<PAGE>
The Parkstone Mutual Funds
U.S. Government Income Fund
Supplement dated December 16, 1996 to
Annual Report dated June 30, 1996
Page 24 of the annual report is replaced in its entirety with the
following:
================================================================================
Portfolio Performance Discussion, continued
- --------------------------------------------------------------------------------
THE PARKSTONE MUTUAL FUNDS JUNE 30, 1996
The U.S. Government Income Fund
Some fixed-income investments suffered less than others as interest rates rose
in the first half of 1996. Lackluster performers in the low-rate environment of
1995, mortgage-backed securities bounced back as interest rates rose and
prepayment fears vanished. Concentrated in higher-yielding, mortgage pass-
through securities issued by U.S. Government agencies, the Fund performed well
as mortgage-backed securities recovered strongly. Moreover, the portfolio's core
holdings of seasoned, high-coupon paper (primarily small, government-assisted
loans paying between 12% and 16%), maintained their value despite the volatility
of the environment, making a substantial contribution to performance.
As a result, we are very pleased to report that for the year ended June 30,
1996, the Fund produced a total return of 5.97% (Investor A Shares).+
As of June 30, 1996, approximately 69% of the Fund's assets were invested in
mortgage-backed securities and commercial mortgage obligations, with 31% in U.S.
Treasury and agency securities.++ Since we expect interest rates to rise
slightly in the months ahead, we believe mortgage-backed securities will
continue to perform well. As a result, we do not anticipate making any major
changes in the Fund's allocation or maturity structure in the near term.
- -------------------------
+ The total return with the maximum sales charge of 4.00% was 1.76% for the
period.
++ The composition of the Fund's portfolio is subject to change.
U.S. GOVERNMENT INCOME FUND
Value of $10,000 Investment
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Investor A* Institutional Salomon 1-10 Year Treasury
<S> <C> <C> <C>
11/92 9,597 10,000 10,000
6/93 10,110 10,537 10,677
6/94 10,205 10,647 10,661
6/95 11,069 11,573 11,689
6/96 11,730 12,307 12,863
</TABLE>
Average Annual Total Return
As of June 30, 1996
- ------------------------------------------------
<TABLE>
<CAPTION>
Since
1 Year Inception
(11/12/92)
- ------------------------------------------------
<S> <C> <C>
Investor A* 1.76% 4.49%
- ------------------------------------------------
Institutional 6.34% 5.88%
- ------------------------------------------------
* Reflects 4.00% Sales Charge
</TABLE>
24
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE ANNUAL REPORT FOR FUTURE
REFERENCE
<PAGE>
The Parkstone Mutual Funds
U.S. Government Income Fund
Supplement dated December 16, 1996 to
Annual Report dated June 30, 1996
Page 25 of the annual report is replaced in its entirety with the following:
================================================================================
Portfolio Performance Discussion, continued
- --------------------------------------------------------------------------------
THE PARKSTONE MUTUAL FUNDS JUNE 30, 1996
U.S. GOVERNMENT INCOME FUND
[LINE GRAPH OF VALUE OF $10,000 INVESTMENT APPEARS HERE]
<TABLE>
<CAPTION>
Value of $10,000 Investment
Investor B** Salomon 1-10 Year Treasury
(In Dollars)
<S> <C> <C>
2/94 10,000 10,000
6/94 9,394 9,669
6/95 10,148 10,601
6/96 10,798 11,118
</TABLE>
Average Annual Total Return
As of June 30, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------
Since
1 Year Inception
(2/4/94)
- ------------------------------------------------
<S> <C> <C>
Investor B** 1.30% 3.24%
- ------------------------------------------------
</TABLE>
** Reflects Applicable Contingent Deferred
Sales Charge
[LINE GRAPH OF VALUE OF $10,000 INVESTMENT APPEARS HERE]
<TABLE>
<CAPTION>
Value of $10,000 Investment
Investor C*** Salomon 1-10 Year Treasury
(In Dollars)
<S> <C> <C>
11/92 10,000 10,000
6/93 10,437 10,677
6/94 10,647 10,661
6/95 11,207 11,689
6/96 11,795 12,863
</TABLE>
Average Annual Total Return
As of June 30, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------
Since
1 Year Inception
(11/12/92)
- ------------------------------------------------
<S> <C> <C>
Investor C*** 5.25% 4.65%
- ------------------------------------------------
</TABLE>
*** Reflects Applicable Contingent Deferred
Sales Charge
The Fund's performance is compared to the Salomon Brothers 1-10 Year Treasury
Index, which represents the performance of Treasury bonds in that maturity
range. The index is unmanaged and does not reflect the deduction of fees
associated with a mutual fund, such as investment management and fund accounting
fees. The performance of the Parkstone U.S. Government Income Fund reflects the
deduction of fees for these value-added services. Past performance is not
predictive of future results. The investment return and NAV will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than their
original cost.
25
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE ANNUAL REPORT FOR
FUTURE REFERENCE
<PAGE>
The Parkstone Mutual Funds
Michigan Municipal Bond Fund
Supplement dated December 16, 1996 to
Annual Report dated June 30, 1996
Page 29 of the annual report is replaced in its entirety with the following:
================================================================================
Portfolio Performance Discussion, continued
- --------------------------------------------------------------------------------
THE PARKSTONE MUTUAL FUNDS JUNE 30, 1996
MICHIGAN MUNICIPAL BOND FUND
[LINE GRAPH OF VALUE OF $10,000 INVESTMENT APPEARS HERE]
<TABLE>
<CAPTION>
Value of $10,000 Investment
(In Dollars)
Shearson 3-15
Investor A* Institutional Year Municipal
<S> <C> <C> <C>
7/90 9,597 10,000 10,000
6/91 10,247 10,677 10,884
6/92 11,244 11,716 12,065
6/93 12,301 12,820 13,338
6/94 12,414 12,951 13,487
6/95 13,282 13,900 14,608
6/96 13,928 14,612 15,499
</TABLE>
Average Annual Total Return
As of June 30, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------
Since
1 Year 5 Years Inception
(7/2/90)
- ------------------------------------------------
<S> <C> <C> <C>
Investor A* 0.65% 5.47% 5.68%
- ------------------------------------------------
Institutional 5.12% 6.47% 6.52%
- ------------------------------------------------
</TABLE>
* Reflects 4.00% Sales Charge
[LINE GRAPH OF VALUE OF $10,000 INVESTMENT APPEARS HERE]
<TABLE>
<CAPTION>
Value of $10,000 Investment
(In Dollars)
Shearson 3-15
Investor B** Year Municipal
<S> <C> <C>
2/94 10,000 10,000
6/94 9,251 9,566
6/95 9,848 10,405
6/96 10,659 11,040
</TABLE>
Average Annual Total Return
As of June 30, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------
Since
1 Year Inception
(2/4/94)
- ------------------------------------------------
<S> <C> <C>
Investor B** 0.13% 1.51%
- ------------------------------------------------
</TABLE>
** Reflects Applicable Contingent Deferred
Sales Charge
The Fund's performance is compared to the Shearson 3-15 year Municipal Index,
which represents the performance of municipal bonds in that maturity range. The
index is unmanaged and does not reflect the deduction of fees associated with a
mutual fund, such as investment management and fund accounting fees. The
performance of the Parkstone Michigan Municipal Bond Fund reflects the deduction
of fees for these value-added services. Past performance is not predictive of
future results. The investment return and NAV will fluctuate, so that an
investors shares, when redeemed, may be worth more or less than the original
cost.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE ANNUAL REPORT FOR
FUTURE REFERENCE
29
<PAGE>
The Parkstone Group of Funds
Large Capitalization Fund
Supplement dated December 16, 1996 to
Annual Report dated June 30, 1996
Page 114 of the annual report is replaced in its entirety with the following:
Financial Highlights
- --------------------------------------------------------------------------------
THE PARKSTONE GROUP OF FUNDS
<TABLE>
<CAPTION>
Large Capitalization Fund
------------------------------------------------------------------
December 28, 1995 to June 30, 1996(a)
------------------------------------------------------------------
Investor A Investor B Investor C Institutional
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...................................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- --------
Investment Activities
Net investment income (loss)............................. 0.03 0.01 -- 0.03
Net realized and unrealized gains from investments....... 1.23 1.23 1.17 1.25
-------- -------- -------- --------
Total from Investment Activities........................ 1.26 1.24 1.17 1.28
-------- -------- -------- --------
Distributions
Net investment income.................................... (0.03) (0.02) -- (0.03)
In excess of net investment income....................... -- -- (0.01) --
-------- -------- -------- --------
Total Distributions..................................... (0.03) (0.02) (0.01) (0.03)
-------- -------- -------- --------
Net Asset Value,
End of Period............................................ $ 11.23 $ 11.22 $ 11.16 $ 11.25
======== ======== ======== ========
Total Return (excludes sales and redemption charges)...... 8.99% 8.77% 8.14% 12.86%
Ratios/Supplementary Data:
Net Assets at end of period (000)......................... $ 1,657 $ 832 $ 2 $274,150
Ratio of expenses to average net assets................... 1.40%(b) 1.78%(b) 2.24%(b) 1.13%(b)
Ratio of net investment income (loss) to
average net assets........................................ 0.31%(b) (0.32)%(b) (0.45)%(b) 0.68%(b)
Ratio of expenses to average net assets *................. 2.62%(b) 4.07%(b) 4.25%(b) 1.15%(b)
Ratio of net investment income (loss) to
average net assets *...................................... (0.91)%(b) (2.61)%(b) (2.46)%(b) 0.63%(b)
Portfolio turnover (c).................................... 0.86% 0.86% 0.86% 0.86%
Average commission rate paid (d).......................... $ 0.0800 $ 0.0800 $ 0.0800 $ 0.0800
</TABLE>
- ----------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(d) 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.
See notes to financial statements.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE ANNUAL REPORT FOR FUTURE
REFERENCE.
114
