<PAGE> 1
Securities Act File No. 33-13283
Investment Company Act File No. 811-5105
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. ______ / /
Post-Effective Amendment No. 33 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 35
THE PARKSTONE GROUP OF FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (800) 451-8377
ROBERT C. ROSSELOT, ESQ.
MELANIE MAYO WEST, ESQ.
HOWARD & HOWARD ATTORNEYS, P.C.
1400 North Woodward Avenue, Suite 101
Bloomfield Hills, Michigan 48304-2856
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Immediately, upon effectiveness
It is proposed that this filing will become effective:
/ X / immediately upon filing pursuant to paragraph (b).
/ / on (date) pursuant to paragraph (b).
/ / 60 days after filing pursuant to paragraph (a)(1).
/ / on (date) pursuant to paragraph (a)(1) of Rule 485.
/ / 75 days after filing pursuant to paragraph (a)(2).
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. On August 28, 1996, Registrant filed its Rule 24f-2 Notice with respect
to its fiscal year ended June 30, 1996.
<PAGE> 2
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES
PARKSTONE CONSERVATIVE ALLOCATION FUND
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE AGGRESSIVE ALLOCATION FUND
FORM N-1A
CROSS REFERENCE SHEET
PART A. INFORMATION REQUIRED IN A PROSPECTUS
<TABLE>
<CAPTION>
ITEM NO. RULE 404(A) CROSS REFERENCE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Cover Page .......................................... Cover Page
2. Synopsis............................................. Prospectus Summary; Fee Tables
3. Condensed Financial Information...................... Financial Highlights; Performance Information
4. General Description of Registrant.................... Cover Page; Investment Objectives and
Policies; Investment Restrictions; Risk Factors
and Investment Techniques; General
Information - Organization of the Group
5. Management of the Fund............................... Management of the Funds; Fee Tables
5A. Management's Discussion of Fund
Performance.......................................... Not Applicable
6. Capital Stock and Other Securities................... Dividends and Taxes; General Information -
Organization of the Group; General
Information - Multiple Classes of Shares;
General Information - Miscellaneous
7. Purchase of Securities Being Offered................. How to Buy Institutional Shares; Exchange
Privilege; How Shares are Valued
8. Redemption or Repurchase............................. How to Redeem Your Institutional Shares
9. Pending Legal Proceedings............................ Inapplicable
</TABLE>
PROSPECTUS--Institutional Shares
<PAGE> 3
- --------------------------------------------------------------------------------
THE PARKSTONE
GROUP OF FUNDS
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
PARKSTONE CONSERVATIVE ALLOCATION FUND
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE AGGRESSIVE ALLOCATION FUND
Prospectus dated December 30, 1996
PARKSTONE MUTUAL FUNDS LOGO
---------------------------
NOT FDIC INSURED
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[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 5
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES PROSPECTUS DATED DECEMBER 30, 1996
Parkstone Conservative Allocation Fund
Parkstone Balanced Allocation Fund
Parkstone Aggressive Allocation Fund
For more information call:
(800) 451-8377
or write to:
3435 Stelzer Road
Columbus, Ohio 43219
THESE SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE
The funds listed above are three of the eighteen currently-offered series (the
"Funds") of The Parkstone Group of Funds (the "Group") which offer Institutional
Shares. This Prospectus explains concisely what you should know before investing
in the Institutional Shares of the Funds listed above. Please read it carefully
and keep it for future reference. Institutional Shares are currently offered
only to accounts that have a fiduciary or agency relationship with a financial
institution. You can find more detailed information about the Funds in the
December 30, 1996 Statement of Additional Information, as amended from time to
time. For a free copy of the Statement of Additional Information or other
information, contact the Group at the number specified above. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission (the "SEC") and is incorporated into this Prospectus by reference.
THE SHARES OF THE PARKSTONE GROUP OF FUNDS ARE NOT OBLIGATIONS OR DEPOSITS OF
FIRST OF AMERICA INVESTMENT CORPORATION OR ITS PARENT, AND THE INVESTMENTS
DESCRIBED IN THIS PROSPECTUS ARE NOT ENDORSED, INSURED OR GUARANTEED BY FIRST OF
AMERICA INVESTMENT CORPORATION, ITS PARENT OR THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVOLVED.
PROSPECTUS--Institutional Shares
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Prospectus Summary........................................................... 4
Fee Tables................................................................... 5
Financial Highlights......................................................... 6
Investment Objectives and Policies........................................... 7
Risk Factors and Investment Techniques....................................... 9
Investment Restrictions...................................................... 17
Management of the Funds...................................................... 18
How to Buy Institutional Shares.............................................. 21
Exchange Privilege........................................................... 22
How to Redeem Your Institutional Shares...................................... 23
How Shares Are Valued........................................................ 23
Dividends and Taxes.......................................................... 24
Performance Information...................................................... 25
Fundata(R)................................................................... 26
General Information.......................................................... 26
</TABLE>
PROSPECTUS--Institutional Shares 2
<PAGE> 7
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which offers to the public eighteen separate investment portfolios,
seventeen of which are diversified portfolios and one of which is a
non-diversified portfolio, each with different investment objectives. These
Funds enable the Group to meet a wide range of investment needs.
This Prospectus relates only to the Institutional Shares of the following Funds:
Parkstone Conservative Allocation Fund (the "Conservative Allocation
Fund")
Parkstone Balanced Allocation Fund (the "Balanced Allocation Fund")
(formerly, Parkstone Balanced Fund)
Parkstone Aggressive Allocation Fund (the "Aggressive Allocation Fund")
For convenience of reference, the above Funds are sometimes referred to as the
"LifeWorks Funds."
The Trustees of the Group have divided beneficial ownership of each of the Funds
into an unlimited number of transferable units called shares. Most Funds of the
Group offer multiple classes of shares. The Conservative Allocation Fund and the
Aggressive Allocation Fund only offer Institutional Shares, while the Balanced
Allocation Fund offers Investor A Shares, Investor B Shares, Investor C Shares
and Institutional Shares. This Prospectus describes Institutional Shares of each
of the LifeWorks Funds. Interested persons who wish to obtain a copy of the
Prospectus of the other classes of shares of the Group's Funds or a copy of the
Group's most recent Annual Report may contact the Group at the telephone number
shown above.
The investment objectives of each of the LifeWorks Funds are described in this
Prospectus and are summarized in the Prospectus Summary. First of America
Investment Corporation, Kalamazoo, Michigan ("First of America" or the
"Investment Adviser"), acts as the investment adviser to each of the Funds of
the Group. To provide investment advisory services for the LifeWorks Funds for
investments in foreign securities, First of America has entered into a
sub-investment advisory agreement with Gulfstream Global Investors, Ltd.,
Dallas, Texas ("Gulfstream" or the "Subadviser").
3 PROSPECTUS--Institutional Shares
<PAGE> 8
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Institutional Shares of the Balanced Allocation Fund,
the Conservative Allocation Fund and the Aggressive Allocation Fund.
These Funds represent three separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust which is registered as an
open-end, management investment company.
Purchase and Redemption of Shares
The public offering price of Institutional Shares of each Fund is equal to the
net asset value per share. There are no initial or contingent deferred sales
charges on Institutional Shares. Shares may be purchased through procedures
established by the Group's distributor, BISYS Fund Services, L.P. ("BISYS" or
the "Distributor"). Institutional Shares of one Fund of the Group may be
exchanged for Institutional Shares of another Fund of the Group at net asset
value, provided certain conditions are met. Shareholders may redeem their shares
by contacting their trust administrator or financial consultant responsible for
the account. See "HOW TO BUY INSTITUTIONAL SHARES," "EXCHANGE PRIVILEGE," "HOW
TO REDEEM INSTITUTIONAL SHARES" and "HOW SHARES ARE VALUED."
Minimum Purchase
For financial institutions, there is a $100,000 minimum initial purchase (based
on the public offering price) per Fund with no minimum subsequent investment.
Such minimum initial investment may be waived for certain purchasers. There is
no minimum requirement for individual shareholders on whose behalf the financial
institutions are purchasing Institutional Shares.
Investment Objectives
The Conservative Allocation Fund seeks current income and conservation of
capital, with a secondary objective of long-term capital growth. The Balanced
Allocation Fund seeks current income, long-term capital growth and conservation
of capital. The Aggressive Allocation Fund seeks capital appreciation and income
growth.
Investment Policies
Each Fund will invest in various types or classes of securities, including all
types of common stocks, fixed-income securities and securities convertible into
common stocks and cash or cash equivalents. The emphasis of investment in each
type of security varies among the LifeWorks Funds as described in this
Prospectus.
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a certain
amount of risk and may not be suitable for all investors. In addition, some
investment policies of the Funds may entail certain risks. See "RISK FACTORS AND
INVESTMENT TECHNIQUES."
Management of the Funds
First of America serves as investment adviser, and, with respect to a portion of
the Funds, Gulfstream serves as subadviser. First of America also serves as
sub-administrator. BISYS, a partnership owned by The BISYS Group, Inc., serves
as distributor and administrator. BISYS Fund Services Ohio, Inc. ("BISYS Ohio"
or the "Transfer Agent") serves as transfer agent, dividend paying agent and
fund accountant. Union Bank of California, N.A. ("Union Bank" or the
"Custodian"), formerly known as The Bank of California, N.A., serves as
custodian.
Dividends and Taxes
Dividends from net income are declared and paid monthly. Net realized capital
gains are distributed at least annually. Each of the Funds is treated as a
separate entity for federal income tax purposes and
PROSPECTUS--Institutional Shares 4
<PAGE> 9
intends to qualify as a "regulated investment company." Shareholders will be
advised at least annually as to the federal income tax consequences of
distributions made during the year.
FEE TABLES (INSTITUTIONAL SHARES)
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge (as a percentage of the offering price)................. None
Sales Charge on Reinvested Distributions..................................... None
Deferred Sales Charge on Redemptions......................................... None
Redemption Fees.............................................................. None
Exchange Fees................................................................ None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)*
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES EXPENSES EXPENSES
---------- ---- ------- -------
<S> <C> <C> <C> <C>
Conservative Allocation Fund.................... 0.70% 0.00% 0.35% 1.05%(1)
Balanced Allocation Fund........................ 0.75% 0.00% 0.41% 1.16%(1)
Aggressive Allocation Fund...................... 0.85% 0.00% 0.39% 1.24%(1)
</TABLE>
- ------------
* after expense reductions
(1) Certain purchases of the Funds through financial institutions may be subject
to fees for additional services provided to investors.
Management Fees and Total Expenses as a percentage of average net assets for the
Balanced Allocation Fund, absent the voluntary reduction of advisory fees, would
have been 1.00% and 1.41%, respectively. The annual percentages of Management
Fees and Total Expenses for the Conservative Allocation Fund and Aggressive
Allocation Fund are based on expected fees and expenses and expected voluntary
reductions. Absent the expected voluntary reduction of advisory fees, Management
Fees and Total Expenses for the Conservative Allocation Fund would be 1.00% and
1.35%, respectively. For the Aggressive Allocation Fund, they would be 1.00% and
1.39%, respectively. (See "MANAGEMENT OF THE FUNDS -- Investment Adviser and
Subadviser" and "Administrator, Sub-Administrator and Distributor").
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Institutional Shares, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
--- ---- ---- ----
<S> <C> <C> <C> <C>
Conservative Allocation Fund*.......................... $ 11 $33 -- --
Balanced Allocation Fund............................... $ 12 $37 $64 $ 141
Aggressive Allocation Fund*............................ $ 13 $39 -- --
</TABLE>
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* Because the Conservative Allocation Fund and the Aggressive Allocation Fund
are new Funds, expense example information is provided only for 1-year and
3-year periods.
The information set forth in the foregoing Fee Tables and expense examples
relates only to Institutional Shares of the Funds.
The purpose of the above tables is to assist a potential purchaser of
Institutional Shares of any of the LifeWorks Funds in understanding the various
costs and expenses that an investor in a Fund will bear directly or indirectly.
Such expenses do not include any fees charged by a financial institution,
including First of America or any of its affiliates, to its customer accounts
which may invest in Institutional Shares of the Funds. See "MANAGEMENT OF THE
FUNDS" and "GENERAL INFORMATION" for a more complete discussion of the annual
operating expenses of each of the Funds. The expense information for
Institutional Shares reflects current fees. THE FOREGOING EXAMPLES SHOULD NOT BE
CONSIDERED A
5 PROSPECTUS--Institutional Shares
<PAGE> 10
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The table on the following page sets forth certain information concerning the
investment results of the Institutional Shares of the Balanced Allocation Fund
since its inception. Further financial information regarding the Balanced
Allocation Fund is included in the Statement of Additional Information and the
Group's June 30, 1996 Annual Report to Shareholders which may be obtained free
of charge.
The Financial Highlights for the periods presented below have been derived from
financial statements audited by Coopers & Lybrand L.L.P., independent auditors
for the Group, whose report thereon is incorporated by reference in the
Statement of Additional Information.
On March 31, 1993, the shareholders of all of the then-existing Funds of the
Group, including the Balanced Allocation Fund, approved the reclassification of
such Funds' outstanding shares into Investor A Shares and Institutional Shares.
The financial information provided below and in the Annual Report includes
periods prior to such reclassification.
BALANCED ALLOCATION FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------
INSTITUTIONAL SHARES JAN. 31, 1992
-------------------------------------------------- TO
1996 1995(f) 1994 1993(b) JUNE 30, 1992(a)
-------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $12.19 $10.67 $11.08 $9.68 $10.00
----- ----- ----- ----- ---------
Income from Investment Activities
Net Investment Income (Loss)....................... 0.36 0.31 0.27 0.28 0.14
----- ----- ----- ----- ---------
Net Realized and Unrealized Gains (Losses) on
Investments...................................... 1.74 1.68 (0.41) 1.41 (0.34)
----- ----- ----- ----- ---------
Total from Investment Activities............... 2.10 1.99 (0.14) 1.69 (0.20)
----- ----- ----- ----- ---------
Distributions
Net Investment Income.............................. (0.35) (0.31) (0.27) (0.29) (0.12)
Net Realized Gains................................. (0.57) (0.03)
In Excess of Net Realized Gains.................... (0.13)
----- ----- ----- ----- ---------
Total Distributions............................ (0.92) (0.47) (0.27) (0.29) (0.12)
----- ----- ----- ----- ---------
NET ASSET VALUE, END OF PERIOD........................ $13.37 $12.19 $10.67 $11.08 $9.68
----- ----- ----- ----- ---------
----- ----- ----- ----- ---------
Total Return (excluding sales and redemption
charges)............................................. 17.81% 19.22% (1.44)% 17.66% (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000).................... $113,493 $89,294 $71,427 $42,318 $38,136
Ratio of Expenses to Average Net Assets............ 1.16% 1.25% 1.09% 1.15% 1.19%(c)
Ratio of Net Investment Income (Loss) to Average
Net Assets....................................... 2.62% 2.75% 2.49% 2.70% 3.46%(c)
Ratio of Expenses to Average Net Assets*........... 1.41% 1.52% 1.39% 1.46% 1.50%(c)
Ratio of Net Investment Income (Loss) to Average
Net Assets*...................................... 2.37% 2.47% 2.18% 2.40% 3.13%(c)
Portfolio Turnover Rate(d)......................... 437.90% 250.66% 192.39% 177.99% 47.58%
Average Commission Rate Paid(g).................... $0.0848
- ------------
<FN>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993 the shareholders of the Group exchanged their shares for
either the Group's Investor A Shares or Institutional Shares. For the year
ended June 30, 1993 the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities
and distributions are presented on the basis whereby the Fund's net
investment income, expenses, and distributions for the period July 1, 1992
through March 31, 1993 were allocated to each class of shares based upon the
relative net assets of each class of shares as of April 1, 1993 and the
results combined therewith the results of operations and distributions for
each applicable class for the period April 1, 1993 through June 30, 1993.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between classes of shares issued.
(e) Not annualized.
(f) As of January 1, 1995, Gulfstream assumed the role of subadviser with
respect to the portion of the Balanced Allocation Fund invested in foreign
securities. Prior to that date the Balanced Allocation Fund had no
subadviser.
(g) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
</TABLE>
PROSPECTUS--Institutional Shares 6
<PAGE> 11
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objective of each of the Funds is set forth below under the
headings describing the Funds. The investment objective of each Fund is
fundamental and may not be changed without a vote of the holders of a majority
of the outstanding shares of that Fund (as defined in the Statement of
Additional Information). The investment policies of a Fund may be changed
without a vote of the holders of a majority of outstanding shares of that Fund
unless the policy is expressly deemed to be a fundamental policy or changeable
only by such majority vote. There can be no assurance that the investment
objectives of any Fund will be achieved. Depending upon the performance of a
Fund's investments, the net asset value per share of that Fund may decrease
instead of increase.
During temporary defensive periods as determined by First of America or
Gulfstream, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic bank certificates of
deposit, bankers' acceptances and repurchase agreements secured by bank
instruments. However, to the extent that a Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
LIFEWORKS FUNDS
THE CONSERVATIVE ALLOCATION FUND, THE BALANCED ALLOCATION FUND AND THE
AGGRESSIVE ALLOCATION FUND
THE INVESTMENT OBJECTIVE OF THE CONSERVATIVE ALLOCATION FUND IS TO SEEK CURRENT
INCOME AND CONSERVATION OF CAPITAL, WITH A SECONDARY OBJECTIVE OF LONG-TERM
CAPITAL GROWTH. THE INVESTMENT OBJECTIVE OF THE BALANCED ALLOCATION FUND IS TO
SEEK CURRENT INCOME, LONG-TERM CAPITAL GROWTH AND CONSERVATION OF CAPITAL. THE
INVESTMENT OBJECTIVE OF THE AGGRESSIVE ALLOCATION FUND IS TO SEEK CAPITAL
APPRECIATION AND INCOME GROWTH.
The LifeWorks Funds may invest in any type or class of security. Under normal
market conditions the LifeWorks Funds will invest in common stocks, fixed-income
securities and securities convertible into common stocks (i.e., warrants,
convertible preferred stock, fixed-rate preferred stock, convertible fixed-
income securities, options and rights). The Conservative Allocation Fund
anticipates investing between 25% and 35% of its total assets in common stocks
and securities convertible into common stocks, between 35% and 75% of its total
assets in fixed-income securities and up to 45% of its total assets in cash and
cash equivalents. No more than 15% of the Conservative Allocation Fund's
investments will be in foreign securities. The Balanced Allocation Fund intends
to invest 45% to 65% of its total assets in common stocks and securities
convertible into common stocks, 25% to 55% of its total assets in fixed-income
securities and up to 30% of its total assets in cash and cash equivalents. Of
these investments, no more than 20% of the Fund's total assets will be in
foreign securities. The Aggressive Allocation Fund expects to invest between 50%
and 90% of its total assets in common stocks and securities convertible into
common stocks, between 15% and 40% of its total assets in fixed-income
securities and up to 25% of its total assets in cash and cash equivalents. The
Aggressive Allocation Fund may invest up to 25% in foreign securities.
For each of the Conservative Allocation Fund and Balanced Allocation Fund,
common stocks are held primarily for the purpose of providing long-term growth
of capital. When choosing such stocks, the potential for long-term capital
appreciation will be the primary basis for selection. The Aggressive Allocation
Fund will primarily invest in common stocks for capital appreciation and growth.
Each of the LifeWorks Funds will invest in the common and preferred stocks of
companies with capitalization of at least $100 million and which are traded
either in established over-the-counter markets or on national exchanges. The
LifeWorks Funds intend to invest primarily in those companies which are
growth-oriented and have exhibited consistent, above-average growth in revenues
and earnings.
The LifeWorks Funds' fixed-income securities consist of bonds, debentures,
notes, zero-coupon securities, mortgage-related securities, state, municipal or
industrial revenue bonds, obligations issued or
7 PROSPECTUS--Institutional Shares
<PAGE> 12
guaranteed by the U.S. government or its agencies or instrumentalities,
certificates of deposit, time deposits, high quality commercial paper, bankers'
acceptances and variable amount master demand notes. In addition, a portion of
each of the LifeWorks Funds assets may from time to time be invested in first
mortgage loans and participation certificates in pools of mortgages issued or
guaranteed by the U.S. government or its agencies or instrumentalities. Some of
the securities in which the LifeWorks Funds invest may have warrants or options
attached. The LifeWorks Funds may also invest in repurchase agreements.
The LifeWorks Funds expect to invest in a variety of U.S. Treasury obligations,
differing in their interest rates, maturities, and times of issuance, as well as
"stripped" U.S. Treasury obligations ("Stripped Treasury Obligations"), such as
Treasury receipts issued by the U.S. Treasury representing either future
interest or principal payments and other obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities. See "RISK FACTORS AND
INVESTMENT TECHNIQUES -- Government Obligations" below.
The LifeWorks Funds also expect to invest in bonds, notes and debentures of a
wide range of U.S. corporate issuers. Such obligations, in the case of
debentures, will represent unsecured promises to pay, and in the case of notes
and bonds, may be secured by mortgages on real property or security interests in
personal property and will in most cases differ in their interest rates,
maturities and times of issuance.
The LifeWorks Funds will invest only in corporate fixed-income securities which
are rated at the time of purchase within the four highest rating groups assigned
by a nationally-recognized statistical rating organization ("NRSRO") or, if
unrated, which First of America deems present attractive opportunities and are
of comparable quality. For a description of the rating symbols of the NRSROs,
see the Appendix to the Statement of Additional Information. For a discussion of
fixed-income securities rated within the fourth highest rating group assigned by
an NRSRO, see "RISK FACTORS AND INVESTMENT TECHNIQUES -- Medium-Grade
Securities" herein.
The LifeWorks Funds may hold some short-term obligations (with maturities of 12
months or less) consisting of domestic and foreign commercial paper, variable
amount master demand notes, bankers' acceptances, certificates of deposit and
time deposits of domestic and foreign branches of U.S. banks and foreign banks,
and repurchase agreements. The LifeWorks Funds may also invest in securities of
other investment companies.
The LifeWorks Funds may also invest in obligations of the Export-Import Bank of
the United States, in U.S. dollar-denominated international bonds for which the
primary trading market is in the United States ("Yankee Bonds"), or for which
the primary trading market is abroad ("Eurodollar Bonds"), and in Canadian bonds
and bonds issued by institutions, such as the World Bank and the European
Economic Community, organized for a specific purpose by two or more sovereign
governments ("Supranational Agency Bonds"). The LifeWorks Funds' investments in
foreign securities may be made either directly or through the purchase of ADRs
and the LifeWorks Funds may also invest in securities issued by foreign branches
of U.S. banks and foreign banks, in CCP, and in Europaper.
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon First of America's assessment of business, economic and
market conditions, including any potential advantage of price shifts between the
stock market and the bond market. The LifeWorks Funds reserve the right to hold
short-term securities in whatever proportion deemed desirable for temporary
defensive periods during adverse market conditions as determined by First of
America. However, to the extent that any of the LifeWorks Funds are so invested,
its investment objective may not be achieved during that time.
Like any investment program, investment in any of the LifeWorks Funds entails
certain risks. As Funds investing in common stocks, the LifeWorks Funds are
subject to stock market risk, i.e., the possibility that stock prices in general
will decline over short or even extended periods.
Since the LifeWorks Funds also invest in bonds, investors in the Funds are also
exposed to bond market risk, i.e., fluctuations in the market value of bonds.
Bond prices are influenced primarily by changes in interest rate levels. When
interest rates rise, the prices of bonds generally fall; conversely, when
interest
PROSPECTUS--Institutional Shares 8
<PAGE> 13
rates fall, bond prices generally rise. While bonds normally fluctuate less in
price than stock, there have been extended periods of cyclical increases in
interest rates that have caused significant declines in bond prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result the LifeWorks
Funds, with their balance of common stock and bond investments, are expected to
entail less investment risk (and a potentially smaller investment return) than
mutual funds investing exclusively in common stocks.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
THE CONSERVATIVE ALLOCATION FUND, THE BALANCED ALLOCATION FUND AND
THE AGGRESSIVE ALLOCATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Medium-Grade -Mortgage-Related Securities -Other Mutual Funds
Securities
- -Portfolio Turnover -Put and Call Options -Repurchase Agreements
- -Restricted Securities -Reverse Repurchase Agreements -When-Issued and
and Dollar Roll Agreements Delayed-Delivery Transactions
</TABLE>
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase agreements with First of America
Bank-Michigan, N.A. ("FOA-Michigan," the parent corporation of First of
America), BISYS, or their affiliates, and will not give preference to
FOA-Michigan's correspondents with respect to such transactions, securities,
savings deposits, repurchase agreements and reverse repurchase agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by First of America and Gulfstream in
the management of each of the Funds involve complex securities sometimes
referred to as "derivatives." Among such securities are put and call options,
foreign currency transactions and futures contracts, all of which are described
below. The Investment Adviser and Subadviser believe that such complex
securities may, in some circumstances, play a valuable role in successfully
implementing each Fund's investment strategy and achieving its goals. However,
because complex securities and the strategies for which they are used, are by
their nature complicated, they present substantial opportunities for
misunderstanding and misuse. To guard against these risks, the Investment
Adviser and Subadviser will utilize complex securities primarily for hedging,
not speculative, purposes and only after careful review of the unique risk
factors associated with each such security.
FOREIGN SECURITIES
Each of the LifeWorks Funds may invest a portion of its total assets in foreign
securities. Investment in foreign securities is subject to special investment
risks that differ in some respects from those related to investments in
securities of U.S. domestic issuers. Such risks include political, social or
economic instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation, and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Such securities may be subject to greater fluctuations in
price than securities issued by U.S. corporations or issued or guaranteed by the
U.S. government, its agencies or instrumentalities. The markets on which such
securities trade may have
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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 U.S. Confiscatory taxation or diplomatic
developments could also affect investment in those countries. In addition,
foreign branches of U.S. banks, foreign banks and foreign issuers may be subject
to less stringent reserve requirements and to different accounting, auditing,
reporting, and recordkeeping standards than those applicable to domestic
branches of U.S. banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after such Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater.
U.S. dollar-denominated American Depository Receipts ("ADRs"), which are traded
in the United States on exchanges or over-the-counter, are issued by domestic
banks. ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. ADRs do not eliminate all
of the risk inherent in investing in the securities of foreign issuers. However,
by investing in ADRs rather than directly in foreign issuers' stock, a Fund can
avoid currency risks during the settlement period for either purchases or sales.
In general, there is a large, liquid market in the United States for many ADRs.
The information available for ADRs is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which they
are traded, standards which are more uniform and more exacting than those to
which many foreign issuers may be subject. Each of the LifeWorks Funds may also
invest in European Depository Receipts ("EDRs"), which are receipts evidencing
an arrangement with a European bank similar to that for ADRs and designed for
use in the European securities markets. EDRs are not necessarily denominated in
the currency of the underlying security.
Certain of the ADRs and EDRs, typically those categorized as unsponsored,
require their holders to bear most of the costs of such facilities while issuers
of sponsored facilities normally pay more of the costs. The depository of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through the voting rights to facility holders with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
Subject to its applicable investment policies, each of the LifeWorks Funds may
invest in debt securities denominated in the ECU, which is a "basket" unit of
currency consisting of specified amounts of the currencies of certain of the
member states of the European Community. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community to reflect changes in relative values of the underlying currencies.
Such adjustments may adversely affect holders of ECU-denominated obligations or
the marketability of such securities. European governments and supranationals,
in particular, issue ECU-denominated obligations.
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FOREIGN CURRENCY TRANSACTIONS
Each of the LifeWorks Funds may utilize foreign currency transactions in its
portfolio. The value of the assets of a Fund as measured in United States
dollars may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations, and a Fund may incur costs in
connection with conversions between various currencies. A Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract ("forward currency contracts") involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These forward currency contracts are
traded directly between currency traders (usually large commercial banks) and
their customers. The LifeWorks Funds may enter into forward currency contracts
in order to hedge against adverse movements in exchange rates between
currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency, or when a Fund believes that the U.S. dollar may suffer a substantial
decline against a 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. A Fund may also hedge its foreign currency exchange rate risk by
engaging in currency financial futures and options transactions.
The forecasting of short-term currency market movement is extremely difficult
and whether such a short-term hedging strategy will be successful is highly
uncertain. It is impossible to forecast with precision the market value of
portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency such Fund is obligated
to deliver when a decision is made to buy the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency such Fund is obligated to deliver.
If any of the LifeWorks Funds retains the portfolio security and engages in an
offsetting transaction, such Fund will incur a gain or a loss (as described
below) to the extent that there has been movement in forward currency contract
prices. If the Fund engages in an offsetting transaction, it may subsequently
enter into a new forward currency contract to sell the foreign currency. If
forward prices decline during the period between which a Fund enters into a
forward currency contract for the sale of foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign currency,
such Fund would realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to purchase. If
forward prices increase, such Fund would suffer a loss to the extent the price
of the currency it has agreed to purchase exceeds the price of the currency it
has agreed to sell. Although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, they also tend to limit
any potential gain which might result if the value of such currency increases.
The Funds will have to convert their holdings of foreign currencies into United
States dollars from time to time. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies.
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<PAGE> 16
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments" in
the Statement of Additional Information.
FUTURES CONTRACTS
The LifeWorks Funds may also enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, a Fund can seek through the sale of
futures contracts to offset a decline in the value of its portfolio securities.
When interest rates are expected to fall or market values are expected to rise,
a Fund, through the purchase of such contracts, can attempt to secure better
rates or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of a Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities or foreign currencies,
limiting the Fund's ability to hedge effectively against interest rate, exchange
rate and/or market risk and giving rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
GOVERNMENT OBLIGATIONS
Each of the LifeWorks Funds may invest in obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities.
The types of U.S. government obligations in which each of the LifeWorks Funds
may invest include U.S. Treasury notes, bills, bonds, and any other securities
directly issued by the U.S. government for public investment, which differ only
in their interest rates, maturities, and times of issuance. Stripped Treasury
Obligations are also permissible investments. Stripped securities are issued at
a discount to their "face value" and may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors.
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the right of
the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association ("SLMA"), are supported by the discretionary
authority of the U.S. government to purchase
PROSPECTUS--Institutional Shares 12
<PAGE> 17
the agency's obligations; still others, such as those of the Federal Farm Credit
Banks or the Federal Home Loan Mortgage Corporation ("FHLMC"), are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. government would provide financial support to U.S. government-sponsored
agencies or instrumentalities if it is not obligated to do so by law. The
LifeWorks Funds will invest in the obligations of such agencies or
instrumentalities only when First of America believes that the credit risk with
respect thereto is minimal.
MEDIUM-GRADE SECURITIES
Each of the LifeWorks Funds may invest in fixed-income securities rated within
the fourth highest rating group assigned by an NRSRO (i.e., BBB or Baa by S&P
and Moody's, respectively) and comparable unrated securities as determined by
the Investment Adviser. These types of fixed-income securities are considered by
the NRSROs to have some speculative characteristics, and are more vulnerable to
changes in economic conditions, higher interest rates or adverse issuer-specific
developments which are more likely to lead to a weaker capacity to make
principal and interest payments than comparable higher rated debt securities.
Should subsequent events cause the rating of a fixed-income security purchased
by any of the Funds listed above to fall below the fourth highest rating, First
of America will consider such an event in determining whether the Fund should
continue to hold that security. In no event, however, would the Fund be required
to liquidate any such portfolio security where the Fund would suffer a loss on
the sale of such security.
MORTGAGE-RELATED SECURITIES
Each of the LifeWorks Funds may invest in mortgage-related securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities. Such
agencies or instrumentalities include GNMA, FNMA and FHLMC. Each of the
LifeWorks Funds may also invest in mortgage-related securities issued by non-
governmental entities which are rated, at the time of purchase, within the three
highest bond rating categories assigned by an NRSRO or, if unrated, which First
of America deems present attractive opportunities and are of comparable quality.
The mortgage-related securities in which the these Funds may invest have
mortgage obligations backing such securities, consisting of conventional
thirty-year fixed-rate mortgage obligations, graduated payment mortgage
obligations, fifteen-year mortgage obligations and adjustable-rate mortgage
obligations. All of these mortgage obligations can be used to create
pass-through securities. A pass-through security is created when mortgage
obligations are pooled together and undivided interests in the pool or pools are
sold. The cash flow from the mortgage obligations is passed through to the
holders of the securities in the form of periodic payments of interest,
principal and prepayments (net of a service fee). Prepayments occur when the
holder of an individual mortgage obligation prepays the remaining principal
before the mortgage obligation's scheduled maturity date. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Because the prepayment
characteristics of the underlying mortgage obligations vary, it is not possible
to predict accurately the realized yield or average life of a particular issue
of pass-through certificates. Prepayment rates are important because of their
effect on the yield and price of the securities. Accelerated prepayments have an
adverse impact on yields for pass-throughs purchased at a premium (i.e., a price
in excess of principal amount) and may involve additional risk of loss of
principal because the premium may not have been fully amortized at the time the
obligation is repaid. The opposite is true for pass-throughs purchased at a
discount. The Funds may purchase mortgage-related securities at a premium or at
a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
13 PROSPECTUS--Institutional Shares
<PAGE> 18
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, though, the rate of prepayment tends to decrease, thereby lengthening
the period of time over which income at the lower rate is received. For these
and other reasons, a mortgage-related security's average maturity may be
shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Fund. In addition, regular payments received with respect to mortgage-related
securities include both interest and principal. No assurance can be given as to
the return a Fund will receive when these amounts are reinvested.
The principal governmental (i.e., backed by the full faith and credit of the
United States government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Administration
or guaranteed by the Veterans Administration.
Government-related (i.e., not backed by the full faith and credit of the United
States government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States government. FHLMC is a corporate instrumentality of the
United States government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States government.
Mortgage-related securities in which the LifeWorks Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
OTHER MUTUAL FUNDS
Each of the LifeWorks Funds may invest up to 5% of the value of its total assets
in the securities of any one money market mutual fund (including shares of the
Parkstone Money Market Funds), provided that no more than 10% of a Fund's total
assets may be invested in the securities of mutual funds in the aggregate. In
order to avoid the imposition of additional fees as a result of investments by a
Fund in shares of the Money Market Funds of the Group, the Investment Adviser,
Administrator and their affiliates (See "MANAGEMENT OF THE FUNDS -- Investment
Adviser and Subadviser" and "Administrator, Sub-Administrator and Distributor"
and "GENERAL INFORMATION -- Transfer Agency and Fund Accounting Services") will
charge their fees to the LifeWorks Funds, rather than the Money Market Funds.
Each Fund will incur additional expenses due to the duplication of expenses as a
result of any investment in securities of unaffiliated mutual funds. Additional
restrictions regarding the Funds' investments in securities of unaffiliated
mutual funds and/or Money Market Funds of the Group are contained in the
Statement of Additional Information.
PUT AND CALL OPTIONS
Each of the LifeWorks Funds may purchase put and call options on securities and
on foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to
PROSPECTUS--Institutional Shares 14
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its portfolio securities and adverse movements in exchange rates between
currencies, respectively. Purchasing options is a specialized investment
technique that entails a substantial risk of a complete loss of the amounts paid
as premiums to writers of options. Each of the LifeWorks Funds may also engage
in writing call options from time to time as First of America or Gulfstream deem
appropriate. The Funds will write only covered call options (options on
securities or currencies owned by the particular Fund). In order to close out a
call option it has written, the Fund will enter into a "closing purchase
transaction" (the purchase of a call option on the same security or currency
with the same exercise price and expiration date as the call option which such
Fund previously has written). When a portfolio security or currency subject to a
call option is sold, the Fund will effect a closing purchase transaction to
close out any existing call option on that security or currency. If such Fund is
unable to effect a closing purchase transaction, it will not be able to sell the
underlying security or currency until the option expires or that Fund delivers
the underlying security or currency upon exercise. In addition, upon the
exercise of a call option by the option holder, the Fund will forego the
potential benefit represented by market appreciation over the exercise price.
Under normal conditions, it is not expected that the Funds will cause the
underlying value of portfolio securities and currencies subject to such options
to exceed 20% of its net assets.
Each of the LifeWorks Funds, as part of its options transactions, also may
purchase index put and call options and write index options. As with options on
individual securities, a Fund will write only covered index call options.
Through the writing or purchase of index options a Fund can achieve many of the
same objectives as through the use of options on individual securities. Options
on securities indices are similar to options on a security except that, rather
than the right to take or make delivery of a security at a specified price, an
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the securities
index upon which the option is based is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
REPURCHASE AGREEMENTS
Securities held by each of the LifeWorks Funds may be subject to repurchase
agreements. Under the terms of a repurchase agreement, a Fund would acquire
securities from financial institutions such as member banks of the Federal
Deposit Insurance Corporation or registered broker-dealers which First of
America or Gulfstream, as the case may be, deem creditworthy under guidelines
approved by the Group's Board of Trustees, subject to the seller's agreement to
repurchase such securities at a mutually agreed upon date and price. The
repurchase price would generally equal the price paid by the Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. Securities subject to
repurchase agreements will be held in a segregated account. If the seller were
to default on its repurchase obligation or become insolvent, the Fund would
suffer a loss to the extent that the proceeds from a sale of the underlying
portfolio securities were less than the repurchase price under the agreement, or
to the extent that the disposition of such securities by that Fund were delayed
pending court action. Repurchase agreements are considered to be loans by an
investment company under the Investment Company Act of 1940 (the "1940 Act").
For further information about repurchase agreements, see "INVESTMENT OBJECTIVES
AND POLICIES -- Additional Information on Portfolio Instruments-Repurchase
Agreements" in the Statement of Additional Information.
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<PAGE> 20
RESTRICTED SECURITIES
Securities in which each of the LifeWorks Funds may invest include securities
issued by corporations without registration under the Securities Act of 1933, as
amended (the "1933 Act"), in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and securities issued in reliance on the
so-called "private placement" exemption from registration which is afforded by
Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2)
securities are restricted as to disposition under the federal securities laws,
and generally are sold to institutional investors such as the Funds who agree
that they are purchasing the securities for investment and not with a view to
public distribution. Any resale must also generally be made in an exempt
transaction. Section 4(2) securities are normally resold to other institutional
investors through or with the assistance of the issuer or investment dealers who
make a market in such Section 4(2) securities, thus providing liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group, First of
America may determine Section 4(2) securities to be liquid if such securities
are eligible for resale under Rule 144A under the 1933 Act and are readily
saleable.
Subject to the limitations described above, the LifeWorks Funds may acquire
investments that are illiquid or of limited liquidity, such as private
placements or investments that are not registered under the 1993 Act. An
illiquid investment is any investment that cannot be disposed of within seven
(7) days in the normal course of business at approximately the amount at which
it is valued by a Fund. The price a Fund pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly, the valuation of these
securities will reflect any limitations on their liquidity. A Fund may not
invest in additional illiquid securities if, as a result, more than 15% of the
market value of its net assets would be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS
Each of the LifeWorks Funds may borrow money by entering into reverse repurchase
agreements in accordance with the investment restrictions described below.
Pursuant to reverse repurchase agreements, a Fund would sell certain of its
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase the securities at a mutually agreed upon date and price. At the
time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. government securities or other
liquid high-grade debt securities consistent with its investment restrictions
having a value equal to the repurchase price (including accrued interest), and
will subsequently continually monitor the account to ensure that such equivalent
value is maintained at all times. Reverse repurchase agreements involve the risk
that the market value of securities sold by a Fund may decline below the price
at which it is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings by an investment company under the
1940 Act and therefore a form of leverage. A Fund may experience a negative
impact on its net asset value if interest rates rise during the term of a
reverse repurchase agreement. A Fund generally will invest the proceeds of such
borrowings only when such borrowings will enhance a Fund's liquidity or when the
Fund reasonably expects that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. For further information about reverse repurchase agreements, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments-Reverse Repurchase Agreements" in the Statement of Additional
Information.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the LifeWorks Funds may purchase securities on a when-issued or
delayed-delivery basis. Such Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with its investment objectives and policies, not for
investment leverage although such transactions represent a form of leveraging.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve a risk that the
yield obtained in the transaction will be less than those available in the
market when delivery takes place. A Fund will not pay for such securities or
start earning interest on them until they are received. When a Fund agrees to
purchase such securities, its Custodian will set aside cash or liquid
PROSPECTUS--Institutional Shares 16
<PAGE> 21
securities equal to the amount of the commitment in a separate account.
Securities purchased on a when-issued basis are recorded as an asset and are
subject to changes in the value based upon changes in the general level of
interest rates. In when-issued and delayed-delivery transactions, a Fund relies
on the seller to complete the transaction; the seller's failure to do so may
cause such Fund to miss a price or yield considered to be advantageous.
No Fund's commitments to purchase "when-issued" securities will exceed 25% of
the value of its total assets under normal market conditions, and a commitment
by a Fund to purchase "when-issued" securities will not exceed 60 days. In the
event its commitments to purchase "when-issued" securities ever exceeded 25% of
the value of its assets, a Fund's liquidity and the ability of First of America
or Gulfstream, as the case may be, to manage it might be adversely affected. The
LifeWorks Funds intend only to purchase "when-issued" securities for the purpose
of acquiring portfolio securities, not for investment leverage although such
transactions represent a form of leveraging.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each of the LifeWorks Funds may, from
time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. government securities. This collateral will be valued
daily by First of America or by Gulfstream, as the case may be. Should the
market value of the loaned securities increase, the borrower must furnish
additional collateral to that Fund. During the time portfolio securities are on
loan, the borrower pays that Fund any dividends or interest received on such
securities. Loans are subject to termination by the Fund or the borrower at any
time. While a Fund does not have the right to vote securities on loan, each Fund
intends to terminate the loan and regain the right to vote if that is considered
important with respect to the investment. In the event the borrower defaults in
its obligation to a Fund, such Fund bears the risk of delay in the recovery of
its portfolio securities and the risk of loss of rights in the collateral. The
LifeWorks Funds will enter into loan agreements only with broker-dealers, banks,
or other institutions that First of America or Gulfstream, as the case may be,
have determined are creditworthy under guidelines established by the Group's
Board of Trustees.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The SEC requires that the
calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less. For portfolio turnover rates for the Balanced
Allocation Fund, see "FINANCIAL HIGHLIGHTS" above. During their initial year of
operation, the Conservative Allocation Fund and the Aggressive Allocation Fund
do not anticipate that their turnover rates will exceed 600% and 500%,
respectively.
The portfolio turnover rate for a Fund may vary greatly from year to year, as
well as within a particular year, and may also be affected by cash requirements
for redemptions of shares. High portfolio turnover rates will generally result
in higher transaction costs, including brokerage commissions, to a Fund and may
result in additional tax consequences to a Fund's shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
INVESTMENT RESTRICTIONS
Each of the LifeWorks Funds is subject to a number of investment restrictions
that may be changed only by a vote of a majority of the outstanding shares of
that Fund (as defined in the Statement of Additional Information).
None of the LifeWorks Funds will:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in such issuer, or the Fund would hold more
17 PROSPECTUS--Institutional Shares
<PAGE> 22
than 10% of the outstanding voting securities of the issuer, except that 25%
or less of the value of such Fund's total assets may be invested without
regard to such limitations. There is no limit to the percentage of assets
that may be invested in U.S. Treasury bills, notes, or other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
2. Purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the
U.S. government or its agencies or instrumentalities; (b) wholly-owned
finance companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities of
their parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
3. (a) Borrow money (not including reverse repurchase agreements), except that
each Fund may borrow from banks for temporary or emergency purposes and then
only in amounts up to 30% of its total assets at the time of borrowing (and
provided that such bank borrowings and reverse repurchase agreements do not
exceed in the aggregate one-third of the Fund's total assets less liabilities
other than the obligations represented by the bank borrowings or reverse
repurchase agreements), or mortgage, pledge or hypothecate any assets except
in connection with a bank borrowing in amounts not to exceed 30% of the
Fund's net assets at the time of borrowing; (b) enter into reverse repurchase
agreements and other permitted borrowings in amounts exceeding in the
aggregate one-third of the Fund's total assets less liabilities other than
the obligations represented by such reverse repurchase agreements; and (c)
issue senior securities except as permitted by the 1940 Act or any rule,
order or interpretation thereunder.
4. Make loans, except that a Fund may purchase or hold debt instruments and lend
portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding shares of a Fund.
Each LifeWorks Fund will not:
1. Purchase or otherwise acquire any securities, if as a result, more than 15%
of the Fund's net assets would be invested in securities that are illiquid.
In addition to the above investment restrictions, the LifeWorks Funds are
subject to certain other investment restrictions set forth under "INVESTMENT
OBJECTIVES AND POLICIES--Investment Restrictions" in the Statement of Additional
Information.
MANAGEMENT OF THE FUNDS
TRUSTEES
Overall responsibility for management of the Group rests with its Board of
Trustees, who are elected by the shareholders of all of the Group's Funds. The
Group will be managed by the Trustees in accordance with the laws of the
Commonwealth of Massachusetts governing business trusts. There are currently
four Trustees, three of whom are not "interested persons" of the Group within
the meaning of that term under the 1940 Act. The Trustees, in turn, elect the
officers of the Group to supervise actively its day-to-day operations.
The Trustees of the Group are George R. Landreth* (Chairman), Robert M. Beam,
Lawrence D. Bryan and Adrian Charles Edwards. The addresses, and principal
occupations during the past five years of the Trustees are set forth in the
Statement of Additional Information. The Trustee designated with an asterisk (*)
is considered to be an "interested person" of the Group as defined in the 1940
Act.
PROSPECTUS--Institutional Shares 18
<PAGE> 23
The Trustees of the Group receive quarterly fees and fees and expenses for each
meeting of the Board of Trustees attended. However, no officer or employee of
BISYS, The BISYS Group, Inc. or BISYS 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. BISYS Ohio, an
affiliate of BISYS, receives fees from the Group for acting as Transfer Agent
and for providing certain fund accounting services. Mr. Landreth is an employee
of BISYS.
INVESTMENT ADVISER AND SUBADVISER
First of America was established in 1932 and is the investment adviser of the
Group. First of America, a registered investment adviser, is a wholly-owned
subsidiary of FOA-Michigan, which is a wholly-owned subsidiary of First of
America Bank Corporation ("FABC"). FABC currently has over $22 billion in assets
and provides financial services to over 300 communities in Michigan, Indiana,
Illinois and Florida. As of June 30, 1996, First of America managed over $13
billion on behalf of both taxable and tax-exempt clients, including pensions,
endowments, corporations and individual portfolios. First of America acts as
subadviser to the Trust Division of FABC with respect to $5.7 billion in
discretionary assets, providing equity, fixed income, balanced and money
management services.
Subject to such policies as the Group's Board of Trustees may determine, First
of America, either directly or through Gulfstream, furnishes a continuous
investment program for each of the LifeWorks Funds and makes investment
decisions on behalf of each Fund.
First of America utilizes a team approach to the investment management of the
Funds, with up to three professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
each Fund's investment objectives. Roger H. Stamper, Managing Director of First
of America, is primarily responsible for the day-to-day management of each of
the LifeWorks Funds. Mr. Stamper has been with First of America since 1988.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, First of America receives a fee from each of
the LifeWorks Funds, computed daily and paid monthly, at the annual rate of
1.00% of the Fund's average daily net assets. First of America may periodically
voluntarily reduce all or a portion of its advisory fee with respect to a Fund
to increase the net income of that Fund available for distribution as dividends.
The voluntary fee reduction will cause the yield of that Fund to be higher than
it would otherwise be in the absence of such a reduction.
Pursuant to the terms of its Investment Advisory Agreement with the Group, First
of America has entered into a Sub-Investment Advisory Agreement with Gulfstream,
100 Crescent Court, Suite 550, Dallas, Texas 75201. Pursuant to the terms of
such Sub-Investment Advisory Agreement, Gulfstream has been retained by First of
America to manage the investment and reinvestment of those assets of the
LifeWorks Funds which are invested in foreign securities, subject to the
direction and control of the Group's Board of Trustees.
Under this arrangement, Gulfstream is responsible for day-to-day management of
the applicable portion of the LifeWorks Funds, reviewing investment performance
policies and guidelines and maintaining certain books and records, and First of
America is responsible for selecting and monitoring the performance of
Gulfstream and for reporting the activities of Gulfstream in managing these
Funds to the Group's Board of Trustees. Gulfstream utilizes a team approach to
investment management to ensure a disciplined investment process designed to
result in long-term performance consistent with a Fund's investment objective.
No one person is responsible for a Fund's management.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with First of America, Gulfstream receives from First of
America a fee, computed daily and paid monthly, at the annual rate of 0.50% of
the first $50 million of the average daily net assets of each of the LifeWorks
Funds which are invested in foreign securities, 0.45% of such average daily net
assets between $50 million and $100 million, 0.40% of such average daily net
assets between $100 million and
19 PROSPECTUS--Institutional Shares
<PAGE> 24
$400 million and 0.30% of such average daily net assets above $400 million,
provided the minimum annual fee shall be $75,000.
Gulfstream was organized in 1991 as a Texas limited partnership by Tull, Doud,
Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is the sole general
partner of Gulfstream. TDMT is owned by C. Thomas Tull, Stephen C. Doud, James
P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and Triltsch are the
portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. First of America is the sole limited partner, and as of August 31,
1996 exercised options to increase its interest in Gulfstream from 49% to 72%.
As of June 30, 1996, Gulfstream had over $596 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 20 years of investment experience and 9 years of
international investment experience.
Under Gulfstream's partnership agreement, First of America possesses veto
authority over the general budgetary affairs of Gulfstream. Because of its
current 72% ownership interest, First of America is deemed to control Gulfstream
for purposes of the 1940 Act.
For further information regarding the relationship between Gulfstream and First
of America, see "MANAGEMENT OF THE GROUP--Investment Adviser" in the Statement
of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each of
the LifeWorks Funds, and also acts as the Group's principal underwriter and
distributor (the "Administrator" or the "Distributor," as the context
indicates). First of America serves as Sub-Administrator for each Fund of the
Group and provides certain services as may be requested by BISYS from time to
time. BISYS and its affiliated companies, including BISYS 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
recordkeeping services to and through banking and other financial organizations.
The Administrator generally assists in all aspects of the LifeWorks Funds'
administration and operation. For expenses assumed and services provided as
administrator pursuant to its Administration Agreement with the Group, the
Administrator receives a fee from each Fund equal to the lesser of a fee,
computed daily and paid periodically at an annual rate of 0.20% of the Fund's
average daily net assets, or such other fee as may be agreed upon from time to
time in writing by the Group and the Administrator. For its services as
Sub-Administrator, First of America receives, from the Administrator, pursuant
to its Sub-Administration Agreement with BISYS, a fee not to exceed 0.05% of
each Fund's average daily net assets. The Administrator may periodically
voluntarily reduce all or a portion of its administrative fee with respect to a
Fund to increase the net income of that Fund available for distribution as
dividends. The voluntary fee reduction will cause the return of that Fund to be
higher than it would otherwise be in the absence of such reduction.
The Distributor acts as agent for the LifeWorks Funds in the distribution of
each of their shares and, in such capacity, solicits orders for the sale of
shares, advertises, and pays the cost of advertising, office space and its
personnel involved in such activities. The Distributor receives no compensation
under its Distribution Agreement with the Group.
EXPENSES
First of America, Gulfstream and BISYS each bear all expenses in connection with
the performance of its services as Investment Adviser, Subadviser and
Administrator, respectively, other than the cost of securities (including
brokerage commissions) purchased for the Group. Each of the LifeWorks Funds will
bear the following expenses relating to its operation: organizational expenses,
taxes, interest, brokerage fees and commissions, fees of the Trustees of the
Group, SEC fees, state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the Custodian, Transfer Agent and Fund
Accountant, certain insurance premiums,
PROSPECTUS--Institutional Shares 20
<PAGE> 25
costs of maintenance of the Group's existence, costs of shareholders' reports
and meetings, and any extraordinary expenses incurred in each Fund's operation.
As a general matter, expenses are allocated to the Institutional Shares and the
other classes of shares of the LifeWorks Funds on the basis of the relative net
asset value of each class. The various classes may bear certain additional
retail transfer agency expenses and may, in the case of Investor A Shares,
Investor B Shares, and Investor C Shares, 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 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 Ohio, 3435 Stelzer Road, Columbus, Ohio 43219, serves as the Group's
transfer agent pursuant to a Transfer Agency Agreement with the Group and
receives a fee for such services. BISYS Ohio also provides certain accounting
services for each of the LifeWorks Funds and receives a fee for such services.
See "MANAGEMENT OF THE GROUP--Custodian, Transfer Agent and Fund Accounting
Services" in the Statement of Additional Information for further information.
While BISYS Ohio is a distinct legal entity from BISYS (the Group's
administrator and distributor), BISYS Ohio is considered to be an affiliated
person of BISYS under the 1940 Act due to, among other things, the fact that
BISYS Ohio and BISYS are both owned by The BISYS Group, Inc.
BANKING LAWS
First of America believes that it may perform the investment advisory services
for the Group's Funds contemplated by the Investment Advisory Agreement and by
this Prospectus without violating applicable banking laws or regulations. Future
changes in federal or state statutes and regulations relating to permissible
activities of banks or bank holding companies and their subsidiaries and
affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which First of America could continue to perform such services for the
Group. See the Statement of Additional Information ("MANAGEMENT OF THE
GROUP--Glass-Steagall Act") for further discussion.
HOW TO BUY INSTITUTIONAL SHARES
Institutional Shares may be purchased through procedures established by the
Distributor in connection with the requirements of customer accounts maintained
by or on behalf of certain financial institutions acting as fiduciary or agent
for their customers ("Customer Accounts"). These procedures may include
instructions under which a Customer Account is "swept" automatically no less
frequently than weekly and amounts in excess of a minimum amount agreed upon by
the financial institution and the customer are invested by the Distributor in
Institutional Shares of the Money Market Funds, depending upon the type of
Customer Account and/or the instructions of the customer.
Institutional Shares of the Group sold to financial institutions acting in a
fiduciary, advisory, custodial, or other similar capacity on behalf of customers
will normally be held of record by the financial institution. With respect to
Institutional Shares of the Group so sold, it is the responsibility of the
particular financial institution to transmit purchase or redemption orders to
the Distributor and to deliver federal funds for
21 PROSPECTUS--Institutional Shares
<PAGE> 26
purchase on a timely basis. Beneficial ownership of Institutional Shares of the
Group will be recorded by the financial institution and reflected in the account
statements provided by the financial institution to customers. A financial
institution may exercise voting authority for those Institutional Shares for
which it is granted authority by the customer.
Institutional Shares of each of the LifeWorks Funds are purchased at the net
asset value per share (see "HOW SHARES ARE VALUED") next determined after
receipt by the Distributor of an order to purchase Institutional Shares.
Purchases of Institutional Shares of a Fund will be effected only on a Business
Day (as defined in "HOW SHARES ARE VALUED") of the applicable Fund. An order
received prior to a Valuation Time on any Business Day will be executed at the
net asset value determined as of the next Valuation Time on the date of receipt.
An order received after the last Valuation Time on any Business Day will be
executed at the net asset value determined as of the next Valuation Time on the
next Business Day of that Fund. Institutional Shares of the LifeWorks Funds are
eligible to earn dividends on the first Business Day following the execution of
the purchase. All Institutional Shares continue to be eligible to earn dividends
through the day before their redemption.
An order to purchase Institutional Shares will be deemed to have been received
by the Distributor only when federal funds are available to the Group's
Custodian for investment. Federal funds are monies credited to a bank's account
within a Federal Reserve Bank. Payment for an order to purchase Institutional
Shares which is transmitted by federal funds wire will be available the same day
for investment by the Group's Custodian, if received prior to the last Valuation
Time (see "HOW SHARES ARE VALUED"). Purchases made by check or other means are
made at the price determined upon receipt of the purchase instrument. However,
proceeds from redeemed shares purchased by check will not be sent until the
method of payment has cleared. The Group strongly recommends that investors of
substantial amounts use federal funds to purchase Institutional Shares.
There is no sales charge imposed by the Group in connection with the purchase of
Institutional Shares of the LifeWorks Funds. Depending upon the terms of a
particular Customer Account, a financial institution may charge a Customer
Account fees for automatic investment and other cash management services
provided in connection with investment in the Group. Information concerning
these services and any charges may be obtained from the financial institutions.
This Prospectus should be read in conjunction with any such information received
from the financial institution.
The Group reserves the right to reject any order for the purchase of
Institutional Shares in whole or in part.
Confirmations of purchases and redemption of Institutional Shares of the Group
by financial institutions on behalf of their customers may be obtained from the
financial institutions. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Institutional Shares of the LifeWorks
Funds will not be issued.
EXCHANGE PRIVILEGE
The exchange privilege enables shareholders of Institutional Shares to acquire
Institutional Shares that are offered by another Fund of the Group with a
different investment objective. Except in the case of holders of Investor C
Shares wishing to exchange their shares for Investor A Shares of the Money
Market Funds, holders of shares of one class may not exchange their shares for
shares of another class. For example, holders of a Fund's Investor B Shares may
not exchange their shares for Institutional Shares, and holders of Institutional
Shares may not exchange their shares for Investor B Shares.
Holders of Institutional Shares of any of the Group's Funds may exchange those
Institutional Shares at net asset value without any sales charge for
Institutional Shares offered by any of the Group's other Funds, provided that
the shareholder making the exchange is eligible on the date of the exchange to
purchase Institutional Shares and the exchange is made in states where it is
legally authorized.
A financial institution should notify the Group of its desire to make an
exchange on behalf of a customer, and the Distributor will furnish the
shareholder with a current Prospectus of the Group and the appropriate
authorization form. Shareholders wishing to exercise their exchange privilege
should contact their trust
PROSPECTUS--Institutional Shares 22
<PAGE> 27
administrator or financial consultant responsible for the account. An exchange
is considered to be a sale of Institutional Shares on which a shareholder may
realize a capital gain or loss for federal income tax purposes.
HOW TO REDEEM YOUR INSTITUTIONAL SHARES
Shareholders may redeem their Institutional Shares without charge on any day
that net asset value is calculated (see "HOW SHARES ARE VALUED"). Redemptions
will be effected at the net asset value per share next determined after receipt
of a redemption request. Shareholders may request redemptions by contacting
their trust administrator or other financial consultant responsible for the
Customer Account.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a customer's Institutional Shares may be redeemed in accordance
with instructions and limitations pertaining to his or her Customer Account with
a financial institution. For example, if a customer has agreed with a bank to
maintain a minimum balance in his or her account with the bank, and the balance
in that account falls below that minimum, the customer may be obliged to redeem,
or the bank may redeem for and on behalf of the customer, all or part of the
customer's Institutional Shares of a Fund of the Group to the extent necessary
to maintain the required minimum balance.
Redemption orders are effected at the net asset value per share next determined
after the Institutional Shares are properly tendered for redemption, as
described above. Payment to shareholders for Institutional Shares redeemed will
be made within seven days after receipt by the Transfer Agent of the request for
redemption. However, to the greatest extent possible, requests from financial
institutions for next day payments upon redemption of Institutional Shares will
be honored if the request for redemption is received by the Transfer Agent
before 4:00 p.m., (Eastern Time), on a Business Day or, if received after 4:00
p.m., (Eastern Time), within two Business Days, unless it would be
disadvantageous to the Group or the shareholders of a Fund to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner. Shareholders should contact their trust administrator or other
financial consultant responsible for the account to determine the financial
institution's requirements for effectuating redemptions.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Group may suspend the right of
redemption or redeem Institutional Shares involuntarily if it appears
appropriate to do so in light of the Group's responsibilities under the 1940
Act.
HOW SHARES ARE VALUED
The net asset value of Institutional Shares of the LifeWorks Funds is determined
and priced as of the close of trading on the New York Stock Exchange ("NYSE") on
each Business Day (generally 4:00 p.m. Eastern Time). A "Business Day" is a day
on which the NYSE is open for trading and any other day other than a day on
which no shares are tendered for redemption and no order to purchase any shares
is received. Currently, the NYSE will not open in observance of the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding shares of such class. The net asset
value per share will fluctuate as the value of the investment portfolio of a
Fund changes.
The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. Foreign securities are valued
based on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. For further
23 PROSPECTUS--Institutional Shares
<PAGE> 28
information about valuation of investments, see "NET ASSET VALUE" in the
Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income for each of the LifeWorks Funds is declared monthly as a dividend to
shareholders at the close of business on the day of declaration and is paid
monthly. 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. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent at 3435 Stelzer Road,
Columbus, Ohio 43219, and will become effective with respect to dividends and
distributions having record dates after its receipt by the Transfer Agent.
Each of the LifeWorks Funds is treated as a separate entity for federal income
tax purposes. Each of the LifeWorks Funds intends to qualify as a "regulated
investment company" under the Code for so long as such qualification is in the
best interest of its shareholders and each intends to distribute all of its net
income and capital gains so that it is not required to pay federal income taxes
on amounts so distributed to shareholders.
To avoid federal income tax, the Code requires each of the LifeWorks Funds to
distribute each taxable year at least 90% of its investment company taxable
income and at least 90% of its exempt-interest income. In addition, to avoid
imposition of a non-deductible 4% excise tax, each Fund is required annually to
distribute, prior to calendar year end, 98% of taxable ordinary income on a
calendar year basis, 98% of capital gain net income realized in the twelve
months preceding October 31, and the balance of undistributed taxable ordinary
income and capital gain net income from the prior calendar year.
A shareholder receiving a distribution of ordinary income and/or an excess of
short-term capital gain over net long-term loss would treat it as a receipt of
ordinary income. The dividends-received deduction for corporations will apply to
the aggregate of such ordinary income distributions in the same proportion as
the aggregate dividends from domestic corporations, if any, received by that
Fund bear to its gross income. A shareholder will not be able to take the
dividends-received deduction unless that shareholder holds the shares for at
least 46 days.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to its shareholders as long-term capital gain
in the year in which it is received, regardless of how long the shareholder has
held shares. Such distributions are not eligible for the dividends-received
deduction.
Prior to purchasing shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of shares prior to the record
date will have the effect of reducing the per share net asset value of the
shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to taxation.
Taxes may be imposed on the LifeWorks Funds by foreign countries with respect to
income received on foreign securities. If more than 50% of the value of a Fund's
assets at the close of its taxable year consists of stocks or securities of
foreign corporations, the Fund may elect to treat any foreign income taxes it
paid as paid by its shareholders. In this case, shareholders generally will be
required to include in income their pro rata share of such taxes, but will then
be entitled to claim a credit or deduction for their share of such taxes.
However, a particular shareholder's ability to utilize such a credit will be
subject to certain limitations imposed by the Code. The LifeWorks Funds will
report to their shareholders each year the amount, if any, of foreign taxes per
share that they have elected to have treated as paid by their shareholders.
PROSPECTUS--Institutional Shares 24
<PAGE> 29
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made during the year.
PERFORMANCE INFORMATION
From time to time performance information for the LifeWorks Funds showing their
average annual total return, aggregate total return and/or yield may be
presented in advertisements, sales literature and shareholder reports. Such
performance figures are based on historical earnings and are not intended to
indicate future performance. Average annual total return of a class of shares in
any of the LifeWorks Funds will be calculated for the period since the
establishment of the Fund and will reflect the imposition of the maximum sales
charge, if any. Currently, only the Balanced Allocation Fund of the LifeWorks
Funds is offered with multiple classes of shares. Average annual total return is
measured by comparing the value of an investment in a class of shares in a Fund
at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions) and annualizing the result. Aggregate
total return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of annualized.
Yield of a class of shares will be computed by dividing a class of shares' net
investment income per share earned during a recent one-month period by that
class of shares' per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result. Each LifeWorks Fund may also present its
average annual total return, aggregate total return and yield, as the case may
be, excluding the effect of a sales charge, if any.
In addition, from time to time the LifeWorks Funds may present their respective
distribution rates for a class of shares in shareholder reports and in
supplemental sales literature which is accompanied or preceded by a prospectus.
Distribution rates will be computed by dividing the distribution per share of a
class made by a Fund over a twelve-month period by the maximum offering price
per share. The calculation of income in the distribution rate includes both
income and capital gains dividends and does not reflect unrealized gains or
losses, although a Fund may also present a distribution rate excluding the
effect of capital gains. The distribution rate differs from the yield, because
it includes capital gains which are often non-recurring in nature, whereas yield
does not include such items. Distribution rates may also be presented excluding
the effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Institutional Shares and the other classes of the LifeWorks Funds, if any.
Because of differences in the fees and/or expenses borne by different classes of
shares of the LifeWorks Funds, if any, the net yield and total return on
Institutional Shares may be different from that for another class of the same
Fund.
For example, net yield and total return on Investor A Shares is expected, at any
given time, to be lower than the net yield and total return on Institutional
Shares for the same period.
Investors may also judge the performance of any class of shares or Fund by
comparing or referencing it to the performance of various mutual fund or market
indices such as those published by various services including, but not limited
to, ratings published by Morningstar, Inc. In addition to performance
information, general information about the Funds that appears in such
publications may be included in advertisements, in sales literature and in
reports to shareholders. For further information regarding such services and
publications, see "ADDITIONAL INFORMATION--Performance Comparisons" in the
Statement of Additional Information.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, levels of operating expenses and changes in market conditions.
Consequently, total return and yield will fluctuate and are not necessarily
representative of future results. Any fees charged by FABC or any of its
affiliates with respect to customer accounts for investing in shares of the
Funds will not be included in performance calculations; such fees, if charged,
will reduce the actual performance from that quoted. In addition, if First of
America and BISYS voluntarily reduce all or a part of their respective fees, as
further discussed above,
25 PROSPECTUS--Institutional Shares
<PAGE> 30
the total return of such Fund will be higher than it would otherwise be in the
absence of such voluntary fee reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's Funds through FUNDATA(R), an Automated Voice
Response System, 24 hours a day by calling (800) 451-8377 from any touch-tone
phone. Shareholders may also speak directly with a Group representative,
employed by BISYS, during regular business hours.
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in 1987 and currently
offers eighteen Funds. The shares of each of the Funds of the Group, other than
its four Money Market Funds, two Tax-Free Income Funds, the Conservative
Allocation Fund and the Aggressive Allocation Fund, are offered in four separate
classes: Investor A Shares, Investor B Shares, Investor C Shares and
Institutional Shares. Shares of each of the two Tax-Free Income Funds are
offered in three separate classes: Investor A Shares, Investor B Shares and
Institutional Shares. Shares of each of the four Money Market Funds of the Group
are offered in two separate classes: Investor A Shares and Institutional Shares.
Shares of the Conservative Allocation Fund and the Aggressive Allocation Fund
currently only offer Institutional Shares. Each share represents an equal
proportionate interest in a Fund with other shares of the same Fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Trustees.
Shares do not have a par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by Fund except as otherwise
expressly required by law. For example, shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of Trustees and ratification of the selection of independent accountants.
However, shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve an investment and sub-investment advisory agreements and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Group may elect not to have an annual or special meeting.
The Group has represented to the SEC that the Trustees will call a special
meeting of shareholders for purposes of considering the removal of one or more
Trustees upon written request therefor from shareholders holding not less than
10% of the outstanding votes of the Group. At such a meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Group), by majority vote, has the power to remove one or more
Trustees.
As of June 30, 1996, 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 the Balanced Allocation Fund, and therefore may
be presumed to control such Fund within the meaning of the 1940 Act.
MULTIPLE CLASSES OF SHARES
In addition to Institutional Shares, the Group also offers Investor A Shares,
Investor B Shares and Investor C Shares of certain Funds, including the Balanced
Allocation Fund, pursuant to a Multiple Class Plan adopted by the Group's
Trustees under Rule 18f-3 of the 1940 Act. A salesperson or other person
entitled to receive compensation for selling or servicing shares may receive
different compensation with respect to one particular class of shares over
another in the same Fund. The amount of dividends payable with
PROSPECTUS--Institutional Shares 26
<PAGE> 31
respect to other classes of shares will differ from dividends on Institutional
Shares as a result of the Distribution and Shareholder Service Plan fees
applicable to such other classes of shares and because the different classes of
shares may bear different retail transfer agency expenses. For further details
regarding these other classes of Shares, call the Group at (800) 451-8377.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at P.O. Box 50551, Kalamazoo, MI 49005-0551, or by calling toll free
(800) 451-8377.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
27 PROSPECTUS--Institutional Shares
<PAGE> 32
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 33
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 34
THE PARKSTONE GROUP OF FUNDS
Institutional Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
First of America Investment Corporation
Suite 500
303 North Rose Street
Kalamazoo, Michigan 49007
SUBADVISER
Gulfstream Global Investors, Ltd.
Suite 550
100 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
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> 35
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES
INVESTOR B SHARES
INVESTOR C SHARES
INSTITUTIONAL SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX-FREE INCOME FUNDS
THE PARKSTONE MONEY MARKET FUNDS
FORM N-1A
CROSS-REFERENCE SHEET
PART B. INFORMATION REQUIRED STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM NO. RULE 404(a) CROSS REFERENCE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
10. Cover Page .......................................... Cover Page
11. Table of Contents.................................... Table of Contents
12. General Information and History...................... Not Applicable
13. Investment Objectives and Policies................... Investment Objectives and Policies; Investment
Restrictions; Portfolio Turnover
14. Management of the Fund............................... Management of the Group
15. Control Persons and Principal Holders of
Securities........................................... Principal Holders of Voting Securities
16. Investment Advisory and Other Services............... Investment Adviser; Administrator and Sub-
Administrator; Distributor; Custodian, Transfer
Agent and Fund Accounting Services;
Independent Auditors; Legal Counsel
17. Brokerage Allocations and Other Practices............ Portfolio Transactions; Distributor
18. Capital Stock and Other Securities................... Description of Shares
19. Purchase, Redemption and Pricing of
of Securities Being Offered.......................... Net Asset Value; Additional Purchase and
Redemption Information
20. Tax Status........................................... Additional Tax Information; Additional Tax
Information Concerning the Exempt Funds;
Additional Tax Information Concerning the
International Fund and Emerging Markets Fund
21. Underwriters......................................... Distributor
22. Calculation of Performance Data...................... Yields of the Money Market Funds; Yields of the
Non-Money Market Funds; Calculation of Total
Return; Distribution Rates
23. Financial Statements................................. Financial Statements
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 36
THE PARKSTONE GROUP OF FUNDS
Statement of Additional Information
December 30, 1996
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 Conservative Allocation Fund
Parkstone Balanced Allocation Fund
Parkstone Aggressive Allocation Fund
Parkstone Equity Income 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 October 8, 1996 as supplemented
October 16, 1996 and December 20, 1996 and the Conservative Allocation Fund,
Balanced Allocation Fund, and Aggressive Allocation Fund Prospectus dated
December 30, 1996, any of which may be supplemented from time to time. This
Statement of Additional Information is incorporated by reference in its
entirety into the Prospectuses. Copies of each of the Prospectuses may be
obtained by writing the Group at P.O. Box 50551, Kalamazoo, Michigan 49005-0551
or by telephoning toll free (800) 451-8377.
*As of the date of this Statement of Additional Information, the Parkstone
Emerging Markets Fund and the Parkstone Municipal Investor Fund were not being
offered to the public.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 37
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES.............................................................................. 5
Additional Information on Portfolio Instruments........................................................ 5
Investment Restrictions................................................................................ 20
Portfolio Turnover..................................................................................... 25
NET ASSET VALUE................................................................................................. 26
Valuation of the Money Market Funds.................................................................... 27
Valuation of the Non-Money Market Funds................................................................ 28
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................................................. 28
MANAGEMENT OF THE GROUP......................................................................................... 29
Trustees and Officers.................................................................................. 29
Investment Adviser and Subadviser...................................................................... 32
Portfolio Transactions................................................................................. 36
Glass-Steagall Act..................................................................................... 39
Administrator and Sub-Administrator.................................................................... 39
Expenses............................................................................................... 42
Distributor............................................................................................ 42
Custodian, Transfer Agent and Fund Accounting Services................................................. 46
Independent Auditors................................................................................... 47
Legal Counsel.......................................................................................... 47
ADDITIONAL INFORMATION.......................................................................................... 47
Description of Shares.................................................................................. 47
Vote of a Majority of the Outstanding Shares........................................................... 48
Shareholder and Trustee Liability...................................................................... 48
Additional Tax Information............................................................................. 49
Additional Tax Information Concerning the Exempt Funds................................................. 52
Additional Tax Information Concerning the International Fund and
Emerging Markets Fund................................................................................ 54
Yields of the Money Market Funds....................................................................... 55
Yields of the Non-Money Market Funds................................................................... 56
Calculation of Total Return............................................................................ 56
Distribution Rates..................................................................................... 59
Performance Comparisons................................................................................ 60
Miscellaneous.......................................................................................... 61
PRINCIPAL HOLDERS OF VOTING SECURITIES.......................................................................... 62
FINANCIAL STATEMENTS............................................................................................ 69
APPENDIX........................................................................................................ 70
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 38
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 seeks current income consistent with liquidity and stability of
principal by investing in high quality money market instruments. 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. 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 Pakstone
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 portfolio of common stocks and securities convertible into
common stocks of small- to medium-sized companies. The Mid Capitalization Fund
seeks capital growth by investing primarily in a diversified portfolio of
common stocks and securities convertible into common stocks. The Large
Capitalization Fund seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities of companies with large
market capitalization. The International Discovery Fund (the "International
Fund") and the Emerging Markets Fund seek the long-term growth of capital. The
Conservative Allocation Fund seeks current income and conservation of capital,
with a secondary objective of long-term capital growth. The Balanced Allocation
Fund seeks current income, long-term capital growth and conservation of
capital. The Aggressive Allocation Fund seeks capital appreciation and income
growth. The Equity Income Fund seeks current income as well as capital growth
by investing in high quality dividend-paying stocks and securities convertible
into common stocks. The Bond Fund seeks current income with preservation of
capital by investing in a portfolio of high- and medium-grade fixed-income
securities. The Limited Maturity Bond Fund seeks current income with
preservation of capital 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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 39
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 Allocation Fund, Balanced
Allocation Fund, Aggressive Allocation Fund and Equity Income Fund are sometimes
referred to as the Growth and Income Funds. The Bond Fund, Limited Maturity Bond
Fund, Intermediate Government Obligations Fund and Government Income Fund are
sometimes referred to as the Income Funds. The Michigan Bond Fund and Municipal
Bond Fund are sometimes referred to as the Tax-Free Income Funds.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectuses of the eighteen
Funds described above which are currently being offered to the public. As of the
date of this Statement of Additional Information, neither the Emerging Markets
Fund nor the Municipal Investor Fund were being offered to the public.
Capitalized terms not defined herein are defined in the Prospectuses. No
investment in shares of a Fund should be made without first reading the Fund's
Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
The following policies supplement the investment objectives and
policies of each Fund of the Group as set forth in the respective Prospectus for
that Fund.
Bank Obligations. Each of the U.S. Government Obligations Fund, Prime
Obligations Fund, Tax-Free Fund, Municipal Investor Fund, Small Capitalization
Fund, Mid Capitalization Fund, Large Capitalization Fund, Conservative
Allocation Fund, Balanced Allocation Fund, Aggressive Allocation Fund, Equity
Income Fund, Bond Fund, Limited Maturity Bond Fund, Government Income Fund,
Municipal Bond Fund and Michigan Bond Fund may invest in bank obligations
consisting of bankers' acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a 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 institution
has capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 40
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 their respective 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 a Canadian counterpart of a U.S. corporation, and in Europaper,
which is U.S. dollar-denominated commercial paper of a foreign issuer.
Variable Amount Master Demand Notes. Variable amount master demand
notes, in which the 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,
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 41
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 the issuers of such notes and will
continuously monitor their financial status and ability to meet payment on
demand. In determining dollar average maturity, a variable amount master demand
note will be deemed to have a maturity equal to the longer of the period of time
remaining until the next interest rate adjustment or the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
Foreign Investments. Investment in foreign securities is subject to
special investment risks that differ in some respects from those related to
investments in securities of U.S. domestic issuers. Since investments in the
securities of foreign issuers may involve currencies of foreign countries, 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
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
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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 42
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 such 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 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 other liquidity ratios of the issuers of such notes (such issuers
include financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. 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
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
readjusted no less frequently than every 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.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 43
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 of
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 any
investment 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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 44
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,
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 45
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, 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").
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 46
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 would 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 the right to buy, and a
writer has the obligation to sell, the underlying security or foreign currency
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price or exchange rate of the security or foreign
currency, as the case may be. The premium paid to the writer is consideration
for undertaking the obligations under the option contract. A put option gives
the purchaser the right 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 will be valued at the last sale price, or in the absence
of such a price, at the mean between bid and asked price.
When 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.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 47
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 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 that
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 48
the Fund's net assets will fluctuate to a greater degree when it sets aside
securities to cover such purchase commitments than when it sets aside cash. In
addition, because the Fund will set aside cash or liquid securities to satisfy
its purchase commitments in the manner described above, the Fund's liquidity and
the ability of First of America or Gulfstream, as the case may be, to manage it
might be affected in the event its commitments to purchase "when-issued" or
"delayed-delivery" securities ever exceeded 25% of the value of its assets.
Under normal market conditions, however, a Fund's commitments to purchase
"when-issued" or "delayed-delivery" securities will not exceed 25% of the value
of its assets.
If the Fund sells a "when-issued" or "delayed-delivery" security before
a delivery, any gain would not be tax-exempt. When the Fund engages in
"when-issued" or "delayed-delivery" transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Funds will engage in "when-issued" or "delayed-delivery"
transactions only for the purpose of acquiring securities consistent with the
Funds' investment objectives and policies and not for investment leverage,
although such transactions represent a form of leveraging.
Mortgage-Related Securities. Each of the Funds, except the
International Fund, may, consistent with its investment objective and policies,
invest in mortgage-related securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The Conservative Allocation Fund,
Balanced Allocation Fund, Aggressive Allocation Fund, Bond Fund, Limited
Maturity Bond Fund, Intermediate Government Obligations Fund, Government Income
Fund, Prime Obligations Fund and U.S. Government Obligations Fund, may, in
addition, invest in mortgage-related securities issued by non-governmental
entities, including collateralized mortgage obligations structured on pools of
mortgage pass-through certificates or mortgage loans, subject to the rating
limitations described in the Prospectuses.
Mortgage-related securities, for purposes of the Funds' Prospectuses
and this Statement of Additional Information, represent pools of mortgage loans
assembled for sale to investors by various governmental agencies such as the
Government National Mortgage Association ("GNMA") and government-related
organizations such as the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"), as well as by non-governmental
issuers such as commercial banks, savings and loan institutions, mortgage
bankers and private mortgage insurance companies. Although certain
mortgage-related securities are guaranteed by a third party or are otherwise
similarly secured, the market value of the security, which may fluctuate, is not
so secured. If a Fund purchases a mortgage-related security at a premium, that
portion may be lost if there is a decline in the market value of the security
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the securities are prone to
prepayment, thereby shortening the average life of the security and shortening
the period of time over which income at the higher rate is received. When
interest rates are rising, though, the rate of prepayment tends to decrease,
thereby lengthening the period of time over which income at the lower rate is
received. For these and other reasons, a mortgage-related security's average
maturity may be shortened or lengthened as a result of interest rate
fluctuations and, therefore, it is not possible
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 49
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 also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-related securities issued by 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, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to the timely payment of interest, which is guaranteed by
FHLMC. FHLMC guarantees either ultimate collection or the timely payment of all
principal payments on the underlying mortgage loans. When FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
Medium-Grade Securities. The Conservative Allocation Fund, Balanced
Allocation Fund, 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 groups assigned by an NRSRO
(e.g., including 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 the issuer to make payments of principal and interest.
Medium-Grade Securities are considered by Moody's to have speculative
characteristics.
Medium-Grade Securities are generally subject to greater credit risk
than comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of Medium-Grade Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 50
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 those Funds 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 such Funds 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 those Funds 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 Funds, except the Treasury Fund, may
invest in Section 4(2) securities. "Section 4(2) securities," as described in
the Prospectuses, are securities which are issued in reliance on the "private
placement" exemption from registration which is afforded by Section 4(2) of the
Securities Act of 1933 (the "1933 Act"). The Funds will not purchase Section
4(2) securities which have not been determined to be liquid in excess of 15%
(10% in the case of the Money Market Funds) of the total assets of that Fund.
The Group's Board of Trustees has delegated to First of America the day-to-day
authority to determine whether a particular issue of Section 4(2) securities
that are eligible for resale under Rule 144A under the 1933 Act should be
treated as liquid. Rule 144A provides a safe-harbor exemption from the
registration requirements of the 1933 Act for resales to "qualified
institutional buyers" as defined in the Rule. With the exception of registered
broker-dealers, a qualified institutional buyer must generally own and invest on
a discretionary basis at least $100 million in securities.
First of America may deem Section 4(2) securities liquid if it believes
that, based on the trading markets for such security, such security can be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the security. In making
such determination, First of America generally considers any and all factors
that it deems relevant, which may include: (i) the credit quality of the issuer;
(ii) the frequency of trades and quotes for the security; (iii) the number of
dealers willing to purchase or sell the security and the number of other
potential purchasers; (iv) dealer undertakings to make a market in the security;
and (v) the nature of the security and the nature of market-place trades.
Treatment of Section 4(2) securities as liquid could have the effect of
decreasing the level of a Fund's liquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
Repurchase Agreements. Securities held by each of the Group's Funds may
be subject to repurchase agreements. Under the terms of a repurchase agreement,
a Fund would acquire securities from member banks of the Federal Deposit
Insurance Corporation and registered
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 51
broker-dealers which First of America deems creditworthy under guidelines
approved by the Group's Board of Trustees, subject to the seller's agreement to
repurchase such securities at a mutually agreed upon date and price. The
repurchase price would generally equal the price paid by the 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 a sale of the underlying portfolio
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the 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 the
Board of Trustees of the Group believes that, under the regular procedures
normally in effect for custody of a Fund's securities subject to repurchase
agreements and under federal laws, a court of competent jurisdiction would rule
in favor of the Group if presented with the question. Securities subject to
repurchase agreements will be held by the Group's Custodian or another qualified
custodian or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act.
Reverse Repurchase Agreements and Dollar Roll Agreements. As discussed
in the Prospectuses, each of the Group's Funds may borrow money by entering into
reverse repurchase agreements and, with respect to the Income and Tax-Free
Income Funds, dollar roll agreements in accordance with that Fund's investment
restrictions. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase the securities, or substantially similar securities in the case of
a dollar roll agreement, at a mutually agreed upon date and price. A dollar roll
agreement is identical to a reverse repurchase agreement except for the fact
that substantially similar securities may be repurchased. At the time a Fund
enters into a reverse repurchase agreement or a dollar roll agreement, it will
place in a segregated custodial account assets such as U.S. government
securities or other liquid, high grade debt securities consistent with the
Fund's investment restrictions having a value equal to the repurchase price
(including accrued interest), and will subsequently continually monitor the
account to ensure that such equivalent value is maintained. Reverse repurchase
agreements and dollar roll agreements involve the risk that the market value of
the securities sold by a Fund may decline below the price at which a Fund is
obligated to repurchase the securities. Reverse repurchase agreements and dollar
roll agreements are considered to be borrowings by a Fund under the 1940 Act.
Futures Contracts. Each of the Growth Funds, Growth and Income Funds,
Income Funds and the Municipal Bond Fund may enter into futures contracts. This
investment technique is designed primarily to hedge against anticipated future
changes in market conditions or foreign exchange rates which otherwise might
adversely affect the value of securities which a Fund holds or intends to
purchase. For example, when interest rates are expected to rise or market values
of portfolio securities are expected to fall, a Fund can seek through the sale
of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, a Fund, through the purchase of such contracts, can attempt to
secure better rates or prices for the Fund than might later be available in the
market when it effects anticipated purchases.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 52
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
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 the value of 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 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 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 in such contracts where such Fund would be
obligated to deliver an amount of foreign currency in excess of the value of
such Fund's 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 with 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 forward foreign currency
options. A foreign currency option provides the option buyer with the right to
buy or sell a stated amount of foreign currency at the exercise price at a
specified date or during the option period. A call option gives its owner the
right, but not the obligation, to buy the currency, while a put option gives its
owner the right, but not the obligation, to sell the currency. The option seller
(writer) is obligated to fulfill the terms of the option sold if it is
exercised. However, either seller or buyer may close its position during the
option period in the secondary market for such options any time prior to
expiration.
A call rises in value if the underlying currency appreciates.
Conversely, a put rises in value if the underlying currency depreciates. While
purchasing a foreign currency option can
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 53
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 forward 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 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 may from time to time lend its portfolio securities to
broker-dealers, banks or institutional borrowers of securities. A Fund must
receive 100% collateral in the form of cash or U.S. government securities. This
collateral must be valued daily by First of America or Gulfstream and, should
the market value of the loaned securities increase, the borrower must furnish
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 54
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 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 and the Treasury Fund each will, with respect to 100% of its total assets,
limit its investment in the securities of any one issuer in the manner provided
by such Rule, which limitations are referred to above under the caption
"INVESTMENT OBJECTIVES AND POLICIES - The Money Market Funds."
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 55
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 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;
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 less
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 56
liabilities other than the obligations represented by such reverse repurchase
and dollar roll agreements;
7. Issue senior securities except as permitted by 1940 Act rule, order
or interpretation thereunder; or
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.
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 4 above only, such
limitation shall not apply to Municipal Securities or governmental guarantees of
Municipal Securities, and industrial development bonds or private activity bonds
that are backed only by the assets and revenues of a non-governmental user shall
not be deemed to be Municipal Securities.
The following additional investment restrictions may be changed without
the vote of a majority of the outstanding shares of a Fund. None of the Funds
may:
1. Engage in any short sales;
2. Invest more than 10% of the Fund's total assets in the securities of
issuers which, together with any predecessors, have a record of less than three
years of continuous operation;
3. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
to the extent permitted by the 1940 Act or pursuant to any exemptions therefrom;
4. Purchase or retain securities of any issuer if the officers or
Trustees of the Group and the officers or directors of its Investment Adviser
and of its Administrator, who each owns beneficially more than one-half of 1% of
the outstanding securities of such issuer, together own beneficially more than
5% of such securities;
5. Purchase participations or direct interests in oil, gas or other
mineral exploration or development programs (although investments by the Fund in
marketable securities of companies engaged in such activities are not prohibited
by this restriction); or
6. Purchase or otherwise acquire any securities, if as a result, more
than 15% (10% in the case of the Money Market Funds) of the Fund's net assets
would be invested in securities that are illiquid.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 57
In addition, the Tax-Free Fund may not:
1. Acquire a put, if, immediately after such acquisition, over 5% of
the total amortized cost value of the Fund's assets would be subject to puts
from the same institution (except that (i) up to 25% of the value of the Fund's
total assets may be subject to puts without regard to such 5% limitation and
(ii) the 5% limitation is inapplicable to puts that, by their terms, would be
readily exercisable in the event of a default in payment of principal or
interest on the underlying securities). For the purpose of this investment
restriction and investment restriction number 2 below, a put will be considered
to be from the party to whom the Fund will look for payment of the exercise
price; or
2. Acquire a put that, by its terms, would be readily exercisable in
the event of a default in payment of principal and interest on the underlying
security or securities if, immediately after that acquisition, the amortized
cost value of the security or securities underlying that put, when aggregated
with the amortized cost value of any other securities issued or guaranteed by
the issuer of the put, would exceed 10% of the total amortized cost value of the
Fund's assets.
The Municipal Bond Fund may not:
1. Acquire a put, if, immediately after such acquisition, over 5% of
the total value of the Fund's assets would be subject to puts from the same
institution (except that (i) up to 25% of the value of the Fund's total assets
may be subject to puts without regard to such 5% limitation and (ii) the 5%
limitation is inapplicable to puts that, by their terms, would be readily
exercisable in the event of a default in payment of principal or interest on the
underlying securities). For the purpose of this investment restriction and
investment restriction number 2 below, a put will be considered to be from the
party to whom the Fund will look for payment of the exercise price; or
2. Acquire a put that, by its terms, would be readily exercisable in
the event of a default in payment of principal and interest on the underlying
security or securities if, immediately after that acquisition, the value of the
security or securities underlying that put, when aggregated with the value of
any other securities issued or guaranteed by the issuer of the put, would exceed
10% of the total value of the Fund's assets.
The Michigan Bond Fund may not:
Purchase securities of any one issuer if, at the time of purchase, the
Fund would hold more than 10% of the voting securities of such issuer except
that up to 25% of the value of the Fund's total assets may be invested without
regard to such limitation.
If any percentage restriction described above is satisfied at the time
of purchase, a later increase or decrease in such percentage resulting from a
change in net asset value will not constitute a violation of such restriction.
However, should a change in net asset value or other external events cause a
Fund's investments in illiquid securities to exceed the limitation set forth
above, that Fund will act to cause the aggregate amount of illiquid securities
to come within such limit as soon as reasonably practicable. In such an event,
however, that Fund would not be required to liquidate any portfolio securities
where the Fund would suffer a loss on the sale of such securities.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 58
The Group has represented to the Texas State Securities Board, on
behalf of each investment portfolio, that none of those investment portfolios
will invest in oil, gas or mineral leases or purchase or sell real property
(including limited partnership interests, but excluding readily marketable
securities of companies which invest in real estate). The Group intends to
comply with these representations for as long as the Group has the shares of its
investment portfolios registered for sale in the State of Texas.
In addition, the Group has represented to the Wisconsin Securities
Bureau: (1) on behalf of the Small Capitalization Fund, Mid Capitalization Fund,
Large Capitalization Fund and Equity Income Fund that each of those Funds will
not invest more than 5% of its total assets in securities of unseasoned issuers,
including their predecessors, which have been in operation for less than three
years and will not invest more than 5% of its total assets in equity securities
of issuers which are not readily marketable; (2) on behalf of the Conservative
Allocation Fund, Balanced Allocation Fund and Aggressive Allocation Fund that
the Funds will not invest: (a) more than 5% of its total assets in securities of
unseasoned issuers, including their predecessors, which have been in operation
for less than three years, (b) more than 5% of its total assets in equity
securities of issuers which are not readily marketable, (c) in options,
financial futures or stock index futures, other than hedging positions or
positions that are covered by cash or securities, if as a result thereof, more
than 5% of its assets would be so invested; (3) on behalf of the International
Fund, that the Fund will not invest: (i) more than 5% of its total assets in
securities of unseasoned issuers, including their predecessors, which have been
in operation for less than three years, and (ii) more than 5% of its net assets
in warrants valued at the lower of cost or market, provided that included within
that amount, but not to exceed 2% of net assets, may be warrants which are not
listed on the New York or American Stock Exchanges, and that for purposes of
this restriction, warrants acquired in units or attached to securities are
deemed to be without value; and (4) on behalf of each of the Conservative
Allocation Fund, the Balanced Allocation Fund, the Aggressive Allocation Fund
and the International Fund, that these Funds would not invest more than 5% of
its total assets in securities of issuers which the Group is restricted from
selling to the public without registration under the 1933 Act and excluding
restricted securities eligible for resale pursuant to Rule 144A under the 1933
Act that the Group's Board has determined to be liquid, or including those that
are subject to legal or contractual restrictions on disposition; provided,
however, that upon appropriately amending the Funds' Prospectuses, such Funds
reserve the right to increase such 5% limitation described in this subparagraph
to 10%. The Group intends to comply with these representations for so long as
the Group has its shares registered for sale in the State of Wisconsin.
In addition, the Group has represented to the Texas State Securities
Board, on behalf of each investment portfolio, that each investment portfolio
will not invest more than 5% of its net assets in warrants valued at the lower
of cost or market value; provided that included within that amount, but not to
exceed 2% of net assets, may be warrants which are not listed on the New York or
American Stock Exchanges. For the purposes of this restriction, warrants
acquired in units or attached to securities are deemed to be without value. The
Group intends to comply with this representation with respect to a Fund provided
the Group has shares of that Fund registered for sale in the State of Texas.
Finally, the Group, on behalf of the Government Income Fund, has
adopted the following non-fundamental policies (and therefore may be changed
without the vote of shareholders) pursuant to its representations to the Texas
State Securities Board:
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 59
The Government Income Fund may not:
1. Partnership Interests. Invest in limited partnership interests, but
excluding readily marketable interests in real estate investment trusts
or readily marketable securities of companies which invest in real
estate; and
2. Warrants. Invest more than 5% of the value of its net assets in
warrants valued at the lower of cost or market, including within such
amount, but not to exceed 2% of the value of such Fund's net assets,
investments in warrants which are not listed on the New York or
American Stock Exchanges.
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 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, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1996 June 30, 1995
Fund (Percent) (Percent)
- ---- --------- ---------
<S> <C> <C>
Small Capitalization 67.22 50.53
Mid Capitalization 49.27 46.39
Large Capitalization(1) 0.86 N/A
Equity Income 40.75 77.70
Bond 1,189.27 1,010.64
Limited Maturity Bond 618.60 397.97
Intermediate Government Obligations 916.39 549.13
Municipal Bond 47.46 35.15
Michigan Bond 27.66 26.06
Balanced Allocation 437.90 250.66
Government Income 348.01 114.71
International 54.47 104.39
</TABLE>
(1)Portfolio turnover rates were only available for the Large Capitalization
Fund since its inception on December 28, 1995.
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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 60
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 Large Capitalization Fund, the
Investment Adviser anticipates that annual portfolio turnover rates will remain
below 100%. 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, the Investment Adviser
anticipates that the annual portfolio turnover rate may be as high as 500%. High
portfolio turnover rates will generally result in higher transaction costs to a
Fund, including brokerage commissions, and may result in additional tax
consequences to a Fund's shareholders. Portfolio turnover will not be a limiting
factor in making investment decisions.
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,
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, 1996 were calculated as illustrated in this example using the
Small Capitalization Fund:
<TABLE>
<S> <C>
Net Assets $187,015,468.21
Outstanding Shares 5,472,669.954
Net Asset Value Per Share $ 34.17
Sales Charge, 4.50% of
the offering price (4.71% of NAV) per share $ 1.61
Offering Price $ 35.78
===============
</TABLE>
The offering prices for Investor B Shares of the Funds as of June 30,
1996 were calculated as illustrated in this example using the Small
Capitalization Fund:
<TABLE>
<S> <C>
Net Assets $30,309,759.77
Outstanding Shares 897,147.521
Net Asset Value Per Share $ 33.78
Sales Charge $ 0.00
Offering Price $ 33.78
===============
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 61
The offering prices for Investor C Shares of the Funds as of June 30,
1996 were calculated as illustrated in this example using the Small
Capitalization Fund:
<TABLE>
<S> <C>
Net Assets $5,751,343.14
Outstanding Shares 170,011.391
Net Asset Value Per Share $ 33.83
Sales Charge $ 0.00
Offering Price $ 33.83
=============
</TABLE>
The offering prices for Institutional Shares of the Non-Money Market
Funds as of June 30, 1996 were calculated as illustrated in this example using
the Small Capitalization Fund:
<TABLE>
<S> <C>
Net Assets $528,866,186.41
Outstanding Shares 15,328,738,672
Net Asset Value Per Share $ 34.50
Sales Charge $ 0.00
Offering Price $ 34.50
===============
</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 one of these Funds would receive if it sold the instrument. The
value of securities in these 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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 62
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 which is not a
securities exchange, will be valued at their latest bid quotation in such
principal market. In either case, if no such bid price is available, then such
securities will be valued in good faith at their respective fair market values
using methods determined by or under the supervision of the Board of Trustees of
the Group. Portfolio securities with a remaining maturity of 60 days or less
will be valued either at amortized cost or original cost plus accrued interest,
which approximates current value.
All other assets and securities including securities for which market
quotations are not readily available will be valued at their fair market value
as determined in good faith under the general supervision of the Board of
Trustees of the Group.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each of the classes of shares of the Group's Funds is sold on a
continuous basis by the Group's distributor, BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services (the "Distributor" or "BISYS"), and BISYS
has agreed to use appropriate efforts to solicit all purchase orders. The
Group's Funds offer one or more of the following classes of shares: Investor A
Shares, Investor B Shares, Investor C Shares and Institutional Shares. In
addition to purchasing shares directly from BISYS, Institutional Shares may be
purchased at net asset value through procedures established by BISYS in
connection with the requirements of financial institutions, including the Trust
Department of First of America Bank-Michigan, N.A. ("FOA-Michigan"), the parent
of the Funds' Investment Adviser, First of America , or FOA-Michigan'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-Michigan 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, although currently Investor B Shares redeemed prior
to four years from the date of purchase may be subject to a contingent deferred
sales charge of 2.00 to 4.00%. Effective
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 63
January 1, 1997, 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%.
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%.
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 practical, or (ii) it
is not reasonably practical 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, 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>
George R. Landreth* Chairman of the From December 1992 to present, employee of BISYS;
3435 Stelzer Road Board and Trustee from July 1991 to December 1992, employee of PNC
Columbus, Ohio 43219 Financial Corporation; from October 1984 to July
July 11, 1942 1991, employee of The Central Trust Co., N.A.
Robert M. Beam Trustee From 1985 to present, Vice
3080 Seibert Admin. Bldg. President for Business and Finance
Western Michigan University and Treasurer of Western Michigan
Kalamazoo, Michigan 49008 University
August 2, 1943
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 64
<TABLE>
<S> <C> <C>
Adrian Charles Edwards Trustee Since 1964, Professor of Finance
Haworth College of Business and Commercial Law, Western
Western Michigan University Michigan University; since 1977,
3289 Schneider Hall owner, Economic and Financial
Kalamazoo, Michigan 49008 Analysis (financial consulting)
April 22, 1936
Lawrence D. Bryan Trustee From August 1, 1996 to present,
1071 Whaley Road Self-Employed Educational
Coldwater, Michigan 49036 Consultant; From 1990 to July 31,
January 30, 1945 1996, President, Kalamazoo College
</TABLE>
*Mr. Landreth is considered to be an "interested person" of the Group as defined
in the 1940 Act.
Stephen G. Mintos, Executive Vice President of BISYS Fund Services,
L.P., served as Chairman of the Board and Trustee until his resignation on May
23, 1996.
The Group paid an aggregate of $44,500 in Trustees' fees and expenses
for the fiscal year ended June 30, 1996, to all Trustees of the Group (excluding
Mr. Landreth who receives no compensation). All of the Trustees also serve as
Trustees of The Parkstone Advantage Fund, an open-end investment company managed
by the Group's Investment Adviser as an investment vehicle for insurance company
separate accounts. The following table depicts, for the fiscal year ended June
30, 1996, the compensation received by each of the Trustees from the Group and
in total from all investment companies managed by the Investment Adviser to the
Group.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM GROUP
RETIREMENT AND THE
BENEFITS ESTIMATED PARKSTONE
AGGREGATE ACCRUED AS ANNUAL BENEFITS ADVANTAGE
COMPENSATION PART OF FUND UPON FUND PAID TO
NAME OF TRUSTEE FROM THE GROUP EXPENSES RETIREMENT TRUSTEES
--------------- -------------- -------- ---------- --------
<S> <C> <C> <C> <C>
Stephen G. Mintos* none none none none
George R. Landreth none none none none
Robert M. Beam $13,500 none none $18,500
Lawrence D. Bryan $11,500 none none $18,500
Adrian Charles Edwards $13,500 none none $18,500
Wen Chao Chen* $ 3,000 none none $ 3,000
Howard D. Kalleward* $ 3,000 none none $ 3,000
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 65
* Mr. Mintos served as Chairman of the Board and Trustee until his resignation
on May 23, 1996. Messrs. Chen and Kalleward served as Trustees until their
resignations on August 25, 1995.
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 AGE WITH THE GROUP DURING PAST 5 YEARS
- --------------------- -------------- -------------------
<S> <C> <C>
Scott A. Englehart, 34 President From October, 1990 to present,
BISYS Fund Services employee of BISYS
3435 Stelzer Road
Columbus, Ohio 43219
J. David Huber, 50 Vice President From June, 1987 to present,
BISYS Fund Services Executive Vice President of BISYS
3435 Stelzer Road
Columbus, Ohio 43219
William J. Tomko, 37 Vice President From April, 1987 to present,
BISYS Fund Services employee of BISYS
3435 Stelzer Road
Columbus, Ohio 43219
George O. Martinez, 37 Vice President From March, 1995 to present,
BISYS Fund Services employee of BISYS; From June,
3435 Stelzer Road 1989 to March, 1995, Vice
Columbus, Ohio 43219 President and Associate General
Counsel, Alliance Capital
Management
Brian Barker, 38 Vice President From February 1993 to present, Client Services
BISYS Fund Services Manager, BISYS; from November 1989 to February
157 S. Mall Plaza 1993, Direct Lending Manager, Bank One; From July
Kalamazoo, Michigan 49007 1984 to November 1989, Regional Manager, Jefferson
Savings Bank
Timothy A. Thiebout, 29 Secretary From June 1992 to present, Client
BISYS Fund Services and Treasurer Services Manager, BISYS; from
157 S. Mall Plaza July 1990 to June 1992, Mutual
Kalamazoo, Michigan 49007 Fund Specialist, First of America
Brokerage Service
</TABLE>
The officers of the Group receive no compensation directly from the
Group for performing the duties of their offices. As Administrator, BISYS
receives fees from the Group. As
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 66
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," the "Transfer
Agent" or the "Fund Accountant") receives fees from the Group for acting as
transfer agent and providing certain fund accounting services. Messrs.
Englehart, Huber, Tomko, Martinez, Barker, and Thiebout are employees of BISYS
or BISYS Ohio. No person who is an officer, director or employee of First of
America, or any of its affiliates serves as a Trustee, officer or employee of
the Group.
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., 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").
First of America is a wholly-owned subsidiary of FOA-Michigan 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.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 67
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 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 the Sub-Investment
Advisory Agreement between First of America and Gulfstream which became
effective upon the acquisition by FABC of a controlling interest in Gulfstream
(the "Current Sub-Investment Advisory Agreement"). The terms of the Current
Sub-Investment Advisory Agreement, except for the addition of the Emerging
Markets Fund, Conservative Allocation Fund, the Balanced Allocation Fund, and
the Aggressive Allocation Fund, are identical to those of the Initial
Sub-investment Advisory Agreement. Pursuant to the Current Sub-Investment
Advisory Agreement, Gulfstream currently provides sub-investment advisory
services to the International Fund, Emerging Markets Fund, the Conservative
Allocation Fund, Balanced Allocation Fund and Aggressive Allocation Fund.
Under the Current Sub-Investment Advisory Agreement, Gulfstream is
responsible for the day-to-day management of the International Fund, the
Emerging Markets Fund and the portion of the Conservative Allocation Fund, the
Balanced Allocation Fund and the Aggressive Allocation Fund invested in foreign
securities. Gulfstream also has responsibility for reviewing investment
performance, policies and guidelines, and maintaining certain books and records.
First of America is responsible for selecting and monitoring the performance of
Gulfstream and for reporting the activities of Gulfstream in managing these
Funds to the Group's Board of Trustees. First of America may also render advice
with respect to these Funds' investments in the United States and otherwise
participate to the extent it deems necessary or desirable in day-to-day
management of the Funds.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 68
For its services provided and expenses assumed pursuant to the Current
Sub-Investment Advisory Agreement, Gulfstream is entitled to receive from First
of America a fee, computed daily and paid monthly, at the annual rate of 0.50%
of the first $50 million of the International Fund's average daily net assets
and the average daily net assets of the Conservative Allocation Fund, the
Balanced Allocation Fund and the Aggressive Allocation Fund which are invested
in foreign securities, of 0.45% of such average daily net assets between $50
million and $100 million, 0.40% of such average daily net assets between $100
million and $400 million and 0.30% of such average daily net assets above $400
million, provided the minimum annual fee shall be $75,000. Gulfstream is also
entitled to receive from First of America a fee, computed daily and paid
monthly, at the annual rate of 0.50% of the Emerging Markets Fund's average
daily net assets. As of the date of this Statement of Additional Information,
shares of the Emerging Markets Fund were not being offered to the public.
Pursuant to the Current Sub-Investment Advisory Agreement, Gulfstream
will pay all expenses incurred by it in connection with its activities under the
Current Sub-Investment Advisory Agreement other than the cost of securities
(including brokerage commissions, if any) purchased for the Group.
Gulfstream was organized in 1991 as a Texas limited partnership by
Tull, Doud, Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is the
sole general partner of Gulfstream. TDMT is owned by C. Thomas Tull, Stephen C.
Doud, James P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and Triltsch are
the portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. The Sail Company, a Delaware corporation, ("Sail") was the sole
limited partner, holding a 49% interest in Gulfstream. Sail is a wholly-owned
subsidiary of Rosewood Investments, Inc., a Delaware corporation, 100 Crescent
Court, Suite 550, Dallas, Texas 75201. As of June 30, 1996, Gulfstream had over
$596 million in international assets of institutional, governmental, pension
fund and high net worth individual clients under its investment management.
Gulfstream personnel average 20 years investment experience and 9 years of
international investment experience.
Gulfstream's investment process is designed to provide long-term growth
of capital. Like First of America, Gulfstream focuses on identifying companies
world-wide with strong balance sheets, superior operating margins and consistent
sales and earnings growth and endeavors to purchase the securities of those
companies at reasonable valuations. Gulfstream generally avoids investments in
the securities of cyclical, financial or turnaround companies, whose earnings
are less predictable and more volatile. These stock selection criteria lead
Gulfstream to invest in small to medium capitalization companies in
international markets in pursuit of superior returns from long-term growth of
capital. First of America and the Trustees of the Group believe that
Gulfstream's style of investment management is well-suited to the investment
objective and policies of the International Fund, Emerging Markets Fund,
Conservative Allocation Fund, Balanced Allocation Fund and Aggressive Allocation
Fund.
On December 7, 1994, Gulfstream, Sail, TDMT and FABC entered
into a Partnership Interest Purchase Agreement (the "Acquisition Agreement")
under which First of America acquired a controlling interest in Gulfstream. The
Acquisition Agreement provided for the following transactions. First,
FABC acquired all of Sail's limited and preferred partnership interests
for a cash payment. Second, TDMT paid to Sail an additional amount with the
proceeds of a loan to TDMT by FABC, which loan bears interest at the annual
rate of
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 69
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 the 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, 1996, 1995 and 1994, 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:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
FUND 1996 1995 1994
---- ---- ---- ----
Gross Fees Gross Fees Gross Fees
Fees Voluntarily Fees Voluntarily Fees Voluntarily
Collected Reduced Collected Reduced Collected Reduced
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Prime Obligations $3,144,270 84 $2,869,890 -- $2,500,897 --
U.S. Government Obligations 1,638,981 17 1,403,045 -- 1,697,301 --
Tax-Free 629,497 6 538,122 -- 527,451 --
Small Capitalization 5,765,210 8,667 3,748,619 3,257 3,607,545 --
Mid Capitalization 8,178,104 2,655 6,316,594 11,380 6,532,034 --
Large Capitalization(2) 432,969 19,514 -- -- -- --
Equity Income 4,277,488 206 4,261,431 -- 4,722,119 --
International 3,968,550 3,839 3,473,278 39,374 2,819,335 --
Bond 4,106,765 222,927 3,466,174 198,864 3,534,608 191,595
Limited Maturity Bond 1,155,348 296,518 934,167 322,257 1,315,801 338,089
Intermediate Government Obligations 1,982,604 106,662 2,030,855 115,234 2,366,043 128,052
Municipal Bond 1,079,024 276,973 827,634 285,574 1,198,100 307,704
Michigan Bond 1,653,555 424,702 1,193,600 412,165 1,621,093 416,624
Balanced Allocation 1,168,319 292,740 694,277 231,904 609,482 153,103
Government Income 1,384,056 542,801 707,946 456,489 1,024,207 402,042
Treasury(1) 1,300,994 1,189 838,130 -- 238,642 --
</TABLE>
(1)Commenced operations December 1, 1993
(2)Commenced operations December 27, 1995
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 70
No amounts were paid to First of America on behalf of the Municipal
Investor Fund or the Emerging Markets Fund, the Conservative Allocation Fund or
the Aggressive Allocation Fund under the Investment Advisory Agreements for the
year ended June 30, 1996, 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, 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 First 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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 71
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 price. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Group, where possible, will deal directly with
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by First of America or 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, 1996, 1995 and 1994, the Group paid an aggregate of approximately
$3,615,061, $9,577,000 and $3,528,301, 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-Michigan (the parent corporation of First of America), BISYS, or their
affiliates, and will not give preference to FOAMichigan'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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 72
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 the other Funds or for other portfolio,
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, Balanced Allocation Fund, Bond
Fund, Limited Maturity Bond Fund and U.S. Government Income Fund held, from time
to time during the fiscal year ended June 30, 1996, 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
American Express, Associates Corp., Bank of America, Bank of California,
Barclays, Bear Stearns, Beneficial, Chase Securities, Chemical Bank, Citicorp,
Commerze Bank, Dean Witter, John Deere, First Boston, First Chicago, Ford Motor
Credit, GE Capital Corp., GMAC, Goldman Sachs, International Business Machines,
Lehman Brothers, Merrill Lynch, Mitsubishi Global, JP Morgan, Morgan Stanley,
Nomura Securities, Norwest, Paine Webber, Prudential Bache, Republic, Sanwa
Bank, Smith Barney, Societe Generale and Wachovia Bank; with respect to the
Balanced Allocation Fund, those of Dean Witter, GMAC and Goldman Sachs; with
respect to the Bond Fund, those of Associates Corp., John Deere, Dresdner, First
Union, Ford Motor Credit, GMAC, Goldman Sachs, Lehman Brothers, Morgan Stanley,
Prudential Bache and Salomon Brothers; with respect to the Limited Maturity Bond
Fund, those of American Express, Bank of America, Barclays, Goldman Sachs,
Lehman Brothers and Wachovia Bank; and with respect to the U.S. Government
Income Fund, those of Lehman Brothers and Prudential Bache. As of June 30, 1996,
the Prime Obligations Fund held the following amounts of the securities of
American Express, Associates Corp., Bank of America, Bear Stearns, Chase,
Chemical Bank, Dean Witter, First Chicago, GE Capital Corp., GMAC, Goldman
Sachs, JP Morgan, Merrill Lynch, Mitsubishi Global, Morgan Stanley, Nomura,
Norwest, Paine Webber, Smith Barney and Societe Generale, respectively:
$4,966,937.50, $4,966,937.50, $5,000,000.00, $12,000,000.00, $4,891,055.56,
$6,986,525.00, $11,015,574.14, $5,034,393.43, $8,292,443.21, $9,750,333.33,
$45,046,947.22, $9,923,000.00, $6,967,570.56, $9,997,055.56, $35,000,000.00,
$19,000,000.00, $4,963,454.17, $25,000,000.00, $5,005,096.44 and $4,989,986.11.
As of June 30, 1996, the Balanced Allocation Fund held the following amounts of
the securities of Dean Witter, GMAC, Goldman Sachs and Lehman Brothers,
respectively: $496,875.00, $657,000.00, $3,579,000.00 and $2,331,031.00. As of
June 30, 1996, the Bond Fund held the following amounts of the securities of
Ford Motor Credit, GMAC, Goldman Sachs, Lehman Brothers, Morgan Stanley and
Prudential Bache, respectively: $3,011,250.00, $5,012,500.00, $970,000.00,
$9,482,282.50, $20,000,000.00 and $6,938,750.00. As of June 30, 1996, the
Limited Maturity Bond Fund held the following amounts of the securities of
American Express, Barclays, Goldman Sachs, Lehman Brothers and Wachovia Bank,
respectively: $3,247,500.00, $3,236,250.00, $5,717,000.00, $11,539,040.97 and
$1,001,250.00. As of June 30, 1996, the U.S. Government Income Fund held
$648,358.68 of the securities of Prudential Bache.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 73
Glass-Steagall Act
In 1971, the United States Supreme Court held in Investment Company
Institute v. Camp that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act. The Office of the Comptroller of the Currency,
which has jurisdiction over national banks and their subsidiaries, has
specifically permitted national banks and their subsidiaries to act as
investment advisers to investment companies.
First of America believes that it possesses the legal authority to
perform the services for the 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 customer.
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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 74
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 Transfer
Agency Agreement and Fund Accounting Agreement). The Administrator is a
broker-dealer registered with the SEC, and is a member of the National
Association of Securities Dealers, Inc. The Administrator provides financial
services to institutional clients.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities for the Group; furnish statistical and research data,
clerical and certain bookkeeping services and stationery and office supplies;
prepare the periodic reports to the SEC on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds and file certain
federal and state tax returns and required tax filings; prepare compliance
filings pursuant to state securities laws with the advice of the Group's
counsel; keep and maintain the financial accounts and records of the Funds,
including calculation of daily expense accruals; in the case of the Money Market
Funds, determine the actual variance from $1.00 of the Fund's net asset value
per share; and generally assist in all aspects of the Group's operations other
than those performed by First of America under the Investment Advisory
Agreements, by Gulfstream under its Sub-Investment Advisory Agreements, by Union
Bank under the Custody Agreements and by BISYS under the Transfer Agency
Agreement and 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 SubAdministrator to the Funds of the Group. First of
America serves as Sub-Administrator to the Group pursuant to a
Sub-Administration Agreement dated as of January 1, 1995, as amended, and
receives a fee from the Administrator for its services. Under the
Sub-Administration Agreement, First of America will assist the Administrator by
providing, upon the request of the Administrator, services which are incidental
to, but not included among, its duties as Investment Adviser to the Group. These
services include preparation of reports and documents necessary to calculate
daily expense accruals, to update the financial accounts and records of the
Funds and to prepare certain federal and state tax returns.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
calculated daily and paid periodically, equal to the lesser of (a) the fee
calculated at the annual rate of 0.20% of that Fund's average daily net assets,
or (b) such other fee as may from time to time be agreed upon in writing by the
Group and the Administrator. As Sub-Administrator, First of America is entitled
to receive a fee from the Administrator of not more than 0.05% of each Fund's
average daily net assets. The Administrator may voluntarily reduce all or a
portion of its fee with respect to any Fund in order to increase the net income
of one or more of the Funds available for distribution as dividends.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 75
For the fiscal years ended June 30, 1996, 1995 and 1994, 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 1996 1995 1994
---- ---- ---- ----
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 $1,572,135 $ 157,229 $1,291,451 143,495 $1,250,448 $ 125,045
U.S. Government Obligations 819,490 81,957 631,370 70,152 848,651 84,868
Tax-Free 314,749 31,478 189,334 79,617 263,725 131,863
Small Capitalization 1,153,042 1,736 749,724 651 721,500 --
Mid Capitalization 1,635,613 -- 1,263,319 2,276 1,306,414 --
Large Capitalization(2) 108,242 4,880 -- -- -- --
Equity Income 855,486 28 852,286 -- 944,404 --
International 677,155 613 514,123 76,940 478,241 120,283
Bond 1,109,936 277,654 620,206 370,343 955,299 477,726
Limited Maturity Bond 312,256 78,030 210,022 129,552 355,622 177,872
Intermediate Government Obligations 535,839 133,851 358,684 221,339 639,471 319,758
Municipal Bond 291,628 145,801 164,782 136,085 323,811 176,224
Michigan Bond 446,907 223,479 217,018 216,973 438,133 219,139
Balanced Allocation 233,664 176 162,703 22,533 121,896 30,621
Government Income 374,069 93,652 196,323 118,390 276,813 138,554
Treasury(1) 649,909 324,958 121,978 297,087 119,319 119,319
</TABLE>
(1)Commenced operations December 1, 1993
(2)Commenced operations December 27, 1995
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).
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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 76
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, 1996, 1995 and 1994, total
commissions paid in connection with sales of the Group's shares were $4,099,106,
$3,575,936 and $6,827,001, respectively. Of that amount BISYS retained
$3,814,505, $3,263,580 and $5,274,080, 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 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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 77
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-Michigan 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, 1996, BISYS received $1,956,455
pursuant to the Investor A Plan to compensate dealers for their distribution and
shareholder service assistance. Of that amount, BISYS received $292,663 for
payments to FSI and $291,885 for payments to FABC under the Investor A Plan.
For the fiscal year ended June 30, 1996, BISYS received $656,421
pursuant to the Investor B Plan to compensate dealers for their distribution and
shareholder service assistance.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 78
For the fiscal year ended June 30, 1996, BISYS received $24,311
pursuant to the Investor C Plan to compensate dealers for their distribution and
shareholder service assistance. Of that amount, BISYS received $12,927 for
payments to FSI under the Investor C Plan.
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 First of America Securities, Inc.
("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.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 79
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;
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 80
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 Ohio, formerly 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, 1996, 1995 and 1994, the Transfer Agent received $1,663,309, $1,862,374 and
$932,574.74, 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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 81
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, 1996, 1995 and 1994,
BISYS Ohio received $1,491,244, $1,024,476 and $1,245,655, respectively, from
the Group.
Independent Auditors
The Financial Statements of the Group as of June 30, 1996, which appear
in the Group's Annual Report dated June 30, 1996, 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 and its parent and, from time to time, its affiliates.
ADDITIONAL INFORMATION
Description of Shares
The Parkstone Group of Funds is a Massachusetts business trust. The
Group was organized on March 25, 1987, and the Group's Declaration of Trust was
filed with the Secretary of State of the Commonwealth of Massachusetts on March
27, 1987. The Declaration of Trust authorizes the Board of Trustees to issue an
unlimited number of Shares, which are units of beneficial interest, without par
value. The Group presently has twenty series of shares, representing interests
in each series of the Group, eighteen of which are currently offered on a
continuous basis. The shares of each of the Funds of the Group, other than the
Money Market Funds, the Tax-Free Income Funds, the Conservative Allocation Fund
and the Aggressive Allocation Fund are offered in four separate classes:
Investor A Shares, Investor B Shares, Investor C Shares and Institutional
Shares. Shares of the Money Market Funds are offered in two separate classes:
Investor A Shares and Institutional Shares, except for the Municipal Investor
Fund which offers only Investor A Shares. Shares of the Tax-Free Income Funds
are offered in three classes: Investor A Shares, Investor B Shares and
Institutional Shares. The Conservative Allocation Fund and the Aggressive
Allocation Fund only offer Institutional Shares. The Group's Declaration of
Trust authorizes the Board of Trustees to divide or redivide any unissued shares
of the Group into one or more additional series by setting or changing in any
one or more respects their respective preferences, conversion or other rights,
voting power, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectuses and this
Statement of Additional Information, the Group's shares will be fully
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 82
paid and non-assessable. In the event of a liquidation or dissolution of the
Group, shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective series, of any general assets
not belonging to any particular series which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the 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 series affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a series will be required in
connection with a matter, a series will be deemed to be affected by a matter
unless it is clear that the interests of each series in the matter are
identical, or that the matter does not affect any interest of the series. Under
Rule 18f-2, the approval of an investment advisory agreement or any change in
investment policy submitted to shareholders would be effectively acted upon with
respect to a series only if approved by a majority of the outstanding shares of
such series. However, Rule 18f-2 also provides that the ratification of
independent accountants, the approval of principal underwriting contracts, and
the election of Trustees may be effectively acted upon by shareholders of the
Group voting without regard to series.
Vote of a Majority of the Outstanding Shares
As used in the 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
STATEMENT OF ADDITIONAL INFORMATION
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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%.
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 net capital loss each year to offset
ordinary income and excess capital losses may be carried forward in future
years.
The Code generally permits a corporation to deduct 70% of dividends
received from domestic corporations. Each of the Group's Funds will designate
the portion of any dividend distributions for which the dividend received
deduction will be allowed. The amount so designated may not exceed the aggregate
amount of dividends from domestic corporations that otherwise qualify for the
dividends received deduction received by the 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 properly to include on their return 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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 84
taxable income will be subject to Federal tax at regular corporate rates without
any deduction for distributions to its shareholders. In such event, dividend
distributions would be taxable to shareholders to the extent of earnings and
profits, and would be eligible to receive the dividends-received deduction for
corporations.
A portion of the difference between the issue price and the face amount
of zero coupon securities ("Original Issue Discount") will be treated as income
to 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.
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 the International Fund's fiscal
year, and all gain or loss associated with fiscal year transactions and
mark-to-market positions at fiscal year end (except certain currency gain or
loss covered by Section 988 of the Code) will generally be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. The
effect of Section 1256 mark-to-market rules may be to accelerate income or to
convert what otherwise would have been long-term capital gains into short-term
capital gains or short-term capital losses into long-term capital losses within
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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 85
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 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, may require the sale of portfolio
securities held less than three months and may, as in the case of short sales of
portfolio securities, reduce the holding periods of certain securities within
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.
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 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 indirectly
related to the Fund's principal business of investing in stock or securities and
related options or futures. Under current law, non-directly related gains
arising from foreign currency positions or instruments held for less than three
months are treated as derived from the disposition of securities held less than
three months in determining 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 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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 86
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," 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,
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 87
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 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.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 88
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.
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 and 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 the International Fund
and Emerging Markets Fund do 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 do 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 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.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 89
Yields of the Money Market Funds
For the seven-day period ended June 30, 1996, 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: 4.57% and 4.67%; 4.44% and 4.54%; 4.38% and 4.48%; and 2.51% and
2.54%. For the thirty-day period ended June 30, 1996, 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: 4.70% and 4.81%; 4.59% and 4.70%; 4.61% and 4.72: and 2.59% and
2.62%.
For the seven-day period ended June 30, 1996, 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: 4.82% and 4.94%; 4.69% and 4.80%; 4.63% and 4.74%; and 2.76% and
2.80%. For the thirty-day period ended June 30, 1996, 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: 4.80% and 4.92%; 4.69% and 4.80%; 4.71% and 4.82%; and 2.69% and
2.72%.
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.
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, 1996, the tax-equivalent yield
(using a federal income tax rate of 39.6%) of the Investor A Shares of the
Tax-Free Fund was 4.16% and its tax-equivalent effective yield (using a federal
income tax rate of 39.6%) for the same period was
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 90
4.21%. For the thirty-day period ended June 30, 1996, the tax-equivalent yield
of the Investor A Shares of the Tax-Free Fund (using a federal income tax rate
of 39.6%) was 4.29% and its tax-equivalent effective yield (using a federal
income tax rate of 39.6%) for the same period was 4.34%.
For the seven-day period ended June 30, 1996, the tax-equivalent yield
(using a federal income tax rate of 39.6%) of the Institutional Shares of the
Tax-Free Fund was 4.57% and its tax-equivalent effective yield (using a federal
income tax rate of 39.6%) for the same period was 4.64%. For the thirty-day
period ended June 30, 1996, the tax-equivalent yield of the Institutional Shares
of the Tax-Free Fund (using a federal income tax rate of 39.6%) was 4.45% and
its tax-equivalent effective yield (using a federal income tax rate of 39.6%)
for the same period was 4.50%.
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.
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.
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
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 91
distributions which 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 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, 1996, the five-year period ended
June 30, 1996 and the period from the commencement of operations to June 30,
1996, 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, 43.18%, 27.71% and 22.48%; Mid Capitalization Fund, 23.74%,
16.06% and 14.99%; Equity Income Fund, 19.45%, 11.23% and 12.48%; Bond Fund,
0.13%, 6.75% and 7.29%; Limited Maturity Bond Fund, 0.24%, 5.32% and 6.26%;
Intermediate Government Obligations Fund (0.43)%, 5.52% and 6.37%; Municipal
Bond Fund, 0.15%, 5.20% and 5.69% and Michigan Bond Fund, 0.37%, 5.41% and
5.63%. For the one-year period ended June 30, 1996 and the period from the
commencement of operations to June 30, 1996, the average annual total returns
for the Investor A Shares of the following Funds, assuming the imposition of the
maximum sales load, were: Balanced Allocation Fund, 12.27% and 9.85%; Government
Income Fund, 1.43% and 4.39%; and International Fund, 9.46% and 10.46%. For the
period from the commencement of operations to June 30, 1996, the aggregate
annual total return for the Investor A shares of the Large Capitalization Fund,
assuming the imposition of the maximum sales load, was 4.05%.
For the one-year period ended June 30, 1996, the five-year period ended
June 30, 1996 and the period from the commencement of operations to June 30,
1996, 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, 49.93%, 28.89% and 23.22%; Mid Capitalization Fund, 29.57%,
17.13% and 15.68%; Equity Income Fund, 25.05%, 12.26% and 13.16%; Bond Fund,
4.27%, 7.63% and 7.87%; Limited Maturity Bond Fund, 4.37%, 6.17% and 6.83%;
Intermediate Government Obligations Fund, 3.69%, 6.39% and 6.94%; Municipal Bond
Fund, 4.29%, 6.07% and 6.26%; and Michigan Bond Fund, 4.57%, 6.27% and 6.35%.
For the one-year period ended June 30, 1996 and the period from the commencement
of operations to June 30, 1996, the average annual total returns for the
Investor A Shares of the following Funds, excluding the effect of any sales
charges, were: Balanced Allocation Fund, 17.51% and 11.00%; Government Income
Fund, 5.97% and 5.58%; and International Fund, 14.65% and 11.92%. For the period
from the commencement of operations to June 30, 1996, the aggregate annual total
return for the Investor A Shares of the Large Capitalization Fund, excluding the
effect of any sales charges, was 8.99%.
For the one-year period ended June 30, 1996 and the period from the
commencement of operations to June 30, 1996, 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,
44.87% and 28.82%; Mid Capitalization Fund, 24.59% and 13.94%; Equity Income
Fund, 20.11% and 8.21%; Bond Fund (0.47)% and 2.47%; Limited
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 92
Maturity Bond Fund (0.47)% and 2.13%; Intermediate Government Obligations Fund
(0.95)% and 1.85%; Municipal Bond Fund (0.52)% and 1.33%; Balanced Allocation
Fund, 12.71% and 9.15%; Government Income Fund, 0.86% and 3.06%; Michigan Bond
Fund (0.24)% and 1.36%; and International Fund, 9.33% and (0.05)%. For the
period from the commencement of operations to June 30, 1996, the aggregate
annual total return for the Investor B Shares of the Large Capitalization Fund,
assuming the imposition of the maximum contingent deferred sales charge, was
4.77%.
For the one-year period ended June 30, 1996 and the period from the
commencement of operations to June 30, 1996, 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, 48.87% and
26.69%; Mid Capitalization Fund, 28.59% and 14.97%; Equity Income Fund, 24.11%
and 9.32%; Bond Fund, 3.46% and 3.62%; Limited Maturity Bond Fund, 3.43% and
3.26%; Intermediate Government Obligations Fund, 2.93% and 3.00%; Municipal Bond
Fund, 3.48% and 2.50%; Balanced Allocation Fund, 16.71% and 10.25%; Government
Income Fund, 5.22% and 4.16%; Michigan Bond Fund, 4.13% and 2.53%; and
International Fund, 13.33% and 1.16%. For the period from the commencement of
operations to June 30, 1996, the aggregate annual total return for the Investor
B Shares of the Large Capitalization Fund, excluding the effect of any
contingent deferred sales charge, was 8.77%.
For the one-year period ended June 30, 1996, the five-year period ended
June 30, 1996 and the period from the commencement of operations to June 30,
1996, 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, 48.32%, 28.62% and 23.05%; Mid
Capitalization Fund, 28.69%, 16.74% and 15.43%; Equity Income Fund, 24.17%,
12.00% and 12.99%; Bond Fund, 3.50%, 7.00% and 7.46%; Limited Maturity Bond
Fund, 3.71%, 5.27% and 6.24%; and Intermediate Government Obligations Fund,
2.86%, 5.55% and 6.39%. For the one-year period ended June 30, 1996 and the
period from the commencement of operations to June 30, 1996, 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: Balanced
Allocation Fund, 16.61% and 10.53%; Government Income Fund, 5.25% and 4.55%; and
International Fund, 13.62% and 12.12%. For the period from the commencement of
operations to June 30, 1996, the aggregate annual total return for the Investor
C Shares of the Large Capitalization Fund, assuming the imposition of the
maximum contingent deferred sales charge, was 7.14%.
For the one-year period ended June 30, 1996, the five-year period ended
June 30, 1996, and the period from the commencement of operations to June 30,
1996, the average annual total returns for the Investor C Shares of the above
Funds, except for the Large Capitalization Fund, 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 period
from the commencement of operations to June 30, 1996, the aggregate annual total
return for the Investor C Shares of the Large Capitalization Fund, excluding the
effect of any contingent deferred sales charge, was 8.14%.
For the one-year period ended June 30, 1996, the five-year period ended
June 30, 1996 and the period from the commencement of operations to June 30,
1996, the average annual total
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 93
returns for the Institutional Shares of the following Funds were: Small
Capitalization Fund, 50.03%, 29.09% and 23.24%; Mid Capitalization Fund, 29.93%,
17.26% and 15.76%; Equity Income Fund, 25.30%, 12.38% and 13.23%; Bond Fund,
4.49%, 7.86% and 8.02%; Limited Maturity Bond Fund, 4.65%, 6.30% and 6.91%;
Intermediate Government Obligations Fund, 3.95%, 6.53% and 7.04%; Municipal Bond
Fund, 4.55%, 6.19% and 6.33%; and Michigan Bond Fund, 5.12%, 6.39% and 6.45%.
For the one-year period ended June 30, 1996 and the period from the commencement
of operations to June 30, 1996, the average annual total returns of the
Institutional Shares of the following Funds were: Balanced Allocation Fund,
17.81% and 11.14%; Government Income Fund, 6.34% and 5.75%; and International
Fund, 14.76% and 12.21%. For the period from the commencement of operations to
June 30, 1996, the aggregate annual total return for the Institutional Shares of
the Large Capitalization Fund was 12.86%.
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, 1996, 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, 10.20%; Mid
Capitalization Fund, 3.03%; Equity Income Fund, 4.09%; International Fund, 0.07%
Balanced Allocation Fund, 6.34%; Bond Fund, 5.71%; Limited Maturity Bond Fund,
6.52%; Intermediate Government Obligations Fund, 5.75%; Government Income Fund,
7.56%; Municipal Bond Fund, 3.70%; and Michigan Bond Fund, 4.54%. For the
one-year period ended June 30, 1996, the distribution rates, including the
effect of sales loads but excluding the effect of capital gains, for the
Investor A Shares of the Funds were as follows: Small Capitalization Fund,
0.00%; Mid Capitalization Fund, 0.00%; Equity Income Fund, 1.64%; International
Fund, 0.07%; Balanced Allocation Fund, 2.25%; Bond Fund, 5.71%; Limited Maturity
Bond Fund, 6.52%; Intermediate Government Obligations Fund, 5.75%; Government
Income Fund, 7.56%; Municipal Bond Fund, 3.70%; and Michigan Bond Fund, 4.54%.
Excluding the effect of sales loads but including the effect of capital
gains, for the one-year period ended June 30, 1996, the distribution rates for
the Investor A Shares of the Funds were as follows: Small Capitalization Fund,
10.69%; Mid Capitalization Fund, 3.17%; Equity Income Fund, 4.28%; International
Fund, 0.07%; Balanced Allocation Fund, 2.35%; Bond Fund, 5.95%; Limited Maturity
Bond Fund, 6.79%; Intermediate Government Obligations Fund, 5.98%; Government
Income Fund, 7.87%; Municipal Bond Fund, 3.86%; and Michigan Bond Fund, 4.73%.
For the one-year period ended June 30, 1996, 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%; Equity Income Fund, 1.17%; International Discovery Fund, 0.07%;
Balanced Allocation Fund, 6.64%; Bond Fund, 5.95%; Limited Maturity Bond Fund,
6.79%; Intermediate Government Obligations Fund, 5.98%; Government Income Fund,
7.87%; Municipal Bond Fund, 3.86%; and Michigan Bond Fund, 4.43%.
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. Excluding the effect of sales loads but including the effect of
capital gains, for the one-year period ended June 30, 1996, the distribution
rates for the Investor B Shares of the Funds were as follows: Small
Capitalization Fund, 10.81%; Mid Capitalization Fund, 3.24%; Equity Income Fund,
3.67%; International Fund,
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 94
0.00%; Balanced Allocation Fund, 5.98%; Bond Fund, 5.27%; Limited Maturity Bond
Fund, 5.99%; Intermediate Government Obligations Fund, 5.27%; Government Income
Fund, 7.17%; Municipal Bond Fund, 3.16%; and Michigan Bond Fund, 4.02%. For the
one-year period ended June 30, 1996, 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%; Equity Income Fund, 1.10%; International Fund, 0.00%; Balanced Allocation
Fund, 1.68%; Bond Fund, 5.27%; Limited Maturity Bond Fund, 5.99%; Intermediate
Government Obligations Fund, 5.27%; Government Income Fund, 7.17%; Municipal
Bond Fund, 3.16%; and Michigan Bond Fund, 3.72%.
Excluding the effect of sales loads, but including the effect of
capital gains, for the one-year period ended June 30, 1996, the distribution
rates for the Investor C Shares of the Funds were as follows: Small
Capitalization Fund, 10.79%; Mid Capitalization Fund, 3.23%; Equity Income Fund,
3.68%; International Fund, 0.20%; Balanced Allocation Fund, 6.00%; Bond Fund,
5.32%; Limited Maturity Bond Fund, 6.31%; Intermediate Government Obligations
Fund, 5.41%; and Government Income Fund, 7.20%. For the one-year period ended
June 30, 1996, 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%; Equity Income Fund,
1.12%; International Fund, 0.20%; Balanced Allocation Fund, 1.68%; Bond Fund,
5.32%; Limited Maturity Bond Fund, 6.31%; Intermediate Government Obligations
Fund, 5.41%; and Government Income Fund, 7.20%.
For the one-year period ended June 30, 1996, the distribution rates,
including the effect of capital gains, for the Institutional Shares of the Funds
were as follows: Small Capitalization Fund, 10.58%; Mid Capitalization Fund,
3.16%; Equity Income Fund, 4.52%; International Fund, 0.25%; Balanced Allocation
Fund, 6.88%; Bond Fund, 6.16%; Limited Maturity Bond Fund, 7.06%; Intermediate
Government Obligations Fund, 6.23%; Government Income Fund, 8.12%; Municipal
Bond Fund, 4.10%; and Michigan Bond Fund, 4.97%. For the one-year period ended
June 30, 1996, 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%; Equity Income Fund, 1.95%;
International Fund, 0.25%; Balanced Allocation Fund, 2.59%; Bond Fund, 6.16%;
Limited Maturity Bond Fund, 7.06%; Intermediate Government Obligations Fund,
6.23%; Government Income Fund, 8.12%; Municipal Bond Fund, 4.10%; and Michigan
Bond Fund, 4.67%.
Distribution rates for all classes of shares of the Large
Capitalization Fund, 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, 1996.
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.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 95
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 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 that pay a fixed return 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.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 96
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 1996 Annual Report and, when available,
the December 31, 1996 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, 1996, and the six months ended December 31,
1996, respectively.
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.
As of June 30, 1996, 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 January 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>
Prime Obligations National Financial Services Corp., 159,287,123.010 88.756
acting in various capacities on
behalf of its customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
U.S. Government Obligations National Financial Services Corp., 29,021,966.530 16.126
acting in various capacities on
behalf of its customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
U.S. Government Obligations First of America 150,550,104.630 83.655
Trust Operations
P.O. Box 4042
Kalamazoo, MI 49003-4042
Tax-Free First of America 30,976,184.000 48.959
Trust Operations
P.O. Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 97
<TABLE>
<CAPTION>
Title of Name and Address of # of Shares
Investor A Share Fund Record Owner Owned Percent of Class
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax-Free National Financial Services Corp., 30,692,359.720 48.510
acting in various capacities on
behalf of its customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
Mid Capitalization BHC Securities 315,696.137 5.935
acting in various capacities on
behalf of its customers
One Commerce Square
2005 Market Street, Suite 1200
Philadelphia, PA 19103
Mid Capitalization Corelink Financial Inc. 446,754.334 8.399
P.O. Box 4054
Concord, CA 94524
Equity Income Corelink Financial Inc. 295,460.476 5.400
P.O. Box 4054
Concord, CA 94524
Limited Maturity Bond Corelink Financial Inc. 691,173.561 32.541
P.O. Box 4054
Concord, CA 94524
U.S. Government Income Corelink Financial Inc. 644,734.813 10.781
P.O. Box 4054
Concord, CA 94524
Municipal Bond Rumsey & Company 45,643.765 5.295
P.O. Box 1207
Jacksonville, IL 62651-1207
Municipal Bond Corelink Financial Inc. 167,310.932 19.411
P.O. Box 4054
Concord, CA 94524
Michigan Bond Corlink Financial Inc. 194,964.607 5.430
P.O. Box 4054
Concord, CA 94524
Treasury First of America 117,281,993.090 90.967
Trust Operations
acting in various capacities on
behalf of its customers
P.O. Box 4042
Kalamazoo, MI 49003-4042
Treasury National Financial Services Corp., 7,198,550.710 5.583
acting in various capacities on
behalf of its customers
Church Street Station
P.O. Box 3908
New York, NY 10008-3908
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 98
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 Raymond James Assoc., Inc. 16,352.100 9.622
acting in various capacities on
behalf of its customers
210 Ridge Ave.
Troy, OH 45373-2706
Limited Maturity Bond Isaac Walker Company 10,351.967 6.091
P.O. Box 3500
Peoria, IL 61612
Limited Maturity Bond Jonathan C. Bravo 15,653.973 9.211
Soliel Properties
3520 Martha S. Lane
Vero Beach, Florida 32967
Intermediate Government Horace Burton Gemmill 21,505.158 10.236
Obligations Joyce Louise Gemmill
2360 Mccomb Drive
Clio, MI 48420
Municipal Bond Conrad V. Davis for the benefit 14,920.327 15.800
of Lee Ann Davis
3206 W. Richwoods
Peoria, IL 61604
Municipal Bond Margil O. Weaver 8,936.344 9.463
6 Oakwood Dr.
Pontiac, IL 61764
Municipal Bond Frank A. Gregory 5,320.050 5.633
Thelma M. Gregory
3149 Shadow Brook Dr
Indianapolis, IN 46214
Municipal Bond Betty J. Bowen 11,779.859 12.474
2400 Country Club Drive
Springfield, IL 62704
Municipal Bond Edward L. Najim 4,897.444 5.186
Cheri S. Najim
1300 Pine Valley Ct.
Springfield, IL 62704
Municipal Bond Sarah J. Hawkins 12,408.487 13.140
for the benefit of
Cecil C. Hawkins
13813 E. North St.
Cortland, IL 60112
Michigan Bond J. William Sumner, Trustee 19,657.730 5.983
J. William Sumner Living Trust
876 Edgemont Park
Grosse Pointe Park, MI 48230
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 99
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>
Prime Obligations Nauman Inc. 401(k) Plan 21,178.970 5.363
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Prime Obligations Cord Construction Company 401(k) Plan 44,439.990 11.253
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002
Prime Obligations JB Printing Company 401(k) Plan 31,899.700 8.078
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002
Prime Obligations Noir Medical Technologies 56,527.870 14.314
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002
Prime Obligations Kent Optical Inc. 401(k) Plan 60,945.350 15.433
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002
U.S. Government Nyfries, Inc. 401(k) Plan 66,241.510 48.932
Obligations c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002
U.S. Government Preferred Solutions, Inc. 28,986.088 21.412
Obligations c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002
U.S. Government Seven Hills, Inc. 21,971.860 16.230
Obligations c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
U.S. Government Northern Michigan Fruit Co. 401(k) Plan 14,726.071 10.878
Obligations c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002
Mid Capitalization JB Printing Company 401(k) Plan 6,561.902 6.086
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Mid Capitalization Nyfries, Inc. 401(k) Plan 12,890.808 11.956
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Mid Capitalization Klineman Rose and Wolf P.C. 401(k) Plan 6,334.840 5.875
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Small Capitalization John A. Swanson 67,235.013 18.123
P.O. Box 224
Houston, PA 15342-0224
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 100
<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 Roger Antonelli 35,013.160 9.438
Trust Medical Radiologists, Inc. Pension/PS
1880 Kettering Tower
Dayton, OH 45423
Equity Income Cordes Excavating Inc. 401(k) Plan 1,350.420 7.491
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Equity Income Preferred Solutions, Inc. 6,951.578 38.562
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Equity Income Farmers Co. Operative Grain Co. of Kinde 1,075.396 5.965
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002
Equity Income Seven Hills, Inc. 935.211 5.187
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Bond Cord Construction Company 401(k) Plan 4,148.544 10.934
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002
Bond Preferred Solutions, Inc. 1,969.164 5.190
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002
Bond Nyfries, Inc. 401(k) Plan 2,554.912 6.733
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Bond Pegasus 401(k) Plan 3,273.027 8.626
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Bond West Michigan Grinding Service 5,386.901 14.198
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Limited Maturity Bond Continental Vending Inc. 401(k) Plan 187.522 11.386
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 101
<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 Northern Michigan Fruit Co. 401(k) Plan 1,400.380 85.030
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Intermediate Rickard and Denny P C 401(k) Plan 2,049.463 12.097
Government c/o BISYS Qualified Plan Services
Obligations 323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Intermediate Kent Optical, Inc. 401(k) Plan 6,938.292 40.955
Government c/o BISYS Qualified Plan Services
Obligations 323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Intermediate All Tech Engineering 401(k) Plan 2,678.353 15.809
Government c/o BISYS Qualified Plan Services
Obligations 323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Intermediate Lincoln Precision Carbide 401(k) 1,014.537 5.988
Government 600 S. Second
Obligations Lincoln, MI 48742-0000
Intermediate Ken Rock Community Center Inc. 401(k) Plan 2,860.499 16.885
Government c/o BISYS Qualified Plan Services
Obligations 323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002
Balanced Allocation All Tech Engineering 401(k) Plan 3,486.880 7.811
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Balanced Allocation Kent Optical, Inc. 401(k) Plan 4,982.483 11.161
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
Balanced Allocation Nyfries, Inc. 401(k) Plan 11,703.099 26.216
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
U.S. Government HMC Products 401(k) Plan 1,566.881 19.402
Income c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
U.S. Government Ganna Construction, Inc. 2,310.542 28.610
Income c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
U.S. Government Sud's Motor Car Company 735.584 9.108
Income c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 102
<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 JEK Incorporated 2,904.133 35.960
Income c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
International Discovery JEK Incorporated 3,194.351 6.716
BISYS Qualified Plan Services
c/o BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
International Discovery Preferred Solutions, Inc. 5,812.508 12.221
BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
International Discovery Cordes Excavating Inc. 401(k) Plan 3,539.265 7.441
BISYS Qualified Plan Services
323 Norristown Rd./Springhse. Corp. Cntr. II
Ambler, PA 19002-0000
International Discovery Lincoln Precision Carbide 401(k) 2,916.456 6.132
600 S. Second
Lincoln, MI 48742-0000
</TABLE>
As of January 7, 1997, as a result of its possession of voting or
investment power with respect to such shares, through accounts for which
FOA-Michigan and other affiliates of FABC act in a fiduciary capacity,
FOA-Michigan and other affiliates were deemed to be the record and beneficial
owners of 91.8% of the Institutional Shares of the Group as follows:
INSTITUTIONAL SHARES BENEFICIALLY OWNED BY FOA-MICHIGAN 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 $667,993,029 96.2% 76.1%
U.S. Government Obligations Fund $207,665,649 95.5% 51.6%
Treasury Fund $298,713,423 98.5% 72.5%
Tax-Free Fund $111,077,459 97.1% 65.2%
Small Capitalization Fund $ 11,113,365 64.0% 44.2%
Mid Capitalization Fund $ 24,334,084 69.4% 58.1%
Large Capitalization Fund $ 16,445,112 52.9% 52.2%
International Fund $ 17,138,775 68.3% 59.4%
Balanced Allocation Fund $ 9,688,452 93.7% 78.9%
Equity Income Fund $ 15,305,295 71.8% 57.3%
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 103
<TABLE>
<CAPTION>
Amount of Beneficial Percent of Percent of
Title of Institutional Share Fund Ownership Fund Class Fund
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond Fund $ 35,826,700 65.4% 63.0%
Limited Maturity Bond Fund $ 11,140,155 77.5% 68.8%
Intermediate Government Obligations Fund $ 16,627,957 67.5% 60.8%
Government Income Fund $ 11,815,160 91.9% 59.4%
Municipal Bond Fund $ 9,343,612 73.2% 67.7%
Michigan Bond Fund $ 11,689,231 70.2% 57.3%
===================================================================================================
</TABLE>
Therefore, FABC owned beneficially as of such date 67.1% 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, with the exception of the U.S. Government Obligations
Fund and Treasury Fund. 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 (except the U.S. Government
Obligations Fund and Treasury Fund) and to control any other matters submitted
to the shareholders of the Funds (except the U.S. Government Obligations Fund
and Treasury Fund) 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 depicting financial information for the each
Fund's operations since inception appear in the Group's Annual Report dated June
30, 1996, and on file with the SEC (File Nos. 33-13283 and 811-5105) are
incorporated by reference herein. The report of Coopers & Lybrand L.L.P.,
independent auditors of the Group, appears therein.
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 104
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 Thompson BankWatch, Inc. ("Thompson"). Set forth
below is a description of the relevant ratings of each such NRSRO. The NRSROs
that may be utilized by First of America are, and the description of each
NRSRO's ratings is, as of the date of this Statement of Additional Information,
and may subsequently change.
Long-Term Debt Ratings (May be assigned, for example, to corporate and municipal
bonds)
Description of the three highest long-term debt ratings by Moody's (Moody's
supplies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the future.
Description of the three highest long-term debt ratings by S&P (S&P may apply a
plus (+) or a minus (-) to a particular rating classification to show relative
standing within that classification):
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
Appendix
<PAGE> 105
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Description of the three highest long-term debt ratings by Duff:
AAA Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality protection factors are strong.
AA Risk is modest but may vary slightly from time to time
AA- because of economic conditions.
A+ Protection factors are average but adequate. However,
A risk factors are more variable and greater in periods
A- of economic stress.
Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated "AAA." Because bonds rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issues is
generally rated F-1+ (see below)."
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business,
economic or financial conditions are unlikely to increase
investment risk significantly.
AA Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic,
or financial conditions may increase investment risk albeit not
very significantly.
Appendix
<PAGE> 106
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.
Thompson's description of its three highest long-term debt ratings (Thompson may
include a plus (+) or minus (-) designation to indicate where within the
respective category the issue is placed):
AAA The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA The second highest category; indicates a superior ability to
repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category.
A The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be
more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
Short-Term Debt Ratings (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a
superior capacity for repayment of senior short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by many of the following
characteristics:
-Leading market positions in well-established
industries.
-High rates of return on funds employed.
-Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
-Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
-Well-established access to a range of financial markets
and assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong capacity for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Appendix
<PAGE> 107
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and
market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the
level of debt protection measurements and may require
relatively high financial ,leverage. Adequate alternate
liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to have
extremely strong safety characteristics are denoted with a plus
sign (+).
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for
timely payment They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying
the higher designations.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
Duff 1-High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors.
Risk factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
Duff 3 Satisfactory liquidity and other protection factors qualify
issues as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
Fitch's description of its three highest short-term debt ratings:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for
timely payment.
Appendix
<PAGE> 108
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.
Thompson's description of its three highest short-term ratings:
TBW-1 The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong,
the relative degree of safety is not as high as for issues rated
"TBW-1".
TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external)
than obligations with higher ratings, capacity to service
principal and interest in a timely fashion is considered
adequate.
Short-Term Loan/Municipal Note Ratings
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of protection are
ample although not as large as in the preceding group.
Appendix
<PAGE> 109
S&P's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
Appendix
<PAGE> 110
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES
INVESTOR B SHARES
INVESTOR C SHARES
INSTITUTIONAL SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX-FREE INCOME FUNDS
THE PARKSTONE MONEY MARKET FUNDS
THE PARKSTONE GROUP OF FUNDS
FORM N-1A
PART C. OTHER INFORMATION
ITEM NO.
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Financial Highlights for the Registrant are incorporated by
reference to Part A of Registrant's Post-Effective Amendment
No. 31 (filed October 9, 1996).
-- Financial Highlights for the Moderate Foundation
Fund, formerly known as the Balanced Fund, are
included in Part A.
The following documents for the Registrant are incorporated by
reference to the Annual Report incorporated by reference to
Part B of the Registrant's Post-Effective Amendment No. 31
(filed October 9, 1996):
-- Independent Auditor's Report dated August 23,
1996.
-- Statements of Assets and Liabilities as of
June 30, 1996.
-- Statements of Operations for the year ended
June 30, 1996.
-- Statements of Changes in Net Assets for the years
ended June 30, 1996 and June 30, 1995.
-- Schedules of Portfolio Investments as of June 30,
1996.
-- Notes to Financial Statements.
OTHER INFORMATION
<PAGE> 111
All required financial statements are included or incorporated
by reference in Part B hereof. All other financial statements
and schedules are inapplicable.
(b) Exhibits:
(1) (a) Declaration of Trust dated March 25, 1987
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed
October 9, 1996).
(i) Amendment dated April 7, 1987 to
Declaration of Trust (incorporated
by reference to Registrant's
Post-Effective Amendment No. 31,
filed October 9, 1996).
(ii) Amendment dated July 1, 1987 to
Declaration of Trust (incorporated
by reference to Registrant's
Post-Effective Amendment No. 31,
filed October 9,
1996).
(2) (a) Code of Regulations as approved and adopted
by Registrant's Board of Trustees
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed
October 9, 1996).
(i) Amendment dated May 11, 1989 to Code
of Regulations (incorporated by
reference to Registrant's
Post-Effective Amendment No. 31,
filed October 9, 1996).
(ii) Amendment dated August 26, 1993 to
Code of Regulations (incorporated by
reference to Registrant's
Post-Effective Amendment No. 31,
filed October 9,
1996).
(3) Not applicable.
(4) Not applicable.
(5) (a) Investment Advisory Agreement between
Registrant and Securities Counsel, Inc.,
dated July 9, 1987, relating to the U.S.
Government Obligations Fund, the Prime
Obligations Fund and the Tax-Free Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed
October 9, 1996).
(i) Amendment dated August 26, 1993 to
Schedule A adding the Treasury Fund
and Municipal Investor Fund
(incorporated by reference to
Registrant's Post-Effective
Amendment No. 31, filed October 9,
1996).
(b) Investment Advisory Agreement between
Registrant and Securities Counsel, Inc.
dated September 8, 1988, relating to the
Bond Fund, the Limited Maturity Bond Fund,
the Intermediate Government Obligations
Fund, the Municipal Bond Fund, the Equity
Fund, the
Other Information
<PAGE> 112
Small Capitalization Fund and the High
Equity Income Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 31, filed October 9, 1996).
(i) First Amendment dated March 1, 1995
authorizing the use of subadvisers
with respect to the Balanced Fund
(incorporated by reference to
Registrant's Post-Effective
Amendment No. 31, filed October 9,
1996).
(ii)* Amendment to Schedule A adding the
Conservative Allocation Fund and the
Aggressive Allocation Fund and
incorporating previous amendments
adding the Large Capitalization
Fund, the Michigan Municipal Bond
Fund, the Balanced Allocation Fund
and the U.S. Government Income Fund.
(iii)* Second Amendment authorizing the
use of Subadvisers with respect to
the Conservative Allocation Fund
and the Aggressive Allocation Fund.
(c) Investment Advisory Agreement between the
Registrant and First of America Investment
Corporation dated December 22, 1992,
relating to the International Discovery Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed
October 9, 1996).
(i) Amendment dated February 10, 1995 to
Schedule A adding the Emerging
Markets Fund (incorporated by
reference to Registrant's
Post-Effective Amendment No. 31
filed October 9, 1996).
(d) Sub-Investment Advisory Agreement between
First of America Investment Corporation and
Gulfstream Global Investors, Ltd. dated
March 1, 1995, relating to the International
Discovery Fund, the Balanced Fund and the
Emerging Markets Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(i)* Amendment to Schedule A adding the
Conservative Allocation Fund and the
Aggressive Allocation Fund.
(6) (a) Distribution Agreement between Registrant
and The Winsbury Company Limited Partnership
dated October 1, 1993, relating to the U.S.
Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Fund, the
Treasury Fund, the Municipal Investor Fund,
the Equity Fund, the Small Capitalization
Fund, the International Discovery Fund, the
Balanced Fund, the High Equity Income Fund,
the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government
Obligations Fund, the U.S. Government Income
Fund, the Municipal Bond Fund and the
Michigan Municipal Bond Fund (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
OTHER INFORMATION
<PAGE> 113
(i) Amendment dated May 12, 1994 to the
Distribution Agreement adding
Schedules H and I relating to
Investor C Shares (incorporated by
reference to Registrant's
Post-Effective Amendment No. 31
filed October 9, 1996).
(ii)* Amendment to Schedule A adding
the Conservative Allocation Fund and
the Aggressive Allocation Fund and
incorporating previous amendments
adding the Emerging Markets Fund
and the Large Capitalization Fund.
(iii) Amendment to Schedule B dated
November 8, 1995 adding the Large
Capitalization Fund (incorporated
by reference to Registrant's
Post-Effective Amendment No. 31
filed October 9, 1996).
(iv) Amendment to Schedule D dated
November 8, 1995 adding the Large
Capitalization Fund (incorporated
by reference to Registrant's Post-
Effective Amendment No. 31 filed
October 9, 1996).
(v) Amendment to Schedule F dated
November 8, 1995 adding the Large
Capitalization Fund (incorporated
by reference to Registrant's Post-
Effective Amendment No. 31 filed
October 9, 1996).
(vi) Amendment to Schedule G dated
November 8, 1995 adding the Large
Capitalization Fund (incorporated
by reference to Registrant's
Post-Effective Amendment No. 31
filed October 9, 1996).
(vii) Amendment to Schedule I dated
November 8, 1995 adding the Large
Capitalization Fund (incorporated
by reference to Registrant's
Post-Effective Amendment No. 31
filed October 9, 1996).
(b) Specimen Dealer Agreement between BISYS Fund
Services, L.P. and dealers (incorporated by
reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(c) Specimen Shareholder Service Agreement
between BISYS Fund Services, L.P. and
organizations providing shareholder services
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed
October 9, 1996).
(7) Not applicable.
(8) (a) Custody Agreement between Registrant and the
Bank of California, N.A., dated October 18,
1991, relating to the U.S. Government
OTHER INFORMATION
<PAGE> 114
Obligations Fund, the Prime Obligations
Fund, the Tax-Free Fund, the Bond Fund, the
Limited Maturity Bond Fund, the Intermediate
Government Obligations Fund, the Municipal
Bond Fund, the Equity Fund, the Small
Capitalization Fund, the High Income Equity
Fund and the Michigan Municipal Bond Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed
October 9, 1996).
(i)* Amendment to Schedule A adding the
Conservative Allocation Fund and the
Aggressive Allocation Fund and
incorporating previous amendments
adding the Large Capitalization
Fund, the Balanced Allocation Fund,
the U.S. Government Income Fund,
the International Discovery Fund,
the Treasury Fund and the
Municipal Investor Fund.
(ii) Amendment dated November 20, 1992,
to Schedule B of the Custody
Agreement (incorporated by reference
to Registrant's Post-Effective
Amendment No. 31 filed October 9,
1996).
(iii) Securities Lending and Reverse
Repurchase Agreement Addendum dated
June 8, 1995 (incorporated by
reference to Registrant's Post-
Effective Amendment No. 31 filed
October 9, 1996).
(a)* Amendment to Exhibits D to
add the Conservative
Allocation Fund and the
Aggressive Allocation Fund.
(b)* Amendment to Schedule I to
add the Conservative
Allocation Fund and the
Aggressive Allocation Fund.
(b) Custodian Agreement between Registrant and
the Bank of California, N.A., dated July 30,
1995, relating to the International
Discovery Fund, Emerging Markets Fund and
portion of the Balanced Fund invested in
foreign securities (incorporated by
reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(9) (a) Administration Agreement between Registrant
and The Winsbury Company Limited Partnership
dated January 1, 1995, relating to the U.S.
Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Fund, the
Treasury Fund, the Municipal Investor Fund,
the Equity Fund, the Small Capitalization
Fund, the International Discovery Fund, the
Balanced Fund, the High Income Equity Fund,
the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government
Obligations Fund, the U.S. Government Income
Fund, the Municipal Bond Fund and the
Michigan
OTHER INFORMATION
<PAGE> 115
Municipal Bond Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(i)* Amendment to Exhibit A adding the
Conservative Allocation Fund and the
Aggressive Allocation Fund and
incorporating a previous amendment
adding the Large Capitalization
Fund.
(b) Transfer Agency Agreement between Registrant
and The Winsbury Service Corporation dated
August 8, 1990.
(i) Amendment dated May 12, 1994 to
Schedule B revising the fee schedule
(incorporated by reference to
Registrant's Post-Effective
Amendment No. 31 filed October 9,
1996).
(c) Fund Accounting Agreement between Registrant
and The Winsbury Service Corporation dated
as of February 1, 1993, relating to the U.S.
Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Fund, the
Equity Fund, the Small Capitalization Fund,
the International Discovery Fund, the
Balanced Fund, the High Income Equity Fund,
the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government
Obligations Fund, the U.S. Government Income
Fund, the Municipal Bond Fund and the
Michigan Municipal Bond Fund (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(i)* Amendment to Schedule A adding the
Conservative Allocation Fund and the
Aggressive Allocation Fund and
incorporating previous amendments
adding the Large Capitalization
Fund, the Treasury Fund and the
Municipal Investor Fund.
(ii) Amendment dated April 1, 1993 to
Schedule B revising the fee schedule
(incorporated by reference to
Registrant's Post-Effective
Amendment No. 31 filed October 9,
1996).
(d) Sub-Administration Agreement between First
of America Investment Corporation and The
Winsbury Company Limited Partnership dated
January 1, 1995, relating to the U.S.
Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Fund, the
Treasury Fund, the Municipal Investor Fund,
the Equity Fund, the Small Capitalization
Fund, the International Discovery Fund, the
Balanced Fund, the High Income Equity Fund,
the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government
Obligations Fund, the U.S. Government Income
Fund, the Municipal Bond Fund and the
Michigan Municipal Bond Fund (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
OTHER INFORMATION
<PAGE> 116
(i)* Amendment adding the Conservative
Allocation Fund and the Aggressive
Allocation Fund and incorporating
a previous amendment adding the
Large Capitalization Fund.
(e) Securities Lending Record Administration
Agreement between The Bank of California,
N.A. and The Winsbury Company Limited
Partnership dated June 1, 1995 (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(10) An opinion of Legal Counsel with respect to shares of
the U.S. Government Obligations Fund, the Prime
Obligations Fund, the Treasury Fund, the Tax-Free
Fund, the Equity Fund, the Small Capitalization Fund,
the Large Capitalization Fund, International
Discovery Fund, the Balanced Fund, the High Income
Equity Fund, the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government Obligations Fund,
the U.S. Government Income Fund, the Municipal Bond
Fund, and the Michigan Municipal Bond Fund was filed
with Registrant's Notice filed pursuant to Rule 24f-2
on August 28, 1996.
(11) (a) Consent of Coopers & Lybrand, L.L.P.
(b) Consent of Howard & Howard Attorneys, P.C.
(12) Not applicable.
(13) Purchase Agreement dated July 2, 1987, between
Registrant and The Winsbury Corporation
(incorporated by reference to Registrant's Post-
Effective Amendment No. 31 filed October 9, 1996).
(14) (a) Specimen Agreement for the Parkstone
Individual Retirement Account (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(b) Specimen Agreement for the National
Financial Services Corporation Individual
Retirement Account offered through First of
America Securities, Inc. for investment in
the Parkstone Group of Funds (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(15) (a) Investor A Distribution and Shareholder
Service Plan (incorporated by reference to
Registrant's Post-Effective Amendment No. 31
filed October 9, 1996).
(i) Participating Organization Agreement
between The Winsbury Company and
National Financial Services
Corporation dated October 1, 1993,
relating to Investor A Share
distribution and shareholder
services for the U.S.
OTHER INFORMATION
<PAGE> 117
Government Obligations Fund, the
Tax-Free Fund, the Prime Obligations
Fund, the Treasury Fund, the
Municipal Investor Fund, the Equity
Fund, the Small Capitalization Fund,
the High Income Equity Fund, the
International Discovery Fund, the
Balanced Fund, the Bond Fund, the
Limited Maturity Bond Fund, the
Michigan Municipal Bond Fund, the
Municipal Bond Fund, the U.S.
Government Income Fund and the
Intermediate Government Obligations
Fund (incorporated by reference to
Registrant's Post-Effective
Amendment No. 31 filed October 9,
1996).
(a) Amendment to Schedule A
dated November 8, 1995
adding the Large
Capitalization Fund
(incorporated by reference
to Registrant's Post-
Effective Amendment
No. 31 filed October 9,
1996).
(ii) Participating Organization Agreement
between The Winsbury Company and
First of America Bank Corporation on
behalf of its wholly-owned
subsidiary banks, dated October 1,
1993, relating to Investor A Share
distribution and shareholder
services for the U.S. Government
Obligations Fund, the Tax-Free Fund,
the Prime Obligations Fund, the
Treasury Fund, the Municipal
Investor Fund, the Equity Fund, the
Small Capitalization Fund, the High
Income Equity Fund, the
International Discovery Fund, the
Balanced Fund, the Bond Fund, the
Limited Maturity Bond Fund, the
Michigan Municipal Bond Fund, the
Municipal Bond Fund, the U.S.
Government Income Fund and the
Intermediate Government Obligations
Fund (incorporated by reference to
Registrant's Post-Effective
Amendment No. 31 filed October 9,
1996).
(a) Amendment dated November 8,
1995 adding Exhibit C to
reflect 12b-1 fees charged
to each Fund (incorporated
by reference to
Registrant's Post-Effective
Amendment No. 31 filed
October 9, 1996).
(b) Amendment to Exhibit A
dated November 8, 1995
adding the Large
Capitalization Fund
(incorporated by reference
to Registrant's Post-
Effective Amendment No. 31
filed October 9, 1996).
OTHER INFORMATION
<PAGE> 118
(iii) Participating Organization
Agreement between The
Winsbury Company and First
of America Securities,
Inc., as a party and on
behalf of its affiliate
First of America Brokerage
Services, dated September
21, 1994, relating to
Investor A Share
distribution and
shareholder services for
the U.S. Government
Obligations Fund, the
Tax-Free Fund, the Prime
Obligations Fund, the
Treasury Fund, the
Municipal Investor Fund,
the Equity Fund, the Small
Capitalization Fund, the
High Income Equity Fund,
the International Discovery
Fund, the Balance Fund, the
Bond Fund, the Limited
Maturity Bond Fund, the
Michigan Municipal Bond
Fund, the Municipal Bond
Fund, the U.S. Government
Income Fund and the
Intermediate Government
Obligations Fund
(incorporated by reference
to Registrant's
Post-Effective Amendment
No. 31 filed October 9,
1996).
(a) Amendment to
Exhibit A dated
Nobember 8, 1995
adding the Large
Capitalization
Fund (incorporated
by reference to
Registrant's
Post-Effective
Amendment No. 31
filed October 9,
1996).
(b) Investor B Distribution and Shareholder
Service Plan (incorporated by reference to
Registrant's Post-Effective Amendment No. 31
filed October 9, 1996).
(i) Shareholder Services and Financing
Agreement between The Winsbury
Company and Security Distributors,
Inc. dated February 1, 1994 relating
to Investor B Share financing
assistance and shareholder support
services for the Equity Fund, the
Small Capitalization Fund, the
International Discovery Fund, the
High Income Equity Fund, the Balanced
Fund, the Bond Fund, the Limited
Maturity Bond Fund, the U.S.
Government Income Fund, the
Intermediate Government Obligations
Fund, the Municipal Bond Fund and the
Michigan Municipal Bond Fund
(incorporated by reference to
Registrant's Post-Effective Amendment
No. 31 filed October 9, 1996).
(ii) Service and Commission Agreement
between The Winsbury Company and
Security Distributors, Inc.,
Security Benefit Group, Inc. and
First of America Brokerage Services
dated February 1, 1994, relating to
Investor B Share shareholder support
services for the Equity Fund, the
Small Capitalization Fund, the
International Discovery Fund, the
High Income Equity Fund, the
Balanced Fund, the Bond Fund, the
Limited Maturity Bond Fund, the U.S.
Government Income Fund, the
Intermediate Government Obligations
Fund,
OTHER INFORMATION
<PAGE> 119
the Municipal Bond Fund and the
Michigan Municipal Bond Fund
(incorporated by reference to
Registrant's Post-Effective
Amendment No. 31 filed October 9,
1996).
(iii) Dealer Agreement between The Winsbury
Company and First of America
Brokerage Service, Inc. dated
February 1, 1994 relating to Investor
B Share distribution services for the
Equity Fund, the Small Capitalization
Fund, the International Discovery
Fund, the High Income Equity Fund,
the Balanced Fund, the Bond Fund, the
Limited Maturity Bond Fund, the U.S.
Government Income Fund, the
Intermediate Government Obligations
Fund, the Municipal Bond Fund and the
Michigan Municipal Bond Fund
(incorporated by reference to
Registrant's Post-Effective Amendment
No. 31 filed October 9, 1996).
(a) Amendment to Exhibit A
dated November 8, 1995
adding the Large
Capitalization Fund
(incorporated by reference
to Registrant's Post-
Effective Amendment No. 31
filed October 9, 1996).
(c) Investor C Distribution and Shareholder
Service Plan (incorporated by reference to
Registrant's Post-Effective Amendment No. 31
filed October 9, 1996).
(i) Participating Organization Agreement
between The Winsbury Company and
First of America Securities, Inc.
dated September 21, 1994, relating to
Investor C Share distribution and
shareholder services for the Equity
Fund, the Small Capitalization Fund,
the High Income Equity Fund, the Bond
Fund, the Limited Maturity Bond Fund,
the Intermediate Government
Obligations Fund, the Michigan
Municipal Bond Fund, the Balanced
Fund, the U.S. Government Income Fund
and the International Discovery Fund
(incorporated by reference to
Registrant's Post-Effective Amendment
No. 31 filed October 9, 1996).
(a) Amendment to Exhibit A
dated November 8, 1995
adding the Large
Capitalization Fund
(incorporated by reference
to Registrant's Post-
Effective Amendment No. 31
filed October 9, 1996).
(b) Amendment to Exhibit C
dated November 8, 1995
adding the Large
Capitalization Fund
(incorporated by reference
to Registrant's Post-
Effective Amendment No. 31
filed October 9, 1996).
OTHER INFORMATION
<PAGE> 120
(16) (a) Computation of Total Returns for the Small
Capitalization Fund, the Mid Capitalization
Fund, the Large Capitalization Fund,
the International Discovery Fund, the
Emerging Markets Fund, the Conservative
Allocation Fund, the Balanced Allocation
Fund, the Aggressive Allocation Fund, the
Equity Income Fund, the Bond Fund, the
Limited Maturity Bond Fund, the
Intermediate Government Obligations Fund,
the U.S. Government Income Fund, the
Municipal Bond Fund, the Michigan Municipal
Bond Fund, the U.S. Government Obligations
Fund, the Prime Obligations Fund, the
Tax-Free Fund, the Treasury Fund and the
Municipal Investor Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(b) Computation of Yields for the Small
Capitalization Fund,
the Mid Capitalization Fund, the Large
Capitalization Fund, the International
Discovery Fund, the Emerging Markets Fund,
the Conservative Allocation Fund, the
Balanced Allocation Fund, the Aggressive
Allocation Fund, the Equity Income Fund,
the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government
Obligations Fund, the U.S. Government
Income Fund, the Municipal Bond Fund, the
Michigan Municipal Bond Fund, the U.S.
Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Fund, the
Treasury Fund and the Municipal Investor
Fund (incorporated by reference to
Registrant's Post-Effective Amendment No.
31 filed October 9, 1996).
(c) Computation for Distribution Rates for the
Small Capitalization Fund, the Mid
Capitalization Fund, the Large
Capitalization Fund, the International
Discovery Fund, the Emerging Markets Fund,
the Conservative Allocation Fund, the
Balanced Allocation Fund, the Aggressive
Allocation Fund, the Equity Income Fund,
the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government
Obligations Fund, the U.S. Government
Income Fund, the Municipal Bond Fund and
the Michigan Municipal Bond Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed
October 9, 1996).
(17) Financial Data Schedules
(18) Multiple Class Plan adopted by the Board of
Trustees on November 8, 1995 (incorporated by
reference to Registrant's Post-Effective Amendment
No. 31 filed October 9, 1996).
(19) Power of Attorney for George R. Landreth,
Lawrence D. Bryan, Robert M. Beam, and
Adrian Charles Edwards (incorporated by
reference to Exhibit (17) of Registrant's
Post-Effective Amendment No. 31 filed
October 9, 1996).
* Exhibits marked with an asterisk will be filed by amendment.
OTHER INFORMATION
<PAGE> 121
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees, the members of which
also serve as members of the Board of Trustees of the Parkstone
Advantage Fund. As of June 30, 1996, First of America Bank Corporation,
a bank holding company ("FABC"), and the parent of First of America
Bank - Michigan, N.A., may be deemed to control the Registrant because
of its record ownership and beneficial ownership through its
wholly-owned subsidiaries of more than 25% of the shares of each series
of the Registrant outstanding on such date. In addition to controlling
the Registrant, FABC controls, and therefore the Registrant is under
common control with, First of America Investment Corporation, a
Michigan corporation and a wholly-owned subsidiary of First of America
Bank - Michigan, N.A.
Financial statements for First of America Investment Corporation and
First of America - Michigan, N.A. are included in FABC's consolidated
financial statements.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of November 30, 1996, the number of record holders of each series of
shares of the Registrant were as follows:
<TABLE>
<CAPTION>
Title of Series Investor A Investor B Investor C Institutional
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS
FUND 55 --- --- 3
PRIME OBLIGATIONS FUND 538 --- --- 102
TAX-FREE FUND 34 --- --- 2
TREASURY FUND 35 --- --- 1
MID CAPITALIZATION FUND 7,233 2,859 71 4
SMALL CAPITALIZATION FUND 13,477 4,899 282 34
LARGE CAPITALIZATION FUND 409 229 3 4
INTERNATIONAL DISCOVERY FUND 6,204 2,247 50 5
EQUITY INCOME FUND 7,522 1,945 18 5
MODERATE FOUNDATION FUND 1,805 554 35 2
BOND FUND 1,856 663 49 3
</TABLE>
OTHER INFORMATION
<PAGE> 122
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
LIMITED MATURITY BOND FUND 1,051 140 4 2
INTERMEDIATE GOVERNMENT
OBLIGATIONS FUND 1,402 226 12 2
GOVERNMENT INCOME FUND 2,764 1,184 10 2
MUNICIPAL BOND FUND 237 32 --- 2
MICHIGAN MUNICIPAL BOND FUND 1,070 134 --- 2
</TABLE>
ITEM 27. INDEMNIFICATION
Article IX Section 9.2 of the Registrant's Declaration of Trust, as
amended, provides for the indemnification of Registrant's Trustees and
officers. Indemnification of the Group's principal underwriter,
custodian, investment adviser, manager and administrator, transfer
agent and fund accountant is provided for, respectively, in Section
1.13 of the Distribution Agreement filed or incorporated by reference
as Exhibit 6(a) hereto, Section 10.1 of the Custody Agreement filed or
incorporated by reference as Exhibit 8(a) hereto and in Section 16 of
the Custodian Agreement filed as Exhibit 8(b) hereto, Section 8 of the
Investment Advisory and Sub-Investment dvisory Agreements filed or
incorporated by reference as Exhibits 5(a), (b), (c) and (d) hereto,
Section 6 of the Administration Agreement filed or incorporated by
reference as Exhibit 9(a) hereto, Section 9 of the Transfer Agency
Agreement, filed or incorporated by reference as Exhibit 9(b) hereto,
and Section 6 of the Fund Accounting Agreement filed or incorporated by
reference as Exhibit 9(c) hereto. As of the date of this Registration
Statement, the Group has obtained from a major insurance carrier a
Trustees' and officers' liability policy covering certain types of
errors and omissions. In no event will Registrant Indemnify any of its
Trustees, officers, employees or agents against any liability to which
such person would otherwise be subject by reason of his willful
misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of his reckless disregard of the duties involved
in the conduct of his office or under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities Act of 1933
and Release 11330 under the Investment Company Act of 1940 in
connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to trustees,
officers, and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of
OTHER INFORMATION
<PAGE> 123
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
First of America Investment Corporation, Kalamazoo, Michigan ("FIC"),
is the Group's investment adviser. FIC is a Michigan-chartered,
wholly-owned subsidiary of First of America Bank - Michigan, N.A.,
Kalamazoo, Michigan ("FOA-Michigan"). Although FIC has not, except for
the Group, previously served as an investment adviser to a registered
investment company, FIC currently manages over $12 billion on behalf of
both taxable and tax-exempt clients, including pensions, endowments,
corporations, individual portfolios and the Group. fic acts as
subadviser to the Trust Division of First of America Bank Corporation
with respect to $3.6 billion in discretionary assets, providing equity,
fixed income, balanced and money management services.
To the knowledge of Registrant, none of the directors or officers of
FIC is or has been at any time during the past two fiscal years engaged
in any other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers of FIC
also hold positions with FIC's parent, FOA-Michigan, or First of
America Bank Corporation (First of America's Parent) or other
subsidiaries.
ITEM 29. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services Limited Partnership, formerly known
as The Winsbury Company Limited Partnership ("BISYS")
acts as distributor and administrator for Registrant.
BISYS also distributes the securities of The Victory
Portfolios, The HighMark Group, The AmSouth Mutual
Funds, The Sessions Group, The Coventry Group, The BB&T
Mutual Funds Group, The American Performance Funds, The
Arch Fund, Inc., The MMA Praxis Mutual Funds, The
Marketwatch Funds, The Pacific Capital Funds, The
Qualivest Funds, The Riverfront Funds, Inc., The Summit
Investment Trust, The Pegasus Funds, The Fountain
Square Funds, The Kent Group of Funds, The HSBC Funds,
First Choice Funds Trust, The Parkstone Advantage Fund,
SBSF Funds, Inc., Infinity Mutual Funds, Inc., The
Republic Funds and The Time Horizon Funds, each of
which is an investment management company.
(b) Directors, officers and partners of BISYS, as of June
30, 1996, were as follows:
Name and Principal Positions and Positions and
Business Address Offices with BISYS Offices with
Fund Services, L.P. Registrant
- --------------------------------------------------------------------------------
The BISYS Group, Inc. Sole Shareholder of
150 Clove Road BISYS Fund Services,
Little Falls, NJ 07424 Inc. and Sole Limited
Partner None
OTHER INFORMATION
<PAGE> 124
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219 Sole General Partner None
J. DAvid Huber Senior Vice President,
3435 Stelzer Road Business Development
Columbus, Ohio 43219 Fund Services Division Vice President
Stephen G. Mintos Executive Vice President
3435 Stelzer Road General Manager
Columbus, Ohio 43219 Fund Services Division None
(c) Compensation to BISYS during the fiscal year ended June
30, 1996 was as follows:
<TABLE>
<CAPTION>
Net Underwriting Compensation on
Discounts and Redemption and Brokerage Other
Commissions Repurchase Commissions Compensation
- ---------------- --------------- ----------- ------------
<S> <C> <C> <C>
$280,986 $3,615 $ -0- $ -0-
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(a) First of America Investment Corporation, 303 North Rose
Street, Kalamazoo, Michigan 49007 (records relating to its
functions as investment adviser); Gulfstream Global Investors,
Ltd., 100 Crescent Court, Suite 550, Dallas, Texas 75201
(records relating to certain functions of the subadviser for
the International Discovery Fund and Balanced Fund).
(b) BISYS Fund Services, L.P., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to its functions as general manager,
administrator and distributor).
(c) Howard & Howard, 1400 North Woodward Avenue, Suite 101,
Bloomfield Hills, Michigan 48304-2856 (declaration of
trust, code of regulations, and minute books).
(d) Union Bank of California, N.A., 475 Sansome Street, San
Francisco, California 94111 (records relating to its functions
as custodian).
(e) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus,
Ohio 43219 (records relating to its functions as transfer
agent and fund accountant).
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
OTHER INFORMATION
<PAGE> 125
(a) Registrant hereby undertakes to furnish to each person
to whom a prospectus is delivered a copy of
Registrant's latest Annual Report to Shareholders upon request
and without charge.
OTHER INFORMATION
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Columbus and the State of Ohio on the
6th day of January, 1997.
THE PARKSTONE GROUP OF FUNDS
By: /s/ George R. Landreth
-----------------------------
George R. Landreth, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ George R. Landreth
- ---------------------------
George R. Landreth Chairman and Trustee* January 6, 1997
- ---------------------------
Robert M. Beam* Trustee
- ---------------------------
Lawrence D. Bryan* Trustee
- ---------------------------
Adrian Charles Edwards* Trustee
*By: /s/ George R. Landreth
-----------------------
George R. Landreth
Attorney-in-Fact January 6, 1997
OTHER INFORMATION
<PAGE> 127
EXHIBIT INDEX
Exhibit No.
- -----------
(11) (a) Consent of Coopers & Lybrand L.L.P.
(b) Consent of Howard & Howard Attorneys, P.C.
(17) Financial Data Schedule
OTHER INFORMATION
<PAGE> 1
Exhibit 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 33 to the Registration Statement on Form N-1A (File No. 33-13283) of The
Parkstone Group of Funds of our report dated August 23, 1996 on our audits of
the financial statements of the Prime Obligations Fund, the U.S. Government
Obligations Fund, the Treasury Fund, the Tax-Free Fund, the High Equity Income
Fund, the Equity Fund, the Small Capitalization Fund, the Large Capitalization
Fund, the International Discovery Fund, the Balanced Fund, the Limited Maturity
Bond Fund, the Intermediate Government Obligations Fund, the U.S. Government
Income Fund, the Bond Fund, the Municipal Bond Fund, and the Michigan Municipal
Bond Fund constituting the Parkstone Group of Funds as of June 30, 1996 and for
the periods then ended referred to in our report incorporated by reference in
the Statement of Additional Information. We also consent to the references to
our firm under the caption "Financial Highlights" in the Prospectus for
Institutional Shares relating to the Conservative Allocation Fund, the Balanced
Allocation Fund and the Aggressive Allocation Fund, and under the caption
"Independent Auditors" and "Financial Statements" in the Statement of Additional
Information of The Parkstone Group of Funds in Post-Effective Amendment No. 33
to the Registration Statement on Form N-1A (file no. 33-13283).
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Columbus, Ohio
January 6, 1997
<PAGE> 1
Exhibit 11(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
firm under the caption "Legal Counsel" included in or made a part of the
post-effective Amendment No. 33 to the Registration Statement on Form N-1A, File
No. 33-13283, filed under the Securities Act of 1933, as amended, and Amendment
No. 35 to the Registration Statement on Form N-1A, File No. 811-5105, filed
under the Investment Company Act of 1940, as amended, of the Parkstone Group of
Funds.
Bloomfield Hills, Michigan HOWARD & HOWARD ATTORNEYS, P.C.
January 6, 1997
By: /S/ Melanie Mayo West
--------------------------------
Melanie Mayo West
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 120
<NAME> PARKSTONE BALANCED ALLOCATION FUND-INSTITUTIONAL
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 116334
<INVESTMENTS-AT-VALUE> 133355
<RECEIVABLES> 9078
<ASSETS-OTHER> 23
<OTHER-ITEMS-ASSETS> 00
<TOTAL-ASSETS> 142456
<PAYABLE-FOR-SECURITIES> 7169
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57
<TOTAL-LIABILITIES> 7226
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 110729
<SHARES-COMMON-STOCK> 8490
<SHARES-COMMON-PRIOR> 7327
<ACCUMULATED-NII-CURRENT> 329
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7151
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</TABLE>
