "Valuation Time").
A "Business Day" is a day on which the New York Stock Exchange is open for
trading and the Federal Reserve Bank of Chicago is open and any other day (other
than a day on which no Shares are tendered for redemption and no order to
purchase any Shares is received) during which there is sufficient trading in its
portfolio instruments that its net asset value per share might be materially
affected. Currently, the New York Stock Exchange or the Federal Reserve Bank of
Chicago will not open in observance of the following holidays: New Year's Day,
Martin Luther King , Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving and
Christmas.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding Shares of such class.
The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. Foreign securities are valued
based on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income is declared monthly as a dividend to Shareholders at the close of
business on the day of declaration and is generally paid monthly. Distributable
net realized capital gains are distributed at least annually. A Shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional Shares at net asset value as of the date of
declaration, unless the Shareholder elects to receive dividends or distributions
in cash or elects to participate in the Parkstone Directed Dividend Option. Such
election, or any revocation thereof, must be made in writing to the Transfer
Agent at 3435 Stelzer Road, Columbus, Ohio 43219, and will become effective with
respect to dividends and distributions having record dates after its receipt by
the Transfer Agent.
Each Fund's net investment income available for distribution to the holders of
Investor A Shares will be reduced by the amount of Rule 12b-1 fees payable to
Participating Organizations under the Investor A
61 PROSPECTUS--Investor C Shares
<PAGE> 210
Plan. Each Fund's net investment income available for distribution to the
holders of Investor A Shares may also be reduced by the amount of retail
transfer agency fees payable to the Transfer Agent applicable to the Investor A
Shares.
Each of the Funds of the Group is treated as a separate entity for Federal
income tax purposes, 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 its shareholders and intends to
distribute all of its net income and capital gains so that it is not required to
pay Federal income taxes on amounts so distributed to shareholders.
To avoid Federal income tax, the Code requires each Fund to distribute each
taxable year at least 90% of its investment company taxable income and at least
90% of its exempt-interest income. In addition, to avoid imposition of a
nondeductible 4% excise tax, each Fund is required annually to distribute, prior
to calendar year end, 98% of taxable ordinary income on a calendar year basis,
98% of capital gain net income realized in the twelve months preceding October
31, and the balance of undistributed taxable ordinary income and capital gain
net income from the prior calendar year. Finally, in order to permit the
Municipal Bond Fund and the Michigan Fund each to distribute exempt-interest
dividends which Shareholders may exclude from their gross taxable income for
federal income tax purposes, at least 50% of such Fund's total assets must
consist of obligations the interest on which is exempt from federal income tax
as of the close of each fiscal quarter of such Fund.
A Shareholder receiving a distribution of ordinary income and/or an excess of
short-term capital gain over net long-term loss would treat it as a receipt of
ordinary income. The dividends-received deduction for corporations will apply to
the aggregate of such ordinary income distributions in the same proportion as
the aggregate dividends from domestic corporations, if any, received by that
Fund bear to its gross income. A Shareholder will not be able to take the
dividends-received deduction unless that Shareholder holds the Shares for at
least 46 days.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to its Shareholders as long-term capital gain
in the year in which it is received, regardless of how long the Shareholder has
held Shares. Such distributions are not eligible for the dividends-received
deduction.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
Taxes may be imposed on the Funds, particularly the Balanced and International
Funds, by foreign countries with respect to income received on foreign
securities. If more than 50% of the value of a Fund's assets at the close of its
taxable year consists of stocks or securities of foreign corporations, the Fund
may elect to treat any foreign income taxes it paid as paid by its Shareholders.
In this case, Shareholders generally will be required to include in income their
pro rata share of such taxes, but will then be entitled to claim a credit or
deduction for their share of such taxes. However, a particular Shareholder's
ability to utilize such a credit will be subject to certain limitations imposed
by the Code. The Funds will report to its Shareholders each year the amount, if
any, of foreign taxes per share that it has elected to have treated as paid by
its Shareholders.
Shareholders will be advised at least annually as to the Federal income tax
consequences of distributions made during the year.
THE MUNICIPAL BOND FUND AND THE MICHIGAN FUND (THE "EXEMPT FUNDS")
Dividends derived from exempt-interest income may be treated by an Exempt Fund's
Shareholders as items of interest excludable from their gross income. However,
such dividends may be taxable to
PROSPECTUS--Investor C Shares 62
<PAGE> 211
Shareholders of the Municipal Bond Fund under state or local law as ordinary
income even though all or a portion of the amounts may be derived from interest
on tax-exempt obligations which, if realized directly, would be exempt from such
taxes. In determining net exempt-interest income, expenses of the Exempt Fund
are allocated to gross tax-exempt interest income in the proportion that the
gross amount of such interest income bears to the Exempt Fund's total gross
income, excluding net capital gains. (Shareholders are advised to consult a tax
adviser with respect to whether exempt-interest dividends retain the exclusion
if such Shareholder would be treated as a "substantial user" or a "related
person" to such user under the Code.) Interest on indebtedness incurred or
continued by a Shareholder to purchase or carry Shares is not deductible for
federal income tax purposes if an Exempt Fund distributes exempt-interest
dividends during the Shareholder's taxable year. It is anticipated that
distributions from the Exempt Funds will not be eligible for the dividends
received deduction for corporations.
Under the Code, if a Shareholder receives an exempt-interest dividend with
respect to any Share and such Share is held for six months or less, any loss on
the sale or exchange of such Share will be disallowed to the extent of the
amount of such exempt-interest dividend, although the Treasury Department is
authorized to issue regulations reducing the period to not less than 31 days for
regulated investment companies that regularly distribute at least 90% of their
net tax-exempt interest. No such regulations have been issued as of the date of
this Prospectus. In addition, dividends attributable to interest on certain
private activity bonds may have to be included in Shareholders' income for
purposes of calculating alternative minimum tax. See "ADDITIONAL
INFORMATION--Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Fund" in the Statement of Additional
Information for more information regarding the federal alternative minimum tax.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase agreements)
or from long-term or short-term capital gains, such dividends will be subject to
federal income tax. A Shareholder should consult his or her own tax adviser for
any special advice.
Distributions by the Michigan Fund to holders of Shares who are subject to the
Michigan personal income tax and/or single business tax will not be subject to
the Michigan personal income tax, single business tax or any Michigan city
income tax to the extent that the distributions are attributable to income
received by the Michigan Fund as interest from Michigan Municipal Securities or
to the extent that the distributions are attributable to interest income and
gains from the sale or disposal of United States obligations exempted from state
taxation by the United States Constitution, treaties, and statutes. However,
some or all of the other distributions by the Michigan Fund may be taxable by
the State of Michigan or subject to applicable city income taxes, even if the
distributions are attributable to income of the Michigan Fund derived from
obligations of the United States or its agencies and instrumentalities. In
addition, to the extent that a Shareholder of the Michigan Fund is obligated to
pay state or local taxes outside of Michigan, dividends earned by an investment
in the Michigan Fund may represent taxable income. Investments held in the
Michigan Fund by a Michigan resident are not subject to the Michigan intangible
personal property tax to the extent that the investments are attributable to
bonds or other similar obligations of the State of Michigan or a political
subdivision thereof, or obligations of the United States.
The Michigan Department of Treasury in a 1986 Revenue Administrative Bulletin
has taken the position that the tax attributes of the securities held by a
mutual fund flow through to the investors. Based on this position, the Michigan
Department of Treasury has stated that mutual fund distributions attributable to
interest from the fund's investment in direct U.S. government securities, as
well as Municipal Securities, will not be subject to the Michigan personal
income tax. The Michigan Department of Treasury also has stated that an owner of
a share of a mutual fund will not be subject to intangible personal property tax
to the extent that the pro rata share of the securities underlying the mutual
fund would be exempt.
For Michigan personal income tax and intangible personal property tax purposes,
taxable distributions from investment income and short term capital gains, if
any, are taxable as ordinary income, whether received in cash or additional
Shares, and are subject to the Michigan intangible personal property tax and to
applicable Michigan city income taxes. The Michigan single business tax, a
modified value added tax, is computed by applying the tax rate to a tax base
determined by making certain adjustments to federal
63 PROSPECTUS--Investor C Shares
<PAGE> 212
taxable income. Taxable distributions from investment income and gains, if any,
may be included in federal taxable income or may comprise one of the adjustments
made to the tax base. Distributions of cash, other property or additional Shares
by the Michigan Fund to a Michigan single business taxpayer attributable to any
gain realized from the sale, exchange or other disposition of Michigan Municipal
Securities are includable in the Michigan single business taxpayer's adjusted
tax base for purposes of the Michigan single business tax to the extent included
in federal taxable income. Distributions of cash, other property or additional
Shares by the Michigan Fund to a Michigan single business taxpayer are not
subject to the Michigan single business tax to the extent that the distributions
are attributable to interest income from and any gain realized from the sale,
exchange or other disposition of U.S. Securities. Taxable long-term capital
gains distributions are taxable as long-term capital gains for Michigan purposes
irrespective of how long a Shareholder has held the Shares, except that such
distributions reinvested in Shares of the Michigan Fund are exempt from the
Michigan intangible personal property tax.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Funds and their Shareholders. Potential
investors are advised to consult their tax advisers concerning state and local
taxes, which may differ from the Federal income taxes described above.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a class of Shares in a Fund will be
calculated for the period since the establishment of the Funds and will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a class of Shares in a
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions) and annualizing the result. Aggregate
total return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of annualized.
Yield of a class of Shares will be computed by dividing a class of Shares' net
investment income per share earned during a recent one-month period by that
class of Shares' per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result. Each Fund may also present its average annual
total return, aggregate total return and yield, as the case may be, excluding
the effect of a sales charge, if any.
In addition, from time to time the Funds may present their respective
distribution rates for a class of Shares in supplemental sales literature which
is accompanied or preceded by a prospectus and in Shareholder reports.
Distribution rates will be computed by dividing the distribution per share of a
class made by a Fund over a twelve-month period by the maximum offering price
per share. The calculation of income in the distribution rate includes both
income and capital gain dividends and does not reflect unrealized gains or
losses, although a Fund may also present a distribution rate excluding the
effect of capital gains. The distribution rate differs from the yield, because
it includes capital gains which are often non-recurring in nature, whereas yield
does not include such items. Distribution rates may also be presented excluding
the effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Investor C Shares and the other classes of the Funds. Because of differences in
the fees and/or expenses borne by different classes of Shares of the Funds, the
net yield and total return on Investor C Shares may be different from that for
another class of the same Fund. For example, net yield and total return on
Investor C Shares is expected, at any given time, to be lower than the net yield
and total return on Institutional Shares for the same period.
Investors may also judge the performance of any class of Shares or Fund by
comparing or referencing it to the performance of other mutual funds with
comparable investment objectives and policies through various mutual fund or
market indices such as those prepared by various services which indices may be
published by such services or by other services or publications, including, but
not limited to, ratings
PROSPECTUS--Investor C Shares 64
<PAGE> 213
published by Morningstar, Inc. In addition to performance information, general
information about the Funds that appears in such publications may be included in
advertisements, in sales literature and in reports to Shareholders. For further
information regarding such services and publications, see "ADDITIONAL
INFORMATION--Performance Comparisons" in the Statement of Additional
Information.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, operating expenses, and market conditions. Consequently, total
return and yield will fluctuate and are not necessarily representative of future
results. Any fees charged by First of America Bank Corporation or any of its
affiliates with respect to customer accounts for investing in shares of the
Funds will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted. In addition, if First of
America and BISYS voluntarily reduce all or a part of their respective fees, as
further discussed below, the total return of such Fund will be higher than it
would otherwise be in the absence of such voluntary fee reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's funds through FUNDATA(R), an Automated Voice
Response System, 24 hours a day by calling (800) 451-8377 from any touch-tone
phone. Shareholders may also speak directly with a Group representative,
employed by BISYS, during regular business hours.
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in 1987 and currently
offers sixteen Funds. The shares of each of the Funds of the Group, other than
its four Money Market Funds, are offered in four separate classes: Investor A
Shares, Investor B Shares, Investor C Shares and Institutional Shares. Shares of
each of the four Money Market Funds of the Group are offered in two separate
classes: Investor A Shares and Institutional Shares. Each Share represents an
equal proportionate interest in a fund with other shares of the same fund, and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Trustees.
Shares are without par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by fund except as otherwise
expressly required by law. For example, Shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of trustees and ratification of the selection of independent accountants.
However, Shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement. In addition, holders of Investor C Shares of a
Fund will vote as a class and not with holders of another class of that Fund
with respect to the approval of its Investor C Plan.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve an investment and sub-investment advisory agreements and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Group may elect not to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group. At such a meeting, a quorum
of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Group), by majority vote, has the power to remove one
or more Trustees.
As of June 30, 1995, First of America Bank Corporation, through its wholly owned
subsidiaries, possessed on behalf of its underlying accounts voting or
investment power with respect to more than
65 PROSPECTUS--Investor C Shares
<PAGE> 214
25% of the Shares of each of the Funds, and therefore may be presumed to control
each Fund within the meaning of the 1940 Act.
MULTIPLE CLASSES OF SHARES
In addition to Investor C Shares, the Group also offers Investor A, Investor B
and Institutional Shares of the Funds under an exemptive order granted by the
Commission. A salesperson or other person entitled to receive compensation for
selling or servicing the Shares may receive different compensation with respect
to one particular class of Shares over another in the same Fund. The amount of
dividends payable with respect to other Classes of Shares will differ from
dividends on Investor C Shares as a result of the different Investor C Plan fees
applicable to Investor C Shares and because Investor C Shares may bear different
retail transfer agency expenses. For further details regarding these other
Classes of Shares, call the Group at (800) 451-8377.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc., formerly known as The Winsbury Service
Corporation, 3435 Stelzer Road, Columbus, Ohio 43219, serves as the Group's
Transfer Agent pursuant to a Transfer Agency Agreement with the Group and
receives a fee for such services. BISYS Fund Services Ohio, Inc. also provides
certain accounting services for each of the Funds and receives a fee for such
services. See "MANAGEMENT OF THE GROUP--Custodian, Transfer Agent and Fund
Accounting Services" in the Statement of Additional Information for further
information.
While BISYS Fund Services Ohio, Inc. is a distinct legal entity from BISYS (the
Group's administrator and distributor), BISYS Fund Services Ohio, Inc. is
considered to be an affiliated person of BISYS under the 1940 Act due to, among
other things, the fact that BISYS Fund Services Ohio, Inc. and BISYS are both
owned by The BISYS Group, Inc.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free
(800) 451-8377.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
PROSPECTUS--Investor C Shares 66
<PAGE> 215
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<PAGE> 216
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<PAGE> 217
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<PAGE> 218
THE PARKSTONE GROUP OF FUNDS
Investor C Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
First of America Investment Corporation
Suite 500
303 North Rose Street
Kalamazoo, Michigan 49007
SUB-INVESTMENT ADVISER (INTERNATIONAL AND BALANCED FUNDS)
Gulfstream Global Investors, Ltd.
Suite 1605
300 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
The Bank of California, N.A.
400 California Street
San Francisco, California 94145
LEGAL COUNSEL
Howard & Howard Attorneys, P.C.
Suite 400
107 E. Michigan Avenue
Kalamazoo, Michigan 49007
<PAGE> 219
- --------------------------------------------------------------------------------
THE PARKSTONE
GROUP OF FUNDS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
GROWTH FUNDS
PARKSTONE EQUITY FUND
PARKSTONE SMALL CAPITALIZATION FUND
PARKSTONE INTERNATIONAL DISCOVERY FUND
GROWTH AND INCOME FUNDS
PARKSTONE BALANCED FUND
PARKSTONE HIGH INCOME EQUITY FUND
INCOME FUNDS
PARKSTONE BOND FUND
PARKSTONE LIMITED MATURITY BOND FUND
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
PARKSTONE MUNICIPAL BOND FUND
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
MONEY MARKET FUNDS
PARKSTONE PRIME OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT OBLIGATIONS FUND
PARKSTONE TREASURY FUND
PARKSTONE TAX-FREE FUND
Prospectus dated October 13, 1995
PARKSTONE
MUTUAL FUNDS
-------------------------
NOT FDIC INSURED
<PAGE> 220
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<PAGE> 221
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES PROSPECTUS DATED OCTOBER 13, 1995
<TABLE>
<S> <C>
GROWTH FUNDS For more information call:
Parkstone Equity Fund (800) 451-8377
Parkstone Small Capitalization Fund or write to:
Parkstone International Discovery Fund 3435 Stelzer Road
Columbus, Ohio 43219
GROWTH AND INCOME FUNDS
Parkstone Balanced Fund
Parkstone High Income Equity Fund THESE SECURITIES HAVE NOT
BEEN APPROVED OR
INCOME FUNDS DISAPPROVED BY THE
Parkstone Bond Fund SECURITIES AND EXCHANGE
Parkstone Limited Maturity Bond Fund COMMISSION OR ANY STATE
Parkstone Intermediate Government Obligations SECURITIES COMMISSION NOR
Fund HAS THE COMMISSION OR ANY
Parkstone U.S. Government Income Fund STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR
TAX-FREE INCOME FUNDS ADEQUACY OF THIS
Parkstone Municipal Bond Fund PROSPECTUS. ANY
Parkstone Michigan Municipal Bond Fund REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
MONEY MARKET FUNDS OFFENSE
Parkstone Prime Obligations Fund
Parkstone U.S. Government Obligations Fund
Parkstone Treasury Fund
Parkstone Tax-Free Fund
</TABLE>
The Funds listed above are each of the fifteen currently-offered series of The
Parkstone Group of Funds (the "Group") which offer Institutional Shares. This
Prospectus explains concisely what you should know before investing in the
Institutional Shares of the Funds listed above. Please read it carefully and
keep it for future reference. You can find more detailed information about the
Fund in the October 13, 1995 Statement of Additional Information, as amended
from time to time. For a free copy of the Statement of Additional Information or
other information, contact the Group at the number specified above. The
Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference.
THE SHARES OF THE THE PARKSTONE GROUP OF FUNDS ARE NOT OBLIGATIONS OR DEPOSITS
OF FIRST OF AMERICA INVESTMENT CORPORATION OR ITS PARENT, AND THE INVESTMENTS
DESCRIBED IN THIS PROSPECTUS ARE NOT ENDORSED, INSURED OR GUARANTEED BY FIRST OF
AMERICA INVESTMENT CORPORATION, ITS PARENT OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVOLVED.
PROSPECTUS--Institutional Shares
<PAGE> 222
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................... 4
Fee Tables................................................................... 8
Financial Highlights......................................................... 10
Investment Objectives and Policies........................................... 22
Risk Factors and Investment Techniques....................................... 35
Investment Restrictions...................................................... 46
Management of the Funds...................................................... 48
How To Buy Institutional Shares.............................................. 51
Exchange Privilege........................................................... 52
How To Redeem Your Institutional Shares...................................... 52
How Shares Are Valued........................................................ 53
Dividends and Taxes.......................................................... 53
Performance Information...................................................... 56
Fundata(R)................................................................... 57
General Information.......................................................... 57
</TABLE>
PROSPECTUS--Institutional Shares 2
<PAGE> 223
PROSPECTUS ROADMAP
For information about the following subjects, consult the pages indicated on the
table below.
<TABLE>
<CAPTION>
INVESTMENT
FINANCIAL OBJECTIVES RISK FACTORS AND
FUND HIGHLIGHTS AND POLICIES INVESTMENT TECHNIQUES
<S> <C> <C> <C>
Equity Fund 10 23 24
Small Capitalization Fund 11 23 24
International Discovery Fund 12 24 24
Balanced Fund 12 25 26
High Income Equity Fund 13 26 27
Bond Fund 14 27 29
Limited Maturity Bond Fund 15 27 29
Intermediate Government Obligations Fund 16 29 30
Government Income Fund 17 30 30
Municipal Bond Fund 18 31 33
Michigan Municipal Bond Fund 19 31 33
Prime Obligations Fund 20 33 34
U.S. Government Obligations Fund 21 33 34
Treasury Fund 21 33 34
Tax-Free Fund 22 33 34
</TABLE>
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which offers to the public fifteen separate investment portfolios,
fourteen of which are diversified portfolios and one of which is a
non-diversified portfolio, each with different investment objectives. These
funds enable the Group to meet a wide range of investment needs.
This Prospectus relates only to the Institutional Shares of the following Funds:
Parkstone Equity Fund (the "Equity Fund")
Parkstone Small Capitalization Fund (the "Small Capitalization Fund")
Parkstone International Discovery Fund (the "International Fund")
Parkstone Balanced Fund (the "Balanced Fund")
Parkstone High Income Equity Fund (the "High Income Equity Fund")
Parkstone Bond Fund (the "Bond Fund")
Parkstone Limited Maturity Bond Fund (the "Limited Maturity Bond Fund")
Parkstone Intermediate Government Obligations Fund (the "Intermediate
Government
Obligations Fund")
Parkstone U.S. Government Income Fund (the "Government Income Fund")
Parkstone Municipal Bond Fund (the "Municipal Bond Fund")
Parkstone Michigan Municipal Bond Fund (the "Michigan Fund")
Parkstone Prime Obligations Fund (the "Prime Obligations Fund")
Parkstone U.S. Government Obligations Fund (the "U.S. Government
Obligations Fund")
3 PROSPECTUS--Institutional Shares
<PAGE> 224
Parkstone Treasury Fund (the "Treasury Fund")
Parkstone Tax-Free Fund (the "Tax-Free Fund")
For convenience of reference, the above Funds are sometimes referred to as part
of a general grouping. The Equity, Small Capitalization and International Funds
are collectively referred to as the "Growth Funds". The Balanced and High Income
Equity Funds are collectively referred to as the "Growth and Income Funds". The
Bond, Limited Maturity Bond, Intermediate Government Obligations and Government
Income Funds are collectively referred to as the Income Funds. The Municipal
Bond and Michigan Funds are collectively referred to as "Tax-Free Income Funds".
Finally, the Prime Obligations, U.S. Government Obligations, Treasury and
Tax-Free Funds are collectively referred to as the "Money Market Funds".
The Trustees of the Group have divided each of the Funds' beneficial ownership
into an unlimited number of transferable units called shares (the "Shares").
Each Fund of the Group offers multiple classes of Shares. This Prospectus
describes one class of Shares of each Fund-Institutional Shares. Interested
persons who wish to obtain a copy of the Prospectus of the other Classes of
Shares of the Funds or a copy of the Group's most recent annual report may
contact the Group at the telephone number shown above.
The investment objectives of each of the Funds are described in this Prospectus
and are summarized in the Prospectus Summary. First of America Investment
Corporation, Kalamazoo, Michigan ("First of America"), acts as the investment
adviser to each of the Funds of the Group. To provide investment advisory
services for the International and Balanced Funds for investments in foreign
securities, First of America has entered into a sub-investment advisory
agreement with Gulfstream Global Investors, Ltd., Dallas, Texas ("Gulfstream" or
"Subadviser").
PROSPECTUS SUMMARY
Shares Offered
Institutional Shares of the following Funds of the Group:
GROWTH FUNDS
Equity Fund
Small Capitalization Fund
International Fund
GROWTH AND INCOME FUNDS
Balanced Fund
High Income Equity Fund
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
TAX-FREE INCOME FUNDS
Municipal Bond Fund
Michigan Fund
MONEY MARKET FUNDS
Prime Obligations Fund
U.S. Government Obligations Fund
Treasury Fund
Tax-Free Fund
PROSPECTUS--Institutional Shares 4
<PAGE> 225
These Funds represent fifteen separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust (the "Group") which is registered
as an open-end, management investment company.
Offering Price and Sales Charges
The public offering price of Institutional Shares of each Fund is equal to the
net asset value per share, which, in the case of the Money Market Funds, the
Group will seek to maintain at $1.00.
Investment Objectives
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
Equity Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks
Small Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks of small to medium-sized
companies
International Fund seeks the long-term growth of capital
Balanced Fund seeks current income, long-term capital growth and
conservation of capital
High Income Equity Fund primarily seeks current income by investing in a
diversified portfolio of high quality, dividend-paying
stocks and securities convertible into common stocks; a
secondary objective is growth of capital
Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high and medium
grade fixed-income securities
Limited Maturity Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high and
medium-grade fixed income securities with remaining
maturities of six years or less
Intermediate Government seeks to provide current income with preservation of
Obligations Fund capital by investing in a diversified portfolio of U.S.
Government securities with remaining maturities of
twelve years or less
Government Income Fund seeks to provide shareholders with a high level of
current income consistent with prudent investment risk
Municipal Bond Fund seeks to provide current interest income which is
exempt from federal income taxes as well as
preservation of capital
Michigan Fund seeks income which is exempt from federal income tax
and Michigan state income and intangibles tax, although
such income may be subject to the federal alternative
minimum tax when received by certain shareholders; also
seeks preservation of capital
Prime Obligations Fund seeks to provide current income, with liquidity and
stability of principal
U.S. Government seeks to provide current income, with liquidity and
Obligations Fund stability of principal
Treasury Fund seeks to provide current income, with liquidity and
stability of principal
</TABLE>
5 PROSPECTUS--Institutional Shares
<PAGE> 226
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Tax-Free Fund seeks to provide current income free from federal
income taxes, preservation of capital and relative
stability of principal
</TABLE>
Investment Policies
Under normal market conditions, each Fund will invest as described in the
following table:
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Equity Fund at least 80% of their total assets in common stocks,
and securities convertible into common stocks, of
companies believed by the investment adviser to be
characterized by sound management and the ability to
finance expected growth
Small Capitalization Fund at least 80% of their total assets in common stocks,
and securities convertible into common stocks, of small
to medium-sized companies believed by the investment
adviser to be characterized by sound management and the
ability to finance expected growth
International Fund at least 65% of its total assets in an internationally
diversified portfolio of equity securities which trade
on markets in countries other than the United States
and which are issued by companies (i) domiciled in
countries other than the United States, or (ii) that
derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States,
and (iii) which are ranked as small- or medium-sized
companies on the basis of their capitalization
Balanced Fund in any type or class of securities, including all types
of common stocks, fixed income securities and
securities convertible into common stocks. At least 25%
of the value of the Fund's total assets will be
invested in fixed income senior securities and up to
15% of the Fund's total assets may be invested in
foreign securities
High Income Equity Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management, the ability to finance expected
growth and the ability to pay above average dividends
Bond Fund at least 80% of its total assets in bonds, debentures
and certain other debt securities specified herein
Limited Maturity Bond Fund at least 80% of the value of its total assets in bonds,
debentures and certain other debt securities specified
herein with remaining maturities of six years or less
Intermediate Government at least 80% of its total assets in obligations issued
Obligations Fund or guaranteed by the U.S. Government or its agencies or
instrumentalities and with remaining maturities of
twelve years or less
Government Income Fund at least 65% of its total assets in obligations issued
or guaranteed by the U.S. Government or its agencies or
instrumentalities; under current market conditions; up
to 80% of its total assets in mortgage-related
securities, which are issued or guaranteed by the U.S.
Government, its agencies and instrumentalities and by
nongovernmental entities, or greater amounts as
conditions warrant
</TABLE>
PROSPECTUS--Institutional Shares 6
<PAGE> 227
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Municipal Bond Fund at least 80% of its total assets in tax-exempt
obligations
Michigan Fund at least 80% of its total assets in debt securities of
all types; at least 65% of the net assets will be
invested in municipal securities issued by or on behalf
of the State of Michigan, its political subdivisions,
municipalities and public authorities
Prime Obligations Fund invests in high quality money market instruments and
other comparable investments
U.S. Government invests at least 65% of its total assets in short-term
Obligations Fund U.S. Treasury bills, notes and other obligations issued
by the U.S. Government or its agencies or
instrumentalities
Treasury Fund invests exclusively in obligations issued or guaranteed
by the U.S. Treasury and in repurchase agreements
backed by such securities
Tax-Free Fund at least 80% of its total assets in municipal
obligations the interest on which is both exempt from
federal income tax and not treated as a preference item
for alternative minimum tax purposes
</TABLE>
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a certain
amount of risk and may not be suitable for all investors. In addition, some
investment policies of the Funds may entail certain risks (see "RISK FACTORS AND
INVESTMENT TECHNIQUES").
Investment Adviser
First of America Investment Corporation ("First of America") serves as
investment adviser, and, with respect to the International Fund and a portion of
the Balanced Fund, Gulfstream Global Investors, Ltd. ("Gulfstream") or
"Subadviser" serves as subadviser.
Dividends and Capital Gains
Dividends from net income are declared and paid monthly. Net realized capital
gains are distributed at least annually.
Distributor
BISYS Fund Services, formerly known as The Winsbury Company, ("BISYS") a
partnership owned by The BISYS Group, Inc.
Transfer Agent
BISYS Fund Services Ohio, Inc., formerly known as The Winsbury Service
Corporation (the "Transfer Agent"), a subsidiary of The BISYS Group, Inc.
7 PROSPECTUS--Institutional Shares
<PAGE> 228
FEE TABLES (INSTITUTIONAL SHARES)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge (as a percentage of the offering price)................ None
Sales Charge on Reinvested Distributions.................................... None
Deferred Sales Charge on Redemptions........................................ None
Redemption Fees............................................................. None
Exchange Fees............................................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)*
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES EXPENSES EXPENSES
---------- ----- ------- -------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Equity Fund........................................ 1.00% 0.00% 0.29% 1.29%
Small Capitalization Fund.......................... 1.00% 0.00% 0.33% 1.33%
International Fund................................. 1.17% 0.00% 0.39% 1.56%
GROWTH AND INCOME FUNDS:
Balanced Fund...................................... 0.75% 0.00% 0.50% 1.25%
High Income Equity Fund............................ 1.00% 0.00% 0.32% 1.32%
INCOME FUNDS:
Bond Fund.......................................... 0.70% 0.00% 0.32% 1.02%
Limited Maturity Bond Fund......................... 0.55% 0.00% 0.29% 0.84%
Intermediate Government Obligations Fund........... 0.70% 0.00% 0.34% 1.04%
Government Income Fund............................. 0.45% 0.00% 0.38% 0.83%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund................................ 0.55% 0.00% 0.25% 0.80%
Michigan Fund...................................... 0.55% 0.00% 0.23% 0.78%
MONEY MARKET FUNDS:
Prime Obligations Fund............................. 0.40% 0.00% 0.25% 0.65%
U.S. Government Obligations Fund................... 0.40% 0.00% 0.27% 0.67%
Treasury Fund...................................... 0.40% 0.00% 0.24% 0.64%
Tax-Free Fund...................................... 0.40% 0.00% 0.24% 0.64%
</TABLE>
- ------------
* after expense reductions
Absent the voluntary reduction of advisory fees, Management Fees and Total
Expenses as a percentage of average net assets for the Balanced Fund would have
been 1.00% and 1.50%, respectively. Absent the voluntary reduction of
administration fees and advisory fees, Management Fees, Other Expenses and Total
Expenses as a percentage of average net assets for the Bond Fund would have been
.74%, .37% and 1.11%, respectively. For the Limited Maturity Bond Fund they
would have been .74%, .34% and 1.08%, respectively. For the Intermediate
Government Obligations Fund they would have been .74%, .39% and 1.13%,
respectively. For the Government Income Fund they are estimated to be .74%, .43%
and 1.17%, respectively. For the Municipal Bond Fund they would have been .74%,
.35% and 1.09%, respectively. For the Michigan Fund they would have been .74%,
.33% and 1.07%, respectively. Absent the voluntary reduction of administration
fees, Other Expenses and Total Fund Operating Expenses as a percentage of
average net assets for the Prime Obligations Fund would be .27% and .67%,
respectively. For the U.S. Government Obligations Fund, they would be .29% and
.69%, respectively. For the Treasury Fund they would be .34% and .74%,
respectively. For the Tax-Free Fund, they would be .26% and .66%, respectively.
(See "MANAGEMENT OF THE FUNDS--Investment Adviser and Subadviser" and
"Administrator, Sub-Administrator and Distributor.")
PROSPECTUS--Institutional Shares 8
<PAGE> 229
EXPENSE EXAMPLES
You would pay the following expenses on a $1,000 investment in Investor A
Shares, assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
--- ---- ---- ----
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Equity Fund.................................................. $ 13 $41 $71 $ 156
International Fund........................................... $ 16 $49 $85 $ 186
Small Capitalization Fund.................................... $ 14 $42 $73 $ 160
GROWTH AND INCOME FUNDS:
Balanced Fund................................................ $ 13 $40 $69 $ 151
High Income Equity Fund...................................... $ 13 $42 $72 $ 159
INCOME FUNDS:
Bond Fund.................................................... $ 10 $32 $56 $ 125
Limited Maturity Bond Fund................................... $ 9 $27 $47 $ 104
Intermediate Government Obligations Fund..................... $ 11 $33 $57 $ 127
Government Income Fund....................................... $ 8 $26 $46 $ 103
TAX-FREE INCOME FUNDS:
Municipal Bond Fund.......................................... $ 8 $26 $44 $ 99
Michigan Fund................................................ $ 8 $25 $43 $ 97
MONEY MARKET FUNDS:
Prime Obligations Fund....................................... $ 7 $21 $36 $ 81
U.S. Government Obligations Fund............................. $ 7 $21 $37 $ 83
Treasury Fund................................................ $ 7 $20 $36 $ 80
Tax-Free Fund................................................ $ 7 $20 $36 $ 80
</TABLE>
The information set forth in the foregoing Fee Tables and examples relates only
to Institutional Shares of the Funds. Each of the Funds also may offer other
classes of Shares. The other classes of Shares of the Funds are subject to the
same expenses except that the sales charges and level of Rule 12b-1 fees paid by
holders of the different classes will differ.
The purpose of the above tables is to assist a potential purchaser of
Institutional Shares of any Fund in understanding the various costs and expenses
that an investor in a Fund will bear directly or indirectly. Such expenses do
not include any fees charged by First of America or any of its affiliates to its
customer accounts which may have invested in Institutional Shares of the Funds.
See "MANAGEMENT OF THE FUNDS" and "GENERAL INFORMATION" for a more complete
discussion of the annual operating expenses of each of the Funds. The expense
information for Institutional Shares reflects current fees. THE FOREGOING
EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
9 PROSPECTUS--Institutional Shares
<PAGE> 230
FINANCIAL HIGHLIGHTS
The table below sets forth certain information concerning the investment results
of the Institutional Shares of each of the Funds since its inception. Further
financial information is included in the Statement of Additional Information and
the Group's June 30, 1995 Annual Report to Shareholders.
The Financial Highlights for the periods presented below have been derived from
financial statements audited by Coopers & Lybrand L.L.P. (Limited Liability
Partnership), independent accountants for the Group, whose report thereon is
included in the Annual Report.
On March 31, 1993, the Shareholders of all of the then-outstanding Funds of the
Group approved the reclassification of such Fund's outstanding Shares into
Investor A Shares and Institutional Shares. The financial information provided
below and in the Annual Report include periods prior to such reclassification.
EQUITY FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
------------------------------ TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
-------- -------- -------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $14.70 $15.10 $12.80 $11.69 $12.37 $11.48 $10.00
----- ----- ----- ----- ----- ----- ----------
Investment Activities
Net investment income
(loss)................... (0.08) (0.11) (0.01) 0.17 0.45 0.30 0.20
Net realized and unrealized
gain (loss) on
investments.............. 3.47 (0.25) 2.73 1.59 (0.53) 1.86 1.47
--- ---- --- --- ---- --- --------
Total from Investment
Activities........... 3.39 (0.36) 2.72 1.76 (0.08) 2.16 1.67
--- ---- --- --- ---- --- --------
Distributions
Net investment income...... (0.02) (0.17) (0.45) (0.28) (0.19)
Net realized gains......... (0.49) (0.04) (0.40) (0.48) (0.15) (0.99)
In excess of net realized
gains.................... (0.98)
---- ---- ---- ---- ---- ---- ---------
Total Distributions.... (1.47) (0.04) (0.42) (0.65) (0.60) (1.27) (0.19)
---- ---- ---- ---- ---- ---- ---------
NET ASSET VALUE, END OF
PERIOD....................... $16.62 $14.70 $15.10 $12.80 $11.69 $12.37 $11.48
----- ----- ----- ----- ----- ----- ----------
----- ----- ----- ----- ----- ----- ----------
Total Return (excluding sales
and redemption charges)...... 25.20% (2.44)% 21.34% 15.18% (0.45)% 19.23% 16.83%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000).................... $683,320 $533,260 $595,127 $407,782 $298,655 $247,683 $180,124
Ratio of expenses to
average net assets....... 1.29% 1.28% 1.24% 1.18% 1.10% 1.07% 1.06%(c)
Ratio of net investment
income to average net
assets................... (0.64)% (0.65)% (0.09)% 1.24% 3.87% 2.51% 2.80%(c)
Ratio of expenses to
average net assets*...... 1.29% 1.28% 1.27% 1.26% 1.28% 1.29% 1.31%(c)
Ratio of net investment
income to average net
assets*.................. (0.65)% (0.65)% (0.11)% 1.15% 3.69% 2.29% 2.55%(c)
Portfolio turnover......... 46.39%(d) 70.87%(d) 66.48%(d) 93.76% 189.26% 136.95% 87.30%
</TABLE>
PROSPECTUS--Institutional Shares 10
<PAGE> 231
SMALL CAPITALIZATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
---------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
-------- -------- -------- -------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF
PERIOD.................. $19.83 $20.31 $14.64 $13.58 $14.82 $11.59 $10.00
----- ----- ----- ----- ----- ----- ---------
Investment Activities
Net investment income
(loss).............. (0.25) (0.28) (0.14) (0.08) 0.14 0.04 0.06
Net realized and
unrealized gain
(loss) on
investments......... 8.65 0.30 6.76 1.89 (1.24) 3.23 1.59
--- --- --- --- ---- --- -------
Total from
Investment
Activities...... 8.40 0.02 6.62 1.81 (1.10) 3.27 1.65
--- --- --- --- ---- --- -------
Distributions
Net investment
income.............. (0.14)
Net realized gains.... (2.15) (0.50) (0.95) (0.75)
---- ---- ---- ---- ---- --- -------
Total
Distributions... (2.15) (0.50) (0.95) (0.75) (0.14) (0.04) (0.06)
---- ---- ---- ---- ---- ---- --------
NET ASSET VALUE, END OF
PERIOD.................. $26.08 $19.83 $20.31 $14.64 $13.58 $14.82 $11.59
----- ----- ----- ----- ----- ----- ---------
----- ----- ----- ----- ----- ----- ---------
Total Return (excluding
sales and redemption
charges)................ 45.32% (0.15)% 45.77% 12.95% (6.76)% 28.28% 16.60%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)........ $354,825 $271,425 $291,462 $180,079 $107,500 $94,517 $53,917
Ratio of expenses to
average net
assets.............. 1.33% 1.30% 1.26% 1.19% 1.15% 1.11% 1.29%(c)
Ratio of net
investment income to
average net
assets.............. (1.06)% (1.14)% (0.98)% (0.61)% 1.08% 0.37% 0.80%(c)
Ratio of expenses to
average net
assets*............. 1.33% 1.30% 1.28% 1.28% 1.33% 1.33% 1.54%(c)
Ratio of net
investment income to
average net
assets*............. (1.06)% (1.14)% (1.01)% (0.70)% 0.90% 0.15% 0.55%(c)
Portfolio turnover.... 50.53%(d) 72.64%(d) 71.21%(d) 95.02% 139.66% 83.10% 51.79%
</TABLE>
11 PROSPECTUS--Institutional Shares
<PAGE> 232
INTERNATIONAL DISCOVERY FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, DECEMBER 29, 1992
--------------------- TO
1995 1994 JUNE 30, 1993(A)(B)
-------- -------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $13.24 $11.54 $10.00
------ ------ -----------
Investment Activities
Net investment income (loss)............................ 0.04 (0.01) 0.04
Net realized and unrealized gain (loss) on investments
and foreign currency transactions..................... (0.33) 1.75 1.51
----- --- --------
Total from Investment Activities................... (0.29) 1.74 1.55
----- --- --------
Distributions
Net investment income................................... (0.02) (0.01)
Net realized gains...................................... (0.02)
In excess of net realized gains......................... (0.62)
----- ----- ----------
Total Distributions................................ (0.62) (0.04) (0.01)
----- ----- ----------
NET ASSET VALUE, END OF PERIOD.............................. $12.33 $13.24 $11.54
------ ------ -----------
------ ------ -----------
Total Return (excluding sales and redemption charges)....... (1.86)% 15.12% 15.52%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)....................... $264,759 $261,798 $114,822
Ratio of expenses to average net assets................. 1.56% 1.52% 1.58%(c)
Ratio of net investment income to average net assets.... 0.31% (0.30)% 0.82%(c)
Ratio of expenses to average net assets*................ 1.59% 1.57% 1.63%(c)
Ratio of net investment income to average net assets*... 0.28% (0.35)% 0.77%(c)
Portfolio turnover(d)................................... 104.39% 37.23% 12.47%
</TABLE>
BALANCED FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
INSTITUTIONAL SHARES JANUARY 31, 1992
--------------------------------- TO
1995 1994 1993(B) JUNE 30, 1992(A)
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............... $10.67 $11.08 $9.68 $10.00
------ ------ ----- ----------
Investment Activities
Net investment income.......................... 0.31 0.27 0.28 0.14
Net realized and unrealized gain (loss) on
investments.................................. 1.68 (0.41) 1.41 (0.34)
--- ----- --- ---------
Total from Investment Activities.......... 1.99 (0.14) 1.69 (0.20)
--- ----- --- ---------
Distributions
Net investment income.......................... (0.31) (0.27) (0.29) (0.12)
Net realized gains............................. (0.03)
In excess of net realized gains................ (0.13)
----- ----- ----- ---------
Total Distributions....................... (0.47) (0.27) (0.29) (0.12)
-----
NET ASSET VALUE, END OF PERIOD..................... $12.19 $10.67 $11.08 $9.68
------ ------ ------ ---------
------ ------ ------ ---------
Total Return (excluding sales and redemption
charges)......................................... 19.22% (1.44)% 17.66% (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).............. $89,294 $71,427 $42,318 $38,136
Ratio of expenses to average net assets........ 1.25% 1.09% 1.15% 1.19%(c)
Ratio of net investment income to average net
assets....................................... 2.75% 2.49% 2.70% 3.46%(c)
Ratio of expenses to average net assets*....... 1.52% 1.39% 1.46% 1.50%(c)
Ratio of net investment income to average net
assets*...................................... 2.47% 2.18% 2.40% 3.13%(c)
Portfolio turnover............................. 250.66%(d) 192.39%(d) 177.99%(d) 47.58%
</TABLE>
PROSPECTUS--Institutional Shares 12
<PAGE> 233
HIGH INCOME EQUITY FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
---------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
-------- -------- -------- -------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF
PERIOD.................. $13.50 $14.69 $13.14 $12.48 $12.19 $11.35 $10.00
----- ----- ----- ----- ----- ----- ---------
Investment Activities
Net investment
income.............. 0.39 0.39 0.45 0.54 0.57 0.56 0.35
Net realized and
unrealized gain
(loss) on
investments......... 1.00 (0.56) 1.69 0.99 0.38 1.04 1.32
--- ---- --- --- --- --- -------
Total from
Investment
Activities...... 1.39 (0.17) 2.14 1.53 0.95 1.60 1.67
--- ---- --- --- --- --- -------
Distributions
Net investment
income.............. (0.39) (0.39) (0.45) (0.54) (0.59) (0.54) (0.32)
In excess of net
investment income... (0.01)
Net realized gains.... (0.24) (0.14) (0.33) (0.07) (0.22)
In excess of net
realized gains...... (0.39)
---- ---- ---- ---- ---- ---- --------
Total
Distributions... (0.40) (1.02) (0.59) (0.87) (0.66) (0.76) (0.32)
---- ---- ---- ---- ---- ---- --------
NET ASSET VALUE, END OF
PERIOD.................. $14.49 $13.50 $14.69 $13.14 $12.48 $12.19 $11.35
----- ----- ----- ----- ----- ----- ---------
----- ----- ----- ----- ----- ----- ---------
Total Return (excluding
sales and redemption
charges)................ 10.55% (1.53)% 16.73% 12.56% 8.22% 14.37% 16.97%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)........ $346,164 $355,538 $384,240 $270,549 $150,980 $96,344 $66,367
Ratio of expenses to
average net
assets.............. 1.32% 1.30% 1.26% 1.19% 1.13% 1.11% 1.16%(c)
Ratio of net
investment income to
average net
assets.............. 2.86% 2.64% 3.28% 4.12% 4.75% 4.69% 4.92%(c)
Ratio of expenses to
average net
assets*............. 1.32% 1.30% 1.28% 1.27% 1.31% 1.33% 1.41%(c)
Ratio of net
investment income to
average net
assets*............. 2.86% 2.64% 3.25% 4.03% 4.57% 4.47% 4.67%(c)
Portfolio turnover.... 77.70%(d) 69.35%(d) 67.26%(d) 68.42% 115.68% 53.08% 29.55%
</TABLE>
13 PROSPECTUS--Institutional Shares
<PAGE> 234
BOND FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
---------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
-------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $9.29 $10.53 $10.54 $10.07 $10.00 $10.11 $10.00
---- ----- ----- ----- ----- ----- ---------
Investment Activities
Net investment
income............. 0.61 0.60 0.71 0.75 0.77 0.78 0.53
Net realized and
unrealized gain
(loss) on
investments........ 0.43 (0.72) 0.46 0.56 0.08 (0.11) 0.09
--- ---- --- --- --- ---- -------
Total from
Investment
Activities..... 1.04 (0.12) 1.17 1.31 0.85 0.67 0.62
--- ---- --- --- --- --- -------
Distributions
Net investment
income............. (0.61) (0.58) (0.73) (0.76) (0.78) (0.78) (0.51)
In excess of net
investment
income.............
Net realized gains... (0.45) (0.08)
In excess of net
realized gains..... (0.54)
---- ---- ---- ---- ---- ---- --------
Total
Distributions... (0.61) (1.12) (1.18) (0.84) (0.78) (0.78) (0.51)
---- ---- ---- ---- ---- ---- --------
NET ASSET VALUE, END OF
PERIOD................. $9.72 $9.29 $10.53 $10.54 $10.07 $10.00 $10.11
---- ---- ----- ----- ----- ----- ---------
---- ---- ----- ----- ----- ----- ---------
Total Return (excluding
sales and redemption
charges)............... 11.78% (1.52)% 11.84% 13.47% 8.80% 6.94% 6.42%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)....... $509,189 $469,903 $442,291 $477,526 $432,225 $316,477 $123,928
Ratio of expenses to
average net
assets............. 1.02% 0.88% 0.87% 0.87% 0.84% 0.81% 0.82%(c)
Ratio of net
investment income
to average net
assets............. 6.54% 5.97% 6.50% 7.19% 7.72% 8.04% 8.06%(c)
Ratio of expenses to
average net
assets*............ 1.14% 1.02% 1.01% 1.01% 1.02% 1.02% 1.06%(c)
Ratio of net
investment income
to average net
assets*............ 6.42% 5.83% 6.36% 7.05% 7.54% 7.83% 7.82%(c)
Portfolio turnover... 1010.64%(d) 893.27%(d) 443.98%(d) 289.38% 339.74% 314.71% 121.08%
</TABLE>
PROSPECTUS--Institutional Shares 14
<PAGE> 235
LIMITED MATURITY BOND FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
---------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
-------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $9.57 $10.18 $10.25 $9.93 $9.88 $10.08 $10.00
---- ----- ----- ---- ---- ----- ---------
Investment Activities
Net investment
income............. 0.58 0.64 0.65 0.71 0.72 0.83 0.53
Net realized and
unrealized gain
(loss) on
investments........ 0.13 (0.59) 0.13 0.35 0.10 (0.15) 0.02
--- ---- --- --- --- ---- -------
Total from
Investment
Activities..... 0.71 0.05 0.78 1.06 0.82 0.68 0.55
--- --- --- --- --- --- -------
Distributions
Net investment
income............. (0.57) (0.62) (0.69) (0.71) (0.73) (0.83) (0.47)
Net realized gains... (0.16) (0.03) (0.04) (0.05)
In excess of net
realized gains..... (0.04)
---- ---- ---- ---- ---- ---- --------
Total
Distributions... (0.57) (0.66) (0.85) (0.74) (0.77) (0.88) (0.47)
---- ---- ---- ---- ---- ---- --------
NET ASSET VALUE, END OF
PERIOD................. $9.71 $9.57 $10.18 $10.25 $9.93 $9.88 $10.08
---- ---- ----- ----- ---- ---- ---------
---- ---- ----- ----- ---- ---- ---------
Total Return (excluding
sales and redemption
charges)............... 7.76% 0.43% 7.98% 11.00% 8.66% 7.10% 5.70%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)....... $141,781 $156,678 $141,706 $117,241 $70,870 $43,696 $71,627
Ratio of expenses to
average net
assets............. 0.84% 0.76% 0.72% 0.83% 0.91% 0.92% 0.88%(c)
Ratio of net
investment income
to average net
assets............. 6.11% 6.32% 6.45% 7.13% 7.47% 8.01% 8.19%(c)
Ratio of expenses to
average net
assets*............ 1.11% 1.05% 1.01% 1.05% 1.10% 1.14% 1.12%(c)
Ratio of net
investment income
to average net
assets*............ 5.84% 6.03% 6.16% 6.91% 7.28% 7.79% 7.95%(c)
Portfolio turnover... 397.97%(d) 353.28%(d) 123.10%(d) 87.75% 161.32% 319.11% 117.37%
</TABLE>
15 PROSPECTUS--Institutional Shares
<PAGE> 236
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
---------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
-------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD................. $9.62 $10.53 $10.42 $10.05 $9.91 $10.05 $10.00
---- ----- ----- ----- ---- ----- ---------
Investment Activities
Net investment income
(loss)............. 0.52 0.60 0.68 0.71 0.74 0.79 0.50
Net realized and
unrealized gain
(loss) on
investments........ 0.31 (0.66) 0.22 0.46 0.15 (0.11) (0.02)
--- ---- --- --- --- ---- --------
Total from
Investment
Activities..... 0.83 (0.06) 0.90 1.17 0.89 0.68 0.48
--- ---- --- --- --- --- -------
Distributions
Net investment
income............. (0.52) (0.60) (0.73) (0.71) (0.75) (0.79) (0.43)
Net realized gains... (0.06) (0.09) (0.03)
In excess of net
realized gains..... (0.25)
---- ---- ---- ---- ---- ---- --------
Total
Distributions... (0.52) (0.85) (0.79) (0.80) (0.75) (0.82) (0.43)
---- ---- ---- ---- ---- ---- --------
NET ASSET VALUE, END OF
PERIOD................. $9.93 $9.62 $10.53 $10.42 $10.05 $9.91 $10.05
---- ---- ----- ----- ----- ---- ---------
---- ---- ----- ----- ----- ---- ---------
Total Return (excluding
sales and redemption
charges)............... 9.02% (0.80)% 8.94% 12.03% 9.32% 7.07% 4.92%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)....... $249,169 $281,232 $272,607 $234,906 $142,864 $100,205 $83,212
Ratio of expenses to
average net
assets............. 1.04% 0.90% 0.87% 0.87% 0.86% 0.85% 0.87%(c)
Ratio of net
investment income
to average net
assets............. 5.43% 5.90% 6.54% 7.07% 7.48% 8.04% 7.79%(c)
Ratio of expenses to
average net
assets*............ 1.16% 1.04% 1.01% 1.01% 1.04% 1.06% 1.11%(c)
Ratio of net
investment income
to average net
assets*............ 5.31% 5.76% 6.40% 6.93% 7.30% 7.83% 7.55%(c)
Portfolio turnover... 549.13%(d) 546.06%(d) 225.90%(d) 114.76% 164.59% 294.62% 111.96%
</TABLE>
PROSPECTUS--Institutional Shares 16
<PAGE> 237
GOVERNMENT INCOME FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 12, 1992
--------------------- TO
1995 1994 JUNE 30, 1993(A)(B)
-------- -------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $9.41 $10.04 $10.00
----- ------ ------------
Investment Activities
Net investment income................................... 0.76 0.74 0.48
Net realized and unrealized gain (loss) on
investments........................................... 0.01 (0.63) 0.04
--- ----- ---------
Total from Investment Activities................... 0.77 0.11 0.52
--- --- ---------
Distributions
Net investment income................................... (0.68) (0.73) (0.48)
Tax return of capital................................... (0.08) (0.01)
----- ----- -----------
Total Distributions................................ (0.76) (0.74) (0.48)
----- ----- -----------
NET ASSET VALUE, END OF PERIOD.............................. $9.42 $9.41 $10.04
----- ----- ------------
----- ----- ------------
Total Return (excluding sales and redemption charges)....... 8.70% 1.04% 5.37%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)....................... $110,190 $101,506 $71,862
Ratio of expenses to average net assets................. 0.83% 0.72% 0.70%(c)
Ratio of net investment income to average net assets.... 8.25% 7.51% 7.49%(c)
Ratio of expenses to average net assets*................ 1.19% 1.11% 1.09%(c)
Ratio of net investment income to average net assets*... 7.89% 7.12% 7.09%(c)
Portfolio turnover(d)................................... 114.71% 102.24% 135.06%
</TABLE>
17 PROSPECTUS--Institutional Shares
<PAGE> 238
MUNICIPAL BOND FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
---------------------------------- TO
1995 1994 1993(B) 1992 1991 1990 JUNE 30, 1989(A)
-------- -------- -------- -------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF
PERIOD................... $10.29 $10.92 $10.58 $10.20 $10.03 $10.18 $10.00
----- ----- ----- ----- ----- ----- ---------
Investment Activities
Net investment income
(loss)............... 0.46 0.41 0.49 0.52 0.55 0.57 0.40
Net realized and
unrealized gain
(loss) on
investments.......... 0.27 (0.31) 0.48 0.39 0.18 (0.12) (0.14)
--- ---- --- --- --- ---- --------
Total from
Investment
Activities....... 0.73 0.10 0.97 0.91 0.73 0.45 0.54
--- --- --- --- --- --- -------
Distributions
Net investment
income............... (0.46) (0.40) (0.53) (0.52) (0.56) (0.58) (0.36)
Net realized gains..... (0.21) (0.10) (0.01) (0.02)
In excess of net
realized gains....... (0.17) (0.12)
---- ---- ---- ---- ---- ---- --------
Total
Distributions.... (0.63) (0.73) (0.63) (0.53) (0.56) (0.60) (0.36)
---- ---- ---- ---- ---- ---- --------
NET ASSET VALUE, END OF
PERIOD................... $10.39 $10.29 $10.92 $10.58 $10.20 $10.03 $10.18
----- ----- ----- ----- ----- ----- ---------
----- ----- ----- ----- ----- ----- ---------
Total Return (excluding
sales and redemption
charges)................. 7.25% 0.81% 9.48% 9.11% 7.51% 4.57% 5.52%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000)......... $134,784 $147,687 $146,302 $130,788 $98,186 $100,445 $68,256
Ratio of expenses to
average net assets... 0.80% 0.77% 0.73% 0.81% 0.87% 0.85% 0.85%(c)
Ratio of net investment
income to average net
assets............... 4.21% 3.83% 4.61% 5.09% 5.49% 5.78% 6.11%(c)
Ratio of expenses to
average net
assets*.............. 1.08% 1.06% 1.02% 1.03% 1.06% 1.06% 1.09%(c)
Ratio of net investment
income to average net
assets*.............. 3.93% 3.53% 4.31% 4.88% 5.29% 5.57% 5.87%(c)
Portfolio turnover..... 35.15%(d) 44.39%(d) 67.26%(d) 66.31% 76.55% 113.12% 82.22%
</TABLE>
PROSPECTUS--Institutional Shares 18
<PAGE> 239
MICHIGAN FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------
INSTITUTIONAL SHARES JULY 2, 1990
------------------------------------ TO
1995 1994 1993(B) 1992 JUNE 30, 1991(A)
-------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $10.53 $10.97 $10.58 $10.14 $10.00
------ ------ ------ ------ ----------
Investment Activities
Net investment income (loss)...... 0.50 0.48 0.50 0.52 0.55
Net realized and unrealized gain
(loss) on investments........... 0.25 (0.36) 0.47 0.44 0.11
--- ----- --- --- -------
Total from Investment
Activities................. 0.75 0.12 0.97 0.96 0.66
--- --- --- --- -------
Distributions
Net investment income............. (0.50) (0.46) (0.54) (0.52) (0.52)
In excess of net investment
income.......................... (0.02)
Net realized gains................ (0.01) (0.04)
In excess of net realized gains... (0.09)
----- ----- ----- ----- ---------
Total Distributions.......... (0.52) (0.56) (0.58) (0.52) (0.52)
----- ----- ----- ----- ---------
NET ASSET VALUE, END OF PERIOD........ $10.76 $10.53 $10.97 $10.58 $10.14
------ ------ ------ ------ ----------
------ ------ ------ ------ ----------
Total Return (excluding sales and
redemption charges)................. 7.33% 1.02% 9.42% 9.73% 6.77%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period
(000)........................... $176,068 $181,051 $165,414 $146,782 $90,182
Ratio of expenses to average net
assets.......................... 0.78% 0.75% 0.76% 0.84% 0.57%(c)
Ratio of net investment income to
average net assets.............. 4.79% 4.35% 4.70% 5.15% 5.67%(c)
Ratio of expenses to average net
assets*......................... 1.07% 1.04% 1.05% 1.05% 1.15%(c)
Ratio of net investment income to
average net assets*............. 4.50% 4.06% 4.41% 4.93% 5.18%(c)
Portfolio turnover................ 26.06%(d) 6.69%(d) 35.81%(d) 19.97% 45.30%
</TABLE>
19 PROSPECTUS--Institutional Shares
<PAGE> 240
PRIME OBLIGATIONS FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------
INSTITUTIONAL SHARES AUGUST 24, 1987
----------------------------- TO
1995 1994 1993(B) 1992 1991 1990 1989 JUNE 30, 1988(A)
-------- -------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ----- ----- ----- ---------
Investment Activities
Net investment
income............ 0.048 0.028 0.029 0.046 0.069 0.080 0.083 0.056
---- ---- ---- ---- ---- ---- ---- --------
Distributions
Net investment
income............ (0.048) (0.028) (0.029) (0.046) (0.069) (0.080) (0.083) (0.056)
---- ----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD................ $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ----- ----- ----- ---------
----- ----- ----- ----- ----- ----- ----- ---------
Total Return............ 4.91% 2.85% 2.91% 4.75% 7.15% 8.32% 8.58% 5.76%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)...... $640,380 $561,697 $478,821 $690,908 $702,340 $547,351 $526,450 $241,545
Ratio of expenses to
average net
assets............ 0.65% 0.64% 0.64% 0.64% 0.64% 0.65% 0.62% 0.60%(c)
Ratio of net
investment income
to average net
assets............ 4.83% 2.84% 2.88% 4.61% 6.86% 8.03% 8.26% 6.48%(c)
Ratio of expenses to
average net
assets*........... 0.67% 0.66% 0.66% 0.66% 0.66% 0.67% 0.66% 0.70%(c)
Ratio of net
investment income
to average net
assets*........... 4.81% 2.82% 2.86% 4.59% 6.84% 8.01% 8.22% 6.38%(c)
</TABLE>
PROSPECTUS--Institutional Shares 20
<PAGE> 241
U.S. GOVERNMENT OBLIGATIONS FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------
INSTITUTIONAL SHARES AUGUST 24, 1987
----------------------------- TO
1995 1994 1993(B) 1992 1991 1990 1989 JUNE 30, 1988(A)
-------- -------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ----- ----- ----- ---------
Investment Activities
Net investment
income............. 0.048 0.028 0.028 0.044 0.066 0.078 0.080 0.055
---- ---- ---- ---- ---- ---- ---- --------
Distributions
Net investment
income............. (0.048) (0.028) (0.028) (0.044) (0.066) (0.078) (0.080) (0.055)
----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ----- ----- ----- ---------
----- ----- ----- ----- ----- ----- ----- ---------
Total Return............. 4.87% 2.79% 2.86% 4.78% 6.82% 8.10% 8.31% 5.66%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)....... $227,565 $192,612 $223,855 $400,242 $341,903 $248,671 $201,012 $136,823
Ratio of expenses to
average net
assets............. 0.67% 0.67% 0.64% 0.64% 0.65% 0.65% 0.63% 0.62%(c)
Ratio of net
investment income
to average net
assets............. 4.76% 2.74% 2.81% 4.43% 6.54% 7.79% 8.00% 6.25%(c)
Ratio of expenses to
average net
assets*............ 0.69% 0.69% 0.66% 0.66% 0.67% 0.67% 0.68% 0.73%(c)
Ratio of net
investment income
to average net
assets*............ 4.74% 2.72% 2.79% 4.41% 6.52% 7.77% 7.95% 6.14%(c)
</TABLE>
TREASURY FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
DECEMBER 1, 1993
YEAR ENDED TO
JUNE 30, 1995 JUNE 30, 1994(A)
------------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................. $1.000 $1.000
-------- ----------
Investment Activities
Net investment income............................................ 0.048 0.017
------- ---------
Distributions
Net investment income............................................ (0.048) (0.017)
-------- ----------
NET ASSET VALUE, END OF PERIOD....................................... $1.000 $1.000
-------- ----------
-------- ----------
Total Return......................................................... 4.91% 1.72%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000)................................ $192,232 $76,035
Ratio of expenses to average net assets.......................... 0.64% 0.54%(c)
Ratio of net investment income to average net assets............. 4.95% 3.15%(c)
Ratio of expenses to average net assets*......................... 0.78% 0.74%(c)
Ratio of net investment income to average net assets*............ 4.81% 2.95%(c)
</TABLE>
21 PROSPECTUS--Institutional Shares
<PAGE> 242
TAX-FREE FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
INSTITUTIONAL SHARES JULY 30, 1987
-------------------------- TO
1995 1994 1993(B) 1992 1991 1990 1989 JUNE 30, 1988(A)
------- ------- ------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ----- ----- ----- ---------
Investment Activities
Net investment income... 0.030 0.019 0.019 0.033 0.046 0.054 0.055 0.040
---- ---- ---- ---- ---- ---- ---- --------
Distributions
Net investment income... (0.030) (0.019) (0.019) (0.033) (0.046) (0.054) (0.055) (0.040)
----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD.................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ----- ----- ----- ---------
----- ----- ----- ----- ----- ----- ----- ---------
Total Return................ 3.00% 1.92% 2.10% 3.34% 4.73% 5.75% 5.62% 4.08%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of
period (000).......... $98,489 $84,465 $86,292 $141,913 $139,615 $142,004 $120,031 $107,199
Ratio of expenses to
average net assets.... 0.64% 0.58% 0.55% 0.59% 0.60% 0.61% 0.63% 0.64%(c)
Ratio of net investment
income to average net
assets................ 2.97% 1.90% 2.08% 3.29% 4.63% 5.43% 5.46% 4.34%(c)
Ratio of expenses to
average net assets*... 0.70% 0.68% 0.65% 0.69% 0.70% 0.70% 0.73% 0.75%(c)
Ratio of net investment
income to average net
assets*............... 2.91% 1.80% 1.98% 3.19% 4.53% 5.34% 5.36% 4.23%(c)
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993 the shareholders of the Group exchanged their shares for
either the Group's Investor A Shares or Institutional Shares. For the year
ended June 30, 1993 the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities
and distributions are presented on the basis whereby the Fund's net
investment income, expenses, and distributions for the period July 1, 1992
through March 31, 1993 were allocated to each class of shares based upon the
relative net assets of each class of shares as of April 1, 1993 and the
results combined therewith the results of operations and distributions for
each applicable class for the period April 1, 1993 through June 30, 1993.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between classes of shares issued.
(e) Not annualized.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds is set forth below under the
headings describing the Funds. The investment objectives of each Fund are
fundamental policies and may not be changed without a vote of the holders of a
majority of the outstanding Shares of that Fund (as defined in the Statement of
Additional Information). Other policies of a Fund may be changed without a vote
of the holders of a majority of outstanding Shares of that Fund unless the
policy is expressly deemed to be a fundamental policy or changeable only by such
majority vote. There can be no assurance that the investment objectives of any
Fund will be achieved. Depending upon the performance of a Fund's investments,
the net asset value per share of that Fund may decrease instead of increase.
During temporary defensive periods as determined by First of America or the
Subadviser, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic bank certificates of
deposit, bankers' acceptances and repurchase agreements secured by bank
PROSPECTUS--Institutional Shares 22
<PAGE> 243
instruments. However, to the extent that a Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
GROWTH FUNDS
THE EQUITY FUND AND SMALL CAPITALIZATION FUND
The investment objective of the Equity Fund is to seek growth of capital by
investing primarily in a diversified portfolio of common stocks and securities
convertible into common stocks. The investment objective of the Small
Capitalization Fund is to seek growth of capital by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stocks of small to medium-sized companies.
Under normal market conditions, each of the Equity and Small Capitalization
Funds will invest at least 80% of the value of its total assets in common stocks
and securities convertible into common stocks of companies believed by First of
America to be characterized by sound management and the ability to finance
expected long-term growth. In addition, under normal market conditions, the
Small Capitalization Fund will invest at least 65% of the value of its total
assets in common stocks and securities convertible into common stocks of
companies considered by First of America to have a market capitalization of less
than $1 billion. Each of the Equity and Small Capitalization Funds may also
invest up to 20% of the value of its total assets in preferred stocks, corporate
bonds, notes, units of real estate investment trusts, warrants, and short-term
obligations (with maturities of 12 months or less) consisting of commercial
paper (including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and demand and time
deposits of domestic and foreign banks and savings and loan associations. Each
of the Equity and Small Capitalization Funds may also hold securities of other
investment companies and depositary or custodial receipts representing
beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, each of the Equity and Small Capitalization
Funds may also invest up to 25% of its net assets in foreign securities either
directly or through the purchase of ADRs and may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper. For a discussion of risks associated with foreign securities, see
"RISK FACTORS AND INVESTMENT TECHNIQUES--Foreign Securities" herein.
The Equity Fund anticipates investing in growth-oriented, medium capitalization
companies. These companies have typically exhibited consistent, above average
growth in revenues and earnings, strong management, and sound and improving
financial fundamentals. Often, these companies are market or industry leaders,
have excellent products and/or services, and exhibit the potential for growth.
Core holdings of the Equity Fund are in companies that participate in long-term
growth industries, although these will be supplemented by holdings in non-growth
industries that exhibit the desired characteristics.
The Small Capitalization Fund anticipates investing in dynamic small- to
medium-sized companies that exhibit outstanding potential for superior growth.
For purposes of the foregoing sentence, small-sized companies are considered to
be those with capitalization of less than $1 billion and medium-sized companies
are considered to be those with capitalization of $1 billion or more but less
than $5 billion. The Small Capitalization Fund will limit its investment in
securities of medium-sized companies to not more than 35% of the value of its
total assets. Companies that participate in sectors that are identified as
having long-term growth potential generally make up a substantial portion of
such Fund's holdings. These companies often have established a market niche or
have developed unique products or technologies that are expected to produce
superior growth in revenues and earnings. As smaller capitalization stocks are
quite volatile and subject to wide fluctuations in both the short and medium
term, the Small Capitalization Fund may be fairly characterized more aggressive
than a general equity fund such as the Equity Fund. Consistent with the
foregoing, each of the Equity and Small Capitalization Funds will focus its
investments in those companies and types of companies that First of America
believes will enable such Fund to achieve its investment objective.
23 PROSPECTUS--Institutional Shares
<PAGE> 244
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE EQUITY FUND AND SMALL CAPITALIZATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Other Mutual Funds -Put and Call Options -Repurchase Agreements
-When-Issued and -Portfolio Turnover -Restricted Securities
Delayed-Delivery -Reverse Repurchase Agreements
Transactions and
Dollar Roll Agreements
</TABLE>
THE INTERNATIONAL FUND
The investment objective of the International Fund is the long-term growth of
capital.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States, or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States, and (iii) which are small-
or medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRs.
Companies are deemed to be small- or medium-sized which at the time of purchase
are of a size which would rank them in the lower half of a major market index in
each country by weighted market capitalization and all equity securities listed
in recognized secondary markets where such markets exist. In addition, in
countries with less well-developed stock markets, where the range of investment
opportunities is more restrictive, the equity securities of all listed companies
will be eligible for investment. In major markets issuers could have
capitalizations of up to approximately $10 billion while in smaller markets
issuers would be eligible with capitalizations as low as approximately $200
million.
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and United Kingdom. Normally the
International Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
International Fund's assets could be invested in U.S. companies. In addition,
the International Fund temporarily may invest cash in short-term debt
instruments of U.S. and foreign issuers for cash management purposes or pending
investment.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE INTERNATIONAL FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Lending Portfolio Securities -Other Mutual Funds
-Restricted Securities -Put and Call Options -Repurchase Agreements
-Reverse Repurchase Agreements -When-Issued and -Portfolio Turnover
and Delayed-Delivery
Dollar Roll Agreements Transactions
</TABLE>
PROSPECTUS--Institutional Shares 24
<PAGE> 245
GROWTH AND INCOME FUNDS
THE BALANCED FUND
The investment objectives of the Balanced Fund are to seek current income,
long-term capital growth and conservation of capital.
The Balanced Fund may invest in any type or class of security. Under normal
market conditions the Balanced Fund will invest in common stocks, fixed income
securities and securities convertible into common stocks (i.e., warrants,
convertible preferred stock, fixed rate preferred stock, convertible fixed-
income securities, options and rights). At least 25% of the value of the
Balanced Fund's total assets will be invested in fixed income senior securities.
Up to 15% of the value of the Balanced Fund's total assets may be invested in
foreign securities.
The Balanced Fund's common stocks are held for the purpose of providing dividend
income and long-term growth of capital. The Balanced Fund will invest in the
common and preferred stocks of companies with capitalization of at least $100
million and which are traded either in established over-the-counter markets or
on national exchanges. The Balanced Fund intends to invest primarily in those
companies which are growth oriented and have exhibited consistent, above average
growth in revenues and earnings. When choosing such stocks, the potential for
long term capital appreciation will be the primary basis for selection.
The Balanced Fund's fixed income senior securities consist of bonds, debentures,
notes, zero-coupon securities, mortgage-related securities, state, municipal or
industrial revenue bonds, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, certificates of deposit, time
deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand notes. In addition, a portion of the Balanced Fund may from
time to time be invested in first mortgage loans and participation certificates
in pools of mortgages issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. Some of the securities in which the Balanced Fund
invests may have warrants or options attached. The Balanced Fund may also invest
in repurchase agreements.
The Balanced Fund expects to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, as well as
"stripped" U.S. Treasury obligations such as Treasury Receipts issued by the
U.S. Treasury representing either future interest or principal payments
("Stripped Treasury Obligations"), and other obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. See "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations" below.
The Balanced Fund also expects to invest in bonds, notes and debentures of a
wide range of U.S. corporate issuers. Such obligations, in the case of
debentures, will represent unsecured promises to pay, in the case of notes and
bonds, may be secured by mortgages on real property or security interests in
personal property and will in most cases differ in their interest rates,
maturities and times of issuance.
The Balanced Fund will invest only in corporate fixed income securities which
are rated at the time of purchase within the four highest rating groups assigned
by a nationally-recognized statistical rating organization ("NRSRO") or, if
unrated, which First of America deems present attractive opportunities and are
of comparable quality. For a description of the rating symbols of the NRSROs,
see the Appendix to the Statement of Additional Information. For a discussion of
fixed income securities rated within the fourth highest rating group assigned by
an NRSRO, see "RISK FACTORS AND INVESTMENT TECHNIQUES-- Medium Grade Securities"
herein.
The Balanced Fund may hold some short-term obligations (with maturities of 12
months or less) consisting of domestic and foreign commercial paper, variable
amount master demand notes, bankers' acceptances, certificates of deposit and
time deposits of domestic and foreign branches of U.S. banks and foreign banks,
and repurchase agreements. The Balanced Fund may also invest in securities of
other investment companies.
The Balanced Fund may also invest in obligations of the Export-Import Bank of
the United States, in U.S. dollar denominated international bonds for which the
primary trading market is in the United States
25 PROSPECTUS--Institutional Shares
<PAGE> 246
("Yankee Bonds"), or for which the primary trading market is abroad ("Eurodollar
Bonds"), and in Canadian Bonds and bonds issued by institutions, such as the
World Bank and the European Economic Community, organized for a specific purpose
by two or more sovereign governments ("Supranational Agency Bonds"). The
Balanced Fund's investments in foreign securities may be made either directly or
through the purchase of American Depositary Receipts ("ADRs") and may also
invest in securities issued by foreign branches of U.S. banks and foreign banks,
in Canadian commercial paper ("CCP"), and in Europaper (U.S. dollar denominated
commercial paper of a foreign issuer).
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon First of America's assessment of business, economic and
market conditions, including any potential advantage of price shifts between the
stock market and the bond market. The Balanced Fund reserves the right to hold
short-term securities in whatever proportion deemed desirable for temporary
defensive periods during adverse market conditions as determined by First of
America. However, to the extent that the Balanced Fund is so invested, its
investment objectives may not be achieved during that time.
Like any investment program, the Balanced Fund entails certain risks. As a Fund
investing primarily in common stocks the Balanced Fund is subject to stock
market risk, i.e., the possibility that stock prices in general will decline
over short or even extended periods.
Since the Balanced Fund also invests in bonds, investors in the Balanced Fund
are also exposed to bond market risk, i.e., fluctuations in the market value of
bonds. Bond prices are influenced primarily by changes in the level of interest
rates. When interest rates rise, the prices of bonds generally fall; conversely,
when interest rates fall, bond prices generally rise. While bonds normally
fluctuate less in price than stock, there have been extended periods of cyclical
increases in interest rates that have caused significant declines in bond
prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result the Balanced
Fund, with its balance of common stock and bond investments, is expected to
entail less investment risk (and a potentially smaller investment return) than a
mutual fund investing exclusively in common stocks.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE BALANCED FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Medium-Grade Securities -Mortgage-Related Securities -Other Mutual Funds
-Put and Call Options -Repurchase Agreements -Restricted Securities
-Reverse Repurchase Agreements -When-Issued and -Portfolio Turnover
and Dollar Roll Agreements Delayed-Delivery
Transactions
</TABLE>
THE HIGH INCOME EQUITY FUND
The investment objective of the High Income Equity Fund is to seek current
income by investing in a diversified portfolio of high quality, dividend-paying
common stocks and securities convertible into common stocks. A secondary
investment objective of High Income Equity Fund is growth of capital.
The High Income Equity Fund, under normal market conditions, will invest at
least 80% of the value of its total assets in common stocks and securities
convertible into common stocks of companies believed by First of America to be
characterized by sound management, the ability to finance expected growth and
the ability to pay above average dividends. The High Income Equity Funds may
also invest up to 20% of the value of its total assets in preferred stocks,
corporate bonds, notes, units of real estate investment trusts, warrants, and
short-term obligations (with maturities of 12 months or less) consisting of
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit, repurchase agreements, obligations issued
or guaranteed by the U.S. Government or its agencies or
PROSPECTUS--Institutional Shares 26
<PAGE> 247
instrumentalities, and demand and time deposits of domestic and foreign banks
and savings and loan associations. The High Income Equity Funds may also hold
securities of other investment companies and depositary or custodial receipts
representing beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, the High Income Equity Funds may also invest
up to 25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Foreign Securities" herein.
The High Income Equity Fund anticipates investing in securities that currently
have a high dividend yield, with the anticipation that the dividend will remain
constant or be increased in the future. These securities generally represent the
core holdings of this Fund. However, these holdings are balanced with lower
yielding but higher growth-oriented securities to achieve portfolio balance. All
securities must provide current income. Given its bias towards income, the High
Income Equity Fund may be considered the more conservative than growth-oriented
equity funds such as the Group's Equity and Small Capitalization Funds.
Consistent with the foregoing, the High Income Equity Fund will focus its
investments in those companies and types of companies that First of America
believes will enable such Fund to achieve its investment objective.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE HIGH INCOME EQUITY FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Government Obligations -Lending Portfolio Securities
-Other Mutual Funds -Put and Call Options -Repurchase Agreements
-Restricted Securities -Reverse Repurchase Agreements -When-Issued and
-Portfolio Turnover and Dollar Roll Agreements Delayed-Delivery
Transactions
</TABLE>
INCOME FUNDS
THE BOND FUND AND LIMITED MATURITY BOND FUND
The investment objective of the Bond Fund is to seek current income as well as
preservation of capital by investing in a portfolio of high and medium grade
fixed-income securities. The investment objective of the Limited Maturity Bond
Fund is to seek current income as well as preservation of capital by investing
in a portfolio of high and medium grade fixed-income securities with remaining
maturities of six years or less.
Under normal market conditions, the Bond Fund will invest at least 80% of the
value of its total assets in bonds, debentures, notes with remaining maturities
at the time of purchase of one year or more, zero-coupon securities,
mortgage-related securities, state, municipal or industrial revenue bonds,
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, debt securities convertible into, or exchangeable for, common
stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Bond Fund will invest in state and municipal securities
when, in the opinion of First of America, their yields are competitive with
comparable taxable debt obligations. In addition, up to 20% of the value of the
Bond Fund's total assets may be invested in preferred stocks, notes with
remaining maturities at the time of purchase of less than one year, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies,
and Guaranteed Investment Contracts ("GICs") issued by insurance companies, as
more fully described below. The Bond Fund intends that under normal market
conditions its portfolio will maintain an average weighted maturity of
approximately
27 PROSPECTUS--Institutional Shares
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eight to twelve years. However, the Bond Fund may extend or shorten the average
weighted maturity of its portfolio depending upon anticipated changes in
interest rates or other relevant market factors. Some of the securities in which
the Bond Fund invests may have warrants or options attached.
Under normal market conditions, the Limited Maturity Bond Fund will invest at
least 80% of the value of its total assets in the following securities which
have remaining maturities of six years or less: bonds, debentures, notes with
remaining maturities at the time of purchase of one year or more, zero-coupon
securities, mortgage related securities, state, municipal or industrial revenue
bonds, obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, debt securities convertible into, or exchangeable for,
common stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Limited Maturity Bond Fund will invest in state and
municipal securities when, in the opinion of First of America, their yields are
competitive with comparable taxable debt obligations. In addition, up to 20% of
the value of the Limited Maturity Bond Fund's total assets may be invested in
the debt securities listed above without regard to maturity, preferred stocks,
notes with remaining maturities at the time of purchase of less than one year,
short-term debt obligations consisting of domestic and foreign commercial paper
(including variable amount master demand notes), bankers' acceptances,
certificates of deposit and time deposits of domestic and foreign branches of
U.S. banks and foreign banks, repurchase agreements, securities of other
investment companies and GICs. Under normal market conditions, the Limited
Maturity Bond Fund expects to maintain a dollar-weighted average portfolio
maturity of its debt securities of three years or less. Some of the securities
in which the Limited Maturity Bond Fund invests may have warrants or options
attached.
The Bond Fund and Limited Maturity Bond Fund each expects to invest in a variety
of U.S. Treasury obligations, differing in their interest rates, maturities, and
times of issuance, as well as Stripped Treasury Obligations, and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES--Government
Obligations" below.
The Bond Fund and the Limited Maturity Bond Fund each also expects to invest in
bonds, notes and debentures of a wide range of U.S. corporate issuers. Such
obligations, in the case of debentures, will represent unsecured promises to
pay, in the case of notes and bonds, may be secured by mortgages on real
property or security interests in personal property and will in most cases
differ in their interest rates, maturities and times of issuance.
The Bond Fund and the Limited Maturity Bond Fund each will invest only in
corporate debt securities which are rated at the time of purchase within the
four highest rating groups assigned by an NRSRO or, if unrated, which First of
America deems present attractive opportunities and are of comparable quality.
For a discussion of debt securities rated within the fourth highest rating group
assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Medium-Grade
Securities" herein.
The Bond Fund and the Limited Maturity Bond Fund each may hold some short-term
obligations (with maturities of 12 months or less) consisting of domestic and
foreign commercial paper (including variable amount master demand notes),
bankers' acceptances, certificates of deposit and time deposits of domestic and
foreign branches of U.S. banks and foreign banks, and repurchase agreements. The
Bond Fund and the Limited Maturity Bond Fund each may also invest in securities
of other investment companies or in GICs.
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian Bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond Fund may also invest up to 25% of its
net assets in foreign securities either directly or through the purchase of ADRs
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper.
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, First of America may purchase debt
PROSPECTUS--Institutional Shares 28
<PAGE> 249
securities at a discount from face value, which produces a yield greater than
the coupon rate. Conversely, if debt securities are purchased at a premium over
face value, the yield will be lower than the coupon rate. In making investment
decisions for the Bond Fund, First of America will consider many factors other
than current yield, including the preservation of capital, the potential for
realizing capital appreciation, maturity, and yield to maturity. In making
investment decisions for the Limited Maturity Bond Fund, First of America will
consider many factors other than current yield, including the preservation of
capital, maturity, and yield to maturity.
By seeking to maintain a dollar-weighted average portfolio maturity of three
years or less, the Limited Maturity Bond Fund attempts to minimize the
fluctuation in its Shares' net asset value relative to those funds which invest
in longer term obligations.
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THE BOND FUND AND LIMITED MATURITY BOND FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Securities -Foreign Currency Transactions
-Futures Contracts -Guaranteed Investment -Lending Portfolio Securities
-Medium-Grade Securities Contracts -Municipal Securities
-Other Mutual Funds -Mortgage-Related Securities -Repurchase Agreements
-Restricted Securities -Put and Call Options -When-Issued and Delayed
-Portfolio Turnover -Reverse Repurchase Agreements Delivery Transactions
and Dollar Roll Agreements
</TABLE>
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
The investment objective of the Intermediate Government Obligations Fund is to
seek current income with preservation of capital by investing in U.S. Government
securities with remaining maturities of twelve years or less.
Under normal market conditions, the Intermediate Government Obligations Fund
will invest at least 80% of its total assets in obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and with remaining
maturities of twelve years or less, although up to 20% of the value of its total
assets may be invested in debt securities, preferred stocks and other
investments without regard to maturity, except as set forth below. Under normal
market conditions, the Intermediate Government Obligations Fund expects to
maintain a dollar-weighted average portfolio maturity of its debt securities of
three to ten years.
The types of U.S. Government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and Government Securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES-- Government Obligations."
The Intermediate Government Obligations Fund may also invest in mortgage-related
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, as more fully described below under "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations."
By seeking to maintain a dollar-weighted average portfolio maturity of three to
ten years, the Intermediate Government Obligations Fund attempts to minimize the
fluctuation in its Shares' net asset value relative to those funds which invest
in longer term obligations.
29 PROSPECTUS--Institutional Shares
<PAGE> 250
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THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Currency Transactions -Futures Contracts
-Government Obligations -Guaranteed Investment Contracts -Lending Portfolio Securities
-Other Mutual Funds -Private Activity Bonds -Put and Call Options
-Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements
-When-Issued and -Portfolio Turnover and Dollar Roll Agreements
Delayed-Delivery
Transactions
</TABLE>
THE GOVERNMENT INCOME FUND
The investment objective of the Government Income Fund is to provide
shareholders with a high level of current income consistent with prudent
investment risk.
Under normal market conditions, the Government Income Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
nongovernmental issuers. Consistent with the foregoing, under current market
conditions, the Government Income Fund intends to invest up to 80% of the value
of its total assets in mortgage-related securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. The Government Income Fund
also may invest up to 35% of its total assets in mortgage-related securities
issued by nongovernmental entities and in other securities described below. For
more information, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Mortgage-Related
Securities," below.
The types of U.S. Government obligations, including mortgage-related securities,
invested in by the Government Income Fund will include obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Treasury, such as Treasury bills, notes and bonds, Stripped Treasury
Obligations and Government Securities, as described below in "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations".
The Government Income Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper rated
at the time of purchase within the top two categories by an NRSRO or, if
unrated, which First of America deems to present attractive opportunities and
are of comparable quality (including variable amount master demand notes),
bankers' acceptances, certificates of deposit and time deposits of domestic and
foreign branches of U.S. banks and foreign banks, and repurchase and reverse
repurchase agreements. The Government Income Fund may also invest in corporate
debt securities which are rated at the time of purchase within the top three
categories of an NRSRO or, if unrated, which First of America deems to present
attractive opportunities and are of comparable quality.
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THE GOVERNMENT INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Government Obligations -Lending Portfolio Securities
-Mortgage-Related Securities -Other Mutual Funds -Put and Call Options
-Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements
-When-Issued and -Portfolio Turnover and Dollar Roll Agreements
Delayed-Delivery
Transactions
</TABLE>
PROSPECTUS--Institutional Shares 30
<PAGE> 251
TAX-FREE INCOME FUNDS
The investment objective of the Municipal Bond Fund is to seek current interest
income which is exempt from federal income taxes as well as preservation of
capital. The investment objectives of the Michigan Fund are to seek income which
is exempt from federal income tax and Michigan state income and intangibles tax,
although such income may be subject to the federal alternative minimum tax when
received by certain Shareholders, and to seek preservation of capital.
Under normal market conditions and as a fundamental policy, at least 80% of the
net assets of the Municipal Bond Fund will be invested in a diversified
portfolio of Municipal Securities and at 80% of the net assets of the Michigan
Fund will be invested in a portfolio of Michigan Municipal Securities.
"Municipal Securities" include obligations consisting of bonds, notes and
commercial paper, issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and other political subdivisions,
agencies, instrumentalities and authorities, the interest on which is both
exempt from federal income taxes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. "Michigan
Municipal Securities" include debt obligations, consisting of notes, bonds and
commercial paper, issued by or on behalf of the State of Michigan, its political
subdivisions, municipalities and public authorities, the interest on which is,
in the opinion of bond counsel to the issuer, exempt from federal income tax and
Michigan state income and intangibles taxes (but may be treated as a preference
item for individuals for purposes of the federal alternative minimum tax) and
debt obligations issued by the Government of Puerto Rico or the U.S. territories
and possessions of Guam and the U.S. Virgin Islands and such other governmental
entities whose debt obligations, either by law or treaty, generate interest
income which is exempt from federal and Michigan state income and intangibles
tax. For more information regarding Municipal Securities and Michigan Municipal
Securities, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Municipal Securities,"
below.
Under normal market conditions, at least 65% of the net assets of each of the
Municipal Bond Fund and the Michigan Fund will be invested in Municipal
Securities (Michigan Municipal Securities in the case of the Michigan Fund)
consisting of bonds and notes with remaining maturities at the time of purchase
of one year or more. Quality is the primary consideration in selecting Michigan
Municipal Securities for investment by the Michigan Fund.
The Municipal Bond Fund also intends that under normal market conditions its
portfolio will maintain an average weighted maturity of approximately eight to
ten years and an average weighted rating of AA/Aa. The Michigan Fund, under
normal market conditions, will be invested in long-term Michigan Municipal
Securities and that the average weighted maturity of such investments will be 5
to 12 years, although the Michigan Fund may invest in Michigan Municipal
Securities of any maturity. However, First of America may extend or shorten the
average weighted maturity of its portfolio depending upon anticipated changes in
interest rates or other relevant market factors. In addition, the average
weighted rating of a Tax-Free Income Fund's portfolio may vary depending upon
the availability of suitable Municipal Securities or other relevant market
factors.
The Michigan Fund invests in Michigan Municipal Securities which are rated at
the time of purchase within the four highest rating groups assigned by an NRSRO
or rated within the two highest rating groups assigned by an NRSRO in the case
of notes, tax-exempt commercial paper or variable rate demand obligations. The
Michigan Fund may also purchase Michigan Municipal Securities which are unrated
at the time of purchase but are determined to be of comparable quality by First
of America pursuant to guidelines approved by the Group's Board of Trustees. The
applicable Michigan Municipal Securities ratings are described in the Appendix
to the Statement of Additional Information. For a description of debt securities
rated within the fourth highest rating group assigned by the NRSROs, see "RISK
FACTORS AND INVESTMENT TECHNIQUES--Medium-Grade Securities" herein.
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Tax-Free Income Funds will not treat these
bonds as "Municipal Securities" or "Michigan Municipal Securities" for purposes
of measuring compliance with the 80% tests described above. To the extent the
Tax-Free Income Funds invests in these bonds, individual shareholders, depending
on their
31 PROSPECTUS--Institutional Shares
<PAGE> 252
own tax status, may be subject to alternative minimum tax on that part of the
Tax-Free Income Fund's distributions derived from these bonds. For further
information relating to the types of municipal securities which will be included
in income subject to alternative minimum tax, see "ADDITIONAL INFORMATION--
Additional Tax Information Concerning the Tax-Free Fund, the Municipal Bond Fund
and the Michigan Fund" in the Statement of Additional Information.
In addition, investments may be made in taxable obligations if, for example,
suitable tax-exempt obligations are unavailable or if acquisition of U.S.
Government or other taxable securities is deemed appropriate for temporary
defensive purposes as determined by First of America to be warranted due to
market conditions. Such taxable obligations consist of Government Securities,
certificates of deposit, time deposits and bankers' acceptances of selected
banks, commercial paper meeting the Tax-Free Income Fund's quality standards (as
described above) for tax-exempt commercial paper, and such taxable obligations
as may be subject to repurchase agreements. These obligations are described
further in the Statement of Additional Information. Under such circumstances and
during the period of such investment, the affected Tax-Free Income Fund may not
achieve its stated investment objectives.
SPECIAL CONSIDERATIONS RELATING TO THE MICHIGAN FUND
Although the Municipal Bond Fund may invest more than 25% of its net assets in
(i) Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, it does not presently intend to do
so on a regular basis. To the extent the Municipal Bond Fund's assets are
concentrated in Municipal Securities that are payable from the revenues of
similar projects or are issued by issuers located in the same state, or are
concentrated in private activity bonds, the Municipal Bond Fund will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states, projects and bonds to a greater extent than it would be if its
assets were not so concentrated.
Because the Michigan Fund invests primarily in securities issued by the State of
Michigan and its political subdivisions, municipalities and public authorities,
the Michigan Fund's performance is closely tied to the general economic
conditions within the State as a whole and to the economic conditions within
particular industries and geographic areas represented or located within the
State. However, the Michigan Fund attempts to diversify, to the extent First of
America deems appropriate, among issuers and geographic areas in the State of
Michigan.
The Michigan Fund's classification as a "non-diversified" investment company
means that the proportion of the Michigan Fund's assets that may be invested in
the securities of a single issuer is not limited by the 1940 Act. However, the
Michigan Fund intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended, which requires the Michigan Fund generally to invest, with respect to
50% of its total assets, not more than 5% of such assets in the obligations of a
single issuer; as to the remaining 50% of its total assets, the Michigan Fund is
not so restricted. In no event, however, may the Michigan Fund invest more than
25% of its total assets in the obligations of any one issuer. Compliance with
this requirement is measured at the close of each quarter of the Michigan Fund's
taxable year. Since a relatively high percentage of the Michigan Fund's assets
may be invested in the obligations of a limited number of issuers, some of which
may be within the same economic sector, the Michigan Fund's portfolio securities
may be more susceptible to any single economic, political or regulatory
occurrence than the portfolio securities of a diversified investment company.
PROSPECTUS--Institutional Shares 32
<PAGE> 253
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TAX-FREE INCOME FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities -Foreign Currency Transactions -Futures Contracts
-Government Obligations -Lending Portfolio Securities -Medium-Grade Securities
-Municipal Securities -Other Mutual Funds -Put and Call Options
-Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements
and
-Portfolio Turnover -When-Issued and Delayed Dollar Roll Agreements
Delivery
Transactions
</TABLE>
MONEY MARKET FUNDS
The investment objective of each of the Prime Obligations Fund, the U.S.
Government Obligations Fund and the Treasury Fund is to seek current income with
liquidity and stability of principal. The investment objective of the Tax-Free
Fund is to seek as high a level of current interest income free from federal
income taxes as is consistent with the preservation of capital and relative
stability of principal.
The Prime Obligations Fund invests in high-quality money market instruments,
including Municipal Securities and other instruments deemed to be of comparable
high quality as determined by the Board of Trustees. The U.S. Government
Obligations Fund invests at least 65% of the value of its total assets in
short-term U.S. Treasury bills, notes, and other obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. The
Treasury Fund, under normal market conditions invests exclusively in obligations
issued or guaranteed by the U.S. Treasury, its agencies or instrumentalities and
in repurchase agreements related to such securities. As a matter of fundamental
policy, under normal market conditions, at least 80% of the Tax-Free Fund's
total assets will be invested in Municipal Securities.
The U.S. Government Obligations Fund may invest up to 35% of the value of its
total assets in high-quality money market instruments, including Municipal
Securities, and other instruments deemed to be of comparable high quality as
determined by the Board of Trustees.
The Tax-Free Fund may invest up to 20% of its total assets in obligations, the
interest on which is either subject to federal income taxation or treated as a
preference item for purposes of the federal alternative minimum tax ("Taxable
Obligations"). If deemed appropriate for temporary defensive purposes, the Tax-
Free Fund may increase its holdings in Taxable Obligations to over 20% of its
total assets and may also hold uninvested cash reserves pending investment.
Taxable Obligations may include obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (some of which may be subject to
repurchase agreements), certificates of deposit and bankers' acceptances of
selected banks, and commercial paper meeting the Tax-Free Fund's quality
standards (as described below) for tax-exempt commercial paper. These
obligations are described further in the Statement of Additional Information.
As a money market fund, each Money Market Fund invests exclusively in United
States dollar denominated instruments which the Trustees of the Group and the
Money Market Fund's investment adviser determine present minimal credit risks
and which at the time of acquisition are rated by one or more appropriate
nationally recognized statistical rating organizations ("NRSRO") (e.g., Standard
& Poor's Corporation and Moody's Investors Service, Inc.) in one of the two
highest rating categories for short-term debt obligations or, if unrated, are of
comparable quality. In addition, the U.S. Government Obligations Fund, the Prime
Obligations Fund and the Treasury Fund each diversify its investments so that,
with minor exceptions and except for United States Government securities, not
more than five percent of its total assets is invested in the securities of any
one issuer, not more than five percent of its total assets is invested in
securities of all issuers rated by the NRSRO at the time of investment in the
second highest rating category for short-term debt obligations or deemed to be
of comparable quality to securities rated in the second highest rating
categories for short-term debt obligations ("Second Tier
33 PROSPECTUS--Institutional Shares
<PAGE> 254
Securities") and not more than the greater of one percent of total assets or one
million dollars is invested in the securities of one issuer that are Second Tier
Securities. All securities or instruments in which a Money Market Fund invests
have remaining maturities of 397 calendar days (thirteen months) or less. The
dollar-weighted average maturity of the obligations in a Money Market Fund will
not exceed 90 days.
The Prime Obligations Fund and, within the limitations described above, the U.S.
Government Obligations Fund may invest in short-term promissory notes issued by
corporations (including variable amount master demand notes) rated at the time
of purchase within the two highest categories assigned by an NRSRO or, if not
rated, found by the Group's Board of Trustees to be of comparable quality to
instruments that are so rated. Instruments may be purchased in reliance upon a
rating only when the rating organization is not affiliated with the issuer or
guarantor of the instrument. For a description of the rating symbols of the
NRSROs as used in this paragraph, see the Appendix to the Statement of
Additional Information. The Prime Obligations Fund may also invest in CCP and in
Europaper.
The Tax-Free Fund may acquire zero coupon obligations, which have greater price
volatility than coupon obligations and which will not result in the payment of
interest until maturity.
Although the Tax-Free Fund presently does not intend to do so on a regular
basis, it may invest more than 25% of its assets in Municipal Securities which
are related in such a way that an economic, business, or political development
or change affecting one such security would likewise affect the other Municipal
Securities. Examples of such securities are obligations the repayment of which
is dependent upon similar types of projects or projects located in the same
state. Such investments would be made only if deemed necessary or appropriate by
the Tax-Free Fund's investment adviser. To the extent that the Tax-Free Fund's
assets are concentrated in Municipal Securities that are so related, the
Tax-Free Fund will be subject to the peculiar risks presented by such Municipal
Securities, such as negative developments in a particular industry or state, to
a greater extent than it would be if the Tax-Free Fund's assets were not so
concentrated.
Variable amount master demand notes in which the Prime Obligations Fund and the
U.S. Government Obligations Fund may invest are unsecured demand notes that
permit the indebtedness thereunder to vary, and that provide for periodic
adjustments in the interest rate according to the terms of the instrument.
Because master demand notes are direct lending arrangements between the Fund and
the issuer, they are not normally traded. Although there is no secondary market
in the notes, the Fund may demand payment of principal and accrued interest at
any time. While the notes are not typically rated by credit rating agencies,
issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial, and other business concerns) must satisfy the
same criteria as set forth above for commercial paper. First of America 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 period of time remaining until the principal amount can be recovered from
the issuer through demand. The period of time remaining until the principal
amount can be recovered under a variable master demand note shall not exceed
seven days.
Similarly, the Tax-Free Fund, within the limitations described above and subject
to the quality standards for tax-exempt commercial paper described below, may
invest in commercial paper.
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MONEY MARKET FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
-Complex Securities (except -Foreign Currency Transactions -Government Obligations
Treasury) -Municipal Securities -Put and Call Options (Tax-Free
-Lending Portfolio Securities (except Treasury) Fund Only)
-Repurchase Agreements -Restricted Securities (except -Reverse Repurchase Agreements
-When-Issued and Delayed Treasury) and Dollar Roll Agreements
Delivery Transactions
(except Treasury)
-Portfolio Turnover
</TABLE>
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PROSPECTUS--Institutional Shares 34
<PAGE> 255
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase or dollar roll agreements with
First of America Bank-Michigan, N.A. (the parent corporation of First of
America), BISYS, or their affiliates, and will not give preference to First of
America Bank-Michigan, N.A.'s correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements, reverse repurchase
agreements and dollar roll agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by First of America and, in the case
of the International and Balanced Funds, the Subadviser in the management of
each of the Funds (with the exception of the Treasury Fund) involve complex
securities sometimes referred to as "derivatives." Among such securities are put
and call options, foreign currency transactions and futures contracts, all of
which are described below. The Adviser and Subadviser believe that such complex
securities may, in some circumstances, play a valuable role in successfully
implementing each Fund's investment strategy and achieving its goals. However,
because complex securities and the strategies for which they are used, are by
their nature complicated, they present substantial opportunities for
misunderstanding and misuse. To guard against these risks, the Adviser and
Subadviser will utilize complex securities primarily for hedging, not
speculative, purposes and only after careful review of the unique risk factors
associated with each such security.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Fund may invest up to 15% of its total assets in foreign
securities. The Equity, Small Capitalization and High Income Equity Funds may
also invest in foreign securities as permitted by their respective investment
policies. Each of the Bond Fund and Limited Maturity Bond Fund may also invest
up to 25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. The U.S. Government
Obligations Fund, the Prime Obligations Fund and the Tax-Free Fund may invest in
foreign securities by purchasing ECDs, ETDs, CTDs, Yankee CDs, CCP, and
Europaper.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the U.S. In addition, there may be less publicly
available information about a foreign company than about a U.S. domiciled
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. domestic companies. There is generally less government regulation of
securities exchanges, brokers and listed companies abroad than in the U.S.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries. In addition, foreign branches of U.S. banks, foreign banks and
foreign issuers may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of
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any such foreign debt obligations, it may be more difficult for a Fund to obtain
or to enforce a judgment against the issuers of such securities. If a security
is denominated in foreign currency, the value of the security to the Fund will
be affected by changes in currency exchange rates and in exchange control
regulations, and costs will be incurred in connection with conversions between
currencies. A change in the value of any foreign currency against the U.S.
dollar will result in a corresponding change in the U.S. dollar value of a
Fund's securities denominated in that currency. Such changes will also affect a
Fund's income and distributions to shareholders. In addition, although a Fund
will receive income on foreign securities in such currencies, such Fund will be
required to compute and distribute its income in U.S. dollars. Therefore, if the
exchange rate for any such currency declines materially after such Fund's income
has been accrued and translated into U.S. dollars, the Fund could be required to
liquidate portfolio securities to make required distributions. Similarly, if an
exchange rate declines between the time a Fund incurs expenses in U.S. dollars
and the time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars in order to pay such expenses in U.S. dollars will
be greater.
For many foreign securities, U.S. dollar-denominated American Depositary
Receipts, or ADR's, which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. ADR's represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADR's do not eliminate all the risk inherent in investing in
the securities of foreign issuers. However, by investing in ADR's rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for many ADR's. The information available for
ADR's is subject to the accounting, auditing and financial reporting standards
of the domestic market or exchange on which they are traded, which standards are
more uniform and more exacting than those to which many foreign issuers may be
subject. The International and Balanced Funds may also invest in European
Depository Receipts, or EDR's, which are receipts evidencing an arrangement with
a European bank similar to that for ADR's and are designed for use in the
European securities markets. EDR's are not necessarily denominated in the
currency of the underlying security.
Certain of the ADR's and EDR's, typically those denominated as unsponsored,
require the holders thereof to bear most of the costs of such facilities while
issuers of sponsored facilities normally pay more of the costs thereof. The
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders in respect
to the deposited securities, whereas the depository of a sponsored facility
typically distributes shareholder communications and passes through the voting
rights.
Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the ECU,
which is a "basket" consisting of specified amounts of the currencies of certain
of the twelve member states of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. Such adjustments may adversely affect holders of ECU-denominated
obligations or the marketability of such securities. European governments and
supranationals, in particular, issue ECU-denominated obligations.
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds, with the exception of the Money Market Funds and the Michigan
Fund, may utilize foreign currency transactions in its portfolio. The value of
the assets of a Fund as measured in United States dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract ("forward currency contracts") involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These forward currency contracts are traded directly
between currency traders
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(usually large commercial banks) and their customers. The Funds may enter into
forward currency contracts in order to hedge against adverse movements in
exchange rates between currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency, or when a Fund believes that the U.S. dollar may suffer a substantial
decline against a foreign currency, it may enter into a forward currency
purchase contract to buy that foreign currency for a fixed U.S. dollar amount.
However, this tends to limit potential gains which might result from a positive
change in such currency relationships. A Fund may also hedge its foreign
currency exchange rate risk by engaging in currency financial futures and
options transactions. The forecasting of short-term currency market movement is
extremely difficult and whether such a short-term hedging strategy will be
successful is highly uncertain.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a forward currency contract. Accordingly, it may
be necessary for a Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency such Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
such Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. Should forward prices
decline during the period between a Fund's entering into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, such Fund would suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, they also tend to limit any
potential gain which might result should the value of such currency increase.
The Funds will have to convert their holdings of foreign currencies into United
States dollars from time to time. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies.
The International Fund does not intend to enter into forward currency contracts
if the International Fund would have more than 15% of the value of its total
assets committed to such contracts on a regular or continuous basis. The
International Fund does not intend to enter into forward currency contracts or
maintain a net exposure in such contracts where the International Fund would be
obligated to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES--Additional Information on Portfolio Instruments" in the
Statement of Additional Information.
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FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds, the Bond Fund, the Limited
Maturity Bond Fund, the Intermediate Government Obligations Fund, the Municipal
Bond Fund and the Parkstone Government Income Fund may also enter into contracts
for the future delivery of securities or foreign currencies and futures
contracts based on a specific security, class of securities, foreign currency or
an index, purchase or sell options on any such futures contracts and engage in
related closing transactions. A futures contract on a securities index is an
agreement obligating either party to pay, and entitling the other party to
receive, while the contract is outstanding, cash payments based on the level of
a specified securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. 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.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed one-third of the market value of a Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange 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 or foreign currencies,
limiting the Fund's ability to hedge effectively against interest rate, exchange
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.
GOVERNMENT OBLIGATIONS
The U.S. Government Obligations Fund will invest primarily in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
Subject to the investment parameters described above, each of the remaining
Funds may also invest in such obligations. The Treasury Fund, however, will
invest exclusively in obligations issued or guaranteed by the U.S. Treasury and
in repurchase agreements backed by such securities. The remaining Funds may
invest in government obligations as permitted by the investment parameters
described above.
The types of U.S. Government obligations in which each these Funds may invest
include U.S. Treasury notes, bills, bonds, and any other securities directly
issued by the U.S. Government that are available for public investment, which
differ only in their interest rates, maturities, and times of issuance, as well
as "stripped" U.S. Treasury obligations, such as Treasury Receipts issued by the
U.S. Treasury and representing either future interest or principal payments,
and, except for the Treasury Fund, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Stripped securities are issued
at a discount to their "face value" and may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal and
interest are returned to investors. The stripped Treasury obligations in which
the Money Market Funds may invest do not include certificates of accrual on
treasury securities (CATS) or treasury income growth receipts (TIGRs).
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Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the Student Loan Marketing
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Farm Credit Banks or the Federal Home Loan Mortgage Corporation, 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. The Funds
which may invest in these government obligations will invest in the obligations
of such agencies or instrumentalities only when First of America believes that
the credit risk with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS
The Bond Fund and the Limited Maturity Bond Fund may invest in guaranteed
investment contracts (GICs). When investing in GICs, the Bond Fund and the
Limited Maturity Bond Fund make cash contributions to a deposit fund of an
insurance company's general account. The insurance company then credits to the
deposit fund on a monthly basis guaranteed interest. The GICs provide that this
guaranteed interest will not be less than a certain minimum rate. The insurance
company may assess periodic charges against a GIC for expense and service costs
allocable to it, and the charges will be deducted from the value of the deposit
fund. The Bond Fund and the Limited Maturity Bond Fund may invest in GICs of
insurance companies without regard to the ratings, if any, assigned to such
insurance companies' outstanding debt securities. Because a Fund may not receive
the principal amount of a GIC from the insurance company on seven days notice or
less, the GIC is considered an illiquid investment, and, together with other
instruments in that Income Fund which are deemed to be illiquid, will not exceed
15% of its total assets. In determining average portfolio maturity, GICs will be
deemed to have a maturity equal to the period of time remaining until the next
readjustment of the guaranteed interest rate.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks, or institutional borrowers of
securities. A Fund must receive 100% collateral in the form of cash or U.S.
Government securities. This collateral will be valued daily by First of America
or by the Subadvisers, as the case may be. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to that
Fund. During the time portfolio securities are on loan, the borrower pays that
Fund any dividends or interest received on such securities. Loans are subject to
termination by the Fund or the borrower at any time. While a Fund does not have
the right to vote securities on loan, each Fund intends to terminate the loan
and regain the right to vote if that is considered important with respect to the
investment. In the event the borrower defaults in its obligation to a Fund, such
Fund bears the risk of delay in the recovery of its portfolio securities and the
risk of loss of rights in the collateral. The Funds will enter into loan
agreements only with broker-dealers, banks, or other institutions that the
Adviser or the Subadvisers, as the case may be, have determined are creditworthy
under guidelines established by the Group's Board of Trustees.
MEDIUM-GRADE SECURITIES
As described above, the Balanced, Bond, Limited Maturity Bond, Municipal Bond
and the Michigan Funds may invest in fixed income securities within the fourth
highest rating group assigned by an NRSRO (i.e., BBB or Baa by S&P and Moody's,
respectively) and comparable unrated securities. These types of fixed income
securities are considered by the NRSROs to have some speculative
characteristics, and are more vulnerable to changes in economic conditions,
higher interest rates or adverse issuer-specific developments which are more
likely to lead to a weaker capacity to make principal and interest payments than
comparable higher rated debt securities.
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Should subsequent events cause the rating of a fixed income security purchased
by any of the Funds listed above to fall below the fourth highest rating, First
of America will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would the Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
MORTGAGE-RELATED SECURITIES
As indicated above, the Government Income Fund intends to invest up to 80% of
the value of its total assets and the Balanced Fund, Bond Fund, Limited Maturity
Bond Fund, Intermediate Government Obligations Fund, Prime Obligations Fund and
U.S. Government Obligations Fund may invest in mortgage-related securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Such agencies or instrumentalities include the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"),
and in mortgage-related securities issued by nongovernmental entities which are
rated, at the time of purchase, within the three highest bond rating categories
assigned by an NRSRO or, if unrated, which First of America deems to present
attractive opportunities and are of comparable quality. However, the Government
Income Fund may invest greater amounts as conditions warrant.
The mortgage-related securities in which the these Funds may invest have
mortgage obligations backing such securities, consisting of conventional thirty
year fixed rate mortgage obligations, graduated payment mortgage obligations,
fifteen year mortgage obligations and adjustable rate mortgage obligations. All
of these mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. Accelerated prepayments have an adverse impact on yields for
pass-throughs purchased at a premium (i.e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, though, the rate of prepayment tends to decrease, thereby lengthening
the period of time over which income at the lower rate is received. For these
and other reasons, a mortgage-related security's average maturity may be
shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Fund. In addition, regular payments received with respect to mortgage-related
securities include both interest and principal. No assurance can be given as to
the return a Fund will receive when these amounts are reinvested.
The principal governmental (i.e., backed by the full faith and credit of the
United States Government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States Government
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corporation within the Department of Housing and Urban Development. GNMA is
authorized to guarantee, with the full faith and credit of the United States
Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA (such as savings and loan institutions, commercial
banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Government-related (i.e., not backed by the full faith and credit of the United
States Government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States Government. FHLMC is a corporate instrumentality of the
United States Government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States Government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by nongovernmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such nongovernmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if through an
examination of the loan experience and practices of the poolers First of America
determines that the securities meet the Government Income Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Government Income Fund will not purchase mortgage-related
securities or any other assets which in First of America's opinion are illiquid,
if as a result, more than 15% of the value of the Government Income Fund's total
assets will be illiquid.
Mortgage-related securities in which the above-named Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed rate mortgages. As new types
of mortgage-related securities are developed and offered to investors, First of
America will, consistent with the Government Income Fund's investment objective,
policies and quality standards, consider making investments in such new types of
securities.
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MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities (Michigan Municipal
Securities, in the case of the Michigan Fund) which may be held by the Bond,
Limited Maturity Bond, Municipal Bond Fund, Michigan Fund, Prime Obligations,
U.S. Government Obligations and Tax-Free Funds are "general obligation"
securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from proceeds of a special excise tax or other specific revenue source
such as the user of the facility being financed. Private activity bonds held by
the Municipal Bond and Michigan Fund are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
The above-named Funds may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Each of the above-named Funds invests primarily in Municipal Securities which
are rated at the time of purchase within the four highest rating groups assigned
by an NRSRO or in the highest rating group assigned by an NRSRO in the case of
notes, tax-exempt commercial paper or variable rate demand obligations. The
Funds may also purchase Municipal Securities which are unrated at the time of
purchase but are determined to be of comparable quality by First of America
pursuant to guidelines approved by the Group's Board of Trustees. The applicable
Municipal Securities ratings are described in the Appendix to the Statement of
Additional Information. For a discussion of debt securities rated within the
fourth highest rating group assigned by an NRSRO, see "RISK FACTORS AND
INVESTMENT TECHNIQUES--Medium Grade Securities" herein.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. No Fund nor First of America will
review the proceedings relating to the issuance of Municipal Securities or the
basis for such opinions.
Municipal Securities and Michigan Municipal Securities purchased by the Tax-Free
Income Funds may include rated and unrated variable and floating rate tax-exempt
notes. A variable rate note is one whose terms provide for the adjustment of its
interest rate on set dates and which, upon such adjustment, can reasonably be
expected to have a market value that approximates its par value. A floating rate
note is one whose terms provide for the adjustment of its interest rate whenever
a specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. Such notes are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate notes purchased by the Tax-Free Income Funds will be determined by
First of America, under guidelines established by the Group's Board of Trustees,
to be of comparable quality at the time of purchase to rated instruments
eligible for purchase under the Fund's investment policies. In making such
determinations, First of America 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. There may be no active secondary
market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to the Tax-Free Income Fund will approximate their par value.
The Tax-Free Income Funds will not purchase variable and floating rate notes or
any other securities which in First of America's opinion are illiquid, if as a
result, more than 15% of the Tax-Free Income Fund's total assets will be
illiquid.
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OTHER MUTUAL FUNDS
Each of the Funds may invest up to 5% of the value of its total assets in the
securities of any one money market mutual fund (including shares of the
Parkstone Prime Obligations Fund, the Parkstone U.S. Government Obligations
Fund, the Parkstone Tax-Free Fund, the Parkstone Municipal Investor Fund, and
the Parkstone Treasury Fund), provided that no more than 10% of the Fund's total
assets may be invested in the securities of mutual funds in the aggregate. In
order to avoid the imposition of additional fees as a result of investments by a
Fund in Shares of the money market funds of the Group, the Investment Adviser,
Administrator and their affiliates (See "MANAGEMENT OF THE FUNDS--Investment
Adviser and Subadvisers" and "Administrator, Sub-Administrator and Distributor"
and "GENERAL INFORMATION--Transfer Agency and Fund Accounting Services") will
not retain any portion of their usual asset-based service fees from a Fund that
are attributable to investments by the Fund in Shares of those money market
mutual funds if the fee is being taken in the Fund. The Investment Adviser and
the Administrator will promptly forward such fees to the appropriate Fund. Each
Fund will incur additional expenses due to the duplication of expenses as a
result of any investment in securities of unaffiliated mutual funds. Additional
restrictions regarding the Funds' investments in securities of unaffiliated
mutual funds and/or money market funds of the Group are contained in the
Statement of Additional Information.
PRIVATE ACTIVITY BONDS
The Tax-Free Fund may also invest in private activity bonds. It should be noted
that the Tax Reform Act of 1986 substantially revised provisions of prior
federal law affecting the issuance and use of proceeds of certain tax-exempt
obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Any reference herein to private activity bonds includes industrial development
bonds. Interest on private activity bonds is tax-exempt (and such bonds will be
considered Municipal Securities for purposes of this Prospectus) only if the
bonds fall within certain defined categories of qualified private activity bonds
and meet the requirements specified in those respective categories. If the
Tax-Free Fund invests in private activity bonds which fall outside these
categories, Shareholders may become subject to the alternative minimum tax on
that part of the Tax-Free Fund's distributions derived from interest on such
bonds. The Tax Reform Act generally does not change the federal tax treatment of
bonds issued to finance government operations. For further information relating
to the types of private activity bonds which will be included in income subject
to the alternative minimum tax, see "ADDITIONAL INFORMATION--Additional Tax
Information Concerning the Tax-Free Fund and the Municipal Bond Fund" in the
Statement of Additional Information.
PUT AND CALL OPTIONS
Each of the Growth Funds, the Growth and Income Funds, the Income Funds and the
Tax-Free Income Funds may purchase put and call options on securities and on
foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. Each Fund
may also engage in writing call options from time to time as First of America or
the Subadvisers, as the case may be with respect to the International Fund, deem
appropriate. The Funds will write only covered call options (options on
securities or currencies owned by the particular Fund). In order to close out a
call option it has written, the Fund will enter into a "closing purchase
transaction"--the purchase of a call option on the same security or currency
with the same exercise price and expiration date as the call option which such
Fund previously has written. When a portfolio security or currency subject to a
call option is sold, the Fund will effect a closing purchase transaction to
close out any existing call option on that security or currency. If such Fund is
unable to effect a closing purchase transaction, it will not be able to sell the
underlying security or currency until the option expires or that Fund delivers
the underlying security or currency upon exercise. In addition, upon the
exercise of a call option by the holder thereof, the Fund will forego the
potential benefit represented by market appreciation over the exercise price.
Under normal conditions, it is not expected that the Funds will
43 PROSPECTUS--Institutional Shares
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cause the underlying value of portfolio securities and currencies subject to
such options to exceed 50% of its net assets, and with respect to each of the
Balanced and International Funds, 20% of its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its option transactions, also may purchase index put and call
options and write index options. As with options on individual securities, a
Fund will write only covered index call options. Through the writing or purchase
of index options a Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash 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.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
In addition, the Tax-Free Fund, the Municipal Bond Fund and the Michigan Fund
may each acquire "puts" with respect to Municipal Securities or Michigan
Municipal Securities, as the case may be, held in its portfolio. Under a put,
such a Fund would have the right to sell a specified Municipal Security (or
Michigan Municipal Security, as the case may be) within a specified period of
time at a specified price. A put would be sold, transferred, or assigned only
with the underlying security. The Municipal Bond, the Michigan and the Tax-Free
Funds will acquire puts solely to either facilitate portfolio liquidity, shorten
the maturity of the underlying securities, or permit the investment of its funds
at a more favorable rate of return. Each of the Municipal Bond Fund, the
Michigan Fund and the Tax-Free Fund expects that it will generally acquire puts
only where the puts are available without the payment of any direct or indirect
consideration. However, if necessary or advisable, such Fund may pay for a put
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to the puts (thus reducing the yield to maturity
otherwise available for the same securities).
REPURCHASE AGREEMENTS
Securities held by a Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as member banks of the Federal Deposit Insurance Corporation
or registered broker-dealers which First of America or the Subadvisers, as the
case may be, deem creditworthy under guidelines approved by the Group's Board of
Trustees, 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. Securities subject to repurchase agreements will be held
in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, the Fund 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 that Fund were delayed pending court action. Repurchase
agreements are considered to be loans by an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). For further
information about repurchase agreements, see "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments--Repurchase
Agreements" in the Statement of Additional Information.
PROSPECTUS--Institutional Shares 44
<PAGE> 265
RESTRICTED SECURITIES
Securities in which each of the Funds, with the exception of the Treasury Fund,
may invest include securities issued by corporations without registration under
the Securities Act of 1933, as amended (the "1933 Act"), in reliance on the
exemption from such registration afforded by Section 3(a)(3) thereof, and
securities issued in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) securities"). Section 4(2) securities are restricted as to disposition
under the Federal securities laws, and generally are sold to institutional
investors such as the Funds who agree that they are purchasing the securities
for investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in such Section 4(2) securities,
thus providing liquidity. Pursuant to procedures adopted by the Board of
Trustees of the Group, First of America may determine Section 4(2) securities to
be liquid if such securities are eligible for resale under Rule 144A under the
1933 Act and are readily saleable.
Thus, subject to the limitations described above, the Funds may acquire
investments that are illiquid or of limited liquidity, such as private
placements or investments that are not registered under the 1993 Act. An
illiquid investment is any investment that cannot be disposed of within seven
(7) days in the normal course of business at approximately the amount at which
it is valued by a Fund. The price a Fund pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly, the valuation of these
securities will reflect any limitations on their liquidity. A Fund may not
invest in additional illiquid securities if, as a result, more than 15% (10% in
the case of the Money Market Funds) of the market value of its net assets would
be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Each of the Funds may borrow funds by entering into reverse repurchase
agreements and, in the case of the Income and the Tax-Free Income Funds, dollar
roll agreements in accordance with the investment restrictions described below.
Pursuant to such agreements, a Fund would sell certain of its securities to
financial institutions such as banks and broker-dealers, and agree to repurchase
the securities, or substantially similar securities in the case of a dollar roll
agreement, at a mutually agreed upon date and price. Dollar roll agreements
utilized by the Income and Tax-Free Income Funds are identical to reverse
repurchase agreements except for the fact that substantially similar securities
may be repurchased. At the time a Fund enters into a reverse repurchase
agreement or a dollar roll agreement, it will place in a segregated custodial
account assets such as U.S. Government securities or other liquid high grade
debt securities consistent with its 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 and dollar roll
agreements involve the risk that the market value of securities sold by a Fund
may decline below the price at which it is obligated to repurchase the
securities. Reverse repurchase agreements and dollar roll agreements are
considered to be borrowings by an investment company under the 1940 Act and
therefore a form of leverage. A Fund may experience a negative impact on its net
asset value if interest rates rise during the term of a reverse repurchase
agreement or dollar roll agreement. A Fund generally will invest the proceeds of
such borrowings only when such borrowings will enhance a Funds's liquidity or
when the Fund reasonably expects that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. For further information about reverse repurchase agreements and
dollar roll agreements, see "INVESTMENT OBJECTIVES AND POLICIES--Additional
Information on Portfolio Instruments--Reverse Repurchase Agreements and Dollar
Roll Agreements" in the Statement of Additional Information.
45 PROSPECTUS--Institutional Shares
<PAGE> 266
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds, with the exception of the Treasury Fund, may each purchase
securities on a when-issued or delayed-delivery basis. Such Funds will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objectives and policies, not
for investment leverage although such transactions represent a form of
leveraging. When-issued securities are securities purchased for delivery beyond
the normal settlement date at a stated price and yield and thereby involve a
risk that the yield obtained in the transaction will be less than those
available in the market when delivery takes place. A Fund will not pay for such
securities or start earning interest on them until they are received. When a
Fund agrees to purchase such securities, its custodian will set aside cash or
liquid securities equal to the amount of the commitment in a separate account.
Securities purchased on a when-issued basis are recorded as an asset and are
subject to changes in the value based upon changes in the general level of
interest rates. In when-issued and delayed-delivery transactions, a Fund relies
on the seller to complete the transaction; the seller's failure to do so may
cause such Fund to miss a price or yield considered to be advantageous. The
Prime Obligations, U.S. Government Obligations and Tax-Free Funds will purchase
only Municipal Securities on a when-issued or delayed delivery basis. No Fund's
commitments to purchase "when-issued" securities will exceed 25% of the value of
its total assets under normal market conditions, and a commitment by a Fund to
purchase "when-issued" securities will not exceed 60 days. In the event its
commitments to purchase "when-issued" securities ever exceeded 25% of the value
of its assets, a Fund's liquidity and the investment adviser's ability to manage
it might be adversely affected. The Funds intend only to purchase "when-issued"
securities for the purpose of acquiring portfolio securities, not for investment
leverage although such transactions represent a form of leveraging.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund 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 Securities and Exchange
Commission requires that the calculation exclude all securities whose remaining
maturities at the time of acquisition are one year or less. The portfolio
turnover rate for a 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 a Fund's shareholders. Portfolio turnover will
not be a limiting factor in making investment decisions.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding Shares of that Fund (as defined
in the Statement of Additional Information).
None of the Funds, with the exception of the Michigan Fund, may:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
if, immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in such issuer, or the Fund would
hold more than 10% of the outstanding voting securities of the issuer,
except that 25% or less of the value of such Fund's total assets may be
invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes,
or other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
Irrespective of the investment restriction above, and pursuant to Rule 2a-7
under the 1940 Act, the U.S. Government Obligations Fund, the Prime Obligations
Fund and the Treasury Fund each will, with respect to 100% of its total assets,
limit its investment in the securities of any one issuer in the manner provided
by such Rule, which limitations are referred to above under the caption
"INVESTMENT OBJECTIVES AND POLICIES--The Money Market Funds."
PROSPECTUS--Institutional Shares 46
<PAGE> 267
The Michigan Fund may not:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
if, immediately after such purchase, (a) more than 5% of the value of the
Fund's total assets (taken at current value) would be invested in such
issuer (except that up to 50% of the value of the Fund's total assets may
be invested without regard to such 5% limitation), and (b) more than 25%
of its total assets (taken at current value) would be invested in the
securities of a single issuer.
For purposes of the investment limitations above, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues back
the security and, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, a security is considered to
be issued by such non-governmental user.
None of the Funds will:
1. Purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the
U.S. Government or its agencies or instrumentalities; (b) wholly owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
2. (a) Borrow money (not including reverse repurchase agreements or dollar roll
agreements), except that the Funds may borrow from banks for temporary or
emergency purposes and then only in amounts up to 30% (10% in the case of the
Money Market Funds) of its total assets at the time of borrowing (and
provided that such bank borrowings and reverse repurchase agreements and
dollar roll agreements do not exceed in the aggregate one-third of the Fund's
total assets less liabilities other than the obligations represented by the
bank borrowings, reverse repurchase agreements and dollar roll agreements),
or mortgage, pledge or hypothecate any assets except in connection with a
bank borrowing in amounts not to exceed 30% of the Fund's net assets at the
time of borrowing; (b) enter into reverse repurchase agreements, dollar roll
agreements and other permitted borrowings in amounts exceeding in the
aggregate one-third of the Fund's total assets less liabilities other than
the obligations represented by such reverse repurchase and dollar roll
agreements; and (c) issue senior securities except as permitted by the 1940
Act rule, order or interpretation thereunder.
3. Make loans, except that the Fund may purchase or hold debt instruments and
lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
For purposes only of investment limitation number 1 above, such limitation shall
not apply to Municipal Securities or governmental guarantees of Municipal
Securities, and industrial development bonds or private activity bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding Shares of a Fund.
Each Fund may not:
1. Purchase or otherwise acquire any securities, if as a result, more than 15%
(10% in the case of the Money Market Funds) of the Fund's net assets would be
invested in securities that are illiquid.
In addition to the above investment restrictions, the Funds are subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES--Investment Restrictions" in the Statement of Additional Information.
47 PROSPECTUS--Institutional Shares
<PAGE> 268
MANAGEMENT OF THE FUNDS
TRUSTEES
Overall responsibility for management of the Group rests with its Board of
Trustees, who are elected by the shareholders of all of the Group's Funds. The
Group will be managed by the Trustees in accordance with the laws of the
Commonwealth of Massachusetts governing business trusts. There are currently
five Trustees, three of whom are not "interested persons" of the Group within
the meaning of that term under the 1940 Act. The Trustees, in turn, elect the
officers of the Group to supervise actively its day-to-day operations.
The Trustees of the Group are Stephen G. Mintos* (Chairman), George R.
Landreth*, Robert M. Beam, Lawrence D. Bryan and Adrian Charles Edwards. The
addresses, and principal occupations during the past five years of the Trustees
are set forth in the Statement of Additional Information. Those Trustees
designated with an asterisk (*) are considered to be "interested persons" of the
Group as defined in the 1940 Act.
The Trustees of the Group receive quarterly fees and fees and expenses for each
meeting of the Board of Trustees attended. However, no officer or employee of
BISYS, The BISYS Group, Inc. or BISYS Fund Services Ohio, Inc. receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. BISYS receives fees from the Group for acting as
Administrator. BISYS Fund Services Ohio, Inc., an affiliate of BISYS, receives
fees from the Group for acting as Transfer Agent and for providing certain fund
accounting services. Mr. Mintos and Mr. Landreth are employees of BISYS.
INVESTMENT ADVISER AND SUBADVISERS
First of America was established in 1932 and is the investment adviser of the
Group. First of America, a registered investment adviser, is a wholly owned
subsidiary of First of America Bank-Michigan, N.A., which is a wholly owned
subsidiary of First of America Bank Corporation. First of America Bank
Corporation currently has over $25 billion in assets and provides financial
services to over 300 communities in Michigan, Indiana, Illinois and Florida. As
of June 30, 1995, First of America managed over $10 billion on behalf of both
taxable and tax-exempt clients, including pensions, endowments, corporations and
individual portfolios. First of America also acts as investment adviser to the
Trust Division of First of America Bank Corporation with respect to an
additional $2.3 billion in discretionary assets, providing equity, fixed income,
balanced and money management services.
Subject to such policies as the Group's Board of Trustees may determine, First
of America, either directly or, with respect to the International Fund and the
Balanced Fund, through one or more subadvisers, furnishes a continuous
investment program for each Fund and makes investment decisions on behalf of
each Fund.
First of America utilizes a team approach to the investment management of the
Funds, with up to three professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
each Fund's investment objectives. Roger H. Stamper, Managing Director of First
of America, is primarily responsible for the day-to-day management of each of
the Growth Funds (except the International Fund) and the Growth and Income
Funds. Mark R. Kummerer, Managing Director--Fixed Income of First of America, is
primarily responsible for the day-to-day management of the Income Funds.
Christian S. Swantek, Vice President of First of America, is primarily
responsible for the day-to-day management of the Tax-Free Income Funds. Messrs.
Stamper and Kummerer have held their respective positions with First of America
since 1988 and 1986, respectively. Prior to June 1993, Mr. Swantek was a
portfolio manager at PNC Investment Management & Research and its various
investment management affiliates.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, First of America receives a fee from each of
the Equity, Small Capitalization, High Income Equity and Balanced Funds,
computed daily and paid monthly, at the annual rate of one percent (1%) of that
Fund's average daily net assets. For its services in connection with the
International Fund, First of
PROSPECTUS--Institutional Shares 48
<PAGE> 269
America's fee is computed daily and paid monthly at the annual rate of one and
twenty-five hundredths percent (1.25%) of the first $50 Million of the
International Fund's average daily net assets, one and twenty hundredths percent
(1.20%) of average daily net assets between $50 Million and $100 Million, one
and fifteen hundredths percent (1.15%) of average daily net assets between $100
Million and $400 Million and one and five hundredths percent (1.05%) of average
daily net assets above $400 Million. For its services in connection with each
Income Fund and Tax-Free Income Fund, First of America's fee is computed daily
and paid monthly at the annual rate of seventy-four one-hundredths of one
percent (.74%) of each Income Fund's and Tax-Free Income Fund's average daily
net assets. For its services in connection with the Money Market Funds, First of
America's fee is computed daily and paid monthly, at the annual rate of forty
one-hundredths of one percent (.40%) of each Money Market Fund's average daily
net assets. First of America 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. The voluntary fee reduction
will cause the yield of that Fund to be higher than it would otherwise be in the
absence of such a reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream
Global Investors, Ltd., 300 Crescent Court, Suite 1605, Dallas, Texas 75201
("Gulfstream"). Pursuant to the terms of such Sub-Investment Advisory Agreement
Gulfstream has been retained by First of America to manage the investment and
reinvestment of the assets of the International Fund and to manage the
investment and reinvestment of those assets of the Balanced Fund which are
invested in foreign securities, subject to the direction and control of the
Group's Board of Trustees.
Under this arrangement, Gulfstream is responsible for the day-to-day management
of the International Fund's assets, reviews investment performance policies and
guidelines and maintains certain books and records, and First of America is
responsible for selecting and monitoring the performance of Gulfstream and for
reporting the activities of Gulfstream in managing the International Fund to the
Group's Board of Trustees. Gulfstream utilizes a team approach to the investment
management of the International Fund to ensure a disciplined investment process
designed to result in long-term performance consistent with its investment
objective. No one person is responsible for the Fund's management. First of
America may also render advice with respect to the International Fund's
investments in the U.S.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with First of America, Gulfstream receives from First of
America a fee, computed daily and paid monthly, at the annual rate of one-half
percent (.50%) of the first $50 million of the International Fund's average
daily net assets and the average daily net assets of the Balanced Fund which are
invested in foreign securities, forty-five one hundredths percent (.45%) of such
average daily net assets between $50 million and $100 million, forty one
hundredths percent (.40%) of such average daily net assets between $100 million
and $400 million and thirty one hundredths percent (.30%) of such average daily
net assets above $400 million, provided the minimum annual fee shall be $75,000.
Gulfstream, 300 Crescent Court, Suite 1605, Dallas, Texas 75201, was organized
in 1991 as a Texas limited partnership by Tull, Doud, Marsh & Triltsch, Inc., a
Texas corporation ("TDMT"). TDMT is the sole general partner of Gulfstream. TDMT
is owned by C. Thomas Tull, Stephen C. Doud, James P. Marsh and Reiner M.
Triltsch. Messrs. Tull, Doud and Triltsch are the portfolio managers and Mr.
Marsh is responsible for client services with Gulfstream. First of America is
the sole limited partner, holding a forty nine (49) percent interest in
Gulfstream with options which would under certain circumstances permit it to
acquire up to a seventy two (72) percent interest. Gulfstream has over $360
million in assets of institutional, investment company, governmental, pension
fund and high net worth individual clients under its investment management.
Gulfstream's portfolio management personnel average twenty (20) years of
investment experience and nine (9) years of international investment experience.
As of January 3, 1994, Gulfstream managed over $300 million in international
investment portfolios.
Prior to January 1, 1995, Ivory & Sime International, Inc. ("ISI" and Ivory &
Sime plc ("ISplc" together with ISI, "Ivory & Sime") served as subadvisers to
the International Fund. The Trustees voted unanimously to terminate this
arrangement and replace it with the current subadvisory arrangement with
49 PROSPECTUS--Institutional Shares
<PAGE> 270
Gulfstream. As required by the 1940 Act, the Shareholders of the International
Discovery Fund and the Balanced Fund each approved the appointment of Gulfstream
as subadviser, as well as the related Sub-Investment Advisory Agreements, at a
meeting held on February 28, 1995.
Under Gulfstream's partnership agreement, First of America possesses veto
authority over the general budgetary affairs of Gulfstream. Because of its
current 49 percent ownership interest and its possession of options enabling it
to acquire up to a 72 percent ownership interest, First of America may be deemed
to control Gulfstream for purposes of the 1940 Act.
For further information regarding the relationship between Gulfstream and First
of America, see "MANAGEMENT OF THE GROUP--INVESTMENT ADVISER" in the Statement
of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
fund of the Group, and also acts as the Group's principal underwriter and
distributor (the "Administrator" or the "Distributor," as the context
indicates). First of America serves as Sub-Administrator for each Fund of the
Group and provides certain services as may be requested by BISYS from time to
time. BISYS and its affiliated companies, including BISYS Fund Services Ohio,
Inc. are wholly-owned by The BISYS Group, Inc., a publicly-held company which is
a provider of information processing, loan servicing and 401(k) administration
and recordkeeping services to and through banking and other financial
organizations.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from each Fund equal to the lesser of a fee, computed daily and
paid periodically, at an annual rate of twenty one-hundredths of one percent
(.20%) of the Fund's average daily net assets, or such other fee as may be
agreed upon from time to time in writing by the Group and the Administrator. For
its services as Subadministrator First of America receives, from the
Administrator, pursuant to its Sub-Administration Agreement with BISYS, a fee
not to exceed five one hundredths of one percent (.05%) of each Fund's average
daily net assets. The Administrator may periodically voluntarily reduce all or a
portion of its administrative fee with respect to a Fund to increase the net
income of that Fund available for distribution as dividends. The voluntary fee
reduction will cause the return of that Fund to be higher than it would
otherwise be in the absence of such reduction.
The Distributor acts as agent for the Funds in the distribution of each of their
Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the cost of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but may retain some or all of any sales
charge imposed upon the Investor Shares and may receive compensation under the
Distribution and Shareholder Service Plans described below.
EXPENSES
First of America, the Subadvisers and the Administrator each bear all expenses
in connection with the performance of its services as investment adviser,
subadviser and administrator, respectively, other than the cost of securities
(including brokerage commissions) purchased for the Group. Each Fund will bear
the following expenses relating to its operation: organizational expenses,
taxes, interest, brokerage fees and commissions, fees of the Trustees of the
Group, Securities and Exchange Commission fees, state securities qualification
fees, costs of preparing and printing prospectuses for regulatory purposes and
for distribution to current Shareholders, outside auditing and legal expenses,
advisory and administration fees, fees and out-of-pocket expenses of the
custodian, Transfer Agent and fund accountant, certain insurance premiums, costs
of maintenance of the Group's existence, costs of Shareholders' reports and
meetings, and any extraordinary expenses incurred in each Fund's operation. As a
general matter, expenses are allocated to the Institutional Shares and the other
Classes of Shares of the Funds on the basis of the relative net asset value of
each class. The various Classes may bear certain additional retail transfer
agency expenses and may also bear certain additional shareholder service and
distribution costs
PROSPECTUS--Institutional Shares 50
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incurred pursuant to a Distribution and Shareholder Service Plans. The Trustees
reserve the right, subject to the receipt of relevant regulatory approvals or
rulings, if needed, to allocate certain other expenses to the Shareholders of a
particular class, including Investor Shares, on a basis other than relative net
asset value, as they deem appropriate ("Class Expenses"). In such event, Class
Expenses would be limited to: transfer agency fees identified by the Transfer
Agent as attributable to a specific class; printing and postage expenses related
to preparing and distributing materials such as Shareholder reports,
prospectuses and proxies to current Shareholders; Blue Sky registration fees
incurred by a class of Shares; Securities and Exchange Commission registration
fees incurred by a class of Shares; expenses related to administrative personnel
and services as required to support the Shareholders of a specific class;
litigation or other legal expenses relating solely to one class of Shares; and
Trustees' fees incurred as a result of issues relating solely to one class of
Shares.
BANKING LAWS
First of America believes that it may perform the investment advisory services
for the Group's Funds contemplated by the Investment Advisory Agreement and by
this Prospectus without violating applicable banking laws or regulations. Future
changes in federal or state statutes and regulations relating to permissible
activities of banks or bank holding companies and their subsidiaries and
affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which First of America could continue to perform such services for the
Group. See the Statement of Additional Information ("MANAGEMENT OF THE
GROUP--Glass-Steagall Act") for further discussion.
HOW TO BUY INSTITUTIONAL SHARES
Institutional Shares may be purchased through procedures established by the
Distributor in connection with the requirements of Customer Accounts maintained
by or on behalf of certain persons ("Customers") by Banks. These procedures may
include instructions under which a Customer Account is "swept" automatically no
less frequently than weekly and amounts in excess of a minimum amount agreed
upon by the Bank and the Customer are invested by the Distributor in
Institutional Shares of the Money Market Funds, depending upon the type of
Customer Account and/or the instructions of the Customer.
Institutional Shares of the Group sold to the Banks acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of Customers will
normally be held of record by the Banks. With respect to Institutional Shares of
the Group so sold, it is the responsibility of the particular Bank to transmit
purchase or redemption orders to the Distributor and to deliver federal funds
for purchase on a timely basis. Beneficial ownership of Institutional Shares of
the Group will be recorded by the Banks and reflected in the account statements
provided by the Banks to Customers. A Bank may exercise voting authority for
those Institutional Shares for which it is granted authority by the Customer.
Institutional Shares of each Fund are purchased at the net asset value per share
(see "VALUATION OF SHARES") next determined after receipt by the Distributor of
an order to purchase Institutional Shares. An order to purchase Institutional
Shares will be deemed to have been received by the Distributor only when federal
funds with respect thereto are available to the Group's custodian for
investment. Federal funds are monies credited to a bank's account within a
Federal Reserve Bank. Payment for an order to purchase Institutional Shares
which is transmitted by federal funds wire will be available the same day for
investment by the Group's custodian, if received prior to the last Valuation
Time (see "VALUATION OF SHARES"). Payments transmitted by other means (such as
by check drawn on a member of the Federal Reserve System) will normally be
converted into federal funds within two banking days after receipt. The Group
strongly recommends that investors of substantial amounts use federal funds to
purchase Institutional Shares.
Purchases of Institutional Shares of a Fund will be effected only on a Business
Day (as defined in "VALUATION OF SHARES") of the respective Fund. An order
received prior to a Valuation Time on any Business Day will be executed at the
net asset value determined as of the next Valuation Time on the date
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of receipt. An order received after the last Valuation Time on any Business Day
will be executed at the net asset value determined as of the next Valuation Time
on the next Business Day of the Group. Trust Shares purchased before 12:00 noon,
Eastern Time, begin earning dividends on the same Business Day. All
Institutional Shares continue to earn dividends through the day before their
redemption.
There is no sales charge imposed by the Group in connection with the purchase of
Institutional Shares in the Funds. Depending upon the terms of a particular
Customer Account, the Banks may charge a Customer account fees for automatic
investment and other cash management services provided in connection with
investment in the Group. Information concerning these services and any charges
may be obtained from the Banks. This Prospectus should be read in conjunction
with any such information received from the Banks.
The Group reserves the right to reject any order for the purchase of
Institutional Shares in whole or in part.
Confirmations of purchases and redemption of Institutional Shares of the Group
by Banks on behalf of their Customers may be obtained from the Entities.
Shareholders may rely on these statements in lieu of certificates. Certificates
representing Institutional Shares of the Funds will not be issued.
EXCHANGE PRIVILEGE
Shareholders may exchange Institutional Shares of various Funds of the Group
without payment of a sales charge so long as that the Shareholder making the
exchange is eligible on the date of the exchange to purchase Institutional
Shares and the exchange is made in states where it is legally authorized. The
exchange will be made on the basis of the relative net asset values of the
Institutional Shares exchanged.
A Bank should notify the Group of its desire to make an exchange on behalf of
its Customers, and the Distributor will furnish the Shareholder with a
prospectus of the appropriate class of Shares of the Fund and the appropriate
authorization form. An exchange is considered to be a sale of Institutional
Shares for federal income tax purposes on which a Shareholder may realize a
capital gain or loss.
HOW TO REDEEM YOUR INSTITUTIONAL SHARES
Institutional Shares may ordinarily be redeemed by mail or by telephone.
However, all or part of a Customer's Institutional Shares may be redeemed in
accordance with instructions and limitations pertaining to his or her account at
a Bank. For example, if a Customer has agreed with a Bank to maintain a minimum
balance in his or her account with the Bank, and the balance in that account
falls below that minimum, the Customer may be obliged to redeem, or the Bank may
redeem for and on behalf of the Customer, all or part of the Customer's
Institutional Shares of a Fund of the Group to the extent necessary to maintain
the required minimum balance.
REDEMPTION BY MAIL
A written request for redemption must be received by the Transfer Agent in order
to honor the request. Such a request must be sent to:
The Parkstone Group of Funds
Department L-1270
Columbus, Ohio 43260-1270
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per share next determined
after the Institutional Shares are properly tendered for redemption, as
described above. Payment to Shareholders for Institutional Shares redeemed will
be made within seven days after receipt by the Transfer Agent of the request for
redemption. However, to the greatest extent possible, the Group will attempt to
honor requests from Banks for the same day payments upon redemption of
Institutional Shares if the request for redemption is received by the Transfer
Agent before the last Valuation Time, on a Business Day or, if the
PROSPECTUS--Institutional Shares 52
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request for redemption is received after the last Valuation Time, to honor
requests for payment on the next Business Day, unless it would be
disadvantageous to the Group or the Shareholders of a Fund to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION--Matters Affecting
Redemption" and "NET ASSET VALUE" in the Statement of Additional Information for
examples of when the Group may suspend the right of redemption or redeem
Institutional Shares involuntarily if it appears appropriate to do so in light
of the Group's responsibilities under the 1940 Act.
HOW SHARES ARE VALUED
The net asset value of each class of Shares of the Funds, with the exception of
the Money Market Funds, is determined and their Shares are priced as of the
close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern
Time) on each Business Day (the "Valuation Time"). The net asset value of each
class of Shares of Money Market Funds is determined and their Shares are priced
as of noon and as of the close of trading on the New York Stock Exchange on each
Business Day the ("Valuation Time"). A "Business Day" is a day on which the New
York Stock Exchange is open for trading and the Federal Reserve Bank of Chicago
is open and any other day (other than a day on which no Shares are tendered for
redemption and no order to purchase any Shares is received) during which there
is sufficient trading in its portfolio instruments that its net asset value per
share might be materially affected. Currently, the New York Stock Exchange or
the Federal Reserve Bank of Chicago will not open in observance of the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day,
Thanksgiving and Christmas.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding Shares of such class.
The net asset value per share will fluctuate as the value of the investment
portfolio of a Fund changes. However, the assets in each Money Market Fund are
valued based upon the amortized cost method. Pursuant to the rules and
regulations of the Securities and Exchange Commission regarding the use of the
amortized cost method, each Money Market Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less. Although the Group seeks to
maintain each Money Market Fund's net asset value per share at $1.00, there can
be no assurance that net asset value will not vary.
The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. Foreign securities are valued
based on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income is declared monthly as a dividend to Shareholders at the close of
business on the day of declaration and is generally paid monthly. Distributable
net realized capital gains are distributed at least annually. A Shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional Shares at net asset value as of the date of
declaration, unless the Shareholder elects to receive dividends or distributions
in cash or elects to participate in the Parkstone Directed Dividend Option. Such
election, or any revocation thereof, must be made in writing to the Transfer
Agent at 3435 Stelzer Road, Columbus, Ohio 43219, and will become effective with
respect to dividends and distributions having record dates after its receipt by
the Transfer Agent.
53 PROSPECTUS--Institutional Shares
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Each of the Funds of the Group is treated as a separate entity for Federal
income tax purposes, 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 its shareholders and intends to
distribute all of its net income and capital gains so that it is not required to
pay Federal income taxes on amounts so distributed to shareholders.
To avoid Federal income tax, the Code requires each Fund to distribute each
taxable year at least 90% of its investment company taxable income and at least
90% of its exempt-interest income. In addition, to avoid imposition of a
nondeductible 4% excise tax, each Fund is required annually to distribute, prior
to calendar year end, 98% of taxable ordinary income on a calendar year basis,
98% of capital gain net income realized in the twelve months preceding October
31, and the balance of undistributed taxable ordinary income and capital gain
net income from the prior calendar year. Finally, in order to permit the
Municipal Bond Fund and the Michigan Fund each to distribute exempt-interest
dividends which Shareholders may exclude from their gross taxable income for
federal income tax purposes, at least 50% of such Fund's total assets must
consist of obligations the interest on which is exempt from federal income tax
as of the close of each fiscal quarter of such Fund.
A Shareholder receiving a distribution of ordinary income and/or an excess of
short-term capital gain over net long-term loss would treat it as a receipt of
ordinary income. The dividends-received deduction for corporations will apply to
the aggregate of such ordinary income distributions in the same proportion as
the aggregate dividends from domestic corporations, if any, received by that
Fund bear to its gross income. A Shareholder will not be able to take the
dividends-received deduction unless that Shareholder holds the Shares for at
least 46 days.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to its Shareholders as long-term capital gain
in the year in which it is received, regardless of how long the Shareholder has
held Shares. Such distributions are not eligible for the dividends-received
deduction.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
Taxes may be imposed on the Funds, particularly the Balanced and International
Funds, by foreign countries with respect to income received on foreign
securities. If more than 50% of the value of a Fund's assets at the close of its
taxable year consists of stocks or securities of foreign corporations, the Fund
may elect to treat any foreign income taxes it paid as paid by its Shareholders.
In this case, Shareholders generally will be required to include in income their
pro rata share of such taxes, but will then be entitled to claim a credit or
deduction for their share of such taxes. However, a particular Shareholder's
ability to utilize such a credit will be subject to certain limitations imposed
by the Code. The Funds will report to its Shareholders each year the amount, if
any, of foreign taxes per share that it has elected to have treated as paid by
its Shareholders.
Shareholders will be advised at least annually as to the Federal income tax
consequences of distributions made during the year.
THE MUNICIPAL BOND FUND, THE MICHIGAN FUND AND THE TAX-FREE FUND (THE "EXEMPT
FUNDS")
Dividends derived from exempt-interest income may be treated by an Exempt Fund's
Shareholders as items of interest excludable from their gross income. However,
such dividends may be taxable to Shareholders of the Municipal Bond Fund and the
Tax-Free Fund under state or local law as ordinary income even though all or a
portion of the amounts may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such taxes. In determining net
exempt-interest income, expenses of the Exempt Fund are allocated to gross
tax-exempt interest income in the
PROSPECTUS--Institutional Shares 54
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proportion that the gross amount of such interest income bears to the Exempt
Fund's total gross income, excluding net capital gains. (Shareholders are
advised to consult a tax adviser with respect to whether exempt-interest
dividends retain the exclusion if such Shareholder would be treated as a
"substantial user" or a "related person" to such user under the Code.) Interest
on indebtedness incurred or continued by a Shareholder to purchase or carry
Shares is not deductible for federal income tax purposes if an Exempt Fund
distributes exempt-interest dividends during the Shareholder's taxable year. It
is anticipated that distributions from the Exempt Funds will not be eligible for
the dividends received deduction for corporations.
Under the Code, if a Shareholder receives an exempt-interest dividend with
respect to any Share and such Share is held for six months or less, any loss on
the sale or exchange of such Share will be disallowed to the extent of the
amount of such exempt-interest dividend, although the Treasury Department is
authorized to issue regulations reducing the period to not less than 31 days for
regulated investment companies that regularly distribute at least 90% of their
net tax-exempt interest. No such regulations have been issued as of the date of
this Prospectus. In addition, dividends attributable to interest on certain
private activity bonds may have to be included in Shareholders' income for
purposes of calculating alternative minimum tax. See "ADDITIONAL
INFORMATION--Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Fund" in the Statement of Additional
Information for more information regarding the federal alternative minimum tax.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase agreements)
or from long-term or short-term capital gains, such dividends will be subject to
federal income tax. A Shareholder should consult his or her own tax adviser for
any special advice.
Distributions by the Michigan Fund to holders of Shares who are subject to the
Michigan personal income tax and/or single business tax will not be subject to
the Michigan personal income tax, single business tax or any Michigan city
income tax to the extent that the distributions are attributable to income
received by the Michigan Fund as interest from Michigan Municipal Securities or
to the extent that the distributions are attributable to interest income and
gains from the sale or disposal of United States obligations exempted from state
taxation by the United States Constitution, treaties, and statutes. However,
some or all of the other distributions by the Michigan Fund may be taxable by
the State of Michigan or subject to applicable city income taxes, even if the
distributions are attributable to income of the Michigan Fund derived from
obligations of the United States or its agencies and instrumentalities. In
addition, to the extent that a Shareholder of the Michigan Fund is obligated to
pay state or local taxes outside of Michigan, dividends earned by an investment
in the Michigan Fund may represent taxable income. Investments held in the
Michigan Fund by a Michigan resident are not subject to the Michigan intangible
personal property tax to the extent that the investments are attributable to
bonds or other similar obligations of the State of Michigan or a political
subdivision thereof, or obligations of the United States.
The Michigan Department of Treasury in a 1986 Revenue Administrative Bulletin
has taken the position that the tax attributes of the securities held by a
mutual fund flow through to the investors. Based on this position, the Michigan
Department of Treasury has stated that mutual fund distributions attributable to
interest from the fund's investment in direct U.S. government securities, as
well as Municipal Securities, will not be subject to the Michigan personal
income tax. The Michigan Department of Treasury also has stated that an owner of
a share of a mutual fund will not be subject to intangible personal property tax
to the extent that the pro rata share of the securities underlying the mutual
fund would be exempt.
For Michigan personal income tax and intangible personal property tax purposes,
taxable distributions from investment income and short term capital gains, if
any, are taxable as ordinary income, whether received in cash or additional
Shares, and are subject to the Michigan intangible personal property tax and to
applicable Michigan city income taxes. The Michigan single business tax, a
modified value added tax, is computed by applying the tax rate to a tax base
determined by making certain adjustments to federal taxable income. Taxable
distributions from investment income and gains, if any, may be included in
federal taxable income or may comprise one of the adjustments made to the tax
base. Distributions of cash, other property or additional Shares by the Michigan
Fund to a Michigan single business taxpayer
55 PROSPECTUS--Institutional Shares
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attributable to any gain realized from the sale, exchange or other disposition
of Michigan Municipal Securities are includable in the Michigan single business
taxpayer's adjusted tax base for purposes of the Michigan single business tax to
the extent included in federal taxable income. Distributions of cash, other
property or additional Shares by the Michigan Fund to a Michigan single business
taxpayer are not subject to the Michigan single business tax to the extent that
the distributions are attributable to interest income from and any gain realized
from the sale, exchange or other disposition of U.S. Securities. Taxable long-
term capital gains distributions are taxable as long-term capital gains for
Michigan purposes irrespective of how long a Shareholder has held the Shares,
except that such distributions reinvested in Shares of the Michigan Fund are
exempt from the Michigan intangible personal property tax.
U.S. GOVERNMENT OBLIGATIONS FUND, PRIME OBLIGATIONS FUND AND TREASURY FUND
Since all of the net investment income of the U.S. Government Obligations Fund,
the Prime Obligations Fund and the Treasury Fund is expected to be derived from
earned interest, it is anticipated that no part of any distribution will be
eligible for the dividends received deduction for corporations. The U.S.
Government Obligations Fund, the Prime Obligations Fund and the Treasury Fund do
not expect to realize any long-term capital gains and, therefore, do not foresee
paying any "capital gains dividends" as described in the Code.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Funds and their Shareholders. Potential
investors are advised to consult their tax advisers concerning state and local
taxes, which may differ from the Federal income taxes described above.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a class of Shares in a Fund will be
calculated for the period since the establishment of the Funds and will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a class of Shares in a
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions) and annualizing the result. Aggregate
total return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of annualized.
Yield of a class of Shares will be computed by dividing a class of Shares' net
investment income per share earned during a recent one-month period by that
class of Shares' per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result. Each Fund may also present its average annual
total return, aggregate total return and yield, as the case may be, excluding
the effect of a sales charge, if any.
In addition, from time to time the Funds may present their respective
distribution rates for a class of Shares in supplemental sales literature which
is accompanied or preceded by a prospectus and in Shareholder reports.
Distribution rates will be computed by dividing the distribution per share of a
class made by a Fund over a twelve-month period by the maximum offering price
per share. The calculation of income in the distribution rate includes both
income and capital gain dividends and does not reflect unrealized gains or
losses, although a Fund may also present a distribution rate excluding the
effect of capital gains. The distribution rate differs from the yield, because
it includes capital gains which are often non-recurring in nature, whereas yield
does not include such items. Distribution rates may also be presented excluding
the effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Institutional Shares and the other classes of the Funds. Because of differences
in the fees and/or expenses borne by different classes of Shares of the Funds,
the net yield and total return on Institutional Shares may be different from
that for another class of the same Fund. For example, net yield and total return
on Investor A Shares is expected,
PROSPECTUS--Institutional Shares 56
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at any given time, to be lower than the net yield and total return on
Institutional Shares for the same period.
Investors may also judge the performance of any class of Shares or Fund by
comparing or referencing it to the performance of other mutual funds with
comparable investment objectives and policies through various mutual fund or
market indices such as those prepared by various services which indices may be
published by such services or by other services or publications, including, but
not limited to, ratings published by Morningstar, Inc. In addition to
performance information, general information about the Funds that appears in
such publications may be included in advertisements, in sales literature and in
reports to Shareholders. For further information regarding such services and
publications, see "ADDITIONAL INFORMATION--Performance Comparisons" in the
Statement of Additional Information.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, operating expenses, and market conditions. Consequently, total
return and yield will fluctuate and are not necessarily representative of future
results. Any fees charged by First of America Bank Corporation or any of its
affiliates with respect to customer accounts for investing in shares of the
Funds will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted. In addition, if First of
America and BISYS voluntarily reduce all or a part of their respective fees, as
further discussed below, the total return of such Fund will be higher than it
would otherwise be in the absence of such voluntary fee reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's funds through FUNDATA(R), an Automated Voice
Response System, 24 hours a day by calling (800) 451-8377 from any touch-tone
phone. Shareholders may also speak directly with a Group representative,
employed by BISYS, during regular business hours.
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in 1987 and currently
offers fifteen Funds. The shares of each of the Funds of the Group, other than
its four Money Market Funds, are offered in four separate classes: Investor A
Shares, Investor B Shares, Investor C Shares and Institutional Shares. Shares of
each of the four Money Market Funds of the Group are offered in two separate
classes: Investor A Shares and Institutional Shares. Each Share represents an
equal proportionate interest in a fund with other shares of the same fund, and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Trustees.
Shares are without par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by fund except as otherwise
expressly required by law. For example, Shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of trustees and ratification of the selection of independent accountants.
However, Shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve an investment and sub-investment advisory agreements and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Group may elect not to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group. At such a
57 PROSPECTUS--Institutional Shares
<PAGE> 278
meeting, a quorum of shareholders (constituting a majority of votes attributable
to all outstanding shares of the Group), by majority vote, has the power to
remove one or more Trustees.
As of June 30, 1995, First of America Bank Corporation, through its wholly owned
subsidiaries, possessed on behalf of its underlying accounts voting or
investment power with respect to more than 25% of the Shares of each of the
Funds, and therefore may be presumed to control each Fund within the meaning of
the 1940 Act.
MULTIPLE CLASSES OF SHARES
In addition to Institutional Shares, the Group also offers Investor A, Investor
B and Investor C Shares of the Funds under an exemptive order granted by the
Commission. A salesperson or other person entitled to receive compensation for
selling or servicing the Shares may receive different compensation with respect
to one particular class of Shares over another in the same Fund. The amount of
dividends payable with respect to other classes of Shares will differ from
dividends on Institutional Shares as a result of the Distribution and
Shareholder Service Plan fees applicable to such other classes of Shares and
because the different classes of Shares may bear different retail transfer
agency expenses. For further details regarding these other classes of Shares,
call the Group at (800) 451-8377.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc., formerly known as The Winsbury Service
Corporation, 3435 Stelzer Road, Columbus, Ohio 43219, serves as the Group's
Transfer Agent pursuant to a Transfer Agency Agreement with the Group and
receives a fee for such services. BISYS Fund Services Ohio, Inc. also provides
certain accounting services for each of the Funds and receives a fee for such
services. See "MANAGEMENT OF THE GROUP--Custodian, Transfer Agent and Fund
Accounting Services" in the Statement of Additional Information for further
information.
While BISYS Fund Services Ohio, Inc. is a distinct legal entity from BISYS (the
Group's administrator and distributor), BISYS Fund Services Ohio, Inc. is
considered to be an affiliated person of BISYS under the 1940 Act due to, among
other things, the fact that BISYS Fund Services Ohio, Inc. and BISYS are both
owned by The BISYS Group, Inc.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free
(800) 451-8377.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
PROSPECTUS--Institutional Shares 58
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THE PARKSTONE GROUP OF FUNDS
Institutional Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
First of America Investment Corporation
Suite 500
303 North Rose Street
Kalamazoo, Michigan 49007
SUB-INVESTMENT ADVISER (INTERNATIONAL AND BALANCED FUNDS)
Gulfstream Global Investors, Ltd.
Suite 1605
300 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
The Bank of California, N.A.
400 California Street
San Francisco, California 94145
LEGAL COUNSEL
Howard & Howard Attorneys, P.C.
Suite 400
107 E. Michigan Avenue
Kalamazoo, Michigan 49007
