<PAGE> 1
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES PROSPECTUS dated DECEMBER 6, 1997
INVESTOR B SHARES as amended December 19, 1997
INVESTOR C SHARES
INSTITUTIONAL SHARES
Parkstone Emerging Markets 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 Parkstone Emerging Markets Fund (the "Emerging Markets Fund" or the "Fund")
is one of the currently-offered series of The Parkstone Group of Funds (the
"Group"). The Emerging Markets Fund offers five classes of shares. This
Prospectus explains concisely what you should know before investing in Investor
A Shares, Investor B Shares, Investor C Shares or Institutional Shares of the
Emerging Markets Fund. Please read it carefully and keep it for future
reference. You can find more detailed information about the Emerging Markets
Fund contained in the Statement of Additional Information dated September 30,
1997, as amended December 6, 1997 and December 19, 1997, and as may be further
amended or supplemented 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--Parkstone Emerging Markets Fund
<PAGE> 2
<TABLE>
<CAPTION>
T A B L E OF C O N T E N T S
<S> <C>
PROSPECTUS SUMMARY........................................................... 4
FEE TABLES (INVESTOR A SHARES)............................................... 7
FEE TABLES (INVESTOR B SHARES)............................................... 9
FEE TABLES (INVESTOR C SHARES)...............................................11
FEE TABLES (INSTITUTIONAL SHARES)............................................13
INVESTMENT OBJECTIVE AND POLICIES............................................15
RISK FACTORS AND INVESTMENT TECHNIQUES.......................................16
INVESTMENT RESTRICTIONS......................................................24
MANAGEMENT OF THE FUND.......................................................26
HOW TO BUY INVESTOR A, INVESTOR B, OR INVESTOR C SHARES......................34
HOW TO BUY INSTITUTIONAL SHARES..............................................37
SALES CHARGES................................................................38
REDUCED SALES CHARGES - INVESTOR A SHARES....................................40
CONTINGENT DEFERRED SALES CHARGES............................................42
DIRECTED DIVIDEND OPTION.....................................................43
EXCHANGE PRIVILEGE...........................................................44
FACTORS TO CONSIDER WHEN SELECTING INVESTOR B SHARES OR
INVESTOR C SHARES..........................................................45
CONVERSION FEATURE...........................................................46
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS.....................................47
HOW TO REDEEM YOUR INVESTOR A, INVESTOR B, OR
INVESTOR C SHARES..........................................................48
HOW TO REDEEM YOUR INSTITUTIONAL SHARES......................................50
HOW SHARES ARE VALUED........................................................51
DIVIDENDS AND TAXES..........................................................52
PERFORMANCE INFORMATION......................................................53
FUNDATA(R)...................................................................54
GENERAL INFORMATION..........................................................54
</TABLE>
PAGE 2
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 3
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which, as of the date of this Prospectus, offers nineteen separate
investment portfolios (the "Funds"), eighteen of which are diversified
portfolios and one of which is a non-diversified portfolio, each with different
investment objectives. These Funds enable the Group to meet a wide range of
investment needs.
This Prospectus relates only to the Parkstone Emerging Markets Fund (the
"Fund").
The Trustees of the Group have divided beneficial ownership of each of the Funds
into an unlimited number of transferable units called shares. The Trustees of
the Group have divided the Fund's beneficial ownership into an unlimited number
of transferable units called shares. The Fund offers five classes of shares,
four of which are described in this Prospecutus. The fifth class of shares of
the Fund, Investor Z Shares, are described in a separate Prospectus. 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 objective of the Emerging Markets Fund is described in this
Prospectus and 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 Emerging Markets Fund, First of
America has entered into a sub-investment advisory agreement with Gulfstream
Global Investors, Ltd., Dallas, Texas ("Gulfstream" or the "Subadviser").
PAGE 3
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 4
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Investor A Shares, Investor B Shares, Investor C
Shares and Institutional Shares of the Emerging Markets Fund.
The Emerging Markets Fund represents one separate diversified investment
portfolio of The Parkstone Group of Funds, a Massachusetts business trust (the
"Group") which is registered as an open-end, management investment company.
Purchase and Redemption of Shares
The public offering price of Investor A Shares of the Fund is equal to the net
asset value per share plus a sales charge equal to 4.50% of the public offering
price (4.71% of the net amount invested). The public offering price is reduced
when the amount of the transaction at the total public offering price is $50,000
or more (see "SALES CHARGES - Investor A Shares"). Under certain circumstances,
the sales charge may be eliminated (see "REDUCED SALES CHARGES Investor A Shares
- - Sales Charge Waivers"). Investor A Shares may be purchased by mail or
telephone, through a broker-dealer who has entered into an agreement with the
Group's Distributor, 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. Investor A Shares may be redeemed by contacting the Transfer
Agent or through the Group's Auto Withdrawal Plan. See "HOW TO BUY INVESTOR A,
INVESTOR B OR INVESTOR C SHARES," "EXCHANGE PRIVILEGE," "HOW TO REDEEM INVESTOR
A, INVESTOR B OR INVESTOR C SHARES" AND "HOW SHARES ARE VALUED."
The public offering price of Investor B Shares of the Fund is equal to the net
asset value per share, but investors 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. Investor B Shares may be purchased by mail or
telephone, through a broker-dealer who has entered into an agreement with BISYS
Fund Services, L.P. ("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. Investor B Shares may be redeemed by
contacting the Transfer Agent or through the Group's Auto Withdrawal Plan. See
"HOW TO BUY INVESTOR A, INVESTOR B, OR INVESTOR C SHARES," "EXCHANGE PRIVILEGE,"
"HOW TO REDEEM INVESTOR A, INVESTOR B, INVESTOR C SHARES" AND "HOW SHARES ARE
VALUED."
The public offering price of Investor C Shares of the 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 such shares are redeemed prior to one year from
the date of purchase. Investor C Shares may be purchased by mail or telephone,
through a broker-dealer who has entered into an agreement with the Group's
Distributor, through the Group's Auto Invest Plan or through certain Parkstone
PAGE 4
<PAGE> 5
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. Investor C Shares may be redeemed by contacting the
Transfer Agent or through the Group's Auto Withdrawal Plan. See "HOW TO BUY
INVESTOR A, INVESTOR B, OR INVESTOR C SHARES," "EXCHANGE PRIVILEGE," "HOW TO
REDEEM INVESTOR A, INVESTOR B, OR INVESTOR C SHARES" AND "HOW SHARES ARE
VALUED."
The public offering price of Institutional Shares of the Fund is equal to the
net asset value per share. There are no initial or contingent deferred sales
charges on Institutional Shares. Institutional Shares may be purchased through
procedures established by the Group's Distributor. Holders of Institutional
Shares or 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 purchasers of Investor A Shares, Investor B Shares and Investor C Shares,
there is a $1,000 minimum initial purchase (based upon the public offering
price) with no minimum subsequent investment. 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 the Fund, although such
investors are subject to a $50 minimum for each subsequent investment in the
Fund. Investor B Shares must be purchased in amounts less than $250,000.
For financial institutions purchasing Institutional Shares, 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 Objective
The Fund seeks long-term growth of capital from a portfolio of equity securities
of companies in emerging markets.
Investment Policies
Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities of emerging markets issuers, consisting of common
and preferred stocks. As used in this Prospectus, the term "emerging market"
includes any country which is generally considered to be an emerging or
developing country by the World Bank, the International Finance Corporation, the
United Nations or its authorities.
PAGE 5
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 6
Risk Factors and Special Considerations
An investment in a mutual fund such as the Fund involves a certain amount of
risk and may not be suitable for all investors. In addition, some investment
policies of the Fund may entail certain risks. See "RISK FACTORS AND INVESTMENT
TECHNIQUES."
Management of the Funds
First of America serves as investment adviser and 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, monthly. Net
realized capital gains are distributed at least annually. The Directed Dividend
Option (available for Investor A Shares, Investor B Shares and Investor C Shares
only) enables shareholders to have dividends and capital gains paid by check, or
reinvested automatically without payment of sales charges. See "DIRECTED
DIVIDEND OPTION." The Fund 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.
PAGE 6
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 7
FEE TABLES (INVESTOR A SHARES)
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge (as a percentage of the offering price)(1)........................................ 4.50%
Sales Charge on Reinvested Distributions............................................................... None
Deferred Sales Charge on Redemptions................................................................... None
Redemption Fees(2)..................................................................................... 0.00%
Exchange Fees.......................................................................................... None
</TABLE>
(1) The sales charge may be eliminated under certain circumstances. (See
"REDUCED SALES CHARGES - Sales Charge Waivers.")
(2) Although no such fee 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
---- ---- -------------- -----------
<S> <C> <C> <C> <C>
Emerging Markets Fund 1.25% 0.25% 0.53% 2.03%
</TABLE>
(3) Estimated.
The annual percentages of Management Fees and Total Expenses for Investor A
Shares of the Emerging Markets Fund are based on expected fees and expenses.
(See "MANAGEMENT OF THE FUND - Investment Adviser and Subadviser" and
"Administrator, Sub-Administrator and Distributor").
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted under the rules of the National Association of
Securities Dealers, Inc.
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Investor A Shares, assuming 5% annual return with or without
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 3
YEAR YEARS
<S> <C> <C>
Emerging Markets Fund $65 $106
</TABLE>
PAGE 7
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 8
The information set forth in the foregoing Fee Tables and expense examples
relates only to Investor A Shares of the Fund. The Fund also offers other
classes of shares. The other classes of shares of the Fund are subject to the
same expenses except that for Investor Z Shares, only advisory and custodian
fees are charged, and for other share classes, Rule 12b-1 fees and sales charges
may be higher or lower.
The purpose of the above tables is to assist a potential purchaser of Investor A
Shares of the 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, Gulfstream or any of their
affiliates to its customer accounts which may invest in Investor A Shares of the
Fund. See "MANAGEMENT OF THE FUND," "GENERAL INFORMATION" and "SALES CHARGES"
for a more complete discussion of the shareholder transaction expenses and
annual operating expenses of the Fund. 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.
PAGE 8
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 9
FEE TABLES (INVESTOR B SHARES)
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<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%
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. (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
---- ---- --------------- --------------
<C> <C> <C> <C>
Emerging Markets Fund 1.25% 1.00% 0.53% 2.78%
</TABLE>
(3) Estimated.
The annual percentages of Management Fees and Total Expenses for Investor B
Shares of the Emerging Markets Fund are based on expected fees and expenses.
(See "MANAGEMENT OF THE FUND - Investment Adviser and Subadviser" and
"Administrator, Sub-Administrator and Distributor").
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted under the rules of the National Association of
Securities Dealers, Inc.
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 3
YEAR YEARS
<S> <C> <C>
Emerging Markets Fund $78 $126
</TABLE>
PAGE 9
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 10
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 3
YEAR YEARS
<S> <C> <C>
Emerging Markets Fund $28 $86
</TABLE>
The information set forth in the foregoing Fee Tables and expense examples
relates only to Investor B Shares of the Fund. The Fund also offers other
classes of shares. The other classes of shares of the Fund are subject to the
same expenses except that for Investor Z Shares, only advisory and custodian
fees are charged, and for other share classes, Rule 12b-1 fees and sales charges
may be higher or lower.
The purpose of the above tables is to assist a potential purchaser of Investor B
Shares of the 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, Gulfstream or any of their
affiliates to its customer accounts which may invest in Investor B Shares of the
Fund. See "MANAGEMENT OF THE FUND," "GENERAL INFORMATION" and "SALES CHARGES"
for a more complete discussion of the shareholder transaction expenses and
annual operating expenses of the Fund. 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.
PAGE 10
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 11
FEE TABLES (INVESTOR C SHARES)
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<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
---- ---- -------------- --------------
<S> <C> <C> <C> <C>
Emerging Markets Fund 1.25% 1.00% 0.53% 2.78%
</TABLE>
(3) Estimated.
The annual percentages of Management Fees and Total Expenses for Investor C
Shares of the Emerging Markets Fund are based on expected fees and expenses.
(See "MANAGEMENT OF THE FUND - Investment Adviser and Subadviser" and
"Administrator, Sub-Administrator and Distributor").
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted under the rules of the National Association of
Securities Dealers, Inc.
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
1 YEAR
YEAR (NOT 3
(REDEEMED) REDEEMED) YEARS
<S> <C> <C> <C>
Emerging Markets Fund $38 $28 $86
</TABLE>
PAGE 11
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 12
The information set forth in the foregoing Fee Tables and expense examples
relates only to Investor C Shares of the Fund. The Fund also offers other
classes of shares. The other classes of shares of the Fund are subject to the
same expenses except that for Investor Z Shares, only advisory and custodian
fees are charged, and for other share classes, Rule 12b-1 fees and sales charges
may be higher or lower.
The purpose of the above tables is to assist a potential purchaser of Investor C
Shares of the 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, Gulfstream or any of their
affiliates to its customer accounts which may invest in Investor C Shares of the
Fund. See "MANAGEMENT OF THE FUND," "GENERAL INFORMATION" and "SALES CHARGES"
for a more complete discussion of the shareholder transaction expenses and
annual operating expenses of the Fund. 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.
PAGE 12
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 13
FEE TABLES (INSTITUTIONAL SHARES)
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<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(3)
---------- ----- -------------- ---------------
<S> <C> <C> <C> <C>
Emerging Markets Fund............................ 1.25% 0.00% 0.53% 1.78%
</TABLE>
(2) Estimated.
(3) Certain purchases of the Fund through financial institutions may be subject
to fees for additional services provided to investors.
The annual percentages of Management Fees and Total Expenses for Institutional
Shares of the Emerging Markets Fund are based on expected fees and expenses.
(See "MANAGEMENT OF THE FUND - Investment Adviser and Subadviser" and
"Administrator, Sub-Administrator and Distributor").
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted under the rules of the National Association of
Securities Dealers, Inc.
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
YEAR YEARS
<S> <C> <C>
Emerging Markets Fund...................... $18 $56
</TABLE>
PAGE 13
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 14
The information set forth in the foregoing Fee Table and expense example relates
only to Institutional Shares of the Fund. The Fund also offers other classes of
shares. The other classes of shares of the Fund are subject to the same expenses
except that for Investor Z Shares, only advisory and custodian fees are charged,
and for other share classes, 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 the Fund will bear directly or indirectly. Such expenses do
not include any fees charged by a financial institution, including First of
America, Gulfstream or any of their affiliates, to its customer accounts which
may invest in Institutional Shares of the Fund. See "MANAGEMENT OF THE FUND" and
"GENERAL INFORMATION" for a more complete discussion of the annual operating
expenses of the Fund. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
PAGE 14
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 15
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The investment objective of the Fund, as set forth below, is fundamental and may
not be changed without a vote of the holders of a majority of the outstanding
shares of the Fund (as defined in the Statement of Additional Information). The
investment policies of the Fund may be changed without a vote of the holders of
a majority of outstanding shares of the Fund unless the policy is expressly
deemed to be a fundamental policy or changeable by such majority vote. There can
be no assurance that the investment objective of the Fund will be achieved.
Depending upon the performance of the Fund's investments, the net asset value
per share of the Fund may decrease instead of increase. The Fund is available
for investors who seek to diversify their investments by adding international
equities. The Fund's investments in securities of foreign issuers, particularly
issuers in emerging markets, involve foreign investment risks and may be more
volatile and less liquid than domestic securities.
During temporary defensive periods as determined by First of America or
Gulfstream, the Fund may hold up to 100% of its total assets in short-term
obligations including domestic bank certificates of deposit, bankers'
acceptances and repurchase agreements secured by bank instruments. However, to
the extent that the Fund is so invested, its investment objective may not be
achieved during that time. Uninvested cash reserves will not earn income.
THE EMERGING MARKETS FUND
THE EMERGING MARKETS FUND SEEKS LONG-TERM GROWTH OF CAPITAL FROM A PORTFOLIO OF
EQUITY SECURITIES OF COMPANIES IN EMERGING MARKETS.
Under normal market conditions, the Fund will invest at least 65% of the value
of its total assets in equity securities of emerging markets issuers, consisting
of common and preferred stocks. The Fund may receieve distributions from an
issuer of other securities with equity characteristics, such as warrants, rights
and convertible securities, but will not purchase such securities directly. The
Fund's primary equity investments are the common stock of companies in the
emerging markets countries which Gulfstream has identified as attractive. The
assets of the Fund ordinarily will be invested in the securities of issuers in
at least three different emerging markets countries. The common stock in which
the Fund may invest includes the common stock of any class or series or any
similar equity interest such as trust or a limited partnership interest. The
Fund invests in securities listed on securities exchanges, traded in
over-the-counter markets, and may invest in certain restricted or unlisted
securities.
The Fund is designed for long-term investors who want exposure to the rapidly
growing emerging markets. THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT
PROGRAM NOR IS THE FUND SUITABLE FOR ALL INVESTORS. Many investments in emerging
markets can be considered speculative, and therefore may offer higher potential
for gains and losses and may be more volatile than investments in the developed
markets of the world. See "RISK FACTORS AND INVESTMENT TECHNIQUES" for more
information.
As used in this Prospectus, the term "emerging market" includes any country
which is generally considered to be an emerging or developing country by the
World Bank, the International Finance Corporation, the United Nations or its
authorities. These countries generally include every
PAGE 15
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 16
country in the world except Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States.
The Fund will focus its investments in those emerging markets countries which it
believes have strongly developing economies and in which the markets are
becoming more sophisticated.
A company in an emerging market is one that: (i) has its principal securities
trading market in an emerging market country; (ii) is organized under the laws
of, and with a principal office in, an emerging market; or (iii) (alone or on a
consolidated basis) derives 50% or more or more of its total revenue from either
goods produced, sales made or services performed in emerging markets.
Gulfstream seeks to achieve the Fund's investment objective by a disciplined
process of company selection and country allocation. The stock selection
process is characterized by a disciplined approach common to all markets and is
driven by fundamental securities analysis involving company visits, risk
analysis, price valuation, technical analysis, database screening and external
research sources. This process leads to a universe of stocks with the following
characteristics: strong balance sheets, high return on equity and low debt.
Once these quality companies are identified, Gulfstream purchases their
securities. The price at which Gulfstream will make such purchases is
determined by a valuation method that requires a company's price/earnings
multiple relative to its growth rate to be less than the same measure for
the local market. Gulfstream intends to purchase securities of companies that
are growing faster than the market and selling for less than the market. The
country allocation process serves as a systematic risk control mechanism and
involves a determination of each country's relative investment attractiveness.
Within these guidelines, portfolios are constructed based on stock selection.
The Fund intends to manage its portfolio actively in pursuit of its investment
objective. The Fund does not expect to trade in securities for short-term
profits; however, when circumstances warrant, securities may be sold without
regard to the length of time held. To the extent the Fund engages in short-term
trading, it may incur increased transaction costs.
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in the Fund entails certain risks.
The Fund will not acquire portfolio securities issued by, make savings deposits
in, or enter into repurchase or reverse repurchase agreements with First of
America Bank, 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.
FOREIGN CURRENCY TRANSACTIONS
The value of the assets of the Fund as measured in United States dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Fund may incur costs in connection
with conversions between various currencies. The 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
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PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 17
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 Fund may enter
into forward currency contracts in order to hedge against adverse movements in
exchange rates between currencies.
For example, when the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, the
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when the Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of the Fund's portfolio securities or other assets denominated in such foreign
currency. Alternatively, when the 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. The Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions. The forecasting of short-term
currency market movement is extremely difficult and whether such a short-term
hedging strategy will be successful is highly uncertain.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a forward currency contract. Accordingly, it may
be necessary for the Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the 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 the 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, the 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, the 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 Fund 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
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PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 18
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies.
The Fund does not intend 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. The Fund also will not enter into forward currency
contracts or maintain a net exposure on such contracts where the 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
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 the 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 the Fund's securities denominated in that currency.
Such changes will also affect the Fund's income and distributions to
shareholders. In addition, although the Fund will receive income on foreign
securities in such currencies, the Fund will be required to compute and
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PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 19
distribute its income in U.S. dollars. Therefore, if the exchange rate for any
such currency declines materially after the 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 the 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.
Investments in securities of issuers in emerging markets countries may involve a
high degree of risk and many may be considered speculative. These investments
carry all of the risks of investing in securities of foreign issuers described
above to a heightened degree. These heightened risks include (i) greater risk of
expropriation, confiscatory taxation, nationalization and less social, political
and economic stability; (ii) the small current size of the markets for
securities of emerging market issuers and the current low or non-existent volume
of trading, resulting in lack of liquidity and in price volatility; (iii)
certain national policies which may restrict the Fund's investment opportunities
including restrictions on investing in issuers or industries deemed sensitive to
relevant national interests; and (iv) the absence of developed legal structures
governing private or foreign investment and private property.
U.S. dollar-denominated American Depositary Receipts, or 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, the 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, which standards 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 Fund may also invest in European
Depository Receipts, or EDRs, which are receipts evidencing an arrangement with
a European bank similar to that for ADRs and are 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, the Fund 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
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PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 20
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 Fund may also enter into contracts for the future delivery of securities or
foreign currencies and futures contracts based on a specific security, class of
securities, foreign currency or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index is an agreement obligating either party to pay, and
entitling the other party to receive, while the contract is outstanding, cash
payments based on the level of a specified securities index.
The Fund may engage in such futures contracts in an effort to hedge against
market risks. For example, when interest rates are expected to rise or market
values of portfolio securities are expected to fall, the Fund can seek through
the sale of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, the 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. Gains and losses on
investments in futures depend on the ability of First of America or Gulfstream
to predict correctly the direction of stock prices, interest rates, and other
economic factors.
The acquisition of put and call options on futures contracts will, respectively,
give the 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 the Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of the Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
the Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. The 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, and losses from
investing in futures are potentially unlimited. In addition, the value of the
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. Controlling losses by closing out futures
positions may not be possible where a liquid secondary market does not exist.
OTHER MUTUAL FUNDS
Certain emerging markets are closed in whole or in part to equity investments by
foreigners except through specifically authorized investment funds. Securities
of other investment companies may be acquired by the portfolio to the extent
permitted under the Investment Company Act of 1940. The Fund may invest up to
10% of its total assets in securities of other
PAGE 20
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 21
investment companies so long as not more than 3% of the outstanding voting stock
of any one investment company is held by the Fund. In addition, not more than 5%
of the Fund's total assets may be invested in the securities of any one
investment company.
In addition, the Fund may invest up to 5% of the value of its total assets in
the securities of any one money market mutual fund (including shares of the
Parkstone Prime Obligations Fund, the Parkstone U.S. Government Obligations
Fund, the Parkstone Tax-Free Fund and the Parkstone Treasury Fund), provided
that no more than 10% of the Fund's total assets may be invested in the
securities of mutual funds in the aggregate. In order to avoid the imposition of
additional fees as a result of investments by a Fund in shares of the Money
Market Funds of the Group, the Investment Adviser, Administrator and their
affiliates (See "MANAGEMENT OF THE FUND-Investment Adviser and Subadviser" and
"Administrator, Sub-Administrator and Distributor" and "Transfer Agency and Fund
Accounting Services") will charge their fees to the Fund, rather than the Money
Market Funds. The 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 Fund's investments in securities of
unaffiliated mutual funds and/or Money Market Funds of the Group are contained
in the Statement of Additional Information.
PUT AND CALL OPTIONS
The Fund may purchase put and call options on securities and on foreign
currencies, subject to its applicable investment policies, for the purposes of
hedging against market risks related to its portfolio securities and adverse
movements in exchange rates between currencies, respectively. Purchasing options
is a specialized investment technique that entails a substantial risk of a
complete loss of the amounts paid as premiums to writers of options. Gains and
losses on investments in options depend on the ability of First of America or
Gulfstream to predict correctly the direction of stock prices, interest rates,
and other economic factors.
The Fund may also engage in writing call options from time to time as First of
America or Gulfstream deem appropriate. The Fund will write only covered call
options (options on securities or currencies owned by the 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 the 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.
The Fund may be unable to effect a closing purchase transaction where a liquid
secondary market does not exist and it may not be able to sell the underlying
security or currency until the option expires or the 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 Fund will cause the underlying value of
portfolio securities and currencies subject to such options to exceed 20% of its
net assets.
The 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,
the Fund will write only covered index call options. Through the writing or
purchase of index options the 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
PAGE 21
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 22
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
Price movements in securities which the Fund owns or intends to purchase
probably will not correlate perfectly with movements in the level of an index
and, therefore, the 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. The Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
REPURCHASE AGREEMENTS
Securities held by the Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, the 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
deems creditworthy under guidelines approved by the Group's Board of Trustees,
subject to the seller's agreement to repurchase such securities at a mutually
agreed upon date and price. The repurchase price would generally equal the price
paid by the 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 the Fund were delayed pending court action. Repurchase
agreements are considered to be loans by an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). For further
information about repurchase agreements, see "INVESTMENT OBJECTIVES AND POLICIES
- - Additional Information on Portfolio Instruments-Repurchase Agreements" in the
Statement of Additional Information.
RESTRICTED SECURITIES
Securities in which the 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 Fund who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who make a
market in such Section 4(2) securities, thus providing liquidity. Pursuant to
procedures adopted by the Board of Trustees of the Group, 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.
PAGE 22
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 23
Subject to the limitations described below, the Fund may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registered under the 1933 Act. An illiquid investment
is any investment that cannot be disposed of within seven (7) days in the normal
course of business at approximately the amount at which it is valued by the
Fund. The price the Fund pays for illiquid securities or receives upon resale
may be lower than the price paid or received for similar securities with a more
liquid market. Accordingly, the valuation of these securities will reflect any
limitations on their liquidity. The 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.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed-delivery basis. The
Fund 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. The Fund will not
pay for such securities or start earning interest on them until they are
received. When the Fund agrees to purchase such securities, its Custodian will
set aside cash or liquid securities equal to the amount of the commitment in a
separate account. Securities purchased on a when-issued basis are recorded as an
asset and are subject to changes in the value based upon changes in the general
level of interest rates. In when-issued and delayed-delivery transactions, the
Fund relies on the seller to complete the transaction; the seller's failure to
do so may cause the Fund to miss a price or yield considered to be advantageous.
The Fund's commitment to purchase "when-issued" securities
PAGE 23
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 24
will not exceed 25% of the value of its total assets under normal conditions,
and a commitment by the Fund to purchase "when-issued" securities will not
exceed 60 days. In the event its commitments to purchase "when-issued"
securities ever exceeds 25% of the value of its assets, the Fund's liquidity and
the ability of First of America or Gulfstream to manage it might be adversely
affected. The Fund intends 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, the Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks, or institutional borrowers of
securities. The 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 the Fund. During the time portfolio securities
are on loan, the borrower pays the Fund any dividends or interest received 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 the 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. The
Fund will enter into loan agreements only with broker-dealers, banks, or other
institutions that First of America or Gulfstream have determined are
creditworthy under guidelines established by the Group's Board of Trustees.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Fund is calculated by dividing the lesser of
the 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. During its initial year of operation, the Fund
does not anticipate that its portfolio turnover rate will exceed 50%. The
portfolio turnover rate for the Fund may vary greatly from year to year, as well
as within a particular year, and may also be affected by cash requirements for
redemptions of shares. High portfolio turnover rates will generally result in
higher transaction costs, including brokerage commissions, to the Fund and may
result in additional tax consequences to the Fund's shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding shares of the Fund (as defined
in the Statement of Additional Information).
The Fund will not:
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
PAGE 24
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 25
the Fund would hold more than 10% of the outstanding voting securities
of the issuer, except that 25% or less of the value of a 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 the 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 the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment
objective and policies, make time deposits with financial institutions
and enter into repurchase agreements.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding shares of the Fund.
The 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 Fund is subject to certain
other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES - Investment Restrictions" in the Statement of Additional Information.
PAGE 25
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 26
MANAGEMENT OF THE FUND
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. The Trustees
elect the officers of the Group to supervise actively its day-to-day operations.
The names, addresses, 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
the Fund pursuant to the Investor A, Investor B or Investor C Distribution and
Shareholder Service Plans 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 First
of America Bank, N.A. ("FOA"), which is a wholly-owned subsidiary of First of
America Bank Corporation ("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
Florida operations, 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 First of America Bank Corporation 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 the Fund and makes investment decisions on behalf of the
Fund
First of America utilizes a team approach to the investment management of the
Fund, with up to three professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
the Fund's investment objectives, with no one person responsible for the Fund's
management.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, First of America receives a fee from the
Fund, computed daily and paid monthly, at the annual rate of 1.25% of the Fund's
average daily net assets. First of America may
PAGE 26
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 27
periodically voluntarily reduce all or a portion of its advisory fee with
respect to the Fund to increase the net income of the Fund available for
distribution as dividends. The voluntary fee reduction will cause the yield of
the Fund to be higher than it would otherwise be in the absence of such a
reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream
Global Investors Ltd., 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 Fund, 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 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 the Fund 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 long-term performance
consistent with the 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 Fund's average daily net assets.
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, each of whom
has been providing investment advice with Gulfstream since its inception, are
the portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. Gulfstream specializes in international investments, including
emerging markets investments. 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 or may not 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. Gulfstream offers clients its services in managing
their international securities investments.
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PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 28
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for the
Fund, and also acts as the Group's principal underwriter and distributor. First
of America serves as Sub-Administrator for the Fund 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 Fund's administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from the 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 the Fund's average daily net
assets. The Administrator may periodically voluntarily reduce all or a portion
of its administrative fee with respect to the Fund to increase the net income of
the Fund available for distribution as dividends. The voluntary fee reduction
will cause the return of the Fund to be higher than it would otherwise be in the
absence of such reduction.
The Distributor acts as agent for the Fund in the distribution of its shares
and, in such capacity, solicits orders for the sale of shares, advertises, and
pays the cost of advertising, office space and its personnel involved in such
activities. The Distributor receives no compensation under its Distribution
Agreement with the Group.
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. The 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 the Fund's operation. As a general matter, expenses are
allocated to each class of shares of the Fund 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
PAGE 28
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 29
Institutional Shares, on a basis other than relative net asset value, as they
deem appropriate ("Class Expenses"). In such event, Class Expenses would be
limited to: transfer agency fees identified by the Transfer Agent as
attributable to a specific class; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; Blue Sky registration fees incurred by a
class of shares; 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 PLANS
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, an Investor B Distribution
and Shareholder Service Plan (the "Investor B Plan") with respect to the
Investor B Shares of each Fund, and 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 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 relating to
Investor A Shares. 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.
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 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.
PAGE 29
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 30
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 NonMoney 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.
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 relating to
Investor B Shares. 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
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.
PAGE 30
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 31
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.
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 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.
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.
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
PAGE 31
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 32
shareholder and distribution services relating to Investor C Shares. 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. Such amount 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. 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. Such amount may be used to
pay Participating Organizations for shareholder services provided or expenses
incurred in providing such services.
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.
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.
Fees paid pursuant to the Investor A Plan, Investor B Plan and Investor C Plan
are accrued daily and paid monthly, and are charged as expenses of the
applicable share class of a Fund as accrued.
PAGE 32
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 33
Payments under the Investor A Plan, Investor B Plan and 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.
Actual distribution and shareholder service expenses for Investor A Shares,
Investor B Shares or Investor C Shares at any given time may exceed the Rule
12b-1 fees and contingent deferred sales charges (where applicable) collected.
These unrecovered amounts plus interest thereon will be carried forward and paid
from future Rule 12b-1 fees and contingent deferred sales charges, if any,
collected. If the Investor A Plan, Investor B Plan or 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 A Shares, Investor B Shares or 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 A Shares,
Investor B Shares or Investor C Shares of the Fund.
The Group understands that Participating Organizations may charge fees to their
customers who are owners of Investor A Shares, Investor B Shares or 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 A Plan, the Investor B Plan and the Investor C Plan require the
officers of the Group to provide the Board of Trustees at least quarterly with a
written report of the amounts expended pursuant to each 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, Investor B Plan and Investor C
Plan were 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, Investor B Plan and Investor C Plan continue in effect as long
as such continuance is specifically approved at least annually by the Group's
Trustees, including a majority of the Independent Trustees.
Each of the Investor A Plan, Investor B Plan and 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 applicable
class of shares. Any change in the Investor A Plan, Investor B Plan or Investor
C Plan that would increase materially the distribution expenses
PAGE 33
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 34
paid by a Fund requires shareholder approval; otherwise, the Plans may be
amended by the Trustees, including a majority of the Independent Trustees by a
vote cast in person at a meeting called for the purpose of voting upon the
amendment. As long as the Investor A Plan, Investor B Plan or 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 fund accounting services
for the Fund pursuant to a Fund Accounting Agreement with the Group 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, distributor and transfer agent), 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 and Gulfstream believe that they may perform the investment
advisory services for the Fund contemplated by the Investment Advisory
Agreement, Sub-Investment Advisory Agreement and 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 A, INVESTOR B, OR INVESTOR C SHARES
Investor A Shares, Investor B Shares, and Investor C Shares of the Fund are
continuously offered and may be purchased directly either by mail or by
telephone. These share classes 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 Investor A Shares, Investor B Shares,
or Investor C Shares of the 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 or an
Authorized Broker (defined below) of an order to purchase Investor A Shares,
Investor B Shares, or Investor C 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. Investor C
Shares are currently offered only to (i) employee benefit plans qualified under
Section 401 of the Internal Revenue Code (the "Code"), subject to requirements
established by
PAGE 34
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 35
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 A Shares, Investor B Shares, or Investor C Shares of the
Fund by mail, complete an Account Application Form and return it along with a
check or money order made payable to The Parkstone Group of Funds at the
following address:
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, Investor B Shares or Investor C Shares of the
Fund 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 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 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 cancelled and the investor could be liable for any losses or
fees incurred. When purchasing Investor A Shares, Investor B Shares or Investor
C Shares by wire, contact the Distributor at (800) 851-1227 for wire
instructions.
OTHER INFORMATION REGARDING PURCHASES
Investor A Shares, Investor B Shares and 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 A Shares, Investor B
Shares or Investor C Shares of the Fund 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 these share classes 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
classes of shares of the Fund 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 shares for which it has
been granted authority by the Customer.
The Fund has authorized one or more brokers or their designees ("Authorized
Brokers") to accept on its behalf purchase orders for shares of the Fund.
Investor A Shares, Investor B Shares and Investor C Shares of the Fund are
purchased at the net asset value per share (see "HOW SHARES ARE VALUED") next
determined after receipt by the Distributor or an Authorized Broker of an order
to purchase such shares plus any applicable sales charge as described below.
Purchases of Investor A Shares, Investor B Shares or Investor C Shares of the
Fund will
PAGE 35
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 36
be effected only on a Business Day (as defined in "HOW SHARES ARE VALUED") of
the 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 the Fund. Investor A Shares, Investor B Shares and
Investor C Shares of the Fund are eligible to earn dividends on the first
Business Day following the execution of the purchase. Investor A Shares,
Investor B Shares and Investor C Shares continue to be eligible to earn
dividends through the day before their redemption.
An order to purchase Investor A Shares, Investor B Shares or Investor C Shares
will be deemed to have been received when an Authorized Broker accepts the order
or when federal funds are made 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,
Investor B Shares or Investor C Shares not placed through an Authorized Broker
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"). If payment for such orders is made by check or
other means, purchases 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. Payments for orders
placed through an Authorized Broker are subject to the requirements of that
Authorized Broker. The Group strongly recommends that investors of substantial
amounts use federal funds to purchase shares of the Fund.
The minimum initial investment amount for Investor A Shares, Investor B Shares
and Investor C Shares 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, Investor B Shares or Investor C Shares of any shareholder if,
because of redemptions by or on behalf of the shareholder (but not as a result
of a decrease in the market price of Investor A Shares, Investor B Shares or
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 the Fund has a value of less than $1,000. Accordingly, an
investor purchasing Investor A Shares, Investor B Shares or Investor C Shares of
the Fund in only the minimum investment amount may be subject to such
involuntary redemption if the investor thereafter redeems any such 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,
Investor B Shares or 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 A
Shares, Investor B Shares or 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 A
Shares, Investor B Shares or Investor C Shares of the Fund owned by the
shareholder. Confirmation of purchases and
PAGE 36
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 37
redemptions of Investor A Shares, Investor B Shares or Investor C Shares of the
Fund 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 shares of the Fund will not be issued.
AUTO INVEST PLAN
The Parkstone Group of Funds Auto Invest Plan (the "Auto Invest Plan") enables
holders of Investor A Shares, Investor B Shares or Investor C Shares to make
regular monthly or quarterly purchases of Investor A Shares, Investor B Shares
or Investor C Shares through automatic deduction from their bank accounts. With
shareholder authorization, the Group's Transfer Agent will deduct the amount
specified (subject to the applicable minimums) from the shareholder's bank
account which will automatically be invested in the applicable class of shares
of the Fund 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.
HOW TO BUY INSTITUTIONAL SHARES
Institutional Shares of the 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"). Institutional Shares of the Fund 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 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 the
purchase thereof on a timely basis. Beneficial ownership of Institutional Shares
of the Fund 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.
The Fund has designated one or more Authorized Brokers to accept on its behalf
purchase orders for Institutional Shares of the Fund. Institutional Shares of
the Fund are purchased at the net asset value per share (see "HOW SHARES ARE
VALUED") next determined after receipt by the Distributor or an Authorized
Broker of an order to purchase Institutional Shares. Purchases of Institutional
Shares of the Fund will be effected only on a Business Day (as defined in "HOW
SHARES ARE VALUED") of the Fund. An order received prior to the Valuation Time
on any Business Day will be executed at the net asset value determined as of the
Valuation Time on the date of receipt. An order received after the Valuation
Time on any Business Day will be executed at the net asset value determined as
of the next Valuation Time on the next Business Day of the Fund. Institutional
Shares of the Fund are eligible to earn dividends on the first Business Day
following the execution of the purchase.
PAGE 37
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 38
Institutional Shares of the Fund 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
when an Authorized Broker accepts the order or when federal funds are made
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 not placed through an Authorized Broker and
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"). If payment for such orders is made by check or other means,
purchases 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. Payments for orders placed
through an Authorized Broker are subject to the requirements of that Authorized
Broker. 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 Fund. Depending upon the terms of a particular
Customer Account, a financial institution may charge a Customer Account fees for
services provided in connection with investment in the Fund. 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 so received.
The Group reserves the right to reject any order for the purchase of
Institutional Shares in whole or in part.
Confirmations of purchases and redemptions of Institutional Shares of the Fund
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 Fund will
not be issued.
SALES CHARGES
INVESTOR A SHARES
The public offering price of Investor A Shares of the Fund 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:
<TABLE>
<CAPTION>
Dealer
Discounts and
Sales Charge 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
</TABLE>
PAGE 38
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 39
<TABLE>
<CAPTION>
Dealer
Discounts and
Sales Charge 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>
$500,000 but less than $1,000,000.................. 1.01 1.00 1.00
$1,000,000 or more................................. 0.00 0.00 0.00
</TABLE>
INVESTOR B SHARES
Investor B Shares may be purchased only in amounts of less than $250,000. There
is no sales charge imposed upon purchases of Investor B Shares, but investors
may be subject to a contingent deferred sales charge of up to 5.00% when
Investor B Shares are redeemed prior to five years from the date of purchase.
See "CONTINGENT DEFERRED SALES CHARGE" below.
INVESTOR C SHARES
There is no sales charge imposed upon purchases of Investor C Shares, but
investors may be subject to a contingent deferred sales charge of up to 1.00%
when Investor C Shares are redeemed prior to one year from the date of purchase.
See "CONTINGENT DEFERRED SALES CHARGES" below.
IN GENERAL
From time to time dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers.
In addition to amounts paid to dealers as a dealer concession out of the sales
charge paid by investors, if any, the Distributor may, from time to time, at its
expense or as an expense for which it may be reimbursed under the 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
PAGE 39
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 40
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 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.
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 or 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 B Shares or Investor C Shares
as an expense of the Distributor or for which the Distributor may be reimbursed
under the Investor B Plan or Investor C Plan or upon receipt of a contingent
deferred sales charge. Any such additional consideration or incentive program
may be terminated at any time by the Distributor.
REDUCED SALES CHARGES - INVESTOR A SHARES
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
PAGE 40
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 41
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
Code, including salary reduction plans qualified under Section 401(k) of the
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 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.
PAGE 41
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 42
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.
CONTINGENT DEFERRED SALES CHARGES
INVESTOR B SHARES
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
PAGE 42
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 43
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 C SHARES
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 an
amount equal to 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.
A contingent deferred sales charge will not be imposed on amounts representing
increases in net asset value of Investor B Shares or Investor C Shares above the
net asset value at the time of purchase. In addition, a charge will not be
assessed on Investor B Shares or 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 B Shares or 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 five years for
Investor B Shares, and one year for Investor C Shares, or shares acquired
pursuant to reinvestment of dividends or distributions.
For example, assume an investor purchased 100 Investor B Shares or 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 shares through dividend reinvestment. If at such time the investor
makes his first redemption of 50 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 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% for Investor B Shares, totalling
$22.50, or 1.00% for Investor C Shares, totalling $4.50.
The contingent deferred sales charge is waived on redemptions of Investor B
Shares and 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
PAGE 43
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 44
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
Holders of Investor A Shares, Investor B Shares or Investor C Shares 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, Investor B
Shares or Investor C Shares to acquire shares of the same class 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 Group's
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.
PAGE 44
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 45
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.
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 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.
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, INVESTOR B
SHARES OR INVESTOR C SHARES - By Telephone" below.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR B SHARES OR INVESTOR C SHARES
Before purchasing Investor B Shares or Investor C Shares of the 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 or 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 Investor A
Shares. To the extent that the sales charge for Investor A Shares is waived or
reduced by one of the methods described above, investments in Investor A Shares
become more desirable. The Group will refuse all purchase orders for Investor B
Shares of over $250,000.
PAGE 45
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 46
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 or 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 B Shares or Investor C Shares.
As described above, purchasers of Investor B Shares or 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 B Shares or 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 B Shares would own shares that are subject to higher
annual expenses and, for a five-year period, 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 this five-year period should
compare the cost of the contingent deferred sales charge plus the aggregate
annual Investor B Shares' Rule 12b-1 fees to the cost of the initial sales
charge and Rule 12b-1 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.
Investor C Shares are subject to a level of Rule 12b-1 fees which is identical
to that of the Investor B Shares. Consequently, Investor C Shares may generally
be compared to Investor A Shares in the same manner as that set forth above.
Investors in Investor C Shares would own shares that are subject to higher
annual expenses than Investor A Shares 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. As noted above, Investor B Shares are subject to
a contingent deferred sales charge of up to 5.00%for a period of five years.
Investor C Shares may therefore be more appropriate for investors who expect to
redeem shares within this five-year period. On the other hand, because Investor
B Shares convert to Investor A Shares after an eight-year holding period,
Investor B Shares may be appropriate for investors who expect to hold their
investments for more than eight years.
PAGE 46
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 47
CONVERSION FEATURE
INVESTOR B SHARES
Investor B Shares which have been outstanding for eight years after the end of
the month in which the shares were initially purchased will automatically
convert to Investor A Shares and, consequently, will no longer be subject to the
higher Rule 12b-1 fees of the Investor B Plan. The 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. 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.
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.
INVESTOR C SHARES
Investor C Shares which have been outstanding for nine years after the end of
the month in which the shares were initially purchased will automatically
convert to Investor A Shares and, 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.
PAGE 47
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 48
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.
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS
Investor A Shares and Investor B Shares of the Fund are available to
shareholders on a tax-deferred basis through the following retirement plans:
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A Parkstone IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Parkstone IRA contributions may be tax-deductible and earnings are tax-deferred.
Under the Tax Reform Act of 1986, the tax deductibility of IRA contributions is
restricted 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, INVESTOR B, OR INVESTOR C SHARES
Shareholders may redeem their Investor A Shares without charge and their
Investor B Shares or Investor C Shares, subject to any applicable contingent
deferred sales 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.
Redemptions may be requested by mail or by telephone or through a broker-dealer
who has entered into a dealer agreement with the Distributor.
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
PAGE 48
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 49
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.
BY TELEPHONE
Investor A Shares, Investor B Shares and 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, 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 the Fund to make regular
monthly or quarterly redemptions of Investor A Shares, Investor B Shares or
Investor C Shares. With shareholder authorization, the Transfer Agent will
automatically redeem such Investor A Shares at the net
PAGE 49
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 50
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.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a customer's Investor A Shares, Investor B Shares or Investor C
Shares may also be redeemed in accordance with instructions and limitations
pertaining to his or her account at FABC or one of its affiliates.
The Fund has designated one or more Authorized Brokers to accept on its behalf
redemption orders for shares of the Fund. Redemption orders are effected at the
net asset value per share next determined after the Investor A Shares, Investor
B Shares or Investor C Shares are properly tendered for redemption as described
above, or after an Authorized Broker accepts the redemption order. The proceeds
paid upon redemption of such shares of the Fund may be more or less than the
amount invested and may include a contingent deferred sales charge as described
above. Payment to shareholders for such shares redeemed will be made within
seven days after receipt by the Transfer Agent or Authorized Broker of the
request for redemption. However, to the greatest extent possible, requests from
shareholders for next day payments upon redemption of Investor A Shares,
Investor B Shares or 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 Fund its
shareholders to sell or liquidate portfolio securities in an amount sufficient
to satisfy requests for payments in that manner.
At various times, the Group may be requested to redeem Investor A Shares,
Investor B Shares or 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 shares which delay may be
for 15 days or more. This delay may be avoided if shares are purchased by wire
transfer of federal funds. The Group intends to pay cash for all Investor A
Shares, Investor B Shares and 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
PAGE 50
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 51
redeem Investor A Shares involuntarily if it appears appropriate to do so in
light of the Group's responsibilities under the 1940 Act.
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 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 the Fund to the extent necessary to maintain
the required minimum balance.
The Fund has designated one or more Authorized Brokers to accept on its behalf
redemption orders for Institutional Shares of the Fund. 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, or
after an Authorized Broker accepts the redemption order. The proceeds paid upon
redemption of Institutional Shares of the Fund 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 or Authorized
Broker 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 Fund or its shareholders 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 Customer Account to determine the financial
institution's requirement 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 each class of shares of the Fund 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. The NYSE will not open in observance of the
PAGE 51
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 52
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 the Fund allocable to such class, less the liabilities
charged to the Fund allocable to such class and any liabilities charged directly
to that class, by the number of its outstanding shares of that class.
The net asset value per share will fluctuate as the value of the investment
portfolio of the Fund changes.
The securities in the 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, the Fund
may not pay 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 Customer 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 nineteen currently offered Funds of the Group is treated as a
separate entity for federal income tax purposes. The 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 intends to
distribute all of its net income and capital gains so that it is not required to
pay federal income taxes on amounts so distributed to shareholders.
To avoid federal income tax, the Code requires the 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, the 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.
PAGE 52
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 53
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 the Fund
bear to its gross income. A shareholder will not be able to take the
dividends-received deduction unless that shareholder holds the shares for at
least 46 days.
Distribution by the 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 Fund by foreign countries with respect to income
received on foreign securities. If more than 50% of the value of the 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 Fund will report to its
shareholders each year the amount, if any, of foreign taxes per share that it
has elected to have treated as paid by its shareholders.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made during the year.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Fund and its 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 Fund showing its average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a class of shares of the Fund will
be calculated for the period since the establishment of the Fund and will
reflect the imposition of the maximum sales charge, if any. Average annual total
return is measured by comparing the value of an investment in a class of shares
of the 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.
PAGE 53
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 54
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. The 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 Fund may present its 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 the
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
each of the Fund's classes of shares. Because of differences in the fees and/or
expenses borne by different classes of shares of the Fund, the net yield and
total return on one class of shares may be different from that for another
class. 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.
Investors may also judge the performance of any class of shares of the 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
Fund will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted. In addition, if First of
America and BISYS voluntarily reduce all or a part of their respective fees, as
further discussed 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.
PAGE 54
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 55
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 nineteen 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 the Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of the Fund's
investment advisory agreement. In addition, holders of one class of shares of
the Fund will vote as a class and not with holders of another class with respect
to the approval of its respective Distribution and Shareholder Service 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, Investor B Shares, Investor C Shares and
Institutional Shares, the Group also offers Investor Z Shares of certain of its
Funds pursuant to a Multiple Class Plan adopted by the Group's Trustees under
Rule 18f-3 of the 1940 Act. A sales person 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 each
PAGE 55
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 56
class of shares will differ as a result of the existence of a Distribution and
Shareholder Service Plan for such class pursuant to which fees may be charged
and because different classes of shares may bear different retail transfer
agency expenses. For further details regarding other classes of the Fund's
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 Fund or
their Distributor. This Prospectus does not constitute an offering by the Fund
or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
PAGE 56
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 57
THE PARKSTONE GROUP OF FUNDS
Investor A Shares
Investor B Shares
Investor C Shares
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 57
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 58
THE PARKSTONE GROUP OF FUNDS
INVESTOR Z SHARES PROSPECTUS dated DECEMBER 6, 1997
as amended December 19, 1997
Parkstone Emerging Markets 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 Parkstone Emerging Markets Fund (the "Emerging Markets Fund" or the "Fund")
is one of the currently-offered series of The Parkstone Group of Funds (the
"Group"). The Emerging Markets Fund offers five classes of shares. This
Prospectus explains concisely what you should know before investing in Investor
Z Shares of the Emerging Markets Fund. Please read it carefully and keep it for
future reference. You can find more detailed information about the Emerging
Markets Fund contained in the Statement of Additional Information dated
September 30, 1997, as amended December 6, 1997 and December 19, 1997, and as
may be further amended or supplemented 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--Parkstone Emerging Markets Fund
<PAGE> 59
<TABLE>
<CAPTION>
T A B L E OF C O N T E N T S
<S> <C>
PROSPECTUS SUMMARY................................................................................................5
FEE TABLES (INVESTOR Z SHARES)....................................................................................7
INVESTMENT OBJECTIVES AND POLICIES................................................................................9
RISK FACTORS AND INVESTMENT TECHNIQUES...........................................................................11
INVESTMENT RESTRICTIONS..........................................................................................19
MANAGEMENT OF THE FUND...........................................................................................21
HOW TO BUY INVESTOR Z SHARES.....................................................................................26
HOW TO REDEEM YOUR INVESTOR Z SHARES.............................................................................28
HOW SHARES ARE VALUED............................................................................................29
DIVIDENDS AND TAXES..............................................................................................29
PERFORMANCE INFORMATION..........................................................................................31
FUNDATA(R).......................................................................................................32
GENERAL INFORMATION..............................................................................................32
</TABLE>
PAGE 2
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 60
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which, as of the date of this Prospectus, offers nineteen separate
investment portfolios (the "Funds"), eighteen of which are diversified
portfolios and one of which is a non-diversified portfolio, each with different
investment objectives. These Funds enable the Group to meet a wide range of
investment needs.
This Prospectus relates only to the Parkstone Emerging Markets Fund (the
"Fund").
The Trustees of the Group have divided beneficial ownership of each of the Funds
into an unlimited number of transferable units called shares. The Trustees of
the Group have divided the Fund's beneficial ownership into an unlimited number
of transferable units called shares. The Fund offers five classes of shares, one
of which is described in this Prospectus. The other four classes of shares of
the Fund are described in a separate Prospectus. 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 objective of the Emerging Markets Fund is described in this
Prospectus and 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 Emerging Markets Funds, First of
America has entered into a sub-investment advisory agreement with Gulfstream
Global Investors, Ltd., Dallas, Texas ("Gulfstream" or the "Subadviser").
PAGE 3
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 61
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Investor Z Shares of the Emerging Markets Fund.
The Emerging Markets Fund represents one separate diversified investment
portfolio of The Parkstone Group of Funds, a Massachusetts business trust (the
"Group") which is registered as an open-end, management investment company.
Purchase and Redemption of Shares
The public offering price of Investor Z Shares of the Fund is equal to the net
asset value per share. There are no initial or contingent deferred sales charges
on Investor Z Shares. Investor Z Shares may be purchased through procedures
established by the Group's distributor, BISYS Fund Services, L.P. ("BISYS").
Holders of Investor Z Shares or may redeem their shares by contacting their
investment manager responsible for the account. See "HOW TO BUY INVESTOR Z
SHARES," "HOW TO REDEEM INVESTOR Z SHARES" and "HOW SHARES ARE VALUED."
Minimum Purchase
For investment managers or other financial consultants purchasing Investor Z
Shares, there is a $2 million 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 investment manager
or other financial consultant are purchasing such shares.
Investment Objective
The Fund seeks long-term growth of capital from a portfolio of equity securities
of companies in emerging markets.
Investment Policies
Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities of emerging markets issuers, consisting of common
and preferred stocks. As used in this Prospectus, the term "emerging market"
includes any country which is generally considered to be an emerging or
developing country by the World Bank, the International Finance Corporation, the
United Nations or its authorities.
Risk Factors and Special Considerations
An investment in a mutual fund such as the Fund involves a certain amount of
risk and may not be suitable for all investors. In addition, some investment
policies of the Fund may entail certain risks. See "RISK FACTORS AND
INVESTMENT TECHNIQUES."
PAGE 4
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 62
Management of the Funds
First of America serves as investment adviser and 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, monthly. Net
realized capital gains are distributed at least annually. The Fund 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.
PAGE 5
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 63
FEE TABLES (INVESTOR Z SHARES)
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<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
Other Operating
Management 12b-1 Expenses(2) Expenses(3)
Fees Fees (after reimbursements) (after reimbursements)
---------- ----- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Emerging Markets Fund 1.25% 0.00% 0.18% 1.43%
</TABLE>
(2) Estimated.
(3) Certain purchases of the Fund through investment managers may be subject to
fees for additional services provided to investors.
The annual percentages of Management Fees and Total Expenses for Investor Z
Shares of the Emerging Markets Fund are based on expected fees and expenses and
expected voluntary reimbursements. Absent the expected voluntary reimbursement
by the Investment Adviser or Subadviser of certain operating expenses, Other
Expenses and Total Expenses for Investor Z Shares of the Emerging Markets Fund
would be 0.53% and 1.78%, respectively. (See "MANAGEMENT OF THE FUND -
Investment Adviser and Subadviser" and "Administrator, Sub-Administrator and
Distributor").
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted under the rules of the National Association of
Securities Dealers, Inc.
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Investor Z Shares, assuming (1) 5% annual return and (2) with or
without redemption at the end of each time period:
<TABLE>
<CAPTION>
1 3
YEAR YEARS
<S> <C> <C>
Emerging Markets Fund $15 $45
</TABLE>
The information set forth in the foregoing Fee Table and expense examples
relates only to Investor Z Shares of the Fund. The Fund also offers other
classes of shares. The other classes
PAGE 6
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 64
of shares of the Fund are subject to additional expenses as well as Rule 12b-1
fees and/or sales charges.
The purpose of the above tables is to assist a potential purchaser of Investor Z
Shares of the 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, Gulfstream or any of their
affiliates to its customer accounts which may invest in Investor Z Shares of the
Fund. See "MANAGEMENT OF THE FUND," "GENERAL INFORMATION" and "SALES CHARGES"
for a more complete discussion of the shareholder transaction expenses and
annual operating expenses of the Fund. The expense information for Investor Z
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.
PAGE 7
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 65
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objective of the Fund, as set forth below, is fundamental and may
not be changed without a vote of the holders of a majority of the outstanding
shares of the Fund (as defined in the Statement of Additional Information). The
investment policies of the Fund may be changed without a vote of the holders of
a majority of outstanding shares of the Fund unless the policy is expressly
deemed to be a fundamental policy or changeable by such majority vote. There can
be no assurance that the investment objective of the Fund will be achieved.
Depending upon the performance of the Fund's investments, the net asset value
per share of the Fund may decrease instead of increase. The Fund is available
for investors who seek to diversify their investments by adding international
equities. The Fund's investments in securities of foreign issuers, particularly
issuers in emerging markets, involve foreign investment risks and may be more
volatile and less liquid than domestic securities.
During temporary defensive periods as determined by First of America or
Gulfstream, the Fund may hold up to 100% of its total assets in short-term
obligations including domestic bank certificates of deposit, bankers'
acceptances and repurchase agreements secured by bank instruments. However, to
the extent that the Fund is so invested, its investment objective may not be
achieved during that time. Uninvested cash reserves will not earn income.
THE EMERGING MARKETS FUND
THE EMERGING MARKETS FUND SEEKS LONG-TERM GROWTH OF CAPITAL FROM A PORTFOLIO OF
EQUITY SECURITIES OF COMPANIES IN EMERGING MARKETS.
Under normal market conditions, the Fund will invest at least 65% of the value
of its total assets in equity securities of emerging markets issuers, consisting
of common and preferred stocks. The Fund may receive distributions from an
issuer of other securities with equity characteristics, such as warrants, rights
and convertible securities, but will not purchase such securities directly. The
Fund's primary equity investments are the common stock of companies in the
emerging markets countries which Gulfstream has identified as attractive. The
assets of the Fund ordinarily will be invested in the securities of issuers in
at least three different emerging markets countries. The common stock in which
the Fund may invest includes the common stock of any class or series or any
similar equity interest such as trust or a limited partnership interest. The
Fund invests in securities listed on securities exchanges, traded in
over-the-counter markets, and may invest in certain restricted or unlisted
securities.
The Fund is designed for long-term investors who want exposure to the rapidly
growing emerging markets. THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT
PROGRAM NOR IS THE FUND SUITABLE FOR ALL INVESTORS. Many investments in emerging
markets can be considered speculative, and therefore may offer higher potential
for gains and losses and may be more volatile than investments in the developed
markets of the world. See "RISK FACTORS AND INVESTMENT TECHNIQUES" for more
information.
As used in this Prospectus, the term "emerging market" includes any country
which is generally considered to be an emerging or developing country by the
World Bank, the International Finance Corporation, the United Nations or its
authorities. These countries generally include every
PAGE 8
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 66
country in the world except Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States.
The Fund will focus its investments in those emerging markets countries which it
believes have strongly developing economies and in which the markets are
becoming more sophisticated.
A company in an emerging market is one that: (i) has its principal securities
trading market in an emerging market country; (ii) is organized under the laws
of, and with a principal office in, an emerging market; or (iii) (alone or on a
consolidated basis) derives 50% or more or more of its total revenue from either
goods produced, sales made or services performed in emerging markets.
Gulfstream seeks to achieve the Fund's investment objective by a disciplined
process of company selection and country allocation. The stock selection
process is a disciplined approach common to all markets and is driven by
fundamental securities analysis involving company visits, risk analysis, price
valuation, technical analysis, database screening and external research
sources. This process leads to a universe of stocks with the following
characteristics: strong balance sheets, high return on equity and low debt.
Once these quality companies are identified, Gulfstream purchases their
securities. The price at which Gulfstream will make such purchases is
determined by a valuation method that requires a company's price/earnings
multiple relative to its growth rate to be less than the same measure for the
local market. Gulfstream intends to purchase securities of companies that are
growing faster than the market and selling for less than the market. The
country allocation process serves as a systematic risk control mechanism and
involves a determination of each country's relative investment attractiveness.
Within these guidelines, portfolios are constructed based on stock selection.
The Fund intends to manage its portfolio actively in pursuit of its investment
objective. The Fund does not expect to trade in securities for short-term
profits; however, when circumstances warrant, securities may be sold without
regard to the length of time held. To the extent the Fund engages in short-term
trading, it may incur increased transaction costs.
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in the Fund entails certain risks.
The Fund will not acquire portfolio securities issued by, make savings deposits
in, or enter into repurchase or reverse repurchase agreements with First of
America Bank, 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.
FOREIGN CURRENCY TRANSACTIONS
The value of the assets of the Fund as measured in United States dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Fund may incur costs in connection
with conversions between various currencies. The 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
PAGE 9
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 67
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 Fund may enter
into forward currency contracts in order to hedge against adverse movements in
exchange rates between currencies.
For example, when the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, the
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when the Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of the Fund's portfolio securities or other assets denominated in such foreign
currency. Alternatively, when the 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. The Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions. The forecasting of short-term
currency market movement is extremely difficult and whether such a short-term
hedging strategy will be successful is highly uncertain.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a forward currency contract. Accordingly, it may
be necessary for the Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the 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 the 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, the 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, the 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 Fund 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
PAGE 10
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 68
profit based on the difference (the "spread") between the prices at which they
are buying and selling various currencies.
The Fund does not intend 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. The Fund also will not enter into forward currency
contracts or maintain a net exposure on such contracts where the 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
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 the 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 the Fund's securities denominated in that currency.
Such changes will also affect the Fund's income and distributions to
shareholders. In addition, although the Fund will receive
PAGE 11
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 69
income on foreign securities in such currencies, the 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 the 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 the 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.
Investments in securities of issuers in emerging markets countries may involve a
high degree of risk and many may be considered speculative. These investments
carry all of the risks of investing in securities of foreign issuers described
above to a heightened degree. These heightened risks include (i) greater risk of
expropriation, confiscatory taxation, nationalization and less social, political
and economic stability; (ii) the small current size of the markets for
securities of emerging market issuers and the current low or non-existent volume
of trading, resulting in lack of liquidity and in price volatility; (iii)
certain national policies which may restrict the Fund's investment opportunities
including restrictions on investing in issuers or industries deemed sensitive to
relevant national interests; and (iv) the absence of developed legal structures
governing private or foreign investment and private property.
U.S. dollar-denominated American Depositary Receipts, or 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, the 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, which standards 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 Fund may also invest in European
Depository Receipts, or EDRs, which are receipts evidencing an arrangement with
a European bank similar to that for ADRs and are 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, the Fund 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.
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PROSPECTUS--Parkstone Emerging Markets Fund
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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 Fund may also enter into contracts for the future delivery of securities or
foreign currencies and futures contracts based on a specific security, class of
securities, foreign currency or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index is an agreement obligating either party to pay, and
entitling the other party to receive, while the contract is outstanding, cash
payments based on the level of a specified securities index.
The Fund may engage in such futures contracts in an effort to hedge against
market risks. For example, when interest rates are expected to rise or market
values of portfolio securities are expected to fall, the Fund can seek through
the sale of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, the 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. Gains and losses on
investments in futures depend on the ability of First of America or Gulfstream
to predict correctly the direction of stock prices, interest rates, and other
economic factors.
The acquisition of put and call options on futures contracts will, respectively,
give the 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 the Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of the Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
the Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. The 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, and losses from
investing in futures are potentially unlimited. In addition, the value of the
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. Controlling losses by closing out futures
positions may not be possible where a liquid secondary market does not exist.
OTHER MUTUAL FUNDS
Certain emerging markets are closed in whole or in part to equity investments by
foreigners except through specifically authorized investment funds. Securities
of other investment companies may be acquired by the portfolio to the extent
permitted under the Investment
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PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 71
Company Act of 1940. The Fund may invest up to 10% of its total assets in
securities of other investment companies so long as not more than 3% of the
outstanding voting stock of any one investment company is held by the Fund. In
addition, not more than 5% of the Fund's total assets may be invested in the
securities of any one investment company.
In addition, the Fund may invest up to 5% of the value of its total assets in
the securities of any one money market mutual fund (including shares of the
Parkstone Prime Obligations Fund, the Parkstone U.S. Government Obligations
Fund, the Parkstone Tax-Free Fund and the Parkstone Treasury Fund), provided
that no more than 10% of the Fund's total assets may be invested in the
securities of other 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 FUND-Investment Adviser and Subadviser"
and "Administrator, Sub-Administrator and Distributor" and "Transfer Agency and
Fund Accounting Services") will charge their fees to the Fund, rather than the
Money Market Funds. The 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 Fund's investments in
securities of unaffiliated mutual funds and/or Money Market Funds of the Group
are contained in the Statement of Additional Information.
PUT AND CALL OPTIONS
The Fund may purchase put and call options on securities and on foreign
currencies, subject to its applicable investment policies, for the purposes of
hedging against market risks related to its portfolio securities and adverse
movements in exchange rates between currencies, respectively. Purchasing options
is a specialized investment technique that entails a substantial risk of a
complete loss of the amounts paid as premiums to writers of options. Gains and
losses on investments in options depend on the ability of First of America or
Gulfstream to predict correctly the direction of stock prices, interest rates,
and other economic factors.
The Fund may also engage in writing call options from time to time as First of
America or Gulfstream deem appropriate. The Fund will write only covered call
options (options on securities or currencies owned by the 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 the 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.
The Fund may be unable to effect a closing purchase transaction where a liquid
secondary market does not exist and may not be able to sell the underlying
security or currency until the option expires or the 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 Fund will cause the underlying value of
portfolio securities and currencies subject to such options to exceed 20% of its
net assets.
The 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,
the Fund will write only covered index call options. Through the writing or
purchase of index options the 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
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PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 72
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option.
Price movements in securities which the Fund owns or intends to purchase
probably will not correlate perfectly with movements in the level of an index
and, therefore, the 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. The Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
REPURCHASE AGREEMENTS
Securities held by the Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, the 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
deems creditworthy under guidelines approved by the Group's Board of Trustees,
subject to the seller's agreement to repurchase such securities at a mutually
agreed upon date and price. The repurchase price would generally equal the price
paid by the 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 the Fund were delayed pending court action. Repurchase
agreements are considered to be loans by an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). For further
information about repurchase agreements, see "INVESTMENT OBJECTIVES AND POLICIES
- - Additional Information on Portfolio Instruments-Repurchase Agreements" in the
Statement of Additional Information.
RESTRICTED SECURITIES
Securities in which the 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 Fund who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who make a
market in such Section 4(2) securities, thus providing liquidity. Pursuant to
procedures adopted by the Board of Trustees of the Group, 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.
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PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 73
Subject to the limitations described below, the Fund may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registered under the 1933 Act. An illiquid investment
is any investment that cannot be disposed of within seven (7) days in the normal
course of business at approximately the amount at which it is valued by the
Fund. The price the Fund pays for illiquid securities or receives upon resale
may be lower than the price paid or received for similar securities with a more
liquid market. Accordingly, the valuation of these securities will reflect any
limitations on their liquidity. The 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.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed-delivery basis. The
Fund 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. The Fund will not
pay for such securities or start earning interest on them until they are
received. When the Fund agrees to purchase such securities, its Custodian will
set aside cash or liquid securities equal to the amount of the commitment in a
separate account. Securities purchased on a when-issued basis are recorded as an
asset and are subject to changes in the value based upon changes in the general
level of interest rates. In when-issued and delayed-delivery transactions, the
Fund relies on the seller to complete the transaction; the seller's failure to
do so may cause the Fund to miss a price or yield
PAGE 16
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 74
considered to be advantageous. The Fund's commitment to purchase "when-issued"
securities will not exceed 25% of the value of its total assets under normal
conditions, and a commitment by the Fund to purchase "when-issued" securities
will not exceed 60 days. In the event its commitments to purchase "when-issued"
securities ever exceeds 25% of the value of its assets, the Fund's liquidity and
the ability of First of America or Gulfstream to manage it might be adversely
affected. The Fund intends 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, the Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks, or institutional borrowers of
securities. The 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 the Fund. During the time portfolio securities
are on loan, the borrower pays the Fund any dividends or interest received 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 the 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. The
Fund will enter into loan agreements only with broker-dealers, banks, or other
institutions that First of America or Gulfstream have determined are
creditworthy under guidelines established by the Group's Board of Trustees.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Fund is calculated by dividing the lesser of
the 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. During its initial year of operation, the Fund
does not anticipate that its portfolio turnover rate will exceed 50%. The
portfolio turnover rate for the Fund may vary greatly from year to year, as well
as within a particular year, and may also be affected by cash requirements for
redemptions of shares. High portfolio turnover rates will generally result in
higher transaction costs, including brokerage commissions, to the Fund and may
result in additional tax consequences to the Fund's shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding shares of the Fund (as defined
in the Statement of Additional Information).
The Fund will not:
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,
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PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 75
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 a 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 the 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 the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment
objective and policies, make time deposits with financial institutions
and enter into repurchase agreements.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding shares of the Fund.
The 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.
PAGE 18
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 76
In addition to the above investment restrictions, the Fund is subject to certain
other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES - Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUND
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. The Trustees
elect the officers of the Group to supervise actively its day-to-day operations.
The names, addresses, 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.
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 First
of America Bank, N.A. ("FOA"), which is a wholly-owned subsidiary of First of
America Bank Corporation ("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
Florida operations, 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 First of America Bank Corporation 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 the Fund and makes investment decisions on behalf of the
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
the Fund's investment objectives, with no one person responsible for the Fund's
management.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, First of America receives a fee from the
Fund, computed daily and paid monthly,
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PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 77
at the annual rate of 1.25% 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 the Fund to increase the net income of the Fund available for
distribution as dividends. The voluntary fee reduction will cause the yield of
the Fund to be higher than it would otherwise be in the absence of such a
reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream
Global Investors Ltd., 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 Fund, 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 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 the Fund 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 long-term performance
consistent with the 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 Fund's average daily net assets.
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, each of whom
has been providing investment advice with Gulfstream since its inception, are
the portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. Gulfstream specializes in international investments, including
emerging markets investments. First of America is a 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 or may not 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.
PAGE 20
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 78
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for the
Fund, and also acts as the Group's principal underwriter and distributor. First
of America serves as Sub-Administrator for the Fund 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 Fund's administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from the 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 the Fund's average daily net
assets. The Administrator may periodically voluntarily reduce all or a portion
of its administrative fee with respect to the Fund to increase the net income of
the Fund available for distribution as dividends. The voluntary fee reduction
will cause the return of the Fund to be higher than it would otherwise be in the
absence of such reduction.
The Distributor acts as agent for the Fund in the distribution of its shares
and, in such capacity, solicits orders for the sale of shares, advertises, and
pays the cost of advertising, office space and its personnel involved in such
activities. The Distributor receives no compensation under its Distribution
Agreement with the Group.
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. The 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 the Fund's operation. As a general matter, expenses are
allocated to each class of shares of the Fund 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
PAGE 21
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 79
Institutional Shares, on a basis other than relative net asset value, as they
deem appropriate ("Class Expenses"). In such event, Class Expenses would be
limited to: transfer agency fees identified by the Transfer Agent as
attributable to a specific class; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; Blue Sky registration fees incurred by a
class of shares; 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 also
provides certain fund accounting services for the Fund pursuant to a Fund
Accounting Agreement with the Group 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, distributor and transfer agent), BISYS Ohio is considered to be
an affiliated person of BISYS under the 1940 Act due to, among other things, the
fact that BISYS Fund Ohio and BISYS are both wholly-owned by The BISYS Group,
Inc.
BANKING LAWS
First of America and Gulfstream believe that they may perform the investment
advisory services for the Fund contemplated by the Investment Advisory
Agreement, Sub-Investment Advisory Agreement and 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 Z SHARES
Investor Z Shares of the 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
investment managers acting as fiduciary or agent for their customers ("Customer
Accounts"). Investor Z Shares of the Fund sold to investment managers acting in
a fiduciary, advisory, custodial, or other similar capacity on behalf of
customers will normally be held of record by the investment manager. With
respect to Investor Z Shares so sold, it is the responsibility of the particular
investment manager to transmit purchase or redemption orders to the Distributor
and to deliver funds for the purchase thereof on a timely basis. Beneficial
ownership of Investor Z Shares of the Fund will be recorded by the investment
manager and reflected in the account statements provided by the investment
manager to
PAGE 22
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 80
customers. Investment managers may exercise voting authority for those Investor
Z Shares for which they have been granted authority by the customer.
Investor Z Shares of the Fund are purchased at the net asset value per share
(see "HOW SHARES ARE VALUED") next determined after receipt by the Distributor
of an order to purchase Investor Z Shares. Purchases of Investor Z Shares of the
Fund will be effected only on a Business Day (as defined in "HOW SHARES ARE
VALUED") of the Fund. An order received prior to the Valuation Time on any
Business Day will be executed at the net asset value determined as of the
Valuation Time on the date of receipt. An order received after the Valuation
Time on any Business Day will be executed at the net asset value determined as
of the next Valuation Time on the next Business Day of the Fund. Investor Z
Shares of the Fund are eligible to earn dividends on the first Business Day
following the execution of the purchase. Investor Z Shares of the Fund continue
to be eligible to earn dividends through the day before their redemption.
An order to purchase Investor Z 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 Z 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
use federal funds to purchase Investor Z Shares.
There is no sales charge imposed by the Group in connection with the purchase of
Investor Z Shares of the Fund. Depending upon the terms of a particular Customer
Account, an investment manager may charge a Customer Account fees for services
provided in connection with investment in the Fund. Information concerning these
services and any charges may be obtained from the investment manager. This
Prospectus should be read in conjunction with any such information so received.
The Group reserves the right to reject any order for the purchase of its
Investor Z Shares in whole or in part.
Confirmation of purchases and redemptions of Investor Z Shares of the Fund by an
investment manager on behalf of their customers may be obtained from the
investment manager. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Institutional Shares of the Fund will
not be issued.
HOW TO REDEEM YOUR INVESTOR Z SHARES
Shareholders may redeem their Investor Z 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
investment manager or other financial consultant responsible for the Customer
Account.
PAGE 23
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 81
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a Customer's Investor Z Shares may be redeemed in accordance with
instructions and limitations pertaining to his or her Customer Account.
Redemption orders are effected at the net asset value per share next determined
after the Investor Z Shares are properly tendered for redemption, as described
above. The proceeds paid upon redemption of Investor Z Shares of the Fund may be
more or less than the amount invested. Payment to shareholders for Investor Z
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 investment managers for next day payments upon redemption of
Investor Z 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 Fund or its shareholders to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner.
Shareholders should contact their investment managers responsible for the
Customer Account to determine the investment manager's requirement 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 Investor Z Shares involuntarily if it
appears appropriate to do so in light of the Group's responsibilities under the
1940 Act.
HOW SHARES ARE VALUED
The net asset value of each class of shares of the Fund is determined and 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. 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 the Fund allocable to such class, less the liabilities
charged to the Fund allocable to such class and any liabilities charged directly
to that class, by the number of its outstanding shares of that class.
The net asset value per share will fluctuate as the value of the investment
portfolio of the Fund changes.
The securities in the 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.
PAGE 24
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 82
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, the Fund
may not pay 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 investment manager
responsible for the Customer 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. The 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 intends to distribute all of its net income and
capital gains so that it is not required to pay federal income taxes on amounts
so distributed to shareholders.
To avoid federal income tax, the Code requires the Fund to distribute each
taxable year at least 90% of its investment company taxable income and at least
90% of its exempt-interest income. In addition, to avoid imposition of a
nondeductible 4% excise tax, the 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 the Fund
bear to its gross income. A shareholder will not be able to take the
dividends-received deduction unless that shareholder holds the shares for at
least 46 days.
Distribution by the 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.
PAGE 25
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 83
Taxes may be imposed on the Fund by foreign countries with respect to income
received on foreign securities. If more than 50% of the value of the 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 Fund will report to its
shareholders each year the amount, if any, of foreign taxes per share that it
has elected to have treated as paid by its Shareholders.
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made during the year.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Fund and its 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 Fund showing its average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return will be calculated for the period since
the establishment of the Fund and will reflect the imposition of the maximum
sales charge, if any. Average annual total return is measured by comparing the
value of an investment in the 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 will be computed by dividing the
Fund's net investment income per share earned during a recent one-month period
by that Fund's per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result. The 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 Fund may present its respective distribution
rates 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 made by the 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.
PAGE 26
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 84
Standardized yield and total return quotations will be computed separately for
each of the Fund's classes of shares. Because of differences in the fees and/or
expenses borne by different classes of shares of the Fund, the net yield and
total return on one class of shares may be different from that for another
class. 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 Investor Z
Shares.
Investors may also judge the performance of any class of shares of the 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 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 Fund
will not be included in performance calculations; such fees, if charged, will
reduce the actual performance from that quoted. In addition, if First of America
and BISYS voluntarily reduce all or a part of their respective fees, as further
discussed 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 nineteen 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 the Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group,
PAGE 27
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 85
for purposes of approval of the Fund's investment advisory agreement. In
addition, holders of one class of shares of the Fund will vote as a class and
not with holders of another class with respect to the approval of its respective
Distribution and Shareholder Service 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 Z Shares, the Group also offers Investor A Shares,
Investor B Shares, Investor C Shares and Institutional Shares of certain of its
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 different class of shares over another in the same Fund. The
amount of dividends payable with respect to each class of shares will differ as
a result of the existence of a Distribution and Shareholder Service Plan for
such class pursuant to which fees may be charged and because different classes
of shares may bear different retail transfer agency expenses. For further
details regarding other classes of the Fund's 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, Michigan 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 Fund or
their Distributor. This Prospectus does not constitute an offering by the Fund
or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
PAGE 28
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 86
THE PARKSTONE GROUP OF FUNDS
Investor Z 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 29
PROSPECTUS--Parkstone Emerging Markets Fund
<PAGE> 87
THE PARKSTONE GROUP OF FUNDS
Statement of Additional Information
September 30, 1997, as amended
December 6, 1997 and December 19, 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, the Conservative
Allocation Fund, Balanced Allocation Fund and Aggressive Allocation Fund
Prospectus dated September 30, 1997, and the Emerging Markets Fund Prospectuses
dated December 6, 1997, as amended December 19, 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, as amended, the
Parkstone Municipal Investor Fund were not being offered to the public.
PAGE 2
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 88
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
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
</TABLE>
PAGE 3
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 89
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") seeks the long-term growth of capital. The Emerging Markets Fund seeks
the long-term growth of capital from a protfolio of equity securities of
companies in emerging markets. 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
PAGE 1
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 90
high- and medium-grade fixed-income securities. The Limited Maturity Bond Fund
seeks current income with preservation of capital 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, as amended, 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).
PAGE 2
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 91
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
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 SubAdministrator," "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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STATEMENT OF ADDITIONAL INFORMATION
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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
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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.
PAGE 12
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 101
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
PAGE 13
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 102
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.
PAGE 14
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 103
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
PAGE 15
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 104
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 Union Bank
PAGE 16
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 105
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."
PAGE 17
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 106
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;
PAGE 18
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 107
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.
PAGE 19
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 108
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.
PAGE 20
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 109
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,
PAGE 21
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 110
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>
PAGE 22
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 111
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
PAGE 23
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 112
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, Investor Z 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%.
PAGE 24
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 113
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
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>
PAGE 25
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 114
<TABLE>
<CAPTION>
<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
339 East State Street and Professor of Philosophy and
Jacksonville, IL 62650 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 College
April 9, 1947 of Humanities and Sciences, and
Vice Provost, Southern Methodist
University
</TABLE>
*Mr. Rapp is considered to be an "interested person" 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
Mr. Rapp who received no compensation). All of the Trustees except Dr. Jones
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.
<TABLE>
<CAPTION>
COMPENSATION TABLE
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>
PAGE 26
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 115
<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 resigned as Trustee and the Group's President on October
23, 1997. 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>
Hugh Fanning President From August, 1992 to present,
BISYS Fund Services employee of BISYS; From July, 1987
3435 Stelzer Road to August, 1992, Director of
Columbus, Ohio 43219 Marketing, Ketchum Communications
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>
PAGE 27
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 116
<TABLE>
<CAPTION>
<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. Fanning, 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").
PAGE 28
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 117
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
PAGE 29
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 118
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 (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.
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
PAGE 30
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 119
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 an 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:
PAGE 31
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 120
<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
</TABLE>
(1)Commenced operations December 27, 1995
(2)Commenced operations December 30, 1996
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,
PAGE 32
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 121
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.
PAGE 33
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 122
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 fiscal year ended June 30, 1997,
PAGE 34
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 123
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, $125,100,000, $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 from operating a mutual fund for
the collective investment of managing agency accounts.
PAGE 35
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 124
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 Administrator is a
broker-dealer
PAGE 36
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 125
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.
PAGE 37
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 126
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).
PAGE 38
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 127
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
PAGE 39
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 128
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.
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.
PAGE 40
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 129
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 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.
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STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 130
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 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;
PAGE 42
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 131
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 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
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STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 132
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 Emerging Markets Fund, 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. Shares
of the Emerging Markets Fund are offered in five classes: Investor A Shares,
Investor B Shares, Investor C Shares, Investor Z 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, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption.
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STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 133
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 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
PAGE 45
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 134
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 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%.
PAGE 46
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 135
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 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.
PAGE 47
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 136
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.
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.
PAGE 48
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 137
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, 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,"
PAGE 49
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 138
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 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
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STATEMENT OF ADDITIONAL INFORMATION
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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 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.
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STATEMENT OF ADDITIONAL INFORMATION
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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%.
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%
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STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 141
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 taxequivalent 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
taxequivalent 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% and
its tax-equivalent effective yield (using a federal income tax rate of 39.6%)
for the same period was 5.65%.
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STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 142
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, 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
PAGE 54
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 143
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 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
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STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 144
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 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:
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STATEMENT OF ADDITIONAL INFORMATION
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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%; 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%.
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STATEMENT OF ADDITIONAL INFORMATION
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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
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
PAGE 58
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 147
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 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.
PAGE 59
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 148
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
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
</TABLE>
PAGE 60
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 149
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor A Share Fund Record Owner Owned Percent of Class
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
Intermediate Government Horace Burton Gemmill 22,112.540 9.18
Obligations Joyce Louise Gemmill
2360 McComb Drive
Clio, MI 48420
</TABLE>
PAGE 61
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 150
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor B Share Fund Record Owner Owned Percent of Class
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
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
</TABLE>
PAGE 62
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 151
<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 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
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
</TABLE>
PAGE 63
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 152
<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 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
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
</TABLE>
PAGE 64
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 153
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor C Share Fund Record Owner Owned Percent of Class
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
Intermediate Lincoln Precision Carbide 401(k) 1,366.739 6.63
Government Obligations 600 S. Second
Lincoln, MI 48742-0000
</TABLE>
PAGE 65
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 154
<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 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
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
</TABLE>
PAGE 66
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 155
<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 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%
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%
</TABLE>
PAGE 67
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 156
<TABLE>
<CAPTION>
Amount of Beneficial Percent of Percent of
Title of Institutional Share Fund Ownership Fund Class Fund
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
PAGE 68
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 157
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.
PAGE 69
APPENDIX
<PAGE> 158
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.
PAGE 70
APPENDIX
<PAGE> 159
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.
PAGE 71
APPENDIX
<PAGE> 160
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.
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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.
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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.
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