<PAGE> 1
Securities Act File No. 33-13283
Investment Company Act File No. 811-5105
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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Pre-Effective Amendment No. ______ / /
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Post-Effective Amendment No. 36 / X /
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 38
THE PARKSTONE GROUP OF FUNDS
-----------------------------
(Exact Name of Registrant as Specified in Charter)
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 451-8377
MELANIE MAYO WEST, ESQ.
DAVID E. RIGGS, ESQ.
HOWARD & HOWARD ATTORNEYS, P.C.
1400 NORTH WOODWARD AVENUE, SUITE 101
BLOOMFIELD HILLS, MICHIGAN 48304-2856
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Immediately, upon effectiveness
It is proposed that this filing will become effective:
/ X /immediately upon filing pursuant to paragraph (b).
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/ /on (date) pursuant to paragraph (b).
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/ /60 days after filing pursuant to paragraph (a)(1).
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/ /on (date) pursuant to paragraph (a)(1) of Rule 485.
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/ /75 days after filing pursuant to paragraph (a)(2).
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/ /on (date) pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
/ /this post-effective amendment designates a new effective date
------ for a previously filed post-effective
amendment.
Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. On August 28, 1997, Registrant filed its Rule 24f-2 Notice with respect
to its fiscal year ended June 30, 1997.
<PAGE> 2
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX-FREE INCOME FUNDS
THE PARKSTONE MONEY MARKET FUND
FORM N-1A
CROSS-REFERENCE SHEET
Part A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO. RULE 404(a) CROSS REFERENCE
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<TABLE>
<S> <C> <C>
1. Cover Page .......................................... Cover Page
2. Synopsis............................................. Prospectus Summary; Fee Tables
3. Condensed Financial Information...................... Financial Highlights; Performance Information
4. General Description of Registrant.................... Cover Page; Investment Objectives and Policies;
Investment Restrictions; Risk Factors and
Investment Techniques; General Information -
Organization of the Group
5. Management of the Fund............................... Management of the Funds; Fee Tables
5A. Management's Discussion of Fund
Performance.......................................... Not Applicable
6. Capital Stock and Other Securities................... Directed Dividend Option; Dividends and Taxes;
General Information - Organization of the Group;
General Information - Multiple Classes of Shares;
General Information - Miscellaneous
7. Purchase of Securities Being Offered................. Management of the Funds - Administrator, Sub-
Administrator and Distributor; Management of
the Funds - Distribution Plan for Investor A
Shares; How to Buy Investor A Shares; Sales
Charges; Reduced Sales Charges; Exchange Privilege;
Parkstone Individual Retirement Accounts;
How Shares are Valued
8. Redemption or Repurchase............................. How to Redeem Your Investor A Shares
9. Pending Legal Proceedings............................ Not Applicable
</TABLE>
<PAGE> 3
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THE PARKSTONE
GROUP OF FUNDS
INVESTOR A SHARES
- --------------------------------------------------------------------------------
GROWTH FUNDS
PARKSTONE SMALL CAPITALIZATION FUND
PARKSTONE MID CAPITALIZATION FUND
PARKSTONE LARGE CAPITALIZATION FUND
PARKSTONE INTERNATIONAL DISCOVERY FUND
GROWTH AND INCOME FUNDS
PARKSTONE MODERATE FOUNDATION FUND
PARKSTONE EQUITY INCOME FUND
INCOME FUNDS
PARKSTONE BOND FUND
PARKSTONE LIMITED MATURITY BOND FUND
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
PARKSTONE MUNICIPAL BOND FUND
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
MONEY MARKET FUNDS
PARKSTONE PRIME OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT OBLIGATIONS FUND
PARKSTONE TREASURY FUND
PARKSTONE TAX-FREE FUND
Prospectus dated September 30, 1997
[PARKSTONE LOGO]
-------------------------
NOT FDIC INSURED
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[THIS PAGE INTENTIONALLY LEFT BLANK.]
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THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES PROSPECTUS DATED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
GROWTH FUNDS For more information call:
Parkstone Small Capitalization Fund (800) 451-8377
Parkstone Mid Capitalization Fund or write to:
Parkstone Large Capitalization Fund 3435 Stelzer Road
Parkstone International Discovery Fund Columbus, Ohio 43219
GROWTH AND INCOME FUNDS
Parkstone Balanced Allocation Fund THESE SECURITIES HAVE NOT
Parkstone Equity Income Fund BEEN APPROVED OR
DISAPPROVED BY THE
INCOME FUNDS SECURITIES AND EXCHANGE
Parkstone Bond Fund COMMISSION OR ANY STATE
Parkstone Limited Maturity Bond Fund SECURITIES COMMISSION NOR
Parkstone Intermediate Government Obligations HAS THE COMMISSION OR ANY
Fund STATE SECURITIES COMMISSION
Parkstone U.S. Government Income Fund PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS
TAX-FREE INCOME FUNDS PROSPECTUS. ANY
Parkstone Municipal Bond Fund REPRESENTATION TO THE
Parkstone Michigan Municipal Bond Fund CONTRARY IS A CRIMINAL
OFFENSE
MONEY MARKET FUNDS
Parkstone Prime Obligations Fund
Parkstone U.S. Government Obligations Fund
Parkstone Treasury Fund
Parkstone Tax-Free Fund
</TABLE>
The funds listed above are sixteen of the currently-offered series (the "Funds")
of The Parkstone Group of Funds (the "Group") which offer Investor A Shares.
This Prospectus explains concisely what you should know before investing in the
Investor A Shares of the Funds listed above. Please read it carefully and keep
it for future reference. You can find more detailed information about the Funds
in the September 30, 1997 Statement of Additional Information, as amended from
time to time. For a free copy of the Statement of Additional Information or
other information, contact the Group at the number specified above. The
Statement of Additional Information has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated into this Prospectus by
reference.
THE SHARES OF THE PARKSTONE GROUP OF FUNDS ARE NOT OBLIGATIONS OR DEPOSITS OF
FIRST OF AMERICA INVESTMENT CORPORATION OR ITS PARENT, AND THE INVESTMENTS
DESCRIBED IN THIS PROSPECTUS ARE NOT ENDORSED, INSURED OR GUARANTEED BY FIRST OF
AMERICA INVESTMENT CORPORATION, ITS PARENT OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVOLVED.
PROSPECTUS--Investor A Shares
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY........................................................... 5
FEE TABLES................................................................... 9
FINANCIAL HIGHLIGHTS......................................................... 11
INVESTMENT OBJECTIVES AND POLICIES........................................... 26
RISK FACTORS AND INVESTMENT TECHNIQUES....................................... 39
INVESTMENT RESTRICTIONS...................................................... 51
MANAGEMENT OF THE FUNDS...................................................... 52
HOW TO BUY INVESTOR A SHARES................................................. 57
SALES CHARGES................................................................ 60
REDUCED SALES CHARGES........................................................ 61
DIRECTED DIVIDEND OPTION..................................................... 63
EXCHANGE PRIVILEGE........................................................... 63
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS..................................... 64
HOW TO REDEEM YOUR INVESTOR A SHARES......................................... 64
HOW SHARES ARE VALUED........................................................ 66
DIVIDENDS AND TAXES.......................................................... 67
PERFORMANCE INFORMATION...................................................... 70
FUNDATA(R)................................................................... 70
GENERAL INFORMATION.......................................................... 71
</TABLE>
PROSPECTUS--Investor A Shares 2
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PROSPECTUS ROADMAP
For information about the following subjects, consult the pages indicated on the
table below.
[CAPTION]
<TABLE>
<CAPTION>
INVESTMENT
FINANCIAL OBJECTIVES RISK FACTORS AND
FUND HIGHLIGHTS AND POLICIES INVESTMENT TECHNIQUES
<S> <C> <C> <C>
Balanced Allocation Fund 16 28 30
Bond Fund 18 31 32
Equity Income Fund 17 30 31
Government Income Fund 20 33 34
International Discovery Fund 15 27 28
Intermediate Government Obligations Fund 20 33 33
Large Capitalization Fund 14 26 27
Limited Maturity Bond Fund 19 31 32
Michigan Municipal Bond Fund 21 34 36
Mid Capitalization Fund 13 26 27
Municipal Bond Fund 22 34 36
Prime Obligations Fund 23 36 39
Small Capitalization Fund 12 26 27
Tax-Free Fund 23 36 39
Treasury Fund 24 36 39
U.S. Government Obligations Fund 25 36 39
</TABLE>
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which, as of the date of this Prospectus, offers to the public eighteen
separate investment portfolios, seventeen of which are diversified portfolios
and one of which is a non-diversified portfolio, each with different investment
objectives. These Funds enable the Group to meet a wide range of investment
needs.
This Prospectus relates only to the Investor A Shares of the following Funds:
Parkstone Small Capitalization Fund (the "Small Capitalization Fund")
Parkstone Mid Capitalization Fund, formerly known as the Parkstone Equity
Fund (the "Mid Capitalization Fund")
Parkstone Large Capitalization Fund (the "Large Capitalization Fund")
Parkstone International Discovery Fund (the "International Fund")
Parkstone Balanced Allocation Fund, formerly known as the Parkstone
Balanced Fund (the "Balanced Allocation Fund")
Parkstone Equity Income Fund, formerly known as the Parkstone High Income
Equity Fund (the "Equity Income Fund")
Parkstone Bond Fund (the "Bond Fund")
Parkstone Limited Maturity Bond Fund (the "Limited Maturity Bond Fund")
Parkstone Intermediate Government Obligations Fund (the "Intermediate
Government Obligations Fund")
Parkstone U.S. Government Income Fund (the "Government Income Fund")
Parkstone Municipal Bond Fund (the "Municipal Bond Fund")
3 PROSPECTUS--Investor A Shares
<PAGE> 8
Parkstone Michigan Municipal Bond Fund (the "Michigan Bond Fund")
Parkstone Prime Obligations Fund (the "Prime Obligations Fund")
Parkstone U.S. Government Obligations Fund (the "U.S. Government
Obligations Fund")
Parkstone Treasury Fund (the "Treasury Fund")
Parkstone Tax-Free Fund (the "Tax-Free Fund")
For convenience of reference, the above Funds are sometimes referred to as part
of a general grouping. The Small Capitalization Fund, Mid Capitalization Fund,
Large Capitalization Fund and International Fund are collectively referred to as
the "Growth Funds." The Balanced Allocation Fund and Equity Income Fund are
collectively referred to as the "Growth and Income Funds." The Bond Fund,
Limited Maturity Bond Fund, Intermediate Government Obligations Fund and
Government Income Fund are collectively referred to as the "Income Funds." The
Michigan Bond Fund and Municipal Bond Fund are collectively referred to as the
"Tax-Free Income Funds." Finally, the Prime Obligations Fund, Treasury Fund,
Tax-Free Fund and U.S. Government Obligations Fund are collectively referred to
as the "Money Market Funds."
The Trustees of the Group have divided beneficial ownership of each of the Funds
into an unlimited number of transferable units called shares. Most Funds of the
Group offer multiple classes of shares. This Prospectus describes Investor A
Shares for certain of the Group's Funds. Interested persons who wish to obtain a
copy of any of the Group's other Prospectuses or a copy of the Group's most
recent Annual Report may contact the Group at the telephone number shown above.
The investment objectives of each of the Funds are described in this Prospectus
and are summarized in the Prospectus Summary. First of America Investment
Corporation, Kalamazoo, Michigan ("First of America" or the "Investment
Adviser"), acts as the investment adviser to each of the Funds of the Group. To
provide investment advisory services for the International Fund and Balanced
Allocation Fund for investments in foreign securities, First of America has
entered into a sub-investment advisory agreement with Gulfstream Global
Investors, Ltd., Dallas, Texas ("Gulfstream" or the "Subadviser").
PROSPECTUS--Investor A Shares 4
<PAGE> 9
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Investor A Shares of the following Funds of the
Group:
GROWTH FUNDS
Small Capitalization Fund
Mid Capitalization Fund
Large Capitalization Fund
International Fund
GROWTH AND INCOME FUNDS
Balanced Allocation Fund
Equity Income Fund
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
TAX-FREE INCOME FUNDS
Municipal Bond Fund
Michigan Bond Fund
MONEY MARKET FUNDS
Prime Obligations Fund
U.S. Government Obligations Fund
Treasury Fund
Tax-Free Fund
These Funds represent sixteen separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust which is registered as an
open-end, management investment company.
Purchase and Redemption of Shares
The public offering price of Investor A Shares of each of the Growth Funds and
each of the Growth and Income Funds is equal to the net asset value per share
plus a sales charge equal to 4.50% of the public offering price (4.71% of the
net amount invested). The public offering price of Investor A Shares of each of
the Income Funds and each of the Tax-Free Income Funds is equal to the net asset
value per share plus a sales charge equal to 4.00% of the public offering price
(4.17% of the net amount invested). The public offering price is reduced when
the amount of the transaction at the total public offering price is $50,000 or
more (see "SALES CHARGES"). Under certain circumstances, the sales charge may be
eliminated (see "REDUCED SALES CHARGES -- Sales Charge Waivers"). The public
offering price of each Money Market Fund is equal to the net asset value per
share, which the Group will seek to maintain at $1.00.
Shares may be purchased by mail or telephone, through a broker-dealer who has
entered into an agreement with the Group's distributor BISYS Fund Services
Limited Partnership ("BISYS"), through the Group's Auto Invest Plan or through
certain Parkstone Individual Retirement Accounts. Investor A Shares of one Fund
of the Group may be exchanged for Investor A Shares of another Fund of the Group
at net asset value without the imposition of a sales charge, provided certain
conditions are met. Shares may be redeemed by contacting the Transfer Agent or
through the Group's Auto Withdrawal Plan. See "HOW TO BUY INVESTOR A SHARES,"
"EXCHANGE PRIVILEGE," "HOW TO REDEEM INVESTOR A SHARES" and "HOW SHARES ARE
VALUED."
5 PROSPECTUS--Investor A Shares
<PAGE> 10
Minimum Purchase
There is a $1,000 minimum initial purchase (based upon the public offering
price) per Fund with no minimum subsequent investments. Such minimum initial
investment may be waived for certain purchasers and is reduced to $100 for
investors using the Auto Invest Plan described herein to invest in a Fund,
although such investors are subject to a $50 minimum for each subsequent
investment in such Fund.
Investment Objectives
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
Balanced Allocation Fund seeks current income, long-term capital growth and
conservation of capital
Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high- and
medium-grade fixed-income securities
Equity Income Fund primarily seeks current income by investing in a
diversified portfolio of high quality, dividend-paying
stocks and securities convertible into common stocks; a
secondary objective is growth of capital
Government Income Fund seeks to provide shareholders with a high level of
current income consistent with prudent investment risk
Intermediate Government seeks to provide current income with preservation of
Obligations Fund capital by investing in a diversified portfolio of U.S.
government securities with remaining maturities of 12
years or less
International Fund seeks long-term growth of capital
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
Limited Maturity Bond seeks to provide current income and preservation of
Fund capital by investing in a portfolio of high- and
medium-grade fixed-income securities, the remaining
maturities on which will be six years or less
Michigan Bond Fund seeks income which is exempt from federal income tax
and Michigan state income and intangibles tax, although
such income may be subject to the federal alternative
minimum tax when received by certain shareholders; also
seeks preservation of capital
Mid Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks
Municipal Bond Fund seeks to provide current interest income which is
exempt from federal income taxes as well as
preservation of capital
Prime Obligations Fund seeks to provide current income, with liquidity and
stability of principal
Small Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks of small- to
medium-sized companies
</TABLE>
PROSPECTUS--Investor A Shares 6
<PAGE> 11
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
Tax-Free Fund seeks to provide current interest income free from
federal income taxes, preservation of capital and
relative stability of principal
Treasury Fund seeks to provide current income, with liquidity and
stability of principal
U.S. Government seeks to provide current income, with liquidity and
Obligations Fund stability of principal
</TABLE>
Investment Policies
Under normal market conditions, each Fund will invest as described in the
following table:
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Balanced Allocation Fund in any type or class of securities, including all types
of common stocks, fixed-income securities and
securities convertible into common stocks.
Bond Fund at least 80% of its total assets in bonds, debentures
and certain other debt securities specified herein
Equity Income Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management, the ability to finance expected
growth and the ability to pay above-average dividends
Government Income Fund at least 65% of its total assets in obligations issued
or guaranteed by the U.S. government or its agencies or
instrumentalities; under current market conditions, up
to 80% of its total assets in mortgage-related
securities, which are issued or guaranteed by the U.S.
government or its agencies or instrumentalities and up
to 35% of its total assets in mortgage-related
securities issued by non-governmental entities
Intermediate Government at least 80% of its total assets in obligations issued
Obligations Fund or guaranteed by the U.S. government or its agencies or
instrumentalities and with remaining maturities of
twelve years or less
International Fund at least 65% of its total assets in an internationally
diversified portfolio of equity securities which trade
on markets in countries other than the United States
and which are issued by companies (i) domiciled in
countries other than the United States, or (ii) that
derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States,
and (iii) which are ranked as small- or medium-sized
companies on the basis of their capitalization
Large Capitalization Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed to be characterized by sound management and
the ability to finance expected long-term growth
</TABLE>
7 PROSPECTUS--Investor A Shares
<PAGE> 12
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Limited Maturity Bond at least 80% of the value of its total assets in bonds,
Fund debentures and certain other debt securities specified
herein with remaining maturities of six years or less
Michigan Bond Fund at least 80% of its total assets in debt securities of
all types; at least 65% of the net assets in municipal
securities issued by or on behalf of the State of
Michigan, its political subdivisions, municipalities
and public authorities
Mid Capitalization Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management and the ability to finance expected
growth
Municipal Bond Fund at least 80% of its total assets in tax-exempt
obligations
Prime Obligations Fund in high quality money market instruments and other
comparable investments
Small Capitalization Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management and the ability to finance expected
growth
Tax-Free Fund at least 80% of its total assets in municipal
obligations the interest on which is both exempt from
federal income tax and not treated as a preference item
for alternative minimum tax purposes
Treasury Fund exclusively in obligations issued or guaranteed by the
U.S. Treasury and in repurchase agreements backed by
such securities
U.S. Government at least 65% of its total assets in short-term U.S.
Obligations Fund Treasury bills, notes and other obligations issued by
the U.S. government or its agencies or
instrumentalities
</TABLE>
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a certain
amount of risk and may not be suitable for all investors. In addition, some
investment policies of the Funds may entail certain risks. See "RISK FACTORS AND
INVESTMENT TECHNIQUES."
Management of the Funds
First of America serves as investment adviser, and, with respect to the
International Fund and a portion of the Balanced Allocation Fund, Gulfstream
serves as subadviser. First of America also serves as sub-administrator. BISYS,
a partnership owned by The BISYS Group, Inc., serves as distributor,
administrator, transfer agent and dividend disbursing agent (the "Distributor,"
the "Administrator" and the "Transfer Agent"). BISYS Fund Services Ohio, Inc.
("BISYS Ohio"), serves as fund accountant. Union Bank of California, N.A.
("Union Bank" or the "Custodian"), serves as custodian.
Dividends and Taxes
Dividends from net income are declared and paid, if at all, on a monthly basis,
except for the Money Market Funds which declare dividends daily and pay them
monthly. Net realized capital gains are distributed at least annually. The
Directed Dividend Option enables shareholders to have dividends and capital
gains paid by check, or reinvested automatically without payment of sales
charges. See "DIRECTED DIVIDEND OPTION." Each of the Funds is treated as a
separate entity for federal income tax
PROSPECTUS--Investor A Shares 8
<PAGE> 13
purposes and intends to qualify as a "regulated investment company."
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made during the year.
FEE TABLES (INVESTOR A SHARES)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge (as a percentage of the offering price)(1)
- --Growth Funds............................................................... 4.50%
- --Growth and Income Funds.................................................... 4.50%
- --Income Funds............................................................... 4.00%
- --Tax-Free Income Funds...................................................... 4.00%
- --Money Market Funds......................................................... None
Sales Charge on Reinvested Distributions..................................... None
Deferred Sales Charge on Redemptions......................................... None
0.00%/
Redemption Fees(2)........................................................... 1.00%
Exchange Fees(3)............................................................. None
</TABLE>
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(1) The sales charge may be eliminated under certain circumstances. (See
"REDUCED SALES CHARGES -- Sales Charge Waivers.")
(2) Investors who invest over $1,000,000 in Investor A Shares of the Small
Capitalization Fund will be subject to a redemption fee of 1.00% for
redemptions of such shares made within one year of the date of purchase. In
addition, with respect to all Funds, although no such fee is currently in
place, the Transfer Agent has reserved the right in the future to charge a
fee for wire transfers of redemption proceeds.
(3) Exchanges into a Non-Money Market Fund from a Money Market Fund will be
subject to a sales charge.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES(5) EXPENSES(4) EXPENSES(4)
---------- ---- ------- -------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund..................... 1.00% 0.25% 0.32% 1.57%
Mid Capitalization Fund....................... 1.00% 0.25% 0.31% 1.56%
Large Capitalization Fund..................... 0.80% 0.25% 0.32% 1.37%
International Fund............................ 1.16%(6) 0.25% 0.39% 1.80%
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund...................... 0.75% 0.25% 0.36% 1.36%
Equity Income Fund............................ 1.00% 0.25% 0.33% 1.58%
INCOME FUNDS:
Bond Fund..................................... 0.70% 0.25% 0.24% 1.19%
Limited Maturity Bond Fund.................... 0.55% 0.25% 0.31% 1.11%
Intermediate Government Obligations Fund...... 0.70% 0.25% 0.28% 1.23%
Government Income Fund........................ 0.45% 0.25% 0.32% 1.02%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund........................... 0.55% 0.25% 0.26% 1.06%
Michigan Bond Fund............................ 0.55% 0.25% 0.21% 1.01%
</TABLE>
9 PROSPECTUS--Investor A Shares
<PAGE> 14
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES(5) EXPENSES(4) EXPENSES(4)
---------- ---- ------- -------
<S> <C> <C> <C> <C>
MONEY MARKET FUNDS:
Prime Obligations Fund........................ 0.40% 0.10% 0.23% 0.73%
U.S. Government Obligations Fund.............. 0.40% 0.10% 0.24% 0.74%
Treasury Fund................................. 0.40% 0.10% 0.17% 0.67%
Tax-Free Fund................................. 0.40% 0.10% 0.28% 0.78%
</TABLE>
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(4) After voluntary expense reductions.
(5) Pursuant to the Investor A Distribution and Shareholder Service Plan, each
Fund is authorized to make payments under such Plan of up to an annual rate
of 0.25% of the average daily net asset value of such Fund's Investor A
Shares. However, currently payments of only 0.10% are being charged under
such Plan with respect to the Money Market Funds.
(6) Calculated based on 1.25% on the first $50 million, in average daily net
assets, $1.20% on the next $50 million, 1.15% on the next $300 million and
1.05% over $400 million.
Management Fees and Total Expenses as a percentage of average net assets for the
Balanced Allocation Fund, absent the voluntary reduction of advisory fees, would
have been 1.00% and 1.61%, respectively. Management Fees, Other Expenses and
Total Expenses as a percentage of average net assets for the Bond Fund, absent
the voluntary reduction of advisory fees and administrative fees, would have
been 0.74%, 0.29% and 1.28%, respectively. For the Limited Maturity Bond Fund,
they would have been 0.74%, 0.36% and 1.35%, respectively. For the Intermediate
Government Obligations Fund, they would have been 0.74%, 0.33% and 1.32%,
respectively. For the Government Income Fund, they would have been 0.74%, 0.37%
and 1.36%, respectively. For the Municipal Bond Fund, they would have been
0.74%, 0.36% and 1.35%, respectively. For the Michigan Bond Fund, they would
have been 0.74%, 0.31% and 1.30%, respectively. 12b-1 Fees, Other Expenses and
Total Expenses as a percentage of average net assets for the Prime Obligations
Fund, absent the voluntary reduction of 12b-1 fees and administrative fees,
would have been 0.25%, 0.25% and 0.90%, respectively. For the U.S. Government
Obligations Fund, they would have been 0.25%, 0.26% and 0.91%, respectively. For
the Treasury Fund, they would have been 0.25%, 0.27% and 0.92%, respectively.
For the Tax-Free Fund, they would have been 0.25%, 0.30% and 0.95%,
respectively. (See "MANAGEMENT OF THE FUNDS -- Investment Adviser and
Subadviser" and "Administrator, Sub-Administrator and Distributor.")
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Investor A Shares, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
--- ---- ---- ----
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund.............................. $ 60 $92 $ 127 $ 223
Mid Capitalization Fund................................ $ 60 $92 $ 126 $ 222
Large Capitalization Fund.............................. $ 58 $86 $ 117 $ 202
International Fund..................................... $ 62 $99 $ 138 $ 247
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund............................... $ 58 $86 $ 116 $ 201
Equity Income Fund..................................... $ 60 $93 $ 127 $ 224
INCOME FUNDS:
Bond Fund.............................................. $ 52 $76 $ 103 $ 179
Limited Maturity Bond Fund............................. $ 51 $74 $ 99 $ 170
Intermediate Government Obligations Fund............... $ 52 $77 $ 105 $ 183
Government Income Fund................................. $ 50 $71 $ 94 $ 160
</TABLE>
PROSPECTUS--Investor A Shares 10
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
TAX-FREE INCOME FUNDS:
Municipal Bond Fund.................................... $ 50 $72 $ 96 $ 164
Michigan Bond Fund..................................... $ 50 $71 $ 94 $ 159
MONEY MARKET FUNDS:
Prime Obligations Fund................................. $ 7 $23 $ 41 $ 91
U.S. Government Obligations Fund....................... $ 8 $24 $ 41 $ 92
Treasury Fund.......................................... $ 7 $21 $ 37 $ 83
Tax-Free Fund.......................................... $ 8 $25 $ 43 $ 97
</TABLE>
The information set forth in the foregoing Fee Tables and expense examples
relates only to Investor A Shares of the Funds. Each of the Funds also may offer
other classes of shares. The other classes of shares of the Funds are subject to
the same expenses except that sales charges and Rule 12b-1 fees will differ
between classes.
As a result of the payment of sales charges and 12b-1 fees, long-term
shareholders may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers, Inc.
(the "NASD"). The NASD has adopted rules effective July 7, 1993, which generally
limit the aggregate sales charges and payments under the Group's Investor A
Distribution and Shareholder Service Plan to a certain percentage of total new
gross share sales, plus interest. The Funds would stop accruing 12b-1 fees if,
to the extent, and for as long as, such limit would otherwise be exceeded.
The purpose of the above tables is to assist a potential purchaser of Investor A
Shares of any Fund in understanding the various costs and expenses that an
investor in a Fund will bear directly or indirectly. Such expenses do not
include any fees charged by First of America or any of its affiliates to its
customer accounts which may invest in Investor A Shares of the Funds. See
"MANAGEMENT OF THE FUNDS," "GENERAL INFORMATION" and "SALES CHARGES" for a more
complete discussion of the shareholder transaction expenses and annual operating
expenses of each of the Funds. The expense information for Investor A Shares
reflects current fees. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables on the following pages set forth certain information concerning the
investment results of the Investor A Shares of each of the Funds since its
inception. Further financial information is included in the Statement of
Additional Information and the Group's June 30, 1997 Annual Report to
Shareholders which may be obtained free of charge.
The Financial Highlights for the periods presented below have been derived from
financial statements audited by Coopers & Lybrand L.L.P., independent auditors
for the Group, whose report thereon is incorporated by reference in the
Statement of Additional Information.
On March 31, 1993, the shareholders of all of the then-existing Funds of the
Group approved the reclassification of such Funds' outstanding shares into
Investor A Shares and Institutional Shares. The financial information provided
below and in the Annual Report includes periods prior to such reclassification.
11 PROSPECTUS--Investor A Shares
<PAGE> 16
SMALL CAPITALIZATION FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
----------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
-------- -------- ------- ------- ------- -------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............ $34.17 $25.88 $19.75 $20.31 $14.64 $13.58 $14.82 $11.59 $10.00
----- ----- ----- ----- ------ ----- ----- ----- ---------
Investment
Activities
Net Investment
Loss.......... (0.29) (0.23) (0.18) (0.15) (0.13) (0.08) 0.14 0.04 0.06
Net Realized and
Unrealized
Gains (Losses)
on
Investments... (1.08) 12.17 8.46 0.09 6.75 1.89 (1.24) 3.23 1.59
----- ----- ----- ----- ------ ----- ----- ----- ---------
Total from
Investment
Activities... (1.37) 11.94 8.28 (0.06) 6.62 1.81 (1.10) 3.27 1.65
----- ----- ----- ----- ------ ----- ----- ----- ---------
Distributions
Net Investment
Income........ -- -- -- -- -- -- (0.14) (0.04) (0.06)
Net Realized
Gains......... (5.25) (3.65) (2.15) (0.50) (0.95) (0.75) -- -- --
----- ----- ----- ----- ------ ----- ----- ----- ---------
Total
Distributions... (5.25) (3.65) (2.15) (0.50) (0.95) (0.75) (0.14) (0.04) (0.06)
----- ----- ----- ----- ------ ----- ----- ----- ---------
NET ASSET VALUE, END
OF PERIOD......... $27.55 $34.17 $25.88 $19.75 $20.31 $14.64 $13.58 $14.82 $11.59
===== ===== ===== ===== ====== ===== ===== ===== =========
Total Return
(excluding sales
and redemption
charges).......... 4.53% 49.93% 44.88% (0.55)% 45.77% 12.95% (6.76)% 28.28% 16.60%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End
of Period
(000)......... $188,645 $187,016 $71,984 $42,791 $27,976 $180,079 $107,500 $94,517 $53,917
Ratio of
Expenses to
Average Net
Assets........ 1.57% 1.54% 1.55% 1.40% 1.29% 1.19% 1.15% 1.11% 1.29%(c)
Ratio of Net
Investment
Loss to
Average Net
Assets........ (1.19)% (1.18)% (1.27)% (1.24)% (1.02)% (0.61)% 1.08% 0.37% 0.80%(c)
Ratio of
Expenses to
Average Net
Assets*....... 1.57% 1.54% 1.58% 1.55% 1.36% 1.28% 1.33% 1.33% 1.54%(c)
Ratio of Net
Investment
Loss to
Average Net
Assets*....... (1.19)% (1.18)% (1.30)% (1.39)% (1.09)% (0.70)% 0.90% 0.15% 0.55%(c)
Portfolio
Turnover Rate
(d)........... 48.45% 67.22% 50.53% 72.64% 71.21% 95.02% 139.66% 83.10% 51.79%
Average
Commission
Rate Paid
(g)........... $0.0788 $0.0800
</TABLE>
PROSPECTUS--Investor A Shares 12
<PAGE> 17
MID CAPITALIZATION FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
--------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
------- ------- ------- ------- ------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $20.71 $16.56 $14.69 $15.11 $12.80 $11.69 $12.37 $11.48 $10.00
----- ----- ----- ----- ------ ----- ----- ----- ---------
Investment Activities
Net Investment
Loss........... (0.16) (0.16) (0.12) (0.10) (0.01) 0.17 0.45 0.30 0.20
Net Realized and
Unrealized
Gains (Losses)
on
Investments.... 1.30 4.97 3.46 (0.28) 2.74 1.59 (0.53) 1.86 1.47
----- ----- ----- ----- ------ ----- ----- ----- ---------
Total From
Investment
Activities... 1.14 4.81 3.34 (0.38) 2.73 1.76 (0.08) 2.16 1.67
----- ----- ----- ----- ------ ----- ----- ----- ---------
Distributions
Net Investment
Income......... -- -- -- -- (0.02) (0.17) (0.45) (0.28) (0.19)
Net Realized
Gains.......... (6.13) (0.66) (0.48) (0.04) (0.40) (0.48) (0.15) (0.99) --
In Excess of Net
Realized
Gains.......... -- -- (0.99) -- -- -- -- -- --
----- ----- ----- ----- ------ ----- ----- ----- ---------
Total
Distributions... (6.13) (0.66) (1.47) (0.04) (0.42) (0.65) (0.60) (1.27) (0.19)
----- ----- ----- ----- ------ ----- ----- ----- ---------
NET ASSET VALUE, END
OF PERIOD.......... $15.72 $20.71 $16.56 $14.69 $15.11 $12.80 $11.69 $12.37 $11.48
===== ===== ===== ===== ====== ===== ===== ===== =========
Total Return
(excluding sales
and redemption
charges)........... 5.78% 29.57% 24.85% (2.57)% 21.42% 15.18% (0.45)% 19.23% 16.83%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End
of Period
(000).......... $80,634 $66,260 $43,803 $36,108 $26,460 $407,782 $298,655 $247,683 $180,124
Ratio of Expenses
to Average Net
Assets......... 1.56% 1.54% 1.51% 1.38% 1.28% 1.18% 1.10% 1.07% 1.06%(c)
Ratio of Net
Investment Loss
to Average Net
Assets......... (1.05)% (0.94)% (0.87)% (0.75)% (0.12)% 1.24% 3.87% 2.51% 2.80%(c)
Ratio of Expenses
to Average Net
Assets*........ 1.56% 1.54% 1.54% 1.53% 1.35% 1.26% 1.28% 1.29% 1.31%(c)
Ratio of Net
Investment Loss
to Average Net
Assets*........ (1.05)% (0.94)% (0.90)% (0.90)% (0.19)% 1.15% 3.69% 2.29% 2.55%(c)
Portfolio
Turnover Rate
(d)............ 38.47% 49.27% 46.39% 70.87% 66.48% 93.76% 189.26% 136.95% 87.30%
Average
Commission Rate
Paid (g)....... $0.0794 $0.0796
</TABLE>
13 PROSPECTUS--Investor A Shares
<PAGE> 18
LARGE CAPITALIZATION FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
-----------------
INVESTOR A SHARES DEC. 28, 1995
----------------- TO
1997 JUNE 30, 1996(a)
----------------- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $11.23 $10.00
----------- ----------
Investment Activities
Net Investment Income (Loss)............................ 0.03
Net Realized and Unrealized Gains (Losses) on
Investments........................................... 3.30 1.23
----------- ----------
Total From Investment Activities................... 3.30 1.26
----------- ----------
Distributions
Net Investment Income................................... (0.01) (0.03)
Net Realized Gains...................................... (0.08) --
----------- ----------
Total Distributions................................ (0.09) (0.03)
----------- ----------
NET ASSET VALUE, END OF PERIOD............................... $14.44 $11.23
=========== ==========
Total Return (excluding sales and redemption charges)........ 29.52% 8.99%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $12,260 $1,657
Ratio of Expenses to Average Net Assets................. 1.37% 1.40%(c)
Ratio of Net Investment Gain (Loss) to Average Net
Assets................................................ (0.14)% 0.31%(c)
Ratio of Expenses to Average Net Assets*................ 1.37% 2.62%(c)
Ratio of Net Investment Loss to Average Net Assets*..... (0.14)% (0.91)%(c)
Portfolio Turnover Rate (d)............................. 48.44% 0.86%
Average Commission Rate Paid (g)........................ $0.0932 $0.0800
</TABLE>
PROSPECTUS--Investor A Shares 14
<PAGE> 19
INTERNATIONAL FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
INVESTOR A SHARES DEC. 29, 1992
---------------------------------------- TO
1997 1996 1995(f) 1994 JUNE 30, 1993(a)(b)
------- ------- ------- ------- -------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $14.01 $12.23 $13.18 $11.50 $10.00
------ ------ ------ ------ ------------
Investment Activities
Net Investment Income (Loss).... (0.07) (0.02) 0.03 (0.02) 0.03
Net Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currency
Transactions.................. 2.31 1.81 (0.36) 1.74 1.48
------ ------ ------ ------ ------------
Total From Investment
Activities............... 2.24 1.79 (0.33) 1.72 1.51
------ ------ ------ ------ ------------
Distributions
Net Investment Income........... -- -- -- (0.02) (0.01)
Net Realized Gains.............. -- -- (0.62) (0.02) --
In Excess of Net Investment
Income........................ -- (0.01) -- -- --
------ ------ ------ ------ ------------
Total Distributions........ -- (0.01) (0.62) (0.04) (0.01)
------ ------ ------ ------ ------------
NET ASSET VALUE, END OF PERIOD....... $16.25 $14.01 $12.23 $13.18 $11.50
====== ====== ====== ====== ============
Total Return (excluding sales and
redemption charges)................ 15.99% 14.65% (2.19)% 14.99% 15.11%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $48,557 $39,575 $34,228 $36,297 $8,353
Ratio of Expenses to Average Net
Assets........................ 1.80% 1.80% 1.78% 1.63% 1.64%(c)
Ratio of Net Investment Income
(Loss) to Average Net
Assets........................ (0.54)% (0.11)% 0.08% (0.29)% 1.02%(c)
Ratio of Expenses to Average Net
Assets*....................... 1.80% 1.88% 1.91% 1.84% 1.81%(c)
Ratio of Net Investment Income
(Loss) to Average Net
Assets*....................... (0.54)% (0.19)% (0.06)% (0.49)% 0.85%(c)
Portfolio Turnover Rate (d)..... 45.18% 54.47% 104.39% 37.23% 12.47%
Average Commission Rate Paid
(g)........................... $0.0329 $0.0321
</TABLE>
15 PROSPECTUS--Investor A Shares
<PAGE> 20
BALANCED ALLOCATION FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
INVESTOR A SHARES JAN. 31, 1992
--------------------------------------------------- TO
1997 1996 1995(f) 1994 1993(b) JUNE 30, 1992(a)
------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD..................... $13.37 $12.19 $10.67 $11.09 $ 9.68 $10.00
------ ------ ------ ------ ------ ----------
Investment Activities
Net Investment Income
(Loss)................ 0.32 0.32 0.28 0.26 0.28 0.14
Net Realized and
Unrealized Gains
(Losses) on
Investments and
Foreign Currencies.... 1.12 1.74 1.69 (0.43) 1.42 (0.34)
------ ------ ------ ------ ------ ----------
Total From
Investment
Activities....... 1.44 2.06 1.97 (0.17) 1.70 (0.20)
------ ------ ------ ------ ------ ----------
Distributions
Net Investment Income... (0.33) (0.31) (0.29) (0.25) (0.29) (0.12)
Net Realized Gains...... (1.48) (0.57) (0.01) -- -- --
In Excess of Net
Realized Gains........ -- -- (0.15) -- -- --
------ ------ ------ ------ ------ ----------
Total
Distributions.... (1.81) (0.88) (0.45) (0.25) (0.29) (0.12)
------ ------ ------ ------ ------ ----------
NET ASSET VALUE, END OF
PERIOD..................... $13.00 $13.37 $12.19 $10.67 $11.09 $ 9.68
====== ====== ====== ====== ====== ==========
Total Return (excluding sales
and redemption charges).... 11.61% 17.51% 18.96% (1.63)% 17.74% (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000).......... $18,826 $17,097 $12,849 $11,901 $6,115 $38,136
Ratio of Expenses to
Average Net Assets.... 1.36% 1.41% 1.47% 1.18% 1.18% 1.19%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets.... 2.47% 2.37% 2.54% 2.38% 2.66% 3.46%(c)
Ratio of Expenses to
Average Net Assets*... 1.61% 1.66% 1.78% 1.63% 1.53% 1.50%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets*... 2.22% 2.12% 2.23% 1.93% 2.31% 3.13%(c)
Portfolio Turnover Rate
(d)................... 425.05% 437.90% 250.66% 192.39% 177.99% 47.58%
Average Commission Rate
Paid (g).............. $0.0518 $0.0848
</TABLE>
PROSPECTUS--Investor A Shares 16
<PAGE> 21
EQUITY INCOME FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
--------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
------- ------- ------- ------- ------- -------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD.............. $17.31 $14.49 $13.50 $14.69 $13.14 $12.48 $12.19 $11.35 $10.00
----- ----- ----- ----- ------ ----- ----- ----- ---------
Investment Activities
Net Investment
Income (Loss)... 0.29 0.30 0.36 0.37 0.45 0.54 0.57 0.56 0.35
Net Realized and
Unrealized Gains
(Losses) on
Investments..... 3.57 3.27 1.00 (0.56) 1.69 0.99 0.38 1.04 1.32
----- ----- ----- ----- ------ ----- ----- ----- ---------
Total From
Investment
Activities... 3.86 3.57 1.36 (0.19) 2.14 1.53 0.95 1.60 1.67
----- ----- ----- ----- ------ ----- ----- ----- ---------
Distributions
Net Investment
Income.......... (0.28) (0.30) (0.36) (0.37) (0.45) (0.54) (0.59) (0.54) (0.32)
In Excess of Net
Investment
Income.......... -- -- (0.01) -- -- -- -- -- --
Net Realized
Gains........... (1.69) (0.45) -- (0.24) (0.14) (0.33) (0.07) (0.22) --
In Excess of Net
Realized
Gains........... -- -- -- (0.39) -- -- -- -- --
----- ----- ----- ----- ------ ----- ----- ----- ---------
Total
Distributions... (1.97) (0.75) (0.37) (1.00) (0.59) (0.87) (0.66) (0.76) (0.32)
----- ----- ----- ----- ------ ----- ----- ----- ---------
NET ASSET VALUE, END
OF PERIOD........... $19.20 $17.31 $14.49 $13.50 $14.69 $13.14 $12.48 $12.19 $11.35
===== ===== ===== ===== ====== ===== ===== ===== =========
Total Return
(excluding sales and
redemption
charges)............ 23.81% 25.05% 10.32% (1.63)% 16.71% 12.56% 8.22% 14.37% 16.97%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000).... $99,423 $82,396 $71,063 $76,108 $50,000 $270,549 $150,980 $96,344 $66,367
Ratio of Expenses
to Average Net
Assets.......... 1.58% 1.57% 1.54% 1.40% 1.29% 1.19% 1.13% 1.11% 1.16%(c)
Ratio of Net
Investment
Income (Loss) to
Average Net
Assets.......... 1.62% 1.86% 2.65% 2.56% 3.24% 4.12% 4.75% 4.69% 4.92%(c)
Ratio of Expenses
to Average Net
Assets*......... 1.58% 1.57% 1.57% 1.55% 1.36% 1.27% 1.31% 1.33% 1.41%(c)
Ratio of Net
Investment
Income (Loss) to
Average Net
Assets* ........ 1.62% 1.86% 2.61% 2.41% 3.17% 4.03% 4.57% 4.47% 4.67%(c)
Portfolio Turnover
Rate (d)........ 20.14% 40.75% 77.70% 69.35% 67.26% 68.42% 115.68% 53.08% 29.55%
Average Commission
Rate Paid (g)... $0.0800 $0.0800
</TABLE>
17 PROSPECTUS--Investor A Shares
<PAGE> 22
BOND FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
--------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
------- ------- ------- ------- ------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $9.51 $9.67 $9.30 $10.54 $10.54 $10.07 $10.00 $10.11 $10.00
---- ---- ---- ----- ------ ----- ----- ----- ---------
Investment Activities
Net Investment
Income (Loss).. 0.56 0.57 0.58 0.59 0.71 0.75 0.77 0.78 0.53
Net Realized and
Unrealized
Gains (Losses)
on
Investments.... 0.17 (0.16) 0.38 (0.72) 0.47 0.56 0.08 (0.11) 0.09
---- ---- ---- ----- ------ ----- ----- ----- ---------
Total From
Investment
Activities... 0.73 0.41 0.96 (0.13) 1.18 1.31 0.85 0.67 0.62
---- ---- ---- ----- ------ ----- ----- ----- ---------
Distributions
Net Investment
Income......... (0.56) (0.57) (0.58) (0.57) (0.73) (0.76) (0.78) (0.78) (0.51)
In Excess of Net
Investment
Income......... -- -- (0.01) -- -- -- -- -- --
Net Realized
Gains.......... -- -- -- -- (0.45) (0.08) -- -- --
In Excess of Net
Realized
Gains.......... -- -- -- (0.54) -- -- -- -- --
---- ---- ---- ----- ------ ----- ----- ----- ---------
Total
Distributions... (0.56) (0.57) (0.59) (1.11) (1.18) (0.84) (0.78) (0.78) (0.51)
---- ---- ---- ----- ------ ----- ----- ----- ---------
NET ASSET VALUE, END
OF PERIOD.......... $9.68 $9.51 $9.67 $ 9.30 $10.54 $10.54 $10.07 $10.00 $10.11
==== ==== ==== ===== ====== ===== ===== ===== =========
Total Return
(excluding sales
and redemption
charges)........... 7.92% 4.27% 10.85% (1.62)% 11.93% 13.47% 8.80% 6.94% 6.42%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End
of Period
(000).......... $19,760 $20,175 $17,572 $18,391 $18,562 $477,526 $432,225 $316,477 $123,928
Ratio of Expenses
to Average Net
Assets......... 1.19% 1.19% 1.24% 0.98% 0.89% 0.87% 0.84% 0.81% 0.82%(c)
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets ........ 5.88% 5.71% 6.32% 5.86% 6.47% 7.19% 7.72% 8.04% 8.06%(c)
Ratio of Expenses
to Average Net
Assets*........ 1.28% 1.28% 1.39% 1.27% 1.07% 1.01% 1.02% 1.02% 1.06%(c)
Ratio of Net
Investment
Income (Loss)
to Average Net
Assets*........ 5.79% 5.62% 6.17% 5.57% 6.29% 7.05% 7.54% 7.83% 7.82%(c)
Portfolio
Turnover Rate
(d)............ 827.00% 1189.27% 1010.64% 893.27% 443.98% 289.38% 339.74% 314.71% 121.08%
</TABLE>
PROSPECTUS--Investor A Shares 18
<PAGE> 23
LIMITED MATURITY BOND FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
--------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
------- ------- ------- ------- ------- -------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............... $9.48 $9.71 $9.57 $10.18 $10.25 $9.93 $9.88 $10.08 $10.00
---- ---- ---- ----- ------
Investment Activities
Net Investment
Income (Loss).... 0.55 0.62 0.56 0.62 0.65 0.71 0.72 0.83 0.53
Net Realized and
Unrealized Gains
(Losses) on
Investments...... 0.01 (0.21) 0.13 (0.58) 0.13 0.35 0.10 (0.15) 0.02
----- ----- ----- ----- ------ ----- ----- ----- ---------
Total From
Investment
Activities... 0.56 0.41 0.69 0.04 0.78 1.06 0.82 0.68 0.55
----- ----- ----- ----- ------ ----- ----- ----- ---------
Distributions
Net Investment
Income........... (0.55) (0.62) (0.55) (0.61) (0.69) (0.71) (0.73) (0.83) (0.47)
Net Realized
Gains............ -- -- -- -- (0.16) (0.03) (0.04) (0.05) --
In Excess of Net
Realized Gains... -- (0.01) -- (0.04) -- -- -- -- --
Tax Return of
Capital.......... -- (0.01)
----- ----- ----- ----- ------ ----- ----- ----- ---------
Total
Distributions... (0.55) (0.64) (0.55) (0.65) (0.85) (0.74) (0.77) (0.88) (0.47)
----- ----- ----- ----- ------ ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD............... $9.49 $9.48 $9.71 $9.57 $10.18 $10.25 $9.93 $9.88 $10.08
===== ===== ===== ===== ====== ===== ===== ===== =========
Total Return (excluding
sales and redemption
charges)............. 6.11% 4.37% 7.53% 0.32% 7.96% 11.00% 8.66% 7.10% 5.70%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)..... $27,381 $14,390 $18,930 $24,907 $18,060 $117,241 $70,870 $43,696 $71,627
Ratio of Expenses
to Average Net
Assets........... 1.11% 1.09% 1.05% 0.86% 0.75% 0.83% 0.91% 0.92% 0.88%(c)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets....... 5.76% 6.09% 5.89% 6.22% 6.41% 7.13% 7.47% 8.01% 8.19%(c)
Ratio of Expenses
to Average Net
Assets*.......... 1.35% 1.33% 1.36% 1.30% 1.08% 1.05% 1.10% 1.14% 1.12%(c)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets*...... 5.52% 5.85% 5.58% 5.78% 6.08% 6.91% 7.28% 7.79% 7.95%(c)
Portfolio Turnover
Rate (d)......... 607.84% 618.60% 397.97% 353.28% 123.10% 87.75% 161.32% 319.11% 117.37%
</TABLE>
19 PROSPECTUS--Investor A Shares
<PAGE> 24
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
----------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
------- ------- ------- ------- ------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD..................... $9.70 $9.93 $9.62 $10.53 $10.42 $10.05 $9.91 $10.05 $10.00
---- ----- ----- ----- ------ ----- ----- ----- ---------
Investment Activities
Net Investment Income
(Loss)................. 0.52 0.60 0.50 0.59 0.68 0.71 0.74 0.79 0.50
Net Realized and
Unrealized Gains
(Losses) on
Investments............ 0.04 (0.25) 0.31 (0.66) 0.21 0.46 0.15 (0.11) (0.02)
---- ----- ----- ----- ------ ----- ----- ----- ---------
Total From Investment
Activities................... 0.56 0.35 0.81 (0.07) 0.89 1.17 0.89 0.68 0.48
---- ----- ----- ----- ------ ----- ----- ----- ---------
Distributions
Net Investment Income.... (0.53) (0.58) (0.50) (0.59) (0.73) (0.71) (0.75) (0.79) (0.43)
Net Realized Gains....... -- -- -- -- (0.05) (0.09) -- (0.03) --
In Excess of Net Realized
Gains.................. -- -- -- (0.25) -- -- -- -- --
---- ----- ----- ----- ------ ----- ----- ----- ---------
Total
Distributions................ (0.53) (0.58) (0.50) (0.84) (0.78) (0.80) (0.75) (0.82) (0.43)
---- ----- ----- ----- ------ ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD..................... $9.73 $9.70 $9.93 $9.62 $10.53 $10.42 $10.05 $9.91 $10.05
==== ===== ===== ===== ====== ===== ===== ===== =========
Total Return (excluding sales
and redemption charges).... 5.91% 3.69% 8.69% (0.90)% 8.92% 12.03% 9.32% 7.07% 4.92%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000).................. $18,552 $22,954 $27,521 $36,106 $37,055 $234,906 $142,864 $100,205 $83,212
Ratio of Expenses to
Average Net Assets..... 1.23% 1.21% 1.25% 1.00% 0.90% 0.87% 0.86% 0.85% 0.87%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets..... 5.41% 5.51% 5.22% 5.80% 6.51% 7.07% 7.48% 8.04% 7.79)(c)
Ratio of Expenses to
Average Net Assets*.... 1.32% 1.30% 1.41% 1.29% 1.08% 1.01% 1.04% 1.06% 1.11%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets*.... 5.32% 5.42% 5.07% 5.51% 6.33% 6.93% 7.30% 7.83% 7.55%(c)
Portfolio Turnover Rate
(d).................... 1516.78% 916.39% 549.93% 546.06% 225.90% 114.76% 164.59% 294.62% 111.96%
</TABLE>
GOVERNMENT INCOME FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
INVESTOR A SHARES NOV. 12, 1992
----------------------------------- TO
1997 1996 1995 1994 JUNE 30, 993(a)(b)
------- ------- ------- ------- -------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................. $9.25 $9.42 $9.41 $10.04 $10.00
---- ----- ----- ----- -----------
Investment Activities
Net Investment Income........................................ 0.70 0.73 0.75 0.74 0.48
Net Realized and Unrealized Gains (Losses) on Investments.... (0.10) (0.17) -- (0.64) 0.04
---- ----- ----- ----- -----------
Total From Investment Activities......................... 0.60 0.56 0.75 0.10 0.52
---- ----- ----- ----- -----------
Distributions
Net Investment Income........................................ (0.59) (0.65) (0.66) (0.72) (0.48)
Tax Return of Capital........................................ (0.11) (0.08) (0.08) (0.01) --
---- ----- ----- ----- -----------
Total Distributions...................................... (0.70) (0.73) (0.74) (0.73) (0.48)
---- ----- ----- ----- -----------
NET ASSET VALUE, END OF PERIOD................................... $9.15 $9.25 $9.42 $9.41 $10.04
==== ==== ==== ===== ===========
Total Return (excluding sales and redemption charges)............ 6.86% 5.97% 8.46% 0.94% 5.35%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).............................. $58,589 $52,250 $50,931 $54,027 $32,633
Ratio of Expenses to Average Net Assets...................... 1.02% 1.01% 1.04% 0.82% 0.75%(c)
Ratio of Net Investment Income (Loss) to Average Net
Assets..................................................... 7.64% 7.70% 8.03% 7.42% 7.41%(c)
Ratio of Expenses to Average Net Assets*..................... 1.36% 1.35% 1.44% 1.36% 1.23%(c)
Ratio of Net Investment Income (Loss) to Average Net
Assets*.................................................... 7.30% 7.36% 7.63% 6.87% 6.93%(c)
Portfolio Turnover Rate (d).................................. 499.53% 348.01% 114.71% 102.24% 135.06%
</TABLE>
PROSPECTUS--Investor A Shares 20
<PAGE> 25
MICHIGAN BOND FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------
INVESTOR A SHARES JULY 2, 1990
-------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 JUNE 30, 1991(a)
------- ------- ------- ------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $10.76 $10.75 $10.53 $10.97 $10.58 $10.14 $10.00
----- ----- ----- ----- ------ ----- ----------
Investment Activities
Net Investment Income (Loss).... 0.49 0.47 0.48 0.47 0.50 0.52 0.55
Net Realized and Unrealized
Gains (Losses) on
Investments................... 0.14 0.04 0.23 (0.36) 0.47 0.44 0.11
----- ----- ----- ----- ------ ----- ----------
Total From Investment
Activities................ 0.63 0.51 0.71 0.11 0.97 0.96 0.66
----- ----- ----- ----- ------ ----- ----------
Distributions
Net Investment Income........... (0.46) (0.47) (0.48) (0.45) (0.54) (0.52) (0.52)
In Excess of Net Investment
Income........................ -- -- (0.01) -- -- -- --
Net Realized Gains.............. (0.04) (0.03) -- (0.01) (0.04) -- --
In Excess of Net Realized
Gains......................... -- -- -- (0.09) -- -- --
----- ----- ----- ----- ------ ----- ----------
Total Distributions......... (0.50) (0.50) (0.49) (0.55) (0.58) (0.52) (0.52)
----- ----- ----- ----- ------ ----- ----------
NET ASSET VALUE, END OF PERIOD...... $10.89 $10.76 $10.75 $10.53 $10.97 $10.58 $10.14
===== ===== ===== ===== ====== ===== ==========
Total Return (excluding sales and
redemption charges)............... 5.89% 4.87% 6.99% 0.92% 9.40% 9.73% 6.77%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000)......................... $38,302 $36,681 $37,874 $42,204 $32,778 $146,782 $90,182
Ratio of Expenses to Average Net
Assets........................ 1.01% 1.02% 1.00% 0.85% 0.78% 0.84% 0.57%(c)
Ratio of Net Investment Income
(Loss) to Average Net
Assets........................ 4.48% 4.32% 4.57% 4.25% 4.67% 5.15% 5.76%(c)
Ratio of Expenses to Average Net
Assets*....................... 1.30% 1.31% 1.32% 1.29% 1.12% 1.05% 1.15%(c)
Ratio of Net Investment Income
(Loss) to Average Net
Assets*....................... 4.19% 4.03% 4.25% 3.81% 4.33% 4.93% 5.18%(c)
Portfolio Turnover Rate (d)..... 28.48% 27.66% 26.06% 6.69% 35.81% 19.97% 45.30%
</TABLE>
21 PROSPECTUS--Investor A Shares
<PAGE> 26
MUNICIPAL BOND FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
INVESTOR A SHARES OCT. 31, 1988
------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
------ ------ ------- ------- ------- -------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $10.43 $10.39 $10.29 $10.92 $10.58 $10.20 $10.03 $10.18 $10.00
----- ----- ----- ----- ------ ----- ----- ----- ---------
Investment Activities
Net Investment
Income (Loss)..... 0.44 0.41 0.41 0.40 0.49 0.52 0.55 0.57 0.40
Net Realized and
Unrealized Gains
(Losses) on
Investments....... 0.12 0.03 0.27 (0.31) 0.48 0.39 0.18 (0.12) 0.14
----- ----- ----- ----- ------ ----- ----- ----- ---------
Total From
Investment
Activities.... 0.56 0.44 0.68 0.09 0.97 0.91 0.73 0.45 0.54
----- ----- ----- ----- ------ ----- ----- ----- ---------
Distributions
Net Investment
Income............ (0.41) (0.40) (0.41) (0.39) (0.53) (0.52) (0.56) (0.58) (0.36)
Net Realized
Gains............. (0.05) -- -- (0.21) (0.10) (0.01) -- (0.02) --
In Excess of Net
Realized Gains.... -- -- (0.17) (0.12) -- -- -- -- --
----- ----- ----- ----- ------ ----- ----- ----- ---------
Total
Distributions... (0.46) (0.40) (0.58) (0.72) (0.63) (0.53) (0.56) (0.60) (0.36)
----- ----- ----- ----- ------ ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD................ $10.53 $10.43 $10.39 $10.29 $10.92 $10.58 $10.20 $10.03 $10.18
===== ===== ===== ===== ====== ===== ===== ===== =========
Total Return (excluding
sales and redemption
charges).............. 5.47% 4.29% 7.02% 0.71% 9.46% 9.11% 7.51% 4.57% 5.52%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)...... $9,601 $7,835 $11,378 $13,123 $9,333 $130,788 $98,186 $100,445 $68,256
Ratio of Expenses to
Average Net
Assets............ 1.06% 1.05% 1.02% 0.87% 0.76% 0.81% 0.87% 0.85% 0.85%(c)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets........ 4.19% 3.85% 4.00% 3.72% 4.56% 5.09% 5.49% 5.78% 6.11%(c)
Ratio of Expenses to
Average Net
Assets*........... 1.35% 1.34% 1.33% 1.32% 1.09% 1.03% 1.06% 1.06% 1.09%(c)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets*....... 3.90% 3.56% 3.68% 3.27% 4.23% 4.88% 5.29% 5.57% 5.87%(c)
Portfolio Turnover
Rate (d).......... 48.83% 47.46% 35.15% 44.39% 67.26% 66.31% 76.55% 113.12% 82.22%
</TABLE>
PROSPECTUS--Investor A Shares 22
<PAGE> 27
PRIME OBLIGATIONS FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------
INVESTOR A SHARES AUG. 24, 1987
--------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 1989 JUNE 30, 1988(a)
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING
OF
PERIOD..... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
Investment
Activities
Net
Investment
Income... 0.048 0.050 0.047 0.027 0.028 0.046 0.069 0.080 0.083 0.056
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net
Investment
Income... (0.048) (0.050) (0.047) (0.027) (0.028) (0.046) (0.069) (0.080) (0.083) (0.056)
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET
VALUE, END
OF
PERIOD..... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
===== ===== ===== ===== ===== ===== ===== ===== ===== =========
Total
Return..... 4.91% 5.07% 4.81% 2.75% 2.89% 4.75% 7.15% 8.32% 8.58% 5.76%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net
Assets,
End of
Period
(000)... $195,046 $147,478 $108,565 $105,611 $129,433 $690,908 $702,340 $547,351 $526,450 $241,545
Ratio of
Expenses
to
Average
Net
Assets... 0.73% 0.74% 0.75% 0.74% 0.66% 0.64% 0.64% 0.65% 0.62% 0.60%(c)
Ratio of
Net
Investment
Income
(Loss)
to
Average
Net
Assets... 4.80% 4.93% 4.71% 2.71% 2.86% 4.61% 6.86% 8.03% 8.26% 6.48%(c)
Ratio of
Expenses
to
Average
Net
Assets*... 0.90% 0.91% 0.92% 0.91% 0.71% 0.66% 0.66% 0.67% 0.66% 0.70%(c)
Ratio of
Net
Investment
Income
(Loss)
to
Average
Net
Assets*.. 4.63% 4.76% 4.54% 2.54% 2.81% 4.59% 6.84% 8.01% 8.22% 6.38%(c)
</TABLE>
TAX-FREE FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
INVESTOR A SHARES JULY 30, 1987
----------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 1989 JUNE 30, 1988(a)
------- ------- ------- ------- ------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD.......... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ------ ----- ----- ----- ----- ---------
Investment
Activities
Net Investment
Income...... 0.028 0.029 0.029 0.018 0.019 0.033 0.046 0.054 0.055 0.040
----- ----- ----- ----- ------ ----- ----- ----- ----- ---------
Distributions
Net Investment
Income...... (0.028) (0.029) (0.029) (0.018) (0.019) (0.033) (0.046) (0.054) (0.055) (0.040)
----- ----- ----- ----- ------ ----- ----- ----- ----- ---------
NET ASSET VALUE,
END OF PERIOD... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
===== ===== ===== ===== ====== ===== ===== ===== ===== =========
Total Return...... 2.83% 2.91% 2.90% 1.81% 2.07% 3.34% 4.73% 5.75% 5.62% 4.08%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets,
End of
Period
(000)....... $47,466 $41,713 $45,102 $48,256 $54,886 $141,913 $139,615 $142,004 $120,031 $107,199
Ratio of
Expenses to
Average Net
Assets...... 0.78% 0.76% 0.74% 0.68% 0.58% 0.59% 0.60% 0.61% 0.63% 0.64%(c)
Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets...... 2.82% 2.89% 2.88% 1.81% 2.05% 3.29% 4.63% 5.43% 5.46% 4.34%(c)
Ratio of
Expenses to
Average Net
Assets*..... 0.95% 0.93% 0.95% 0.93% 0.72% 0.69% 0.70% 0.70% 0.73% 0.75%(c)
Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets*..... 2.65% 2.72% 2.67% 1.56% 1.91% 3.19% 4.53% 5.34% 5.36% 4.23%(c)
</TABLE>
23 PROSPECTUS--Investor A Shares
<PAGE> 28
TREASURY FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
INVESTOR A SHARES DEC. 1, 1993
------------------------------ TO
1997 1996 1995 JUNE 30, 1994(a)
-------- -------- -------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................................... $1.000 $1.000 $1.000 $1.000
----- ----- ----- ---------
Investment Activities
Net Investment Income...................................................... 0.047 0.049 0.047 0.016
----- ----- ----- ---------
Distributions
Net Investment Income...................................................... (0.047) (0.049) (0.047) (0.016)
----- ----- ----- ---------
NET ASSET VALUE, END OF PERIOD................................................. $1.000 $1.000 $1.000 $1.000
===== ===== ===== =========
Total Return................................................................... 4.82% 5.04% 4.81% 1.66%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............................................ $176,006 $158,723 $105,391 $56,535
Ratio of Expenses to Average Net Assets.................................... 0.67% 0.70% 0.75% 0.64%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets................ 4.72% 4.87% 4.82% 2.84%(c)
Ratio of Expenses to Average Net Assets*................................... 0.92% 0.95% 1.04% 0.99%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets*............... 4.47% 4.62% 4.52% 2.49%(c)
</TABLE>
PROSPECTUS--Investor A Shares 24
<PAGE> 29
U.S. GOVERNMENT OBLIGATIONS FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------------------
INVESTOR A SHARES AUG. 24, 1987
---------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 1989 JUNE 30, 1988(a)
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING
OF
PERIOD..... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
Investment
Activities
Net
Investment
Income... 0.047 0.049 0.047 0.027 0.028 0.044 0.066 0.078 0.080 0.055
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net
Investment
Income... (0.047) (0.049) (0.047) (0.027) (0.028) (0.044) (0.066) (0.078) (0.080) (0.055)
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET
VALUE, END
OF
PERIOD..... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
===== ===== ===== ===== ===== ===== ===== ===== ===== =========
Total
Return..... 4.79% 4.99% 4.76% 2.69% 2.84% 4.78% 6.82% 8.10% 8.31% 5.66%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net
Assets,
End of
Period
(000)... $212,082 $186,944 $169,179 $172,482 $208,311 $400,242 $341,903 $248,671 $201,012 $136,823
Ratio of
Expenses
to
Average
Net
Assets... 0.74% 0.74% 0.77% 0.77% 0.66% 0.64% 0.65% 0.65% 0.63% 0.62%(c)
Ratio of
Net
Investment
Income
(Loss)
to
Average
Net
Assets... 4.69% 4.88% 4.62% 2.64% 2.79% 4.43% 6.54% 7.79% 8.00% 6.25%(c)
Ratio of
Expenses
to
Average
Net
Assets*... 0.91% 0.91% 0.94% 0.94% 0.72% 0.66% 0.67% 0.67% 0.68% 0.73%(c)
Ratio of
Net
Investment
Income
(Loss)
to
Average
Net
Assets*.. 4.52% 4.71% 4.45% 2.47% 2.73% 4.41% 6.52% 7.77% 7.95% 6.14%(c)
</TABLE>
- ------------
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993 the shareholders of the Group exchanged their shares for
either the Group's Investor A Shares or Institutional Shares. For the year
ended June 30, 1993 the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities
and distributions are presented on the basis whereby the Fund's net
investment income, expenses, and distributions for the period July 1, 1992
through March 31, 1993 were allocated to each class of shares based upon the
relative net assets of each class of shares as of April 1, 1993 and the
results combined therewith the results of operations and distributions for
each applicable class for the period April 1, 1993 through June 30, 1993.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between classes of shares issued.
(e) Not annualized.
(f) As of January 1, 1995, Gulfstream assumed the role of subadviser with
respect to the International Fund and the portion of the Balanced Allocation
Fund invested in foreign securities. Prior to that date, Ivory & Sime
International, Inc. and Ivory & Sime plc served as subadvisers to the
International Fund and the Balanced Allocation Fund had no subadviser.
(g) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
25 PROSPECTUS--Investor A Shares
<PAGE> 30
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds are set forth below under the
headings describing the Funds. The investment objective of each Fund is
fundamental and may not be changed without a vote of the holders of a majority
of the outstanding shares of that Fund (as defined in the Statement of
Additional Information). The investment policies of a Fund may be changed
without a vote of the holders of a majority of outstanding shares of that Fund
unless the policy is expressly deemed to be a fundamental policy or changeable
only by such majority vote. There can be no assurance that the investment
objective of any Fund will be achieved. Depending upon the performance of a
Fund's investments, the net asset value per share of that Fund may decrease
instead of increase.
During temporary defensive periods as determined by First of America or
Gulfstream, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic bank certificates of
deposit, bankers' acceptances and repurchase agreements secured by bank
instruments. However, to the extent that a Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
GROWTH FUNDS
THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE
CAPITALIZATION FUND
THE INVESTMENT OBJECTIVE OF THE SMALL CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS OF SMALL- TO MEDIUM-SIZED COMPANIES.
THE INVESTMENT OBJECTIVE OF THE MID CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS. THE INVESTMENT OBJECTIVE OF THE 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, each of the Small Capitalization Fund, Mid
Capitalization Fund and 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 to be characterized by
sound management and the ability to finance expected long-term growth. In
addition, under normal market conditions, the Small Capitalization Fund will
invest at least 65% of the value of its total assets in common stocks and
securities convertible into common stocks of companies considered by First of
America to have a market capitalization of less than $1 billion. The Mid
Capitalization Fund, under normal market conditions, 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 between $1 billion and $5 billion. The Large Capitalization Fund
will do the same with companies considered by First of America to have a market
capitalization of greater than $5 billion. Each of the Small Capitalization
Fund, Mid Capitalization Fund and 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 and loan associations. Each
of the Small Capitalization Fund, Mid Capitalization Fund and Large
Capitalization Fund may also hold securities of other investment companies and
depository or custodial receipts representing beneficial interests in any of the
foregoing securities.
Subject to the foregoing policies, each of the Small Capitalization Fund, Mid
Capitalization Fund and 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
PROSPECTUS--Investor A Shares 26
<PAGE> 31
("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
(U.S. dollar-denominated commercial paper of a foreign issuer). For a discussion
of risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Foreign Securities."
The Mid Capitalization Fund anticipates investing in growth-oriented,
medium-sized companies. Medium-sized companies are considered to be those with a
market capitalization between $1 billion and $5 billion. The Large
Capitalization Fund anticipates investing in growth-oriented companies with
large market capitalization, defined as capitalization of over $5 billion. For
both the Mid Capitalization Fund and Large Capitalization Fund, investments will
be in companies that 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 Mid Capitalization Fund and Large Capitalization Fund are in
companies that participate in long-term growth industries, although these will
be supplemented by holdings in non-growth industries that exhibit the desired
characteristics.
The Small Capitalization Fund anticipates investing in dynamic small- to
medium-sized companies that exhibit outstanding potential for superior growth.
Small-sized companies are considered to be those with a market capitalization of
less than $1 billion. The Small Capitalization Fund will limit its investment in
securities of medium-sized companies to not more than 35% of the value of its
total assets. Companies that participate in sectors that are identified as
having long-term growth potential generally make up a substantial portion of
such Fund's holdings. These companies often have established a market niche or
have developed unique products or technologies that are expected to produce
superior growth in revenues and earnings. As smaller capitalization stocks are
quite volatile and subject to wide fluctuations in both the short and medium
term, the Small Capitalization Fund may be fairly characterized more aggressive
than a general equity fund.
Consistent with the foregoing, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund will focus its investments in
those companies and types of companies that First of America believes will
enable such Fund to achieve its investment objective.
<TABLE>
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THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE CAPITALIZATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Transactions
</TABLE>
THE INTERNATIONAL FUND
The investment objective of the International Fund is to seek long-term growth
of capital.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States, or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States, and (iii) which are small-
or medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRs.
For purposes of investment by the International Fund only, companies are deemed
to be smallor medium-sized if, at the time of purchase, they are of a size which
would rank them in the lower half of a major
27 PROSPECTUS--Investor A Shares
<PAGE> 32
market index in the applicable country by weighted market capitalization and in
the lower half of all equity securities listed in recognized secondary markets
where such markets exist. In addition, in countries with less well-developed
stock markets, where the range of investment opportunities is more restrictive,
the equity securities of all listed companies will be eligible for investment.
In major markets, issuers could have capitalizations of up to approximately $10
billion while in smaller markets issuers would be eligible with capitalizations
as low as approximately $200 million.
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Normally the
International Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
International Fund's assets could be invested in the securities of U.S.
companies. In addition, the International Fund temporarily may invest cash in
short-term debt instruments of U.S. and foreign issuers for cash management
purposes or pending investment.
<TABLE>
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THE INTERNATIONAL FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase
- -When-Issued and Delayed-Delivery Agreements and
Transactions Dollar Roll Agreements
</TABLE>
GROWTH AND INCOME FUNDS
THE BALANCED ALLOCATION FUND
THE INVESTMENT OBJECTIVE OF THE BALANCED ALLOCATION FUND IS TO SEEK CURRENT
INCOME, LONG-TERM CAPITAL GROWTH AND CONSERVATION OF CAPITAL.
The Balanced Allocation Fund may invest in any type or class of security. Under
normal market conditions the Balanced Allocation Fund will invest in common
stocks, fixed-income securities and securities convertible into common stocks
(i.e., warrants, convertible preferred stock, fixed-rate preferred stock,
convertible fixed-income securities, options and rights). The Balanced
Allocation Fund intends to invest 45% to 65% of its net assets in common stocks
and securities convertible into common stocks, 25% to 55% of its net assets in
fixed-income securities and up to 30% of its net assets in cash and cash
equivalents. Of these investments, no more than 20% of the Fund's net assets
will be in foreign securities.
For the Balanced Allocation Fund, common stocks are held primarily for the
purpose of providing long-term growth of capital. When choosing such stocks, the
potential for long-term capital appreciation will be the primary basis for
selection. The Balanced Allocation Fund will invest in the common and preferred
stocks of companies with a market capitalization of at least $100 million and
which are traded either in established over-the-counter markets or on national
exchanges. The Balanced Allocation Fund intends to invest primarily in those
companies which are growth-oriented and have exhibited consistent, above-average
growth in revenues and earnings.
For the Balanced Allocation Fund, fixed-income securities held consist of bonds,
debentures, notes, zero-coupon securities, mortgage-related securities, state,
municipal or industrial revenue bonds, obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities, certificates of deposit,
time deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand notes. In addition, a portion of the Balanced Allocation
Fund's assets may, from time to time, be invested in first mortgage loans and
participation certificates in pools of mortgages issued or guaranteed by the
U.S. government or its agencies or instrumentalities. Some of the securities in
which the Balanced
PROSPECTUS--Investor A Shares 28
<PAGE> 33
Allocation Fund invests may have warrants or options attached. The Balanced
Allocation Fund may also invest in repurchase agreements.
The Balanced Allocation Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, as well as "stripped" U.S. Treasury obligations ("Stripped Treasury
Obligations"), such as Treasury receipts issued by the U.S. Treasury
representing either future interest or principal payments, and other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES-- Government
Obligations" below.
The Balanced Allocation Fund also expects to invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Such obligations, in the
case of debentures, will represent unsecured promises to pay, and in the case of
notes and bonds, may be secured by mortgages on real property or security
interests in personal property and will in most cases differ in their interest
rates, maturities and times of issuance.
The Balanced Allocation Fund will invest only in corporate fixed-income
securities which are rated at the time of purchase within the four highest
rating categories assigned by a nationally recognized statistical rating
organization ("NRSRO") or, if unrated, which First of America deems present
attractive opportunities and are of comparable quality. For a description of the
rating symbols of the NRSROs, see the Appendix to the Statement of Additional
Information. For a discussion of fixed-income securities rated within the fourth
highest rating category assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Medium-Grade Securities."
The Balanced Allocation Fund may hold some short-term obligations (with
maturities of 12 months or less) consisting of domestic and foreign commercial
paper, variable amount master demand notes, bankers' acceptances, certificates
of deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, and repurchase agreements. The Balanced Allocation Fund may also
invest in securities of other investment companies.
The Balanced Allocation Fund may also invest in obligations of the Export-Import
Bank of the United States, in U.S. dollar-denominated international bonds for
which the primary trading market is the United States ("Yankee Bonds"), or for
which the primary trading market is abroad ("Eurodollar Bonds"), and in Canadian
bonds and bonds issued by institutions, such as the World Bank and the European
Economic Community, organized for a specific purpose by two or more sovereign
governments ("Supranational Agency Bonds"). The Balanced Allocation Fund's
investments in foreign securities may be made either directly or through the
purchase of ADRs and the Balanced Allocation Fund may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper.
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon First of America's assessment of business, economic and
market conditions, including any potential advantage of price shifts between the
stock market and the bond market. The Balanced Allocation Fund reserves the
right to hold short-term securities in whatever proportion deemed desirable for
temporary defensive periods during adverse market conditions as determined by
First of America. However, to the extent that the Balanced Allocation Fund is so
invested, its investment objective may not be achieved during that time.
Like any investment program, investment in the Balanced Allocation Fund entails
certain risks. As a Fund investing in common stocks the Balanced Allocation Fund
is subject to stock market risk, i.e., the possibility that stock prices in
general will decline over short or even extended periods.
Since the Balanced Allocation Fund also invests in bonds, investors in the
Balanced Allocation Fund are also exposed to bond market risk, i.e.,
fluctuations in the market value of bonds. Bond prices are influenced primarily
by changes in interest rate levels. When interest rates rise, the prices of
bonds generally fall; conversely, when interest rates fall, bond prices
generally rise. While bonds normally fluctuate less in price than stock, there
have been extended periods of cyclical increases in interest rates that have
caused significant declines in bond prices.
29 PROSPECTUS--Investor A Shares
<PAGE> 34
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result the Balanced
Allocation Fund, with its balance of common stock and bond investments, is
expected to entail less investment risk (and a potentially smaller investment
return) than a mutual fund investing exclusively in common stocks.
<TABLE>
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THE BALANCED ALLOCATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Medium-Grade Securities -Mortgage-Related Securities -Other Mutual Funds
- -Portfolio Turnover -Put and Call Options -Repurchase Agreements
- -Restricted Securities -Reverse Repurchase Agreements -When-Issued and Delayed-Delivery
Dollar Roll Agreements Transactions
</TABLE>
THE EQUITY INCOME FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY INCOME FUND IS TO SEEK CURRENT INCOME BY
INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH QUALITY, DIVIDEND-PAYING COMMON
STOCKS AND SECURITIES CONVERTIBLE INTO COMMON STOCKS. A SECONDARY INVESTMENT
OBJECTIVE OF THE EQUITY INCOME FUND IS GROWTH OF CAPITAL.
The Equity Income Fund, under normal market conditions, will invest at least 80%
of the value of its total assets in common stocks and securities convertible
into common stocks of companies believed by First of America to be characterized
by sound management, the ability to finance expected growth and the ability to
pay above-average dividends. The Equity Income 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 and loan associations. The Equity Income
Fund may also hold securities of other investment companies and depository or
custodial receipts representing beneficial interests in any of the foregoing
securities.
Subject to the foregoing policies, the Equity Income Fund may also invest up to
25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Foreign Securities."
The Equity Income Fund anticipates investing in securities that currently have a
high dividend yield, with the anticipation that the dividend will remain
constant or be increased in the future. These securities generally represent the
core holdings of this Fund. However, these holdings are balanced with lower
yielding but higher growth-oriented securities to achieve portfolio balance. All
securities must provide current income. Given its bias towards income, the
Equity Income Fund may be considered more conservative than growth-oriented
equity funds such as the Group's Small Capitalization Fund and Mid
Capitalization Fund.
Consistent with the foregoing, the Equity Income Fund will focus its investments
in those companies and types of companies that First of America believes will
enable such Fund to achieve its investment objective.
PROSPECTUS--Investor A Shares 30
<PAGE> 35
<TABLE>
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THE EQUITY INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Transactions
</TABLE>
INCOME FUNDS
THE BOND FUND AND THE LIMITED MATURITY BOND FUND
THE INVESTMENT OBJECTIVE OF THE BOND FUND IS TO SEEK CURRENT INCOME AS WELL AS
PRESERVATION OF CAPITAL BY INVESTING IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE
FIXED-INCOME SECURITIES. THE INVESTMENT OBJECTIVE OF THE LIMITED MATURITY BOND
FUND IS TO SEEK CURRENT INCOME AS WELL AS PRESERVATION OF CAPITAL BY INVESTING
IN A PORTFOLIO OF HIGH-AND MEDIUM-GRADE FIXED-INCOME SECURITIES WITH REMAINING
MATURITIES OF SIX YEARS OR LESS.
Under normal market conditions, the Bond Fund will invest at least 80% of the
value of its total assets in bonds, debentures, notes with remaining maturities
at the time of purchase of one year or more, zero-coupon securities,
mortgage-related securities, state, municipal or industrial revenue bonds,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, debt securities convertible into, or exchangeable for, common
stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Bond Fund will invest in state and municipal securities
when, in the opinion of First of America, their yields are competitive with
comparable taxable debt obligations. In addition, up to 20% of the value of the
Bond Fund's total assets may be invested in preferred stocks, notes with
remaining maturities at the time of purchase of less than one year, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies,
and guaranteed investment contracts ("GICs") issued by insurance companies, as
more fully described below. Some of the securities in which the Bond Fund
invests may have warrants or options attached.
Under normal market conditions, the Limited Maturity Bond Fund will invest at
least 80% of the value of its total assets in the following securities which
have remaining maturities of six years or less: bonds, debentures, notes with
remaining maturities at the time of purchase of one year or more, zero-coupon
securities, mortgage-related securities, state, municipal or industrial revenue
bonds, obligations issued or guaranteed by the U.S. government or its agencies
or instrumentalities, debt securities convertible into, or exchangeable for,
common stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Limited Maturity Bond Fund will invest in state and
municipal securities when, in the opinion of First of America, their yields are
competitive with comparable taxable debt obligations. In addition, up to 20% of
the value of the Limited Maturity Bond Fund's total assets may be invested in
the debt securities listed above without regard to maturity, as well as
preferred stocks, short-term debt obligations consisting of domestic and foreign
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit and time deposits of domestic and foreign
branches of U.S. banks and foreign banks, repurchase agreements, securities of
other investment companies and GICs. Under normal market conditions, the Limited
Maturity Bond Fund expects to maintain a dollar-weighted average portfolio
maturity of its debt securities of three years or less. By seeking to maintain a
dollar-weighted average portfolio maturity of three years or less, the Limited
Maturity Bond Fund attempts to minimize the fluctuation in its shares' net asset
value relative to those funds which invest in longer-term obligations.
31 PROSPECTUS--Investor A Shares
<PAGE> 36
Some of the securities in which the Limited Maturity Bond Fund invests may have
warrants or options attached.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and assetbacked securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Limited Maturity Bond Fund, the effective
maturity of such securities, as determined by the Investment Adviser, will be
used.
The Bond Fund and Limited Maturity Bond Fund each expects to invest in a variety
of U.S. Treasury obligations, differing in their interest rates, maturities, and
times of issuance, as well as Stripped Treasury Obligations, and other
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES--Government
Obligations."
The Bond Fund and the Limited Maturity Bond Fund each also expects to invest in
bonds, notes and debentures of a wide range of U.S. corporate issuers. Such
obligations, in the case of debentures will represent unsecured promises to pay,
and in the case of notes and bonds may be secured by mortgages on real property
or security interests in personal property and will in most cases differ in
their interest rates, maturities and times of issuance.
The Bond Fund and the Limited Maturity Bond Fund each will invest only in
corporate debt securities which are rated at the time of purchase within the
four highest rating categories assigned by an NRSRO or, if unrated, which First
of America deems present attractive opportunities and are of comparable quality.
For a discussion of debt securities rated within the four highest rating
categories assigned by the NRSROs, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Medium-Grade Securities."
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian Bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond Fund may also invest up to 25% of its
net assets in foreign securities either directly or through the purchase of ADRs
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper.
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, First of America may purchase debt securities at a
discount from face value, which produces a yield greater than the coupon rate.
Conversely, if debt securities are purchased at a premium over face value, the
yield will be lower than the coupon rate. In making investment decisions for the
Bond Fund, First of America will consider many factors other than current yield,
including the preservation of capital, the potential for realizing capital
appreciation, maturity, and yield to maturity. In making investment decisions
for the Limited Maturity Bond Fund, First of America will consider many factors
other than current yield, including the preservation of capital, maturity, and
yield to maturity.
<TABLE>
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THE BOND FUND AND THE LIMITED MATURITY BOND FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Guaranteed Investment Contracts
- -Lending Portfolio Securities -Medium-Grade Securities -Mortgage-Related Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements and
- -When-Issued and Delayed-Delivery Dollar Roll Agreements
Transactions
</TABLE>
PROSPECTUS--Investor A Shares 32
<PAGE> 37
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
THE INVESTMENT OBJECTIVE OF THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND IS TO
SEEK CURRENT INCOME WITH PRESERVATION OF CAPITAL BY INVESTING IN U.S. GOVERNMENT
SECURITIES WITH REMAINING MATURITIES OF TWELVE YEARS OR LESS.
Under normal market conditions, the Intermediate Government Obligations Fund
will invest at least 80% of its total assets in obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities and with remaining
maturities of twelve years or less, although up to 20% of the value of its total
assets may be invested in debt securities, preferred stocks and other
investments without regard to maturity, except as set forth below. Under normal
market conditions, the Intermediate Government Obligations Fund expects to
maintain a dollar-weighted average portfolio maturity of its debt securities of
three to ten years. By seeking to maintain a dollar-weighted average portfolio
maturity of three to ten years, the Intermediate Government Obligations Fund
attempts to minimize the fluctuation in its shares' net asset value relative to
funds which invest in longer-term obligations.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and assetbacked securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Intermediate Government Obligations Fund,
the effective maturity of such securities, as determined by the Investment
Adviser, will be used.
The types of U.S. government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and government securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES-- Government Obligations."
The Intermediate Government Obligations Fund may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, as more fully described below under "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations."
<TABLE>
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THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Currency Transactions -Futures Contracts
- -Government Obligations -Lending Portfolio Securities -Mortgage-Related Securities
- -Municipal Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Transactions
</TABLE>
THE GOVERNMENT INCOME FUND
THE INVESTMENT OBJECTIVE OF THE GOVERNMENT INCOME FUND IS TO PROVIDE
SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRUDENT
INVESTMENT RISK.
Under normal market conditions, the Government Income Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
non-governmental issuers. Consistent with the foregoing, under current market
conditions, the Government Income Fund intends to invest up to 80% of the value
of its total assets in mortgage-related securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities. The Government Income Fund
also may invest up to 35% of its total assets in mortgage-related securities
issued by non-
33 PROSPECTUS--Investor A Shares
<PAGE> 38
governmental entities and in other securities described below. For more
information, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Mortgage-Related
Securities."
The types of U.S. government obligations, including mortgage-related securities,
invested in by the Government Income Fund will include obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Treasury, such as Treasury bills, notes and bonds, Stripped Treasury
Obligations and government securities, as described below in "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations."
The Government Income Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper
(including variable amount master demand notes), rated at the time of purchase
within the top two rating categories assigned by an NRSRO or, if unrated, which
First of America deems present attractive opportunities and are of comparable
quality, bankers' acceptances, certificates of deposit and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, and repurchase
and reverse repurchase agreements. The Government Income Fund may also invest in
corporate debt securities which are rated at the time of purchase within the top
three rating categories assigned by an NRSRO or, if unrated, which First of
America deems present attractive opportunities and are of comparable quality.
<TABLE>
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THE GOVERNMENT INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Currency Transactions -Foreign Securities
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Transactions
</TABLE>
TAX-FREE INCOME FUNDS
THE MUNICIPAL BOND FUND AND THE MICHIGAN BOND FUND
The investment objective of the Municipal Bond Fund is to seek current interest
income which is exempt from federal income taxes and preservation of capital.
The investment objective of the Michigan Bond Fund is to seek income which is
exempt from federal income tax and Michigan state income and intangibles taxes,
although such income may be subject to the federal alternative minimum tax when
received by certain shareholders, and preservation of capital.
Under normal market conditions and as a fundamental policy, at least 80% of the
net assets of the Municipal Bond Fund will be invested in a diversified
portfolio of Municipal Securities, and at least 80% of the net assets of the
Michigan Bond Fund will be invested in a portfolio of Michigan Municipal
Securities.
"Municipal Securities" include obligations consisting of bonds, notes and
commercial paper, issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and other political subdivisions,
agencies, instrumentalities and authorities, the interest on which is both
exempt from federal income taxes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. "Michigan
Municipal Securities" include debt obligations, consisting of notes, bonds and
commercial paper, issued by or on behalf of the State of Michigan, its political
subdivisions, municipalities and public authorities, the interest on which is,
in the opinion of bond counsel to the issuer, exempt from federal income tax and
Michigan state income and intangibles taxes (but may be treated as a preference
item for individuals for purposes of the federal alternative minimum tax) and
debt obligations issued by the government of Puerto Rico, the U.S. territories
and possessions of Guam, the U.S. Virgin Islands or such other governmental
entities whose debt obligations, either by law or treaty, generate interest
income which is exempt from federal and Michigan state income and intangibles
taxes. For more
PROSPECTUS--Investor A Shares 34
<PAGE> 39
information regarding Municipal Securities and Michigan Municipal Securities,
see "RISK FACTORS AND INVESTMENT TECHNIQUES--Municipal Securities."
Under normal market conditions, at least 65% of the net assets of each of the
Municipal Bond Fund and the Michigan Bond Fund will be invested in Municipal
Securities (Michigan Municipal Securities in the case of the Michigan Bond Fund)
consisting of bonds and notes with remaining maturities at the time of purchase
of one year or more. Quality is the primary consideration in selecting Michigan
Municipal Securities for investment by the Michigan Bond Fund.
The Municipal Bond Fund also intends that under normal market conditions its
portfolio will maintain an average weighted rating of AA/Aa. Each of the
Municipal Bond Fund and the Michigan Bond Fund intends that, under normal market
conditions, it will be invested in long-term Municipal Securities (Michigan
Municipal Securities in the case of the Michigan Bond Fund) and that the average
weighted maturity of such investments will be 5 to 12 years, although the
Michigan Bond Fund may invest in Michigan Municipal Securities of any maturity
and First of America may extend or shorten the average weighted maturity of its
portfolio depending upon anticipated changes in interest rates or other relevant
market factors. In addition, the average weighted rating of a Tax-Free Income
Fund's portfolio may vary depending upon the availability of suitable Municipal
Securities or other relevant market factors.
The Michigan Bond Fund invests in Michigan Municipal Securities which are rated
at the time of purchase within the four highest rating categories assigned by an
NRSRO or, in the case of notes, tax-exempt commercial paper or variable rate
demand obligations, rated within the two highest rating categories assigned by
an NRSRO. The Michigan Bond Fund may also purchase Michigan Municipal Securities
which are unrated at the time of purchase but are determined to be of comparable
quality by First of America pursuant to guidelines approved by the Group's Board
of Trustees. The applicable Michigan Municipal Securities ratings are described
in the Appendix to the Statement of Additional Information. For a description of
debt securities rated within the fourth highest rating categories assigned by
the NRSROs, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Medium-Grade
Securities."
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Tax-Free Income Funds will not treat these
bonds as "Municipal Securities" or "Michigan Municipal Securities" for purposes
of measuring compliance with the 80% tests described above. To the extent the
Tax-Free Income Funds invest in these bonds, individual shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Tax-Free Income Funds' distributions derived from these bonds. For
further information relating to the types of municipal securities which will be
included in income subject to alternative minimum tax, see "ADDITIONAL
INFORMATION-- Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Bond Fund" in the Statement of Additional
Information.
Investments of the Tax-Free Income Funds may be made in taxable obligations if,
for example, suitable tax-exempt obligations are unavailable or if acquisition
of U.S. government or other taxable securities is deemed appropriate for
temporary defensive purposes as determined by First of America to be warranted
due to market conditions. Such taxable obligations consist of government
securities, certificates of deposit, time deposits and bankers' acceptances of
selected banks, commercial paper meeting the Tax-Free Income Funds' quality
standards for tax-exempt commercial paper (as described above), and such taxable
obligations as may be subject to repurchase agreements. These obligations are
described further in the Statement of Additional Information. Under such
circumstances and during the period of such investment, the affected Tax-Free
Income Fund may not achieve its stated investment objectives.
Although the Municipal Bond Fund may invest more than 25% of its net assets in
(i) Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, it does not presently intend to do
so on a regular basis. To the extent the Municipal Bond Fund's assets are
concentrated in Municipal Securities that are payable from the revenues of
similar projects or are issued by issuers located in the same state, or are
concentrated in private activity bonds, the Municipal Bond Fund will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states, projects and bonds to a greater extent than it would be if its
assets were not so concentrated.
35 PROSPECTUS--Investor A Shares
<PAGE> 40
Because the Michigan Bond Fund invests primarily in securities issued by the
State of Michigan and its political subdivisions, municipalities and public
authorities, the Michigan Bond Fund's performance is closely tied to the general
economic conditions within the State as a whole and to the economic conditions
within particular industries and geographic areas represented or located within
the State. However, the Michigan Bond Fund attempts to diversify, to the extent
First of America deems appropriate, among issuers and geographic areas in the
State of Michigan.
The Michigan Bond Fund is classified as a "non-diversified" investment company,
which means that the amount of assets of the Michigan Bond Fund that may be
invested in the securities of a single issuer is not limited by the Investment
Company Act of 1940, as amended (the "1940 Act"). Nevertheless, the Michigan
Bond Fund intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"), which requires the Michigan Bond Fund generally to invest,
with respect to 50% of its total assets, not more than 5% of such assets in the
obligations of a single issuer; as to the remaining 50% of its total assets, the
Michigan Bond Fund is not so restricted. In no event, however, may the Michigan
Bond Fund invest more than 25% of its total assets in the obligations of any one
issuer. Compliance with this requirement is measured at the close of each
quarter of the Michigan Bond Fund's taxable year. Since a relatively high
percentage of the Michigan Bond Fund's assets may be invested in the obligations
of a limited number of issuers, some of which may be within the same economic
sector, the Michigan Bond Fund's portfolio securities may be more susceptible to
any single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
<TABLE>
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TAX-FREE INCOME FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Currency Transactions -Futures Contracts (Municipal Bond
- -Government Obligations -Lending Portfolio Securities Fund Only)
- -Medium-Grade Securities -Mortgage-Related Securities -Municipal Securities
- -Other Mutual Funds -Portfolio Turnover -Private Activity Bonds
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Agreements
</TABLE>
MONEY MARKET FUNDS
THE U.S. GOVERNMENT OBLIGATIONS FUND, THE PRIME OBLIGATIONS FUND, THE TREASURY
FUND AND THE TAX-FREE FUND
THE INVESTMENT OBJECTIVE OF EACH OF THE U.S. GOVERNMENT OBLIGATIONS FUND, THE
PRIME OBLIGATIONS FUND AND THE TREASURY FUND IS TO SEEK CURRENT INCOME WITH
LIQUIDITY AND STABILITY OF PRINCIPAL. THE INVESTMENT OBJECTIVE OF THE TAX-FREE
FUND IS TO SEEK AS HIGH A LEVEL OF CURRENT INTEREST INCOME FREE FROM FEDERAL
INCOME TAXES AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL AND RELATIVE
STABILITY OF PRINCIPAL.
Under normal market conditions, the U.S. Government Obligations Fund invests at
least 65% of the value of its total assets in short-term U.S. Treasury bills,
notes, and other obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities. The Prime Obligations Fund invests in high-
quality money market instruments, including Municipal Securities and other
instruments deemed to be of comparable high quality as determined by the Board
of Trustees. Under normal market conditions, the Treasury Fund invests
exclusively in obligations issued or guaranteed by the U.S. Treasury, its
agencies or instrumentalities and in repurchase agreements related to such
securities. As a matter of fundamental policy, under normal market conditions,
at least 80% of the Tax-Free Fund's total assets will be invested in Municipal
Securities.
PROSPECTUS--Investor A Shares 36
<PAGE> 41
The U.S. Government Obligations Fund may invest up to 35% of the value of its
total assets in high-quality money market instruments, including Municipal
Securities, bankers' acceptances, certificates of deposit, time deposits, and
other instruments deemed to be of comparable high quality as determined by the
Board of Trustees.
The Tax-Free Fund may invest up to 20% of its total assets in obligations the
interest on which is either subject to federal income taxation or treated as a
preference item for purposes of the federal alternative minimum tax ("Taxable
Obligations"). If deemed appropriate for temporary defensive purposes, the Tax-
Free Fund may increase its holdings in Taxable Obligations to over 20% of its
total assets and may also hold uninvested cash reserves pending investment.
Taxable Obligations may include obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities (some of which may be subject to
repurchase agreements), certificates of deposit and bankers' acceptances of
selected banks, and commercial paper meeting the Tax-Free Fund's quality
standards for tax-exempt commercial paper (as described below). These
obligations are described further in the Statement of Additional Information.
As a money market fund, each Money Market Fund invests exclusively in United
States dollar-denominated instruments which the Trustees of the Group and First
of America determine present minimal credit risks and which at the time of
acquisition are rated by one or more NRSROs in one of the two highest rating
categories for short-term debt obligations or, if unrated, which First of
America deems present attractive opportunities and are of comparable quality. In
addition, each of the U.S. Government Obligations Fund, the Prime Obligations
Fund and the Treasury Fund diversifies its investments so that, with minor
exceptions and except for United States government securities, not more than 5%
of its total assets is invested in the securities of any one issuer, not more
than 5% of its total assets is invested in securities of all issuers rated by an
NRSRO at the time of investment in the second highest rating category for
short-term debt obligations or deemed to be of comparable quality to securities
rated in the second highest rating category for short-term debt obligations
(either referred to as "Second Tier Securities") and not more than the greater
of 1% of total assets or $1 million is invested in the Second Tier Securities of
one issuer. All securities or instruments in which a Money Market Fund invests
have remaining maturities of 397 calendar days (13 months) or less (except for
certain variable and floating rate notes and securities underlying certain
repurchase agreements). The dollar-weighted average maturity of the obligations
in a Money Market Fund will not exceed 90 days.
The Prime Obligations Fund and, within the limitations described above, the U.S.
Government Obligations Fund may invest in commercial paper and other short-term
promissory notes issued by corporations (including variable amount master demand
notes) rated at the time of purchase within the two highest rating categories
assigned by an NRSRO or, if not rated, found by the Group's Board of Trustees to
be of comparable quality. Instruments may be purchased in reliance upon a rating
only when the rating organization is not affiliated with the issuer or guarantor
of the instrument. For a description of the rating categories of the NRSROs, see
the Appendix to the Statement of Additional Information. The Prime Obligations
Fund may also invest in CCP, Europaper, bankers' acceptances, certificates of
deposit and time deposits.
Variable amount master demand notes in which the U.S. Government Obligations
Fund, the Prime Obligations Fund and certain other Funds may invest are
unsecured demand notes that permit the indebtedness thereunder to vary, and that
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between a Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes (which are
normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for commercial paper. First of
America will consider the earning power, cash flow, and other liquidity ratios
of the issuers of such notes and will continuously monitor their financial
status and ability to meet payment on demand. In determining average weighted
portfolio maturity, a variable amount master demand note will be deemed to have
a maturity equal to the period of time remaining until the principal amount can
be recovered from the issuer through demand, which shall not exceed seven days.
37 PROSPECTUS--Investor A Shares
<PAGE> 42
Each of the Money Market Funds may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying security, a dealer in the security, or by another
third party, and may not be transferred separately from the underlying security.
The Money Market Funds use these arrangements to provide liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable after a payment
default on the underlying security may be treated as a form of credit
enhancement.
Certain of the Money Market Funds' permitted investments may have received
credit enhancement by a guaranty, letter of credit, or insurance. The Money
Market Funds may evaluate the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the entity
providing the credit enhancement, rather than the issuer. The bankruptcy,
receivership, or default of an entity providing credit enhancement may adversely
affect the quality and marketability of the underlying security.
Consistent with the requirements of Rule 2a-7 adopted under the 1940 Act, each
of the Money Market Funds will limit its investment, with respect to 75% of its
assets, to no more than 10% of its total assets in securities issued by or
subject to demand features of a single issuer. With respect to the remaining 25%
of a Money Market Fund's assets, the Fund may invest in securities subject to
demand features from, or directly issued by, one or more institutions, provided
they are rated in the highest rating category assigned by an NRSRO and are
issued by a "noncontrolled person," as defined in the Rule. In addition, a
demand feature, other than a standby commitment, may be acquired by a Money
Market Fund only if the demand feature or its issuer has received one of the two
highest short-term rating categories assigned by an NRSRO and not more than 5%
of the Fund's assets are invested in demand features from a single issuer rated
in the second highest short-term rating category assigned by an NRSRO.
Each of the Money Market Funds intends to follow the operational policies
described above, as well as other non-fundamental policies that will enable the
Fund to comply with the laws and regulations applicable to money market mutual
funds, particularly Rule 2a-7 under the 1940 Act. Each of the Money Market Funds
shall determine the effective maturity of its investments, the applicable credit
rating of securities, and adequate diversification by reference to Rule 2a-7.
Each of the Money Market Funds may change its operational policies to reflect
changes in the laws and regulations applicable to money market mutual funds
without shareholder approval.
The Tax-Free Fund may acquire zero-coupon obligations, which have greater price
volatility than coupon obligations and which will not result in the payment of
interest until maturity. Additionally, the Tax-Free Fund, within the limitations
described above and subject to the quality standards for tax-exempt commercial
paper described below, may invest in commercial paper.
Although the Tax-Free Fund presently does not intend to do so on a regular
basis, it may invest more than 25% of its assets in Municipal Securities which
are related in such a way that an economic, business, or political development
or change affecting one such security would likewise affect the other Municipal
Securities. Examples of such securities are obligations the repayment of which
is dependent upon similar types of projects or projects located in the same
state. Such investments would be made only if deemed necessary or appropriate by
the Investment Adviser. To the extent that the Tax-Free Fund's assets are
concentrated in Municipal Securities that are so related, the Tax-Free Fund will
be subject to the peculiar risks presented by such Municipal Securities, such as
negative developments in a particular industry or state, to a greater extent
than it would be if the Tax-Free Fund's assets were not so concentrated.
PROSPECTUS--Investor A Shares 38
<PAGE> 43
<TABLE>
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MONEY MARKET FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities (except -Foreign Securities -Government Obligations
Treasury Fund) -Guaranteed Investment Contracts -Lending Portfolio Securities
- -Municipal Securities (except (Prime Obligations Fund only) -Portfolio Turnover
Treasury Fund) -Private Activity Bonds -Put and Call Options (Tax-Free Fund)
- -Repurchase Agreements (Tax-Free Fund Only) -Restricted Securities (except
Treasury
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery Fund)
Dollar Roll Agreements Transactions
</TABLE>
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase or dollar roll agreements with
First of America Bank, N.A. (formerly, First of America Bank-Michigan, N.A.,
"FOA," the parent corporation of First of America), BISYS, or their affiliates,
and will not give preference to FOA's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements, reverse
repurchase agreements and dollar roll agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by First of America, and in the case
of the International Fund and Balanced Allocation Fund, Gulfstream, in the
management of each of the Funds (with the exception of the Treasury Fund)
involve complex securities sometimes referred to as "derivatives." Among such
securities are put and call options, foreign currency transactions and futures
contracts, all of which are described below. The Investment Adviser and
Subadviser believe that such complex securities may, in some circumstances, play
a valuable role in successfully implementing each Fund's investment strategy and
achieving its goals. However, because complex securities and the strategies for
which they are used, are by their nature complicated, they present substantial
opportunities for misunderstanding and misuse. To guard against these risks, the
Investment Adviser and Subadviser will utilize complex securities primarily for
hedging, not speculative, purposes and only after careful review of the unique
risk factors associated with each such security.
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds, with the exception of the Money Market Funds and the Tax-Free
Income Funds, may utilize foreign currency transactions in its portfolio. The
value of the assets of a Fund as measured in United States dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract ("forward currency contracts") involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These forward currency contracts are traded directly
between currency traders (usually large commercial banks) and their customers.
The Funds may enter into forward currency contracts in order to hedge against
adverse movements in exchange rates between currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
39 PROSPECTUS--Investor A Shares
<PAGE> 44
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency. Alternatively, when a Fund believes it will increase, it may enter
into a forward currency purchase contract to buy that foreign currency for a
fixed U.S. dollar amount; however, this tends to limit potential gains which
might result from a positive change in such currency relationships. A Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
The forecasting of short-term currency market movement is extremely difficult
and whether such a short-term hedging strategy will be successful is highly
uncertain. It is impossible to forecast with precision the market value of
portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency such Fund is obligated
to deliver when a decision is made to buy the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency such Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. If forward prices
decline during the period between which a Fund enters into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. If forward prices
increase, such Fund would suffer a loss to the extent the price of the currency
it has agreed to purchase exceeds the price of the currency it has agreed to
sell. Although such contracts tend to minimize the risk of loss due to a decline
in the value of the hedged currency, they also tend to limit any potential gain
which might result if the value of such currency increases. The Funds will have
to convert their holdings of foreign currencies into United States dollars from
time to time. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
No Fund intends to enter into forward currency contracts if more than 15% of the
value of its total assets would be committed to such contracts on a regular or
continuous basis. A Fund also will not enter into forward currency contracts or
maintain a net exposure on such contracts where such Fund would be obligated to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES--Additional Information on Portfolio Instruments" in the
Statement of Additional Information.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Allocation Fund may invest up to 20% of its total assets in foreign
securities. The Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund and Equity Income Fund may invest in foreign securities as
permitted by their respective investment policies. Each of the Bond Fund and
Limited Maturity Bond Fund may invest up to 25% of its net assets in foreign
securities either directly or through the purchase of ADRs and may also invest
in securities issued by foreign branches of U.S. banks and foreign banks, in
CCP, and in Europaper. The Government Income Fund, the U.S. Government
Obligations Fund, the Prime Obligations Fund and the Tax-Free Fund may invest in
foreign securities by purchasing: Eurodollar
PROSPECTUS--Investor A Shares 40
<PAGE> 45
certificates of deposit ("ECDs"), which are U.S. dollar-denominated certificates
of deposit issued by offices of foreign and domestic banks outside the U.S.;
Eurodollar time deposits ("ETDs"), which are U.S. dollar-denominated deposits in
a foreign branch of a U.S. or foreign bank; Canadian time deposits ("CTDs"),
which are essentially the same as ETDs, except that they are issued by Canadian
offices of major Canadian banks; Yankee certificates of deposit ("Yankee CDs"),
which are U.S. dollar-denominated certificates of deposit issued by a U.S.
branch of a foreign bank but held in the U.S.; CCP; and Europaper.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the United States. In addition, there may be less
publicly available information about a foreign company than about a
U.S.-domiciled company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States. Confiscatory taxation or diplomatic developments could also
affect investment in those countries. In addition, foreign branches of U.S.
banks, foreign banks and foreign issuers may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after such Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater.
U.S. dollar-denominated ADRs, which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all of the risk inherent in investing
in the securities of foreign issuers. However, by investing in ADRs rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for many ADRs. The information available for
ADRs is subject to the accounting, auditing and financial reporting standards of
the domestic market or exchange on which they are traded, standards which are
more uniform and more exacting than those to which many foreign issuers may be
subject. The ADR is sometimes referred to as a Global Depositary Receipt, or
GDR. In the United States, the GDR is, after issuance, not unlike any other ADR.
The difference
41 PROSPECTUS--Investor A Shares
<PAGE> 46
is found in the purpose of the issue. GDRs are used for global offerings, by the
simultaneous issuance of a single security in multiple world markets. The
International Fund and Balanced Allocation Fund may also invest in EDRs, which
are receipts evidencing an arrangement with a European bank similar to that for
ADRs and designed for use in the European securities markets. EDRs are not
necessarily denominated in the currency of the underlying security.
Certain of the ADRs and EDRs, typically those categorized as unsponsored,
require their holders to bear most of the costs of such facilities while issuers
of sponsored facilities normally pay more of the costs. 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 with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the
European Currency Unit ("ECU"), which is a "basket" unit of currency 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.
FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds, the Income Funds and the
Municipal Bond Fund may also enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, a Fund can seek through the sale of
futures contracts to offset a decline in the value of its portfolio securities.
When interest rates are expected to fall or market values are expected to rise,
a Fund, through the purchase of such contracts, can attempt to secure better
rates or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercising 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 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of a Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with its portfolio securities or foreign currencies, limiting the
Fund's ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
PROSPECTUS--Investor A Shares 42
<PAGE> 47
GOVERNMENT OBLIGATIONS
The U.S. Government Obligations Fund will invest primarily in obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities.
Subject to the investment parameters described above, each of the remaining
Funds may also invest in such obligations. The Treasury Fund, however, will
invest exclusively in obligations issued or guaranteed by the U.S. Treasury and
in repurchase agreements backed by such securities.
The types of U.S. government obligations in which each of these Funds may invest
include U.S. Treasury notes, bills, bonds, and any other securities directly
issued by the U.S. government for public investment, which differ only in their
interest rates, maturities, and times of issuance. Stripped Treasury Obligations
are also permissible investments. Stripped securities are issued at a discount
to their "face value" and may exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest are
returned to investors. The Stripped Treasury Obligations in which the Money
Market Funds may invest do not include certificates of accrual on Treasury
securities ("CATS") or Treasury income growth receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the right of
the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association ("SLMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored agencies or
instrumentalities, such as FNMA, SLMA or FHLMC, since it is not obligated to do
so by law. The Funds which may invest in these government obligations will
invest in the obligations of such agencies or instrumentalities only when First
of America believes that the credit risk with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS
The Bond Fund, the Limited Maturity Bond Fund and the Prime Obligations Fund may
invest in GICs. When investing in GICs, the Bond Fund, the Limited Maturity Bond
Fund and the Prime Obligations Fund make cash contributions to a deposit fund of
an insurance company's general account. The insurance company then credits
guaranteed interest to the deposit fund on a monthly basis. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expenses and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. The Bond Fund and the Limited Maturity Bond Fund may invest
in GICs of insurance companies without regard to the ratings, if any, assigned
to such insurance companies' outstanding debt securities. The Prime Obligations
Fund may only invest in GICs that have received the requisite ratings by one or
more NRSROs, see "INVESTMENT OBJECTIVES AND POLICIES-- The Money Market Funds"
in this Prospectus. Because a Fund may not receive the principal amount of a GIC
from the insurance company on seven days' notice or less, the GIC is considered
an illiquid investment. For each of the Bond Fund and Limited Maturity Bond
Fund, no more than 15% of its total assets will be invested in instruments which
are considered to be illiquid. For the Prime Obligations Fund, no more than 10%
of its total assets may be invested in instruments which are considered to be
illiquid. In determining average portfolio maturity, GICs will be deemed to have
a maturity equal to the period of time remaining until the next readjustment of
the guaranteed interest rate.
MEDIUM-GRADE SECURITIES
Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond Fund,
Municipal Bond Fund and Michigan Bond Fund may invest in fixed-income securities
rated within the fourth highest rating category assigned by an NRSRO (i.e., BBB
or Baa by S&P or Moody's, respectively) and comparable unrated securities as
determined by the Investment Adviser. These types of fixed-income securities are
considered
43 PROSPECTUS--Investor A Shares
<PAGE> 48
by the NRSROs to have some speculative characteristics, and are more vulnerable
to changes in economic conditions, higher interest rates or adverse
issuer-specific developments which are more likely to lead to a weaker capacity
to make principal and interest payments than comparable higher rated debt
securities.
Should subsequent events cause the rating of a fixed-income security purchased
by any of the Funds listed above to fall below the fourth highest rating, First
of America will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would the Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
MORTGAGE-RELATED SECURITIES
The Government Income Fund intends to invest up to 80% of the value of its total
assets in mortgage-related securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. However, the Government Income
Fund may invest greater amounts as conditions warrant. Each of the remaining
Funds, except the International Fund, may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Such agencies or instrumentalities include GNMA, FNMA and
FHLMC. Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond
Fund, Intermediate Government Obligations Fund, Government Income Fund, Prime
Obligations Fund and U.S. Government Obligations Fund may also invest in
mortgage-related securities issued by non-governmental entities which are rated,
at the time of purchase, within the three highest bond rating categories
assigned by an NRSRO or, if unrated, which First of America deems present
attractive opportunities and are of comparable quality.
The mortgage-related securities in which these Funds may invest have mortgage
obligations backing such securities, consisting of conventional thirty-year
fixed-rate mortgage obligations, graduated payment mortgage obligations,
fifteen-year mortgage obligations and adjustable-rate mortgage obligations. All
of these mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. Accelerated prepayments have an adverse impact on yields for
pass-throughs purchased at a premium (i.e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, though, the rate of prepayment tends to decrease, thereby lengthening
the period of time over which income at the lower rate is received. For these
and other reasons, a mortgage-related security's average maturity may be
shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
PROSPECTUS--Investor A Shares 44
<PAGE> 49
Fund. In addition, regular payments received with respect to mortgage-related
securities include both interest and principal. No assurance can be given as to
the return a Fund will receive when these amounts are reinvested.
The principal governmental (i.e., backed by the full faith and credit of the
United States government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Administration
or guaranteed by the Veterans Administration.
Government-related (i.e., not backed by the full faith and credit of the United
States government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States government. FHLMC is a corporate instrumentality of the
United States government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by non-governmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers will be considered in
determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the poolers First of America
determines that the securities meet the Government Income Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Government Income Fund will not purchase mortgage-related
securities or any other assets which in First of America's opinion are illiquid
if, as a result, more than 15% of the value of the Government Income Fund's
total assets will be illiquid.
Mortgage-related securities in which the above-named Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments; that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from
45 PROSPECTUS--Investor A Shares
<PAGE> 50
customary long-term fixed-rate mortgages. As new types of mortgage-related
securities are developed and offered to investors, First of America will,
consistent with the Government Income Fund's investment objective, policies and
quality standards, consider making investments in such new types of securities.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities (Michigan Municipal
Securities, in the case of the Michigan Bond Fund) which may be held by the Bond
Fund, Limited Maturity Bond Fund, Municipal Bond Fund, Michigan Bond Fund, Prime
Obligations Fund, U.S. Government Obligations Fund and Tax-Free Fund are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by the Municipal Bond Fund and Michigan Bond Fund are in
most cases revenue securities and are not payable from the unrestricted revenues
of the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The above-named Funds may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Each of the above-named Funds invests primarily in Municipal Securities which
are rated at the time of purchase within the four highest rating categories
assigned by an NRSRO or in the highest rating category assigned by an NRSRO in
the case of notes, tax-exempt commercial paper or variable rate demand
obligations. These Funds may also purchase Municipal Securities which are
unrated at the time of purchase but determined to be of comparable quality by
First of America pursuant to guidelines approved by the Group's Board of
Trustees. The Money Market Funds may invest in Municipal Securities only in
compliance with the requirements of Rule 2a-7 under the 1940 Act, which
generally requires that they invest only in securities rated in the two highest
rating categories assigned by an NRSRO (with no more than 5% of their assets
invested in the second highest rating category). The applicable Municipal
Securities ratings are described in the Appendix to the Statement of Additional
Information. For a discussion of debt securities rated within the four highest
rating categories assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Medium-Grade Securities."
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Funds nor First of
America will review the proceedings relating to the issuance of Municipal
Securities or the basis for such opinions.
Municipal Securities and Michigan Municipal Securities purchased by the Tax-Free
Income Funds may include rated and unrated variable and floating rate tax-exempt
notes. A variable rate note is one whose terms provide for the adjustment of its
interest rate on set dates and which, upon such adjustment, can reasonably be
expected to have a market value that approximates its par value. A floating rate
note is one whose terms provide for the adjustment of its interest rate whenever
a specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. Such notes are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate notes purchased by the Tax-Free Income Funds will be determined by
First of America, under guidelines established by the Group's Board of Trustees,
to be of comparable quality at the time of purchase to rated instruments
eligible for purchase under the Funds' investment policies. In making such
determinations, First of America will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. There may be no active secondary
market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to the Tax-Free Income Funds will approximate their par value.
The Tax-
PROSPECTUS--Investor A Shares 46
<PAGE> 51
Free Income Funds will not purchase variable and floating rate notes or any
other securities which in First of America's opinion are illiquid if, as a
result, more than 15% of either Tax-Free Income Fund's total assets will be
illiquid.
OTHER MUTUAL FUNDS
Each of the Funds, except the Money Market Funds, may invest up to 5% of the
value of its total assets in the securities of any one money market mutual fund
(including shares of the Parkstone Money Market Funds, provided that no more
than 10% of a Fund's total assets may be invested in the securities of mutual
funds in the aggregate. In order to avoid the imposition of additional fees as a
result of investments by a Fund in shares of the Money Market Funds of the
Group, the Investment Adviser, Administrator and their affiliates (See
"MANAGEMENT OF THE FUNDS--Investment Adviser and Subadviser" and "Administrator,
Sub-Administrator and Distributor" and "GENERAL INFORMATION-- Transfer Agency
and Fund Accounting Services") will charge their fees to the investing Fund,
rather than the Money Market Funds. Each Fund will incur additional expenses due
to the duplication of expenses as a result of investing in securities of
unaffiliated mutual funds. Additional restrictions regarding the Funds'
investments in securities of unaffiliated mutual funds and/or the Money Market
Funds of the Group are contained in the Statement of Additional Information.
PRIVATE ACTIVITY BONDS
The Tax-Free Income Funds and the Tax-Free Fund may invest in private activity
bonds. It should be noted that the Tax Reform Act of 1986 substantially revised
provisions of prior federal law affecting the issuance and use of proceeds of
certain tax-exempt obligations. A new definition of private activity bonds
applies to many types of bonds, including those which were industrial
development bonds under prior law. Any reference herein to private activity
bonds includes industrial development bonds. Interest on private activity bonds
is tax-exempt (and such bonds will be considered Municipal Securities for
purposes of this Prospectus) only if the bonds fall within certain defined
categories of qualified private activity bonds and meet the requirements
specified in those respective categories. If a Fund invests in private activity
bonds which fall outside these categories, shareholders may become subject to
the alternative minimum tax on that part of the Fund's distributions derived
from interest on such bonds. The Tax Reform Act generally does not change the
federal tax treatment of bonds issued to finance government operations. For
further information relating to the types of private activity bonds which will
be included in income subject to the alternative minimum tax, see "ADDITIONAL
INFORMATION--Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Bond Fund" in the Statement of Additional
Information.
PUT AND CALL OPTIONS
Each of the Growth Funds, the Growth and Income Funds, the Income Funds and the
Tax-Free Income Funds may purchase put and call options on securities and on
foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. Each Fund
may also engage in writing call options from time to time as First of America or
Gulfstream, as the case may be with respect to the Balanced Allocation Fund or
International Fund, deem appropriate. The Funds will write only covered call
options (options on securities or currencies owned by the particular Fund). In
order to close out a call option it has written, the Fund will enter into a
"closing purchase transaction" (the purchase of a call option on the same
security or currency with the same exercise price and expiration date as the
call option which such Fund previously has written). When a portfolio security
or currency subject to a call option is sold, the Fund will effect a closing
purchase transaction to close out any existing call option on that security or
currency. If such Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security or currency until the option
expires or that Fund delivers the underlying security or currency upon exercise.
In addition, upon the exercise of a call option by the option holder, the Fund
will forego the potential benefit
47 PROSPECTUS--Investor A Shares
<PAGE> 52
represented by market appreciation over the exercise price. Under normal
conditions, it is not expected that the Funds will cause the underlying value of
portfolio securities and currencies subject to such options to exceed 50% of its
net assets, and with respect to each of the Balanced Allocation Fund and
International Fund, 20% of its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its options transactions, also may purchase index put and call
options and write index options. As with options on individual securities, a
Fund will write only covered index call options. Through the writing or purchase
of index options a Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
In addition, each of the Tax-Free Fund and the Tax-Free Income Funds may acquire
"puts" with respect to Municipal Securities (or Michigan Municipal Securities,
as the case may be), held in its portfolio. Under a put, such Fund would have
the right to sell a specified Municipal Security (or Michigan Municipal
Security, as the case may be) within a specified period of time at a specified
price. A put would be sold, transferred, or assigned only with the underlying
security. Each of the Tax-Free Fund and the Tax-Free Income Funds will acquire
puts solely either to facilitate portfolio liquidity, shorten the maturity of
the underlying securities, or permit the investment of its funds at a more
favorable rate of return. Each of the Tax-Free Fund and the Tax-Free Income
Funds expects that it will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, such Fund may pay for a put either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the puts (thus reducing the yield to maturity otherwise available for the
same securities).
REPURCHASE AGREEMENTS
Securities held by a Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as member banks of the Federal Deposit Insurance Corporation
or registered broker-dealers which First of America or Gulfstream, as the case
may be, deem creditworthy under the guidelines approved by the Group's Board of
Trustees, subject to the seller's agreement to repurchase such securities at a
mutually agreed upon date and price. The repurchase price would generally equal
the price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. Securities subject to repurchase agreements will be held
in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from the sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by that Fund were delayed pending court action. Repurchase
agreements are considered to be loans by an investment company under the 1940
Act. For further information about repurchase agreements, see "INVESTMENT
OBJECTIVES AND POLICIES--Additional Information on Portfolio
Instruments-Repurchase Agreements" in the Statement of Additional Information.
PROSPECTUS--Investor A Shares 48
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RESTRICTED SECURITIES
Securities in which each of the Funds, with the exception of the Treasury Fund,
may invest include securities issued by corporations without registration under
the Securities Act of 1933, as amended (the "1933 Act"), in reliance on the
exemption from such registration afforded by Section 3(a)(3) thereof, and
securities issued in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) securities"). Section 4(2) securities are restricted as to disposition
under the federal securities laws, and generally are sold to institutional
investors such as the Funds who agree that they are purchasing the securities
for investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in such Section 4(2) securities,
thus providing liquidity. Pursuant to procedures adopted by the Board of
Trustees of the Group, First of America may determine Section 4(2) securities to
be liquid if such securities are eligible for resale under Rule 144A under the
1933 Act and are readily saleable.
Subject to the limitations described above, the Funds may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registered under the 1993 Act. An illiquid investment
is any investment that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which it is valued by a Fund.
The price a Fund pays for illiquid securities or receives upon resale may be
lower than the price paid or received for similar securities with a more liquid
market. Accordingly, the valuation of these securities will reflect any
limitations on their liquidity. For each of the Non-Money Market Funds, a Fund
may not invest in additional illiquid securities if, as a result, more than 15%
of the market value of its net assets would be invested in illiquid securities.
For each of the Money Market Funds, a Fund may not invest in additional illiquid
securities if, as a result, more than 10% of the market value of its net assets
would be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Each of the Funds may borrow money by entering into reverse repurchase
agreements and, in the case of the Income Funds and the Tax-Free Income Funds,
dollar roll agreements in accordance with the investment restrictions described
below. Pursuant to reverse repurchase agreements, a 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.
Dollar roll agreements utilized by the Income Funds and Tax-Free Income Funds
are identical to reverse repurchase agreements except for the fact that
substantially similar securities may be repurchased. At the time a Fund enters
into a reverse repurchase agreement or a dollar roll agreement, it will place in
a segregated custodial account assets such as U.S. government securities or
other liquid high-grade debt securities consistent with its investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently continually monitor the account to ensure that
such equivalent value is maintained at all times. Reverse repurchase agreements
and dollar roll agreements involve the risk that the market value of securities
sold by a Fund may decline below the price at which it is obligated to
repurchase the securities. Reverse repurchase agreements and dollar roll
agreements are considered to be borrowings by an investment company under the
1940 Act and therefore a form of leverage. A Fund may experience a negative
impact on its net asset value if interest rates rise during the term of a
reverse repurchase agreement or dollar roll agreement. A Fund generally will
invest the proceeds of such borrowings only when such borrowings will enhance a
Fund's liquidity or when the Fund reasonably expects that the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. For further information about reverse repurchase
agreements and dollar roll agreements, see "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments-Reverse Repurchase
Agreements and Dollar Roll Agreements" in the Statement of Additional
Information.
49 PROSPECTUS--Investor A Shares
<PAGE> 54
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis. Such Funds will engage in when-issued and delayed-delivery transactions
only for the purpose of acquiring portfolio securities consistent with its
investment objectives and policies, not for investment leverage although such
transactions represent a form of leveraging. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve a risk that the yield obtained in the
transaction will be less than those available in the market when delivery takes
place. A Fund will not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase such securities, its
Custodian will set aside cash or liquid securities equal to the amount of the
commitment in a separate account. Securities purchased on a when-issued basis
are recorded as an asset and are subject to changes in the value based upon
changes in the general level of interest rates. In when-issued and
delayed-delivery transactions, a Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause such Fund to miss a price
or yield considered to be advantageous.
No Fund's commitments to purchase "when-issued" securities will exceed 25% of
the value of its total assets under normal market conditions, and a commitment
by a Fund to purchase "when-issued" securities will not exceed 60 days. In the
event its commitments to purchase "when-issued" securities ever exceeded 25% of
the value of its assets, a Fund's liquidity and the ability of First of America
or Gulfstream, as the case may be, to manage it might be adversely affected. The
Funds intend only to purchase "when-issued" securities for the purpose of
acquiring portfolio securities, not for investment leverage.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund except the Treasury Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. government securities. This collateral will be valued
daily by Union Bank. Should the market value of the loaned securities increase,
the borrower must furnish additional collateral to that Fund. During the time
portfolio securities are on loan, the borrower pays that Fund any dividends or
interest received on such securities. Loans are subject to termination by the
Fund or the borrower at any time. While a Fund does not have the right to vote
securities on loan, each Fund intends to terminate the loan and regain the right
to vote if that is considered important with respect to the investment. In the
event the borrower defaults in its obligation to a Fund, such Fund bears the
risk of delay in the recovery of its portfolio securities and the risk of loss
of rights in the collateral. The Funds will enter into loan agreements only with
broker-dealers, banks, or other institutions that First of America or
Gulfstream, as the case may be, have determined are creditworthy under
guidelines established by the Group's Board of Trustees.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The SEC requires that the
calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less.
Because the Money Market Funds intend to invest primarily in securities with
maturities of less than one year (although each may invest in securities with
maturities of up to 13 months) and because the SEC requires such securities to
be excluded from the calculation of portfolio turnover rate, the portfolio
turnover rate with respect to each of the Money Market Funds is expected to be
zero for regulatory purposes. For portfolio turnover rates for each of the
Non-Money Market Funds, see "FINANCIAL HIGHLIGHTS."
The portfolio turnover rate for a Fund may vary greatly from year to year, as
well as within a particular year, and may also be affected by cash requirements
for redemptions of shares. High portfolio turnover
PROSPECTUS--Investor A Shares 50
<PAGE> 55
rates will generally result in higher transaction costs, including brokerage
commissions, to a Fund and may result in additional tax consequences to a Fund's
shareholders. Portfolio turnover will not be a limiting factor in making
investment decisions.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding shares of that Fund (as defined
in the Statement of Additional Information).
None of the Funds, with the exception of the Michigan Bond Fund, may:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in such issuer, or the Fund would hold more
than 10% of the outstanding voting securities of the issuer, except that
25% or less of the value of such Fund's total assets may be invested
without regard to such limitations. There is no limit to the percentage of
assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
Irrespective of the investment restriction above, and pursuant to Rule 2a-7
under the 1940 Act, the U.S. Government Obligations Fund, the Prime Obligations
Fund, the Tax-Free Fund and the Treasury Fund each will, with respect to 100% of
its total assets, limit its investment in the securities of any one issuer in
the manner provided by such Rule, which limitations are referred to above under
the caption "INVESTMENT OBJECTIVES AND POLICIES--The Money Market Funds."
The Michigan Bond Fund may not:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, (a) more than 5% of the value of the
Fund's total assets (taken at current value) would be invested in such
issuer (except that up to 50% of the value of the Fund's total assets may
be invested without regard to such 5% limitation), and (b) more than 25% of
its total assets (taken at current value) would be invested in the
securities of a single issuer.
For purposes of the investment limitations above, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues back
the security and, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, a security is considered to
be issued by such non-governmental user.
None of the Funds will:
1. Purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the
U.S. government or its agencies or instrumentalities; (b) wholly-owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
2. (a) Borrow money (not including reverse repurchase agreements or dollar roll
agreements), except that each Fund may borrow from banks for temporary or
emergency purposes and then only in amounts up to 30% (10% in the case of the
Money Market Funds) of its total assets at the time of borrowing (and
provided that such bank borrowings, reverse repurchase agreements and dollar
roll agreements do not exceed in the aggregate one-third of the Fund's total
assets less liabilities other than the obligations represented by the bank
borrowings, reverse repurchase agreements and dollar roll agreements), or
mortgage, pledge or hypothecate any assets except in connection with a bank
51 PROSPECTUS--Investor A Shares
<PAGE> 56
borrowing in amounts not to exceed 30% of the Fund's net assets at the time
of borrowing; (b) enter into reverse repurchase agreements, dollar roll
agreements and other permitted borrowings in amounts exceeding in the
aggregate one-third of the Fund's total assets less liabilities other than
the obligations represented by such reverse repurchase and dollar roll
agreements; and (c) issue senior securities except as permitted by the 1940
Act or any rule, order or interpretation thereunder.
3. Make loans, except that a Fund may purchase or hold debt instruments and lend
portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
For purposes of investment limitation number 1 above only, such limitation shall
not apply to Municipal Securities or governmental guarantees of Municipal
Securities, and industrial development bonds or private activity bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding shares of a Fund.
EACH FUND MAY NOT:
1. Purchase or otherwise acquire any securities, if as a result, more than 15%
(10% in the case of the Money Market Funds) of the Fund's net assets would be
invested in securities that are illiquid.
In addition to the above investment restrictions, the Funds are subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES--Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
TRUSTEES
Overall responsibility for management of the Group rests with its Board of
Trustees. The Group will be managed by the Trustees in accordance with the laws
of the Commonwealth of Massachusetts governing business trusts. There are
currently six Trustees, four 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
names, addresses, birth dates and principal occupations during the past five
years of the Trustees are set forth in the Statement of Additional Information.
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
First of America Bank Corporation ("FABC"), BISYS, The BISYS Group, Inc. or
BISYS Ohio 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 Transfer Agent and may receive fees from
each of the Funds pursuant to the Investor A Distribution and Shareholder
Service Plan described below. BISYS Ohio, an affiliate of BISYS, receives fees
from the Group for providing certain fund accounting services.
INVESTMENT ADVISER AND SUBADVISER
First of America, 303 North Rose Street, Suite 500, Kalamazoo, Michigan 49007,
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 FOA,
which is a wholly-owned subsidiary of FABC. FABC currently has over $21.5
billion in assets and provides financial services to communities in Michigan,
Indiana, Illinois and Florida. FABC has, however, entered into an agreement to
sell its operations in Florida, thereby reducing its assets by approximately
$1.1 billion. As of June 30, 1997, First of America managed over $15.8 billion
on behalf of both taxable and tax-exempt clients, including pensions,
endowments, corporations and individual portfolios. First of America acts as
subadviser to the Trust Division of FABC with respect to
PROSPECTUS--Investor A Shares 52
<PAGE> 57
$7.2 billion in discretionary assets, providing equity, fixed income, balanced
and money management services.
Subject to such policies as the Group's Board of Trustees may determine, First
of America, either directly or, with respect to the International Fund and the
Balanced Allocation Fund, through Gulfstream, furnishes a continuous investment
program for each Fund and makes investment decisions on behalf of each Fund.
First of America utilizes a team approach to the investment management of the
Funds, with up to three professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
each Fund's investment objectives. Roger H. Stamper, Managing Director of First
of America, is primarily responsible for the day-to-day management of each of
the Growth Funds (except the International Fund) and the Growth and Income
Funds. Mark R. Kummerer, Managing Director--Fixed Income of First of America, is
primarily responsible for the day-to-day management of the Income Funds.
Christian S. Swantek, Vice President of First of America, is primarily
responsible for the day-to-day management of the Tax-Free Income Funds. Messrs.
Stamper and Kummerer have held their respective positions with First of America
since 1988 and 1986, respectively. Prior to June 1993, Mr. Swantek was a
portfolio manager at PNC Investment Management & Research and its various
investment management affiliates.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, First of America receives a fee from the
Large Capitalization Fund, computed daily and paid monthly, at the annual rate
of 0.80% of the Fund's average daily net assets. For its services in connection
with each of the Small Capitalization Fund, Mid Capitalization Fund, Equity
Income Fund and Balanced Allocation Fund, First of America's fee is computed
daily and paid monthly at the annual rate of 1.00% of the applicable Fund's
average daily net assets. For its services in connection with the International
Fund, First of America's fee is computed daily and paid monthly at the annual
rate of 1.25% of the first $50 million of the International Fund's average daily
net assets, 1.20% of average daily net assets between $50 million and $100
million, 1.15% of average daily net assets between $100 million and $400 million
and 1.05% of average daily net assets above $400 million. For its services in
connection with each Income Fund and Tax-Free Income Fund, First of America's
fee is computed daily and paid monthly at the annual rate of 0.74% of each
Income Fund's and Tax-Free Income Fund's average daily net assets. For its
services in connection with the Money Market Funds, First of America's fee is
computed daily and paid monthly, at the annual rate of 0.40% of each Money
Market Fund's average daily net assets. First of America may periodically
voluntarily reduce all or a portion of its advisory fee with respect to a Fund
to increase the net income of that Fund available for distribution as dividends.
The voluntary fee reduction will cause the yield of that Fund to be higher than
it would otherwise be in the absence of such a reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream,
100 Crescent Court, Suite 550, Dallas, Texas 75201. Pursuant to the terms of
such Sub-Investment Advisory Agreement, Gulfstream has been retained by First of
America to manage the investment and reinvestment of the assets of the
International Fund and to manage the investment and reinvestment of those assets
of the Balanced Allocation Fund which are invested in foreign securities,
subject to the direction and control of the Group's Board of Trustees.
Under this arrangement, Gulfstream is responsible for day-to-day management of
the International Fund's assets and the applicable portion of the Balanced
Allocation Fund, reviewing investment performance policies and guidelines and
maintaining certain books and records, and First of America is responsible for
selecting and monitoring the performance of Gulfstream and for reporting the
activities of Gulfstream in managing these Funds to the Group's Board of
Trustees. First of America may also render advice with respect to the
International Fund's investments in the United States. Gulfstream utilizes a
team approach to investment management to ensure a disciplined investment
process designed to result in long-term performance consistent with a Fund's
investment objective. No one person is responsible for a Fund's management.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with First of America, Gulfstream receives from First of
America a fee, computed daily and paid monthly, at the
53 PROSPECTUS--Investor A Shares
<PAGE> 58
annual rate of 0.50% of the first $50 million of the International Fund's
average daily net assets and the average daily net assets of the Balanced
Allocation Fund which are invested in foreign securities, 0.45% of such average
daily net assets between $50 million and $100 million, 0.40% of such average
daily net assets between $100 million and $400 million and 0.30% of such average
daily net assets above $400 million, provided the minimum annual fee shall be
$75,000.
Gulfstream was organized in 1991 as a Texas limited partnership by Tull, Doud,
Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is the sole general
partner of Gulfstream. TDMT is owned by C. Thomas Tull, Stephen C. Doud, James
P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and Triltsch are the
portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. First of America is the sole limited partner, and as of August 31,
1996, exercised options to increase its interest in Gulfstream from 49% to 72%.
In spite of the fact that, as a limited partner, First of America does not
possess management authority or responsibility for Gulfstream, because of its
72% ownership interest, First of America may be deemed to control Gulfstream for
purposes of the 1940 Act.
As of June 30, 1997, Gulfstream had over $863 million in international assets of
institutional, investment company, governmental, pension fund and high net worth
individual clients under its investment management. Gulfstream's portfolio
management personnel average over 20 years of investment experience and 10 years
of international investment experience.
For further information regarding the relationship between Gulfstream and First
of America, see "MANAGEMENT OF THE GROUP--Investment Adviser" in the Statement
of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
Fund of the Group, and also acts as the Group's principal underwriter and
distributor. First of America serves as Sub-Administrator for each Fund of the
Group and provides certain services as may be requested by BISYS from time to
time. BISYS and its affiliated companies, including BISYS Ohio, 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 record
keeping services to and through banking and other financial organizations.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from each Fund equal to the lesser of a fee, computed daily and
paid periodically at an annual rate of 0.20% of the Fund's average daily net
assets, or such other fee as may be agreed upon from time to time in writing by
the Group and the Administrator. For its services as Sub-Administrator, First of
America receives, from the Administrator, pursuant to its Sub-Administration
Agreement with BISYS, a fee not to exceed 0.05% of each Fund's average daily net
assets. The Administrator may periodically voluntarily reduce all or a portion
of its administrative fee with respect to a Fund to increase the net income of
that Fund available for distribution as dividends. The voluntary fee reduction
will cause the return of that Fund to be higher than it would otherwise be in
the absence of such reduction.
The Distributor acts as agent for the Funds in the distribution of each of their
shares and, in such capacity, solicits orders for the sale of shares,
advertises, and pays the cost of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but may retain some or all of any sales
charge imposed upon the Investor A Shares and may receive compensation under the
Distribution and Shareholder Service Plan described below.
EXPENSES
First of America, Gulfstream and BISYS each bear all expenses in connection with
the performance of its services as Investment Adviser, Subadviser and
Administrator, respectively, other than the cost of securities (including
brokerage commissions) purchased for the Group. Each Fund will bear the
following
PROSPECTUS--Investor A Shares 54
<PAGE> 59
expenses relating to its operation: organizational expenses, taxes, interest,
brokerage fees and commissions, fees of the Trustees of the Group, SEC fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the Custodian, Transfer Agent and Fund
Accountant, certain insurance premiums, costs of maintenance of the Group's
existence, costs of shareholders' reports and meetings, and any extraordinary
expenses incurred in each Fund's operation. As a general matter, expenses are
allocated to the Investor A Shares and the other classes of shares of the Funds
on the basis of the relative net asset value of each class. The various classes
may bear certain additional retail transfer agency expenses and may also bear
certain additional shareholder service and distribution costs incurred pursuant
to a Distribution and Shareholder Service Plan.
The Trustees reserve the right, subject to the receipt of relevant regulatory
approvals or rulings, if needed, to allocate certain other expenses to the
shareholders of a particular class, including the Investor A Shares 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; SEC registration fees
incurred by a class of shares; expenses related to administrative personnel and
services as required to support the shareholders of a specific class; litigation
or other legal expenses relating solely to one class of shares; and Trustees'
fees incurred as a result of issues relating solely to one class of shares.
DISTRIBUTION PLAN FOR INVESTOR A SHARES
Rule 12b-1, adopted by the SEC under the 1940 Act, permits an investment company
to pay directly or indirectly expenses associated with the distribution of its
shares in accordance with a plan adopted by an investment company's trustees and
approved by its shareholders. Pursuant to such Rule, the Group has adopted an
Investor A Distribution and Shareholder Service Plan (the "Investor A Plan")
with respect to the Investor A Shares of each Fund. Pursuant to the Investor A
Plan, each Fund is authorized to pay or reimburse BISYS, as Distributor of the
Investor A Shares, for certain expenses that are incurred in connection with
shareholder and distribution services. The Plan authorizes any Fund to pay
BISYS, as Distributor of Investor A Shares, a shareholder and distribution
service fee in an amount not to exceed on an annual basis 0.25% of the average
daily net asset value of Investor A Shares of such Fund. Such amount may be used
by BISYS to pay banks and their affiliates (including FOA and its affiliates),
and other institutions, including broker-dealers ("Participating Organizations")
for administration, distribution, and/or shareholder service assistance pursuant
to an agreement between BISYS and the Participating Organization. Under the
Investor A Plan, a Participating Organization may include BISYS, its
subsidiaries, and its affiliates.
Fees paid pursuant to the Investor A Plan are accrued daily and paid monthly,
and are charged as expenses of Investor A Shares of a Fund as accrued. Payments
under the Investor A Plan will be calculated daily and paid monthly at a rate
not to exceed the limits described above, which rate is set from time to time by
the Board of Trustees.
Pursuant to the Investor A Plan, the Distributor may enter into 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
0.25% of the average daily net asset value of the Investor A Shares held of
record or beneficially by the Participating Organization's customers. The
shareholder and distribution services provided by Participating Organizations
may include promoting the purchase of Investor A Shares of a Fund by their
customers; processing purchase, exchange, and redemption requests from customers
and placing orders with the Distributor or the Transfer Agent; processing
dividend and distribution payments from a Fund on behalf of customers; providing
information periodically to customers, including information showing their
positions in Investor A Shares; providing sub-accounting with respect to
Investor A Shares beneficially
55 PROSPECTUS--Investor A Shares
<PAGE> 60
owned by customers or the information necessary for sub-accounting; responding
to inquiries from customers concerning their investment in Investor A Shares;
arranging for bank wires; and providing other similar services as may be
reasonably requested.
Actual distribution and shareholder service expenses for Investor A Shares at
any given time may exceed the Rule 12b-1 fees collected. These unrecovered
amounts plus interest thereon will be carried forward and paid from future Rule
12b-1 fees collected. If the Investor A Plan were terminated or not continued,
the Group would not be contractually obligated to pay for any expenses not
previously reimbursed by the Group. During the fiscal year ended June 30, 1997,
Rule 12b-1 fees collected were sufficient to cover actual distribution and
shareholder service expenses; that is, there were no unrecovered amounts to be
carried forward.
Conflict of interest restrictions may apply to the receipt by Participating
Organizations of compensation from BISYS in connection with the investment of
fiduciary assets in Investor A Shares. Institutions, including banks regulated
by the Comptroller of the Currency, the Federal Reserve Board, or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor, or state
securities commissions, are urged to consult their legal advisers before
investing such assets in Investor A Shares.
As authorized by the Investor A Plan, BISYS has entered into a Participating
Organization Agreement with First of America Securities, Inc. ("FSI"), a
wholly-owned subsidiary of FABC, as a party and on behalf of its affiliate,
First of America Brokerage Services, Inc. ("FOA Brokerage"), a subsidiary of
FOA, pursuant to which FSI and FOA Brokerage have agreed to provide certain
shareholder and distribution services in connection with Investor A Shares of
the Funds purchased and held by FSI or FOA Brokerage for the accounts of its
customers and Investor A Shares of the Funds purchased and held by customers of
FSI or FOA Brokerage directly. These shareholder and distribution services
include, but are not limited to, printing and distributing prospectuses to
persons other than holders of Investor A Shares of the Funds, printing and
distributing advertising and sales literature in connection with the sale of
Investor A Shares, answering routine customer questions concerning the Funds and
providing such personnel and communication equipment as is necessary and
appropriate to accomplish such matters. In consideration of such services BISYS
has agreed to pay FSI a monthly fee, computed at the annual rate of 0.10% of the
average aggregate net asset value of Investor A Shares of the Money Market Funds
and 0.25% of the average aggregate net asset value of Investor A Shares of the
Non-Money Market Funds held during the period in customer accounts for which FSI
or FOA Brokerage has provided services under this Agreement. FSI is responsible
for payment of any portion of that fee payable to FOA Brokerage under the
Agreement. BISYS will be compensated by the Funds in an amount equal to its
payments to FSI under the Participating Organization Agreement. Such fee may
exceed the actual costs incurred by FSI in providing such services.
Also in accordance with the Investor A Plan, BISYS has entered into a
Participating Organization Agreement with FABC on behalf of its wholly-owned
subsidiary banks (the "Subsidiary Banks"), pursuant to which the Subsidiary
Banks have agreed to provide certain distribution, administrative and
shareholder support service in connection with Investor A Shares purchased
through their accounts. Such services include, but are not limited to,
advertising and marketing the Investor A Shares, printing and distributing
prospectuses to persons other than holders of Investor A Shares, printing and
distributing advertising and sales literature in connection with the sale of
Investor A Shares, answering routine customer questions concerning the Funds and
providing such personnel and communication equipment as is necessary and
appropriate to accomplish such matters. In consideration for such services,
BISYS has agreed to pay FABC a monthly fee, computed at the annual rate of 0.10%
for the Money Market Funds and 0.25% for the Non-Money Market Funds of the
average aggregate net asset value of Investor A Shares held during the period in
customer accounts for which the Subsidiary Banks provided such services under
this Agreement. FABC is responsible for making any applicable payments to each
Subsidiary Bank. BISYS will be compensated by each Fund in an amount equal to
its payments to FABC under the Participating Organization Agreement with respect
to Investor A Shares of that Fund. Such fee may exceed the actual costs incurred
by the Subsidiary Banks in providing the services.
PROSPECTUS--Investor A Shares 56
<PAGE> 61
The Group understands that Participating Organizations may charge fees to their
customers who are the owners of Investor A Shares for additional services
provided in connection with their customer accounts. These fees would be in
addition to any amounts which may be received by a Participating Organization
under its Agreement with BISYS. Customers of Participating Organizations should
read this Prospectus in light of the terms governing their account with a
Participating Organization.
The Investor A Plan requires the officers of the Group to provide the Board of
Trustees at least quarterly with a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made. The
Board reviews these reports in connection with its decisions with respect to the
Plan.
As required by Rule 12b-1, the Investor A 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 Plan or in any agreements related to
the Plan ("Independent Trustees"). The Investor A Plan continues in effect as
long as such continuance is specifically approved at least annually by the
Group's Trustees, including a majority of the Independent Trustees.
The Investor A Plan may be terminated by a vote of a majority of the Independent
Trustees, or by a vote of a majority of the holders of the outstanding voting
securities of the Investor A Shares. Any change in the Investor A Plan that
would increase materially the distribution expenses paid by a Fund requires
shareholder approval; otherwise, the Plan may be amended by the Trustees,
including a majority of the Independent Trustees by a vote cast in person at a
meeting called for the purpose of voting upon the amendment. As long as the
Investor A Plan is in effect, the selection or nomination of the Independent
Trustees is committed to the discretion of the Independent Trustees.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS serves as the Group's Transfer Agent pursuant to a Transfer Agency
Agreement with the Group and receives a fee for such services. BISYS Ohio, 3435
Stelzer Road, Columbus, Ohio 43219, provides certain accounting services for
each of the Funds and receives a fee for such services. See "MANAGEMENT OF THE
GROUP--Custodian, Transfer Agent and Fund Accounting Services" in the Statement
of Additional Information for further information.
While BISYS Ohio is a distinct legal entity from BISYS (the Group's
Administrator and Distributor), BISYS Ohio is considered to be an affiliated
person of BISYS under the 1940 Act due to, among other things, the fact that
BISYS Ohio and BISYS are both owned by The BISYS Group, Inc.
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. FABC,
FSI, FOA Brokerage and the Subsidiary Banks believe that they may provide the
shareholder and distribution services contemplated by their Participating
Organization Agreements with BISYS and by this Prospectus without violating
applicable banking laws or regulations. Future changes in federal or state
statutes and regulations relating to permissible activities of banks or bank
holding companies and their subsidiaries and affiliates as well as further
judicial or administrative decisions or interpretations of present and future
statutes and regulations could change the manner in which First of America, FSI,
FOA Brokerage or the Subsidiary Banks could continue to perform such services
for the Group. See the Statement of Additional Information ("MANAGEMENT OF THE
GROUP-- Glass-Steagall Act") for further discussion.
HOW TO BUY INVESTOR A SHARES
Investor A Shares of each Fund are continuously offered and may be purchased
directly either by mail or by telephone. Investor A Shares of the Michigan Bond
Fund may only be sold in those states where the Fund has filed the required
notification documents, currently only Colorado, District of Columbia, Florida,
57 PROSPECTUS--Investor A Shares
<PAGE> 62
Georgia, Hawaii, Illinois, Indiana, Michigan, Mississippi, New Jersey, Ohio and
Virginia. Investor A Shares may also be purchased through a broker-dealer who
has entered into a dealer agreement with the Distributor. Except as otherwise
discussed below under "Other Information Regarding Purchases" and "Auto Invest
Plan," the minimum initial investment in a Fund, based upon the public offering
price, is $1,000; however, there is no minimum subsequent purchase. Shareholders
will pay the next calculated net asset value after the receipt by the
Distributor of an order to purchase Investor A Shares, plus any applicable sales
charge as described below (see "SALES CHARGES"). In the case of an order for the
purchase of shares placed through a broker-dealer, it is the responsibility of
the broker-dealer to transmit the order to the Distributor promptly.
BY MAIL
To purchase Investor A Shares of any of the Funds by mail, complete an Account
Application Form and return it along with a check or money order made payable to
The Parkstone Group of Funds at the following address:
The Parkstone Group of Funds
P.O. Box 50551
Kalamazoo, Michigan 49005-0551
An Account Application Form can be obtained by calling the Group at (800)
451-8377.
BY TELEPHONE
To purchase Investor A Shares of any of the Funds by telephone, an Account
Application Form must have been previously received by the Distributor. To place
an order by telephone, even if payment is to be made by wire, call the Group's
toll-free number (800) 451-8377. Payment for such Investor A Shares ordered by
telephone may be made by check or wire. Where payment is made by check, the
transaction will not be processed until the check is received by the Group's
Custodian. If a check received to purchase Investor B Shares does not clear or
if a wire transfer is not received by the Group's Custodian within three
Business Days (as defined in "HOW SHARES ARE VALUED") of the purchase order, the
purchase may be canceled and the investor could be liable for any losses or fees
incurred. When purchasing Investor A Shares by wire, contact the Distributor at
(800) 851-1227 for wire instructions.
OTHER INFORMATION REGARDING PURCHASES
Investor A Shares may also be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by FABC or one of its
affiliates. Investor A Shares of the Funds sold to FABC or the affiliate acting
in a fiduciary, advisory, custodial, or other similar capacity on behalf of
Customers will normally be held of record by FABC or the affiliate. With respect
to such Investor A Shares so sold, it is the responsibility of the holder of
record to transmit purchase or redemption orders to the Distributor and to
deliver funds for the purchase thereof on a timely basis. Beneficial ownership
of such Investor A Shares of the Funds will be recorded by FABC or one of its
affiliates and reflected in the account statements provided to Customers. FABC
or one of its affiliates may exercise voting authority for those Investor A
Shares for which it has been granted authority by the Customer.
Investor A Shares of the Funds are purchased at the net asset value per share
(see "HOW SHARES ARE VALUED") next determined after receipt by the Distributor
of an order to purchase Investor A Shares plus any applicable sales charge as
described below. Purchases of Investor A Shares of any of the Funds will be
effected only on a Business Day (as defined in "HOW SHARES ARE VALUED") of the
applicable 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 that Fund. Investor A Shares of all
Funds, except the Money Market Funds, are eligible to earn dividends on the
first Business Day following the execution of the purchase. Investor A Shares of
the Money Market Funds purchased before 11:30 a.m., Eastern Time, begin earning
PROSPECTUS--Investor A Shares 58
<PAGE> 63
dividends on the same Business Day. Investor A Shares of the Funds continue to
be eligible to earn dividends through the day before their redemption.
An order to purchase Investor A Shares will be deemed to have been received by
the Distributor only when federal funds 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 Investor A Shares which
is transmitted by federal funds wire will be available the same day for
investment by the Group's Custodian, if received prior to the last Valuation
Time (see "HOW SHARES ARE VALUED"). Purchases made by check or other means are
made at the price next determined upon receipt of the purchase instrument.
However, proceeds from redeemed shares purchased by check will not be sent until
the method of payment has cleared. The Group strongly recommends that investors
of substantial amounts use federal funds to purchase Investor A Shares.
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 FABC at (800) 544-6155. Due to the relatively high cost of handling
small investments, the Group reserves the right to redeem involuntarily, at net
asset value, the Investor A Shares of any shareholder if, because of redemptions
of Investor A Shares by or on behalf of the shareholder (but not as a result of
a decrease in the market price of such Investor A Shares, the deduction of any
sales charge or the establishment of an account with less than $1,000 using the
Auto Invest Plan), the account of such shareholder in that Fund has a value of
less than $1,000. Accordingly, an investor purchasing Investor A Shares of a
Fund in only the minimum investment amount may be subject to such involuntary
redemption if the investor thereafter redeems any such Investor A Shares. If at
any time a shareholder's account balance falls below $1,000, upon 30 days'
notice, the Group may exercise its right to redeem such Investor A Shares and to
send the proceeds to the shareholder.
Depending upon the terms of a particular Customer account, FABC or one of its
affiliates may charge a Customer account fees for services provided in
connection with investment in a Fund. Information concerning these services and
any charges may be obtained from FABC 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 A
Shares in whole or in part.
Every shareholder will receive a confirmation of each new transaction in the
shareholder's account which will also show the total number of Investor A Shares
of the respective Fund of the Group owned by the shareholder. Confirmation of
purchases and redemptions of Investor A Shares of the Funds by FABC or one of
its affiliates on behalf of a Customer may be obtained from FABC or the
affiliate. Shareholders may rely on these statements in lieu of certificates.
Certificates representing Investor A Shares of the Funds will not be issued.
AUTO INVEST PLAN
The Parkstone Group of Funds Auto Invest Plan (the "Auto Invest Plan") enables
shareholders to make regular monthly or quarterly purchases of Investor A Shares
through automatic deduction from their bank accounts. With shareholder
authorization, the Group's Transfer Agent will deduct the amount specified
(subject to the applicable minimums) from the shareholder's bank account which
will automatically be invested in shares at the public offering price on the
date of such deduction (or the next Business Day thereafter, as defined under
"HOW SHARES ARE VALUED" below). The required minimum initial investment when
opening an account using the Auto Invest Plan is $100; the minimum amount for
subsequent investments in a Fund is $50. To participate in the Auto Invest Plan,
shareholders should complete the appropriate section of the Account Application
Form or a supplemental Auto Invest Plan application that can be acquired by
calling the Group at (800) 451-8377. For a shareholder to change the Auto Invest
Plan instructions, the request must be made in writing to the Group's
Distributor, BISYS Fund Services, c/o The Parkstone Group of Funds, P.O. Box
50551, Kalamazoo, Michigan 49005-0551 and may take up to 15 days to implement.
59 PROSPECTUS--Investor A Shares
<PAGE> 64
SALES CHARGES
The public offering price of Investor A Shares of the Funds is equal to net
asset value plus the applicable sales charge. BISYS receives this sales charge
as Distributor and may reallow it as dealer discounts and brokerage commissions
as follows:
GROWTH FUNDS
GROWTH AND INCOME FUNDS
<TABLE>
<CAPTION>
DEALER
DISCOUNTS
SALES CHARGE AND BROKERAGE
AS % OF SALES CHARGE COMMISSIONS
AMOUNT OF TRANSACTION AT NET AMOUNT AS % OF PUBLIC AS % OF PUBLIC
PUBLIC OFFERING PRICE INVESTED OFFERING PRICE OFFERING PRICE
- ------------------------------------------------- ------------ -------------- --------------
<S> <C> <C> <C>
Less than $50,000................................ 4.71% 4.50% 4.00%
$50,000 but less than $100,000................... 4.17 4.00 3.50
$100,000 but less than $250,000.................. 3.09 3.00 2.50
$250,000 but less than $500,000.................. 2.04 2.00 1.50
$500,000 but less than $1,000,000................ 1.01 1.00 1.00
$1,000,000 or more............................... 0.00 0.00 0.00
</TABLE>
INCOME FUNDS
TAX-FREE INCOME FUNDS
<TABLE>
<CAPTION>
DEALER
DISCOUNTS
SALES CHARGE AND BROKERAGE
AS % OF SALES CHARGE COMMISSIONS
AMOUNT OF TRANSACTION AT NET AMOUNT AS % OF PUBLIC AS % OF PUBLIC
PUBLIC OFFERING PRICE INVESTED OFFERING PRICE OFFERING PRICE
- ------------------------------------------------- ------------ -------------- --------------
<S> <C> <C> <C>
Less than $50,000................................ 4.17% 4.00% 3.75%
$50,000 but less than $100,000................... 3.63 3.50 3.25
$100,000 but less than $250,000.................. 3.09 3.00 2.50
$250,000 but less than $500,000.................. 2.04 2.00 1.50
$500,000 but less than $1,000,000................ 1.01 1.00 1.00
$1,000,000 or more............................... 0.00 0.00 0.00
</TABLE>
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 Investor A
Plan, pay a bonus or other consideration or incentive to dealers who sell a
minimum dollar amount of shares of a Fund during a specified period of time. Any
such additional consideration or incentive program may be terminated at any time
by the Distributor.
The dealer discounts and brokerage commissions schedule above applies to all
dealers who have agreements with the Distributor except FSI, to which the
Distributor reallows all of the sales charge on the shares sold by FSI. The
Distributor, at its expense, may also provide additional compensation to dealers
in connection with sales of shares of any of the Funds of the Group.
Compensation may include financial assistance to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns regarding one or more Funds of the Group, and/or
other dealer-sponsored special events. In some instances, this compensation may
be made available only to certain dealers whose representatives have sold or are
expected to sell a significant amount of such shares. Compensation may include
payment for travel expenses, including lodging, incurred in connection
PROSPECTUS--Investor A Shares 60
<PAGE> 65
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. Compensation may also include the following
types of non-cash items offered through sales contests: (1) vacation trips,
including travel arrangements and lodging at resorts; (2) tickets for
entertainment events (such as concerts, cruises and sporting events); and (3)
merchandise (such as clothing, trophies, clocks and pens). The Distributor, at
its expense, currently conducts an annual sales contest for dealers, including
FSI, in connection with their sales of shares of the Funds. Dealers may not use
sales of a Fund's shares to qualify for this compensation to the extent such may
be prohibited by the laws of any state or any self-regulatory agency, such as
the National Association of Securities Dealers, Inc.
REDUCED SALES CHARGES
SALES CHARGE WAIVERS
The Distributor may waive sales charges for the purchase of Investor A Shares of
a Fund by or on behalf of (1) employees and retired employees (including
spouses, children and parents of employees and retired employees) of FABC, 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
FABC and any affiliate thereof, (4) employees (and their spouses and children
under the age of 21) of any broker-dealer with which the Distributor enters into
an agreement to sell shares of the Funds, (5) orders placed on behalf of other
investment companies distributed by the Distributor and (6) qualified orders
placed by broker-dealers, 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 on Investor A Shares purchased with the
proceeds from the redemption of shares of an unaffiliated mutual fund that were
purchased or sold with a sales load or commission. The purchase must be made
within 60 days of the redemption, and the Distributor must be notified in
writing by the investor, or his financial institution, at the time the purchase
is made. A copy of the investor's account statement showing the redemption must
accompany such notice. Investors are advised that a sales charge will not be
waived in situations where a broker or dealer has reached an agreement with its
customer that the sales charge will be collected, notwithstanding the fact that
a Fund purchase is made with the proceeds from the redemption of shares of an
unaffiliated mutual fund. In these cases, investors acknowledge that the sales
charge compensates the broker or dealer for the services of such broker or
dealer.
The Distributor may also waive sales charges for the purchase of Investor A
Shares of a Fund by employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans qualified under Section
401(k) of the Internal Revenue Code, subject to minimum requirements with
respect to number of employees or amount of purchase, which may be established
by the Distributor. Currently, those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested or
to be invested during the subsequent thirteen-month period in the Funds or the
Investor A Shares of the other Funds of the Group totals at least $1,000,000.
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 one Fund
and of one or more of the other Funds of the Group sold with a sales charge. For
example, if a shareholder concurrently purchases Investor A Shares in one of the
other Funds of the Group sold with a sales charge at the total public offering
price of $25,000 and Investor A Shares in a Fund at the total public offering
price of $25,000, the sales charge would be that applicable to a $50,000
purchase as shown in the appropriate table above. The investor's "concurrent
purchases" described above shall include the combined purchases of the investor,
the investor's spouse and children
61 PROSPECTUS--Investor A Shares
<PAGE> 66
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.
LETTERS OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter of
Intent which expresses the intention of such investor to purchase Investor A
Shares of a Fund at a designated total public offering price within a designated
13-month period. Each purchase of Investor A Shares under a Letter of Intent
will be made at the net asset value plus the sales charge applicable at the time
of such purchase to a single transaction of the total dollar amount indicated in
the Letter of Intent (the "Applicable Sales Charge"). A Letter of Intent may
include purchases of Investor A Shares made not more than 90 days prior to the
date such investor signs a Letter of Intent; however, the 13-month period during
which the Letter of Intent is in effect will begin on the date of the earliest
purchase to be included. An investor will receive as a credit against his/her
initial purchase(s) of shares at the end of the 13-month period the difference,
if any, between the sales load paid on previous purchases qualifying under the
Letter of Intent and the Applicable Sales Charge.
A Letter of Intent is not a binding obligation upon the investor to purchase the
full amount indicated. The minimum initial investment under a Letter of Intent
is 5% of such amount. Investor A Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the name of the
investor) to secure payment of the higher sales charge applicable to the
Investor A Shares actually purchased if the full amount indicated is not
purchased, and such escrowed Investor A Shares will be involuntarily redeemed to
pay the additional sales charge, if necessary. Dividends on escrowed Investor A
Shares, whether paid in cash or reinvested in additional Investor A Shares, are
not subject to escrow. The escrowed Investor A Shares will not be available for
disposal by the investor until all purchases pursuant to the Letter of Intent
have been made or the higher sales charge has been paid. If and when the full
amount indicated has been purchased, the escrow will be released. To the extent
that an investor purchases more than the dollar amount indicated on the Letter
of Intent and qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased, along with any purchases made
during the 90 days prior to the date such investor signs the Letter of Intent,
at the applicable public offering price at the end of the 13-month period. The
difference in sales charge will be used to purchase additional Investor A Shares
of such Fund subject to the rate of sales charge applicable to the actual amount
of the aggregate purchases.
For further information about Letters of Intent, interested investors should
contact the 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.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Investor A Shares of a Fund at the public offering price applicable to the total
of (a) the total public offering price of the Investor A Shares of the Fund then
being purchased plus (b) an amount equal to the then current net asset value of
the "purchaser's combined holdings" of the Investor A Shares of all of the Funds
of the Group sold with a sales charge. The "purchaser's combined holdings"
described in the preceding sentence shall include the combined holdings of the
purchaser, the purchaser's spouse and children under the age of 21 and the
purchaser's retirement plan accounts. To receive the applicable public offering
price pursuant to the right of accumulation, shareholders must, at the time of
purchase, give the Transfer Agent or the Distributor sufficient information to
permit confirmation of qualification. This right of accumulation, however, may
be modified or eliminated at any time or from time to time by the Group without
notice.
PROSPECTUS--Investor A Shares 62
<PAGE> 67
DIRECTED DIVIDEND OPTION
A shareholder may elect to have all income dividends and capital gains
distributions paid by check, reinvested in the Fund or reinvested in any of the
Group's other Funds, without the payment of a sales charge (provided the other
Fund is maintained at the minimum required balance). If you elect to receive
distributions paid by check and the check (1) is returned and marked as
"undeliverable" or (2) remains uncashed for six months, your payment election
will be changed automatically and your future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, any
undeliverable checks that remain uncashed for six months will be cancelled and
reinvested in the Fund at the per share net asset value determined as of the
date of cancellation.
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 IRAs.
EXCHANGE PRIVILEGE
The exchange privilege enables shareholders of Investor A Shares to acquire
Investor A Shares that are offered by another Fund of the Group with a different
investment objective. In order for the exchange privilege to apply, the
redemption of one Fund and corresponding purchase of another Fund must occur on
the same Business Day (as defined in "HOW SHARES ARE VALUED" below). Except in
the case of holders of Investor C Shares wishing to exchange their shares for
Investor A Shares of any of the Money Market Funds, holders of shares of one
class may not exchange their shares for shares of another class. For example,
holders of a Fund's Investor B Shares may not exchange their shares for Investor
A Shares, and holders of a Fund's Investor A Shares may not exchange their
shares for Investor B Shares.
Holders of Investor A Shares of any of the Group's Money Market Funds (including
Investor A Shares acquired through reinvestment of dividends and distributions
on such shares) may exchange those Investor A Shares at net asset value without
any sales charge for Investor A Shares offered by any of the Group's other Money
Market 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. Similarly, holders of Investor A Shares of any of the
Group's other Funds (the "Non-Money Market Funds") may exchange those Investor A
Shares at net asset value without any sales charge for Investor A Shares offered
by any Fund of the Group, including the Money Market Funds. Holders of Investor
A Shares of any of the Group's Money Market Funds may exchange those Investor A
Shares for Investor A Shares offered by the Non-Money Market Funds of the Group,
but a sales load will be charged on the exchange.
An exchange is considered a sale of shares on which a shareholder may realize a
capital gain or loss for federal income tax purposes. A shareholder may not
include any sales charge on shares of a Fund as a part of the cost of those
shares for purposes of calculating the gain or loss realized on an exchange of
those shares within 90 days of their purchase.
A shareholder wishing to exchange his or her shares may do so by contacting the
Group at (800) 451-8377 or by providing written instructions to the Transfer
Agent. Any shareholder who wishes to make an exchange should obtain and review
the current Prospectus of the Fund of the Group in which the shareholder wishes
to invest before making the exchange. For a discussion of risks associated with
unauthorized telephone exchanges, see "HOW TO REDEEM YOUR INVESTOR A SHARES--By
Telephone" below.
63 PROSPECTUS--Investor A Shares
<PAGE> 68
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS
Investor A Shares of the Funds are available to shareholders on a tax-deferred
basis through the following retirement plans:
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A Parkstone IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Parkstone IRA contributions may be tax-deductible and earnings are tax-deferred.
Under the Tax Reform Act of 1986, the tax deductibility of IRA contributions is
restricted or eliminated for individuals who participate in certain employer
pension plans and whose annual income exceeds certain limits. Existing IRAs and
future contributions up to the IRA maximums, whether deductible or not, still
earn income on a tax-deferred basis.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")
A Parkstone SEP/IRA may be established on a group basis by an employer who
wishes to sponsor a tax-sheltered retirement program by making contributions
into IRAs on behalf of all eligible employees.
All Parkstone IRA distribution requests must be made in writing to the Transfer
Agent. Any additional deposits to a Parkstone IRA must distinguish the type and
year of the contribution.
For more information on any of the Parkstone IRAs or other retirement plan
options available (401(k) Defined Contribution Plans, 403(b)(7) Defined
Compensation Plans, etc.), call the Group at (800) 451-8377. Shareholders are
advised to consult a tax adviser on Parkstone IRA contribution and withdrawal
requirements and restrictions.
HOW TO REDEEM YOUR INVESTOR A SHARES
Shareholders may redeem their Investor A Shares on any day that net asset value
is calculated (see "HOW SHARES ARE VALUED"). Holders of Investor A Shares with
over $1 million invested in the Small Capitalization Fund who redeem such shares
within one year from the date of purchase will be subject to a 1.00% redemption
fee. All other shareholders may redeem their Investor A Shares without charge.
Redemptions will be effected at the net asset value per share next determined
after receipt of a redemption request. Redemptions may be requested by mail or
by telephone.
BY MAIL
A written request for redemption must be received by the Transfer Agent in order
to honor the request. The Transfer Agent's address is: BISYS Fund Services, c/o
The Parkstone Group of Funds, P.O. Box 50551, Kalamazoo, Michigan 49005-0551.
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 Form. 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 neither is a member of a clearing corporation nor maintains net
capital of at least $100,000.
PROSPECTUS--Investor A Shares 64
<PAGE> 69
BY TELEPHONE
Investor A Shares may be redeemed by telephone if the Account Application Form
reflects that the shareholder has that capability. The shareholder may have the
proceeds mailed to his or her address or mailed or 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 (as defined
in "HOW SHARES ARE VALUED" below). 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.
The Group's Account Application Form provides that neither BISYS, BISYS Ohio,
the Group nor 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.
In addition, redemptions by telephone will be suspended for a period of 10 days
following any change in the applicable telephone number.
CHECK WRITING FEATURE
Shareholders of Investor A Shares of the Money Market Funds may write checks on
accounts for a minimum of $500. Once a shareholder has signed and returned a
signature card, he or she will receive a supply of checks. A check may be made
payable to any person, and the shareholder's account will continue to earn
dividends until the check clears. Because of the difficulty of determining in
advance the exact value of the Fund account, a shareholder may not use a check
to close his or her account. The shareholder's account will be charged a fee for
stopping payment of a check upon the shareholder's request or if the check
cannot be honored because of insufficient funds or other valid reasons.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables shareholders of a Fund to make regular monthly
or quarterly redemptions of Investor A Shares. With shareholder authorization,
the Transfer Agent will automatically redeem such Investor A Shares at the net
asset value on the fifth and/or twentieth day of the month or quarter (or the
next Business Day, as defined in "HOW SHARES ARE VALUED," 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 A 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 Plan instructions, the request must be made in writing to the
Distributor and may take up to 15 days to implement.
65 PROSPECTUS--Investor A Shares
<PAGE> 70
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a customer's Investor A Shares may be redeemed in accordance with
instructions and limitations pertaining to his or her account at FABC or one of
its affiliates.
Redemption orders are effected at the net asset value per share next determined
after the Investor A Shares are properly tendered for redemption, as described
above. The proceeds paid upon redemption of such Investor A Shares of the Funds
may be more or less than the amount invested. Payment to shareholders for such
Investor A 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 A Shares will be honored if received by the Transfer Agent before 4:00
p.m. (Eastern Time) on a Business Day (as defined below in "HOW SHARES ARE
VALUED") or, if received after 4:00 p.m. (Eastern Time), within two Business
Days, unless it would be disadvantageous to the Group or the shareholders of a
Fund to sell or liquidate portfolio securities in an amount sufficient to
satisfy requests for payments in that manner. Also to the greatest extent
possible, requests for same day payments upon redemption of Investor A Shares of
the Money Market Funds will be honored if the request for redemption is received
by the Transfer Agent before 11:30 a.m., (Eastern Time), on a Business Day or,
if received after 11:30 a.m., (Eastern Time), on the next Business Day, unless
it would be disadvantageous to the Group or the shareholders of a Fund to sell
or liquidate portfolio securities in an amount sufficient to satisfy requests
for payments in that manner.
At various times, the Group may be requested to redeem Investor A Shares for
which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed until payment has been collected for the
purchase of such Investor A Shares which delay may be for 15 days or more. Such
delay may be avoided if such Investor A Shares are purchased by wire transfer of
federal funds. The Group intends to pay cash for all Investor A Shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in portfolio securities at their then market value equal
to the redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
See the Statement of Additional Information ("ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION") for examples of when the Group may suspend the right of redemption
or redeem Investor A Shares involuntarily if it appears appropriate to do so in
light of the Group's responsibilities under the 1940 Act.
HOW SHARES ARE VALUED
The net asset value of the Investor A Shares of the Funds, with the exception of
the Money Market Funds, is determined and the shares are priced as of the close
of trading on the New York Stock Exchange (the "NYSE") on each Business Day
(generally 4:00 p.m. Eastern Time) (with respect to the Non-Money Market Funds,
the "Valuation Time"). The net asset value of the Investor A Shares of the Money
Market Funds is determined and the shares are priced as of 12:00 p.m. noon
(Eastern Time) and as of the close of trading on the NYSE on each Business Day
(with respect to the Money Market Funds, the "Valuation Times"). A "Business
Day" is a day on which the NYSE 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. Currently, the NYSE will not open in observance of the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding shares of such class.
The net asset value per share will fluctuate as the value of the investment
portfolio of a Fund changes. However, the assets in each Money Market Fund are
valued based upon the amortized cost method. Pursuant to the rules and
regulations of the SEC regarding the use of the amortized cost method, each
PROSPECTUS--Investor A Shares 66
<PAGE> 71
Money Market Fund will maintain a dollar-weighted average portfolio maturity of
90 days or less. Although the Group seeks to maintain each Money Market Fund's
net asset value per share at $1.00, there can be no assurance that net asset
value will not vary.
The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. Foreign securities are valued
based on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income for each Fund is declared monthly as a dividend to shareholders at
the close of business on the day of declaration and is paid monthly, except for
the Money Market Funds which declare dividends daily and pay them monthly. In
some months, certain Funds may not pay any dividends. Distributable net realized
capital gains are distributed at least annually. A shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional shares at net asset value as of the date of
declaration, unless the shareholder elects to receive dividends or distributions
in cash or elects to participate in the Directed Dividend Option. Such election,
or any revocation thereof, must be made in writing to the Transfer Agent, c/o
The Parkstone Group of Funds, P.O. Box 50551, Kalamazoo, Michigan 49005-0551,
and will become effective with respect to dividends and distributions having
record dates after its receipt by the Transfer Agent.
Each Fund's net investment income available for distribution to the holders of
Investor A Shares will be reduced by the amount of Rule 12b-1 fees payable to
Participating Organizations under the Investor A Plan. Each Fund's net
investment income available for distribution to the holders of Investor A Shares
may also be reduced by the amount of retail transfer agency fees payable to the
Transfer Agent applicable to the Investor A Shares.
Each of the Funds of the Group is treated as a separate entity for federal
income tax purposes. Each Fund intends to qualify as a "regulated investment
company" under the Code for so long as such qualification is in the best
interest of its shareholders and each intends to distribute all of its net
income and capital gains so that it is not required to pay federal income taxes
on amounts so distributed to shareholders.
To avoid federal income tax, the Code requires each Fund to distribute each
taxable year at least 90% of its investment company taxable income and at least
90% of its exempt-interest income. In addition, to avoid imposition of a
non-deductible 4% excise tax, each Fund is required annually to distribute,
prior to calendar year end, 98% of taxable ordinary income on a calendar year
basis, 98% of capital gain net income realized in the twelve months preceding
October 31, and the balance of undistributed taxable ordinary income and capital
gain net income from the prior calendar year. Finally, in order to permit the
Municipal Bond Fund and the Michigan Bond Fund each to distribute
exempt-interest dividends which shareholders may exclude from their gross
taxable income for federal income tax purposes, at least 50% of such Fund's
total assets must consist of obligations the interest on which is exempt from
federal income tax as of the close of each fiscal quarter of such Fund.
A shareholder receiving a distribution of ordinary income and/or an excess of
short-term capital gain over net long-term loss would treat it as a receipt of
ordinary income. The dividends-received deduction for corporations will apply to
the aggregate of such ordinary income distributions in the same proportion as
the aggregate dividends from domestic corporations, if any, received by that
Fund bear to its gross income. A shareholder will not be able to take the
dividends-received deduction unless that shareholder holds the shares for at
least 46 days.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to its shareholders as long-term capital gain
in the year in which it is received, regardless of how
67 PROSPECTUS--Investor A Shares
<PAGE> 72
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 taxation.
Taxes may be imposed on the Funds, particularly the Balanced Allocation Fund and
International Fund, by foreign countries with respect to income received on
foreign securities. If more than 50% of the value of a Fund's assets at the
close of its taxable year consists of stocks or securities of foreign
corporations, the Fund may elect to treat any foreign income taxes it paid as
paid by its shareholders. In this case, shareholders generally will be required
to include in income their pro rata share of such taxes, but will then be
entitled to claim a credit or deduction for their share of such taxes. However,
a particular shareholder's ability to utilize such a credit will be subject to
certain limitations imposed by the Code. The Funds will report to their
shareholders each year the amount, if any, of foreign taxes per share that they
have elected to have treated as paid by their shareholders.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made during the year.
THE MUNICIPAL BOND FUND, THE MICHIGAN BOND FUND AND THE TAX-FREE FUND (THE
"EXEMPT FUNDS")
Dividends derived from exempt-interest income may be treated by an Exempt Fund's
shareholders as items of interest which may be excluded from their gross income.
However, such dividends may be taxable to shareholders of the Municipal Bond
Fund and the Tax-Free Fund under state or local law as ordinary income even
though all or a portion of the amounts may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
taxes. In determining net exempt-interest income, expenses of the Exempt Fund
are allocated to gross tax-exempt interest income in the proportion that the
gross amount of such interest income bears to the Exempt Fund's total gross
income, excluding net capital gains. (Shareholders are advised to consult a tax
adviser with respect to whether exempt-interest dividends retain the exclusion
if such shareholder would be treated as a "substantial user" or a "related
person" to such user under the Code). Interest on indebtedness incurred or
continued by a shareholder to purchase or carry shares is not deductible for
federal income tax purposes if an Exempt Fund distributes exempt-interest
dividends during the shareholder's taxable year. It is anticipated that
distributions from the Exempt Funds will not be eligible for the
dividends-received deduction for corporations.
Under the Code, if a shareholder receives an exempt-interest dividend with
respect to any share and such share is held for six months or less, any loss on
the sale or exchange of such share will be disallowed to the extent of the
amount of such exempt-interest dividend, although the Treasury Department is
authorized to issue regulations reducing the period to not less than 31 days for
regulated investment companies that regularly distribute at least 90% of their
net tax-exempt interest. No such regulations have been issued as of the date of
this Prospectus. In addition, dividends attributable to interest on certain
private activity bonds may have to be included in shareholders' income for
purposes of calculating alternative minimum tax. See "ADDITIONAL
INFORMATION--Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Bond Fund" in the Statement of Additional
Information for more information regarding the federal alternative minimum tax.
To the extent dividends paid to shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase agreements)
or from long-term or short-term capital gains, such dividends will be subject to
federal income tax. A shareholder should consult his or her own tax adviser for
any special advice.
Distributions by the Michigan Bond Fund to holders of shares who are subject to
the Michigan personal income tax and/or single business tax will not be subject
to the Michigan personal income tax, single
PROSPECTUS--Investor A Shares 68
<PAGE> 73
business tax or any Michigan city income tax to the extent that the
distributions are attributable to income received by the Michigan Bond Fund as
interest from Michigan Municipal Securities or to the extent that the
distributions are attributable to interest income and gains from the sale or
disposal of United States obligations exempted from state taxation by the United
States Constitution, treaties, and statutes. However, some or all of the other
distributions by the Michigan Bond Fund may be taxable by the State of Michigan
or subject to applicable city income taxes, even if the distributions are
attributable to income of the Michigan Bond Fund derived from obligations of the
United States or its agencies and instrumentalities. In addition, to the extent
that a shareholder of the Michigan Bond Fund is obligated to pay state or local
taxes outside of Michigan, dividends earned by an investment in the Michigan
Bond Fund may represent taxable income. Investments held in the Michigan Bond
Fund by a Michigan resident are not subject to the Michigan intangible personal
property tax to the extent that the investments are attributable to bonds or
other similar obligations of the State of Michigan or a political subdivision
thereof, or obligations of the United States.
The Michigan Department of Treasury in a 1986 Revenue Administrative Bulletin
has taken the position that the tax attributes of the securities held by a
mutual fund flow through to the investors. Based on this position, the Michigan
Department of Treasury has stated that mutual fund distributions attributable to
interest from the fund's investment in direct U.S. government securities, as
well as Municipal Securities, will not be subject to the Michigan personal
income tax. The Michigan Department of Treasury also has stated that an owner of
a share of a mutual fund will not be subject to intangible personal property tax
to the extent that the pro rata share of the securities underlying the mutual
fund would be exempt.
For Michigan personal income tax and intangible personal property tax purposes,
taxable distributions from investment income and short-term capital gains, if
any, are taxable as ordinary income, whether received in cash or additional
shares, and are subject to the Michigan intangible personal property tax and to
applicable Michigan city income taxes. The Michigan single business tax, a
modified value added tax, is computed by applying the tax rate to a tax base
determined by making certain adjustments to federal taxable income. Taxable
distributions from investment income and gains, if any, may be included in
federal taxable income or may comprise one of the adjustments made to the tax
base. Distributions of cash, other property or additional shares by the Michigan
Bond Fund to a Michigan single business taxpayer attributable to any gain
realized from the sale, exchange or other disposition of Michigan Municipal
Securities may be included in the Michigan single business taxpayer's adjusted
tax base for purposes of the Michigan single business tax to the extent included
in federal taxable income. Distributions of cash, other property or additional
shares by the Michigan Bond Fund to a Michigan single business taxpayer are not
subject to the Michigan single business tax to the extent that the distributions
are attributable to interest income from and any gain realized from the sale,
exchange or other disposition of U.S. securities. Taxable long-term capital
gains distributions are taxable as long-term capital gains for Michigan purposes
irrespective of how long a shareholder has held the shares, except that such
distributions reinvested in shares of the Michigan Bond Fund are exempt from the
Michigan intangible personal property tax.
THE U.S. GOVERNMENT OBLIGATIONS FUND, THE PRIME OBLIGATIONS FUND AND THE
TREASURY FUND
Since all of the net investment income of the U.S. Government Obligations Fund,
the Prime Obligations Fund and the Treasury Fund is expected to be derived from
earned interest, it is anticipated that no part of any distribution will be
eligible for the dividends-received deduction for corporations. The U.S.
Government Obligations Fund, the Prime Obligations Fund and the Treasury Fund do
not expect to realize any long-term capital gains and, therefore, do not foresee
paying any "capital gains dividends" as described in the Code.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders. Potential
investors are advised to consult their tax advisers concerning state and local
taxes, which may differ from the federal, state and local income taxes described
above.
69 PROSPECTUS--Investor A Shares
<PAGE> 74
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a class of shares in a Fund will be
calculated for the period since the establishment of the Funds and will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a class of shares in a
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions) and annualizing the result. Aggregate
total return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of annualized.
Yield of a class of shares will be computed by dividing a class of shares' net
investment income per share earned during a recent one-month period by that
class of shares' per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result. Each Fund may also present its average annual
total return, aggregate total return and yield, as the case may be, excluding
the effect of a sales charge, if any.
In addition, from time to time the Funds may present their respective
distribution rates for a class of shares in shareholder reports and in
supplemental sales literature which is accompanied or preceded by a prospectus.
Distribution rates will be computed by dividing the distribution per share of a
class made by a Fund over a twelve-month period by the maximum offering price
per share. The calculation of income in the distribution rate includes both
income and capital gains dividends and does not reflect unrealized gains or
losses, although a Fund may also present a distribution rate excluding the
effect of capital gains. The distribution rate differs from the yield, because
it includes capital gains which are often non-recurring in nature, whereas yield
does not include such items. Distribution rates may also be presented excluding
the effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Investor A Shares and the other classes of the Funds. Because of differences in
the fees and/or expenses borne by different classes of shares of the Funds, the
net yield and total return on Investor A Shares may be different from that for
another class of the same Fund. For example, net yield and total return on
Investor A Shares is expected, at any given time, to be lower than the net yield
and total return on Institutional Shares for the same period.
Investors may also judge the performance of any class of shares or Fund by
comparing or referencing it to the performance of various mutual fund or market
indices such as those published by various services, including, but not limited
to, ratings published by Morningstar, Inc. In addition to performance
information, general information about the Funds that appears in such
publications may be included in advertisements, in sales literature and in
reports to shareholders. For further information regarding such services and
publications, see "ADDITIONAL INFORMATION--Performance Comparisons" in the
Statement of Additional Information.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, levels of operating expenses and changes in market conditions.
Consequently, total return and yield will fluctuate and are not necessarily
representative of future results. Any fees charged by FABC or any of its
affiliates with respect to customer accounts for investing in shares of the
Funds will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted. In addition, if First of
America and BISYS voluntarily reduce all or a part of their respective fees, as
further discussed above, the total return of such Fund will be higher than it
would otherwise be in the absence of such voluntary fee reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's Funds through FUNDATA(R), an Automated Voice
Response System, 24 hours a day by
PROSPECTUS--Investor A Shares 70
<PAGE> 75
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, as of the
date of this Prospectus, offers eighteen Funds. The shares of each of the Funds
of the Group may be offered in up to five separate classes: Investor A Shares,
Investor B Shares, Investor C Shares, Investor Z Shares and Institutional
Shares. Each share represents an equal proportionate interest in a Fund with
other shares of the same Fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Fund as
are declared at the discretion of the Trustees. Shares do not have a par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by Fund except as otherwise
expressly required by law. For example, shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of Trustees and ratification of the selection of independent accountants.
However, shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement. In addition, holders of Investor A Shares of a
Fund will vote as a class and not with holders of another class of that Fund
with respect to the approval of its Investor A Plan.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve an investment and sub-investment advisory agreements and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Group may elect not to have an annual or special meeting.
The Group has represented to the SEC that the Trustees will call a special
meeting of shareholders for purposes of considering the removal of one or more
Trustees upon written request therefor from shareholders holding not less than
10% of the outstanding votes of the Group. At such a meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Group), by majority vote, has the power to remove one or more
Trustees.
As of June 30, 1997, FABC, through its wholly-owned subsidiaries, possessed on
behalf of its underlying accounts voting or investment power with respect to
more than 25% of the shares of each of the Funds, and therefore may be presumed
to control each Fund within the meaning of the 1940 Act.
MULTIPLE CLASSES OF SHARES
In addition to Investor A Shares, the Group also offers Investor B Shares,
Investor C Shares, Investor Z Shares and Institutional Shares of certain Funds
pursuant to a Multiple Class Plan adopted by the Group's Trustees under Rule
18f-3 of the 1940 Act. A salesperson or other person entitled to receive
compensation for selling or servicing the shares may receive different
compensation with respect to one particular class of shares over another in the
same Fund. The amount of dividends payable with respect to other classes of
shares will differ from dividends on Investor A Shares as a result of the
Investor A Plan fees applicable to Investor A Shares and because Investor A
Shares may bear different retail transfer agency expenses. For further details
regarding these other classes of shares, call the Group at (800) 451-8377.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at P.O. Box 50551, Kalamazoo, MI 49005-0551, or by calling toll-free
(800) 451-8377.
71 PROSPECTUS--Investor A Shares
<PAGE> 76
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
PROSPECTUS--Investor A Shares 72
<PAGE> 77
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<PAGE> 78
THE PARKSTONE GROUP OF FUNDS
Investor A Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
First of America Investment Corporation
Suite 500
303 North Rose Street
Kalamazoo, Michigan 49007
SUBADVISER (INTERNATIONAL FUND AND BALANCED ALLOCATION FUND)
Gulfstream Global Investors, Ltd.
Suite 550
100 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
San Francisco, California 94111
LEGAL COUNSEL
Howard & Howard Attorneys, P.C.
Suite 400
107 West Michigan Avenue
Kalamazoo, Michigan 49007
<PAGE> 79
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INVESTOR B SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX-FREE INCOME FUNDS
THE PARKSTONE PRIME OBLIGATIONS FUND
FORM N-1A
CROSS-REFERENCE SHEET
Part A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO. RULE 404(a) CROSS REFERENCE
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1. Cover Page .......................................... Cover Page
2. Synopsis............................................. Prospectus Summary; Fee Tables
3. Condensed Financial Information...................... Financial Highlights; Performance Information
4. General Description of Registrant.................... Cover Page; Investment Objectives and Policies;
Investment Restrictions; Risk Factors and
Investment Techniques; General Information -
Organization of the Group
5. Management of the Fund............................... Management of the Funds; Fee Tables
5A. Management's Discussion of Fund
Performance.......................................... Not Applicable
6. Capital Stock and Other Securities................... Directed Dividend Option; Dividends and Taxes;
General Information - Organization of the Group;
General Information - Multiple Classes of Shares;
General Information - Miscellaneous
7. Purchase of Securities Being Offered................. Management of the Funds - Administrator, Sub-
Administrator and Distributor; Management of
the Funds - Distribution Plan for Investor B
Shares; How to Buy Investor B Shares; Sales
Charges; Exchange Privilege; Parkstone
Individual Retirement Accounts; How Shares are
Valued
8. Redemption or Repurchase............................. Sales Charges; Contingent Deferred Sales Charge;
Exchange Privilege; Conversion Feature; How to
Redeem Your Investor B Shares
9. Pending Legal Proceedings............................ Not Applicable
</TABLE>
<PAGE> 80
- --------------------------------------------------------------------------------
THE PARKSTONE
GROUP OF FUNDS
INVESTOR B SHARES
- --------------------------------------------------------------------------------
GROWTH FUNDS
PARKSTONE SMALL CAPITALIZATION FUND
PARKSTONE MID CAPITALIZATION FUND
PARKSTONE LARGE CAPITALIZATION FUND
PARKSTONE INTERNATIONAL DISCOVERY FUND
GROWTH AND INCOME FUNDS
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE EQUITY INCOME FUND
INCOME FUNDS
PARKSTONE BOND FUND
PARKSTONE LIMITED MATURITY BOND FUND
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
PARKSTONE MUNICIPAL BOND FUND
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
MONEY MARKET FUND
PARKSTONE PRIME OBLIGATIONS FUND
Prospectus dated September 30, 1997
-------------------------
[PARKSTONE LOGO]
NOT FDIC INSURED
<PAGE> 81
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 82
THE PARKSTONE GROUP OF FUNDS
INVESTOR B SHARES PROSPECTUS DATED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
GROWTH FUNDS For more information call:
Parkstone Small Capitalization Fund (800) 451-8377
Parkstone Mid Capitalization Fund or write to:
Parkstone Large Capitalization Fund 3435 Stelzer Road
Parkstone International Discovery Fund Columbus, Ohio 43219
GROWTH AND INCOME FUNDS
Parkstone Balanced Allocation Fund THESE SECURITIES HAVE NOT
Parkstone Equity Income Fund BEEN APPROVED OR
DISAPPROVED BY THE
INCOME FUNDS SECURITIES AND EXCHANGE
Parkstone Bond Fund COMMISSION OR ANY STATE
Parkstone Limited Maturity Bond Fund SECURITIES COMMISSION NOR
Parkstone Intermediate Government Obligations HAS THE COMMISSION OR ANY
Fund STATE SECURITIES COMMISSION
Parkstone U.S. Government Income Fund PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS
TAX-FREE INCOME FUNDS PROSPECTUS. ANY
Parkstone Municipal Bond Fund REPRESENTATION TO THE
Parkstone Michigan Municipal Bond Fund CONTRARY IS A CRIMINAL
OFFENSE
MONEY MARKET FUND
Parkstone Prime Obligations Fund
</TABLE>
The funds listed above are thirteen of the currently-offered series (the
"Funds") of The Parkstone Group of Funds (the "Group") which offer Investor B
Shares. This Prospectus explains concisely what you should know before investing
in the Investor B Shares of the Funds listed above. Please read it carefully and
keep it for future reference. You can find more detailed information about the
Funds in the September 30, 1997 Statement of Additional Information, as amended
from time to time. For a free copy of the Statement of Additional Information or
other information, contact the Group at the number specified above. The
Statement of Additional Information has been filed with the SEC (the "SEC") and
is incorporated into this Prospectus by reference.
THE SHARES OF THE PARKSTONE GROUP OF FUNDS ARE NOT OBLIGATIONS OR DEPOSITS OF
FIRST OF AMERICA INVESTMENT CORPORATION OR ITS PARENT, AND THE INVESTMENTS
DESCRIBED IN THIS PROSPECTUS ARE NOT ENDORSED, INSURED OR GUARANTEED BY FIRST OF
AMERICA INVESTMENT CORPORATION, ITS PARENT OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVOLVED.
PROSPECTUS--Investor B Shares
<PAGE> 83
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................... 5
FEE TABLES................................................................... 8
FINANCIAL HIGHLIGHTS......................................................... 11
INVESTMENT OBJECTIVES AND POLICIES........................................... 21
RISK FACTORS AND INVESTMENT TECHNIQUES....................................... 34
INVESTMENT RESTRICTIONS...................................................... 46
MANAGEMENT OF THE FUNDS...................................................... 47
HOW TO BUY INVESTOR B SHARES................................................. 52
SALES CHARGES................................................................ 54
CONTINGENT DEFERRED SALES CHARGE............................................. 55
DIRECTED DIVIDEND OPTION..................................................... 56
EXCHANGE PRIVILEGE........................................................... 57
FACTORS TO CONSIDER WHEN SELECTING INVESTOR B SHARES......................... 58
CONVERSION FEATURE........................................................... 58
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS..................................... 59
HOW TO REDEEM YOUR INVESTOR B SHARES......................................... 59
HOW SHARES ARE VALUED........................................................ 61
DIVIDENDS AND TAXES.......................................................... 62
PERFORMANCE INFORMATION...................................................... 64
FUNDATA(R)................................................................... 65
GENERAL INFORMATION.......................................................... 66
</TABLE>
PROSPECTUS--Investor B Shares 2
<PAGE> 84
PROSPECTUS ROADMAP
For information about the following subjects, consult the pages indicated on the
table below.
<TABLE>
<CAPTION>
INVESTMENT
FINANCIAL OBJECTIVES RISK FACTORS AND
FUND HIGHLIGHTS AND POLICIES INVESTMENT TECHNIQUES
<S> <C> <C> <C>
Balanced Allocation Fund 14 24 26
Bond Fund 16 27 28
Equity Income Fund 15 26 27
Government Income Fund 19 29 30
International Discovery Fund 13 23 24
Intermediate Government Obligations Fund 18 29 29
Large Capitalization Fund 13 22 23
Limited Maturity Bond Fund 17 27 28
Michigan Municipal Bond Fund 20 30 32
Mid Capitalization Fund 12 22 23
Municipal Bond Fund 21 30 32
Prime Obligations Fund -- 32 34
Small Capitalization Fund 12 22 23
</TABLE>
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which offers to the public eighteen separate investment portfolios,
seventeen of which are diversified portfolios and one of which is a
non-diversified portfolio, each with different investment objectives. These
Funds enable the Group to meet a wide range of investment needs.
This Prospectus relates only to the Investor B Shares of the following Funds:
Parkstone Small Capitalization Fund (the "Small Capitalization Fund")
Parkstone Mid Capitalization Fund, formerly known as the Parkstone Equity
Fund (the "Mid Capitalization Fund")
Parkstone Large Capitalization Fund (the "Large Capitalization Fund")
Parkstone International Discovery Fund (the "International Fund")
Parkstone Balanced Allocation Fund, formerly known as the Parkstone
Balanced Fund (the "Balanced Allocation Fund")
Parkstone Equity Income Fund, formerly known as the Parkstone High Income
Equity Fund (the "Equity Income Fund")
Parkstone Bond Fund (the "Bond Fund")
Parkstone Limited Maturity Bond Fund (the "Limited Maturity Bond Fund")
Parkstone Intermediate Government Obligations Fund (the "Intermediate
Government Obligations Fund")
Parkstone U.S. Government Income Fund (the "Government Income Fund")
Parkstone Municipal Bond Fund (the "Municipal Bond Fund")
Parkstone Michigan Municipal Bond Fund (the "Michigan Bond Fund")
Parkstone Prime Obligations Fund (the "Prime Obligations Fund")
For convenience of reference, the above Funds are sometimes referred to as part
of a general grouping. The Small Capitalization Fund, Mid Capitalization Fund,
Large Capitalization Fund and International Fund are collectively referred to as
the "Growth Funds." The Balanced Allocation Fund and Equity Income Fund
3 PROSPECTUS--Investor B Shares
<PAGE> 85
are collectively referred to as the "Growth and Income Funds." The Bond Fund,
Limited Maturity Bond Fund, Intermediate Government Obligations Fund and
Government Income Fund are collectively referred to as the "Income Funds." The
Michigan Bond Fund and Municipal Bond Fund are collectively referred to as the
"Tax-Free Income Funds." Finally, the Prime Obligations Fund is referred to as a
"Money Market Fund."
The Trustees of the Group have divided beneficial ownership of each of the Funds
into an unlimited number of transferable units called shares. Most Funds of the
Group offer multiple classes of shares. This Prospectus describes Investor B
Shares for certain of the Group's Funds. Interested persons who wish to obtain a
copy of any of the Group's other Prospectuses or a copy of the Group's most
recent Annual Report may contact the Group at the telephone number shown above.
The investment objectives of each of the Funds are described in this Prospectus
and are summarized in the Prospectus Summary. First of America Investment
Corporation, Kalamazoo, Michigan ("First of America" or the "Investment
Adviser"), acts as the investment adviser to each of the Funds of the Group. To
provide investment advisory services for the International Fund and Balanced
Allocation Fund for investments in foreign securities, First of America has
entered into a sub-investment advisory agreement with Gulfstream Global
Investors, Ltd., Dallas, Texas ("Gulfstream" or the "Subadviser").
PROSPECTUS--Investor B Shares 4
<PAGE> 86
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Investor B Shares of the following Funds of the
Group:
GROWTH FUNDS
Small Capitalization Fund
Mid Capitalization Fund
Large Capitalization Fund
International Fund
GROWTH AND INCOME FUNDS
Balanced Allocation Fund
Equity Income Fund
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
TAX-FREE INCOME FUNDS
Municipal Bond Fund
Michigan Bond Fund
MONEY MARKET FUND
Prime Obligations Fund
These Funds represent thirteen separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust which is registered as an
open-end, management investment company.
Purchase and Redemption of Shares
The public offering price of Investor B Shares of each Fund is equal to the net
asset value per share, which, in the case of the Prime Obligations Fund, the
Group will seek to maintain at $1.00. Investors who purchase Investor B Shares
on or after January 1, 1997 may be subject to a contingent deferred sales charge
of up to 5.00% when such shares are redeemed prior to five years from the date
of purchase. Investors who purchased Investor B Shares prior to January 1, 1997
may be subject to a contingent deferred sales charge of up to 4.00% when such
shares are redeemed prior to four years from the date of purchase. Shares may be
purchased by mail or telephone, through a broker-dealer who has entered into an
agreement with the Group's distributor, BISYS Fund Services Limited Partnership
("BISYS"), through the Group's Auto Invest Plan or through certain Parkstone
Individual Retirement Accounts. Investor B Shares of one Fund of the Group may
be exchanged for Investor B Shares of another Fund of the Group at net asset
value without the imposition of a contingent deferred sales charge, provided
certain conditions are met. Shares may be redeemed by contacting the Transfer
Agent or through the Group's Auto Withdrawal Plan. See "HOW TO BUY INVESTOR B
SHARES," "EXCHANGE PRIVILEGE," "HOW TO REDEEM INVESTOR B SHARES" and "HOW SHARES
ARE VALUED."
Minimum Purchase
There is a $1,000 minimum initial purchase (based upon the public offering
price) per Fund with no minimum subsequent investments. Such minimum initial
investment may be waived for certain purchasers and is reduced to $100 for
investors using the Auto Invest Plan described herein to invest in a Fund,
although such investors are subject to a $50 minimum for each subsequent
investment in such Fund. Investor B Shares must be purchased in amounts less
than $250,000.
5 PROSPECTUS--Investor B Shares
<PAGE> 87
Conversion Feature
Investor B Shares which have been outstanding for eight years after the end of
the month in which the shares were initially purchased will automatically
convert to Investor A Shares.
Investment Objectives
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
Balanced Allocation Fund seeks current income, long-term capital growth and
conservation of capital
Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high- and
medium-grade fixed-income securities
Equity Income Fund primarily seeks current income by investing in a
diversified portfolio of high quality,
dividend-paying stocks and securities convertible
into common stocks; a secondary objective is growth
of capital
Government Income Fund seeks to provide shareholders with a high level of
current income consistent with prudent investment
risk
Intermediate Government seeks to provide current income with preservation of
Obligations Fund capital by investing in a diversified portfolio of
U.S. government securities with remaining maturities
of 12 years or less
International Fund seeks long-term growth of capital
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
Limited Maturity Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high- and
medium-grade fixed-income securities, the remaining
maturities on which will be six years or less
Michigan Bond Fund seeks income which is exempt from federal income tax
and Michigan state income and intangibles tax,
although such income may be subject to the federal
alternative minimum tax when received by certain
shareholders; also seeks preservation of capital
Mid Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks
Municipal Bond Fund seeks to provide current interest income which is
exempt from federal income taxes as well as
preservation of capital
Prime Obligations Fund seeks to provide current income, with liquidity and
stability of principal
Small Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks of small- to
medium-sized companies
</TABLE>
PROSPECTUS--Investor B Shares 6
<PAGE> 88
Investment Policies
Under normal market conditions, each fund will invest as described in the
following table:
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Balanced Allocation Fund in any type or class of securities, including all
types of common stocks, fixed-income securities and
securities convertible into common stocks
Bond Fund at least 80% of its total assets in bonds, debentures
and certain other debt securities specified herein
Equity Income Fund at least 80% of its total assets in common stocks,
and securities convertible into common stocks, of
companies believed by the investment adviser to be
characterized by sound management, the ability to
finance expected growth and the ability to pay above-
average dividends
Government Income Fund at least 65% of its total assets in obligations
issued or guaranteed by the U.S. government or its
agencies or instrumentalities; under current market
conditions, up to 80% of its total assets in
mortgage-related securities, which are issued or
guaranteed by the U.S. government or its agencies or
instrumentalities and up to 35% of its total assets
in mortgage-related securities issued by non-
governmental entities
Intermediate Government at least 80% of its total assets in obligations
Obligations Fund issued or guaranteed by the U.S. government or its
agencies or instrumentalities and with remaining
maturities of twelve years or less
International Fund at least 65% of its total assets in an
internationally diversified portfolio of equity
securities which trade on markets in countries other
than the United States and which are issued by
companies (i) domiciled in countries other than the
United States, or (ii) that derive at least 50% of
either their revenues or pre-tax income from
activities outside of the United States, and (iii)
which are ranked as small- or medium-sized companies
on the basis of their capitalization
Large Capitalization Fund at least 80% of its total assets in common stocks,
and securities convertible into common stocks, of
companies believed to be characterized by sound
management and the ability to finance expected
long-term growth
Limited Maturity Bond Fund at least 80% of the value of its total assets in
bonds, debentures and certain other debt securities
specified herein with remaining maturities of six
years or less
Michigan Bond Fund at least 80% of its total assets in debt securities
of all types; at least 65% of the net assets in
municipal securities issued by or on behalf of the
State of Michigan, its political subdivisions,
municipalities and public authorities
Mid Capitalization Fund at least 80% of its total assets in common stocks,
and securities convertible into common stocks, of
companies believed by the investment adviser to be
characterized by sound management and the ability to
finance expected growth
</TABLE>
7 PROSPECTUS--Investor B Shares
<PAGE> 89
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Municipal Bond Fund at least 80% of its total assets in tax-exempt
obligations
Prime Obligations Fund in high quality money market instruments and other
comparable investments
Small Capitalization Fund at least 80% of its total assets in common stocks,
and securities convertible into common stocks, of
companies believed by the investment adviser to be
characterized by sound management and the ability to
finance expected growth
</TABLE>
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a certain
amount of risk and may not be suitable for all investors. In addition, some
investment policies of the Funds may entail certain risks. See "RISK FACTORS AND
INVESTMENT TECHNIQUES."
Management of the Funds
First of America serves as investment adviser, and, with respect to the
International Fund and a portion of the Balanced Allocation Fund, Gulfstream
serves as subadviser. First of America also serves as sub-administrator. BISYS,
a partnership owned by The BISYS Group, Inc., serves as distributor,
administrator, transfer agent and dividend disbursing agent (the "Distributor,"
the "Administrator" and the "Transfer Agent"). BISYS Fund Services Ohio, Inc.
("BISYS Ohio") serves as fund accountant. Union Bank of California, N.A. ("Union
Bank" or the "Custodian"), serves as custodian.
Dividends and Taxes
Dividends from net income are declared and paid, if at all, on a monthly basis,
except for the Prime Obligations Fund which declares dividends daily and pays
them monthly. Net realized capital gains are distributed at least annually. The
Directed Dividend Option enables shareholders to have dividends and capital
gains paid by check, or reinvested automatically without payment of sales
charges. See "DIRECTED DIVIDEND OPTION." Each of the Funds is treated as a
separate entity for federal income tax purposes and intends to qualify as a
"regulated investment company." Shareholders will be advised at least annually
as to the federal income tax consequences of distributions made during the year.
FEE TABLES (INVESTOR B SHARES)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge (as a percentage of the offering price)............... None
Sales Charge on Reinvested Distributions................................... None
Maximum Deferred Sales Charge on Redemptions(1)............................ 5.00%/
4.00%
Redemption Fees(2)......................................................... None
Exchange Fees.............................................................. None
</TABLE>
- ---------------
(1) A contingent deferred sales charge of up to 5.00% is currently charged with
respect to Investor B Shares redeemed prior to five years from the date of
purchase. For Investor B Shares purchased prior to January 1, 1997, a
contingent deferred sales charge of up to 4.00% will be charged with respect
to Investor B Shares redeemed prior to four years from the date of purchase.
(See "CONTINGENT DEFERRED SALES CHARGE" herein.)
(2) Although no such fee is currently in place, the Transfer Agent has reserved
the right in the future to charge a fee for wire transfers of redemption
proceeds.
PROSPECTUS--Investor B Shares 8
<PAGE> 90
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES EXPENSES(3) EXPENSES(3)
---------- ----- ---------- ----------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund..................... 1.00% 1.00% 0.32% 2.32%
Mid Capitalization Fund....................... 1.00% 1.00% 0.31% 2.31%
Large Capitalization Fund..................... 0.80% 1.00% 0.32% 2.12%
International Fund............................ 1.16%(4) 1.00% 0.39% 2.55%
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund...................... 0.75% 1.00% 0.36% 2.11%
Equity Income Fund............................ 1.00% 1.00% 0.33% 2.33%
INCOME FUNDS:
Bond Fund..................................... 0.70% 1.00% 0.24% 1.94%
Limited Maturity Bond Fund.................... 0.55% 1.00% 0.31% 1.86%
Intermediate Government Obligations Fund...... 0.70% 1.00% 0.28% 1.98%
Government Income Fund........................ 0.45% 1.00% 0.32% 1.77%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund........................... 0.55% 1.00% 0.26% 1.81%
Michigan Bond Fund............................ 0.55% 1.00% 0.21% 1.76%
MONEY MARKET FUND:
Prime Obligations Fund........................ 0.40% 1.00% 0.27% 1.67%
</TABLE>
- ---------------
(3) After voluntary expense reductions.
(4) Calculated based on 1.25% of the first $50 million in average daily net
assets, 1.20% of the next $50 million, 1.15% of the next $300 million and
1.05% over $400 million.
Management Fees and Total Expenses as a percentage of average net assets for the
Balanced Allocation Fund, absent the voluntary reduction of advisory fees, would
have been 1.00% and 2.36%, respectively. Management Fees, Other Expenses and
Total Expenses as a percentage of average net assets for the Bond Fund, absent
the voluntary reduction of advisory fees and administrative fees, would have
been 0.74%, 0.29% and 2.03%, respectively. For the Limited Maturity Bond Fund,
they would have been 0.74%, 0.36% and 2.10%, respectively. For the Intermediate
Government Obligations Fund, they would have been 0.74%, 0.33% and 2.07%,
respectively. For the Government Income Fund, they would have been 0.74%, 0.37%
and 2.11%, respectively. For the Municipal Bond Fund, they would have been
0.74%, 0.36% and 2.10%, respectively. For the Michigan Bond Fund, they would
have been 0.74%, 0.31% and 2.05%, respectively. The annual percentages of Other
Expenses and Total Expenses for the Prime Obligations Fund are based on such
fees and expenses incurred by other classes. (See "MANAGEMENT OF THE
FUNDS -- Investment Adviser and Subadviser" and "Administrator,
Sub-Administrator and Distributor.")
9 PROSPECTUS--Investor B Shares
<PAGE> 91
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Investor B Shares, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--- ---- ---- ----
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund...................................... $ 74 $ 112 $ 144 $ 266
Mid Capitalization Fund........................................ $ 73 $ 112 $ 144 $ 265
Large Capitalization Fund...................................... $ 72 $ 106 $ 134 $ 245
International Fund............................................. $ 76 $ 119 $ 156 $ 289
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund....................................... $ 71 $ 106 $ 133 $ 243
Equity Income Fund............................................. $ 74 $ 113 $ 145 $ 267
INCOME FUNDS:>
Bond Fund...................................................... $ 70 $ 101 $ 125 $ 226
Limited Maturity Bond Fund..................................... $ 69 $ 98 $ 121 $ 218
Intermediate Government Obligations Fund....................... $ 70 $ 102 $ 127 $ 231
Government Income Fund......................................... $ 68 $ 96 $ 116 $ 208
TAX-FREE INCOME FUNDS:
Municipal Bond Fund............................................ $ 68 $ 97 $ 118 $ 213
Michigan Bond Fund............................................. $ 68 $ 95 $ 115 $ 207
MONEY MARKET FUND:
Prime Obligations Fund*........................................ $ 67 $ 93 -- --
</TABLE>
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Investor B Shares, assuming (1) 5% annual return and (2) no
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--- ---- ---- ----
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund...................................... $ 24 $ 72 $ 124 $ 266
Mid Capitalization Fund........................................ $ 23 $ 72 $ 124 $ 265
Large Capitalization Fund...................................... $ 22 $ 66 $ 114 $ 245
International Fund............................................. $ 26 $ 79 $ 136 $ 289
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund....................................... $ 21 $ 66 $ 113 $ 243
Equity Income Fund............................................. $ 24 $ 73 $ 125 $ 267
INCOME FUNDS:
Bond Fund...................................................... $ 20 $ 61 $ 105 $ 226
Limited Maturity Bond Fund..................................... $ 19 $ 58 $ 101 $ 218
Intermediate Government Obligations Fund....................... $ 20 $ 62 $ 107 $ 231
Government Income Fund......................................... $ 18 $ 56 $ 96 $ 208
TAX-FREE INCOME FUNDS:
Municipal Bond Fund............................................ $ 18 $ 57 $ 98 $ 213
Michigan Bond Fund............................................. $ 18 $ 55 $ 95 $ 207
MONEY MARKET FUND:
Prime Obligations Fund*........................................ $ 17 $ 53 -- --
</TABLE>
* As of the date of this Prospectus, Investor B Shares of the Prime Obligations
Fund have not yet been offered; therefore, expense example information is
provided only for 1-year and 3-year periods.
PROSPECTUS--Investor B Shares 10
<PAGE> 92
The information set forth in the foregoing Fee Tables and expense examples
relates only to Investor B Shares of the Funds. Each of the Funds also may offer
other classes of shares. The other classes of shares of the Funds are subject to
the same expenses except that sales charges and Rule 12b-1 fees will differ
between classes.
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 percentage of total new
gross share sales, plus interest. The Funds would stop accruing 12b-1 fees if,
to the extent, and for as long as, such limit would otherwise be exceeded.
The purpose of the above tables is to assist a potential purchaser of Investor B
Shares of any Fund in understanding the various costs and expenses that an
investor in a Fund will bear directly or indirectly. Such expenses do not
include any fees charged by First of America or any of its affiliates to its
customer accounts which may invest in Investor B Shares of the Funds. See
"MANAGEMENT OF THE FUNDS," "GENERAL INFORMATION" and "SALES CHARGES" for a more
complete discussion of the shareholder transaction expenses and annual operating
expenses of each of the Funds. The expense information for Investor B Shares
reflects current fees. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables on the following pages set forth certain information concerning the
investment results of the Investor B Shares of each of the Funds since its
inception. Information is not provided for the Prime Obligations Fund, since
Investor B Shares of that Fund were not yet being offered prior to the date of
this Prospectus. Further financial information is included in the Statement of
Additional Information and the Group's June 30, 1997 Annual Report to
Shareholders which may be obtained free of charge.
11 PROSPECTUS--Investor B Shares
<PAGE> 93
The Financial Highlights for the periods presented below have been derived from
financial statements audited by Coopers & Lybrand L.L.P., independent auditors
for the Group, whose report thereon is incorporated by reference in the
Statement of Additional Information.
SMALL CAPITALIZATION FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 FEBRUARY 4, 1994
-------------------------------- TO
1997 1996 1995 JUNE 30, 1994(e)
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 33.78 $ 25.79 $ 19.83 $ 22.71
------- ------- ------- -------
Investment Activities
Net Investment Loss......................... (0.41) (0.39) (0.19) (0.09)
Net Realized and Unrealized Gains (Losses)
on Investments............................ (1.13) 12.03 8.30 (2.79)
------- ------- ------- -------
Total from Investment Activities....... (1.54) 11.64 8.11 (2.88)
------- ------- ------- -------
Distributions
Net Realized Gains.......................... (5.25) (3.65) (2.15) --
------- ------- ------- -------
Total Distributions.................... (5.25) (3.65) (2.15) --
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.................. $ 26.99 $ 33.78 $ 25.79 $ 19.83
======= ======= ======= =======
Total Return (excluding sales and redemption
charges)...................................... (5.13)% 48.87% 43.78% (12.68)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $46,895 $30,310 $ 9,990 $ 2,130
Ratio of Expenses to Average Net Assets..... 2.32% 2.29% 2.32% 2.35%(b)
Ratio of Net Investment Loss to Average Net
Assets.................................... (1.94)% (1.93)% (2.03)% (2.19)%(b)
Ratio of Expenses to Average Net Assets*.... 2.32% 2.29% 2.55% 2.61%(b)
Ratio of Net Investment Loss to Average Net
Assets*................................... (1.94)% (1.93)% (2.26)% (2.45)%(b)
Portfolio Turnover Rate (c)................. 48.45% 67.22% 50.53% 72.64%
Average Commission Rate Paid (g)............ $0.0788 $0.0800
</TABLE>
MID CAPITALIZATION FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 FEBRUARY 4, 1994
-------------------------------- TO
1997 1996 1995 JUNE 30, 1994(e)
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 20.28 $ 16.35 $ 14.63 $ 16.66
------- ------- ------- -------
Investment Activities
Net Investment Loss......................... (0.24) (0.23) (0.11) (0.05)
Net Realized and Unrealized Gains (Losses)
on Investments............................ 1.21 4.82 3.30 (1.98)
------- ------- ------- -------
Total from Investment Activities....... 0.97 4.59 3.19 (2.03)
------- ------- ------- -------
Distributions
Net Realized Gains.......................... (6.13) (0.66) (0.48) --
In Excess of Net Realized Gains............. -- -- (0.99) --
------- ------- ------- -------
Total Distributions.................... (6.13) (0.66) (1.47) --
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.................. $ 15.12 $ 20.28 $ 16.35 $ 14.63
======= ======= ======= =======
Total Return (excluding sales and redemption
charges)...................................... 4.94% 28.59% 23.88% (12.18)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $21,994 $15,840 $ 6,073 $ 1,616
Ratio of Expenses to Average Net Assets..... 2.31% 2.29% 2.29% 2.30%(b)
Ratio of Net Investment Loss to Average Net
Assets.................................... (1.80)% (1.70)% (1.61)% (1.57)%(b)
Ratio of Expenses to Average Net Assets*.... 2.31% 2.29% 2.54% 2.56%(b)
Ratio of Net Investment Loss to Average Net
Assets*................................... (1.80)% (1.71)% (1.87)% (1.83)%(b)
Portfolio Turnover Rate (c)................. 38.47% 49.27% 46.39% 70.87%
Average Commission Rate Paid (g)............ $0.0794 $0.0796
</TABLE>
PROSPECTUS--Investor B Shares 12
<PAGE> 94
LARGE CAPITALIZATION FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR
ENDED
JUNE 30 DECEMBER 28, 1995
------- TO
1997 JUNE 30, 1996(a)
------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................ $ 11.22 $ 10.00
------- -------
Investment Activities
Net Investment Income (Loss).................................... (0.05) 0.01
Net Realized and Unrealized Gains (Losses) on Investments....... 3.25 1.23
------- -------
Total from Investment Activities........................... 3.20 1.24
------- -------
Distributions
Net Investment Income........................................... -- (0.02)
Net Realized Gains.............................................. (0.08) --
------- -------
Total Distributions........................................ (0.08) (0.02)
------- -------
NET ASSET VALUE, END OF PERIOD...................................... $ 14.34 $ 11.22
======= =======
Total Return (excluding sales and redemption charges)............... 28.62% 8.77%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)................................. $ 4,130 $ 832
Ratio of Expenses to Average Net Assets......................... 2.12% 1.78%(b)
Ratio of Net Investment Loss to Average Net Assets.............. (0.88)% (0.32)%(b)
Ratio of Expenses to Average Net Assets*........................ 2.12% 4.07%(b)
Ratio of Net Investment Loss to Average Net Assets*............. (0.88)% (2.61)%(b)
Portfolio Turnover Rate (c)..................................... 48.44% 0.86%
Average Commission Rate Paid (g)................................ $0.0932 $0.0800
</TABLE>
INTERNATIONAL FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 FEBRUARY 4, 1994
-------------------------------- TO
1997 1996 1995(f) JUNE 30, 1994(e)
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 13.77 $ 12.15 $ 13.21 $ 14.12
------- ------- ------- -------
Investment Activities
Net Investment Loss......................... (0.16) (0.08) (0.04) (0.01)
Net Realized and Unrealized Gains (Losses)
on Investments and Foreign Currency
Transactions.............................. 2.24 1.70 (0.40) (0.90)
------- ------- ------- -------
Total from Investment Activities....... 2.08 1.62 (0.44) (0.91)
------- ------- ------- -------
Distributions
In Excess of Net Realized Gains............. -- -- (0.62) --
------- ------- ------- -------
Total Distributions.................... -- -- (0.62) --
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.................. $ 15.85 $ 13.77 $ 12.15 $ 13.21
======= ======= ======= =======
Total Return (excluding sales and redemption
charges)...................................... 15.11% 13.33% (3.03)% (6.44)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $13,516 $ 9,489 $ 5,469 $ 2,680
Ratio of Expenses to Average Net Assets..... 2.55% 2.55% 2.57% 2.56%(b)
Ratio of Net Investment Loss to Average Net
Assets.................................... (1.29)% (0.86)% (0.49)% (0.22)%(b)
Ratio of Expenses to Average Net Assets*.... 2.55% 2.63% 2.92% 2.61%(b)
Ratio of Net Investment Loss to Average Net
Assets*................................... (1.29)% (0.94)% (0.84)% (0.27)%(b)
Portfolio Turnover Rate (c)................. 45.18% 54.47% 104.39% 37.23%
Average Commission Rate Paid (g)............ $0.0329 $0.0321
</TABLE>
13 PROSPECTUS--Investor B Shares
<PAGE> 95
BALANCED ALLOCATION FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 FEBRUARY 4, 1994
-------------------------------- TO
1997 1996 1995(f) JUNE 30, 1994(e)
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 13.36 $ 12.18 $ 10.67 $ 11.71
------- ------- ------- -------
Investment Activities
Net Investment Income (Loss)................ 0.21 0.23 0.20 0.10
Net Realized and Unrealized Gains (Losses)
on Investments and Foreign Currencies..... 1.13 1.74 1.67 (1.05)
------- ------- ------- -------
Total from Investment Activities....... 1.34 1.97 1.87 (0.95)
------- ------- ------- -------
Distributions
Net Investment Income....................... (0.22) (0.22) (0.20) (0.09)
Net Realized Gains.......................... (1.48) (0.57) (0.06) --
In Excess of Net Realized Gains............. -- -- (0.10) --
------- ------- ------- -------
Total Distributions.................... (1.70) (0.79) (0.36) (0.09)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.................. $ 13.00 $ 13.36 $ 12.18 $ 10.67
======= ======= ======= =======
Total Return (excluding sales and redemption
charges)...................................... 10.82% 16.71% 17.96% (8.16)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $ 6,299 $ 4,278 $ 1,291 $ 744
Ratio of Expenses to Average Net Assets..... 2.11% 2.16% 2.25% 2.05%(b)
Ratio of Net Investment Income (Loss) to
Average Net Assets........................ 1.73% 1.64% 1.74% 1.94%(b)
Ratio of Expenses to Average Net Assets*.... 2.36% 2.45% 2.77% 2.61%(b)
Ratio of Net Investment Income (Loss) to
Average Net Assets*....................... 1.48% 1.35% 1.22% 1.38%(b)
Portfolio Turnover Rate (c)................. 425.05% 437.90% 250.66% 192.39%
Average Commission Rate Paid (g)............ $0.0518 $0.0848
</TABLE>
PROSPECTUS--Investor B Shares 14
<PAGE> 96
EQUITY INCOME FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 FEBRUARY 4, 1994
-------------------------------- TO
1997 1996 1995 JUNE 30, 1994(e)
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 17.27 $ 14.47 $ 13.49 $ 14.92
------- ------- ------- -------
Investment Activities
Net Investment Income (Loss)................ 0.16 0.19 0.26 0.13
Net Realized and Unrealized Gains (Losses)
on Investments............................ 3.57 3.25 0.99 (1.43)
------- ------- ------- -------
Total from Investment Activities....... 3.73 3.44 1.25 (1.30)
------- ------- ------- -------
Distributions
Net Investment Income....................... (0.17) (0.19) (0.26) (0.13)
In Excess of Net Investment Income.......... -- -- (0.01) --
Net Realized Gains.......................... (1.69) (0.45) -- --
------- ------- ------- -------
Total Distributions.................... (1.86) (0.64) (0.27) (0.13)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.................. $ 19.14 $ 17.27 $ 14.47 $ 13.49
======= ======= ======= =======
Total Return (excluding sales and redemption
charges)...................................... 22.96% 24.11% 9.41% (8.76)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $21,038 $12,590 $ 7,131 $ 3,836
Ratio of Expenses to Average Net Assets..... 2.33% 2.32% 2.32% 2.33%(b)
Ratio of Net Investment Income (Loss) to
Average Net Assets........................ 0.88% 1.11% 1.86% 1.87%(b)
Ratio of Expenses to Average Net Assets*.... 2.33% 2.32% 2.57% 2.59%(b)
Ratio of Net Investment Income (Loss) to
Average Net Assets*....................... 0.88% 1.11% 1.61% 1.61%(b)
Portfolio Turnover Rate (c)................. 20.14% 40.75% 77.70% 69.35%
Average Commission Rate Paid (g)............ $0.0800 $0.0800
</TABLE>
15 PROSPECTUS--Investor B Shares
<PAGE> 97
BOND FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, FEBRUARY 4, 1994
------------------------------- TO
1997 1996 1995 JUNE 30, 1994(e)
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 9.51 $ 9.68 $ 9.26 $ 9.95
------ ------ ------ ----------
Investment Activities
Net Investment Income (Loss)......... 0.50 0.50 0.52 0.22
Net Realized and Unrealized Gains
(Losses) on Investments............ 0.16 (0.17) 0.42 (0.70)
------ ------ ------ ----------
Total from Investment
Activities.................... 0.66 0.33 0.94 (0.48)
====== ====== ====== ==========
Distributions
Net Investment Income................ (0.48) (0.50) (0.52) (0.21)
------ ------ ------ ----------
Total Distributions............. (0.48) (0.50) (0.52) (0.21)
====== ====== ====== ==========
NET ASSET VALUE, END OF PERIOD............ $ 9.69 $ 9.51 $ 9.68 $ 9.26
====== ====== ====== ==========
Total Return (excluding sales and
redemption charges)..................... 7.09% 3.46% 10.62% (4.84)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)...... $5,967 $4,426 $1,330 $485
Ratio of Expenses to Average Net
Assets............................. 1.94% 1.94% 2.03% 1.89%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets.............. 5.15% 4.97% 5.54% 5.34%(b)
Ratio of Expenses to Average Net
Assets*............................ 2.03% 2.03% 2.39% 2.29%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets*............. 5.06% 4.88% 5.18% 4.94%(b)
Portfolio Turnover Rate (c).......... 827.00% 1189.27% 1010.64% 893.27%
</TABLE>
PROSPECTUS--Investor B Shares 16
<PAGE> 98
LIMITED MATURITY BOND FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, FEBRUARY 4, 1994
------------------------------- TO
1997 1996 1995 JUNE 30, 1994(e)
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 9.46 $ 9.70 $ 9.56 $ 9.99
------ ------ ------ ----------
Investment Activities
Net Investment Income (Loss)......... 0.48 0.55 0.49 0.23
Net Realized and Unrealized Gains
(Losses) on Investments............ 0.02 (0.22) 0.12 (0.44)
------ ------ ------ ----------
Total from Investment
Activities.................... 0.50 0.33 0.61 (0.21)
====== ====== ====== ==========
Distributions
Net Investment Income................ (0.47) (0.55) (0.47) (0.22)
Tax Return of Capital................ -- (0.02) -- --
------ ------ ------ ----------
Total Distributions............. (0.47) (0.57) (0.47) (0.22)
====== ====== ====== ==========
NET ASSET VALUE, END OF PERIOD............ $ 9.49 $ 9.46 $ 9.70 $ 9.56
====== ====== ====== ==========
Total Return (excluding sales and
redemption charges)..................... 5.39% 3.43% 6.68% (2.09)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)...... $1,492 $1,547 $892 $629
Ratio of Expenses to Average Net
Assets............................. 1.86% 1.84% 1.85% 1.78%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets.............. 5.02% 5.35% 5.14% 5.36%(b)
Ratio of Expenses to Average Net
Assets*............................ 2.10% 2.08% 2.36% 2.33%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets*............. 4.78% 5.11% 4.62% 4.81%(b)
Portfolio Turnover Rate (c).......... 607.84% 618.60% 397.97% 353.28%
</TABLE>
17 PROSPECTUS--Investor B Shares
<PAGE> 99
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, FEBRUARY 4, 1994
----------------------------- TO
1997 1996 1995 JUNE 30, 1994(e)
------- ------ ------ ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 9.67 $ 9.89 $ 9.60 $10.14
------- ------ ------ -----------
Investment Activities
Net Investment Income (Loss)........... 0.45 0.53 0.43 0.21
Net Realized and Unrealized Gains
(Losses) on Investments.............. 0.03 (0.24) 0.30 (0.54)
------- ------ ------ -----------
Total from Investment
Activities...................... 0.48 0.29 0.73 (0.33)
------- ------ ------ -----------
Distributions
Net Investment Income.................. (0.44) (0.51) (0.44) (0.21)
------- ------ ------ -----------
Total Distributions............... (0.44) (0.51) (0.44) (0.21)
------- ------ ------ -----------
NET ASSET VALUE, END OF PERIOD.............. $ 9.71 $ 9.67 $ 9.89 $ 9.60
======= ====== ====== ===========
Total Return (excluding sales and redemption
charges).................................. 5.09% 2.93% 7.84% (3.31)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........ $1,972 $1,843 $ 977 $ 531
Ratio of Expenses to Average Net
Assets............................... 1.98% 1.96% 2.06% 1.92%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets................ 4.67% 4.78% 4.41% 4.80%(b)
Ratio of Expenses to Average Net
Assets*.............................. 2.07% 2.05% 2.42% 2.32%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets*............... 4.58% 4.69% 4.05% 4.41%(b)
Portfolio Turnover Rate (c)............ 1516.78% 916.39% 549.13% 546.06%
</TABLE>
PROSPECTUS--Investor B Shares 18
<PAGE> 100
GOVERNMENT INCOME FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, FEBRUARY 4, 1994
------------------------------ TO
1997 1996 1995 JUNE 30, 1994(e)
------- ------- ------ ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 9.21 $ 9.39 $ 9.38 $ 9.88
------- ------- ------ -----------
Investment Activities
Net Investment Income (Loss).......... 0.63 0.66 0.68 0.28
Net Realized and Unrealized Gains
(Losses) on Investments............. (0.09) (0.18) 0.01 (0.50)
------- ------- ------ -----------
Total from Investment
Activities..................... 0.54 0.48 0.69 (0.22)
------- ------- ------ -----------
Distributions
Net Investment Income................. (0.52) (0.59) (0.61) (0.27)
Tax Return of Capital................. (0.10) (0.07) (0.07) (0.01)
------- ------- ------ -----------
Total Distributions.............. (0.62) (0.66) (0.68) (0.28)
------- ------- ------ -----------
NET ASSET VALUE, END OF PERIOD............. $ 9.13 $ 9.21 $ 9.39 $ 9.38
======= ======= ====== ===========
Total Return (excluding sales and
redemption charges)...................... 6.06% 5.22% 7.71% (2.26)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)....... $23,448 $19,556 $8,478 $2,787
Ratio of Expenses to Average Net
Assets.............................. 1.77% 1.76% 1.83% 1.77%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets............... 6.89% 6.92% 7.28% 6.72%(b)
Ratio of Expenses to Average Net
Assets*............................. 2.11% 2.10% 2.44% 2.42%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets*.............. 6.55% 6.58% 6.67% 6.08%(b)
Portfolio Turnover Rate (c)........... 499.53% 348.01% 114.71% 102.24%
</TABLE>
19 PROSPECTUS--Investor B Shares
<PAGE> 101
MICHIGAN BOND FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
FEB. 4,
YEAR ENDED JUNE 30, 1994 TO
---------------------------- JUNE 30,
1997 1996 1995 1994(e)
------ ------ ------ --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $10.76 $10.75 $10.52 $11.09
------ ------ ------ -------
Investment Activities
Net Investment Income (Loss)................... 0.41 0.40 0.40 0.16
Net Realized and Unrealized Gains (Losses) on
Investments.................................. 0.13 0.04 0.24 (0.57)
------ ------ ------ -------
Total from Investment Activities.......... 0.54 0.44 0.64 (0.41)
------ ------ ------ -------
Distributions
Net Investment Income.......................... (0.36) (0.40) (0.40) (0.16)
In Excess of Net Investment Income............. -- -- (0.01) --
Net Realized Gains............................. (0.04) (0.03) -- --
------ ------ ------ -------
Total Distributions....................... (0.40) (0.43) (0.41) (0.16)
------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD...................... $10.90 $10.76 $10.75 $10.52
====== ====== ====== =======
Total Return (excluding sales and redemption
charges).......................................... 5.05% 4.13% 6.28% (3.69)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)................ $3,503 $3,565 $2,270 $1,302
Ratio of Expenses to Average Net Assets........ 1.76% 1.77% 1.78% 1.77%(b)
Ratio of Net Investment Income (Loss) to
Average Net Assets........................... 3.73% 3.57% 3.80% 3.51%(b)
Ratio of Expenses to Average Net Assets*....... 2.05% 2.06% 2.32% 2.32%(b)
Ratio of Net Investment Income (Loss) to
Average Net Assets*.......................... 3.44% 3.28% 3.25% 2.97%(b)
Portfolio Turnover Rate (c).................... 28.48% 27.66% 26.06% 6.69%
</TABLE>
PROSPECTUS--Investor B Shares 20
<PAGE> 102
MUNICIPAL BOND FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, FEBRUARY 4, 1994
---------------------------- TO
1997 1996 1995 JUNE 30, 1994(e)
------ ------ ------ ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $10.39 $10.36 $10.26 $10.76
------ ------ ------ -----------
Investment Activities
Net Investment Income (Loss)............ 0.36 0.33 0.33 0.13
Net Realized and Unrealized Gains
(Losses) on Investments............... 0.13 0.03 0.27 (0.50)
------ ------ ------ -----------
Total from Investment Activities... 0.49 0.36 0.60 (0.37)
------ ------ ------ -----------
Distributions
Net Investment Income................... (0.32) (0.33) (0.33) (0.13)
In Excess of Net Investment Income...... -- -- (0.17) --
Net Realized Gains...................... (0.05) -- -- --
------ ------ ------ -----------
Total Distributions................ (0.37) (0.33) (0.50) (0.13)
------ ------ ------ -----------
NET ASSET VALUE, END OF PERIOD............... $10.51 $10.39 $10.36 $10.26
====== ====== ====== ===========
Total Return (excluding sales and redemption
charges)................................... 4.81% 3.48% 6.17% (3.41)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......... $ 993 $ 735 $ 447 $ 359
Ratio of Expenses to Average Net
Assets................................ 1.81% 1.80% 1.80% 1.80%(b)
Ratio of Net Investment Income (Loss) to
Average Net Assets.................... 3.43% 3.11% 3.22% 2.88%(b)
Ratio of Expenses to Average Net
Assets*............................... 2.10% 2.09% 2.33% 2.37%(b)
Ratio of Net Investment Income (Loss) to
Average Net Assets*................... 3.14% 2.82% 2.68% 2.31%(b)
Portfolio Turnover Rate (c)............. 48.83% 47.46% 35.15% 44.39%
</TABLE>
- ------------
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between classes of shares issued.
(d) Not annualized.
(e) Period from February 4, 1994 (commencement of offering of Investor B Shares)
to June 30, 1994.
(f) As of January 1, 1995, Gulfstream assumed the role of subadviser with
respect to the International Fund and the portion of the Balanced Allocation
Fund invested in foreign securities. Prior to that date, Ivory & Sime
International, Inc. and Ivory & Sime plc served as subadvisers to the
International Fund and the Balanced Allocation Fund had no subadviser.
(g) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds are set forth below under the
headings describing the Funds. The investment objective of each Fund is
fundamental and may not be changed without a vote of the holders of a majority
of the outstanding shares of that Fund (as defined in the Statement of
Additional Information). The investment policies of a Fund may be changed
without a vote of the holders of a majority of outstanding shares of that Fund
unless the policy is expressly deemed to be a fundamental policy or changeable
only by such majority vote. There can be no assurance that the investment
objective of any Fund will be achieved. Depending upon the performance of a
Fund's investments, the net asset value per share of that Fund may decrease
instead of increase.
During temporary defensive periods as determined by First of America or
Gulfstream, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic
21 PROSPECTUS--Investor B Shares
<PAGE> 103
bank certificates of deposit, bankers' acceptances and repurchase agreements
secured by bank instruments. However, to the extent that a Fund is so invested,
its investment objective may not be achieved during that time. Uninvested cash
reserves will not earn income.
GROWTH FUNDS
THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE
CAPITALIZATION FUND
THE INVESTMENT OBJECTIVE OF THE SMALL CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS OF SMALL- TO MEDIUM-SIZED COMPANIES.
THE INVESTMENT OBJECTIVE OF THE MID CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS. THE INVESTMENT OBJECTIVE OF THE 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, each of the Small Capitalization Fund, Mid
Capitalization Fund and 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 to be characterized by
sound management and the ability to finance expected long-term growth. In
addition, under normal market conditions, the Small Capitalization Fund will
invest at least 65% of the value of its total assets in common stocks and
securities convertible into common stocks of companies considered by First of
America to have a market capitalization of less than $1 billion. The Mid
Capitalization Fund, under normal market conditions, 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 between $1 billion and $5 billion. The Large Capitalization Fund
will do the same with companies considered by First of America to have a market
capitalization of greater than $5 billion. Each of the Small Capitalization
Fund, Mid Capitalization Fund and 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 and loan associations. Each
of the Small Capitalization Fund, Mid Capitalization Fund and Large
Capitalization Fund may also hold securities of other investment companies and
depository or custodial receipts representing beneficial interests in any of the
foregoing securities.
Subject to the foregoing policies, each of the Small Capitalization Fund, Mid
Capitalization Fund and 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 (U.S.
dollar-denominated commercial paper of a foreign issuer). For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Foreign Securities."
The Mid Capitalization Fund anticipates investing in growth-oriented,
medium-sized companies. Medium-sized companies are considered to be those with a
market capitalization between $1 billion and $5 billion. The Large
Capitalization Fund anticipates investing in growth-oriented companies with
large market capitalization, defined as capitalization of over $5 billion. For
both the Mid Capitalization Fund and Large Capitalization Fund, investments will
be in companies that 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 Mid Capitalization Fund and Large
PROSPECTUS--Investor B Shares 22
<PAGE> 104
Capitalization Fund are in companies that participate in long-term growth
industries, although these will be supplemented by holdings in non-growth
industries that exhibit the desired characteristics.
The Small Capitalization Fund anticipates investing in dynamic small- to
medium-sized companies that exhibit outstanding potential for superior growth.
Small-sized companies are considered to be those with a market capitalization of
less than $1 billion. The Small Capitalization Fund will limit its investment in
securities of medium-sized companies to not more than 35% of the value of its
total assets. Companies that participate in sectors that are identified as
having long-term growth potential generally make up a substantial portion of
such Fund's holdings. These companies often have established a market niche or
have developed unique products or technologies that are expected to produce
superior growth in revenues and earnings. As smaller capitalization stocks are
quite volatile and subject to wide fluctuations in both the short and medium
term, the Small Capitalization Fund may be fairly characterized more aggressive
than a general equity fund.
Consistent with the foregoing, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund will focus its investments in
those companies and types of companies that First of America believes will
enable such Fund to achieve its investment objective.
<TABLE>
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THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE CAPITALIZATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency
- -Futures Contracts -Government Obligations Transactions
- -Mortgage-Related Securities -Other Mutual Funds -Lending Portfolio Securities
- -Put and Call Options -Repurchase Agreements -Portfolio Turnover
- -Reverse Repurchase Agreements -When-Issued and -Restricted Securities
and Dollar Roll Agreements Delayed-Delivery
Transactions
</TABLE>
THE INTERNATIONAL FUND
THE INVESTMENT OBJECTIVE OF THE INTERNATIONAL FUND IS TO SEEK LONG-TERM GROWTH
OF CAPITAL.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States, or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States, and (iii) which are small-
or medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRs.
For purposes of investment by the International Fund only, companies are deemed
to be small- or medium-sized if at the time of purchase, they are of a size
which would rank them in the lower half of a major market index in the
applicable country by weighted market capitalization and in the lower half of
all equity securities listed in recognized secondary markets where such markets
exist. In addition, in countries with less well-developed stock markets, where
the range of investment opportunities is more restrictive, the equity securities
of all listed companies will be eligible for investment. In major markets,
issuers could have capitalizations of up to approximately $10 billion while in
smaller markets issuers would be eligible with capitalizations as low as
approximately $200 million.
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Normally the
International Fund will invest at least 65% of its total assets in securities
traded in at least three foreign
23 PROSPECTUS--Investor B Shares
<PAGE> 105
countries, including the countries listed above. It is possible, although not
currently anticipated, that up to 35% of the International Fund's assets could
be invested in the securities of U.S. companies. In addition, the International
Fund temporarily may invest cash in short-term debt instruments of U.S. and
foreign issuers for cash management purposes or pending investment.
<TABLE>
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THE INTERNATIONAL FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements and
- -When-Issued and Delayed- Dollar Roll Agreements
Delivery Transactions
</TABLE>
GROWTH AND INCOME FUNDS
THE BALANCED ALLOCATION FUND
THE INVESTMENT OBJECTIVE OF THE BALANCED ALLOCATION FUND IS TO SEEK CURRENT
INCOME, LONG-TERM CAPITAL GROWTH AND CONSERVATION OF CAPITAL.
The Balanced Allocation Fund may invest in any type or class of security. Under
normal market conditions the Balanced Allocation Fund will invest in common
stocks, fixed-income securities and securities convertible into common stocks
(i.e., warrants, convertible preferred stock, fixed-rate preferred stock,
convertible fixed-income securities, options and rights). The Balanced
Allocation Fund intends to invest 45% to 65% of its net assets in common stocks
and securities convertible into common stocks, 25% to 55% of its net assets in
fixed-income securities and up to 30% of its net assets in cash and cash
equivalents. Of these investments, no more than 20% of the Fund's net assets
will be in foreign securities.
For the Balanced Allocation Fund, common stocks are held primarily for the
purpose of providing long-term growth of capital. When choosing such stocks, the
potential for long-term capital appreciation will be the primary basis for
selection. The Balanced Allocation Fund will invest in the common and preferred
stocks of companies with a market capitalization of at least $100 million and
which are traded either in established over-the-counter markets or on national
exchanges. The Balanced Allocation Fund intends to invest primarily in those
companies which are growth-oriented and have exhibited consistent, above-average
growth in revenues and earnings.
For the Balanced Allocation Fund, fixed-income securities held consist of bonds,
debentures, notes, zero-coupon securities, mortgage-related securities, state,
municipal or industrial revenue bonds, obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities, certificates of deposit,
time deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand notes. In addition, a portion of the Balanced Allocation
Fund's assets may, from time to time, be invested in first mortgage loans and
participation certificates in pools of mortgages issued or guaranteed by the
U.S. government or its agencies or instrumentalities. Some of the securities in
which the Balanced Allocation Fund invests may have warrants or options
attached. The Balanced Allocation Fund may also invest in repurchase agreements.
The Balanced Allocation Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, as well as "stripped" U.S. Treasury obligations ("Stripped Treasury
Obligations"), such as Treasury receipts issued by the U.S. Treasury
representing either future interest or principal payments, and other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES -- Government
Obligations" below.
PROSPECTUS--Investor B Shares 24
<PAGE> 106
The Balanced Allocation Fund also expects to invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Such obligations, in the
case of debentures, will represent unsecured promises to pay, and in the case of
notes and bonds, may be secured by mortgages on real property or security
interests in personal property and will in most cases differ in their interest
rates, maturities and times of issuance.
The Balanced Allocation Fund will invest only in corporate fixed-income
securities which are rated at the time of purchase within the four highest
rating categories assigned by a nationally-recognized statistical rating
organization ("NRSRO") or, if unrated, which First of America deems present
attractive opportunities and are of comparable quality. For a description of the
rating symbols of the NRSROs, see the Appendix to the Statement of Additional
Information. For a discussion of fixed-income securities rated within the fourth
highest rating category assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Medium-Grade Securities."
The Balanced Allocation Fund may hold some short-term obligations (with
maturities of 12 months or less) consisting of domestic and foreign commercial
paper, variable amount master demand notes, bankers' acceptances, certificates
of deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, and repurchase agreements. The Balanced Allocation Fund may also
invest in securities of other investment companies.
The Balanced Allocation Fund may also invest in obligations of the Export-Import
Bank of the United States, in U.S. dollar-denominated international bonds for
which the primary trading market is the United States ("Yankee Bonds"), or for
which the primary trading market is abroad ("Eurodollar Bonds"), and in Canadian
bonds and bonds issued by institutions, such as the World Bank and the European
Economic Community, organized for a specific purpose by two or more sovereign
governments ("Supranational Agency Bonds"). The Balanced Allocation Fund's
investments in foreign securities may be made either directly or through the
purchase of ADRs and the Balanced Allocation Fund may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper.
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon First of America's assessment of business, economic and
market conditions, including any potential advantage of price shifts between the
stock market and the bond market. The Balanced Allocation Fund reserves the
right to hold short-term securities in whatever proportion deemed desirable for
temporary defensive periods during adverse market conditions as determined by
First of America. However, to the extent that the Balanced Allocation Fund is so
invested, its investment objective may not be achieved during that time.
Like any investment program, investment in the Balanced Allocation Fund entails
certain risks. As a Fund investing in common stocks the Balanced Allocation Fund
is subject to stock market risk, i.e., the possibility that stock prices in
general will decline over short or even extended periods.
Since the Balanced Allocation Fund also invests in bonds, investors in the
Balanced Allocation Fund are also exposed to bond market risk, i.e.,
fluctuations in the market value of bonds. Bond prices are influenced primarily
by changes in interest rate levels. When interest rates rise, the prices of
bonds generally fall; conversely, when interest rates fall, bond prices
generally rise. While bonds normally fluctuate less in price than stock, there
have been extended periods of cyclical increases in interest rates that have
caused significant declines in bond prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result the Balanced
Allocation Fund, with its balance of common stock and bond investments, is
expected to entail less investment risk (and a potentially smaller investment
return) than a mutual fund investing exclusively in common stocks.
25 PROSPECTUS--Investor B Shares
<PAGE> 107
<TABLE>
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THE BALANCED ALLOCATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency
- -Futures Contracts -Government Obligations Transactions
- -Medium-Grade Securities -Mortgage-Related Securities -Lending Portfolio Securities
- -Portfolio Turnover -Put and Call Options -Other Mutual Funds
- -Restricted Securities -Reverse Repurchase -Repurchase Agreements
Agreements -When-Issued and Delayed-
and Dollar Roll Agreements Delivery Transactions
</TABLE>
THE EQUITY INCOME FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY INCOME FUND IS TO SEEK CURRENT INCOME BY
INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH QUALITY, DIVIDEND-PAYING COMMON
STOCKS AND SECURITIES CONVERTIBLE INTO COMMON STOCKS. A SECONDARY INVESTMENT
OBJECTIVE OF THE EQUITY INCOME FUND IS GROWTH OF CAPITAL.
The Equity Income Fund, under normal market conditions, will invest at least 80%
of the value of its total assets in common stocks and securities convertible
into common stocks of companies believed by First of America to be characterized
by sound management, the ability to finance expected growth and the ability to
pay above-average dividends. The Equity Income 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 and loan associations. The Equity Income
Fund may also hold securities of other investment companies and depository or
custodial receipts representing beneficial interests in any of the foregoing
securities.
Subject to the foregoing policies, the Equity Income Fund may also invest up to
25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Foreign Securities."
The Equity Income Fund anticipates investing in securities that currently have a
high dividend yield, with the anticipation that the dividend will remain
constant or be increased in the future. These securities generally represent the
core holdings of this Fund. However, these holdings are balanced with lower
yielding but higher growth-oriented securities to achieve portfolio balance. All
securities must provide current income. Given its bias towards income, the
Equity Income Fund may be considered more conservative than growth-oriented
equity funds such as the Group's Small Capitalization Fund and Mid
Capitalization Fund.
Consistent with the foregoing, the Equity Income Fund will focus its investments
in those companies and types of companies that First of America believes will
enable such Fund to achieve its investment objective.
PROSPECTUS--Investor B Shares 26
<PAGE> 108
<TABLE>
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THE EQUITY INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency
- -Futures Contracts -Government Obligations Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
- -Mortgage-Related Securities -Other Mutual Funds Securities
- -Put and Call Options -Repurchase Agreements -Portfolio Turnover
- -Reverse Repurchase Agreements -When-Issued and -Restricted Securities
and Dollar Roll Agreements Delayed-Delivery Transactions
</TABLE>
INCOME FUNDS
THE BOND FUND AND THE LIMITED MATURITY BOND FUND
THE INVESTMENT OBJECTIVE OF THE BOND FUND IS TO SEEK CURRENT INCOME AS WELL AS
PRESERVATION OF CAPITAL BY INVESTING IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE
FIXED-INCOME SECURITIES. THE INVESTMENT OBJECTIVE OF THE LIMITED MATURITY BOND
FUND IS TO SEEK CURRENT INCOME AS WELL AS PRESERVATION OF CAPITAL BY INVESTING
IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE FIXED-INCOME SECURITIES WITH REMAINING
MATURITIES OF SIX YEARS OR LESS.
Under normal market conditions, the Bond Fund will invest at least 80% of the
value of its total assets in bonds, debentures, notes with remaining maturities
at the time of purchase of one year or more, zero-coupon securities,
mortgage-related securities, state, municipal or industrial revenue bonds,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, debt securities convertible into, or exchangeable for, common
stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Bond Fund will invest in state and municipal securities
when, in the opinion of First of America, their yields are competitive with
comparable taxable debt obligations. In addition, up to 20% of the value of the
Bond Fund's total assets may be invested in preferred stocks, notes with
remaining maturities at the time of purchase of less than one year, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies,
and guaranteed investment contracts ("GICs") issued by insurance companies, as
more fully described below. Some of the securities in which the Bond Fund
invests may have warrants or options attached.
Under normal market conditions, the Limited Maturity Bond Fund will invest at
least 80% of the value of its total assets in the following securities which
have remaining maturities of six years or less: bonds, debentures, notes with
remaining maturities at the time of purchase of one year or more, zero-coupon
securities, mortgage-related securities, state, municipal or industrial revenue
bonds, obligations issued or guaranteed by the U.S. government or its agencies
or instrumentalities, debt securities convertible into, or exchangeable for,
common stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Limited Maturity Bond Fund will invest in state and
municipal securities when, in the opinion of First of America, their yields are
competitive with comparable taxable debt obligations. In addition, up to 20% of
the value of the Limited Maturity Bond Fund's total assets may be invested in
the debt securities listed above without regard to maturity, as well as
preferred stocks, short-term debt obligations consisting of domestic and foreign
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit and time deposits of domestic and foreign
branches of U.S. banks and foreign banks, repurchase agreements, securities of
other investment companies and GICs. Under normal market conditions, the Limited
Maturity Bond Fund expects to maintain a dollar-weighted average portfolio
maturity of its debt securities of three years or less. By seeking to maintain a
dollar-weighted average portfolio maturity of three years or less, the Limited
Maturity Bond Fund attempts to minimize the
27 PROSPECTUS--Investor B Shares
<PAGE> 109
fluctuation in its shares' net asset value relative to those funds which invest
in longer term obligations. Some of the securities in which the Limited Maturity
Bond Fund invests may have warrants or options attached.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Limited Maturity Bond Fund, the effective
maturity of such securities, as determined by the Investment Adviser, will be
used.
The Bond Fund and Limited Maturity Bond Fund each expects to invest in a variety
of U.S. Treasury obligations, differing in their interest rates, maturities, and
times of issuance, as well as Stripped Treasury Obligations, and other
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES -- Government
Obligations."
The Bond Fund and the Limited Maturity Bond Fund each also expects to invest in
bonds, notes and debentures of a wide range of U.S. corporate issuers. Such
obligations, in the case of debentures will represent unsecured promises to pay,
and in the case of notes and bonds, may be secured by mortgages on real property
or security interests in personal property and will in most cases differ in
their interest rates, maturities and times of issuance.
The Bond Fund and the Limited Maturity Bond Fund each will invest only in
corporate debt securities which are rated at the time of purchase within the
four highest rating categories assigned by an NRSRO or, if unrated, which First
of America deems present attractive opportunities and are of comparable quality.
For a discussion of debt securities rated within the four highest rating
categories assigned by the NRSROs, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Medium-Grade Securities."
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond Fund may also invest up to 25% of its
net assets in foreign securities either directly or through the purchase of ADRs
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper.
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, First of America may purchase debt securities at a
discount from face value, which produces a yield greater than the coupon rate.
Conversely, if debt securities are purchased at a premium over face value, the
yield will be lower than the coupon rate. In making investment decisions for the
Bond Fund, First of America will consider many factors other than current yield,
including the preservation of capital, the potential for realizing capital
appreciation, maturity, and yield to maturity. In making investment decisions
for the Limited Maturity Bond Fund, First of America will consider many factors
other than current yield, including the preservation of capital, maturity, and
yield to maturity.
<TABLE>
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THE BOND FUND AND THE LIMITED MATURITY BOND FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Guaranteed Investment Contracts
- -Lending Portfolio Securities -Medium-Grade Securities -Mortgage-Related Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements
- -When-Issued and Delayed- and Dollar Roll Agreements
Delivery Transactions
</TABLE>
PROSPECTUS--Investor B Shares 28
<PAGE> 110
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
THE INVESTMENT OBJECTIVE OF THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND IS TO
SEEK CURRENT INCOME WITH PRESERVATION OF CAPITAL BY INVESTING IN U.S. GOVERNMENT
SECURITIES WITH REMAINING MATURITIES OF TWELVE YEARS OR LESS.
Under normal market conditions, the Intermediate Government Obligations Fund
will invest at least 80% of its total assets in obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities and with remaining
maturities of twelve years or less, although up to 20% of the value of its total
assets may be invested in debt securities, preferred stocks and other
investments without regard to maturity, except as set forth below. Under normal
market conditions, the Intermediate Government Obligations Fund expects to
maintain a dollar-weighted average portfolio maturity of its debt securities of
three to ten years. By seeking to maintain a dollar-weighted average portfolio
maturity of three to ten years, the Intermediate Government Obligations Fund
attempts to minimize the fluctuation in its shares' net asset value relative to
funds which invest in longer-term obligations.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Intermediate Government Obligations Fund,
the effective maturity of such securities, as determined by the Investment
Adviser, will be used.
The types of U.S. government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and government securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Government Obligations."
The Intermediate Government Obligations Fund may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, as more fully described below under "RISK FACTORS AND
INVESTMENT TECHNIQUES -- Government Obligations."
<TABLE>
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THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Currency -Futures Contracts
- -Government Obligations Transactions -Mortgage-Related
- -Municipal Securities -Lending Portfolio Securities Securities
- -Put and Call Options -Other Mutual Funds -Portfolio Turnover
- -Reverse Repurchase Agreements -Repurchase Agreements -Restricted Securities
and Dollar Roll Agreements -When-Issued and Delayed- -Portfolio Turnover
Delivery Transactions
-Other Mutual Funds
</TABLE>
THE GOVERNMENT INCOME FUND
THE INVESTMENT OBJECTIVE OF THE GOVERNMENT INCOME FUND IS TO PROVIDE
SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRUDENT
INVESTMENT RISK.
Under normal market conditions, the Government Income Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
non-governmental issuers. Consistent with the foregoing, under current market
conditions, the Government Income Fund intends to invest up to 80% of the value
of its total assets in mortgage-related securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities. The Government Income Fund
also may invest up to 35% of its total assets in mortgage-related securities
issued by non-
29 PROSPECTUS--Investor B Shares
<PAGE> 111
governmental entities and in other securities described below. For more
information, see "RISK FACTORS AND INVESTMENT TECHNIQUES -- Mortgage-Related
Securities."
The types of U.S. government obligations, including mortgage-related securities,
invested in by the Government Income Fund will include obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Treasury, such as Treasury bills, notes and bonds, Stripped Treasury
Obligations and government securities, as described below in "RISK FACTORS AND
INVESTMENT TECHNIQUES -- Government Obligations."
The Government Income Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper
(including variable amount master demand notes) rated at the time of purchase
within the top two rating categories assigned by an NRSRO or, if unrated, which
First of America deems present attractive opportunities and are of comparable
quality, bankers' acceptances, certificates of deposit and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, and repurchase
and reverse repurchase agreements. The Government Income Fund may also invest in
corporate debt securities which are rated at the time of purchase within the top
three rating categories assigned by an NRSRO or, if unrated, which First of
America deems present attractive opportunities and are of comparable quality.
<TABLE>
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THE GOVERNMENT INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Currency -Foreign Securities
- -Futures Contracts Transactions -Lending Portfolio
- -Mortgage-Related Securities -Government Obligations Securities
- -Put and Call Options -Other Mutual Funds -Portfolio Turnover
- -Reverse Repurchase Agreements -Repurchase Agreements -Restricted Securities
and Dollar Roll Agreements -When-Issued and Delayed-
Delivery Transactions
</TABLE>
TAX-FREE INCOME FUNDS
THE MUNICIPAL BOND FUND AND THE MICHIGAN BOND FUND
THE INVESTMENT OBJECTIVE OF THE MUNICIPAL BOND FUND IS TO SEEK CURRENT INTEREST
INCOME WHICH IS EXEMPT FROM FEDERAL INCOME TAXES AND PRESERVATION OF CAPITAL.
THE INVESTMENT OBJECTIVE OF THE MICHIGAN BOND FUND IS TO SEEK INCOME WHICH IS
EXEMPT FROM FEDERAL INCOME TAX AND MICHIGAN STATE INCOME AND INTANGIBLES TAXES,
ALTHOUGH SUCH INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX WHEN
RECEIVED BY CERTAIN SHAREHOLDERS, AND PRESERVATION OF CAPITAL.
Under normal market conditions and as a fundamental policy, at least 80% of the
net assets of the Municipal Bond Fund will be invested in a diversified
portfolio of Municipal Securities, and at least 80% of the net assets of the
Michigan Bond Fund will be invested in a portfolio of Michigan Municipal
Securities.
"Municipal Securities" include obligations consisting of bonds, notes and
commercial paper, issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and other political subdivisions,
agencies, instrumentalities and authorities, the interest on which is both
exempt from federal income taxes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. "Michigan
Municipal Securities" include debt obligations, consisting of notes, bonds and
commercial paper, issued by or on behalf of the State of Michigan, its political
subdivisions, municipalities and public authorities, the interest on which is,
in the opinion of bond counsel to the issuer, exempt from federal income tax and
Michigan state income and intangibles taxes (but may be treated as a preference
item for individuals for purposes of the federal alternative minimum tax) and
debt obligations issued by the government of Puerto Rico, the U.S. territories
and possessions of Guam, the U.S. Virgin Islands or such other governmental
entities whose debt obligations, either by law or treaty, generate interest
income which is exempt from federal and Michigan state income and intangibles
taxes. For more
PROSPECTUS--Investor B Shares 30
<PAGE> 112
information regarding Municipal Securities and Michigan Municipal Securities,
see "RISK FACTORS AND INVESTMENT TECHNIQUES -- Municipal Securities."
Under normal market conditions, at least 65% of the net assets of each of the
Municipal Bond Fund and the Michigan Bond Fund will be invested in Municipal
Securities (Michigan Municipal Securities in the case of the Michigan Bond Fund)
consisting of bonds and notes with remaining maturities at the time of purchase
of one year or more. Quality is the primary consideration in selecting Michigan
Municipal Securities for investment by the Michigan Bond Fund.
The Municipal Bond Fund also intends that under normal market conditions its
portfolio will maintain an average weighted rating of AA/Aa. Each of the
Municipal Bond Fund and the Michigan Bond Fund intends that, under normal market
conditions, it will be invested in long-term Municipal Securities (Michigan
Municipal Securities in the case of the Michigan Bond Fund) and that the average
weighted maturity of such investments will be 5 to 12 years, although the
Michigan Bond Fund may invest in Michigan Municipal Securities of any maturity
and First of America may extend or shorten the average weighted maturity of its
portfolio depending upon anticipated changes in interest rates or other relevant
market factors. In addition, the average weighted rating of a Tax-Free Income
Fund's portfolio may vary depending upon the availability of suitable Municipal
Securities or other relevant market factors.
The Michigan Bond Fund invests in Michigan Municipal Securities which are rated
at the time of purchase within the four highest rating categories assigned by an
NRSRO or, in the case of notes, tax-exempt commercial paper or variable rate
demand obligations, rated within the two highest rating categories assigned by
an NRSRO. The Michigan Bond Fund may also purchase Michigan Municipal Securities
which are unrated at the time of purchase but are determined to be of comparable
quality by First of America pursuant to guidelines approved by the Group's Board
of Trustees. The applicable Michigan Municipal Securities ratings are described
in the Appendix to the Statement of Additional Information. For a description of
debt securities rated within the fourth highest rating categories assigned by
the NRSROs, see "RISK FACTORS AND INVESTMENT TECHNIQUES -- Medium-Grade
Securities."
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Tax-Free Income Funds will not treat these
bonds as "Municipal Securities" or "Michigan Municipal Securities" for purposes
of measuring compliance with the 80% tests described above. To the extent the
Tax-Free Income Funds invest in these bonds, individual shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Tax-Free Income Funds' distributions derived from these bonds. For
further information relating to the types of municipal securities which will be
included in income subject to alternative minimum tax, see "ADDITIONAL
INFORMATION -- Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Bond Fund" in the Statement of Additional
Information.
Investments of the Tax-Free Income Funds may be made in taxable obligations if,
for example, suitable tax-exempt obligations are unavailable or if acquisition
of U.S. government or other taxable securities is deemed appropriate for
temporary defensive purposes as determined by First of America to be warranted
due to market conditions. Such taxable obligations consist of government
securities, certificates of deposit, time deposits and bankers' acceptances of
selected banks, commercial paper meeting the Tax-Free Income Funds' quality
standards for tax-exempt commercial paper (as described above), and such taxable
obligations as may be subject to repurchase agreements. These obligations are
described further in the Statement of Additional Information. Under such
circumstances and during the period of such investment, the affected Tax-Free
Income Fund may not achieve its stated investment objectives.
Although the Municipal Bond Fund may invest more than 25% of its net assets in
(i) Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, it does not presently intend to do
so on a regular basis. To the extent the Municipal Bond Fund's assets are
concentrated in Municipal Securities that are payable from the revenues of
similar projects or are issued by issuers located in the same state, or are
concentrated in private activity bonds, the Municipal Bond Fund will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states, projects and bonds to a greater extent than it would be if its
assets were not so concentrated.
31 PROSPECTUS--Investor B Shares
<PAGE> 113
Because the Michigan Bond Fund invests primarily in securities issued by the
State of Michigan and its political subdivisions, municipalities and public
authorities, the Michigan Bond Fund's performance is closely tied to the general
economic conditions within the State as a whole and to the economic conditions
within particular industries and geographic areas represented or located within
the State. However, the Michigan Bond Fund attempts to diversify, to the extent
First of America deems appropriate, among issuers and geographic areas in the
State of Michigan.
The Michigan Bond Fund is classified as a "non-diversified" investment company,
which means that the amount of assets of the Michigan Bond Fund that may be
invested in the securities of a single issuer is not limited by Investment
Company Act of 1940, as amended ("the 1940 Act"). Nevertheless, the Michigan
Bond Fund intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"), which requires the Michigan Bond Fund generally to invest,
with respect to 50% of its total assets, not more than 5% of such assets in the
obligations of a single issuer; as to the remaining 50% of its total assets, the
Michigan Bond Fund is not so restricted. In no event, however, may the Michigan
Bond Fund invest more than 25% of its total assets in the obligations of any one
issuer. Compliance with this requirement is measured at the close of each
quarter of the Michigan Bond Fund's taxable year. Since a relatively high
percentage of the Michigan Bond Fund's assets may be invested in the obligations
of a limited number of issuers, some of which may be within the same economic
sector, the Michigan Bond Fund's portfolio securities may be more susceptible to
any single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
<TABLE>
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TAX-FREE INCOME FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Currency -Futures Contracts
- -Government Obligations Transactions (Municipal Bond Fund Only)
- -Medium-Grade Securities -Lending Portfolio Securities -Municipal Securities
- -Other Mutual Funds -Mortgage-Related Securities -Private Activity Bonds
- -Put and Call Options -Portfolio Turnover -Restricted Securities
- -Reverse Repurchase Agreements -Repurchase Agreements
and Dollar Roll Agreements -When-Issued and Delayed-
Delivery Transactions
</TABLE>
MONEY MARKET FUND
THE PRIME OBLIGATIONS FUND
THE INVESTMENT OBJECTIVE OF THE PRIME OBLIGATIONS FUND IS TO SEEK CURRENT INCOME
WITH LIQUIDITY AND STABILITY OF PRINCIPAL.
Under normal market conditions, the Prime Obligations Fund invests in
high-quality money market instruments, including Municipal Securities and other
instruments deemed to be of comparable high quality as determined by the Board
of Trustees. As a money market fund, the Prime Obligations Fund invests
exclusively in United States dollar-denominated instruments which the Trustees
of the Group and First of America determine present minimal credit risks and
which at the time of acquisition are rated by one or more NRSROs in one of the
two highest rating categories for short-term debt obligations or, if unrated,
which First of America deems present attractive opportunities and are of
comparable quality. In addition, the Prime Obligations Fund diversifies its
investments so that, with minor exceptions and except for United States
government securities, not more than 5% of its total assets is invested in the
securities of any one issuer, not more than 5% of its total assets is invested
in securities of all issuers rated by an NRSRO at the time of investment in the
second highest rating category for short-term debt obligations or deemed to be
of comparable quality to securities rated in the second highest rating category
for short-term debt obligations (either referred to as "Second Tier Securities")
and not more than the greater of 1% of total assets or $1 million is invested in
the Second Tier Securities of one issuer. All securities or instruments in which
the Prime Obligations Fund invests have remaining maturities of 397 calendar
days
PROSPECTUS--Investor B Shares 32
<PAGE> 114
(13 months) or less (except for certain variable and floating rate notes and
securities underlying certain repurchase agreements). The dollar-weighted
average maturity of the obligations in the Prime Obligations Fund will not
exceed 90 days.
The Prime Obligations Fund may invest in commercial paper and other short-term
promissory notes issued by corporations (including variable amount master demand
notes) rated at the time of purchase within the two highest rating categories
assigned by an NRSRO or, if not rated, found by the Group's Board of Trustees to
be of comparable quality. Instruments may be purchased in reliance upon a rating
only when the rating organization is not affiliated with the issuer or guarantor
of the instrument. For a description of the rating categories of the NRSROs, see
the Appendix to the Statement of Additional Information. The Prime Obligations
Fund may also invest in CCP, Europaper, bankers' acceptances, certificates of
deposit and time deposits.
Variable amount master demand notes in which the Prime Obligations Fund and
certain other Funds may invest are unsecured demand notes that permit the
indebtedness thereunder to vary, and that provide for periodic adjustments in
the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time. While the
notes are not typically rated by credit rating agencies, issuers of variable
amount master demand notes (which are normally manufacturing, retail, financial,
and other business concerns) must satisfy the same criteria as set forth above
for commercial paper. First of America will consider the earning power, cash
flow, and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial status and ability to meet payment on
demand. In determining average weighted portfolio maturity, a variable amount
master demand note will be deemed to have a maturity equal to the period of time
remaining until the principal amount can be recovered from the issuer through
demand, which shall not exceed seven days.
The Prime Obligations Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying security, a dealer in the security, or by another
third party, and may not be transferred separately from the underlying security.
The Prime Obligations Fund uses these arrangements to provide liquidity and not
to protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable after a payment
default on the underlying security may be treated as a form of credit
enhancement.
Certain of the Prime Obligation Fund's permitted investments may have received
credit enhancement by a guaranty, letter of credit, or insurance. The Prime
Obligations Fund may evaluate the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the entity
providing the credit enhancement, rather than the issuer. The bankruptcy,
receivership, or default of an entity providing credit enhancement may adversely
affect the quality and marketability of the underlying security.
Consistent with the requirements of Rule 2a-7 adopted under the 1940 Act, the
Prime Obligations Fund will limit its investment, with respect to 75% of its
assets, to no more than 10% of its total assets in securities issued by or
subject to demand features of a single issuer. With respect to the remaining 25%
of the Prime Obligations Fund's assets, the Fund may invest in securities
subject to demand features from, or directly issued by, one or more
institutions, provided they are rated in the highest rating category assigned by
an NRSRO and are issued by a "non-controlled person," as defined in the Rule. In
addition, a demand feature, other than a standby commitment, may be acquired by
the Prime Obligations Fund only if the demand feature or its issuer has received
one of the two highest short-term rating categories assigned by an NRSRO and not
more than 5% of the Fund's assets are invested in demand features from a single
issuer rated in the second highest short-term rating category assigned by an
NRSRO.
The Prime Obligations Fund intends to follow the operational policies described
above, as well as other non-fundamental policies that will enable the Fund to
comply with the laws and regulations applicable to
33 PROSPECTUS--Investor B Shares
<PAGE> 115
money market mutual funds, particularly Rule 2a-7 under the 1940 Act. The Prime
Obligations Fund shall determine the effective maturity of its investments, the
applicable credit rating of securities, and adequate diversification by
reference to Rule 2a-7. The Prime Obligations Fund may change its operational
policies to reflect changes in the laws and regulations applicable to money
market mutual funds without shareholder approval.
<TABLE>
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THE PRIME OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Government Obligations
- -Guaranteed Investment Contracts -Lending Portfolio Securities -Municipal Securities
- -Portfolio Turnover -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-Issued and Delayed-
and Dollar Roll Agreements Delivery Transactions
</TABLE>
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase or dollar roll agreements with
First of America Bank, N.A. (formerly, First of America Bank-Michigan, N.A.,
"FOA," the parent corporation of First of America), BISYS, or their affiliates,
and will not give preference to FOA's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements, reverse
repurchase agreements and dollar roll agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by First of America, and in the case
of the International Fund and Balanced Allocation Fund, Gulfstream in the
management of each of the Funds (with the exception of the Treasury Fund)
involve complex securities sometimes referred to as "derivatives." Among such
securities are put and call options, foreign currency transactions and futures
contracts, all of which are described below. The Investment Adviser and
Subadviser believe that such complex securities may, in some circumstances, play
a valuable role in successfully implementing each Fund's investment strategy and
achieving its goals. However, because complex securities and the strategies for
which they are used, are by their nature complicated, they present substantial
opportunities for misunderstanding and misuse. To guard against these risks, the
Investment Adviser and Subadviser will utilize complex securities primarily for
hedging, not speculative, purposes and only after careful review of the unique
risk factors associated with each such security.
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds, with the exception of the Tax-Free Income Funds and the Prime
Obligations Fund, may utilize foreign currency transactions in its portfolio.
The value of the assets of a Fund as measured in United States dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract ("forward currency contracts") involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These forward currency contracts are traded directly
between currency traders (usually large commercial banks) and their customers.
The Funds may enter into forward currency contracts in order to hedge against
adverse movements in exchange rates between currencies.
PROSPECTUS--Investor B Shares 34
<PAGE> 116
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency. Alternatively, when a Fund believes it will increase, it may enter
into a forward currency purchase contract to buy that foreign currency for a
fixed U.S. dollar amount; however, this tends to limit potential gains which
might result from a positive change in such currency relationships. A Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
The forecasting of short-term currency market movement is extremely difficult
and whether such a short-term hedging strategy will be successful is highly
uncertain. It is impossible to forecast with precision the market value of
portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency such Fund is obligated
to deliver when a decision is made to buy the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency such Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. If forward prices
decline during the period between which a Fund enters into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. If forward prices
increase, such Fund would suffer a loss to the extent the price of the currency
it has agreed to purchase exceeds the price of the currency it has agreed to
sell. Although such contracts tend to minimize the risk of loss due to a decline
in the value of the hedged currency, they also tend to limit any potential gain
which might result if the value of such currency increases. The Funds will have
to convert their holdings of foreign currencies into United States dollars from
time to time. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
No Fund intends to enter into forward currency contracts if more than 15% of the
value of its total assets would be committed to such contracts on a regular or
continuous basis. A Fund also will not enter into forward currency contracts or
maintain a net exposure on such contracts where such Fund would be obligated to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments" in
the Statement of Additional Information.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Allocation Fund may invest up to 20% of its total assets in foreign
securities. The Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund and Equity Income Fund may invest in foreign securities as
permitted by their respective investment policies. Each of the Bond Fund and
Limited Maturity Bond Fund may also invest up to 25% of its net assets in
foreign securities either directly or through the purchase of
35 PROSPECTUS--Investor B Shares
<PAGE> 117
ADRs and may also invest in securities issued by foreign branches of U.S. banks
and foreign banks, in CCP, and in Europaper. The Government Income Fund and the
Prime Obligations Fund may invest in foreign securities by purchasing:
Eurodollar certificates of deposit ("ECDs"), which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks outside
the U.S.; Eurodollar time deposits ("ETDs"), which are U.S. dollar-denominated
deposits in a foreign branch of a U.S. or foreign bank; Canadian time deposits
("CTDs"), which are essentially the same as ETDs, except that they are issued by
Canadian offices of major Canadian banks; Yankee certificates of deposit
("Yankee CDs"), which are U.S. dollar-denominated certificates of deposit issued
by a U.S. branch of a foreign bank but held in the U.S.; CCP; and Europaper.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the United States. In addition, there may be less
publicly available information about a foreign company than about a
U.S.-domiciled company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States. Confiscatory taxation or diplomatic developments could also
affect investment in those countries. In addition, foreign branches of U.S.
banks, foreign banks and foreign issuers may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after such Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater.
U.S. dollar-denominated ADRs, which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all of the risk inherent in investing
in the securities of foreign issuers. However, by investing in ADRs rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for many ADRs. The information available for
ADRs is subject to the accounting, auditing and financial reporting standards of
the domestic market or exchange on which they are traded, standards which are
more uniform and more exacting than those to
PROSPECTUS--Investor B Shares 36
<PAGE> 118
which many foreign issuers may be subject. The ADR is sometimes referred to as a
Global Depositary Receipt, or GDR. In the United States, the GDR is, after
issuance, not unlike any other ADR. The difference is found in the purpose of
the issue. GDRs are used for global offerings, by the simultaneous issuance of a
single security in multiple world markets. The International Fund and Balanced
Allocation Fund may also invest in EDRs which are receipts evidencing an
arrangement with a European bank similar to that for ADRs and designed for use
in the European securities markets. EDRs are not necessarily denominated in the
currency of the underlying security.
Certain of the ADRs and EDRs, typically those categorized as unsponsored,
require their holders to bear most of the costs of such facilities while issuers
of sponsored facilities normally pay more of the costs. 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 with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the
European Currency Unit ("ECU"), which is a "basket" unit of currency 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.
FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds, the Income Funds and the
Municipal Bond Fund may enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, a Fund can seek through the sale of
futures contracts to offset a decline in the value of its portfolio securities.
When interest rates are expected to fall or market values are expected to rise,
a Fund, through the purchase of such contracts, can attempt to secure better
rates or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercising 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 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of a Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with its portfolio securities or foreign currencies, limiting the
Fund's ability to
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hedge effectively against interest rate, exchange rate and/or market risk and
giving rise to additional risks. There is no assurance of liquidity in the
secondary market for purposes of closing out futures positions.
GOVERNMENT OBLIGATIONS
Subject to the investment parameters described above, each of the Funds may
invest in obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities. The types of U.S. government obligations in which
each of these Funds may invest include U.S. Treasury notes, bills, bonds, and
any other securities directly issued by the U.S. government for public
investment, which differ only in their interest rates, maturities, and times of
issuance. Stripped Treasury Obligations are also permissible investments.
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 Prime Obligations 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,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the right of
the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association ("SLMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored agencies or
instrumentalities, such as FNMA, SLMA or FHLMC, since it is not obligated to do
so by law. The Funds which may invest in these government obligations will
invest in the obligations of such agencies or instrumentalities only when First
of America believes that the credit risk with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS
The Bond Fund, the Limited Maturity Bond Fund and the Prime Obligations Fund may
invest in GICs. When investing in GICs, the Bond Fund, the Limited Maturity Bond
Fund and the Prime Obligations Fund make cash contributions to a deposit fund of
an insurance company's general account. The insurance company then credits
guaranteed interest to the deposit fund on a monthly basis. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expenses and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. The Bond Fund and the Limited Maturity Bond Fund may invest
in GICs of insurance companies without regard to the ratings, if any, assigned
to such insurance companies' outstanding debt securities. The Prime Obligations
Fund may only invest in GICs that have received the requisite ratings by one or
more NRSROs, see "INVESTMENT OBJECTIVES AND POLICIES -- The Money Market Fund"
in this Prospectus. Because a Fund may not receive the principal amount of a GIC
from the insurance company on seven days' notice or less, the GIC is considered
an illiquid investment. For each of the Bond Fund and Limited Maturity Bond
Fund, no more than 15% of its total assets will be invested in instruments which
are considered to be illiquid. For the Prime Obligations Fund, no more than 10%
of its total assets may be invested in instruments which are considered to be
illiquid. In determining average portfolio maturity, GICs will be deemed to have
a maturity equal to the period of time remaining until the next readjustment of
the guaranteed interest rate.
MEDIUM-GRADE SECURITIES
Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond Fund,
Municipal Bond Fund and Michigan Bond Fund may invest in fixed-income securities
rated within the fourth highest rating category assigned by an NRSRO (i.e., BBB
or Baa by S&P or Moody's, respectively) and comparable unrated securities as
determined by the Investment Adviser. These types of fixed-income securities are
considered
PROSPECTUS--Investor B Shares 38
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by the NRSROs to have some speculative characteristics, and are more vulnerable
to changes in economic conditions, higher interest rates or adverse
issuer-specific developments which are more likely to lead to a weaker capacity
to make principal and interest payments than comparable higher rated debt
securities.
Should subsequent events cause the rating of a fixed-income security purchased
by any of the Funds listed above to fall below the fourth highest rating, First
of America will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would the Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
MORTGAGE-RELATED SECURITIES
The Government Income Fund intends to invest up to 80% of the value of its total
assets in mortgage-related securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. However, the Government Income
Fund may invest greater amounts as conditions warrant. Each of the remaining
Funds, except the International Fund, may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Such agencies or instrumentalities include GNMA, FNMA and
FHLMC. Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond
Fund, Intermediate Government Obligations Fund, Government Income Fund and Prime
Obligations Fund may also invest in mortgage-related securities issued by
non-governmental entities which are rated, at the time of purchase, within the
three highest bond rating categories assigned by an NRSRO or, if unrated, which
First of America deems present attractive opportunities and are of comparable
quality.
The mortgage-related securities in which these Funds may invest have mortgage
obligations backing such securities, consisting of conventional thirty-year
fixed-rate mortgage obligations, graduated payment mortgage obligations,
fifteen-year mortgage obligations and adjustable rate mortgage obligations. All
of these mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. Accelerated prepayments have an adverse impact on yields for
pass-throughs purchased at a premium (i.e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, though, the rate of prepayment tends to decrease, thereby lengthening
the period of time over which income at the lower rate is received. For these
and other reasons, a mortgage-related security's average maturity may be
shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Fund. In addition, regular payments received with respect to mortgage-related
securities include both
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interest and principal. No assurance can be given as to the return a Fund will
receive when these amounts are reinvested.
The principal governmental (i.e., backed by the full faith and credit of the
United States government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Administration
or guaranteed by the Veterans Administration.
Government-related (i.e., not backed by the full faith and credit of the United
States government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States government. FHLMC is a corporate instrumentality of the
United States government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by non-governmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers will be considered in
determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the poolers, First of
America determines that the securities meet the Government Income Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Government Income Fund will not purchase mortgage-related
securities or any other assets which in First of America's opinion are illiquid
if, as a result, more than 15% of the value of the Government Income Fund's
total assets will be illiquid.
Mortgage-related securities in which the above-named Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments; that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed-rate mortgages. As new types
of mortgage-related securities are developed
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and offered to investors, First of America will, consistent with the Government
Income Fund's investment objective, policies and quality standards, consider
making investments in such new types of securities.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities (Michigan Municipal
Securities, in the case of the Michigan Bond Fund) which may be held by the Bond
Fund, Limited Maturity Bond Fund, Municipal Bond Fund, Michigan Bond Fund and
Prime Obligations Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Municipal Bond Fund
and Michigan Bond Fund are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the corporate user of the facility involved.
The above-named Funds may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Each of the above-named Funds invests primarily in Municipal Securities which
are rated at the time of purchase within the four highest rating categories
assigned by an NRSRO or in the highest rating category assigned by an NRSRO in
the case of notes, tax-exempt commercial paper or variable rate demand
obligations. These Funds may also purchase Municipal Securities which are
unrated at the time of purchase but determined to be of comparable quality by
First of America pursuant to guidelines approved by the Group's Board of
Trustees. The Prime Obligations Fund may invest in Municipal Securities only in
compliance with the requirements of Rule 2a-7 under the 1940 Act, which
generally requires that it invest only in securities rated in the two highest
rating categories assigned by an NRSRO (with no more than 5% of its assets
invested in the second highest rating category). The applicable Municipal
Securities ratings are described in the Appendix to the Statement of Additional
Information. For a discussion of debt securities rated within the four highest
rating categories assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Medium-Grade Securities."
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Funds nor First of
America will review the proceedings relating to the issuance of Municipal
Securities or the basis for such opinions.
Municipal Securities and Michigan Municipal Securities purchased by the Tax-Free
Income Funds may include rated and unrated variable and floating rate tax-exempt
notes. A variable rate note is one whose terms provide for the adjustment of its
interest rate on set dates and which, upon such adjustment, can reasonably be
expected to have a market value that approximates its par value. A floating rate
note is one whose terms provide for the adjustment of its interest rate whenever
a specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. Such notes are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate notes purchased by the TaxFree Income Funds will be determined by
First of America, under guidelines established by the Group's Board of Trustees,
to be of comparable quality at the time of purchase to rated instruments
eligible for purchase under the Funds' investment policies. In making such
determinations, First of America will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. There may be no active secondary
market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to the Tax-Free Income Funds will approximate their par value.
The Tax-Free Income Funds will not purchase variable and floating rate notes or
any other securities which in First
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of America's opinion are illiquid if, as a result, more than 15% of either
Tax-Free Income Fund's total assets will be illiquid.
OTHER MUTUAL FUNDS
Each of the Funds, except the Prime Obligations 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 Money Market Funds: the Parkstone Prime
Obligations Fund, the Parkstone U.S. Government Obligations Fund, the Parkstone
Tax-Free Fund and the Parkstone Treasury Fund), provided that no more than 10%
of a Fund's total assets may be invested in the securities of mutual funds in
the aggregate. In order to avoid the imposition of additional fees as a result
of investments by a Fund in shares of the Money Market Funds of the Group, the
Investment Adviser, Administrator and their affiliates (See "MANAGEMENT OF THE
FUNDS -- Investment Adviser and Subadviser" and "Administrator,
Sub-Administrator and Distributor" and "GENERAL INFORMATION -- Transfer Agency
and Fund Accounting Services") will charge their fees to the investing Fund,
rather than the Money Market Funds. Each Fund will incur additional expenses due
to the duplication of expenses as a result of investing in securities of
unaffiliated mutual funds. Additional restrictions regarding the Funds'
investments in securities of unaffiliated mutual funds and/or the Money Market
Funds of the Group are contained in the Statement of Additional Information.
PRIVATE ACTIVITY BONDS
The Tax-Free Income Funds may invest in private activity bonds. It should be
noted that the Tax Reform Act of 1986 substantially revised provisions of prior
federal law affecting the issuance and use of proceeds of certain tax-exempt
obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Any reference herein to private activity bonds includes industrial development
bonds. Interest on private activity bonds is tax-exempt (and such bonds will be
considered Municipal Securities for purposes of this Prospectus) only if the
bonds fall within certain defined categories of qualified private activity bonds
and meet the requirements specified in those respective categories. If a Fund
invests in private activity bonds which fall outside these categories,
shareholders may become subject to the alternative minimum tax on that part of
the Fund's distributions derived from interest on such bonds. The Tax Reform Act
generally does not change the federal tax treatment of bonds issued to finance
government operations. For further information relating to the types of private
activity bonds which will be included in income subject to the alternative
minimum tax, see "ADDITIONAL INFORMATION -- Additional Tax Information
Concerning the Tax-Free Fund, the Municipal Bond Fund and the Michigan Bond
Fund" in the Statement of Additional Information.
PUT AND CALL OPTIONS
Each of the Growth Funds, the Growth and Income Funds, the Income Funds and the
Tax-Free Income Funds may purchase put and call options on securities and on
foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. Each Fund
may also engage in writing call options from time to time as First of America or
Gulfstream, as the case may be with respect to the Balanced Allocation Fund or
International Fund, deem appropriate. The Funds will write only covered call
options (options on securities or currencies owned by the particular Fund). In
order to close out a call option it has written, the Fund will enter into a
"closing purchase transaction" (the purchase of a call option on the same
security or currency with the same exercise price and expiration date as the
call option which such Fund previously has written). When a portfolio security
or currency subject to a call option is sold, the Fund will effect a closing
purchase transaction to close out any existing call option on that security or
currency. If such Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security or currency until the option
expires or that Fund delivers the underlying security or currency upon exercise.
In addition, upon the exercise of a call option by the option holder, the Fund
will forego the potential benefit
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represented by market appreciation over the exercise price. Under normal
conditions, it is not expected that the Funds will cause the underlying value of
portfolio securities and currencies subject to such options to exceed 50% of its
net assets, and with respect to each of the Balanced Allocation Fund and
International Fund, 20% of its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its options transactions, also may purchase index put and call
options and write index options. As with options on individual securities, a
Fund will write only covered index call options. Through the writing or purchase
of index options a Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
In addition, each of the Tax-Free Income Funds may acquire "puts" with respect
to Municipal Securities (or Michigan Municipal Securities, as the case may be),
held in its portfolio. Under a put, such Fund would have the right to sell a
specified Municipal Security (or Michigan Municipal Security, as the case may
be) within a specified period of time at a specified price. A put would be sold,
transferred, or assigned only with the underlying security. The Tax-Free Income
Funds will acquire puts solely either to facilitate portfolio liquidity, shorten
the maturity of the underlying securities, or permit the investment of its funds
at a more favorable rate of return. Each of the Tax-Free Income Funds expects
that it will generally acquire puts only where the puts are available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, such Fund may pay for a put either separately in cash or by paying a
higher price for portfolio securities which are acquired subject to the puts
(thus reducing the yield to maturity otherwise available for the same
securities).
REPURCHASE AGREEMENTS
Securities held by a Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as member banks of the Federal Deposit Insurance Corporation
or registered broker-dealers which First of America or Gulfstream, as the case
may be, deem creditworthy under the guidelines approved by the Group's Board of
Trustees, subject to the seller's agreement to repurchase such securities at a
mutually agreed upon date and price. The repurchase price would generally equal
the price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. Securities subject to repurchase agreements will be held
in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from the sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by that Fund were delayed pending court action. Repurchase
agreements are considered to be loans by an investment company under the 1940
Act. For further information about repurchase agreements, see "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Repurchase Agreements" in the Statement of Additional
Information.
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RESTRICTED SECURITIES
Securities in which each of the Funds may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the "1933 Act"), in reliance on the exemption from such registration afforded
by Section 3(a)(3) thereof, and securities issued in reliance on the so-called
"private placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2) securities are
restricted as to disposition under the federal securities laws, and generally
are sold to institutional investors such as the Funds who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who make a
market in such Section 4(2) securities, thus providing liquidity. Pursuant to
procedures adopted by the Board of Trustees of the Group, First of America may
determine Section 4(2) securities to be liquid if such securities are eligible
for resale under Rule 144A under the 1933 Act and are readily saleable.
Subject to the limitations described above, the Funds may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registered under the 1993 Act. An illiquid investment
is any investment that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which it is valued by a Fund.
The price a Fund pays for illiquid securities or receives upon resale may be
lower than the price paid or received for similar securities with a more liquid
market. Accordingly, the valuation of these securities will reflect any
limitations on their liquidity. A Fund may not invest in additional illiquid
securities if, as a result, more than 15% of the market value of its net assets
would be invested in illiquid securities. The Prime Obligations Fund may not
invest in illiquid securities if, as a result, more than 10% of the market value
of its assets would be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Each of the Funds may borrow money by entering into reverse repurchase
agreements and, in the case of the Income Funds and the Tax-Free Income Funds,
dollar roll agreements in accordance with the investment restrictions described
below. Pursuant to reverse repurchase agreements, a 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.
Dollar roll agreements utilized by the Income Funds and Tax-Free Income Funds
are identical to reverse repurchase agreements except for the fact that
substantially similar securities may be repurchased. At the time a Fund enters
into a reverse repurchase agreement or a dollar roll agreement, it will place in
a segregated custodial account assets such as U.S. government securities or
other liquid high-grade debt securities consistent with its investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently continually monitor the account to ensure that
such equivalent value is maintained at all times. Reverse repurchase agreements
and dollar roll agreements involve the risk that the market value of securities
sold by a Fund may decline below the price at which it is obligated to
repurchase the securities. Reverse repurchase agreements and dollar roll
agreements are considered to be borrowings by an investment company under the
1940 Act and therefore a form of leverage. A Fund may experience a negative
impact on its net asset value if interest rates rise during the term of a
reverse repurchase agreement or dollar roll agreement. A Fund generally will
invest the proceeds of such borrowings only when such borrowings will enhance a
Fund's liquidity or when the Fund reasonably expects that the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. For further information about reverse repurchase
agreements and dollar roll agreements, see "INVESTMENT OBJECTIVES AND
POLICIES -- Additional Information on Portfolio Instruments -- Reverse
Repurchase Agreements and Dollar Roll Agreements" in the Statement of Additional
Information.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis. Such Funds will engage in when-issued and delayed-delivery transactions
only for the purpose of acquiring portfolio
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securities consistent with its investment objectives and policies, not for
investment leverage although such transactions represent a form of leveraging.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve a risk that the
yield obtained in the transaction will be less than those available in the
market when delivery takes place. A Fund will not pay for such securities or
start earning interest on them until they are received. When a Fund agrees to
purchase such securities, its Custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in the value based upon changes in the general level of interest rates.
In when-issued and delayed-delivery transactions, a Fund relies on the seller to
complete the transaction; the seller's failure to do so may cause such Fund to
miss a price or yield considered to be advantageous.
No Fund's commitments to purchase "when-issued" securities will exceed 25% of
the value of its total assets under normal market conditions, and a commitment
by a Fund to purchase "when-issued" securities will not exceed 60 days. In the
event its commitments to purchase "when-issued" securities ever exceeded 25% of
the value of its assets, a Fund's liquidity and the ability of First of America
or Gulfstream, as the case may be, to manage it might be adversely affected. The
Funds intend only to purchase "when-issued" securities for the purpose of
acquiring portfolio securities, not for investment leverage.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks, or institutional borrowers of
securities. A Fund must receive 100% collateral in the form of cash or U.S.
government securities. This collateral will be valued daily by Union Bank.
Should the market value of the loaned securities increase, the borrower must
furnish additional collateral to that Fund. During the time portfolio securities
are on loan, the borrower pays that Fund any dividends or interest received on
such securities. Loans are subject to termination by the Fund or the borrower at
any time. While a Fund does not have the right to vote securities on loan, each
Fund intends to terminate the loan and regain the right to vote if that is
considered important with respect to the investment. In the event the borrower
defaults in its obligation to a Fund, such Fund bears the risk of delay in the
recovery of its portfolio securities and the risk of loss of rights in the
collateral. The Funds will enter into loan agreements only with broker-dealers,
banks, or other institutions that First of America or Gulfstream, as the case
may be, have determined are creditworthy under guidelines established by the
Group's Board of Trustees.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The SEC requires that the
calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less.
Because the Prime Obligations Fund intends to invest primarily in securities
with maturities of less than one year (although it may invest in securities with
maturities of up to 13 months) and because the SEC requires such securities to
be excluded from the calculation of portfolio turnover rate, the portfolio
turnover rate with respect to the Prime Obligations Fund is expected to be zero
for regulatory purposes. For portfolio turnover rates for each of the other
Funds, see "FINANCIAL HIGHLIGHTS."
The portfolio turnover rate for a Fund may vary greatly from year to year, as
well as within a particular year, and may also be affected by cash requirements
for redemptions of shares. High portfolio turnover rates will generally result
in higher transaction costs, including brokerage commissions, to a Fund and may
result in additional tax consequences to a Fund's shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
45 PROSPECTUS--Investor B Shares
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INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding shares of that Fund (as defined
in the Statement of Additional Information).
None of the Funds, with the exception of the Michigan Bond Fund, may:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in such issuer, or the Fund would hold more
than 10% of the outstanding voting securities of the issuer, except that
25% or less of the value of such Fund's total assets may be invested
without regard to such limitations. There is no limit to the percentage of
assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
Irrespective of the investment restriction above, and pursuant to Rule 2a-7
under the 1940 Act, the Prime Obligations Fund will, with respect to 100% of its
total assets, limit its investment in the securities of any one issuer in the
manner provided by such Rule which limitations are referred to above under the
caption "INVESTMENT OBJECTIVES AND POLICIES -- The Money Market Fund."
The Michigan Bond Fund may not:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, (a) more than 5% of the value of the
Fund's total assets (taken at current value) would be invested in such
issuer (except that up to 50% of the value of the Fund's total assets may
be invested without regard to such 5% limitation), and (b) more than 25% of
its total assets (taken at current value) would be invested in the
securities of a single issuer.
For purposes of the investment limitations above, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues back
the security and, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, a security is considered to
be issued by such non-governmental user.
None of the Funds will:
1. Purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the
U.S. government or its agencies or instrumentalities; (b) wholly-owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
2. (a) Borrow money (not including reverse repurchase agreements or dollar roll
agreements), except that each Fund may borrow from banks for temporary or
emergency purposes and then only in amounts up to 30% (10% in the case of the
Prime Obligations Fund) of its total assets at the time of borrowing (and
provided that such bank borrowings, reverse repurchase agreements and dollar
roll agreements do not exceed in the aggregate one-third of the Fund's total
assets less liabilities other than the obligations represented by the bank
borrowings, reverse repurchase agreements and dollar roll agreements), or
mortgage, pledge or hypothecate any assets except in connection with a bank
borrowing in amounts not to exceed 30% of the Fund's net assets at the time
of borrowing; (b) enter into reverse repurchase agreements, dollar roll
agreements and other permitted borrowings in amounts exceeding in the
aggregate one-third of the Fund's total assets less liabilities other than
the obligations represented by such reverse repurchase and dollar roll
agreements; and (c) issue senior securities except as permitted by the 1940
Act or any rule, order or interpretation thereunder.
PROSPECTUS--Investor B Shares 46
<PAGE> 128
3. Make loans, except that a Fund may purchase or hold debt instruments and lend
portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
For purposes of investment limitation number 1 above only, such limitation shall
not apply to Municipal Securities or governmental guarantees of Municipal
Securities, and industrial development bonds or private activity bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding shares of a Fund.
Each Fund may not:
1. Purchase or otherwise acquire any securities, if as a result, more than 15%
(10% in the case of the Prime Obligations Fund) of the Fund's net assets
would be invested in securities that are illiquid.
In addition to the above investment restrictions, the Funds are subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES -- Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
TRUSTEES
Overall responsibility for management of the Group rests with its Board of
Trustees. The Group will be managed by the Trustees in accordance with the laws
of the Commonwealth of Massachusetts governing business trusts. There are
currently six Trustees, four 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
names, addresses, birth dates and principal occupations during the past five
years of the Trustees are set forth in the Statement of Additional Information.
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
First of America Bank Corporation ("FABC"), BISYS, The BISYS Group, Inc. or
BISYS Ohio 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 Transfer Agent and may receive fees from
each of the Funds pursuant to the Investor B Distribution and Shareholder
Service Plan described below. BISYS Ohio, an affiliate of BISYS, receives fees
from the Group for providing certain fund accounting services.
INVESTMENT ADVISER AND SUBADVISER
First of America, 303 North Rose Street, Suite 500, Kalamazoo, Michigan 49007,
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 FOA,
which is a wholly-owned subsidiary of FABC. FABC currently has over $21.5
billion in assets and provides financial services to communities in Michigan,
Indiana, Illinois and Florida. FABC has, however, entered into an agreement to
sell its operations in Florida, thereby reducing its assets by approximately
$1.1 billion. As of June 30, 1997, First of America managed over $15.8 billion
on behalf of both taxable and tax-exempt clients, including pensions,
endowments, corporations and individual portfolios. First of America acts as
subadviser to the Trust Division of FABC with respect to $7.2 billion in
discretionary assets, providing equity, fixed income, balanced and money
management services.
Subject to such policies as the Group's Board of Trustees may determine, First
of America, either directly or, with respect to the International Fund and the
Balanced Allocation Fund, through Gulfstream, furnishes a continuous investment
program for each Fund and makes investment decisions on behalf of each Fund.
47 PROSPECTUS--Investor B Shares
<PAGE> 129
First of America utilizes a team approach to the investment management of the
Funds, with up to three professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
each Fund's investment objectives. Roger H. Stamper, Managing Director of First
of America, is primarily responsible for the day-to-day management of each of
the Growth Funds (except the International Fund) and the Growth and Income
Funds. Mark R. Kummerer, Managing Director -- Fixed Income of First of America,
is primarily responsible for the day-to-day management of the Income Funds.
Christian S. Swantek, Vice President of First of America, is primarily
responsible for the day-to-day management of the Tax-Free Income Funds. Messrs.
Stamper and Kummerer have held their respective positions with First of America
since 1988 and 1986, respectively. Prior to June 1993, Mr. Swantek was a
portfolio manager at PNC Investment Management & Research and its various
investment management affiliates.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, First of America receives a fee from the
Large Capitalization Fund, computed daily and paid monthly, at the annual rate
of 0.80% of the Fund's average daily net assets. For its services in connection
with each of the Small Capitalization Fund, Mid Capitalization Fund, Equity
Income Fund and Balanced Allocation Fund, First of America's fee is computed
daily and paid monthly at the annual rate of 1.00% of the applicable Fund's
average daily net assets. For its services in connection with the International
Fund, First of America's fee is computed daily and paid monthly at the annual
rate of 1.25% of the first $50 million of the International Fund's average daily
net assets, 1.20% of average daily net assets between $50 million and $100
million, 1.15% of average daily net assets between $100 million and $400 million
and 1.05% of average daily net assets above $400 million. For its services in
connection with each Income Fund and Tax-Free Income Fund, First of America's
fee is computed daily and paid monthly at the annual rate of 0.74% of each
Income Fund's and Tax-Free Income Fund's average daily net assets. For its
services in connection with the Prime Obligations Fund, First of America's fee
is computed daily and paid monthly, at the annual rate of 0.40% of the Prime
Obligations Fund's average daily assets. First of America may periodically
voluntarily reduce all or a portion of its advisory fee with respect to a Fund
to increase the net income of that Fund available for distribution as dividends.
The voluntary fee reduction will cause the yield of that Fund to be higher than
it would otherwise be in the absence of such a reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream,
100 Crescent Court, Suite 550, Dallas, Texas 75201. Pursuant to the terms of
such Sub-Investment Advisory Agreement, Gulfstream has been retained by First of
America to manage the investment and reinvestment of the assets of the
International Fund and to manage the investment and reinvestment of those assets
of the Balanced Allocation Fund which are invested in foreign securities,
subject to the direction and control of the Group's Board of Trustees.
Under this arrangement, Gulfstream is responsible for day-to-day management of
the International Fund's assets and the applicable portion of the Balanced
Allocation Fund, reviewing investment performance policies and guidelines and
maintaining certain books and records, and First of America is responsible for
selecting and monitoring the performance of Gulfstream and for reporting the
activities of Gulfstream in managing these Funds to the Group's Board of
Trustees. First of America may also render advice with respect to the
International Fund's investments in the United States. Gulfstream utilizes a
team approach to investment management to ensure a disciplined investment
process designed to result in long-term performance consistent with a Fund's
investment objective. No one person is responsible for the Fund's management.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with First of America, Gulfstream receives from First of
America a fee, computed daily and paid monthly, at the annual rate of 0.50% of
the first $50 million of the International Fund's average daily net assets and
the average daily net assets of the Balanced Allocation Fund which are invested
in foreign securities, 0.45% of such average daily net assets between $50
million and $100 million, 0.40% of such average daily net assets between $100
million and $400 million and 0.30% of such average daily net assets above $400
million, provided the minimum annual fee shall be $75,000.
PROSPECTUS--Investor B Shares 48
<PAGE> 130
Gulfstream was organized in 1991 as a Texas limited partnership by Tull, Doud,
Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is the sole general
partner of Gulfstream. TDMT is owned by C. Thomas Tull, Stephen C. Doud, James
P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and Triltsch are the
portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. First of America is the sole limited partner, and as of August 31,
1996, exercised options to increase its interest in Gulfstream from 49% to 72%.
In spite of the fact that, as a limited partner, First of America does not
possess management authority or responsibility for Gulfstream, because of its
72% ownership interest, First of America may be deemed to control Gulfstream for
purposes of the 1940 Act.
As of June 30, 1997, Gulfstream had over $863 million in international assets of
institutional, investment company, governmental, pension fund and high net worth
individual clients under its investment management. Gulfstream's portfolio
management personnel average over 20 years of investment experience and 10 years
of international investment experience.
For further information regarding the relationship between Gulfstream and First
of America, see "MANAGEMENT OF THE GROUP -- Investment Adviser" in the Statement
of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
Fund of the Group, and also acts as the Group's principal underwriter and
distributor. First of America serves as Sub-Administrator for each Fund of the
Group and provides certain services as may be requested by BISYS from time to
time. BISYS and its affiliated companies, including BISYS Ohio, 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 record
keeping services to and through banking and other financial organizations.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from each Fund equal to the lesser of a fee, computed daily and
paid periodically at an annual rate of 0.20% of the Fund's average daily net
assets, or such other fee as may be agreed upon from time to time in writing by
the Group and the Administrator. For its services as Sub-Administrator, First of
America receives from the Administrator, pursuant to its Sub-Administration
Agreement with BISYS, a fee not to exceed 0.05% of each Fund's average daily net
assets. The Administrator may periodically voluntarily reduce all or a portion
of its administrative fee with respect to a Fund to increase the net income of
that Fund available for distribution as dividends. The voluntary fee reduction
will cause the return of that Fund to be higher than it would otherwise be in
the absence of such reduction.
The Distributor acts as agent for the Funds in the distribution of each of their
shares and, in such capacity, solicits orders for the sale of shares,
advertises, and pays the cost of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but may retain some or all of any sales
charge imposed upon the Investor B Shares and may receive compensation under the
Distribution and Shareholder Service Plan described below.
EXPENSES
First of America, Gulfstream and BISYS each bear all expenses in connection with
the performance of its services as Investment Adviser, Subadviser and
Administrator, respectively, other than the cost of securities (including
brokerage commissions) purchased for the Group. Each Fund will bear the
following expenses relating to its operation: organizational expenses, taxes,
interest, brokerage fees and commissions, fees of the Trustees of the Group, SEC
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
49 PROSPECTUS--Investor B Shares
<PAGE> 131
the Group's existence, costs of shareholders' reports and meetings, and any
extraordinary expenses incurred in each Fund's operation. As a general matter,
expenses are allocated to the Investor B Shares and the other classes of shares
of the Funds on the basis of the relative net asset value of each class. The
various classes may bear certain additional retail transfer agency expenses and
may also bear certain additional shareholder service and distribution costs
incurred pursuant to a Distribution and Shareholder Service Plan.
The Trustees reserve the right, subject to the receipt of relevant regulatory
approvals or rulings, if needed, to allocate certain other expenses to the
shareholders of a particular class, including the Investor B Shares 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; SEC registration fees
incurred by a class of shares; expenses related to administrative personnel and
services as required to support the shareholders of a specific class; litigation
or other legal expenses relating solely to one class of shares; and Trustees'
fees incurred as a result of issues relating solely to one class of shares.
DISTRIBUTION PLAN FOR INVESTOR B SHARES
Rule 12b-1, adopted by the SEC under the 1940 Act, permits an investment company
to pay directly or indirectly expenses associated with the distribution of its
shares in accordance with a plan adopted by an investment company's trustees and
approved by its shareholders. Pursuant to such Rule, the Group has adopted an
Investor B Distribution and Shareholder Service Plan (the "Investor B Plan")
with respect to the Investor B Shares of each Fund. Pursuant to the Investor B
Plan, each Fund is authorized to pay or reimburse BISYS, as Distributor of the
Investor B Shares, for certain expenses that are incurred in connection with
shareholder and distribution services. The Plan authorizes any Fund to pay
BISYS, as Distributor of Investor B Shares, a distribution fee in an amount not
to exceed on an annual basis 0.75% of the average daily net asset value of
Investor B Shares of such Fund (the "Distribution Fee"). Such amount may be used
by BISYS to pay banks and their affiliates (including FOA and its affiliates),
and other institutions, including broker-dealers ("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 BISYS, its
subsidiaries and its affiliates.
Also pursuant to the Investor B Plan, a Fund is authorized to pay a service fee
in an amount not to exceed on an annual basis 0.25% of the average daily net
asset value of the Investor B Shares of such Fund (the "Service Fee"). Such
amount may be used to pay Participating Organizations for shareholder services
provided or expenses incurred in providing such services.
Fees paid pursuant to the Investor B Plan are accrued daily and paid monthly,
and are charged as expenses of Investor B Shares of a Fund as accrued. Payments
under the Investor B Plan will be calculated daily and paid monthly at a rate
not to exceed the limits described above, which rate is set from time to time by
the Board of Trustees.
Pursuant to the Investor B Plan, the Distributor may enter into 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% (up to 0.75%
Distribution Fee plus up to 0.25% Service Fee) of the average daily net asset
value of the Investor B Shares held of record or beneficially by the
Participating Organization's customers. The distribution services provided by
Participating Organizations for which the Distribution Fee may be paid may
include promoting the purchase of Investor B Shares of a Fund by their
customers; processing purchase, exchange, and redemption requests from customers
and placing orders with the Distributor or the Transfer Agent; processing
dividend and distribution payments from a Fund on behalf of customers; providing
information periodically to customers, including information showing their
positions in Investor B Shares; responding to inquiries from customers
concerning their investment in Investor B
PROSPECTUS--Investor B Shares 50
<PAGE> 132
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 and shareholder service expenses for Investor B Shares at
any given time may exceed the Rule 12b-1 fees and contingent deferred sales
charges collected. These unrecovered amounts plus interest thereon will be
carried forward and paid from future Rule 12b-1 fees and contingent deferred
sales charges collected. 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. During the fiscal year ended June 30, 1997, Rule 12b-1
fees and contingent deferred sales charges collected were sufficient to cover
actual distribution and shareholder service expenses; that is, there were no
unrecovered amounts to be carried forward.
Conflict of interest restrictions may apply to the receipt by Participating
Organizations of compensation from BISYS in connection with the investment of
fiduciary assets in Investor B Shares. Institutions, including banks regulated
by the Comptroller of the Currency, the Federal Reserve Board, or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor, or state
securities commissions, are urged to consult their legal advisers before
investing such assets in Investor B Shares.
As authorized by the Investor B Plan, BISYS has entered into a Service and
Commission Agreement with Security Distributors, Inc. ("SDI"), Security Benefit
Group, Inc. ("SBG") and First of America Brokerage Service, Inc.
("FOA-Brokerage") which relates to purchases of Investor B Shares made prior to
January 1, 1995. Pursuant to the Service and Commission Agreement, FOA-Brokerage
performs certain brokerage and related services in connection with the purchase
of Investor B Shares by its customers and maintains shareholder accounts for
such customers. Also pursuant to the Service and Commission Agreement, SBG
provides financing assistance, consistent with the Investor B Plan, in
connection with the services performed by FOA-Brokerage. Services provided by
FOA-Brokerage include placing orders to purchase Investor B Shares, as agent for
its customers, pursuant to the terms of its Dealer Agreement; providing
shareholder liaison services; responding to inquiries; providing such
information as FOA-Brokerage and SDI mutually determine to be appropriate in
order to properly maintain shareholder accounts; and providing at its own
expense such office space, equipment, facilities and personnel as may be
reasonably necessary or beneficial in order to provide such services to
customers. In consideration for such services, FOA-Brokerage receives from SBG a
commission rate of 4.00% of the net asset value of Investor B Shares purchased
by FOA-Brokerage as agent for its customers. SDI, either directly or through an
affiliate, receives amounts specified in the Shareholder Services and Financing
Agreement dated February 1, 1994 between BISYS and SDI. Under that Agreement,
SDI receives compensation for financing assistance at the annual rate of up to
0.75% of the average daily net assets of Investor B Shares of each Fund and
compensation for shareholder support services at an annual rate of up to 0.25%
of the average daily net assets of the Investor B Shares of each Fund.
The Group understands that Participating Organizations may charge fees to their
customers who are owners of Investor B 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.
The Investor B Plan requires the officers of the Group to provide the Board of
Trustees at least quarterly with a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made. The
Board reviews these reports in connection with its decisions with respect to the
Plan.
As required by Rule 12b-1, the Investor B Plan was approved by the Trustees of
the Group, including a majority of the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Group and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements related to
the Plan ("Independent Trustees"). The Investor B Plan continues in effect as
long as such continuance
51 PROSPECTUS--Investor B Shares
<PAGE> 133
is specifically approved at least annually by the Group's Trustees, including a
majority of the Independent Trustees.
The Investor B Plan may be terminated by a vote of a majority of the Independent
Trustees, or by a vote of a majority of the holders of the outstanding voting
securities of the Investor B Shares. Any change in the Investor B Plan that
would increase materially the distribution expenses paid by a Fund requires
shareholder approval; otherwise, the Plan may be amended by the Trustees,
including a majority of the Independent Trustees by a vote cast in person at a
meeting called for the purpose of voting upon the amendment. As long as the
Investor B Plan is in effect, the selection or nomination of the Independent
Trustees is committed to the discretion of the Independent Trustees.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS serves as the Group's Transfer Agent pursuant to a Transfer Agency
Agreement with the Group and receives a fee for such services. BISYS Ohio, 3435
Stelzer Road, Columbus, Ohio 43219, provides certain accounting services for
each of the Funds and receives a fee for such services. See "MANAGEMENT OF THE
GROUP -- Custodian, Transfer Agent and Fund Accounting Services" in the
Statement of Additional Information for further information.
While BISYS Ohio is a distinct legal entity from BISYS (the Group's
Administrator and Distributor), BISYS Ohio is considered to be an affiliated
person of BISYS under the 1940 Act due to, among other things, the fact that
BISYS Ohio and BISYS are both owned by The BISYS Group, Inc.
BANKING LAWS
First of America believes that it may perform the investment advisory services
for the Group's Funds contemplated by the Investment Advisory Agreement and by
this Prospectus without violating applicable banking laws or regulations. Future
changes in federal or state statutes and regulations relating to permissible
activities of banks or bank holding companies and their subsidiaries and
affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which First of America could continue to perform such services for the
Group. See the Statement of Additional Information ("MANAGEMENT OF THE
GROUP -- Glass-Steagall Act") for further discussion.
HOW TO BUY INVESTOR B SHARES
Investor B Shares of each Fund are continuously offered and may be purchased
directly either by mail or by telephone. Investor B Shares of the Michigan Bond
Fund may only be sold in those states where the Fund has filed the required
notification documents, currently only Colorado, District of Columbia, Florida,
Georgia, Hawaii, Illinois, Indiana, Michigan, Mississippi, New Jersey, Ohio and
Virginia. Investor B Shares may also be purchased through a broker-dealer who
has entered into a dealer agreement with the Distributor. Except as otherwise
discussed below under "Other Information Regarding Purchases" and "Auto Invest
Plan," the minimum initial investment in a Fund, based upon the public offering
price, is $1,000; however, there is no minimum subsequent purchase. Shareholders
will pay the next calculated net asset value after the receipt by the
Distributor of an order to purchase Investor B Shares, plus any applicable sales
charge as described below (see "SALES CHARGES"). In the case of an order for the
purchase of shares placed through a broker-dealer, it is the responsibility of
the broker-dealer to transmit the order to the Distributor promptly.
PROSPECTUS--Investor B Shares 52
<PAGE> 134
BY MAIL
To purchase Investor B Shares of any of the Funds by mail, complete an Account
Application Form and return it along with a check or money order made payable to
The Parkstone Group of Funds at the following address:
The Parkstone Group of Funds
P.O. Box 50551
Kalamazoo, Michigan 49005-0551
An Account Application Form can be obtained by calling the Group at (800)
451-8377.
BY TELEPHONE
To purchase Investor B Shares of any of the Funds by telephone, an Account
Application Form must have been previously received by the Distributor. To place
an order by telephone, even if payment is to be made by wire, call the Group's
toll-free number (800) 451-8377. Payment for such Investor B Shares ordered by
telephone may be made by check or wire. Where payment is made by check, the
transaction will not be processed until the check is received by the Group's
Custodian. If a check received to purchase Investor B Shares does not clear or
if a wire transfer is not received by the Group's Custodian within three
Business Days (as defined in "HOW SHARES ARE VALUED") of the purchase order, the
purchase may be canceled and the investor could be liable for any losses or fees
incurred. When purchasing Investor B Shares by wire, contact the Distributor at
(800) 851-1227 for wire instructions.
OTHER INFORMATION REGARDING PURCHASES
Investor B Shares may also be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by FABC or one of its
affiliates. Investor B Shares of the Funds sold to FABC or the affiliate acting
in a fiduciary, advisory, custodial, or other similar capacity on behalf of
Customers will normally be held of record by FABC or the affiliate. With respect
to such Investor B Shares so sold, it is the responsibility of the holder of
record to transmit purchase or redemption orders to the Distributor and to
deliver funds for the purchase thereof on a timely basis. Beneficial ownership
of such Investor B Shares of the Funds will be recorded by FABC or one of its
affiliates and reflected in the account statements provided to Customers. FABC
or one of its affiliates may exercise voting authority for those Investor B
Shares for which it has been granted authority by the Customer.
Investor B Shares of the Funds are purchased at the net asset value per share
(see "HOW SHARES ARE VALUED") next determined after receipt by the Distributor
of an order to purchase Investor B Shares plus any applicable sales charge as
described below. Purchases of Investor B Shares of any of the Funds will be
effected only on a Business Day (as defined in "HOW SHARES ARE VALUED") of the
applicable 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 that Fund. Investor B Shares of all
Funds, except the Prime Obligations Fund, are eligible to earn dividends on the
first Business Day following the execution of the purchase. Investor B Shares of
the Prime Obligations Fund purchased before 11:30 a.m., Eastern Time, begin
earning dividends on the same Business Day. Investor B Shares continue to be
eligible to earn dividends through the day before their redemption.
An order to purchase Investor B Shares will be deemed to have been received by
the Distributor only when federal funds 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 Investor B Shares which
is transmitted by federal funds wire will be available the same day for
investment by the Group's Custodian, if received prior to the last Valuation
Time (see "HOW SHARES ARE VALUED"). Purchases made by check or other means are
made at the price next determined upon receipt of the purchase instrument.
However, proceeds from reclaimed shares purchased by check will not be sent
until
53 PROSPECTUS--Investor B Shares
<PAGE> 135
the method of payment has cleared. The Group strongly recommends that investors
of substantial amounts use federal funds to purchase Investor B Shares.
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 FABC at (800) 544-6155. Due to the relatively high cost of handling
small investments, the Group reserves the right to redeem involuntarily, at net
asset value, the Investor B Shares of any shareholder if, because of redemptions
of Investor B Shares by or on behalf of the shareholder (but not as a result of
a decrease in the market price of such Investor B Shares, the deduction of any
sales charge or the establishment of an account with less than $1,000 using the
Auto Invest Plan), the account of such shareholder in that Fund has a value of
less than $1,000. Accordingly, an investor purchasing Investor B Shares of a
Fund in only the minimum investment amount may be subject to such involuntary
redemption if the investor thereafter redeems any such Investor B Shares. If at
any time a shareholder's account balance falls below $1,000, upon 30 days'
notice, the Group may exercise its right to redeem such Investor B Shares and to
send the proceeds to the shareholder.
Depending upon the terms of a particular Customer account, FABC or one of its
affiliates may charge a customer account fees for services provided in
connection with investment in a Fund. Information concerning these services and
any charges may be obtained from FABC 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 B
Shares in whole or in part.
Every shareholder will receive a confirmation of each new transaction in the
shareholder's account which will also show the total number of Investor B Shares
of the respective Fund of the Group owned by the shareholder. Confirmation of
purchases and redemptions of Investor B Shares of the Funds by FABC or one of
its affiliates on behalf of a Customer may be obtained from FABC or the
affiliate. Shareholders may rely on these statements in lieu of certificates.
Certificates representing Investor B Shares of the Funds will not be issued.
AUTO INVEST PLAN
The Parkstone Group of Funds Auto Invest Plan (the "Auto Invest Plan") enables
shareholders to make regular monthly or quarterly purchases of Investor B Shares
through automatic deduction from their bank accounts. With shareholder
authorization, the Group's Transfer Agent will deduct the amount specified
(subject to the applicable minimums) from the shareholder's bank account which
will automatically be invested in shares at the public offering price on the
date of such deduction (or the next Business Day thereafter, as defined under
"HOW SHARES ARE VALUED" below). The required minimum initial investment when
opening an account using the Auto Invest Plan is $100; the minimum amount for
subsequent investments in a Fund is $50. To participate in the Auto Invest Plan,
shareholders should complete the appropriate section of the Account Application
Form or a supplemental Auto Invest Plan application that can be acquired by
calling the Group at (800) 451-8377. For a shareholder to change the Auto Invest
Plan instructions, the request must be made in writing to the Group's
Distributor, BISYS Fund Services, c/o The Parkstone Group of Funds, P.O. Box
50551, Kalamazoo, Michigan 49005-0551 and may take up to 15 days to implement.
SALES CHARGES
Investor B Shares may be purchased only in amounts of less than $250,000. There
is no sales charge imposed upon purchases of Investor B Shares, but currently
investors may be subject to a contingent deferred sales charge of up to 5.00%
when Investor B Shares are redeemed prior to five years from the date of
purchase. For Investor B Shares purchased prior to January 1, 1997, investors
may be subject to a contingent deferred sales charge of up to 4.00% when
Investor B Shares are redeemed prior to four years from the date of purchase.
See "CONTINGENT DEFERRED SALES CHARGE" below.
PROSPECTUS--Investor B Shares 54
<PAGE> 136
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 Investor B
Plan, pay a bonus or other consideration or incentive to dealers who sell a
minimum dollar amount of shares of a Fund during a specified period of time. The
Distributor also may, from time to time, arrange for the payment of additional
consideration to dealers not to exceed 6.25% of the offering price per share on
all sales of Investor B Shares as an expense of the Distributor or for which the
Distributor may be reimbursed under the Investor B Plan or upon receipt of a
contingent deferred sales charge. Any such additional consideration or incentive
program may be terminated at any time by the Distributor.
The Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of shares of any of the Funds of the Group.
Compensation may include financial assistance to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns regarding one or more Funds of the Group, and/or
other dealer-sponsored special events. In some instances, this compensation may
be made available only to certain dealers whose representatives have sold or are
expected to sell a significant amount of such shares. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their families
to exotic locations within or outside of the United States for meetings or
seminars of a business nature. Compensation may also include the following types
of non-cash items offered through sales contests: (1) vacation trips, including
travel arrangements and lodging at resorts; (2) tickets for entertainment events
(such as concerts, cruises and sporting events); and (3) merchandise (such as
clothing, trophies, clocks and pens). The Distributor, at its expense, currently
conducts an annual sales contest for dealers, including First of America
Securities, Inc. ("FSI"), a wholly-owned subsidiary of FABC, in connection with
their sales of shares of the Funds. Dealers may not use sales of a Fund's shares
to qualify for this compensation to the extent such may be prohibited by the
laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc.
CONTINGENT DEFERRED SALES CHARGE
Investor B Shares which are redeemed prior to five years from the date of
purchase will be subject to a contingent deferred sales charge equal to a
percentage of the lesser of net asset value at the time of purchase of the
Investor B Shares being redeemed or net asset value of such shares at the time
of redemption, as set forth in the chart below:
<TABLE>
<CAPTION>
YEAR OF CONTINGENT DEFERRED
REDEMPTION SALES CHARGE
- ----------- -------------------
<S> <C>
First 5.00%
Second 5.00%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
</TABLE>
Investor B Shares which were purchased prior to January 1, 1997 and redeemed
prior to four years from the date of purchase will be subject to a contingent
deferred sales charge equal to a percentage of the
55 PROSPECTUS--Investor B Shares
<PAGE> 137
lesser of net asset value at the time of purchase of the Investor B Shares being
redeemed or net asset value of such shares at the time of redemption, as set
forth in the chart below:
<TABLE>
<CAPTION>
YEAR OF CONTINGENT DEFERRED
REDEMPTION SALES CHARGE
- ----------- -------------------
<S> <C>
First 4.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
</TABLE>
Accordingly, a contingent deferred sales charge will not be imposed on amounts
representing increases in net asset value above the net asset value at the time
of purchase. In addition, a charge will not be assessed on Investor B Shares
purchased through reinvestment of dividends or capital gains distributions.
Solely for purposes of determining the number of years which have elapsed from
the time of purchase of any Investor B Shares, all purchases during a month will
be aggregated and deemed to have been made on the last day of the month. In
determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for more than four years or shares
acquired pursuant to reinvestment of dividends or distributions.
For example, assume an investor purchased 100 Investor B Shares with a net asset
value of $10 per share (i.e., at an aggregate net asset value of $1,000) and in
the eleventh month after purchase, the net asset value per share is $12 and,
during such time, the investor has acquired five additional Investor B Shares
through dividend reinvestment. If at such time the investor makes his first
redemption of 50 Investor B Shares (producing proceeds of $600), five of such
shares will not be subject to the charge because of dividend reinvestment. With
respect to the remaining 45 Investor B Shares being redeemed, the charge will be
applied only to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, only $450 of the $600 redemption
proceeds will be subject to the charge of 5.00%, totalling $22.50.
The contingent deferred sales charge is waived on redemptions of Investor B
Shares (i) following the death or disability (as defined in the Code ) of a
shareholder (or both shareholders in the case of joint accounts), (ii) to the
extent that the redemption represents a minimum required distribution from an
IRA or a Custodial Account under Code Section 403(b)(7) to a shareholder who has
reached age 70 1/2, and (iii) to the extent the redemption represents the
minimum distribution from retirement plans under Code Section 401(a) where such
redemptions are necessary to make distributions to plan participants.
DIRECTED DIVIDEND OPTION
A shareholder may elect to have all income dividends and capital gains
distributions paid by check, reinvested in the Fund or reinvested in any of the
Group's other Funds, without the payment of a sales charge (provided the other
Fund is maintained at the minimum required balance). If you elect to receive
distributions paid by check and the check (1) is returned and marked as
"undeliverable" or (2) remains uncashed for six months, your payment election
will be changed automatically and your future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, any
undeliverable checks that remain uncashed for six months will be cancelled and
reinvested in the Fund at the per share net asset value determined as of the
date of cancellation.
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 IRAs.
PROSPECTUS--Investor B Shares 56
<PAGE> 138
EXCHANGE PRIVILEGE
The exchange privilege enables shareholders of Investor B Shares to acquire
Investor B Shares that are offered by another Fund of the Group with a different
investment objective. In order for the exchange privilege to apply, the
redemption of one Fund and corresponding purchase of another Fund must occur on
the same Business Day (as defined in "HOW SHARES ARE VALUED" below). Except in
the case of holders of Investor C Shares wishing to exchange their shares for
Investor A Shares of any of the Money Market Funds, holders of shares of one
class may not exchange their shares for shares of another class. For example,
holders of a Fund's Investor B Shares may not exchange their shares for Investor
A Shares, and holders of a Fund's Investor A Shares may not exchange their
shares for Investor B Shares.
Holders of Investor B Shares of any of the Group's Funds (including Investor B
Shares acquired through reinvestment of dividends and distributions on such
shares) may exchange those Investor B Shares at net asset value without the
imposition of a contingent deferred sales charge for Investor B Shares offered
by any of the Group's other Funds, provided that the amount to be exchanged
meets the applicable minimum investment requirements and the exchange is made in
states where it is legally authorized.
If a holder of Investor B Shares of the Prime Obligations Fund remains invested
in such Fund for 18 consecutive months, the investor will be required to redeem
such shares, and incur any applicable contingent deferred sales charges, or
exchange their shares for Investor B Shares of another Fund.
An exchange is considered a sale of shares on which a shareholder may realize a
capital gain or loss for federal income tax purposes. A shareholder may not
include any sales charge on shares of a Fund as a part of the cost of those
shares for purposes of calculating the gain or loss realized on an exchange of
those shares within 90 days of their purchase. An exchange of Investor B Shares
will not be considered a redemption on which a contingent deferred sales charge
will be applicable. Redemptions of Investor B Shares which have been exchanged
will be subject to contingent deferred sales charges based upon the date of the
purchase of the original Investor B Shares.
A shareholder wishing to exchange his or her shares may do so by contacting the
Group at (800) 451-8377 or by providing written instructions to the Transfer
Agent. Any shareholder who wishes to make an exchange should obtain and review
the current Prospectus of the Fund of the Group in which the shareholder wishes
to invest before making the exchange. For a discussion of risks associated with
unauthorized telephone exchanges, see "HOW TO REDEEM YOUR INVESTOR B
SHARES -- By Telephone" below.
AUTO EXCHANGE PLAN
The Group's Auto Exchange Plan enables holders of Investor B Shares of the Prime
Obligations Fund to make regular monthly or quarterly exchanges into Investor B
Shares of another Fund. With shareholder authorization, the Transfer Agent will
automatically exchange Investor B Shares of the Prime Obligations Fund in the
amount specified (subject to the applicable minimums) on the date of the
exchange. In order to participate in the Auto Exchange Plan, a minimum initial
purchase of $10,000 of Investor B Shares of the Prime Obligations Fund is
required.
Shareholders investing directly in Investor B Shares of the Prime Obligations
Fund, as opposed to obtaining such through an exchange, will be asked to
participate in the Auto Exchange Plan and to establish the time and amount of
their automatic exchanges such that all of the Investor B Shares of the Prime
Obligations Fund purchased initially will have been exchanged for Investor B
Shares of other Funds within two years of purchase.
To participate in the Auto Exchange Plan, shareholders should complete the
appropriate section of the Account Registration Form, which can be obtained by
calling the Distributor. To change the Auto Exchange Plan instructions or to
discontinue the feature, shareholders must send a written request to The
Parkstone Group of Funds, P.O. Box 50551, Kalamazoo, MI 49005-0551. The Auto
Exchange Plan may be amended or terminated without notice at any time by the
Distributor.
57 PROSPECTUS--Investor B Shares
<PAGE> 139
FACTORS TO CONSIDER WHEN SELECTING INVESTOR B SHARES
Before purchasing Investor B Shares of a Fund, investors should consider
whether, during the anticipated life of their investment in the Fund, the
accumulated Rule 12b-1 fees and potential contingent deferred sales charges on
Investor B Shares prior to conversion (as described below) would be less than
the initial sales charge and accumulated Rule 12b-1 fees on Investor A Shares
purchased at the same time, and to what extent such differential would be offset
by the higher yield of such Investor A Shares. To the extent that the sales
charge for Investor A Shares is waived or reduced, 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 Rule 12b-1 fees, they are not subject
to the higher Rule 12b-1 fees 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 a Fund than purchasers of Investor B Shares.
As described above, purchasers of Investor B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Investor B Shares. Because the Group's future returns
cannot be predicted, there can be no assurance that this will be the case.
Investors in Investor B Shares would, however, own shares that are subject to
higher annual expenses and, for shares purchased prior to January 1, 1997, for a
four-year period, would be subject to a contingent deferred sales charge of up
to 4.00% upon redemption, depending upon the year of redemption. For Investor B
Shares purchased on or after January 1, 1997, for a five-year period, such
shares would be subject to a contingent deferred sales charge of up to 5.00%
upon redemption, depending upon the year of redemption. Investors expecting to
redeem during a period in which a contingent deferred sales charge may be
imposed 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 fees on the Investor A Shares. Over time, the
expenses of the annual Rule 12b-1 fees on the Investor B Shares may equal or
exceed the initial sales charge and annual Rule 12b-1 fees applicable to
Investor A Shares. For example, if net asset value remains constant, the
aggregate Rule 12b-1 fees with respect to Investor B Shares on the Funds would
equal or exceed the initial sales charge and aggregate Rule 12b-1 fees of
Investor A Shares approximately seven years after the purchase. In order to
reduce such fees for 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 an 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 fees on the investment, the benefit of having the additional
initial purchase price invested during the period before it is effectively paid
out as administrative and Rule 12b-1 fees, fluctuations in net asset value or
the effect of different performance assumptions.
CONVERSION FEATURE
Investor B Shares which have been outstanding for eight years after the end of
the month in which the shares were initially purchased will automatically
convert to Investor A Shares and, consequently, will no longer be subject to the
higher Rule 12b-1 fees of the Investor B Plan. Such conversion will be on the
basis of the relative net asset values of the two classes, without the
imposition of any sales charge or other charge except that the Rule 12b-1 fees
applicable to Investor A Shares shall thereafter be applied to such converted
shares. Such investors will then benefit from the lower Rule 12b-1 fees of
Investor A Shares. Because the per share net asset value of the Investor A
Shares may be higher than that of the Investor B Shares at the time of
conversion, a shareholder may receive fewer Investor A Shares than the number of
Investor B Shares converted, although the dollar value will be the same.
Reinvestments of dividends and distributions in Investor B Shares will not be
considered new purchases for purposes of the conversion feature.
PROSPECTUS--Investor B Shares 58
<PAGE> 140
The Investor A Shares into which the Investor B Shares will convert will differ
only in the amount of the Rule 12b-1 fees assessed to the shareholder. The Rule
12b-1 fees which may be assessed to holders of Investor A Shares is equal to
0.25% of the average daily net assets of the Investor A Shares owned, rather
than 1.00% of the average daily net assets assessed to holders of Investor B
Shares.
If a shareholder effects one or more exchanges among Investor B Shares of the
Funds during the eight-year period, the holding period for shares so exchanged
will be counted toward such period.
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS
Investor B Shares of the Funds are available to shareholders on a tax-deferred
basis through the following retirement plans:
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A Parkstone IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Parkstone IRA contributions may be tax-deductible and earnings are tax-deferred.
Under the Tax Reform Act of 1986, the tax deductibility of IRA contributions is
restricted or eliminated for individuals who participate in certain employer
pension plans and whose annual income exceeds certain limits. Existing IRAs and
future contributions up to the IRA maximums, whether deductible or not, still
earn income on a tax-deferred basis.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")
A Parkstone SEP/IRA may be established on a group basis by an employer who
wishes to sponsor a tax-sheltered retirement program by making contributions
into IRAs on behalf of all eligible employees.
All Parkstone IRA distribution requests must be made in writing to the Transfer
Agent. Any additional deposits to a Parkstone IRA must distinguish the type and
year of the contribution.
For more information on any of the Parkstone IRAs or other retirement plan
options available (401(k) Defined Contribution Plans, 403(b)(7) Defined
Compensation Plans, etc.), call the Group at (800) 451-8377. Shareholders are
advised to consult a tax adviser on Parkstone IRA contribution and withdrawal
requirements and restrictions.
HOW TO REDEEM YOUR INVESTOR B SHARES
Shareholders may redeem their Investor B Shares, subject to the contingent
deferred sales charge described above, on any day that net asset value is
calculated (see "HOW SHARES ARE VALUED"). Redemptions will be effected at the
net asset value per share next determined after receipt of a redemption request.
Redemptions may be requested by mail or by telephone.
BY MAIL
A written request for redemption must be received by the Transfer Agent in order
to honor the request. The Transfer Agent's address is: BISYS Fund Services, c/o
The Parkstone Group of Funds, P.O. Box 50551, Kalamazoo, Michigan 49005-0551.
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 Form. 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
59 PROSPECTUS--Investor B Shares
<PAGE> 141
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 neither is a member of a clearing corporation nor
maintains net capital of at least $100,000.
BY TELEPHONE
Investor B Shares may be redeemed by telephone if the Account Application Form
reflects that the shareholder has that capability. The shareholder may have the
proceeds mailed to his or her address or mailed or 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 (as defined
in "HOW SHARES ARE VALUED" below). 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.
The Group's Account Application Form provides that neither BISYS, BISYS Ohio,
the Group nor 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.
In addition, redemptions by telephone will be suspended for a period of 10 days
following any change in the applicable telephone number.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables shareholders of a Fund to make regular monthly
or quarterly redemptions of Investor B Shares, subject to applicable contingent
deferred sales charges. With shareholder authorization, the Transfer Agent will
automatically redeem such Investor B Shares at the net asset value on the fifth
and/or twentieth day of the month or quarter (or the next Business Day, as
defined in "HOW SHARES ARE VALUED," 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 B 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 Plan instructions, the request must be made in writing to the
Distributor and may take up to 15 days to implement.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a Customer's Investor B Shares may be redeemed in accordance with
instructions and limitations pertaining to his or her account at FABC or one of
its affiliates.
PROSPECTUS--Investor B Shares 60
<PAGE> 142
Redemption orders are effected at the net asset value per share next determined
after the Investor B Shares are properly tendered for redemption, as described
above. The proceeds paid upon redemption of such Investor B Shares of the Funds,
less any applicable contingent deferred sales charge, may be more or less than
the amount invested. Payment to shareholders for such Investor B 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 B Shares will be
honored if received by the Transfer Agent before 4:00 p.m. (Eastern Time) on a
Business Day (as defined below in "HOW SHARES ARE VALUED") or, if received after
4:00 p.m. (Eastern Time), within two Business Days, unless it would be
disadvantageous to the Group or the shareholders of a Fund to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner. Also, to the greatest extent possible, requests for same day
payments upon redemption of Investor B Shares of the Prime Obligations Fund will
be honored if the request for redemption is received by the Transfer Agent
before 11:30 a.m. (Eastern Time), on a Business Day or, if received after 11:30
a.m. (Eastern Time), on the next Business Day, unless it would be
disadvantageous to the Group or the shareholders of a Fund to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner.
At various times, the Group may be requested to redeem Investor B Shares for
which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed until payment has been collected for the
purchase of such Investor B Shares which delay may be for 15 days or more. Such
delay may be avoided if such Investor B Shares are purchased by wire transfer of
federal funds. The Group intends to pay cash for all Investor B Shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in portfolio securities at their then market value equal
to the redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
See the Statement of Additional Information ("ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION") for examples of when the Group may suspend the right of redemption
or redeem Investor B Shares involuntarily if it appears appropriate to do so in
light of the Group's responsibilities under the 1940 Act.
HOW SHARES ARE VALUED
The net asset value of the Investor B Shares of the Funds, with the exception of
the Prime Obligations Fund, is determined and the shares are priced as of the
close of trading on the New York Stock Exchange (the "NYSE") on each Business
Day (generally 4:00 p.m. Eastern Time) (with respect to each of the Funds except
the Prime Obligations Fund, the "Valuation Time"). The net asset value of the
Investor B Shares of the Prime Obligations Fund is determined and the shares are
priced as of 12:00 p.m. noon (Eastern Time) and as of the close of trading on
the NYSE on each Business Day (with respect to the Prime Obligations Fund, the
"Valuation Times"). A "Business Day" is a day on which the NYSE 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. Currently, the NYSE
will not open in observance of the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding shares of such class. The net asset
value per share will fluctuate as the value of the investment portfolio of a
Fund changes. However, the assets of the Prime Obligations Fund are valued based
upon the amortized cost method. Pursuant to the rules and regulations of the SEC
regarding the use of the amortized cost method, the Prime Obligations Fund will
maintain a dollar-weighted average portfolio of 90 days or less. Although the
Group seeks to maintain the Prime Obligations Fund's net asset value per share
at $1.00, there can be no assurance that net asset value will not vary.
61 PROSPECTUS--Investor B Shares
<PAGE> 143
The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. Foreign securities are valued
based on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income for each Fund is declared monthly as a dividend to shareholders at
the close of business on the day of declaration and is paid monthly, except for
the Prime Obligations Fund which declares dividends daily and pays them monthly.
In some months, certain Funds may not pay any dividends. Distributable net
realized capital gains are distributed at least annually. A shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional shares at net asset value as of the date of
declaration, unless the shareholder elects to receive dividends or distributions
in cash or elects to participate in the Directed Dividend Option. Such election,
or any revocation thereof, must be made in writing to the Transfer Agent, c/o
The Parkstone Group of Funds, P.O. Box 50551, Kalamazoo, Michigan 49005-0551,
and will become effective with respect to dividends and distributions having
record dates after its receipt by the Transfer Agent.
Each Fund's net investment income available for distribution to the holders of
Investor B Shares will be reduced by the amount of Rule 12b-1 fees payable to
Participating Organizations under the Investor B Plan. Each Fund's net
investment income available for distribution to the holders of Investor B Shares
may also be reduced by the amount of retail transfer agency fees payable to the
Transfer Agent applicable to the Investor B Shares.
Each of the Funds of the Group is treated as a separate entity for federal
income tax purposes. Each Fund intends to qualify as a "regulated investment
company" under the Code, for so long as such qualification is in the best
interest of its shareholders and each intends to distribute all of its net
income and capital gains so that it is not required to pay federal income taxes
on amounts so distributed to shareholders.
To avoid federal income tax, the Code requires each Fund to distribute each
taxable year at least 90% of its investment company taxable income and at least
90% of its exempt interest income. In addition, to avoid imposition of a
non-deductible 4% excise tax, each Fund is required annually to distribute,
prior to calendar year end, 98% of taxable ordinary income on a calendar year
basis, 98% of capital gain net income realized in the twelve months preceding
October 31, and the balance of undistributed taxable ordinary income and capital
gain net income from the prior calendar year. Finally, in order to permit the
Municipal Bond Fund and the Michigan Bond Fund each to distribute
exempt-interest dividends which shareholders may exclude from their gross
taxable income for federal income tax purposes, at least 50% of such Fund's
total assets must consist of obligations the interest on which is exempt from
federal income tax as of the close of each fiscal quarter of such Fund.
A shareholder receiving a distribution of ordinary income and/or an excess of
short-term capital gain over net long-term loss would treat it as a receipt of
ordinary income. The dividends-received deduction for corporations will apply to
the aggregate of such ordinary income distributions in the same proportion as
the aggregate dividends from domestic corporations, if any, received by that
Fund bear to its gross income. A shareholder will not be able to take the
dividends-received deduction unless that shareholder holds the shares for at
least 46 days.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to its shareholders as long-term capital gain
in the year in which it is received, regardless of how long the shareholder has
held shares. Such distributions are not eligible for the dividends-received
deduction.
Prior to purchasing shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such
PROSPECTUS--Investor B Shares 62
<PAGE> 144
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 taxation.
Taxes may be imposed on the Funds, particularly the Balanced Allocation Fund and
International Fund, by foreign countries with respect to income received on
foreign securities. If more than 50% of the value of a Fund's assets at the
close of its taxable year consists of stocks or securities of foreign
corporations, the Fund may elect to treat any foreign income taxes it paid as
paid by its shareholders. In this case, shareholders generally will be required
to include in income their pro rata share of such taxes, but will then be
entitled to claim a credit or deduction for their share of such taxes. However,
a particular shareholder's ability to utilize such a credit will be subject to
certain limitations imposed by the Code. The Funds will report to their
shareholders each year the amount, if any, of foreign taxes per share that they
have elected to have treated as paid by their shareholders.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made during the year.
THE MUNICIPAL BOND FUND AND THE MICHIGAN BOND FUND (THE "EXEMPT FUNDS")
Dividends derived from exempt interest income may be treated by an Exempt Fund's
shareholders as items of interest which may be excluded from their gross income.
However, such dividends may be taxable to shareholders of the Municipal Bond
Fund under state or local law as ordinary income even though all or a portion of
the amounts may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such taxes. In determining net exempt
interest income, expenses of the Exempt Fund are allocated to gross tax-exempt
interest income in the proportion that the gross amount of such interest income
bears to the Exempt Fund's total gross income, excluding net capital gains.
(Shareholders are advised to consult a tax adviser with respect to whether
exempt interest dividends retain the exclusion if such shareholder would be
treated as a "substantial user" or a "related person" to such user under the
Code). Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares is not deductible for federal income tax purposes if an
Exempt Fund distributes exempt interest dividends during the shareholder's
taxable year. It is anticipated that distributions from the Exempt Funds will
not be eligible for the dividends-received deduction for corporations.
Under the Code, if a shareholder receives an exempt interest dividend with
respect to any share and such share is held for six months or less, any loss on
the sale or exchange of such share will be disallowed to the extent of the
amount of such exempt interest dividend, although the Treasury Department is
authorized to issue regulations reducing the period to not less than 31 days for
regulated investment companies that regularly distribute at least 90% of their
net tax-exempt interest. No such regulations have been issued as of the date of
this Prospectus. In addition, dividends attributable to interest on certain
private activity bonds may have to be included in shareholders' income for
purposes of calculating alternative minimum tax. See "ADDITIONAL
INFORMATION -- Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Bond Fund" in the Statement of Additional
Information for more information regarding the federal alternative minimum tax.
To the extent dividends paid to shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase agreements)
or from long-term or short-term capital gains, such dividends will be subject to
federal income tax. A shareholder should consult his or her own tax adviser for
any special advice.
Distributions by the Michigan Bond Fund to holders of shares who are subject to
the Michigan personal income tax and/or single business tax will not be subject
to the Michigan personal income tax, single business tax or any Michigan city
income tax to the extent that the distributions are attributable to income
received by the Michigan Bond Fund as interest from Michigan Municipal
Securities or to the extent that the distributions are attributable to interest
income and gains from the sale or disposal of United States obligations exempted
from state taxation by the United States Constitution, treaties, and statutes.
63 PROSPECTUS--Investor B Shares
<PAGE> 145
However, some or all of the other distributions by the Michigan Bond Fund may be
taxable by the State of Michigan or subject to applicable city income taxes,
even if the distributions are attributable to income of the Michigan Bond Fund
derived from obligations of the United States or its agencies and
instrumentalities. In addition, to the extent that a shareholder of the Michigan
Bond Fund is obligated to pay state or local taxes outside of Michigan,
dividends earned by an investment in the Michigan Bond Fund may represent
taxable income. Investments held in the Michigan Bond Fund by a Michigan
resident are not subject to the Michigan intangible personal property tax to the
extent that the investments are attributable to bonds or other similar
obligations of the State of Michigan or a political subdivision thereof, or
obligations of the United States.
The Michigan Department of Treasury in a 1986 Revenue Administrative Bulletin
has taken the position that the tax attributes of the securities held by a
mutual fund flow through to the investors. Based on this position, the Michigan
Department of Treasury has stated that mutual fund distributions attributable to
interest from the fund's investment in direct U.S. government securities, as
well as Municipal Securities, will not be subject to the Michigan personal
income tax. The Michigan Department of Treasury also has stated that an owner of
a share of a mutual fund will not be subject to intangible personal property tax
to the extent that the pro rata share of the securities underlying the mutual
fund would be exempt.
For Michigan personal income tax and intangible personal property tax purposes,
taxable distributions from investment income and short-term capital gains, if
any, are taxable as ordinary income, whether received in cash or additional
shares, and are subject to the Michigan intangible personal property tax and to
applicable Michigan city income taxes. The Michigan single business tax, a
modified value added tax, is computed by applying the tax rate to a tax base
determined by making certain adjustments to federal taxable income. Taxable
distributions from investment income and gains, if any, may be included in
federal taxable income or may comprise one of the adjustments made to the tax
base. Distributions of cash, other property or additional shares by the Michigan
Bond Fund to a Michigan single business taxpayer attributable to any gain
realized from the sale, exchange or other disposition of Michigan Municipal
Securities may be included in the Michigan single business taxpayer's adjusted
tax base for purposes of the Michigan single business tax to the extent included
in federal taxable income. Distributions of cash, other property or additional
shares by the Michigan Bond Fund to a Michigan single business taxpayer are not
subject to the Michigan single business tax to the extent that the distributions
are attributable to interest income from and any gain realized from the sale,
exchange or other disposition of U.S. securities. Taxable long-term capital
gains distributions are taxable as long-term capital gains for Michigan purposes
irrespective of how long a shareholder has held the shares, except that such
distributions reinvested in shares of the Michigan Bond Fund are exempt from the
Michigan intangible personal property tax.
THE PRIME OBLIGATIONS FUND
Since all of the net investment income of the Prime Obligations Fund is expected
to be derived from earned interest, it is anticipated that no part of any
distribution will be eligible for the dividends-received deduction for
corporations. The Prime Obligations Fund does not expect to realize any
long-term capital gains and, therefore, does not foresee paying any "capital
gains dividends" as described in the Code.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders. Potential
investors are advised to consult their tax advisers concerning state and local
taxes, which may differ from the federal, state and local income taxes described
above.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a class of shares in a Fund will be
calculated for the period since the establishment of the Funds and will reflect
the imposition of the maximum sales charge, if any.
PROSPECTUS--Investor B Shares 64
<PAGE> 146
Average annual total return is measured by comparing the value of an investment
in a class of shares in a Fund at the beginning of the relevant period to the
redemption value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions) and annualizing
the result. Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized. Yield of a class of shares will be computed by
dividing a class of shares' net investment income per share earned during a
recent one-month period by that class of shares' per share maximum offering
price (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result. Each Fund
may also present its average annual total return, aggregate total return and
yield, as the case may be, excluding the effect of a sales charge, if any.
In addition, from time to time the Funds may present their respective
distribution rates for a class of shares in shareholder reports and in
supplemental sales literature which is accompanied or preceded by a prospectus.
Distribution rates will be computed by dividing the distribution per share of a
class made by a Fund over a twelve-month period by the maximum offering price
per share. The calculation of income in the distribution rate includes both
income and capital gains dividends and does not reflect unrealized gains or
losses, although a Fund may also present a distribution rate excluding the
effect of capital gains. The distribution rate differs from the yield, because
it includes capital gains which are often non-recurring in nature, whereas yield
does not include such items. Distribution rates may also be presented excluding
the effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Investor B Shares and the other classes of the Funds. Because of differences in
the fees and/or expenses borne by different classes of shares of the Funds, the
net yield and total return on Investor B Shares may be different from that for
another class of the same Fund. For example, net yield and total return on
Investor B Shares is expected, at any given time, to be lower than the net yield
and total return on Institutional Shares for the same period.
Investors may also judge the performance of any class of shares or Fund by
comparing or referencing it to the performance of various mutual fund or market
indices such as those published by various services, including, but not limited
to, ratings published by Morningstar, Inc. In addition to performance
information, general information about the Funds that appears in such
publications may be included in advertisements, in sales literature and in
reports to shareholders. For further information regarding such services and
publications, see "ADDITIONAL INFORMATION -- Performance Comparisons" in the
Statement of Additional Information.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, levels of operating expenses and changes in market conditions.
Consequently, total return and yield will fluctuate and are not necessarily
representative of future results. Any fees charged by FABC or any of its
affiliates with respect to customer accounts for investing in shares of the
Funds will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted. In addition, if First of
America and BISYS voluntarily reduce all or a part of their respective fees, as
further discussed above, the total return of such Fund will be higher than it
would otherwise be in the absence of such voluntary fee reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's Funds through FUNDATA(R), an Automated Voice
Response System, 24 hours a day by calling (800) 451-8377 from any touch-tone
phone. Shareholders may also speak directly with a Group representative,
employed by BISYS, during regular business hours.
65 PROSPECTUS--Investor B Shares
<PAGE> 147
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in 1987 and, as of the
date of this Prospectus, offers eighteen Funds. The shares of each of the Funds
of the Group may be offered in up to five separate classes: Investor A Shares,
Investor B Shares, Investor C Shares, Investor Z Shares and Institutional
Shares. Each share represents an equal proportionate interest in a Fund with
other shares of the same Fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Fund as
are declared at the discretion of the Trustees. Shares do not have par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by Fund except as otherwise
expressly required by law. For example, shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of Trustees and ratification of the selection of independent accountants.
However, shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement. In addition, holders of Investor B Shares of a
Fund will vote as a class and not with holders of another class of that Fund
with respect to the approval of its Investor B Plan.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve an investment and sub-investment advisory agreements and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Group may elect not to have an annual or special meeting.
The Group has represented to the SEC that the Trustees will call a special
meeting of shareholders for purposes of considering the removal of one or more
Trustees upon written request therefor from shareholders holding not less than
10% of the outstanding votes of the Group. At such a meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Group), by majority vote, has the power to remove one or more
Trustees.
As of June 30, 1997, FABC, through its wholly-owned subsidiaries, possessed on
behalf of its underlying accounts voting or investment power with respect to
more than 25% of the shares of each of the Funds, and therefore may be presumed
to control each Fund within the meaning of the 1940 Act.
MULTIPLE CLASSES OF SHARES
In addition to Investor B Shares, the Group also offers Investor A Shares,
Investor C Shares, Investor Z Shares and Institutional Shares of certain Funds
pursuant to a Multiple Class Plan adopted by the Group's Trustees under Rule
18f-3 of the 1940 Act. A salesperson or other person entitled to receive
compensation for selling or servicing the shares may receive different
compensation with respect to one particular class of shares over another in the
same Fund. The amount of dividends payable with respect to other classes of
shares will differ from dividends on Investor B Shares as a result of the
Investor B Plan fees applicable to Investor B Shares and because Investor B
Shares may bear different retail transfer agency expenses. For further details
regarding these other classes of shares, call the Group at (800)
451-8377.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at P.O. Box 50551, Kalamazoo, MI 49005-0551, or by calling toll-free
(800) 451-8377.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
PROSPECTUS--Investor B Shares 66
<PAGE> 148
THE PARKSTONE GROUP OF FUNDS
Investor B Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
First of America Investment Corporation
Suite 500
303 North Rose Street
Kalamazoo, Michigan 49007
SUBADVISER (INTERNATIONAL FUND AND BALANCED ALLOCATION FUND)
Gulfstream Global Investors, Ltd.
Suite 550
100 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
San Francisco, California 94111
LEGAL COUNSEL
Howard & Howard Attorneys, P.C.
Suite 400
107 West Michigan Avenue
Kalamazoo, Michigan 49007
<PAGE> 149
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INVESTOR C SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
FORM N-1A
CROSS-REFERENCE SHEET
Part A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO. RULE 404(a) CROSS REFERENCE
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1. Cover Page .......................................... Cover Page
2. Synopsis............................................. Prospectus Summary; Fee Tables
3. Condensed Financial Information...................... Financial Highlights; Performance Information
4. General Description of Registrant.................... Cover Page; Investment Objectives and Policies;
Investment Restrictions; Risk Factors and
Investment Techniques; General Information -
Organization of the Group
5. Management of the Fund............................... Management of the Funds; Fee Tables
5A. Management's Discussion of Fund
Performance.......................................... Not Applicable
6. Capital Stock and Other Securities................... Directed Dividend Option; Dividends and Taxes;
General Information - Organization of the Group;
General Information - Multiple Classes of Shares;
General Information - Miscellaneous
7. Purchase of Securities Being Offered................. Management of the Funds - Administrator, Sub-
Administrator and Distributor; Management of
the Funds - Distribution Plan for Investor C
Shares; How to Buy Investor C Shares; Sales
Charges; Exchange Privilege; How Shares are
Valued
8. Redemption or Repurchase............................. Sales Charges; Contingent Deferred Sales Charge;
Exchange Privilege; Conversion Feature; How to
Redeem Your Investor C Shares
9. Pending Legal Proceedings............................ Not Applicable
</TABLE>
<PAGE> 150
- --------------------------------------------------------------------------------
THE PARKSTONE
GROUP OF FUNDS
INVESTOR C SHARES
- --------------------------------------------------------------------------------
GROWTH FUNDS
PARKSTONE SMALL CAPITALIZATION FUND
PARKSTONE MID CAPITALIZATION FUND
PARKSTONE LARGE CAPITALIZATION FUND
PARKSTONE INTERNATIONAL DISCOVERY FUND
GROWTH AND INCOME FUNDS
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE EQUITY INCOME FUND
INCOME FUNDS
PARKSTONE BOND FUND
PARKSTONE LIMITED MATURITY BOND FUND
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT INCOME FUND
Prospectus dated September 30, 1997
[PARKSTONE LOGO]
-------------------------
NOT FDIC INSURED
<PAGE> 151
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 152
THE PARKSTONE GROUP OF FUNDS
INVESTOR C SHARESPPROSPECTUS DATED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
GROWTH FUNDS For more information call:
Parkstone Small Capitalization Fund (800) 451-8377
Parkstone Mid Capitalization Fund or write to:
Parkstone Large Capitalization Fund 3435 Stelzer Road
Parkstone International Discovery Fund Columbus, Ohio 43219
GROWTH AND INCOME FUNDS
Parkstone Balanced Allocation Fund THESE SECURITIES HAVE NOT
Parkstone Equity Income Fund BEEN APPROVED OR
DISAPPROVED BY THE
INCOME FUNDS SECURITIES AND EXCHANGE
Parkstone Bond Fund COMMISSION OR ANY STATE
Parkstone Limited Maturity Bond Fund SECURITIES COMMISSION NOR
Parkstone Intermediate Government Obligations HAS THE COMMISSION OR ANY
Fund STATE SECURITIES COMMISSION
Parkstone U.S. Government Income Fund PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE
</TABLE>
The funds listed above are ten of the currently-offered series (the "Funds") of
The Parkstone Group of Funds (the "Group") which offer Investor C Shares. This
Prospectus explains concisely what you should know before investing in the
Investor C Shares of the Funds listed above. Please read it carefully and keep
it for future reference. Investor C Shares are currently offered only to (i)
employee benefit plans qualified under Section 401 of the Internal Revenue Code
of 1986, as amended (the "Code"), subject to requirements established by the
Group's distributor, BISYS Fund Services Limited Partnership ("BISYS"), and (ii)
retail investors that purchase Investor C Shares through a broker or dealer that
has entered into a sales agreement with the Distributor. You can find more
detailed information about the Funds in the September 30, 1997 Statement of
Additional Information, as amended from time to time. For a free copy of the
Statement of Additional Information or other information, contact the Group at
the number specified above. The Statement of Additional Information has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated into this Prospectus by reference.
THE SHARES OF THE PARKSTONE GROUP OF FUNDS ARE NOT OBLIGATIONS OR DEPOSITS OF
FIRST OF AMERICA INVESTMENT CORPORATION OR ITS PARENT, AND THE INVESTMENTS
DESCRIBED IN THIS PROSPECTUS ARE NOT ENDORSED, INSURED OR GUARANTEED BY FIRST OF
AMERICA INVESTMENT CORPORATION, ITS PARENT OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVOLVED.
PROSPECTUS--Investor C Shares
<PAGE> 153
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY........................................................... 4
FEE TABLES................................................................... 8
FINANCIAL HIGHLIGHTS......................................................... 9
INVESTMENT OBJECTIVES AND POLICIES........................................... 17
RISK FACTORS AND INVESTMENT TECHNIQUES....................................... 25
INVESTMENT RESTRICTIONS...................................................... 35
MANAGEMENT OF THE FUNDS...................................................... 37
HOW TO BUY INVESTOR C SHARES................................................. 42
SALES CHARGES................................................................ 44
CONTINGENT DEFERRED SALES CHARGE............................................. 44
DIRECTED DIVIDEND OPTION..................................................... 45
EXCHANGE PRIVILEGE........................................................... 45
FACTORS TO CONSIDER WHEN SELECTING INVESTOR C SHARES......................... 46
CONVERSION FEATURE........................................................... 47
HOW TO REDEEM YOUR INVESTOR C SHARES......................................... 47
HOW SHARES ARE VALUED........................................................ 49
DIVIDENDS AND TAXES.......................................................... 49
PERFORMANCE INFORMATION...................................................... 50
FUNDATA(R)................................................................... 51
GENERAL INFORMATION.......................................................... 52
</TABLE>
PROSPECTUS--Investor C Shares 2
<PAGE> 154
PROSPECTUS ROADMAP
For information about the following subjects, consult the pages indicated on the
table below.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT
FINANCIAL OBJECTIVES RISK FACTORS AND
FUND HIGHLIGHTS AND POLICIES INVESTMENT TECHNIQUES
<S> <C> <C> <C>
Balanced Allocation Fund 13 19 21
Bond Fund 14 22 23
Equity Income Fund 14 21 22
Government Income Fund 16 24 25
International Discovery Fund 12 18 19
Intermediate Government Obligations Fund 15 24 24
Large Capitalization Fund 11 17 18
Limited Maturity Bond Fund 15 22 23
Mid Capitalization Fund 10 17 18
Small Capitalization Fund 10 17 18
</TABLE>
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which, as of the date of this Prospectus, offers to the public eighteen
separate investment portfolios, seventeen of which are diversified portfolios
and one of which is a non-diversified portfolio, each with different investment
objectives. These Funds enable the Group to meet a wide range of investment
needs.
This Prospectus relates only to the Investor C Shares of the following Funds:
Parkstone Small Capitalization Fund (the "Small Capitalization Fund")
Parkstone Mid Capitalization Fund, formerly known as the Parkstone Equity
Fund (the "Mid Capitalization Fund")
Parkstone Large Capitalization Fund (the "Large Capitalization Fund")
Parkstone International Discovery Fund (the "International Fund")
Parkstone Balanced Allocation Fund, formerly known as the Parkstone
Balanced Fund (the "Balanced Allocation Fund")
Parkstone Equity Income Fund, formerly known as the Parkstone High Income
Equity Fund (the "Equity Income Fund")
Parkstone Bond Fund (the "Bond Fund")
Parkstone Limited Maturity Bond Fund (the "Limited Maturity Bond Fund")
Parkstone Intermediate Government Obligations Fund (the "Intermediate
Government Obligations Fund")
Parkstone U.S. Government Income Fund (the "Government Income Fund")
For convenience of reference, the above Funds are sometimes referred to as part
of a general grouping. The Small Capitalization Fund, Mid Capitalization Fund,
Large Capitalization Fund and International Fund are collectively referred to as
the "Growth Funds." The Balanced Allocation Fund and Equity Income Fund are
collectively referred to as the "Growth and Income Funds." The Bond Fund,
Limited Maturity Bond Fund, Intermediate Government Obligations Fund and
Government Income Fund are collectively referred to as the "Income Funds."
The Trustees of the Group have divided beneficial ownership of each of the Funds
into an unlimited number of transferable units called shares. Most Funds of the
Group offer multiple classes of shares. This
3 PROSPECTUS--Investor C Shares
<PAGE> 155
Prospectus describes Investor C Shares for certain of the Group's Funds.
Interested persons who wish to obtain a copy of any of the Group's other
Prospectuses or a copy of the Group's most recent Annual Report may contact the
Group at the telephone number shown above.
The investment objectives of each of the Funds are described in this Prospectus
and are summarized in the Prospectus Summary. First of America Investment
Corporation, Kalamazoo, Michigan ("First of America" or the "Investment
Adviser"), acts as the investment adviser to each of the Funds of the Group. To
provide investment advisory services for the International Fund and Balanced
Allocation Fund for investments in foreign securities, First of America has
entered into a sub-investment advisory agreement with Gulfstream Global
Investors, Ltd., Dallas, Texas ("Gulfstream" or the "Subadviser").
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Investor C Shares of the following Funds of the
Group:
GROWTH FUNDS
Small Capitalization Fund
Mid Capitalization Fund
Large Capitalization Fund
International Fund
GROWTH AND INCOME FUNDS
Balanced Allocation Fund
Equity Income Fund
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
These Funds represent ten separate investment portfolios of The Parkstone Group
of Funds, a Massachusetts business trust which is registered as an open-end,
management investment company.
Purchase and Redemption of Shares
The public offering price of Investor C Shares of each Fund is equal to the net
asset value per share, but investors may be subject to a contingent deferred
sales charge of up to 1.00% when Investor C Shares are redeemed prior to one
year from the date of purchase. Shares may be purchased by mail or telephone,
through a broker-dealer who has entered into an agreement with BISYS, through
the Group's Auto Invest Plan or through certain Parkstone Individual Retirement
Accounts. Investor C Shares of one Fund of the Group may be exchanged for
Investor C Shares of another Fund of the Group at net asset value without the
imposition of a contingent deferred sales charge, provided certain conditions
are met. Shares may be redeemed by contacting the Transfer Agent or through the
Group's Auto Withdrawal Plan. See "HOW TO BUY INVESTOR C SHARES," "EXCHANGE
PRIVILEGE," "HOW TO REDEEM INVESTOR C SHARES" and "HOW SHARES ARE VALUED."
Minimum Purchase
There is a $1,000 minimum initial purchase (based upon the public offering
price) per Fund with no minimum subsequent investments. Such minimum initial
investment may be waived for certain purchasers and is reduced to $100 for
investors using the Auto Invest Plan described herein to invest in a Fund,
although such investors are subject to a $50 minimum for each subsequent
investment in such Fund.
PROSPECTUS--Investor C Shares 4
<PAGE> 156
Conversion Feature
Investor C Shares which have been outstanding for nine years after the end of
the month in which the shares were initially purchased will automatically
convert to Investor A Shares.
Investment Objectives
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
Balanced Allocation Fund seeks current income, long-term capital growth and
conservation of capital
Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high- and
medium-grade fixed-income securities
Equity Income Fund primarily seeks current income by investing in a
diversified portfolio of high quality, dividend-paying
stocks and securities convertible into common stocks; a
secondary objective is growth of capital
Government Income Fund seeks to provide shareholders with a high level of
current income consistent with prudent investment risk
Intermediate Government seeks to provide current income with preservation of
Obligations Fund capital by investing in a diversified portfolio of U.S.
government securities with remaining maturities of 12
years or less
International Fund seeks long-term growth of capital
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
Limited Maturity Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high- and
medium-grade fixed-income securities, the remaining
maturities on which will be six years or less
Mid Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks
Small Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks of small- to
medium-sized companies
</TABLE>
5 PROSPECTUS--Investor C Shares
<PAGE> 157
Investment Policies
Under normal market conditions, each Fund will invest as described in the
following table:
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Balanced Allocation Fund in any type or class of securities, including all types
of common stocks, fixed-income securities and
securities convertible into common stocks
Bond Fund at least 80% of its total assets in bonds, debentures
and certain other debt securities specified herein
Equity Income Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management, the ability to finance expected
growth and the ability to pay above-average dividends
Government Income Fund at least 65% of its total assets in obligations issued
or guaranteed by the U.S. government or its agencies or
instrumentalities; under current market conditions, up
to 80% of its total assets in mortgage-related
securities, which are issued or guaranteed by the U.S.
government or its agencies or instrumentalities and up
to 35% of its total assets in mortgage-related
securities issued by non-governmental entities
Intermediate Government at least 80% of its total assets in obligations issued
Obligations Fund or guaranteed by the U.S. government or its agencies or
instrumentalities and with remaining maturities of
twelve years or less
International Fund at least 65% of its total assets in an internationally
diversified portfolio of equity securities which trade
on markets in countries other than the United States
and which are issued by companies (i) domiciled in
countries other than the United States, or (ii) that
derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States,
and (iii) which are ranked as small- or medium-sized
companies on the basis of their capitalization
Large Capitalization Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed to be characterized by sound management and
the ability to finance expected long-term growth
Limited Maturity Bond Fund at least 80% of the value of its total assets in bonds,
debentures and certain other debt securities specified
herein with remaining maturities of six years or less
Mid Capitalization Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management and the ability to finance expected
growth
Small Capitalization Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management and the ability to finance expected
growth
</TABLE>
PROSPECTUS--Investor C Shares 6
<PAGE> 158
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a certain
amount of risk and may not be suitable for all investors. In addition, some
investment policies of the Funds may entail certain risks. See "RISK FACTORS AND
INVESTMENT TECHNIQUES."
Management of the Funds
First of America serves as investment adviser, and, with respect to the
International Fund and a portion of the Balanced Allocation Fund, Gulfstream
serves as subadviser. First of America also serves as sub-administrator. BISYS,
a partnership owned by The BISYS Group, Inc., serves as distributor,
administrator, transfer agent and dividend disbursing agent (the "Distributor,"
the "Administrator" and the "Transfer Agent"). BISYS Fund Services Ohio, Inc.
("BISYS Ohio") serves as fund accountant. Union Bank of California, N.A. ("Union
Bank" or the "Custodian") serves as custodian.
Dividends and Taxes
Dividends from net income are declared and paid, if at all, on a monthly basis.
Net realized capital gains are distributed at least annually. The Directed
Dividend Option enables shareholders to have dividends and capital gains paid by
check, or reinvested automatically without payment of sales charges. See
"DIRECTED DIVIDEND OPTION." Each of the Funds is treated as a separate entity
for federal income tax purposes and intends to qualify as a "regulated
investment company." Shareholders will be advised at least annually as to the
federal income tax consequences of distributions made during the year.
7 PROSPECTUS--Investor C Shares
<PAGE> 159
FEE TABLES (INVESTOR C SHARES)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge (as a percentage of the offering price)................ None
Sales Charge on Reinvested Distributions.................................... None
Maximum Deferred Sales Charge on Redemptions(1)............................. 1.00%
Redemption Fees(2).......................................................... None
Exchange Fees............................................................... None
</TABLE>
- ------------
(1) A contingent deferred sales charge is charged only with respect to Investor
C Shares redeemed prior to one year from the date of purchase. (See "CONTINGENT
DEFERRED SALES CHARGE" herein.)
(2) Although no such fee is currently 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 EXPENSES(3) EXPENSES(3)
---------- ----- ------- -------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund..................... 1.00% 1.00% 0.32% 2.32%
Mid Capitalization Fund....................... 1.00% 1.00% 0.31% 2.31%
Large Capitalization Fund..................... 0.80% 1.00% 0.32% 2.12%
International Fund............................ 1.16%(4) 1.00% 0.40% 2.56%
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund...................... 0.75% 1.00% 0.36% 2.11%
Equity Income Fund............................ 1.00% 1.00% 0.34% 2.34%
INCOME FUNDS:
Bond Fund..................................... 0.70% 1.00% 0.24% 1.94%
Limited Maturity Bond Fund.................... 0.55% 1.00% 0.31% 1.86%
Intermediate Government Obligations Fund...... 0.70% 1.00% 0.29% 1.99%
Government Income Fund........................ 0.45% 1.00% 0.32% 1.77%
</TABLE>
- ------------
(3) After voluntary expense reductions.
(4) Calculated based on 1.25% of the first $50 million in average daily net
assets, 1.20% of the next $50 million, 1.20% on the next 450 million, 1.15% on
the next $300 million and 1.05% over $400 million.
Management Fees and Total Expenses as a percentage of average net assets for the
Balanced Allocation Fund, absent the voluntary reduction of advisory fees, would
have been 1.00% and 2.36%. Management Fees, Other Expenses and Total Expenses as
a percentage of average net assets for the Bond Fund, absent the voluntary
reduction of advisory fees and administrative fees would have been 0.74%, 0.29%
and 2.03%, respectively. For the Limited Maturity Bond Fund, they would have
been 0.74%, 0.36% and 2.10%, respectively. For the Intermediate Government
Obligations Fund, they would have been 0.74%, 0.34% and 2.08%, respectively. For
the Government Income Fund, they would have been 0.74%, 0.37% and 2.11%,
respectively. (See "MANAGEMENT OF THE FUNDS -- Investment Adviser and
Subadviser" and "Administrator, Sub-Administrator and Distributor").
8
PROSPECTUS - Investor C Shares
<PAGE> 160
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Investor C Shares, assuming (1) 5% annual return; (2) redemption
at the end of Year 1 or no redemption; and (3) payment of the maximum sales
charge:
<TABLE>
<CAPTION>
1 YEAR 1 YEAR
(REDEEMED) (NOT REDEEMED) 3 YEARS 5 YEARS 10 YEARS
---------- ------------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund................ $ 34 $ 24 $72 $ 124 $266
Mid Capitalization Fund.................. $ 33 $ 23 $72 $ 124 $265
Large Capitalization Fund................ $ 32 $ 22 $66 $ 114 $245
International Fund....................... $ 36 $ 26 $80 $ 136 $290
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund................. $ 31 $ 21 $66 $ 113 $244
Equity Income Fund....................... $ 33 $ 23 $73 $ 125 $268
INCOME FUNDS:
Bond Fund................................ $ 30 $ 20 $61 $ 105 $226
Limited Maturity Bond Fund............... $ 29 $ 19 $58 $ 101 $218
Intermediate Government Obligations
Fund................................... $ 30 $ 20 $62 $ 107 $232
Government Income Fund................... $ 28 $ 18 $56 $ 96 $208
</TABLE>
The information set forth in the foregoing Fee Tables and expense examples
relates only to Investor C Shares of the Funds. Each of the Funds also may offer
other classes of shares. The other classes of shares of the Funds are subject to
the same expenses except that the sales charges and Rule 12b-1 fees will differ
between classes.
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 percentage of total new
gross share sales, plus interest. The Funds would stop accruing 12b-1 fees if,
to the extent, and for as long as, such limit would otherwise be exceeded.
The purpose of the above tables is to assist a potential purchaser of Investor C
Shares of any Fund in understanding the various costs and expenses that an
investor in a Fund will bear directly or indirectly. Such expenses do not
include any fees charged by First of America or any of its affiliates to its
customer accounts which may invest in Investor C Shares of the Funds. See
"MANAGEMENT OF THE FUNDS," "GENERAL INFORMATION" and "SALES CHARGES" for a more
complete discussion of the shareholder transaction expenses and annual operating
expenses of each of the Funds. The expense information for Investor C Shares
reflects current fees. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables on the following pages set forth certain information concerning the
investment results of the Investor C Shares of each of the Funds since its
inception. Further financial information is included in the Statement of
Additional Information and the Group's June 30, 1997 Annual Report to
Shareholders which may be obtained free of charge.
The Financial Highlights for the periods presented below have been derived from
financial statements audited by Coopers & Lybrand L.L.P., independent auditors
for the Group, whose report thereon is incorporated by reference in the
Statement of Additional Information.
9 PROSPECTUS--Investor C Shares
<PAGE> 161
SMALL CAPITALIZATION FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 16, 1994
------------------- TO
1997 1996 JUNE 30, 1995(E)
------- ------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $33.83 $25.91 $24.17
------ ------ -----------
Investment Activities
Net Investment Loss.............................. (0.34) (0.20) (0.05)
Net Realized and Unrealized Gains (Losses) on
Investments.................................... (1.19) 11.77 3.94
------ ------ -----------
Total from Investment Activities............ (1.53) 11.57 3.89
------ ------ -----------
Distributions
Net Investment Income............................ -- -- --
Net Realized Gains............................... (5.25) (3.65) (2.15)
------ ------ -----------
Total Distributions......................... (5.25) (3.65) (2.15)
------ ------ -----------
NET ASSET VALUE, END OF PERIOD........................ $27.05 $33.83 $25.91
====== ====== ===========
Total Return (excluding sales and redemption
charges)............................................ (5.08)% 48.32% 44.37%(f)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).................. $14,962 $5,751 $224
Ratio of Expenses to Average Net Assets.......... 2.32% 2.29% 3.53%(b)
Ratio of Net Investment Loss to Average Net
Assets......................................... (1.94)% (1.94)% (3.06)%(b)
Ratio of Expenses to Average Net Assets*......... 2.32% 2.29% 3.53%(b)
Ratio of Net Investment Loss to Average Net
Assets*........................................ (1.94)% (1.94)% (3.06)%(b)
Portfolio Turnover Rate (c)...................... 48.45% 67.22% 50.53%
Average Commission Rate Paid (h)................. $0.0788 $0.0800
</TABLE>
MID CAPITALIZATION FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 16, 1994
------------------- TO
1997 1996 JUNE 30, 1995(E)
------- ------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $20.36 $16.40 $16.29
------ ------ -----------
Investment Activities
Net Investment Loss.............................. (0.21) (0.17) (0.02)
Net Realized and Unrealized Gains (Losses)
on Investments................................. 1.22 4.79 1.60
------ ------ -----------
Total from Investment Activities............ 1.01 4.62 1.58
------ ------ -----------
Distributions
Net Realized Gains............................... (6.13) (0.66) --
In Excess of Net Realized Gains.................. -- -- (1.47)
------ ------ -----------
Total Distributions......................... (6.13) (0.66) (1.47)
------ ------ -----------
NET ASSET VALUE, END OF PERIOD........................ $15.24 $20.36 $16.40
====== ====== ===========
Total Return (excluding sales and redemption
charges)............................................ 5.17% 28.69% 23.56%(f)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).................. $2,018 $1,088 $153
Ratio of Expenses to Average Net Assets.......... 2.31% 2.29% 2.27%(b)
Ratio of Net Investment Loss to Average Net
Assets......................................... (1.80)% (1.73)% (1.43)%(b)
Ratio of Expenses to Average Net Assets*......... 2.31% 2.29% 2.53%(b)
Ratio of Net Investment Loss to Average Net
Assets*........................................ (1.80)% (1.74)% (1.70)%(b)
Portfolio Turnover Rate (c)...................... 38.47% 49.27% 46.39%
Average Commission Rate Paid (h)................. $0.0794 $0.0796
</TABLE>
PROSPECTUS--Investor C Shares 10
<PAGE> 162
LARGE CAPITALIZATION FUND - INVESTOR C SHARES
<TABLE>
<CAPTION>
DECEMBER 28, 1995
YEAR ENDED TO
JUNE 30, 1997 JUNE 30, 1996(A)
------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $11.16 $10.00
--------- -----------
Investment Activities
Net Investment Income (Loss)............................ (0.06) --
Net Realized and Unrealized Gains (Losses) on
Investments........................................... 3.27 1.17
--------- -----------
Total from Investment Activities................... 3.21 1.17
--------- -----------
Distributions
Net Investment Income................................... (0.01) --
In Excess of Net Investment Income...................... -- (0.01)
Net Realized Gains...................................... (0.08) --
--------- -----------
Total Distributions................................ (0.09) (0.01)
NET ASSET VALUE, END OF PERIOD............................... $14.28 $11.16
========= ===========
Total Return (excluding sales and redemption charges)........ 28.82% 8.15%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $42 $2
Ratio of Expenses to Average Net Assets................. 2.12% 2.24%(b)
Ratio of Net Investment Loss to Average Net Assets...... (0.91)% (0.45)%(b)
Ratio of Expenses to Average Net Assets*................ 2.12% 4.25%(b)
Ratio of Net Investment Loss to Average Net Assets*..... (0.91)% (2.46)%(b)
Portfolio Turnover Rate (c)............................. 48.44% 0.86%
Average Commission Rate Paid (h)........................ $0.0932 $0.0800
</TABLE>
11 PROSPECTUS--Investor C Shares
<PAGE> 163
INTERNATIONAL FUND -- INVESTOR C SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 16, 1994
------------------------------- TO
1997 1996 JUNE 30, 1995(E)(G)
------------------- ------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $14.08 $12.42 $12.97
------------ ------ ------------
Investment Activities
Net Investment Income (Loss).......... (0.15) (0.10) 0.03
Net Realized and Unrealized Gains
(Losses) on Investments and Foreign
Currency Transactions............... 2.28 1.79 0.04
------------ ------ ------------
Total from Investment
Activities..................... 2.13 1.69 0.07
------------ ------ ------------
Distributions
Net Investment Income................. -- -- --
Net Realized Gains.................... -- -- (0.62)
In Excess of Net Investment Income.... -- (0.03) --
------------ ------ ------------
Total Distributions.............. -- (0.03) (0.62)
------------ ------ ------------
NET ASSET VALUE, END OF PERIOD............. $16.21 $14.08 $12.42
============ ====== ============
Total Return (excluding sales and
redemption charges)...................... 15.13% 13.62% (1.15)%(f)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)....... $875 $474 $82
Ratio of Expenses to Average Net
Assets.............................. 2.56% 2.50% 2.32%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets............... (1.28)% (0.84)% 1.74%(b)
Ratio of Expenses to Average Net
Assets*............................. 2.56% 2.62% 3.27%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets*.............. (1.28)% (0.97)% 0.79%(b)
Portfolio Turnover Rate (c)........... 45.18% 54.47% 104.39%
Average Commission Rate Paid (h)...... $0.0329 $0.0321
</TABLE>
PROSPECTUS--Investor C Shares 12
<PAGE> 164
BALANCED ALLOCATION FUND -- INVESTOR C SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 16, 1994
------------------------------- TO
1997 1996 JUNE 30, 1995(E)(G)
------------------- ------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $13.28 $12.12 $11.13
------------ ------ ------------
Investment Activities
Net Investment Income (Loss).......... 0.21 0.24 0.09
Net Realized and Unrealized Gains
(Losses) on Investments and Foreign
Currencies.......................... 1.14 1.71 1.16
------------ ------ ------------
Total from Investment
Activities..................... 1.35 1.95 1.25
------------ ------ ------------
Distributions
Net Investment Income................. (0.23) (0.22) (0.10)
Net Realized Gains.................... (1.48) (0.57) --
In Excess of Net Realized Gains....... -- -- (0.16)
------------ ------ ------------
Total Distributions.............. (1.71) (0.79) (0.26)
------------ ------ ------------
NET ASSET VALUE, END OF PERIOD............. $12.92 $13.28 $12.12
============ ====== ============
Total Return (excluding sales and
redemption charges)...................... 10.90% 16.61% 17.53%(f)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)....... $795 $362 $114
Ratio of Expenses to Average Net
Assets.............................. 2.11% 2.16% 2.16%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets............... 1.75% 1.65% 1.65%(b)
Ratio of Expenses to Average Net
Assets*............................. 2.36% 2.41% 2.68%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets*.............. 1.50% 1.40% 1.13%(b)
Portfolio Turnover Rate (c)........... 425.05% 437.90% 250.66%
Average Commission Rate Paid (h)...... $0.0518 $0.0848
</TABLE>
13 PROSPECTUS--Investor C Shares
<PAGE> 165
EQUITY INCOME FUND -- INVESTOR C SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 16, 1994
------------------------------- TO
1997 1996 JUNE 30, 1995(E)
------------------- ------- -----------------
<S> <C> <C> <C>
PROSPECTUS--Investor C Shares
NET ASSET VALUE, BEGINNING OF PERIOD........ $17.36 $14.54 $13.38
------------ ------ -----------
Investment Activities
Net Investment Income (Loss)........... 0.15 0.19 0.11
Net Realized and Unrealized Gains
(Losses) on Investments.............. 3.58 3.27 1.17
------------ ------ -----------
Total from Investment Activities....... 3.73 3.46 1.28
------------ ------ -----------
Distributions
Net Investment Income.................. (0.17) (0.19) (0.11)
In Excess of Net Investment Income..... -- -- (0.01)
Net Realized Gains..................... (1.69) (0.45) --
In Excess of Net Realized Gains........ -- -- --
Total Distributions............... (1.86) (0.64) (0.12)
------------ ------ -----------
NET ASSET VALUE, END OF PERIOD.............. $19.23 $17.36 $14.54
============ ====== ===========
Total Return (excluding sales and redemption
charges).................................. 22.86% 24.17% 9.71%(f)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........ $778 $164 $25
Ratio of Expenses to Average Net
Assets............................... 2.33% 2.32% 2.30%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets................ 0.88% 1.11% 1.88%(b)
Ratio of Expenses to Average Net
Assets*.............................. 2.33% 2.32% 2.55%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets*............... 0.88% 1.11% 1.62%(b)
Portfolio Turnover Rate (c)............ 20.14% 40.75% 77.70%
Average Commission Rate Paid (h)....... $0.0800 $0.0800
</TABLE>
BOND FUND -- INVESTOR C SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 16, 1994
------------------------------- TO
1997 1996 JUNE 30, 1995(E)
------------------- ------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $9.47 $9.64 $9.02
----------- ----- ----------
Investment Activities
Net Investment Income (Loss)........... 0.49 0.50 0.22
Net Realized and Unrealized Gains
(Losses) on Investments.............. 0.17 (0.17) 0.62
----------- ----- ----------
Total from Investment
Activities...................... 0.66 0.33 0.84
----------- ----- ----------
Distributions
Net Investment Income.................. (0.48) (0.50) (0.22)
----------- ----- ----------
Total Distributions............... (0.48) (0.50) (0.22)
----------- ----- ----------
NET ASSET VALUE, END OF PERIOD.............. $9.65 $9.47 $9.64
=========== ===== ==========
Total Return (excluding sales and redemption
charges).................................. 7.15% 3.50% 8.41%(f)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........ $508 $210 $28
Ratio of Expenses to Average Net
Assets............................... 1.94% 1.91% 1.99%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets................ 5.18% 5.00% 5.62%(b)
Ratio of Expenses to Average Net
Assets*.............................. 2.03% 2.03% 2.26%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets*............... 5.09% 4.88% 5.36%(b)
Portfolio Turnover Rate (c)............ 827.00% 1189.27% 1010.64%
</TABLE>
PROSPECTUS--Investor C Shares 14
<PAGE> 166
LIMITED MATURITY BOND FUND -- INVESTOR C SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 16, 1994
------------------------------- TO
1997 1996 JUNE 30, 1995(E)(G)
------------------- ------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $9.29 $9.53 $9.35
------------ ------ ------------
Investment Activities
Net Investment Income (Loss).......... 0.48 0.58 0.20
Net Realized and Unrealized Gains
(Losses) on Investments............. -- (0.23) 0.17
----------- ----- -----------
Total from Investment
Activities..................... 0.48 0.35 0.37
----------- ----- -----------
Distributions
Net Investment Income................. (0.48) (0.58) (0.19)
In Excess of Net Realized Gains....... -- (0.01) --
----------- ----- -----------
Total Distributions.............. (0.48) (0.59) (0.19)
----------- ----- -----------
NET ASSET VALUE, END OF PERIOD............. $9.29 $9.29 $9.53
=========== ===== ===========
Total Return (excluding sales and
redemption charges)...................... 5.26% 3.71% 3.58%(f)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)....... $41 $11 --
Ratio of Expenses to Average Net
Assets.............................. 1.86% 1.82% 1.18%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets............... 4.97% 5.34% 5.61%(b)
Ratio of Expenses to Average Net
Assets*............................. 2.10% 2.02% 1.18%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets*.............. 4.73% 5.14% 5.61%(b)
Portfolio Turnover Rate (c)........... 607.84% 618.60% 397.97%
</TABLE>
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND -- INVESTOR C SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 16, 1994
------------------------------- TO
1997 1996 JUNE 30, 1995(E)
------------------- ------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $9.52 $9.76 $9.42
----------- ----- ----------
Investment Activities
Net Investment Income (Loss)........... 0.45 0.53 0.18
Net Realized and Unrealized Gains
(Losses) on Investments.............. 0.02 (0.25) 0.33
----------- ----- ----------
Total from Investment
Activities...................... 0.47 0.28 0.51
----------- ----- ----------
Distributions
Net Investment Income.................. (0.45) (0.52) (0.17)
----------- ----- ----------
Total Distributions............... (0.45) (0.52) (0.17)
----------- ----- ----------
NET ASSET VALUE, END OF PERIOD.............. $9.54 $9.52 $9.76
=========== ===== ==========
Total Return (excluding sales and redemption
charges).................................. 5.03% 2.86% 5.21%(f)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........ $194 $80 $9
Ratio of Expenses to Average Net
Assets............................... 1.99% 1.96% 2.09%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets................ 4.69% 4.83% 4.24%(b)
Ratio of Expenses to Average Net
Assets*.............................. 2.07% 2.05% 2.36%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets*............... 4.61% 4.74% 3.98%(b)
Portfolio Turnover Rate (c)............ 1516.78% 916.39% 549.13%
</TABLE>
15 PROSPECTUS--Investor C Shares
<PAGE> 167
GOVERNMENT INCOME FUND -- INVESTOR C SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NOVEMBER 16, 1994
------------------------------- TO
1997 1996 JUNE 30, 1995(E)
------------------- ------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $9.19 $9.36 $9.12
----------- ----- ----------
Investment Activities
Net Investment Income (Loss)........... 0.64 0.66 0.28
Net Realized and Unrealized Gains
(Losses) on Investments.............. (0.11) (0.17) 0.24
----------- ----- ----------
Total from Investment
Activities...................... 0.53 0.49 0.52
----------- ----- ----------
Distributions
Net Investment Income.................. (0.50) (0.66) (0.25)
Tax Return of Capital.................. (0.12) -- (0.03)
----------- ----- ----------
Total Distributions............... (0.62) (0.66) (0.28)
----------- ----- ----------
NET ASSET VALUE, END OF PERIOD.............. $9.10 $9.19 $9.36
=========== ===== ==========
Total Return (excluding sales and redemption
charges).................................. 6.07% 5.25% 5.26%(f)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........ $69 $70 $29
Ratio of Expenses to Average Net
Assets............................... 1.77% 1.76% 2.88%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets................ 6.89% 6.92% 11.54%(b)
Ratio of Expenses to Average Net
Assets*.............................. 2.11% 2.10% 2.88%(b)
Ratio of Net Investment Income (Loss)
to Average Net Assets*............... 6.55% 6.58% 11.54%(b)
Portfolio Turnover Rate (c)............ 499.53% 348.01% 114.71%
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(d) Not annualized.
(e) Period from November 16, 1994 (commencement of offering of Investor C
Shares) to June 30, 1995.
(f) Represents total return for the Institutional Shares for the period from
July 1, 1994 to November 15, 1994 plus the total return for the Investor C
Shares for the period from November 16, 1994 to June 30, 1995.
(g) As of January 1, 1995, Gulfstream assumed the role of subadviser with
respect to the International Fund and the portion of the Balanced
Allocation Fund invested in foreign securities. Prior to that date, Ivory
& Sime International, Inc. and Ivory & Sime plc served as subadvisers to
the International Fund and the Balanced Allocation Fund had no subadviser.
(h) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
PROSPECTUS--Investor C Shares 16
<PAGE> 168
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds are set forth below under the
headings describing the Funds. The investment objective of each Fund is
fundamental and may not be changed without a vote of the holders of a majority
of the outstanding shares of that Fund (as defined in the Statement of
Additional Information). The investment policies of a Fund may be changed
without a vote of the holders of a majority of outstanding shares of that Fund
unless the policy is expressly deemed to be a fundamental policy or changeable
only by such majority vote. There can be no assurance that the investment
objective of any Fund will be achieved. Depending upon the performance of a
Fund's investments, the net asset value per share of that Fund may decrease
instead of increase.
During temporary defensive periods as determined by First of America or
Gulfstream, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic bank certificates of
deposit, bankers' acceptances and repurchase agreements secured by bank
instruments. However, to the extent that a Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
GROWTH FUNDS
THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE
CAPITALIZATION FUND
THE INVESTMENT OBJECTIVE OF THE SMALL CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS OF SMALL- TO MEDIUM-SIZED COMPANIES.
THE INVESTMENT OBJECTIVE OF THE MID CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS. THE INVESTMENT OBJECTIVE OF THE 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, each of the Small Capitalization Fund, Mid
Capitalization Fund and 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 to be characterized by
sound management and the ability to finance expected long-term growth. In
addition, under normal market conditions, the Small Capitalization Fund will
invest at least 65% of the value of its total assets in common stocks and
securities convertible into common stocks of companies considered by First of
America to have a market capitalization of less than $1 billion. The Mid
Capitalization Fund, under normal market conditions, 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 between $1 billion and $5 billion. The Large Capitalization Fund
will do the same with companies considered by First of America to have a market
capitalization of greater than $5 billion. Each of the Small Capitalization
Fund, Mid Capitalization Fund and 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 and loan associations. Each
of the Small Capitalization Fund, Mid Capitalization Fund and Large
Capitalization Fund may also hold securities of other investment companies and
depository or custodial receipts representing beneficial interests in any of the
foregoing securities.
Subject to the foregoing policies, each of the Small Capitalization Fund, Mid
Capitalization Fund and 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
17 PROSPECTUS--Investor C Shares
<PAGE> 169
("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
(U.S. dollar-denominated commercial paper of a foreign issuer). For a discussion
of risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Foreign Securities" herein.
The Mid Capitalization Fund anticipates investing in growth-oriented,
medium-sized companies. Medium-sized companies are considered to be those with a
market capitalization of between $1 billion and $5 billion. The Large
Capitalization Fund anticipates investing in growth-oriented companies with
large market capitalization, defined as capitalization of over $5 billion. For
both the Mid Capitalization Fund and the Large Capitalization Fund, investments
will be in companies that 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 Mid Capitalization Fund and Large Capitalization Fund are
in companies that participate in long-term growth industries, although these
will be supplemented by holdings in non-growth industries that exhibit the
desired characteristics.
The Small Capitalization Fund anticipates investing in dynamic small- to
medium-sized companies that exhibit outstanding potential for superior growth.
Small-sized companies are considered to be those with a market capitalization of
less than $1 billion. The Small Capitalization Fund will limit its investment in
securities of medium-sized companies to not more than 35% of the value of its
total assets. Companies that participate in sectors that are identified as
having long-term growth potential generally make up a substantial portion of
such Fund's holdings. These companies often have established a market niche or
have developed unique products or technologies that are expected to produce
superior growth in revenues and earnings. As smaller capitalization stocks are
quite volatile and subject to wide fluctuations in both the short and medium
term, the Small Capitalization Fund may be fairly characterized more aggressive
than a general equity fund.
Consistent with the foregoing, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund will focus its investments in
those companies and types of companies that First of America believes will
enable such Fund to achieve its investment objective.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE CAPITALIZATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-Issued and Delayed-
and Dollar Roll Agreements Delivery Transactions
- ---------------------------------------------------------------------------------------------
</TABLE>
THE INTERNATIONAL FUND
THE INVESTMENT OBJECTIVE OF THE INTERNATIONAL FUND IS TO SEEK LONG-TERM GROWTH
OF CAPITAL.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States, or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States, and (iii) which are small-
or medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRs.
PROSPECTUS--Investor C Shares 18
<PAGE> 170
For purposes of investment by the International Fund only, companies are deemed
to be small- or medium-sized if, at the time of purchase, they are of a size
which would rank them in the lower half of a major market index in the
applicable country by weighted market capitalization and in the lower half of
all equity securities listed in recognized secondary markets where such markets
exist. In addition, in countries with less well-developed stock markets, where
the range of investment opportunities is more restrictive, the equity securities
of all listed companies will be eligible for investment. In major markets
issuers could have capitalizations of up to approximately $10 billion while in
smaller markets issuers would be eligible with capitalizations as low as
approximately $200 million.
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Normally the
International Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
International Fund's assets could be invested in the securities of U.S.
companies. In addition, the International Fund temporarily may invest cash in
short-term debt instruments of U.S. and foreign issuers for cash management
purposes or pending investment.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE INTERNATIONAL FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Currency Transactions -Foreign Securities
- -Future Contracts -Government Obligations -Lending Portfolio Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements and
- -When-Issued and Delayed-Delivery Dollar Roll Agreements
Transactions
</TABLE>
GROWTH AND INCOME FUNDS
THE BALANCED ALLOCATION FUND
THE INVESTMENT OBJECTIVE OF THE BALANCED ALLOCATION FUND IS TO SEEK CURRENT
INCOME, LONG-TERM CAPITAL GROWTH AND CONSERVATION OF CAPITAL.
The Balanced Allocation Fund may invest in any type or class of security. Under
normal market conditions the Balanced Allocation Fund will invest in common
stocks, fixed-income securities and securities convertible into common stocks
(i.e., warrants, convertible preferred stock, fixed-rate preferred stock,
convertible fixed-income securities, options and rights). The Balanced
Allocation Fund intends to invest 45% to 65% of its net assets in common stocks
and securities convertible into common stocks, 25% to 55% of its net assets in
fixed-income securities and up to 30% of its net assets in cash and cash
equivalents. Of these investments, no more than 20% of the Fund's net assets
will be in foreign securities.
For the Balanced Allocation Fund, common stocks are held primarily for the
purpose of providing long-term growth of capital. When choosing such stocks, the
potential for long-term capital appreciation will be the primary basis for
selection. The Balanced Allocation Fund will invest in the common and preferred
stocks of companies with a market capitalization of at least $100 million and
which are traded either in established over-the-counter markets or on national
exchanges. The Balanced Allocation Fund intends to invest primarily in those
companies which are growth-oriented and have exhibited consistent, above-average
growth in revenues and earnings.
For the Balanced Allocation Fund, fixed-income securities held consist of bonds,
debentures, notes, zero-coupon securities, mortgage-related securities, state,
municipal or industrial revenue bonds, obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities, certificates of deposit,
time deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand
19 PROSPECTUS--Investor C Shares
<PAGE> 171
notes. In addition, a portion of the Balanced Allocation Fund's assets may, from
time to time, be invested in first mortgage loans and participation certificates
in pools of mortgages issued or guaranteed by the U.S. government or its
agencies or instrumentalities. Some of the securities in which the Balanced
Allocation Fund invests may have warrants or options attached. The Balanced
Allocation Fund may also invest in repurchase agreements.
The Balanced Allocation Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, as well as "stripped" U.S. Treasury obligations ("Stripped Treasury
Obligations"), such as Treasury receipts issued by the U.S. Treasury
representing either future interest or principal payments, and other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES-- Government
Obligations" below.
The Balanced Allocation Fund also expects to invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Such obligations, in the
case of debentures, will represent unsecured promises to pay, and in the case of
notes and bonds, may be secured by mortgages on real property or security
interests in personal property and will in most cases differ in their interest
rates, maturities and times of issuance.
The Balanced Allocation Fund will invest only in corporate fixed-income
securities which are rated at the time of purchase within the four highest
rating categories assigned by a nationally-recognized statistical rating
organization ("NRSRO") or, if unrated, which First of America deems present
attractive opportunities and are of comparable quality. For a description of the
rating symbols of the NRSROs, see the Appendix to the Statement of Additional
Information. For a discussion of fixed-income securities rated within the fourth
highest rating category assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Medium-Grade Securities."
The Balanced Allocation Fund may hold some short-term obligations (with
maturities of 12 months or less) consisting of domestic and foreign commercial
paper, variable amount master demand notes, bankers' acceptances, certificates
of deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, and repurchase agreements. The Balanced Allocation Fund may also
invest in securities of other investment companies.
The Balanced Allocation Fund may also invest in obligations of the Export-Import
Bank of the United States, in U.S. dollar-denominated international bonds for
which the primary trading market is in the United States ("Yankee Bonds"), or
for which the primary trading market is abroad ("Eurodollar Bonds"), and in
Canadian bonds and bonds issued by institutions, such as the World Bank and the
European Economic Community, organized for a specific purpose by two or more
sovereign governments ("Supranational Agency Bonds"). The Balanced Allocation
Fund's investments in foreign securities may be made either directly or through
the purchase of ADRs and the Balanced Allocation Fund may also invest in
securities issued by foreign branches of U.S. banks and foreign banks, in CCP,
and in Europaper.
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon First of America's assessment of business, economic and
market conditions, including any potential advantage of price shifts between the
stock market and the bond market. The Balanced Allocation Fund reserves the
right to hold short-term securities in whatever proportion deemed desirable for
temporary defensive periods during adverse market conditions as determined by
First of America. However, to the extent that the Balanced Allocation Fund is so
invested, its investment objectives may not be achieved during that time.
Like any investment program, investment in the Balanced Allocation Fund entails
certain risks. As a Fund investing in common stocks the Balanced Allocation Fund
is subject to stock market risk, i.e., the possibility that stock prices in
general will decline over short or even extended periods.
Since the Balanced Allocation Fund also invests in bonds, investors in the
Balanced Allocation Fund are also exposed to bond market risk, i.e.,
fluctuations in the market value of bonds. Bond prices are influenced primarily
by changes in interest rate levels. When interest rates rise, the prices of
bonds generally fall; conversely, when interest rates fall, bond prices
generally rise. While bonds normally
PROSPECTUS--Investor C Shares 20
<PAGE> 172
fluctuate less in price than stock, there have been extended periods of cyclical
increases in interest rates that have caused significant declines in bond
prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result the Balanced
Allocation Fund, with its balance of common stock and bond investments, is
expected to entail less investment risk (and a potentially smaller investment
return) than a mutual fund investing exclusively in common stocks.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
THE BALANCED ALLOCATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Medium-Grade Securities -Mortgage-Related Securities -Other Mutual Funds
- -Portfolio Turnover -Put and Call Options -Repurchase Agreements
- -Restricted Securities -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Transactions
- ----------------------------------------------------------------------------------------------------
</TABLE>
THE EQUITY INCOME FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY INCOME FUND IS TO SEEK CURRENT INCOME BY
INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH QUALITY, DIVIDEND-PAYING COMMON
STOCKS AND SECURITIES CONVERTIBLE INTO COMMON STOCKS. A SECONDARY INVESTMENT
OBJECTIVE OF THE EQUITY INCOME FUND IS GROWTH OF CAPITAL.
The Equity Income Fund, under normal market conditions, will invest at least 80%
of the value of its total assets in common stocks and securities convertible
into common stocks of companies believed by First of America to be characterized
by sound management, the ability to finance expected growth and the ability to
pay above-average dividends. The Equity Income 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 and loan associations. The Equity Income
Fund may also hold securities of other investment companies and depository or
custodial receipts representing beneficial interests in any of the foregoing
securities.
Subject to the foregoing policies, the Equity Income Fund may also invest up to
25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Foreign Securities."
The Equity Income Fund anticipates investing in securities that currently have a
high dividend yield, with the anticipation that the dividend will remain
constant or be increased in the future. These securities generally represent the
core holdings of this Fund. However, these holdings are balanced with lower
yielding but higher growth-oriented securities to achieve portfolio balance. All
securities must provide current income. Given its bias towards income, the
Equity Income Fund may be considered more conservative than growth-oriented
equity funds such as the Group's Small Capitalization Fund and Mid
Capitalization Fund.
Consistent with the foregoing, the Equity Income Fund will focus its investments
in those companies and types of companies that First of America believes will
enable such Fund to achieve its investment objective.
21 PROSPECTUS--Investor C Shares
<PAGE> 173
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
THE EQUITY INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Transactions
- ------------------------------------------------------------------------------------------------------------
</TABLE>
INCOME FUNDS
THE BOND FUND AND THE LIMITED MATURITY BOND FUND
THE INVESTMENT OBJECTIVE OF THE BOND FUND IS TO SEEK CURRENT INCOME AS WELL AS
PRESERVATION OF CAPITAL BY INVESTING IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE
FIXED-INCOME SECURITIES. THE INVESTMENT OBJECTIVE OF THE LIMITED MATURITY BOND
FUND IS TO SEEK CURRENT INCOME AS WELL AS PRESERVATION OF CAPITAL BY INVESTING
IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE FIXED-INCOME SECURITIES WITH REMAINING
MATURITIES OF SIX YEARS OR LESS.
Under normal market conditions, the Bond Fund will invest at least 80% of the
value of its total assets in bonds, debentures, notes with remaining maturities
at the time of purchase of one year or more, zero-coupon securities,
mortgage-related securities, state, municipal or industrial revenue bonds,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, debt securities convertible into, or exchangeable for, common
stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Bond Fund will invest in state and municipal securities
when, in the opinion of First of America, their yields are competitive with
comparable taxable debt obligations. In addition, up to 20% of the value of the
Bond Fund's total assets may be invested in preferred stocks, notes with
remaining maturities at the time of purchase of less than one year, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies,
and guaranteed investment contracts ("GICs") issued by insurance companies, as
more fully described below. Some of the securities in which the Bond Fund
invests may have warrants or options attached.
Under normal market conditions, the Limited Maturity Bond Fund will invest at
least 80% of the value of its total assets in the following securities which
have remaining maturities of six years or less: bonds, debentures, notes with
remaining maturities at the time of purchase of one year or more, zero-coupon
securities, mortgage-related securities, state, municipal or industrial revenue
bonds, obligations issued or guaranteed by the U.S. government or its agencies
or instrumentalities, debt securities convertible into, or exchangeable for,
common stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Limited Maturity Bond Fund will invest in state and
municipal securities when, in the opinion of First of America, their yields are
competitive with comparable taxable debt obligations. In addition, up to 20% of
the value of the Limited Maturity Bond Fund's total assets may be invested in
the debt securities listed above without regard to maturity, as well as
preferred stocks, short-term debt obligations consisting of domestic and foreign
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit and time deposits of domestic and foreign
branches of U.S. banks and foreign banks, repurchase agreements, securities of
other investment companies and GICs. Under normal market conditions, the Limited
Maturity Bond Fund expects to maintain a dollar-weighted average portfolio
maturity of its debt securities of three years or less. By seeking to maintain a
dollar-weighted average portfolio maturity of three years or less, the Limited
Maturity Bond Fund attempts to minimize the
PROSPECTUS--Investor C Shares 22
<PAGE> 174
fluctuation in its shares' net asset value relative to those funds which invest
in longer term obligations. Some of the securities in which the Limited Maturity
Bond Fund invests may have warrants or options attached.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Limited Maturity Bond Fund, the effective
maturity of such securities, as determined by the Investment Adviser, will be
used.
The Bond Fund and Limited Maturity Bond Fund each expects to invest in a variety
of U.S. Treasury obligations, differing in their interest rates, maturities, and
times of issuance, as well as Stripped Treasury Obligations, and other
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES--Government
Obligations."
The Bond Fund and the Limited Maturity Bond Fund each also expects to invest in
bonds, notes and debentures of a wide range of U.S. corporate issuers. Such
obligations, in the case of debentures will represent unsecured promises to pay,
and in the case of notes and bonds, may be secured by mortgages on real property
or security interests in personal property and will in most cases differ in
their interest rates, maturities and times of issuance.
The Bond Fund and the Limited Maturity Bond Fund each will invest only in
corporate debt securities which are rated at the time of purchase within the
four highest rating categories assigned by an NRSRO or, if unrated, which First
of America deems present attractive opportunities and are of comparable quality.
For a discussion of debt securities rated within the fourth highest rating
categories assigned by the NRSROS, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Medium-Grade Securities."
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian Bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond Fund may also invest up to 25% of its
net assets in foreign securities either directly or through the purchase of ADRs
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper.
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, First of America may purchase debt securities at a
discount from face value, which produces a yield greater than the coupon rate.
Conversely, if debt securities are purchased at a premium over face value, the
yield will be lower than the coupon rate. In making investment decisions for the
Bond Fund, First of America will consider many factors other than current yield,
including the preservation of capital, the potential for realizing capital
appreciation, maturity, and yield to maturity. In making investment decisions
for the Limited Maturity Bond Fund, First of America will consider many factors
other than current yield, including the preservation of capital, maturity, and
yield to maturity.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
THE BOND FUND AND THE LIMITED MATURITY BOND FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Currency Transactions -Foreign Securities
- -Futures Contracts -Government Obligations -Guaranteed Investment Contracts
- -Lending Portfolio Securities -Medium-Grade Securities -Mortgage-Related Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements
- -When-Issued and Delayed- and Dollar Roll Agreements
Delivery Transactions
- ------------------------------------------------------------------------------------------------------
</TABLE>
23 PROSPECTUS--Investor C Shares
<PAGE> 175
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
THE INVESTMENT OBJECTIVE OF THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND IS TO
SEEK CURRENT INCOME WITH PRESERVATION OF CAPITAL BY INVESTING IN U.S. GOVERNMENT
SECURITIES WITH REMAINING MATURITIES OF TWELVE YEARS OR LESS.
Under normal market conditions, the Intermediate Government Obligations Fund
will invest at least 80% of its total assets in obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities and with remaining
maturities of twelve years or less, although up to 20% of the value of its total
assets may be invested in debt securities, preferred stocks and other
investments without regard to maturity, except as set forth below. Under normal
market conditions, the Intermediate Government Obligations Fund expects to
maintain a dollar-weighted average portfolio maturity of its debt securities of
three to ten years. By seeking to maintain a dollar-weighted average portfolio
maturity of three to ten years, the Intermediate Government Obligations Fund
attempts to minimize the fluctuation in its shares' net asset value relative to
funds which invest in longer-term obligations.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Intermediate Government Obligations Fund,
the effective maturity of such securities, as determined by the Investment
Adviser, will be used.
The types of U.S. government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and government securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Government Obligations."
The Intermediate Government Obligations Fund may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, as more fully described below under "RISK FACTORS AND
INVESTMENT TECHNIQUES -- Government Obligations."
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Currency Transactions -Futures Contracts
- -Government Obligations -Lending Portfolio Securities -Mortgage-Related Securities
- -Municipal Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-Issued and Delayed-
and Dollar Roll Delivery Transactions
Agreements
- ---------------------------------------------------------------------------------------------------
</TABLE>
THE GOVERNMENT INCOME FUND
THE INVESTMENT OBJECTIVE OF THE GOVERNMENT INCOME FUND IS TO PROVIDE
SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRUDENT
INVESTMENT RISK.
Under normal market conditions, the Government Income Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
non-governmental issuers. Consistent with the foregoing, under current market
conditions, the Government Income Fund intends to invest up to 80% of the value
of its total assets in mortgage-related securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities. The Government Income Fund
also may invest up to 35% of its total assets in mortgage-related securities
issued by non-
PROSPECTUS--Investor C Shares 24
<PAGE> 176
governmental entities and in other securities described below. For more
information, see "RISK FACTORS AND INVESTMENT TECHNIQUES -- Mortgage-Related
Securities."
The types of U.S. government obligations, including mortgage-related securities,
invested in by the Government Income Fund will include obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Treasury, such as Treasury bills, notes and bonds, Stripped Treasury
Obligations and government securities, as described below in "RISK FACTORS AND
INVESTMENT TECHNIQUES -- Government Obligations".
The Government Income Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper
(including variable amount master demand notes), rated at the time of purchase
within the top two rating categories assigned by an NRSRO or, if unrated, which
First of America deems present attractive opportunities and are of comparable
quality bankers' acceptances, certificates of deposit and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, and repurchase
and reverse repurchase agreements. The Government Income Fund may also invest in
corporate debt securities which are rated at the time of purchase within the top
three rating categories assigned by an NRSRO or, if unrated, which First of
America deems present attractive opportunities and are of comparable quality.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
THE GOVERNMENT INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Currency Transactions -Foreign Securities
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase -When-Issued and Delayed-Delivery
Agreements and Dollar Roll Transactions
Agreements
- --------------------------------------------------------------------------------------------------------
</TABLE>
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase or dollar roll agreements with
First of America Bank, N.A. (formerly, First of America Bank-Michigan, N.A.,
"FOA," the parent corporation of First of America), BISYS, or their affiliates,
and will not give preference to FOA's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements, reverse
repurchase agreements and dollar roll agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by First of America, and in the case
of the International Fund and Balanced Allocation Fund, Gulfstream in the
management of each of the Funds (with the exception of the Treasury Fund)
involve complex securities sometimes referred to as "derivatives." Among such
securities are put and call options, foreign currency transactions and futures
contracts, all of which are described below. The Investment Adviser and
Subadviser believe that such complex securities may, in some circumstances, play
a valuable role in successfully implementing each Fund's investment strategy and
achieving its goals. However, because complex securities and the strategies for
which they are used, are by their nature complicated, they present substantial
opportunities for misunderstanding and misuse. To guard against these risks, the
Investment Adviser and Subadviser will utilize complex securities primarily for
hedging, not speculative, purposes and only after careful review of the unique
risk factors associated with each such security.
25 PROSPECTUS--Investor C Shares
<PAGE> 177
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds may utilize foreign currency transactions in its portfolio.
The value of the assets of a Fund as measured in United States dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract ("forward currency contracts") involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These forward currency contracts are traded directly
between currency traders (usually large commercial banks) and their customers.
The Funds may enter into forward currency contracts in order to hedge against
adverse movements in exchange rates between currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency. Alternatively, when a Fund believes it will increase, it may enter
into a forward currency purchase contract to buy that foreign currency for a
fixed U.S. dollar amount; however, this tends to limit potential gains which
might result from a positive change in such currency relationships. A Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
The forecasting of short-term currency market movement is extremely difficult
and whether such a short-term hedging strategy will be successful is highly
uncertain. It is impossible to forecast with precision the market value of
portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency such Fund is obligated
to deliver when a decision is made to buy the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency such Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. If forward prices
decline during the period between which a Fund enters into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. If forward prices
increase, such Fund would suffer a loss to the extent the price of the currency
it has agreed to purchase exceeds the price of the currency it has agreed to
sell. Although such contracts tend to minimize the risk of loss due to a decline
in the value of the hedged currency, they also tend to limit any potential gain
which might result if the value of such currency increases. The Funds will have
to convert their holdings of foreign currencies into United States dollars from
time to time. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
No Fund intends to enter into forward currency contracts if more than 15% of the
value of its total assets would be committed to such contracts on a regular or
continuous basis. A Fund also will not enter into
PROSPECTUS--Investor C Shares 26
<PAGE> 178
forward currency contracts or maintain a net exposure on such contracts where
such Fund would be obligated to deliver an amount of foreign currency in excess
of the value of the Fund's portfolio securities or other assets denominated in
that currency.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments" in
the Statement of Additional Information.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Allocation Fund may invest up to 20% of its total assets in foreign
securities. The Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund and Equity Income Fund may invest in foreign securities as
permitted by their respective investment policies. Each of the Bond Fund and
Limited Maturity Bond Fund may also invest up to 25% of its net assets in
foreign securities either directly or through the purchase of ADRs and may also
invest in securities issued by foreign branches of U.S. banks and foreign banks,
in CCP, and in Europaper. The Government Income Fund may invest in foreign
securities by purchasing: Eurodollar certificates of deposit ("ECDs"), which are
U.S. dollar-denominated certificates of deposit issued by offices of foreign and
domestic banks outside the U.S.; Eurodollar time deposits ("ETDs"), which are
U.S. dollar-denominated deposits in a foreign branch of a U.S. or foreign bank;
Canadian time deposits ("CTDs"), which are essentially the same as ETDs, except
that they are issued by Canadian offices of major Canadian banks; Yankee
certificates of deposit ("Yankee CDs"), which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank but held in
the U.S.; CCP; and Europaper.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the United States. In addition, there may be less
publicly available information about a foreign company than about a
U.S.-domiciled company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States. Confiscatory taxation or diplomatic developments could also
affect investment in those countries. In addition, foreign branches of U.S.
banks, foreign banks and foreign issuers may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign
27 PROSPECTUS--Investor C Shares
<PAGE> 179
securities in such currencies, such Fund will be required to compute and
distribute its income in U.S. dollars. Therefore, if the exchange rate for any
such currency declines materially after such Fund's income has been accrued and
translated into U.S. dollars, the Fund could be required to liquidate portfolio
securities to make required distributions. Similarly, if an exchange rate
declines between the time a Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the amount of such currency required to be converted
into U.S. dollars in order to pay such expenses in U.S. dollars will be greater.
U.S. dollar-denominated ADRs, which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all the risk inherent in investing in
the securities of foreign issuers. However, by investing in ADRs rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for many ADRs. The information available for
ADRs is subject to the accounting, auditing and financial reporting standards of
the domestic market or exchange on which they are traded, standards which are
more uniform and more exacting than those to which many foreign issuers may be
subject. The ADR is sometimes referred to as a Global Depositary Receipt, or
GDR. In the United States, the GDR is, after issuance, not unlike any other ADR.
The difference is found in the purpose of the issue. GDRs are used for global
offerings, by the simultaneous issuance of a single security in multiple world
markets. The International Fund and Balanced Allocation Fund may also invest in
EDRs which are receipts evidencing an arrangement with a European bank similar
to that for ADRs and designed for use in the European securities markets. EDRs
are not necessarily denominated in the currency of the underlying security.
Certain of the ADRs and EDRs, typically those categorized as unsponsored,
require their holders to bear most of the costs of such facilities while issuers
of sponsored facilities normally pay more of the costs. 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 with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the
European Currency Unit ("ECU"), which is a "basket" unit of currency 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.
FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds and the Income Funds may also
enter into contracts for the future delivery of securities or foreign currencies
and futures contracts based on a specific security, class of securities, foreign
currency or an index, purchase or sell options on any such futures contracts and
engage in related closing transactions. A futures contract on a securities index
is an agreement obligating either party to pay, and entitling the other party to
receive, while the contract is outstanding, cash payments based on the level of
a specified securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, a Fund can seek through the sale of
futures contracts to offset a decline in the value of its portfolio securities.
When interest rates are expected to fall or market values are expected to rise,
a Fund, through the purchase of such contracts, can attempt to secure better
rates or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
PROSPECTUS--Investor C Shares 28
<PAGE> 180
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercising 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 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of a Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with its portfolio securities or foreign currencies, limiting the
Fund's ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
GOVERNMENT OBLIGATIONS
Subject to the investment parameters described above, each of the Funds may
invest in obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities. The types of U.S. government obligations in which
each of these Funds may invest include U.S. Treasury notes, bills, bonds, and
any other securities directly issued by the U.S. government that are available
for public investment, which differ only in their interest rates, maturities,
and times of issuance. Stripped Treasury Obligations are also permissible
investments. 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.
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the right of
the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association ("SLMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored agencies or
instrumentalities, such as FNMA, SLMA or FHLMC, since it is not obligated to do
so by law. The Funds which may invest in these government obligations will
invest in the obligations of such agencies or instrumentalities only when First
of America believes that the credit risk with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS
The Bond Fund and the Limited Maturity Bond Fund may invest in GICs. When
investing in GICs, the Bond Fund and the Limited Maturity Bond Fund make cash
contributions to a deposit fund of an insurance company's general account. The
insurance company then credits guaranteed interest to the deposit fund on a
monthly basis. The GICs provide that this guaranteed interest will not be less
than a certain minimum rate. The insurance company may assess periodic charges
against a GIC for expenses and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The Bond Fund and the
Limited Maturity Bond Fund may invest in GICs of insurance companies without
regard to the ratings, if any, assigned to such insurance companies' outstanding
debt securities. Because a Fund may not receive the principal amount of a GIC
from the insurance company on seven days' notice or less, the GIC is considered
an illiquid investment. For each of the Bond Fund and Limited Maturity Bond
Fund, no more than 15% of its total assets will be invested in instruments which
are considered to be illiquid. In
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determining average portfolio maturity, GICs will be deemed to have a maturity
equal to the period of time remaining until the next readjustment of the
guaranteed interest rate.
MEDIUM-GRADE SECURITIES
Each of the Balanced Allocation Fund, Bond Fund, and the Limited Maturity Bond,
may invest in fixed-income securities rated within the fourth highest rating
category assigned by an NRSRO (i.e., BBB or Baa by S&P or Moody's, respectively)
and comparable unrated securities as determined by the Investment Adviser. These
types of fixed-income securities are considered by the NRSROs to have some
speculative characteristics, and are more vulnerable to changes in economic
conditions, higher interest rates or adverse issuer-specific developments which
are more likely to lead to a weaker capacity to make principal and interest
payments than comparable higher rated debt securities.
Should subsequent events cause the rating of a fixed-income security purchased
by any of the Funds listed above to fall below the fourth highest rating, First
of America will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would the Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
MORTGAGE-RELATED SECURITIES
The Government Income Fund intends to invest up to 80% of the value of its total
assets in mortgage-related securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. However, the Government Income
Fund may invest greater amounts as conditions warrant. Each of the remaining
Funds, except the International Fund, may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Such agencies or instrumentalities include GNMA, FNMA and
FHLMC. Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond
Fund, Intermediate Government Obligations Fund and Government Income Fund may
also invest in mortgage-related securities issued by non-governmental entities
which are rated, at the time of purchase, within the three highest bond rating
categories assigned by an NRSRO or, if unrated, which First of America deems
present attractive opportunities and are of comparable quality.
The mortgage-related securities in which these Funds may invest have mortgage
obligations backing such securities, consisting of conventional thirty-year
fixed-rate mortgage obligations, graduated payment mortgage obligations,
fifteen-year mortgage obligations and adjustable-rate mortgage obligations. All
of these mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. Accelerated prepayments have an adverse impact on yields for
pass-throughs purchased at a premium (i.e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
PROSPECTUS--Investor C Shares 30
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interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, though, the rate of prepayment tends to decrease, thereby lengthening
the period of time over which income at the lower rate is received. For these
and other reasons, a mortgage-related security's average maturity may be
shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Fund. In addition, regular payments received with respect to mortgage-related
securities include both interest and principal. No assurance can be given as to
the return a Fund will receive when these amounts are reinvested.
The principal governmental (i.e., backed by the full faith and credit of the
United States government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Administration
or guaranteed by the Veterans Administration.
Government-related (i.e., not backed by the full faith and credit of the United
States government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States government. FHLMC is a corporate instrumentality of the
United States government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by non-governmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the poolers, First of
America determines that the securities meet the Government Income Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Government Income Fund will not purchase mortgage-related
securities or any other assets which in First of America's opinion are illiquid
if, as a result, more than 15% of the value of the Government Income Fund's
total assets will be illiquid.
Mortgage-related securities in which the above-named Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
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governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments; that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed-rate mortgages. As new types
of mortgage-related securities are developed and offered to investors, First of
America will, consistent with the Government Income Fund's investment objective,
policies and quality standards, consider making investments in such new types of
securities.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held by
the Bond Fund and Limited Maturity Bond Fund are "general obligation" securities
and "revenue" securities. General obligation securities are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue securities are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from proceeds of a special excise tax or other specific revenue source such as
the user of the facility being financed.
The above-named Funds may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Each of the above-named Funds invests primarily in Municipal Securities which
are rated at the time of purchase within the four highest rating categories
assigned by an NRSRO or in the highest rating category assigned by an NRSRO in
the case of notes, tax-exempt commercial paper or variable rate demand
obligations. These Funds may also purchase Municipal Securities which are
unrated at the time of purchase but are determined to be of comparable quality
by First of America pursuant to guidelines approved by the Group's Board of
Trustees. The applicable Municipal Securities ratings are described in the
Appendix to the Statement of Additional Information. For a discussion of debt
securities rated within the four highest rating categories assigned by an NRSRO,
see "RISK FACTORS AND INVESTMENT TECHNIQUES -- Medium Grade Securities" herein.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Funds nor First of
America will review the proceedings relating to the issuance of Municipal
Securities or the basis for such opinions.
OTHER MUTUAL FUNDS
Each of the Funds may invest up to 5% of the value of its total assets in the
securities of any one money market mutual fund (including shares of the
Parkstone Money Market Funds: the Parkstone Prime Obligations Fund, the
Parkstone U.S. Government Obligations Fund, the Parkstone Tax-Free Fund, and the
Parkstone Treasury Fund), provided that no more than 10% of a Fund's total
assets may be invested in the securities of mutual funds in the aggregate. In
order to avoid the imposition of additional fees as a result of investments by a
Fund in shares of the Money Market Funds of the Group, the Investment Adviser,
Administrator and their affiliates (See "MANAGEMENT OF THE FUNDS -- Investment
Adviser and Subadviser" and "Administrator, Sub-Administrator and Distributor"
and "GENERAL INFORMATION -- Transfer Agency and Fund Accounting Services") will
charge their fees to the investing Fund, rather than the Money Market Funds.
Each Fund will incur additional expenses due to the duplication of expenses as a
result of investing in securities of unaffiliated mutual funds. Additional
restrictions regarding the Funds' investments in securities of unaffiliated
mutual funds and/or Money Market Funds of the Group are contained in the
Statement of Additional Information.
PROSPECTUS--Investor C Shares 32
<PAGE> 184
PUT AND CALL OPTIONS
Each of the Growth Funds, the Growth and Income Funds and the Income Funds may
purchase put and call options on securities and on foreign currencies, subject
to its applicable investment policies, for the purposes of hedging against
market risks related to its portfolio securities and adverse movements in
exchange rates between currencies, respectively. Purchasing options is a
specialized investment technique that entails a substantial risk of a complete
loss of the amounts paid as premiums to writers of options. Each Fund may also
engage in writing call options from time to time as First of America or
Gulfstream, as the case may be with respect to the Balanced Allocation Fund or
International Fund, deem appropriate. The Funds will write only covered call
options (options on securities or currencies owned by the particular Fund). In
order to close out a call option it has written, the Fund will enter into a
"closing purchase transaction" (the purchase of a call option on the same
security or currency with the same exercise price and expiration date as the
call option which such Fund previously has written). When a portfolio security
or currency subject to a call option is sold, the Fund will effect a closing
purchase transaction to close out any existing call option on that security or
currency. If such Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security or currency until the option
expires or that Fund delivers the underlying security or currency upon exercise.
In addition, upon the exercise of a call option by the option holder, the Fund
will forego the potential benefit represented by market appreciation over the
exercise price. Under normal conditions, it is not expected that the Funds will
cause the underlying value of portfolio securities and currencies subject to
such options to exceed 50% of its net assets, and with respect to each of the
Balanced Allocation Fund and International Fund, 20% of its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its options transactions, also may purchase index put and call
options and write index options. As with options on individual securities, a
Fund will write only covered index call options. Through the writing or purchase
of index options a Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
REPURCHASE AGREEMENTS
Securities held by a Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as member banks of the Federal Deposit Insurance Corporation
or registered broker-dealers which First of America or Gulfstream, as the case
may be, deem creditworthy under the guidelines approved by the Group's Board of
Trustees, subject to the seller's agreement to repurchase such securities at a
mutually agreed upon date and price. The repurchase price would generally equal
the price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. Securities subject to repurchase agreements will be held
in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from the sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by that Fund were
33 PROSPECTUS--Investor C Shares
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delayed pending court action. Repurchase agreements are considered to be loans
by an investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"). For further information about repurchase agreements, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments-Repurchase Agreements" in the Statement of Additional Information.
RESTRICTED SECURITIES
Securities in which each of the Funds may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the "1933 Act"), in reliance on the exemption from such registration afforded
by Section 3(a)(3) thereof, and securities issued in reliance on the so-called
"private placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2) securities are
restricted as to disposition under the federal securities laws, and generally
are sold to institutional investors such as the Funds who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who make a
market in such Section 4(2) securities, thus providing liquidity. Pursuant to
procedures adopted by the Board of Trustees of the Group, First of America may
determine Section 4(2) securities to be liquid if such securities are eligible
for resale under Rule 144A under the 1933 Act and are readily saleable.
Subject to the limitations described above, the Funds may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registered under the 1993 Act. An illiquid investment
is any investment that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which it is valued by a Fund.
The price a Fund pays for illiquid securities or receives upon resale may be
lower than the price paid or received for similar securities with a more liquid
market. Accordingly, the valuation of these securities will reflect any
limitations on their liquidity. A Fund may not invest in additional illiquid
securities if, as a result, more than 15% of the market value of its net assets
would be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Each of the Funds may borrow money by entering into reverse repurchase
agreements and, in the case of the Income Funds, dollar roll agreements in
accordance with the investment restrictions described below. Pursuant to reverse
repurchase agreements, a 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. Dollar roll agreements
utilized by the Income Funds are identical to reverse repurchase agreements
except for the fact that substantially similar securities may be repurchased. At
the time a Fund enters into a reverse repurchase agreement or a dollar roll
agreement, it will place in a segregated custodial account assets such as U.S.
government securities or other liquid-high grade debt securities consistent with
its investment restrictions having a value equal to the repurchase price
(including accrued interest), and will subsequently continually monitor the
account to ensure that such equivalent value is maintained at all times. Reverse
repurchase agreements and dollar roll agreements involve the risk that the
market value of securities sold by a Fund may decline below the price at which
it is obligated to repurchase the securities. Reverse repurchase agreements and
dollar roll agreements are considered to be borrowings by an investment company
under the 1940 Act and therefore a form of leverage. A Fund may experience a
negative impact on its net asset value if interest rates rise during the term of
a reverse repurchase agreement or dollar roll agreement. A Fund generally will
invest the proceeds of such borrowings only when such borrowings will enhance a
Fund's liquidity or when the Fund reasonably expects that the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. For further information about reverse repurchase
agreements and dollar roll agreements, see "INVESTMENT OBJECTIVES AND
POLICIES -- Additional Information on Portfolio Instruments-Reverse Repurchase
Agreements and Dollar Roll Agreements" in the Statement of Additional
Information.
PROSPECTUS--Investor C Shares 34
<PAGE> 186
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis. Such Funds will engage in when-issued and delayed-delivery transactions
only for the purpose of acquiring portfolio securities consistent with its
investment objectives and policies, not for investment leverage although such
transactions represent a form of leveraging. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve a risk that the yield obtained in the
transaction will be less than those available in the market when delivery takes
place. A Fund will not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase such securities, its
Custodian will set aside cash or liquid securities equal to the amount of the
commitment in a separate account. Securities purchased on a when-issued basis
are recorded as an asset and are subject to changes in the value based upon
changes in the general level of interest rates. In when-issued and
delayed-delivery transactions, a Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause such Fund to miss a price
or yield considered to be advantageous.
No Fund's commitments to purchase "when-issued" securities will exceed 25% of
the value of its total assets under normal market conditions, and a commitment
by a Fund to purchase "when-issued" securities will not exceed 60 days. In the
event its commitments to purchase "when-issued" securities ever exceeded 25% of
the value of its assets, a Fund's liquidity and the ability of First of America
or Gulfstream, as the case may be, to manage it might be adversely affected. The
Funds intend only to purchase "when-issued" securities for the purpose of
acquiring portfolio securities, not for investment leverage.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks, or institutional borrowers of
securities. A Fund must receive 100% collateral in the form of cash or U.S.
government securities. This collateral will be valued daily by Union Bank.
Should the market value of the loaned securities increase, the borrower must
furnish additional collateral to that Fund. During the time portfolio securities
are on loan, the borrower pays that Fund any dividends or interest received on
such securities. Loans are subject to termination by the Fund or the borrower at
any time. While a Fund does not have the right to vote securities on loan, each
Fund intends to terminate the loan and regain the right to vote if that is
considered important with respect to the investment. In the event the borrower
defaults in its obligation to a Fund, such Fund bears the risk of delay in the
recovery of its portfolio securities and the risk of loss of rights in the
collateral. The Funds will enter into loan agreements only with broker-dealers,
banks, or other institutions that First of America or Gulfstream, as the case
may be, have determined are creditworthy under guidelines established by the
Group's Board of Trustees.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The SEC requires that the
calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less. The portfolio turnover rate for a Fund may
vary greatly from year to year, as well as within a particular year, and may
also be affected by cash requirements for redemptions of shares. High portfolio
turnover rates will generally result in higher transaction costs, including
brokerage commissions, to a Fund and may result in additional tax consequences
to a Fund's shareholders. Portfolio turnover will not be a limiting factor in
making investment decisions. For portfolio turnover rates for each of the Funds,
see "FINANCIAL HIGHLIGHTS."
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding shares of that Fund (as defined
in the Statement of Additional Information).
35 PROSPECTUS--Investor C Shares
<PAGE> 187
None of the Funds may:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities,
if, immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in such issuer, or the Fund would
hold more than 10% of the outstanding voting securities of the issuer,
except that 25% or less of the value of such Fund's total assets may be
invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes,
or other obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities.
For purposes of the investment limitation above, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues back
the security and, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, a security is considered to
be issued by such non-governmental user.
None of the Funds will:
1. Purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the
U.S. government or its agencies or instrumentalities; (b) wholly-owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
2. (a) Borrow money (not including reverse repurchase agreements or dollar roll
agreements), except that each 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 Fund's total assets less liabilities other than
the obligations represented by the bank borrowings, reverse repurchase
agreements and dollar roll agreements), or mortgage, pledge or hypothecate
any assets except in connection with a bank borrowing in amounts not to
exceed 30% of the Fund's net assets at the time of borrowing; (b) enter into
reverse repurchase agreements, dollar roll agreements and other permitted
borrowings in amounts exceeding in the aggregate one-third of the Fund's
total assets less liabilities other than the obligations represented by such
reverse repurchase and dollar roll agreements; and (c) issue senior
securities except as permitted by the 1940 Act or any rule, order or
interpretation thereunder.
3. Make loans, except that a Fund may purchase or hold debt instruments and lend
portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
For purposes of investment limitation number 1 above only, such limitation shall
not apply to Municipal Securities or governmental guarantees of Municipal
Securities, and industrial development bonds or private activity bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding shares of a Fund.
Each Fund may not:
1. Purchase or otherwise acquire any securities, if as a result, more than 15%
of the Fund's net assets would be invested in securities that are illiquid.
PROSPECTUS--Investor C Shares 36
<PAGE> 188
In addition to the above investment restrictions, the Funds are subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES -- Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
TRUSTEES
Overall responsibility for management of the Group rests with its Board of
Trustees. The Group will be managed by the Trustees in accordance with the laws
of the Commonwealth of Massachusetts governing business trusts. There are
currently six Trustees, four 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
names, addresses, birth dates and principal occupations during the past five
years of the Trustees are set forth in the Statement of Additional Information.
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
First of America Bank Corporation ("FABC"), BISYS, The BISYS Group, Inc. or
BISYS Ohio 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 Transfer Agent and may receive fees from
each of the Funds pursuant to the Investor C Distribution and Shareholder
Service Plan described below. BISYS Ohio, an affiliate of BISYS, receives fees
from the Group for providing certain fund accounting services.
INVESTMENT ADVISER AND SUBADVISER
First of America, 303 North Rose Street, Suite 500, Kalamazoo, Michigan 49007,
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 FOA,
which is a wholly-owned subsidiary of FABC. FABC currently has over $21.5
billion in assets and provides financial services to communities in Michigan,
Indiana, Illinois and Florida. FABC has, however, entered into an agreement to
sell its operations in Florida, thereby reducing its assets by approximately
$1.1 billion. As of June 30, 1997, First of America managed over $15.8 billion
on behalf of both taxable and tax-exempt clients, including pensions,
endowments, corporations and individual portfolios. First of America acts as
subadviser to the Trust Division of FABC with respect to $7.2 billion in
discretionary assets, providing equity, fixed income, balanced and money
management services.
Subject to such policies as the Group's Board of Trustees may determine, First
of America, either directly or, with respect to the International Fund and the
Balanced Allocation Fund, through Gulfstream, furnishes a continuous investment
program for each Fund and makes investment decisions on behalf of each Fund.
First of America utilizes a team approach to the investment management of the
Funds, with up to three professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
each Fund's investment objectives. Roger H. Stamper, Managing Director of First
of America, is primarily responsible for the day-to-day management of each of
the Growth Funds (except the International Fund) and the Growth and Income
Funds. Mark R. Kummerer, Managing Director--Fixed Income of First of America, is
primarily responsible for the day-to-day management of the Income Funds. Messrs.
Stamper and Kummerer have held their respective positions with First of America
since 1988 and 1986, respectively.
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 an annual rate of
0.80% of the Fund's average daily net assets. For its services in connection
with each of the Small Capitalization Fund, Mid Capitalization Fund, Equity
Income Fund and Balanced Allocation Fund, First of America's fee is computed
daily and paid monthly at the annual rate of 1.00% of the applicable Fund's
average daily net assets. For its services in connection with the International
Fund,
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First of America's fee is computed daily and paid monthly at the annual rate of
1.25% of the first $50 million of the International Fund's average daily net
assets, 1.20% of average daily net assets between $50 million and $100 million,
1.15% of average daily net assets between $100 million and $400 million and
1.05% of average daily net assets above $400 million. For its services in
connection with each Income Fund, First of America's fee is computed daily and
paid monthly at the annual rate of 0.74% of each Income Fund's average daily net
assets. First of America may periodically voluntarily reduce all or a portion of
its advisory fee with respect to a Fund to increase the net income of that Fund
available for distribution as dividends. The voluntary fee reduction will cause
the yield of that Fund to be higher than it would otherwise be in the absence of
such a reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream,
100 Crescent Court, Suite 550, Dallas, Texas 75201. Pursuant to the terms of
such Sub-Investment Advisory Agreement, Gulfstream has been retained by First of
America to manage the investment and reinvestment of the assets of the
International Fund and to manage the investment and reinvestment of those assets
of the Balanced Allocation Fund which are invested in foreign securities,
subject to the direction and control of the Group's Board of Trustees.
Under this arrangement, Gulfstream is responsible for day-to-day management of
the International Fund's assets and the applicable portion of the Balanced
Allocation Fund, reviewing investment performance policies and guidelines and
maintaining certain books and records. First of America is responsible for
selecting and monitoring the performance of Gulfstream and for reporting the
activities of Gulfstream in managing these Funds to the Group's Board of
Trustees. First of America may also render advice with respect to the
International Fund's investments in the U.S. Gulfstream utilizes a team approach
to investment management to ensure a disciplined investment process designed to
result in long-term performance consistent with a Fund's investment objective.
No one person is responsible for a Fund's management.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with First of America, Gulfstream receives from First of
America a fee, computed daily and paid monthly, at the 0.50% of the first $50
million of the International Fund's average daily net assets and the average
daily net assets of the Balanced Allocation Fund which are invested in foreign
securities, 0.45% of such average daily net assets between $50 million and $100
million, 0.40% of such average daily net assets between $100 million and $400
million and 0.30% of such average daily net assets above $400 million, provided
the minimum annual fee shall be $75,000.
Gulfstream was organized in 1991 as a Texas limited partnership by Tull, Doud,
Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is the sole general
partner of Gulfstream. TDMT is owned by C. Thomas Tull, Stephen C. Doud, James
P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and Triltsch are the
portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. First of America is the sole limited partner, and as of August 31,
1996, exercised options to increase its interest in Gulfstream from 49% to 72%.
In spite of the fact that First of America, as a limited partner, does not
possess management authority or responsibility for Gulfstream, because of its
72% ownership interest, First of America may be deemed to control Gulfstream for
purposes of the 1940 Act.
As of June 30, 1997, Gulfstream had over $863 million in assets of
institutional, investment company, governmental, pension fund and high net worth
individual clients under its investment management. Gulfstream's portfolio
management personnel average over 20 years of investment experience and 10 years
of international investment experience.
For further information regarding the relationship between Gulfstream and First
of America, see "MANAGEMENT OF THE GROUP--Investment Adviser" in the Statement
of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
Fund of the Group, and also acts as the Group's principal underwriter and
distributor. First of America serves as Sub-Administrator for each Fund of the
Group and provides certain services as may be requested by BISYS
PROSPECTUS--Investor C Shares 38
<PAGE> 190
from time to time. BISYS and its affiliated companies, including BISYS Ohio, 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
record keeping services to and through banking and other financial
organizations.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from each Fund equal to the lesser of a fee, computed daily and
paid periodically at an annual rate of 0.20% of the Fund's average daily net
assets, or such other fee as may be agreed upon from time to time in writing by
the Group and the Administrator. For its services as Sub-Administrator, First of
America receives, from the Administrator, pursuant to its Sub-Administration
Agreement with BISYS, a fee not to exceed 0.05% of each Fund's average daily net
assets. The Administrator may periodically voluntarily reduce all or a portion
of its administrative fee with respect to a Fund to increase the net income of
that Fund available for distribution as dividends. The voluntary fee reduction
will cause the return of that Fund to be higher than it would otherwise be in
the absence of such reduction.
The Distributor acts as agent for the Funds in the distribution of each of their
shares and, in such capacity, solicits orders for the sale of shares,
advertises, and pays the cost of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but may retain some or all of any sales
charge imposed upon the Investor C Shares and may receive compensation under the
Distribution and Shareholder Service Plan described below.
EXPENSES
First of America, Gulfstream and BISYS each bear all expenses in connection with
the performance of its services as Investment Adviser, Subadviser and
Administrator, respectively, other than the cost of securities (including
brokerage commissions) purchased for the Group. Each Fund will bear the
following expenses relating to its operation: organizational expenses, taxes,
interest, brokerage fees and commissions, fees of the Trustees of the Group, SEC
fees, state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the Custodian, Transfer Agent and Fund
Accountant, certain insurance premiums, costs of maintenance of the Group's
existence, costs of shareholders' reports and meetings, and any extraordinary
expenses incurred in each Fund's operation. As a general matter, expenses are
allocated to the Investor C Shares and the other classes of shares of the Funds
on the basis of the relative net asset value of each class. The various classes
may bear certain additional retail transfer agency expenses and may also bear
certain additional shareholder service and distribution costs incurred pursuant
to a Distribution and Shareholder Service Plan.
The Trustees reserve the right, subject to the receipt of relevant regulatory
approvals or rulings, if needed, to allocate certain other expenses to the
shareholders of a particular class, including the Investor C Shares 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; SEC registration fees
incurred by a class of shares; expenses related to administrative personnel and
services as required to support the shareholders of a specific class; litigation
or other legal expenses relating solely to one class of shares; and Trustees'
fees incurred as a result of issues relating solely to one class of shares.
DISTRIBUTION PLAN FOR INVESTOR C SHARES
Rule 12b-1, adopted by the SEC 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
39 PROSPECTUS--Investor C Shares
<PAGE> 191
investment company's trustees and approved by its shareholders. Pursuant to such
Rule, the Group has adopted an Investor C Distribution and Shareholder Service
Plan (the "Investor C Plan") with respect to the Investor C Shares of each Fund.
Pursuant to the Investor C Plan, each Fund is authorized to pay or reimburse
BISYS, as Distributor of the Investor C Shares, for certain expenses that are
incurred in connection with shareholder and distribution services. The Plan
authorizes any Fund to pay BISYS, as Distributor of Investor C Shares, a
distribution fee in an amount not to exceed on an annual basis 0.75% of the
average daily net asset value of Investor C Shares of such Fund (the
"Distribution Fee"). Such amount may be used by BISYS to pay banks and their
affiliates (including FOA and its affiliates), and other institutions, including
broker-dealers (collectively, "Participating Organizations") for distribution
assistance or to reimburse them for expenses incurred in providing distribution
assistance pursuant to an agreement between BISYS and the Participating
Organization. Under the Investor C Plan, BISYS, its subsidiaries and its
affiliates may be Participating Organizations.
Also pursuant to the Investor C Plan, a Fund is authorized to pay a service fee
in an amount not to exceed on an annual basis 0.25% of the average daily net
asset value of the Investor C Shares of such Fund (the "Service Fee"). Such
amount may be used to pay Participating Organizations for shareholder services
provided or expenses incurred in providing such services.
Fees paid pursuant to the Investor C Plan are accrued daily and paid monthly,
and are charged as expenses of Investor C Shares of a Fund as accrued. Payments
under the Investor C Plan will be calculated daily and paid monthly at a rate
not to exceed the limits described above, which rate is set from time to time by
the Board of Trustees.
Pursuant to the Investor C Plan, the Distributor may enter into 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% (up to 0.75%
Distribution Fee plus up to 0.25% Service Fee) of the average daily net asset
value of the Investor C Shares held of record or beneficially by the
Participating Organization's customers. The distribution services provided by
Participating Organizations for which the Distribution Fee may be paid may
include promoting the purchase of Investor C Shares of a Fund by their
customers; processing purchase, exchange, and redemption requests from customers
and placing orders with the Distributor or the Transfer Agent; processing
dividend and distribution payments from a Fund on behalf of customers; providing
information periodically to customers, including information showing their
positions in Investor C Shares; responding to inquiries from customers
concerning their investment in Investor C Shares; and providing other similar
services as may be reasonably requested. The shareholder services provided by
Participating Organizations for which the Service Fee may be paid may include
providing sub-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 and shareholder service expenses for Investor C Shares at
any given time may exceed the Rule 12b-1 fees and contingent deferred sales
charges collected. These unrecovered amounts plus interest thereon will be
carried forward and paid from future Rule 12b-1 fees and contingent deferred
sales charges collected. 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. During the fiscal year ended June 30, 1997, Rule 12b-1
fees collected were sufficient to cover actual distribution and shareholder
service expenses; that is, there were no unrecovered amounts to be carried
forward.
Conflict of interest restrictions may apply to the receipt by Participating
Organizations of compensation from BISYS in connection with the investment of
fiduciary assets in Investor C Shares. Institutions, including banks regulated
by the Comptroller of the Currency, the Federal Reserve Board, or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor, or state
securities commissions, are urged to consult their legal advisers before
investing such assets in Investor C Shares.
PROSPECTUS--Investor C Shares 40
<PAGE> 192
As authorized by the Investor C Plan, BISYS has entered into a Participating
Organization Agreement with First of America Securities, Inc. ("FSI"), a
wholly-owned subsidiary of FABC, pursuant to which FSI has agreed to provide
certain shareholder and distribution services in connection with Investor C
Shares of the Funds purchased through accounts of FSI. Such services include,
but are not limited to, printing and distributing prospectuses to persons other
than holders of Investor C Shares of the Funds and printing and distributing
advertising and sales literature in connection with the sale of Investor C
Shares; answering routine customer questions concerning the Funds and providing
such personnel and equipment as is necessary and appropriate to accomplish such
matters. In consideration for such services, BISYS has agreed to pay FSI a
monthly fee, computed at an annual rate of 1.00% of the average aggregate net
asset value of Investor C Shares held during the period for which FSI has
provided services under the Agreement. BISYS will be compensated by the Funds in
an amount equal to the payments to FSI under the Participating Organization
Agreement. Such fee may exceed the actual costs incurred by FSI in providing the
services.
The Group understands that Participating Organizations may charge fees to their
customers who are owners of Investor C 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 account with a Participating
Organization.
The Investor C Plan requires the officers of the Group to provide the Board of
Trustees at least quarterly with a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made. The
Board reviews these reports in connection with its decisions with respect to the
Plan.
As required by Rule 12b-1, the Investor C Plan was approved by the Trustees of
the Group, including a majority of the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Group and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements related to
the Plan ("Independent Trustees"). The Investor C Plan continues in effect as
long as such continuance is specifically approved at least annually by the
Group's Trustees, including a majority of the Independent Trustees.
The Investor C Plan may be terminated by a vote of a majority of the Independent
Trustees, or by a vote of a majority of the holders of the outstanding voting
securities of the Investor C Shares. Any change in the Investor C Plan that
would increase materially the distribution expenses paid by a Fund requires
shareholder approval; otherwise, the Plan may be amended by the Trustees,
including a majority of the Independent Trustees by a vote cast in person at a
meeting called for the purpose of voting upon the amendment. As long as the
Investor C Plan is in effect, the selection or nomination of the Independent
Trustees is committed to the discretion of the Independent Trustees.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS serves as the Group's Transfer Agent pursuant to a Transfer Agency
Agreement with the Group and receives a fee for such services. BISYS Ohio, 3435
Stelzer Road, Columbus, Ohio 43219, provides certain accounting services for
each of the Funds and receives a fee for such services. See "MANAGEMENT OF THE
GROUP--Custodian, Transfer Agent and Fund Accounting Services" in the Statement
of Additional Information for further information.
While BISYS Ohio is a distinct legal entity from BISYS (the Group's
Administrator and Distributor), BISYS Ohio is considered to be an affiliated
person of BISYS under the 1940 Act due to, among other things, the fact that
BISYS Ohio and BISYS are both owned by The BISYS Group, Inc.
BANKING LAWS
First of America believes that it may perform the investment advisory services
for the Group's Funds contemplated by the Investment Advisory Agreement and by
this Prospectus without violating applicable banking laws or regulations. FSI
believes that it may provide the shareholder and distributor services
41 PROSPECTUS--Investor C Shares
<PAGE> 193
contemplated by its Participating Organization Agreement with BISYS and by this
Prospectus without violating applicable banking laws or regulations. Future
changes in federal or state statutes and regulations relating to permissible
activities of banks or bank holding companies and their subsidiaries and
affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which First of America or FSI could continue to perform such services
for the Group. See the Statement of Additional Information ("MANAGEMENT OF THE
GROUP--Glass-Steagall Act") for further discussion.
HOW TO BUY INVESTOR C SHARES
Investor C Shares of each Fund are continuously offered and may be purchased
directly either by mail or by telephone. Investor C Shares may also be purchased
through a broker-dealer who has entered into a dealer agreement with the
Distributor. Except as otherwise discussed below under "Other Information
Regarding Purchases" and "Auto Invest Plan," the minimum initial investment in a
Fund, based upon the public offering price, is $1,000; however, there is no
minimum subsequent purchase. Shareholders will pay the next calculated net asset
value after the receipt by the Distributor of an order to purchase Investor C
Shares. In the case of an order for the purchase of shares placed through a
broker-dealer, it is the responsibility of the broker-dealer to transmit the
order to the Distributor promptly. Investor C Shares are currently offered only
to (i) employee benefit plans qualified under Section 401 of the Code, subject
to requirements established by the Distributor, and (ii) retail investors that
purchase Investor C Shares through a broker or dealer that has entered into a
sales agreement with the Distributor.
BY MAIL
To purchase Investor C Shares of any of the Funds by mail, complete an Account
Application Form and return it along with a check or money order made payable to
The Parkstone Group of Funds at the following address:
The Parkstone Group of Funds
P.O. Box 50551
Kalamazoo, Michigan 49005-0551
An Account Application Form can be obtained by calling the Group at (800)
451-8377.
BY TELEPHONE
To purchase Investor C Shares of any of the Funds by telephone or by wire, an
Account Application Form must have been previously received by the Distributor.
To place an order by telephone, even if payment is to be made by wire, call the
Group's toll-free number (800) 451-8377. Payment for such Investor C Shares
ordered by telephone may be made by check or wire. Where payment is made by
check, the transaction will not be processed until the check is received by the
Group's Custodian. If a check received to purchase Investor B Shares does not
clear or if a wire transfer is not received by the Group's Custodian within
three Business Days (as defined in "HOW SHARES ARE VALUED") of the purchase
order, the purchase may be canceled and the investor could be liable for any
losses or fees incurred. When purchasing Investor C Shares by wire, contact the
Distributor at (800) 851-1227 for wire instructions.
OTHER INFORMATION REGARDING PURCHASES
Investor C Shares may also be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by FABC or one of its
affiliates. Investor C Shares of the Funds sold to FABC or the affiliate acting
in a fiduciary, advisory, custodial, or other similar capacity on behalf of
Customers will normally be held of record by FABC or the affiliate. With respect
to such Investor C Shares so sold, it is the responsibility of the holder of
record to transmit purchase or redemption orders to the Distributor and to
deliver funds for the purchase thereof on a timely basis. Beneficial ownership
of such Investor C Shares of the Funds will
PROSPECTUS--Investor C Shares 42
<PAGE> 194
be recorded by FABC or one of its affiliates and reflected in the account
statements provided to Customers. FABC or one of its affiliates may exercise
voting authority for those Investor C Shares for which it has been granted
authority by the Customer.
Investor C Shares of the Funds are purchased at the net asset value per share
(see "HOW SHARES ARE VALUED") next determined after receipt by the Distributor
of an order to purchase Investor C Shares plus any applicable sales charge as
described below. Purchases of Investor C Shares of any of the Funds will be
effected only on a Business Day (as defined in "HOW SHARES ARE VALUED") of the
applicable 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
Valuation Time on the next Business Day of that Fund. Investor C Shares of the
Funds are eligible to earn dividends on the first Business Day following the
execution of the purchase. Investor C Shares continue to be eligible to earn
dividends through the day before their redemption.
An order to purchase Investor C Shares will be deemed to have been received by
the Distributor only when federal funds 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 Investor C Shares which
is transmitted by federal funds wire will be available the same day for
investment by the Group's Custodian, if received prior to the Valuation Time
(see "HOW SHARES ARE VALUED"). Purchases made by check for other means are made
at the price next determined upon receipt of the purchase instrument. However,
proceeds from redeemed shares purchased by check will not be sent until the
method of payment has cleared. The Group strongly recommends that investors of
substantial amounts use federal funds to purchase Investor C Shares.
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 FABC at (800) 544-6155. Due to the relatively high cost of handling
small investments, the Group reserves the right to redeem involuntarily, at net
asset value, the Investor C Shares of any shareholder if, because of redemptions
of Investor C Shares by or on behalf of the shareholder (but not as a result of
a decrease in the market price of such Investor C Shares, the deduction of any
sales charge or the establishment of an account with less than $1,000 using the
Auto Invest Plan), the account of such shareholder in that Fund has a value of
less than $1,000. Accordingly, an investor purchasing Investor C Shares of a
Fund in only the minimum investment amount may be subject to such involuntary
redemption if the investor thereafter redeems any such Investor C Shares. If at
any time a shareholder's account balance falls below $1,000, upon 30 days'
notice, the Group may exercise its right to redeem such Investor C Shares and to
send the proceeds to the shareholder.
Depending upon the terms of a particular Customer account, FABC or one of its
affiliates may charge a Customer account fees for services provided in
connection with investment in a Fund. Information concerning these services and
any charges may be obtained from FABC 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 C
Shares in whole or in part.
Every shareholder will receive a confirmation of each new transaction in the
shareholder's account, which will also show the total number of Investor C
Shares of the respective Fund of the Group owned by the shareholder.
Confirmation of purchases and redemptions of Investor C Shares of the Funds by
FABC or one of its affiliates on behalf of a Customer may be obtained from FABC
or the affiliate. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Investor C Shares of the Funds will not
be issued.
AUTO INVEST PLAN
The Parkstone Group of Funds Auto Invest Plan (the "Auto Invest Plan") enables
shareholders to make regular monthly or quarterly purchases of Investor C Shares
through automatic deduction from their bank accounts. With shareholder
authorization, the Group's Transfer Agent will deduct the amount specified
43 PROSPECTUS--Investor C Shares
<PAGE> 195
(subject to the applicable minimums) from the shareholder's bank account which
will automatically be invested in shares at the public offering price on the
date of such deduction (or the next Business Day thereafter, as defined under
"HOW SHARES ARE VALUED" below). The required minimum initial investment when
opening an account using the Auto Invest Plan is $100; the minimum amount for
subsequent investments in a Fund is $50. To participate in the Auto Invest Plan,
shareholders should complete the appropriate section of the Account Application
Form or a supplemental Auto Invest Plan application that can be acquired by
calling the Group at (800) 451-8377. For a shareholder to change the Auto Invest
Plan instructions, the request must be made in writing to the Group's
Distributor, BISYS Fund Services, c/o The Parkstone Group of Funds, P.O. Box
50551, Kalamazoo, Michigan 49005-0551 and may take up to 15 days to implement.
SALES CHARGES
There is no sales charge imposed upon purchases of Investor C Shares, but
investors may be subject to a contingent deferred sales charge of up to 1.00%
when Investor C Shares are redeemed prior to one year from the date of purchase.
See "CONTINGENT DEFERRED SALES CHARGE" below.
From time to time dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers.
In addition to amounts paid to dealers as a dealer concession out of the sales
charge paid by investors, if any, the Distributor may, from time to time, at its
expense or as an expense for which it may be reimbursed under the Investor C
Plan, pay a bonus or other consideration or incentive to dealers who sell a
minimum dollar amount of shares of a Fund during a specified period of time. The
Distributor also may, from time to time, arrange for the payment of additional
consideration to dealers not to exceed 6.25% of the offering price per share on
all sales of Investor C Shares as an expense of the Distributor or for which the
Distributor may be reimbursed under the Investor C Plan or upon receipt of a
contingent deferred sales charge. Any such additional consideration or incentive
program may be terminated at any time by the Distributor.
The Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of shares of any of the Funds of the Group.
Compensation may include financial assistance to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns regarding one or more Funds of the Group, and/or
other dealer-sponsored special events. In some instances, this compensation may
be made available only to certain dealers whose representatives have sold or are
expected to sell a significant amount of such shares. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their families
to exotic locations within or outside of the United States for meetings or
seminars of a business nature. Compensation may also include the following types
of non-cash items offered through sales contests: (1) vacation trips, including
travel arrangements and lodging at resorts; (2) tickets for entertainment events
(such as concerts, cruises and sporting events); and (3) merchandise (such as
clothing, trophies, clocks and pens). The Distributor, at its expense, currently
conducts an annual sales contest for dealers in connection with their sales of
shares of the Funds. Dealers may not use sales of a Fund's shares to qualify for
this compensation to the extent such may be prohibited by the laws of any state
or any self-regulatory agency, such as the National Association of Securities
Dealers, Inc.
CONTINGENT DEFERRED SALES CHARGE
Investor C Shares which are redeemed prior to one year from the date of purchase
will be subject to a contingent deferred sales charge equal to 1.00% of the
lesser of net asset value at the time of purchase of the Investor C Shares being
redeemed or net asset value of such shares at the time of redemption. For an
indefinite period of time, however, which may be discontinued upon notice by the
Distributor in a supplement to this Prospectus, Investor C Shares are available
for investment without the imposition of a contingent deferred sales charge upon
redemption.
PROSPECTUS--Investor C Shares 44
<PAGE> 196
Accordingly, a contingent deferred sales charge will not be imposed on amounts
representing increases in net asset value above the net asset value at the time
of purchase. In addition, a charge will not be assessed on Investor C Shares
purchased through reinvestment of dividends or capital gains distributions.
Solely for purposes of determining the number of years which have elapsed from
the time of purchase of any Investor C Shares, all purchases during a month will
be aggregated and deemed to have been made on the last day of the month. In
determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for more than one year or shares acquired
pursuant to reinvestment of dividends or distributions.
For example, assume an investor purchased 100 Investor C Shares with a net asset
value of $10 per share (i.e., at an aggregate net asset value of $1,000) and in
the eleventh month after purchase, the net asset value per share is $12 and,
during such time, the investor has acquired five additional Investor C Shares
through dividend reinvestment. If at such time the investor makes his first
redemption of 50 Investor C Shares (producing proceeds of $600), five of such
shares will not be subject to the charge because of dividend reinvestment. With
respect to the remaining 45 Investor C Shares being redeemed, the charge will be
applied only to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, only $450 of the $600 redemption
proceeds will be subject to the charge of 1.00%, totalling $4.50.
The contingent deferred sales charge is waived on redemptions of Investor C
Shares (i) following the death or disability (as defined in the Code) of a
shareholder (or both shareholders in the case of joint accounts), (ii) to the
extent that the redemption represents a minimum required distribution from an
IRA or a Custodial Account under Code Section 403(b)(7) to a shareholder who has
reached age 70 1/2, and (iii) to the extent the redemption represents the
minimum distribution from retirement plans under Code Section 401(a) where such
redemptions are necessary to make distributions to plan participants.
DIRECTED DIVIDEND OPTION
A shareholder may elect to have all income dividends and capital gains
distributions paid by check, reinvested in the Fund or reinvested in any of the
Group's other Funds, without the payment of a sales charge (provided the other
Fund is maintained at the minimum required balance). If you elect to receive
distributions paid by check and the check (1) is returned and marked as
"undeliverable" or (2) remains uncashed for six months, your payment election
will be changed automatically and your future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, any
undeliverable checks that remain uncashed for six months will be cancelled and
reinvested in the Fund at the per share net asset value determined as of the
date of cancellation.
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.
EXCHANGE PRIVILEGE
The exchange privilege enables shareholders of Investor C Shares to acquire
Investor C Shares that are offered by another Fund of the Group with a different
investment objective. In order for the exchange privilege to apply, the
redemption of one Fund and corresponding purchase of another Fund must occur on
the same Business Day (as defined in "HOW SHARES ARE VALUED" below). Except in
the case of holders of Investor C Shares wishing to exchange their shares for
Investor A Shares of any of the Money Market Funds, holders of shares of one
class may not exchange their shares for shares of another class.For example,
holders of a Fund's Investor B Shares may not exchange their shares for Investor
C Shares, and holders of a Fund's Investor C Shares may not exchange their
shares for Investor B Shares.
Holders of Investor C Shares of any of the Group's Funds (including Investor C
Shares acquired through reinvestment of dividends and distributions on such
shares) may exchange those Investor C Shares at net
45 PROSPECTUS--Investor C Shares
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asset value without the imposition of a contingent deferred sales charge for
Investor C Shares offered by any of the Group's other Funds, provided that the
amount to be exchanged meets the applicable minimum investment requirements and
the exchange is made in states where it is legally authorized. In addition, and
subject to the same conditions for other exchanges, holders of Investor C Shares
of any of the Group's Funds may exchange back and forth between such Investor C
Shares and Investor A Shares offered by any of the Group's Money Market Funds
without the imposition of any sales charges.
An exchange is considered a sale of shares on which a shareholder may realize a
capital gain or loss for federal income tax purposes. A shareholder may not
include any sales charge on shares of a Fund as a part of the cost of those
shares for purposes of calculating the gain or loss realized on an exchange of
those shares within 90 days of their purchase. An exchange of Investor C Shares
will not be considered a redemption on which a contingent deferred sales charge
will be applicable. Redemptions of Investor C Shares which have been exchanged
will be subject to contingent deferred sales charges based upon the date of the
purchase of the original Investor C Shares.
A shareholder wishing to exchange his or her shares may do so by contacting the
Group at (800) 451-8377 or by providing written instructions to the Transfer
Agent. Any shareholder who wishes to make an exchange should obtain and review
the current Prospectus of the Fund of the Group in which the shareholder wishes
to invest before making the exchange. For a discussion of risks associated with
unauthorized telephone exchanges, see "HOW TO REDEEM YOUR INVESTOR C
SHARES -- By Telephone" below.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR C SHARES
Before purchasing Investor C Shares of a Fund, investors should consider
whether, during the anticipated life of their investment in the Fund, the
accumulated Rule 12b-1 fees and potential contingent deferred sales charges on
Investor C Shares prior to conversion (as described below) would be less than
the initial sales charge and accumulated Rule 12b-1 fees on Investor A Shares
purchased at the same time, and to what extent such differential would be offset
by the higher yield of such Investor A Shares. To the extent that the sales
charge for the Investor A Shares is waived or reduced, investments in Investor A
Shares become more desirable.
Although Investor A Shares are subject to Rule 12b-1 fees, they are not subject
to the higher Rule 12b-1 fees applicable to Investor C Shares. For this reason,
Investor A Shares can be expected to pay correspondingly higher dividends per
share. However, because initial sales charges are deducted at the time of
purchase, purchasers of Investor A Shares that do not qualify for waivers of or
reductions in the initial sales charge would have less of their purchase price
initially invested in a Fund than purchasers of Investor C Shares.
As described above, purchasers of Investor C Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Investor C Shares. Because the Group's future returns
cannot be predicted, there can be no assurance that this will be the case.
Investors in Investor C Shares would, however, own shares that are subject to
higher annual expenses and, for a one-year period, such shares would be subject
to a contingent deferred sales charge of 1.00% upon redemption. Investors
expecting to redeem during this one-year period should compare the cost of the
contingent deferred sales charge plus the aggregate annual Investor C Shares'
Rule 12b-1 fees to the cost of the initial sales charge and Rule 12b-1 fees on
the Investor A Shares. Over time, the expenses of the annual Rule 12b-1 fees on
the Investor C Shares may equal or exceed the initial sales charge and annual
Rule 12b-1 fees applicable to Investor A Shares. For example, if net asset value
remains constant, the aggregate Rule 12b-1 fees with respect to Investor C
Shares on the Funds would equal or exceed the initial sales charge and aggregate
Rule 12b-1 fees of Investor A Shares approximately seven years after the
purchase. In order to reduce such fees for investors that hold Investor C Shares
for more than nine years, Investor C Shares will be automatically converted to
Investor A Shares, as described below, at the end of such nine-year period. This
example assumes that the initial purchase of Investor A Shares would be subject
to the maximum initial sales charge of 4.50%. This example does not take into
account the time value of money which
PROSPECTUS--Investor C Shares 46
<PAGE> 198
reduces the impact of the Investor C Shares' administrative and Rule 12b-1 fees
on the investment, the benefit of having the additional initial purchase price
invested during the period before it is effectively paid out as administrative
and Rule 12b-1 fees, fluctuations in net asset value or the effect of different
performance assumptions.
CONVERSION FEATURE
Investor C Shares which have been outstanding for nine years after the end of
the month in which the shares were initially purchased will automatically
convert to Investor A Shares and, consequently, will no longer be subject to the
higher Rule 12b-1 fees of the Investor C 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 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 new purchases for purposes of the conversion feature.
The Investor A Shares into which the Investor C Shares will convert will differ
only in the amount of the Rule 12b-1 fees assessed to the shareholders. The Rule
12b-1 fees which may be assessed to holders of Investor A Shares is equal to
0.25% of the average daily net assets of the Investor A Shares owned, rather
than 1.00% of the average daily net assets assessed to holders of Investor C
Shares.
If a shareholder effects one or more exchanges among Investor C Shares of the
Funds during the nine-year period, the holding period for shares so exchanged
will be counted toward such period.
HOW TO REDEEM YOUR INVESTOR C SHARES
Shareholders may redeem their Investor C Shares, subject to the contingent
deferred sales charge described above, on any day that net asset value is
calculated (see "HOW SHARES ARE VALUED"). Redemptions will be effected at the
net asset value per share next determined after receipt of a redemption request.
Redemptions may be requested by mail or by telephone.
BY MAIL
A written request for redemption must be received by the Transfer Agent in order
to honor the request. The Transfer Agent's address is: BISYS Fund Services, c/o
The Parkstone Group of Funds, P.O. Box 50551, Kalamazoo, Michigan 49005-0551.
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 Form. 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 neither is a member of a clearing corporation nor maintains net
capital of at least $100,000.
47 PROSPECTUS--Investor C Shares
<PAGE> 199
BY TELEPHONE
Investor C Shares may be redeemed by telephone if the Account Application Form
reflects that the shareholder has that capability. The shareholder may have the
proceeds mailed to his or her address or mailed or 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 (as defined
in "HOW SHARES ARE VALUED" below). 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.
The Group's Account Application Form provides that neither 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. In addition, redemption by telephone will be suspended for a period of 10
days following any change in the applicable telephone number.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables shareholders of a Fund to make regular monthly
or quarterly redemptions of Investor C Shares, subject to applicable contingent
deferred sales charges. With shareholder authorization, the Transfer Agent will
automatically redeem such Investor C Shares at the net asset value on the fifth
and/or twentieth day of the month or quarter (or the next Business Day, as
defined in "HOW SHARES ARE VALUED," 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 C 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 Plan instructions, the request must be made in writing to the
Distributor and may take up to 15 days to implement.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a Customer's Investor C Shares may be redeemed in accordance with
instructions and limitations pertaining to his or her account at FABC or one of
its affiliates.
Redemption orders are effected at the net asset value per share next determined
after the Investor C Shares are properly tendered for redemption, as described
above. The proceeds paid upon redemption of such Investor C Shares in the Funds,
less any applicable contingent deferred sales charge, may be more or less than
the amount invested. Payment to shareholders for such Investor C Shares redeemed
will be made within seven days after receipt by the Transfer Agent of the
request for redemption. However, to the
PROSPECTUS--Investor C Shares 48
<PAGE> 200
greatest extent possible, requests from shareholders for next day payments upon
redemption of Investor C Shares will be honored if received by the Transfer
Agent before 4:00 p.m. (Eastern Time) on a Business Day (as defined below in
"HOW SHARES ARE VALUED") or, if received after 4:00 p.m. (Eastern Time), within
two Business Days, unless it would be disadvantageous to the Group or the
shareholders of a Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner.
At various times, the Group may be requested to redeem Investor C Shares for
which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed until payment has been collected for the
purchase of such Investor C Shares which delay may be for 15 days or more. Such
delay may be avoided if such Investor C Shares are purchased by wire transfer of
federal funds. The Group intends to pay cash for all Investor C Shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in portfolio securities at their then market value equal
to the redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
See the Statement of Additional Information ("ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION") for examples of when the Group may suspend the right of redemption
or redeem Investor C Shares involuntarily if it appears appropriate to do so in
light of the Group's responsibilities under the 1940 Act.
HOW SHARES ARE VALUED
The net asset value of Investor C Shares of the Funds is determined and the
shares are priced as of the close of trading on the New York Stock Exchange (the
"NYSE") on each Business Day (generally 4:00 p.m. Eastern Time) (the "Valuation
Time"). A "Business Day" is a day on which the NYSE 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. Currently, the NYSE will not open in
observance of the following holidays: New Year's Day, Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding shares of such class. The net asset
value per share will fluctuate as the value of the investment portfolio of a
Fund changes.
The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. Foreign securities are valued
based on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income is declared monthly as a dividend to shareholders at the close of
business on the day of declaration and is paid monthly. In some months, certain
Funds may not pay any dividends. Distributable net realized capital gains are
distributed at least annually. A shareholder will automatically receive all
income dividends and capital gains distributions in additional full and
fractional shares at net asset value as of the date of declaration, unless the
shareholder elects to receive dividends or distributions in cash or elects to
participate in the Directed Dividend Option. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent, c/o The Parkstone Group
of Funds, P.O. Box 50551, Kalamazoo, Michigan 49005-0551, and will become
effective with respect to dividends and distributions having record dates after
its receipt by the Transfer Agent.
49 PROSPECTUS--Investor C Shares
<PAGE> 201
Each Fund's net investment income available for distribution to the holders of
Investor C Shares will be reduced by the amount of Rule 12b-1 fees payable to
Participating Organizations under the Investor C Plan. Each Fund's net
investment income available for distribution to the holders of Investor C Shares
may also be reduced by the amount of retail transfer agency fees payable to the
Transfer Agent applicable to the Investor C Shares.
Each of the Funds of the Group is treated as a separate entity for federal
income tax purposes. Each Fund intends to qualify as a "regulated investment
company" under the Code, for so long as such qualification is in the best
interest of its shareholders and each intends to distribute all of its net
income and capital gains so that it is not required to pay federal income taxes
on amounts so distributed to shareholders.
To avoid federal income tax, the Code requires each Fund to distribute each
taxable year at least 90% of its investment company taxable income and at least
90% of its exempt-interest income. In addition, to avoid imposition of a
non-deductible 4% excise tax, each Fund is required annually to distribute,
prior to calendar year end, 98% of taxable ordinary income on a calendar year
basis, 98% of capital gain net income realized in the twelve months preceding
October 31, and the balance of undistributed taxable ordinary income and capital
gain net income from the prior calendar year.
A shareholder receiving a distribution of ordinary income and/or an excess of
short-term capital gain over net long-term loss would treat it as a receipt of
ordinary income. The dividends-received deduction for corporations will apply to
the aggregate of such ordinary income distributions in the same proportion as
the aggregate dividends from domestic corporations, if any, received by that
Fund bear to its gross income. A shareholder will not be able to take the
dividends-received deduction unless that shareholder holds the shares for at
least 46 days.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to its shareholders as long-term capital gain
in the year in which it is received, regardless of how long the shareholder has
held shares. Such distributions are not eligible for the dividends-received
deduction.
Prior to purchasing shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of shares prior to the record
date will have the effect of reducing the per share net asset value of the
shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to taxation.
Taxes may be imposed on the Funds, particularly the Balanced Allocation Fund and
International Fund, by foreign countries with respect to income received on
foreign securities. If more than 50% of the value of a Fund's assets at the
close of its taxable year consists of stocks or securities of foreign
corporations, the Fund may elect to treat any foreign income taxes it paid as
paid by its shareholders. In this case, shareholders generally will be required
to include in income their pro rata share of such taxes, but will then be
entitled to claim a credit or deduction for their share of such taxes. However,
a particular shareholder's ability to utilize such a credit will be subject to
certain limitations imposed by the Code. The Funds will report to their
shareholders each year the amount, if any, of foreign taxes per share that they
have elected to have treated as paid by their shareholders.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made during the year.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders. Potential
investors are advised to consult their tax advisers concerning state and local
taxes, which may differ from the federal income taxes described above.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder
PROSPECTUS--Investor C Shares 50
<PAGE> 202
reports. Such performance figures are based on historical earnings and are not
intended to indicate future performance. Average annual total return of a class
of shares in a Fund will be calculated for the period since the establishment of
the Funds and will reflect the imposition of the maximum sales charge, if any.
Average annual total return is measured by comparing the value of an investment
in a class of shares in a Fund at the beginning of the relevant period to the
redemption value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions) and annualizing
the result. Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized. Yield of a class of shares will be computed by
dividing a class of shares' net investment income per share earned during a
recent one-month period by that class of shares' per share maximum offering
price (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result. Each Fund
may also present its average annual total return, aggregate total return and
yield, as the case may be, excluding the effect of a sales charge, if any.
In addition, from time to time the Funds may present their respective
distribution rates for a class of shares in shareholder reports and supplemental
sales literature which is accompanied or preceded by a prospectus. Distribution
rates will be computed by dividing the distribution per share of a class made by
a Fund over a twelve-month period by the maximum offering price per share. The
calculation of income in the distribution rate includes both income and capital
gains dividends and does not reflect unrealized gains or losses, although a Fund
may also present a distribution rate excluding the effect of capital gains. The
distribution rate differs from the yield, because it includes capital gains
which are often non-recurring in nature, whereas yield does not include such
items. Distribution rates may also be presented excluding the effect of a sales
charge, if any.
Standardized yield and total return quotations will be computed separately for
Investor C Shares and the other classes of the Funds. Because of differences in
the fees and/or expenses borne by different classes of shares of the Funds, the
net yield and total return on Investor C Shares may be different from that for
another class of the same Fund. For example, net yield and total return on
Investor C Shares is expected, at any given time, to be lower than the net yield
and total return on Institutional Shares for the same period.
Investors may also judge the performance of any class of shares or Fund by
comparing or referencing it to the performance of various mutual fund or market
indices such as those published by various services, including, but not limited
to, ratings published by Morningstar, Inc. In addition to performance
information, general information about the Funds that appears in such
publications may be included in advertisements, in sales literature and in
reports to shareholders. For further information regarding such services and
publications, see "ADDITIONAL INFORMATION--Performance Comparisons" in the
Statement of Additional Information.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, levels of operating expenses and changes in market conditions.
Consequently, total return and yield will fluctuate and are not necessarily
representative of future results. Any fees charged by FABC or any of its
affiliates with respect to customer accounts for investing in shares of the
Funds will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted. In addition, if First of
America and BISYS voluntarily reduce all or a part of their respective fees, as
further discussed above, the total return of such Fund will be higher than it
would otherwise be in the absence of such voluntary fee reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's Funds through FUNDATA(R), an Automated Voice
Response System, 24 hours a day by calling (800) 451-8377 from any touch-tone
phone. Shareholders may also speak directly with a Group representative,
employed by BISYS, during regular business hours.
51 PROSPECTUS--Investor C Shares
<PAGE> 203
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in 1987 and, as of the
date of this Prospectus, offers eighteen Funds. The shares of each of the Funds
of the Group may be offered in up to five separate classes: Investor A Shares,
Investor B Shares, Investor C Shares, Investor Z Shares and Institutional
Shares. Each share represents an equal proportionate interest in a Fund with
other shares of the same Fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Fund as
are declared at the discretion of the Trustees. Shares do not have a par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by Fund except as otherwise
expressly required by law. For example, shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of Trustees and ratification of the selection of independent accountants.
However, shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement. In addition, holders of Investor C Shares of a
Fund will vote as a class and not with holders of another class of that Fund
with respect to the approval of its Investor C Plan.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve an investment and sub-investment advisory agreements and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Group may elect not to have an annual or special meeting.
The Group has represented to the SEC that the Trustees will call a special
meeting of shareholders for purposes of considering the removal of one or more
Trustees upon written request therefor from shareholders holding not less than
10% of the outstanding votes of the Group. At such a meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Group), by majority vote, has the power to remove one or more
Trustees.
As of June 30, 1997, FABC, through its wholly owned subsidiaries, possessed on
behalf of its underlying accounts voting or investment power with respect to
more than 25% of the shares of each of the Funds, and therefore may be presumed
to control each Fund within the meaning of the 1940 Act.
MULTIPLE CLASSES OF SHARES
In addition to Investor C Shares, the Group also offers Investor A Shares,
Investor B Shares, Investor Z Shares and Institutional Shares of certain Funds
pursuant to a Multiple Class Plan adopted by the Group's Trustees under Rule
18f-3 of the 1940 Act. A salesperson or other person entitled to receive
compensation for selling or servicing the shares may receive different
compensation with respect to one particular class of shares over another in the
same Fund. The amount of dividends payable with respect to other classes of
shares will differ from dividends on Investor C Shares as a result of the
different Investor C Plan fees applicable to Investor C Shares and because
Investor C Shares may bear different retail transfer agency expenses. For
further details regarding these other classes of shares, call the Group at (800)
451-8377.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at P.O. Box 50551, Kalamazoo, MI 49005-0551, or by calling toll-free
(800) 451-8377.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
PROSPECTUS--Investor C Shares 52
<PAGE> 204
THE PARKSTONE GROUP OF FUNDS
Investor C Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
First of America Investment Corporation
Suite 500
303 North Rose Street
Kalamazoo, Michigan 49007
SUBADVISER (INTERNATIONAL FUND AND BALANCED ALLOCATION FUND)
Gulfstream Global Investors, Ltd.
Suite 550
100 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
San Francisco, California 94111
LEGAL COUNSEL
Howard & Howard Attorneys, P.C.
Suite 400
107 West Michigan Avenue
Kalamazoo, Michigan 49007
<PAGE> 205
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX-FREE INCOME FUNDS
THE PARKSTONE MONEY MARKET FUND
FORM N-1A
CROSS-REFERENCE SHEET
Part A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO. RULE 404(a) CROSS REFERENCE
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1. Cover Page .......................................... Cover Page
2. Synopsis............................................. Prospectus Summary; Fee Tables
3. Condensed Financial Information...................... Financial Highlights; Performance Information
4. General Description of Registrant.................... Cover Page; Investment Objectives and Policies;
Investment Restrictions; Risk Factors and
Investment Techniques; General Information -
Organization of the Group
5. Management of the Fund............................... Management of the Funds; Fee Tables
5A. Management's Discussion of Fund
Performance.......................................... Not Applicable
6. Capital Stock and Other Securities................... Dividends and Taxes; General Information -
Organization of the Group; General
Information - Multiple Classes of Shares
General Information - Miscellaneous
7. Purchase of Securities Being Offered................. How to Buy Institutional Shares; How Shares
are Valued
8. Redemption or Repurchase............................. How to Redeem Your Institutional Shares
9. Pending Legal Proceedings............................ Not Applicable
</TABLE>
<PAGE> 206
- --------------------------------------------------------------------------------
THE PARKSTONE
GROUP OF FUNDS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
GROWTH FUNDS
PARKSTONE SMALL CAPITALIZATION FUND
PARKSTONE MID CAPITALIZATION FUND
PARKSTONE LARGE CAPITALIZATION FUND
PARKSTONE INTERNATIONAL DISCOVERY FUND
GROWTH AND INCOME FUNDS
PARKSTONE BALLANCED ALLOCATION FUND
PARKSTONE EQUITY INCOME FUND
INCOME FUNDS
PARKSTONE BOND FUND
PARKSTONE LIMITED MATURITY BOND FUND
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
PARKSTONE MUNICIPAL BOND FUND
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
MONEY MARKET FUNDS
PARKSTONE PRIME OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT OBLIGATIONS FUND
PARKSTONE TREASURY FUND
PARKSTONE TAX-FREE FUND
Prospectus dated September 30, 1997
[PARKSTONE LOGO]
-------------------------
NOT FDIC INSURED
<PAGE> 207
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 208
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARESPPROSPECTUS DATED SEPTEMBER 30, 1997
GROWTH FUNDS
Parkstone Small Capitalization Fund
Parkstone Mid Capitalization Fund
Parkstone Large Capitalization Fund
Parkstone International Discovery Fund
GROWTH AND INCOME FUNDS
Parkstone Balanced Allocation Fund
Parkstone Equity Income Fund
INCOME FUNDS
Parkstone Bond Fund
Parkstone Limited Maturity Bond Fund
Parkstone Intermediate Government Obligations
Fund
Parkstone U.S. Government Income Fund
TAX-FREE INCOME FUNDS
Parkstone Municipal Bond Fund
Parkstone Michigan Municipal Bond Fund
MONEY MARKET FUNDS
Parkstone Prime Obligations Fund
Parkstone U.S. Government Obligations Fund
Parkstone Treasury Fund
Parkstone Tax-Free Fund
The funds listed above are sixteen of the currently-offered series (the "Funds")
of The Parkstone Group of Funds (the "Group") which offer Institutional Shares.
This Prospectus explains concisely what you should know before investing in the
Institutional Shares of the Funds listed above. Please read it carefully and
keep it for future reference. Institutional Shares are currently offered only to
accounts that have a fiduciary or agency relationship with a financial
institution. You can find more detailed information about the Funds in the
September 30, 1997 Statement of Additional Information, as amended from time to
time. For a free copy of the Statement of Additional Information or other
information, contact the Group at the number specified above. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated into this Prospectus by reference.
THE SHARES OF THE PARKSTONE GROUP OF FUNDS ARE NOT OBLIGATIONS OR DEPOSITS OF
FIRST OF AMERICA INVESTMENT CORPORATION OR ITS PARENT, AND THE INVESTMENTS
DESCRIBED IN THIS PROSPECTUS ARE NOT ENDORSED, INSURED OR GUARANTEED BY FIRST OF
AMERICA INVESTMENT CORPORATION, ITS PARENT OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVOLVED.
For more information call:
(800) 451-8377
or write to:
3435 Stelzer Road
Columbus, Ohio 43219
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
<PAGE> 209
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................... 5
FEE TABLES................................................................... 8
FINANCIAL HIGHLIGHTS......................................................... 10
INVESTMENT OBJECTIVES AND POLICIES........................................... 22
RISK FACTORS AND INVESTMENT TECHNIQUES....................................... 35
INVESTMENT RESTRICTIONS...................................................... 47
MANAGEMENT OF THE FUNDS...................................................... 48
HOW TO BUY INSTITUTIONAL SHARES.............................................. 51
HOW TO REDEEM YOUR INSTITUTIONAL SHARES...................................... 52
HOW SHARES ARE VALUED........................................................ 53
DIVIDENDS AND TAXES.......................................................... 54
PERFORMANCE INFORMATION...................................................... 56
FUNDATA(R)................................................................... 57
GENERAL INFORMATION.......................................................... 57
</TABLE>
PROSPECTUS--Institutional Shares 2
<PAGE> 210
PROSPECTUS ROADMAP
For information about the following subjects, consult the pages indicated on the
table below.
<TABLE>
<CAPTION>
INVESTMENT
FINANCIAL OBJECTIVES RISK FACTORS AND
FUND HIGHLIGHTS AND POLICIES INVESTMENT TECHNIQUES
<S> <C> <C> <C>
Balanced Allocation 13 24 26
Bond Fund 15 27 29
Equity Income Fund 14 26 27
Government Income Fund 18 30 30
International Discovery Fund 13 23 24
Intermediate Government Obligations Fund 17 29 29
Large Capitalization Fund 12 22 23
Limited Maturity Bond Fund 16 27 29
Michigan Municipal Bond Fund 18 30 32
Mid Capitalization Fund 12 22 23
Municipal Bond Fund 19 30 32
Prime Obligations Fund 20 32 35
Small Capitalization Fund 11 22 23
Tax-Free Fund 20 32 35
Treasury Fund 21 32 35
U.S. Government Obligations Fund 21 32 35
</TABLE>
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which, as of the date of this Prospectus, offers to the public eighteen
separate investment portfolios, seventeen of which are diversified portfolios
and one of which is a non-diversified portfolio, each with different investment
objectives. These Funds enable the Group to meet a wide range of investment
needs.
This Prospectus relates only to the Institutional Shares of the following Funds:
Parkstone Small Capitalization Fund (the "Small Capitalization Fund")
Parkstone Mid Capitalization Fund, formerly known as the Parkstone Equity
Fund (the "Mid Capitalization Fund")
Parkstone Large Capitalization Fund (the "Large Capitalization Fund")
Parkstone International Discovery Fund (the "International Fund")
Parkstone Balanced Allocation Fund, formerly known as the Parkstone
Balanced Fund (the "Balanced Allocation Fund")
Parkstone Equity Income Fund, formerly known as the Parkstone High Income
Equity Fund (the "Equity Income Fund")
Parkstone Bond Fund (the "Bond Fund")
Parkstone Limited Maturity Bond Fund (the "Limited Maturity Bond Fund")
Parkstone Intermediate Government Obligations Fund (the "Intermediate
Government Obligations Fund")
Parkstone U.S. Government Income Fund (the "Government Income Fund")
Parkstone Municipal Bond Fund (the "Municipal Bond Fund")
Parkstone Michigan Municipal Bond Fund (the "Michigan Bond Fund")
Parkstone Prime Obligations Fund (the "Prime Obligations Fund")
Parkstone U.S. Government Obligations Fund (the "U.S. Government
Obligations Fund")
Parkstone Treasury Fund (the "Treasury Fund")
Parkstone Tax-Free Fund (the "Tax-Free Fund")
3 PROSPECTUS--Institutional Shares
<PAGE> 211
For convenience of reference, the above Funds are sometimes referred to as part
of a general grouping. The Small Capitalization Fund, Mid Capitalization Fund,
Large Capitalization Fund and International Fund are collectively referred to as
the "Growth Funds." The Balanced Allocation Fund and Equity Income Fund are
collectively referred to as the "Growth and Income Funds." The Bond Fund,
Limited Maturity Bond Fund, Intermediate Government Obligations Fund and
Government Income Fund are collectively referred to as the "Income Funds." The
Michigan Bond Fund and Municipal Bond Fund are collectively referred to as the
"Tax-Free Income Funds." Finally, the Prime Obligations Fund, Treasury Fund,
Tax-Free Fund and U.S. Government Obligations Fund are collectively referred to
as the "Money Market Funds."
The Trustees of the Group have divided beneficial ownership of each of the Funds
into an unlimited number of transferable units called shares. Most Funds of the
Group offer multiple classes of shares. This Prospectus describes Institutional
Shares for certain of the Group's Funds. Interested persons who wish to obtain a
copy of any of the Group's other Prospectuses or a copy of the Group's most
recent Annual Report may contact the Group at the telephone number shown above.
The investment objectives of each of the Funds are described in this Prospectus
and are summarized in the Prospectus Summary. First of America Investment
Corporation, Kalamazoo, Michigan ("First of America" or the "Investment
Adviser"), acts as the investment adviser to each of the Funds of the Group. To
provide investment advisory services for the International Fund and Balanced
Allocation Fund for investments in foreign securities, First of America has
entered into a sub-investment advisory agreement with Gulfstream Global
Investors, Ltd., Dallas, Texas ("Gulfstream" or the "Subadviser").
PROSPECTUS--Institutional Shares 4
<PAGE> 212
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Institutional Shares of the following Funds of the
Group:
GROWTH FUNDS
Small Capitalization Fund
Mid Capitalization Fund
Large Capitalization Fund
International Fund
GROWTH AND INCOME FUNDS
Balanced Allocation Fund
Equity Income Fund
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
TAX-FREE INCOME FUNDS
Municipal Bond Fund
Michigan Bond Fund
MONEY MARKET FUNDS
Prime Obligations Fund
U.S. Government Obligations Fund
Treasury Fund
Tax-Free Fund
These Funds represent sixteen separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust which is registered as an
open-end, management investment company.
Purchase and Redemption of Shares
The public offering price of Institutional Shares of each Fund is equal to the
net asset value per share, which, in the case of the Money Market Funds, the
Group will seek to maintain at $1.00. There are no initial or contingent
deferred sales charges on Institutional Shares. Shares may be purchased through
procedures established by the Group's distributor, BISYS Fund Services, L.P.
("BISYS"). Shareholders may redeem their shares by contacting their trust
administrator or financial consultant responsible for the account. See "HOW TO
BUY INSTITUTIONAL SHARES," "HOW TO REDEEM INSTITUTIONAL SHARES" and "HOW SHARES
ARE VALUED."
Minimum Purchase
For financial institutions, there is a $100,000 minimum initial purchase (based
on the public offering price) per Fund with no minimum subsequent investment.
Such minimum initial investment may be waived for certain purchasers. There is
no minimum requirement for individual shareholders on whose behalf the financial
institutions are purchasing Institutional Shares.
5 PROSPECTUS--Institutional Shares
<PAGE> 213
Investment Objectives
[CAPTION]
<TABLE>
<CAPTION>
<S> <C>
FUND INVESTMENT OBJECTIVE
<S> <C>
Balanced Allocation Fund seeks current income, long-term capital growth and
conservation of capital
Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high- and
medium-grade fixed-income securities
Equity Income Fund primarily seeks current income by investing in a
diversified portfolio of high quality, dividend-paying
stocks and securities convertible into common stocks; a
secondary objective is growth of capital
Government Income Fund seeks to provide shareholders with a high level of
current income consistent with Fund prudent investment
risk
Intermediate Government seeks to provide current income with preservation of
Obligations Fund capital by investing in a diversified portfolio of U.S.
government securities with remaining maturities of 12
years or less
International Fund seeks long-term growth of capital
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
Limited Maturity Bond Fund seeks to provide current income and preservation of
capital by investing in a portfolio of high- and
medium-grade fixed-income securities, the remaining
maturities on which will be six years or less
Michigan Bond Fund seeks income which is exempt from federal income tax
and Michigan state income and intangibles tax, although
such income may be subject to the federal alternative
minimum tax when received by certain shareholders; also
seeks preservation of capital
Mid Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks
Municipal Bond Fund seeks to provide current interest income which is
exempt from federal income taxes as well as
preservation of capital
Prime Obligations Fund seeks to provide current income, with liquidity and
stability of principal
Small Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities
convertible into common stocks of small- to
medium-sized companies
Tax-Free Fund seeks to provide current interest income free from
federal income taxes, preservation of capital and
relative stability of principal
Treasury Fund seeks to provide current income, with liquidity and
stability of principal
U.S. Government seeks to provide current income, with liquidity and
Obligations Fund stability of principal
</TABLE>
PROSPECTUS--Institutional Shares 6
<PAGE> 214
Investment Policies
Under normal market conditions, each Fund will invest as described in the
following table:
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Balanced Allocation Fund in any type or class of securities, including all types
of common stocks, fixed-income securities and
securities convertible into common stocks
Bond Fund at least 80% of its total assets in bonds, debentures
and certain other debt securities specified herein
Equity Income Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management, the ability to finance expected
growth and the ability to pay above-average dividends
Government Income Fund at least 65% of its total assets in obligations issued
or guaranteed by the U.S. government or its agencies or
instrumentalities; under current market conditions, up
to 80% of its total assets in mortgage-related
securities, which are issued or guaranteed by the U.S.
government or its agencies or instrumentalities and up
to 35% of its total assets in mortgage-related
securities issued by non-governmental entities
Intermediate Government at least 80% of its total assets in obligations issued
Obligations Fund or guaranteed by the U.S. government or its agencies or
instrumentalities and with remaining maturities of
twelve years or less
International Fund at least 65% of its total assets in an internationally
diversified portfolio of equity securities which trade
on markets in countries other than the United States
and which are issued by companies (i) domiciled in
countries other than the United States, or (ii) that
derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States,
and (iii) which are ranked as small- or medium-sized
companies on the basis of their capitalization
Large Capitalization Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed to be characterized by sound management and
the ability to finance expected long-term growth
Limited Maturity Bond Fund at least 80% of the value of its total assets in bonds,
debentures and certain other debt securities specified
herein with remaining maturities of six years or less
Michigan Bond Fund at least 80% of its total assets in debt securities of
all types; at least 65% of the net assets in municipal
securities issued by or on behalf of the State of
Michigan, its political subdivisions, municipalities
and public authorities
Mid Capitalization Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management and the ability to finance expected
growth
Municipal Bond Fund at least 80% of its total assets in tax-exempt
obligations
</TABLE>
7 PROSPECTUS--Institutional Shares
<PAGE> 215
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Prime Obligations Fund invests in high quality money market instruments and
other comparable investments
Small Capitalization Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believed by the investment adviser to be characterized
by sound management and the ability to finance expected
growth
Tax-Free Fund at least 80% of its total assets in municipal
obligations the interest on which is both exempt from
federal income tax and not treated as a preference item
for alternative minimum tax purposes
Treasury Fund exclusively in obligations issued or guaranteed by the
U.S. Treasury and in repurchase agreements backed by
such securities
U.S. Government at least 65% of its total assets in short-term U.S.
Obligations Fund Treasury bills, notes and other obligations issued by
the U.S. government or its agencies or
instrumentalities
</TABLE>
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a certain
amount of risk and may not be suitable for all investors. In addition, some
investment policies of the Funds may entail certain risks. See "RISK FACTORS AND
INVESTMENT TECHNIQUES."
Management of the Funds
First of America serves as investment adviser, and, with respect to the
International Fund and a portion of the Balanced Allocation Fund, Gulfstream
serves as subadviser. First of America also serves as sub-administrator. BISYS,
a partnership owned by The BISYS Group, Inc., serves as distributor,
administrator, transfer agent and dividend disbursing agent (the "Distributor,"
the "Administrator" and the "Transfer Agent"). BISYS Fund Services Ohio, Inc.
("BISYS Ohio"), serves as fund accountant. Union Bank of California, N.A.
("Union Bank" or the "Custodian") serves as custodian.
Dividends and Taxes
Dividends from net income are declared and paid, if at all, on a monthly basis,
except for the Money Market Funds which declare dividends daily and pay them
monthly. Net realized capital gains are distributed at least annually. Each of
the Funds is treated as a separate entity for federal income tax purposes and
intends to qualify as a "regulated investment company." Shareholders will be
advised at least annually as to the federal income tax consequences of
distributions made during the year.
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(1)........................................................... None
Exchange Fees................................................................ None
</TABLE>
- ------------
(1) Although no such fee is currently in place, the Transfer Agent has reserved
the right in the future to charge a fee for wire transfers of redemption
proceeds.
PROSPECTUS--Institutional Shares 8
<PAGE> 216
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES EXPENSES(2) EXPENSES(3)
---------- ---- ------- -------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund.................... 1.00% 0.00% 0.32% 1.32%
Mid Capitalization Fund...................... 1.00% 0.00% 0.31% 1.31%
Large Capitalization Fund.................... 0.80% 0.00% 0.32% 1.12%
International Fund........................... 1.16%(4) 0.00% 0.39% 1.55%
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund..................... 0.75% 0.00% 0.35% 1.10%
Equity Income Fund........................... 1.00% 0.00% 0.33% 1.33%
INCOME FUNDS:
Bond Fund.................................... 0.70% 0.00% 0.24% 0.94%
Limited Maturity Bond Fund................... 0.55% 0.00% 0.30% 0.85%
Intermediate Government Obligations.......... 0.70% 0.00% 0.28% 0.98%
Government Income Fund....................... 0.45% 0.00% 0.32% 0.77%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund.......................... 0.55% 0.00% 0.26% 0.81%
Michigan Bond Fund........................... 0.55% 0.00% 0.21% 0.76%
MONEY MARKET FUNDS:
Prime Obligations Fund....................... 0.40% 0.00% 0.23% 0.63%
U.S. Government Obligations Fund............. 0.40% 0.00% 0.24% 0.64%
Treasury Fund................................ 0.40% 0.00% 0.17% 0.57%
Tax-Free Fund................................ 0.40% 0.00% 0.28% 0.68%
</TABLE>
- ------------
(2) After voluntary expense reductions.
(3) Certain purchases of the Funds through financial institutions may be subject
to fees for additional services provided to investors.
(4) Calculated based on 1.25% of the first $50 million in average daily net
assets, 1.20% on the next $50 million, 1.15% on the next $300 million and 1.05%
over $400 million.
Management Fees and Total Expenses as a percentage of average net assets for the
Balanced Allocation Fund, absent the voluntary reduction of advisory fees, would
have been 1.00% and 1.35%, respectively. Management Fees, Other Expenses and
Total Expenses as a percentage of average net assets for the Bond Fund absent
the voluntary reduction of advisory fees and administrative fees, would have
been 0.74%, 0.29% and 1.03%, respectively. For the Limited Maturity Bond Fund
they would have been 0.74%, 0.35% and 1.09%, respectively. For the Intermediate
Government Obligations Fund they would have been 0.74%, 0.33% and 1.07%,
respectively. For the Government Income Fund they are estimated to be 0.74%,
0.37% and 1.11%, respectively. For the Municipal Bond Fund they would have been
0.74%, 0.36% and 1.10%, respectively. For the Michigan Bond Fund they would have
been 0.74%, 0.31% and 1.05%, respectively. Other Expenses and Total Fund
Operating Expenses as a percentage of average net assets for the Prime
Obligations Fund, absent the voluntary reduction of administrative fees, would
have been 0.25% and 0.65%, respectively. For the U.S. Government Obligations
Fund, they would have been 0.26% and 0.66%, respectively. For the Treasury Fund
they would have been 0.27% and 0.67%, respectively. For the Tax-Free Fund, they
would have been 0.30% and 0.70%, respectively. (See "MANAGEMENT OF THE
FUNDS -- Investment Adviser and Subadviser" and "Administrator,
Sub-Administrator and Distributor").
9 PROSPECTUS--Institutional Shares
<PAGE> 217
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar 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 3 5 10
YEAR YEARS YEARS YEARS
--- ---- ---- ----
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund.................................... $ 13 $42 $72 $ 159
Mid Capitalization Fund...................................... $ 13 $42 $72 $ 158
Large Capitalization Fund.................................... $ 11 $36 $62 $ 136
International Fund........................................... $ 16 $49 $84 $ 185
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund..................................... $ 11 $35 $61 $ 133
Equity Income Fund........................................... $ 14 $42 $73 $ 160
INCOME FUNDS:
Bond Fund.................................................... $ 10 $30 $52 $ 115
Limited Maturity Bond Fund................................... $ 9 $27 $47 $ 105
Intermediate Government Obligations Fund..................... $ 10 $31 $54 $ 120
Government Income Fund....................................... $ 8 $25 $43 $ 95
TAX-FREE INCOME FUNDS:
Municipal Bond Fund.......................................... $ 8 $26 $45 $ 100
Michigan Bond Fund........................................... $ 8 $24 $42 $ 94
MONEY MARKET FUNDS:
Prime Obligations Fund....................................... $ 6 $20 $35 $ 79
U.S. Government Obligations Fund............................. $ 7 $20 $36 $ 80
Treasury Fund................................................ $ 6 $18 $32 $ 71
Tax-Free Fund................................................ $ 7 $22 $38 $ 85
</TABLE>
The information set forth in the foregoing Fee Tables and expense examples
relates only to Institutional Shares of the Funds. Each of the Funds also may
offer other classes of shares. The other classes of shares of the Funds are
subject to the same expenses except that Rule 12b-1 fees and sales charges may
apply.
The purpose of the above tables is to assist a potential purchaser of
Institutional Shares of any Fund in understanding the various costs and expenses
that an investor in a Fund will bear directly or indirectly. Such expenses do
not include any fees charged by a financial institution, including First of
America or any of its affiliates, to its customer accounts which may invest in
Institutional Shares of the Funds. See "MANAGEMENT OF THE FUNDS" and "GENERAL
INFORMATION" for a more complete discussion of the annual operating expenses of
each of the Funds. The expense information for Institutional Shares reflects
current fees. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
FINANCIAL HIGHLIGHTS
The tables on the following pages set forth certain information concerning the
investment results of the Institutional Shares of each of the Funds since its
inception. Further financial information is included in the Statement of
Additional Information and the Group's June 30, 1997 Annual Report to
Shareholders which may be obtained free of charge.
The Financial Highlights for the periods presented below have been derived from
financial statements audited by Coopers & Lybrand L.L.P., independent auditors
for the Group, whose report thereon is incorporated by reference in the
Statement of Additional Information.
On March 31, 1993, the shareholders of all of the then-existing Funds of the
Group approved the reclassification of such Funds' outstanding shares into
Investor A Shares and Institutional Shares. The financial information provided
below and in the Annual Report includes periods prior to such reclassification.
PROSPECTUS--Institutional Shares 10
<PAGE> 218
SMALL CAPITALIZATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
-------- -------- -------- -------- -------- -------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD......... $ 34.50 $ 26.08 $ 19.83 $ 20.31 $ 14.64 $ 13.58 $ 14.82 $ 11.59 $ 10.00
----- ----- ----- ----- ----- ----- ----- ----- ---------
Investment
Activities
Net
Investment
Loss....... (0.22) (0.27) (0.25) (0.28) (0.14) (0.08) 0.14 0.04 0.06
Net Realized
and
Unrealized
Gains
(Losses) on
Investments... (1.12) 12.34 8.65 0.30 6.76 1.89 (1.24) 3.23 1.59
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total
from
Investment
Activities... (1.34) 12.07 8.40 0.02 6.62 1.81 (1.10) 3.27 1.65
----- ----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net
Investment
Income..... -- -- -- -- -- -- (0.14) (0.04) (0.06)
Net Realized
Gains...... (5.25) (3.65) (2.15) (0.50) (0.95) (0.75) -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total
Distributions... (5.25) (3.65) (2.15) (0.50) (0.95) (0.75) (0.14) (0.04) (0.06)
----- ----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE,
END OF PERIOD.. $ 27.91 $ 34.50 $ 26.08 $ 19.83 $ 20.31 $ 14.64 $ 13.58 $ 14.82 $ 11.59
===== ===== ===== ===== ===== ===== ===== ===== =========
Total Return
(excluding
sales and
redemption
charges)....... (4.39)% 50.03% 45.32% (0.15)% 45.77% 12.95% (6.67)% 28.28% 16.60%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets,
End of
Period
(000)...... $602,787 $528,866 $354,825 $271,425 $291,462 $180,079 $107,500 $94,517 $ 53,917
Ratio of
Expenses to
Average Net
Assets..... 1.32% 1.29% 1.33% 1.30% 1.26% 1.19% 1.15% 1.11% 1.29%(c)
Ratio of Net
Investment
Loss to
Average Net
Assets..... (0.94)% (0.93)% (1.06)% (1.14)% (0.98)% (0.61)% 1.08% 0.37% 0.80%(c)
Ratio of
Expenses to
Average Net
Assets*.... 1.32% 1.29% 1.33% 1.30% 1.28% 1.28% 1.33% 1.33% 1.54(c)
Ratio of Net
Investment
Loss to
Average Net
Assets*.... (0.94)% (0.93)% (1.06)% (1.14)% (1.01)% (0.70)% 0.90% 0.15% .55%(c)
Portfolio
Turnover
Rate (d)... 48.45% 67.22% 50.53% 72.64% 71.21% 95.02% 139.66% 83.10% 51.79%
Average
Commission
Rate Paid
(g)........ $ 0.0788 $ 0.0800
</TABLE>
11 PROSPECTUS--Institutional Shares
<PAGE> 219
MID CAPITALIZATION FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
--------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
-------- -------- -------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $20.83 $16.62 $14.70 $15.10 $12.80 $11.69 $12.37 $11.48 $10.00
----- ----- ----- ----- ----- ----- ----- ----- ---------
Investment Activities
Net Investment
Loss.............. (0.13) (0.16) (0.08) (0.11) (0.01) 0.17 0.45 0.30 0.20
Net Realized and
Unrealized Gains
(Losses) on
Investments....... 1.25 5.03 3.47 (0.25) 2.73 1.59 (0.53) 1.86 1.47
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total from
Investment
Activities.... 1.12 4.87 3.39 (0.36) 2.72 1.76 (0.08) 2.16 1.67
----- ----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net Investment
Income............ -- -- -- -- (0.02) (0.17) (0.45) (0.28) (0.19)
Net Realized
Gains............. (6.13) (0.66) (0.49) (0.04) (0.40) (0.48) (0.15) (0.99) --
In Excess of Net
Realized Gains.... -- -- (0.98) -- --...... -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total
Distributions... (6.13) (0.66) (1.47) (0.04) (0.42) (0.65) (0.60) (1.27) (0.19)
----- ----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD................ $15.82 $20.83 $16.62 $14.70 $15.10 $12.80 $11.69 $12.37 $11.48
===== ===== ===== ===== ===== ===== ===== ===== =========
Total Return (excluding
sales and redemption
charges).............. 5.58% 29.83% 25.20% (2.44)% 21.34% 15.18% (0.45)% 19.23% 16.83%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)...... $544,082 $650,495 $683,320 $533,260 $595,127 $407,782 $298,655 $247,683 $180,124
Ratio of Expenses to
Average Net
Assets............ 1.31% 1.29% 1.29% 1.28% 1.24% 1.18% 1.10% 1.07% 1.06%(c)
Ratio of Net
Investment Loss to
Average Net
Assets............ (0.80)% (0.68)% (0.64)% (0.65)% (0.09)% 1.24% 3.87% 2.51% 2.80%(c)
Ratio of Expenses to
Average Net
Assets*........... 1.31% 1.29% 1.29% 1.28% 1.27% 1.26% 1.28% 1.29% 1.31%(c)
Ratio of Net
Investment Loss to
Average Net
Assets*........... (0.80)% (0.68)% (0.65)% (0.65)% (0.11)% 1.15% 3.69% 2.29% 2.55%(c)
Portfolio Turnover
Rate (d).......... 38.47% 49.27% 46.39% 70.87% 66.48% 93.76% 189.26% 136.95% 87.30%
Average Commission
Rate Paid (g)..... $0.0794 $0.0796
</TABLE>
LARGE CAPITALIZATION FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------
INSTITUTIONAL
SHARES OCT. 31, 1988
----------------- TO
1997 JUNE 30, 1989(a)
------------------- --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD
Investment Activities.................................................................. $11.25 $10.00
---------- --------
Net Investment Income (Loss)....................................................... 0.03 0.03
Net Realized and Unrealized Gains (Losses) on Investments.......................... 3.31 1.25
---------- --------
Total from Investment Activities............................................... 3.34 1.28
---------- --------
Distributions
Net Investment Income.............................................................. (0.03) (0.03)
Net Realized Gains................................................................. (0.08) --
---------- --------
Total Distributions............................................................ (0.11) (0.03)
---------- --------
NET ASSET VALUE, END OF PERIOD......................................................... $14.48 $11.25
========== ========
Total Return (excluding sales and redemption charges).................................. 29.81% 12.86%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).................................................... $338,388 $274,150
Ratio of Expenses to Average Net Assets............................................ 1.12% 2.19%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets........................ 0.19% 1.26%(c)
Ratio of Expenses to Average Net Assets*........................................... 1.12% 2.26%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets*....................... 0.19% 1.19%(c)
Portfolio Turnover Rate (d)........................................................ 48.44% 0.86%
Average Commission Rate Paid (g)................................................... $0.0932 $0.0800
</TABLE>
PROSPECTUS--Institutional Shares 12
<PAGE> 220
INTERNATIONAL FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
INSTITUTIONAL SHARES DEC. 29, 1992
--------------------------------------- TO
1997 1996 1995(f) 1994 JUNE 30, 1993(a)(b)
-------- -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $14.11 $12.33 $13.24 $11.54 $10.00
----- ----- ----- ----- ----------
Investment Activities
Net Investment Income (Loss)........................... (0.05) 0.02 0.04 (0.01) 0.04
Net Realized and Unrealized Gains (Losses) on
Investments and Foreign Currency Transactions........ 2.35 1.80 (0.33) 1.75 1.51
----- ----- ----- ----- ----------
Total from Investment Activities................... 2.30 1.82 (0.29) 1.74 1.55
----- ----- ----- ----- ----------
Distributions Net Investment Income........................ -- (0.02) -- (0.02) (0.01)
Net Realized Gains..................................... -- -- (0.62) (0.02) --
In Excess of Net Investment Income..................... -- (0.02) -- -- --
----- ----- ----- ----- ----------
Total Distributions................................ -- (0.04) (0.62) (0.04) (0.01)
----- ----- ----- ----- ----------
NET ASSET VALUE, END OF PERIOD............................. $16.41 $14.11 $12.33 $13.24 $11.54
===== ===== ===== ===== ==========
Total Return (excluding sales and redemption charges)...... 16.34% 14.76% (1.86)% 15.12% 15.52%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................ $426,111 $364,095 $264,759 $261,798 $114,822
Ratio of Expenses to Average Net Assets................ 1.55% 1.55% 1.56% 1.52% 1.58%(c)
Ratio of Net Investment Income (Loss) to Average Net
Assets............................................... (0.29)% 0.12% 0.31% (0.30)% 0.82%(c)
Ratio of Expenses to Average Net Assets*............... 1.55% 1.55% 1.59% 1.57% 1.63%(c)
Ratio of Net Investment Income (Loss) to Average Net
Assets*.............................................. (0.29)% 0.12% 0.28% (0.35)% (0.77)%
Portfolio Turnover Rate (d)............................ 45.18% 54.47% 104.39% 37.23% 12.47%
Average Commission Rate Paid (g)....................... $0.0329 $0.0321
</TABLE>
BALANCED ALLOCATION FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
INSTITUTIONAL SHARES JAN. 31, 1992
------------------------------------------------- TO
1997 1996 1995(f) 1994 1993(B) JUNE 30, 1992(a)
-------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $13.37 $12.19 $10.67 $11.08 $9.68 $10.00
----- ----- ----- ----- ----- ---------
Investment Activities
Net Investment Income (Loss).................. 0.35 0.36 0.31 0.27 0.28 0.14
Net Realized and Unrealized Gains (Losses) on
Investments and Foreign Currencies.......... 1.12 1.74 1.68 (0.41) 1.41 (0.34)
----- ----- ----- ----- ----- ---------
Total from Investment Activities.......... 1.47 2.10 1.99 (0.14) 1.69 (0.20)
----- ----- ----- ----- ----- ---------
Distributions
Net Investment Income......................... (0.37) (0.35) (0.31) (0.27) (0.29) (0.12)
Net Realized Gains............................ (1.48) (0.57) (0.03) -- -- --
In Excess of Net Realized Gains............... -- -- (0.13) -- -- --
----- ----- ----- ----- ----- ---------
Total Distributions....................... (1.85) (0.92) (0.47) (0.27) (0.29) (0.12)
----- ----- ----- ----- ----- ---------
NET ASSET VALUE, END OF PERIOD.................... $12.99 $13.37 $12.19 $10.67 $11.08 $9.68
===== ===== ===== ===== ===== =========
Total Return (excluding sales and redemption
charges)........................................ 11.86% 17.81% 19.22% (1.44)% 17.66% (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............... $245,347 $113,493 $89,294 $71,427 $42,318 $38,136
Ratio of Expenses to Average Net Assets....... 1.10% 1.16% 1.25% 1.09% 1.15% 1.19%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets.......................... 2.77% 2.62% 2.75% 2.49% 2.70% 3.46%(c)
Ratio of Expenses to Average Net Assets*...... 1.36% 1.41% 1.52% 1.39% 1.46% 1.50%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets* ........................ 2.51% 2.37% 2.47% 2.18% 2.40% 3.13%(c)
Portfolio Turnover Rate (d)................... 425.05% 437.90% 250.66% 192.39% 177.99% 47.58%
Average Commission Rate Paid (g).............. $0.0518 $0.0848
</TABLE>
13 PROSPECTUS--Institutional Shares
<PAGE> 221
EQUITY INCOME FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
-------- -------- -------- -------- -------- -------- -------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD......... $17.30 $14.49 $13.50 $14.69 $13.14 $12.48 $12.19 $11.35 $10.00
----- ----- ----- ----- ----- ----- ----- ----- ---------
Investment
Activities
Net
Investment
Income
(Loss)..... 0.34 0.34 0.39 0.39 0.45 0.54 0.57 0.56 0.35
Net Realized
and
Unrealized
Gains
(Losses) on
Investments... 3.51 3.26 1.00 (0.56) 1.69 0.99 0.38 1.04 1.32
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total
from
Investment
Activities... 3.85 3.60 1.39 (0.17) 2.14 1.53 0.95 1.60 1.67
----- ----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net
Investment
Income..... (0.33) (0.34) (0.39) (0.39) (0.45) (0.54) (0.59) (0.54) (0.32)
In Excess of
Net
Investment
Income..... -- -- (0.01) -- -- -- -- -- --
Net Realized
Gains...... (1.69) (0.45) -- (0.24) (0.14) (0.33) (0.07) (0.22) --
In Excess of
Net
Realized
Gains...... -- -- -- (0.39) -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total
Distributions... (2.02) (0.79) (0.40) (1.02) (0.59) (0.87) (0.66) (0.76) (0.32)
----- ----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE,
END OF PERIOD.. $19.13 $17.30 $14.49 $13.50 $14.69 $13.14 $12.48 $12.19 $11.35
===== ===== ===== ===== ===== ===== ===== ===== =========
Total Return
(excluding
sales and
redemption
charges)....... 23.80% 25.30% 10.55% (1.53)% 16.73% 12.56% 8.22% 14.37% 16.97%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets,
End of
Period
(000)...... $315,878 $337,318 $346,164 $355,538 $384,240 $270,549 $150,980 $96,344 $66,367
Ratio of
Expenses to
Average Net
Assets..... 1.33% 1.32% 1.32% 1.30% 1.26% 1.19% 1.13% 1.11% 1.16%(c)
Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets..... 1.89% 2.11% 2.86% 2.64% 3.28% 4.12% 4.75% 4.69% 4.92%(c)
Ratio of
Expenses to
Average Net
Assets*.... 1.33% 1.32% 1.32% 1.30% 1.28% 1.27% 1.31% 1.33% 1.41%(c)
Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets*.... 1.89% 2.11% 2.86% 2.64% 3.25% 4.03% 4.57% 4.47% 4.67%(c)
Portfolio
Turnover
Rate (d)... 20.14% 40.75% 77.70% 69.35% 67.26% 68.42% 115.68% 53.08% 29.55%
Average
Commission
Rate Paid
(g)........ $0.0800 $0.0800
</TABLE>
PROSPECTUS--Institutional Shares 14
<PAGE> 222
BOND FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
-------- -------- -------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD........ $ 9.56 $ 9.72 $ 9.29 $10.53 $10.54 $10.07 $10.00 $10.11 $10.00
---- ---- ---- ----- ----- ----- ----- ----- ---------
Investment
Activities
Net
Investment
Income
(Loss).... 0.59 0.59 0.61 0.60 0.71 0.75 0.77 0.78 0.53
Net Realized
and
Unrealized
Gains
(Losses)
on
Investments... 0.17 (0.16) 0.43 (0.72) 0.46 0.56 0.08 (0.11) 0.09
---- ---- ---- ----- ----- ----- ----- ----- ---------
Total
From
Investment
Activities... 0.76 0.43 1.04 (0.12) 1.17 1.31 0.85 0.67 0.62
---- ---- ---- ----- ----- ----- ----- ----- ---------
Distributions
Net
Investment
Income.... (0.59) (0.59) (0.61) (0.58) (0.73) (0.76) (0.78) (0.78) (0.51)
Net Realized
Gains..... -- -- -- -- (0.45) (0.08) -- -- --
In Excess of
Net
Realized
Gains..... -- -- -- (0.54) -- -- -- -- --
---- ---- ---- ----- ----- ----- ----- ----- ---------
Total
Distributions... (0.59) (0.59) (0.61) (1.12) (1.18) (0.84) (0.78) (0.78) (0.51)
---- ---- ---- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE,
END OF
PERIOD........ $ 9.73 $ 9.56 $ 9.72 $ 9.29 $10.53 $10.54 $10.07 $10.00 $10.11
==== ==== ==== ===== ===== ===== ===== ===== =========
Total Return
(excluding
sales and
redemption
charges)...... 8.20% 4.49% 11.78% (1.52)% 11.84% 13.47% 8.80% 6.94% 6.42%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets
at End of
Period
(000)..... $492,102 $549,336 $509,189 $469,903 $442,291 $477,526 $432,225 $316,477 $123,928
Ratio of
Expenses
to Average
Net
Assets.... 0.94% 0.94% 1.02% 0.88% 0.87% 0.87% 0.84% 0.81% 0.82%(c)
Ratio of Net
Investment
Income
(Loss) to
Average
Net
Assets.... 6.13% 5.96% 6.54% 5.97% 6.50% 7.19% 7.72% 8.04% 8.06%(c)
Ratio of
Expenses
to Average
Net
Assets*... 1.03% 1.03% 1.14% 1.02% 1.01% 1.01% 1.02% 1.02% 1.06%(c)
Ratio of Net
Investment
Income
(Loss) to
Average
Net
Assets*... 6.04% 5.87% 6.42% 5.83% 6.36% 7.05% 7.54% 7.83% 7.82%(c)
Portfolio
Turnover
Rate
(d)....... 827.00% 1189.27% 1010.64% 893.27% 443.98% 289.38% 339.74% 314.71% 121.08%
</TABLE>
15 PROSPECTUS--Institutional Shares
<PAGE> 223
LIMITED MATURITY BOND FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
-------- -------- -------- -------- -------- -------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD.......... $ 9.48 $ 9.71 $ 9.57 $10.18 $10.25 $ 9.93 $ 9.88 $10.08 $10.00
----- ----- ----- ----- ----- ----- ----- ----- ---------
Investment
Activities
Net Investment
Income
(Loss)...... 0.57 0.65 0.58 0.64 0.65 0.71 0.72 0.83 0.53
Net Realized
and
Unrealized
Gains
(Losses) on
Investments... 0.02 (0.21) 0.13 (0.59) 0.13 0.35 0.10 (0.15) 0.02
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total From
Investment
Activities... 0.59 0.44 0.71 0.05 0.78 1.06 0.82 0.68 0.55
----- ----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net Investment
Income...... (0.58) (0.65) (0.57) (0.62) (0.69) (0.71) (0.73) (0.83) (0.47)
In Excess of
Net
Investment
Income...... -- (0.01) -- -- --
Net Realized
Gains....... -- -- -- -- (0.16) (0.03) (0.04) (0.05) --
In Excess of
Net Realized
Gains....... -- -- -- (0.04) -- -- -- -- --
Tax Return of
Capital..... -- (0.01) -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total
Distributions... (0.58) (0.67) (0.57) (0.66) (0.85) (0.74) (0.77) (0.88) (0.47)
----- ----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE,
END OF PERIOD... $ 9.49 $ 9.48 $ 9.71 $ 9.57 $10.18 $10.25 $ 9.93 $ 9.88 $10.08
===== ===== ===== ===== ===== ===== ===== ===== =========
Total Return
(excluding sales
and redemption
charges)........ 6.42% 4.65% 7.76% 0.43% 7.98% 11.00% 8.66% 7.10% 5.70%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at
End of
Period
(000)....... $136,126 $136,681 $141,781 $156,678 $141,706 $117,241 $70,870 $43,696 $71,627
Ratio of
Expenses to
Average Net
Assets...... 0.85% 0.84% 0.84% 0.76% 0.72% 0.83% 0.91% 0.92% 0.88%(c)
Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets...... 6.03% 6.32% 6.11% 6.32% 6.45% 7.13% 7.47% 8.01% 8.19%(c)
Ratio of
Expenses to
Average Net
Assets*..... 1.10% 1.08% 1.11% 1.05% 1.01% 1.05% 1.10% 1.14% 1.12%(c)
Ratio of Net
Investment
Income
(Loss) to
Average Net
Assets*..... 5.78% 6.08% 5.84% 6.03% 6.16% 6.91% 7.28% 7.79% 7.95%(c)
Portfolio
Turnover
Rate (d).... 607.84% 618.60% 397.97% 353.28% 123.10% 87.75% 161.32% 319.11% 117.37%
</TABLE>
PROSPECTUS--Institutional Shares 16
<PAGE> 224
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
-------- -------- -------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD........ $ 9.71 $ 9.93 $ 9.62 $10.53 $10.42 $10.05 $9.91 $10.05 $10.00
----- ----- ----- ----- ----- ----- ----- ----- ---------
Investment
Activities
Net
Investment
Income
(Loss).... 0.55 0.62 0.52 0.60 0.68 0.71 0.74 0.79 0.50
Net Realized
and
Unrealized
Gains
(Losses)
on
Investments... 0.03 (0.24) 0.31 (0.66) 0.22 0.46 0.15 (0.11) (0.02)
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total
From
Investment
Operations... 0.58 0.38 0.83 (0.06) 0.90 1.17 0.89 0.68 0.48
----- ----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net
Investment
Income.... (0.56) (0.60) (0.52) (0.60) (0.73) (0.71) (0.75) (0.79) (0.43)
Net Realized
Gains..... -- -- -- -- (0.06) (0.09) -- (0.03) --
In Excess of
Net
Realized
Gains..... -- -- -- (0.25) -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total
Distributions... (0.56) (0.60) (0.52) (0.85) (0.79) (0.80) (0.75) (0.82) (0.43)
----- ----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE,
END OF
PERIOD........ $ 9.73 $ 9.71 $ 9.93 $ 9.62 $10.53 $10.42 $10.05 $ 9.91 $10.05
===== ===== ===== ===== ===== ===== ===== ===== =========
Total Return
(excluding
sales and
redemption
charges)...... 6.11% 3.95% 9.02% (0.80)% 8.94% 12.03% 9.32% 7.07% 4.92%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets
at End of
Period
(000)..... $187,856 $225,313 $249,169 $281,232 $272,607 $234,906 $142,864 $100,205 $83,212
Ratio of
Expenses
to Average
Net
Assets.... 0.98% 0.96% 1.04% 0.90% 0.87% 0.87% 0.86% 0.85% 0.87%(c)
Ratio of Net
Investment
Income
(Loss) to
Average
Net
Assets.... 5.66% 5.76% 5.43% 5.90% 6.54% 7.07% 7.48% 8.04% 7.79%(c)
Ratio of
Expenses
to Average
Net
Assets*... 1.07% 1.05% 1.16% 1.04% 1.01% 1.01% 1.04% 1.06% 1.11%(c)
Ratio of Net
Investment
Income
(Loss) to
Average
Net
Assets*... 5.57% 5.67% 5.31% 5.76% 6.40% 6.93% 7.30% 7.83% 7.55%(c)
Portfolio
Turnover
Rate
(d)....... 1516.78% 916.39% 549.13% 546.06% 225.90% 114.76% 164.59% 294.62% 111.96%
</TABLE>
17 PROSPECTUS--Institutional Shares
<PAGE> 225
GOVERNMENT INCOME FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
INSTITUTIONAL SHARES NOV. 12, 1992
--------------------------------------- TO
1997 1996 1995 1994 JUNE 30, 1993(a)(b)
-------- -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................... $ 9.25 $ 9.42 $ 9.41 $ 10.04 $ 10.00
------ ------ ------ ------ ------
Investment Activities
Net Investment Income (Loss)............................. 0.72 0.75 0.76 0.74 0.48
Net Realized and Unrealized Gains (Losses) on
Investments............................................ (0.10) (0.17) 0.01 (0.63) 0.04
------ ------ ------ ------ ------
Total From Investment Activities..................... 0.62 0.58 0.77 0.11 0.52
------ ------ ------ ------ ------
Distributions
Net Investment Income.................................... (0.61) (0.67) (0.68) (0.73) (0.48)
Tax Return of Capital.................................... (0.11) (0.08) (0.08) (0.01) --
------ ------ ------ ------ ------
Total Distributions.................................. (0.72) (0.75) (0.76) (0.74) (0.48)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............................... $ 9.15 $ 9.25 $ 9.42 $ 9.41 $ 10.04
====== ====== ====== ====== ======
Total Return (excluding sales and redemption charges)........ 6.91% 6.34% 8.70% 1.04% 5.37%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000)........................ $148,854 $130,615 $110,190 $101,506 $ 71,862
Ratio of Expenses to Average Net Assets...................... 0.77% 0.76% 0.83% 0.72% 0.70%(c)
Ratio of Net Investment Income (Loss) to Average Net
Assets..................................................... 7.90% 7.94% 8.25% 7.51% 7.49%(c)
Ratio of Expenses to Average Net Assets*..................... 1.11% 1.10% 1.19% 1.11% 1.09%(c)
Ratio of Net Investment Income (Loss) to Average Net
Assets*.................................................... 7.56% 7.60% 7.89% 7.12% 7.09%(c)
Portfolio Turnover Rate (d).................................. 499.53% 348.01% 114.71% 102.24% 135.06%
</TABLE>
MICHIGAN BOND FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------
INSTITUTIONAL SHARES JULY 2, 1990
--------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 JUNE 30, 1991(a)
-------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $10.77 $10.76 $10.53 $10.97 $10.58 $10.14 $10.00
----- ----- ----- ----- ----- ----- ---------
Investment Activities
Net Investment Income (Loss).............. 0.51 0.50 0.50 0.48 0.50 0.52 0.55
Net Realized and Unrealized Gains (Losses)
on Investments ......................... 0.14 0.04 0.25 (0.36) 0.47 0.44 0.11
----- ----- ----- ----- ----- ----- ---------
Total From Investment Activities...... 0.65 0.54 0.75 0.12 0.97 0.96 0.66
----- ----- ----- ----- ----- ----- ---------
Distributions
Net Investment Income..................... (0.49) (0.50) (0.50) (0.46) (0.54) (0.52) (0.52)
In Excess of Net Investment Income........ -- -- (0.02) -- -- -- --
Net Realized Gains........................ (0.04) (0.03) -- (0.01) (0.04) -- --
In Excess of Net Realized Gains........... -- -- -- (0.09) -- -- --
----- ----- ----- ----- ----- ----- ---------
Total Distributions................... (0.53) (0.53) (0.52) (0.56) (0.58) (0.52) (0.52)
----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE, END OF PERIOD................ $10.89 $10.77 $10.76 $10.53 $10.97 $10.58 $10.14
===== ===== ===== ===== ===== ===== =========
Total Return (excluding sales and redemption
charges).................................... 6.11% 5.12% 7.33% 1.02% 9.42% 9.73% 6.77%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000)............. $194,950 $185,191 $176,068 $181,051 $165,414 $146,782 $90,182
Ratio of Expenses to Average Net Assets....... 0.76% 0.77% 0.78% 0.75% 0.76% 0.84% 0.57%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets.......................... 4.73% 4.57% 4.79% 4.35% 4.70% 5.15% 5.67%(c)
Ratio of Expenses to Average Net Assets*...... 1.05% 1.06% 1.07% 1.04% 1.05% 1.05% 1.15%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets*......................... 4.44% 4.28% 4.50% 4.06% 4.41% 4.93% 5.18%(c)
Portfolio Turnover Rate (d)................... 28.48% 27.66% 26.06% 6.69% 35.81% 19.97% 45.30%
</TABLE>
PROSPECTUS--Institutional Shares 18
<PAGE> 226
MUNICIPAL BOND FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
--------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
-------- -------- -------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $10.43 $10.39 $10.29 $10.92 $10.58 $10.20 $10.03 $10.18 $10.00
----- ----- ----- ----- ----- ----- ----- ----- ---------
Investment Activities
Net Investment
Income (Loss)..... 0.46 0.43 0.46 0.41 0.49 0.52 0.55 0.57 0.40
Net Realized and
Unrealized Gains
(Losses) on
Investments....... 0.14 0.04 0.27 (0.31) 0.48 0.39 0.18 (0.12) 0.14
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total From
Investment
Activities.... 0.60 0.47 0.73 0.10 0.97 0.91 0.73 0.45 0.54
----- ----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net Investment
Income............ (0.44) (0.43) (0.46) (0.40) (0.53) (0.52) (0.56) (0.58) (0.36)
In Excess of Net
Investment
Income............ -- -- (0.17) -- --
Net Realized
Gains............. (0.05) -- -- (0.21) (0.10) (0.01) -- (0.02) --
In Excess of Net
Realized Gains.... -- -- -- (0.12) -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ---------
Total
Distributions... (0.49) (0.43) (0.63) (0.73) (0.63) (0.53) (0.56) (0.60) (0.36)
----- ----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET VALUE, END OF
PERIOD................ $10.54 $10.43 $10.39 $10.29 $10.92 $10.58 $10.20 $10.03 $10.18
===== ===== ===== ===== ===== ===== ===== ===== =========
Total Return (excluding
sales and redemption
charges).............. 5.89% 4.55% 7.25% 0.81% 9.48% 9.11% 7.51% 4.57% 5.52%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at End of
Period (000)...... $134,579 $132,527 $134,784 $147,687 $146,302 $130,788 $98,186 $100,445 $68,256
Ratio of Expenses to
Average Net
Assets............ 0.81% 0.80% 0.80% 0.77% 0.73% 0.81% 0.87% 0.85% 0.85%(c)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets........ 4.41% 4.10% 4.21% 3.83% 4.61% 5.09% 5.49% 5.78% 6.11%(c)
Ratio of Expenses to
Average Net
Assets*........... 1.10% 1.09% 1.08% 1.06% 1.02% 1.03% 1.06% 1.06% 1.09%(c)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets*....... 4.12% 3.81% 3.93% 3.53% 4.31% 4.88% 5.29% 5.57% 5.87%(c)
Portfolio Turnover
Rate (d).......... 48.83% 47.46% 35.15% 44.39% 67.26% 66.31% 76.55% 113.12% 82.22%
</TABLE>
19 PROSPECTUS--Institutional Shares
<PAGE> 227
PRIME OBLIGATIONS FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------
INSTITUTIONAL SHARES AUG. 24, 1987
--------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 1989 JUNE 30, 1988(a)
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING
OF
PERIOD..... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
Investment
Activities
Net
Investment
Income... 0.049 0.051 0.048 0.028 0.029 0.046 0.069 0.080 0.083 0.056
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net
Investment
Income... (0.049) (0.051) (0.048) (0.028) (0.029) (0.046) (0.069) (0.080) (0.083) (0.056)
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET
VALUE, END
OF
PERIOD..... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
===== ===== ===== ===== ===== ===== ===== ===== ===== =========
Total
Return..... 5.01% 5.17% 4.91% 2.85% 2.91% 4.75% 7.15% 8.32% 8.58% 5.76%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net
Assets
at End
of
Period
(000)... $677,324 $596,075 $640,380 $561,697 $478,821 $690,908 $702,340 $547,351 $526,450 $241,545
Ratio of
Expenses
to
Average
Net
Assets... 0.63% 0.64% 0.65% 0.64% 0.64% 0.64% 0.64% 0.65% 0.62% 0.60%(c)
Ratio of
Net
Investment
Income
(Loss)
to
Average
Net
Assets... 4.90% 5.05% 4.83% 2.84% 2.88% 4.61% 6.86% 8.03% 8.26% 6.48%(c)
Ratio of
Expenses
to
Average
Net
Assets*... 0.65% 0.66% 0.67% 0.66% 0.66% 0.66% 0.66% 0.67% 0.66% 0.70%(c)
Ratio of
Net
Investment
Income
(Loss)
to
Average
Net
Assets*.. 4.88% 5.03% 4.81% 2.82% 2.86% 4.59% 6.84% 8.01% 8.22% 6.38%(c)
</TABLE>
TAX-FREE FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------
INSTITUTIONAL SHARES JULY 30,
--------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 1989 JUNE 30, 1988(a)
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING
OF
PERIOD..... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
Investment
Activities
Net
Investment
Income... 0.029 0.030 0.030 0.019 0.019 0.033 0.046 0.054 0.055 0.040
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net
Investment
Income... (0.029) (0.030) (0.030) (0.019) (0.019) (0.033) (0.046) (0.054) (0.055) (0.040)
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET
VALUE, END
OF
PERIOD..... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
===== ===== ===== ===== ===== ===== ===== ===== ===== =========
Total
Return..... 2.94% 3.02% 3.00% 1.92% 2.10% 3.34% 4.73% 5.75% 5.62% 4.08%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net
Assets
at End
of
Period
(000)... $108,884 $106,154 $98,489 $84,465 $86,292 $141,913 $139,615 $142,004 $120,031 $107,199
Ratio of
Expenses
to
Average
Net
Assets... 0.68% 0.66% 0.64% 0.58% 0.55% 0.59% 0.60% 0.61% 0.63% 0.64%(c)
Ratio of
Net
Investment
Income
(Loss)
to
Average
Net
Assets... 2.90% 2.97% 2.97% 1.90% 2.08% 3.29% 4.63% 5.43% 5.46% 4.34%(c)
Ratio of
Expenses
to
Average
Net
Assets*... 0.70% 0.68% 0.70% 0.68% 0.65% 0.69% 0.70% 0.70% 0.73% 0.75%(c)
Ratio of
Net
Investment
Income
(Loss)
to
Average
Net
Assets*.. 2.88% 2.95% 2.91% 1.80% 1.98% 3.19% 4.53% 5.34% 5.36% 4.23%(c)
</TABLE>
PROSPECTUS--Institutional Shares 20
<PAGE> 228
TREASURY FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, DEC. 1, 1993
---------------------------------- TO
1997 1996 1995 JUNE 30, 1994(a)
-------- -------- -------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $1.000 $1.000 $1.000 $1.000
------ ------ ------ ----------
Investment Activities
Net Investment Income................. 0.048 0.050 0.048 0.017
------ ------ ------ ----------
Distributions
Net Investment Income................. (0.048) (0.050) (0.048) (0.017)
------ ------ ------ ----------
NET ASSET VALUE, END OF PERIOD............. $1.000 $1.000 $1.000 $1.000
====== ====== ====== ==========
Total Return............................... 4.93% 5.14% 4.91% 1.72%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000)..... $324,377 $223,416 $192,232 $76,035
Ratio of Expenses to Average Net
Assets.............................. 0.57% 0.60% 0.64% 0.54%(c)
Ratio of Net Investment Income (Loss)
to Average Net Assets............... 4.83% 4.98% 4.95% 3.15%(c)
Ratio of Expenses to Average Net
Assets*............................. 0.67% 0.70% 0.78% 0.74%(c)
Ratio of Net Investment Income (Loss)
to Average Net Assets*.............. 4.73% 4.88% 4.81% 2.95%(c)
</TABLE>
U.S. GOVERNMENT OBLIGATIONS FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------
INSTITUTIONAL SHARES AUG. 24, 1987
--------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 1989 JUNE 30, 1988(a)
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING
OF
PERIOD.... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
Investment
Activities
Net
Investment
Income.. 0.048 0.050 0.048 0.028 0.028 0.044 0.066 0.078 0.080 0.055
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
Distributions
Net
Investment
Income.. (0.048) (0.050) (0.048) (0.028) (0.028) (0.044) (0.066) (0.078) (0.080) (0.055)
----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
NET ASSET
VALUE, END
OF
PERIOD.... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
===== ===== ===== ===== ===== ===== ===== ===== ===== =========
Total
Return.... 4.89% 5.10% 4.87% 2.79% 2.86% 4.78% 6.82% 8.10% 8.31% 5.66%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net
Assets
at End
of
Period
(000)... $210,162 $207,451 $227,565 $192,612 $223,855 $400,242 $341,903 $248,671 $201,012 $136,823
Ratio of
Expenses
to Average
Net
Assets.... 0.64% 0.64% 0.67% 0.67% 0.64% 0.64% 0.65% 0.65% 0.63% 0.62%(c)
Ratio of Net
Investment
Income
(Loss) to
Average
Net
Assets.... 4.79% 4.99% 4.76% 2.74% 2.81% 4.43% 6.54% 7.79% 8.00% 6.25%(c)
Ratio of
Expenses
to Average
Net
Assets*... 0.66% 0.66% 0.69% 0.69% 0.66% 0.66% 0.67% 0.67% 0.68% 0.73%(c)
Ratio of Net
Investment
Income
(Loss) to
Average
Net
Assets*... 4.77% 4.97% 4.74% 2.72% 2.79% 4.41% 6.52% 7.77% 7.95% 6.14%(c)
</TABLE>
- ---------------
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993 the shareholders of the Group exchanged their shares for
either the Group's Investor A Shares or Institutional Shares. For the year
ended June 30, 1993 the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities
and distributions are presented on the basis whereby the Fund's net
investment income, expenses, and distributions for the period July 1, 1992
through
21 PROSPECTUS--Institutional Shares
<PAGE> 229
March 31, 1993 were allocated to each class of shares based upon the
relative net assets of each class of shares as of April 1, 1993 and the
results combined therewith the results of operations and distributions for
each applicable class for the period April 1, 1993 through June 30, 1993.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between classes of shares issued.
(e) Not annualized.
(f) As of January 1, 1995, Gulfstream assumed the role of subadviser with
respect to the International Fund and the portion of the Balanced Allocation
Fund invested in foreign securities. Prior to that date, Ivory & Sime
International, Inc. and Ivory & Sime plc served as subadvisers to the
International Fund and the Balanced Allocation Fund had no subadviser.
(g) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds are set forth below under the
headings describing the Funds. The investment objective of each Fund is
fundamental and may not be changed without a vote of the holders of a majority
of the outstanding shares of that Fund (as defined in the Statement of
Additional Information). The investment policies of a Fund may be changed
without a vote of the holders of a majority of outstanding shares of that Fund
unless the policy is expressly deemed to be a fundamental policy or changeable
only by such majority vote. There can be no assurance that the investment
objective of any Fund will be achieved. Depending upon the performance of a
Fund's investments, the net asset value per share of that Fund may decrease
instead of increase.
During temporary defensive periods as determined by First of America or
Gulfstream, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic bank certificates of
deposit, bankers' acceptances and repurchase agreements secured by bank
instruments. However, to the extent that a Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
GROWTH FUNDS
THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE
CAPITALIZATION FUND
THE INVESTMENT OBJECTIVE OF THE SMALL CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS OF SMALL- TO MEDIUM-SIZED COMPANIES.
THE INVESTMENT OBJECTIVE OF THE MID CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS. THE INVESTMENT OBJECTIVE OF THE 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, each of the Small Capitalization Fund, Mid
Capitalization Fund and 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 to be characterized by
sound management and the ability to finance expected long-term growth. In
addition, under normal market conditions, the Small Capitalization Fund will
invest at least 65% of the value of its total assets in common stocks and
securities convertible into common stocks of companies considered by First of
America to have a market capitalization of less than $1 billion. The Mid
Capitalization Fund, under normal market conditions, 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 between $1 billion and $5 billion. The Large Capitalization Fund
will do the same with companies considered by First of America to have a market
capitalization of greater than $5 billion. Each of the Small Capitalization
Fund, Mid Capitalization Fund and 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
PROSPECTUS--Institutional Shares 22
<PAGE> 230
or its agencies or instrumentalities, and demand and time deposits of domestic
and foreign banks and savings and loan associations. Each of the Small
Capitalization Fund, Mid Capitalization Fund and Large Capitalization Fund may
also hold securities of other investment companies and depository or custodial
receipts representing beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, each of the Small Capitalization Fund, Mid
Capitalization Fund and 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 (U.S.
dollar-denominated commercial paper of a foreign issuer). For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Foreign Securities."
The Mid Capitalization Fund anticipates investing in growth-oriented,
medium-sized companies. Medium-sized companies are considered to be those with a
market capitalization between $1 billion and $5 billion. The Large
Capitalization Fund anticipates investing in growth-oriented companies with
large market capitalization, defined as capitalization of over $5 billion. For
both the Mid Capitalization Fund and Large Capitalization Fund, investments will
be in companies that 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 Mid Capitalization Fund and Large Capitalization Fund are in
companies that participate in long-term growth industries, although these will
be supplemented by holdings in non-growth industries that exhibit the desired
characteristics.
The Small Capitalization Fund anticipates investing in dynamic small- to
medium-sized companies that exhibit outstanding potential for superior growth.
Small-sized companies are considered to be those with a market capitalization of
less than $1 billion. The Small Capitalization Fund will limit its investment in
securities of medium-sized companies to not more than 35% of the value of its
total assets. Companies that participate in sectors that are identified as
having long-term growth potential generally make up a substantial portion of
such Fund's holdings. These companies often have established a market niche or
have developed unique products or technologies that are expected to produce
superior growth in revenues and earnings. As smaller capitalization stocks are
quite volatile and subject to wide fluctuations in both the short and medium
term, the Small Capitalization Fund may be fairly characterized more aggressive
than a general equity fund.
Consistent with the foregoing, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund will focus its investments in
those companies and types of companies that First of America believes will
enable such Fund to achieve its investment objective.
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THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE CAPITALIZATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-Issued and Delayed-
and Dollar Roll Agreements Delivery Transactions
</TABLE>
THE INTERNATIONAL FUND
THE INVESTMENT OBJECTIVE OF THE INTERNATIONAL FUND IS TO SEEK LONG-TERM GROWTH
OF CAPITAL.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States,
23 PROSPECTUS--Institutional Shares
<PAGE> 231
or (ii) that derive at least 50% of either their revenues or pre-tax income from
activities outside of the United States, and (iii) which are small- or
medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRs.
For purposes of investment by the International Fund only, companies are deemed
to be small- or medium-sized if, at the time of purchase, they are of a size
which would rank them in the lower half of a major market index in the
applicable country by weighted market capitalization and in the lower half of
all equity securities listed in recognized secondary markets where such markets
exist. In addition, in countries with less well-developed stock markets, where
the range of investment opportunities is more restrictive, the equity securities
of all listed companies will be eligible for investment. In major markets,
issuers could have capitalizations of up to approximately $10 billion while in
smaller markets issuers would be eligible with capitalizations as low as
approximately $200 million.
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Normally the
International Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
International Fund's assets could be invested in the securities of U.S.
companies. In addition, the International Fund temporarily may invest cash in
short-term debt instruments of U.S. and foreign issuers for cash management
purposes or pending investment.
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THE INTERNATIONAL FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -When-Issued and Agreements and Dollar
Delayed-Delivery
Transactions Roll Agreements
</TABLE>
GROWTH AND INCOME FUNDS
THE BALANCED ALLOCATION FUND
THE INVESTMENT OBJECTIVE OF THE BALANCED ALLOCATION FUND IS TO SEEK CURRENT
INCOME, LONG-TERM CAPITAL GROWTH AND CONSERVATION OF CAPITAL.
The Balanced Allocation Fund may invest in any type or class of security. Under
normal market conditions the Balanced Allocation Fund will invest in common
stocks, fixed-income securities and securities convertible into common stocks
(i.e., warrants, convertible preferred stock, fixed-rate preferred stock,
convertible fixed-income securities, options and rights). The Balanced
Allocation Fund intends to invest 45% to 65% of its net assets in common
stocks and securities convertible into common stocks, 25% to 55% of its net
assets in fixed-income securities and up to 30% of its net assets in cash and
cash equivalents. Of these investments, no more than 20% of the Fund's net
assets will be in foreign securities.
For the Balanced Allocation Fund, common stocks are held primarily for the
purpose of providing long-term growth of capital. When choosing such stocks, the
potential for long-term capital appreciation will be the primary basis for
selection. The Balanced Allocation Fund will invest in the common and preferred
stocks of companies with a market capitalization of at least $100 million and
which are traded either in established over-the-counter markets or on national
exchanges. The Balanced Allocation Fund intends to
PROSPECTUS--Institutional Shares 24
<PAGE> 232
invest primarily in those companies which are growth-oriented and have exhibited
consistent, above-average growth in revenues and earnings.
For the Balanced Allocation Fund, fixed-income securities held consist of bonds,
debentures, notes, zero-coupon securities, mortgage-related securities, state,
municipal or industrial revenue bonds, obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities, certificates of deposit,
time deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand notes. In addition, a portion of the Balanced Allocation
Fund's assets may, from time to time, be invested in first mortgage loans and
participation certificates in pools of mortgages issued or guaranteed by the
U.S. government or its agencies or instrumentalities. Some of the securities in
which the Balanced Allocation Fund invests may have warrants or options
attached. The Balanced Allocation Fund may also invest in repurchase agreements.
The Balanced Allocation Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, as well as "stripped" U.S. Treasury obligations ("Stripped Treasury
Obligations"), such as Treasury receipts issued by the U.S. Treasury
representing either future interest or principal payments, and other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES -- Government
Obligations" below.
The Balanced Allocation Fund also expects to invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Such obligations, in the
case of debentures, will represent unsecured promises to pay, and in the case of
notes and bonds, may be secured by mortgages on real property or security
interests in personal property and will in most cases differ in their interest
rates, maturities and times of issuance.
The Balanced Allocation Fund will invest only in corporate fixed-income
securities which are rated at the time of purchase within the four highest
rating categories assigned by a nationally-recognized statistical rating
organization ("NRSRO") or, if unrated, which First of America deems present
attractive opportunities and are of comparable quality. For a description of the
rating symbols of the NRSROs, see the Appendix to the Statement of Additional
Information. For a discussion of fixed-income securities rated within the four
highest rating categories assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Medium-Grade Securities."
The Balanced Allocation Fund may hold some short-term obligations (with
maturities of 12 months or less) consisting of domestic and foreign commercial
paper, variable amount master demand notes, bankers' acceptances, certificates
of deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, and repurchase agreements. The Balanced Allocation Fund may also
invest in securities of other investment companies.
The Balanced Allocation Fund may also invest in obligations of the Export-Import
Bank of the United States, in U.S. dollar-denominated international bonds for
which the primary trading market is the United States ("Yankee Bonds"), or for
which the primary trading market is abroad ("Eurodollar Bonds"), and in Canadian
bonds and bonds issued by institutions, such as the World Bank and the European
Economic Community, organized for a specific purpose by two or more sovereign
governments ("Supranational Agency Bonds"). The Balanced Allocation Fund's
investments in foreign securities may be made either directly or through the
purchase of ADRs and the Balanced Allocation Fund may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper.
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon First of America's assessment of business, economic and
market conditions, including any potential advantage of price shifts between the
stock market and the bond market. The Balanced Allocation Fund reserves the
right to hold short-term securities in whatever proportion deemed desirable for
temporary defensive periods during adverse market conditions as determined by
First of America. However, to the extent that the Balanced Allocation Fund is so
invested, its investment objective may not be achieved during that time.
25 PROSPECTUS--Institutional Shares
<PAGE> 233
Like any investment program, investment in the Balanced Allocation Fund entails
certain risks. As a Fund investing in common stocks the Balanced Allocation Fund
is subject to stock market risk, i.e., the possibility that stock prices in
general will decline over short or even extended periods.
Since the Balanced Allocation Fund also invests in bonds, investors in the
Balanced Allocation Fund are also exposed to bond market risk, i.e.,
fluctuations in the market value of bonds. Bond prices are influenced primarily
by changes in interest rate levels. When interest rates rise, the prices of
bonds generally fall; conversely, when interest rates fall, bond prices
generally rise. While bonds normally fluctuate less in price than stock, there
have been extended periods of cyclical increases in interest rates that have
caused significant declines in bond prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result the Balanced
Allocation Fund, with its balance of common stock and bond investments, is
expected to entail less investment risk (and a potentially smaller investment
return) than a mutual fund investing exclusively in common stocks.
<TABLE>
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THE BALANCED ALLOCATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Medium-Grade Securities -Mortgage-Related Securities -Other Mutual Funds
- -Portfolio Turnover -Put and Call Options -Repurchase Agreements
- -Restricted Securities -Reverse Repurchase -When-Issued and Delayed-
Agreements and Dollar Delivery Transactions
Roll Agreements
</TABLE>
THE EQUITY INCOME FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY INCOME FUND IS TO SEEK CURRENT INCOME BY
INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH QUALITY, DIVIDEND-PAYING COMMON
STOCKS AND SECURITIES CONVERTIBLE INTO COMMON STOCKS. A SECONDARY INVESTMENT
OBJECTIVE OF THE EQUITY INCOME FUND IS GROWTH OF CAPITAL.
The Equity Income Fund, under normal market conditions, will invest at least 80%
of the value of its total assets in common stocks and securities convertible
into common stocks of companies believed by First of America to be characterized
by sound management, the ability to finance expected growth and the ability to
pay above-average dividends. The Equity Income 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 and loan associations. The Equity Income
Fund may also hold securities of other investment companies and depository or
custodial receipts representing beneficial interests in any of the foregoing
securities.
Subject to the foregoing policies, the Equity Income Fund may also invest up to
25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Foreign Securities."
The Equity Income Fund anticipates investing in securities that currently have a
high dividend yield, with the anticipation that the dividend will remain
constant or be increased in the future. These securities generally represent the
core holdings of this Fund. However, these holdings are balanced with lower
yielding but higher growth-oriented securities to achieve portfolio balance. All
securities must provide current income. Given its bias towards income, the
Equity Income Fund may be considered more
PROSPECTUS--Institutional Shares 26
<PAGE> 234
conservative than growth-oriented equity funds such as the Group's Small
Capitalization Fund and Mid Capitalization Fund.
Consistent with the foregoing, the Equity Income Fund will focus its investments
in those companies and types of companies that First of America believes will
enable such Fund to achieve its investment objective.
<TABLE>
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THE EQUITY INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-Issued and Delayed-
and
Dollar Roll Agreements Delivery Transactions
</TABLE>
INCOME FUNDS
THE BOND FUND AND THE LIMITED MATURITY BOND FUND
THE INVESTMENT OBJECTIVE OF THE BOND FUND IS TO SEEK CURRENT INCOME AS WELL AS
PRESERVATION OF CAPITAL BY INVESTING IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE
FIXED-INCOME SECURITIES. THE INVESTMENT OBJECTIVE OF THE LIMITED MATURITY BOND
FUND IS TO SEEK CURRENT INCOME AS WELL AS PRESERVATION OF CAPITAL BY INVESTING
IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE FIXED-INCOME SECURITIES WITH REMAINING
MATURITIES OF SIX YEARS OR LESS.
Under normal market conditions, the Bond Fund will invest at least 80% of the
value of its total assets in bonds, debentures, notes with remaining maturities
at the time of purchase of one year or more, zero-coupon securities,
mortgage-related securities, state, municipal or industrial revenue bonds,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, debt securities convertible into, or exchangeable for, common
stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Bond Fund will invest in state and municipal securities
when, in the opinion of First of America, their yields are competitive with
comparable taxable debt obligations. In addition, up to 20% of the value of the
Bond Fund's total assets may be invested in preferred stocks, notes with
remaining maturities at the time of purchase of less than one year, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies,
and guaranteed investment contracts ("GICs") issued by insurance companies, as
more fully described below. Some of the securities in which the Bond Fund
invests may have warrants or options attached.
Under normal market conditions, the Limited Maturity Bond Fund will invest at
least 80% of the value of its total assets in the following securities which
have remaining maturities of six years or less: bonds, debentures, notes with
remaining maturities at the time of purchase of one year or more, zero-coupon
securities, mortgage-related securities, state, municipal or industrial revenue
bonds, obligations issued or guaranteed by the U.S. government or its agencies
or instrumentalities, debt securities convertible into, or exchangeable for,
common stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Limited Maturity Bond Fund will invest in state and
municipal securities when, in the opinion of First of America, their yields are
competitive with comparable taxable debt obligations. In addition, up to 20% of
the value of the Limited Maturity Bond Fund's total assets may be invested in
the debt securities listed above without regard to maturity, as well as
preferred stocks, short-term debt obligations consisting of domestic and foreign
commercial paper (including variable amount master demand notes), bankers'
acceptances,
27 PROSPECTUS--Institutional Shares
<PAGE> 235
certificates of deposit and time deposits of domestic and foreign branches of
U.S. banks and foreign banks, repurchase agreements, securities of other
investment companies and GICs. Under normal market conditions, the Limited
Maturity Bond Fund expects to maintain a dollar-weighted average portfolio
maturity of its debt securities of three years or less. By seeking to maintain a
dollar-weighted average portfolio maturity of three years or less, the Limited
Maturity Bond Fund attempts to minimize the fluctuation in its shares' net asset
value relative to funds which invest in longer-term obligations. Some of the
securities in which the Limited Maturity Bond Fund invests may have warrants or
options attached.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Limited Maturity Bond Fund, the effective
maturity of such securities, as determined by the Investment Adviser, will be
used.
The Bond Fund and Limited Maturity Bond Fund each expects to invest in a variety
of U.S. Treasury obligations, differing in their interest rates, maturities, and
times of issuance, as well as Stripped Treasury Obligations, and other
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES -- Government
Obligations."
The Bond Fund and the Limited Maturity Bond Fund each also expects to invest in
bonds, notes and debentures of a wide range of U.S. corporate issuers. Such
obligations, in the case of debentures will represent unsecured promises to pay,
and in the case of notes and bonds, may be secured by mortgages on real property
or security interests in personal property and will in most cases differ in
their interest rates, maturities and times of issuance.
The Bond Fund and the Limited Maturity Bond Fund each will invest only in
corporate debt securities which are rated at the time of purchase within the
four highest rating categories assigned by an NRSRO or, if unrated, which First
of America deems present attractive opportunities and are of comparable quality.
For a discussion of debt securities rated within the four highest rating
categories assigned by the NRSROs, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Medium-Grade Securities."
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian Bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond Fund may also invest up to 25% of its
net assets in foreign securities either directly or through the purchase of ADRs
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper.
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, First of America may purchase debt securities at a
discount from face value, which produces a yield greater than the coupon rate.
Conversely, if debt securities are purchased at a premium over face value, the
yield will be lower than the coupon rate. In making investment decisions for the
Bond Fund, First of America will consider many factors other than current yield,
including the preservation of capital, the potential for realizing capital
appreciation, maturity, and yield to maturity. In making investment decisions
for the Limited Maturity Bond Fund, First of America will consider many factors
other than current yield, including the preservation of capital, maturity, and
yield to maturity.
PROSPECTUS--Institutional Shares 28
<PAGE> 236
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THE BOND FUND AND THE LIMITED MATURITY BOND FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Currency -Foreign Securities
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Medium-Grade Securities -Mortgage-Related Securities -Municipal Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase
- -When-Issued and Agreements and Dollar
Delayed-Delivery Roll Agreements
Transactions
</TABLE>
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
THE INVESTMENT OBJECTIVE OF THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND IS TO
SEEK CURRENT INCOME WITH PRESERVATION OF CAPITAL BY INVESTING IN U.S. GOVERNMENT
SECURITIES WITH REMAINING MATURITIES OF TWELVE YEARS OR LESS.
Under normal market conditions, the Intermediate Government Obligations Fund
will invest at least 80% of its total assets in obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities and with remaining
maturities of twelve years or less, although up to 20% of the value of its total
assets may be invested in debt securities, preferred stocks and other
investments without regard to maturity, except as set forth below. Under normal
market conditions, the Intermediate Government Obligations Fund expects to
maintain a dollar-weighted average portfolio maturity of its debt securities of
three to ten years. By seeking to maintain a dollar-weighted average portfolio
maturity of three to ten years, the Intermediate Government Obligations Fund
attempts to minimize the fluctuation in its shares' net asset value relative to
funds which invest in longer-term obligations.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Intermediate Government Obligations Fund,
the effective maturity of such securities, as determined by the Investment
Adviser, will be used.
The types of U.S. government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and government securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Government Obligations."
The Intermediate Government Obligations Fund may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, as more fully described below under "RISK FACTORS AND
INVESTMENT TECHNIQUES -- Government Obligations."
<TABLE>
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THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Currency -Futures Contracts
Transactions
- -Government Obligations -Lending Portfolio Securities -Mortgage-Related
Securities
- -Municipal Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-Issued and Delayed-
and Dollar Roll Agreements Delivery Transactions
</TABLE>
29 PROSPECTUS--Institutional Shares
<PAGE> 237
THE GOVERNMENT INCOME FUND
THE INVESTMENT OBJECTIVE OF THE GOVERNMENT INCOME FUND IS TO PROVIDE
SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRUDENT
INVESTMENT RISK.
Under normal market conditions, the Government Income Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
non-governmental issuers. Consistent with the foregoing, under current market
conditions, the Government Income Fund intends to invest up to 80% of the value
of its total assets in mortgage-related securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities. The Government Income Fund
also may invest up to 35% of its total assets in mortgage-related securities
issued by non-governmental entities and in other securities described below. For
more information, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Mortgage-Related Securities."
The types of U.S. government obligations, including mortgage-related securities,
invested in by the Government Income Fund will include obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Treasury, such as Treasury bills, notes and bonds, Stripped Treasury
Obligations and government securities, as described below in "RISK FACTORS AND
INVESTMENT TECHNIQUES -- Government Obligations".
The Government Income Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper
(including variable amount master demand notes), rated at the time of purchase
within the top two rating categories assigned by an NRSRO or, if unrated, which
First of America deems present attractive opportunities and are of comparable
quality bankers' acceptances, certificates of deposit and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, and repurchase
and reverse repurchase agreements. The Government Income Fund may also invest in
corporate debt securities which are rated at the time of purchase within the top
three rating categories assigned by an NRSRO or, if unrated, which First of
America deems present attractive opportunities and are of comparable quality.
<TABLE>
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THE GOVERNMENT INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Currency -Foreign Securities
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase -When-Issued and Delayed-
Agreements and Dollar Roll Delivery Transactions
Agreements
</TABLE>
TAX-FREE INCOME FUNDS
THE MUNICIPAL BOND FUND AND THE MICHIGAN BOND FUND
THE INVESTMENT OBJECTIVE OF THE MUNICIPAL BOND FUND IS TO SEEK CURRENT INTEREST
INCOME WHICH IS EXEMPT FROM FEDERAL INCOME TAXES AND PRESERVATION OF CAPITAL.
THE INVESTMENT OBJECTIVE OF THE MICHIGAN BOND FUND IS TO SEEK INCOME WHICH IS
EXEMPT FROM FEDERAL INCOME TAX AND MICHIGAN STATE INCOME AND INTANGIBLES TAXES,
ALTHOUGH SUCH INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX WHEN
RECEIVED BY CERTAIN SHAREHOLDERS, AND PRESERVATION OF CAPITAL.
Under normal market conditions and as a fundamental policy, at least 80% of the
net assets of the Municipal Bond Fund will be invested in a diversified
portfolio of Municipal Securities and at least 80% of the net assets of the
Michigan Bond Fund will be invested in a portfolio of Michigan Municipal
Securities.
PROSPECTUS--Institutional Shares 30
<PAGE> 238
"Municipal Securities" include obligations consisting of bonds, notes and
commercial paper, issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and other political subdivisions,
agencies, instrumentalities and authorities, the interest on which is both
exempt from federal income taxes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. "Michigan
Municipal Securities" include debt obligations, consisting of notes, bonds and
commercial paper, issued by or on behalf of the State of Michigan, its political
subdivisions, municipalities and public authorities, the interest on which is,
in the opinion of bond counsel to the issuer, exempt from federal income tax and
Michigan state income and intangibles taxes (but may be treated as a preference
item for individuals for purposes of the federal alternative minimum tax) and
debt obligations issued by the government of Puerto Rico, the U.S. territories
and possessions of Guam, the U.S. Virgin Islands or such other governmental
entities whose debt obligations, either by law or treaty, generate interest
income which is exempt from federal and Michigan state income and intangibles
taxes. For more information regarding Municipal Securities and Michigan
Municipal Securities, see "RISK FACTORS AND INVESTMENT TECHNIQUES -- Municipal
Securities."
Under normal market conditions, at least 65% of the net assets of each of the
Municipal Bond Fund and the Michigan Bond Fund will be invested in Municipal
Securities (Michigan Municipal Securities in the case of the Michigan Bond Fund)
consisting of bonds and notes with remaining maturities at the time of purchase
of one year or more. Quality is the primary consideration in selecting Michigan
Municipal Securities for investment by the Michigan Bond Fund.
The Municipal Bond Fund also intends that under normal market conditions its
portfolio will maintain an average weighted rating of AA/Aa. Each of the
Municipal Bond Fund and the Michigan Bond Fund intends that, under normal market
conditions, it will be invested in long-term Municipal Securities (Michigan
Municipal Securities in the case of the Michigan Bond Fund) and that the average
weighted maturity of such investments will be 5 to 12 years, although the
Michigan Bond Fund may invest in Michigan Municipal Securities of any maturity
and First of America may extend or shorten the average weighted maturity of its
portfolio depending upon anticipated changes in interest rates or other relevant
market factors. In addition, the average weighted rating of a Tax-Free Income
Fund's portfolio may vary depending upon the availability of suitable Municipal
Securities or other relevant market factors.
The Michigan Bond Fund invests in Michigan Municipal Securities which are rated
at the time of purchase within the four highest rating categories assigned by an
NRSRO or, in the case of notes, tax-exempt commercial paper or variable rate
demand obligations, rated within the two highest rating categories assigned by
an NRSRO. The Michigan Bond Fund may also purchase Michigan Municipal Securities
which are unrated at the time of purchase but are determined to be of comparable
quality by First of America pursuant to guidelines approved by the Group's Board
of Trustees. The applicable Michigan Municipal Securities ratings are described
in the Appendix to the Statement of Additional Information. For a description of
debt securities rated within the four highest rating categories assigned by the
NRSROs, see "RISK FACTORS AND INVESTMENT TECHNIQUES -- Medium-Grade Securities."
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Tax-Free Income Funds will not treat these
bonds as "Municipal Securities" or "Michigan Municipal Securities" for purposes
of measuring compliance with the 80% tests described above. To the extent the
Tax-Free Income Funds invest in these bonds, individual shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Tax-Free Income Funds' distributions derived from these bonds. For
further information relating to the types of municipal securities which will be
included in income subject to alternative minimum tax, see "ADDITIONAL
INFORMATION -- Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Bond Fund" in the Statement of Additional
Information.
Investments of the Tax-Free Income Funds may be made in taxable obligations if,
for example, suitable tax-exempt obligations are unavailable or if acquisition
of U.S. government or other taxable securities is deemed appropriate for
temporary defensive purposes as determined by First of America to be warranted
due to market conditions. Such taxable obligations consist of government
securities, certificates of deposit, time deposits and bankers' acceptances of
selected banks, commercial paper meeting the Tax-
31 PROSPECTUS--Institutional Shares
<PAGE> 239
Free Income Funds' quality standards for tax-exempt commercial paper (as
described above), and such taxable obligations as may be subject to repurchase
agreements. These obligations are described further in the Statement of
Additional Information. Under such circumstances and during the period of such
investment, the affected Tax-Free Income Fund may not achieve its stated
investment objectives.
Although the Municipal Bond Fund may invest more than 25% of its net assets in
(i) Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, it does not presently intend to do
so on a regular basis. To the extent the Municipal Bond Fund's assets are
concentrated in Municipal Securities that are payable from the revenues of
similar projects or are issued by issuers located in the same state, or are
concentrated in private activity bonds, the Municipal Bond Fund will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states, projects and bonds to a greater extent than it would be if its
assets were not so concentrated.
Because the Michigan Bond Fund invests primarily in securities issued by the
State of Michigan and its political subdivisions, municipalities and public
authorities, the Michigan Bond Fund's performance is closely tied to the general
economic conditions within the State as a whole and to the economic conditions
within particular industries and geographic areas represented or located within
the State. However, the Michigan Bond Fund attempts to diversify, to the extent
First of America deems appropriate, among issuers and geographic areas in the
State of Michigan.
The Michigan Bond Fund is classified as a "non-diversified" investment company,
which means that the amount of assets of the Michigan Bond Fund that may be
invested in the securities of a single issuer is not limited by the Investment
Company Act of 1940, as amended ("1940 Act"). Nevertheless, the Michigan Bond
Fund intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"), which requires the Michigan Bond Fund generally to invest,
with respect to 50% of its total assets, not more than 5% of such assets in the
obligations of a single issuer; as to the remaining 50% of its total assets, the
Michigan Bond Fund is not so restricted. In no event, however, may the Michigan
Bond Fund invest more than 25% of its total assets in the obligations of any one
issuer. Compliance with this requirement is measured at the close of each
quarter of the Michigan Bond Fund's taxable year. Since a relatively high
percentage of the Michigan Bond Fund's assets may be invested in the obligations
of a limited number of issuers, some of which may be within the same economic
sector, the Michigan Bond Fund's portfolio securities may be more susceptible to
any single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
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TAX-FREE INCOME FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Currency Transactions -Futures Contracts (Municipal
- -Government Obligations -Lending Portfolio Securities Bond Fund only)
- -Medium-Grade Securities -Mortgage-Related Securities -Municipal Securities
- -Other Mutual Funds -Portfolio Turnover -Private Activity Bonds
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-Issued and Delayed-Delivery
and Dollar Roll Agreements Transactions
</TABLE>
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MONEY MARKET FUNDS
THE U.S. GOVERNMENT OBLIGATIONS FUND, THE PRIME OBLIGATIONS FUND, THE TREASURY
FUND AND THE TAX-FREE FUND
THE INVESTMENT OBJECTIVE OF EACH OF THE U.S. GOVERNMENT OBLIGATIONS FUND, THE
PRIME OBLIGATIONS FUND AND THE TREASURY FUND IS TO SEEK CURRENT INCOME WITH
LIQUIDITY AND STABILITY OF PRINCIPAL. THE INVESTMENT
PROSPECTUS--Institutional Shares 32
<PAGE> 240
OBJECTIVE OF THE TAX-FREE FUND IS TO SEEK AS HIGH A LEVEL OF CURRENT INTEREST
INCOME FREE FROM FEDERAL INCOME TAXES AS IS CONSISTENT WITH THE PRESERVATION OF
CAPITAL AND RELATIVE STABILITY OF PRINCIPAL.
Under normal market conditions, the U.S. Government Obligations Fund invests at
least 65% of the value of its total assets in short-term U.S. Treasury bills,
notes, and other obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities. The Prime Obligations Fund invests in high-
quality money market instruments, including Municipal Securities and other
instruments deemed to be of comparable high quality as determined by the Board
of Trustees. Under normal market conditions, the Treasury Fund invests
exclusively in obligations issued or guaranteed by the U.S. Treasury, its
agencies or instrumentalities and in repurchase agreements related to such
securities. As a matter of fundamental policy, under normal market conditions,
at least 80% of the Tax-Free Fund's total assets will be invested in Municipal
Securities.
The U.S. Government Obligations Fund may invest up to 35% of the value of its
total assets in high-quality money market instruments, including Municipal
Securities, bankers' acceptances, certificates of deposit, time deposits, and
other instruments deemed to be of comparable high quality as determined by the
Board of Trustees.
The Tax-Free Fund may invest up to 20% of its total assets in obligations the
interest on which is either subject to federal income taxation or treated as a
preference item for purposes of the federal alternative minimum tax ("Taxable
Obligations"). If deemed appropriate for temporary defensive purposes, the Tax-
Free Fund may increase its holdings in Taxable Obligations to over 20% of its
total assets and may also hold uninvested cash reserves pending investment.
Taxable Obligations may include obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities (some of which may be subject to
repurchase agreements), certificates of deposit and bankers' acceptances of
selected banks, and commercial paper meeting the Tax-Free Fund's quality
standards for tax-exempt commercial paper (as described below). These
obligations are described further in the Statement of Additional Information.
As a money market fund, each Money Market Fund invests exclusively in United
States dollar-denominated instruments which the Trustees of the Group and First
of America determine present minimal credit risks and which at the time of
acquisition are rated by one or more NRSROs in one of the two highest rating
categories for short-term debt obligations or, if unrated, which First of
America deems present attractive opportunities and are of comparable quality. In
addition, each of the U.S. Government Obligations Fund, the Prime Obligations
Fund and the Treasury Fund diversifies its investments so that, with minor
exceptions and except for United States government securities, not more than 5%
of its total assets is invested in the securities of any one issuer, not more
than 5% of its total assets is invested in securities of all issuers rated by an
NRSRO at the time of investment in the second highest rating category for
short-term debt obligations or deemed to be of comparable quality to securities
rated in the second highest rating category for short-term debt obligations
(either referred to as "Second Tier Securities") and not more than the greater
of 1% of total assets or $1 million is invested in the Second Tier Securities of
one issuer. All securities or instruments in which a Money Market Fund invests
have remaining maturities of 397 calendar days (13 months) or less (except for
certain variable and floating rate notes and securities underlying certain
repurchase agreements). The dollar-weighted average maturity of the obligations
in a Money Market Fund will not exceed 90 days.
The Prime Obligations Fund and, within the limitations described above, the U.S.
Government Obligations Fund may invest in commercial paper and other short-term
promissory notes issued by corporations (including variable amount master demand
notes) rated at the time of purchase within the two highest rating categories
assigned by an NRSRO or, if not rated, found by the Group's Board of Trustees to
be of comparable quality. Instruments may be purchased in reliance upon a rating
only when the rating organization is not affiliated with the issuer or guarantor
of the instrument. For a description of the rating categories of the NRSROs, see
the Appendix to the Statement of Additional Information. The Prime Obligations
Fund may also invest in CCP, Europaper, bankers' acceptances, certificates of
deposit and time deposits.
Variable amount master demand notes in which the U.S. Government Obligations
Fund, the Prime Obligations Fund and certain other Funds may invest are
unsecured demand notes that permit the
33 PROSPECTUS--Institutional Shares
<PAGE> 241
indebtedness thereunder to vary, and that provide for periodic adjustments in
the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time. While the
notes are not typically rated by credit rating agencies, issuers of variable
amount master demand notes (which are normally manufacturing, retail, financial,
and other business concerns) must satisfy the same criteria as set forth above
for commercial paper. First of America will consider the earning power, cash
flow, and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial status and ability to meet payment on
demand. In determining average weighted portfolio maturity, a variable amount
master demand note will be deemed to have a maturity equal to the period of time
remaining until the principal amount can be recovered from the issuer through
demand, which shall not exceed seven days.
Each of the Money Market Funds may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying security, a dealer in the security, or by another
third party, and may not be transferred separately from the underlying security.
The Money Market Funds use these arrangements to provide liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable after a payment
default on the underlying security may be treated as a form of credit
enhancement.
Certain of the Money Market Funds' permitted investments may have received
credit enhancement by a guaranty, letter of credit, or insurance. The Money
Market Funds may evaluate the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the entity
providing the credit enhancement, rather than the issuer. The bankruptcy,
receivership, or default of an entity providing credit enhancement may adversely
affect the quality and marketability of the underlying security.
Consistent with the requirements of Rule 2a-7 adopted under the 1940 Act, each
of the Money Market Funds will limit its investment, with respect to 75% of its
assets, to no more than 10% of its total assets in securities issued by or
subject to demand features of a single issuer. With respect to the remaining 25%
of a Money Market Fund's assets, the Fund may invest in securities subject to
demand features from, or directly issued by, one or more institutions, provided
they are rated in the highest rating category assigned by an NRSRO and are
issued by a "noncontrolled person," as defined in the Rule. In addition, a
demand feature, other than a standby commitment, may be acquired by a Money
Market Fund only if the demand feature or its issuer has received one of the two
highest short-term rating categories assigned by an NRSRO and not more than 5%
of the Fund's assets are invested in demand features from a single issuer rated
in the second highest short-term rating category assigned by an NRSRO.
Each of the Money Market Funds intends to follow the operational policies
described above, as well as other non-fundamental policies that will enable the
Fund to comply with the laws and regulations applicable to money market mutual
funds, particularly Rule 2a-7 under the 1940 Act. Each of the Money Market Funds
shall determine the effective maturity of its investments, the applicable credit
rating of securities, and adequate diversification by reference to Rule 2a-7.
Each of the Money Market Funds may change its operational policies to reflect
changes in the laws and regulations applicable to money market mutual funds
without shareholder approval.
The Tax-Free Fund may acquire zero-coupon obligations, which have greater price
volatility than coupon obligations and which will not result in the payment of
interest until maturity. Additionally, the Tax-Free Fund, within the limitations
described above and subject to the quality standards for tax-exempt commercial
paper described below, may invest in commercial paper.
Although the Tax-Free Fund presently does not intend to do so on a regular
basis, it may invest more than 25% of its assets in Municipal Securities which
are related in such a way that an economic, business, or political development
or change affecting one such security would likewise affect the other Municipal
Securities. Examples of such securities are obligations the repayment of which
is dependent upon similar
PROSPECTUS--Institutional Shares 34
<PAGE> 242
types of projects or projects located in the same state. Such investments would
be made only if deemed necessary or appropriate by the Investment Adviser. To
the extent that the Tax-Free Fund's assets are concentrated in Municipal
Securities that are so related, the Tax-Free Fund will be subject to the
peculiar risks presented by such Municipal Securities, such as negative
developments in a particular industry or state, to a greater extent than it
would be if the Tax-Free Fund's assets were not so concentrated.
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MONEY MARKET FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Government Obligations
(except Treasury Fund) -Lending Portfolio Securities -Municipal Securities
- -Guaranteed Investment Contracts -Private Activity Bonds (Tax-Free (except Treasury Fund)
(Prime Obligations Fund only) Fund only) -Put and Call Options
- -Portfolio Turnover -Restricted Securities (Tax-Free Fund only)
- -Repurchase Agreements (except Treasury Fund) -Reverse Repurchase
- -When-Issued and Delayed- Agreements and Dollar
Delivery Transactions Roll Agreements
</TABLE>
- --------------------------------------------------------------------------------
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase or dollar roll agreements with
First of America Bank, N.A. (formerly, First of America Bank-Michigan, N.A.,
"FOA," the parent corporation of First of America), BISYS, or their affiliates,
and will not give preference to FOA's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements, reverse
repurchase agreements and dollar roll agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by First of America and in the case
of the International Fund and Balanced Allocation Fund, Gulfstream, in the
management of each of the Funds (with the exception of the Treasury Fund)
involve complex securities sometimes referred to as "derivatives." Among such
securities are put and call options, foreign currency transactions and futures
contracts, all of which are described below. The Investment Adviser and
Subadviser believe that such complex securities may, in some circumstances, play
a valuable role in successfully implementing each Fund's investment strategy and
achieving its goals. However, because complex securities and the strategies for
which they are used, are by their nature complicated, they present substantial
opportunities for misunderstanding and misuse. To guard against these risks, the
Investment Adviser and Subadviser will utilize complex securities primarily for
hedging, not speculative, purposes and only after careful review of the unique
risk factors associated with each such security.
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds, with the exception of the Money Market Funds and the Tax-Free
Income Funds, may utilize foreign currency transactions in its portfolio. The
value of the assets of a Fund as measured in United States dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract ("forward currency contracts") involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These forward currency contracts are traded directly
between currency traders (usually large commercial banks) and their customers.
The Funds may enter into
35 PROSPECTUS--Institutional Shares
<PAGE> 243
forward currency contracts in order to hedge against adverse movements in
exchange rates between currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency. Alternatively, when a Fund believes it will increase, it may enter
into a forward currency purchase contract to buy that foreign currency for a
fixed U.S. dollar amount; however, this tends to limit potential gains which
might result from a positive change in such currency relationships. A Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
The forecasting of short-term currency market movement is extremely difficult
and whether such a short-term hedging strategy will be successful is highly
uncertain. It is impossible to forecast with precision the market value of
portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency such Fund is obligated
to deliver when a decision is made to buy the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency such Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. If forward prices
decline during the period between which a Fund enters into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. If forward prices
increase, such Fund would suffer a loss to the extent the price of the currency
it has agreed to purchase exceeds the price of the currency it has agreed to
sell. Although such contracts tend to minimize the risk of loss due to a decline
in the value of the hedged currency, they also tend to limit any potential gain
which might result if the value of such currency increases. The Funds will have
to convert their holdings of foreign currencies into United States dollars from
time to time. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
No Fund intends to enter into forward currency contracts if more than 15% of the
value of its total assets would be committed to such contracts on a regular or
continuous basis. A Fund also will not enter into forward currency contracts or
maintain a net exposure on such contracts where such Fund would be obligated to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments" in
the Statement of Additional Information.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Allocation Fund may invest up to 20% of its total assets in foreign
securities. The Small Capitalization Fund, Mid
PROSPECTUS--Institutional Shares 36
<PAGE> 244
Capitalization Fund, Large Capitalization Fund and Equity Income Fund may invest
in foreign securities as permitted by their respective investment policies. Each
of the Bond Fund and Limited Maturity Bond Fund may invest up to 25% of its net
assets in foreign securities either directly or through the purchase of ADRs and
may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper. The Government Income Fund, the U.S.
Government Obligations Fund, the Prime Obligations Fund and the Tax-Free Fund
may invest in foreign securities by purchasing: Eurodollar certificates of
deposit ("ECDs"), which are U.S. dollar-denominated certificates of deposit
issued by offices of foreign and domestic banks outside the U.S.; Eurodollar
time deposits ("ETDs"), which are U.S. dollar-denominated deposits in a foreign
branch of a U.S. or foreign bank; Canadian time deposits ("CTDs"), which are
essentially the same as ETDs, except that they are issued by Canadian offices of
major Canadian banks; Yankee certificates of deposit ("Yankee CDs"), which are
U.S. dollar-denominated certificates of deposit issued by a U.S. branch of a
foreign bank but held in the U.S.; CCP; and Europaper.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the United States. In addition, there may be less
publicly available information about a foreign company than about a
U.S.-domiciled company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States. Confiscatory taxation or diplomatic developments could also
affect investment in those countries. In addition, foreign branches of U.S.
banks, foreign banks and foreign issuers may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after such Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater.
U.S. dollar-denominated ADRs, which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all of the risk inherent in investing
in the securities of foreign issuers. However, by investing in ADRs rather than
directly in foreign issuers'
37 PROSPECTUS--Institutional Shares
<PAGE> 245
stock, a Fund can avoid currency risks during the settlement period for either
purchases or sales. In general, there is a large, liquid market in the United
States for many ADRs. The information available for ADRs is subject to the
accounting, auditing and financial reporting standards of the domestic market or
exchange on which they are traded, standards which are more uniform and more
exacting than those to which many foreign issuers may be subject. The ADR is
sometimes referred to as a Global Depositary Receipt, or GDR. In the United
States, the GDR is, after issuance, not unlike any other ADR. The difference is
found in the purpose of the issue. GDRs are used for global offerings, by the
simultaneous issuance of a single security in multiple world markets. The
International Fund and Balanced Allocation Fund may also invest in EDRs, which
are receipts evidencing an arrangement with a European bank similar to that for
ADRs and designed for use in the European securities markets. EDRs are not
necessarily denominated in the currency of the underlying security.
Certain of the ADRs and EDRs, typically those categorized as unsponsored,
require their holders to bear most of the costs of such facilities while issuers
of sponsored facilities normally pay more of the costs. 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 with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the
European Currency Unit ("ECU"), which is a "basket" unit of currency consisting
of specified amounts of the currencies of certain of the 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.
FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds, the Income Funds and the
Municipal Bond Fund may also enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, a Fund can seek through the sale of
futures contracts to offset a decline in the value of its portfolio securities.
When interest rates are expected to fall or market values are expected to rise,
a Fund, through the purchase of such contracts, can attempt to secure better
rates or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercising 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 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of a Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such
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unanticipated changes may also result in poorer overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of a
Fund's futures positions may not prove to be perfectly or even highly correlated
with its portfolio securities or foreign currencies, limiting the Fund's ability
to hedge effectively against interest rate, exchange rate and/or market risk and
giving rise to additional risks. There is no assurance of liquidity in the
secondary market for purposes of closing out futures positions.
GOVERNMENT OBLIGATIONS
The U.S. Government Obligations Fund will invest primarily in obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities.
Subject to the investment parameters described above, each of the remaining
Funds may also invest in such obligations. The Treasury Fund, however, will
invest exclusively in obligations issued or guaranteed by the U.S. Treasury and
in repurchase agreements backed by such securities.
The types of U.S. government obligations in which each of these Funds may invest
include U.S. Treasury notes, bills, bonds, and any other securities directly
issued by the U.S. government for public investment, which differ only in their
interest rates, maturities, and times of issuance. Stripped Treasury Obligations
are also permissible investments. Stripped securities are issued at a discount
to their "face value" and may exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest are
returned to investors. The Stripped Treasury Obligations in which the Money
Market Funds may invest do not include certificates of accrual on Treasury
securities ("CATS") or Treasury income growth receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the right of
the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association ("SLMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored agencies or
instrumentalities, such as FNMA, SLMA or FHLMC, since it is not obligated to do
so by law. The Funds which may invest in these government obligations will
invest in the obligations of such agencies or instrumentalities only when First
of America believes that the credit risk with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS
The Bond Fund, the Limited Maturity Bond Fund and the Prime Obligations Fund may
invest in GICs. When investing in GICs, the Bond Fund, the Limited Maturity Bond
Fund and the Prime Obligations Fund make cash contributions to a deposit fund of
an insurance company's general account. The insurance company then credits
guaranteed interest to the deposit fund on a monthly basis. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expenses and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. The Bond Fund and the Limited Maturity Bond Fund may invest
in GICs of insurance companies without regard to the ratings, if any, assigned
to such insurance companies' outstanding debt securities. The Prime Obligations
Fund may only invest in GICs that have received the requisite ratings by one or
more NRSROs, see "INVESTMENT OBJECTIVES AND POLICIES -- The Money Market Funds"
in this Prospectus. Because a Fund may not receive the principal amount of a GIC
from the insurance company on seven days' notice or less, the GIC is considered
an illiquid investment. For each of the Bond Fund and Limited Maturity Bond
Fund, no more than 15% of its total assets will be invested in instruments which
are considered to be illiquid. For the Prime Obligations Fund, no more than 10%
of its total assets may be invested in instruments which are considered to be
illiquid. In determining average portfolio maturity, GICs will be deemed to have
a maturity equal to the period of time remaining until the next readjustment of
the guaranteed interest rate.
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MEDIUM-GRADE SECURITIES
Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond Fund,
Municipal Bond Fund and Michigan Bond Fund may invest in fixed-income securities
rated within the four highest rating categories assigned by an NRSRO (i.e., BBB
or Baa by S&P or Moody's, respectively) and comparable unrated securities as
determined by the Investment Adviser. These types of fixed-income securities are
considered by the NRSROs to have some speculative characteristics, and are more
vulnerable to changes in economic conditions, higher interest rates or adverse
issuer-specific developments which are more likely to lead to a weaker capacity
to make principal and interest payments than comparable higher rated debt
securities.
Should subsequent events cause the rating of a fixed-income security purchased
by any of the Funds listed above to fall below the fourth highest rating, First
of America will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would the Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
MORTGAGE-RELATED SECURITIES
The Government Income Fund intends to invest up to 80% of the value of its total
assets in mortgage-related securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. However, the Government Income
Fund may invest greater amounts as conditions warrant. Each of the remaining
Funds, except the International Fund, may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Such agencies or instrumentalities include GNMA, FNMA and
FHLMC. Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond
Fund, Intermediate Government Obligations Fund, Government Income Fund, Prime
Obligations Fund and U.S. Government Obligations Fund may also invest in
mortgage-related securities issued by nongovernmental entities which are rated,
at the time of purchase, within the three highest bond rating categories
assigned by an NRSRO or, if unrated, which First of America deems present
attractive opportunities and are of comparable quality.
The mortgage-related securities in which these Funds may invest have mortgage
obligations backing such securities, consisting of conventional thirty-year
fixed-rate mortgage obligations, graduated payment mortgage obligations,
fifteen-year mortgage obligations and adjustable-rate mortgage obligations. All
of these mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. Accelerated prepayments have an adverse impact on yields for
pass-throughs purchased at a premium (i.e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the
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average life of the security and shortening the period of time over which income
at the higher rate is received. When interest rates are rising, though, the rate
of prepayment tends to decrease, thereby lengthening the period of time over
which income at the lower rate is received. For these and other reasons, a
mortgage-related security's average maturity may be shortened or lengthened as a
result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return to the Fund. In addition, regular
payments received with respect to mortgage-related securities include both
interest and principal. No assurance can be given as to the return a Fund will
receive when these amounts are reinvested.
The principal governmental (i.e., backed by the full faith and credit of the
United States government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Administration
or guaranteed by the Veterans Administration.
Government-related (i.e., not backed by the full faith and credit of the United
States government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States government. FHLMC is a corporate instrumentality of the
United States government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by non-governmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers will be considered in
determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the poolers, First of
America determines that the securities meet the Government Income Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Government Income Fund will not purchase mortgage-related
securities or any other assets which in First of America's opinion are illiquid
if, as a result, more than 15% of the value of the Government Income Fund's
total assets will be illiquid.
Mortgage-related securities in which the above-named Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
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The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments; that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed-rate mortgages. As new types
of mortgage-related securities are developed and offered to investors, First of
America will, consistent with the Government Income Fund's investment objective,
policies and quality standards, consider making investments in such new types of
securities.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities (Michigan Municipal
Securities, in the case of the Michigan Bond Fund) which may be held by the Bond
Fund, Limited Maturity Bond Fund, Municipal Bond Fund, Michigan Bond Fund, Prime
Obligations Fund, U.S. Government Obligations Fund and Tax-Free Fund are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by the Municipal Bond Fund and Michigan Bond Fund are in
most cases revenue securities and are not payable from the unrestricted revenues
of the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
The above-named Funds may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Each of the above-named Funds invests primarily in Municipal Securities which
are rated at the time of purchase within the four highest rating categories
assigned by an NRSRO or in the highest rating category assigned by an NRSRO in
the case of notes, tax-exempt commercial paper or variable rate demand
obligations. These Funds may also purchase Municipal Securities which are
unrated at the time of purchase but determined to be of comparable quality by
First of America pursuant to guidelines approved by the Group's Board of
Trustees. The Money Market Funds may invest in Municipal Securities only in
compliance with the requirements of Rule 2a-7 under the 1940 Act, which
generally requires that they invest only in securities rated in the two highest
rating categories assigned by an NRSRO (with no more than 5% of their assets
invested in the second highest rating category). The applicable Municipal
Securities ratings are described in the Appendix to the Statement of Additional
Information. For a discussion of debt securities rated within the four highest
rating categories assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Medium Grade Securities."
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Funds nor First of
America will review the proceedings relating to the issuance of Municipal
Securities or the basis for such opinions.
Municipal Securities and Michigan Municipal Securities purchased by the Tax-Free
Income Funds may include rated and unrated variable and floating rate tax-exempt
notes. A variable rate note is one whose terms provide for the adjustment of its
interest rate on set dates and which, upon such adjustment, can reasonably be
expected to have a market value that approximates its par value. A floating rate
note is one whose terms provide for the adjustment of its interest rate whenever
a specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. Such notes are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate notes purchased by the TaxFree Income Funds will be determined by
First of America, under guidelines established by the Group's Board of Trustees,
to be of comparable quality at the time of purchase to rated instruments
eligible for purchase under the Funds' investment policies. In making such
determinations, First of America will consider the earning power, cash flow and
other liquidity ratios of the issuers of such
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notes (such issuers include financial, merchandising, bank holding and other
companies) and will continuously monitor their financial condition. There may be
no active secondary market with respect to a particular variable or floating
rate note. Nevertheless, the periodic readjustments of their interest rates tend
to assure that their value to the Tax-Free Income Funds will approximate their
par value. The Tax-Free Income Funds will not purchase variable and floating
rate notes or any other securities which in First of America's opinion are
illiquid if, as a result, more than 15% of either Tax-Free Income Fund's total
assets will be illiquid.
OTHER MUTUAL FUNDS
Each of the Funds, except the Money Market Funds, may invest up to 5% of the
value of its total assets in the securities of any one money market mutual fund
(including shares of the Parkstone Money Market Funds), provided that no more
than 10% of a Fund's total assets may be invested in the securities of mutual
funds in the aggregate. In order to avoid the imposition of additional fees as a
result of investments by a Fund in shares of the Money Market Funds of the
Group, the Investment Adviser, Administrator and their affiliates (See
"MANAGEMENT OF THE FUNDS -- Investment Adviser and Subadviser" and
"Administrator, Sub-Administrator and Distributor" and "GENERAL INFORMATION --
Transfer Agency and Fund Accounting Services") will charge their fees to the
investing Fund, rather than the Money Market Funds. Each Fund will incur
additional expenses due to the duplication of expenses as a result of investing
in securities of unaffiliated mutual funds. Additional restrictions regarding
the Funds' investments in securities of unaffiliated mutual funds and/or Money
Market Funds of the Group are contained in the Statement of Additional
Information.
PRIVATE ACTIVITY BONDS
The Tax-Free Income Funds and the Tax-Free Fund may invest in private activity
bonds. It should be noted that the Tax Reform Act of 1986 substantially revised
provisions of prior federal law affecting the issuance and use of proceeds of
certain tax-exempt obligations. A new definition of private activity bonds
applies to many types of bonds, including those which were industrial
development bonds under prior law. Any reference herein to private activity
bonds includes industrial development bonds. Interest on private activity bonds
is tax-exempt (and such bonds will be considered Municipal Securities for
purposes of this Prospectus) only if the bonds fall within certain defined
categories of qualified private activity bonds and meet the requirements
specified in those respective categories. If a Fund invests in private activity
bonds which fall outside these categories, shareholders may become subject to
the alternative minimum tax on that part of the Fund's distributions derived
from interest on such bonds. The Tax Reform Act generally does not change the
federal tax treatment of bonds issued to finance government operations. For
further information relating to the types of private activity bonds which will
be included in income subject to the alternative minimum tax, see "ADDITIONAL
INFORMATION -- Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Bond Fund" in the Statement of Additional
Information.
PUT AND CALL OPTIONS
Each of the Growth Funds, the Growth and Income Funds, the Income Funds and the
Tax-Free Income Funds may purchase put and call options on securities and on
foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. Each Fund
may also engage in writing call options from time to time as First of America or
Gulfstream, as the case may be with respect to the Balanced Allocation Fund or
International Fund, deem appropriate. The Funds will write only covered call
options (options on securities or currencies owned by the particular Fund). In
order to close out a call option it has written, the Fund will enter into a
"closing purchase transaction" (the purchase of a call option on the same
security or currency with the same exercise price and expiration date as the
call option which such Fund previously has written). When a portfolio security
or currency subject to a call option is sold, the Fund will effect a
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closing purchase transaction to close out any existing call option on that
security or currency. If such Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security or currency
until the option expires or that Fund delivers the underlying security or
currency upon exercise. In addition, upon the exercise of a call option by the
option holder, the Fund will forego the potential benefit represented by market
appreciation over the exercise price. Under normal conditions, it is not
expected that the Funds will cause the underlying value of portfolio securities
and currencies subject to such options to exceed 50% of its net assets, and with
respect to each of the Balanced Allocation Fund and International Fund, 20% of
its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its options transactions, also may purchase index put and call
options and write index options. As with options on individual securities, a
Fund will write only covered index call options. Through the writing or purchase
of index options a Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
In addition, each of the Tax-Free Fund and the Tax-Free Income Funds may acquire
"puts" with respect to Municipal Securities (or Michigan Municipal Securities,
as the case may be), held in its portfolio. Under a put, such Fund would have
the right to sell a specified Municipal Security (or Michigan Municipal
Security, as the case may be) within a specified period of time at a specified
price. A put would be sold, transferred, or assigned only with the underlying
security. Each of the Tax-Free Fund and the Tax-Free Income Funds will acquire
puts either solely to facilitate portfolio liquidity, shorten the maturity of
the underlying securities, or permit the investment of its funds at a more
favorable rate of return. Each of the Tax-Free Fund and the Tax-Free Income
Funds expects that it will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, such Fund may pay for a put either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the puts (thus reducing the yield to maturity otherwise available for the
same securities).
REPURCHASE AGREEMENTS
Securities held by a Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as member banks of the Federal Deposit Insurance Corporation
or registered broker-dealers which First of America or Gulfstream, as the case
may be, deem creditworthy under the guidelines approved by the Group's Board of
Trustees, subject to the seller's agreement to repurchase such securities at a
mutually agreed upon date and price. The repurchase price would generally equal
the price paid by the Fund plus interest negotiated on the basis of current
short-term rates, which may be more or less than the rate on the underlying
portfolio securities. Securities subject to repurchase agreements will be held
in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from the sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by that Fund were delayed pending court action. Repurchase
agreements are considered to be loans by an investment
PROSPECTUS--Institutional Shares 44
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company under the 1940 Act. For further information about repurchase agreements,
see "INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments-Repurchase Agreements" in the Statement of Additional Information.
RESTRICTED SECURITIES
Securities in which each of the Funds, with the exception of the Treasury Fund,
may invest include securities issued by corporations without registration under
the Securities Act of 1933, as amended (the "1933 Act"), in reliance on the
exemption from such registration afforded by Section 3(a)(3) thereof, and
securities issued in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) securities"). Section 4(2) securities are restricted as to disposition
under the federal securities laws, and generally are sold to institutional
investors such as the Funds who agree that they are purchasing the securities
for investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in such Section 4(2) securities,
thus providing liquidity. Pursuant to procedures adopted by the Board of
Trustees of the Group, First of America may determine Section 4(2) securities to
be liquid if such securities are eligible for resale under Rule 144A under the
1933 Act and are readily saleable.
Subject to the limitations described above, the Funds may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registered under the 1993 Act. An illiquid investment
is any investment that cannot be disposed of within seven (7) days in the normal
course of business at approximately the amount at which it is valued by a Fund.
The price a Fund pays for illiquid securities or receives upon resale may be
lower than the price paid or received for similar securities with a more liquid
market. Accordingly, the valuation of these securities will reflect any
limitations on their liquidity. For each of the Non-Money Market Funds, a Fund
may not invest in additional illiquid securities if, as a result, more than 15%
of the market value of its net assets would be invested in illiquid securities.
For each of the Money Market Funds, a Fund may not invest in additional illiquid
securities if, as a result, more than 10% of the market value of its net assets
would be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Each of the Funds may borrow money by entering into reverse repurchase
agreements and, in the case of the Income Funds and the Tax-Free Income Funds,
dollar roll agreements, in accordance with the investment restrictions described
below. Pursuant to reverse repurchase agreements, a 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.
Dollar roll agreements utilized by the Income Funds and Tax-Free Income Funds
are identical to reverse repurchase agreements except for the fact that
substantially similar securities may be repurchased. At the time a Fund enters
into a reverse repurchase agreement or a dollar roll agreement, it will place in
a segregated custodial account assets such as U.S. government securities or
other liquid high-grade debt securities consistent with its investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently continually monitor the account to ensure that
such equivalent value is maintained at all times. Reverse repurchase agreements
and dollar roll agreements involve the risk that the market value of securities
sold by a Fund may decline below the price at which it is obligated to
repurchase the securities. Reverse repurchase agreements and dollar roll
agreements are considered to be borrowings by an investment company under the
1940 Act and therefore a form of leverage. A Fund may experience a negative
impact on its net asset value if interest rates rise during the term of a
reverse repurchase agreement or dollar roll agreement. A Fund generally will
invest the proceeds of such borrowings only when such borrowings will enhance a
Fund's liquidity or when the Fund reasonably expects that the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. For further information about reverse repurchase
agreements and dollar roll agreements, see "INVESTMENT OBJECTIVES AND
POLICIES -- Additional Information on Portfolio Instruments-Reverse Repurchase
Agreements and Dollar Roll Agreements" in the Statement of Additional
Information.
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WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis. Such Funds will engage in when-issued and delayed-delivery transactions
only for the purpose of acquiring portfolio securities consistent with its
investment objectives and policies, not for investment leverage although such
transactions represent a form of leveraging. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve a risk that the yield obtained in the
transaction will be less than those available in the market when delivery takes
place. A Fund will not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase such securities, its
Custodian will set aside cash or liquid securities equal to the amount of the
commitment in a separate account. Securities purchased on a when-issued basis
are recorded as an asset and are subject to changes in the value based upon
changes in the general level of interest rates. In when-issued and
delayed-delivery transactions, a Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause such Fund to miss a price
or yield considered to be advantageous.
No Fund's commitments to purchase "when-issued" securities will exceed 25% of
the value of its total assets under normal market conditions, and a commitment
by a Fund to purchase "when-issued" securities will not exceed 60 days. In the
event its commitments to purchase "when-issued" securities ever exceeded 25% of
the value of its assets, a Fund's liquidity and the ability of First of America
or Gulfstream, as the case may be, to manage it might be adversely affected. The
Funds intend only to purchase "when-issued" securities for the purpose of
acquiring portfolio securities, not for investment leverage.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund except the Treasury Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. government securities. This collateral will be valued
daily by Union Bank. Should the market value of the loaned securities increase,
the borrower must furnish additional collateral to that Fund. During the time
portfolio securities are on loan, the borrower pays that Fund any dividends or
interest received on such securities. Loans are subject to termination by the
Fund or the borrower at any time. While a Fund does not have the right to vote
securities on loan, each Fund intends to terminate the loan and regain the right
to vote if that is considered important with respect to the investment. In the
event the borrower defaults in its obligation to a Fund, such Fund bears the
risk of delay in the recovery of its portfolio securities and the risk of loss
of rights in the collateral. The Funds will enter into loan agreements only with
broker-dealers, banks, or other institutions that First of America or
Gulfstream, as the case may be, have determined are creditworthy under
guidelines established by the Group's Board of Trustees.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The SEC requires that the
calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less.
Because the Money Market Funds intend to invest primarily in securities with
maturities of less than one year (although each may invest in securities with
maturities of up to 13 months) and because the SEC requires such securities to
be excluded from the calculation of portfolio turnover rate, the portfolio
turnover rate with respect to each of the Money Market Funds is expected to be
zero for regulatory purposes. For portfolio turnover rates for each of the
Non-Money Market Funds, see "FINANCIAL HIGHLIGHTS."
The portfolio turnover rate for a Fund may vary greatly from year to year, as
well as within a particular year, and may also be affected by cash requirements
for redemptions of shares. High portfolio turnover
PROSPECTUS--Institutional Shares 46
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rates will generally result in higher transaction costs, including brokerage
commissions, to a Fund and may result in additional tax consequences to a Fund's
shareholders. Portfolio turnover will not be a limiting factor in making
investment decisions.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding shares of that Fund (as defined
in the Statement of Additional Information).
None of the Funds, with the exception of the Michigan Bond Fund, may:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities,
if, immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in such issuer, or the Fund would
hold more than 10% of the outstanding voting securities of the issuer,
except that 25% or less of the value of such Fund's total assets may be
invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes,
or other obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities.
Irrespective of the investment restriction above, and pursuant to Rule 2a-7
under the 1940 Act, the U.S. Government Obligations Fund, the Prime Obligations
Fund, the Tax-Free Fund and the Treasury Fund each will, with respect to 100% of
its total assets, limit its investment in the securities of any one issuer in
the manner provided by such Rule, which limitations are referred to above under
the caption "INVESTMENT OBJECTIVES AND POLICIES -- The Money Market Funds."
The Michigan Bond Fund may not:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities,
if, immediately after such purchase, (a) more than 5% of the value of
the Fund's total assets (taken at current value) would be invested in
such issuer (except that up to 50% of the value of the Fund's total
assets may be invested without regard to such 5% limitation), and (b)
more than 25% of its total assets (taken at current value) would be
invested in the securities of a single issuer.
For purposes of the investment limitations above, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues back
the security and, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, a security is considered to
be issued by such non-governmental user.
None of the Funds will:
1. Purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the
U.S. government or its agencies or instrumentalities; (b) wholly-owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
2. (a) Borrow money (not including reverse repurchase agreements or dollar roll
agreements), except that each Fund may borrow from banks for temporary or
emergency purposes and then only in amounts up to 30% (10% in the case of the
Money Market Funds) of its total assets at the time of borrowing (and
provided that such bank borrowings, reverse repurchase agreements and dollar
roll agreements do not exceed in the aggregate one-third of the Fund's total
assets less liabilities other than the obligations represented by the bank
borrowings, reverse repurchase agreements and dollar
47 PROSPECTUS--Institutional Shares
<PAGE> 255
roll agreements), or mortgage, pledge or hypothecate any assets except in
connection with a bank borrowing in amounts not to exceed 30% of the Fund's
net assets at the time of borrowing; (b) enter into reverse repurchase
agreements, dollar roll agreements and other permitted borrowings in amounts
exceeding in the aggregate one-third of the Fund's total assets less
liabilities other than the obligations represented by such reverse repurchase
and dollar roll agreements; and (c) issue senior securities except as
permitted by the 1940 Act or any rule, order or interpretation thereunder.
3. Make loans, except that a Fund may purchase or hold debt instruments and lend
portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
For purposes of investment limitation number 1 above only, such limitation shall
not apply to Municipal Securities or governmental guarantees of Municipal
Securities, and industrial development bonds or private activity bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding shares of a Fund.
Each Fund will not:
1. Purchase or otherwise acquire any securities if, as a result, more than 15%
(10% in the case of the Money Market Funds) of the Fund's net assets would be
invested in securities that are illiquid.
In addition to the above investment restrictions, the Funds are subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES -- Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
TRUSTEES
Overall responsibility for management of the Group rests with its Board of
Trustees. The Group will be managed by the Trustees in accordance with the laws
of the Commonwealth of Massachusetts governing business trusts. There are
currently six Trustees, four 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
names, addresses, birth dates and principal occupations during the past five
years of the Trustees are set forth in the Statement of Additional Information.
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
First of America Bank Corporation ("FABC"), BISYS, The BISYS Group, Inc. or
BISYS Ohio 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 Transfer Agent. BISYS Ohio, an affiliate
of BISYS, receives fees from the Group for providing certain fund accounting
services.
INVESTMENT ADVISER AND SUBADVISER
First of America, 303 North Rose Street, Suite 500, Kalamazoo, Michigan 49007,
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 FOA,
which is a wholly-owned subsidiary of FABC. FABC currently has over $21.5
billion in assets and provides financial services to communities in Michigan,
Indiana, Illinois and Florida. FABC has, however, entered into an agreement to
sell its operations in Florida, thereby reducing its assets by approximately
$1.1 billion. As of June 30, 1997, First of America managed over $15.8 billion
on behalf of both taxable and tax-exempt clients, including pensions,
endowments, corporations and individual portfolios. First of America acts as
subadviser to the Trust Division of FABC with respect to
PROSPECTUS--Institutional Shares 48
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$7.2 billion in discretionary assets, providing equity, fixed income, balanced
and money management services.
Subject to such policies as the Group's Board of Trustees may determine, First
of America, either directly or, with respect to the International Fund and the
Balanced Allocation Fund, through Gulfstream, furnishes a continuous investment
program for each Fund and makes investment decisions on behalf of each Fund.
First of America utilizes a team approach to the investment management of the
Funds, with up to three professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
each Fund's investment objectives. Roger H. Stamper, Managing Director of First
of America, is primarily responsible for the day-to-day management of each of
the Growth Funds (except the International Fund) and the Growth and Income
Funds. Mark R. Kummerer, Managing Director -- Fixed Income of First of America,
is primarily responsible for the day-to-day management of the Income Funds.
Christian S. Swantek, Vice President of First of America, is primarily
responsible for the day-to-day management of the Tax-Free Income Funds. Messrs.
Stamper and Kummerer have held their respective positions with First of America
since 1988 and 1986, respectively. Prior to June 1993, Mr. Swantek was a
portfolio manager at PNC Investment Management & Research and its various
investment management affiliates.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, First of America receives a fee from the
Large Capitalization Fund, computed daily and paid monthly, at the annual rate
of 0.80% of the Fund's average daily net assets. For its services in connection
with each of the Small Capitalization Fund, Mid Capitalization Fund, Equity
Income Fund and Balanced Allocation Fund, First of America's fee is computed
daily and paid monthly at the annual rate of 1.00% of the applicable Fund's
average daily net assets. For its services in connection with the International
Fund, First of America's fee is computed daily and paid monthly at the annual
rate of 1.25% of the first $50 million of the International Fund's average daily
net assets, 1.20% of average daily net assets between $50 million and $100
million, 1.15% of average daily net assets between $100 million and $400 million
and 1.05% of average daily net assets above $400 million. For its services in
connection with each Income Fund and Tax-Free Income Fund, First of America's
fee is computed daily and paid monthly at the annual rate of 0.74% of each
Income Fund's and Tax-Free Income Fund's average daily net assets. For its
services in connection with the Money Market Funds, First of America's fee is
computed daily and paid monthly, at the annual rate of 0.40% of each Money
Market Fund's average daily net assets. First of America may periodically
voluntarily reduce all or a portion of its advisory fee with respect to a Fund
to increase the net income of that Fund available for distribution as dividends.
The voluntary fee reduction will cause the yield of that Fund to be higher than
it would otherwise be in the absence of such a reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream,
100 Crescent Court, Suite 550, Dallas, Texas 75201. Pursuant to the terms of
such Sub-Investment Advisory Agreement Gulfstream has been retained by First of
America to manage the investment and reinvestment of the assets of the
International Fund and to manage the investment and reinvestment of those assets
of the Balanced Allocation Fund which are invested in foreign securities,
subject to the direction and control of the Group's Board of Trustees.
Under this arrangement, Gulfstream is responsible for day-to-day management of
the International Fund's assets and the applicable portion of the Balanced
Allocation Fund, reviewing investment performance policies and guidelines and
maintaining certain books and records, and First of America is responsible for
selecting and monitoring the performance of Gulfstream and for reporting the
activities of Gulfstream in managing these Funds to the Group's Board of
Trustees. First of America may also render advice with respect to the
International Fund's investments in the U.S. Gulfstream utilizes a team approach
to investment management to ensure a disciplined investment process designed to
result in long-term performance consistent with a Fund's investment objective.
No one person is responsible for a Fund's management.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with First of America, Gulfstream receives from First of
America a fee, computed daily and paid monthly, at the
49 PROSPECTUS--Institutional Shares
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annual rate of 0.50% of the first $50 million of the International Fund's
average daily net assets and the average daily net assets of the Balanced
Allocation Fund which are invested in foreign securities, 0.45% of such average
daily net assets between $50 million and $100 million, 0.40% of such average
daily net assets between $100 million and $400 million and 0.30% of such average
daily net assets above $400 million, provided the minimum annual fee shall be
$75,000.
Gulfstream was organized in 1991 as a Texas limited partnership by Tull, Doud,
Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is the sole general
partner of Gulfstream. TDMT is owned by C. Thomas Tull, Stephen C. Doud, James
P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and Triltsch are the
portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. First of America is the sole limited partner, and as of August 31,
1996 exercised options to increase its interest in Gulfstream from 49% to 72%.
In spite of the fact that, as a limited partner, First of America does not
possess management authority or responsibility for Gulfstream, because of its
72% ownership interest, First of America may be deemed to control Gulfstream for
purposes of the 1940 Act.
As of June 30, 1997, Gulfstream had over $863 million in international assets of
institutional, investment company, governmental, pension fund and high net worth
individual clients under its investment management. Gulfstream's portfolio
management personnel average over 20 years of investment experience and 10 years
of international investment experience.
For further information regarding the relationship between Gulfstream and First
of America, see "MANAGEMENT OF THE GROUP -- Investment Adviser" in the Statement
of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
Fund of the Group, and also acts as the Group's principal underwriter and
distributor. First of America serves as Sub-Administrator for each Fund of the
Group and provides certain services as may be requested by BISYS from time to
time. BISYS and its affiliated companies, including BISYS Ohio, 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 record
keeping services to and through banking and other financial organizations.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from each Fund equal to the lesser of a fee, computed daily and
paid periodically at an annual rate of 0.20% of the Fund's average daily net
assets, or such other fee as may be agreed upon from time to time in writing by
the Group and the Administrator. For its services as Sub-Administrator First of
America receives, from the Administrator, pursuant to its Sub-Administration
Agreement with BISYS, a fee not to exceed 0.05% of each Fund's average daily net
assets. The Administrator may periodically voluntarily reduce all or a portion
of its administrative fee with respect to a Fund to increase the net income of
that Fund available for distribution as dividends. The voluntary fee reduction
will cause the return of that Fund to be higher than it would otherwise be in
the absence of such reduction.
The Distributor acts as agent for the Funds in the distribution of each of their
shares and, in such capacity, solicits orders for the sale of shares,
advertises, and pays the cost of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group.
EXPENSES
First of America, Gulfstream and BISYS each bear all expenses in connection with
the performance of its services as Investment Adviser, Subadviser and
Administrator, respectively, other than the cost of securities (including
brokerage commissions) purchased for the Group. Each Fund will bear the
following expenses relating to its operation: organizational expenses, taxes,
interest, brokerage fees and commissions, fees of the Trustees of the Group, SEC
fees, state securities qualification fees, costs of
PROSPECTUS--Institutional Shares 50
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preparing and printing prospectuses for regulatory purposes and for distribution
to current shareholders, outside auditing and legal expenses, advisory and
administration fees, fees and out-of-pocket expenses of the Custodian, Transfer
Agent and Fund Accountant, certain insurance premiums, costs of maintenance of
the Group's existence, costs of shareholders' reports and meetings, and any
extraordinary expenses incurred in each Fund's operation. As a general matter,
expenses are allocated to the Institutional Shares and the other classes of
shares of the Funds on the basis of the relative net asset value of each class.
The various classes may bear certain additional retail transfer agency expenses
and may also bear certain additional shareholder service and distribution costs
incurred pursuant to a Distribution and Shareholder Service Plan.
The Trustees reserve the right, subject to the receipt of relevant regulatory
approvals or rulings, if needed, to allocate certain other expenses to the
shareholders of a particular class, including the Institutional Shares 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; SEC 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.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS serves as the Group's Transfer Agent pursuant to a Transfer Agency
Agreement with the Group and receives a fee for such services. BISYS Ohio, 3435
Stelzer Road, Columbus, Ohio 43219, provides certain accounting services for
each of the Funds and receives a fee for such services. See "MANAGEMENT OF THE
GROUP -- Custodian, Transfer Agent and Fund Accounting Services" in the
Statement of Additional Information for further information.
While BISYS Ohio is a distinct legal entity from BISYS (the Group's
Administrator and Distributor), BISYS Ohio is considered to be an affiliated
person of BISYS under the 1940 Act due to, among other things, the fact that
BISYS Ohio and BISYS are both owned by The BISYS Group, Inc.
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 of each Fund are continuously offered and may be purchased
through procedures established by the Distributor in connection with the
requirements of customer accounts maintained by or on behalf of certain
financial institutions acting as fiduciary or agent for their customers
("Customer Accounts"). These procedures may include instructions under which a
Customer Account is "swept" automatically no less frequently than weekly and
amounts in excess of a minimum amount agreed upon by the financial institution
and the customer are invested by the Distributor in Institutional Shares of the
Money Market Funds, depending upon the type of Customer Account and/or the
instructions of the customer. Institutional Shares of the Michigan Bond Fund may
only be sold in those states where the Fund has filed the required notification
documents, currently only Colorado, District of Columbia, Florida, Georgia,
Hawaii, Illinois, Indiana, Michigan, Mississippi, New Jersey, Ohio and Virginia.
51 PROSPECTUS--Institutional Shares
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Institutional Shares of the Group sold to financial institutions acting in a
fiduciary, advisory, custodial, or other similar capacity on behalf of customers
will normally be held of record by the financial institution. With respect to
Institutional Shares of the Group so sold, it is the responsibility of the
particular financial institution to transmit purchase or redemption orders to
the Distributor and to deliver federal funds for purchase on a timely basis.
Beneficial ownership of Institutional Shares of the Group will be recorded by
the financial institution and reflected in the account statements provided by
the financial institution to customers. A financial institution may exercise
voting authority for those Institutional Shares for which it is granted
authority by the customer.
Institutional Shares of each Fund are purchased at the net asset value per share
(see "HOW SHARES ARE VALUED") next determined after receipt by the Distributor
of an order to purchase Institutional Shares. Purchases of Institutional Shares
of any of the Funds will be effected only on a Business Day (as defined in "HOW
SHARES ARE VALUED") of the applicable 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 that Fund. Institutional Shares of all Funds, except the Money
Market Funds, are eligible to earn dividends on the first Business Day following
the execution of the purchase. Institutional Shares of the Money Market Funds
purchased before 11:30 a.m., Eastern Time, begin earning dividends on the same
Business Day. Institutional Shares of the Funds continue to be eligible to earn
dividends through the day before their redemption.
An order to purchase Institutional Shares will be deemed to have been received
by the Distributor only when federal funds are available to the Group's
Custodian for investment. Federal funds are monies credited to a bank's account
within a Federal Reserve Bank. Payment for an order to purchase Institutional
Shares which is transmitted by federal funds wire will be available the same day
for investment by the Group's Custodian, if received prior to the last Valuation
Time (see "HOW SHARES ARE VALUED"). Purchases made by check or other means are
made at the price next determined upon receipt of the purchase instrument.
However, proceeds from redeemed shares purchased by check will not be sent until
the method of payment has cleared. The Group strongly recommends that investors
of substantial amounts use federal funds to purchase Institutional Shares.
There is no sales charge imposed by the Group in connection with the purchase of
Institutional Shares of the Funds. Depending upon the terms of a particular
Customer Account, a financial institution may charge a Customer Account fees for
automatic investment and other cash management services provided in connection
with investment in the Group. Information concerning these services and any
charges may be obtained from the financial institution. This Prospectus should
be read in conjunction with any such information received from the financial
institution.
The Group reserves the right to reject any order for the purchase of
Institutional Shares in whole or in part.
Confirmations of purchases and redemption of Institutional Shares of the Group
by financial institutions on behalf of their customers may be obtained from the
financial institutions. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Institutional Shares of the Funds will
not be issued.
HOW TO REDEEM YOUR INSTITUTIONAL SHARES
Shareholders may redeem their Institutional Shares without charge 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. Shareholders may request redemptions by contacting
their trust administrator or other financial consultant responsible for the
Customer Account.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a customer's Institutional Shares may be redeemed in accordance
with instructions and limitations pertaining to his or her Customer Account with
a financial institution. For example, if a
PROSPECTUS--Institutional Shares 52
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customer has agreed with a bank to maintain a minimum balance in his or her
account with the bank, and the balance in that account falls below that minimum,
the customer may be obliged to redeem, or the bank may redeem for and on behalf
of the customer, all or part of the customer's Institutional Shares of a Fund of
the Group to the extent necessary to maintain the required minimum balance.
Redemption orders are effected at the net asset value per share next determined
after the Institutional Shares are properly tendered for redemption, as
described above. The proceeds paid upon redemption of such Institutional Shares
of the Funds may be more or less than the amount invested. 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, requests from financial institutions for next day
payments upon redemption of Institutional Shares will be honored if the request
for redemption is 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 Group or the
shareholders of a Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner. Also to the greatest
extent possible, requests for same day payments upon redemption of Institutional
Shares of the Money Market Funds will be honored if the request for redemption
is received by the Transfer Agent before 11:30 a.m., (Eastern Time), on a
Business Day or, if received after 11:30 a.m., (Eastern Time), on the next
Business Day, unless it would be disadvantageous to the Group or the
shareholders of a Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner. Shareholders should
contact their trust administrator or other financial consultant responsible for
the account to determine the financial institution's requirements for
effectuating redemptions.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION in the Statement of
Additional Information for examples of when the Group may suspend the right of
redemption or redeem Institutional Shares involuntarily if it appears
appropriate to do so in light of the Group's responsibilities under the 1940
Act.
HOW SHARES ARE VALUED
The net asset value of Institutional Shares of the Funds, with the exception of
the Money Market Funds, is determined and the shares are priced as of the close
of trading on the New York Stock Exchange ("NYSE") on each Business Day
(generally 4:00 p.m. Eastern Time) (with respect to the Non-Money Market Funds,
the "Valuation Time"). The net asset value of the Institutional Shares of the
Money Market Funds is determined and the shares are priced as of 12:00 p.m. noon
(Eastern Time) and as of the close of trading on the NYSE on each Business Day
(with respect to the Money Market Funds, the "Valuation Times"). A "Business
Day" is a day on which the NYSE 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. Currently, the NYSE will not open in observance of the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding shares of such class.
The net asset value per share will fluctuate as the value of the investment
portfolio of a Fund changes. However, the assets in each Money Market Fund are
valued based upon the amortized cost method. Pursuant to the rules and
regulations of the SEC regarding the use of the amortized cost method, each
Money Market Fund will maintain a dollar-weighted average portfolio maturity of
90 days or less. Although the Group seeks to maintain each Money Market Fund's
net asset value per share at $1.00, there can be no assurance that net asset
value will not vary.
The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value.
53 PROSPECTUS--Institutional Shares
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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 for each Fund is declared monthly as a dividend to shareholders at
the close of business on the day of declaration and is paid monthly, except for
the Money Market Funds which declare dividends daily and pay them monthly. In
some months, certain Funds may not pay any dividends. Distributable net realized
capital gains are distributed at least annually. A shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional shares at net asset value as of the date of
declaration, unless the shareholder elects to receive dividends or distributions
in cash. A shareholder wishing to make such an election, or any revocation
thereof, must contact the trust administrator or other financial consultant
responsible for the account to submit the request in writing to the Transfer
Agent, c/o The Parkstone Group of Funds, P.O. Box 50551, Kalamazoo, Michigan
49005-0551. Any election or revocation thereof 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 is treated as a separate entity for federal
income tax purposes. Each Fund intends to qualify as a "regulated investment
company" under the Code for so long as such qualification is in the best
interest of its shareholders and each intends to distribute all of its net
income and capital gains so that it is not required to pay federal income taxes
on amounts so distributed to shareholders.
To avoid federal income tax, the Code requires each Fund to distribute each
taxable year at least 90% of its investment company taxable income and at least
90% of its exempt-interest income. In addition, to avoid imposition of a
non-deductible 4% excise tax, each Fund is required annually to distribute,
prior to calendar year end, 98% of taxable ordinary income on a calendar year
basis, 98% of capital gain net income realized in the twelve months preceding
October 31, and the balance of undistributed taxable ordinary income and capital
gain net income from the prior calendar year. Finally, in order to permit the
Municipal Bond Fund and the Michigan Bond Fund each to distribute
exempt-interest dividends which shareholders may exclude from their gross
taxable income for federal income tax purposes, at least 50% of such Fund's
total assets must consist of obligations the interest on which is exempt from
federal income tax as of the close of each fiscal quarter of such Fund.
A shareholder receiving a distribution of ordinary income and/or an excess of
short-term capital gain over net long-term loss would treat it as a receipt of
ordinary income. The dividends-received deduction for corporations will apply to
the aggregate of such ordinary income distributions in the same proportion as
the aggregate dividends from domestic corporations, if any, received by that
Fund bear to its gross income. A shareholder will not be able to take the
dividends-received deduction unless that shareholder holds the shares for at
least 46 days.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to its shareholders as long-term capital gain
in the year in which it is received, regardless of how long the shareholder has
held shares. Such distributions are not eligible for the dividends-received
deduction.
Prior to purchasing shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of shares prior to the record
date will have the effect of reducing the per share net asset value of the
shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to taxation.
Taxes may be imposed on the Funds, particularly the Balanced Allocation Fund and
International Fund, by foreign countries with respect to income received on
foreign securities. If more than 50% of the value of a
PROSPECTUS--Institutional Shares 54
<PAGE> 262
Fund's assets at the close of its taxable year consists of stocks or securities
of foreign corporations, the Fund may elect to treat any foreign income taxes it
paid as paid by its shareholders. In this case, shareholders generally will be
required to include in income their pro rata share of such taxes, but will then
be entitled to claim a credit or deduction for their share of such taxes.
However, a particular shareholder's ability to utilize such a credit will be
subject to certain limitations imposed by the Code. The Funds will report to
their shareholders each year the amount, if any, of foreign taxes per share that
they have elected to have treated as paid by their shareholders.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made during the year.
THE MUNICIPAL BOND FUND, THE MICHIGAN BOND FUND AND THE TAX-FREE FUND (THE
"EXEMPT FUNDS")
Dividends derived from exempt-interest income may be treated by an Exempt Fund's
shareholders as items of interest which may be excluded from their gross income.
However, such dividends may be taxable to shareholders of the Municipal Bond
Fund and the Tax-Free Fund under state or local law as ordinary income even
though all or a portion of the amounts may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
taxes. In determining net exempt-interest income, expenses of the Exempt Fund
are allocated to gross tax-exempt interest income in the proportion that the
gross amount of such interest income bears to the Exempt Fund's total gross
income, excluding net capital gains. (Shareholders are advised to consult a tax
adviser with respect to whether exempt-interest dividends retain the exclusion
if such shareholder would be treated as a "substantial user" or a "related
person" to such user under the Code). Interest on indebtedness incurred or
continued by a shareholder to purchase or carry shares is not deductible for
federal income tax purposes if an Exempt Fund distributes exempt-interest
dividends during the shareholder's taxable year. It is anticipated that
distributions from the Exempt Funds will not be eligible for the
dividends-received deduction for corporations.
Under the Code, if a shareholder receives an exempt-interest dividend with
respect to any share and such share is held for six months or less, any loss on
the sale or exchange of such share will be disallowed to the extent of the
amount of such exempt-interest dividend, although the Treasury Department is
authorized to issue regulations reducing the period to not less than 31 days for
regulated investment companies that regularly distribute at least 90% of their
net tax-exempt interest. No such regulations have been issued as of the date of
this Prospectus. In addition, dividends attributable to interest on certain
private activity bonds may have to be included in shareholders' income for
purposes of calculating alternative minimum tax. See "ADDITIONAL
INFORMATION -- Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Bond Fund" in the Statement of Additional
Information for more information regarding the federal alternative minimum tax.
To the extent dividends paid to shareholders are derived from taxable income
(for example, from interest on certificates of deposit or repurchase agreements)
or from long-term or short-term capital gains, such dividends will be subject to
federal income tax. A shareholder should consult his or her own tax adviser for
any special advice.
Distributions by the Michigan Bond Fund to holders of shares who are subject to
the Michigan personal income tax and/or single business tax will not be subject
to the Michigan personal income tax, single business tax or any Michigan city
income tax to the extent that the distributions are attributable to income
received by the Michigan Bond Fund as interest from Michigan Municipal
Securities or to the extent that the distributions are attributable to interest
income and gains from the sale or disposal of United States obligations exempted
from state taxation by the United States Constitution, treaties, and statutes.
However, some or all of the other distributions by the Michigan Bond Fund may be
taxable by the State of Michigan or subject to applicable city income taxes,
even if the distributions are attributable to income of the Michigan Bond Fund
derived from obligations of the United States or its agencies and
instrumentalities. In addition, to the extent that a shareholder of the Michigan
Bond Fund is obligated to pay state or local taxes outside of Michigan,
dividends earned by an investment in the Michigan Bond Fund may represent
taxable income. Investments held in the Michigan Bond Fund by a Michigan
resident are not subject to the Michigan intangible personal property tax to the
extent that the investments are
55 PROSPECTUS--Institutional Shares
<PAGE> 263
attributable to bonds or other similar obligations of the State of Michigan or a
political subdivision thereof, or obligations of the United States.
The Michigan Department of Treasury in a 1986 Revenue Administrative Bulletin
has taken the position that the tax attributes of the securities held by a
mutual fund flow through to the investors. Based on this position, the Michigan
Department of Treasury has stated that mutual fund distributions attributable to
interest from the fund's investment in direct U.S. government securities, as
well as Municipal Securities, will not be subject to the Michigan personal
income tax. The Michigan Department of Treasury also has stated that an owner of
a share of a mutual fund will not be subject to intangible personal property tax
to the extent that the pro rata share of the securities underlying the mutual
fund would be exempt.
For Michigan personal income tax and intangible personal property tax purposes,
taxable distributions from investment income and short-term capital gains, if
any, are taxable as ordinary income, whether received in cash or additional
shares, and are subject to the Michigan intangible personal property tax and to
applicable Michigan city income taxes. The Michigan single business tax, a
modified value added tax, is computed by applying the tax rate to a tax base
determined by making certain adjustments to federal taxable income. Taxable
distributions from investment income and gains, if any, may be included in
federal taxable income or may comprise one of the adjustments made to the tax
base. Distributions of cash, other property or additional shares by the Michigan
Bond Fund to a Michigan single business taxpayer attributable to any gain
realized from the sale, exchange or other disposition of Michigan Municipal
Securities may be included in the Michigan single business taxpayer's adjusted
tax base for purposes of the Michigan single business tax to the extent included
in federal taxable income. Distributions of cash, other property or additional
shares by the Michigan Bond Fund to a Michigan single business taxpayer are not
subject to the Michigan single business tax to the extent that the distributions
are attributable to interest income from and any gain realized from the sale,
exchange or other disposition of U.S. securities. Taxable long-term capital
gains distributions are taxable as long-term capital gains for Michigan purposes
irrespective of how long a shareholder has held the shares, except that such
distributions reinvested in shares of the Michigan Bond Fund are exempt from the
Michigan intangible personal property tax.
THE U.S. GOVERNMENT OBLIGATIONS FUND, THE PRIME OBLIGATIONS FUND AND THE
TREASURY FUND
Since all of the net investment income of the U.S. Government Obligations Fund,
the Prime Obligations Fund and the Treasury Fund is expected to be derived from
earned interest, it is anticipated that no part of any distribution will be
eligible for the dividends-received deduction for corporations. The U.S.
Government Obligations Fund, the Prime Obligations Fund and the Treasury Fund do
not expect to realize any long-term capital gains and, therefore, do not foresee
paying any "capital gains dividends" as described in the Code.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders. Potential
investors are advised to consult their tax advisers concerning state and local
taxes, which may differ from the federal, state and local income taxes described
above.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a class of shares in a Fund will be
calculated for the period since the establishment of the Funds and will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a class of shares in a
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions) and annualizing the result. Aggregate
total return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of annualized.
Yield of a class of shares will be
PROSPECTUS--Institutional Shares 56
<PAGE> 264
computed by dividing a class of shares' net investment income per share earned
during a recent one-month period by that class of shares' per share maximum
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last day of the period and annualizing the result.
Each Fund may also present its average annual total return, aggregate total
return and yield, as the case may be, excluding the effect of a sales charge, if
any.
In addition, from time to time the Funds may present their respective
distribution rates for a class of shares in shareholder reports and in
supplemental sales literature which is accompanied or preceded by a prospectus.
Distribution rates will be computed by dividing the distribution per share of a
class made by a Fund over a twelve-month period by the maximum offering price
per share. The calculation of income in the distribution rate includes both
income and capital gains dividends and does not reflect unrealized gains or
losses, although a Fund may also present a distribution rate excluding the
effect of capital gains. The distribution rate differs from the yield, because
it includes capital gains which are often non-recurring in nature, whereas yield
does not include such items. Distribution rates may also be presented excluding
the effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Institutional Shares and the other classes of the Funds. Because of differences
in the fees and/or expenses borne by different classes of shares of the Funds,
the net yield and total return on Institutional Shares may be different from
that for another class of the same Fund. For example, net yield and total return
on Investor A Shares is expected, at any given time, to be lower than the net
yield and total return on Institutional Shares for the same period.
Investors may also judge the performance of any class of shares or Fund by
comparing or referencing it to the performance of various mutual fund or market
indices such as those published by various services including, but not limited
to, ratings published by Morningstar, Inc. In addition to performance
information, general information about the Funds that appears in such
publications may be included in advertisements, in sales literature and in
reports to shareholders. For further information regarding such services and
publications, see "ADDITIONAL INFORMATION -- Performance Comparisons" in the
Statement of Additional Information.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, levels of operating expenses and changes in market conditions.
Consequently, total return and yield will fluctuate and are not necessarily
representative of future results. Any fees charged by FABC or any of its
affiliates with respect to customer accounts for investing in shares of the
Funds will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted. In addition, if First of
America and BISYS voluntarily reduce all or a part of their respective fees, as
further discussed above, the total return of such Fund will be higher than it
would otherwise be in the absence of such voluntary fee reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's Funds through FUNDATA(R), an Automated Voice
Response System, 24 hours a day by calling (800) 451-8377 from any touch-tone
phone. Shareholders may also speak directly with a Group representative,
employed by BISYS, during regular business hours.
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in 1987 and, as of the
date of this Prospectus, offers eighteen Funds. The shares of each of the Funds
of the Group may be offered in up to five separate classes: Investor A Shares,
Investor B Shares, Investor C Shares, Investor Z Shares and Institutional
Shares. Each share represents an equal proportionate interest in a Fund with
other shares of the same Fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Fund as
are declared at the discretion of the Trustees. Shares do not have a par value.
57 PROSPECTUS--Institutional Shares
<PAGE> 265
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by Fund except as otherwise
expressly required by law. For example, shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of Trustees and ratification of the selection of independent accountants.
However, shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve an investment and sub-investment advisory agreements and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Group may elect not to have an annual or special meeting.
The Group has represented to the SEC that the Trustees will call a special
meeting of shareholders for purposes of considering the removal of one or more
Trustees upon written request therefor from shareholders holding not less than
10% of the outstanding votes of the Group. At such a meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Group), by majority vote, has the power to remove one or more
Trustees.
As of June 30, 1997, FABC, through its wholly-owned subsidiaries, possessed on
behalf of its underlying accounts voting or investment power with respect to
more than 25% of the shares of each of the Funds, and therefore may be presumed
to control each Fund within the meaning of the 1940 Act.
MULTIPLE CLASSES OF SHARES
In addition to Institutional Shares, the Group also offers Investor A Shares,
Investor B Shares, Investor C Shares and Investor Z Shares of certain Funds
pursuant to a Multiple Class Plan adopted by the Group's Trustees under Rule
18f-3 of the 1940 Act. A salesperson or other person entitled to receive
compensation for selling or servicing shares may receive different compensation
with respect to one particular class of shares over another in the same Fund.
The amount of dividends payable with respect to other classes of shares will
differ from dividends on Institutional Shares as a result of the Distribution
and Shareholder Service Plan fees applicable to such other classes of shares and
because the different classes of shares may bear different retail transfer
agency expenses. For further details regarding these other classes of shares,
call the Group at (800) 451-8377.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at P.O. Box 50551, Kalamazoo, MI 49005-0551, or by calling toll-free
(800) 451-8377.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
PROSPECTUS--Institutional Shares 58
<PAGE> 266
THE PARKSTONE GROUP OF FUNDS
Institutional Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
First of America Investment Corporation
Suite 500
303 North Rose Street
Kalamazoo, Michigan 49007
SUBADVISER (INTERNATIONAL FUND AND BALANCED ALLOCATION FUND)
Gulfstream Global Investors, Ltd.
Suite 550
100 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
San Francisco, California 94111
LEGAL COUNSEL
Howard & Howard Attorneys, P.C.
Suite 400
107 West Michigan Avenue
Kalamazoo, Michigan 49007
<PAGE> 267
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES
THE LIFEWORKS FUNDS
-------------------
PARKSTONE CONSERVATIVE ALLOCATION FUND
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE AGGRESSIVE ALLOCATION FUND
FORM N-1A
CROSS-REFERENCE SHEET
Part A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO. RULE 404(a) CROSS REFERENCE
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1. Cover Page .......................................... Cover Page
2. Synopsis............................................. Prospectus Summary; Fee Tables
3. Condensed Financial Information...................... Financial Highlights; Performance Information
4. General Description of Registrant.................... Cover Page; Investment Objectives and Policies;
Investment Restrictions; Risk Factors and
Investment Techniques; General Information -
Organization of the Group
5. Management of the Fund............................... Management of the Funds; Fee Tables
5A. Management's Discussion of Fund
Performance.......................................... Not Applicable
6. Capital Stock and Other Securities................... Dividends and Taxes; General Information -
Organization of the Group; General
Information - Multiple Classes of Shares
General Information - Miscellaneous
7. Purchase of Securities Being Offered................. How to Buy Institutional Shares; How Shares
are Valued
8. Redemption or Repurchase............................. How to Redeem Your Institutional Shares
9. Pending Legal Proceedings............................ Not Applicable
</TABLE>
<PAGE> 268
- --------------------------------------------------------------------------------
THE PARKSTONE
GROUP OF FUNDS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
PARKSTONE CONSERVATIVE ALLOCATION FUND
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE AGGRESSIVE ALLOCATION FUND
Prospectus dated September 30, 1997
[PARKSTONE MUTUAL FUNDS]
-------------------------
NOT FDIC INSURED
<PAGE> 269
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 270
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES PROSPECTUS DATED SEPTEMBER 30, 1997
Parkstone Conservative Allocation Fund
Parkstone Balanced Allocation Fund
Parkstone Aggressive Allocation Fund
For more information call:
(800) 451-8377
or write to:
3435 Stelzer Road
Columbus, Ohio 43219
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 funds listed above are three of the currently-offered series (the "Funds")
of The Parkstone Group of Funds (the "Group") which offer Institutional Shares.
This Prospectus explains concisely what you should know before investing in the
Institutional Shares of the Funds listed above. Please read it carefully and
keep it for future reference. Institutional Shares are currently offered only to
accounts that have a fiduciary or agency relationship with a financial
institution. You can find more detailed information about the Funds in the
September 30, 1997 Statement of Additional Information, as amended from time to
time. For a free copy of the Statement of Additional Information or other
information, contact the Group at the number specified above. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated into this Prospectus by reference.
THE SHARES OF THE PARKSTONE GROUP OF FUNDS ARE NOT OBLIGATIONS OR DEPOSITS OF
FIRST OF AMERICA INVESTMENT CORPORATION OR ITS PARENT, AND THE INVESTMENTS
DESCRIBED IN THIS PROSPECTUS ARE NOT ENDORSED, INSURED OR GUARANTEED BY FIRST OF
AMERICA INVESTMENT CORPORATION, ITS PARENT OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVOLVED.
<PAGE> 271
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY........................................................... 4
FEE TABLES................................................................... 5
FINANCIAL HIGHLIGHTS......................................................... 6
INVESTMENT OBJECTIVES AND POLICIES........................................... 9
RISK FACTORS AND INVESTMENT TECHNIQUES....................................... 11
INVESTMENT RESTRICTIONS...................................................... 20
MANAGEMENT OF THE FUNDS...................................................... 21
HOW TO BUY INSTITUTIONAL SHARES.............................................. 24
HOW TO REDEEM YOUR INSTITUTIONAL SHARES...................................... 25
HOW SHARES ARE VALUED........................................................ 25
DIVIDENDS AND TAXES.......................................................... 26
PERFORMANCE INFORMATION...................................................... 27
FUNDATA(R)................................................................... 28
GENERAL INFORMATION.......................................................... 28
</TABLE>
PROSPECTUS--Parkstone LifeWorks Funds 2
<PAGE> 272
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which, as of the date of this Prospectus, offers to the public eighteen
separate investment portfolios, seventeen of which are diversified portfolios
and one of which is a non-diversified portfolio, each with different investment
objectives. These Funds enable the Group to meet a wide range of investment
needs.
This Prospectus relates only to the Institutional Shares of the following Funds:
Parkstone Conservative Allocation Fund (the "Conservative Allocation
Fund")
Parkstone Balanced Allocation Fund, formerly known as the Parkstone
Balanced Fund
(the "Balanced Allocation Fund")
Parkstone Aggressive Allocation Fund (the "Aggressive Allocation Fund")
For convenience of reference, the above Funds are sometimes collectively
referred to as the "LifeWorks Funds."
The Trustees of the Group have divided beneficial ownership of each of the Funds
into an unlimited number of transferable units called shares. Most Funds of the
Group offer multiple classes of shares. The Conservative Allocation Fund and the
Aggressive Allocation Fund only offer Institutional Shares, while the Balanced
Allocation Fund offers Investor A Shares, Investor B Shares, Investor C Shares
and Institutional Shares. This Prospectus describes Institutional Shares of each
of the LifeWorks Funds. Interested persons who wish to obtain a copy of any of
the Group's other Prospectuses or a copy of the Group's most recent Annual
Report may contact the Group at the telephone number shown above.
The investment objectives of each of the LifeWorks Funds are described in this
Prospectus and are summarized in the Prospectus Summary. First of America
Investment Corporation, Kalamazoo, Michigan ("First of America" or the
"Investment Adviser"), acts as the investment adviser to each of the LifeWorks
Funds. To provide investment advisory services for the LifeWorks Funds for
investments in foreign securities, First of America has entered into a
sub-investment advisory agreement with Gulfstream Global Investors, Ltd.,
Dallas, Texas ("Gulfstream" or the "Subadviser").
3 PROSPECTUS--Parkstone LifeWorks Funds
<PAGE> 273
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Institutional Shares of the Conservative Allocation
Fund, the Balanced Allocation Fund and the Aggressive Allocation Fund.
These Funds represent three separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust which is registered as an
open-end, management investment company.
Purchase and Redemption of Shares
The public offering price of Institutional Shares of each Fund is equal to the
net asset value per share. There are no initial or contingent deferred sales
charges on Institutional Shares. Shares may be purchased through procedures
established by the Group's distributor, BISYS Fund Services, L.P. ("BISYS").
Shareholders may redeem their shares by contacting their trust administrator or
financial consultant responsible for the account. See "HOW TO BUY INSTITUTIONAL
SHARES," "HOW TO REDEEM INSTITUTIONAL SHARES" and "HOW SHARES ARE VALUED."
Minimum Purchase
For financial institutions, there is a $100,000 minimum initial purchase (based
on the public offering price) per Fund with no minimum subsequent investment.
Such minimum initial investment may be waived for certain purchasers. There is
no minimum requirement for individual shareholders on whose behalf the financial
institutions are purchasing Institutional Shares.
Investment Objectives
The Conservative Allocation Fund seeks current income and conservation of
capital, with a secondary objective of long-term capital growth. The Balanced
Allocation Fund seeks current income, long-term capital growth and conservation
of capital. The Aggressive Allocation Fund seeks capital appreciation and income
growth.
Investment Policies
Under normal market conditions, each Fund will invest in various types or
classes of securities, including all types of common stocks, fixed-income
securities and securities convertible into common stocks. The emphasis of
investment in each type of security varies among the LifeWorks Funds as
described in this Prospectus.
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a certain
amount of risk and may not be suitable for all investors. In addition, some
investment policies of the Funds may entail certain risks. See "RISK FACTORS AND
INVESTMENT TECHNIQUES."
Management of the Funds
First of America serves as investment adviser, and, with respect to a portion of
the Funds, Gulfstream serves as subadviser. First of America also serves as
sub-administrator. BISYS, a partnership owned by The BISYS Group, Inc., serves
as distributor, administrator, transfer agent and dividend disbursing agent (the
"Distributor," the "Administrator" and the "Transfer Agent"). BISYS Fund
Services Ohio, Inc. ("BISYS Ohio") serves as fund accountant. Union Bank of
California, N.A. ("Union Bank" or the "Custodian") serves as custodian.
Dividends and Taxes
Dividends from net income are declared and paid, if at all, on a monthly basis.
Net realized capital gains are distributed at least annually. Each of the Funds
is treated as a separate entity for federal income tax
PROSPECTUS--Parkstone LifeWorks Funds 4
<PAGE> 274
purposes and intends to qualify as a "regulated investment company."
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made during the year.
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(1)........................................................... None
Exchange Fees................................................................ None
</TABLE>
- ---------------
(1) Although no such fee is currently 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 EXPENSES(2) EXPENSES(2)(3)
---------- ---- ------- -------
<S> <C> <C> <C> <C>
Conservative Allocation Fund................... 0.70% 0.00% 0.94% 1.64%
Balanced Allocation Fund....................... 0.75% 0.00% 0.35% 1.10%
Aggressive Allocation Fund..................... 0.85% 0.00% 0.47% 1.32%
</TABLE>
- ---------------
(2) After voluntary expense reductions.
(3) Certain purchases of the Funds through financial institutions may be subject
to fees for additional services provided to investors.
Management Fees and Total Expenses as a percentage of average net assets for the
Balanced Allocation Fund, absent the voluntary reduction of advisory fees, would
have been 1.00% and 1.35%, respectively. Absent the expected voluntary reduction
of advisory fees, Management Fees and Total Expenses for the Conservative
Allocation Fund would be 1.00% and 1.94%, respectively. For the Aggressive
Allocation Fund, they would be 1.00% and 1.47%, respectively. (See "MANAGEMENT
OF THE FUNDS -- Investment Adviser and Subadviser" and "Administrator,
Sub-Administrator and Distributor").
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar 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 3 5 10
YEAR YEARS YEARS YEARS
--- ---- ---- ----
<S> <C> <C> <C> <C>
Conservative Allocation Fund*.......................... $ 17 $52 -- --
Balanced Allocation Fund............................... $ 11 $35 $61 $ 133
Aggressive Allocation Fund*............................ $ 13 $42 -- --
</TABLE>
- ---------------
* Because the Conservative Allocation Fund and the Aggressive Allocation Fund
have been in operation for less than 10 months, expense example information is
provided only for 1-year and 3-year periods.
The information set forth in the foregoing Fee Tables and expense examples
relates only to Institutional Shares of the Funds. Each of the Funds also may
offer other classes of shares. The other classes of shares are subject to the
same expenses except that Rule 12b-1 fees and sales charges may apply.
The purpose of the above tables is to assist a potential purchaser of
Institutional Shares of any of the LifeWorks Funds in understanding the various
costs and expenses that an investor in a Fund will bear directly or indirectly.
Such expenses do not include any fees charged by a financial institution,
including First of America or any of its affiliates, to its customer accounts
which may invest in Institutional Shares of
5 PROSPECTUS--Parkstone LifeWorks Funds
<PAGE> 275
the Funds. See "MANAGEMENT OF THE FUNDS" and "GENERAL INFORMATION" for a more
complete discussion of the annual operating expenses of each of the Funds. The
expense information for Institutional Shares reflects current fees. THE
FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables on the following pages set forth certain information concerning the
investment results of the Institutional Shares of each of the LifeWorks Funds
since its inception. Further financial information regarding the LifeWorks Funds
is included in the Statement of Additional Information and the Group's June 30,
1997 Annual Report to Shareholders which may be obtained free of charge.
The Financial Highlights for the periods presented below have been derived from
financial statements audited by Coopers & Lybrand L.L.P., independent auditors
for the Group, whose report thereon is incorporated by reference in the
Statement of Additional Information.
On March 31, 1993, the shareholders of all of the then-existing Funds of the
Group, including the Balanced Allocation Fund, approved the reclassification of
such Funds' outstanding shares into Investor A Shares and Institutional Shares.
The financial information provided below and in the Annual Report includes
periods prior to such reclassification.
CONSERVATIVE ALLOCATION FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
INSTITUTIONAL
SHARES
-------------------
DEC. 30, 1996
TO JUNE 30,
1997(A)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................................ $ 10.00
-------
Income from Investment Activities
Net Investment Income (Loss)........................................... 0.14
Net Realized and Unrealized Gains (Losses) on Investments.............. 0.34
-------
Total from Investment Activities.................................. 0.48
-------
Distributions
Net Investment Income.................................................. (0.12)
-------
Total Distributions............................................... (0.12)
-------
NET ASSET VALUE, END OF PERIOD.............................................. $ 10.36
=======
Total Return (excluding sales and redemption charges)....................... 4.87%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................................ $10,287
Ratio of Expenses to Average Net Assets................................ 1.64%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets............ 3.12%(c)
Ratio of Expenses to Average Net Assets*............................... 1.94%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets*........... 2.82%(c)
Portfolio Turnover Rate (d)............................................ 62.11%
Average Commission Rate Paid (g)....................................... $0.0795
</TABLE>
PROSPECTUS--Parkstone LifeWorks Funds 6
<PAGE> 276
BALANCED ALLOCATION FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
JAN. 31,
INSTITUTIONAL SHARES 1992
----------------------------------------------------- TO JUNE 30,
1997 1996 1995(F) 1994 1993(B) 1992(A)
-------- -------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 13.37 $ 12.19 $ 10.67 $ 11.08 $ 9.68 $ 10.00
-------- -------- ------- ------- ------- -------
Income from Investment
Activities
Net Investment Income
(Loss)................. 0.35 0.36 0.31 0.27 0.28 0.14
Net Realized and
Unrealized Gains
(Losses) on Investments
and Foreign
Currencies............. 1.12 1.74 1.68 (0.41) 1.41 (0.34)
-------- -------- ------- ------- ------- -------
Total from
Investment
Activities........ 1.47 2.10 1.99 (0.14) 1.69 (0.20)
-------- -------- ------- ------- ------- -------
Distributions
Net Investment Income.... (0.37) (0.35) (0.31) (0.27) (0.29) (0.12)
Net Realized Gains....... (1.48) (0.57) (0.03) -- -- --
In Excess of Net Realized
Gains.................. -- -- (0.13) -- -- --
-------- -------- ------- ------- ------- -------
Total
Distributions..... (1.85) (0.92) (0.47) (0.27) (0.29) (0.12)
-------- -------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD...................... $ 12.99 $ 13.37 $ 12.19 $ 10.67 $ 11.08 $ 9.68
======== ======== ======= ======= ======= =======
Total Return (excluding sales
and redemption charges)..... 11.86% 17.81% 19.22% (1.44)% 17.66% (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000).................. $245,347 $113,493 $89,294 $71,427 $42,318 $38,136
Ratio of Expenses to
Average Net Assets..... 1.10% 1.16% 1.25% 1.09% 1.15% 1.19%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets..... 2.77% 2.62% 2.75% 2.49% 2.70% 3.46%(c)
Ratio of Expenses to
Average Net Assets*.... 1.36% 1.41% 1.52% 1.39% 1.46% 1.50%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets*.... 2.51% 2.37% 2.47% 2.18% 2.40% 3.13%(c)
Portfolio Turnover Rate
(d).................... 425.05% 437.90% 250.66% 192.39% 177.99% 47.58%
Average Commission
Rate Paid (g).......... $ 0.0518 $ 0.0848
</TABLE>
7 PROSPECTUS--Parkstone LifeWorks Funds
<PAGE> 277
AGGRESSIVE ALLOCATION FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
INSTITUTIONAL
SHARES
-------------------
DEC. 31, 1996
TO JUNE 30,
1997(A)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................................ $ 10.00
-------
Income from Investment Activities
Net Investment Income (Loss)........................................... 0.07
Net Realized and Unrealized Gains (Losses) on
Investments............................................................ 0.56
-------
Total from Investment Activities.................................. 0.63
-------
Distributions
Net Investment Income.................................................. (0.06)
-------
Total Distributions............................................... (0.06)
-------
NET ASSET VALUE, END OF PERIOD.............................................. $ 10.57
=======
Total Return (excluding sales and redemption charges)....................... 6.38%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........................................ $39,043
Ratio of Expenses to Average Net Assets................................ 1.32%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets............ 1.61%(c)
Ratio of Expenses to Average Net Assets*............................... 1.47%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets*........... 1.46%(c)
Portfolio Turnover Rate (d)............................................ 44.68%(c)
Average Commission Rate Paid (g)....................................... $0.0280
</TABLE>
- ---------------
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993 the shareholders of the Group exchanged their shares for
either the Group's Investor A Shares or Institutional Shares. For the year
ended June 30, 1993 the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities
and distributions are presented on the basis whereby the Fund's net
investment income, expenses, and distributions for the period July 1, 1992
through March 31, 1993 were allocated to each class of shares based upon the
relative net assets of each class of shares as of April 1, 1993 and the
results combined therewith the results of operations and distributions for
each applicable class for the period April 1, 1993 through June 30, 1993.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between classes of shares issued.
(e) Not annualized.
(f) As of January 1, 1995, Gulfstream assumed the role of subadviser with
respect to the portion of the Balanced Allocation Fund invested in foreign
securities. Prior to that date the Balanced Allocation Fund had no
subadviser.
(g) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
PROSPECTUS--Parkstone LifeWorks Funds 8
<PAGE> 278
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds are set forth below under the
headings describing the Funds. The investment objective of each Fund is
fundamental and may not be changed without a vote of the holders of a majority
of the outstanding shares of that Fund (as defined in the Statement of
Additional Information). The investment policies of a Fund may be changed
without a vote of the holders of a majority of outstanding shares of that Fund
unless the policy is expressly deemed to be a fundamental policy or changeable
only by such majority vote. There can be no assurance that the investment
objective of any Fund will be achieved. Depending upon the performance of a
Fund's investments, the net asset value per share of that Fund may decrease
instead of increase.
During temporary defensive periods as determined by First of America or
Gulfstream, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic bank certificates of
deposit, bankers' acceptances and repurchase agreements secured by bank
instruments. However, to the extent that a Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
PARKSTONE LIFEWORKS FUNDS
THE CONSERVATIVE ALLOCATION FUND, THE BALANCED ALLOCATION FUND AND THE
AGGRESSIVE ALLOCATION FUND
THE INVESTMENT OBJECTIVE OF THE CONSERVATIVE ALLOCATION FUND IS TO SEEK CURRENT
INCOME AND CONSERVATION OF CAPITAL, WITH A SECONDARY OBJECTIVE OF LONG-TERM
CAPITAL GROWTH. THE INVESTMENT OBJECTIVE OF THE BALANCED ALLOCATION FUND IS TO
SEEK CURRENT INCOME, LONG-TERM CAPITAL GROWTH AND CONSERVATION OF CAPITAL. THE
INVESTMENT OBJECTIVE OF THE AGGRESSIVE ALLOCATION FUND IS TO SEEK CAPITAL
APPRECIATION AND INCOME GROWTH.
The LifeWorks Funds may invest in any type or class of security. Under normal
market conditions the LifeWorks Funds will invest in common stocks, fixed-income
securities and securities convertible into common stocks (i.e., warrants,
convertible preferred stock, fixed-rate preferred stock, convertible fixed-
income securities, options and rights). The Conservative Allocation Fund
anticipates investing between 25% and 35% of its net assets in common stocks and
securities convertible into common stocks, between 35% and 75% of its net assets
in fixed-income securities and up to 45% of its net assets in cash and cash
equivalents. No more than 15% of the Conservative Allocation Fund's investments
will be in foreign securities. The Balanced Allocation Fund intends to invest
45% to 65% of its net assets in common stocks and securities convertible into
common stocks, 25% to 55% of its net assets in fixed-income securities and up to
30% of its net assets in cash and cash equivalents. Of these investments, no
more than 20% of the Fund's net assets will be in foreign securities. The
Aggressive Allocation Fund expects to invest between 50% and 90% of its net
assets in common stocks and securities convertible into common stocks, between
15% and 40% of its net assets in fixed-income securities and up to 25% of its
net assets in cash and cash equivalents. The Aggressive Allocation Fund may
invest up to 25% in foreign securities.
For each of the Conservative Allocation Fund and Balanced Allocation Fund,
common stocks are held primarily for the purpose of providing long-term growth
of capital. When choosing such stocks, the potential for long-term capital
appreciation will be the primary basis for selection. The Aggressive Allocation
Fund will primarily invest in common stocks for capital appreciation and growth.
Each of the LifeWorks Funds will invest in the common and preferred stocks of
companies with a market capitalization of at least $100 million and which are
traded either in established over-the-counter markets or on national exchanges.
The LifeWorks Funds intend to invest primarily in those companies which are
growth-oriented and have exhibited consistent, above-average growth in revenues
and earnings.
For the LifeWorks Funds, fixed-income securities held consist of bonds,
debentures, notes, zero-coupon securities, mortgage-related securities, state,
municipal or industrial revenue bonds, obligations issued or
9 PROSPECTUS--Parkstone LifeWorks Funds
<PAGE> 279
guaranteed by the U.S. government or its agencies or instrumentalities,
certificates of deposit, time deposits, high quality commercial paper, bankers'
acceptances and variable amount master demand notes. In addition, a portion of
each of the LifeWorks Funds assets may, from time to time, be invested in first
mortgage loans and participation certificates in pools of mortgages issued or
guaranteed by the U.S. government or its agencies or instrumentalities. Some of
the securities in which the LifeWorks Funds invest may have warrants or options
attached. The LifeWorks Funds may also invest in repurchase agreements.
The LifeWorks Funds expect to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, as well as
"stripped" U.S. Treasury obligations ("Stripped Treasury Obligations"), such as
Treasury receipts issued by the U.S. Treasury representing either future
interest or principal payments, and other obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities. See "RISK FACTORS AND
INVESTMENT TECHNIQUES -- Government Obligations" below.
The LifeWorks Funds also expect to invest in bonds, notes and debentures of a
wide range of U.S. corporate issuers. Such obligations, in the case of
debentures, will represent unsecured promises to pay, and in the case of notes
and bonds, may be secured by mortgages on real property or security interests in
personal property and will in most cases differ in their interest rates,
maturities and times of issuance.
The LifeWorks Funds will invest only in corporate fixed-income securities which
are rated at the time of purchase within the four highest rating categories
assigned by a nationally-recognized statistical rating organization ("NRSRO")
or, if unrated, which First of America deems present attractive opportunities
and are of comparable quality. For a description of the rating symbols of the
NRSROs, see the Appendix to the Statement of Additional Information. For a
discussion of fixed-income securities rated within the fourth highest rating
category assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT TECHNIQUES --
Medium-Grade Securities."
The LifeWorks Funds may hold some short-term obligations (with maturities of 12
months or less) consisting of domestic and foreign commercial paper, variable
amount master demand notes, bankers' acceptances, certificates of deposit and
time deposits of domestic and foreign branches of U.S. banks and foreign banks,
and repurchase agreements. The LifeWorks Funds may also invest in securities of
other investment companies.
The LifeWorks Funds may also invest in obligations of the Export-Import Bank of
the United States, in U.S. dollar-denominated international bonds for which the
primary trading market is in the United States ("Yankee Bonds"), or for which
the primary trading market is abroad ("Eurodollar Bonds"), and in Canadian bonds
and bonds issued by institutions, such as the World Bank and the European
Economic Community, organized for a specific purpose by two or more sovereign
governments ("Supranational Agency Bonds"). The LifeWorks Funds' investments in
foreign securities may be made either directly or through the purchase of
American depository receipts ("ADRs") and the LifeWorks Funds may also invest in
securities issued by foreign branches of U.S. banks and foreign banks, in CCP,
and in Europaper.
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon First of America's assessment of business, economic and
market conditions, including any potential advantage of price shifts between the
stock market and the bond market. The LifeWorks Funds reserve the right to hold
short-term securities in whatever proportion deemed desirable for temporary
defensive periods during adverse market conditions as determined by First of
America. However, to the extent that any of the LifeWorks Funds are so invested,
its investment objective may not be achieved during that time.
Like any investment program, investment in any of the LifeWorks Funds entails
certain risks. As Funds investing in common stocks, the LifeWorks Funds are
subject to stock market risk, i.e., the possibility that stock prices in general
will decline over short or even extended periods.
Since the LifeWorks Funds also invest in bonds, investors in the Funds are also
exposed to bond market risk, i.e., fluctuations in the market value of bonds.
Bond prices are influenced primarily by changes in interest rate levels. When
interest rates rise, the prices of bonds generally fall; conversely, when
interest
PROSPECTUS--Parkstone LifeWorks Funds 10
<PAGE> 280
rates fall, bond prices generally rise. While bonds normally fluctuate less in
price than stock, there have been extended periods of cyclical increases in
interest rates that have caused significant declines in bond prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result the LifeWorks
Funds, with their balance of common stock and bond investments, are expected to
entail less investment risk (and a potentially smaller investment return) than
mutual funds investing exclusively in common stocks.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE CONSERVATIVE ALLOCATION FUND, THE BALANCED ALLOCATION FUND AND
THE AGGRESSIVE ALLOCATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Medium-Grade -Mortgage-Related Securities -Other Mutual Funds
Securities -Put and Call Options -Repurchase Agreements
- -Portfolio Turnover -Reverse Repurchase Agreements -When-Issued and
- -Restricted Securities and Dollar Roll Agreements Delayed-Delivery Transactions
</TABLE>
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase or reverse repurchase agreements with First of America
Bank, N.A. (formerly, First of America Bank-Michigan, N.A., "FOA," the parent
corporation of First of America), BISYS, or their affiliates, and will not give
preference to FOA's correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements and reverse repurchase
agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by First of America and Gulfstream in
the management of each of the Funds 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 Investment Adviser and Subadviser believe that such complex
securities may, in some circumstances, play a valuable role in successfully
implementing each Fund's investment strategy and achieving its goals. However,
because complex securities and the strategies for which they are used, are by
their nature complicated, they present substantial opportunities for
misunderstanding and misuse. To guard against these risks, the Investment
Adviser and Subadviser will utilize complex securities primarily for hedging,
not speculative, purposes and only after careful review of the unique risk
factors associated with each such security.
FOREIGN CURRENCY TRANSACTIONS
Each of the LifeWorks Funds may utilize foreign currency transactions in its
portfolio. The value of the assets of a Fund as measured in United States
dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and a Fund may incur costs in
connection with conversions between various currencies. A Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract ("forward currency contracts") involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These forward currency contracts are
11 PROSPECTUS--Parkstone LifeWorks Funds
<PAGE> 281
traded directly between currency traders (usually large commercial banks) and
their customers. The LifeWorks Funds may enter into forward currency contracts
in order to hedge against adverse movements in exchange rates between
currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency. Alternatively, when a Fund believes it will increase, it may enter
into a forward currency purchase contract to buy that foreign currency for a
fixed U.S. dollar amount; however, this tends to limit potential gains which
might result from a positive change in such currency relationships. A Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
The forecasting of short-term currency market movement is extremely difficult
and whether such a short-term hedging strategy will be successful is highly
uncertain. It is impossible to forecast with precision the market value of
portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency such Fund is obligated
to deliver when a decision is made to buy the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency such Fund is obligated to deliver.
If any of the LifeWorks Funds retains the portfolio security and engages in an
offsetting transaction, such Fund will incur a gain or a loss (as described
below) to the extent that there has been movement in forward currency contract
prices. If the Fund engages in an offsetting transaction, it may subsequently
enter into a new forward currency contract to sell the foreign currency. If
forward prices decline during the period between which a Fund enters into a
forward currency contract for the sale of foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency,
such Fund would realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase. If
forward prices increase, such Fund would suffer a loss to the extent the price
Of the currency it has agreed to purchase exceeds the price of the currency it
has agreed to sell. Although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, they also tend to limit
any potential gain which might result if the value of such currency increases.
The Funds will have to convert their holdings of foreign currencies into United
States dollars from time to time. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies.
None of the LifeWorks Funds intends to enter into forward currency contracts if
more than 15% of the value of its total assets would be committed to such
contracts on a regular or continuous basis. A Fund also will not enter into
forward currency contracts or maintain a net exposure on such contracts where
such Fund would be obligated to deliver an amount of foreign currency in excess
of the value of the Fund's portfolio securities or other assets denominated in
that currency.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments" in
the Statement of Additional Information.
PROSPECTUS--Parkstone LifeWorks Funds 12
<PAGE> 282
FOREIGN SECURITIES
Each of the LifeWorks Funds may invest a portion of its total assets in foreign
securities. Investment in foreign securities is subject to special investment
risks that differ in some respects from those related to investments in
securities of U.S. domestic issuers. Such risks include political, social or
economic instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation, and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Such securities may be subject to greater fluctuations in
price than securities issued by U.S. corporations or issued or guaranteed by the
U.S. government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the United States. In addition, there may be less
publicly available information about a foreign company than about a U.S.-
domiciled company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States. Confiscatory taxation or diplomatic developments could also
affect investment in those countries. In addition, foreign branches of U.S.
banks, foreign banks and foreign issuers may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after such Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater.
U.S. dollar-denominated ADRs, which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all of the risk inherent in investing
in the securities of foreign issuers. However, by investing in ADRs rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for many ADRs. The information available for
ADRs is subject to the accounting, auditing and financial reporting standards of
the domestic market or exchange on which they are traded, standards which are
more uniform and more exacting than those to which many foreign issuers may be
subject. The ADR is sometimes referred to as a Global Depositary Receipt, or
GDR. In the United States, the GDR is, after issuance, not unlike any other ADR.
The difference is found in the purpose of the issue. GDRs are used for global
offerings, by the simultaneous issuance of a single security in multiple world
markets. Each of the LifeWorks Funds may also invest in European depository
receipts ("EDRs"), which are receipts evidencing an arrangement with a European
bank similar to that for ADRs and designed for use in the European securities
markets. EDRs are not necessarily denominated in the currency of the underlying
security.
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Certain of the ADRs and EDRs, typically those categorized as unsponsored,
require their holders to bear most of the costs of such facilities while issuers
of sponsored facilities normally pay more of the costs. 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 with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
Subject to its applicable investment policies, each of the LifeWorks Funds may
invest in debt securities denominated in the European Currency Unit ("ECU"),
which is a "basket" unit of currency consisting of specified amounts of the
currencies of certain of the 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.
FUTURES CONTRACTS
The LifeWorks Funds may also enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, a Fund can seek through the sale of
futures contracts to offset a decline in the value of its portfolio securities.
When interest rates are expected to fall or market values are expected to rise,
a Fund, through the purchase of such contracts, can attempt to secure better
rates or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercising 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 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of a Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with its portfolio securities or foreign currencies, limiting the
Fund's ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
GOVERNMENT OBLIGATIONS
Each of the LifeWorks Funds may invest in obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities.
The types of U.S. government obligations in which each of the LifeWorks Funds
may invest include U.S. Treasury notes, bills, bonds, and any other securities
directly issued by the U.S. government for public
PROSPECTUS--Parkstone LifeWorks Funds 14
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investment, which differ only in their interest rates, maturities, and times of
issuance. Stripped Treasury Obligations are also permissible investments.
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.
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the right of
the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association ("SLMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored agencies or
instrumentalities, such as FNMA, SLMA or FHLMC, since it is not obligated to do
so by law. The LifeWorks Funds will invest in the obligations of such agencies
or instrumentalities only when First of America believes that the credit risk
with respect thereto is minimal.
MEDIUM-GRADE SECURITIES
Each of the LifeWorks Funds may invest in fixed-income securities rated within
the fourth highest rating category assigned by an NRSRO (i.e., BBB or Baa by S&P
or Moody's, respectively) and comparable unrated securities as determined by the
Investment Adviser. These types of fixed-income securities are considered by the
NRSROs to have some speculative characteristics, and are more vulnerable to
changes in economic conditions, higher interest rates or adverse issuer-specific
developments which are more likely to lead to a weaker capacity to make
principal and interest payments than comparable higher rated debt securities.
Should subsequent events cause the rating of a fixed-income security purchased
by any of the Funds listed above to fall below the fourth highest rating, First
of America will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would the Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
MORTGAGE-RELATED SECURITIES
Each of the LifeWorks Funds may invest in mortgage-related securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities. Such
agencies or instrumentalities include GNMA, FNMA and FHLMC. Each of the
LifeWorks Funds may also invest in mortgage-related securities issued by non-
governmental entities which are rated, at the time of purchase, within the three
highest bond rating categories assigned by an NRSRO or, if unrated, which First
of America deems present attractive opportunities and are of comparable quality.
The mortgage-related securities in which the these Funds may invest have
mortgage obligations backing such securities, consisting of conventional
thirty-year fixed-rate mortgage obligations, graduated payment mortgage
obligations, fifteen-year mortgage obligations and adjustable-rate mortgage
obligations. All of these mortgage obligations can be used to create
pass-through securities. A pass-through security is created when mortgage
obligations are pooled together and undivided interests in the pool or pools are
sold. The cash flow from the mortgage obligations is passed through to the
holders of the securities in the form of periodic payments of interest,
principal and prepayments (net of a service fee). Prepayments occur when the
holder of an individual mortgage obligation prepays the remaining principal
before the mortgage obligation's scheduled maturity date. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Because the prepayment
characteristics of the underlying mortgage obligations vary, it is not possible
to predict accurately the realized yield or average life of a particular issue
of pass-through certificates. Prepayment rates are important because of their
effect on the yield and price of the securities. Accelerated prepayments have an
adverse impact on
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yields for pass-throughs purchased at a premium (i.e., a price in excess of
principal amount) and may involve additional risk of loss of principal because
the premium may not have been fully amortized at the time the obligation is
repaid. The opposite is true for pass-throughs purchased at a discount. The
Funds may purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, though, the rate of prepayment tends to decrease, thereby lengthening
the period of time over which income at the lower rate is received. For these
and other reasons, a mortgage-related security's average maturity may be
shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Fund. In addition, regular payments received with respect to mortgage-related
securities include both interest and principal. No assurance can be given as to
the return a Fund will receive when these amounts are reinvested.
The principal governmental (i.e., backed by the full faith and credit of the
United States government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Administration
or guaranteed by the Veterans Administration.
Government-related (i.e., not backed by the full faith and credit of the United
States government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States government. FHLMC is a corporate instrumentality of the
United States government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States government.
Mortgage-related securities in which the LifeWorks Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
OTHER MUTUAL FUNDS
Each of the LifeWorks Funds may invest up to 5% of the value of its total assets
in the securities of any one money market mutual fund (including shares of the
Parkstone Money Market Funds: the Parkstone Prime Obligations Fund, the
Parkstone U.S. Government Obligations Fund, the Parkstone Treasury Fund and the
Parkstone Tax-Free Fund), provided that no more than 10% of a Fund's total
assets may be invested in the securities of mutual funds in the aggregate. In
order to avoid the imposition of additional fees as a result of investments by a
Fund in shares of the Money Market Funds of the Group, the Investment Adviser,
Administrator and their affiliates (See "MANAGEMENT OF THE FUNDS --
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Investment Adviser and Subadviser" and "Administrator, Sub-Administrator and
Distributor" and "GENERAL INFORMATION -- Transfer Agency and Fund Accounting
Services") will charge their fees to the LifeWorks Funds, rather than the Money
Market Funds. The Investment Adviser and the Administrator will promptly forward
such fees to the appropriate Fund. Each Fund will incur additional expenses due
to the duplication of expenses as a result of investing in securities of
unaffiliated mutual funds. Additional restrictions regarding the Funds'
investments in securities of unaffiliated mutual funds and/or Money Market Funds
of the Group are contained in the Statement of Additional Information.
PUT AND CALL OPTIONS
Each of the LifeWorks Funds may purchase put and call options on securities and
on foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. Each of
the LifeWorks Funds may also engage in writing call options from time to time as
First of America or Gulfstream deem appropriate. The Funds will write only
covered call options (options on securities or currencies owned by the
particular Fund). In order to close out a call option it has written, the Fund
will enter into a "closing purchase transaction" (the purchase of a call option
on the same security or currency with the same exercise price and expiration
date as the call option which such Fund previously has written). When a
portfolio security or currency subject to a call option is sold, the Fund will
effect a closing purchase transaction to close out any existing call option on
that security or currency. If such Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security or currency
until the option expires or that Fund delivers the underlying security or
currency upon exercise. In addition, upon the exercise of a call option by the
option holder, the Fund will forego the potential benefit represented by market
appreciation over the exercise price. Under normal conditions, it is not
expected that the Funds will cause the underlying value of portfolio securities
and currencies subject to such options to exceed 20% of its net assets.
Each of the LifeWorks Funds, as part of its options transactions, also may
purchase index put and call options and write index options. As with options on
individual securities, a Fund will write only covered index call options.
Through the writing or purchase of index options a Fund can achieve many of the
same objectives as through the use of options on individual securities. Options
on securities indices are similar to options on a security except that, rather
than the right to take or make delivery of a security at a specified price, an
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the securities
index upon which the option is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
REPURCHASE AGREEMENTS
Securities held by each of the LifeWorks Funds may be subject to repurchase
agreements. Under the terms of a repurchase agreement, a Fund would acquire
securities from financial institutions such as member banks of the Federal
Deposit Insurance Corporation or registered broker-dealers which First of
America or Gulfstream, as the case may be, deem creditworthy under the
guidelines approved by the Group's Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed upon date and
price. The repurchase price would generally equal the price paid by the Fund
plus
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interest negotiated on the basis of current short-term rates, which may be more
or less than the rate on the underlying portfolio securities. Securities subject
to repurchase agreements will be held in a segregated account. If the seller
were to default on its repurchase obligation or become insolvent, the Fund would
suffer a loss to the extent that the proceeds from the sale of the underlying
portfolio securities were less than the repurchase price under the agreement, or
to the extent that the disposition of such securities by that Fund were delayed
pending court action. Repurchase agreements are considered to be loans by an
investment company under the Investment Company Act of 1940 (the "1940 Act").
For further information about repurchase agreements, see "INVESTMENT OBJECTIVES
AND POLICIES -- Additional Information on Portfolio Instruments-Repurchase
Agreements" in the Statement of Additional Information.
RESTRICTED SECURITIES
Securities in which each of the LifeWorks Funds may invest include securities
issued by corporations without registration under the Securities Act of 1933, as
amended (the "1933 Act"), in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and securities issued in reliance on the
so-called "private placement" exemption from registration which is afforded by
Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2)
securities are restricted as to disposition under the federal securities laws,
and generally are sold to institutional investors such as the Funds who agree
that they are purchasing the securities for investment and not with a view to
public distribution. Any resale must also generally be made in an exempt
transaction. Section 4(2) securities are normally resold to other institutional
investors through or with the assistance of the issuer or investment dealers who
make a market in such Section 4(2) securities, thus providing liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group, First of
America may determine Section 4(2) securities to be liquid if such securities
are eligible for resale under Rule 144A under the 1933 Act and are readily
saleable.
Subject to the limitations described above, the LifeWorks Funds may acquire
investments that are illiquid or of limited liquidity, such as private
placements or investments that are not registered under the 1993 Act. An
illiquid investment is any investment that cannot be disposed of within seven
(7) days in the normal course of business at approximately the amount at which
it is valued by a Fund. The price a Fund pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly, the valuation of these
securities will reflect any limitations on their liquidity. A Fund may not
invest in additional illiquid securities if, as a result, more than 15% of the
market value of its net assets would be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS
Each of the LifeWorks Funds may borrow money by entering into reverse repurchase
agreements in accordance with the investment restrictions described below.
Pursuant to reverse repurchase agreements, a 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 a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. government securities or other
liquid 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 a 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. A Fund may experience a negative
impact on its net asset value if interest rates rise during the term of a
reverse repurchase agreement. A Fund generally will invest the proceeds of such
borrowings only when such borrowings will enhance a Fund's liquidity or when the
Fund reasonably expects that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. For further information about reverse repurchase agreements, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments-Reverse Repurchase Agreements" in the Statement of Additional
Information.
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<PAGE> 288
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the LifeWorks Funds may purchase securities on a when-issued or
delayed-delivery basis. Such Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with its investment objectives and policies, not for
investment leverage although such transactions represent a form of leveraging.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve a risk that the
yield obtained in the transaction will be less than those available in the
market when delivery takes place. A Fund will not pay for such securities or
start earning interest on them until they are received. When a Fund agrees to
purchase such securities, its Custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Securities
purchased on a when-issued basis are recorded as an asset and are subject to
changes in the value based upon changes in the general level of interest rates.
In when-issued and delayed-delivery transactions, a Fund relies on the seller to
complete the transaction; the seller's failure to do so may cause such Fund to
miss a price or yield considered to be advantageous.
No Fund's commitments to purchase "when-issued" securities will exceed 25% of
the value of its total assets under normal market conditions, and a commitment
by a Fund to purchase "when-issued" securities will not exceed 60 days. In the
event its commitments to purchase "when-issued" securities ever exceeded 25% of
the value of its assets, a Fund's liquidity and the ability of First of America
or Gulfstream, as the case may be, to manage it might be adversely affected. The
LifeWorks Funds intend only to purchase "when-issued" securities for the purpose
of acquiring portfolio securities, not for investment leverage.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each of the LifeWorks Funds may, from
time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. government securities. This collateral will be valued
daily by Union Bank. Should the market value of the loaned securities increase,
the borrower must furnish additional collateral to that Fund. During the time
portfolio securities are on loan, the borrower pays that Fund any dividends or
interest received on such securities. Loans are subject to termination by the
Fund or the borrower at any time. While a Fund does not have the right to vote
securities on loan, each Fund intends to terminate the loan and regain the right
to vote if that is considered important with respect to the investment. In the
event the borrower defaults in its obligation to a Fund, such Fund bears the
risk of delay in the recovery of its portfolio securities and the risk of loss
of rights in the collateral. The LifeWorks Funds will enter into loan agreements
only with broker-dealers, banks, or other institutions that First of America or
Gulfstream, as the case may be, have determined are creditworthy under
guidelines established by the Group's Board of Trustees.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The SEC requires that the
calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less. For portfolio turnover rates for the Funds,
see "FINANCIAL HIGHLIGHTS." During their initial year of operation, the
Conservative Allocation Fund and the Aggressive Allocation Fund do not
anticipate that their turnover rates will exceed 600% and 500%, respectively.
The portfolio turnover rate for a Fund may vary greatly from year to year, as
well as within a particular year, and may also be affected by cash requirements
for redemptions of shares. High portfolio turnover rates will generally result
in higher transaction costs, including brokerage commissions, to a Fund and may
result in additional tax consequences to a Fund's shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
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INVESTMENT RESTRICTIONS
Each of the LifeWorks Funds is subject to a number of investment restrictions
that may be changed only by a vote of a majority of the outstanding shares of
that Fund (as defined in the Statement of Additional Information).
None of the LifeWorks Funds will:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in such issuer, or the Fund would hold more
than 10% of the outstanding voting securities of the issuer, except that 25%
or less of the value of such Fund's total assets may be invested without
regard to such limitations. There is no limit to the percentage of assets
that may be invested in U.S. Treasury bills, notes, or other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
2. Purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the
U.S. government or its agencies or instrumentalities; (b) wholly-owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
3. (a) Borrow money (not including reverse repurchase agreements), except that
each 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 do not
exceed in the aggregate one-third of the Fund's total assets less liabilities
other than the obligations represented by the bank borrowings and reverse
repurchase agreements), or mortgage, pledge or hypothecate any assets except
in connection with a bank borrowing in amounts not to exceed 30% of the
Fund's net assets at the time of borrowing; (b) enter into reverse repurchase
agreements and other permitted borrowings in amounts exceeding in the
aggregate one-third of the Fund's total assets less liabilities other than
the obligations represented by such reverse repurchase agreements; and (c)
issue senior securities except as permitted by the 1940 Act or any rule,
order or interpretation thereunder.
4. Make loans, except that a 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.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding shares of a Fund.
Each LifeWorks Fund will not:
1. Purchase or otherwise acquire any securities if, as a result, more than 15%
of the Fund's net assets would be invested in securities that are illiquid.
In addition to the above investment restrictions, the LifeWorks Funds are
subject to certain other investment restrictions set forth under "INVESTMENT
OBJECTIVES AND POLICIES -- Investment Restrictions" in the Statement of
Additional Information.
PROSPECTUS--Parkstone LifeWorks Funds 20
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MANAGEMENT OF THE FUNDS
TRUSTEES
Overall responsibility for management of the Group rests with its Board of
Trustees The Group will be managed by the Trustees in accordance with the laws
of the Commonwealth of Massachusetts governing business trusts. There are
currently six Trustees, four 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
names, addresses, birth dates and principal occupations during the past five
years of the Trustees are set forth in the Statement of Additional Information.
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
First of America Bank Corporation ("FABC"), BISYS, The BISYS Group, Inc. or
BISYS Ohio 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 Transfer Agent. BISYS Ohio, an affiliate
of BISYS, receives fees from the Group for providing certain fund accounting
services.
INVESTMENT ADVISER AND SUBADVISER
First of America, 303 North Rose Street, Suite 500, Kalamazoo, Michigan 49007,
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 FOA,
which is a wholly-owned subsidiary of FABC. FABC currently has over $21.5
billion in assets and provides financial services to communities in Michigan,
Indiana, Illinois and Florida. FABC has, however, entered into an agreement to
sell its operations in Florida, thereby reducing its assets by approximately
$1.1 billion. As of June 30, 1997, First of America managed over $15.8 billion
on behalf of both taxable and tax-exempt clients, including pensions,
endowments, corporations and individual portfolios. First of America acts as
subadviser to the Trust Division of FABC with respect to $7.2 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 Gulfstream, furnishes a continuous
investment program for each of the LifeWorks Funds and makes investment
decisions on behalf of each Fund.
First of America utilizes a team approach to the investment management of the
Funds, with up to three professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
each Fund's investment objectives. Roger H. Stamper, Managing Director of First
of America, is primarily responsible for the day-to-day management of each of
the LifeWorks Funds. Mr. Stamper has been 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 each of
the LifeWorks Funds, computed daily and paid monthly, at the annual rate of
1.00% of the Fund's average daily net assets. First of America may periodically
voluntarily reduce all or a portion of its advisory fee with respect to a Fund
to increase the net income of that Fund available for distribution as dividends.
The voluntary fee reduction will cause the yield of that Fund to be higher than
it would otherwise be in the absence of such a reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream,
100 Crescent Court, Suite 550, Dallas, Texas 75201. Pursuant to the terms of
such Sub-Investment Advisory Agreement, Gulfstream has been retained by First of
America to manage the investment and reinvestment of those assets of the
LifeWorks Funds which are invested in foreign securities, subject to the
direction and control of the Group's Board of Trustees.
21 PROSPECTUS--Parkstone LifeWorks Funds
<PAGE> 291
Under this arrangement, Gulfstream is responsible for day-to-day management of
the applicable portion of the LifeWorks Funds, reviewing investment performance
policies and guidelines and maintaining certain books and records, and First of
America is responsible for selecting and monitoring the performance of
Gulfstream and for reporting the activities of Gulfstream in managing these
Funds to the Group's Board of Trustees. Gulfstream utilizes a team approach to
investment management to ensure a disciplined investment process designed to
result in longterm performance consistent with a Fund's investment objective. No
one person is responsible for a Fund's management.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with First of America, Gulfstream receives from First of
America a fee, computed daily and paid monthly, at the annual rate of 0.50% of
the first $50 million of the average daily net assets of each of the LifeWorks
Funds which are invested in foreign securities, 0.45% of such average daily net
assets between $50 million and $100 million, 0.40% of such average daily net
assets between $100 million and $400 million and 0.30% of such average daily net
assets above $400 million, provided the minimum annual fee shall be $75,000.
Gulfstream was organized in 1991 as a Texas limited partnership by Tull, Doud,
Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is the sole general
partner of Gulfstream. TDMT is owned by C. Thomas Tull, Stephen C. Doud, James
P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and Triltsch are the
portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. First of America is the sole limited partner, and as of August 31,
1996 exercised options to increase its interest in Gulfstream from 49% to 72%.
In spite of the fact that First of America, as a limited partner, does not
possess management authority or responsibility for Gulfstream, because of its
72% ownership interest, First of America may be deemed to control Gulfstream for
purposes of the 1940 Act.
As of June 30, 1997, Gulfstream had over $863 million in international assets of
institutional, investment company, governmental, pension fund and high net worth
individual clients under its investment management. Gulfstream's portfolio
management personnel average over 20 years of investment experience and 10 years
of international investment experience.
For further information regarding the relationship between Gulfstream and First
of America, see "MANAGEMENT OF THE GROUP -- Investment Adviser" in the Statement
of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each of
the LifeWorks Funds, and also acts as the Group's principal underwriter and
distributor. First of America serves as Sub-Administrator for each Fund of the
Group and provides certain services as may be requested by BISYS from time to
time. BISYS and its affiliated companies, including BISYS Ohio, 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 record
keeping services to and through banking and other financial organizations.
The Administrator generally assists in all aspects of the LifeWorks Funds'
administration and operation. For expenses assumed and services provided as
administrator pursuant to its Administration Agreement with the Group, the
Administrator receives a fee from each Fund equal to the lesser of a fee,
computed daily and paid periodically at an annual rate of 0.20% of the Fund's
average daily net assets, or such other fee as may be agreed upon from time to
time in writing by the Group and the Administrator. For its services as
Sub-Administrator, First of America receives, from the Administrator, pursuant
to its Sub-Administration Agreement with BISYS, a fee not to exceed 0.05% of
each Fund's average daily net assets. The Administrator may periodically
voluntarily reduce all or a portion of its administrative fee with respect to a
Fund to increase the net income of that Fund available for distribution as
dividends. The voluntary fee reduction will cause the return of that Fund to be
higher than it would otherwise be in the absence of such reduction.
The Distributor acts as agent for the LifeWorks Funds in the distribution of
each of their shares and, in such capacity, solicits orders for the sale of
shares, advertises, and pays the cost of advertising, office
PROSPECTUS--Parkstone LifeWorks Funds 22
<PAGE> 292
space and its personnel involved in such activities. The Distributor receives no
compensation under its Distribution Agreement with the Group.
EXPENSES
First of America, Gulfstream and BISYS each bear all expenses in connection with
the performance of its services as Investment Adviser, Subadviser and
Administrator, respectively, other than the cost of securities (including
brokerage commissions) purchased for the Group. Each of the LifeWorks Funds will
bear the following expenses relating to its operation: organizational expenses,
taxes, interest, brokerage fees and commissions, fees of the Trustees of the
Group, SEC fees, state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the Custodian, Transfer Agent and Fund
Accountant, certain insurance premiums, costs of maintenance of the Group's
existence, costs of shareholders' reports and meetings, and any extraordinary
expenses incurred in each Fund's operation. As a general matter, expenses are
allocated to the Institutional Shares and the other classes of shares of the
LifeWorks Funds on the basis of the relative net asset value of each class. The
various classes may bear certain additional retail transfer agency expenses and
may also bear certain additional shareholder service and distribution costs
incurred pursuant to a Distribution and Shareholder Service Plan.
The Trustees reserve the right, subject to the receipt of relevant regulatory
approvals or rulings, if needed, to allocate certain other expenses to the
shareholders of a particular class, including the Institutional Shares 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; SEC 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.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS serves as the Group's Transfer Agent pursuant to a Transfer Agency
Agreement with the Group and receives a fee for such services. BISYS Ohio, 3435
Stelzer Road, Columbus, Ohio 43219, provides certain accounting services for
each of the LifeWorks Funds and receives a fee for such services. See
"MANAGEMENT OF THE GROUP -- Custodian, Transfer Agent and Fund Accounting
Services" in the Statement of Additional Information for further information.
While BISYS Ohio is a distinct legal entity from BISYS (the Group's
administrator and distributor), BISYS Ohio is considered to be an affiliated
person of BISYS under the 1940 Act due to, among other things, the fact that
BISYS Ohio and BISYS are both owned by The BISYS Group, Inc.
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.
23 PROSPECTUS--Parkstone LifeWorks Funds
<PAGE> 293
HOW TO BUY INSTITUTIONAL SHARES
Institutional Shares of each Fund are continuously offered and may be purchased
through procedures established by the Distributor in connection with the
requirements of customer accounts maintained by or on behalf of certain
financial institutions acting as fiduciary or agent for their customers
("Customer Accounts"). These procedures may include instructions under which a
Customer Account is "swept" automatically no less frequently than weekly and
amounts in excess of a minimum amount agreed upon by the financial institution
and the customer are invested by the Distributor in Institutional Shares of the
Money Market Funds, depending upon the type of Customer Account and/or the
instructions of the customer.
Institutional Shares of the Group sold to financial institutions acting in a
fiduciary, advisory, custodial, or other similar capacity on behalf of customers
will normally be held of record by the financial institution. With respect to
Institutional Shares of the Group so sold, it is the responsibility of the
particular financial institution to transmit purchase or redemption orders to
the Distributor and to deliver federal funds for purchase on a timely basis.
Beneficial ownership of Institutional Shares of the Group will be recorded by
the financial institution and reflected in the account statements provided by
the financial institution to customers. A financial institution may exercise
voting authority for those Institutional Shares for which it is granted
authority by the customer.
Institutional Shares of each of the LifeWorks Funds 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.
Purchases of Institutional Shares of a Fund will be effected only on a Business
Day (as defined in "HOW SHARES ARE VALUED") of the applicable 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 that Fund. Institutional Shares of the LifeWorks Funds are
eligible to earn dividends on the first Business Day following the execution of
the purchase. Institutional Shares of the Funds continue to be eligible to earn
dividends through the day before their redemption.
An order to purchase Institutional Shares will be deemed to have been received
by the Distributor only when federal funds are available to the Group's
Custodian for investment. Federal funds are monies credited to a bank's account
within a Federal Reserve Bank. Payment for an order to purchase Institutional
Shares which is transmitted by federal funds wire will be available the same day
for investment by the Group's Custodian, if received prior to the last Valuation
Time (see "HOW SHARES ARE VALUED"). Purchases made by check or other means are
made at the price next determined upon receipt of the purchase instrument.
However, proceeds from redeemed shares purchased by check will not be sent until
the method of payment has cleared. The Group strongly recommends that investors
of substantial amounts use federal funds to purchase Institutional Shares.
There is no sales charge imposed by the Group in connection with the purchase of
Institutional Shares of the LifeWorks Funds. Depending upon the terms of a
particular Customer Account, a financial institution may charge a Customer
Account fees for automatic investment and other cash management services
provided in connection with investment in the Group. Information concerning
these services and any charges may be obtained from the financial institution.
This Prospectus should be read in conjunction with any such information received
from the financial institution.
The Group reserves the right to reject any order for the purchase of
Institutional Shares in whole or in part.
Confirmations of purchases and redemption of Institutional Shares of the Group
by financial institutions on behalf of their customers may be obtained from the
financial institutions. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Institutional Shares of the LifeWorks
Funds will not be issued.
PROSPECTUS--Parkstone LifeWorks Funds 24
<PAGE> 294
HOW TO REDEEM YOUR INSTITUTIONAL SHARES
Shareholders may redeem their Institutional Shares without charge 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. Shareholders may request redemptions by contacting
their trust administrator or other financial consultant responsible for the
Customer Account.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a customer's Institutional Shares may be redeemed in accordance
with instructions and limitations pertaining to his or her Customer Account with
a financial institution. For example, if a customer has agreed with a bank to
maintain a minimum balance in his or her account with the bank, and the balance
in that account falls below that minimum, the customer may be obliged to redeem,
or the bank may redeem for and on behalf of the customer, all or part of the
customer's Institutional Shares of a Fund of the Group to the extent necessary
to maintain the required minimum balance.
Redemption orders are effected at the net asset value per share next determined
after the Institutional Shares are properly tendered for redemption, as
described above. The proceeds paid upon redemption of such Institutional Shares
of the Funds may be more or less than the amount invested. 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, requests from financial institutions for next day
payments upon redemption of Institutional Shares will be honored if the request
for redemption is 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 Group or the
shareholders of a Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner. Shareholders should
contact their trust administrator or other financial consultant responsible for
the account to determine the financial institution's requirements for
effectuating redemptions.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Group may suspend the right of
redemption or redeem Institutional Shares involuntarily if it appears
appropriate to do so in light of the Group's responsibilities under the 1940
Act.
HOW SHARES ARE VALUED
The net asset value of Institutional Shares of the LifeWorks Funds is determined
and the shares are priced as of the close of trading on the New York Stock
Exchange ("NYSE") on each Business Day (generally 4:00 p.m. Eastern Time). A
"Business Day" is a day on which the NYSE 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. Currently, the NYSE will not open in observance
of the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding shares of such class. The net asset
value per share will fluctuate as the value of the investment portfolio of a
Fund changes.
The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. Foreign securities are valued
based on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
25 PROSPECTUS--Parkstone LifeWorks Funds
<PAGE> 295
DIVIDENDS AND TAXES
GENERAL
Net income for each of the LifeWorks Funds is declared monthly as a dividend to
shareholders at the close of business on the day of declaration and is paid
monthly. In some months, certain Funds may not pay any dividends. Distributable
net realized capital gains are distributed at least annually. A shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional shares at net asset value as of the date of
declaration, unless the shareholder elects to receive dividends or distributions
in cash. A shareholder wishing to make such an election, or any revocation
thereof, must contact the trust administrator or other financial consultant
responsible for the account to submit the request in writing to the Transfer
Agent, c/o The Parkstone Group of Funds, P.O. Box 50551, Kalamazoo, Michigan
49005-0551. Any election or revocation thereof will become effective with
respect to dividends and distributions having record dates after its receipt by
the Transfer Agent.
Each of the LifeWorks Funds is treated as a separate entity for federal income
tax purposes. Each of the LifeWorks Funds intends to qualify as a "regulated
investment company" under the Code for so long as such qualification is in the
best interest of its shareholders and each intends to distribute all of its net
income and capital gains so that it is not required to pay federal income taxes
on amounts so distributed to shareholders.
To avoid federal income tax, the Code requires each of the LifeWorks Funds 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 non-deductible 4% excise tax, each Fund is required annually to
distribute, prior to calendar year end, 98% of taxable ordinary income on a
calendar year basis, 98% of capital gain net income realized in the twelve
months preceding October 31, and the balance of undistributed taxable ordinary
income and capital gain net income from the prior calendar year.
A shareholder receiving a distribution of ordinary income and/or an excess of
short-term capital gain over net long-term loss would treat it as a receipt of
ordinary income. The dividends-received deduction for corporations will apply to
the aggregate of such ordinary income distributions in the same proportion as
the aggregate dividends from domestic corporations, if any, received by that
Fund bear to its gross income. A shareholder will not be able to take the
dividends-received deduction unless that shareholder holds the shares for at
least 46 days.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to its shareholders as long-term capital gain
in the year in which it is received, regardless of how long the shareholder has
held shares. Such distributions are not eligible for the dividends-received
deduction.
Prior to purchasing shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of shares prior to the record
date will have the effect of reducing the per share net asset value of the
shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to taxation.
Taxes may be imposed on the LifeWorks Funds by foreign countries with respect to
income received on foreign securities. If more than 50% of the value of a Fund's
assets at the close of its taxable year consists of stocks or securities of
foreign corporations, the Fund may elect to treat any foreign income taxes it
paid as paid by its shareholders. In this case, shareholders generally will be
required to include in income their pro rata share of such taxes, but will then
be entitled to claim a credit or deduction for their share of such taxes.
However, a particular shareholder's ability to utilize such a credit will be
subject to certain limitations imposed by the Code. The LifeWorks Funds will
report to their shareholders each year the amount, if any, of foreign taxes per
share that they have elected to have treated as paid by their shareholders.
PROSPECTUS--Parkstone LifeWorks Funds 26
<PAGE> 296
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 LifeWorks Funds showing their
average annual total return, aggregate total return and/or yield may be
presented in advertisements, sales literature and shareholder reports. Such
performance figures are based on historical earnings and are not intended to
indicate future performance. Average annual total return of a class of shares in
any of the LifeWorks Funds will be calculated for the period since the
establishment of the Fund and will reflect the imposition of the maximum sales
charge, if any. Currently, only the Balanced Allocation Fund of the LifeWorks
Funds is offered with multiple classes of shares. Average annual total return is
measured by comparing the value of an investment in a class of shares in a Fund
at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions) and annualizing the result. Aggregate
total return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of annualized.
Yield of a class of shares will be computed by dividing a class of shares' net
investment income per share earned during a recent one-month period by that
class of shares' per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result. Each LifeWorks 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 LifeWorks Funds may present their respective
distribution rates for a class of shares in shareholder reports and in
supplemental sales literature which is accompanied or preceded by a prospectus.
Distribution rates will be computed by dividing the distribution per share of a
class made by a Fund over a twelve-month period by the maximum offering price
per share. The calculation of income in the distribution rate includes both
income and capital gains dividends and does not reflect unrealized gains or
losses, although a Fund may also present a distribution rate excluding the
effect of capital gains. The distribution rate differs from the yield, because
it includes capital gains which are often non-recurring in nature, whereas yield
does not include such items. Distribution rates may also be presented excluding
the effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Institutional Shares and the other classes of the LifeWorks Funds, if any.
Because of differences in the fees and/or expenses borne by different classes of
shares of the LifeWorks Funds, if any, the net yield and total return on
Institutional Shares may be different from that for another class of the same
Fund. For example, net yield and total return on Investor A Shares is expected,
at any given time, to be lower than the net yield and total return on
Institutional Shares for the same period.
Investors may also judge the performance of any class of shares or Fund by
comparing or referencing it to the performance of various mutual fund or market
indices such as those published by various services, including, but not limited
to, ratings published by Morningstar, Inc. In addition to performance
information, general information about the Funds that appears in such
publications may be included in advertisements, in sales literature and in
reports to shareholders. For further information regarding such services and
publications, see "ADDITIONAL INFORMATION -- Performance Comparisons" in the
Statement of Additional Information.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, levels of operating expenses and changes in market conditions.
Consequently, total return and yield will fluctuate and are not necessarily
representative of future results. Any fees charged by FABC or any of its
affiliates with respect to customer accounts for investing in shares of the
Funds will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted. In addition, if First of
America and BISYS voluntarily reduce all or a part of their respective fees, as
further discussed above, the total return of such Fund will be higher than it
would otherwise be in the absence of such voluntary fee reductions.
27 PROSPECTUS--Parkstone LifeWorks Funds
<PAGE> 297
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's Funds through FUNDATA(R), an Automated Voice
Response System, 24 hours a day by calling (800) 451-8377 from any touch-tone
phone. Shareholders may also speak directly with a Group representative,
employed by BISYS, during regular business hours.
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in 1987 and, as of the
date of this Prospectus, offers eighteen Funds. The shares of each of the Funds
of the Group may be offered in up to five separate classes: Investor A Shares,
Investor B Shares, Investor C Shares, Investor Z Shares and Institutional
Shares. Each share represents an equal proportionate interest in a Fund with
other shares of the same Fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Fund as
are declared at the discretion of the Trustees. Shares do not have a par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by Fund except as otherwise
expressly required by law. For example, shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of Trustees and ratification of the selection of independent accountants.
However, shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve an investment and sub-investment advisory agreements and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Group may elect not to have an annual or special meeting.
The Group has represented to the SEC that the Trustees will call a special
meeting of shareholders for purposes of considering the removal of one or more
Trustees upon written request therefor from shareholders holding not less than
10% of the outstanding votes of the Group. At such a meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Group), by majority vote, has the power to remove one or more
Trustees.
As of June 30, 1997, FABC, through its wholly-owned subsidiaries, possessed on
behalf of its underlying accounts voting or investment power with respect to
more than 25% of the shares of each of the LifeWorks Funds, and therefore may be
presumed to control such Funds within the meaning of the 1940 Act.
MULTIPLE CLASSES OF SHARES
In addition to Institutional Shares, the Group also offers Investor A Shares,
Investor B Shares, Investor C Shares and Investor Z Shares of certain Funds
pursuant to a Multiple Class Plan adopted by the Group's Trustees under Rule
18f-3 of the 1940 Act. A salesperson or other person entitled to receive
compensation for selling or servicing shares may receive different compensation
with respect to one particular class of shares over another in the same Fund.
The amount of dividends payable with respect to other classes of shares will
differ from dividends on Institutional Shares as a result of the Distribution
and Shareholder Service Plan fees applicable to such other classes of shares and
because the different classes of shares may bear different retail transfer
agency expenses. For further details regarding these other classes of Shares,
call the Group at (800) 451-8377.
PROSPECTUS--Parkstone LifeWorks Funds 28
<PAGE> 298
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at P.O. Box 50551, Kalamazoo, MI 49005-0551, or by calling toll free
(800) 451-8377.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
29 PROSPECTUS--Parkstone LifeWorks Funds
<PAGE> 299
THE PARKSTONE GROUP OF FUNDS
Institutional Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
First of America Investment Corporation
Suite 500
303 North Rose Street
Kalamazoo, Michigan 49007
SUBADVISER
Gulfstream Global Investors, Ltd.
Suite 550
100 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
Union Bank of California, N.A.
475 Sansome Street
San Francisco, California 94111
LEGAL COUNSEL
Howard & Howard Attorneys, P.C.
Suite 400
107 West Michigan Avenue
Kalamazoo, Michigan 49007
<PAGE> 300
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES
INVESTOR B SHARES
INVESTOR C SHARES
INSTITUTIONAL SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX-FREE INCOME FUNDS
THE PARKSTONE MONEY MARKET FUNDS
FORM N-1A
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART B. INFORMATION REQUIRED STATEMENT OF ADDITIONAL INFORMATION
ITEM NO. RULE 404(a) CROSS REFERENCE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
10. Cover Page ................................... Cover Page
11. Table of Contents............................. Table of Contents
12. General Information and History............... Not Applicable
13. Investment Objectives and Policies............ Investment Objectives and Policies; Investment
Restrictions; Portfolio Turnover
14. Management of the Fund........................ Management of the Group
15. Control Persons and Principal Holders of
Securities.................................... Principal Holders of Voting Securities
16. Investment Advisory and Other Services........ Investment Adviser; Administrator and Sub-
Administrator; Distributor; Custodian, Transfer
Agent and Fund Accounting Services;
Independent Auditors; Legal Counsel
17. Brokerage Allocation and Other Practices...... Portfolio Transactions; Distributor
18. Capital Stock and Other Securities............ Description of Shares
19. Purchase, Redemption and Pricing of
of Securities Being Offered................... Net Asset Value; Additional Purchase and
Redemption Information
20. Tax Status.................................... Additional Tax Information; Additional Tax
Information Concerning the Exempt Funds;
Additional Tax Information Concerning the
International Fund and Emerging Markets Fund
21. Underwriters.................................. Distributor; Portfolio Transactions
22. Calculation of Performance Data............... Yields of the Money Market Funds; Yields of the
Non-Money Market Funds; Calculation of Total
Return; Distribution Rates
23. Financial Statements.......................... Financial Statements
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 1
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THE PARKSTONE GROUP OF FUNDS
Statement of Additional Information
September 30, 1997
GROWTH FUNDS
Parkstone Small Capitalization Fund
Parkstone Mid Capitalization Fund
Parkstone Large Capitalization Fund
Parkstone International Discovery Fund
Parkstone Emerging Markets Fund*
GROWTH AND INCOME FUNDS
Parkstone Equity Income Fund
The LifeWorks Funds
Parkstone Conservative Allocation Fund
Parkstone Balanced Allocation Fund
Parkstone Aggressive Allocation Fund
INCOME FUNDS
Parkstone Bond Fund
Parkstone Limited Maturity Bond Fund
Parkstone Intermediate Government Obligations Fund
Parkstone Government Income Fund
TAX-FREE INCOME FUNDS
Parkstone Municipal Bond Fund
Parkstone Michigan Municipal Bond Fund
MONEY MARKET FUNDS
Parkstone Prime Obligations Fund
Parkstone U.S. Government Obligations Fund
Parkstone Treasury Fund
Parkstone Tax-Free Fund
Parkstone Municipal Investor Fund*
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the following Prospectuses (the "Prospectuses") of the
Funds: Each of the Investor A Shares, Investor B Shares, Investor C Shares and
Institutional Shares Prospectuses dated September 30, 1997 and the Conservative
Allocation Fund, Balanced Allocation Fund and Aggressive Allocation Fund
Prospectus dated September 30, 1997, any of which may be supplemented from time
to time. This Statement of Additional Information is incorporated by reference
in its entirety into the Prospectuses. Copies of each of the Prospectuses may be
obtained by writing the Group at P.O. Box 50551, Kalamazoo, Michigan 49005-0551,
or by telephoning toll free (800) 451-8377.
*As of the date of this Statement of Additional Information, the Parkstone
Emerging Markets Fund and the Parkstone Municipal Investor Fund were not being
offered to the public.
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TABLE OF CONTENTS
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INVESTMENT OBJECTIVES AND POLICIES..................................................................... 2
Additional Information on Portfolio Instruments........................................... 2
Investment Restrictions................................................................... 17
Portfolio Turnover........................................................................ 21
NET ASSET VALUE........................................................................................ 23
Valuation of the Money Market Funds........................................................... 24
Valuation of the Non-Money Market Funds....................................................... 24
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION......................................................... 25
MANAGEMENT OF THE GROUP................................................................................ 26
Trustees and Officers......................................................................... 26
Investment Adviser and Subadviser............................................................. 29
Portfolio Transactions........................................................................ 34
Glass-Steagall Act............................................................................ 36
Administrator and Sub-Administrator........................................................... 37
Expenses...................................................................................... 40
Distributor................................................................................... 40
Custodian, Transfer Agent and Fund Accounting Services........................................ 44
Independent Auditors.......................................................................... 45
Legal Counsel................................................................................. 45
ADDITIONAL INFORMATION................................................................................. 45
Description of Shares......................................................................... 45
Vote of a Majority of the Outstanding Shares.................................................. 47
Shareholder and Trustee Liability............................................................. 47
Additional Tax Information.................................................................... 47
Additional Tax Information Concerning the Exempt Funds........................................ 51
Additional Tax Information Concerning the International Fund and Emerging
Markets Fund.............................................................................. 53
Yields of the Money Market Funds.............................................................. 54
Yields of the Non-Money Market Funds.......................................................... 55
Calculation of Total Return................................................................... 56
Distribution Rates............................................................................ 58
Performance Comparisons....................................................................... 59
Miscellaneous................................................................................. 60
PRINCIPAL HOLDERS OF VOTING SECURITIES................................................................. 61
FINANCIAL STATEMENTS................................................................................... 70
APPENDIX............................................................................................... 71
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STATEMENT OF ADDITIONAL INFORMATION
THE PARKSTONE GROUP OF FUNDS
The Parkstone Group of Funds (the "Group") is an open-end management
investment company composed of twenty separate investment portfolios, nineteen
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 each
of the twenty portfolios (collectively, the "Funds" and singly, a "Fund").
The Group includes five money market Funds: the U.S. Government
Obligations Fund, the Prime Obligations Fund, the Treasury Fund, the Municipal
Investor Fund and the Tax-Free Fund (collectively, the "Money Market Funds"),
each of which, except the Tax-Free Fund, seeks current income consistent with
liquidity and stability of principal by investing in high quality money market
instruments. The Tax-Free Fund seeks to provide current income free from federal
income taxes, preservation of capital and relative stability of principal. The
U.S. Government Obligations Fund invests primarily in short-term U.S. Treasury
bills, notes, and other obligations issued or guaranteed by the U.S. government,
its agencies and instrumentalities. The Prime Obligations Fund invests in high
quality money market instruments. The Tax-Free Fund invests in high quality
tax-exempt obligations and seeks to produce a high level of income which is
exempt from federal income taxes. The Treasury Fund invests exclusively in
obligations issued or guaranteed by the U.S. Treasury and in repurchase
agreements backed by such obligations. The Municipal Investor Fund invests in
high quality money market instruments.
In addition, the Group has fifteen variable net asset value Funds: the
Small Capitalization Fund, the Mid Capitalization Fund (formerly, the Parkstone
Equity Fund), the Large Capitalization Fund, the International Discovery Fund,
the Emerging Markets Fund, the Conservative Allocation Fund, the Balanced
Allocation Fund (formerly, the Parkstone Balanced Fund), the Aggressive
Allocation Fund, the Equity Income Fund (formerly, the Parkstone High Income
Equity Fund), the Bond Fund, the Limited Maturity Bond Fund, the Intermediate
Government Obligations Fund, the Government Income Fund, the Municipal Bond Fund
and the Michigan Municipal Bond Fund (collectively, the "Non-Money Market
Funds"). The Small Capitalization Fund seeks capital growth by investing
primarily in a diversified portfolio of common stocks and securities convertible
into common stocks of small- to medium-sized companies. The Mid Capitalization
Fund seeks capital growth by investing primarily in a diversified portfolio of
common stocks and securities convertible into common stocks. The Large
Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities of companies with large
market capitalization. The International Discovery Fund (the "International
Fund") and the Emerging Markets Fund seek the long-term growth of capital. The
Conservative Allocation Fund seeks current income and conservation of capital,
with a secondary objective of long-term capital growth. The Balanced Allocation
Fund seeks current income, long-term capital growth and conservation of capital.
The Aggressive Allocation Fund seeks capital appreciation and income growth. The
Equity Income Fund seeks current income as well as capital growth by investing
in high quality dividend-paying stocks and securities convertible into common
stocks. The Bond Fund seeks current income with preservation of capital by
investing in a portfolio of high- and medium-grade fixed-income securities. The
Limited Maturity Bond Fund seeks current income with preservation of capital
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by investing in a portfolio of high and medium-grade fixed-income securities
with maturities of six years or less. The Intermediate Government Obligations
Fund seeks current income with preservation of capital by investing in a
portfolio of U.S. government obligations with maturities of 12 years or less.
The Government Income Fund seeks to provide shareholders with a high level of
current income consistent with prudent investment risk. The Municipal Bond Fund
seeks federal tax-exempt income with preservation of capital by investing in
tax-exempt fixed-income securities. The Michigan Municipal Bond Fund (the
"Michigan Bond Fund") seeks income which is exempt from federal income tax and
Michigan state income and intangibles taxes, although such income may be subject
to the federal alternative minimum tax when received by certain shareholders.
The Michigan Bond Fund also seeks preservation of capital. The Small
Capitalization Fund, Mid Capitalization Fund, Large Capitalization Fund,
International Fund and Emerging Markets Fund are sometimes referred to as the
Growth Funds. The Conservative Foundation Fund, Balanced Allocation Fund,
Aggressive Allocation Fund and Equity Income Fund are sometimes referred to as
the Growth and Income Funds. The Bond Fund, Limited Maturity Bond Fund,
Intermediate Government Obligations Fund and Government Income Fund are
sometimes referred to as the Income Funds. The Michigan Bond Fund and Municipal
Bond Fund are sometimes referred to as the Tax-Free Income Funds.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectuses of the eighteen
Funds described above which are currently being offered to the public. As of the
date of this Statement of Additional Information, neither the Emerging Markets
Fund nor the Municipal Investor Fund were being offered to the public.
Capitalized terms not defined herein are defined in the Prospectuses. No
investment in shares of a Fund should be made without first reading the Fund's
Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objectives and
policies of each Fund of the Group as set forth in the Prospectus for that Fund.
BANK OBLIGATIONS. Each of the U.S. Government Obligations Fund, Prime
Obligations Fund, Tax-Free Fund, Municipal Investor Fund, Small Capitalization
Fund, Mid Capitalization Fund, Large Capitalization Fund, Conservative
Allocation Fund, Balanced Allocation Fund, Aggressive Allocation Fund, Equity
Income Fund, Bond Fund, Limited Maturity Bond Fund, Government Income Fund,
Municipal Bond Fund and Michigan Bond 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 Funds 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 and loan association for a
definite period of time and earning a
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specified return. Certificates of deposit and time deposits will be those of
domestic and foreign banks and savings and loan associations if (a) at the time
of investment, the depository or institution has capital, surplus, and undivided
profits in excess of $100,000,000 (as of the date of its most recently published
financial statements), or (b) the principal amount of the instrument is insured
in full by the Federal Deposit Insurance Corporation.
Each of the Prime Obligations Fund, U.S. Government Obligations Fund,
Tax-Free Fund, Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, International Fund, Conservative Allocation Fund, Balanced
Allocation Fund, Aggressive Allocation Fund, Equity Income Fund, Bond Fund,
Limited Maturity Bond Fund and Government Income Fund may also invest in
Eurodollar certificates of deposit ("Euro CDs"), 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
("Yankee CDs"), 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 9 months and fixed rates of return.
Subject to the limitations described in the Prospectuses, the Municipal
Investor Fund, the Prime Obligations Fund, the U.S. Government Obligations Fund,
the Tax-Free Fund, the Government Income Fund and the Michigan Bond Fund will
purchase commercial paper consisting of issues rated at the time of purchase
within the two highest rating categories assigned by a nationally recognized
statistical rating organization ("NRSRO"). The Tax-Free Fund may purchase
commercial paper rated in the highest rating category assigned by an NRSRO.
These Funds may also invest in commercial paper that is not rated but that is
determined by First of America Investment Corporation ("First of America" or the
"Investment Adviser"), under guidelines established by the Group's Board of
Trustees, to be of comparable quality to instruments that are so rated by an
NRSRO that is neither controlling, controlled by, or under common control with
the issuer of, or any issuer, guarantor, or provider of credit support for, the
instruments. The Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, Conservative Allocation Fund, Balanced Allocation Fund,
Aggressive Allocation Fund, Equity Income Fund, Bond Fund, Limited Maturity Bond
Fund and Municipal Bond Fund may invest in commercial paper rated in any rating
category or not rated by 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 U.S. Government Obligations Fund, Prime Obligations Fund, Tax-Free
Fund, Small Capitalization Fund, Mid Capitalization Fund, Large Capitalization
Fund, International Fund, Conservative Allocation Fund, Balanced Allocation
Fund, Aggressive Allocation Fund, Equity Income Fund, Bond Fund, Limited
Maturity Bond Fund and Government Income Fund may also invest in Canadian
commercial paper, which is commercial paper issued by a Canadian corporation or
counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer.
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VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Prime Obligations Fund, U.S. Government Obligations Fund,
Tax-Free Fund, Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, Conservative Allocation Fund, Balanced Allocation Fund,
Aggressive Allocation Fund, Equity Income Fund, Bond Fund, Limited Maturity Bond
Fund, Government Income Fund, Municipal Bond Fund and Michigan Bond Fund may
invest, are unsecured demand notes that permit the indebtedness thereunder to
vary and provide for periodic adjustments in the interest rate according to the
terms of the instrument. Because master demand notes are direct lending
arrangements between a Fund and the issuer, they are not normally traded.
Although there is no secondary market in the notes, a Fund may demand payment of
principal and accrued interest at any time. While the notes are not typically
rated by credit rating agencies, issuers of variable amount master demand notes
(which are normally manufacturing, retail, financial, and other business
concerns) must satisfy the same criteria as set forth above for commercial
paper. First of America will consider the earning power, cash flow, and other
liquidity ratios of such notes and will continuously monitor the financial
status and ability to make 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.
FOREIGN INVESTMENT. Investment in foreign securities is subject to
special investment risks that differ in some respects from those related to
securities of U.S. domestic issuers. Since investments in the securities of
foreign issuers may involve currencies of foreign countries, and since the
International Fund and the Emerging Markets Fund may from time to time
temporarily hold funds in bank deposits in foreign currencies, the International
Fund and the Emerging Markets 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
Funds endeavor to achieve the most favorable net results in their portfolio
transactions. There is generally less government supervision and regulation of
the securities exchanges, brokers, dealers and listed companies than in the
U.S., 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 a Fund is uninvested and no
return is earned thereon. The inability of a Fund to make intended security
purchases due to settlement problems could cause such Fund to miss attractive
investment opportunities. Losses to a Fund due to subsequent declines in the
value of portfolio securities, or losses arising out of the Fund's inability to
fulfill a contract to sell such securities, could result in potential liability
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to the 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 a 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.
Each of the Prime Obligations Fund, U.S. Government Obligations Fund,
Tax-Free Fund, Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, Equity Income Fund, Bond Fund and Limited Maturity Bond
Fund will acquire foreign securities only when First of America or Gulfstream
Global Investors, Ltd. ("Gulfstream" or the "Subadviser"), the subadviser of the
International Fund, Emerging Markets Fund, Conservative Allocation Fund,
Balanced Allocation Fund and Aggressive Allocation Fund, believes that the risks
associated with such investments are minimal.
VARIABLE AND FLOATING RATE NOTES. The Prime Obligations Fund, U.S.
Government Obligations Fund, Tax-Free Fund, Bond Fund, Limited Maturity Bond
Fund, Government Income Fund, Municipal Bond Fund and Michigan Bond Fund may
acquire variable and floating rate notes, subject to each such Fund's investment
objective, policies and restrictions. A variable rate note is one whose terms
provide for the adjustment of its interest rate on set dates and which, upon
such adjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate note is one whose terms provide for
the adjustment of its interest rate whenever a specified interest rate changes
and which, at any time, can reasonably be expected to have a market value that
approximates its par value. Such notes are frequently not rated by credit rating
agencies; however, unrated variable and floating rate notes purchased by a Fund
will be determined by First of America, under guidelines established by the
Group's Board of Trustees, to be of comparable quality at the time of purchase
to rated instruments eligible for purchase under the Fund's investment policies.
In making such determinations, First of America will consider the earning power,
cash flow and liquidity ratios of the issuers of such notes (such issuers
include financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by a Fund, the Fund may resell the note at any time to a third party.
The absence of an active secondary market, however, could make it difficult for
the Fund to dispose of a variable or floating rate note in the event the issuer
of the note defaulted on its payment obligations and the Fund could, as a
result, or for other reasons, suffer a loss to the extent of the default. To the
extent that the Fund is not entitled to receive the principal amount of a note
within 7 days, such note will be treated as an illiquid security for purposes of
the calculation of the limitation on the Fund's investment in illiquid
securities as set forth in that Fund's investment restrictions. Variable or
floating rate notes may be secured by bank letters of credit.
Variable or floating rate notes invested in by the Prime Obligations
Fund, U.S. Government Obligations Fund and the Tax-Free Fund may have maturities
of more than 397 days, as follows:
1. An instrument that is issued or guaranteed by the United States
government or any agency thereof which has a variable rate of interest adjusted
no less frequently than every
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397 days will be deemed by a Fund to have a maturity equal to the period
remaining until the maturity date or the next readjustment of the interest rate,
whichever is less.
2. A variable rate note, the principal amount of which is scheduled on
the face of the instrument to be paid in 397 days or less, will be deemed by a
Fund to have a maturity equal to the period remaining until the maturity date or
the next readjustment of the interest rate, whichever is less.
3. A variable rate note that is subject to a demand feature will be
deemed by a Fund to have a maturity equal to the longer of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand.
4. A floating rate note that is subject to a demand feature will be
deemed by a Fund to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
As used above, a note is "subject to a demand feature" where the Fund
is entitled to receive the principal amount of the note either at any time on no
more than 30 days' notice or at specified intervals not exceeding 397 days.
MONEY MARKET MUTUAL FUNDS. Each of the Non-Money Market Funds may
invest up to 5% of the value of its total assets in the securities of any one
money market mutual fund (including shares of the Money Market Funds or another
affiliated money market fund), provided that no more than 10% of a Non-Money
Market Fund's total assets 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 a Non-Money Market Fund in shares of the
Money Market Funds of the Group, the Investment Adviser, Administrator and their
affiliates (See "MANAGEMENT OF THE GROUP - Investment Adviser," "Administrator
and Sub- Administrator," "Distributor" and "Custodian, Transfer Agent and Fund
Accounting Services") will charge their fees to the Non-Money Market Funds,
rather than the Money Market Funds. Each Non-Money Market Fund will incur
additional expenses due to the duplication of expenses as a result of investing
in securities of unaffiliated money market mutual funds.
The Non-Money Market Funds 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
Non-Money Market Funds of the Group will vote their 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, no single Non-Money Market Fund of the Group
may own more than 3% of the outstanding shares of any single Money Market Fund
of the Group.
MUNICIPAL SECURITIES. The Tax-Free Fund and Municipal Bond Fund, the
assets of such Funds will be primarily invested in bonds and notes issued by or
on behalf of states (including the District of Columbia), territories, and
possessions of the United States and their respective authorities, agencies,
instrumentalities, and political subdivisions, the interest on which is both
exempt from federal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax ("Municipal Securities"). With respect to
the Tax-Free Fund, Municipal Securities are expected to have remaining
maturities of 397 days or less. Under normal market
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conditions, at least 80% of the total assets of each such Fund will be invested
in Municipal Securities. The U.S. Government Obligations Fund may invest up to
35% of the value of its total assets in Municipal Securities. In addition, the
Bond Fund, Limited Maturity Bond Fund and Prime Obligations Fund may invest in
Municipal Securities but shall limit such investment to the extent necessary to
preclude them from paying "exempt-interest dividends" as that term is defined in
the Internal Revenue Code of 1986, as amended (the "Code").
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term Municipal Securities if the interest paid thereon
is exempt from both federal income tax and not treated as a preference item for
purposes of the federal alternative minimum tax.
Among other types of Municipal Securities, the Tax-Free Fund and
Municipal Bond Fund may purchase short-term general obligation notes, tax
anticipation notes, bond anticipation notes, revenue anticipation notes, project
notes, tax-exempt commercial paper, construction loan notes and other forms of
short-term tax-exempt loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, these Funds may invest in other types
of tax-exempt instruments, such as municipal bonds, private activity bonds, and
pollution control bonds.
Project notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its project notes, the notes
are also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the project notes.
The assets of the Michigan Bond Fund will be invested in obligations
consisting of bonds, notes, commercial paper, and certificates of indebtedness,
issued by or on behalf of the State of Michigan, its political subdivisions,
municipalities and public authorities, the interest on which is exempt from
federal income tax and Michigan state income and intangibles taxes (but may be
treated as a preference item for purposes of the federal alternative minimum
tax) and in debt obligations issued by the government of Puerto Rico, the U.S.
territories and possessions of Guam, the U.S. Virgin Islands or such other
governmental entities whose debt obligations, either by law or treaty, generate
interest income which is exempt from federal and Michigan state income and
intangible taxes ("Michigan Municipal Securities"). Under normal market
conditions, at least 80% of the net assets of the Michigan Bond Fund will be
invested in Michigan Municipal Securities, and at least 65% of the net assets of
the Michigan Bond Fund will be invested in Michigan Municipal Securities issued
by or on behalf of the State of Michigan, its political subdivisions,
municipalities and public authorities.
Michigan Municipal Securities include debt obligations issued by
governmental entities to obtain funds for various public purposes, such as the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses,
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and the extension of loans to other public institutions and facilities. Private
activity bonds that are issued by or on behalf of public authorities to finance
various privately-operated facilities are included within the term Michigan
Municipal Securities if the interest paid thereon is exempt from both federal
and Michigan state income and intangibles taxes although such interest may be
treated as a preference item for purposes of the federal alternative minimum
tax.
Other types of Michigan Municipal Securities which the Michigan Bond
Fund may purchase are short-term general obligation notes, tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax-exempt
commercial paper, construction loan notes and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues.
The two principal classifications of Municipal Securities and Michigan
Municipal Securities (collectively, "Exempt Securities") consist of "general
obligation" and "revenue" issues. The Tax-Free Fund, Municipal Bond Fund and
Michigan Bond Fund (collectively the "Exempt Funds" and singly, an "Exempt
Fund") may also acquire "moral obligation" issues, which are normally issued by
special purpose authorities. There are, of course, variations in the quality of
Exempt Securities, both within a particular classification and between
classifications, and the yields on Exempt Securities depend upon a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of an NRSRO represent their opinions as to the quality of Exempt
Securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality, and Exempt Securities with the same maturity,
interest rate and rating may have different yields, while Exempt Securities of
the same maturity and interest rate with different ratings may have the same
yield. Subsequent to purchase, an issue of Exempt Securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase. First of America will consider such an event in determining whether a
Fund should continue to hold the obligation.
An issuer's obligations under Exempt Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of Exempt Securities may be materially
adversely affected by litigation or other conditions.
GOVERNMENT OBLIGATIONS. Each of the Funds may invest in obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities, including bills, notes and bonds issued by the U.S. Treasury,
as well as "stripped" U.S. Treasury obligations ("Stripped 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 Money Market Funds may invest do not include certificates of accrual on
Treasury securities ("CATS") or Treasury income growth receipts ("TIGRs").
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Obligations of certain agencies and instrumentalities of the U.S.
government are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the Treasury;
others are supported by the discretionary authority of the U.S. government to
purchase the agency's obligations; and still others are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
government will provide financial support to U.S. government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
TAXABLE OBLIGATIONS. Under normal market conditions, each of the Exempt
Funds may invest up to 20% of its total assets in Taxable Obligations. Taxable
Obligations may include: (1) obligations of the United States Treasury; (2)
obligations of agencies and instrumentalities of the United States government;
(3) money market instruments, such as certificates of deposit issued by domestic
banks, corporate commercial paper, and bankers' acceptances; and (4) taxable
instruments subject to repurchase agreements (agreements under which the seller
agrees at the time of sale to repurchase the securities it is selling at an
agreed time and price). Certificates of deposit will be those of domestic
branches of U.S. banks which are members of the Federal Reserve System or the
Federal Deposit Insurance Corporation and which have total assets at the time of
purchase in excess of $100,000,000, or of savings and loan associations which
are members of the Federal Deposit Insurance Corporation and which have total
assets at the time of purchase in excess of $100,000,000. Bankers' acceptances
will be guaranteed by U.S. commercial banks having total assets at the time of
purchase in excess of $100,000,000. Obligations of the U.S. Treasury and U.S.
government agencies and instrumentalities, bankers' acceptances, and
certificates of deposit are described in this Statement of Additional
Information.
OPTIONS TRADING. Each of the Non-Money Market Funds may purchase put
and call options. A call option gives the purchaser of the option the right to
buy, and the 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 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 Non- Money Market Funds are valued at the last sale price, or
in the absence of such a price, at the mean between bid and asked price.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the traded
option is the last sale price or, in the absence of a sale, the average of the
closing bid and asked prices. If an option expires on the stipulated expiration
date or if the Fund enters into a closing purchase transaction, it will realize
a gain (or a loss if the cost of a closing purchase transaction exceeds the net
premium received when the option is sold) and the deferred credit related to
such option will be eliminated. If an option is exercised, the Fund may deliver
the underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
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Each of the Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, International Fund, Emerging Markets Fund, Conservative
Allocation Fund, Balanced Allocation Fund, Aggressive Allocation Fund, Equity
Income Fund and Government Income 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.
PUTS. Each Exempt Fund may acquire "puts" with respect to Exempt
Securities held in its portfolio. A put is a right to sell a specified security
(or securities) within a specified period of time at a specified exercise price.
Such Funds may sell, transfer, or assign a put only in conjunction with the
sale, transfer, or assignment of the underlying security or securities.
The amount payable to an Exempt Fund upon its exercise of a put is
normally: (i) the Exempt Fund's acquisition cost of the Exempt Securities
(excluding any accrued interest which the Exempt Fund paid on the acquisition),
less any amortized market premium or plus any amortized market or original issue
discount during the period the Exempt Fund owned the securities, plus (ii) all
interest accrued on the Exempt Securities since the last interest payment date
during that period.
Puts may be acquired by the Exempt Funds to facilitate the liquidity of
their respective portfolio assets. Puts may also be used to facilitate the
reinvestment of a Fund's assets at a rate of return more favorable than that of
the underlying security. Puts may, under certain circumstances, also be used to
shorten the maturity of underlying variable rate or floating rate securities for
purposes of calculating the remaining maturity of those securities and the
dollar weighted average portfolio maturity of the Tax-Free Fund's assets
pursuant to Rule 2a-7 under the Investment Company Act of 1940, as amended (the
"1940 Act"). See "INVESTMENT OBJECTIVES AND POLICIES - Additional Information on
Portfolio Instruments-Variable and Floating Rate Notes" and "NET ASSET VALUE" in
this Statement of Additional Information.
The Exempt Funds expect that each such Fund will generally acquire puts
only where the puts are available without the payment of any direct or indirect
consideration. However, if necessary or advisable, such Funds may pay for puts
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to the puts (thus reducing the yield to maturity
otherwise available for the same securities).
The Exempt Funds intend to enter into puts only with dealers, banks,
and broker-dealers which, in First of America's opinion, present minimal credit
risks.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Each 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 Fund
agrees to purchase securities on a "when-issued" or "delayed-delivery" basis,
the Fund's Custodian will set aside cash or liquid securities equal to the
amount of the commitment in a separate account. Normally, the Custodian will set
aside portfolio securities to satisfy the purchase commitment, and in such a
case, the Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected
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that the Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. In addition, because the Fund will set aside cash or liquid securities to
satisfy its purchase commitments in the manner described above, the Fund's
liquidity and the ability of First of America or Gulfstream, as the case may be,
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, a Fund's commitments to
purchase "when-issued" or "delayed-delivery" securities will not exceed 25% of
the value of its assets.
If the Fund sells a "when-issued" or "delayed-delivery" security before
a delivery, any gain would not be tax-exempt. When the 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 Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Funds will engage in "when-issued" or "delayed-delivery"
transactions only for the purpose of acquiring securities consistent with the
Funds' investment objectives and policies and not for investment leverage,
although such transactions represent a form of leveraging.
MORTGAGE-RELATED SECURITIES. Each of the Funds, except the
International Fund, may, consistent with its investment objective and policies,
invest in mortgage-related securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The Conservative Allocation Fund,
Balanced Allocation Fund, Aggressive Allocation Fund, Bond Fund, Limited
Maturity Bond Fund, Intermediate Government Obligations Fund, Government Income
Fund, Prime Obligations Fund and U.S. Government Obligations Fund, may, in
addition, invest in mortgage-related securities issued by non-governmental
entities, including collateralized mortgage obligations structured on pools of
mortgage pass-through certificates or mortgage loans, subject to the rating
limitations described in the Prospectuses.
Mortgage-related securities, for purposes of the Funds' Prospectuses
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 ("GNMA") and government-related
organizations such as the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"), as well as by non-governmental
issuers such as commercial banks, savings and loan institutions, mortgage
bankers and private mortgage insurance companies. Although certain
mortgage-related securities are guaranteed by a third party or are otherwise
similarly secured, the market value of the security, which may fluctuate, is not
so secured. If a Fund purchases a mortgage-related security at a premium, that
portion may be lost if there is a decline in the market value of the security
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the securities are prone to
prepayment, thereby shortening the average life of the security and shortening
the period of time over which income at the higher rate is received. When
interest rates are rising, though, the rate of prepayment tends to decrease,
thereby lengthening the period of time over which income at the lower rate is
received. For these and other reasons, a mortgage-related security's average
maturity may be shortened or lengthened as a result of interest rate
fluctuations and, therefore, it is not possible
STATEMENT OF ADDITIONAL INFORMATION PAGE 11
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to predict accurately the security's return to the Funds. 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 Funds
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
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 are also 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 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 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 and owned entirely by
the 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.
MEDIUM-GRADE SECURITIES. The Conservative Allocation Fund, Balanced
Allocation Fund and Aggressive Allocation Fund, Bond Fund, Limited Maturity Bond
Fund, Municipal Bond Fund and Michigan Bond Fund may each invest in securities
which are rated within the four highest rating categories assigned by an NRSRO
(including, for example, securities rated BBB by S&P or Baa by Moody's) or, if
not rated, are of comparable quality as determined by First of America.
("Medium-Grade Securities").
As with other fixed-income securities, Medium-Grade Securities are
subject to credit risk and market risk. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit risk relates
to the ability of an issuer to make payments of principal and interest.
Medium-Grade Securities are considered by Moody's to have speculative
characteristics.
Medium-Grade Securities are generally subject to greater credit risk
than comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of Medium-Grade Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
STATEMENT OF ADDITIONAL INFORMATION PAGE 12
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Because certain Medium-Grade Securities are traded only in markets
where the number of potential purchasers and sellers, if any, is limited, the
ability of a Fund to sell such securities at their fair market value either to
meet redemption requests or to respond to changes in the financial markets may
be limited.
Particular types of Medium-Grade Securities may present special
concerns. The prices of payment-in-kind or zero-coupon securities may react more
strongly to changes in interest rates than the prices of other Medium-Grade
Securities. Some Medium-Grade Securities in which a Fund may invest may be
subject to redemption or call provisions that may limit increases in market
value that might otherwise result from lower interest rates while increasing the
risk that a Fund may be required to reinvest redemption or call proceeds during
a period of relatively low interest rates.
The credit ratings issued by Moody's and S&P are subject to various
limitations. For example, while such ratings evaluate credit risk, they
ordinarily do not evaluate the market risk of Medium-Grade Securities. In
certain circumstances, the ratings may not reflect in a timely fashion adverse
developments affecting an issuer. For these reasons, First of America conducts
its own independent credit analysis of Medium-Grade Securities.
RESTRICTED SECURITIES. Each of the Funds, except the Treasury Fund, may
invest in Section 4(2) securities. "Section 4(2) securities," as described in
the Prospectuses, 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 Funds will not purchase Section
4(2) securities which have not been determined to be liquid in excess of 15%
(10% in the case of the Money Market Funds) of the total assets of that 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 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 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 a Fund's liquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
REPURCHASE AGREEMENTS. Securities held by each of the Group's Funds
may be subject to repurchase agreements. Under the terms of a repurchase
agreement, a Fund would acquire securities from member banks of the Federal
Deposit Insurance Corporation and registered
STATEMENT OF ADDITIONAL INFORMATION PAGE 13
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broker-dealers which First of America deems creditworthy under the guidelines
approved by the Group's Board of Trustees, subject to the seller's agreement to
repurchase such securities at a mutually agreed upon date and price. The
repurchase price would generally equal the price paid by the Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. 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 Fund holding such obligation would suffer a
loss to the extent that the proceeds from the sale of the underlying portfolio
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the Fund were delayed pending
court action. Additionally, there is no controlling legal precedent confirming
that a Fund would be entitled, as against a claim by such seller or its receiver
or trustee in bankruptcy, to retain the underlying securities, although
management of the Group believes that, under the regular procedures normally in
effect for custody of a Fund's securities subject to repurchase agreements, and
under federal laws, a court of competent jurisdiction would rule in favor of the
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 a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS. As discussed
in the Prospectuses, each of the Group's Funds may borrow money by entering into
reverse repurchase agreements and, with respect to the Income and Tax-Free
Income Funds, dollar roll agreements in accordance with that Fund's investment
restrictions. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase the securities, or substantially similar securities in the case of
a dollar roll agreement, at a mutually agreed upon date and price. A dollar roll
agreement is identical to a reverse repurchase agreement except for the fact
that substantially similar securities may be repurchased. At the time a Fund
enters into a reverse repurchase agreement or a dollar roll agreement, it will
place in a segregated custodial account assets such as U.S. government
securities or other liquid, high grade debt securities consistent with the
Fund's investment restrictions having a value equal to the repurchase price
(including accrued interest), and will subsequently continually monitor the
account to ensure that such equivalent value is maintained. Reverse repurchase
agreements and dollar roll agreements involve the risk that the market value of
the securities sold by a Fund may decline below the price at which a Fund is
obligated to repurchase the securities. Reverse repurchase agreements and dollar
roll agreements are considered to be borrowings by a Fund under the 1940 Act.
FUTURES CONTRACTS. Each of the Growth Funds, Growth and Income Funds,
Income Funds and the Municipal Bond 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 a Fund holds or intends to
purchase. For example, when interest rates are expected to rise or market values
of portfolio securities are expected to fall, a Fund can seek through the sale
of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, a Fund, through the purchase of such contracts, can attempt to
secure better rates or prices for the Fund than might later be available in the
market when it effects anticipated purchases.
STATEMENT OF ADDITIONAL INFORMATION PAGE 14
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The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercising
the option at any time during the option period.
Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. government securities or other
liquid high-grade debt obligations, to cover its performance under such
contracts. A 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 Fund had not entered into any futures
transactions. In addition, the value of a Fund's futures positions may not prove
to be perfectly or even highly correlated with its portfolio securities and
foreign currencies, limiting the 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. Each of the Funds, except
the Money Market Funds and the Tax-Free Income Funds, may invest in 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.
No Fund intends to enter into such forward foreign currency exchange
contracts if such Fund would have more than 15% of the value of its total assets
committed to such contracts on a regular or continuous basis. A Fund also will
not enter into such forward contracts or maintain a net exposure on such
contracts where such Fund would be obligated to deliver an amount of foreign
currency in excess of the value of such Fund's portfolio securities or other
assets denominated in that currency. First of America and Gulfstream believe
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 a Fund.
The Group's Custodian segregates cash or liquid high-grade securities in an
amount not less than the value of the 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 such Fund's commitments with respect to such contracts. The Funds generally
do not enter into a forward contract for a term longer than one year.
FOREIGN CURRENCY OPTIONS. Each of the Funds, except the Money Market
Funds and the Tax-Free Income Funds, may invest in 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
STATEMENT OF ADDITIONAL INFORMATION PAGE 15
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protect a 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 a 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 a 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, such 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. Each of the Funds, except the
Money Market Funds and the Tax-Free Income Funds, may invest in foreign currency
futures transactions. As part of its financial futures transactions, the Funds
may use foreign currency futures contracts and options on such futures
contracts. Through the purchase or sale of such contracts, a 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.
REGULATORY RESTRICTIONS. To the extent required to comply with
Securities and Exchange Commission (the "SEC") Release No. IC-10666, when
purchasing a futures contract or writing a put option or entering into a forward
foreign currency exchange purchase, a Fund will maintain in a segregated account
cash or liquid high-grade debt securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of such Fund's total assets. Such 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 such 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, each of the Funds except the Treasury Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks or institutional borrowers of
securities. A Fund must receive 100% collateral in the form of cash or U.S.
government securities. This collateral must be valued daily by First of America
STATEMENT OF ADDITIONAL INFORMATION PAGE 16
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or Gulfstream and, should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination by the Fund
or the borrower at any time. While the 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 a Fund, the Fund bears the risk
of delay in the recovery of its portfolio securities and the risk of loss of
rights in the collateral. A Fund will only enter into loan arrangements with
broker-dealers, banks or other institutions which First of America or Gulfstream
has determined are creditworthy under guidelines established by the Group's
Board of Trustees.
INVESTMENT RESTRICTIONS
Each Fund's investment objective is fundamental and may not be changed
without a vote of the holders of a majority of the Fund's outstanding shares. In
addition, the following investment restrictions may be changed with respect to a
particular Fund only by a vote of a majority of the outstanding shares of that
Fund (as defined under "ADDITIONAL INFORMATION - Vote of a Majority of the
Outstanding Shares" in this Statement of Additional Information).
None of the Money Market Funds may:
Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities.
None of the Non-Money Market Funds may:
Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities and except as may
be necessary to make margin payments in connection with foreign currency futures
and other derivative securities transactions.
None of the Funds, with the exception of the Michigan Bond Fund, may:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, or the Fund would hold more than 10% of
the outstanding voting securities of the issuer, except that 25% or less of the
value of such Fund's total assets may be invested without regard to such
limitations. There is no limit to the percentage of assets that may be invested
in U.S. Treasury bills, notes, or other obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities.
Irrespective of this investment restriction, and pursuant to Rule 2a-7
under the 1940 Act, the U.S. Government Obligations Fund, the Prime Obligations
Fund, the Treasury Fund and the Tax-Free Fund each will, with respect to 100% of
its total assets, limit its investment in the securities of any one issuer in
the manner provided by such Rule, which limitations are referred to in the
applicable Prospectuses under the caption "INVESTMENT OBJECTIVES AND POLICIES -
The Money Market Funds."
STATEMENT OF ADDITIONAL INFORMATION PAGE 17
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The Michigan Bond Fund may not:
Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, (a) more than 5% of the value of the Fund's
total assets (taken at current value) would be invested in such issuer (except
that up to 50% of the value of the Fund's total assets may be invested without
regard to such 5% limitation), and (b) more than 25% of its total assets (taken
at current value) would be invested in the securities of a single issuer.
For purposes of this investment limitation, a security is considered to
be issued by the governmental entity (or entities) whose assets and revenues
back the security and, with respect to a private activity bond that is backed
only by the assets and revenues of a non-governmental user, a security is
considered to be issued by such non-governmental user.
None of the Funds will:
1. Underwrite the securities issued by other persons, except to the
extent that a Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
2. Purchase or sell commodities or commodities contracts, except to
the extent disclosed in the current Prospectus of the Fund;
3. 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);
4. Purchase any securities which would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (c) utilities will be divided according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry;
5. Borrow money (not including reverse repurchase agreements or dollar
roll agreements), except that each 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 Fund's total assets (10% in the case of the Money Market Funds) less
liabilities other than the obligations represented by the bank borrowings,
reverse repurchase agreements and dollar roll agreements), or mortgage, pledge
or hypothecate any assets except in connection with a bank borrowing in amounts
not to exceed 30% of the Fund's net assets at the time of borrowing;
STATEMENT OF ADDITIONAL INFORMATION PAGE 18
<PAGE> 321
6. Enter into reverse repurchase agreements, dollar roll agreements and
other permitted borrowings in amounts exceeding in the aggregate one-third of
the Fund's total assets (10% in the case of the Money Market Funds) less
liabilities other than the obligations represented by such reverse repurchase
and dollar roll agreements;
7. Issue senior securities except as permitted by 1940 Act or any rule,
order or interpretation thereunder;
8. Make loans, except that a 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; or
9. Write any call options on securities unless the securities are held
by the Fund or unless the Fund is entitled to such securities in deliverable
form in exchange for cash in an amount which has been segregated for payment or
without further payment. In no event will a Fund write call options in excess of
5% of its total assets.
For purposes of investment limitation number above only, such
limitation shall not apply to Municipal Securities or governmental guarantees of
Municipal Securities, and industrial development bonds or private activity bonds
that are backed only by the assets and revenues of a non-governmental user shall
not be deemed to be Municipal Securities.
The following additional investment restrictions may be changed without
the vote of a majority of the outstanding shares of a Fund. None of the Funds
may:
1. Engage in any short sales;
2. Invest more than 10% of the 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. Purchase participations or direct interests in oil, gas or other
mineral exploration or development programs (although investments by the Fund in
marketable securities of companies engaged in such activities are not prohibited
by this restriction); or
6. Purchase or otherwise acquire any securities if, as a result, more
than 15% (10% in the case of the Money Market Funds) of the Fund's net assets
would be invested in securities that are illiquid.
STATEMENT OF ADDITIONAL INFORMATION PAGE 19
<PAGE> 322
In addition, the Tax-Free Fund may not:
1. Acquire a put, if, immediately after such acquisition, over 5% of
the total amortized cost value of the Fund's assets would be subject to puts
from the same institution (except that (i) up to 25% of the value of the Fund's
total assets may be subject to puts without regard to such 5% limitation and
(ii) the 5% limitation is inapplicable to puts that, by their terms, would be
readily exercisable in the event of a default in payment of principal or
interest on the underlying securities). For the purpose of this investment
restriction and investment restriction number 2 below, a put will be considered
to be from the party to whom the Fund will look for payment of the exercise
price; or
2. Acquire a put that, by its terms, would be readily exercisable in
the event of a default in payment of principal and interest on the underlying
security or securities if, immediately after that acquisition, the amortized
cost value of the security or securities underlying that put, when aggregated
with the amortized cost value of any other securities issued or guaranteed by
the issuer of the put, would exceed 10% of the total amortized cost value of the
Fund's assets.
The Municipal Bond Fund may not:
1. Acquire a put, if, immediately after such acquisition, over 5% of
the total value of the Fund's assets would be subject to puts from the same
institution (except that (i) up to 25% of the value of the Fund's total assets
may be subject to puts without regard to such 5% limitation and (ii) the 5%
limitation is inapplicable to puts that, by their terms, would be readily
exercisable in the event of a default in payment of principal or interest on the
underlying securities). For the purpose of this investment restriction and
investment restriction number 2 below, a put will be considered to be from the
party to whom the Fund will look for payment of the exercise price; or
2. Acquire a put that, by its terms, would be readily exercisable in
the event of a default in payment of principal and interest on the underlying
security or securities if, immediately after that acquisition, the value of the
security or securities underlying that put, when aggregated with the value of
any other securities issued or guaranteed by the issuer of the put, would exceed
10% of the total value of the Fund's assets.
The Michigan Bond Fund may not:
Purchase securities of any one issuer if, at the time of purchase, the
Fund would hold more than 10% of the voting securities of such issuer except
that up to 25% of the value of the Fund's total assets may be invested without
regard to such limitation.
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 a
Fund's investments in illiquid securities to exceed the limitation set forth
above, that 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, that Fund would not be required to liquidate any portfolio securities
where the Fund would suffer a loss on the sale of such securities.
STATEMENT OF ADDITIONAL INFORMATION PAGE 20
<PAGE> 323
Portfolio Turnover
- ------------------
The portfolio turnover rate for each of the Group's Funds is calculated
by dividing the lesser of a Fund's purchases or sales of portfolio securities
for the year by the monthly average value of the securities. The SEC requires
that the calculation exclude all securities whose remaining maturities at the
time of acquisition are one year or less.
Because each Money Market Fund intends to invest entirely in securities
with maturities of less than one year and because the SEC requires such
securities to be excluded from the calculation of portfolio turnover rate, the
portfolio turnover rate with respect to each of the Money Market Funds is
expected to be zero for regulatory purposes. Portfolio turnover rates for each
of the other Funds for the fiscal years ended June 30, 1997 and 1996, were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
Fund (Percent) (Percent)
- ---- --------- ---------
<S> <C> <C>
Small Capitalization 48.45 67.22
Mid Capitalization 38.47 49.27
Large Capitalization 48.44 0.86(1)
International 45.18 54.47
Equity Income 20.14 40.75
Conservative Allocation(2) 62.11 N/A
Balanced Allocation 425.05 437.90
Aggressive Allocation(2) 44.68 N/A
Bond 827.00 1,189.27
Limited Maturity Bond 607.84 618.60
Intermediate Government Obligations 1,516.78 916.39
Government Income 499.53 348.01
Municipal Bond 48.83 47.46
Michigan Bond 28.48 27.66
</TABLE>
(1)Portfolio turnover rates for the year ended June 30, 1996 were only available
for the Large Capitalization Fund since its inception on December 28, 1995.
(2)Portfolio turnover rates were only available for the Conservative Allocation
Fund and the Aggressive Allocation Fund since their inception on December 30,
1996.
The portfolio turnover rates for the Funds of the Group 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 and, in the case of the
Municipal Bond Fund and the Michigan Bond Fund, by requirements which enable
those Funds to receive certain favorable tax treatments. With respect to the
Conservative Allocation Fund the Investment Adviser anticipates that the annual
portfolio turnover rate may be as high as 600%. With respect to the Aggressive
Allocation Fund,
STATEMENT OF ADDITIONAL INFORMATION PAGE 21
<PAGE> 324
the Investment Adviser anticipates that the annual portfolio turnover rate may
be as high as 500%. High portfolio turnover rates will generally result in
higher transaction costs to a Fund, including brokerage commissions, and may
result in additional tax consequences to a Fund's shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
Significant changes in the portfolio turnover rates for the Small
Capitalization Fund, the Mid Capitalization Fund and the Large Capitalization
Fund were primarily the result of fundamental changes in the prospects of the
companies held and/or the availability of better opportunities. In addition,
with respect to the Small Capitalization Fund and the Mid Capitalization Fund,
portfolio turnover was affected by equity market capitalization exceeding $2.5
billion and $10 billion, respectively. For the Equity Income Fund, reduced
portfolio turnover resulted from sustained suitability of securities held in
the portfolio. The decrease in portfolio turnover for the International Fund
was principally due to the fact that there were fewer changes in country
allocation during the latest 12-month period ended June 30, 1997 as heavier
weighting in continental Europe and lesser weighting in the Far East were
maintained.
For the Group's Income Funds, changes in portfolio turnover rates
occurred in connection with changes in opportunities perceived by the
Investment Adviser to be profitable to the Funds and their shareholders.
NET ASSET VALUE
As indicated in the Prospectuses, the net asset value of each Fund is
determined and the shares of each Fund are priced as of the Valuation Times
defined in the Prospectuses on each Business Day of the Group. A "Business Day"
is a day on which the New York Stock Exchange (the "NYSE") is open for trading
and any other day other than a day on which no shares of the Fund are tendered
for redemption and no order to purchase any shares is received. Currently, the
NYSE will not be open in observance of the following holidays: New Year's Day,
Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas.
The offering prices for Investor A Shares of the Non-Money Market Funds
as of June 30, 1997 were calculated as illustrated in this example using the
Small Capitalization Fund:
<TABLE>
<S> <C>
Net Assets $ 188,645,098.79
Outstanding Shares 6,848,131.825
Net Asset Value Per Share $ 27.55
Sales Charge, 4.50% of
the offering price (4.71% of NAV) per share 1.30
----------------
Offering Price $ 28.85
================
</TABLE>
The offering prices for Investor B Shares of the Funds as of June 30,
1997 were calculated as illustrated in this example using the Small
Capitalization Fund:
<TABLE>
<S> <C>
Net Assets $ 46,894,946.20
Outstanding Shares 1,737,673.274
Net Asset Value Per Share $ 26.99
Sales Charge 0.00
----------------
Offering Price $ 26.99
================
</TABLE>
The offering prices for Investor C Shares of the Funds as of June 30,
1997 were calculated as illustrated in this example using the Small
Capitalization Fund:
<TABLE>
<S> <C>
Net Assets $ 14,962,605.61
Outstanding Shares 553,096.751
Net Asset Value Per Share $ 27.05
Sales Charge 0.00
----------------
Offering Price $ 27.05
================
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 22
<PAGE> 325
The offering prices for Institutional Shares of the Non-Money Market
Funds as of June 30, 1997 were calculated as illustrated in this example using
the Small Capitalization Fund:
<TABLE>
<S> <C>
Net Assets $602,787,656.89
Outstanding Shares 21,595,314.558
Net Asset Value Per Share $27.91
Sales Charge 0.00
------------------
Offering Price $27.91
==================
</TABLE>
Valuation of the Money Market Funds
- -----------------------------------
The Money Market Funds have elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price a Fund would receive if it sold the instrument. The value of
securities in the Money Market Funds can be expected to vary inversely with
changes in prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Funds will maintain a
dollar-weighted average maturity appropriate to each Fund's objective of
maintaining a stable net asset value per share, provided that no Fund will
purchase any security with a remaining maturity of more than 397 days (thirteen
months) (securities subject to repurchase agreements may bear longer maturities)
nor will it maintain a dollar-weighted average maturity which exceeds 90 days.
The Group's Board of Trustees has also undertaken to establish procedures
reasonably designed, taking into account current market conditions and the
investment objective of each of these Funds, to stabilize the net asset value
per share of each Fund for purposes of sales and redemptions at $1.00. These
procedures include review by the Trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
share of each Fund calculated by using available market quotations deviates from
$1.00 per share. In the event such deviation exceeds 0.5%, Rule 2a-7 requires
that the Board of Trustees promptly consider what action, if any, should be
initiated. If the Trustees believe that the extent of any deviation from a
Fund's $1.00 amortized cost price per share may result in material dilution or
other unfair results to new or existing investors, they will take such steps as
they consider appropriate to eliminate or reduce, to the extent reasonably
practicable, any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity, shortening the dollar-weighted
average maturity, withholding or reducing dividends, reducing the number of the
Fund's outstanding shares without monetary consideration, or utilizing a net
asset value per share determined by using available market quotations. As
permitted by Rule 2a-7 and the procedures adopted by the Board, certain of the
Board's responsibilities under the Rule may be delegated to the Investment
Adviser.
Valuation of the Non-Money Market Funds
- ---------------------------------------
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
STATEMENT OF ADDITIONAL INFORMATION PAGE 23
<PAGE> 326
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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each of the classes of shares of the Group's Funds is sold on a
continuous basis by the Group's distributor, BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services (the "Distributor" or "BISYS"), and BISYS
has agreed to use appropriate efforts to solicit all purchase orders. The
Group's Funds offer one or more of the following classes of shares: Investor A
Shares, Investor B Shares, Investor C Shares and Institutional Shares. 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 financial institutions, including the Trust
Department of First of America Bank, N.A. (formerly, First of America Bank-
Michigan, N.A., "FOA"), the parent of the Funds' Investment Adviser, First of
America , or FOA's affiliated entities acting on behalf of customers for
investment of funds that are held by such Trust Department in a fiduciary,
agency, custodial or similar capacity, although currently Institutional Shares
are only being offered to the trust departments of FOA and its affiliates.
As stated in the relevant Prospectuses, the public offering price of
Investor A Shares of the Money Market Funds is their net asset value per share
which they will seek to maintain at $1.00. The public offering price of Investor
A Shares of each of the other Funds 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 such Investor A Shares of the Group 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 A SHARES" in the relevant
Prospectus). The offering price is rounded to two decimal places each time a
computation is made. The sales charge scale set forth in the Investor A Share
Prospectus applies to purchases of Investor A Shares of a Fund.
The public offering price of Investor B Shares of each Fund is their
net asset value per share. Investor B Shares redeemed prior to five years from
the date of purchase may be subject to a contingent deferred sales charge of
2.00 to 5.00%. Investor B Shares purchased prior to January 1, 1997 may be
subject to a contingent deferred sales charge of 2.00% to 4.00%, if redeemed
prior to four years from the date of purchase.
The public offering price of the Investor C Shares of each Fund is
their net asset value per share. Investor C Shares redeemed prior to one year
from the date of purchase may be subject to a contingent deferred sales charge
of 1.00%.
STATEMENT OF ADDITIONAL INFORMATION PAGE 24
<PAGE> 327
The Group may suspend the right of redemption or postpone the date of
payment for shares during any period when: (a) trading on the NYSE is restricted
by applicable rules and regulations of the SEC; (b) the NYSE is closed for other
than customary weekend and holiday closings; (c) the SEC 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 practicable, or (ii) it
is not reasonably practicable for the Group to determine the fair market value
of its net assets.
The Money Market Funds may redeem shares involuntarily if redemption
appears appropriate in light of the Group's responsibilities under the 1940 Act.
See "NET ASSET VALUE - Valuation of the Money Market Funds" in this Statement of
Additional Information.
MANAGEMENT OF THE GROUP
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, birth dates and principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION
AND BIRTH DATE WITH THE GROUP DURING PAST 5 YEARS
- -------------- -------------- -------------------
<S> <C> <C>
John B. Rapp* Chairman of the From 1989 to present, Executive
First of America Bank Corporation Board and Trustee Vice President, First of America
211 South Rose Street Bank Corporation
Kalamazoo, Michigan 49007
November 3, 1936
George R. Landreth* Trustee and From December 1992 to present,
3435 Stelzer Road President employee of BISYS; from July
Columbus, Ohio 43219 1991 to December 1992, employee
July 11, 1942 of PNC Financial Corporation
Robert M. Beam Trustee From 1985 to present, Vice
3080 Seibert Admin. Bldg. President for Business and
Western Michigan University Finance and Treasurer of
Kalamazoo, Michigan 49008 Western Michigan University
August 2, 1943
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 25
<PAGE> 328
<TABLE>
<S> <C> <C>
Adrian Charles Edwards Trustee Since 1964, Professor of Finance
Haworth College of Business and Commercial Law, Western
Western Michigan University Michigan University; since 1977,
3289 Schneider Hall owner, Economic and Financial
Kalamazoo, Michigan 49008 Analysis (financial consulting)
April 22, 1936
Lawrence D. Bryan Trustee Effective July 1, 1997, President
1071 Whaley Road and Professor of Philosophy and
Coldwater, Michigan 49036 Religion, MacMurray College;
January 30, 1945 August 1, 1996 to July 1, 1997,
Visiting Scholar, University of
Michigan; From 1990 to July 31,
1996, President and Professor of
Religion, Kalamazoo College
James F. Jones, Jr.** Trustee From August, 1996 to present,
Kalamazoo College President and Professor,
1200 Academy Street Kalamazoo College; October, 1991
Kalamazoo, Michigan 49006 to July, 1996, Dean, Dedman
April 9, 1947 College of Humanities and Sciences,
and Vice Provost, Southern
Methodist University
</TABLE>
*Messrs. Rapp and Landreth are considered to be "interested persons" of the
Group as defined in the 1940 Act.
**Dr. Jones began serving as a Trustee on August 21, 1997.
The Group paid an aggregate of $45,000 in Trustees' fees and expenses
for the fiscal year ended June 30, 1997, to all Trustees of the Group (excluding
Messrs. Rapp and Landreth who received no compensation). All of the Trustees
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, 1997, 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.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM GROUP
RETIREMENT AND THE
BENEFITS ESTIMATED PARKSTONE
AGGREGATE ACCRUED AS ANNUAL BENEFITS ADVANTAGE
COMPENSATION PART OF FUND UPON FUND PAID TO
NAME OF TRUSTEE FROM THE GROUP EXPENSES RETIREMENT TRUSTEES
--------------- -------------- -------- ---------- --------
<S> <C> <C> <C> <C>
John B. Rapp none none none none
George R. Landreth* none none none none
Robert M. Beam $15,000 none none $20,000
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 26
<PAGE> 329
<TABLE>
<S> <C> <C> <C> <C>
Lawrence D. Bryan $15,000 none none $20,000
Adrian Charles Edwards $15,000 none none $20,000
James F. Jones, Jr.* none none none none
</TABLE>
* Mr. Landreth served as Chairman of the Board until his resignation as Chairman
on February 12, 1997, at which time Mr. Rapp became a Trustee and assumed that
position. Mr. Landreth continues to serve as Trustee and the Group's President.
Dr. Jones began serving as a Trustee on August 21, 1997.
Each Trustee who is not an affiliated person of BISYS or First of
America Bank Corporation ("FABC") receives annual compensation and compensation
for meeting attendance from the Group for his or her services as a Trustee and
is reimbursed for expenses incurred in attending meetings. Mr. Rapp is an
employee of FABC and a director of First of America, and Mr. Landreth is an
employee of BISYS. Neither of them receives any compensation from the Group for
acting as Trustee.
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, ADDRESS AND BIRTH DATE WITH THE GROUP DURING PAST 5 YEARS
- ---------------------------- -------------- -------------------
<S> <C> <C>
Scott A. Englehart Vice President From October, 1990 to present,
BISYS Fund Services employee of BISYS
3435 Stelzer Road
Columbus, Ohio 43219
August 12, 1962
J. David Huber Vice President From June, 1987 to present,
BISYS Fund Services Executive Vice President of BISYS
3435 Stelzer Road
Columbus, Ohio 43219
May 3, 1946
William J. Tomko Vice President From April, 1987 to present,
BISYS Fund Services employee of BISYS
3435 Stelzer Road
Columbus, Ohio 43219
August 30, 1958
Dana A. Gentile Vice President From December 1987 to present,
BISYS Fund Services employee of BISYS
3435 Stelzer Road
Columbus, Ohio 43219
October 4, 1962
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 27
<PAGE> 330
<TABLE>
<S> <C> <C>
Thresa Dewar Treasurer From March 1997 to present,
BISYS Fund Services employee of BISYS; from
3435 Stelzer Road November 1994 to October 1996,
Columbus, Ohio 43219 President of Healthy You Food
March 13, 1954 Market of Marco, Inc. (health food
store); from April 1975 to
September 1994, Vice President
and Controller of Federated
Administrative Services
Brian D. Barker Vice President From February 1993 to present,
BISYS Fund Services Client Services Manager, BISYS;
157 S. Kalamazoo Mall from November 1989 to February
Kalamazoo, Michigan 49007 1993, Direct Lending Manager,
February 4, 1958 Bank One
Timothy A. Thiebout Secretary From June 1992 to present, Client
BISYS Fund Services Services Manager, BISYS
157 S. Kalamazoo Mall
Kalamazoo, Michigan 49007
June 26, 1967
</TABLE>
The officers of the Group receive no compensation directly from the
Group for performing the duties of their offices. As Administrator and Transfer
Agent, BISYS receives fees from the Group. As Distributor, BISYS may retain all
or a portion of any sales charge on the shares sold and may receive fees under
the Distribution and Shareholder Service Plans described below. BISYS Fund
Services Ohio, Inc. ("BISYS Ohio," or the "Fund Accountant") receives fees from
the Group for providing certain fund accounting services. Ms. Gentile, Ms.
Dewar and Messrs. Landreth, Englehart, Huber, Tomko, Barker, and Thiebout are
employees of BISYS or BISYS Ohio.
Investment Adviser and Subadviser
- ---------------------------------
Subject to the general supervision of the Group's Board of Trustees and
in accordance with the Funds' investment objectives and restrictions, investment
advisory services are provided to the Funds of the Group by First of America
(formerly, Securities Counsel, Inc.), 303 North Rose Street, Suite 303,
Kalamazoo, Michigan 49007, pursuant to the Investment Advisory Agreement dated
July 9, 1987, as amended (with respect to the Money Market Funds) and the
Investment Advisory Agreement dated September 8, 1988, as amended (with respect
to the Small Capitalization Fund, Mid Capitalization Fund, Large Capitalization
Fund, Equity Income Fund, Bond Fund, Limited Maturity Bond Fund, Intermediate
Government Obligations Fund, Municipal Bond Fund, Michigan Municipal Bond Fund,
Conservative Allocation Fund, Balanced Allocation Fund, Aggressive Allocation
Fund and Government Income Fund) (the "First Investment Advisory Agreements")
and the Investment Advisory Agreement dated as of December 22, 1992, as amended
(with respect to the International Fund and Emerging Markets Fund) (the "Second
Investment Advisory Agreement") (together called the "Investment Advisory
Agreements").
STATEMENT OF ADDITIONAL INFORMATION PAGE 28
<PAGE> 331
First of America is a wholly-owned subsidiary of FOA which in turn is a
wholly-owned subsidiary of First of America Bank Corporation ("FABC"), a
publicly-held bank holding company.
Under the Investment Advisory Agreements, First of America has agreed
to provide, either directly or through one or more subadvisers, investment
advisory services for each of the Group's Funds as described in their
Prospectuses. For the services provided and expenses assumed pursuant to the
Investment Advisory Agreements, each of the Group's Funds 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 that Fund. The annual rates for
the Funds are as follows: 0.40% for the Money Market Funds; 0.74% for the Bond
Fund, Limited Maturity Bond Fund, Intermediate Government Obligations Fund,
Municipal Bond Fund, Michigan Municipal Bond Fund and Government Income Fund;
1.00% for the Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, Equity Income Fund, Conservative Allocation Fund, Balanced
Allocation Fund and Aggressive Allocation Fund; for the International Fund;
1.25% of the first $50 million of the International Fund's average daily net
assets, 1.20% of average daily net assets between $50 million and $100 million
1.15% of average daily net assets between $100 million and $400 million, and
1.05% of average daily net assets above $400 million; and, for the Emerging
Markets Fund, 1.25% of the Fund's average daily net assets. While the fees for
these last seven Funds is higher than the advisory fees paid by most mutual
funds, the Board of Trustees of the Group believes them to be comparable to
advisory fees paid by many funds having objectives and policies similar to those
Funds. First of America may periodically voluntarily reduce all or a portion of
its advisory fee with respect to any Fund to increase the net income of one or
more of the Funds available for distribution as dividends.
Pursuant to each of the Investment Advisory Agreements, First of
America will pay all expenses, including, as applicable, the compensation of any
subadvisers directly appointed by it, incurred by it in connection with its
activities under the Investment Advisory Agreements other than the cost of
securities (including brokerage commissions, if any) purchased for the Group.
Pursuant to the terms of the Group's Second Investment Advisory
Agreement, First of America may retain a subadviser to manage the investment and
reinvestment of the assets of the International Fund and the Emerging Markets
Fund, subject to the direction and control of the Group's Board of Trustees.
Pursuant to an amendment to the Group's Investment Advisory Agreement relating
to the Balanced Allocation Fund approved by that Fund's shareholders on February
28, 1995, First of America may also retain a subadviser to manage the investment
and reinvestment of the assets of the Balanced Allocation Fund which are
invested in foreign securities, subject to the direction and control of the
Group's Board of Trustees. Also pursuant to an amendment to that Agreement,
First of America may retain a subadviser to manage the investment and
reinvestment of the assets of the Conservative Allocation Fund and the
Aggressive Allocation Fund which are invested in foreign securities, subject to
the direction and control of the Group's Board of Trustees.
As of January 1, 1995, First of America entered into a Sub-Investment
Advisory Agreement between First of America and Gulfstream, 100 Crescent Court,
Suite 550, Dallas, Texas 75201 (the "Initial Sub-Investment Advisory Agreement")
which had been approved by the Trustees. Pursuant to the terms of the Initial
Sub-Investment Advisory Agreement, Gulfstream was retained by First of America
to manage the investment and reinvestment of the assets of the
STATEMENT OF ADDITIONAL INFORMATION PAGE 29
<PAGE> 332
International Fund, subject to the direction and control of First of America and
the Group's Board of Trustees. At a meeting of shareholders held on February 28,
1995, shareholders of the International Fund and the Balanced Allocation Fund
approved both the Initial Sub-Investment Advisory Agreement and a Sub-Investment
Advisory Agreement between First of America and Gulfstream which became
effective upon the acquisition by FABC of a controlling interest in Gulfstream
(the "Current Sub-Investment Advisory Agreement"). The terms of the Current Sub-
Investment Advisory Agreement, except for the addition of the Emerging Markets
Fund, Conservative Allocation Fund, the Balanced Allocation Fund, and the
Aggressive Allocation Fund, are identical to those of the Initial Sub-investment
Advisory Agreement. Pursuant to the Current Sub-Investment Advisory Agreement,
Gulfstream currently provides sub-investment advisory services to the
International Fund, Emerging Markets Fund, the Conservative Allocation Fund,
Balanced Allocation Fund and Aggressive Allocation Fund.
Under the Current Sub-Investment Advisory Agreement, Gulfstream is
responsible for the day-to-day management of the International Fund, the
Emerging Markets Fund and the portion of the Conservative Allocation Fund, the
Balanced Allocation Fund and the Aggressive Allocation Fund invested in foreign
securities. Gulfstream also has responsibility for reviewing investment
performance, policies and guidelines, and maintaining certain books and records.
First of America is responsible for selecting and monitoring the performance of
Gulfstream and for reporting the activities of Gulfstream in managing these
Funds to the Group's Board of Trustees. First of America may also render advice
with respect to these Funds' investments in the United States and otherwise
participate to the extent it deems necessary or desirable in day-to-day
management of the Funds.
For its services provided and expenses assumed pursuant to the Current
Sub-Investment Advisory Agreement, Gulfstream is entitled to receive from First
of America a fee, computed daily and paid monthly, at the annual rate of 0.50%
of the first $50 million of the International Fund's average daily net assets
and the average daily net assets of the Conservative Allocation Fund, the
Balanced Allocation Fund and the Aggressive Allocation Fund which are invested
in foreign securities, of 0.45% of such average daily net assets between $50
million and $100 million, 0.40% of such average daily net assets between $100
million and $400 million and 0.30% of such average daily net assets above $400
million, provided the minimum annual fee shall be $75,000. Gulfstream is also
entitled to receive from First of America a fee, computed daily and paid
monthly, at the annual rate of 0.50% of the Emerging Markets Fund's average
daily net assets. As of the date of this Statement of Additional Information,
shares of the Emerging Markets Fund were not being offered to the public.
Pursuant to the Current Sub-Investment Advisory Agreement, Gulfstream
will pay all expenses incurred by it in connection with its activities under the
Current Sub-Investment Advisory Agreement other than the cost of securities
(including brokerage commissions, if any) purchased for the Group.
Gulfstream was organized in 1991 as a Texas limited partnership by
Tull, Doud, Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is the
sole general partner of Gulfstream. TDMT is owned by C. Thomas Tull, Stephen C.
Doud, James P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and Triltsch are
the portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. The Sail Company, a Delaware corporation, ("Sail") was the sole
limited partner, holding a 49% interest in Gulfstream. Sail is a wholly-owned
subsidiary of
STATEMENT OF ADDITIONAL INFORMATION PAGE 30
<PAGE> 333
Rosewood Investments, Inc., a Delaware corporation, 100 Crescent Court, Suite
550, Dallas, Texas 75201. As of June 30, 1997, Gulfstream had over $863 million
in international assets of institutional, governmental, pension fund and high
net worth individual clients under its investment management. Gulfstream
personnel average over 20 years investment experience and 9 years of
international investment experience.
Gulfstream's investment process is designed to provide long-term growth
of capital. Like First of America, Gulfstream focuses on identifying companies
world-wide with strong balance sheets, superior operating margins and consistent
sales and earnings growth and endeavors to purchase the securities of those
companies at reasonable valuations. Gulfstream generally avoids investments in
the securities of cyclical, financial or turnaround companies, whose earnings
are less predictable and more volatile. These stock selection criteria lead
Gulfstream to invest in small to medium capitalization companies in
international markets in pursuit of superior returns from long-term growth of
capital. First of America and the Trustees of the Group believe that
Gulfstream's style of investment management is well-suited to the investment
objective and policies of the International Fund, Emerging Markets Fund,
Conservative Allocation Fund, Balanced Allocation Fund and Aggressive Allocation
Fund.
On December 7, 1994, Gulfstream, Sail, TDMT and FABC entered into a
Partnership Interest Purchase Agreement (the "Acquisition Agreement") under
which First of America acquired a controlling interest in Gulfstream. The
Acquisition Agreement provided for the following transactions. First, FABC
acquired all of Sail's limited and preferred partnership interests for a cash
payment. Second, TDMT paid to Sail an additional amount with the proceeds of a
loan to TDMT by FABC, which loan bears interest at the annual rate of 10%.
Third, First of America committed to contribute to Gulfstream additional working
capital to be represented by an additional preferred limited partnership
interest. Fourth, TDMT granted to First of America an irrevocable 3-year option
to acquire up to an additional 20% partnership interest in Gulfstream, which
option became exercisable when Gulfstream's annualized revenue derived from
sources attributable to FABC satisfied certain revenue targets. First of
America's exercise price was established at five times Gulfstream's annualized
revenue not derived from sources attributable to FABC multiplied by the
additional percentage partnership interest acquired by First of America. TDMT
also granted First of America another irrevocable 3-year option to acquire an
additional 3% partnership interest in Gulfstream exercisable upon First of
America's acquisition of an aggregate 69% partnership interest but not sooner
than 1995. Fifth, TDMT and First of America granted each other rights of first
refusal with respect to any sale or any other disposition of their respective
interests in Gulfstream. These transactions were consummated on February 28,
1995. On August 31, 1996, First of America exercised options to increase its
interest in Gulfstream to 72%.
For the fiscal years ended June 30, 1997, 1996 and 1995, First of
America collected and voluntarily reduced the amounts indicated below which were
payable to it with respect to its investment advisory services to the indicated
Funds under the Investment Advisory Agreements:
STATEMENT OF ADDITIONAL INFORMATION PAGE 31
<PAGE> 334
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
- -----------------------------------------------------------------------------------------------------------------------------------
FUND 1997 1996 1995
---- ---- ----
Gross Fees Gross Fees Gross Fees
Fees Voluntarily Fees Voluntarily Fees Voluntarily
Collected Reduced Collected Reduced Collected Reduced
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Prime Obligations $3,441,611 -- $3,144,270 $ 84 $2,869,890 --
U.S. Government Obligations 1,712,370 -- 1,638,981 17 1,403,045 --
Tax-Free 651,531 -- 629,497 6 538,122 --
Treasury 1,618,910 -- 1,300,994 1,189 838,130 --
Small Capitalization 7,049,924 -- 5,765,210 8,667 3,751,876 3,257
Mid Capitalization 6,531,413 -- 8,178,104 2,655 6,327,974 11,380
Large Capitalization(1) 2,725,217 -- 432,969 19,514 -- --
International 4,981,112 -- 3,968,550 3,839 3,512,652 39,374
Equity Income 4,335,969 -- 4,277,488 206 4,261,431 --
Conservative Allocation(2) 44,485 13,345 -- -- -- --
Balanced Allocation 1,946,812 484,709 1,168,319 292,740 926,181 231,904
Aggressive Allocation(2) 136,524 20,479 -- -- -- --
Bond 4,027,206 207,298 4,106,765 222,927 3,665,038 198,864
Limited Maturity Bond 1,134,805 289,664 1,155,348 296,518 1,256,424 322,257
Intermediate Government Obligations 1,692,438 86,957 1,982,604 106,662 2,146,089 115,234
Government Income 1,587,392 620,579 1,384,056 542,801 1,164,435 456,489
Municipal Bond 1,058,852 270,292 1,079,024 276,973 1,113,208 285,574
Michigan Bond 1,715,085 437,841 1,653,555 424,702 1,605,765 412,165
(1)Commenced operations December 27, 1995
(2)Commenced operations December 30, 1996
</TABLE>
No amounts were paid to First of America on behalf of the Municipal
Investor Fund or the Emerging Markets Fund under the Investment Advisory
Agreements for the year ended June 30, 1997, as such Funds had not commenced
operations as of that date.
Unless sooner terminated, each of the Investment Advisory Agreements
continues in effect as to a particular Fund for successive one-year periods
ending December 31 of each year if such continuance is approved at least
annually by the Group's Board of Trustees or by vote of a majority of the
outstanding shares of such Fund (as defined under "GENERAL INFORMATION -
Miscellaneous" in the Prospectuses), and a majority of the Trustees who are not
parties to the Investment Advisory Agreements or interested persons (as defined
in the 1940 Act) of any party to the Investment Advisory Agreements by votes
cast in person at a meeting called for such purpose. Unless sooner terminated,
the Current Sub-Investment Advisory Agreement continues in effect successive
one-year periods ending December 31, if such continuance is approved as
described above with respect to the Investment Advisory Agreements. The
Investment Advisory Agreements and the Current Sub-Investment Advisory Agreement
are terminable as to a particular Fund at any time on 60 days' written notice
without penalty by the Trustees, by vote of a majority of the outstanding shares
of that Fund, or by First of America or,
STATEMENT OF ADDITIONAL INFORMATION PAGE 32
<PAGE> 335
in the case of Gulfstream, on 150 days' prior written notice from Gulfstream.
Such Agreements also terminate automatically in the event of any assignment, as
defined in the 1940 Act.
The Investment Advisory Agreements and the Current Sub-Investment
Advisory Agreement provide that neither First of America nor Gulfstream shall 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 their duties, except a loss
suffered by a Fund resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the respective
investment adviser or subadviser in the performance of their duties, or from
reckless disregard of their duties and obligations thereunder.
From time to time, advertisements, supplemental sales literature, and
information furnished to present or prospective shareholders of the Funds may
include descriptions of the Investment Adviser or Subadviser including, but not
limited to, (i) descriptions of the Investment Adviser's or Subadviser's
operations; (ii) descriptions of certain personnel and their functions; and
(iii) statistics and rankings related to the Investment Adviser's or
Subadviser's operations.
Portfolio Transactions
- ----------------------
With respect to all Funds of the Group other than the International
Fund and Emerging Markets Fund, pursuant to the Investment Advisory Agreements,
First of America determines, subject to the general supervision of the Board of
Trustees of the Group and in accordance with each Fund's investment objective
and restrictions, which securities are to be purchased and sold by a Fund, and
which brokers are to be eligible to execute such Fund's portfolio transactions.
With respect to the International Fund, Emerging Markets Fund and the portion of
the Conservative Allocation Fund, the Balanced Allocation Fund and the
Aggressive Allocation Fund invested in foreign securities, pursuant to the terms
of the Current Sub-Investment Advisory Agreement, Gulfstream determines, subject
to the general supervision of First of America, the Board of Trustees of the
Group and in accordance with each of the investment objectives and restrictions
of these Funds, which securities are to be purchased and sold by the
International Fund, Emerging Markets Fund and foreign securities portion of the
Conservative Allocation Fund, Balanced Allocation Fund and Aggressive Allocation
Fund, and which brokers are to be eligible to execute the portfolio transactions
of the International Fund, Emerging Markets Fund and foreign securities portion
of the Conservative Allocation Fund, the Balanced Allocation Fund and the
Aggressive Allocation Fund.
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 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 prices. 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.
STATEMENT OF ADDITIONAL INFORMATION PAGE 33
<PAGE> 336
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by First of America and Gulfstream in their
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 First of America or Gulfstream may
receive orders for transactions on behalf of the Group. Information so received
is in addition to and not in lieu of services required to be performed by First
of America or Gulfstream and does not reduce the fees payable to such advisers
by the Group or First of America, as the case may be. Such information may be
useful to First of America or Gulfstream in serving both the Group and other
clients and, conversely, supplemental information obtained by the placement of
business of other clients may be useful to such advisers in carrying out their
obligations to the Group.
While First of America and Gulfstream generally seek competitive
commissions, the Group may not necessarily pay the lowest commission available
on each brokerage transaction for reasons discussed above. For the fiscal years
ended June 30, 1997, 1996 and 1995, the Group paid an aggregate of approximately
$3,118,633, $3,615,061 and $9,577,000, respectively, as brokerage commissions on
behalf of the Funds.
The Group will not acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with FOA
(the parent corporation of First of America), BISYS, or their affiliates, and
will not give preference to FOA's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements, and reverse
repurchase agreements.
Investment decisions for each Fund of the Group 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 portfolio, investment
company or account may also invest in the same securities as the Group. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a 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 a Fund or the size of the position obtained by a Fund.
To the extent permitted by law, First of America may aggregate the securities to
be sold or purchased for a Fund with those to be sold or purchased for other
Funds or for other portfolios, investment companies or accounts in order to
obtain best execution. As provided by the Investment Advisory Agreements, 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 Group 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 Group.
Each of the Prime Obligations Fund, U.S. Government Obligations Fund,
Treasury Fund, Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, Conservative Allocation Fund, Balanced Allocation Fund,
Aggressive Allocation Fund, Equity Income Fund, Bond Fund, Limited Maturity Bond
Fund, Intermediate Government Obligations Fund, and Government Income Fund held,
from time to time during the
STATEMENT OF ADDITIONAL INFORMATION PAGE 34
<PAGE> 337
fiscal year ended June 30, 1997, securities of its regular brokers or dealers,
as defined in Rule 10b-l under the 1940 Act, or their parent companies,
including: with respect to the Prime Obligations Fund, those of Bank of
America, Bear Stearns, Hong Kong Shanghai Bank Corp., Goldman Sachs, Morgan
Stanley and Nomura Securities; with respect to the U.S. Government Obligations
Fund, those of Aubrey Lanston, Goldman Sachs and Morgan Stanley; with respect
to the Treasury Fund, those of Aubrey Lanston, Bank of America, J.P. Morgan,
Goldman Sachs, Hong Kong Shanghai Bank Corp., Lehman Brothers and Nomura
Securities; with respect to the Small Capitalization Fund, the Mid
Capitalization Fund and the Large Capitalization Fund, those of Goldman Sachs;
with respect to the Conservative Allocation Fund, those of Goldman Sachs and
Salomon Brothers; with respect to the Balanced Allocation Fund, those of
Goldman Sachs and Lehman Brothers; with respect to the Aggressive Allocation
Fund, those of Goldman Sachs and Salomon Brothers; with respect to the Equity
Income Fund, those of Goldman Sachs and Morgan Stanley; with respect to the
Bond Fund, those of Goldman Sachs, Lehman Brothers and Salomon Brothers; with
respect to the Limited Maturity Bond Fund, those of Goldman Sachs and Lehman
Brothers; with respect to the Intermediate Government Obligations Fund, those
of Goldman Sachs; and with respect to the Government Income Fund, those of
Goldman Sachs and Prudential.
As of June 30, 1997, the Prime Obligations Fund held the following amounts of
the securities of Bank of America, Bear Stearns, Hong Kong Shanghai Bank Corp.,
Goldman Sachs, Morgan Stanley and Nomura Securities, respectively: $4,901,000,
$14,999,000, $4,994,000, $14,721,000, $35,001,000 and $4,999,000. The U.S.
Government Obligations Fund held the following amounts of securities of Aubrey
Lanston, Goldman Sachs and Morgan Stanley, respectively: $56,896,000,
$60,000,000 and $25,000,000. The Treasury Fund held the following amounts of
securities of Aubrey Lanston, Bank of America, Goldman Sachs, Hong Kong Shanghai
Bank Corp., Lehman Brothers J.P. Morgan, and Nomura Securities, respectively:
$125,000,000, $25,000,000, $15,000,000, $125,000,000, $25,000,000, $25,000,000
and $15,000,000. The Small Capitalization Fund, the Mid Capitalization Fund and
the Large Capitalization Fund held the following amounts of securities of
Goldman Sachs, respectively: $65,307,000, $42,125,000, $6,210,000. The
Conservative Allocation Fund held the following amounts of securities of Goldman
Sachs and Salomon Brothers, respectively: $642,000 and $100,000. The Balanced
Allocation Fund held the following amounts of the securities of Goldman Sachs
and Lehman Brothers, respectively: $10,450,000 and $3,037,000. The Aggressive
Allocation Fund held the following amounts of securities of Goldman Sachs and
Salomon Brothers, respectively: $3,016,000 and $75,000. The Equity Income Fund
held the following amounts of securities of Goldman Sachs and Morgan Stanley,
respectively: $5,082,000 and $4,870,000. The Bond Fund held the following
amounts of securities of Goldman Sachs, Lehman Brothers and Salomon Brothers,
respectively: $14,157,000, $7,837,000 and $6,038,000. The Limited Maturity Bond
Fund held the following amounts of securities of Goldman Sachs and Lehman
Brothers, respectively: $21,874,000 and $9,919,000. The Intermediate Government
Obligations Fund held $3,298,000 of securities of Goldman Sachs. The Government
Income Fund held the following amounts of securities of Goldman Sachs and
Prudential, respectively: $5,819,000 and $1,905,000.
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
STATEMENT OF ADDITIONAL INFORMATION PAGE 35
<PAGE> 338
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 Funds contemplated by the Prospectuses, this
Statement of Additional Information and the Investment Advisory Agreements
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
Group. 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 Group's relationship with First of America and consider taking all action
necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of First of America and/or FABC's affiliated
and correspondent banks in connection with customer purchases of shares of the
Group, 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 shareholder.
Administrator and Sub-Administrator
- -----------------------------------
BISYS, formerly the Winsbury Company Limited Partnership, serves as
administrator (the "Administrator") to the Group pursuant to the Administration
Agreement dated January 1, 1995, as amended (the "Administration Agreement").
The Administrator assists in supervising all operations of each Fund (other than
those performed by First of America under the Investment Advisory Agreements, by
Gulfstream under its Sub-Investment Advisory Agreements, by Union Bank of
California, N.A. ("Union Bank" or the "Custodian") under the Custody Agreement,
and by BISYS Ohio under the Fund Accounting Agreement). The
STATEMENT OF ADDITIONAL INFORMATION PAGE 36
<PAGE> 339
Administrator is a broker-dealer registered with the SEC, 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 Group; furnish statistical and research data,
clerical and certain bookkeeping services and stationery and office supplies;
prepare the periodic reports to the SEC on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds 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 Funds,
including calculation of daily expense accruals; in the case of the Money Market
Funds, determine the actual variance from $1.00 of the Fund's net asset value
per share; and generally assist in all aspects of the Group's operations other
than those performed by First of America under the Investment Advisory
Agreements, by Gulfstream under its Sub-Investment Advisory Agreements, by Union
Bank under the Custody Agreements and by BISYS Ohio under the Fund Accounting
Agreement. 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 Funds of the Group. First
of America serves as Sub-Administrator to the Group pursuant to a
Sub-Administration Agreement dated as of January 1, 1995, as amended, 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 Investment Adviser to the Group. These
services include preparation of reports and documents necessary to calculate
daily expense accruals, to update the financial accounts and records of the
Funds and to prepare certain federal and state tax returns.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
calculated daily and paid periodically, equal to the lesser of (a) the fee
calculated at the annual rate of 0.20% of that 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 0.05% of each Fund's
average daily net assets. The Administrator may voluntarily reduce all or a
portion of its fee with respect to any Fund in order to increase the net income
of one or more of the Funds available for distribution as dividends.
STATEMENT OF ADDITIONAL INFORMATION PAGE 37
<PAGE> 340
For the fiscal years ended June 30, 1997, 1996 and 1995, the
Administrator collected and voluntarily reduced the amounts indicated below
which were payable to it with respect to its administrative services to the
indicated Funds:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
- ----------------------------------------------------------------------------------------------------------------------------------
FUND 1997 1996 1995
---- ---- ---- ----
Gross Fees Gross Fees Gross Fees
Fees Voluntarily Fees Voluntarily Fees Voluntarily
Collected Reduced Collected Reduced Collected Reduced
--------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Prime Obligations $1,717,665 $168,939 $1,572,135 $157,229 $1,434,946 $143,495
U.S. Government Obligations 854,229 83,726 819,490 81,957 701,522 70,152
Tax-Free 325,122 31,933 314,749 31,478 268,951 79,617
Treasury 808,404 403,676 649,909 324,958 419,065 297,087
Small Capitalization 1,410,121 -- 1,153,042 1,736 750,375 651
Mid Capitalization 1,306,285 -- 1,635,613 -- 1,265,595 2,276
Large Capitalization(1) 681,310 -- 108,242 4,880 -- --
International 858,253 -- 677,155 613 591,063 76,940
Equity Income 867,179 -- 855,486 28 852,286 --
Conservative Allocation(2) 8,897 -- -- -- -- --
Balanced Allocation 389,895 -- 233,664 176 185,236 22,533
Aggressive Allocation(2) 27,305 -- -- -- -- --
Bond 1,089,049 270,497 1,109,936 277,654 990,679 370,343
Limited Maturity Bond 306,698 76,205 312,256 78,030 339,574 129,552
Intermediate Government Obligations 457,683 113,651 535,839 133,851 580,023 221,339
Government Income 428,868 106,625 374,069 93,652 314,713 118,390
Municipal Bond 286,364 142,990 291,628 145,801 300,867 136,085
Michigan Bond 463,836 231,610 446,907 223,479 433,991 216,973
</TABLE>
(1)Commenced operations December 27, 1995
(2)Commenced operations December 30, 1996
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 a particular 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).
STATEMENT OF ADDITIONAL INFORMATION PAGE 38
<PAGE> 341
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 Group in
connection with the matters to which the Administration Agreement or the
Sub-Administration Agreement relate, 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 any of the Funds in any fiscal year exceed
expense limitations imposed by applicable state securities regulations, First of
America, Gulfstream (only with respect to the International Fund and Emerging
Markets Fund) and the Administrator will reimburse that 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 Group's Funds limits each 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 a
Fund's average net assets, 2% of the next $70 million of a Fund's average net
assets, and 1 1/2% of a 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 accounts by FABC 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, formerly The Winsbury Company Limited Partnership, serves as
Distributor to the Group pursuant to the Distribution Agreement dated October 1,
1993 (the "Distribution Agreement"), as amended. Unless otherwise terminated,
the Distribution Agreement remains in effect 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.
For the Group's fiscal years ended June 30, 1997, 1996 and 1995, total
commissions paid in connection with sales of the Group's shares were $3,523,450,
$4,099,106 and $3,263,580, respectively. Of that amount BISYS retained
$3,241,396, $3,814,505 and $2,951,224, respectively.
As described in the Prospectuses, 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 an 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
of the 1940. Pursuant to these
STATEMENT OF ADDITIONAL INFORMATION PAGE 39
<PAGE> 342
Plans, the Funds are authorized to pay or reimburse BISYS, as Distributor, for
certain expenses that are incurred in connection with the provision of
shareholder and distribution services. Pursuant to the Investor A Plan, a Fund
is authorized to pay BISYS, as Distributor of Investor A Shares, a distribution
and shareholder service fee in an amount not to exceed on an annual basis 0.25%
of the average daily net assets of Investor A Shares of a Fund (the
"Distribution and Service Fee"). Such amount may be used by BISYS to pay banks
and their affiliates (including FOA and its affiliates), and other institutions,
including broker-dealers (collectively, "Participating Organizations") for
distribution or shareholder services provided or expenses incurred in provided
such services pursuant to an agreement between BISYS and the Participating
Organization.
Pursuant to the Investor B Plan, each Fund is authorized to pay BISYS,
as Distributor of Investor B Shares, a distribution fee in an amount not to
exceed on an annual basis 0.75% of the average daily net asset value of Investor
B Shares of a Fund (the "Distribution Fee"). Such amounts may be used by BISYS
to pay Participating Organizations for distribution assistance or to reimburse
them for expenses incurred in providing distribution assistance pursuant to an
agreement between BISYS and the Participating Organization. Also pursuant to the
Investor B Plan, a Fund is authorized to pay BISYS a service fee in an amount
not to exceed on an annual basis 0.25% of the average daily net asset value of
the Investor B Shares of a Fund (the "Service Fee"). Such amounts may be used to
pay Participating Organizations for shareholder services provided or expenses
incurred in providing such services.
Pursuant to the Investor C Plan, each Fund is authorized to pay BISYS,
as Distributor of Investor C Shares, a distribution fee in an amount not to
exceed on an annual basis 0.75% of the average daily net asset value of Investor
C Shares of a Fund (the "Distribution Fee"). Such amounts may be used by BISYS
to pay Participating Organizations for distribution assistance or to reimburse
them for expenses incurred in providing distribution assistance pursuant to an
agreement between BISYS and the Participating Organization. Also pursuant to the
Investor C Plan, a Fund is authorized to pay BISYS a service fee in an amount
not to exceed on an annual basis 0.25% of the average daily net asset value of
the Investor C Shares of a Fund (the "Service Fee"). Such amounts may be used to
pay Participating Organizations for shareholder services provided or expenses
incurred in providing such services.
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 Fund and who have
no direct or indirect financial interest in the operation of that Plan (the
"Independent Trustees"). The Investor B Plan has been approved by the Board of
Trustees, including a majority of the Independent Trustees, and by the initial
Investor B Shareholders of each Fund. The Investor C Plan has been approved by
the Board of Trustees, including a majority of the Independent Trustees, and by
the initial Investor C Shareholders of each Fund.
For the fiscal year ended June 30, 1997, BISYS received $2,787,000
pursuant to the Investor A Plan to compensate dealers for their distribution and
shareholder service assistance. Of that amount, BISYS received $300,694 for
payments to First of America Securities, Inc. ("FSI") and $302,465 for payments
to FABC under the Investor A Plan, as described below.
STATEMENT OF ADDITIONAL INFORMATION PAGE 40
<PAGE> 343
For the fiscal year ended June 30, 1997, BISYS received $1,316,000
pursuant to the Investor B Plan to compensate dealers for their distribution and
shareholder service assistance.
For the fiscal year ended June 30, 1997, BISYS received $130,000
pursuant to the Investor C Plan to compensate dealers for their distribution and
shareholder service assistance. Of that amount, BISYS received $57,310 for
payments to FSI under the Investor C Plan, as described below.
The Plans may be terminated as to a Fund by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding shares of the
applicable class of the Fund. Any change in a Plan that would materially
increase the distribution cost to the 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 shares of the applicable class of the 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 Funds and their shareholders.
The Board of Trustees of the Group believes that the Plans are in the
best interests of the Funds since they encourage Fund growth. As the Funds grow
in size, certain expenses, and therefore total expenses per share, may be
reduced and overall performance per share may be improved.
As authorized by the Investor A Plan, BISYS has entered into a
Participating Organization Agreement with FSI, a wholly-owned subsidiary of FABC
and an affiliate of FOA Brokerage, as a party and on behalf of FOA Brokerage,
pursuant to which both FSI and FOA Brokerage have agreed to provide certain
distribution, administrative and shareholder support services in connection with
Investor A Shares purchased through accounts of FSI and FOA Brokerage. Such
services include, but are not limited to, advertising and marketing the Investor
A Shares, answering routine questions concerning the Fund and distributing
prospectuses to persons other than shareholders of the Funds and providing such
office space, equipment, telephone and personnel as is necessary and appropriate
to accomplish such matters. In consideration for such services, BISYS has agreed
to pay FSI a monthly fee, computed at the annual rate of 0.10% for the Money
Market Funds and 0.25% for the other Funds of the average aggregate net asset
value of Investor A Shares held during the period in customer accounts for which
FSI or FOA Brokerage has provided services under this Agreement. FSI is
responsible for making any applicable payments to FOA Brokerage. BISYS will be
compensated by each Fund in an amount
STATEMENT OF ADDITIONAL INFORMATION PAGE 41
<PAGE> 344
equal to its payments to FSI under the Participating Organization Agreement
with respect to the Investor A Shares of that Fund. Such fee may exceed the
actual costs incurred by the FOA Brokerage and FSI in providing the
services.
Also in accordance with the Investor A Plan, BISYS has entered into a
Participating Organization Agreement with FABC on behalf of its wholly-owned
subsidiary banks (the "Subsidiary Banks"), pursuant to which the Subsidiary
Banks have agreed to provide certain distribution, administrative and
shareholder support services in connection with Investor A Shares purchased
through their accounts. Such services include, but are not limited to,
advertising and marketing the Investor A Shares, answering routine questions
concerning the Fund and distributing prospectuses to persons other than
shareholders of the Funds and providing such office space, equipment, telephone
and personnel as is necessary and appropriate to accomplish such matters. In
consideration for such services, BISYS has agreed to pay FABC a monthly fee,
computed at the annual rate of up to 0.10% for the Money Market Funds and up to
0.25% for the Non-Money Market Funds of the average aggregate net asset value of
Investor A Shares held during the period in customer accounts for which the
Subsidiary Banks have provided services under this Agreement. FABC is
responsible for making any applicable payments to each Subsidiary Bank. BISYS
will be compensated by each Fund in an amount equal to its payments to FABC
under the Participating Organization Agreement with respect to the Investor A
Shares of that Fund. Such fee may exceed the actual costs incurred by the
Subsidiary Banks in providing the services.
As authorized by the Investor B Plan, BISYS has entered into a Service
and Commission Agreement with Security Distributors, Inc. ("SDI"), Security
Benefit Group, Inc. ("SBG") and First of America Brokerage Service, Inc.
("FOA-Brokerage") which relates to purchases of Investor B Shares made prior to
January 1, 1995. Pursuant to the Service and Commission Agreement, FOA-Brokerage
performs certain brokerage and related services in connection with the purchase
of Investor B Shares by its customers and maintains shareholder accounts for
such customers. Also pursuant to the Service and Commission Agreement, SBG
provides financing assistance, consistent with the Investor B Plan, in
connection with the services performed by FOA-Brokerage. Services provided by
FOA-Brokerage include placing orders to purchase Investor B Shares, as agent for
its customers, pursuant to the terms of its Dealer Agreement; providing
shareholder liaison services; responding to inquiries; providing such
information as FOA-Brokerage and SDI mutually determine to be appropriate in
order to properly maintain shareholder accounts; and providing at its own
expense such office space, equipment, facilities and personnel as may be
reasonably necessary or beneficial in order to provide such services to
customers. In consideration for such services, FOA-Brokerage receives from SBG a
commission rate of 4.00% of the net asset value of Investor B Shares purchased
by FOA-Brokerage as agent for its customers. SDI, either directly or through an
affiliate, receives amounts specified in the Shareholder Services and Financing
Agreement dated February 1, 1994 between BISYS and SDI. Under that Agreement,
SDI receives compensation for financing assistance at the annual rate of up to
0.75% of the average daily net assets of Investor B Shares of each Fund and
compensation for shareholder support services at an annual rate of up to 0.25%
of the average daily net assets of the Investor B Shares of each Fund.
As authorized by the Investor C Plan, BISYS has entered into a
Participating Organization Agreement with FSI, pursuant to which FSI has agreed
to provide certain shareholder and distribution services in connection with
Investor C Shares of the Funds purchased and held by
STATEMENT OF ADDITIONAL INFORMATION PAGE 42
<PAGE> 345
FSI for the accounts of its customers and Investor C Shares of the Funds
purchased through accounts of FSI. Such services include, but are not limited
to, printing and distributing prospectuses to persons other than holders of
Investor C Shares of the Funds and printing and distributing advertising and
sales literature in connection with the sale of Investor C Shares; answering
routine customer questions concerning the Funds and providing such personnel and
communication equipment as is necessary and appropriate to accomplish such
matters. In consideration for such services BISYS has agreed to pay FSI a
monthly fee, computed at the annual rate of up to 1.00% of the average aggregate
net 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 Funds in an amount equal to its payments to FSI under the
Participating Organization Agreement. Such fee may exceed the actual costs
incurred by FSI in providing the services.
Custodian, Transfer Agent and Fund Accounting Services
- ------------------------------------------------------
Union Bank, formerly The Bank of California, N.A., 475 Sansome Street,
San Francisco, California 94111, serves as custodian to the Group with respect
to each Fund, except the International Fund and Emerging Markets Fund, pursuant
to the Custody Agreement dated as of October 18, 1991, as amended. Union Bank
serves as custodian to the International Funds and Emerging Markets Fund
pursuant to a Custodian Agreement dated as of July 30, 1995 (the Custody
Agreement and the Custodian Agreement together referred to as the "Custody
Agreements"). Union Bank's responsibilities include safeguarding and controlling
the Funds' cash and securities, handling the receipt and delivery of securities,
and collecting interest and dividends on the Funds' investments.
BISYS, formerly BISYS Ohio or The Winsbury Service Corporation, serves
as transfer agent and dividend disbursing agent (the "Transfer Agent") for all
Funds of the Group pursuant to the Transfer Agency Agreement dated as of August
8, 1990, as amended. Pursuant to such Agreement, the Transfer Agent, among other
things, performs the following services: maintenance of shareholder records for
each of the Group's shareholders of record; processing shareholder purchase and
redemption orders; processing transfers and exchanges of shares of the Group 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. For the fiscal years ended June
30, 1997, 1996 and 1995, the Transfer Agent received $2,091,000, $1,663,309 and
$1,862,374, respectively, from the Group for services as transfer agent for all
portfolios of the Group.
In addition, BISYS Ohio provides certain fund accounting services to
the Group pursuant to a Fund Accounting Agreement dated January 26, 1993, as
amended. BISYS Ohio receives a fee for such services, computed daily and paid
periodically at an annual rate of 0.016% of the average daily net assets of each
Money Market Fund and 0.022% of the average daily net assets of each of the
other Funds. Under such Agreement, BISYS Ohio maintains the accounting books and
records for the Funds, 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
STATEMENT OF ADDITIONAL INFORMATION PAGE 43
<PAGE> 346
accounting services for the Funds, 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 Funds' Custodian,
affirmation to the Funds' Custodian of all portfolio trades and cash
settlements, verification and reconciliation with the Funds' 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 Funds. For such services, for the three fiscal years ended June 30,
1997, 1996 and 1995, BISYS Ohio received $1,722,000, $1,491,244 and $1,024,476,
respectively, from the Group.
Independent Auditors
- --------------------
The Financial Statements of the Group as of June 30, 1997, which appear
in the Group's Annual Report dated June 30, 1997, have been audited by Coopers &
Lybrand L.L.P., 100 East Broad Street, Columbus, Ohio 43215, independent
auditors. The Financial Statements are incorporated herein by reference to the
Annual Report in reliance upon such report and on the authority of Coopers &
Lybrand L.L.P. as experts in auditing and accounting.
Legal Counsel
- -------------
Howard & Howard Attorneys, P.C., 107 West Michigan Avenue, Kalamazoo,
Michigan 49007 is counsel to the Group and will pass upon certain legal matters
pertaining to the shares offered hereby. Howard & Howard serves as legal counsel
to the Investment Adviser, its parent and its affiliates.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Parkstone Group of Funds 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 twenty series of shares, representing interests
in each series of the Group, eighteen of which are currently offered on a
continuous basis. The shares of each of the Funds of the Group, other than the
Money Market Funds, the Tax-Free Income Funds, the Conservative Allocation Fund
and the Aggressive Allocation Fund 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, except for the Municipal Investor
Fund which offers only Investor A Shares, and the Prime Obligations Fund which
offers Investor A Shares, Investor B Shares and Institutional Shares. Shares of
the Tax-Free Income Funds are offered in three classes: Investor A Shares,
Investor B Shares and Institutional Shares. The Conservative Allocation Fund and
the Aggressive Allocation Fund only offer Institutional Shares. The Group's
Declaration of Trust authorizes the Board of Trustees to classify or re-classify
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,
STATEMENT OF ADDITIONAL INFORMATION PAGE 44
<PAGE> 347
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption.
Shares of each of the Group's Funds have no subscription or pre-emptive
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
Prospectuses and this Statement of Additional Information, shares of the Group's
Funds will be fully paid and non-assessable. In the event of a liquidation or
dissolution of the Group or an individual Fund, shareholders of a Fund are
entitled to receive the assets available for distribution belonging to that Fund
at a proportionate distribution, based upon the relative asset values of the
respective Funds, of any general assets not belonging to any particular Fund
which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the shareholders of the outstanding voting securities of an
investment company such as the Group shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Fund affected by the matter. For purposes of
determining whether the approval of a majority of the outstanding shares of a
Fund will be required in connection with a matter, a Fund will be deemed to be
affected by a matter unless it is clear that the interests of each Fund in the
matter are identical, or that the matter does not affect any interest of the
Fund. Under Rule 18f-2, the approval of an investment advisory agreement or any
change in fundamental investment policy submitted to shareholders would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such 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 a Fund.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held and will vote in the aggregate, and
not by class except as otherwise required by the 1940 Act or other applicable
law, or when the matter to be voted upon affects only interests of the
shareholders of a particular class. Voting rights are not cumulative, and,
accordingly, the holders of more than 50% of the Group's outstanding shares may
elect all of the Trustees, irrespective of the votes of other shareholders.
The Group does not intend to hold annual shareholder meetings except as
may be required by the 1940 Act. The Group's Declaration of Trust provides that
a meeting of shareholders shall be called by the Board of Trustees upon written
request of shareholders owning at least 10% of the outstanding shares of the
Group entitled to vote.
The Group's Declaration of Trust authorizes the Board of Trustees,
without shareholder approval (unless otherwise required by applicable law) to
(a) sell and convey the assets of a class of shares to another management
investment company for consideration which may include securities issued by the
purchaser and, in connection therewith, to cause all outstanding shares of such
class to be redeemed at a price which is equal to their net asset value and
which may be cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert the assets belonging
to a class of shares into money and, in connection therewith, to cause all
outstanding shares of such class to be redeemed at their net asset value; or (c)
combine the assets belonging to a class of shares with the assets belonging to
one or more other classes of shares of the Group if the Board of Trustees
reasonably determines
STATEMENT OF ADDITIONAL INFORMATION PAGE 45
<PAGE> 348
that such combination will not have a material adverse effect on the
shareholders of any class participating in such combination and, in connection
therewith, to cause all outstanding shares of any class to be redeemed at their
net asset value or converted into shares of another class of the Group's shares
at their net asset value. However, the exercise of such authority by the Board
of Trustees may be subject to certain restrictions under the 1940 Act. The Board
of Trustees may authorize the termination of any class of shares after the
assets belonging to such class have been distributed to its shareholders.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Prospectuses and the Statement of Additional
Information, a "vote of a majority of the outstanding shares" of the Group or
the 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 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 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 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 trust. 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 trust 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%. The maximum
tax rate applicable to corporations is 35%. Although a corporation's taxable
income
STATEMENT OF ADDITIONAL INFORMATION PAGE 46
<PAGE> 349
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 non-corporate 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 capital losses 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. Each of the Group's Funds will designate
the portion of any dividend distribution for which the dividends-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 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, a 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, a
particular Fund would be subject to a non-deductible excise tax equal to 4% of
the deficiency.
Each of the Funds 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 tax identification number or no
number at all, or who is subject to withholding by the Internal Revenue Service
for failure to report properly payments of interest or dividends.
Although each of the Funds 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, each Fund may be subject to the tax laws of such states or
localities. In addition, if for any taxable year a Fund does not qualify for the
special tax treatment afforded 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 for 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 any Fund holding securities with Original Issue Discount each year, although
no current payments will be received by such Fund with respect to such income.
This original issue discount will comprise a part of that investment company
taxable income of such 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 relevant Fund. Taxable shareholders of such a Fund will be subject
to income tax on such
STATEMENT OF ADDITIONAL INFORMATION PAGE 47
<PAGE> 350
original issue discount, whether or not they elect to
receive their distributions in cash. In the event that a 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.
A 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 indexes,
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, a
Fund's treatment of certain other options, futures and forward contracts entered
into by the Fund is generally governed by Section 1256 of the Code. These
"Section 1256" positions generally include regulated futures contracts, foreign
currency contracts, non-equity options and dealer equity options.
Absent a tax election to the contrary, each such Section 1256 position
held by a Fund will be marked to market (i.e., treated as if it were sold for
fair market value) on the last business day of that Fund's fiscal year, and all
gain or loss associated with fiscal year transactions and marked- 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 such Fund. The
acceleration of income on Section 1256 positions may require the Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, a 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 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 Funds.
When a Fund holds options or contracts which substantially diminish 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 a 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 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, each 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-short income"). This requirement may (i) limit a 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, (ii) require the sale of portfolio
securities held less than three months and (iii) as in the case of short sales
of portfolio securities, reduce the holding periods of certain securities within
such Fund, resulting additional short-short income for the Fund.
STATEMENT OF ADDITIONAL INFORMATION PAGE 48
<PAGE> 351
Each 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 a Fund as a RIC under Subchapter
M of the Code.
In order for a Fund to qualify as a RIC for any taxable year, at least
90% of the Fund's annual gross income must be derived from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities, including gains from foreign currencies, and
other income derived with respect to the business of investing in stock,
securities or currencies. Future Treasury regulations may provide that foreign
exchange gains may not qualify for purposes of the 90% limitation if such gains
are not directly related to a 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 not
directly related to the Fund's principal business of investing in stock or
securities and related options or futures. Pursuant to the Code, a Fund is also
required to derive less than 30% of its gross income from the sale or other
disposition of stock or securities held for less than three months. 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 a Fund's
compliance with the 30% limitation. Each Fund will limit its activities
involving foreign exchange gains to the extent necessary to comply with the
above 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 a Fund's compliance with the 30% limitation. Each Fund
will limit its interest rate and currency swaps to the extent necessary to
comply with these requirements.
Information set forth in the Prospectuses 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 Funds. No attempt has been made to present a detailed
explanation of the federal income tax treatment of a Fund or its shareholders
and this discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation. In addition,
the tax discussion in the Prospectuses and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the date
of the Prospectuses and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.
Additional Tax Information Concerning the Exempt Funds
- ------------------------------------------------------
As indicated in the Prospectuses, the Exempt Funds are designed to
provide shareholders with current tax-exempt interest income. The Exempt Funds
are not intended to constitute balanced investment programs and are not designed
for investors seeking capital appreciation or maximum tax-exempt income
irrespective of fluctuations in principal. Shares of the Exempt Funds would not
be suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plan, and individual
retirement accounts,
STATEMENT OF ADDITIONAL INFORMATION PAGE 49
<PAGE> 352
since such plans and accounts are generally tax-exempt and, therefore, would not
gain any additional benefit from the Exempt Funds' dividends being tax-exempt;
furthermore, such dividends would be ultimately taxable to the beneficiaries
when distributed to them. In addition, the Exempt Funds may not be appropriate
investments for entities which are "substantial users," or "related persons"
thereof, of facilities financed by private activity bonds held by an Exempt
Fund. "Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his or her
trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds represent more than 5% of the total
revenues derived by all users of such facilities, or who occupies more than 5%
of the usable area of such facilities or for whom such facilities or a part
thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S Corporation and its shareholders.
The percentage of total dividends paid by an Exempt Fund with respect
to any taxable year which qualifies as federal exempt interest dividends will be
the same for all shareholders receiving dividends during such year. In order for
an Exempt Fund to pay exempt-interest dividends during any taxable year, at the
close of each fiscal quarter, at least 50% of the aggregate value of the Exempt
Fund must consist of exempt-interest obligations. In addition, the Exempt Fund
must distribute 90% of the aggregate exempt-interest income and 90% of the
investment company taxable income earned by it during the taxable year. After
the close of an Exempt Fund's taxable year, the Exempt Fund will notify each
shareholder of the portion of the dividends paid by the Exempt Fund to the
shareholder with respect to such taxable year which constitutes an
exempt-interest dividend. However, the aggregate amount of dividends as
designated cannot exceed the excess of the amount of interest exempt from tax
under Section 103 of the Code received by the Exempt Fund during the taxable
year over any amounts disallowed as deductions under Section 265 and 171(a)(2)
of the Code.
Under the Code, dividends attributable to interest on certain private
activity bonds issued after August 7, 1986, must be included in alternative
minimum taxable income for the purpose of determining liability (if any) for the
24% alternative minimum tax for individuals and the 20% alternative minimum tax
for corporations. These private activity bonds include: certain bonds issued to
obtain funds to provide certain water, sewage and solid waste facilities,
qualified residential rental projects, certain local electric, gas and other
heating or cooling facilities, qualified hazardous waste facilities, and
government-owned airports, docks and wharves and mass commuting facilities;
certain qualified mortgage, student loan and redevelopment bonds; and certain
bonds issued as part of "small issues" for industrial facilities. In the case of
corporations, alternative minimum taxable income will also include an item of
tax preference consisting of 75% of the excess of the corporation's "adjusted
current earnings" over the corporation's other alternative minimum taxable
income, and for this purpose all tax-exempt interest dividends will be included
in the corporation's "adjusted current earnings. In addition, tax-exempt
interest dividends paid to corporate investors may be subject to an
environmental tax which is imposed at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of a corporation over $2 million.
While each Exempt Fund does not expect to earn any investment company
taxable income, taxable income earned by each Exempt Fund will be distributed.
In general, the investment company taxable income will be the taxable income of
each Exempt Fund (for
STATEMENT OF ADDITIONAL INFORMATION PAGE 50
<PAGE> 353
example, short-term capital gains) subject to certain adjustments and excluding
the excess of any net long-term capital gains for the taxable year over the net
short-term capital loss, if any, for such year. Each Exempt Fund would be taxed
on any undistributed investment company taxable income. Since any such income
will be distributed, it will be taxable to shareholders as ordinary income
(whether paid in cash or additional shares). While each Exempt Fund does not
expect to realize long-term capital gains, any net realized long-term capital
gains will be distributed annually. Each Exempt Fund will have no federal tax
liability and the Michigan Bond Fund will have no state tax liability with
respect to such gains and the distributions will be taxable to shareholders as
long-term capital gains, regardless of how long a shareholder has held the
Exempt Fund's shares. Such distributions will be designated as a capital gains
dividend in a written notice mailed by each Exempt Fund to shareholders after
the close of each Exempt Fund's taxable year. See "Additional Tax Information"
above.
As indicated in the Prospectuses, each Exempt Fund may acquire rights
regarding specified portfolio securities under puts. See "INVESTMENT OBJECTIVES
AND POLICIES-Additional Information on Portfolio Instruments-Puts" in this
Statement of Additional Information. The policy of each Exempt Fund is to limit
its acquisition of puts to those under which it will be treated for federal
income tax purposes as the owner of the Exempt Securities acquired subject to
the put and the interest on the Exempt Securities will be tax-exempt to it.
Although the Internal Revenue Service has issued a published ruling that
provides some guidance regarding the tax consequences of the purchase of puts,
there is currently no guidance available from the Internal Revenue Service that
definitively establishes the tax consequences of many of the types of puts that
each Exempt Fund could acquire under the 1940 Act. Therefore, although each
Exempt Fund will only acquire a put after concluding that it will have the tax
consequences described above, the Internal Revenue Service could reach a
different conclusion.
Although each Exempt Fund expects to qualify as a 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, each Exempt Fund may be
subject to the tax laws of such states or localities. In addition, if for any
taxable year an Exempt 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 for
the dividends received deduction for corporations.
Income itself exempt from federal income taxation may be considered in
addition to taxable income when determining whether social security payments
received by a shareholder are subject to federal income taxation.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting purchasers of shares of the Exempt Funds. No
attempt has been made to present a detailed explanation of the federal income
tax treatment of each Exempt Fund or its shareholders or of Michigan state
income or intangible taxes treatment of the Michigan Bond Fund or its
shareholders, and this discussion is not intended as a substitute for careful
tax planning. Accordingly, potential purchasers of shares of these Funds are
urged to consult their tax advisers with specific reference to their own tax
situation. In addition, the foregoing
STATEMENT OF ADDITIONAL INFORMATION PAGE 51
<PAGE> 354
discussion is based on tax laws and regulations which are in effect on the date
of this Statement of Additional Information; such laws and regulations may be
changed by legislative or administrative action.
Additional Tax Information Concerning the International Fund and Emerging
- --------------------------------------------------------------------------
Markets Fund
- ------------
The International Fund and Emerging Markets Fund may each invest in
non-U.S. corporations, which would be treated as "passive foreign investment
companies" ("PFICs") under the Code which will result in adverse tax
consequences upon the disposition of, or the receipt of "excess distributions"
with respect to, such equity investments. To the extent that the International
Fund and Emerging Markets Fund invest in PFICs, each may adopt certain tax
strategies to reduce or eliminate the adverse effects of certain federal tax
provisions governing PFIC investments. Many non-U.S. banks and insurance
companies may not be treated as PFICs if they satisfy certain technical
requirements under the Code. To the extent that the International Fund and
Emerging Markets Fund invest in foreign securities which are determined to be
PFIC securities and are required to pay a tax on such investments, a credit for
this tax would not be allowed to be passed through to the International Fund and
Emerging Markets Fund' shareholders. Therefore, the payment of this tax would
reduce the International Fund's and Emerging Markets Fund's economic return from
their PFIC investments. Gains from dispositions of PFIC shares and excess
distributions received with respect to such shares are treated as ordinary
income rather than capital gains.
If, for any reason, either the International Fund or the Emerging
Markets Fund were treated as being a United Kingdom ("UK") resident, the
worldwide income and capital gains of the International Fund or the Emerging
Markets Fund would be subject to UK tax. If, for any reason, the International
Fund or the Emerging Markets Fund were treated as having a permanent
establishment in the UK, that Fund's UK source income (although not its capital
gains), if any, would become subject to UK tax and certain other advantages
otherwise available to the International Fund or the Emerging Markets Fund under
the double tax treaty between the UK and the U.S. would not be available.
Provided that the International Fund or the Emerging Markets Fund are not
treated as being resident or having a permanent establishment in the UK, such
Funds will not incur any UK tax liability with respect to the types of income or
gains that they are likely to receive, except with respect to income on UK
securities held in the portfolios of the International Fund and the Emerging
Markets Fund. The Group believes, based on the advice of special counsel, that
it would be highly unlikely for either Fund to be deemed or treated as being UK
residents for UK tax purposes or having a permanent establishment in the UK
pursuant to the double tax treaty between the U.S. and the UK as a result of the
activities of both Funds' Subadviser, Gulfstream.
Yields of the Money Market Funds
- --------------------------------
For the seven-day period ended June 30, 1997, the yield and compounded
effective yield for the Investor A Shares of the Prime Obligations Fund, the
U.S. Government Obligations Fund, the Treasury Fund and the Tax-Free Fund were,
respectively: 4.98% and 5.10%; 4.81% and 4.92%; 4.89% and 5.01%; and 3.51% and
3.57%. For the thirty-day period ended June 30, 1997, the yield and compounded
effective yield for the Investor A Shares of the Prime Obligations Fund, the
U.S. Government Obligations Fund, the Treasury Fund and the Tax-Free Fund were,
respectively: 4.95% and 5.06%; 4.79% and 4.90%; 4.86% and 4.97: and 3.26% and
3.31%.
STATEMENT OF ADDITIONAL INFORMATION PAGE 52
<PAGE> 355
For the seven-day period ended June 30, 1997, the yield and compounded
effective yield for the Institutional Shares of the Prime Obligations Fund, the
U.S. Government Obligations Fund, the Treasury Fund and the Tax-Free Fund were,
respectively: 5.08% and 5.20%; 4.91% and 5.03%; 4.99% and 5.11%; and 3.61% and
3.67%. For the thirty-day period ended June 30, 1997, the yield and compounded
effective yield for the Institutional Shares of the Prime Obligations Fund, the
U.S. Government Obligations Fund, the Treasury Fund and the Tax-Free Fund were,
respectively: 5.05% and 5.17%; 4.89% and 5.00%; 4.96% and 5.07%; and 3.36% and
3.41%.
Because the Municipal Investor Fund had not commenced operations during
this period, yield calculations for this Fund were unavailable as of the date of
this Statement of Additional Information. In addition, because Investor B Shares
of the Prime Obligations Fund were not yet being offered during this period,
yield calculations were unavailable as of the date of this Statement of
Additional Information.
The standardized seven-day yield for each of the Money Market Funds is
computed: (1) by determining the net change, exclusive of capital changes, in
the value of a hypothetical pre-existing account in that Fund having a balance
of one share at the beginning of the seven-day base period, subtracting a
hypothetical charge reflecting deductions from shareholder accounts; (2)
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return; and (3) annualizing the results (i.e.,
multiplying the base period return by (365/7)). The net change in the account
value of each of the Money Market Funds includes the value of additional shares
purchased with dividends from the original share, dividends declared on both the
original share and any additional shares, and all fees, other than non-recurring
account or sales charges charged to all shareholder accounts in proportion to
the length of the base period and assuming that Fund's average account size. The
capital changes to be excluded from the calculation of the net change in account
value are net realized gains and losses from the sale of securities and
unrealized appreciation and depreciation.
The effective yield for each of the Money Market Funds is computed by
compounding the base period return, as calculated above by adding one to the
base period return, raising the sum to a power equal to 365 divided by seven and
subtracting one from the result. Each of the thirty-day yields and effective
yields is calculated as described above except that the base period is 30 days
rather than 7 days.
For the seven-day period ended June 30, 1997, the tax-equivalent yield
(using a federal income tax rate of 39.6%) of the Investor A Shares of the
Tax-Free Fund was 5.81% and its tax- equivalent effective yield (using a federal
income tax rate of 39.6%) for the same period was 5.91%. For the thirty-day
period ended June 30, 1997, the tax-equivalent yield of the Investor A Shares of
the Tax-Free Fund (using a federal income tax rate of 39.6%) was 5.40% and its
tax- equivalent effective yield (using a federal income tax rate of 39.6%) for
the same period was 5.48%.
For the seven-day period ended June 30, 1997, the tax-equivalent yield
(using a federal income tax rate of 39.6%) of the Institutional Shares of the
Tax-Free Fund was 5.98% and its tax-equivalent effective yield (using a federal
income tax rate of 39.6%) for the same period was 6.08%. For the thirty-day
period ended June 30, 1997, the tax-equivalent yield of the Institutional Shares
of the Tax-Free Fund (using a federal income tax rate of 39.6%) was 5.56%
STATEMENT OF ADDITIONAL INFORMATION PAGE 53
<PAGE> 356
and its tax-equivalent effective yield (using a federal income tax rate of
39.6%) for the same period was 5.65%.
The Tax-Free Fund's tax-equivalent yields were computed by dividing
that portion of the Tax-Free Fund's yield which is tax-exempt by one minus the
stated income tax rate and adding the result to that portion, if any, of the
Tax-Free Fund's yield that is not tax-exempt. The Tax- Free Fund's
tax-equivalent effective yields were computed by dividing that portion of the
effective yield which is tax-exempt by one minus the stated income tax rate and
adding to that result the portion, if any, of the Tax-Free Fund's effective
yield that is not tax-exempt.
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.
Yields of the Non-Money Market Funds.
- -------------------------------------
As summarized in the Prospectuses under the heading "PERFORMANCE
INFORMATION," yields of each of the Non-Money Market Funds will be computed by
analyzing net investment income per share for a recent thirty-day period and
dividing that amount by a Fund 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 each of the Non-Money Market Funds will vary from time
to time depending upon market conditions, the composition of a Fund's portfolio
and operating expenses of the Group allocated to each Fund. These factors and
possible differences in the methods used in calculating yield should be
considered when comparing a 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 Fund's shares and to the
relative risks associated with the investment objectives and policies of each of
the Funds.
In addition, for the Municipal Bond Fund and the Michigan Bond Fund,
tax-equivalent yields will be computed by dividing that portion of a Fund's
yield (as computed above) which is tax-exempt by one minus a stated income tax
rate and adding that result to that portion, if any, of the yield of that Fund
which is not tax exempt.
For the period ended June 30, 1997, none of the Non-Money Market Funds
advertised or quoted yield information to shareholders or included such
information in advertisements. None of these Funds expects to quote such figures
in the current fiscal year.
Calculation of Total Return
- ---------------------------
As summarized in the Prospectuses under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value of
an investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in the 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 Fund and (less the maximum sales charge,
STATEMENT OF ADDITIONAL INFORMATION PAGE 54
<PAGE> 357
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 account value for the hypothetical investor by the initial
$1,000 investment and annualizing the result for periods of less than one year.
For the one-year period ended June 30, 1997, the five-year period ended
June 30, 1997 and the period from the commencement of operations to June 30,
1997, the average annual total returns for the Investor A Shares of the
following Funds, assuming the imposition of the maximum sales load, were: Small
Capitalization Fund, (8.83)%, 23.48% and 19.01%; Mid Capitalization Fund, 1.00%,
14.10% and 13.89%; Equity Income Fund, 18.21%, 13.37% and 13.73%; Balanced
Allocation Fund, 6.59%, 11.55% and 10.17%; Bond Fund, 3.57%, 5.69% and 7.37%;
Limited Maturity Bond Fund, 1.82%, 4.36% and 6.24%; Intermediate Government
Obligations Fund, 1.72%, 4.35% and 6.32%; Municipal Bond Fund, 1.30%, 4.50% and
5.66% and Michigan Bond Fund, 1.64%, 4.72% and 5.71%. For the one-year period
ended June 30, 1997 and the period from the commencement of operations to June
30, 1997, the average annual total returns for the Investor A Shares of the
following Funds, assuming the imposition of the maximum sales load, were: Large
Capitalization Fund, 24.32% and 23.50%; Government Income Fund, 2.54% and 4.99%;
and International Fund, 10.77% and 11.67%.
For the one-year period ended June 30, 1997, the five-year period ended
June 30, 1997 and the period from the commencement of operations to June 30,
1997, the average annual total returns for the Investor A Shares of the
following Funds, excluding the effect of any sales charges, were: Small
Capitalization Fund, (4.53)%, 24.63% and 19.64%; Mid Capitalization Fund, 5.78%,
15.15% and 14.49%; Equity Income Fund, 23.81%, 14.42% and 14.34%; Balanced
Allocation Fund, 11.61%, 12.56% and 11.11%; Bond Fund, 7.92%, 6.56% and 7.88%;
Limited Maturity Bond Fund, 6.11%, 5.22% and 6.74%; Intermediate Government
Obligations Fund, 5.91%, 5.20% and 6.82%; Municipal Bond Fund, 5.47%, 5.35% and
6.16%; and Michigan Bond Fund, 5.89%, 5.58% and 6.33%. For the one-year period
ended June 30, 1997 and the period from the commencement of operations to June
30, 1997, the average annual total returns for the Investor A Shares of the
following Funds, excluding the effect of any sales charges, were: Large
Capitalization Fund, 29.52% and 27.61%; Government Income Fund, 6.86% and 5.93%;
and International Fund, 15.99% and 12.81%.
For the one-year period ended June 30, 1997 and the period from the
commencement of operations to June 30, 1997, the average annual total returns
for the Investor B Shares of the following Funds, assuming the imposition of the
maximum contingent deferred sales charges, were: Small Capitalization Fund,
(9.12)% and 17.72%; Mid Capitalization Fund, 1.21% and 11.32%; Large
Capitalization Fund, 23.62% and 23.59%; Equity Income Fund, 17.96% and 12.50%;
Balanced Allocation Fund, 5.96% and 9.72%; Bond Fund 2.09% and 3.85%; Limited
Maturity Bond Fund 0.39% and 3.11%; Intermediate Government Obligations Fund
0.09% and 2.83%; Government Income Fund, 1.11% and 4.12%; Municipal Bond Fund
(0.19)% and 2.37%; Balanced Allocation Fund, 5.96% and 9.72%; and Michigan Bond
Fund 0.05% and 2.57%.
For the one-year period ended June 30, 1997 and the period from the
commencement of operations to June 30, 1997, the average annual total returns
for the Investor B Shares of the
STATEMENT OF ADDITIONAL INFORMATION PAGE 55
<PAGE> 358
following Funds, excluding the effect of any contingent deferred sales charges,
were: Small Capitalization Fund, (5.13)% and 18.32%; Mid Capitalization Fund,
4.94% and 11.93%; Large Capitalization Fund, 28.62% and 26.81%; International
Fund, 15.11% and 5.07%; Equity Income Fund, 22.96% and 13.16%; Balanced
Allocation Fund, 10.82% and 10.42%; Government Income Fund, 6.06% and 4.85%;
Bond Fund, 7.09% and 4.62%; Limited Maturity Bond Fund, 5.39% and 3.88%;
Intermediate Government Obligations Fund, 5.09% and 3.61%; Municipal Bond Fund,
4.81% and 3.17%; and Michigan Bond Fund, 5.05% and 3.38%.
For the one-year period ended June 30, 1997, and the period from the
commencement of operations to June 30, 1997, the average annual total returns
for the Investor C Shares of the following Funds, assuming the imposition of the
maximum contingent deferred sales charges, were: Small Capitalization Fund,
(5.08)% and 19.42%; Mid Capitalization Fund, 5.17% and 14.20%; Large
Capitalization Fund, 28.82% and 26.42%; Equity Income Fund, 22.86% and 14.09%;
Bond Fund, 7.15% and 7.43%; Limited Maturity Bond Fund, 5.26% and 6.12%;
Balanced Allocation Fund, 10.90% and 10.61%; Government Income Fund, 6.07% and
4.95%; International Fund, 15.13% and 12.78%; and Intermediate Government
Obligations Fund, 5.03% and 6.24%.
For the one-year period ended June 30, 1997 and the period from the
commencement of operations to June 30, 1997, the average annual total returns
for the Investor C Shares of the above Funds, excluding the effect of any
contingent deferred sales charges, were the same as those assuming the
imposition of the maximum contingent deferred sales charges, due to the fact
that no charge is imposed upon shares held for one year or more.
For the one-year period ended June 30, 1997, the five-year period ended
June 30, 1997 and the period from the commencement of operations to June 30,
1997, the average annual total returns for the Institutional Shares of the
following Funds were: Small Capitalization Fund, (4.39)%, 24.85% and 19.77%; Mid
Capitalization Fund, 5.58%, 15.23% and 14.54%; Equity Income Fund, 23.80%,
14.54% and 14.41%; Balanced Allocation Fund, 11.86%, 12.75% and 11.28%; Bond
Fund, 8.20%, 6.84% and 8.04%; Limited Maturity Bond Fund, 6.42%, 5.41% and
6.85%; Intermediate Government Obligations Fund, 6.11%, 5.38% and 6.93%;
Municipal Bond Fund, 5.89%, 5.56% and 6.28%; and Michigan Bond Fund, 6.11%,
5.76% and 6.46%. For the one-year period ended June 30, 1997 and the period from
the commencement of operations to June 30, 1997, the average annual total
returns of the Institutional Shares of the following Funds were: Government
Income Fund, 6.91% and 6.10%; and International Fund, 16.34% and 13.11%. For the
period from the commencement of operations to June 30, 1997, the aggregate
annual total returns of the Institutional Shares of the following Funds were:
Conservative Allocation Fund, 4.87%; and Aggressive Allocation Fund, 6.38%.
Distribution Rates
- ------------------
Each of the Funds may from time to time advertise current distribution
rates which are calculated in accordance with the method disclosed in the
Prospectuses. For the one-year period ended June 30, 1997, the distribution
rates for the Investor A Shares of the Funds, including the effect of sales
loads and capital gains, were as follows: Small Capitalization Fund, 18.21%; Mid
Capitalization Fund, 37.26%; Large Capitalization Fund, 0.59%; International
Fund, 0.00%; Equity Income Fund, 9.77%; Balanced Allocation Fund, 13.32%; Bond
Fund, 5.57%; Limited Maturity Bond Fund, 5.59%; Intermediate Government
Obligations Fund, 5.21%; Government
STATEMENT OF ADDITIONAL INFORMATION PAGE 56
<PAGE> 359
Income Fund, 7.37%; Municipal Bond Fund, 5.57%; and Michigan Bond Fund, 4.32%.
For the one-year period ended June 30, 1997, the distribution rates, including
the effect of sales loads but excluding the effect of capital gains, for the
Investor A Shares of the Funds were as follows: Small Capitalization Fund,
0.00%; Mid Capitalization Fund, 0.00%; Large Capitalization Fund, 0.08%;
International Fund, 0.00%; Equity Income Fund, 1.39%; Balanced Allocation Fund,
2.41%; Bond Fund, 5.57%; Limited Maturity Bond Fund, 5.59%; Intermediate
Government Obligations Fund, 5.21%; Government Income Fund, 7.37%; Municipal
Bond Fund, 3.73%; and Michigan Bond Fund, 4.01%.
Excluding the effect of sales loads but including the effect of capital
gains, for the one-year period ended June 30, 1997, the distribution rates for
the Investor A Shares of the Funds were as follows: Small Capitalization Fund,
19.06%; Mid Capitalization Fund, 39.01%; Large Capitalization Fund, 0.62%;
International Fund, 0.00%; Equity Income Fund, 10.23%; Balanced Allocation Fund,
13.94%; Bond Fund, 5.80%; Limited Maturity Bond Fund, 5.83%; Intermediate
Government Obligations Fund, 5.43%; Government Income Fund, 7.67%; Municipal
Bond Fund, 4.36%; and Michigan Bond Fund, 4.50%. For the one-year period ended
June 30, 1997, the distribution rates, excluding the effect of capital gains and
sales loads for the Investor A Shares of the Funds were as follows: Small
Capitalization Fund, 0.00%; Mid Capitalization Fund, 0.00%; Large Capitalization
Fund, 0.08%; International Fund, 0.00%; Equity Income Fund, 1.46%; Balanced
Allocation Fund, 2.53%; Bond Fund, 5.80%; Limited Maturity Bond Fund, 5.83%;
Intermediate Government Obligations Fund, 5.43%; Government Income Fund, 7.67%;
Municipal Bond Fund, 3.88%; and Michigan Bond Fund, 4.18%.
Distribution rates for the Investor B Shares of the Funds, including
the effect of sales loads are not calculated by the Group, nor are they
advertised. Distribution rates for the Investor B Shares of the Funds, excluding
the effect of sales loads but including the effect of capital gains, for the
one-year period ended June 30, 1997, were as follows: Small Capitalization Fund,
19.46%; Mid Capitalization Fund, 40.56%; Large Capitalization Fund, 0.55%;
International Fund, 0.00%; Equity Income Fund, 9.68%; Balanced Allocation Fund,
13.15%; Bond Fund, 4.93%; Limited Maturity Bond Fund, 4.93%; Intermediate
Government Obligations Fund, 4.55%; Government Income Fund, 6.80%; Municipal
Bond Fund, 3.54%; and Michigan Bond Fund, 3.61%. For the one-year period ended
June 30, 1997, the distribution rates, excluding the effect of capital gains and
sales loads for the Investor B Shares of the Funds were as follows: Small
Capitalization Fund, 0.00%; Mid Capitalization Fund, 0.00%; Large Capitalization
Fund, 0.01%; International Fund, 0.00%; Equity Income Fund, 0.87%; Balanced
Allocation Fund, 1.73%; Bond Fund, 4.93%; Limited Maturity Bond Fund, 4.93%;
Intermediate Government Obligations Fund, 4.55%; Government Income Fund, 6.80%;
Municipal Bond Fund, 3.06%; and Michigan Bond Fund, 3.29%.
Excluding the effect of sales loads, but including the effect of
capital gains, for the one-year period ended June 30, 1997, the distribution
rates for the Investor C Shares of the Funds were as follows: Small
Capitalization Fund, 19.42%; Mid Capitalization Fund, 40.24%; Large
Capitalization Fund, 0.58%; International Fund, 0.00%; Equity Income Fund,
9.64%; Balanced Allocation Fund, 13.25%; Bond Fund, 4.98%; Limited Maturity Bond
Fund, 5.13%; Intermediate Government Obligations Fund, 4.69%; and Government
Income Fund, 6.81%. For the one-year period ended June 30, 1997, the
distribution rates, excluding the effect of capital gains and sales loads for
the Investor C Shares of the Funds were as follows: Small Capitalization Fund,
0.00%; Mid Capitalization Fund, 0.00%; Large Capitalization Fund, 0.04%;
International Fund, 0.00%;
STATEMENT OF ADDITIONAL INFORMATION PAGE 57
<PAGE> 360
Equity Income Fund, 0.88%; Balanced Allocation Fund, 1.76%; Bond Fund, 4.98%;
Limited Maturity Bond Fund, 5.13%; Intermediate Government Obligations Fund,
4.69%; and Government Income Fund, 6.81%.
For the one-year period ended June 30, 1997, the distribution rates,
including the effect of capital gains, for the Institutional Shares of the Funds
were as follows: Small Capitalization Fund, 18.82%; Mid Capitalization Fund,
38.76%; Large Capitalization Fund, 0.72%; International Fund, 0.03%; Equity
Income Fund, 10.54%; Balanced Allocation Fund, 14.25%; Bond Fund, 6.07%; Limited
Maturity Bond Fund, 6.12%; Intermediate Government Obligations Fund, 5.72%;
Government Income Fund, 7.83%; Municipal Bond Fund, 4.66%; and Michigan Bond
Fund, 4.80%. For the one-year period ended June 30, 1997, the distribution
rates, excluding the effect of capital gains, for the Institutional Shares of
the Funds were as follows: Small Capitalization Fund, 0.00%; Mid Capitalization
Fund, 0.00%; Large Capitalization Fund, 0.18%; International Fund, 0.03%; Equity
Income Fund, 1.73%; Balanced Allocation Fund, 2.83%; Bond Fund, 6.07%; Limited
Maturity Bond Fund, 6.12%; Intermediate Government Obligations Fund, 5.72%;
Government Income Fund, 7.83%; Municipal Bond Fund, 4.18%; and Michigan Bond
Fund, 4.47%.
Distribution rates for the Conservative Allocation Fund and the
Aggressive Allocation Fund were not available, as those Funds had not been in
existence for one year as of June 30, 1997. Distribution rates for Investor B
Shares of the Prime Obligations Fund were not available as that class of shares
had not yet been offered as of June 30, 1997.
Performance Comparisons
- -----------------------
Investors may judge the performance of the Funds 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 Funds 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 past or anticipated portfolio
holdings for one or more of the funds within the Group; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
STATEMENT OF ADDITIONAL INFORMATION PAGE 58
<PAGE> 361
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; and (8) discussions of fund
rankings or ratings by recognized rating organizations. The Funds 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 any of the Funds.
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- 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, a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments which provide fixed returns for a stated period of time. Yield and
performance are functions of a Fund's quality, composition, and maturity, as
well as expenses allocated to the Fund. Fees imposed upon customer accounts by
the Investment Adviser or its affiliated or correspondent banks for cash
management services will reduce a 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 SEC as a management investment
company. Such registration does not involve supervision by the SEC of the
management or policies of the Group. The 1997 Annual Report and, when available,
the December 31, 1997 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, 1997, and the six months ended December 31,
1997, respectively. In addition, the Annual Report includes management's
discussion of Fund performance for each of the Non-Money Market Funds, as well
as line graph comparisons to appropriate broad-based securities indices.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the SEC. Copies of such information may be obtained from the SEC upon payment of
the prescribed fee.
The Prospectuses 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
STATEMENT OF ADDITIONAL INFORMATION PAGE 59
<PAGE> 362
salesman, dealer, or other person is authorized to give any information or make
any representation other than those contained in the Prospectuses and this
Statement of Additional Information.
As of June 30, 1997, the Trustees and officers of the Group, as a
group, owned less than one percent of the shares of any Fund of the Group.
PRINCIPAL HOLDERS OF VOTING SECURITIES
As of September 2, 1997, the following persons were the record owners
of more than 5% of the Investor A Shares, Investor B Shares and Investor C
Shares of each of the Group's Funds:
INVESTOR A SHARES
- ------------------
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor A Share Fund Record Owner Owned Percent of Class
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Capitalization Charles Schwab & Co., Inc. 427,857.150 5.74
Special Custodian Account
FBO Our Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Mid Capitalization J C Bradford Co. Cust. FBO 298,184.883 5.49
Cost RCIP Limited Partners I
330 Commerce Street
Nashville, TN 37201-1899
Mid Capitalization Corelink Financial Inc. 848,121.127 15.63
P.O. Box 4054
Concord, CA 94524
Large Capitalization Corelink Financial Inc. 488,584.169 52.76
P.O. Box 4054
Concord, CA 94524
International Discovery Fund Corelink Financial Inc. 337,813.797 11.18
P.O. Box 4054
Concord, CA 94524
Limited Maturity Bond Corelink Financial Inc. 1,782,891.003 60.41
P.O. Box 4054
Concord, CA 94524
U.S. Government Income Corelink Financial Inc. 1,540,423.756 24.03
P.O. Box 4054
Concord, CA 94524
Municipal Bond Corelink Financial Inc. 298,906.793 31.87
P.O. Box 4054
Concord, CA 94524
Michigan Bond Corelink Financial Inc. 410,642.036 11.65
P.O. Box 4054
Concord, CA 94524
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 60
<PAGE> 363
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor A Share Fund Record Owner Owned Percent of Class
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Obligations National Financial Services Corp. 169,554,068.570 93.13
For the Benefit of our Customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
U.S. Government Obligations National Financial Services Corp. 30,524,811.100 14.96
For the Benefit of our Customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
U.S. Government Obligations First of America 172,624,808.580 84.60
Trust Operations
P.O. Box 4042
Kalamazoo, MI 49003-4042
Tax Free First of America 19,215,991.030 36.10
Trust Operations
P.O. Box 4042
Kalamazoo, MI 49003-4042
Tax Free National Financial Services Corp. 31,238,160.220 58.70
For the Benefit of our Customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
Treasury First of America 155,580,827.370 92.88
Trust Operations
P.O. Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
INVESTOR B SHARES
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor B Share Fund Record Owner Owned Percent of Class
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Limited Maturity Bond National Financial Services Corp. 8,656.990 5.54
FBO Martha Fajardo Vaca
Cust Ernesto Vaca Jr.
UTMA IL
606 S. Fulton
Waukegan, IL 60085
Limited Maturity Bond Isaac Walker Company 10,351.967 6.62
P.O. Box 3500
Peoria, IL 61612
Limited Maturity Bond Jonathan C. Bravo 16,170.567 10.34
Soleil Properties
P.O. Box 1450
Wabasso, FL 32970-9999
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 61
<PAGE> 364
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor B Share Fund Record Owner Owned Percent of Class
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Government Horace Burton Gemmill 22,112.540 9.18
Obligations Joyce Louise Gemmill
2360 McComb Drive
Clio, MI 48420
Municipal Bond Conrad V. Davis 15,247.366 17.77
FBO Lee Ann Davis
3206 W. Richwoods
Peoria, IL 61604
Municipal Bond Margil O. Weaver 8,936.344 10.41
6 Oakwood Drive
Pontiac, IL 61764
Municipal Bond Frank A. Gregory 5,436.659 6.33
Thelma M. Gregory
3149 Shadow Brook Drive
Indianapolis, IN 46214
Municipal Bond Betty J. Bowen 11,779.859 13.73
2400 Country Club Drive
Springfield, IL 62704
Municipal Bond Sarah J. Hawkins 12,444.800 14.50
FBO Cecil C. Hawkins
c/o First of America
P.O. Box 4042
Kalamazoo, MI 49003-4042
Municipal Bond Edward L. Najim 5,004.790 5.83
Cheri S. Najim
1300 Pine Valley Court
Springfield, IL 62704
</TABLE>
INVESTOR C SHARES
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor C Share Fund Record Owner Owned Percent of Class
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Capitalization John A. Swanson 79,871.913 13.79
606 Robinhood Lane
McMurray, PA 15317-2721
Small Capitalization Roger Antonelli 38,326.909 6.61
Trust Medical Radiologists, Inc. Pension/PS
1880 Kettering Tower
Dayton, OH 45423
Mid Capitalization Kent Optical, Inc. 401(k) Plan 6,951.578 5.01
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 62
<PAGE> 365
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor C Share Fund Record Owner Owned Percent of Class
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mid Capitalization JB Printing Company 401(k) Plan 7,362.472 5.31
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Mid Capitalization Nyfries, Inc. 401(k) Plan 14,362.985 10.36
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Mid Capitalization Klineman Rose and Wolf P.C. 401(k) Plan 8,201.100 5.91
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Large Capitalization Natalie L. Bell 638.380 20.60
Tod Leslie Jodi Bell
645 Quarry Lane
Richmond Heights, OH 44143
Large Capitalization William D. Menzie 930.931 30.04
1217 Wandering Way
Charlotte, NC 28226
Large Capitalization Balkema Sand & Gravel 1,372.030 44.28
Attn: Barb Brown
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
International Discovery Preferred Solutions, Inc. 7,556.940 12.96
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
International Discovery Cordes Excavating Inc. 401(k) Plan 4,435.727 7.60
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
International Discovery Lincoln Precision Carbide 401(k) 3,818.894 6.55
600 S. Second
Lincoln, MI 48742-0000
Balanced Allocation All Tech Engineering 401(k) Plan 4,966.857 7.41
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 63
<PAGE> 366
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor C Share Fund Record Owner Owned Percent of Class
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Allocation Kent Optical, Inc. 6,543.093 9.76
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Balanced Allocation Nyfries, Inc. 401(k) Plan 11,905.921 17.77
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Balanced Allocation Glass Distributors, Inc. 4,191.501 6.25
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Equity Income Preferred Solutions, Inc. 9,625.292 22.15
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Equity Income John W. Wade, Jr. 9,260.268 21.31
6321 Murray Lane
Brentwood, TN 37027-6211
Bond Cord Construction Company 401(k) Plan 4,740.651 8.19
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Bond Preferred Solutions, Inc. 2,963.728 5.12
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Bond JB Printing Company 401(k) Plan 3,527.235 6.09
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Bond Pegasus 401(k) Plan 4,567.832 7.89
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Bond HMC Products 401 K Plan 3,113.803 5.38
c/o BISYS Qualified Plan Services
323 Norristown Road/Springhouse Corp. Center II
Ambler, PA 19002
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 64
<PAGE> 367
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor C Share Fund Record Owner Owned Percent of Class
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond West Michigan Grinding Service 5,616.079 9.71
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Limited Maturity Bond Continental Vending Inc. 401(k) Plan 1,299.249 15.45
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Limited Maturity Bond Northern Michigan Fruit Co. 401(k) Plan 1,427.106 16.97
c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Limited Maturity Bond Natalie L. Bell 471.951 5.61
Tod Leslie Jodi Bell
645 Quarry Lane
Richmond Heights, OH 44143
Limited Maturity Bond Grace E. Schoen 1,080.995 12.86
The Grace E. Schoen Revocable Trust
DTD 013190
3734 16th Avenue North
St. Petersburg, FL 33713
Limited Maturity Bond Anthony Ed Trabue MD PC 1,443.561 17.17
2201 Murphy Avenue, Suite 308
Nashville, TN 37203-1805
Limited Maturity Bond Gerald B. Carnes 2,157.346 25.66
417 Monroeville RE
Monroeville, NJ 08343
Intermediate Rickard and Denny PC 401(k) Plan 2,174.968 10.55
Government Obligations c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Intermediate Kent Optical, Inc. 401(k) Plan 8,109.828 39.35
Government Obligations c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Intermediate All Tech Engineering 401(k) Plan 4,241.009 20.58
Government Obligations c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 65
<PAGE> 368
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor C Share Fund Record Owner Owned Percent of Class
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate Lincoln Precision Carbide 401(k) 1,366.739 6.63
Government Obligations 600 S. Second
Lincoln, MI 48742-0000
Intermediate Ken Rock Community Center Inc. 401(k) Plan 2,762.521 13.40
Government Obligations c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
U.S. Government HMC Products 401(k) Plan 2,571.552 40.07
Income c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
U.S. Government Ganna Constructions, Inc. 1,447.019 22.54
Income c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
U.S. Government Sud's Motor Car Company 738.137 11.50
Income c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
U.S. Government Advocare, Inc. 401(k) Plan 536.950 8.36
Income c/o BISYS Qualified Plan Services
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Prime Obligations Cord Construction Company 401K Plan 50,058.790 10.29
Attn Barb Brown
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Prime Obligations Noir Medical Technologies 52,665.110 10.83
Attn Barb Brown BISYS Qual Plan Serv.
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
Prime Obligations Kent Optical Inc. 401K Plan 66,597.750 13.70
Attn Barb Brown BISYS Qual Plan Serv.
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 66
<PAGE> 369
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor C Share Fund Record Owner Owned Percent of Class
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Seven Hills Inc. 13,508.160 9.04
Obligations Attn Barb Brown BISYS Qual Plan Serv.
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
U.S. Government Northern Michigan Fruit Co 401K Plan 13,676.995 9.15
Obligations Attn Barb Brown BISYS Qual Plan Serv.
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
U.S. Government Preferred Solutions Inc. 42,625.358 28.54
Obligations Attn Barb Brown BISYS Qual Plan Serv.
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
U.S. Government Nyfries, Inc. 401K Plan 70,947.570 47.50
Obligations Attn Barb Brown BISYS Qual Plan Serv.
323 Norristown Road
Springhouse Corp. Center II
Ambler, PA 19002
</TABLE>
As of September 2, 1997, as a result of its possession of voting or
investment power with respect to such shares, through accounts for which FOA and
other affiliates of FABC act in a fiduciary capacity, FOA and other affiliates
were deemed to be the record and beneficial owners of 99.7% of the Institutional
Shares of the Group as follows:
INSTITUTIONAL SHARES BENEFICIALLY OWNED BY FOA AND ITS AFFILIATES:
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount of Beneficial Percent of Percent of
Title of Institutional Share Fund Ownership Fund Class Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Obligations Fund $627,395,529 97.9% 76.2%
U.S. Government Obligations Fund $206,964,442 97.1% 49.6%
Treasury Fund $326,098,486 100.0% 66.1%
Tax-Free Fund $120,954,861 98.6% 68.8%
Small Capitalization Fund $18,875,557 85.7% 59.3%
Mid Capitalization Fund $34,110,866 99.9% 83.0%
Large Capitalization Fund $21,173,041 99.9% 94.4%
International Fund $25,827,163 99.7% 86.6%
Conservative Allocation Fund $1,181,484 99.3% 99.3%
Balanced Allocation Fund $18,318,511 99.9% 90.1%
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 67
<PAGE> 370
<TABLE>
<CAPTION>
Amount of Beneficial Percent of Percent of
Title of Institutional Share Fund Ownership Fund Class Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Allocation Fund $3,699,178 99.9% 99.9%
Equity Income Fund $15,890,298 99.8% 71.4%
Bond Fund $51,255,830 99.8% 95.0%
Limited Maturity Bond Fund $14,840,346 99.9% 82.6%
Intermediate Government Obligations Fund $18,949,652 99.9% 90.3%
Government Income Fund $16,790,066 99.8% 65.0%
Municipal Bond Fund $12,793,554 99.9% 92.6%
Michigan Bond Fund $18,356,516 99.9% 82.6%
===========================================================================================================
</TABLE>
Therefore, FABC owned beneficially as of such date 69.4% the total
outstanding shares of the Group. FABC may be presumed to control both the Group
and each of the Funds because it possesses or shares investment or voting power
with respect to more than 25% of the total outstanding shares of the Group and
of each of the Funds. As a result, FABC may have the ability to elect the
Trustees of the Group, approve the Investment Advisory Agreements and
Distribution Agreement for each of the Funds and to control any other matters
submitted to the shareholders of the Funds for their approval or ratification.
Because the Municipal Investor Fund and the Emerging Markets Fund had not
commenced operations as of the dates noted above, no such information was
available regarding these Funds.
With respect to all of the Funds, the Group's officers and directors
collectively owned less than 1% of the Funds' outstanding securities.
FINANCIAL STATEMENTS
Financial Statements describing audited financial information for the
each Fund's operations since inception appear in the Group's Annual Report dated
June 30, 1997, and on file with the SEC (File Nos. 33-13283 and 811-5105) are
incorporated herein by reference. The report of Coopers & Lybrand L.L.P.,
independent auditors of the Group, appears therein.
STATEMENT OF ADDITIONAL INFORMATION PAGE 68
<PAGE> 371
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 Group 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 Thomson BankWatch, Inc. ("Thomson"). Set forth below
is a description of the relevant ratings of each such NRSRO. The NRSROs that may
be utilized by First of America are, 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 risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the future.
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.
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.
Appendix PAGE 69
<PAGE> 372
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 interest and repay
principal is very strong, although not quite as strong as bonds
rated "AAA." Because bonds rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issues is
generally rated F-1+ (see below)."
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.
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.
APPENDIX PAGE 70
<PAGE> 373
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 obligations. Prime-1 repayment capacity will
normally be evidenced by many of the following
characteristics:
-Leading market positions in well-established
industries.
-High rates of return on funds employed.
-Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
-Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
-Well-established access to a range of financial
markets and assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong capacity for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
APPENDIX PAGE 71
<PAGE> 374
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 description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have
extremely strong safety characteristics are denoted with a plus
sign (+).
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for
timely payment They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying
the higher designations.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental
protection factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection
factors. Risk factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
Duff 3 Satisfactory liquidity and other protection factors
qualify issues as 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.
APPENDIX PAGE 72
<PAGE> 375
F-1 Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree
than issues rated F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-1+ or
F-1 ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment
grade.
IBCA's description of its three highest short-term debt ratings:
A+ Obligations supported by the highest capacity for timely
repayment.
A1 Obligations supported by a very strong capacity for timely
repayment.
A2 Obligations supported by a strong capacity for timely
repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
Thomson's description of its three highest short-term ratings:
TBW-1 The highest category; indicates a very high degree of
likelihood that principal and interest will be paid on a timely
basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong,
the relative degree of safety is not as high as for issues
rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and
external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is
considered adequate.
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 of protection
are ample although not as large as in the preceding group.
APPENDIX PAGE 73
<PAGE> 376
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.
APPENDIX PAGE 74
<PAGE> 377
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES
INVESTOR B SHARES
INVESTOR C SHARES
INSTITUTIONAL SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX-FREE INCOME FUNDS
THE PARKSTONE MONEY MARKET FUNDS
THE PARKSTONE GROUP OF FUNDS
FORM N-1A
PART C. OTHER INFORMATION
ITEM NO.
- --------------------------------------------------------------------------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A:
-- Financial Highlights
Incorporated by Reference to Annual Report in Part B:
-- Parkstone U.S. Government Obligations Fund, Parkstone Prime
Obligations Fund, Parkstone Tax-Free Fund, Parkstone Treasury
Fund, Parkstone Small Capitalization Fund, Parkstone Mid
Capitalization Fund (formerly, the Equity Fund), Parkstone Large
Capitalization Fund, Parkstone International Discovery Fund,
Parkstone Conservative Allocation Fund, Parkstone Balanced
Allocation Fund (formerly, the Balanced Fund), Parkstone
Aggressive Allocation Fund, Parkstone Equity Income Fund
(formerly, the High Income Equity Fund), Parkstone Bond Fund,
Parkstone Limited Maturity Bond Fund, Parkstone Intermediate
Government Obligations Fund, Parkstone U.S. Government Income
Fund, Parkstone Municipal Bond Fund, and Parkstone Michigan
Municipal Bond Fund.
Independent Auditors' Report dated August 25, 1997.
Statements of Assets and Liabilities as of June 30, 1997.
OTHER INFORMATION PAGE 1
<PAGE> 378
Statements of Operations for the year ended June 30, 1997.
Statements of Changes in Net Assets for the years ended June 30,
1997 and June 30, 1997.
Schedules of Portfolio Investments as of June 30, 1997.
Notes to Financial Statements.
All required financial statements are included or incorporated by
reference in Part B hereof. All other financial statements and
schedules are inapplicable.
(b) Exhibits*:
(1) (a) Declaration of Trust dated March 25, 1987 (incorporated by
reference to Registrant's Post-Effective Amendment No. 31,
filed October 9, 1996).
(i) Amendment dated April 7, 1987 to Declaration of Trust
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed October 9,
1996).
(ii) Amendment dated July 1, 1987 to Declaration of Trust
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed October 9,
1996).
(2) (a) Code of Regulations as approved and adopted by Registrant's
Board of Trustees (incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed October 9, 1996).
(i) Amendment dated May 11, 1989 to Code of Regulations
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed October 9,
1996).
(ii) Amendment dated August 26, 1993 to Code of Regulations
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed October 9,
1996).
(3) Not applicable.
(4) Not applicable.
(5) (a) Investment Advisory Agreement between Registrant and
Securities Counsel, Inc., dated July 9, 1987, relating to
the U.S. Government Obligations Fund, the Prime Obligations
Fund and the Tax-Free Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31, filed October
9, 1996).
OTHER INFORMATION PAGE 2
<PAGE> 379
(i) Amendment dated August 26, 1993 to Schedule A adding
the Treasury Fund and Municipal Investor Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed October 9,
1996).
(b) Investment Advisory Agreement between Registrant and
Securities Counsel, Inc. dated September 8, 1988, relating
to the Bond Fund, the Limited Maturity Bond Fund, the
Intermediate Government Obligations Fund, the Municipal Bond
Fund, the Equity Fund, the Small Capitalization Fund and the
High Income Equity Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31, filed October
9, 1996).
(i) First Amendment dated March 1, 1995 authorizing the use
of subadvisers with respect to the Balanced Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed October 9,
1996).
(ii) Amendment to Schedule A dated December 16, 1996 adding
the Conservative Allocation Fund and the Aggressive
Allocation Fund and incorporating previous amendments
adding the Large Capitalization Fund, the Michigan
Municipal Bond Fund, the Balanced Allocation Fund and
the U.S. Government Income Fund (incorporated by
reference to Registrant's Post-Effective Amendment No.
35, filed July 30, 1997).
(iii) Second Amendment dated December 16, 1996 authorizing
the use of subadvisers with respect to the Conservative
Allocation Fund and the Aggressive Allocation Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 35, filed July 30, 1997).
(c) Investment Advisory Agreement between the Registrant and
First of America Investment Corporation dated December 22,
1992, relating to the International Discovery Fund
(incorporated by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(i) Amendment dated February 10, 1995 to Schedule A adding
the Emerging Markets Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996).
(d) Sub-Investment Advisory Agreement between First of America
Investment Corporation and Gulfstream Global Investors, Ltd.
dated March 1, 1995, relating to the International Discovery
Fund, the Balanced Fund and the Emerging Markets Fund
(incorporated
OTHER INFORMATION PAGE 3
<PAGE> 380
by reference to Registrant's Post-Effective Amendment No. 31
filed October 9, 1996).
(i) Amendment to Schedule A dated December 16, 1996 adding
the Conservative Allocation Fund and the Aggressive
Allocation Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 35, filed
July 30, 1997).
(6) (a) Distribution Agreement between Registrant and The Winsbury
Company Limited Partnership dated October 1, 1993, relating
to the U.S. Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Fund, the Treasury Fund, the
Municipal Investor Fund, the Equity Fund, the Small
Capitalization Fund, the International Discovery Fund, the
Balanced Fund, the High Income Equity Fund, the Bond Fund,
the Limited Maturity Bond Fund, the Intermediate Government
Obligations Fund, the U.S. Government Income Fund, the
Municipal Bond Fund and the Michigan Municipal Bond Fund
(incorporated by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(i) Amendment dated May 12, 1994 to the Distribution
Agreement adding Schedules H and I relating to Investor
C Shares (incorporated by reference to Registrant's
Post- Effective Amendment No. 31 filed October 9,
1996).
(ii) Amendment to Schedule A dated December 16, 1996 adding
the Conservative Allocation Fund and the Aggressive
Allocation Fund and incorporating previous amendments
adding the Emerging Markets Fund and the Large
Capitalization Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 35, filed
July 30, 1997).
(iii) Amendment to Schedule B dated November 8, 1995 adding
the Large Capitalization Fund (incorporated by
reference to Registrant's Post-Effective Amendment No.
31 filed October 9, 1996).
(iv) Amendment to Schedule D dated May 22, 1997 adding the
Prime Obligations Fund and incorporating a previous
amendment adding the Large Capitalization Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 35, filed July 30, 1997).
(v) Amendment to Schedule F dated November 8, 1995 adding
the Large Capitalization Fund (incorporated by
reference to
OTHER INFORMATION PAGE 4
<PAGE> 381
Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996).
(vi) Amendment to Schedule G dated May 22, 1997 adding the
Prime Obligations Fund and incorporating a previous
amendment adding the Large Capitalization Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 35, filed July 30, 1997).
(vii) Amendment to Schedule I dated November 8, 1995 adding
the Large Capitalization Fund (incorporated by
reference to Registrant's Post-Effective Amendment No.
31 filed October 9, 1996).
(b) Specimen Dealer Agreement between BISYS Fund Services, L.P.
and dealers (incorporated by reference to Registrant's Post-
Effective Amendment No. 31 filed October 9, 1996).
(c) Specimen Shareholder Service Agreement between BISYS Fund
Services, L.P. and organizations providing shareholder
services (incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
(7) Not applicable.
(8) (a) Custody Agreement between Registrant and the Bank of
California, N.A., dated October 18, 1991, relating to the
U.S. Government Obligations Fund, the Prime Obligations
Fund, the Tax-Free Fund, the Bond Fund, the Limited Maturity
Bond Fund, the Intermediate Government Obligations Fund, the
Municipal Bond Fund, the Equity Fund, the Small
Capitalization Fund, the High Income Equity Fund and the
Michigan Municipal Bond Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31 filed October
9, 1996).
(i) Amendment to Schedule A dated December 16, 1996 adding
the Conservative Allocation Fund and the Aggressive
Allocation Fund and incorporating previous amendments
adding the Large Capitalization Fund, the Balanced
Allocation Fund, the U.S. Government Income Fund, the
International Discovery Fund, the Treasury Fund and the
Municipal Investor Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 35, filed
July 30, 1997).
(ii) Amendment dated November 20, 1992, to Schedule B of the
Custody Agreement (incorporated by reference to
OTHER INFORMATION PAGE 5
<PAGE> 382
Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996).
(iii) Securities Lending and Reverse Repurchase Agreement
Addendum dated June 8, 1995, relating to the Bond Fund
the Balanced Fund and the Limited Maturity Bond Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
(a) Exhibit D dated March 18, 1996, adding the
Intermediate Government Obligations Fund's
reinvestment policy (incorporated by reference to
Registrant's Post-Effective Amendment No. 35,
filed July 30, 1997).
(b) Exhibit D dated March 18, 1996 adding the U.S.
Government Income Fund's reinvestment policy
(incorporated by reference to Registrant's Post-
Effective Amendment No. 35, filed July 30, 1997).
(c) Amendment to Exhibit D dated May 22, 1997 adding
the Small Capitalization Fund, the Mid
Capitalization Fund, the Large Capitalization Fund
and the Equity Income Fund and incorporating
previous Exhibits D relating to the Bond Fund, the
Limited Maturity Bond Fund, the Balanced
Allocation Fund, the Conservative Allocation Fund
and the Aggressive Allocation Fund.**
(d) Amendment to Exhibit E dated May 22, 1997 revising
the fee schedule.**
(e) Amendment to Schedule I dated May 22, 1997 adding
the Small Capitalization Fund, the Mid
Capitalization Fund, the Large Capitalization Fund
and the Equity Income Fund and incorporating
previous amendments adding the Conservative
Allocation Fund, the Aggressive Allocation Fund,
the Intermediate Government Obligations Fund and
the Government Income Fund.**
(b) International Custodian Agreement between Registrant
and the Bank of California, N.A., dated July 30, 1995
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
(9) (a) Administration Agreement between Registrant and The
Winsbury Company Limited Partnership dated January 1,
1995, relating to
OTHER INFORMATION PAGE 6
<PAGE> 383
the U.S. Government Obligations Fund, the Prime Obligations
Fund, the Tax-Free Fund, the Treasury Fund, the Municipal
Investor Fund, the Equity Fund, the Small Capitalization
Fund, the International Discovery Fund, the Balanced Fund,
the High Income Equity Fund, the Bond Fund, the Limited
Maturity Bond Fund, the Intermediate Government Obligations
Fund, the U.S. Government Income Fund, the Municipal Bond
Fund and the Michigan Municipal Bond Fund (incorporated by
reference to Registrant's Post-Effective Amendment No. 31
filed October 9, 1996).
(i) Amendment to Exhibit A dated December 16, 1996 adding
the Conservative Allocation Fund and the Aggressive
Allocation Fund and incorporating a previous amendment
adding the Large Capitalization Fund (incorporated by
reference to Registrant's Post-Effective Amendment No.
35, filed July 30, 1997).
(b) Transfer Agency Agreement between Registrant and The
Winsbury Service Corporation dated August 8, 1990.
(i) Amendment dated May 12, 1994 to Schedule B revising the
fee schedule (incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
(c) Fund Accounting Agreement between Registrant and The
Winsbury Service Corporation dated as of February 1, 1993,
relating to the U.S. Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Fund, the Equity Fund, the
Small Capitalization Fund, the International Discovery Fund,
the Balanced Fund, the High Income Equity Fund, the Bond
Fund, the Limited Maturity Bond Fund, the Intermediate
Government Obligations Fund, the U.S. Government Income
Fund, the Municipal Bond Fund and the Michigan Municipal
Bond Fund (incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
(i) Amendment to Schedule A dated December 16, 1996 adding
the Conservative Allocation Fund and the Aggressive
Allocation Fund and incorporating previous amendments
adding the Large Capitalization Fund, the Treasury Fund
and the Municipal Investor Fund (incorporated by
reference to Registrant's Post-Effective Amendment No.
35, filed July 30, 1997).
(ii) Amendment dated April 1, 1993 to Schedule B revising
the fee schedule (incorporated by reference to
Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996).
OTHER INFORMATION PAGE 7
<PAGE> 384
(d) Sub-Administration Agreement between First of America
Investment Corporation and The Winsbury Company Limited
Partnership dated January 1, 1995, relating to the U.S.
Government Obligations Fund, the Prime Obligations Fund, the
Tax-Free Fund, the Treasury Fund, the Municipal Investor
Fund, the Equity Fund, the Small Capitalization Fund, the
International Discovery Fund, the Balanced Fund, the High
Income Equity Fund, the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government Obligations Fund, the U.S.
Government Income Fund, the Municipal Bond Fund and the
Michigan Municipal Bond Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31 filed October
9, 1996).
(i) Amendment to Schedule A dated December 16, 1996 adding
the Conservative Allocation Fund and the Aggressive
Allocation Fund and incorporating a previous amendment
adding the Large Capitalization Fund (incorporated by
reference to Registrant's Post-Effective Amendment No.
35, filed July 30, 1997).
(e) Amended and Restated Securities Lending Record
Administration Agreement between Union Bank of California,
N.A. and BISYS Fund Services Limited Partnership dated May
22, 1997.**
(10) An opinion of Legal Counsel with respect to shares of the U.S.
Government Obligations Fund, the Prime Obligations Fund, the
Treasury Fund, the Tax-Free Fund, the Small Capitalization Fund,
the Mid Capitalization Fund, the Large Capitalization Fund,
International Discovery Fund, the Conservative Allocation Fund,
the Balanced Allocation Fund, the Aggressive Allocation Fund, the
Equity Income Fund, the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government Obligations Fund, the U.S.
Government Income Fund, the Municipal Bond Fund, and the Michigan
Municipal Bond Fund was filed with Registrant's Notice filed
pursuant to Rule 24f-2 on August 28, 1997.
(11) (a) Consent of Coopers & Lybrand, L.L.P.
(b) Consent of Howard & Howard Attorneys, P.C.
(12) Not applicable.
(13) Purchase Agreement dated July 2, 1987, between Registrant and The
Winsbury Corporation (incorporated by reference to Registrant's
Post- Effective Amendment No. 31 filed October 9, 1996).
(14) (a) Specimen Agreement for the Parkstone Individual Retirement
Account (incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
OTHER INFORMATION PAGE 8
<PAGE> 385
(b) Specimen Agreement for the National Financial Services
Corporation Individual Retirement Account offered through
First of America Securities, Inc. for investment in the
Parkstone Group of Funds (incorporated by reference to
Registrant's Post-Effective Amendment No. 31 filed October
9, 1996).
(15) (a) Investor A Distribution and Shareholder Service Plan
(incorporated by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(i) Participating Organization Agreement between The
Winsbury Company and National Financial Services
Corporation dated October 1, 1993, relating to Investor
A Share distribution and shareholder services for the
U.S. Government Obligations Fund, the Tax-Free Fund,
the Prime Obligations Fund, the Treasury Fund, the
Municipal Investor Fund, the Equity Fund, the Small
Capitalization Fund, the High Income Equity Fund, the
International Discovery Fund, the Balanced Fund, the
Bond Fund, the Limited Maturity Bond Fund, the Michigan
Municipal Bond Fund, the Municipal Bond Fund, the U.S.
Government Income Fund and the Intermediate Government
Obligations Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996).
(a) Amendment to Schedule A dated November 8, 1995
adding the Large Capitalization Fund (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(ii) Participating Organization Agreement between The
Winsbury Company and First of America Bank Corporation
on behalf of its wholly-owned subsidiary banks, dated
October 1, 1993, relating to Investor A Share
distribution and shareholder services for the U.S.
Government Obligations Fund, the Tax-Free Fund, the
Prime Obligations Fund, the Treasury Fund, the
Municipal Investor Fund, the Equity Fund, the Small
Capitalization Fund, the High Income Equity Fund, the
International Discovery Fund, the Balanced Fund, the
Bond Fund, the Limited Maturity Bond Fund, the Michigan
Municipal Bond Fund, the Municipal Bond Fund, the U.S.
Government Income Fund and the Intermediate Government
Obligations Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996).
OTHER INFORMATION PAGE 9
<PAGE> 386
(a) Amendment dated November 8, 1995 adding Exhibit C
to reflect 12b-1 fees charged to each Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9,
1996).
(b) Amendment to Exhibit A dated November 8, 1995
adding the Large Capitalization Fund (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(iii) Participating Organization Agreement between The
Winsbury Company and First of America Securities, Inc.,
as a party and on behalf of its affiliate First of
America Brokerage Services, dated September 21, 1994,
relating to Investor A Share distribution and
shareholder services for the U.S. Government
Obligations Fund, the Tax-Free Fund, the Prime
Obligations Fund, the Treasury Fund, the Municipal
Investor Fund, the Equity Fund, the Small
Capitalization Fund, the High Income Equity Fund, the
International Discovery Fund, the Balance Fund, the
Bond Fund, the Limited Maturity Bond Fund, the Michigan
Municipal Bond Fund, the Municipal Bond Fund, the U.S.
Government Income Fund and the Intermediate Government
Obligations Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996).
(a) Amendment to Exhibit A dated November 8, 1995
adding the Large Capitalization Fund (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(b) Investor B Distribution and Shareholder Service
Plan (incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9,
1996).
(i) Shareholder Services and Financing Agreement between
The Winsbury Company and Security Distributors, Inc.
dated February 1, 1994 relating to Investor B Share
financing assistance and shareholder support services
for the Equity Fund, the Small Capitalization Fund, the
International Discovery Fund, the High Income Equity
Fund, the Balanced Fund, the Bond Fund, the Limited
Maturity Bond Fund, the U.S. Government Income Fund,
the Intermediate Government Obligations Fund, the
Municipal Bond Fund and the Michigan Municipal Bond
OTHER INFORMATION PAGE 10
<PAGE> 387
Fund (incorporated by reference to Registrant's Post-
Effective Amendment No. 31 filed October 9, 1996).
(ii) Service and Commission Agreement between The Winsbury
Company and Security Distributors, Inc., Security
Benefit Group, Inc. and First of America Brokerage
Services dated February 1, 1994, relating to Investor B
Share shareholder support services for the Equity Fund,
the Small Capitalization Fund, the International
Discovery Fund, the High Income Equity Fund, the
Balanced Fund, the Bond Fund, the Limited Maturity Bond
Fund, the U.S. Government Income Fund, the Intermediate
Government Obligations Fund, the Municipal Bond Fund
and the Michigan Municipal Bond Fund (incorporated by
reference to Registrant's Post-Effective Amendment No.
31 filed October 9, 1996).
(iii) Dealer Agreement between The Winsbury Company and
First of America Brokerage Service, Inc. dated February
1, 1994 relating to Investor B Share distribution
services for the Equity Fund, the Small Capitalization
Fund, the International Discovery Fund, the High Income
Equity Fund, the Balanced Fund, the Bond Fund, the
Limited Maturity Bond Fund, the U.S. Government Income
Fund, the Intermediate Government Obligations Fund, the
Municipal Bond Fund and the Michigan Municipal Bond
Fund (incorporated by reference to Registrant's Post-
Effective Amendment No. 31 filed October 9, 1996).
(a) Amendment to Exhibit A dated November 8, 1995
adding the Large Capitalization Fund (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(c) Investor C Distribution and Shareholder Service Plan
(incorporated by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(i) Participating Organization Agreement between The
Winsbury Company and First of America Securities, Inc.
dated September 21, 1994, relating to Investor C Share
distribution and shareholder services for the Equity
Fund, the Small Capitalization Fund, the High Income
Equity Fund, the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government Obligations Fund, the
Michigan Municipal Bond Fund, the Balanced Fund, the
U.S. Government Income Fund and the International
OTHER INFORMATION PAGE 11
<PAGE> 388
Discovery Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996).
(a) Amendment to Exhibit A dated November 8, 1995
adding the Large Capitalization Fund (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(b) Amendment to Exhibit C dated November 8, 1995
adding the Large Capitalization Fund (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(16) (a) Computation of Total Returns for the Small
Capitalization Fund, the Mid Capitalization Fund, the
Large Capitalization Fund, the International Discovery
Fund, the Emerging Markets Fund, the Conservative
Allocation Fund, the Balanced Allocation Fund, the
Aggressive Allocation Fund, the Equity Income Fund, the
Bond Fund, the Limited Maturity Bond Fund, the
Intermediate Government Obligations Fund, the U.S.
Government Income Fund, the Municipal Bond Fund, the
Michigan Municipal Bond Fund, the U.S. Government
Obligations Fund, the Prime Obligations Fund, the
Tax-Free Fund, the Treasury Fund and the Municipal
Investor Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996).
(b) Computation of Yields for the Small Capitalization
Fund, the Mid Capitalization Fund, the Large
Capitalization Fund, the International Discovery Fund,
the Emerging Markets Fund, the Conservative Allocation
Fund, the Balanced Allocation Fund, the Aggressive
Allocation Fund, the Equity Income Fund, the Bond Fund,
the Limited Maturity Bond Fund, the Intermediate
Government Obligations Fund, the U.S. Government Income
Fund, the Municipal Bond Fund, the Michigan Municipal
Bond Fund, the U.S. Government Obligations Fund, the
Prime Obligations Fund, the Tax-Free Fund, the Treasury
Fund and the Municipal Investor Fund (incorporated by
reference to Registrant's Post-Effective Amendment No.
31 filed October 9, 1996).
(c) Computation for Distribution Rates for the Small
Capitalization Fund, the Mid Capitalization Fund, the
Large Capitalization Fund, the International Discovery
Fund, the Emerging Markets Fund, the Conservative
Allocation Fund, the Balanced Allocation Fund, the
Aggressive Allocation Fund, the Equity Income Fund, the
Bond Fund, the Limited Maturity Bond Fund, the
Intermediate Government Obligations Fund, the U.S.
Government Income Fund, the Municipal Bond Fund and the
Michigan Municipal Bond
OTHER INFORMATION PAGE 12
<PAGE> 389
Fund (incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
(17) Financial Data Schedules**
(18) Amended and Restated Rule 18f-3 Multiple Class Plan adopted
by the Board of Trustees on May 22, 1997 (incorporated by
reference to Registrant's Post-Effective Amendment No. 35,
filed July 30, 1997).
(19) (a) Power of Attorney for George R. Landreth, Lawrence D.
Bryan, Robert M. Beam, and Adrian Charles Edwards
(incorporated by reference to Exhibit (17) of
Registrant's Post-Effective Amendment
No. 31 filed October 9, 1996).
(b) Power of Attorney for John B. Rapp (incorporated by
reference to Registrant's Post-Effective Amendment No.
35, filed July 30, 1997).
* The file number for all exhibits incorporated by reference is 33-13283.
** To be filed by amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees, four members of
which also serve as members of the Board of Trustees of the Parkstone
Advantage Fund. As of June 30, 1997, First of America Bank Corporation,
a bank holding company ("FABC") and the parent of First of America
Bank, N.A. (formerly, First of America Bank-Michigan, N.A.), may be
deemed to control the Registrant because of its record ownership and
beneficial ownership through its wholly-owned subsidiaries of more than
25% of the shares of each series of the Registrant outstanding on such
date. In addition to controlling the Registrant, FABC controls, and
therefore the Registrant is under common control with, First of America
Investment Corporation, a Michigan corporation and a wholly-owned
subsidiary of First of America Bank, N.A.
Financial statements for First of America Investment Corporation and
First of America Bank, N.A. are included in FABC's consolidated
financial statements.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of September 2, 1997, the number of record holders of each series of
shares of the Registrant were as follows:
<TABLE>
<CAPTION>
Title of Series Investor A Investor B Investor C Institutional
--------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
U.S. Government Obligations 62 -- -- 3
Fund
Prime Obligations Fund 506 -- -- 109
Tax-Free Fund 28 -- -- 2
</TABLE>
OTHER INFORMATION PAGE 13
<PAGE> 390
<TABLE>
<S> <C> <C> <C> <C>
Treasury Fund 32 -- -- 1
Small Capitalization Fund 15,393 6,980 522 47
Mid Capitalization Fund 7,485 3,481 85 4
Large Capitalization Fund 1,050 780 5 4
International Discovery Fund 6,170 2,680 57 7
Equity Income Fund 7,577 2,677 42 8
Conservative Allocation Fund -- -- -- 3
Balanced Allocation Fund 1,886 746 53 2
Aggressive Allocation Fund -- -- -- 2
Bond Fund 1,767 811 58 5
Limited Maturity Bond Fund 871 138 12 3
Intermediate Government
Obligations Fund 1,215 213 14 3
U.S. Government Income Fund 2,509 1,323 13 5
Municipal Bond Fund 207 26 -- 3
Michigan Municipal Bond Fund 935 134 -- 3
</TABLE>
ITEM 27. INDEMNIFICATION
Article IX Section 9.2 of the Registrant's Declaration of Trust, as
amended, provides for the indemnification of Registrant's Trustees and
officers. Indemnification of the Group's principal underwriter,
custodian, investment adviser, manager and administrator, transfer
agent and fund accountant is provided for, respectively, in Section
1.13 of the Distribution Agreement filed or incorporated by reference
as Exhibit 6(a) hereto, Section 10.1 of the Custody Agreement filed or
incorporated by reference as Exhibit 8(a) hereto and in Section 16 of
the Custodian Agreement filed as Exhibit 8(b) hereto, Section 8 of the
Investment Advisory and Sub-Investment Advisory Agreements filed or
incorporated by reference as Exhibits 5(a), (b), (c) and (d) hereto,
Section 6 of the Administration Agreement filed or incorporated by
reference as Exhibit 9(a) hereto, Section 9 of the Transfer Agency
Agreement, filed or incorporated by reference as Exhibit 9(b) hereto,
and Section 6 of the Fund Accounting Agreement filed or incorporated by
reference as Exhibit 9(c) hereto. As of the date of this Registration
Statement, the Group has obtained from a major insurance carrier a
Trustees' and officers' liability policy covering certain types of
errors and omissions. In no event will Registrant indemnify any of its
Trustees, officers, employees or agents against any liability to which
such person would otherwise be subject by reason of his willful
misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of his reckless disregard of the duties involved
in the conduct of his office or under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities
OTHER INFORMATION PAGE 14
<PAGE> 391
Act of 1933 and Release 11330 under the Investment Company Act of 1940
in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to trustees,
officers, and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
First of America Investment Corporation, Kalamazoo, Michigan ("FIC"),
is the Group's investment adviser. FIC is a Michigan-chartered,
wholly-owned subsidiary of First of America Bank, N.A., Kalamazoo,
Michigan ("FOA"). Although FIC has not, except for the Group,
previously served as an investment adviser to a registered investment
company, FIC currently manages over $12 billion on behalf of both
taxable and tax--exempt clients, including pensions, endowments,
corporations, individual portfolios and the Group. FIC acts as
subadviser to the Trust Division of First of America Bank Corporation
with respect to $3.6 billion in discretionary assets, providing equity,
fixed income, balanced and money management services.
To the knowledge of Registrant, none of the directors or officers of
FIC is or has been at any time during the past two fiscal years engaged
in any other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers of FIC
also hold positions with FIC's parent, FOA, or First of America Bank
Corporation (FOA's parent) or other subsidiaries.
ITEM 29. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services Limited Partnership, formerly known as The
Winsbury Company Limited Partnership ("BISYS") acts as
distributor and administrator for Registrant. BISYS also
distributes the securities of American Performance Funds, AmSouth
Mutual Funds, The ARCH Fund, Inc., The BB&T Mutual Funds Group,
The Coventry Group, Empire Builder Tax Free Bond Fund, First
Choice Funds Trust, Fountain Square Funds, Hirtle Callaghan
Trust, HSBC Family of Funds, The Infinity Mutual Funds, Inc.,
Intrust Funds, The Kent Funds, MarketWatch Funds, Meyers Sheppard
Investment Trust, Minerva Funds, The MMA Praxis Mutual Funds,
M.S.D.&T. Funds, Pacific Capital Funds, The Parkstone Advantage
Fund, Pegasus Funds, Qualivest Funds, The Republic Funds Trust,
The Republic Advisors Funds Trust, The Riverfront Funds, Inc.,
SBSF
OTHER INFORMATION PAGE 15
<PAGE> 392
Funds, Inc., Sefton Funds, The Sessions Group, Summit
Investment Trust, The Time Horizon Funds and The Victory
Portfolios, each of which is an investment management
company.
(b) Directors, officers and partners of BISYS, as of June 30,
1997, were as follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with BISYS Offices with
Business Address Fund Services, L.P. Registrant
- --------------------------------------------------------------------------------
<S> <C> <C>
The BISYS Group, Inc. Sole Shareholder of None
150 Clove Road BISYS Fund Services,
Little Falls, NJ 07424 Inc. and Sole Limited
Partner
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219 Sole General Partner None
</TABLE>
(c) Compensation to BISYS during the fiscal year ended June 30, 1996
was as follows:
<TABLE>
<CAPTION>
Net Underwriting Compensation on
Discounts and Redemption and Brokerage Other
Commissions Repurchase Commissions Compensation
- ----------- ---------- ----------- ------------
<S> <C> <C> <C>
$ -0- $ -0- $ -0- $ -0-
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(a) First of America Investment Corporation, 303 North Rose Street,
Kalamazoo, Michigan 49007 (records relating to its functions as
investment adviser); Gulfstream Global Investors, Ltd., 100
Crescent Court, Suite 550, Dallas, Texas 75201 (records relating
to certain functions of the subadviser for the International
Discovery Fund, Conservative Allocation Fund, Balanced Allocation
Fund and Aggressive Allocation Fund).
(b) BISYS Fund Services, L.P., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to its functions as general manager,
administrator and distributor).
(c) Howard & Howard, 1400 North Woodward Avenue, Suite 101,
Bloomfield Hills, Michigan 48304-2856 (Declaration of Trust, Code
of Regulations, and Minute Books).
(d) Union Bank of California, N.A., 475 Sansome Street, San
Francisco, California 94111 (records relating to its functions as
custodian).
OTHER INFORMATION PAGE 16
<PAGE> 393
(e) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus,
Ohio 43219 (records relating to its functions as transfer
agent and fund accountant).
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to furnish to each person to whom
a prospectus is delivered a copy of Registrant's latest Annual
Report to Shareholders upon request and without charge.
(b) Registrant hereby undertakes to file a post-effective
amendment within four to six months from the effective date of
this registration statement to provide financial information
with respect to Investor B Shares of the Prime Obligations
Fund.
OTHER INFORMATION PAGE 17
<PAGE> 394
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Columbus and the State of Ohio on the
30th day of September, 1997.
THE PARKSTONE GROUP OF FUNDS
By: /s/ George R. Landreth
---------------------------------
George R. Landreth, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ George R. Landreth
- -------------------------
George R. Landreth Trustee September 30, 1997
John B. Rapp* Trustee
Robert M. Beam* Trustee
Lawrence D. Bryan* Trustee
Adrian Charles Edwards* Trustee
*By: /s/ George R. Landreth
---------------------------
George R. Landreth
Attorney-in-Fact September 30, 1997
<PAGE> 395
EXHIBIT INDEX
Exhibit No.
- -----------
(11) (a) Consent of Coopers & Lybrand L.L.P.
(b) Consent of Howard & Howard Attorneys, P.C.
<PAGE> 1
EXHIBIT 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 36 to the Registration Statement of the Parkstone Group of Funds on Form
N-1A (File No. 33-13283) of our report dated August 25, 1997 on our audits of
the financial statements and financial highlights of the Parkstone Group of
Funds (comprising, respectively, the Prime Obligations Fund, the U.S.
Government Obligations Fund, the Tax-Free Fund, the Treasury Fund, the Small
Capitalization Fund, the Mid Capitalization Fund, (formerly the Equity Fund),
the Large Capitalization Fund, the International Discovery Fund, the Limited
Maturity Bond Fund, the Intermediate Government Obligations Fund, the U.S.
Government Income Fund, the Bond Fund, the Municipal Bond Fund, the Michigan
Municipal Bond Fund, the Conservative Allocation Fund, the Balanced Allocation
Fund, the Aggressive Allocation Fund, and the Equity Income Fund (formerly the
High Income Equity Fund)) as of June 30, 1997 and for the periods then ended
referred to in our report. We also consent to the references to our firm under
the caption "Financial Highlights" in the Prospectuses for Investor A Shares,
Investor B Shares, Investor C Shares, and Institutional Shares and under the
captions "Independent Auditors" and "Financial Statements" in the Statement of
Additional Information in this Post-Effective Amendment No. 36 to the
Registration Statement of the Parkstone Group of Funds on Form N-1A (File No.
33-13283).
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
September 30, 1997
<PAGE> 1
Exhibit 11(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our firm
under the caption "Legal Counsel" included in or made a part of the
post-effective Amendment No. 36 to the Registration Statement on Form N-1A,
File No. 33-13283, filed under the Securities Act of 1933, as amended, and
Amendment No. 38 to the Registration Statement on Form N-1A, File No. 811-5105,
filed under the Investment Company Act of 1940, as amended, of the Parkstone
Group of Funds.
Bloomfield Hills, Michigan HOWARD & HOWARD ATTORNEYS, P.C.
September 30, 1997
By: /s/ Melanie Mayo West
--------------------------
MELANIE MAYO WEST
