<PAGE> 1
THE PARKSTONE GROUP OF FUNDS
Institutional Shares PROSPECTUS dated DECEMBER 28, 1995
Investor A Shares
Investor B Shares
Investor C Shares
THE PARKSTONE LARGE CAPITALIZATION FUND For more information
--------------------
call:
(800) 451-8377
or
write to:
3435 Stelzer Road
Columbus, Ohio 43219-3035
The Parkstone Large Capitalization Fund is one of the sixteen currently-offered
series of The Parkstone Group of Funds (the "Group"). The Large Capitalization
Fund offers Institutional Shares, Investor A Shares, Investor B Shares, and
Investor C Shares. This Prospectus explains concisely what you should know
before investing in any class of shares of The Parkstone Large Capitalization
Fund. Please read it carefully and keep it for future reference. You can find
more detailed information about the Large Capitalization Fund in the December
28, 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 or address specified above. The
Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF THE PARKSTONE LARGE CAPITALIZATION FUND 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 LARGE CAPITALIZATION FUND INVOLVE INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVOLVED.
PROSPECTUS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
FEE TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
RISK FACTORS AND INVESTMENT TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
MANAGEMENT OF THE LARGE CAPITALIZATION FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
HOW TO BUY INSTITUTIONAL SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
HOW TO BUY INVESTOR SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SALES CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
REDUCED SALES CHARGES-Investor A Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
CONTINGENT DEFERRED SALES CHARGE-Investor B Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
CONTINGENT DEFERRED SALES CHARGE-Investor C Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
DIRECTED DIVIDEND OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
EXCHANGE PRIVILEGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
FACTORS TO CONSIDER WHEN SELECTING INVESTOR SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
CONVERSION FEATURE-Investor B Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
CONVERSION FEATURE-Investor C Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
HOW TO REDEEM INSTITUTIONAL SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
HOW TO REDEEM INVESTOR SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
HOW SHARES ARE VALUED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
DIVIDENDS AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
FUNDATA(R) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
PROSPECTUS -ii-
<PAGE> 3
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which offers to the public sixteen separate investment portfolios,
fifteen 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 Parkstone Large Capitalization Fund (the
"Large Capitalization Fund").
The Trustees of the Group have divided the Large Capitalization Fund's
beneficial ownership into an unlimited number of transferable units called
shares (the "Shares"). The Large Capitalization Fund offers multiple classes
of Shares: Institutional Shares, Investor A Shares, Investor B Shares, and
Investor C Shares. Interested persons who wish to obtain a copy of the Group's
most recent annual report may contact the Group at the telephone number shown
above.
The investment objective and policies of the Large Capitalization Fund 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 the Large Capitalization Fund.
PROSPECTUS -1-
<PAGE> 4
PROSPECTUS SUMMARY
Shares Offered
The Large Capitalization Fund offers Institutional Shares, Investor A Shares,
Investor B Shares, and Investor C Shares (collectively, the "Shares").
Investor A Shares, Investor B Shares, and Investor C Shares are collectively
referred to as "Investor Shares."
The Large Capitalization Fund represents one of sixteen separate diversified
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 the Large Capitalization
Fund is equal to the net asset value per share.
The public offering price of Investor A Shares of the Large Capitalization Fund
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 is reduced when the amount of the transaction at the total
public offering price is $50,000 or more (see "SALES CHARGES-Investor A
Shares"). Under certain circumstances, the sales charge may be eliminated
(see "REDUCED SALES CHARGES-Investor A Shares").
The public offering price of Investor B Shares of the Large Capitalization 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.
The public offering price of Investor C Shares of the Large Capitalization 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
The minimum initial investment for the Large Capitalization Fund is $1,000
(based upon the public offering price) 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 the Large Capitalization Fund.
PROSPECTUS -2-
<PAGE> 5
Investment Objective
The Large Capitalization Fund seeks growth of capital by investing primarily in
a diversified portfolio of common stocks and securities convertible into common
stocks of companies with large market capitalization.
Investment Policies
Under normal market conditions, the Large Capitalization Fund will invest 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 and the ability to finance expected long-term
growth.
Risk Factors and Special Considerations
An investment in a mutual fund such as the Large Capitalization Fund involves a
certain amount of risk and may not be suitable for all investors. In addition,
some investment policies of the Large Capitalization Fund may entail certain
risks (see "RISK FACTORS AND INVESTMENT TECHNIQUES").
Investment Adviser
First of America Investment Corporation serves as investment adviser.
Dividends and Capital Gains
Dividends from net income are declared and generally paid monthly. Net
realized capital gains are distributed at least annually.
Distributor
BISYS Fund Services, formerly known as The Winsbury Company Limited Partnership
("BISYS"), a partnership owned by The BISYS Group, Inc., serves as distributor.
Transfer Agent
BISYS Fund Services Ohio, Inc., formerly known as The Winsbury Service
Corporation (the "Transfer Agent"), a subsidiary of The BISYS Group, Inc.,
serves as transfer agent.
PROSPECTUS -3-
<PAGE> 6
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>
Large Capitalization Fund . . . . . . . . . . . . . . . . .80% 0.00% 0.28% 1.08%
</TABLE>
EXPENSE EXAMPLES
You would pay the following expenses on a $1,000 investment in Institutional
Shares, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C> <C>
Large Capitalization Fund . . . . . . . . . . . . . . . . $ 11 $34
</TABLE>
The information set forth in the foregoing Fee Tables and examples relates only
to Institutional Shares of the Large Capitalization Fund. The Large
Capitalization Fund also offers other classes of Shares.
The purpose of the above tables is to assist a potential purchaser of
Institutional Shares of the Large Capitalization Fund in understanding the
various costs and expenses that an investor in the Large Capitalization 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 Large Capitalization
Fund. See "MANAGEMENT OF THE LARGE CAPITALIZATION FUND" and "GENERAL
INFORMATION" for a more complete discussion of the annual operating expenses of
the Large Capitalization Fund. The expenseinformation reflects estimates of
anticipated expenses. THE FOREGOING EXAMPLES
PROSPECTUS -4-
<PAGE> 7
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
PROSPECTUS -5-
<PAGE> 8
FEE TABLES (INVESTOR A SHARES)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge (as a percentage of the offering price)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 4.50%
Sales Charge on Reinvested Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Deferred Sales Charge on Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Redemption Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
</TABLE>
[FN]
(1) The sales charge may be eliminated under certain circumstances. (See
"REDUCED SALES CHARGES-Investor A Shares")
(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.
[/FN]
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>
Large Capitalization Fund . . . . . . . 0.80% 0.25% 0.28% 1.33%
</TABLE>
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
<S> <C> <C>
Large Capitalization Fund . . . . . . . $ 58 $85
</TABLE>
The information set forth in the foregoing Fee Tables and examples relates only
to Investor A Shares of the Large Capitalization Fund. The Large
Capitalization Fund offers other classes of Shares.
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
PROSPECTUS -6-
<PAGE> 9
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 Large Capitalization Fund 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
A Shares of the Large Capitalization Fund in understanding the various costs
and expenses that an investor in the Large Capitalization 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 Large Capitalization Fund. See
"MANAGEMENT OF THE LARGE CAPITALIZATION FUND," "GENERAL INFORMATION" and "SALES
CHARGES" for a more complete discussion of the shareholder transaction expenses
and annual operating expenses of the Large Capitalization Fund. The expense
information above reflects estimates for the anticipated expenses of the Large
Capitalization Fund. 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 -7-
<PAGE> 10
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
Deferred Sales Charge on Redemptions(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.00%
Redemption Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
</TABLE>
[FN]
(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-Investor B Shares" 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.
[/FN]
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>
Large Capitalization Fund . . . . 0.80% 1.00% 0.28% 2.08%
</TABLE>
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
<S> <C> <C>
Large Capitalization Fund . . . . $ 61 $ 95
</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:
PROSPECTUS -8-
<PAGE> 11
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C> <C>
Large Capitalization Fund . . . . . . . $ 21 $ 65
</TABLE>
The information set forth in the foregoing Fee Tables and examples relates only
to Investor B Shares of the Large Capitalization Fund. The Large
Capitalization Fund offers other classes of Shares.
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 B Distribution and Shareholder Service Plan to a certain percent of
total new gross share sales, plus interest. The Large Capitalization Fund
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 the Large Capitalization Fund in understanding the various costs
and expenses that an investor in the Large Capitalization 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 Large Capitalization Fund. See
"MANAGEMENT OF THE LARGE CAPITALIZATION FUND," "GENERAL INFORMATION" and "SALES
CHARGES" for a more complete discussion of the Shareholder transaction expenses
and annual operating expenses of the Large Capitalization Fund. The expense
information above reflects estimates for the anticipated expenses of the Large
Capitalization Fund. 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 -9-
<PAGE> 12
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
Deferred Sales Charge on Redemptions(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00%
Redemption Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
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-Investor C Shares" 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>
Large Capitalization Fund . . . . . . . . 0.80% 1.00% 0.28% 2.08%
</TABLE>
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
<S> <C> <C>
Large Capitalization Fund . . . . . . . . $ 31 $ 65
</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
<S> <C> <C>
Large Capitalization Fund . . . . . . . . $ 21 $ 65
</TABLE>
PROSPECTUS -10-
<PAGE> 13
The information set forth in the foregoing Fee Tables and examples relates only
to Investor C Shares of the Large Capitalization Fund. The Large
Capitalization Fund also may offer other classes of Shares.
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 Large Capitalization Fund
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 the Large Capitalization Fund in understanding the various costs
and expenses that an investor in the Large Capitalization 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 Large Capitalization Fund. See
"MANAGEMENT OF THE LARGE CAPITALIZATION FUND," "GENERAL INFORMATION" and "SALES
CHARGES" for a more complete discussion of the shareholder transaction expenses
and annual operating expenses of the Large Capitalization Fund. The expense
information above reflects estimates for the anticipated expenses of the Large
Capitalization Fund. 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 -11-
<PAGE> 14
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The investment objective of the Large Capitalization Fund is fundamental and
may not be changed without a vote of the holders of a majority of the
outstanding Shares of the Large Capitalization Fund. The investment policies
of the Large Capitalization Fund may be changed without a vote of the holders
of a majority of outstanding Shares of the Large Capitalization 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 objective of
the Large Capitalization Fund will be achieved. Depending upon the performance
of the Large Capitalization Fund's investments, the net asset value per share
of the Large Capitalization Fund may decrease instead of increase.
During temporary defensive periods as determined by First of America, the Large
Capitalization Fund 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 the Large Capitalization Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
THE LARGE CAPITALIZATION FUND
The investment objective of The Large 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 companies with large market
capitalization.
Under normal market conditions, the Large Capitalization Fund 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, the
Large Capitalization Fund's investment adviser (sometimes referred to as the
"Adviser"), to be characterized by sound management and the ability to finance
expected long-term growth. In addition, under normal market conditions, the
Large 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
more than $5 billion. The Large Capitalization Fund 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
associations. The Large Capitalization Fund may also hold securities of other
investment companies and depositary or custodial receipts representing
beneficial interests in any of the foregoing securities.
PROSPECTUS -12-
<PAGE> 15
Subject to the foregoing policies, the Large Capitalization Fund may also
invest up to 25% of its net assets in foreign securities either directly or
through the purchase of American Depository Receipts ("ADRs") or European
Depository Receipts ("EDRs"), 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. For a discussion of risks associated with foreign
securities, see "RISK FACTORS AND INVESTMENT TECHNIQUES-Foreign Securities"
below.
The Large Capitalization Fund anticipates investing in growth-oriented, large
capitalization companies. For purposes of the foregoing sentence, large
capitalization companies are considered to be those with market capitalization
of more than $5 billion. 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 Large Capitalization Fund are
equity securities of companies that participate in long-term growth industries,
although these will be supplemented by holdings in non-growth industries that
exhibit the desired characteristics.
Consistent with the foregoing, the Large Capitalization Fund will focus its
investments in those companies and types of companies that First of America
believes will enable the Large Capitalization Fund to achieve its investment
objective.
<TABLE>
<CAPTION>
The Large Capitalization Fund
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
*Complex Securities *Foreign Securities *Foreign Currency
*Futures Contracts *Government Obligations Transactions
*Other Mutual Funds *Put and Call Options *Lending Portfolio Securities
*Restricted Securities *Reverse Repurchase Agreements *Repurchase Agreements
and Dollar Roll Agreements *When-Issued and
Delayed-Delivery
Transactions
</TABLE>
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in the Large Capitalization Fund
entails certain risks. The Large Capitalization Fund 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.
PROSPECTUS -13-
<PAGE> 16
COMPLEX SECURITIES
Some of the investment techniques utilized by First of America in the
management of the Large Capitalization 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 believes that such complex securities may, in
some circumstances, play a valuable role in successfully implementing the Large
Capitalization 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 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 Large Capitalization Fund may invest in foreign securities as permitted by
the investment policies set forth above.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of
United States 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 United States corporations or issued or
guaranteed by the United States 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 United States. In
addition, there may be less publicly available information about a foreign
company than about a United States domiciled company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to United States domestic
companies. There is generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the United States.
Confiscatory taxation or diplomatic developments could also affect investment
in those countries. In addition, foreign branches of United States 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 United
States banks and United States domestic issuers.
For many foreign securities, U.S. dollar-denominated American Depository
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
PROSPECTUS -14-
<PAGE> 17
issuers' stock, the Large Capitalization 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 Large Capitalization Fund 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, the Large Capitalization Fund
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
The Large Capitalization Fund may utilize foreign currency transactions in its
portfolio. The value of the assets of the Large Capitalization 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 the Large Capitalization Fund may incur costs in connection with
conversions between various currencies. The Large Capitalization 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 contract")
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 Large Capitalization
Fund may enter into forward currency contracts in order to hedge against
adverse movements in exchange rates between currencies.
PROSPECTUS -15-
<PAGE> 18
For example, when the Large Capitalization 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, the Large Capitalization 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 the Large Capitalization
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 the
Large Capitalization Fund's portfolio securities or other assets denominated
in such foreign currency, or when the Large Capitalization 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. The Large Capitalization 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 the Large Capitalization 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 the
Large Capitalization 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 the Large
Capitalization Fund is obligated to deliver.
If the Large Capitalization Fund retains the portfolio security and engages in
an offsetting transaction, the Large Capitalization 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 Large Capitalization 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 the Large Capitalization Fund's entering into a forward
currency contract for the sale of the foreign currency and the date it enters
into an offsetting contract for the purchase of the foreign currency, the Large
Capitalization 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, the Large Capitalization 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 Large Capitalization
Fund will have to convert
PROSPECTUS -16-
<PAGE> 19
its 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.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVE AND POLICIES-Additional Information on Portfolio Instruments" in the
Statement of Additional Information.
FUTURES CONTRACTS
The Large Capitalization 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.
The Large Capitalization 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, the
Large Capitalization 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, the Large
Capitalization Fund, through the purchase of such contracts, can attempt to
secure better rates or prices for the Large Capitalization 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 the Large Capitalization 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 the Large Capitalization 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 the Large Capitalization Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain the Large
Capitalization Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Large
Capitalization Fund to segregate assets to cover contracts that would require
it to purchase securities or currencies. The Large Capitalization Fund may
lose the expected benefit of futures transactions if interest rates, exchange
rates or securities prices move in an unanticipated manner. Such unanticipated
PROSPECTUS -17-
<PAGE> 20
changes may also result in poorer overall performance than if the Large
Capitalization Fund had not entered into any futures transactions. In
addition, the value of the Large Capitalization 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 Large Capitalization
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.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, the Large Capitalization Fund may, from
time to time, lend its portfolio securities to broker-dealers, banks or
institutional borrowers of securities. The Large Capitalization Fund must
receive 100% collateral in the form of cash or U.S. Government securities.
This collateral will be valued daily by the Adviser to confirm an adequate
level of collateral. Should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Large
Capitalization Fund. During the time portfolio securities are on loan, the
borrower pays the Large Capitalization Fund any dividends or interest received
on such securities. Loans are subject to termination by the Large
Capitalization Fund or the borrower at any time. While the Large
Capitalization Fund does not have the right to vote securities on loan, the
Large Capitalization 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 the Large Capitalization Fund,
the Large Capitalization Fund bears the risk of delay in the recovery of its
portfolio securities and the risk of loss of rights in the collateral. The
Large Capitalization Fund will enter into loan agreements only with
broker-dealers, banks or other institutions that the Adviser has determined are
creditworthy under guidelines established by the Group's Board of Trustees.
OTHER MUTUAL FUNDS
The Large Capitalization Fund 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
Large Capitalization 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 the Large Capitalization Fund in shares of
the money market funds of the Group, the Adviser, Administrator and their
affiliates (See "MANAGEMENT OF THE LARGE CAPITALIZATION FUND--Investment
Adviser" 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 the Large Capitalization
Fund that are attributable to investments by the Large Capitalization Fund in
shares of those money market mutual funds if the fee is being taken in the
Large Capitalization Fund. The Adviser and the Administrator will promptly
forward such fees to the Large Capitalization Fund. The Large Capitalization
Fund will incur additional
PROSPECTUS -18-
<PAGE> 21
expenses due to the duplication of expenses as a result of any investment in
securities of unaffiliated mutual funds. Additional restrictions regarding the
Large Capitalization Fund's investments in securities of unaffiliated mutual
funds and/or money market funds of the Group are contained in the Statement of
Additional Information.
PUT AND CALL OPTIONS
The Large Capitalization Fund 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. The Large Capitalization Fund may also engage in
writing call options from time to time as the Adviser deems appropriate. The
Large Capitalization Fund will write only covered call options (options on
securities or currencies owned by the Large Capitalization Fund). In order to
close out a call option it has written, the Large Capitalization 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 the Large Capitalization Fund previously has written.
When a portfolio security or currency subject to a call option is sold, the
Large Capitalization Fund will effect a closing purchase transaction to close
out any existing call option on that security or currency. If the Large
Capitalization 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 the Large Capitalization Fund delivers the underlying security or
currency upon exercise. In addition, upon the exercise of a call option by the
holder thereof, the Large Capitalization Fund will forego the potential benefit
represented by market appreciation over the exercise price. Under normal
conditions, it is not expected that the Large Capitalization Fund will cause
the underlying value of portfolio securities and currencies subject to such
options to exceed 50% of its net assets.
The Large Capitalization 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, the Large Capitalization Fund will write only covered
index call options. Through the writing or purchase of index options the Large
Capitalization 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 the Large Capitalization Fund owns or
intends to purchase probably will not correlate perfectly with movements in the
level of an index and, therefore, the Large Capitalization 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
PROSPECTUS -19-
<PAGE> 22
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. The Large Capitalization 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.
REPURCHASE AGREEMENTS
Securities held by the Large Capitalization Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, the Large
Capitalization Fund would acquire securities from financial institutions such
as member banks of the Federal Deposit Insurance Corporation or registered
broker-dealers which the Adviser deems 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 Large
Capitalization 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 Large Capitalization 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 the Large Capitalization 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 OBJECTIVE AND POLICIES-Additional Information on Portfolio
Instruments-Repurchase Agreements" in the Statement of Additional Information.
RESTRICTED SECURITIES
Securities in which the Large Capitalization 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
Large Capitalization Fund, 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, the Adviser 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.
PROSPECTUS -20-
<PAGE> 23
Thus, subject to the limitations described above, the Large Capitalization Fund
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 the Large Capitalization Fund. The price the Large
Capitalization 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. The Large Capitalization 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
The Large Capitalization Fund may borrow funds by entering into reverse
repurchase agreements in accordance with the investment restrictions described
below. Pursuant to such agreements, the Large Capitalization Fund would sell
certain of its securities to financial institutions such as banks and
broker-dealers, and agree to repurchase the securities at a mutually agreed
upon date and price. At the time the Large Capitalization Fund enters into a
reverse repurchase agreement, it will place in a segregated custodial account
assets such as U.S. Government securities or other liquid 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 involve the risk that
the market value of securities sold by the Large Capitalization Fund may
decline below the price at which it is obligated to repurchase the securities.
Reverse repurchase agreements are considered to be borrowings by an investment
company under the 1940 Act and, therefore, a form of leverage. The Large
Capitalization 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. The Large Capitalization Fund generally will invest the
proceeds of such borrowings only when such borrowings will enhance the Large
Capitalization Fund's liquidity or when the Large Capitalization 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 OBJECTIVE 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
The Large Capitalization Fund may purchase securities on a when-issued or
delayed-delivery basis. The Large Capitalization Fund will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objective 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
PROSPECTUS -21-
<PAGE> 24
the transaction will be less than that available in the market when delivery
takes place. The Large Capitalization Fund will not pay for such securities or
start earning interest on them until they are received. When the Large
Capitalization 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, the Large Capitalization Fund relies on the seller to complete
the transaction; the seller's failure to do so may cause the Large
Capitalization Fund to miss a price or yield considered to be advantageous.
The Large Capitalization Fund's commitments to purchase "when-issued"
securities will not exceed 25% of the value of its total assets under normal
market conditions, and a commitment by the Large Capitalization 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, the Large Capitalization Fund's liquidity and the Adviser's
ability to manage it might be adversely affected. The Large Capitalization
Fund intends only to purchase "when-issued" securities for the purpose of
acquiring portfolio securities, not for investment leverage, although such
transactions represent a form of leverage.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Large Capitalization Fund is calculated by
dividing the lesser of the Large Capitalization 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 the Large
Capitalization 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 the Large Capitalization
Fund and may result in additional tax consequences to the Large Capitalization
Fund's shareholders. Portfolio turnover will not be a limiting factor in
making investment decisions.
INVESTMENT RESTRICTIONS
The Large Capitalization 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
the Large Capitalization Fund (as defined in the Statement of Additional
Information).
The Large Capitalization Fund will not:
1. Purchase any securities which would cause more than 25% of the value
of the Large Capitalization 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
PROSPECTUS -22-
<PAGE> 25
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 Large Capitalization Fund 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 Large Capitalization 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 Large Capitalization 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 Large
Capitalization 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 Large Capitalization 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.
4. 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 Large Capitalization Fund's total assets would be
invested in such issuer, or the Large Capitalization Fund would hold
more than 10% of the outstanding voting securities of the issuer,
except that 25% or less of the value of the Large Capitalization
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 following additional investment restriction may be changed without the vote
of a majority of the outstanding Shares of The Large Capitalization Fund.
The Large Capitalization Fund may not:
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1. Purchase or otherwise acquire any securities, if as a result, more
than 15% of the Large Capitalization Fund's net assets would be
invested in securities that are illiquid.
In addition to the above investment restrictions, the Large Capitalization Fund
is subject to certain other investment restrictions set forth under "INVESTMENT
OBJECTIVE AND POLICES-Investment Restrictions" in the Statement of Additional
Information.
MANAGEMENT OF THE LARGE CAPITALIZATION FUND
TRUSTEES
Overall responsibility for management of the Large Capitalization Fund 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 the Large Capitalization Fund pursuant
to the Distribution and Shareholder Service Plans 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
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.
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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 through one or more subadvisers, furnishes a
continuous investment program for the Large Capitalization Fund and makes
investment decisions on behalf of the Large Capitalization Fund.
First of America utilizes a team approach to the investment management of the
Large Capitalization Fund, with up to three professionals working as a team to
ensure a disciplined investment process designed to result in long-term
performance consistent with the Large Capitalization Fund's investment
objective. Roger H. Stamper, Managing Director of First of America, is
primarily responsible for the day-to-day management of the Large Capitalization
Fund. Mr. Stamper has held his current position with First of America since
1988.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, First of America receives a fee from the
Large Capitalization Fund, computed daily and paid monthly, at the annual rate
of eighty one-hundredths of one percent (0.80%) of the Large Capitalization
Fund's average daily net assets. First of America may periodically voluntarily
reduce all or a portion of its advisory fee with respect to the Large
Capitalization Fund to increase the net income of the Large Capitalization Fund
available for distribution as dividends. The voluntary fee reduction will
cause the total return of the Large Capitalization Fund to be higher than it
would otherwise be in the absence of such a reduction.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-3035, is the administrator for
the Large Capitalization Fund, and also acts as the Large Capitalization Fund's
principal underwriter and distributor (the "Administrator" or the
"Distributor," as the context indicates). First of America serves as
Sub-administrator for the Large Capitalization Fund 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 Large Capitalization
Fund's 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 the Large Capitalization 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 Large
Capitalization 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 Sub-administrator, First of America receives, from the
Administrator, pursuant to its Sub-Administration Agreement with
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BISYS, a fee not to exceed five one-hundredths of one percent (.05%) of the
Large Capitalization Fund's average daily net assets. The Administrator may
periodically voluntarily reduce all or a portion of its administrative fee with
respect to the Large Capitalization Fund to increase the net income of the
Large Capitalization Fund available for distribution as dividends. The
voluntary fee reduction will cause the return of the Large Capitalization Fund
to be higher than it would otherwise be in the absence of such reduction.
The Distributor acts as agent for the Large Capitalization Fund in the
distribution of its 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. The Distributor
may retain some or all of any sales charges imposed upon the Investor Shares
and may receive compensation under the Distribution and Shareholder Service
Plans described below.
EXPENSES
The Adviser and the Administrator each bear all expenses in connection with the
performance of its services as investment adviser and administrator,
respectively, other than the cost of securities (including brokerage
commissions) purchased for the Group. The Large Capitalization 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 the Large
Capitalization Fund's operation. As a general matter, expenses are allocated
to the separate classes of Shares of the Large Capitalization Fund on the basis
of the relative net asset value of each class.
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 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.
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<PAGE> 29
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
the Large Capitalization Fund. Pursuant to the Investor A Plan, the Large
Capitalization 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 Investor A 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 the Large Capitalization 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 a subsidiary or affiliate of BISYS.
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 the Large Capitalization
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 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 of beneficially by such
customers. The shareholder and distribution services provided by Participating
Organizations may include promoting the purchase of Investor A Shares of the
Large Capitalization Fund by its customers; processing purchase, exchange, and
redemption requests for customers and placing orders with the Distributor or
the Transfer Agent; processing dividend and distribution payments from the
Large Capitalization 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. Institutions, including banks regulated by
the Comptroller of the Currency,
PROSPECTUS -27-
<PAGE> 30
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.
DISTRIBUTION PLAN FOR INVESTOR B SHARES
Pursuant to Rule 12b-1, the Group has adopted an Investor B Distribution and
Shareholder Service Plan (the "Investor B Plan") with respect to the Investor B
Shares of the Large Capitalization Fund. Pursuant to the Investor B Plan, the
Large Capitalization 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, the Large Capitalization 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 seventy-five one-hundredths of one
percent (.75%) of the average daily net asset value of Investor B Shares of the
Large Capitalization Fund (the "Distribution Fee") and (b) a service fee in an
amount not to exceed on an annual basis twenty-five one-hundredths of one
percent (.25%) of the average daily net asset value of the Investor B Shares of
the Large Capitalization 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. The Distribution Fee and/or the Service Fee with respect to Investor
B Shares may be used by BISYS to pay Participating Organizations for
administration, distribution, and/or shareholder service assistance pursuant to
an agreement between BISYS and the Participating Organization. Under the
Investor B Plan, a Participating Organization may include a subsidiary or
affiliate of BISYS.
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 the Large Capitalization
Fund as accrued.
Pursuant to the Investor B Plan, the Distributor may enter into Rule 12b-1 and
Shareholder Servicing 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
PROSPECTUS -28-
<PAGE> 31
promoting the purchase of Investor B Shares of the Large Capitalization 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 the Large Capitalization
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 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, as described under "Distribution Plan for
Investor A Shares," may apply to the receipt by Participating Organizations of
compensation from BISYS in connection with the investment of fiduciary assets
in Investor B Shares.
DISTRIBUTION PLAN FOR INVESTOR C SHARES
Pursuant to Rule 12b-1, the Group has adopted an Investor C Distribution and
Shareholder Service Plan (the "Investor C Plan") with respect to the Investor C
Shares of the Large Capitalization Fund. Pursuant to the Investor C Plan, the
Large Capitalization 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, the Large Capitalization 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 seventy-five one-hundredths of one
percent (.75%) of the average daily net asset value of Investor C Shares of the
Large Capitalization Fund (the "Distribution Fee") and (b) a service fee in an
amount not to exceed on an annual basis twenty-five one-hundredths of one
percent (.25%) of the average daily net asset value of the Investor C Shares of
the Large Capitalization 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. The Distribution Fee and/or the Service Fee with respect to Investor
C Shares may be used by BISYS to pay Participating Organizations for
administration, distribution, and/or shareholder service assistance pursuant to
an agreement between BISYS and the Participating Organization. Under the
Investor C Plan, a Participating Organization may include a subsidiary or
affiliate of BISYS.
PROSPECTUS -29-
<PAGE> 32
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 the Large Capitalization
Fund as accrued.
Pursuant to the Investor C Plan, the Distributor may enter into Rule 12b-1 and
Shareholder Servicing 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 the
Large Capitalization 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 the
Large Capitalization 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-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, as described under "Distribution Plan for
Investor A Shares," may apply to the receipt by Participating Organizations of
compensation from BISYS in connection with the investment of fiduciary assets
in Investor C Shares.
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<PAGE> 33
INVESTOR A PLAN, INVESTOR B PLAN, AND INVESTOR C PLAN
As authorized by the Investor A Plan, the Investor B Plan, and Investor C 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 Shares of the
Large Capitalization Fund purchased and held by FSI for the accounts of its
customers and Investor Shares of the Large Capitalization Fund purchased and
held by customers of FSI directly, including, but not limited to, printing and
distributing prospectuses to persons other than holders of Investor Shares of
the Large Capitalization Fund and printing and distributing advertising and
sales literature in connection with the sale of Investor Shares; answering
routing customer questions concerning the Large Capitalization Fund 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 Shares held during the
period in customer accounts for which FSI has provided services under this
Agreement. BISYS will be compensated by the Large Capitalization Fund 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 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, Investor B Plan, and Investor C Plan (the "Plans") require
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 Plans ("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 the Large
Capitalization Fund requires shareholder approval; otherwise, the Plans may be
PROSPECTUS -31-
<PAGE> 34
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 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.
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 ("Institutional Customers") by Banks.
Institutional Shares of the Large Capitalization Fund sold to the Banks acting
in a fiduciary, advisory, custodial, or other similar capacity on behalf of
Institutional Customers will normally be held of record by the Banks. With
respect to Institutional Shares of the Large Capitalization Fund 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 Large
Capitalization Fund will be recorded by the Banks and reflected in the account
statements provided by the Banks to Institutional Customers. A Bank may
exercise voting authority for those Institutional Shares for which it is
granted authority by the Institutional Customer.
Institutional Shares of the Large Capitalization Fund are purchased at the net
asset value per share (see "HOW SHARES ARE VALUED") 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 Large Capitalization Fund's
custodian, if received prior to the last Valuation Time (see "HOW SHARES ARE
VALUED"). 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.
PROSPECTUS -32-
<PAGE> 35
Purchases of Institutional Shares of the Large Capitalization Fund will be
effected only on a Business Day (as defined in "HOW SHARES ARE VALUED") of the
Large Capitalization 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 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.
Institutional 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 Large Capitalization Fund. Depending upon the
terms of a particular Institutional Customer Account, the Banks may charge an
Institutional 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 redemptions of Institutional Shares of the Large
Capitalization Fund by Banks on behalf of their Institutional Customers may be
obtained from the Banks. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Institutional Shares of the Large
Capitalization Fund will not be issued.
HOW TO BUY INVESTOR SHARES
Investor Shares of the Large Capitalization Fund are continuously offered and
may be purchased directly either by mail, by telephone, or by wire. Investor
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 the Large Capitalization 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 Shares, plus any
applicable sales charge as described below (see "SALES CHARGES"). In the case
of an order for the purchase of Investor 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 Shares of the Large Capitalization Fund 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:
PROSPECTUS -33-
<PAGE> 36
The Parkstone Group of Funds
c/o BISYS Fund Services Ohio, Inc.
Dept. L-1270
Columbus, Ohio 43260-1270
An Account Application Form can be obtained by calling the Group at (800)
451-8377.
BY TELEPHONE OR BY WIRE
To purchase Investor Shares of the Large Capitalization Fund 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 Investor 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 Investor
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 Shares by wire, contact
the Distributor for wire instructions.
OTHER INFORMATION REGARDING PURCHASES
Investor 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 ("Investor Shares Customers") by
First of America Bank Corporation or one of its affiliates. Investor Shares of
the Large Capitalization Fund sold to First of America Bank Corporation or the
affiliate acting in a fiduciary, advisory, custodial, or other similar capacity
on behalf of Investor Shares Customers will normally be held of record by First
of America Bank Corporation or the affiliate. With respect to Investor 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 Investor Shares of the
Large Capitalization Fund will be recorded by First of America Bank Corporation
or one of its affiliates and reflected in the account statements provided to
Investor Shares Customers. First of America Bank Corporation or one of its
affiliates may exercise voting authority for those Investor Shares for which it
has been granted authority by the Investor Shares Customer.
Investor Shares of the Large Capitalization Fund are purchased at the net asset
value per share (see "HOW SHARES ARE VALUED") next determined after receipt by
the Distributor of an order to purchase Investor Shares plus any applicable
sales charge as described below. Purchases of Investor Shares of the Large
Capitalization Fund will be effected only on a Business Day (as defined in "HOW
SHARES ARE VALUED") of the Large Capitalization Fund. 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 the Large Capitalization Fund.
PROSPECTUS -34-
<PAGE> 37
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 Shares of any
shareholder if, because of redemptions of Investor Shares by or on behalf of
the shareholder (but not as a result of a decrease in the market price of such
Investor 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 the Large Capitalization Fund has a value of less than $1,000.
Accordingly, an investor purchasing Investor Shares of the Large Capitalization
Fund in only the minimum investment amount may be subject to such involuntary
redemption if the investor thereafter redeems any such Investor Shares. Before
the Group exercises its right to redeem such Investor Shares and to send the
proceeds to the shareholder, the shareholder will be given notice that the
value of the Investor 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 Large Capitalization Fund in an amount which will increase the value of the
account to at least $1,000.
Depending upon the terms of a particular Investor Shares Customer account,
First of America Bank Corporation or one of its affiliates may charge an
Investor Shares Customer account fees for services provided in connection with
investment in the Large Capitalization 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 Investor
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, Investor B Shares or Investor C Shares of the Large Capitalization Fund
owned by the shareholder. Confirmation of purchases and redemptions of
Investor Shares of the Large Capitalization Fund by First of America Bank
Corporation or one of its affiliates on behalf of an Investor Shares 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 Shares of the Large Capitalization
Fund 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 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 Investor Shares at the public offering price on
the date of such deduction (or the next Business Day thereafter, as defined
under "HOW SHARES ARE VALUED" below). The required minimum initial investment
when opening an account using
PROSPECTUS -35-
<PAGE> 38
the Auto Invest Plan is $100; the minimum amount for subsequent investments in
the Large Capitalization 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's distributor,
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-3035, and may take up to 15 days
to implement.
SALES CHARGES
INVESTOR A SHARES
The public offering price of Investor A Shares of the Large Capitalization Fund
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:
<TABLE>
<CAPTION>
SALES CHARGE DEALER DISCOUNTS
SALES CHARGE AS % OF AND BROKERAGE
AS % OF PUBLIC COMMISSIONS AS %
AMOUNT OF TRANSACTION AT NET AMOUNT OFFERING OF PUBLIC
PUBLIC OFFERING PRICE INVESTED 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>
INVESTOR B SHARES
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
PROSPECTUS -36-
<PAGE> 39
four years after purchase. See "CONTINGENT DEFERRED SALES CHARGE-Investor B
Shares" below.
INVESTOR C SHARES
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 1.00%
when Investor C Shares are redeemed within one year after purchase. See
"CONTINGENT DEFERRED SALES CHARGE-Investor C Shares" below.
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 the Large Capitalization 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 4.00% of the offering price
per share on all sales of Investor B Shares or Investor C Shares as an expense
of the Distributor or for which the Distributor may be reimbursed under the
Investor B Plan or 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 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 Investor Shares sold by
FSI. The Distributor, at its expense, may also provide additional compensation
to dealers in connection with sales of Investor Shares of the Large
Capitalization Fund. 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
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 Funds of
the Group. 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.
PROSPECTUS -37-
<PAGE> 40
REDUCED SALES CHARGES-INVESTOR A SHARES
SALES CHARGE WAIVERS
The Distributor may waive sales charges for the purchase of Investor A Shares
of the Large Capitalization 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 Large Capitalization
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 the Large Capitalization 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 the Large Capitalization 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 Large Capitalization Fund or the Investor A Shares of the other Funds of
the Group totals at least $1,000,000.00. 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 the Large
Capitalization Fund and of one or more of the other Funds of the Group sold
with a sales charge. For example, if a shareholder
PROSPECTUS -38-
<PAGE> 41
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 the Large Capitalization 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.
LETTER 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 the Large Capitalization 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 the Large Capitalization Fund subject to the
rate of sales charge applicable to the actual amount of the aggregate
purchases.
PROSPECTUS -39-
<PAGE> 42
For further information about Letters of Intent, interested investors should
contact the Distributor 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 the Large Capitalization Fund at the public offering price
applicable to the total of (a) the total public offering price of the Investor
A Shares of the Large Capitalization 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.
CONTINGENT DEFERRED SALES CHARGE-INVESTOR B SHARES
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 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 Investor B Shares at the time of
redemption, as set froth in the chart below.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR OF 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 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
PROSPECTUS -40-
<PAGE> 43
redemption is first of Investor B Shares held for more than four years or
Investor B 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 Investor B 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, (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.
CONTINGENT DEFERRED SALES CHARGE-INVESTOR C SHARES
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 Investor C
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 Investor C Shares held for more than one year or
Investor C 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.
PROSPECTUS -41-
<PAGE> 44
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 Investor C 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 of a shareholder, (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 Large Capitalization 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 Shares to acquire Shares of the
same class that are offered by another Fund of the Group with a different
investment objective. For example, holders of the Large Capitalization Fund
Investor B Shares may not exchange their Shares for Investor A Shares, and
holders of the Large Capitalization Fund Investor A Shares may not exchange
their Shares for Investor B Shares.
Holders of Shares of the Large Capitalization Fund (including Shares acquired
through reinvestment of dividends and distributions on such shares) may
exchange those Shares at net asset value without any sales charge for Shares of
the same class 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.
PROSPECTUS -42-
<PAGE> 45
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 sale
charge on Shares of the Large Capitalization 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 SHARES-By Telephone"
below.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR SHARES
Before purchasing Investor Shares of the Large Capitalization Fund, investors
should consider whether, during the anticipated life of their investment in the
Large Capitalization Fund, the accumulated Rule 12b-1 fee and potential
contingent deferred sales charges on Investor B or Investor C Shares prior to
conversion (as described below) would be less than the initial sales charge and
accumulated Rule 12b-1 fee on Investor A Shares purchased at the same time, and
to what extent such differential would be offset by the higher yield of
Investor A Shares. In this regard, to the extent that the sale 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 initial sales charge would have less of their
purchase price initially invested in the Large Capitalization 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 Large Capitalization
Fund'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
Investor B Shares would be subject to a contingent deferred sale 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 expenses 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
PROSPECTUS -43-
<PAGE> 46
fees with respect to Investor B Shares on the Large Capitalization Fund 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.
Investor C Shares are subject to a level of Rule 12b-1 fees which is identical
to that of the Investor B Shares. Consequently, Investor C Shares may
generally be compared to Investor A Shares in the same manner as that set forth
above. However, as noted above, Investor B Shares are subject to a contingent
deferred sales charge of up to 4.00% for a period of four years. Investor C
Shares may therefore be more appropriate for investors who expect to redeem
Shares within this four year period. Conversely, because Investor B Shares
convert to Investor A Shares after an eight-year holding period, Investor B
Shares may be appropriate for investors who expect to hold their investments
for more than eight years.
CONVERSION FEATURE-INVESTOR B SHARES
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 that 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.
If a shareholder effects one or more exchanges among Investor B Shares of the
Parkstone Group of Funds during the eight-year period, the holding period for
Investor B Shares so exchanged will be counted toward such period.
CONVERSION FEATURE-INVESTOR C SHARES
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,
PROSPECTUS -44-
<PAGE> 47
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.
If a shareholder effects one or more exchanges among Investor C Shares of the
Parkstone Group of Funds during the nine-year period, the holding period for
Investor C Shares so exchanged will be counted toward such period.
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS
Investor Shares of the Large Capitalization 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 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 EMPLOYEES 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.
PROSPECTUS -45-
<PAGE> 48
For more information on any of the Parkstone IRA's or other retirement plan
options available (401(L) 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 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 an Institutional 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 Institutional Customer may be
obliged to redeem, or the Bank may redeem for and on behalf of the
Institutional Customer, all or part of the Customer's Institutional Shares of
the Large Capitalization Fund 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
c/o BISYS Fund Services Ohio, Inc.
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 12:00 noon, Eastern Time, on a Business Day or, if
the request for redemption is received after 12:00 noon, Eastern Time, to honor
requests for payment on the next Business Day, unless it would be
disadvantageous to the Group or the shareholders of the Large Capitalization
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
PROSPECTUS -46-
<PAGE> 49
of the Large Capitalization Fund involuntarily if it appears appropriate to do
so in light of the Group's responsibilities under the 1940 Act.
HOW TO REDEEM INVESTOR SHARES
Shareholders of Investor Shares may redeem their Investor A Shares without
charge and their Investor B and Investor C Shares, subject to the contingent
deferred sales charge described above, on any day that net asset value is
calculated (see "HOW SHARES ARE VALUED"). Redemptions will be effected at the
net asset value per share next determined after receipt of a redemption
request. Redemptions of Investor Shares 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., 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 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 wired to a commercial
bank account previously designated on the Account Application Form. Under most
circumstances, payments will be transmitted on the next Business Day. Wire
redemption 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.
PROSPECTUS -47-
<PAGE> 50
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 the Large Capitalization Fund
to make regular monthly or quarterly redemptions of Investor 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 REDEMPTIONS OF INVESTOR SHARES
All or part of a Customer's Investor 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.
PROSPECTUS -48-
<PAGE> 51
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 Large Capitalization Fund, 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 4:00 p.m. (Eastern Time) on a Business Day or, if received after 4:00
p.m. (Eastern Time), within two Business Days, unless it would be
disadvantageous to the Large Capitalization 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 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 of the
Large Capitalization Fund 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 Large Capitalization Fund is
determined and priced as of the close of trading on the New York Stock Exchange
on each Business Day. A "Business Day" is a day on which the New York Stock
Exchange is open for trading 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. The New York
Stock Exchange will not open in observance of the following holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
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 the Large Capitalization Fund allocable to such class, less
the liabilities charged to the Large Capitalization Fund allocable to such
class and any liabilities charged directly to that class, by the number of
outstanding Shares of such class.
PROSPECTUS -49-
<PAGE> 52
The net asset value per share will fluctuate as the value of the investment
portfolio of the Large Capitalization Fund changes.
The securities in the Large Capitalization 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 of the class in which he
or she is an investor 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 43219-3035, and will become effective with respect
to dividends and distributions having record dates after its receipt by the
Transfer Agent.
Each of the Funds of the Group, including the Large Capitalization Fund, 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 the Large Capitalization 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, the Large Capitalization 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.
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
PROSPECTUS -50-
<PAGE> 53
corporations, if any, received by the Large Capitalization 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 the Large Capitalization 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 Large Capitalization Fund by foreign countries with
respect to income received on foreign securities. If more than 50% of the
value of the Large Capitalization Fund's assets at the close of its taxable
year consists of stocks or securities of foreign corporations, the Large
Capitalization 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 Large Capitalization Fund 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.
PERFORMANCE INFORMATION
From time to time performance information for the Large Capitalization Fund
showing its 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 the Large Capitalization Fund will be calculated for the period since
the establishment of the Large Capitalization Fund 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 the
Large Capitalization 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
PROSPECTUS -51-
<PAGE> 54
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. The Large Capitalization 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 Large Capitalization Fund may present its
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 the Large Capitalization 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 the Large Capitalization 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.
Total return quotations will be computed separately for Institutional Shares,
Investor A Shares, Investor B Shares, and Investor C Shares of the Large
Capitalization Fund. Because of differences in the fees and/or expenses borne
by different classes of Shares of the Large Capitalization Fund, the net yield
and total return on each class may be different from that for another class of
the Large Capitalization Fund.
Investors may also judge the performance of any class of Shares of the Large
Capitalization 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 Large
Capitalization Fund 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 Large Capitalization Fund 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 each class of shares of the Large Capitalization Fund
will be higher than it would otherwise be in the absence of such voluntary fee
reductions.
PROSPECTUS -52-
<PAGE> 55
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's funds, including the Large Capitalization
Fund, 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:
Institutional Shares, Investor A Shares, Investor B Shares, Investor C Shares.
Shares of each of the four Money Market Funds of the Group are offered in two
separate classes: Institutional Shares and Investor A 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 Large
Capitalization Fund 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 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.
PROSPECTUS -53-
<PAGE> 56
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc, formerly known as The Winsbury Service
Corporation, 3435 Stelzer Road, Columbus, Ohio 43219-3035, 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 the Large Capitalization Fund 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 Large Capitalization Fund may be directed in writing to
The Parkstone Group of Funds at 3435 Stelzer Road, Columbus, Ohio 43219-3035,
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 Large
Capitalization Fund or its Distributor. This Prospectus does not constitute an
offering by the Large Capitalization Fund or by their Distributor in any
jurisdiction in which such offering may not lawfully be made.
PROSPECTUS -54-
<PAGE> 57
THE PARKSTONE GROUP OF FUNDS
Large Capitalization Fund
Institutional Shares
Investor A Shares
Investor B Shares
Investor C Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
First of America Investment Corporation
Suite 500
303 North Rose Street
Kalamazoo, Michigan 49007
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219-3035
TRANSFER AGENT
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
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 49007-3956
PROSPECTUS -55-
<PAGE> 58
THE PARKSTONE GROUP OF FUND
Statement of Additional Information
December 28, 1995
THE PARKSTONE LARGE CAPITALIZATION FUND
INSTITUTIONAL SHARES
INVESTOR A SHARES
INVESTOR B SHARES
INVESTOR C SHARES
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Prospectus (the "Prospectus") of The Parkstone
Large Capitalization Fund dated December 28, 1995, as supplemented from time to
time. This Statement of Additional Information is incorporated by reference in
its entirety into the Prospectus. Copies of the Prospectus may be obtained by
writing the Group at 3435 Stelzer Road, Columbus, Ohio 43219-3035, or by
telephoning toll free (800) 451-8377.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 59
<TABLE>
TABLE OF CONTENTS
-----------------
<S> <C>
INVESTMENT OBJECTIVE AND POLICES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Additional Information on Portfolio Instruments . . . . . . . . . . . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Valuation of the Large Capitalization Fund . . . . . . . . . . . . . . . . . 14
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . 15
MANAGEMENT OF THE LARGE CAPITALIZATION FUND . . . . . . . . . . . . . . . . . . . . . 16
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Glass-Steagall Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Administrator and Sub-Administrator . . . . . . . . . . . . . . . . . . . . 23
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Custodian, Transfer Agent and Fund Accounting Services . . . . . . . . . . . 28
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Description of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Vote of a Majority of the Outstanding Shares . . . . . . . . . . . . . . . . 30
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . . . 30
Additional Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . 30
Yields of the Large Capitalization Fund . . . . . . . . . . . . . . . . . . 34
Calculation of Total Return . . . . . . . . . . . . . . . . . . . . . . . . 34
Distribution Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Performance Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION -i-
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STATEMENT OF ADDITIONAL INFORMATION
THE PARKSTONE LARGE CAPITALIZATION FUND
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which offers sixteen separate investment portfolios, fifteen of which
are diversified portfolios and one of which is a non-diversified portfolio,
each with different investment objectives. The separate investment portfolios
of the Group enable the Group to meet a wide range of investment needs. This
Statement of Additional Information contains information about The Parkstone
Large Capitalization Fund (the "Large Capitalization Fund").
The Large Capitalization Fund seeks growth of capital by investing primarily in
a diversified portfolio of common stocks and securities convertible into common
stocks of companies with large market capitalization.
Much of the information contained in this Statement of Additional Information
expands upon subjects discussed in the Prospectus of the Large Capitalization
Fund. Capitalized terms not defined herein are defined in the Prospectus. No
investment in Shares of the Large Capitalization Fund should be made without
first reading the Large Capitalization Fund's Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objective and policies of the
Large Capitalization Fund as set forth in the Prospectus.
BANK OBLIGATIONS. The Large Capitalization Fund may invest in bank
obligations consisting of bankers' acceptances, certificates of deposit, and
time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Large Capitalization Fund will be those
guaranteed by domestic and foreign banks having, at the time of investment,
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of their most recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings association for a definite
period of time and earning a specified return. Certificates of deposit and
time deposits will be those of domestic and foreign banks and savings
associations, if (a) at the time of investment the depository institution has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently
STATEMENT OF ADDITIONAL INFORMATION
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published financial statements), or (b) the principal amount of the instrument
is insured in full by the Federal Deposit Insurance Corporation.
The Large Capitalization Fund may also invest in Eurodollar
Certificates of Deposit, which are U S dollar denominated certificates of
deposit issued by offices of foreign and domestic banks located outside the
United States; Yankee Certificates of Deposit, which are certificates of
deposit issued by a U.S branch of a foreign bank denominated in U S. dollars
and held in the United States; Eurodollar Time Deposits ("ETDs"), which are
U.S. dollar denominated deposits in a foreign branch of a U.S. bank or a
foreign bank; and Canadian Time Deposits, which are basically the same as ETDs
except they are issued by Canadian offices of major Canadian banks.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Except as noted below with respect to variable
amount master demand notes, issues of commercial paper normally have maturities
of less than nine months and fixed rates of return.
Subject to the limitations described in the Prospectus, the Large
Capitalization Fund may invest in commercial paper rated in any rating category
or not rated by a nationally recognized statistical rating organization (an
"NRSRO"). In general, investment in lower-rated instruments is more risky than
investment in instruments in higher-rated categories. For a description of the
rating symbols of each NRSRO see the Appendix. The Large Capitalization Fund
may also invest in Canadian commercial paper, which is commercial paper issued
by a Canadian corporation or a Canadian counterpart of a U.S. corporation and
in Europaper, which is U.S. dollar denominated commercial paper of a foreign
issuer.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes in which the Large Capitalization Fund may invest are unsecured demand
notes that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate according to the terms of the instrument.
Because master demand notes are direct lending arrangements between the Large
Capitalization Fund and the issuer, they are not nominally traded. Although
there is no secondary market in the notes, the Large Capitalization 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, the investment adviser of the Large
Capitalization Fund (sometimes referred to as the "Adviser"), 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 dollar average maturity, a variable amount
master demand note will be deemed to have a maturity equal to the longer of the
period of time remaining until the next interest rate adjustment or the period
of time remaining until the principal amount can be recovered from the issuer
through demand.
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FOREIGN INVESTMENTS. 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. Since investments in the
securities of foreign issuers may involve currencies of foreign countries, the
Large Capitalization Fund may be affected favorably or unfavorably by changes
in currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.
Since foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company.
Volume and liquidity in most foreign bond markets are less than in the U.S.
and securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S
exchanges, although the Large Capitalization Fund endeavors to achieve the most
favorable net results on its portfolio transactions. There is generally less
government supervision and regulation of securities exchanges, brokers, dealers
and listed companies than in the United States, thus increasing the risk of
delayed settlements of portfolio transactions or loss of certificates for
portfolio securities.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of the Large Capitalization
Fund is uninvested and no return is earned thereon. The inability of the Large
Capitalization Fund to make intended security purchases due to settlement
problems could cause the Large Capitalization Fund to miss attractive
investment opportunities. Losses to the Large Capitalization Fund due to
subsequent declines in the value of portfolio securities, or losses arising out
of the Large Capitalization Fund's inability to fulfill a contract to sell such
securities, could result in potential liability to the Large Capitalization
Fund. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect the Large
Capitalization Fund's investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the U.S. economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment resource self-sufficiency and balance of payments position.
The Large Capitalization Fund will acquire such securities only when
First of America believes the risks associated with such investments are
minimal.
MONEY MARKET MUTUAL FUNDS. The Large Capitalization Fund 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 Large Capitalization Fund's total assets
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may be invested in the securities of money market mutual funds in the
aggregate. In order to avoid the imposition of additional fees as a result of
investments by the Large Capitalization Fund in shares of the money market
funds of the Group, the Adviser, Administrator and their affiliates (See
"MANAGEMENT OF THE LARGE CAPITALIZATION FUND--Investment Adviser,"
"Administrator and Distributor" and "Custodians, Transfer Agent and Fund
Accounting Services") will not retain any portion of their usual service fees
from the Large Capitalization Fund that are attributable to investments by the
Large Capitalization Fund in shares of those money market mutual funds if the
fee is being taken in the Large Capitalization Fund. The Investment Adviser
and the Administrator will promptly forward such fees to the Large
Capitalization Fund. The Large Capitalization Fund will incur additional
expenses due to the duplication of expenses as a result of any investment in
securities of unaffiliated money market mutual funds.
The Large Capitalization Fund will incur no sales charges, contingent
deferred sales charges, 12b-1 fees, or other underwriting or distribution fees
in connection with their investments in the money market funds of the Group.
The Large Capitalization Fund will vote its shares of each of the money market
funds of the Group in proportion to the vote by all other shareholders of such
money market fund. Moreover, the Large Capitalization Fund may not own more
than 3% of the outstanding shares of any single money market fund of the Group.
U.S. GOVERNMENT OBLIGATIONS. The Large Capitalization Fund may invest
in obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, including bills, notes and bonds issued by the U.S.
Treasury, 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 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 Large
Capitalization Fund 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 are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the Treasury;
others are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; and still others are supported only by the
creditworthiness 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.
OPTIONS TRADING. The Large Capitalization Fund may purchase put and
call options. A call option gives the purchaser the right to buy, and a writer
has the obligation to sell, the underlying security or foreign currency at the
stated exercise price at any time prior to the expiration of the option,
regardless of the market price or exchange rate of the security or foreign
currency, as the case may be. The premium paid to the writer is consideration
for undertaking the obligations under the option contract. A put option gives
the purchaser the right
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to sell the underlying security or foreign currency at the stated exercise
price at any time prior to the expiration date of the option, regardless of the
market price or exchange rate of the security or foreign currency, as the case
may be. Put and call options purchased by the Large Capitalization Fund will
be valued at the last sale price, or in the absence of such a price, at the
mean between bid and asked price.
When the Large Capitalization Fund writes an option, an amount equal
to the net premium (the premium less the commission) received by the Large
Capitalization Fund is included in the liability section of the Large
Capitalization Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the
traded option is the last sale price or, in the absence of a sale, the average
of the closing bid and asked prices. If an option expires on the stipulated
expiration date or if the Large Capitalization Fund enters into a closing
purchase transaction, it will realize a gain (or a loss if the cost of a
closing purchase transaction exceeds the net premium received when the option
is sold) and the deferred credit related to such option will be eliminated. If
an option is exercised, the Large Capitalization Fund may deliver the
underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Large
Capitalization Fund will realize a gain or loss.
The Large Capitalization Fund may also purchase or sell index options.
Index options (or options on securities indices) are similar in many respects
to options on securities except that an index option gives the holder the right
to receive, upon exercise, cash instead of securities, if the closing level of
the securities index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. As discussed in the
Prospectus, the Large Capitalization Fund may purchase securities on a
"when-issued" or "delayed-delivery" basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). When the Large Capitalization
Fund agrees to purchase securities on a "when-issued" or "delayed-delivery"
basis, the Large Capitalization Fund's custodian will set aside cash or liquid
securities equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside securities to satisfy the purchase
commitment, and in such a case, the Large Capitalization Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the Large
Capitalization Fund's commitment. It may be expected that the Large
Capitalization Fund's net assets will fluctuate to a greater degree when it
sets aside securities to cover such purchase commitments than when it sets
aside cash. In addition, because the Large Capitalization Fund will set aside
cash or liquid securities to satisfy its purchase commitments in the manner
described above, the Large Capitalization Fund's liquidity and the ability of
the Adviser to manage it might be affected in the event its commitments to
purchase "when-issued" or "delayed delivery" securities ever exceeded 25% of
the value of its assets. Under normal market conditions, however, the Large
Capitalization Fund's commitments to purchase "when-issued" or
"delayed-delivery" securities will not exceed 25% of the value of its assets.
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<PAGE> 65
If the Large Capitalization Fund sells a "when-issued" or
"delayed-delivery" security before a delivery, any gain would not be
tax-exempt. When the Large Capitalization Fund engages in "when-issued" or
"delayed-delivery" transactions, it relies on the seller to consummate the
trade. Failure of the seller to do so may result in the Large Capitalization
Fund incurring a loss or missing the opportunity to obtain a price considered
to be advantageous. The Large Capitalization Fund will engage in "when-issued"
or "delayed-delivery" transactions only for the purpose of acquiring securities
consistent with the Large Capitalization Fund's investment objective and
policies and not for investment leverage, although such transactions represent
a form of leveraging. The commitments of the Large Capitalization Fund to
purchase "when-issued" or "delayed-delivery" securities will not exceed 5% of
the value of their respective assets.
MORTGAGE-RELATED SECURITIES. The Large Capitalization Fund may,
consistent with its investment objective and policies, invest in
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities.
Mortgage-related securities, for purposes of the Large Capitalization
Fund's Prospectus and this Statement of Additional Information, represent pools
of mortgage loans assembled for sale to investors by various governmental
agencies such as the Government National Mortgage Association and
government-related organizations such as the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, as well as by
non-governmental issuers such as commercial banks, savings institutions,
mortgage bankers and private mortgage insurance companies. Although certain
mortgage-related securities are guaranteed by a third party or otherwise
similarly secured, the market value of the security, which may fluctuate, is
not so secured. If the Large Capitalization 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 Large
Capitalization Fund. In addition, regular payments received in respect of
mortgage-related securities include both interest and principal. No assurance
can be given as to the return the Large Capitalization Fund will receive when
these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage related securities
and among the securities that they issue. Mortgage-related securities issued
by the Government National Mortgage Association
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<PAGE> 66
("GNMA") include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of FNMA and are not backed by or entitled to the full faith and
credit of the United States. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to the timely
payment of the principal and interest by FNMA. Mortgage-related securities
issued by the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC
Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs").
FHLMC is a corporate instrumentality of the United States, created pursuant to
an Act of Congress, which is owned entirely by Federal Home Loan Banks.
Freddie Macs are not guaranteed by the United States or by any Federal Home
Loan Banks and do not constitute a debt or obligation of the United States or
of any Federal Home Loan Bank. Freddie Macs entitle the holder to the timely
payment of interest, which is guaranteed by FHLMC. FHLMC guarantees either
ultimate collection or the timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
RESTRICTED SECURITIES. "Section 4(2) securities," as described in the
Prospectus, are securities which are issued in reliance on the "private
placement" exemption from registration which is afforded by Section 4(2) of the
Securities Act of 1933 (the "1933 Act"). The Large Capitalization Fund will
not purchase Section 4(2) securities which have not been determined to be
liquid in excess of 15% of the total assets of the Large Capitalization Fund.
The Group's Board of Trustees has delegated to First of America the day-to-day
authority to determine whether a particular issue of Section 4(2) securities
that are eligible for resale under Rule 144A under the 1933 Act should be
treated as liquid. Rule 144A provides a safe harbor exemption from the
registration requirements of the 1933 Act for resales to "qualified
institutional buyers" as defined in the Rule. With the exception of registered
broker-dealers, a qualified institutional buyer must generally own and invest
on a discretionary basis at least $100 million in securities.
First of America may deem Section 4(2) securities liquid if it
believes that, based on the trading markets for such security, such security
can be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Large Capitalization Fund has valued the
security. In making such determination, First of America generally considers
any and all factors that it deems relevant, which may include (i) the credit
quality of the issuer; (ii) the frequency of trades and quotes for the
security; (iii) the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; (iv) dealer
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undertakings to make a market in the security; and (v) the nature of the
security and the nature of market-place trades.
Treatment of Section 4(2) securities as liquid could have the effect of
decreasing the level of the Large Capitalization Fund's liquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
REPURCHASE AGREEMENTS. Securities held by the Large Capitalization
Fund may be subject to repurchase agreements. Under the terms of a repurchase
agreement, the Large Capitalization Fund would acquire securities from member
banks of the Federal Deposit Insurance Corporation and registered
broker-dealers which First of America deems 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 Large
Capitalization Fund plus interest negotiated on the basis of current short-term
rates, which may be more or less than the rate on the underlying portfolio
securities. The seller under a repurchase agreement will be required to
maintain at all times the value of collateral held pursuant to the agreement at
not less than the repurchase price (including accrued interest). If the seller
were to default on its repurchase obligation or become insolvent, the Large
Capitalization 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 the Large Capitalization Fund were delayed pending court action.
Additionally, there is no controlling legal precedent confirming that the Large
Capitalization Fund would be entitled, as against a claim by such seller or its
receiver or trustee in bankruptcy, to retain the underlying securities,
although the Board of Trustees of the Group believes that, under the regular
procedures normally in effect for custody of the Large Capitalization Fund's
securities subject to repurchase agreements and under federal laws, a court of
competent jurisdiction would rule in favor of the Group if presented with the
question. Securities subject to repurchase agreements will be held by the
Group's custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by the Large Capitalization Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS. As
discussed in the Prospectus, the Large Capitalization Fund may borrow funds by
entering into reverse repurchase agreements in accordance with the Large
Capitalization Fund's investment restrictions. Pursuant to such agreements,
the Large Capitalization Fund would sell portfolio securities to financial
institutions such as banks and broker-dealers, and agree to repurchase the
securities at a mutually agreed-upon date and price. At the time the Large
Capitalization 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 the Large Capitalization Fund's investment restrictions having a value
equal to the repurchase price (including accrued interest), and will
subsequently continually monitor the account to ensure that such equivalent
value is maintained. Reverse repurchase agreements and dollar roll agreements
involve the risk that the market value of the securities sold by the Large
Capitalization Fund may decline below the price at which the Large
Capitalization Fund is
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obligated to repurchase the securities. Reverse repurchase agreements and
dollar roll agreements are considered to be borrowings by the Large
Capitalization Fund under the 1940 Act.
FUTURES CONTRACTS. As discussed in the Prospectus, the Large
Capitalization Fund may enter into futures contracts. This investment
technique is designed primarily to hedge against anticipated future changes in
market conditions or foreign exchange rates which otherwise might adversely
affect the value of securities which the Large Capitalization Fund holds or
intends to purchase. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, the Large
Capitalization 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, the Large
Capitalization Fund, through the purchase of such contracts, can attempt to
secure better rates or prices for the Large Capitalization Fund than might
later be available in the market when if effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the Large Capitalization Fund the right (but not the
obligation), for a specified price, to sell or to purchase the underlying
futures contract, upon exercise of the option, at any time during the option
period.
Futures transactions involve brokerage costs and require the Large
Capitalization Fund to segregate liquid assets, such as cash, U.S. Government
securities or other liquid high grade debt obligations, to cover its
performance under such contracts. The Large Capitalization Fund may lose the
expected benefit of futures transactions if interest rates, securities prices
or foreign exchange rates move in an unanticipated manner. Such unanticipated
changes may also result in poorer overall performance than if the Large
Capitalization Fund had not entered into any futures transactions. In
addition, the value of the Large Capitalization Fund's futures positions may
not prove to be perfectly or even highly correlated with the value of its
portfolio securities and foreign currencies, limiting the Large Capitalization
Fund's ability to hedge effectively against interest rate, foreign 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days
("Term") from the date of the contract agreed upon by the parties, at a price
set at the time of the contract. These contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
The Large Capitalization Fund does not intend to enter into such
forward contracts if the Large Capitalization Fund would have more than 15% of
the value of its total assets committed to such contracts on a regular or
continuous basis. The Large Capitalization Fund also will not enter into such
forward contracts or maintain a net exposure in such contracts where the Large
Capitalization Fund would be obligated to deliver an amount of foreign currency
in excess of
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the value of the Large Capitalization Fund's securities or other assets
denominated in that currency. First of America believes that it is important
to have the flexibility to enter into such forward contracts when it determines
that to do so is in the best interests of the Large Capitalization Fund. The
Large Capitalization Fund's custodian bank segregates cash or liquid high-grade
securities in an amount not less than the value of the Large Capitalization
Fund's total assets committed to forward foreign currency exchange contracts
entered into for the purchase of a foreign security. If the value of the
securities segregated declines, additional cash or securities are added so that
the segregated amount is not less than the amount of the Large Capitalization
Fund's commitments with respect to such contracts. The Large Capitalization
Fund generally does not enter into a forward contract with a term longer than
one year.
FOREIGN CURRENCY OPTIONS. A foreign currency option provides the
option buyer with the right to buy or sell a stated amount of foreign currency
at the exercise price at a specified date or during the option period. A call
option gives its owner the right, but not the obligation, to buy the currency,
while a put option gives its owner the right, but not the obligation, to sell
the currency. The option seller (writer) is obligated to fulfill the terms of
the option sold if it is exercised. However, either seller or buyer may close
its position during the option period in the secondary market for such options
any time prior to expiration.
A call rises in value if the underlying currency appreciates.
Conversely, a put rises in value if the underlying currency depreciates. While
purchasing a foreign currency option can protect the Large Capitalization Fund
against an adverse movement in the value of a foreign currency, it does not
limit the gain which might result from a favorable movement in the value of
such currency. For example, if the Large Capitalization Fund were holding
securities denominated in an appreciating foreign currency and had purchased a
foreign currency put to hedge against a decline in the value of the currency,
it would not have to exercise its put. Similarly, if the Large Capitalization
Fund has entered into a contract to purchase a security denominated in a
foreign currency and had purchased a foreign currency call to hedge against a
rise in the value of the currency, but instead the currency had depreciated in
value between the date of purchase and the settlement date, the Large
Capitalization Fund would not have to exercise its call but could acquire in
the spot market the amount of foreign currency needed for settlement.
FOREIGN CURRENCY FUTURES TRANSACTIONS. As part of its financial
futures transactions, the Large Capitalization Fund may use foreign currency
futures contracts and options on such futures contracts. Through the purchase
or sale of such contracts, the Large Capitalization Fund may be able to achieve
many of the same objectives as through forward foreign currency exchange
contracts more effectively and possibly at a lower cost.
Unlike forward foreign currency exchange contracts, foreign currency
futures contracts and options on foreign currency futures contracts are
standardized as to amount and delivery period and may be traded on boards of
trade and commodities exchanges or directly with a dealer which makes a market
in such contracts and options. It is anticipated that such contracts may
provide greater liquidity and lower cost than forward foreign currency exchange
contracts.
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REGULATORY RESTRICTIONS. To the extent required to comply with Securities and
Exchange Commission Release No. IC-10666, when purchasing a futures contract or
writing a put option or entering into a forward foreign currency exchange
purchase, the Large Capitalization Fund willmaintain in a segregated account
cash or liquid high-grade securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," the Large Capitalization Fund will not enter into a futures
contract or purchase an option thereon if immediately thereafter the initial
margin deposits for futures contracts held by the Large Capitalization Fund
plus premiums paid by it for open options on futures would exceed 5% of the
Large Capitalization Fund's total assets. The Large Capitalization Fund will
not engage in transactions in financial futures contracts or options thereon
for speculation, but only to attempt to hedge against changes in market
conditions affecting the values of securities which the Large Capitalization
Fund holds or intends to purchase. When futures contracts or options thereon
are purchased to protect against a price increase on securities intended to be
purchased later, it is anticipated that at least 25% of such intended purchases
will be completed. When other futures contracts or options thereon are
purchased, the underlying value of such contracts will at all times not exceed
the sum of: (1) accrued profit on such contracts held by the broker; (2) cash
or high quality money market instruments set aside in an identifiable manner;
and (3) cash proceeds from investments due in 30 days.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, the Large Capitalization Fund may from time to time lend its portfolio
securities to broker-dealers, banks or institutional borrowers of securities.
The Large Capitalization Fund must receive 100% collateral in the form of cash
or U.S. Government securities. This collateral must be valued daily by First
of America and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Large Capitalization Fund.
During the time portfolio securities are on loan, the borrower pays the Large
Capitalization Fund any dividends or interest paid on such securities. Loans
are subject to termination by the Large Capitalization Fund or the borrower at
any time. While the Large Capitalization Fund does not have the right to vote
securities on loan, it 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 the Large Capitalization Fund,
the Large Capitalization Fund bears the risk of delay in the recovery of its
portfolio securities and the risk of loss of rights in the collateral. The
Large Capitalization Fund will only enter into loan arrangements with
broker-dealers, banks or other institutions which First of America has
determined creditworthy under guidelines established by the Group's Board of
Trustees.
Investment Restrictions
- -----------------------
The Large Capitalization Fund's investment objective is fundamental
and may not be changed without a vote of the holders of a majority of the Large
Capitalization Fund's outstanding Shares. In addition, the following
investment restrictions may be changed only by
STATEMENT OF ADDITIONAL INFORMATION -11-
<PAGE> 71
a vote of a majority of the outstanding Shares of the Large Capitalization Fund
(as defined under"ADDITIONAL INFORMATION - Vote of a Majority of the
Outstanding Shares" in this Statement of Additional Information).
In addition to the investment restrictions set forth in the
Prospectus, the Large Capitalization Fund may not:
1. Purchase securities on margin, except for use of short-term
credit necessary for clearance of purchases of securities and except as may be
necessary to make margin payments in connection with foreign currency futures
and other derivative securities transactions.
2. Underwrite the securities issued by other persons, except to
the extent that the Large Capitalization Fund may be deemed to be an
underwriter under certain securities laws in the disposition of "restricted
securities";
3. Purchase or sell commodities or commodities contracts, except
to the extent disclosed in the current Prospectus of the Large Capitalization
Fund; and
4. Purchase or sell real estate (although investments in
marketable securities of companies engaged in such activities and securities
secured by real estate or interests therein are not prohibited by this
restriction).
The following additional investment restrictions may be changed
without the vote of a majority of the outstanding Shares of the Large
Capitalization Fund. The Large Capitalization Fund may not:
1. Engage in any short sales;
2. Invest more than 10% of the Large Capitalization Fund's total
assets in the securities of issuers which, together with any predecessors, have
a record of less than three years of continuous operation;
3. Purchase securities of other investment companies, except (a)
in connection with a merger, consolidation, acquisition or reorganization, and
(b) to the extent permitted by the 1940 Act or pursuant to any exemptions
therefrom;
4. Purchase or retain securities of any issuer if the officers or
Trustees of the Group and the officers or directors of its investment adviser
and of its administrator, who each owns beneficially more than one-half of 1%
of the outstanding securities of such issuer, together own beneficially more
than 5% of such securities;
5. Mortgage or hypothecate the Large Capitalization Fund's assets
in excess of one-third of the Large Capitalization Fund's total assets; and
STATEMENT OF ADDITIONAL INFORMATION -12-
<PAGE> 72
6. Purchase participations or direct interests in oil, gas or
other mineral exploration or development programs (although investments by the
Large Capitalization Fund in marketable securities of companies engaged in such
activities are not prohibited by this restriction).
If any percentage restriction described above is satisfied at the time
of purchase a later increase or decrease in such percentage resulting from a
change in net asset value will not constitute a violation of such restriction.
However, should a change in net asset value or other external events cause the
Large Capitalization Fund's investments in illiquid securities to exceed the
limitation set forth in the Large Capitalization Fund's Prospectus, the Large
Capitalization Fund will act to cause the aggregate amount of illiquid
securities to come within such limit as soon as reasonably practicable. In
such an event, however, the Large Capitalization Fund would not be required to
liquidate any portfolio securities where the Large Capitalization Fund would
suffer a loss on the sale of such securities.
The Group has represented to the Texas State Securities Board, on
behalf of the Large Capitalization Fund, that the Large Capitalization Fund
will not invest in oil, gas or mineral leases or purchase or sell real property
(including limited partnership interests, but excluding readily marketable
securities of companies which invest in real estate). The Group intends to
comply with these representations with respect to the Large Capitalization Fund
for as long as the Group has Shares of the Large Capitalization Fund registered
for sale in the State of Texas.
In addition, the Group has represented to the Wisconsin Securities
Bureau (l) on behalf of the Large Capitalization Fund that it will not invest
more than 5% of its total assets in securities of unseasoned issuers, including
their predecessors, which have been in operation for less than three years and
will not invest more than 5% of its total assets in equity securities of
issuers which are not readily marketable. The Group intends to comply with
these representations with respect to the Large Capitalization Fund for so long
as the Group has Shares of the Large Capitalization Fund registered for sale in
the State of Wisconsin.
In addition, the Group has represented to the Texas State Securities
Board, on behalf of the Large Capitalization Fund, that it will not invest more
than 5% of its net assets in warrants valued at the lower of cost or market
value; provided that included within that amount, but not to exceed 2% of net
assets, may be warrants which are not listed on the New York or American Stock
Exchanges. For the purposes of this restriction, warrants acquired in units or
attached to securities are deemed to be without value. The Group intends to
comply with this representation with respect to the Large Capitalization Fund
provided the Group has Shares of the Large Capitalization Fund registered for
sale in the State of Texas.
Portfolio Turnover
- ------------------
The portfolio turnover rate for the Large Capitalization Fund is
calculated by dividing the lesser of the Large Capitalization Fund's purchases
or sales of portfolio securities for the year by the monthly average value of
the securities. The Commission requires that the
STATEMENT OF ADDITIONAL INFORMATION -13-
<PAGE> 73
calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less.
The portfolio turnover rate for the Large Capitalization 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 to the Large
Capitalization Fund, including brokerage commissions, and may result in
additional tax consequences to the Large Capitalization Fund's shareholders.
Portfolio turnover will not be a limiting factor in making investment
decisions.
The estimated portfolio turnover rate of the Large Capitalization Fund
during its first fiscal year is expected to be less than 100%.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of the Large
Capitalization Fund is determined and the Shares of the Large Capitalization
Fund are priced as of the Valuation Times on each Business Day of the Group. A
"Business Day" is a day on which the New York Stock Exchange is open for
trading and any other day (other than a day on which no Shares of the Large
Capitalization Fund are tendered for redemption and no order to purchase any
Shares is received) during which there is sufficient trading in portfolio
instruments that the Large Capitalization Fund's net asset value per share
might be materially affected. The New York Stock Exchange will not open in
observance of the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.
Valuation of the Large Capitalization Fund
- ------------------------------------------
Portfolio securities, the principal market for which is a securities
exchange, will be valued at the closing sales price on that exchange on the day
of computation, or, if there have been no sales during such day, at the latest
bid quotation. Portfolio securities, the principal market for which is not a
securities exchange, will be valued at their latest bid quotation in such
principal market. In either case, if no such bid price is available, then such
securities will be valued in good faith at their respective fair market values
using methods determined by or under the supervision of the Board of Trustees
of the Group. Portfolio securities with a remaining maturity of 60 days or
less will be valued either at amortized cost or original cost plus accrued
interest, which approximates current value.
All other assets and securities including securities for which market
quotations are not readily available will be valued at their fair market value
as determined in good faith under the general supervision of the Board of
Trustees of the Group.
STATEMENT OF ADDITIONAL INFORMATION -14-
<PAGE> 74
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each of the classes of Shares of the Large Capitalization Fund is sold
on a continuous basis by BISYS Fund Services Limited Partnership d/b/a BISYS
Fund Services, formerly known as The Winsbury Company Limited Partnership d/b/a
The Winsbury Company ("BISYS"), and BISYS has agreed to use appropriate efforts
to solicit all purchase orders. In addition to purchasing Shares directly from
BISYS, Institutional Shares may be purchased at net asset value through
procedures established by BISYS in connection with the requirements of trust
departments of banks (collectively, "Banks"), including First of America Bank -
Michigan, N.A. ("First of America Bank"), the parent of First of America
Investment Corporation, the Large Capitalization Fund's investment adviser
("First of America" or the "Adviser"), or First of America Bank's affiliated
entities (collectively, "Entities") acting on behalf of customers for
investment of funds that are held by such Bank in a fiduciary, agency,
custodial or similar capacity, although currently Institutional Shares are only
being offered to the trust departments of First of America Bank and its
affiliates.
As stated in the Prospectus, the public offering price of Investor A
Shares of the Large Capitalization Fund is their net asset value per share next
computed after the sale plus a sales charge which varies based upon the
quantity purchased. The public offering price of Investor A Shares is
calculated by dividing net asset value by the difference (expressed as a
decimal) between 100% and the sales charge percentage of offering price
applicable to the purchase (see "HOW TO BUY INVESTOR SHARES" in the
Prospectus). The offering price is rounded to two decimal places each time a
computation is made. The sales charge scale set forth in the Large
Capitalization Fund's Prospectus applies to purchases of Investor A Shares.
The public offering price of Investor B Shares of the Large
Capitalization Fund is their net asset value per share, although Investor B
Shares redeemed within four years of their purchase may be subject to a
contingent deferred sales charge of 1.00% to 4.00%.
The public offering price of the Investor C Shares of the Large
Capitalization Fund is their net asset value per share. Investor C Shares
redeemed within one year of purchase may be subject to a contingent deferred
sales charge of 1.00%.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension, or
(d) an emergency exists as a result of which (i) disposal by the Group of
securities owned by it is not reasonably practical or (ii) it is not reasonably
practical for the Group to determine the fair market value of its net assets.
STATEMENT OF ADDITIONAL INFORMATION -15-
<PAGE> 75
MANAGEMENT OF THE LARGE CAPITALIZATION FUND
Trustees and Officers
- ---------------------
Overall responsibility for management of the Group rests with its
Board of Trustees, who are elected by the shareholders of the Group's Funds.
The Trustees elect the officers of the Group to supervise actively its
day-to-day operations.
The Trustees of the Group, their addresses, and principal occupations
during the past five years are as follows:
<TABLE>
<CAPTION>
POSITION(S)
HELD WITH PRINCIPAL OCCUPATION
NAMES AND ADDRESS THE GROUP DURING PAST 5 YEARS
<S> <C> <C>
Stephen G. Mintos* Chairman of the From January 1987 to present,
1900 E. Dublin-Gran- Board and Trustee employee of BISYS.
vile Road
Columbus, Ohio 43229
George R. Landreth President and Trustee From December 1992 to present,
1900 E. Dublin-Gran- employee of BISYS; from
vile Road July 1991 to December 1992,
Columbus, Ohio 43229 employee of PNC Financial
Corporation; from October 1984
to July 1991, employee of The
Central Trust Co., N.A.
Robert M. Beam Trustee From 1985 to present, Vice
Western Michigan University President for Business and
Kalamazoo, Michigan 49008 Finance and Treasurer of
Western Michigan University.
Adrian Charles Edwards Trustee
College of Business
Western Michigan
University
260 North Hall Kalamazoo,
Michigan 49008
Since 1964, Professor of
Finance and Commercial Law,
Western Michigan University;
since 1977, owner, Economic
and Financial Analysis
(financial consulting).
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION -16-
<PAGE> 76
<TABLE>
<S> <C> <C>
Lawrence D. Bryan Trustee From 1990 to present,
1200 Academy Street President, Kalamazoo
Kalamazoo, Michigan College; from 1979 to 1990,
49006 Vice President and Dean,
Franklin College.
</TABLE>
*Mr. Mintos and Mr. Landreth are considered to be "interested persons" of the
Group as defined in the 1940 Act.
The Group paid an aggregate of $52,629.66 in Trustees' fees and
expenses for the fiscal year ended June 30, 1995, to all Trustees of the Group
(excluding Messrs. Mintos and Landreth who are considered "interested persons"
of the Group as that term is defined in the 1940 Act). Two Trustees, Messrs.
Edwards and Beam also serve as Trustees of the Parkstone Advantage Fund, an
open-end investment company managed by the Group's investment adviser as an
investment vehicle for insurance company separate accounts. The following
table depicts, for the fiscal year ended June 30, 1995, the compensation
received by each of the Trustees from the Group and in total from all
investment companies managed by the investment adviser to the Group:
<TABLE>
COMPENSATION TABLE
<CAPTION>
Total Compensation
Pension or From Group and the
Aggregate Retirement Benefits Estimated Annual Parkstone Advantage
Name of Compensation from Accrued as Part of Benefits Upon Fund Paid to
Trustee the Group Fund Expenses Retirement Trustees
------- ----------------- -------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Stephen G. Mintos none none none none
George R. Landreth none none none none
Robert M. Beam none none none $6,750.00
Lawrence D. Bryan $11,000.00 none none $11,000.00
Adrian Charles Edwards $14,000.00 none none $20,750.00
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION -17-
<PAGE> 77
The officers of the Group, their addresses, and principal occupations
during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name and Address With the Group During Past 5 Years
- ---------------- -------------- -------------------
<S> <C> <C>
George R. Landreth President From December, 1992 to
3435 Stelzer Road, present, employee of BISYS;
Columbus, Ohio 43229 from July, 1991 to
December 1992, employee of PNC
Financial Corp.; from October,
1984 to July, 1991, employee
of The Central Trust Co., N.A.
J. David Huber Vice President From June, 1987 to present,
3435 Stelzer Road employee and limited partner
Columbus, Ohio 43219 of BISYS; from September, 1988
to present, Vice President of
BISYS Fund Services Ohio, Inc.
Roy E. Rogers Vice President From September, 1986 to
3435 Stelzer Road present, employee of BISYS.
Columbus, Ohio 43219
William J. Tomko Vice President From April, 1987 to present,
3435 Stelzer Road employee of BISYS.
Columbus, Ohio 43219
Brian Barker Secretary and Treasurer From February 1993 to present,
157 S. Mall Plaza Client Services Manager,
Kalamazoo, Michigan 49007 BISYS; from November 1989 to
February 1993, Direct Lending
Manager, Bank One; From
July 1984 to November 1989,
Regional Manager, Jefferson
Savings Bank.
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION -18-
<PAGE> 78
<TABLE>
<S> <C> <C>
Tim Thiebout Secretary and Treasurer From June 1992 to
157 S. Mall Plaza present, Client Services
Kalamazoo, Michigan Manager, BISYS; from July 1990
49007 to June 1992, Mutual Fund
Specialist, First of America
Brokerage Service; from July 1989
to July 1990, Registered
Representative, The Equitable
Financial Company.
</TABLE>
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, may retain all or a portion of any sales
charge on the Shares and may receive fees under the Distribution and
Shareholder Service Plans described below. BISYS Fund Services Ohio, Inc.
receives fees from the Group for acting as transfer agent and providing certain
fund accounting services. Messrs. Huber, Tomko, Rogers, Landreth, Mintos,
Barker and Thiebout are employees of BISYS.
Investment Adviser
- ------------------
Subject to the general supervision of the Group's Board of Trustees
and in accordance with the Large Capitalization Fund's investment objective and
restrictions, investment advisory services are provided to the Large
Capitalization Fund by First of America pursuant to the Investment Advisory
Agreement dated September 8, 1988, as amended November 7, 1995 (with respect to
the Large Capitalization Fund) (the "Investment Advisory Agreement").
First of America is a wholly owned subsidiary of First of America
Bank, which in turn is a wholly owned subsidiary of First of America Bank
Corporation, a publicly held bank holding company.
Under the Investment Advisory Agreement, First of America has agreed
to provide investment advisory services for the Large Capitalization Fund as
described in the Prospectus. For the services provided and expenses assumed
pursuant to the Investment Advisory Agreements, the Large Capitalization Fund
pays First of America a fee, computed daily and paid monthly, at an annual rate
calculated as a percentage of the average daily net assets of the Large
Capitalization Fund. The annual rate of the investment advisory fee for the
Large Capitalization Fund is eighty one-hundredths of one percent (.80%).
While the fee for the Large Capitalization Fund is higher than the advisory fee
paid by most mutual funds, the Board of Trustees of the Group believes it to be
comparable to advisory fees paid by many funds having objectives and policies
similar to the Large Capitalization Fund. First of America may periodically
voluntarily
STATEMENT OF ADDITIONAL INFORMATION -19-
<PAGE> 79
reduce all or a portion of its advisory fee with respect to the Large
Capitalization Fund to increase the net income of the Large Capitalization Fund
available for distribution as dividends.
As of the date of this Statement of Additional Information, First of
America had not collected any amounts with respect to its investment advisory
services to the Large Capitalization Fund under the Investment Advisory
Agreement, as the Large Capitalization Fund had not commenced operations as of
that date.
Unless sooner terminated, the Investment Advisory Agreement continues
in effect as to the Large Capitalization Fund for successive one- year periods
ending December 31 of each year if such continuance is approved at least
annually by the Group's Board of Trustees or by vote of a majority of the
outstanding Shares of the Large Capitalization Fund (as defined under "GENERAL
INFORMATION - Miscellaneous" in the Prospectus), and a majority of the Trustees
who are not parties to the Investment Advisory Agreement or interested persons
(as defined in the 1940 Act) of any party to the Investment Advisory Agreement
by votes cast in person at a meeting called for such purpose. The Investment
Advisory Agreement is terminable as to the Large Capitalization Fund at any
time on 60 days' written notice without penalty by the Trustees, by vote of a
majority of the outstanding Shares of the Large Capitalization Fund, or by
First of America. The Investment Advisory Agreement also terminates
automatically in the event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Group in connection with the performance of its duties, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of the Adviser in the performance of its
duties, or from reckless disregard of its duties and obligations thereunder.
From time to time, advertisements, supplemental sales literature, and
information furnished to present or prospective shareholders of the Large
Capitalization Fund may include descriptions of the Adviser including, but not
limited to, (i) descriptions of the Adviser's operations; (ii) descriptions of
certain personnel and their functions; and (iii) statistics and rankings
related to the Adviser's operations.
Portfolio Transactions
- ----------------------
Pursuant to the Investment Advisory Agreement, First of America
determines, subject to the general supervision of the Board of Trustees of the
Group and in accordance with the Large Capitalization Fund's investment
objective and restrictions, which securities are to be purchased and sold by
the Large Capitalization Fund, and which brokers are to be eligible to execute
the Large Capitalization Fund's portfolio transactions.
Purchases and sales of portfolio securities which are debt securities
usually are principal transactions in which portfolio securities are normally
purchased directly from the issuer or from
STATEMENT OF ADDITIONAL INFORMATION -20-
<PAGE> 80
an underwriter or market maker for the securities. Purchases from underwriters
of portfolio securities generally include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers serving as market
makers may include the spread between the bid and asked price. Transactions on
stock exchanges involve the payment of negotiated brokerage commissions.
Transactions in the over-the- counter market are generally principal
transactions with dealers. With respect to the over-the-counter market, the
Group, where possible, will deal directly with dealers who make a market in the
securities involved except in those circumstances where better price and
execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser in its best judgment and in a
manner deemed fair and reasonable to shareholders. The primary consideration
is prompt execution of orders in an effective manner at the most favorable
price. Subject to this consideration, brokers and dealers who provide
supplemental investment research to the Adviser may receive orders for
transactions on behalf of the Large Capitalization Fund. Information so
received is in addition to and not in lieu of services required to be performed
by the Adviser and does not reduce the fees payable to First of America. Such
information may be useful to First of America in serving both the Large
Capitalization Fund and other clients and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to First
of America in carrying out its obligations to the Large Capitalization Fund.
While the Adviser generally seeks competitive commissions, the Large
Capitalization Fund may not necessarily pay the lowest commission available on
each brokerage transaction for reasons discussed above.
The Large Capitalization Fund will not acquire portfolio securities
issued by, make savings deposits in, or enter into repurchase or reverse
repurchase agreements with First of America Bank (the parent corporation of
First of America), BISYS, or their affiliates, and will not give preference to
First of America Bank's correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements, and reverse repurchase
agreements.
Investment decisions for the Large Capitalization Fund are made
independently from those for the other Funds or any other portfolio, investment
company or account managed by First of America. Any such other Fund,
portfolio, investment company or account may also invest in the same securities
as the Large Capitalization Fund. When a purchase or sale of the same security
is made at substantially the same time on behalf of the Large Capitalization
Fund and another Fund, portfolio, investment company or account, the
transaction will be averaged as to price and available investments will be
allocated as to amount in a manner which First of America believes to be
equitable to the Fund(s) and such other portfolio, investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by the Large Capitalization Fund or the size of the
position obtained by the Large Capitalization Fund. To the extent permitted by
law, First of America may aggregate the securities to be sold or purchased for
the Large Capitalization Fund with those to be sold or purchased for another
Fund or for other portfolio, investment companies or accounts in order
STATEMENT OF ADDITIONAL INFORMATION -21-
<PAGE> 81
to obtain best execution. As provided by the Investment Advisory Agreement, in
making investment recommendations for the Group, First of America will not
inquire or take into consideration whether an issuer of securities proposed for
purchase or sale by the Large Capitalization Fund is a customer of First of
America, its parent or its subsidiaries or affiliates and, in dealing with its
customers, First of America, its parent, subsidiaries, and affiliates will not
inquire or take into consideration whether securities of such customers are
held by the Large Capitalization Fund.
Glass-Steagall Act
- ------------------
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation
and interpretation to the effect that the Glass-Steagall Act and such decision:
(a) forbid a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate
thereof from sponsoring, organizing, or controlling a registered, open-end
investment company continuously engaged in the issuance of its shares, but (b)
do not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent, and custodian to such an investment company. In 1981,
the United States Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM V. INVESTMENT COMPANY INSTITUTE that the Board did not exceed
its authority under the Holding Company Act when it adopted its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to registered closed-end investment companies.
In the BOARD OF GOVERNORS case, the Supreme Court also stated that if a
national bank complied with the restrictions imposed by the Board in its
regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to investment companies, a
national bank performing investment advisory services for an investment company
would not violate the Glass-Steagall Act. The Office of the Comptroller of the
Currency, which has jurisdiction over national banks and their subsidiaries,
has specifically permitted national banks and their subsidiaries to act as
investment advisers to investment companies.
First of America believes that it possesses the legal authority to
perform the services for the Large Capitalization Fund contemplated by the
Prospectus, this Statement of Additional Information and the Investment
Advisory Agreement without violation of applicable statutes and regulations.
Future changes in either Federal or state statutes and regulations relating to
the permissible activities of banks or bank holding companies and the
subsidiaries or affiliates of those entities, as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations, could prevent or restrict First of America from continuing to
perform such services for the Large Capitalization Fund. Depending upon the
nature of any changes in the services which could be provided by First of
America, the Board of Trustees of the Group would review the Large
Capitalization Fund's relationship with First of America and consider taking
all action necessary in the circumstances.
STATEMENT OF ADDITIONAL INFORMATION -22-
<PAGE> 82
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of First of America and/or First of America
Bank Corporation's affiliated and correspondent banks in connection with
Customer purchases of Shares of the Large Capitalization Fund, those banks
might be required to alter materially or discontinue the services offered by
them to Customers. It is not anticipated, however, that any change in the
Group's method of operations would affect its daily net asset value per share
or result in financial losses to any Customer.
Administrator and Sub-Administrator
- -----------------------------------
BISYS serves as administrator (the "Administrator") to the Large
Capitalization Fund pursuant to the Administration Agreement dated January 1,
1995 (the "Administration Agreement"). The Administrator assists in
supervising all operations of the Large Capitalization Fund (other than those
performed by First of America under the Investment Advisory Agreement, by The
Bank of California, N.A. under the Custody Agreement, and by BISYS Fund
Services Ohio, Inc. under the Transfer Agency Agreement and Fund Accounting
Agreements). The Administrator is a broker-dealer registered with the
Commission, and is a member of the National Association of Securities Dealers,
Inc. The Administrator provides financial services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities for the Large Capitalization Fund; furnish
statistical and research data, clerical and certain bookkeeping services and
stationery and office supplies; prepare the periodic reports to the Commission
on Form N-SAR or any replacement forms therefor; compile data for, prepare for
execution by the Large Capitalization Fund and file certain federal and state
tax returns and required tax filings; prepare compliance filings pursuant to
state securities laws with the advice of the Group's counsel; keep and maintain
the financial accounts and records of the Large Capitalization Fund, including
calculation of daily expense accruals; and generally assist in all aspects of
the Group's operations other than those performed by First of America under the
Investment Advisory Agreement, by The Bank of California, N.A. under the
Custody Agreement and by BISYS Fund Services Ohio, Inc. under the Transfer
Agency Agreement and Fund Accounting Agreements. Under the Administration
Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
Pursuant to its authority to delegate its responsibilities under the
Administration Agreement, the Administrator has engaged First of America to
provide certain services as Sub-Administrator to the Large Capitalization Fund.
First of America serves as Sub-Administrator to the Large Capitalization Fund
pursuant to a Sub-Administration Agreement dated as of January 1, 1995, and
receives a fee from the Administrator for its services. Under the
Sub-Administration Agreement, First of America will assist the Administrator by
providing, upon the request of the Administrator, services which are incidental
to, but not included among, its duties as Adviser to the Large Capitalization
Fund. These services include preparation of reports and documents necessary to
calculate daily expense accruals, to update the financial accounts and records
of the Large Capitalization Fund and to prepare certain federal and state tax
returns.
STATEMENT OF ADDITIONAL INFORMATION -23-
<PAGE> 83
The Administrator receives a fee from the Large Capitalization Fund
for its services as Administrator and expenses assumed pursuant to the
Administration Agreement, calculated daily and paid periodically, equal to the
lesser of (a) the fee calculated at the annual rate of twenty one-hundredths of
one percent (.20%) of the Large Capitalization Fund's average daily net assets,
or (b) such other fee as may from time to time be agreed upon in writing by the
Group and the Administrator. As Sub-Administrator, First of America is
entitled to receive a fee from the Administrator of not more than five
one-hundredths of one percent (.05%) of the Large Capitalization Fund's average
daily net assets. The Administrator may voluntarily reduce all or a portion of
its fee with respect to the Large Capitalization Fund in order to increase the
net income of the funds available for distribution as dividends.
Unless sooner terminated as provided therein, the Administration
Agreement and the Sub-Administration Agreement will continue in effect until
December 31, 1999. The Administration Agreement and the Sub-Administration
Agreement thereafter shall be renewed automatically for successive five-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term. The Administration Agreement and the Sub-Administration Agreement are
each terminable with respect to the Large Capitalization Fund only upon mutual
agreement of the parties to the Administration Agreement (or Sub-Administration
Agreement, as the case may be) and for cause (as defined in the Administration
Agreement) by the party alleging cause, on no less than 60 days' written notice
by the Group's Board of Trustees or by the Administrator (or Sub-Administrator,
in the case of the Sub-Administration Agreement).
The Administration Agreement and the Sub-Administration Agreement
provide that the Administrator and the Sub-Administrator shall not be liable
for any error of judgment or mistake of law or any loss suffered by the Large
Capitalization Fund in connection with the matters to which the Administration
Agreement or the Sub-Administration Agreement relates, except a loss resulting
from willful misfeasance, bad faith, or gross negligence in the performance of
its duties, or from the reckless disregard by the Administrator or the
Sub-Administrator of its obligations and duties thereunder.
Expenses
- --------
If total expenses borne by the Large Capitalization Fund in any fiscal
year exceed expense limitations imposed by applicable state securities
regulations, First of America and the Administrator will reimburse the Large
Capitalization Fund by the amount of such excess in proportion to their
respective fees. As of the date of this Statement of Additional Information,
the most restrictive expense limitation applicable to the Large Capitalization
Fund limits the Large Capitalization Fund's aggregate annual expenses,
including management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2 1/2% of the first $30 million of
the Large Capitalization Fund's average net assets, 2% of the next $70 million
of the Large Capitalization Fund's average net assets, and 1 1/2% of the Large
Capitalization Fund's remaining average net assets. Any expense reimbursements
will be estimated daily and reconciled and paid on a monthly basis. Fees
imposed upon customer
STATEMENT OF ADDITIONAL INFORMATION -24-
<PAGE> 84
accounts by First of America Bank Corporation or its affiliated or
correspondent banks for cash management services are not included within Group
expenses for purposes of any such expense limitation.
Distributor
- -----------
BISYS serves as distributor to the Group pursuant to the Distribution
Agreement dated October 1, 1993 (the "Distribution Agreement"). Unless
otherwise terminated, the Distribution Agreement remains in effect until
October 31, 1995, and thereafter continues for successive one- year periods
ending December 31 of each year if approved at least annually (i) by the
Group's Board of Trustees or by the vote of a majority of the outstanding
Shares of the Group, and (ii) by the vote of a majority of the Trustees of the
Group who are not parties to the Distribution Agreement or interested persons
(as defined in the 1940 Act) of any party to the Distribution Agreement, cast
in person at a meeting called for the purpose of voting on such approval. The
Distribution Agreement may be terminated in the event of any assignment, as
defined in the 1940 Act.
As described in the Prospectus, the Group has adopted an Investor A
Distribution and Shareholder Service Plan with respect to Investor A Shares
(the "Investor A Plan"), an Investor B Distribution and Shareholder Service
Plan with respect to Investor B Shares (the "Investor B Plan") and Investor C
Distribution and Shareholder Service Plan with respect to the Investor C Shares
(the "Investor C Plan") (the Investor A Plan, Investor B Plan and Investor C
Plan together are hereinafter referred to as the "Plans") pursuant to Rule
12b-1 under the 1940 Act under which the Large Capitalization Fund is
authorized to pay BISYS for payments it makes to banks, including First of
America Bank, other institutions and broker-dealers, and for expenses BISYS and
any of its affiliates or subsidiaries incur (with all of the foregoing
organizations being referred to as "Participating Organizations") for providing
administration, distribution or shareholder service assistance. Payments to
such Participating Organizations may be made pursuant to agreements entered
into with BISYS. The Investor A Plan authorizes the Large Capitalization Fund
to make payments to BISYS in an amount not in excess, on an annual basis, of
twenty-five one-hundredths of one percent (0.25%) of the average daily net
asset value of the Investor A Shares of the Large Capitalization Fund. As
required by Rule 12b-1, the Investor A Plan was approved by the holders of the
Investor A Shares and by the Board of Trustees, including a majority of the
Trustees who are not interested persons of the Large Capitalization Fund and
who have no direct or indirect financial interest in the operation of that Plan
(the "Independent Trustees"). The Investor B Plan authorizes the Large
Capitalization Fund to make payments to BISYS in an amount not in excess, on an
annual basis of one percent (1.00%) of the average daily net asset value of the
Investor B Shares of the Large Capitalization Fund. As required by Rule 12b-1,
the Investor B Plan has been approved by the Board of Trustees, including a
majority of the Independent Trustees, and the Investor B Plan was approved by
the initial holders of Investor B Shares of the Large Capitalization Fund. The
Investor C Plan authorizes the Large Capitalization Fund to make payments to
BISYS in an amount not in excess, on an annual basis, of one percent (1.00%) of
the average daily net asset value of the Investor C Shares of the Large
Capitalization Fund. As required by Rule 12b-1,
STATEMENT OF ADDITIONAL INFORMATION -25-
<PAGE> 85
the Investor C Plan has been approved by the Board of Trustees, including a
majority of the Independent Trustees, and the Investor C Plan was approved by
the initial Investor C Shares of the Large Capitalization Fund.
The Plans may be terminated as to the Large Capitalization Fund by
vote of a majority of the Independent Trustees, or by vote of majority of the
outstanding Investor Shares of the particular class of the Large Capitalization
Fund. Any change in a Plan that would materially increase the distribution
cost to the Large Capitalization Fund requires shareholder approval. The
Trustees review quarterly a written report of such costs and the purposes for
which such costs have been incurred. The Plan may be amended by vote of the
Trustees including a majority of the Independent Trustees, cast in person at a
meeting called for that purpose. For so long as the Plans are in effect,
selection and nomination of those Trustees who are not interested persons of
the Group shall be committed to the discretion of such Independent Trustees.
All agreements with any person relating to the implementation of a Plan may be
terminated at any time on 60 days' written notice without payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of the
majority of the outstanding Investor Shares of the particular class of the
Large Capitalization Fund. The Plans will continue in effect for successive
one-year periods, provided that each such continuance is specifically approved
(i) by the vote of a majority of the Independent Trustees, and (ii) by a vote
of a majority of the entire Board of Trustees cast in person at a meeting
called for that purpose. The Board of Trustees has a duty to request and
evaluate such information as may be reasonably necessary for them to make an
informed determination of whether the Plans should be implemented or continued.
In addition the Trustees in approving the Plans must determine that there is a
reasonable likelihood that the Plans will benefit the Large Capitalization Fund
and its shareholders.
The Board of Trustees of the Group believes that the Plans are in the
best interests of the Large Capitalization Fund since they encourage growth of
the Large Capitalization Fund. As the Large Capitalization Fund grows in size,
certain expenses and, therefore, total expenses per Share, may be reduced and
overall performance per Share may be improved.
As of October 10, 1994, BISYS entered into a Participating
Organization Agreement with First of America Securities, Inc., a wholly- owned
subsidiary of First of America Bank Corporation and an affiliate of FOA
Brokerage ("FSI"), which replaced the Participating Organization Agreement with
FOA Brokerage. All of the duties formerly rendered by FOA Brokerage are now
the responsibility of FSI. While FOA Brokerage may continue to provide certain
services on behalf of FSI pursuant to a correspondent brokerage agreement
between FSI and FOA Brokerage, no payments to FOA Brokerage are made by BISYS
or the Large Capitalization Fund's Investor A Shares for such services. In
consideration of such services, BISYS has agreed to pay FSI a monthly fee,
computed at the annual rate of one percent (1.00%) for the Large Capitalization
Fund 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 Large Capitalization Fund in an
amount equal
STATEMENT OF ADDITIONAL INFORMATION -26-
<PAGE> 86
to its payments to FSI under the Participating Organization Agreement with
respect to the Investor A Shares of the Large Capitalization Fund.
In addition, BISYS has entered into Participating Organization
Agreements with various organizations, including FSI, pursuant to which FSI
will provide distribution and shareholder services in connection with Investor
B Shares of the Large Capitalization Fund purchased and held by FSI for the
accounts of its customers and Investor B Shares of the Large Capitalization
Fund purchased and held by customers of FOA Brokerage directly, including, but
not limited to printing and distributing prospectuses to persons other than
holders of Investor B Shares of the Large Capitalization Fund and printing and
distributing advertising and sales literature in connection with the sale of
Investor B Shares. In consideration of such services BISYS has agreed to pay
these participating organizations a monthly fee, in addition to the negotiated
dealer concession of 3.50% of the investment amount, computed at the annual
rate of 0.25% of the average aggregate net asset value of Investor B Shares
held during the period in customer accounts for which the participating
organizations have provided services under its Agreement with BISYS. Such fees
may exceed the actual costs incurred by the participating organizations in
providing such services.
As authorized by the Investor C Plan, BISYS has entered into a
Participating Organization Agreement with First of America Brokerage Services,
Inc., a wholly owned subsidiary of First of America Bank Corporation ("FOA
Brokerage"), pursuant to which FOA Brokerage has agreed to provide certain
shareholder and distribution services in connection with Investor C Shares of
the Large Capitalization Fund purchased and held by FOA Brokerage for the
accounts of its customers and Investor C Shares of the Large Capitalization
Fund purchased and held by customers of FOA Brokerage directly, including, but
not limited to printing and distributing prospectuses to persons other than
holders of Investor C Shares of the Large Capitalization Fund and printing and
distributing advertising and sales literature in connection with the sale of
Investor C Shares; answering routine customer questions concerning the Large
Capitalization Fund 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 FOA Brokerage a monthly fee, computed at
the annual rate of 1.00% of the average aggregate net asset value of Investor C
Shares held during the period in customer accounts for which FOA Brokerage has
provided services under this Agreement. BISYS will be compensated by the Large
Capitalization Fund in an amount equal to its payments to FOA Brokerage under
the Participating Organization Agreement. Such fee may exceed the actual costs
incurred by FOA Brokerage in providing such services.
As of October 10, 1994, BISYS entered into a Participating
Organization Agreement with First of America Securities, Inc., a wholly- owned
subsidiary of First of America Bank Corporation and an affiliate of FOA
Brokerage ("FSI"), which replaced the Participating Organization Agreement with
FOA Brokerage with respect to the Investor C Shares of the Group, including the
Large Capitalization Fund. All of the duties formerly rendered by FOA
Brokerage are now the responsibility of FSI. While FOA Brokerage may continue
to provide certain services on behalf of FSI pursuant to a correspondent
brokerage agreement between FSI and FOA Brokerage, no payments to FOA Brokerage
are made by the Group's Investor C Shares for such services. In consideration
of such services, BISYS has agreed to pay FSI a monthly fee, computed at the
annual rate of one percent (1.00%) of the average aggregate net
STATEMENT OF ADDITIONAL INFORMATION -27-
<PAGE> 87
asset value of Investor C Shares held during the period in customer accounts
for which FSI has provided services under this Agreement. BISYS will be
compensated by the Large Capitalization Fund in an amount equal to its payments
to FSI under the Participating Organization Agreement with respect to the
Investor C Shares of the Large Capitalization Fund.
Custodian, Transfer Agent and Fund Accounting Services
- ------------------------------------------------------
The Bank of California, N.A., 400 California Street, P.O. Box 45000,
San Francisco, California 94104, serves as custodian ("Bank of California") to
the Large Capitalization Fund, pursuant to the Custody Agreement dated as of
October 18, 1991, and amended October 27, 1992. Bank of California's
responsibilities include safeguarding and controlling the Large Capitalization
Fund's cash and securities, handling the receipt and delivery of securities,
and collecting interest and dividends on the Large Capitalization Fund's
investments.
BISYS Fund Services Ohio, Inc., formerly known as The Winsbury Service
Corporation, Columbus, Ohio, an affiliate of BISYS, serves as transfer agent
and dividend disbursing agent (the "Transfer Agent") for the Large
Capitalization Fund pursuant to the Transfer Agency Agreement dated as of
August 8, 1990, and amended May 12, 1994. Pursuant to such Agreement, the
Transfer Agent, among other things, performs the following services:
maintenance of shareholder records for the Large Capitalization Fund's
shareholders of record; processing shareholder purchase and redemption orders;
processing transfers and exchanges of Shares of the Large Capitalization Fund
on the shareholder files and records; processing dividend payments and
reinvestments; and assistance in the mailing of shareholder reports and proxy
solicitation materials. For such services, the Transfer Agent receives a fee
based on the number of shareholders of record.
In addition, BISYS Fund Services Ohio, Inc. provides certain fund
accounting services to the Large Capitalization Fund pursuant to a Fund
Accounting Agreement dated January 26, 1993. BISYS Fund Services Ohio, Inc.
receives a fee for such services, computed daily and paid periodically at an
annual rate of twenty-two one-thousandths of one percent (.022%) of the average
daily net assets of the Large Capitalization Fund. Under such Agreement, BISYS
Fund Services Ohio, Inc. maintains the accounting books and records for the
Large Capitalization Fund, including journals containing an itemized daily
record of all purchases and sales of portfolio securities, all receipts and
disbursements of cash and all other debits and credits, general and auxiliary
ledgers reflecting all asset, liability, reserve, capital, income and expense
accounts, including interest accrued and interest received, and other required
separate ledger accounts; maintains a monthly trial balance of all ledger
accounts; performs certain accounting services for the Large Capitalization
Fund, including calculation of the daily net asset value per share, calculation
of the dividend and capital gain distributions, if any, and of yield,
reconciliation of cash movements with the Large Capitalization Fund's
custodian, affirmation to the Large Capitalization Fund's custodian of all
portfolio trades and cash settlements, verification and reconciliation with the
Large Capitalization Fund's custodian of all daily trade activity; provides
certain reports; obtains dealer quotations, prices from a pricing service or
matrix prices on all portfolio securities in order to mark the portfolio to the
market; and prepares an interim balance sheet, statement of income and expense,
and statement of changes in net assets for the Large Capitalization Fund.
STATEMENT OF ADDITIONAL INFORMATION -28-
<PAGE> 88
Auditors
- --------
The Financial Statements of the Large Capitalization Fund will be
audited by Coopers & Lybrand L.L.P., 100 East Broad Street, Columbus, Ohio
43215, independent accountants.
Legal Counsel
- -------------
Howard & Howard Attorneys, P.C., 107 West Michigan Avenue, Kalamazoo,
Michigan 49007 is counsel to the Large Capitalization Fund and will pass upon
the legality of the Shares offered hereby. Howard & Howard serves as legal
counsel to the Adviser and its parent and, from time to time, its affiliates.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is a Massachusetts business trust. The Group was organized
on March 25, 1987, and the Group's Declaration of Trust was filed with the
Secretary of State of the Commonwealth of Massachusetts on March 27, 1987. The
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of Shares, which are units of beneficial interest, without par value.
The Group presently has sixteen series of Shares which represent interests in
each series of the Group. 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 the Money Market Funds are offered in two separate classes:
Investor A Shares and Institutional Shares. The Group's Declaration of Trust
authorizes the Board of Trustees to divide or redivide any unissued Shares of
the Group into one or more additional series by setting or changing in any one
or more respects their respective preferences, conversion or other rights,
voting power, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the Group's Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of the Large Capitalization Fund are entitled to receive the
assets available for distribution belonging to the Large Capitalization Fund,
and a proportionate distribution, based upon the relative asset values of the
respective series, of any general assets not belonging to any particular series
which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company, such as the Large Capitalization Fund, shall not be deemed to have
been effectively acted upon unless approved by the holders of a majority of the
outstanding Shares of the Large Capitalization Fund. For purposes of
determining whether the approval of a majority of the outstanding Shares of the
Large Capitalization Fund will be required in connection with a matter, the
Large Capitalization Fund will be deemed to be affected by a matter unless it
is clear that the interests of each series in the matter are identical, or that
the matter does not affect any interest of the series. Under
STATEMENT OF ADDITIONAL INFORMATION -29-
<PAGE> 89
Rule 18f-2, the approval of an investment advisory agreement or any change in
investment policy submitted to shareholders would be effectively acted upon
with respect to a series only if approved by a majority of the outstanding
shares of the Large Capitalization Fund. However, Rule 18f-2 also provides
that the ratification of independent accountants, the approval of principal
underwriting contracts, and the election of Trustees may be effectively acted
upon by shareholders of the Group voting without regard to series.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Large Capitalization Fund's Prospectus and the
Statement of Additional Information, "vote of a majority of the outstanding
Shares of the Group or the Large Capitalization Fund," means the affirmative
vote, at an annual or special meeting of shareholders duly called, of the
lesser of (a) 67% or more of the votes of shareholders of the Group or the
Large Capitalization Fund present at such meeting at which the holders of more
than 50% of the votes attributable to the shareholders of record of the Group
or the Large Capitalization Fund are represented in person or by proxy, or (b)
the holders of more than 50% of the outstanding votes of shareholders of the
Group or the Large Capitalization Fund.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law, holders of units of interest in a business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Group. However, the Group's Declaration of Trust
provides that shareholders shall not be subject to any personal liability for
the obligations of the Group, and that every written agreement, obligation,
instrument, or undertaking made by the Group shall contain a provision to the
effect that the shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the trust property of
any shareholder held personally liable solely by reason of his or her being or
having been a shareholder. The Declaration of Trust also provides that the
Group shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Group, and shall satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Group
itself would be unable to meet its obligations.
The Declaration of Trust states further that no Trustee, officer, or
agent of the Group shall be personally liable in connection with the
administration or preservation of the assets of the trust or the conduct of the
Group's business; nor shall any Trustee, officer, or agent be personally liable
to any person for any action or failure to act except for his own bad faith,
willful misfeasance, gross negligence, or reckless disregard of his duties.
The Declaration of Trust also provides that all persons having any claim
against the Trustees or the Group shall look solely to the assets of the Group
for payment.
Additional Tax Information
- --------------------------
Individual federal income tax is computed on the basis of five
graduated tax rates of 15%, 28%, 31%, 36% and 39.6%. The benefit of the
personal exemptions and the benefit of itemized deductions are phased out by a
rate adjustment for taxpayers with gross income in excess of certain threshold
amounts resulting in a marginal federal tax rate in excess of 39.6%.
STATEMENT OF ADDITIONAL INFORMATION -30-
<PAGE> 90
The maximum tax rate applicable to corporations is 35%. Although a
corporation's taxable income of less than $10 million is subject to tax at
lower rates, the benefit of these lower rates is phased out for corporations
with income in excess of $15 million resulting in a maximum effective marginal
tax rate of 38%.
For noncorporate taxpayers, the maximum tax rate imposed on net
capital gains is 28%. The limitation on the deductibility of capital losses
has been retained. Capital losses may be used to offset capital gains.
Individual taxpayers may deduct up to $3,000 of net capital loss each year to
offset ordinary income and excess capital losses may be carried forward in
future years.
The Code generally permits a corporation to deduct 70% of dividends
received from domestic corporations. The Large Capitalization Fund will
designate the portion of any dividend distributions for which the dividend
received deduction will be allowed. The amount so designated may not exceed
the aggregate amount of dividends from domestic corporations that otherwise
qualify for the dividends received deduction received by the Large
Capitalization Fund for its taxable year.
A non-deductible excise tax is also imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, the Large Capitalization Fund is treated as having
distributed any amount on which it is subject to income tax for any taxable
year ending in such calendar year. If distributions during a calendar year
were less than the required amount, the Large Capitalization Fund would be
subject to a non-deductible excise tax equal to 4% of the deficiency.
The Large Capitalization Fund will be required in certain cases to
withhold and remit to the United States Treasury 31% of taxable dividends paid
to any shareholder who has provided either an incorrect taxpayer identification
number or no number at all, or who is subject to withholding by the Internal
Revenue Service for failure properly to include on their return payments of
interest or dividends.
Although the Large Capitalization Fund expects to qualify as a
"regulated investment company" ("RIC") and to be relieved of all or
substantially all Federal income taxes, depending upon the extent of its
activities in states and localities in which its offices are maintained, in
which its agents or independent contractors are located, or in which it is
otherwise deemed to be conducting business, the Large Capitalization Fund may
be subject to the tax laws of such states or localities. In addition, if for
any taxable year the Large Capitalization Fund does not qualify for the special
tax treatment afforded RICs, all of its taxable income will be subject to
Federal tax at regular corporate rates without any deduction for distributions
to its shareholders. In such event, dividend distributions would be taxable to
shareholders to the extent of earnings and profits, and would be eligible to
receive the dividends received deduction for corporations.
A portion of the difference between the issue price and the face
amount of zero coupon securities ("original issue discount") will be treated as
income to the Large Capitalization Fund with respect to securities with
original issue discount each year, although no current payments will be
received by the Large Capitalization Fund
STATEMENT OF ADDITIONAL INFORMATION -31-
<PAGE> 91
with respect to such income. This original issue discount will comprise a part
of that investment company taxable income of the Large Capitalization Fund
which must be distributed to shareholders in order to maintain its
qualification as a RIC and to avoid federal income tax at the level of the
Large Capitalization Fund. Taxable shareholders of the Large Capitalization
Fund will be subject to income tax on such original issue discount, whether or
not they elect to receive their distributions in cash. In the event that the
Large Capitalization Fund acquires a debt instrument at a market discount, it
is possible that a portion of any gain recognized on the disposition of such
instrument may be treated as ordinary income.
The Large Capitalization Fund's investment in options, futures
contracts and forward contracts, options on futures contracts and stock indices
and certain other securities, including transactions involving actual or deemed
short sales or foreign exchange gains or losses are subject to many complex and
special tax rules. For example, over-the-counter options on debt securities
and certain equity options, including options on stock and on narrow-based
stock indices, will be subject to tax under Section 1234 of the Code, generally
producing a long-term or short-term capital gain or loss upon exercise, lapse,
or closing out of the option or sale of the underlying stock or security. By
contrast, the Large Capitalization Fund's treatment of certain other options,
futures and forward contracts entered into by the Large Capitalization Fund is
generally governed by Section 1256 of the Code. These "Section 1256" positions
generally include regulated futures contracts, foreign currency contracts,
nonequity options and dealer equity options.
Absent a tax election to the contrary, each such Section 1256 position
held by the Large Capitalization Fund will be marked-to-market (i.e., treated
as if it were sold for fair market value) on the last business day of the Large
Capitalization Fund's fiscal year, and all gain or loss associated with fiscal
year transactions and mark-to-market positions at fiscal year end (except
certain currency gain or loss covered by Section 988 of the Code) will
generally be treated as 60% long-term capital gain or loss and 40% short-term
capital gain or loss. The effect of Section 1256 mark-to-market rules may be
to accelerate income or to convert what otherwise would have been long-term
capital gains into short-term capital gains or short-term capital losses into
long-term capital losses within the Large Capitalization Fund. The
acceleration of income on Section 1256 positions may require the Large
Capitalization Fund to accrue taxable income without the corresponding receipt
of cash. In order to generate cash to satisfy the distribution requirements of
the Code, the Large Capitalization Fund may be required to dispose of portfolio
securities that it otherwise would have continued to hold or to use cash flows
from other sources, such as the sale of the Large Capitalization Fund's Shares.
In these ways, any or all of these rules may affect the amount, character and
timing of income earned and in turn distributed to shareholders by the Large
Capitalization Fund.
When the Large Capitalization Fund holds options or contracts which
substantially diminishes its risk of loss with respect to other positions (as
might occur in some hedging transactions), this combination of positions could
be treated as a "straddle" for tax purposes, resulting in possible deferral of
losses, adjustments in the holding periods of securities owned by the Large
Capitalization Fund and conversion of short-term capital losses into long-term
capital losses. Certain tax elections exist for mixed straddles, i.e.,
straddles comprised of at
STATEMENT OF ADDITIONAL INFORMATION -32-
<PAGE> 92
least one Section 1256 position and at least one non-Section 1256 position
which may reduce or eliminate the operation of these straddle rules.
As a RIC, the Large Capitalization Fund is also subject to the
requirement that less than 30% of its annual gross income be derived from the
sale or other disposition of securities and certain other investments held for
less than three months ("short income"). This requirement may limit the Large
Capitalization Fund's ability to engage in options, spreads, straddles, hedging
transactions, forward or futures contracts or options on any of these positions
because these transactions are often consummated in less than three months, may
require the sale of portfolio securities held less than three months and may,
as in the case of short sales of portfolio securities, reduce the holding
periods of certain securities within the Large Capitalization Fund, resulting
additional short-short income for the Large Capitalization Fund.
The Large Capitalization Fund will monitor its transactions in such
options and contracts and may make certain other tax elections in order to
mitigate the effect of the above rules and to prevent disqualification of the
Large Capitalization Fund as a RIC under Subchapter M of the Code.
In order for the Large Capitalization Fund to qualify as a RIC, at
least 90% of the Large Capitalization Fund's annual gross income must consist
of dividends, interest and certain other types of qualifying income, and no
more than 30% of its annual gross income may be derived from the sale or other
disposition of securities or certain other instruments held for less than three
months. Foreign exchange gains are presently treated as qualifying income for
purposes of this 90% limitation. However, future Treasury regulations may
provide that such gains may not qualify for purposes of 90% limitation if such
gains are not directly related to the Large Capitalization Fund's principal
business of investing in stock or securities, or options or futures with
respect to such stock or securities. Currency speculation or the use of
currency forward contracts or other currency instruments for non-hedging
purposes may generate gains deemed to be indirectly related to the Large
Capitalization Fund's principal business of investing in stock or securities
and related options or futures. Under current law, non- directly related gains
arising from foreign currency positions or instruments held for less than three
months are treated as derived from the disposition of securities held less than
three months in determining the Large Capitalization Fund's compliance with the
30% limitation. The Large Capitalization Fund will limit its activities
involving foreign exchange gains to the extent necessary to comply with these
requirements.
The Federal income tax treatment of interest rate and currency swaps
is unclear in certain respects and may in some circumstances result in the
realization of income not qualifying under the 90% limitation described above
or be deemed to be derived from the disposition of securities held less than
three months in determining the Large Capitalization Fund's compliance with the
30% limitation. The Large Capitalization Fund will limit its interest rate and
currency swaps to the extent necessary to comply with these requirements.
Information set forth in the Prospectus and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of Shares of the Large Capitalization Fund. No attempt has been made to
present a detailed explanation of the Federal income tax treatment of
STATEMENT OF ADDITIONAL INFORMATION -33-
<PAGE> 93
the Large Capitalization Fund or its shareholders and this discussion is not
intended as a substitute for careful tax planning. Accordingly, potential
purchasers of Shares of the Large Capitalization Fund are urged to consult
their tax advisers with specific reference to their own tax situation. In
addition, the tax discussion in the Prospectus and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the
date of the Prospectus and this Statement of Additional Information; such laws
and regulations may be changed by legislative or administrative action.
Yields of the Large Capitalization Fund
- ---------------------------------------
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," yields of the Large Capitalization Fund and its separate classes
of Shares will be computed by analyzing net investment income per Share for a
recent 30-day period and dividing that amount by the Share's maximum offering
price (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last trading day of that period. Net investment income will
reflect amortization of any market value premium or discount of fixed income
securities (except for obligations backed by mortgages or other assets) and may
include recognition of a pro rata portion of the stated dividend rate of
dividend paying portfolio securities. The yield of the Large Capitalization
Fund will vary from time to time depending upon market conditions, the
composition of the Large Capitalization Fund's portfolio and operating expenses
of the Group allocated to the Large Capitalization Fund. These factors and
possible differences in the methods used in calculating yield should be
considered when comparing the Large Capitalization Fund's yield to yields
published for other investment companies and other investment vehicles. Yield
should also be considered relative to changes in the value of the Large
Capitalization Fund's Shares and to the relative risks associated with the
investment objective and policies of the Large Capitalization Fund.
At any time in the future, yields may be higher or lower than past
yields and there can be no assurance that any historical results will continue.
Investors in the Large Capitalization Fund are specifically advised that Share
prices, expressed as the net asset values per share, will vary just as yields
will vary. The Large Capitalization Fund does not currently expect to
advertise or quote yield information to shareholders or in advertisements.
Calculation of Total Return
- ---------------------------
As summarized in the Prospectus under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value
of an investment in the Large Capitalization Fund over the period covered,
which assumes any dividends or capital gains distributions which are reinvested
in the Large Capitalization Fund immediately rather than paid to the investor
in cash. Average annual total return will be calculated by: (1) adding to the
total number of Shares purchased by a hypothetical $1,000 investment in the
Large Capitalization Fund and (less the maximum sales charge, if any) all
additional Shares which would have been purchased if all dividends and
distributions paid or distributed during the period had been immediately
reinvested; (2) calculating the value of the hypothetical initial investment of
$1,000 as of the end of the period by multiplying the total number of Shares
owned at the end of the period by the net asset value per share on the last
trading day of the period; (3) assuming redemption at the end of the period;
and (4) dividing this
STATEMENT OF ADDITIONAL INFORMATION -34-
<PAGE> 94
account value for the hypothetical investor by the initial $1,000 investment
and analyzing the result for periods of less than one year.
Distribution Rates
- ------------------
The Large Capitalization Fund may from time to time advertise current
distribution rates which are calculated in accordance with the method disclosed
in the Prospectus.
Performance Comparisons
- -----------------------
Investors may judge the performance of the Large Capitalization Fund
by comparing their performance to the performance of other mutual funds or
mutual fund portfolios with comparable investment objectives and policies
through various mutual fund or market indices such as the Morgan Stanley
Capital International EAFE Index and those prepared by Dow Jones & Co., Inc.,
Standard & Poor's Corporation, Shearson Lehman Brothers, Inc. and The Russell
2000 Index and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds,
Morningstar, Inc. and the Consumer Price Index. Comparisons may also be made
to indices or data published in Donoghue's MONEY FUND REPORT of Holliston,
Massachusetts 01746, a nationally recognized money market fund reporting
service, Money Magazine, Forbes, Barron's, The Wall Street Journal, The Bond
Buyer's Weekly 20-Bond Index, The Bond Buyer's Index, The Bond Buyer, The New
York Times, Business Week, Pensions and Investments, and U.S.A. Today. In
addition to performance information, general information about these funds that
appears in a publication such as those mentioned above may be included in
advertisements and in reports to shareholders.
From time to time, the Large Capitalization Fund may include the
following types of information in advertisements, supplemental sales literature
and reports to shareholders: (1) discussions of general economic or financial
principles (such as the effects of compounding and the benefits of dollar-cost
averaging); (2) discussions of general economic trends; (3) presentations of
statistical data to supplement such discussions; (4) descriptions of past or
anticipated portfolio holdings for the Large Capitalization Fund; (5)
descriptions of investment strategies for the Large Capitalization Fund; (6)
descriptions or comparisons of various savings and investment products
(including, but not limited to, insured bank products, annuities, qualified
retirement plans and individual stocks and bonds), which may or may not include
the Large Capitalization Fund; (7) comparisons of investment products
(including the Large Capitalization Fund) with relevant market or industry
indices or other appropriate benchmarks; and (8) discussions of fund rankings
or ratings by recognized rating organizations. The Large Capitalization Fund
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of the Large Capitalization Fund.
Morningstar, Inc., Chicago, Illinois, rates mutual funds on a one- to
five-star rating scale with five stars representing the highest rating. Such
ratings are based upon a fund's historical risk/reward ratio as determined by
Morningstar relative to other funds in that fund's class. Funds are divided
into classes based upon their respective investment objectives. The one-
STATEMENT OF ADDITIONAL INFORMATION -35-
<PAGE> 95
to-five-star ratings represent the following ratings by Morningstar,
respectively: Lowest, Below Average, Neutral, Above Average and Highest.
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, the Large
Capitalization Fund's yield or performance may not provide for comparison with
bank deposits or other investments that pay a fixed return for a stated period
of time. Yield and performance are functions of the Large Capitalization
Fund's quality, composition, and maturity, as well as expenses allocated to the
Large Capitalization Fund. Fees imposed upon Customer accounts by the Adviser
or its affiliated or correspondent banks for cash management services will
reduce the Large Capitalization Fund's effective yield to Customers.
Miscellaneous
- -------------
Individual Trustees are elected by the shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals.
Individual Trustees may be removed by vote of the shareholders voting not less
than a majority of the Shares then outstanding, cast in person or by proxy at
any meeting called for that purpose, or by a written declaration signed by
shareholders voting not less than two-thirds of the Shares then outstanding.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of
the management or policies of the Group. The 1995 Annual Report and, when
available, the December 31, 1995 Semi-Annual Report to shareholders of the
Group, are incorporated herein by reference. These reports include the
financial statements for the fiscal year ended June 30, 1995, and the six
months ended December 31, 1995, respectively.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized
to give any information or make any representation other than those contained
in the Prospectus and this Statement of Additional Information.
FINANCIAL STATEMENTS
Financial Statements depicting financial information for the Large
Capitalization Fund's operations since inception will appear in the Group's
Annual Report dated June 30, 1996, and will be filed with the Securities and
Exchange Commission (File Nos. 33-13283 and 811-5105) and incorporated by
reference herein. The report of Coopers & Lybrand L.L.P., independent
accountants to the Group, will appear therein.
STATEMENT OF ADDITIONAL INFORMATION -36-
<PAGE> 96
APPENDIX
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by First of America with regard to portfolio
investments for the Large Capitalization Fund include Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), Duff &
Phelps, Inc. ("Duff"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited
and its affiliate, IBCA Inc. (collectively, "IBCA"), and Thompson BankWatch,
Inc. ("Thomson"). Set forth below is a description of the relevant ratings of
each such NRSRO. The NRSROs that may be the relevant ratings of each such
NRSRO. The NRSROs that may be utilized by First of America and the description
of each NRSRO's ratings is as of the date of this Statement of Additional
Information, and may subsequently change.
LONG-TERM DEBT RATINGS (May be assigned, for example, to corporate and
municipal bonds)
Description of the three highest long-term debt ratings by Moody's (Moody's
supplies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa securites.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered a supper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the future.
Description of the three highest long-term debt ratings by S&P (S&P may apply a
plus (+) or a minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
STATEMENT OF ADDITIONAL INFORMATION A-1
<PAGE> 97
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Description of the three highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk Factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality Protection factors are strong.
AA Risk is modest but may vary slightly from time to time
AA- because of economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods
A- of economic stress.
Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interst and repay
principal is very strong, although not quite as strong as bonds
rated "AAA." Because bonds rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issues is
generally rated "[-]+."
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
IBCA'S description of its three highest long-term debt ratings:
AAA Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal
and interest is substantial such that adverse changes in
business, economic or financial conditions are unlikely to
increase investment risk significantly.
STATEMENT OF ADDITIONAL INFORMATION A-2
<PAGE> 98
AA Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may
increase investment risk albeit not very significantly.
A Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest
is strong, although adverse changes in business, economic or
financial conditions may lead to increased investment risk.
Thomson's description of its three highest long-term debt ratings (Thomson may
include a plus (+) or minus (-) designation to indicate where within the
respective category the issue is placed):
AAA The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA The second highest category; indicates a superior ability to
repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category.
A The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be
more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have
a superior capacity for repayment of senior short-term
promissory obligatins. Prime-1 repayment capacity will
normally be evidenced by many of the following
characteristics:
-Leading market positions in well-established
industries.
-High rates of return on funds employed.
-Conservative capitalization structures with
moderate reliance on debt and ample asset
protection.
-Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation.
STATEMENT OF ADDITIONAL INFORMATION A-3
<PAGE> 99
-Well-established access to a range of
financial markets and assured sources of
alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions)
have a strong capacity for repayment of senior
short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage
ratios, while sound, may be more subject to variation.
Capitalizatin characteristics, while still appropriate,
may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have
an acceptable ability for repayment of senior short-
term obligations. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection
measurements and may require relatively high financial,
leverage. Adequate alternate liquidity is maintained.
S&P's descriptio of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. those issues determined to have
extremely strong safety characteristics are denoted with a plus
sign (+).
A-2 Capacity for timely payment on issues with this designatin is
satisfactory. However, the relative degree of safety is not
as high as for issues designated "A-1."
A-3 Issues carrying this designatin have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligatins
carrying the higher designations.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury short-
term obligations.
Duff 1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good
fundamental protection factors. Risk factors are minor.
STATEMENT OF ADDITIONAL INFORMATION A-4
<PAGE> 100
DUFF 1- High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection
factors. Risk factors are very small.
DUFF 2 Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing
requirements, access to capital markets is good. Risk
factors are small.
DUFF 3 Satisfactory liquidity and other protection factors
qualify issue as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless,
timely payment is expected.
Fitch's description of its three highest short-term debt ratings:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-1+
or F-1 ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade.
IBCA's description of its three highest short-term debt ratings:
A+ Obligations supported by the highest capacity for timely
repayment.
A1 Obligations supported by a very strong capacity for timely
repayment.
A2 Obligations supported by a strong capacity for timely
repayment, although such capacity may be susceptible to
adverse changes in business, economic of financial conditions.
Thompson's description of its three short-term ratings:
TBW-1 The highest category; indicates a very high degree of
likelihood that principal and interest will be paid on a
timely basis.
STATEMENT OF ADDITIONAL INFORMATION A-5
<PAGE> 101
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal interest is strong,
the relative degree of safety is not as high as issues rated
"TBW-1"
TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and
external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is
considered adequate.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins or protection
are ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation
SP-2 Satisfactory capacity to pay principal and interest.
STATEMENT OF ADDITIONAL INFORMATION A-6
