<PAGE> 1
As filed with the Securities and Exchange Commission on July 17, 1998
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. 38 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 40
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
W. Bruce McConnel, Esq.
Audrey C. Talley, Esq.
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
(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:
/_______/ immediately upon filing pursuant to paragraph (b).
/_______/ on (date) pursuant to paragraph (b).
/___X___/ 60 days after filing pursuant to paragraph (a)(i).
/_______/ 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, 1997, Registrant filed its Rule 24f-2 Notice
with respect to its fiscal year ended June 30, 1997.
<PAGE> 2
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES
THE LIFEWORKS FUNDS
PARKSTONE CONSERVATIVE ALLOCATION FUND
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE AGGRESSIVE ALLOCATION FUND
FORM N - 1A
CROSS-REFERENCE SHEET
Part A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO.
<TABLE>
RULE 404(a) CROSS-REFERENCE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <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 Not Applicable
Performance...................................
6. Capital Stock and Other Securities............Dividends and Taxes; General Information - Organization of the Group;
General Information - Multiple Classes of Shares;General Information -
Miscellaneous
7. Purchase of Securities Being Offered..........How to Buy Institutional Shares; How Shares are Valued
8. Redemption or Repurchase......................How to Redeem Your Institutional Shares
9. Pending Legal Proceedings.....................Not Applicable
</TABLE>
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<PAGE> 3
THE PARKSTONE
GROUP OF FUNDS
INSTITUTIONAL SHARES
The Life Works Funds
PARKSTONE CONSERVATIVE ALLOCATION FUND
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE AGGRESSIVE ALLOCATION FUND
Prospectus dated September __, 1998
(PARKSTONE MUTUAL FUNDS)
NOT FDIC INSURED
<PAGE> 4
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 5
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES PROSPECTUS DATED SEPTEMBER __, 1998
Parkstone Conservative Allocation Fund
Parkstone Balanced Allocation Fund
Parkstone Aggressive Allocation Fund
For more information call
(800) ___________ or write
to:
----------------
Oaks, Pennsylvania 19456
THESE SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
The funds listed above are three of the currently offered series (the "Funds")
of The Parkstone Group of Funds (the "Group") which offer Institutional Shares.
This Prospectus explains concisely what you should know before investing in the
Institutional Shares of the Funds listed above. Please read it carefully and
keep it for future reference. Institutional Shares are currently offered only to
accounts that have a fiduciary or agency relationship with a financial
institution. You can find more detailed information about the Funds in the
September __, 1998 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
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY OR ITS PARENT OR ITS AFFILIATES, AND
ARE NOT ENDORSED, INSURED OR GUARANTEED BY NATIONAL CITY INVESTMENT MANAGEMENT
COMPANY, ITS PARENT, ITS AFFILIATES, THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS INVOLVE
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVOLVED.
<PAGE> 6
TABLE OF CONTENTS
PROSPECTUS SUMMARY.........................................................1
FEE TABLES.................................................................2
FINANCIAL HIGHLIGHTS.......................................................4
INVESTMENT OBJECTIVES AND POLICIES.........................................8
PARKSTONE LIFEWORKS FUNDS..................................................8
RISK FACTORS AND INVESTMENT TECHNIQUES....................................11
INVESTMENT RESTRICTIONS...................................................23
MANAGEMENT OF THE FUNDS...................................................24
HOW TO BUY INSTITUTIONAL SHARES...........................................27
HOW TO REDEEM YOUR INSTITUTIONAL SHARES...................................29
HOW SHARES ARE VALUED.....................................................30
DIVIDENDS AND TAXES.......................................................30
PERFORMANCE INFORMATION...................................................32
FUNDATA(R)................................................................33
GENERAL INFORMATION.......................................................33
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<PAGE> 7
The Parkstone Group of Funds (the "Group") is an open-end management
investment company which, as of the date of this Prospectus, offers to the
public eighteen separate investment portfolios, seventeen of which are
diversified portfolios and one of which is a non-diversified portfolio, each
with different investment objectives. These Funds enable the Group to meet a
wide range of investment needs.
This Prospectus relates only to the Institutional Shares of the
following Funds:
Parkstone Conservative Allocation Fund (the "Conservative Allocation
Fund")
Parkstone Balanced Allocation Fund, formerly known as the Parkstone
Balanced Fund (the "Balanced Allocation Fund")
Parkstone Aggressive Allocation Fund (the "Aggressive Allocation Fund")
For convenience of reference, the above Funds are sometimes
collectively referred to as the "LifeWorks Funds."
The Trustees of the Group have divided beneficial ownership of each of
the Funds into an unlimited number of transferable units called shares. Most
Funds of the Group offer multiple classes of shares. The Conservative Allocation
Fund and the Aggressive Allocation Fund only offer Institutional Shares, while
the Balanced Allocation Fund offers Investor A Shares, Investor B Shares and
Institutional Shares. This Prospectus describes Institutional Shares of each of
the LifeWorks Funds. Interested persons who wish to obtain a copy of any of the
Group's other Prospectuses or a copy of the Group's most recent Annual Report
may contact the Group at the telephone number shown above.
The investment objectives of each of the LifeWorks Funds are described
in this Prospectus and are summarized in the Prospectus Summary. National City
Investment Management Company, Cleveland, Ohio ("National City" or the
"Investment Adviser"'), acts as the investment adviser to each of the LifeWorks
Funds. To provide investment advisory services for the LifeWorks Funds for
investments in foreign securities, National City has entered into a
sub-investment advisory agreement with Gulfstream Global Investors, Ltd.,
Dallas, Texas ("Gulfstream" or the "Subadviser").
-iii-
<PAGE> 8
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Institutional Shares of the Conservative
Allocation Fund, the Balanced Allocation Fund and the Aggressive Allocation
Fund.
These Funds represent three separate investment portfolios of The
Parkstone Group of Funds, a Massachusetts business trust which is registered as
an open-end, management investment company.
Purchase and Redemption of Shares
The public offering price of Institutional Shares of each Fund is equal
to the net asset value per share. There are no initial or contingent deferred
sales charges on Institutional Shares. Shares may be purchased through
procedures established by the Group's distributor, SEI Investments Distribution
Co. ("SEI" or the "Distributor"). Shareholders may redeem their shares by
contacting their trust administrator or financial consultant responsible for the
account. See "HOW TO BUY INSTITUTIONAL SHARES," "HOW TO REDEEM INSTITUTIONAL
SHARES" and "HOW SHARES ARE VALUED."
Minimum Purchase
For financial institutions, there is a $100,000 minimum initial
purchase (based on the public offering price) per Fund with no minimum
subsequent investment. Such minimum initial investment may be waived for certain
purchasers. There is no minimum requirement for individual shareholders on whose
behalf the financial institutions are purchasing Institutional Shares.
Investment Objectives
The Conservative Allocation Fund seeks current income and conservation
of capital, with a secondary objective of long-term capital growth. The Balanced
Allocation Fund seeks current income, long-term capital growth and conservation
of capital. The Aggressive Allocation Fund seeks capital appreciation and income
growth.
Investment Policies
Under normal market conditions, each Fund will invest in various types
or classes of securities, including all types of common stocks, fixed income
securities and securities convertible into common stocks. The emphasis of
investment in each type of security varies among the LifeWorks Funds as
described in this Prospectus.
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<PAGE> 9
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
National City serves as investment adviser, and, with respect to a
portion of the Funds, Gulfstream serves as subadviser. National City also serves
as sub-administrator. BISYS Fund Services, L.P. ("BISYS"), a partnership owned
by The BISYS Group, Inc., serves as administrator, (the "Administrator"). BISYS
Fund Services Ohio, Inc. ("BISYS Ohio") serves as fund accountant. National City
Bank, an affiliate of National City, (the "Custodian") serves as custodian.
State Street Bank and Trust Company ("State Street" or the "Transfer Agent")
serves as transfer agent and dividend disbursing agent.
Dividends and Taxes
Dividends from net income are declared and paid, if at all, on a
monthly basis. Net realized capital gains are distributed at least annually.
Each of the Funds is treated as a separate entity for federal tax purposes and
intends to qualify as a "regulated investment company." Shareholders will be
advised at least annually as to the federal income tax consequences of
distributions made each year.
FEE TABLES (INSTITUTIONAL SHARES)
Shareholder Transaction Expenses
Maximum Sales Charge (as a percentage of the offering price)............None
Sales Charge on Reinvested Distributions................................None
Deferred Sales Charge on Redemptions....................................None
Redemption Fees(1)......................................................None
Exchange Fees...........................................................None
- ------------------------------
(1) Although no such fee is currently in place, the Transfer Agent has
reserved the right in the future to charge a fee for wire transfers of
redemption proceeds.
-2-
<PAGE> 10
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES(2) FEES EXPENSES(2) EXPENSES(2)(3)
---------- ----- ----------- --------------
<S> <C> <C> <C> <C>
Conservative Allocation Fund.............. 0.70% 0.00% 0.94% 1.64%
Balanced Allocation Fund.................. 0.75% 0.00% 0.35% 1.10%
Aggressive Allocation Fund................ 0.85% 0.00% 0.47% 1.32%
<FN>
- ------------------------------
(2) After voluntary expense reductions.
(3) Certain purchases of the Funds through financial institutions may be
subject to fees for additional services provided to investors.
</TABLE>
Absent the voluntary reduction of advisory fees, Management Fees and
Total Operating Expenses for the Conservative Allocation Fund, Balanced
Allocation Fund and Aggressive Allocation Fund would have been 1.00% and 1.94%,
1.00% and 1.35%, and 1.00% and 1.47%, respectively. (See "MANAGEMENT OF THE
FUNDS -- Investment Adviser and Subadviser" and "Administrator,
Sub-Administrator and Distributor").
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Institutional Shares, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Conservative Allocation Fund................ $ 17 $ 52 $___ $___
Balanced Allocation Fund.................... $ 11 $ 35 $ 61 $133
Aggressive Allocation Fund.................. $ 13 $ 42 $___ $___
- ------------------------------
</TABLE>
The information set forth in the foregoing Fee Tables and expense
examples relates only to Institutional Shares of the Funds. Each of the Funds
also may offer other classes of shares. The other classes of shares are subject
to the same expenses except that Rule 12b-1 fees and sales charges may apply.
The purpose of the above tables is to assist a potential purchaser of
Institutional Shares of any of the LifeWorks Funds in understanding the various
costs and expenses that an investor in a
-3-
<PAGE> 11
Fund will bear directly or indirectly. Such expenses do not include any fees
charged by a financial institution, including National City or any of its
affiliates, to its customer accounts which may invest in Institutional Shares of
the Funds. See "MANAGEMENT OF THE FUNDS" and "GENERAL INFORMATION" for a more
complete discussion of the annual operating expenses of each of the Funds. The
expense information for Institutional Shares reflects current fees. THE
FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables on the following pages set forth certain information
concerning the investment results of the Institutional Shares of each of the
LifeWorks Funds since its inception. Further financial information regarding the
LifeWorks Funds is included in the Statement of Additional Information and the
Group's June 30, 1997 Annual Report to Shareholders which may be obtained free
of charge.
The Financial Highlights for the periods presented below have been
derived from financial statements audited by PricewaterhouseCoopers LLP,
independent auditors for the Group, whose report thereon is incorporated by
reference in the Statement of Additional Information.
On March 31, 1993, the shareholders of all of the then-existing Funds
of the Group, including the Balanced Allocation Fund, approved the
reclassification of such Funds' outstanding shares into Investor A Shares and
Institutional Shares. The financial information provided below and in the Annual
Report includes periods prior to such reclassification.
CONSERVATIVE ALLOCATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
INSTITUTIONAL
SHARES
------
DEC. 30, 1996
TO JUNE 30,
1997(a)
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................................... $ 10.00
-------
Income from Investment Activities
Net Investment Income (Loss)................................................... 0.14
Net Realized and Unrealized Gains (Losses) on Investments...................... 0.34
--------
Total from Investment Activities...................................... 0.48
--------
Distributions
Net Investment Income.......................................................... (0.12)
---------
Total Distributions................................................... (0.12)
---------
NET ASSET VALUE, END OF PERIOD......................................................... $ 10.36
=======
</TABLE>
-4-
<PAGE> 12
<TABLE>
<S> <C>
Total Return (excluding sales and redemption charges)................................... 4.87%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)................................................ $10,287
Ratio of Expenses to Average Net Assets........................................ 1.64%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets.................... 3.12%(c)
Ratio of Expenses to Average Net Assets*....................................... 1.94%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets*................... 2.82%(c)
Portfolio Turnover Rate(d)..................................................... 62.11%
Average Commission Rate Paid(g)............................................... $0.0795
</TABLE>
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<PAGE> 13
BALANCED ALLOCATION FUND- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------------------------------------------ JAN. 31, 1992
INSTITUTIONAL SHARES TO JUNE 30
------------------------------------------------------------ --------------
1997 1996 1995(f) 1994 1993(b) 1992(a)
---- ---- ------- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD........................... $ 13.37 $ 12.19 $ 10.67 $ 11.08 $ 9.68 $ 10.00
-------- -------- -------- -------- -------- --------
Income from Investment
Activities
Net Investment Income
(Loss)....................... 0.35 0.36 0.31 0.27 0.28 0.14
Net Realized and Unrealized
Gains (Losses) on
Investments and Foreign
Currencies................... 1.12 1.74 1.68 (0.41) 1.41 (0.34)
---- ---- ---- ------ ---- ------
Total from Investment
Activities................... 1.47 2.10 1.99 (0.14) 1.69 (0.20)
---- ---- ---- ------ ---- ------
Distributions
Net Investment Income............ (0 37) (0.35) (0.31) (0.27) (0.29) (0.12)
Net Realized Gains............... (1.48) (0.57) (0.03) --- --- ---
In Excess of Net Realized
Gains.......................... --- --- (0.13) --- --- ---
-------- -------- -------- -------- -------- --------
Total Distributions.............. (1.85) (0.92) (0.47) (0.27) (0.29) (0.12)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD........................... $ 12.99 $ 13.37 $ 12.19 $ 10.67 $ 11.08 $ 9.68
======== ======== ======== ======== ======== ========
Total Return (excluding sales
and redemption charges).......... 11.86% 17.81% 19.22% (1.44)% 17.66% (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000).......................... $245,347 $113,493 $89,294 $71,427 $42,318 $38,136
Ratio of Expenses to
Average Net Assets............. 1.10% 1.16% 1.25% 1.09% 1.15% 1.19%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets............. 2.77% 2.62% 2.75% 2.49% 2.70% 3.46%(c)
Ratio of Expenses to
Average Net Assets*............ 1.36% 1.41% 1.52% 1.39% 1.46% 1.50%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets*............ 2.51% 2.37% 2.47% 2.18% 2.40% 3.13%(c)
Portfolio Turnover Rate
(d)............................ 425.05% 437.90% 250.66% 192.39% 177.99% 47.58%
Average Commission
Rate Paid(g).................. $0.0518 $0.0848
</TABLE>
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<PAGE> 14
AGGRESSIVE ALLOCATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
INSTITUTIONAL
SHARES
------
DEC. 31, 1996
TO JUNE 30,
1997(a)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................................... $ 10.00
---------
Income from Investment Activities
Net Investment Income (Loss)........................................ 0.07
Net Realized and Unrealized Gains (Losses) on
Investments......................................................... 0.56
---------
Total from Investment Activities................................ 0.63
---------
Distributions
Net Investment Income............................................... (0.06)
---------
Total Distributions............................................. (0.06)
---------
NET ASSET VALUE, END OF PERIOD............................................. $ 10.57
=========
Total Return (excluding sales and redemption charges)...................... 6.38%(e)
RATIOS SUPPLEMENTARY DATA:
Net Assets, End of Period (000)..................................... $39,043
Ratio of Expenses to Average Net Assets............................ 1.32%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets......... 1.61%(c)
Ratio of Expenses to Average Net Assets*............................ 1.47%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets*........ 1.46%(c)
Portfolio Turnover Rate (d)......................................... 44.68%(c)
Average Commission Rate Paid (g).................................... $0.0280
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993, the shareholders of the Group exchanged their shares for
either the Group's Investor A Shares or Institutional Shares. For the year
ended June 30, 1993, the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities
and distributions are presented on the basis whereby the Fund's net
investment income, expenses, and distributions for the period July 1, 1992
through March 31, 1993 were allocated to each class of shares based upon
the relative net
-7-
<PAGE> 15
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.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds are set forth
below under the headings describing the Funds. The investment objective of each
Fund may 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) although the Board of Trustees would only change a Fund's objective
upon 30 days' notice to shareholders. There can be no assurance that a Fund will
achieve its objective. 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 the
Investment Adviser or Gulfstream, as the case may be, each of the Funds may hold
up to 100% of its total assets in short-term obligations including domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements secured
by bank instruments. However, to the extent that a Fund is so invested, its
investment objective may not be achieved during that time. Uninvested cash
reserves will not earn income.
PARKSTONE LIFEWORKS FUNDS
THE CONSERVATIVE ALLOCATION FUND, THE BALANCED ALLOCATION FUND AND THE
AGGRESSIVE ALLOCATION FUND
THE INVESTMENT OBJECTIVE OF THE CONSERVATIVE ALLOCATION FUND
IS TO SEEK CURRENT INCOME AND CONSERVATION OF CAPITAL, WITH A
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<PAGE> 16
SECONDARY OBJECTIVE OF LONG-TERM CAPITAL GROWTH. THE INVESTMENT OBJECTIVE OF THE
BALANCED ALLOCATION FUND IS TO SEEK CURRENT INCOME, LONG-TERM CAPITAL GROWTH AND
CONSERVATION OF CAPITAL. THE INVESTMENT OBJECTIVE OF THE AGGRESSIVE ALLOCATION
FUND IS TO SEEK CAPITAL APPRECIATION AND INCOME GROWTH.
The LifeWorks Funds may invest in any type or class of
security. Under normal market conditions the LifeWorks Funds will invest in
common stocks, fixed-income securities and securities convertible into common
stocks (i.e., warrants, convertible preferred stock, fixed-rate preferred stock,
convertible fixed-income securities, options and rights). The Conservative
Allocation Fund anticipates investing between 25% and 35% of its net assets in
common stocks and securities convertible into common stocks, between 35% and 75%
of its net assets in fixed-income securities and up to 45% of its net assets in
cash and cash equivalents. No more than 15% of the Conservative Allocation
Fund's investments will be in foreign securities. The Balanced Allocation Fund
intends to invest 45% to 65% of its net assets in common stocks and securities
convertible into common stocks, 25% to 55% of its net assets in fixed-income
securities and up to 30% of its net assets in cash and cash equivalents. Of
these investments, no more than 20% of the Fund's net assets will be in foreign
securities. The Aggressive Allocation Fund expects to invest between 50% and 90%
of its net assets in common stocks and securities convertible into common
stocks, between 15% and 40% of its net assets in fixed-income securities and up
to 25% of its net assets in cash and cash equivalents. The Aggressive Allocation
Fund may invest up to 25% in foreign securities.
For each of the Conservative Allocation Fund and Balanced
Allocation Fund, common stocks are held primarily for the purpose of providing
long-term growth of capital. When choosing such stocks, the potential for
long-term capital appreciation will be the primary basis for selection. The
Aggressive Allocation Fund will primarily invest in common stocks for capital
appreciation and growth. Each of the LifeWorks Funds will invest in the common
and preferred stocks of companies with a market capitalization of at least $100
million and which are traded either in established over-the-counter markets or
on national exchanges. The LifeWorks Funds intend to invest primarily in those
companies which are growth-oriented and have exhibited consistent, above-average
growth in revenues and earnings.
For the LifeWorks Funds, fixed-income securities held consist
of bonds, debentures, notes, zero-coupon securities, mortgage-related
securities, state, municipal or industrial revenue bonds, obligations issued or
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.
-9-
<PAGE> 17
Treasury obligations ("Stripped Treasury Obligations"), such as Treasury
receipts issued by the U.S. Treasury representing either future interest or
principal payments, and other obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities. See "RISK FACTORS AND
INVESTMENT TECHNIQUES -- Government Obligations" below.
The LifeWorks Funds also expect to invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Such obligations, in the
case of debentures, will represent unsecured promises to pay, and in the case of
notes and bonds, may be secured by mortgages on real property or security
interests in personal property and will in most cases differ in their interest
rates, maturities and times of issuance.
The LifeWorks Funds will invest only in corporate fixed-income
securities which are rated at the time of purchase within the four highest
rating categories assigned by a nationally-recognized statistical rating
organization ("NRSRO") or, if unrated, which the Investment Adviser deems
present attractive opportunities and are of comparable quality. For a
description of the rating symbols of the NRSROs, see the Appendix to the
Statement of Additional Information. For a discussion of fixed-income securities
rated within the fourth highest rating category assigned by an NRSRO, see "RISK
FACTORS AND INVESTMENT TECHNIQUES -- Medium-Grade Securities."
The LifeWorks Funds may hold some short-term obligations (with
maturities or 12 months or less) consisting of domestic and foreign commercial
paper, variable amount master demand notes, bankers' acceptances, certificates
of deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, and repurchase agreements. The LifeWorks Funds may also invest in
securities of other investment companies.
The LifeWorks Funds may also invest in obligations of the
Export-Import Bank of the United States, in U.S. dollar-denominated
international bonds for which the primary trading market is in the United States
("Yankee Bonds"), or for which the primary trading market is abroad ("Eurodollar
Bonds"), and in Canadian bonds and bonds issued by institutions, such as the
World Bank and the European Economic Community, organized for a specific purpose
by two or more sovereign governments ("Supranational Agency Bonds"). The
LifeWorks Funds' investments in foreign securities may be made either directly
or through the purchase of American depository receipts ("ADRs") and the
LifeWorks Funds may also invest in securities issued by foreign branches of U.S.
banks and foreign banks, in Canadian commercial paper ("CCP"), and in Europaper.
The amount invested in stock, bonds and cash reserves may be
varied from time to time, depending upon the Investment Adviser'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 the Investment Adviser. However, to the extent that any of the
LifeWorks Funds are so invested, its investment objective may not be achieved
during that time.
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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 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>
<CAPTION>
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THE CONSERVATIVE ALLOCATION FUND, THE BALANCED ALLOCATION FUND AND THE AGGRESSIVE ALLOCATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Medium-Grade Securities -Mortgage-Related Securities~ -Other Mutual Funds
- -Portfolio Turnover -Put and Call Options -Repurchase Agreements
- -Restricted Securities -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Transactions
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails
certain risks. The Funds will not acquire portfolio securities issued by, make
savings deposits in, or enter into repurchase or reverse repurchase agreements
with the Investment Adviser, BISYS, SEI or their affiliates, and will not give
preference to the correspondents of their bank affiliates with respect to such
transactions, securities, savings deposits, repurchase agreements and reverse
repurchase agreements.
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COMPLEX SECURITIES
Some of the investment techniques utilized by the Investment
Adviser and Gulfstream in the management of each of the Funds involve complex
securities sometimes referred to as "derivatives." Among such securities are put
and call options, foreign currency transactions and futures contracts, all of
which are described below. The Investment Adviser and Subadviser believe that
such complex securities may, in some circumstances, play a valuable role in
successfully implementing each Fund's investment strategy and achieving its
goals. However, because complex securities and the strategies for which they are
used, are by their nature complicated, they present substantial opportunities
for misunderstanding and misuse. To guard against these risks, the Investment
Adviser and Subadviser will utilize complex securities primarily for hedging,
not speculative, purposes and only after careful review of the unique risk
factors associated with each such security.
FOREIGN CURRENCY TRANSACTIONS
Each of the LifeWorks Funds may utilize foreign currency
transactions in its portfolio. The value of the assets of a Fund as measured in
United States dollars may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and a Fund may
incur costs in connection with conversions between various currencies. A Fund
will conduct its foreign currency exchange transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through forward contracts to purchase or sell foreign currencies. A forward
foreign currency exchange contract ("forward currency contracts") involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These forward currency
contracts are traded directly between currency traders (usually large commercial
banks) and their customers. The LifeWorks Funds may enter into forward currency
contracts in order to hedge against adverse movements in exchange rates between
currencies.
For example, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may want to
establish the United States dollar cost or proceeds, as the case may be. By
entering into a forward currency contract in United States dollars for the
purchase or sale of the amount of foreign currency involved in an underlying
security transaction, such Fund is able to protect itself against a possible
loss between trade and settlement dates resulting from an adverse change in the
relationship between the United States dollar and such foreign currency.
Additionally, for example, when a Fund believes that a foreign currency may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward currency sale contract to sell an amount of that foreign currency
approximating the value of some or all of that Fund's portfolio securities or
other assets denominated in such foreign currency. Alternatively, when a Fund
believes it will increase, it may enter into a forward currency purchase
contract to buy that foreign currency for a fixed U.S. dollar amount; however,
this tends to limit potential gains which might result from a positive change in
such currency relationships. A Fund may also hedge its foreign currency exchange
rate risk by engaging in currency financial futures and options transactions.
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<PAGE> 20
The forecasting of short term currency market movement is
extremely difficult and whether such a short-term hedging strategy will be
successful is highly uncertain. It is impossible to forecast with precision the
market value of portfolio securities at the expiration of a forward currency
contract. Accordingly, it may be necessary for a Fund to purchase additional
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency such
Fund is obligated to deliver when a decision is made to buy the security and
make delivery of the foreign currency in settlement of a forward contract.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency such Fund is obligated to deliver.
If any of the LifeWorks Funds retains the portfolio security
and engages in an offsetting transaction, such Fund will incur a gain or a loss
(as described below) to the extent that there has been movement in forward
currency contract prices. If the Fund engages in an offsetting transaction, it
may subsequently enter into a new forward currency contract to sell the foreign
currency. If forward prices decline during the period between which a Fund
enters into a forward currency contract for the sale of foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, such Fund would realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. If forward prices increase, such Fund would suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell. Although such contracts tend to minimize the
risk of loss due to a decline in the value of the hedged currency, they also
tend to limit any potential gain which might result if the value of such
currency increases. The Funds will have to convert their holdings of foreign
currencies into United States dollars from time to time. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies.
None of the LifeWorks Funds intends to enter into forward
currency contracts if more than 15% of the value of its total assets would be
committed to such contracts on a regular or continuous basis. A Fund also will
not enter into forward currency contracts or maintain a net exposure on such
contracts where such Fund would be obligated to deliver an amount of foreign
currency in excess of the value of the Fund's portfolio securities or other
assets denominated in that currency.
For further information about the characteristics, risks and
possible benefits of options, futures and foreign currency transactions, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments" in the Statement of Additional Information.
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
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predicting international trade patterns, the possibility of the imposition of
exchange controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation, and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Such securities may be subject to greater fluctuations in
price than securities issued by U.S. corporations or issued or guaranteed by the
U.S. government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the United States. In addition, there may be less
publicly available information about a foreign company than about a
U.S.-domiciled company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States. Confiscatory taxation or diplomatic developments could also
affect investment in those countries. In addition, foreign branches of U.S.
banks, foreign banks and foreign issuers may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher
yields than securities of domestic issuers which have similar maturities and
quality. Under certain market conditions, these investments may be less liquid
than the securities of U.S. corporations and are certainly less liquid than
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Finally, in the event of a default of any such foreign debt
obligations, it may be more difficult for a Fund to obtain or to enforce a
judgment against the issuers of such securities. If a security is denominated in
foreign currency, the value of the security to the Fund will be affected by
changes in currency exchange rates and in exchange control regulations, and
costs will be incurred in connection with conversions between currencies. A
change in the value of any foreign currency against the U.S. dollar will result
in a corresponding change in the U.S. dollar value of a Fund's securities
denominated in that currency. Such changes will also affect a Fund's income and
distributions to shareholders. In addition, although a Fund will receive income
on foreign securities in such currencies, such Fund will be required to compute
and distribute its income in U.S. dollars. Therefore, if the exchange rate for
any such currency declines materially after such Fund's income has been accrued
and translated into U.S. dollars, the Fund could be required to liquidate
portfolio securities to make required distributions. Similarly, if an exchange
rate declines between the time a Fund incurs expenses in U.S. dollars and the
time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars in order to pay such expenses in U.S. dollars will
be greater.
U.S. dollar-denominated ADRs, which are traded in the United
States on exchanges or over-the-counter, are issued by domestic banks. ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. ADRs do not eliminate all of the risk
inherent in investing in the securities of foreign issuers. However, by
investing in ADRs rather than directly in foreign issuers' stock, a Fund can
avoid currency risks during the settlement period for either purchases or sales.
In general, there is a large, liquid market in the United States for many ADRs.
The information available for ADRs is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which they
are traded, standards which are more uniform and more exacting than
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<PAGE> 22
those to which many foreign issuers may be subject. The ADR is sometimes
referred to as a Global Depositary Receipt, or GDR. In the United States, the
GDR is, after issuance, not unlike any other ADR. The difference is found in the
purpose of the issue. GDRs are used for global offerings, by the simultaneous
issuance of a single security in multiple world markets. Each of the LifeWorks
Funds may also invest in European depository receipts ("EDRs"), which are
receipts evidencing an arrangement with a European bank similar to that for ADRs
and designed for use in the European securities markets. EDRs are not
necessarily denominated in the currency of the underlying security.
Certain of the ADRs and EDRs, typically those categorized as
unsponsored, require their holders to bear most of the costs of such facilities
while issuers of sponsored facilities normally pay more of the costs. The
depository of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders with respect
to the deposited securities, whereas the depository of a sponsored facility
typically distributes shareholder communications and passes through the voting
rights.
Subject to its applicable investment policies, each of the
LifeWorks Funds may invest in debt securities denominated in the European
Currency Unit ("ECU"), which is a "basket" unit of currency consisting of
specified amounts of the currencies of certain of the member states of the
European Community. The specific amounts of currencies comprising the ECU may be
adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. Such adjustments may
adversely affect holders of ECU-denominated obligations or the marketability of
such securities. European governments and supranationals, in particular, issue
ECU-denominated obligations.
FUTURES CONTRACTS
The LifeWorks Funds may also enter into contracts for the
future delivery of securities or foreign currencies and futures contracts based
on a specific security, class of securities, foreign currency or an index,
purchase or sell options on any such futures contracts and engage in related
closing transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
A Fund may engage in such futures contracts in an effort to
hedge against market risks. For example, when interest rates are expected to
rise or market values of portfolio securities are expected to fall, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its portfolio securities. When interest rates are expected to fall or market
values are expected to rise, a Fund, through the purchase of such contracts, can
attempt to secure better rates or prices for the Fund than might later be
available in the market when it effects anticipated purchases.
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<PAGE> 23
The acquisition of put and call options on futures contracts
will, respectively, give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase the underlying futures contract, upon
exercising the option at any time during the option period.
Aggregate initial margin deposits for futures contracts, and
premiums paid for related options, may not exceed 5% of a Fund's total assets,
and the value of securities that are the subject of such futures and options
(both for receipt and delivery) may not exceed one-third of the market value of
a Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain each Fund's qualification as a regulated investment
company.
Futures transactions involve brokerage costs and require a
Fund to segregate assets to cover contracts that would require it to purchase
securities or currencies. A Fund may lose the expected benefit of futures
transactions if interest rates, exchange rates or securities prices move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of a Fund's futures positions may not prove
to be perfectly or even highly correlated with its portfolio securities or
foreign currencies, limiting the Fund's ability to hedge effectively against
interest rate, exchange rate and/or market risk and giving rise to additional
risks. There is no assurance of liquidity in the secondary market for purposes
of closing out futures positions.
GOVERNMENT OBLIGATIONS
Each of the LifeWorks Funds may invest in obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities.
The types of U.S. government obligations in which each of the
LifeWorks Funds may invest include U.S. Treasury notes, bills, bonds, and any
other securities directly issued by the U.S. government for public investment,
which differ only in their interest rates, maturities, and times of issuance.
Stripped Treasury Obligations are also permissible investments. Stripped
securities are issued at a discount to their "face value" and may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and interest are returned to investors.
Obligations of certain agencies and instrumentalities of the
U.S. government such as the Government National Mortgage Association ("GNMA"),
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association ("FNMA"), are supported by
the right of the issuer to borrow from the Treasury; others, such as those of
the Student Loan Marketing Association ("SLMA"), are supported by the
discretionary authority of the U.S. government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation ("FHLMC") are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
government would provide financial support to U.S. government-sponsored agencies
or instrumentalities, such as FNMA, SLMA or FHLMC, since it is not obligated to
do so by law. The LifeWorks Funds will invest in the obligations of such
agencies or instrumentalities only when First of America believes that the
credit risk with respect thereto is minimal.
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<PAGE> 24
MEDIUM-GRADE SECURITIES
Each of the LifeWorks Funds may invest in fixed-income
securities rated within the fourth highest rating category assigned by an NRSRO
(i.e., BBB or Baa by S&P or Moody's, respectively) and comparable unrated
securities as determined by the Investment Adviser. These types of fixed-income
securities are considered by the NRSROs to have some speculative
characteristics, and are more vulnerable to changes in economic conditions,
higher interest rates or adverse issuer-specific developments which are more
likely to lead to a weaker capacity to make principal and interest payments than
comparable higher rated debt securities.
Should subsequent events cause the rating of a fixed-income
security purchased by any of the Funds listed above to fall below the fourth
highest rating, the Investment Adviser 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 the Investment Adviser deems present attractive
opportunities and are of comparable quality.
The mortgage-related securities in which these Funds may
invest have mortgage obligations backing such securities, consisting of
conventional thirty-year fixed-rate mortgage obligations, graduated payment
mortgage obligations, fifteen-year mortgage obligations and adjustable-rate
mortgage obligations. All of these mortgage obligations can be used to create
pass-through securities. A pass-through security is created when mortgage
obligations are pooled together and undivided interests in the pool or pools are
sold. The cash flow from the mortgage obligations is passed through to the
holders of the securities in the form of periodic payments of interest,
principal and prepayments (net of a service fee). Prepayments occur when the
holder of an individual mortgage obligation prepays the remaining principal
before the mortgage obligation's scheduled maturity date. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Because the prepayment
characteristics of the underlying mortgage obligations vary, it is not possible
to predict accurately the realized yield or average life of a particular issue
of pass-through certificates. Prepayment rates are important because of their
effect on the yield and price of the securities. Accelerated prepayments have an
adverse impact on yields for pass-throughs purchased at a premium (i.e., a price
in excess of principal amount) and may involve additional risk of loss of
principal because the premium may not have been fully amortized at the time the
obligation is
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<PAGE> 25
repaid. The opposite is true for pass-throughs purchased at a discount. The
Funds may purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium,
that portion may be lost if there is a decline in the market value of the
security, whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. As with other interest-bearing securities, the
prices of such securities are inversely affected by changes in interest rates.
However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the securities are prone to
prepayment, thereby shortening the average life of the security and shortening
the period of time over which income at the higher rate is received. When
interest rates are rising, though, the rate of prepayment tends to decrease,
thereby lengthening the period of time over which income at the lower rate is
received. For these and other reasons, a mortgage-related security's average
maturity may be shortened or lengthened as a result of interest rate
fluctuations and, therefore, it is not possible to predict accurately the
security's return to the Fund. In addition, regular payments received with
respect to mortgage-related securities include both interest and principal. No
assurance can be given as to the return a Fund will receive when these amounts
are reinvested.
The principal governmental (i.e., backed by the full faith and
credit of the United States government) guarantor of mortgage-related securities
is GNMA. GNMA is a wholly-owned United States government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by pools of mortgages insured by the Federal Housing
Administration or guaranteed by the Veterans Administration.
Government-related (i.e., not backed by the full faith and
credit of the United States government) guarantors include FNMA and FHLMC. FNMA
is a government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States government. FHLMC is a corporate instrumentality of the
United States government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States government.
Mortgage-related securities in which the LifeWorks Funds may
invest may also include collateralized mortgage obligations ("CMOs"). CMOs are
debt obligations issued generally by finance subsidiaries or trusts that are
secured by mortgage-backed certificates, including, in many cases, certificates
issued by government-related guarantors, including GNMA, FNMA and FHLMC,
together with certain funds and other collateral. Although payment of the
principal of and interest on the mortgage-backed certificates pledged to secure
the CMOs may be guaranteed by GNMA, FNMA or FHLMC, the CMOs represent
obligations solely of the issuer and are not insured or guaranteed by GNMA,
FHLMC, FNMA or any other
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<PAGE> 26
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,
provided that no more than 10% of a Fund's total assets may be invested in the
securities of mutual funds in the aggregate. Each Fund will incur additional
expenses due to the duplication of expenses as a result of investing in
securities of other mutual funds. Additional restrictions regarding the Funds'
investments in securities of other mutual funds are contained in the Statement
of Additional Information.
PUT AND CALL OPTIONS
Each of the LifeWorks Funds may purchase put and call options
on securities and on foreign currencies, subject to its applicable investment
policies, for the purposes of hedging against market risks related to its
portfolio securities and adverse movements in exchange rates between currencies,
respectively. Purchasing options is a specialized investment technique that
entails a substantial risk of a complete loss of the amounts paid as premiums to
writers of options. Each of the LifeWorks Funds may also engage in writing call
options from time to time as the Investment Adviser or Gulfstream deems
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
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<PAGE> 27
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 the
Investment Adviser or Gulfstream, as the case may be, deem creditworthy under
the guidelines approved by the Group's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon date
and price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. Securities
subject to repurchase agreements will be held in a segregated account. If the
seller were to default on its repurchase obligation or become insolvent, the
Fund would suffer a loss to the extent that the proceeds from the sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities by that Fund
were delayed pending court action. Repurchase agreements are considered to be
loans by an investment company under the Investment Company Act of 1940 (the
"1940 Act"). For further information about repurchase agreements, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments-Repurchase Agreements" in the Statement of Additional Information.
RESTRICTED SECURITIES
Securities in which each of the LifeWorks Funds may invest
include securities issued by corporations without registration under the
Securities Act of 1933, as amended (the "1933 Act"), in reliance on the
exemption from such registration afforded by Section 3(a)(3) thereof, and
securities issued in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) securities"). Section 4(2) securities are restricted as to disposition
under the federal securities laws, and generally are sold to institutional
investors such as the Funds who agree that they are purchasing the securities
for investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in such Section 4(2) securities,
thus providing liquidity. Pursuant to procedures adopted by the Board of
Trustees of the Group, the Investment Adviser may determine Section 4(2)
securities to be liquid if such securities are eligible for resale under Rule
144A under the 1933 Act and are readily saleable.
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
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that are not registered under the 1933 Act. An illiquid investment is any
investment that cannot be disposed of within seven (7) days in the normal course
of business at approximately the amount at which it is valued by 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 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
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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
the Investment Adviser or Gulfstream, as the case may be, to manage it might be
adversely affected. The LifeWorks Funds intend only to purchase "when-issued"
securities for the purpose of acquiring portfolio securities, not for investment
leverage.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each of the LifeWorks
Funds may, from time to time, lend its portfolio securities to broker-dealers,
banks, or institutional borrowers of securities. A Fund must receive 100%
collateral in the form of cash or U.S. government securities. This collateral
will be valued daily by the Group's Custodian. 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 the Investment Adviser or Gulfstream, as the case may
be, have determined are creditworthy under guidelines established by the Group's
Board of Trustees.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities for
the year by the monthly average value of the portfolio securities. The SEC
requires that the calculation exclude all securities whose remaining maturities
at the time of acquisition are one year or less. For portfolio turnover rates
for the Funds, see "FINANCIAL HIGHLIGHTS." The Conservative Allocation Fund, the
Balanced Allocation Fund and the Aggressive Allocation Fund do not anticipate
that their turnover rates will exceed 600%, ____% and 500%, respectively. Such
Funds do not expect that their turnover rates with respect to that portion of
their portfolios invested in (i) common stocks and securities convertible into
common stocks and (ii) other investments will exceed ___% and ___%, ___% and
___%, and ___% and ___%, 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
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shareholders. (See "Dividends and Taxes.") 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 any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the
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, any state, territory or
possession of the United States, the District of Columbia or
any of their authorities, agencies, instrumentalities or
political subdivisions, and repurchase agreements secured by
such obligations;
(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 the parents;
(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; and
(d) personal credit and business credit businesses will be
considered separate industries.
2. Purchase securities of any one issuer, other than securities 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 any class of securities of the issuer or more
than 10% of the outstanding voting securities of the issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to such limitations.
3. Make loans, except that the Fund may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment
objective and policies and may lend portfolio securities in an amount
not exceeding one-third of its total assets.
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4. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940
Act.
For purposes of the above investment limitations, the Funds
treat all supranational organizations as a single industry and each foreign
government (and all of its agencies) as a separate industry. In addition, a
security is considered to be issued by the government entity (or entities) whose
assets and revenues back the security.
Except for the Funds' policy on illiquid securities, if a
percentage limitation is satisfied at the time of investment, a later increase
or decrease in such percentage resulting from a change in the value of a Fund's
portfolio securities will not constitute a violation of such limitation for
purposes of the 1940 Act.
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
BOARD OF TRUSTEES
The business and affairs of the Group are managed under the
direction of its Board of Trustees. The trustees of the Group, their addresses,
principal occupations during the past five years, other affiliations, and the
compensation paid by the Group and the fees and reimbursed expenses they receive
in connection with each meeting of the Board of Trustees they attend are
included in the Statement of Additional Information.
INVESTMENT ADVISER AND SUBADVISER
National City, 1900 East Ninth Street, Cleveland, Ohio 44114,
serves as investment adviser to the Funds. National City is a registered
investment adviser and an indirect wholly owned subsidiary of National City
Corporation ("NCC"). NCC recently consolidated the asset management
responsibilities of its various bank affiliates including First of America Bank,
N.A. ("FOA"). Prior to such time, the investment adviser of the Funds was First
of America Investment Corporation ("First of America"), a wholly owned
subsidiary of FOA.
Subject to such policies as the Group's Board of Trustees may
determine, the Investment Adviser, 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.
The LifeWorks Funds are managed by the _________________ Team
of National City. No single person is primarily responsible for making
recommendations to the _______________ Team.
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For the services provided and expenses assumed pursuant to its
Investment Advisory Agreement with the Group, the Investment Adviser 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. The Investment
Adviser 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, the Investment Adviser 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 the Investment Adviser 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. Gulfstream will not continue as Subadviser beyond the end of the
current term of its agreement in 1998.
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 the Investment Adviser 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 the Investment Adviser, Gulfstream
receives from the Investment Adviser a fee, computed daily and paid monthly, at
the annual rate of 0.50% the first $50 million of the average daily net assets
of each of the LifeWorks Funds which are invested in foreign securities, 0.45%
of such average daily net assets between $50 million and $100 million, 0.40% of
such average daily net assets between $100 million and $400 million and 0.30% of
such average daily net assets above $400 million, provided the minimum annual
fee shall be $75,000.
Gulfstream was organized in 1991 as a Texas limited
partnership by Tull, Doud, Marsh & Triltsch, Inc., a Texas corporation ("TDMT").
TDMT is the sole general partner of Gulfstream. TDMT is owned by C. Thomas Tull,
Stephen C. Doud, James P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and
Triltsch are the portfolio managers and Mr. Marsh is responsible for client
services with Gulfstream. First of America is the sole limited partner, and as
of August 31, 1996, exercised options to increase its interest in Gulfstream
from 49% to 72%. In spite of the fact that First of America, as a limited
partner, does not possess management authority or responsibility for Gulfstream,
because of its 72% ownership interest, First of America may be deemed to control
Gulfstream for purposes of the 1940 Act.
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As of ______, 1998, Gulfstream had over $863 million in
international assets of institutional, investment, company, governmental,
pension fund and high net worth individual clients under its investment
management. Gulfstream's portfolio management personnel average over 20 years of
investment experience and 10 years of international investment experience.
For further information regarding the relationship between the
Investment Adviser and Gulfstream, 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. National City serves as
Sub-Administrator for each Fund of the Group and provides certain services as
may be requested by BISYS from time to time. BISYS and its affiliated companies,
including BISYS Ohio, are wholly-owned by The BISYS Group, Inc., a publicly-held
company which is a provider of information processing, loan servicing and 401(k)
administration and record keeping services to and through banking and other
financial organizations.
The Administrator generally assists in all aspects of the
LifeWorks Funds' administration and operation. For expenses assumed and services
provided as administrator pursuant to its Administration Agreement with the
Group, the Administrator receives a fee from each Fund equal to the lesser of: a
fee computed daily and paid periodically at an annual rate of 0.20% of the
Fund's average daily net assets; or such other fee as may be agreed upon from
time to time in writing by the Group and the Administrator. For its services as
Sub-Administrator, National City 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.
SEI acts as the Group's principal underwriter and distributor.
The Distributor is a registered broker/dealer with principal offices located in
Oaks, Pennsylvania 19456. It acts as agent for the LifeWorks Funds in the
distribution 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
The Investment Adviser, Gulfstream and BISYS each bear all
expenses in connection with the performance of their 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
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of the Trustees of the Group, SEC fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to current shareholders, outside auditing and legal expenses,
advisory and administration fees, fees and out-of-pocket expenses of the
Custodian, Transfer Agent and Fund Accountant, certain insurance premiums, costs
of maintenance of the Group's existence, costs of shareholders' reports and
meetings, and any extraordinary expenses incurred in each Fund's operation. As a
general matter, expenses are allocated to the Institutional Shares and the other
classes of shares of the LifeWorks Funds on the basis of the relative net asset
value of each class. The various classes may bear certain additional retail
transfer agency expenses and may also bear certain additional shareholder
service and distribution costs incurred pursuant to a Distribution and
Shareholder Service Plan.
The Trustees reserve the right, subject to the receipt of
relevant regulatory approvals or rulings, if needed, to allocate certain other
expenses to the shareholders of a particular class, including the Institutional
Shares class, on a basis other than relative net asset value, as they deem
appropriate ("Class Expenses"). In such event, Class Expenses would be limited
to: transfer agency fees identified by the Transfer Agent as attributable to a
specific class; printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxies to
current shareholders; Blue Sky registration fees incurred by a class of shares;
SEC registration fees incurred by a class of shares; expenses related to
administrative personnel and services as required to support the shareholders of
a specific class; litigation or other legal expenses relating solely to one
class of shares; and Trustees' fees incurred as a result of issues relating
solely to one class of shares.
CUSTODIAN, TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
National City Bank serves as the custodian of the Group's
assets. State Street Bank and Trust Company serves as the Group's transfer and
dividend disbursing agent. Communications to the Transfer Agent should be
directed to P.O. Box 8421, Boston, Massachusetts 02266-8421. BISYS Ohio, 3435
Stelzer Road, Columbus, Ohio 43219, provides certain accounting services for
each of the LifeWorks Funds and receives a fee for such services. See
"MANAGEMENT OF THE GROUP -- Custodian, Transfer Agent and Fund Accounting
Services" in the Statement of Additional Information for further information.
While BISYS Ohio is a distinct legal entity from BISYS (the
Group's administrator), BISYS Ohio is considered to be an affiliate 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.
HOW TO BUY INSTITUTIONAL SHARES
Institutional Shares of each Fund are continuously offered and
may be purchased through procedures established by the Distributor in connection
with the requirements of customer accounts maintained by or on behalf of certain
financial institutions acting as fiduciary
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or agent for their customers ("Customer Accounts"). These procedures may include
instructions under which a Customer Account is "swept" automatically no less
frequently than weekly and amounts in excess of a minimum amount agreed upon by
the financial institution and the customer are invested by the Distributor in
Institutional Shares of the Money Market Funds, depending upon the type of
Customer Account and/or the instructions of the customer.
Institutional Shares of the Group sold to financial
institutions acting in a fiduciary, advisory, custodial, or other similar
capacity on behalf of customers will normally be held of record by the financial
institution. With respect to Institutional Shares of the Group so sold, it is
the responsibility of the particular financial institution to transmit purchase
or redemption orders to the Distributor and to deliver federal funds for
purchase on a timely basis. Beneficial ownership of Institutional Shares of the
Group will be recorded by the financial institution and reflected in the account
statements provided by the financial institution to customers. A financial
institution may exercise voting authority for those Institutional Shares for
which it is granted authority by the customer.
Institutional Shares of each of the LifeWorks Funds are
purchased at the net asset value per share (see "HOW SHARES ARE VALUED") next
determined after receipt by the Distributor of an order to purchase
Institutional Shares. Purchases of Institutional Shares of a Fund will be
effected only on a Business Day (as defined in "HOW SHARES ARE VALUED") of the
applicable Fund. An order received prior to a Valuation Time on any Business Day
will be executed at the net asset value determined as of the next Valuation Time
on the date of receipt. An order received after the Last Valuation Time on any
Business Day will be executed at the net asset value determined as of the next
Valuation Time on the next Business Day of that Fund. Institutional Shares of
the LifeWorks Funds are eligible to earn dividends on the first Business Day
following the execution of the purchase. Institutional Shares of the Funds
continue to be eligible to earn dividends through the day before their
redemption.
An order to purchase Institutional Shares will be deemed to
have been received by the Distributor only when federal funds are available to
the Group's Custodian for investment. Federal funds are monies credited to a
bank's account within a Federal Reserve Bank. Payment for an order to purchase
Institutional Shares which is transmitted by federal funds wire will be
available the same day for investment by the Group's Custodian, if received
prior to the last Valuation Time (see "HOW SHARES ARE VALUED"). Purchases made
by check or other means are made at the price next determined upon receipt of
the purchase instrument. However, proceeds from redeemed shares purchased by
check will not be sent until the method of payment has cleared. The Group
strongly recommends that investors of substantial amounts use federal funds to
purchase Institutional Shares.
There is no sales charge imposed by the Group in connection
with the purchase of Institutional Shares of the LifeWorks Funds. Depending upon
the terms of a particular Customer Account, a financial institution may charge a
Customer Account fees for automatic investment and other cash management
services provided in connection with investment in the Group. Information
concerning these services and any charges may be obtained from the financial
institution. This Prospectus should be read in conjunction with any such
information received from the financial institution.
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The Group reserves the right to reject any order for the
purchase of Institutional Shares in whole or in part.
Confirmations of purchases and redemptions of Institutional
Shares of the 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.
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
Customer Account with a financial institution. For example, if a customer has
agreed with a bank to maintain a minimum balance in his or her account with the
bank, and the balance in that account falls below that minimum, the customer may
be obliged to redeem, or the bank may redeem for and on behalf of the customer,
all or part of the customer's Institutional Shares of a Fund of the Group to the
extent necessary to maintain the required minimum balance.
Redemption orders are effected at the net asset value per
share next determined after the Institutional Shares are properly tendered for
redemption, as described above. The proceeds paid upon redemption of such
Institutional Shares of the Funds may be more or less than the amount invested.
Payment to shareholders for Institutional Shares redeemed will be made within
seven days after receipt by the Transfer Agent of the request for redemption.
However, to the greatest extent possible, requests from financial institutions
for next day payments upon redemption of Institutional Shares will be honored if
the request for redemption is received by the Transfer Agent before 4:00 p.m.
(Eastern Time), on a Business Day or, if received after 4:00 p.m. (Eastern
Time), within two Business Days, unless it would be disadvantageous to the Group
or the shareholders of a Fund to sell or liquidate portfolio securities in an
amount sufficient to satisfy requests for payments in that manner. Shareholders
should contact their trust administrator or other financial consultant
responsible for the account to determine the financial institution's
requirements for effectuating redemptions.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the
Statement of Additional Information for examples of when the Group may suspend
the right of redemption or redeem Institutional Shares involuntarily if it
appears appropriate to do so in light of the Group's responsibilities under the
1940 Act.
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HOW SHARES ARE VALUED
The net asset value of Institutional Shares of the LifeWorks
Funds is determined and the shares are priced as of the close of trading on the
New York Stock Exchange ("NYSE") on each Business Day (generally 4:00 p.m.
Eastern Time). A "Business Day" is a day on which the NYSE is open for trading
and any other day other than a day on which no shares are tendered for
redemption and no order to purchase any shares is received. Currently, the NYSE
will not open in observance of the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Net asset value per share for a particular class for purposes
of pricing sales and redemptions is calculated by dividing the value of all
securities and other assets belonging to a Fund allocable to such class, less
the liabilities charged to that Fund allocable to such class and any liabilities
charged directly to that class, by the number of outstanding shares of such
class. The net asset value per share will fluctuate as the value of the
investment portfolio of a Fund changes.
The securities in each Fund will be valued at market value. If
market quotations are not available, the securities will be valued by a method
which the Board of Trustees believes accurately reflects fair value. Foreign
securities are valued based on quotations from the primary market in which they
are traded and are translated from the local currency into U.S. dollars using
current exchange rates. For further information about valuation of investments,
see "NET ASSET VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income for each of the LifeWorks Funds is declared monthly
as a dividend to shareholders at the close of business on the day of declaration
and is paid monthly. In some months, certain Funds may not pay any dividends.
Distributable net realized capital gains are distributed at least annually. A
shareholder will automatically receive all income dividends and capital gains
distributions in additional full and fractional shares at net asset value as of
the date of declaration, unless the shareholder elects to receive dividends or
distributions in cash. A shareholder wishing to make such an election, or any
revocation thereof, must contact the trust administrator or other financial
consultant responsible for the account to submit the request in writing to the
Transfer Agent, c/o The Parkstone Group of Funds, P.O. Box 8421, Boston,
Massachusetts 02266-8421. Any election or revocation thereof will become
effective with respect to dividends and distributions having record dates after
its receipt by the Transfer Agent.
Each of the Funds intends to qualify as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such
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<PAGE> 38
qualification generally relieves a Fund of liability for federal income taxes to
the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code
for a taxable year requires, among other things, that a Fund distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its net tax-exempt interest income, if any,
for such year. In general, a Fund's investment company taxable income will be
the sum of its net investment income and the excess of any net short-term
capital gain for the taxable year over the net long-term capital loss, if any,
for such year. Each Fund intends to distribute substantially all of its
investment company taxable income and net tax-exempt income each taxable year.
Such distributions by the Fund will be taxable as ordinary income to their
respective shareholders who are not currently exempt from federal income taxes,
whether such income is received in cash or reinvested in additional shares.
(Federal income taxes for distributions to an IRA or to a qualified retirement
plan are deferred under the Code.) For corporate shareholders, the dividends
received deduction will apply to such distributions to the extent of the gross
amount of qualifying dividends received by the distributing Fund from domestic
corporations for the taxable year.
Substantially all of each Fund's net realized long-term
capital gains, if any, will be distributed at least annually to Fund
shareholders. A Fund will generally have no tax liability with respect to such
gains and the distributions will be taxable to Fund shareholders who are not
currently exempt from federal income taxes as long-term capital gains,
regardless of how long the shareholders have held Fund shares and whether such
gains are received in cash or reinvested in additional shares.
Dividends declared in October, November or December of any
year payable to shareholders of record on a specified date before the end of the
year will be deemed to have been received by shareholders and paid by a Fund on
December 31 of such year in the event such dividends are actually paid during
January of the following year.
Prior to purchasing Fund shares, the impact of dividends or
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Any dividend or distribution declared
shortly after a purchase of shares prior to the record date will have the effect
of reducing the per share net asset value by the per share amount of the
dividend or distribution. All or a portion of such dividend or distribution,
although in effect a return of capital, may be subject to tax.
A taxable gain or loss may be realized by a shareholder upon
his redemption, transfer or exchange of Fund shares depending upon the tax basis
of such shares and their price at the time of redemption, transfer or exchange.
If a shareholder has held shares for six months or less and during that time
received a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the
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purchase of Fund shares in his tax basis for such shares for the purpose of
determining gain or loss on a redemption, transfer or exchange of such shares.
However, if the shareholder effects an exchange of such shares for shares of
another Fund within 90 days of the purchase and is able to reduce the sales
charge applicable to the new shares (by virtue of the Trust's exchange
privilege), the amount equal to such reduction may not be included in the tax
basis of the shareholder's exchanged shares but may be included (subject to this
limitation) in the tax basis of the new shares.
Shareholders of the Funds will be advised at least annually as
to the federal income tax consequences of distributions made to them each year.
Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes which may differ from federal tax
consequences described above.
The foregoing discussion is based on tax laws and regulations
which were in effect as of the date of this Prospectus; such laws and
regulations may be changed by legislative or administrative actions. The
foregoing summarizes some of the important tax considerations generally
affecting the Funds and their shareholders and is not intended as a substitute
for careful tax planning. Accordingly, potential investors should consult their
tax advisers with specific reference to their own tax situation.
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 an 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
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<PAGE> 40
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 the
Investment Adviser 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 the Investment Adviser and BISYS voluntarily reduce
all or a part of their respective fees, as further discussed above, the total
return of such Fund will be higher than it would otherwise be in the absence of
such voluntary fee reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and
other performance information on any of the Group's Funds through FUNDATA(R), an
Automated Voice Response System, 24 hours a day by calling (800) 451-8377 from
any touch-tone phone. Shareholders may also speak directly with a Group
representative, employed by the Transfer Agent, during regular business hours.
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<PAGE> 41
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in
1987 and, as of the date of this Prospectus, offers eighteen Funds. The shares
of each of the Funds of the Group may be offered in up to three separate
classes: Investor A Shares, Investor B Shares and Institutional Shares. Each
share represents an equal proportionate interest in a Fund with other shares of
the same Fund, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to that Fund as are declared at the
discretion of the Trustees. Shares do not have a par value.
Shareholders are entitled to one vote for each dollar of value
invested and a proportionate fractional vote for any fraction of a dollar
invested. Shareholders will vote in the aggregate and not by Fund except as
otherwise expressly required by law. For example, shareholders of the Funds will
vote in the aggregate with other shareholders of the Group with respect to the
election of Trustees and ratification of the selection of independent
accountants. However, shareholders of a Fund will vote as a fund, and not in the
aggregate with other shareholders of the Group, for purposes of approval of that
Fund's investment advisory agreement.
An annual or special meeting of shareholders to conduct
necessary business is not required by the Declaration of Trust, the 1940 Act or
other authority except, under certain circumstances, to elect Trustees, amend
the Declaration of Trust, approve investment and sub-investment advisory
agreements and to satisfy certain other requirements. To the extent that such a
meeting is not required, the Group may elect not to have an annual or special
meeting.
The Group has represented to the SEC that the Trustees will
call a special meeting of shareholders for purposes of considering the removal
of one or more Trustees upon written request therefor from shareholders holding
not less than 10% of the outstanding votes of the Group. At such a meeting, a
quorum of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Group), by majority vote, has the power to remove one
or more Trustees.
[As of June 30, 1997, FABC, through its wholly-owned
subsidiaries, possessed on behalf of its underlying accounts voting or
investment power with respect to more than 25% of the shares of each of the
LifeWorks Funds, and therefore may be presumed to control such Funds within the
meaning of the 1940 Act.]
MULTIPLE CLASSES OF SHARES
In addition to Institutional Shares, the Group also offers
Investor A Shares and Investor B Shares of certain Funds pursuant to a Multiple
Class Plan adopted by the Group's Trustees under Rule 18f-3 of the 1940 Act. A
salesperson or other person entitled to receive compensation for selling or
servicing shares may receive different compensation with respect to one
particular class of shares over another in the same Fund. The
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<PAGE> 42
amount of dividends payable with respect to other classes of shares will differ
from dividends on Institutional Shares as a result of the Distribution and
Shareholder Service Plan fees applicable to such other classes of shares and
because the different classes of shares may bear different retail transfer
agency expenses. For further details regarding these other classes of Shares,
call the Group at (800) 451-8377.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and
annual reports audited by independent public accountants.
Pursuant to Rule 17f-2, since National City and National City
Bank serve as the Group's Investment Adviser and Custodian, respectively, a
procedure has been established requiring three annual verifications, two of
which are to be unannounced, of all investments held pursuant to the Custodian
Services Agreement, to be conducted by the Group's independent auditors.
The portfolio managers of the Funds and other investment
professionals may from time to time discuss in advertising, sales literature or
other material, including periodic publications, various topics of interest to
shareholders and prospective investors. The topics may include, but are not
limited to, the advantages and disadvantages of investing in tax-deferred and
taxable investments; Fund performance and how such performance may compare to
various market indices; shareholder profiles and hypothetical investor
scenarios; the economy; the financial and capital markets; investment strategies
and techniques; investment products and tax, retirement and investment planning.
Inquiries regarding the Group may be directed in writing to
The Parkstone Group of Funds at P.O. Box 8421, Boston, MA 02266-8421, or by
calling toll free (800) __________.
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.
-35-
<PAGE> 43
ARMADA FUNDS
BOARD OF TRUSTEES
ROBERT D. NEARY
Chairman
Retired Co-Chairman, Ernst & Young
Director:
Cold Metal Products, Inc.
Zurn Industries, Inc.
HERBERT R. MARTENS, JR.
President
Executive Vice President,
National City Corporation
Chairman, President and
Chief Executive Officer,
Officer, NatCity
Investments, Inc.
LEIGH CARTER
Retired President and
Chief Operating Officer
B.F. Goodrich Company
Director:
Acromed Corporation
Kirtland Capital Corporation
Morrison Products
JOHN F. DURKOTT
President and Chief
Operating Officer,
Kittle's Home Furnishing's
Center, Inc.
ROBERT J. FARLING
Retired Chairman, President
and Chief Executive Officer,
Centerior Energy
Director:
Republic Engineered Steels
RICHARD W. FURST, DEAN
Professor of Finance and Dean
Carol Martin Gatton College
of Business and Economics,
University of Kentucky
Director:
Foam Design, Inc.
The Seed Corporation
GERALD L. GHERLEIN
Executive Vice President and
General Counsel, Eaton
Corporation
Trustee:
Meridia Health System
WVIZ Educational Television
J. WILLIAM PULLEN
President and Chief Executive Officer,
Wayne Supply Company
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<PAGE> 44
THE PARKSTONE GROUP OF FUNDS
Institutional Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
National City Investment Management Company
1900 East Ninth Street
Cleveland, Ohio 44114
SUBADVISER
Gulfstream Global Investors, Ltd.
Suite 550
100 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8421
Boston, MA 02266
CUSTODIAN
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44114
LEGAL COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
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<PAGE> 45
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX - FREE INCOME FUNDS
THE PARKSTONE MONEY MARKET FUND
FORM N-1A
CROSS-REFERENCE SHEET
Part A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO.
<TABLE>
Rule 404(a) CROSS REFERENCE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Cover Page.............................................Cover Page
2. Synopsis...............................................Prospectus Summary; Fee Tables
3. Condensed Financial Information........................Financial Highlights; Performance Information
4. General Description of Registrant......................Cover Page, Investment Objectives and Policies; Investment
Restrictions, Risk Factors and Investment Techniques;
General Information - Organization of the Group
5. Management of the Fund.................................Management of the Funds; Fee Tables
5A. Management's Discussion of Fund Performance............Not Applicable
6. Capital Stock and Other Securities.....................Directed Dividend Option; Dividends and Taxes; General
Information - Organization of the Group;
General Information - Multiple Classes of Shares;
General Information - Miscellaneous
7. Purchase of Securities Being Offered...................Management of the Funds - Administrator, Sub-Administrator
and Distributor; Management of the
Funds - Distribution Plan for Investor A Shares; How to Buy
Investor A Shares; Sales Charges; Reduced Sales Charges;
Exchange Privilege; Parkstone Individual Retirement
Accounts; How Shares are Valued
8. Redemption or Repurchase...............................How to Redeem Your Investor A Shares
9. Pending Legal Proceedings..............................Not Applicable
</TABLE>
<PAGE> 46
- --------------------------------------------------------------------------------
THE PARKSTONE
GROUP OF FUNDS
INVESTOR A SHARES
- --------------------------------------------------------------------------------
GROWTH FUNDS
PARKSTONE SMALL CAPITALIZATION FUND
PARKSTONE MID CAPITALIZATION FUND
PARKSTONE LARGE CAPITALIZATION FUND
PARKSTONE INTERNATIONAL DISCOVERY FUND
GROWTH AND INCOME FUNDS
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE EQUITY INCOME FUND
INCOME FUNDS
PARKSTONE BOND FUND
PARKSTONE LIMITED MATURITY BOND FUND
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
PARKSTONE MUNICIPAL BOND FUND
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
MONEY MARKET FUNDS
PARKSTONE PRIME OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT OBLIGATIONS FUND
PARKSTONE TREASURY FUND
PARKSTONE TAX-FREE FUND
Prospectus dated September ___, 1998
(PARKSTONE LOGO)
-------------------------
NOT FDIC INSURED
<PAGE> 47
{THIS PAGE INTENTIONALLY LEFT BLANK.}
-2-
<PAGE> 48
<TABLE>
<S> <C>
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES PROSPECTUS DATED SEPTEMBER ___, 1998
GROWTH FUNDS For more information call:
Parkstone Small Capitalization Fund (800) ____________
Parkstone Mid Capitalization Fund or write to:
Parkstone Large Capitalization Fund Oaks, Pennsylvania
Parkstone International Discovery Fund 19456
GROWTH AND INCOME FUNDS
Parkstone Balanced Allocation Fund THESE SECURITIES HAVE NOT
Parkstone Equity Income Fund BEEN APPROVED OR
DISAPPROVED BY THE
INCOME FUNDS SECURITIES AND EXCHANGE
Parkstone Bond Fund COMMISSION OR ANY STATE
Parkstone Limited Maturity Bond Fund SECURITIES COMMISSION NOR
Parkstone Intermediate Government Obligations HAS THE COMMISSION OR ANY
Fund STATE SECURITIES COMMISSION
Parkstone U.S. Government Income Fund PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS
TAX-FREE INCOME FUNDS PROSPECTUS. ANY
Parkstone Municipal Bond Fund REPRESENTATION TO THE
Parkstone Michigan Municipal Bond Fund CONTRARY IS A CRIMINAL
OFFENSE.
MONEY MARKET FUNDS
Parkstone Prime Obligations Fund
Parkstone U.S. Government Obligations Fund
Parkstone Treasury Fund
Parkstone Tax-Free Fund
</TABLE>
The funds listed above are sixteen of the currently offered series (the "Funds")
of The Parkstone Group of Funds (the "Group") which offer Investor A Shares.
This Prospectus explains concisely what you should know before investing in the
Investor A Shares of the Funds listed above. Please read it carefully and keep
it for future reference. You can find more detailed information about the Funds
in the September ___, 1998 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
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY OR ITS PARENT OR ITS AFFILIATES, AND
ARE NOT ENDORSED, INSURED OR GUARANTEED BY NATIONAL CITY INVESTMENT MANAGEMENT
COMPANY, ITS PARENT, ITS AFFILIATES, THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER AGENCY. INVESTMENTS IN THE PARKSTONE GROUP OF FUNDS INVOLVE
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVOLVED.
PROSPECTUS--Investor A Shares
-3-
<PAGE> 49
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
PROSPECTUS SUMMARY................................................................6
FEE TABLES.......................................................................11
FINANCIAL HIGHLIGHTS.............................................................16
INVESTMENT OBJECTIVES AND POLICIES...............................................34
RISK FACTORS AND INVESTMENT TECHNIQUES...........................................49
INVESTMENT RESTRICTIONS..........................................................62
MANAGEMENT OF THE FUNDS..........................................................63
HOW TO BUY INVESTOR A SHARES.....................................................68
SALES CHARGES....................................................................71
REDUCED SALES CHARGES............................................................72
DIRECTED DIVIDEND OPTION.........................................................74
EXCHANGE PRIVILEGE...............................................................74
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS.........................................75
HOW TO REDEEM YOUR INVESTOR A SHARES.............................................75
HOW SHARES ARE VALUED............................................................78
DIVIDENDS AND TAXES..............................................................79
PERFORMANCE INFORMATION..........................................................82
FUNDATA(R).......................................................................83
GENERAL INFORMATION..............................................................83
</TABLE>
-4-
<PAGE> 50
PROSPECTUS ROADMAP
For information about the following subjects, consult the pages indicated in the
table below.
<TABLE>
<CAPTION>
INVESTMENT
FINANCIAL OBJECTIVES RISK FACTORS AND
FUND HIGHLIGHTS AND POLICIES INVESTMENT TECHNIQUES
<S> <C> <C> <C>
Balanced Allocation Fund
Bond Fund
Equity Income Fund
Government Income Fund
International Discovery Fund
Intermediate Government Obligations Fund
Large Capitalization Fund
Limited Maturity Bond Fund
Michigan Municipal Bond Fund
Mid Capitalization Fund
Municipal Bond Fund
Prime Obligations Fund
Small Capitalization Fund
Tax-Free Fund
Treasury Fund
U.S. Government Obligations Fund
</TABLE>
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which, as of the date of this Prospectus, offers to the public eighteen
separate investment portfolios, seventeen of which are diversified portfolios
and one of which is a non-diversified portfolio, each with different investment
objectives. These Funds enable the Group to meet a wide range of investment
needs.
This Prospectus relates only to the Investor A Shares of the following Funds:
Parkstone Small Capitalization Fund (the "Small Capitalization Fund")
Parkstone Mid Capitalization Fund, formerly known as the Parkstone Equity
Fund (the "Mid Capitalization Fund")
Parkstone Large Capitalization Fund (the "Large Capitalization Fund")
Parkstone International Discovery Fund (the "International Fund")
Parkstone Balanced Allocation Fund, formerly known as the Parkstone
Balanced Fund (the "Balanced Allocation Fund")
Parkstone Equity Income Fund, formerly known as the Parkstone High Income
Equity Fund (the "Equity Income Fund")
Parkstone Bond Fund (the "Bond Fund")
Parkstone Limited Maturity Bond Fund (the "Limited Maturity Bond Fund")
Parkstone Intermediate Government Obligations Fund (the "Intermediate
Government Obligations Fund")
Parkstone U.S. Government Income Fund (the "Government Income Fund")
Parkstone Municipal Bond Fund (the "Municipal Bond Fund")
Parkstone Michigan Municipal Bond Fund (the "Michigan Bond Fund")
Parkstone Prime Obligations Fund (the "Prime Obligations Fund")
-5-
<PAGE> 51
Parkstone U.S. Government Obligations Fund (the "U.S. Government
Obligations Fund")
Parkstone Treasury Fund (the "Treasury Fund")
Parkstone Tax-Free Fund (the "Tax-Free Fund")
For convenience of reference, the above Funds are sometimes referred to as part
of a general grouping. The Small Capitalization Fund, Mid Capitalization Fund,
Large Capitalization Fund and International Fund are collectively referred to as
the "Growth Funds." The Balanced Allocation Fund and Equity Income Fund are
collectively referred to as the "Growth and Income Funds." The Bond Fund,
Limited Maturity Bond Fund, Intermediate Government Obligations Fund and
Government Income Fund are collectively referred to as the "Income Funds." The
Michigan Bond Fund and Municipal Bond Fund are collectively referred to as the
"Tax-Free Income Funds. Finally, the Prime Obligations Fund, Treasury Fund,
Tax-Free Fund and U.S. Government Obligations Fund are collectively referred to
as the "Money Market Funds."
The Trustees of the Group have divided beneficial ownership of each of the Funds
into an unlimited number of transferable units called shares. Most Funds of the
Group offer multiple classes of shares. This Prospectus describes Investor A
Shares for certain of the Group's Funds. Interested persons who wish to obtain a
copy of any of the Group's other Prospectuses or a copy of the Group's most
recent Annual Report may contact the Group at the telephone number shown above.
The investment objectives of each of the Funds are described in this Prospectus
and are summarized in the Prospectus Summary. National City Investment
Management Company, Cleveland, Ohio ("National City" or the "Investment
Adviser"), acts as the investment adviser to each of the Funds of the Group. To
provide investment advisory services for the International Fund and Balanced
Allocation Fund for investments in foreign securities, National City has entered
into a sub-investment advisory agreement with Gulfstream Global Investors, Ltd.,
Dallas, Texas ("Gulfstream" or the "Subadviser").
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Investor A Shares of the following Funds of the
Group:
GROWTH FUNDS
Small Capitalization Fund
Mid Capitalization Fund
Large Capitalization Fund
International Fund
GROWTH AND INCOME FUNDS
Balanced Allocation Fund
Equity Income Fund
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
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<PAGE> 52
TAX-FREE INCOME FUNDS
Municipal Bond Fund
Michigan Bond Fund
MONEY MARKET FUNDS
Prime Obligations Fund
U.S. Government Obligations Fund
Treasury Fund
Tax-Free Fund
These Funds represent sixteen separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust which is registered as an
open-end, management investment company.
Purchase and Redemption of Shares
- ---------------------------------
The public offering price of Investor A Shares of each of the Growth Funds and
each of the Growth and Income Funds is equal to the net asset value per share
plus a sales charge equal to 4.50% of the public offering price (4.71% of the
net amount invested). The public offering price of Investor A Shares of each of
the Income Funds and each of the Tax-Free Income Funds is equal to the net asset
value per share plus a sales charge equal to 4.00% of the public offering price
(4.17% of the net amount invested). The public offering price is reduced when
the amount of the transaction at the total public offering price is $50,000 or
more (see "SALES CHARGES"). Under certain circumstances, the sales charge may be
eliminated (see "REDUCED SALES CHARGES -- Sales Charge Waivers"). The public
offering price of each Money Market Fund is equal to the net asset value per
share, which the Group will seek to maintain at $1.00.
Shares may be purchased by mail or telephone, through a broker-dealer that has
entered into an agreement with the Group's distributor SEI Investments
Distribution Co. ("SEI" or the "Distributor"), through the Group's Auto Invest
Plan or through certain Parkstone Individual Retirement Accounts. Investor A
Shares of one Fund of the Group may be exchanged for Investor A Shares of
another Fund of the Group at net asset value without the imposition of a sales
charge, provided certain conditions are met. Shares may be redeemed by
contacting the Transfer Agent or through the Group's Auto Withdrawal Plan. See
"HOW TO BUY INVESTOR A SHARES," "EXCHANGE PRIVILEGE," "HOW TO REDEEM INVESTOR A
SHARES" and "HOW SHARES ARE VALUED."
Minimum Purchase
- ----------------
There is a $1,000 minimum initial purchase (based upon the public offering
price) per Fund with no minimum subsequent investments. Such minimum initial
investment may be waived for certain purchasers and is reduced to $100 for
investors using the Auto Invest Plan described herein to invest in a Fund,
although such investors are subject to a $50 minimum for each subsequent
investment in such Fund.
Investment Objectives
- ---------------------
-7-
<PAGE> 53
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
Balanced Allocation Fund seeks current income, long-term capital growth and conservation of capital
Bond Fund seeks to provide current income as well as preservation of capital by investing in a
portfolio of high- and medium-grade fixed-income securities
Equity Income Fund seeks current income by investing in a diversified portfolio of high quality,
dividend-paying common stocks and securities convertible into common stocks; a
secondary objective is growth of capital
Government Income Fund seeks to provide shareholders with a high level of current income consistent with
prudent investment risk
Intermediate Government seeks to provide current income with preservation of
Obligations Fund capital by investing in U.S. government securities with remaining maturities of 12
years or less
International Fund seeks long-term growth of capital
Large Capitalization Fund seeks growth of capital by investing primarily in a diversified
portfolio of common stocks and securities convertible into common stocks of companies
with large market capitalization
Limited Maturity Bond seeks to provide current income as well as preservation of capital by investing in a
portfolio of high- and medium-grade fixed-income securities with remaining maturities
of six years or less
Michigan Bond Fund seeks income which is exempt from federal income tax and Michigan state income and
intangibles tax, although such income may be subject to the federal alternative
minimum tax when received by certain shareholders; also seeks preservation of capital
Mid Capitalization Fund seeks growth of capital by investing primarily in a diversified portfolio of common
stocks and securities convertible into common stocks
Municipal Bond Fund seeks to provide current interest income which is exempt from federal income taxes
and preservation of capital
Prime Obligations Fund seeks to provide current income, with liquidity and stability of principal
Small Capitalization Fund seeks growth of capital by investing primarily in a diversified portfolio of common
stocks and securities
</TABLE>
-8-
<PAGE> 54
<TABLE>
<S> <C>
convertible into common stocks of small- to medium-sized companies
Tax-Free Fund seeks to provide as high a level of current interest income free from federal income
taxes as is consistent with the preservation of capital and relative stability of
principal
Treasury Fund seeks to provide current income, with liquidity and stability of principal
U.S. Government seeks to provide current income, with liquidity and
Obligations Fund stability of principal
</TABLE>
Investment Policies
Under normal market conditions, each Fund will invest as described in the
following table:
<TABLE>
<CAPTION>
FUND INVESTMENT POLICY
<S> <C>
Balanced Allocation Fund in any type or class of securities, including all types of common
stocks, fixed-income securities and securities convertible into common
stocks
Bond Fund at least 80% of its total assets in bonds, debentures and certain other debt
securities specified herein
Equity Income Fund at least 80% of its total assets in common stocks, and securities convertible into
common stocks, of companies believed by the Investment Adviser to be characterized by
sound management, the ability to finance expected growth and the ability to pay
above-average dividends
Government Income Fund at least 65% of its total assets in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities; under current market conditions, up
to 80% of its total assets in mortgage-related securities, which are issued or
guaranteed by the U.S. government or its agencies or instrumentalities and up to 35%
of its total assets in mortgage-related securities issued by non-governmental
entities
Intermediate Government at least 80% of its total assets in obligations issued or guaranteed by the U.S.
Obligations Fund government or its agencies or instrumentalities and with remaining maturities of
twelve years or less
International Fund at least 65% of its total assets in an internationally diversified portfolio of
equity securities which trade on markets in countries other than the United States
and which are issued by companies (i) domiciled in countries
</TABLE>
-9-
<PAGE> 55
<TABLE>
<S> <C>
other than the United States, or (ii) that derive at least 50% of either their
revenues or pre-tax income from activities outside of the United States, and (iii)
which are ranked as small- or medium-sized companies on the basis of their
capitalization
Large Capitalization Fund at least 80% of its total assets in common stocks, and securities convertible into
common stocks, of companies believed to be characterized by sound management and the
ability to finance expected long-term growth
Limited Maturity Bond at least 80% of the value of its total assets in bonds, Fund debentures and certain
other debt securities specified herein with remaining maturities of six years or less
Michigan Bond Fund at least 80% of its total assets in debt securities of all types; at least 65% of its
net assets in municipal securities issued by or on behalf of the State of Michigan,
its political subdivisions, municipalities and public authorities
Mid Capitalization Fund at least 80% of its total assets in common stocks, and securities convertible into
common stocks, of companies believed by the Investment Adviser to be characterized by
sound management and the ability to finance expected growth
Municipal Bond Fund at least 80% of its total assets in tax-exempt obligations
Prime Obligations Fund in high quality money market instruments and other comparable investments
Small Capitalization Fund at least 80% of its total assets in common stocks, and securities convertible into
common stocks, of companies believed by the Investment Adviser to be characterized by
sound management and the ability to finance expected growth
Tax-Free Fund at least 80% of its total assets in municipal obligations the interest on which is
both exempt from federal income tax and not treated as a preference item for federal
alternative minimum tax purposes
Treasury Fund exclusively in obligations issued or guaranteed by the U.S Treasury and in repurchase
agreements backed by such securities
U.S. Government at least 65% of its total assets in short-term U.S. Treasury bills, notes and other
Obligations Fund obligations issued by the U.S. government or its agencies or instrumentalities
</TABLE>
-10-
<PAGE> 56
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
National City serves as investment adviser, and, with respect to the
International Fund and a portion of the Balanced Allocation Fund, Gulfstream
serves as subadviser. National City also serves as sub-administrator. BISYS Fund
Services, L.P. ("BISYS"), a partnership owned by The BISYS Group, Inc., serves
as administrator (" the Administrator"). BISYS Fund Services Ohio, Inc. ("BISYS
Ohio"), serves as fund accountant. National City Bank, an affiliate of National
City (the "Custodian"), serves as custodian. State Street Bank and Trust Company
("State Street" or the "Transfer Agent") serves as transfer agent and dividend
disbursing agent.
Dividends and Taxes
Dividends from net income are declared and paid, if at all, on a monthly basis,
except for the Money Market Funds which declare dividends daily and pay them
monthly. Net realized capital gains are distributed at least annually. The
Directed Dividend Option enables shareholders to have dividends and capital
gains paid by check, or reinvested automatically without payment of sales
charges. See "DIRECTED DIVIDEND OPTION." Each of the Funds is treated as a
separate entity for federal tax purposes and intends to qualify as a "regulated
investment company." Shareholders will be advised at least annually as to the
federal income tax consequences of distributions made each year.
<TABLE>
<CAPTION>
FEE TABLES (INVESTOR A SHARES)
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge (as a percentage of the offering price) (1)
-- Growth Funds.................................................................................4.50%
-- Growth and Income Funds......................................................................4.50%
-- Income Funds.................................................................................4.00%
-- Tax-Free Income Funds........................................................................4.00%
-- Money Market Funds...........................................................................None
Sales Charge on Reinvested Distributions........................................................None
Deferred Sales Charge on Redemptions............................................................None
Redemption Fees (2).............................................................................1.00%
Exchange Fees (3)...............................................................................None
<FN>
---------------
(1) The sales charge may be eliminated under certain circumstances. (See "REDUCED SALES CHARGES -- Sales Charge Waivers.")
(2) Investors who invest over $1,000,000 in Investor A Shares of the Small Capitalization Fund will be subject to a redemption
fee of 1.00% for redemptions of such shares made within one year of the date of purchase. In addition, with respect to all
Funds, although no such fee is currently in place,
</TABLE>
-11-
<PAGE> 57
the Transfer Agent has reserved the right in the future to charge a fee for wire
transfers of redemption proceeds.
(3) Exchanges into a Non-Money Market Fund from a Money Market Fund will be
normally subject to a sales charge.
-12-
<PAGE> 58
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES (5) EXPENSES(4) EXPENSES(4)
---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
GROWTH FUNDS
Small Capitalization Fund ................... 1.00% 0.25% 0.32% 1.57%
Mid Capitalization Fund ..................... 1.00% 0.25% 0.31% 1.56%
Large Capitalization Fund ................... 0.80% 0.25% 0.32% 1.37%
International Fund .......................... 1.16%(6) 0.25% 0.39% 1.80%
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund .................... 0.75% 0.25% 0.36% 1.36%
Equity Income Fund .......................... 1.00% 0.25% 0.33% l.58%
INCOME FUNDS:
Bond Fund ................................... 0.70% 0.25% 0.24% 1.19%
Limited Maturity Bond Fund .................. 0.55% 0.25% 0.31% 1.11%
Intermediate Government
Obligations Fund ......................... 0.70% 0.25% 0.28% 1.23%
Government Income Fund ...................... 0.45% 0.25% 0.32% 1.02%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund ......................... 0.55% 0.25% 0.26% 1.06%
Michigan Bond Fund .......................... 0.55% 0.25% 0.21% 1.01%
MONEY MARKET FUNDS:
Prime obligations Fund ...................... 0.40% 0.10% 0.23% 0.7396
U.S. Government Obligations
Fund ..................................... 0.40% 0.10% 0.24% 0.74%
Treasury Fund ............................... 0.40% 0.10% 0.17% 0.67%
Tax-Free Fund ............................... 0.40% 0.10% 0.28% 0.78%
</TABLE>
- ---------------
(4) After voluntary expense reductions.
(5) Pursuant to the Investor A Distribution and Shareholder Service Plan, each
Fund is authorized to make payments under such Plan of up to an annual rate
of 0.25% of the average daily net asset value of such Fund's Investor A
Shares. However, currently payments of only 0.10% are being charged under
such Plan with respect to the Money Market Funds.
-13-
<PAGE> 59
(6) Calculated based on 1.25% on the first $50 million, in average daily net
assets, 1.20% on the next $50 million, 1.15% on the next $300 million and
1.05% over $400 million.
Management Fees and Total Operating Expenses as a percentage of average net
assets for the Balanced Allocation Fund, absent the voluntary reduction of
advisory fees, would have been 1.00% and 1.61%, respectively. Management
Fees, Other Expenses and Total Operating Expenses as a percentage of
average net assets for the Bond Fund, absent the voluntary reduction of
advisory fees and administrative fees, would have been 0.74%, 0.29% and
1.28%, respectively. For the Limited Maturity Bond Fund, they would have
been 0.74%, 0.36% and 1.35%, respectively. For the Intermediate Government
Obligations Fund, they would have been 0.74%, 0.33% and 1.32% respectively.
For the Government Income Fund, they would have been 0.74%, 0.37% and 1.36%
respectively. For the Municipal Bond Fund, they would have been 0.74%,
0.36% and 1.35%, respectively. For the Michigan Bond Fund, they would have
been 0.74%, 0.31% and 1.30%, respectively. 12b-1 Fees, Other Expenses and
Total Operating Expenses as a percentage of average net assets for the
Prime Obligations Fund, absent the voluntary reduction of 12b-1 fees and
administrative fees, would have been 0.25%, 0.25% and 0.90%, respectively.
For the U.S. Government Obligations Fund, they would have been 0.25%, 0.26%
and 0.91%, respectively. For the Treasury Fund, they would have been 0.25%,
0.27% and 0.92%, respectively. For the Tax-Free Fund, they would have been
0.25%, 0.30% and 0.95%, respectively. (See "MANAGEMENT OF THE FUNDS --
Investment Adviser and Subadviser" and "Administrator, Sub-Administrator
and Distributor.")
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar on a
$1,000 investment in Investor A Shares, assuming (1) 5% annual return and
(2) redemption at the end of each time period:
-14-
<PAGE> 60
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund .................................. $ 60 $ 92 $127 $223
Mid Capitalization Fund .................................... $ 60 $ 92 $126 $222
Large Capitalization Fund .................................. $ 58 $ 86 $117 $202
International Fund ......................................... $ 62 $ 99 $138 $247
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund ................................... $ 58 $ 86 $116 $201
Equity Income Fund ......................................... $ 60 $ 93 $127 $224
INCOME FUNDS:
Bond Fund .................................................. $ 52 $ 76 $103 $179
Limited Maturity Bond Fund ................................. $ 51 $ 74 $ 99 $170
Intermediate Government
Obligations Fund ........................................ $ 52 $ 77 $105 $183
Government Income Fund ..................................... $ 50 $ 71 $ 94 $160
TAX-FREE INCOME FUNDS:
Municipal Bond Fund ........................................ $ 50 $ 72 $ 96 $164
Michigan Bond Fund ......................................... $ 50 $ 71 $ 94 $159
MONEY MARKET FUNDS:
Prime Obligations Fund ..................................... $ 7 $ 23 $ 41 $ 91
U.S. Government Obligations Fund ........................... $ 8 $ 24 $ 41 $ 92
Treasury Fund .............................................. $ 7 $ 21 $ 37 $ 83
Tax-Free Fund .............................................. $ 8 $ 25 $ 43 $ 97
</TABLE>
The information set forth in the foregoing Fee Tables and expense examples
relates only to Investor A Shares of the Funds. Each of the Funds also may
offer other classes of shares. The other classes of shares of the Funds are
subject to the same expenses except that sales charges and Rule 12b-1 fees
will differ between classes.
As a result of the payment of sales charges and 12b-1 fees, long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers, Inc. (the "NASD"). The NASD has adopted rules effective July 7,
1993, which generally limit the aggregate sales charges and payments under
the Group's Investor A Distribution and Shareholder Service Plan to a
certain percentage of total new gross share sales, plus interest. The Funds
would stop accruing 12b-1 fees if, to the extent, and for as long as, such
limit would otherwise be exceeded.
The purpose of the above tables is to assist a potential purchaser of
Investor A Shares of any Fund in understanding the various costs and
expenses that an investor in a Fund will bear directly or indirectly. Such
expenses do not include any fees charged by National City or any of its
affiliates to its customer accounts which may invest in Investor A Shares
of the Funds. See "MANAGEMENT OF THE FUNDS," "GENERAL INFORMATION" and
"SALES CHARGES" for a more complete discussion of the shareholder
transaction expenses and annual operating expenses of each of the Funds.
The expense information for Investor A Shares reflects current fees. THE
FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
-15-
<PAGE> 61
FINANCIAL HIGHLIGHTS
--------------------
The tables on the following pages set forth certain information concerning
the investment results of the Investor A Shares of each of the Funds since
its inception. Further financial information is included in the Statement
of Additional Information and the Group's June 30, 1997 Annual Report to
Shareholders which may be obtained free of charge.
The Financial Highlights for the periods presented below have been derived
from financial statements audited by PricewaterhouseCoopers LLP,
independent auditors for the Group, whose report thereon is incorporated by
reference in the Statement of Additional Information.
On March 31, 1993, the shareholders of all of the then-existing Funds of
the Group approved the reclassification of such Funds' outstanding shares
into Investor A Shares and Institutional Shares. The financial information
provided below and in the Annual Report includes periods prior to such
reclassification.
-16-
<PAGE> 62
SMALL CAPITALIZATION FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------
INVESTOR A SHARES
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993(B) 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .................... $ 34.17 $ 25.88 $ 19.75 $ 20.31 $ 14.64 $ 13.58
--------- --------- --------- --------- --------- ---------
Investment Activities
Net Investment Loss ...................... (0.29) (0.23) (0.18) (0.15) (0.13) (0.08)
Net Realized and Unrealized Gains
(Losses) on Investments ............ (1.08) 12.17 8.46 0.09 6.75 1.89
--------- --------- --------- --------- --------- ---------
Total from Investment Activities ... (1.37) 11.94 8.28 (0.06) 6.62 1.81
--------- --------- --------- --------- --------- ---------
Distributions
Net Investment Income .................... -- -- -- -- -- --
Net Realized Gains ....................... (5.25) (3.65) (2.15) (0.50) (0.95) (0.75)
- --------------------------------------------- --------- --------- --------- --------- --------- ---------
Total Distributions ............... (5.25) (3.65) (2.15) (0.50) (0.95) (0.75)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD .............. $ 27.55 $ 34.17 $ 25.88 $ 19.75 $ 20.31 $ 14.64
========= ========= ========= ========= ========= =========
Total Return (excluding sales and
Redemption charges) ..................... 4.53% 49.93% 44.88% (0.55)% 45.77% 12.95%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........ $ 188,645 $ 187,016 $ 71,894 $ 42,791 $ 27,976 $ 180,079
Ratio of Net Investment Loss
to Average Net Assets ............. 1.57% 1.54% 1.55% 1.40% 1.29% 1.19%
Ratio of Expenses to Average
Net Assets ........................ (1.19)% (1.18)% (1.27)% (1.24)% (1.02)% (0.61)%
Ratio of Net Investment Loss to
Average Net Assets ................ 1.57% 1.54% 1.58% 1.55% 1.36% 1.28%
Ratio of Net Investment Loss to
Average Net Assets* ............... (1.19)% (1.18)% (1.30)% (1.39)% (1.09)% (0.70)%
Portfolio Turnover Rate(d) ............. 48.45% 67.22% 50.53% 72.64% 71.21% 95.02%
Average Commission Rate Paid(g) ........ $ 0.0788 $ 0.0800
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
INVESTOR A SHARES
--------------------------
OCT. 31, 1988
TO
1991 1990 JUNE 30 1989(A)
--------- --------- ---------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .................... $ 14.82 $ 11.59 $ 10.00
--------- --------- ---------
Investment Activities
Net Investment Loss ...................... 0.14 0.04 0.06
Net Realized and Unrealized Gains
(Losses) on Investments ............ (1.24) 3.23 1.59
--------- --------- ---------
Total from Investment Activities ... (1.10) 3.27 1.65
--------- --------- ---------
Distributions
Net Investment Income .................... (0.14) (0.04) (0.06)
Net Realized Gains ....................... - -- --
- --------------------------------------------- --------- --------- ---------
Total Distributions ............... (0.14) (0.04) (0.06)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD .............. $ 13.58 $ 14.82 $ 11.59
========= ========= =========
Total Return (excluding sales and
Redemption charges) ..................... (6.76)% 28.28% 16.60%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........ $ 107,500 $ 94,517 $ 53,917
Ratio of Net Investment Loss
to Average Net Assets ............. 1.15% 1.11% 1.29%(c)
Ratio of Expenses to Average
Net Assets ........................ 1.08% 0.37% 0.80%(c)
Ratio of Net Investment Loss to
Average Net Assets ................ 1.33% 1.33% 1.54%(c)
Ratio of Net Investment Loss to
Average Net Assets* ............... 0.90% 0.15% 0.55%(c)
Portfolio Turnover Rate(d) ............. 139.66% 83.10% 51.79%
Average Commission Rate Paid(g) ........
</TABLE>
-17-
<PAGE> 63
MID CAPITALIZATION FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------
INVESTOR A SHARES
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993(B)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ......................... $ 20.71 $ 16.56 $ 14.69 $ 15.11 $ 12.80
--------- --------- --------- --------- ---------
Investment Activities
Net Investment Loss ........................... (0.16) (0.16) (0.12) (0.10) (0.01)
Net Realized and Unrealized Gains
(Losses) on Investments ................. 1.30 4.97 3.46 (0.28) 2.74
--------- --------- --------- --------- ---------
Total from Investment Activities ........ 1.14 4.81 3.34 (0.38) 2.73
--------- --------- --------- --------- ---------
Distributions
Net Investment Income ......................... -- -- -- -- (0.02)
Net Realized Gains ............................ (6.13) (0.66) (0.48) (0.04) (0.40)
In Excess of Net Realized Gains .............. -- -- (0.99) -- --
--------- --------- --------- --------- ---------
Total Distributions .................... (6.13) (0.66) (1.47) (0.04) (0.42)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD ................... $ 15.72 $ 20.71 $ 16.56 $ 14.69 $ 15.11
========= ========= ========= ========= =========
Total Return (excluding sales and
redemption charges) .......................... 5.78% 29.57% 24.85 (2.57)% 21.42%
RATIOS/SUPPLEMENTARY DATA: ....................... $ 80,634 $ 66,260 $ 43,803 $ 36,108 $ 26,460
Net Assets, End of Period (000)
Ratio of Expenses to Average ................ 1.56% 1.54% 1.51% 1.38% 1.28%
Net Assets
Ratio of Net Investment Loss to ............. (1.05)% (0.94)% (0.87)% (0.75)% (0.12)%
Average Net Assets
Ratio of Expenses to Average ................ 1.56% 1.54% 1.54% 1.53% 1..35%
Net Assets
Ratio of Net Investment Loss ................ (1.05)% (0.94)% (0.90)% (0.90)% (0.19)%
to Average Net Assets* .............. 38.47% 49.27% 46.39% 70.87% 66.48%
Portfolio Turnover Rate(d) .................. $ 0.0794 $ 0.0796
Average Commission Rate Paid(g)
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
INVESTOR A SHARES
-------------------------------------- OCT. 31, 1998
TO
1992 1991 1990 JUNE 30 1989(A)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ...................... $ 11.69 $ 12.37 $ 11.48 $ 10.00
--------- --------- --------- ---------
Investment Activities
Net Investment Loss ........................ 0.17 0.45 0.30 0.20
Net Realized and Unrealized Gains
(Losses) on Investments .............. 1.59 (0.53) 1.86 1.47
--------- --------- --------- ---------
Total from Investment Activities ..... 1.76 (0.08) 2.16 1.67
--------- --------- --------- ---------
Distributions
Net Investment Income ...................... (0.17) (0.45) (0.28) (0.19)
Net Realized Gains ......................... (0.48) (0.15) (0.99) --
In Excess of Net Realized Gains ........... -- -- -- --
--------- --------- --------- ---------
Total Distributions ................. (0.65) (0.60) (1.27) (0.19)
--------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD ................ $ 12.80 $ 11.69 $ 12.37 $ 11.48
========= ========= ========= =========
Total Return (excluding sales and
redemption charges) ....................... 15.18% (0.45)% 19.23% 16.83%(e)
RATIOS/SUPPLEMENTARY DATA: .................... $ 407,782 $ 298,655 $ 247,683 $ 180,124
Net Assets, End of Period (000)
Ratio of Expenses to Average ............. 1.18% 1.10% 1.07% 1.06%(c)
Net Assets
Ratio of Net Investment Loss to .......... 1.24% 3.87% 2.51% 2.80%(c)
Average Net Assets
Ratio of Expenses to Average ............. 1.26 1.28% 1.29% 1.31%(c)
Net Assets
Ratio of Net Investment Loss ............. 1.15% 3.69% 2.29% 2.55%(c)
to Average Net Assets* ........... 93.76% 189.26% 136.95% 87.30%
Portfolio Turnover Rate(d) ..................
Average Commission Rate Paid(g)
</TABLE>
-18-
<PAGE> 64
LARGE CAPITALIZATION FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, DEC. 28, 1995
INVESTOR A SHARES TO
1997 JUNE 30, 1996(A)
----------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................... $ 11.23 $ 10.00
------------ ------------
Investment Activities
Net Investment Income (Loss) ........................ 0.03
Net Realized and Unrealized Gains (Losses)
on Investments ............................... 3.30 1.23
------------ ------------
Total From Investment Activities ............. 3.30 1.26
------------ ------------
Distributions
Net Investment Income ........................ (0.01) (0.03)
Net Realized Gains ........................... (0.08) --
------------ ------------
Total Distributions .................. (0.09) (0.03)
------------ ------------
NET ASSET VALUE, END OF PERIOD ......................... $ 14.44 $ 11.23
============ ============
Total Return (excluding sales and redemption charges) .. 29.52% 8.99% (e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................... $ 12,260 $ 1,657
Ratio of Expenses to Average Net Assets .......... 1.37% 1.40% (c)
Ratio of Net Investment Gain (Loss) to
Average Net Assets ................................ (0.14)% 0.31% (c)
Ratio of Expenses to Average Net Assets* .......... 1.37% 2.62% (c)
Ratio of Net Investment Loss to Average Net Assets* (0.14)% (0.91)%(c)
Portfolio Turnover Rate (d) ....................... 48.44% 0.86%
Average Commission Rate Paid (g) .................. $ 0.0932 $ 0.0800
</TABLE>
-19-
<PAGE> 65
INTERNATIONAL FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
INVESTOR A SHARES
----------------------------------------------------
1997 1996 1995(f)
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 14.01 $ 12.23 $ 13.18
------------ ------------ ------------
Investment Activities
Net Investment Income (Loss) ...................... (0.07) (0.02) 0.03
Net Realized and Unrealized Gains (Losses)
On Investments and Foreign
Currency Transactions .................... 2.31 1.81 (0.36)
------------ ------------ ------------
Total From Investment Activities ......... 2.24 1.79 (0.33)
------------ ------------ ------------
Distributions
Net Investment Income ............................. -- -- --
Net Realized Gains ................................ -- -- (0.62)
In Excess of Net Investment Income ................ -- (0.01) --
------------ ------------ ------------
Total Distributions ...................... -- (0.01) (0.62)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD ............................. $ 16.25 $ 14.01 $ 12.23
============= ============ ============
Total Return (excluding sales and redemption charges) ...... 15.99% 14.65% (2.19)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................... $ 48,557 $ 39,575 $ 34,228
Ratio of Expenses to Average Net Assets ........... 1.80% 1.80% 1.78%
Ratio of Net Investment Income (Loss) to
Average Net Assets ............................. (0.54)% (0.11)% 0.08%
Ratio of Expenses to Average Net Assets* .......... 1.80% 1.88% 1.91%
Ratio of Net Investment Income
(Loss) to Average Net Assets* ................... 45.18% (0.19)% 104.39%
Portfolio Turnover Rate(d) ....................... (0.54)% 54.47% (0.06)%
Average Commission Rate Paid(g) ................... $ 0.0329 $ 0.0321
<CAPTION>
YEAR ENDED JUNE 30,
-------------
INVESTOR A SHARES DEC. 29, 1992
------------- TO
1994 JUNE 30, 1993(a)(b)
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 11.50 $ 10.00
------------ ------------
Investment Activities
Net Investment Income (Loss) ...................... (0.02) 0.03
Net Realized and Unrealized Gains (Losses)
On Investments and Foreign
Currency Transactions .................... 1.74 1.48
------------ ------------
Total From Investment Activities ......... 1.72 1.51
------------ ------------
Distributions
Net Investment Income ............................. (0.02) (0.01)
Net Realized Gains ................................ (0.02) --
In Excess of Net Investment Income ................ -- --
------------ ------------
Total Distributions ...................... (0.04) (0.01)
------------ ------------
NET ASSET VALUE, END OF PERIOD ............................. $ 13.18 $ 11.50
============ ============
Total Return (excluding sales and redemption charges) ...... 14.99% 15.11%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................... $ 36,297 $ 8,353
Ratio of Expenses to Average Net Assets ........... 1.63% 1.64%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets ............................. (0.29)% 1.02%(c)
Ratio of Expenses to Average Net Assets* .......... 1.84% 1.81%
Ratio of Net Investment Income
(Loss) to Average Net Assets* ................... 37.23% 12.47%
Portfolio Turnover Rate(d) ....................... (0.49)% 0.85%(c)
Average Commission Rate Paid(g) ...................
</TABLE>
-20-
<PAGE> 66
BALANCED ALLOCATION FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------
INVESTOR A SHARES
------------------------------------------------------------
1997 1996 1995(f) 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 13.37 $ 12.19 $ 10.67 $ 11.09
Investment Activities
Net Investment Income (Loss) ...................... 0.32 0.32 0.28 0.26
Net Realized and Unrealized Gains (Losses)
On Investments and Foreign
Currency Transactions .................... 1.12 1.74 1.69 (0.43)
--------- --------- --------- ---------
Total From Investment Activities ......... 1.44 2.06 1.97 (0.17)
--------- --------- --------- ---------
Distributions
Net Investment Income ............................. (0.33) (0.31) (0.29) (0.25)
Net Realized Gains ................................ (1.48) (0.57) (0.01) --
In Excess of Net Investment Income ................ -- -- (0.15) --
--------- --------- --------- ---------
Total Distributions ...................... (1.81) (0.88) (0.45) (0.25)
--------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD ............................. $ 13.00 $ 13.37 $ 12.19 $ 10.67
========= ========= ========= =========
Total Return (excluding sales and redemption charges) ...... 11.61% 17.51% 18.96% (1.63)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................... $ 18,826 $ 17,097 $ 12,849 $ 11,901
Ratio of Expenses to Average Net Assets ........... 1.36% 1.41% 1.47% 1.18%
Ratio of Net Investment Income (Loss) to
Average Net Assets ............................. 2.47% 2.37% 2.54% 2.38%
Ratio of Expenses to Average Net Assets* .......... 1.61% 1.66% 1.78% 1.63%
Ratio of Net Investment Income (Loss) to
Average Net Assets* ............................ 2.22% 2.12% 2.23 1.93
Portfolio Turnover Rate(d) ....................... 425.05% 437.90% 250.66% 192.39%
Average Commission Rate Paid(g) ................... $ 0.0518 $ 0.0848
<CAPTION>
YEAR ENDED JUNE 30,
--------
INVESTOR A SHARES JAN. 31. 1992
------- TO
1993(b) JUNE 30, 1992(a)
--------- ---------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 9.68 $ 10.00
--------- ---------
Investment Activities
Net Investment Income (Loss) ...................... 0.28 0.14
Net Realized and Unrealized Gains (Losses)
On Investments and Foreign
Currency Transactions .................... 1.42 (0.34)
--------- ---------
Total From Investment Activities ......... 1.70 (0.20)
--------- ---------
Distributions
Net Investment Income ............................. (0.29) (0.12)
Net Realized Gains ................................ -- --
In Excess of Net Investment Income ................ -- --
--------- ---------
Total Distributions ...................... (0.29) (0.12)
--------- ---------
NET ASSET VALUE, END OF PERIOD ............................. $ 11.09 $ 9.68
========= =========
Total Return (excluding sales and redemption charges) ...... 17.74% (2.06)% (e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................... $ 6,115 $ 38,136
Ratio of Expenses to Average Net Assets ........... 1.18% 1.19% (c)
Ratio of Net Investment Income (Loss) to
Average Net Assets ............................. 2.66% 3.46% (c)
Ratio of Expenses to Average Net Assets* .......... 1.53% 1.50% (c)
Ratio of Net Investment Income (Loss) to
Average Net Assets* ............................ 2.31% 3.13% (c)
Portfolio Turnover Rate(d) ....................... 177.99% 47.58%
Average Commission Rate Paid(g) ...................
</TABLE>
-21-
<PAGE> 67
EQUITY INCOME FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------
INVESTOR A SHARES
-----------------------------------------------------------------------
1997 1996 1995 1994 1993(b)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 17.31 $ 14.49 $ 13.50 $ 14.69 $ 13.14
Investment Activities
Net Investment Income (Loss) .................. 0.29 0.30 0.36 0.37 0.45
Net Realized and Unrealized
Gains (Losses)
on Investments ............................. 3.57 3.27 1.00 (0.56) 1.69
--------- --------- --------- --------- ---------
Total From Investment Activities ........... 3.86 3.57 1.36 (0.19) 2.14
--------- --------- --------- --------- ---------
Distributions
Net Investment Income ......................... (0.28) (0.30) (0.36) (0.37) (0.45)
In Excess of Net Investment Income ............ -- -- (0.01) -- --
Net Realized Gains ............................ (1.69) (0.45) -- (0.24) (0.14)
In Excess of Net Realized Gains ............... -- -- -- (0.39)
--------- --------- --------- --------- ---------
Total Distributions ........................ (1.97) (0.75) (0.37) (1.00) (0.59)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD ................... $ 19.20 $ 17.31 $ 14.49 $ 13.50 $ 14.69
========= ========= ========= ========= =========
Total Return
(excluding sales and
Redemption charges) ........................... 23.81% 25.05% 10.32% (1.63)% 16.71
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ............... $ 99,423 $ 82,396 $ 71,063 $ 76,108 $ 50,000
Ratio of Expenses to Average Net Assets ....... 1.58% 1.57% 1.54% 1.40% 1.29%
Ratio of Net Investment Income (Loss) to
Average Net Assets ......................... 1.62% 1.86% 2.65% 2.56% 3.24%
Ratio of Expenses to Average Net Assets* ...... 1.58% 1.57% 1.57% 1.55% 1.36%
Ratio of Net Investment Income (Loss) to
Average Net Assets* ........................ 1.62% 1.86% 2.61% 2.41% 3.17%
Portfolio Turnover Rate(d) .................... 20.14% 40.75% 77.70% 69.35% 67.26%
Average Commission Rate Paid(g) ............... $ 0.0800 $ 0.0800
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
INVESTOR A SHARES OCT. 31,
------------------------------------- 1988 TO
JUNE 30,
1992 1991 1990 1989(a)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 12.48 $ 12.19 $ 11.35 $ 10.00
---------
Investment Activities
Net Investment Income (Loss) .................. 0.54 0.57 0.56 0.35
Net Realized and Unrealized
Gains (Losses)
on Investments ............................. 0.99 0.38 1.04 1.32
--------- --------- --------- ---------
Total From Investment Activities ........... 1.53 0.95 1.60 1.67
--------- --------- --------- ---------
Distributions
Net Investment Income ......................... (0.54) (0.59) (0.54) (0.32)
In Excess of Net Investment Income ............ -- -- -- --
Net Realized Gains ............................ (0.33) (0.07) (0.22) --
--------- --------- --------- ---------
In Excess of Net Realized Gains ............... -- -- -- --
--------- --------- --------- ---------
Total Distributions ........................ (0.87) (0.66) (0.76) (0.32)
--------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD ................... $ 13.14 $ 12.48 $ 12.19 $ 11.35
========= ========= ========= =========
Total Return
(excluding sales and
Redemption charges) ........................... 12.56% 8.22% 14.37% 16.97%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ............... $ 270,549 $ 150,980 $ 96,344 $ 66,367
Ratio of Expenses to Average Net Assets ....... 1.19% 1.13% 1.11% 1.16%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets ......................... 4.12% 4.75 4.69 4.92%(c)
Ratio of Expenses to Average Net Assets* ...... 1.27% 1.31% 1.33% 1.41%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets* ........................ 4.03% 4.57% 4.47% 4.67%
Portfolio Turnover Rate(d) .................... 68.42% 115.68% 53.08% 29.55
Average Commission Rate Paid(g) ...............
</TABLE>
-22-
<PAGE> 68
BOND FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------
INVESTOR A SHARES
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993(b) 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ...................... $ 9.51 $ 9.67 $ 9.30 $ 10.54 $ 10.54 $ 10.07
--------- --------- --------- --------- --------- ---------
Investment Activities ....................... 0.56 0.57 0.58 0.59 0.71 0.75
Net Investment
Income(Loss)
Net Realized and Unrealized
Gains (Losses) on Investments ......... 0.17 (0.16) 0.38 (0.72) 0.47 0.56
--------- --------- --------- --------- --------- ---------
Total From Investment Activities ........ 0.73 0.41 0.96 (0.13) 1.18 1.31
--------- --------- --------- --------- --------- ---------
Distributions
Net Investment
Income ................................. (0.56) (0.57) (0.58) (0.57) (0.73) (0.76)
In Excess of Net
Investment Income ...................... -- -- (0.01) -- -- --
Net Realized
Gains .................................. -- -- -- -- (0.45) (0/08)
In Excess of Net Realized
Gains ................................. -- -- -- (0.54) -- --
--------- --------- --------- --------- --------- ---------
Total Distributions .................... (0.56) (0.57) (0.59) (1.11) (1.18) (0.84)
NET ASSET VALUE, END
OF PERIOD ................................. $ 9.68 $ 9.51 $ 9.67 $ 9.30 $ 10.54 $ 10.54
========= ========= ========= ========= ========= =========
Total Return (excluding sales and
redemption charges) .................... 7.92% 4.27% 10.85% (1.62)% 11.93% 13.47%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ............................ $ 19,760 $ 20,175 $ 17,572 $ 18,391 $ 18,562 $ 477,526
Ratio of Expenses to Average Net
Assets ............................... 1.19% 1.19% 1.24% 0.98% 0.89% 0.87%
Ratio of Net Investment Income
(Loss) ............................... 5.88% 5.71% 6.32% 5.86% 6.47% 7.19%
Ratio of Expenses to Average
Net Assets* .......................... 1.28% 1.28% 1.39% 1.27% 1.07% 1.01%
Ratio of Net Investment Income (Loss)
To Average Net Assets* .................. 5.79% 5.62% 6.17% 5.57% 6.29% 7.05%
Portfolio Turnover Rate (d) ............. 827.00% 1189.27 1010.64 893.27% 443.98% 289.38%
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
INVESTOR A SHARES
------------------------- OCT. 31, 1998
TO
1991 1990 JUNE 30, 1989(a)
--------- --------- ---------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ...................... $ 10.00 $ 10.11 $ 10.00
--------- --------- ---------
Investment Activities ....................... 0.77 0.78 0.53
Net Investment
Income(Loss)
Net Realized and Unrealized
Gains (Losses) on Investments ......... 0.08 (0.11) 0.09
--------- --------- ---------
Total From Investment Activities ........ 0.85 0.67 0.62
--------- --------- ---------
Distributions
Net Investment
Income ................................. (0.78) (0.78) (0.51)
In Excess of Net
Investment Income ...................... -- -- --
Net Realized
Gains .................................. -- -- --
In Excess of Net Realized
Gains ................................. -- -- --
--------- --------- ---------
Total Distributions .................... (0.78) (0.78) (0.51)
--------- ---------
NET ASSET VALUE, END
OF PERIOD ................................. $ 10.07 $ 10.00 $ 10.11
========= ========= =========
Total Return (excluding sales and
redemption charges) .................... 8.80% 6.94% 6.42% (e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ............................ $ 432,225 $ 316,477 $ 123,928
Ratio of Expenses to Average Net
Assets ............................... 0.84% 0.81% 0.82% (c)
Ratio of Net Investment Income
(Loss) ............................... 7.72% 8.04% 8.06 % (c)
Ratio of Expenses to Average
Net Assets* .......................... 1.02% 1.02% 1.06% (c)
Ratio of Net Investment Income (Loss)
To Average Net Assets* .................. 7.54% 7.83% 7.82% (c)
Portfolio Turnover Rate (d) ............. 337.74% 314.71% 121.08%
</TABLE>
-23-
<PAGE> 69
LIMITED MATURITY BOND FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------
INVESTOR A SHARES
-----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993(b) 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .................. $ 9.48 $ 9.71 $ 9.57 $ 10.18 $ 10.25 $ 9.93
---------- ---------- ---------- ---------- ---------- ----------
Investment Activities
Net Investment Income(Loss) .......... 0.55 0.62 0.56 0.62 0.65 0.71
Net Realized and Unrealized
Gains(Losses) on Investments ...... 0.01 (0.21) 0.13 (0.58) 0.13 0.35
---------- ---------- ---------- ---------- ---------- ----------
Total From Investment
Activities ........................ 0.56 0.41 0.69 0.04 0.78 1.06
Distributions
Net Investment
Income .............................. (0.55) (0.62) (0.55) (0.61) (0.69) (0.71)
Net Realized Gains ................... -- -- -- -- (0.16) (0.03)
In Excess of Net
Realized Gains ...................... -- (0.01) -- (0.04) -- --
Tax Return of Capital ................
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions .................. (0.55) (0.64) (0.55) (0.65) (0.85) (0.74)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD ............................... $ 9.49 $ 9.48 $ 9.71 $ 9.57 $ 10.18 $ 10.25
========== ========== ========== ========== ========== ==========
Total Return (excluding sales and
Redemption charges) ................ 6.11% 4.37% 7.53% 0.32% 7.96% 11.00%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ...... $ 27,381 $ 14,390 $ 18,930 $ 24,907 $ 18,060 $117,24
Ratio of Expenses to
Average Net Assets ................. 1.11% 1.09% 1.05% 0.86% 0.75% 0.83%
Ratio of Net Investment Income (Loss)
to Average Net Assets .............. 5.76% 6.09% 5.89% 6.22% 6.41% 7.13%
Ratio of Expenses to Average
Net Assets* ........................ 1.35% 1.33% 1.36% 1.30% 1.08% 1.05%
Ratio of Net Investment
Income (Loss) to Average Net
Assets* ............................ 5.52% 5.85% 5.58% 5.78% 6.08% 6.91%
Portfolio Turnover
Rate (d) ........................... 607.84% 618.60% 397.97% 353.28% 123.10% 87.75%
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
INVESTOR A SHARES OCT. 31, 1998
------------------------- TO
1991 1990 JUNE 30, 1989(a)
---------- ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .................. $ 9.88 $ 10.08 $ 10.00
---------- ---------- ----------
Investment Activities
Net Investment Income(Loss) .......... 0.72 0.83 0.53
Net Realized and Unrealized
Gains(Losses) on Investments ...... 0.10 (0.15) 0.02
---------- ---------- ----------
Total From Investment
Activities ........................ 0.82 0.68 0.55
----------
Distributions
Net Investment
Income .............................. (0.73) (0.83) (0.47)
Net Realized Gains ................... (0.04) (0.05) --
In Excess of Net
Realized Gains ...................... -- -- --
Tax Return of Capital ................ -- (0.01)
---------- ---------- ----------
Total Distributions .................. (0.77) (0.88) (0.47)
---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD ............................... $ 9.93 $ 9.88 $ 10.08
========== ========== ==========
Total Return (excluding sales and
Redemption charges) ................ 8.66% 7.10% 5.70%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ...... $ 70,870 $ 43,696 $ 71,627
1
Ratio of Expenses to
Average Net Assets ................. 0.91% 0.92% 0.88% (c)
Ratio of Net Investment Income (Loss)
to Average Net Assets .............. 7.47% 8.01% 8.19% (c)
Ratio of Expenses to Average
Net Assets* ........................ 1.10% 1.14% 1.12(c)
Ratio of Net Investment
Income (Loss) to Average Net
Assets* ............................ 7.28% 7.79% 7.95%
Portfolio Turnover
Rate (d) ........................... 161.32% 319.11% 117.37%
</TABLE>
-24-
<PAGE> 70
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------
INVESTOR A SHARES
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993(b) 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ...................... $ 9.70 $ 9.93 $ 9.62 $ 10.53 $ 10.42 $ 10.05
-------- -------- -------- -------- -------- --------
Investment Activities
Net Investment Income (Loss)
Income(Loss) ........................... 0.52 0.60 0.50 0.59 0.68 0.71
Net Realized and Unrealized Gains(Losses) on
Investments ........................... 0.04 (0.25) 0.31 (0.66) 0.21 0.46
-------- -------- -------- -------- -------- --------
Total From Investment Activities ......... 0.56 0.35 0.81 (0.07) 0.89 1.17
-------- -------- -------- -------- -------- --------
Distributions
Net Investment
Income ................................. (0.53) (0.58) (0.50) (0.59) (0.73) (0.71)
Net Realized Gains ....................... -- -- -- -- (0.05) (0.09)
In Excess of Net Realized Gains .......... -- -- -- (0.25) -- --
Total Distributions ................... (0.53) (0.58) (0.50) (0.84) (0.78) (0.80)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD ................................... $ 9.73 $ 9.70 $ 9.93 $ 9.62 $ 10.53 $ 10.42
======== ======== ======== ======== ======== ========
Total Return (excluding sales and
Redemption charges) ..................... 5.91% 3.69% 8.69% (0.90)% 8.92% 12.03%
RATIOS/ SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ........................... $ 18,552 $ 22,954 $ 27,521 $ 36,106 $ 37,055 $234,906
Ratio of Expenses to Average Net
Assets ................................. 1.23% 1.21% 1.25% 1.00% 0.90% 0.87%
Ratio of Net Investment Income (Loss)
To Average Net Assets ................. 5.41% 5.51% 5.22% 5.80% 6.51% 7.07%
Ratio of Expenses to Average Net
Assets* ................................ 1.32% 1.30% 1.41% 1.29% 1.08% 1.01%
Ratio of Net Investment
Income (Loss) to Average Net
Assets* ............................. 5.32% 5.42% 5.07% 5.51% 6.33% 6.93%
Portfolio Turnover Rate (d) .............. 1516.78% 916.39% 549.93% 546.06% 225.90% 114.76%
<CAPTION>
YEAR ENDED JUNE 30,
------------------------ OCT 31, 1990
INVESTOR A SHARES TO
------------------------ JUNE 30,
1991 1990 1989(a)
-------- -------- --------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ...................... $ 9.91 $ 10.05 $ 10.00
-------- -------- --------
Investment Activities
Net Investment Income (Loss)
Income(Loss) ........................... 0.74 0.79 0.50
Net Realized and Unrealized Gains(Losses) on
Investments ........................... 0.15 (0.11) (0.02)
-------- -------- --------
Total From Investment Activities ......... 0.89 0.68 0.48
-------- -------- --------
Distributions
Net Investment
Income ................................. (0.75) (0.79) (0.43)
Net Realized Gains ....................... -- (0.03) --
In Excess of Net Realized Gains .......... -- -- --
Total Distributions ................... (0.75) (0.82) (0.43)
-------- -------- --------
NET ASSET VALUE, END OF
PERIOD ................................... $ 10.05 $ 9.91 $ 10.05
======== ======== ========
Total Return (excluding sales and
Redemption charges) ..................... 9.32% 7.07% 4.92%(e)
RATIOS/ SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ........................... $142,864 $100,205 $ 83,212
Ratio of Expenses to Average Net
Assets ................................. 0.86% 0.85% 0.87% (c)
Ratio of Net Investment Income (Loss)
To Average Net Assets ................. 7.48% 8.04% 7.79% (c)
Ratio of Expenses to Average Net
Assets* ................................ 1.04% 1.06% 1.11%(c)
Ratio of Net Investment
Income (Loss) to Average Net
Assets* ............................. 7.30% 7.83% 7.55%(c)
Portfolio Turnover Rate (d) .............. 164.59% 294.62% 111.96%
</TABLE>
-25-
<PAGE> 71
GOVERNMENT INCOME FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
INVESTOR A SHARES
-----------------
NOV. 12, 1992
TO
1997 1996 1995 1994 JUNE 30, 1993(a)(b)
---- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............... $ 9.25 $ 9.42 $ 9.41 $ 10.04 $ 10.00
---------- ---------- ---------- ---------- ----------
Investment Activities
Net Investment Income(Loss) ..................... 0.70 0.73 0.75 0.74 0.48
Net Realized and Unrealized Gains(Losses) on
Investments .................................. (0.10) (0.17) -- (0.64) 0.04
---------- ---------- ---------- ---------- ----------
Total From Investment Activities ................ 0.60 0.56 0.75 0.10 0.52
---------- ----------
Distributions
Net Investment Income ........................... (0.59) (0.65) (0.66) (0.72) (0.48)
Tax Return of Capital ........................... (0.11) (0.08) (0.08) (0.01) --
---------- ---------- ---------- ---------- ----------
Total Distributions ............................ (0.70) (0.73) (0.74) (0.73) (0.48)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD ..................... $ 9.15 $ 9.25 $ 9.42 $ 9.41 $ 10.04
========== ========== ========== ========== ==========
Total Return (excluding sales and redemption
Charges) ........................................ 6.86% 5.97% 8.46% 0.94% 5.35%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................ $ 58,589 $ 52,250 $ 50,931 $ 54,027 $ 32.633
Ratio of Expenses to Average Net Assets ......... 1.02% 1.01% 1.04% 0.82% 0.75%(c)
Ratio of Net Investment Income (Loss) to Average
Net Assets ................................... 7.64% 7.70% 8.03% 7.42% 7.41%(c)
Ratio of Expenses to Average Net
Assets* ....................................... 1.36% 1.35% 1.44% 1.36% 1.23%(c)
Ratio of Net Investment Income (Loss) to Average
Net Assets* .................................... 7.30% 7.36% 7.63% 6.87% 6.93%
Portfolio Turnover Rate (d) ..................... 499.53% 348.01% 114.71% 102.24% 135.06%
</TABLE>
-26-
<PAGE> 72
Michigan Bond Fund -- Investor A Shares
<TABLE>
<CAPTION>
JULY 2, 1990
YEAR ENDED JUNE 30, TO
INVESTOR A SHARES JUNE 30, 1991(a)
------------------------------------------------------------------ ----------------
1997 1996 1995 1994 1993(b) 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period................. $10.76 $10.75 $10.53 $10.97 $10.58 $10.14 $10.00
------ ------ ------ ------ ------ ------ ------
Investment Activities
Net Investment
Income(Loss)........... 0.49 0.47 0.48 0.47 0.50 0.52 0.55
Net Realized and Unrealized
Gains(Losses) on Investments 0.14 0.04 0.23 (0.36) 0.47 0.44 0.11
------ ------ ------ ------ ------ ------ ------
Total From Investment
Activities............. 0.63 0.51 0.71 0.11 0.97 0.96 0.66
------ ------ ------ ------ ------ ------ ------
Distributions
Net Investment Income... (0.46) (0.47) (0.48) (0.45) (0.54) (0.52) (0.52)
In Excess of Net
Investment Income...... -- -- (0.01) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net Realized ......Gains (0.04) (0.03) -- (0.01) (0.04) -- --
In Excess of Net Realized
Gains................. -- -- -- (0.09) -- -- --
Total Distributions..... (0.50) (0.50) (0.49) (0.55) (0.58) (0.52) (0.52)
------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period......... $10.89 $10.76 $10.75 $10.53 $10.97 $10.58 $10.14
Total Return (excluding sales and
Redemption charges)..... 5.89% 4.87% 6.99% 0.92% 9.40% 9.73% 6.77%(e)
Ratios/ Supplementary Data:
Net Assets, End .....Of
Period (000).......... $38,302 $36,681 $37,874 $42,204 $32,778 $146,782 $90,182
Ratio of Expenses to
Average Net Assets... 1.01% 1.02% 1.00% 0.85% 0.78% 0.84% 0.57% (c)
Ratio of Net Investment
Income (Loss) to Average
Net Assets......... 4.48% 4.32% 4.57% 4.25% 4.67% 5.15% 5.76% (c)
Ratio of Expenses to Average
Net Assets............ 1.30% 1.31% 1.32% 1.29% 1.12% 1.05% 1.15%(c)
Ratio of Net Investment
Income (Loss) to Average
Net Assets 4.19% 4.03% 4.25% 3.81% 4.33% 4.93% 5.18%(c)
Portfolio Turnover Rate (d) 28.48% 27.66% 26.06% 6.69% 35.81% 19.97% 45.30%
</TABLE>
-27-
<PAGE> 73
Municipal Bond Fund -- Investor A Shares
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
INVESTOR A SHARES Oct. 31, 1988
------------------------------------------------------------------------------- to
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period........... $10.43 $10.39 $10.29 $10.92 $10.58 $10.20 $10.03 $10.18 $10.00
------ ------ ------- ------- ------ -------- ------- -------- -------
Investment Activities
Net Investment
Income(Loss)....... 0.44 0.41 0.41 0.40 0.49 0.52 0.55 0.57 0.40
Net Realized and
Unrealized
Gains(Losses) on 0.12 0.03 0.27 (0.31) 0.48 0.39 0.18 (0.12) 0.14
------ ------ ------- ------- ------ -------- ------- -------- -------
Investments.......
Total From Investment
Activities........ 0.56 0.44 0.68 0.09 0.97 0.91 0.73 0.45 0.54
------ ------ ------- ------- ------ -------- ------- -------- -------
Distributions
Net Investment Income (0.41) (0.40) (0.41) (0.39) (0.53) (0.52) 0.56) (0.58) (0.36)
Net Realized .Gains (0.05) -- -- (0.21) (0.10) (0.01) -- (0.02) --
In Excess of Net
Realized Gains.... -- -- (0.17) (0.12) -- -- -- -- --
Total Distributions (0.46) (0.40) (0.58) (0.72) (0.63) (0.53) (0.56) (0.60) (0.36)
------ ------ ------- ------- ------ -------- ------- -------- -------
Net Asset Value, End of
Period............. $10.53 $10.43 $10.39 $10.29 $10.92 $10.58 $10.20 $10.03 $10.18
====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (excluding sales
and redemption charges) 5.47% 4.29% 7.02% 0.71% 9.46% 9.11% 7.51% 4.57% 5.52%(e)
Ratios/ Supplementary Data:
Net Assets, End of
Period (000)..... $9,601 $7,835 $11,378 $13,123 $9,333 $130,788 $98,186 $100,445 $68,256
Ratio of Expenses to
Average Net Assets... 1.06% 1.05% 1.02% 0.87% 0.76% 0.81% 0.87% 0.85% 0.85% (c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets... 4.19% 3.85% 4.00% 3.72% 4.56% 5.09% 5.49% 5.78% 6.11% (c)
Ratio of Expenses to
Average Net Assets*... 1.35% 1.34% 1.33% 1.32% 1.09% 1.03% 1.06% 1.06% 1.09%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets* 3.90% 3.56% 3.68% 3.27% 4.23% 4.88% 5.29% 5.57% 5.87%(c)
Portfolio Turnover Rate (d) 48.83% 47.46% 35.15% 44.39% 67.26% 66.31% 76.55% 113.12% 82.22%
</TABLE>
-28-
<PAGE> 74
Prime Obligations Fund -- Investor A Shares
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------------------------
INVESTOR A SHARES
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993(b) 1992
---- ---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period ................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------ ------------ ------------
Investment Activities
Net Investment Income .. 0.048 0.050 0.047 0.027 0.028 0.046
------------ ------------ ------------ ------------ ------------ ------------
Distributions
Net Investment
Income ............... (0.048) (0.050) (0.047) (0.027) (0.028) (0.046)
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value, End
of Period .............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------ ------------ ------------
Total Return ........... 4.91% 5.07% 4.81% 2.75% 2.89% 4.75%
Ratios/Supplementary
Data:
Net Assets, End
of Period (000) ... $ 195,046 $ 147,478 $ 108,565 $ 105,611 $ 129,433 $ 690,908
============ ============ ============ ============ ============ ============
Ratio of Expenses
to Average Net
Assets ............ 0.73% 0.74% 0.75% 0.74% 0.66% 0.64%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets ....... 4.80% 4.93% 4.71% 2.71% 2.86% 4.61%
Ratio of Expenses
to Average ...... 0.90% 0.91% 0.92% 0.91% 0.71% 0.66%
Net Assets*
Ratio of Net
Investment Income
(Loss) to Average
Net Assets* ..... 4.63% 4.76% 4.54% 2.54% 2.81% 4.59%
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
INVESTOR A SHARES
-------------------------------------------- AUG. 24, 1987
TO
1991 1990 1989 JUNE 30, 1988(a)
---- ---- ---- ----------------
Net Asset Value,
Beginning of
<S> <C> <C> <C> <C>
Period ................ $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ----------- ------------ ------------
Investment Activities
Net Investment Income .. 0.069 0.080 0.083 0.056
------------ ----------- ------------ ------------
Distributions
Net Investment
Income ............... (0.069 (0.080) (0.083) (0.056)
------------ ----------- ------------ ------------
Net Asset Value, End
of Period .............. $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ----------- ------------ ------------
Total Return ........... 7.15 8.32% 8.58% 5.76%(e)
Ratios/Supplementary
Data:
Net Assets, End
of Period (000) ... $ 70 $ 547,351 $ 526,450 $ 241,545
======= ============ ============ ============
Ratio of Expenses
to Average Net
Assets ............ 0.64 0.65% 0.62% 0.60%(c)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets ....... 6.86 8.03% 8.26% 6.48% (c)
Ratio of Expenses
to Average ...... 0.66 0.67% 0.66% 0.70% (c)
Net Assets*
Ratio of Net
Investment Income
(Loss) to Average
Net Assets* ..... 6.84 8.01% 8.22% 6.38% (c)
</TABLE>
-29-
<PAGE> 75
Tax-Free Fund - Investor A Shares
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------------
INVESTOR A SHARES
----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993(b) 1992
---- ---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------ ------------ ------------
Investment
Activities Net
Investment Income ....... 0.028 0.029 0.029 0.018 0.019 0.033
------------ ------------ ------------ ------------ ------------ ------------
Distributions
Net Investment
Income ................ (0.028) (0.029) (0.029) (0.018) (0.019) (0.033)
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value, End
of Period ................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============ ============ ============ ============ ============
Total Return .............. 2.83% 2.91% 2.90% 1.81% 2.07% 3.34%
Ratios/Supplementary
Data:
Net Assets, End of
Period (000) ......... $ 47,466 $ 41,713 $ 45,102 $ 48,256 $ 54,886 $ 141,913
Ratio of Expenses to
Average Net
Assets ............... 0.78% 0.76% 0.74% 0.68% 0.58% 0.59%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets ........... 2.82% 2.89% 2.88% 1.81% 2.05% 3.29%
Ratio of Expenses to
Average Net Assets* . 0.95% 0.93% 0.95% 0.93% 0.72% 0.69%
Ratio of Net Investment
Income (Loss) to
Average Net Assets* . 2.65% 2.72% 2.67% 1.56% 1.91% 3.19%
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------ JULY 30, 1987
INVESTOR A SHARES TO
------------------------------------------------
1991 1990 1989 JUNE 30, 1988(a)
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ....... $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------
Investment
Activities Net
Investment Income ....... 0.046 0.054 0.055 0.040
------------ ------------ ------------ ------------
Distributions
Net Investment
Income ................ (0.046) (0.054) (0.055) (0.040)
------------ ------------ ------------ ------------
Net Asset Value, End
of Period ................. $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============ ============ ============
Total Return .............. 4.73% 5.75% 5.62% 4.08%(e)
Ratios/Supplementary
Data:
Net Assets, End of
Period (000) ......... $ 139,615 $ 142,004 $ 120,031 $ 107,199
Ratio of Expenses to
Average Net
Assets ............... 0.60% 0.61% 0.63% 0.64%(c)
Ratio of Net
Investment Income
(Loss) to Average
Net Assets ........... 4.63% 5.43% 5.46% 4.34% (c)
Ratio of Expenses to
Average Net Assets* . 0.70% 0.70% 0.73% 0.75% (c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets* . 4.53% 5.34% 5.36% 4.23%(c)
</TABLE>
-30-
<PAGE> 76
Treasury Fund - Investor A Shares
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
INVESTOR A SHARES
-----------------
DEC. 1, 1993
TO
1997 1996 1995 JUNE 30, 1994(a)
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------
Investment Activities
Net Investment Income................... 0.047 0.049 0.047 0.016
------ ------ ------ ------
Distributions
Net Investment Income................... (0.047) (0.049) 0.047) (0.016)
------ ------ ------ ------
Net Asset Value, End of Period.............. $1.000 $1.000 $1.000 $1.000
====== ====== ====== ======
Total Return................................ 4.82% 5.04% 4.81% 1.66% (e)
Ratios/Supplementary Data:
Net Assets, End of Period (000)......... $176,006 $158,723 $105,391 $56,535
Ratio of Expenses to Average Net Assets. 0.67% 0.70% 0.75% 0.64% (c)
Ratio of Net Investment Income (Loss) to
Average Net ...........................Asset 4.72% 4.87% 4.82% 2.84% (c)
Ratio of Expenses to Average Net Assets* 0.92% 0.95% 1.04% 0.99% (c)
Ratio of Net Investment Income (Loss) to
Average Net .........................Assets* 4.47% 4.62% 4.52% 2.49% (c)
</TABLE>
<PAGE> 77
U.S. Government Obligations Fund -Investor Shares
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------------------
INVESTOR A SHARES
-----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993(b) 1992
---- ---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period .. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------ ------------ ------------
Investment
Activities Net
Investment
Income .......... 0.047 0.049 0.047 0.027 0.028 0.044
------------ ------------ ------------ ------------ ------------ ------------
Distributions
Net Investment
Income .......... (0.047) (0.049) (0.047) (0.027) (0.028) (0.044)
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value, End
of Period ............ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============ ============ ============ ============ ============
Total Return ......... 4.79% 4.99% 4.76% 2.69% 2.84% 4.78%
Ratios/Supplementary
Data:
Net Assets, End of
Period (000) ... $ 212,082 $ 186,944 $ 169,179 $ 172,482 $ 208,311 $ 400,242
Ratio of Expenses to
Average Net Assets 0.74% 0.74% 0.77% 0.77% 0.66% 0.64%
Ratio of Net Investment
Income (Loss) to
Average Net
Assets .......... 4.69% 4.88% 4.62% 2.64% 2.79% 4.43%
Ratio of Expenses to
Average Net Assets* 0.91% 0.91% 0.94% 0.94% 0.72% 0.66%
Ratio of Net Investment
Income (Loss) to
Average Net Assets* 4.52% 4.71% 4.45% 2.47% 2.73% 4.41%
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
INVESTOR A SHARES
----------------------------------------------------- AUG. 24, 1987
TO
1991 1990 1989 JUNE 30, 1988(a)
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period .. $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------
Investment
Activities Net
Investment
Income .......... 0.066 0.078 0.080 0.055
------------ ------------ ------------ ------------
Distributions
Net Investment
Income .......... (0.066) (0.078) (0.080) (0.055)
------------ ------------ ------------ ------------
Net Asset Value, End
of Period ............ $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============ ============ ============
Total Return ......... 6.82% 8.10% 8.31% 5.66%(e)
Ratios/Supplementary
Data:
Net Assets, End of
Period (000) ... $ 341,903 $ 248,671 $ 201,012 $ 136,823
Ratio of Expenses to
Average Net Assets 0.65% 0.65% 0.63% 0.62%(c)
Ratio of Net Investment
Income (Loss) to
Average Net
Assets .......... 6.54% 7.79% 8.00% 6.25% (c)
Ratio of Expenses to
Average Net Assets* 0.67% 0.67% 0.68% 0.73% (c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets* 6.52% 7.77% 7.95% 6.14%(c)
</TABLE>
-32-
<PAGE> 78
- -------------------
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993 the shareholders of the Group exchanged their shares for
either the Group's Investor A Shares or Institutional Shares. For the year
ended June 30, 1993 the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities
and distributions are presented on the basis whereby the Fund's net
investment income, expenses, and distributions for the period July 1, 1992
through March 31, 1993 were allocated to each class of shares based u on
the relative net assets of each class of shares as of April 1, 1993 and the
results combined therewith the results of operations and distributions for
each applicable class for the period April 1, 1993 through June 30, 1993.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(e) Not annualized.
(f) As of January 1, 1995, Gulfstream assumed the role of subadviser with
respect to the International Fund and the portion of the Balanced
Allocation Fund invested in foreign securities. Prior to that date, Ivory &
Sime International, Inc. and Ivory & Sime plc served as subadvisers to the
International Fund and the Balanced Allocation Fund had no subadviser.
(g) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds are set forth below under the
headings describing the Funds. The investment objective of each Fund may 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) although the
Board of Trustees would only change a Fund's objective upon 30 days' notice to
shareholders. There can be no assurance that a Fund will achieve its objective.
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 the Investment Adviser or
Gulfstream, as the case may be, each of the Funds may hold up to 100% of its
total assets in short-term obligations including domestic bank certificates of
deposit, bankers, acceptances and repurchase agreements secured by bank
instruments. However, to the extent that a Fund is so invested, its investment
objective may not be achieved during that time. Uninvested cash reserves will
not earn income.
Growth Funds
The Small Capitalization Fund, The Mid Capitalization Fund and The Large
Capitalization Fund
-33-
<PAGE> 79
THE INVESTMENT OBJECTIVE OF THE SMALL CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS OF SMALL- TO MEDIUM-SIZED COMPANIES.
THE INVESTMENT OBJECTIVE OF THE MID CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS. THE INVESTMENT OBJECTIVE OF THE LARGE
CAPITALIZATION FUND IS TO SEEK GROWTH OF CAPITAL BY INVESTING PRIMARILY IN A
DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND SECURITIES CONVERTIBLE INTO COMMON
STOCKS OF COMPANIES WITH LARGE MARKET CAPITALIZATION.
Under normal market conditions, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund will invest at least 80% of
the value of its total assets in common stocks and securities convertible into
common stocks of companies believed by the Investment Adviser to be
characterized by sound management and the ability to finance expected long-term
growth. In addition, under normal market conditions, the Small Capitalization
Fund will invest at least 65% of the value of its total assets in common stocks
and securities convertible into common stocks of companies considered by the
Investment Adviser to have a market capitalization of less than $1 billion. The
Mid Capitalization Fund, under normal market conditions, will invest at least
65% of the value of its total assets in common stocks and securities convertible
into common stocks of companies considered by the Investment Adviser to have a
market capitalization between $1 billion and $5 billion. The Large
Capitalization Fund will do the same with companies considered by the Investment
Adviser to have a market capitalization of greater than $5 billion. Each of the
Small Capitalization Fund, Mid Capitalization Fund and Large Capitalization Fund
may also invest up to 20% of the value of its total assets in preferred stocks,
corporate bonds, notes, units of real estate investment trusts, warrants, and
short-term obligations (with maturities of 12 months or less) consisting of
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit, repurchase agreements, obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities, and
demand and time deposits of domestic and foreign banks and savings and loan
associations. Each of the Small Capitalization Fund, Mid Capitalization Fund and
Large Capitalization Fund may also hold securities of other investment companies
and depository or custodial receipts representing beneficial interests in any of
the foregoing securities.
Subject to the foregoing policies, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund may also invest up to 25% of
its net assets in foreign securities either directly or through the purchase of
American depository receipts ("ADRs") or European depository receipts ("EDRs")
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in Canadian commercial paper ("CCP"), and in Europaper (U.S.
dollar-denominated commercial paper of a foreign issuer). For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Foreign Securities."
The Mid Capitalization Fund anticipates investing in growth-oriented,
medium-sized companies. Medium-sized companies are considered to be those with a
market capitalization between $1 billion and $5 billion. The Large
Capitalization Fund anticipates investing in growth-oriented companies with
large market capitalization, defined as capitalization of over $5 billion. For
both the Mid Capitalization Fund and Large Capitalization Fund, investments will
be in companies that have typically exhibited consistent, above-average growth
in revenues and earnings, strong management, and sound and improving financial
fundamentals. Often, these companies are market or industry leaders, have
excellent products and/or services, and exhibit the potential for growth. Core
holdings of the Mid Capitalization Fund and Large Capitalization Fund are in
companies that participate in long-term growth industries, although these will
be supplemented by holdings in non-growth industries that exhibit the desired
characteristics.
-34-
<PAGE> 80
The Small Capitalization Fund anticipates investing in dynamic small- to
medium-sized companies that exhibit outstanding potential for superior growth.
Small-sized companies are considered to be those with a market capitalization of
less than $1 billion. The Small Capitalization Fund will limit its investment in
securities of medium-sized companies to not more than 35% of the value of its
total assets. Companies that participate in sectors that are identified as
having long-term growth potential generally make up a substantial portion of the
Fund's holdings. These companies often have established a market niche or have
developed unique products or technologies that are expected to produce superior
growth in revenues and earnings. As smaller capitalization stocks are quite
volatile and subject to wide fluctuations in both the short and medium term, the
Small Capitalization Fund may be fairly characterized more aggressive than a
general equity fund.
Consistent with the foregoing, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund will focus its investments in
those companies and types of companies that the Investment Adviser believes will
enable such Fund to achieve its investment objective.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
The Small Capitalization Fund, The Mid Capitalization Fund And The Large Capitalization Fund
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Mortgage-Related securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Transactions
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The International Fund
THE INVESTMENT OBJECTIVE OF THE INTERNATIONAL FUND IS TO SEEK LONG-TERM GROWTH
OF CAPITAL.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States, or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States, and (iii) which are small-
or medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRS.
For purposes of investment by the International Fund only, companies are deemed
to be small- or medium-sized if, at the time of purchase, they are of a size
which would rank them in the lower half of a major market index in the
applicable country by weighted market capitalization and in the lower half of
all equity securities listed in recognized secondary markets where such markets
exist. In addition, in countries with less well-developed stock markets, where
the range of investment opportunities is more restrictive, the equity securities
of all listed companies will be eligible for investment. In major markets,
issuers could have capitalizations of up to approximately $10 billion while in
smaller markets issuers would be eligible with capitalizations as low as
approximately $200 million.
-35-
<PAGE> 81
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Normally the
International Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
International Fund's assets could be invested in the securities of U.S.
companies. In addition, the International Fund temporarily may invest cash in
short-term debt instruments of U.S. and foreign issuers for cash management
purposes or pending investment.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
The International Fund
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase
- -When-issued and Delayed-Delivery Agreements and
Transactions Dollar Roll Agreements
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
GROWTH AND INCOME FUNDS
THE BALANCED ALLOCATION FUND
THE INVESTMENT OBJECTIVE OF THE BALANCED ALLOCATION FUND IS TO SEEK CURRENT
INCOME, LONG-TERM CAPITAL GROWTH AND CONSERVATION OF CAPITAL.
The Balanced Allocation Fund may invest in any type or class of security. Under
normal market conditions the Balanced Allocation Fund will invest in common
stocks, fixed-income securities and securities convertible into common stocks
(i.e., warrants, convertible preferred stock, fixed-rate preferred stock,
convertible fixed-income securities, options and rights). The Balanced
Allocation Fund intends to invest 45% to 65% of its net assets in common stocks
and securities convertible into common stocks, 25% to 55% of its net assets in
fixed-income securities and up to 30% of its net assets in cash and cash
equivalents. Of these investments, no more than 20% of the Fund's net assets
will be in foreign securities.
For the Balanced Allocation Fund, common stocks are held primarily for the
purpose of providing long-term growth of capital. When choosing such stocks, the
potential for long-term capital appreciation will be the primary basis for
selection. The Balanced Allocation Fund will invest in the common and preferred
stocks of companies with a market capitalization of at least $100 million and
which are traded either in established over-the-counter markets or on national
exchanges. The Balanced Allocation Fund intends to invest primarily in those
companies which are growth-oriented and have exhibited consistent, above-average
growth in revenues and earnings.
For the Balanced Allocation Fund, fixed-income securities held consist of bonds,
debentures, notes, zero-coupon securities, mortgage-related securities, state,
municipal or industrial revenue bonds, obligations issued or guaranteed by the
U.S. government or its agencies or instrumentalities, certificates of deposit,
time deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand notes. In addition, a portion of the Balanced Allocation
Fund's assets may, from time to time, be invested in first mortgage loans and
participation certificates in pools of mortgages issued or guaranteed by the
U.S. government or its
-36-
<PAGE> 82
agencies or instrumentalities. Some of the securities in which the Balanced
Allocation Fund invests may have warrants or options attached. The Balanced
Allocation Fund may also invest in repurchase agreements.
The Balanced Allocation Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, as well as "stripped" U.S. Treasury obligations ("Stripped Treasury
Obligations"), such as Treasury receipts issued by the U.S. Treasury
representing either future interest or principal payments, and other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES--Government
Obligations" below.
The Balanced Allocation Fund also expects to invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Such obligations, in the
case of debentures, will represent unsecured promises to pay, and in the case of
notes and bonds, may be secured by mortgages on real property or security
interests in personal property and will in most cases differ in their interest
rates, maturities and times of issuance.
The Balanced Allocation Fund will invest only in corporate fixed-income
securities which are rated at the time of purchase within the four highest
rating categories assigned by a nationally recognized statistical rating
organization ("NRSRO") or, if unrated, which the Investment Adviser deems
present attractive opportunities and are of comparable quality. For a
description of the rating symbols of the NRSROS, see the Appendix to the
Statement of Additional Information. For a discussion of fixed income securities
rated within the fourth highest rating category assigned by an NRSRO, see "RISK
FACTORS AND INVESTMENT TECHNIQUES -- Medium-Grade Securities."
The Balanced Allocation Fund may also hold some short-term obligations (with
maturities of 12 months or less) consisting of domestic and foreign commercial
paper, variable amount master demand notes, bankers' acceptances, certificates
of deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, and repurchase agreements. The Balanced Allocation Fund may also
invest in securities of other investment companies.
The Balanced Allocation Fund may also invest in obligations of the Export-Import
Bank of the United States, in U.S. dollar-denominated international bonds for
which the primary trading market is the United States ("Yankee Bonds"), or for
which the primary trading market is abroad ("Eurodollar Bonds"), and in Canadian
bonds and bonds issued by institutions, such as the World Bank and the European
Economic Community, organized for a specific purpose by two or more so foreign
Governments ("Supranational Agency Bonds"). The Balanced Allocation Fund's
investments in foreign securities may be made either directly or through the
purchase of ADRs and the Balanced Allocation Fund may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper.
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon the Investment Adviser's assessment of business, economic
and market conditions, including any potential advantage of price shifts between
the stock market and the bond market. The Balanced Allocation Fund reserves the
right to hold short-term securities in whatever proportion deemed desirable for
temporary defensive periods during adverse market conditions as determined by
the Investment Adviser. However, to the extent that the Balanced Allocation Fund
is so invested, its investment objective may not be achieved during that time.
Like any investment program, investment in the Balanced Allocation Fund entails
certain risks. As a Fund investing in common stocks the Balanced Allocation Fund
is subject to stock market risk, i.e., the possibility that stock prices in
general will decline over short or even extended periods.
-37-
<PAGE> 83
Since the Balanced Allocation Fund also invests in bonds, investors in the
Balanced Allocation Fund are also exposed to bond market risk, i.e.,
fluctuations in the market value of bonds. Bond prices are influenced primarily
by changes in interest rate levels. When interest rates rise, the prices of
bonds generally fall; conversely, when interest rates fall, bond prices
generally rise. While bonds normally fluctuate less in price than stock, there
have been extended periods of cyclical increases in interest rates that have
caused significant declines in bond prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result, the Balanced
Allocation Fund, with its balance of common stock and bond investments, is
expected to entail less investment risk (and a potentially smaller investment
return) than a mutual fund investing exclusively in common stocks.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
The Balanced Allocation Fund
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Medium-Grade Securities -Mortgage-Related Securities -Other Mutual Funds
- -Portfolio Turnover -Put and Call Options -Repurchase Agreements
- -Restricted Securities -Reverse Repurchase Agreements -When-Issued and Delayed-Delivery
-Dollar Roll Agreements Transactions
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EQUITY INCOME FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY INCOME FUND IS TO SEEK CURRENT INCOME BY
INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH QUALITY, DIVIDEND-PAYING COMMON
STOCKS AND SECURITIES CONVERTIBLE INTO COMMON STOCKS. A SECONDARY INVESTMENT
OBJECTIVE OF THE EQUITY INCOME FUND IS GROWTH OF CAPITAL.
The Equity Income Fund, under normal market conditions, will invest at least 80%
of the value of its total assets in common stocks and securities convertible
into common stocks of companies believed by the Investment Adviser to be
characterized by sound management, the ability to finance expected growth and
the ability to pay above-average dividends. The Equity Income Fund may also
invest up to 20% of the value of its total assets in preferred stocks, corporate
bonds, notes, units of real estate investment trusts, warrants, and short-term
obligations (with maturities of 12 months or less) consisting of commercial
paper (including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities, and demand and time
deposits of domestic and foreign banks and savings and loan associations. The
Equity Income Fund may also hold securities of other investment companies and
depository or custodial receipts representing beneficial interests in any of the
foregoing securities.
Subject to the foregoing policies, the Equity Income Fund may also invest up to
25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Foreign Securities."
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<PAGE> 84
The Equity Income Fund anticipates investing in securities that currently have a
high dividend yield, with the anticipation that the dividend will remain
constant or be increased in the future. These securities generally represent the
core holdings of this Fund. However, these holdings are balanced with lower
yielding but higher growth-oriented securities to achieve portfolio balance. All
securities must provide current income. Given its bias towards income, the
Equity Income Fund may be considered more conservative than growth-oriented
equity funds such as the Group's Small Capitalization Fund and Mid
Capitalization Fund.
Consistent with the foregoing, the Equity Income Fund will focus its investments
in those companies and types of companies that the Investment Adviser believes
will enable the Fund to achieve its investment objective.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
The Equity Income Fund
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government obligations -Lending Portfolio Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Transactions
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Income Funds
The Bond Fund And The Limited Maturity Bond Fund
THE INVESTMENT OBJECTIVE OF THE BOND FUND IS TO SEEK CURRENT INCOME AS WELL AS
PRESERVATION OF CAPITAL BY INVESTING IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE
FIXED-INCOME SECURITIES. THE INVESTMENT OBJECTIVE OF THE LIMITED MATURITY BOND
FUND IS TO SEEK CURRENT INCOME AS WELL AS PRESERVATION OF CAPITAL BY INVESTING
IN A PORTFOLIO OF HIGH-AND MEDIUM-GRADE FIXED-INCOME SECURITIES WITH REMAINING
MATURITIES OF SIX YEARS OR LESS.
Under normal market conditions, the Bond Fund will invest at least 80% of the
value of its total assets in bonds, debentures, notes with remaining maturities
at the time of purchase of one year or more, zero-coupon securities,
mortgage-related securities, state, municipal or industrial revenue bonds,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, debt securities convertible into, or exchangeable for, common
stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Bond Fund will invest in state and municipal securities
when, in the opinion of the Investment Adviser, their yields are competitive
with comparable taxable debt obligations. In addition, up to 20% of the value of
the Bond Fund's total assets may be invested in preferred stocks, notes with
remaining maturities at the time of purchase of less than one year, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies,
and guaranteed investment contracts ("GICs") issued by insurance companies, as
more fully described below. Some of the securities in which the Bond Fund
invests may have warrants or options attached.
Under normal market conditions, the Limited Maturity Bond Fund will invest at
least 80% of the value of its total assets in the following securities which
have remaining maturities of six years or less: bonds, debentures,
-39-
<PAGE> 85
notes with remaining maturities at the time of purchase of one year or more,
zero-coupon securities, mortgage-related securities, state, municipal or
industrial revenue bonds, obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, debt securities convertible
into, or exchangeable for, common stocks, first mortgage loans and participation
certificates in pools of mortgages issued or guaranteed by the U.S. government
or its agencies or instrumentalities. The Limited Maturity Bond Fund will invest
in state and municipal securities when, in the opinion of the Investment
Adviser, their yields are competitive with comparable taxable debt obligations.
In addition, up to 20% of the value of the Limited Maturity Bond Fund's total
assets may be invested in the debt securities listed above without regard to
maturity, as well as preferred stocks, short-term debt obligations consisting of
domestic and foreign commercial paper (including variable amount master demand
notes), bankers' acceptances, certificates of deposit and time deposits of
domestic and foreign branches of U.S. banks and foreign banks, repurchase
agreements, securities of other investment companies and GICS. Under normal
market conditions, the Limited Maturity Bond Fund expects to maintain a
dollar-weighted average portfolio maturity of its debt securities of three years
or less. By seeking to maintain a dollar-weighted average portfolio maturity of
three years or less the Limited Maturity Bond Fund attempts to minimize the
fluctuation in its shares' net asset value relative to those funds which invest
in longer-term obligations.
Some of the securities in which the Limited Maturity Bond Fund invests may have
warrants or options attached.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Limited Maturity Bond Fund, the effective
maturity of such securities, as determined by the Investment Adviser, will be
used.
Each of the Bond Fund and Limited Maturity Bond Fund expects to invest in a
variety of U.S. Treasury obligations, differing in their interest rates,
maturities, and times of issuance, as well as Stripped Treasury Obligations, and
other obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES--Government
Obligations."
The Bond Fund and the Limited Maturity Bond Fund 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 Bond Fund and the Limited Maturity Bond Fund each will invest only in
corporate debt securities which are rated at the time of purchase within the
four highest rating categories assigned by an NRSRO or, if unrated, which the
Investment Adviser deems present attractive opportunities and are of comparable
quality. For a discussion of debt securities rated within the four highest
rating categories assigned by the NRSROS, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Medium-Grade Securities."
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian Bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond Fund may also invest up to 25% of its
net assets in foreign securities either directly or through the purchase of ADRs
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper.
-40-
<PAGE> 86
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, the Investment Adviser may purchase debt
securities at a discount from face value, which produces a yield greater than
the coupon rate. Conversely, if debt securities are purchased at a premium over
face value, the yield will be lower than the coupon rate. In making investment
decisions for the Bond Fund, the Investment Adviser will consider many factors
other than current yield, including the preservation of capital, the potential
for realizing capital appreciation, maturity, and yield to maturity. In making
investment decisions for the Limited Maturity Bond Fund, the Investment Adviser
will consider many factors other than current yield, including the preservation
of capital, maturity, and yield to maturity.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
THE BOND FUND AND THE LIMITED MATURITY BOND FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Guaranteed Investment Contracts
- -Lending Portfolio Securities -Medium-Grade Securities -Mortgage-Related Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements and
- -When-Issued and Delayed-Delivery Dollar Roll Agreements
Transactions
- -------------------------------------------------------------------------------------------------------------
</TABLE>
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
THE INVESTMENT OBJECTIVE OF THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND IS TO
SEEK CURRENT INCOME WITH PRESERVATION OF CAPITAL BY INVESTING IN U.S. GOVERNMENT
SECURITIES WITH REMAINING MATURITIES OF TWELVE YEARS OR LESS.
Under normal market conditions, the Intermediate Government Obligations Fund
will invest at least 80% of its total assets in obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities and with remaining
maturities of twelve years or less, although up to 20% of the value of its total
assets may be invested in debt securities, preferred stocks and other
investments without regard to maturity, except as set forth below. Under normal
market conditions, the Intermediate Government Obligations Fund expects to
maintain a dollar-weighted average portfolio maturity of its debt securities of
three to ten years. By seeking to maintain a dollar-weighted average portfolio
maturity of three to ten years, the Intermediate Government Obligations Fund
attempts to minimize the fluctuation in its shares' net asset value relative to
funds which invest in longer-term obligations.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Intermediate Government Obligations Fund,
the effective maturity of such securities, as determined by the Investment
Adviser, will be used.
The types of U.S. government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and government
- 41 -
<PAGE> 87
securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES--Government Obligations."
The Intermediate Government Obligations Fund may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, as more fully described below under "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations."
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Currency Transactions -Futures Contracts
- -Government Obligations -Lending Portfolio Securities -Mortgage-Related Securities
- -Municipal Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Transactions
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE GOVERNMENT INCOME FUND
THE INVESTMENT OBJECTIVE OF THE GOVERNMENT INCOME FUND IS TO PROVIDE
SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRUDENT
INVESTMENT RISK.
Under normal market conditions, the Government Income Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
non-governmental issuers. Consistent with the foregoing, under current market
conditions, the Government Income Fund intends to invest up to 80% of the value
of its total assets in mortgage-related securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities. The Government Income Fund
also may invest up to 35% of its total assets in mortgage-related securities
issued by non-Governmental entities and in other securities described below. For
more information, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Mortgage-Related
Securities."
The types of U.S. government obligations, including mortgage-related securities,
invested in by the Government Income Fund will include obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Treasury, such as Treasury bills, notes and bonds, Stripped Treasury
Obligations and government securities, as described below in "RISK FACTORS AND
INVESTMENT TECHNIQUES--Government Obligations."
The Government Income Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper
(including variable amount master demand notes), rated at the time of purchase
within the top two rating categories assigned by an NRSRO or, if unrated, which
the Investment Adviser deems present attractive opportunities and are of
comparable quality, bankers' acceptances, certificates of deposit and time
deposits of domestic and foreign branches of U.S. banks and foreign banks, and
repurchase and reverse repurchase agreements. The Government Income Fund may
also invest in corporate debt securities which are rated at the time of purchase
within the top three rating categories assigned by an NRSRO or, if unrated,
which the Investment Adviser deems present attractive opportunities and are of
comparable quality.
- 42 -
<PAGE> 88
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
THE GOVERNMENT INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Currency Transactions -Foreign Securities
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreement Transactions
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TAX-FREE INCOME FUNDS
THE MUNICIPAL BOND FUND AND THE MICHIGAN BOND FUND
THE INVESTMENT OBJECTIVE OF THE MUNICIPAL BOND FUND IS TO SEEK CURRENT INTEREST
INCOME WHICH IS EXEMPT FROM FEDERAL INCOME TAXES AND PRESERVATION OF CAPITAL.
THE INVESTMENT OBJECTIVE OF THE MICHIGAN BOND FUND IS TO SEEK INCOME WHICH IS
EXEMPT FROM FEDERAL INCOME TAX AND MICHIGAN STATE INCOME AND INTANGIBLES TAXES,
ALTHOUGH SUCH INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX WHEN
RECEIVED BY CERTAIN SHAREHOLDERS, AND PRESERVATION OF CAPITAL.
Under normal market conditions and as a fundamental policy, at least 80% of the
net assets of the Municipal Bond Fund will be invested in a diversified
portfolio of Municipal Securities, and at least 80% of the net assets of the
Michigan Bond Fund will be invested in a portfolio of Michigan Municipal
Securities.
"Municipal Securities" include obligations consisting of bonds, notes and
commercial paper, issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and other political subdivisions,
agencies, instrumentalities and authorities, the interest on which is both
exempt from federal income taxes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. "Michigan
Municipal Securities" include debt obligations, consisting of notes, bonds and
commercial paper, issued by or on behalf of the State of Michigan, its political
subdivisions, municipalities and public authorities, the interest on which is,
in the opinion of bond counsel to the issuer, exempt from federal income tax and
Michigan state income and intangibles taxes (but may be treated as a preference
item for individuals for purposes of the federal alternative minimum tax) and
debt obligations issued by the government of Puerto Rico, the U.S. territories
and possessions of Guam, the U.S. Virgin Islands or such other governmental
entities whose debt obligations, either by law or treaty, generate interest
income which is exempt from federal and Michigan state income and intangibles
taxes. For more information regarding Municipal Securities and Michigan
Municipal Securities, see "RISK FACTORS AND INVESTMENT TECHNIQUES--Municipal
Securities."
Under normal market conditions, at least 65% of the net assets of each of the
Municipal Bond Fund and the Michigan Bond Fund will be invested in Municipal
Securities (Michigan Municipal Securities in the case of the Michigan Bond Fund)
consisting of bonds and notes with remaining maturities at the time of purchase
of one year or more. Quality is the primary consideration in selecting Michigan
Municipal Securities for investment by the Michigan Bond Fund.
The Municipal Bond Fund also intends that under normal market conditions its
portfolio will maintain an average weighted rating of AA/Aa. Each of the
Municipal Bond Fund and the Michigan Bond Fund intends
- 43 -
<PAGE> 89
that, under normal market conditions, it will be invested in long-term Municipal
Securities (Michigan Municipal Securities in the case of the Michigan Bond Fund)
and that the-average weighted maturity of such investments will be 5 to 12
years, although the Michigan Bond Fund may invest in Michigan Municipal
Securities of any maturity and the Investment Adviser may extend or shorten the
average weighted maturity of its portfolio depending upon anticipated changes in
interest rates or other relevant market factors. In addition, the average
weighted rating of a Tax-Free Income Fund's portfolio may vary depending upon
the availability of suitable Municipal Securities or other relevant market
factors.
The Michigan Bond Fund invests in Michigan Municipal Securities which are rated
at the time of purchase within the four highest rating categories assigned by an
NRSRO or, in the case of notes, tax-exempt commercial paper or variable rate
demand obligations, rated within the two highest rating categories assigned by
an NRSRO. The Michigan Bond Fund may also purchase Michigan Municipal Securities
which are unrated at the time of purchase but are determined to be of comparable
quality by the Investment Adviser pursuant to guidelines approved by the Group's
Board of Trustees. The applicable Michigan Municipal Securities ratings are
described in the Appendix to the Statement of Additional Information. For a
description of debt securities rated within the fourth highest rating categories
assigned by the NRSROS, see "RISK FACTORS AND INVESTMENT TECHNIQUES--
Medium-Grade Securities."
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Tax-Free Income Funds will not treat these
bonds as "Municipal Securities" or "Michigan Municipal Securities" for purposes
of measuring compliance with the 80% tests described above. To the extent the
Tax-Free Income Funds invest in these bonds, individual shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Tax-Free Income Funds' distributions derived from these bonds. For
further information relating to the types of municipal securities which will be
included in income subject to alternative minimum tax, see "ADDITIONAL
INFORMATION-- Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Bond Fund" in the Statement of Additional
Information.
Investments of the Tax-Free Income Funds may be made in taxable obligations if,
for example, suitable tax-exempt obligations are unavailable or if acquisition
of U.S. government or other taxable securities is deemed appropriate for
temporary defensive purposes as determined by the Investment Adviser to be
warranted due to market conditions. Such taxable obligations consist of
government securities, certificates of deposit, time deposits and bankers'
acceptances of selected banks, commercial paper meeting the Tax-Free Income
Funds' quality standards for tax-exempt commercial paper (as described above),
and such taxable obligations as may be subject to repurchase agreements. These
obligations are described further in the Statement of Additional Information.
Under such circumstances and during the period of such investment, the affected
Tax-Free Income Fund may not achieve its stated investment objectives.
Although the Municipal Bond Fund may invest more than 25% of its net assets in
(i) Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, it does not presently intend to do
so on a regular basis. To the extent the Municipal Bond Fund's assets are
concentrated in Municipal Securities that are payable from the revenues of
similar projects or are issued by issuers located in the same state, or are
concentrated in private activity bonds, the Municipal Bond Fund will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states, projects and bonds to a greater extent than it would be if its
assets were not so concentrated.
Because the Michigan Bond Fund invests primarily in securities issued by the
State of Michigan and its political subdivisions, municipalities and public
authorities, the Michigan Bond Fund's performance is closely tied to the general
economic conditions within the State as a whole and to the economic conditions
within
- 44 -
<PAGE> 90
particular industries and geographic areas represented or located within the
State. However, the Michigan Bond Fund attempts to diversify, to the extent the
Investment Adviser deems appropriate, among issuers and geographic areas in the
State of Michigan.
The Michigan Bond Fund is classified as a "non-diversified" investment company,
which means that the amount of assets of the Michigan Bond Fund that may be
invested in the securities of a single issuer is not limited by the Investment
Company Act of 1940, as amended (the "1940 Act"). Nevertheless, the Michigan
Bond Fund intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"). The Code requires that, at the end of each quarter of a
fund's taxable year, (i) at least 50% of the market value of its total assets be
invested in cash, U.S. government securities, securities of other regulated
investment companies and other securities, with such other securities of any one
issuer limited for the purposes of this calculation to an amount not greater
than 5% of the value of the fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets be invested in the securities of any one issuer (other than U.S.
government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Michigan Bond Fund's
assets may be invested in the obligations of a limited number of issuers, some
of which may be within the same economic sector, the Michigan Bond Fund's
portfolio securities may be more susceptible to any single economic, political
or regulatory occurrence than the portfolio securities of a diversified
investment company.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE INCOME FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Currency Transactions -Futures Contracts (Municipal Bond
- -Government Obligations -Lending Portfolio Securities Fund only)
- -Medium-Grade Securities -Mortgage-Related Securities -Municipal Securities
- -Other Mutual Funds -Portfolio Turnover -Private Activity Bonds
- -Put and Call options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery
Dollar Roll Agreements Agreements
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MONEY MARKET FUNDS
THE U.S. GOVERNMENT OBLIGATIONS FUND, THE PRIME OBLIGATIONS FUND, THE TREASURY
FUND AND THE TAX-FREE FUND
THE INVESTMENT OBJECTIVE OF EACH OF THE U.S. GOVERNMENT OBLIGATIONS FUND, THE
PRIME OBLIGATIONS FUND AND THE TREASURY FUND IS TO SEEK CURRENT INCOME WITH
LIQUIDITY AND STABILITY OF PRINCIPAL. THE INVESTMENT OBJECTIVE OF THE TAX-FREE
FUND IS TO SEEK AS HIGH A LEVEL OF CURRENT INTEREST INCOME FREE FROM FEDERAL
INCOME TAXES AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL AND RELATIVE
STABILITY OF PRINCIPAL.
Under normal market conditions, the U.S. Government Obligations Fund invests at
least 65% of the value of its total assets in short-term U.S. Treasury bills,
notes, and other obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities. The Prime Obligations Fund invests in
high-quality money market instruments, including Municipal Securities and other
instruments deemed to be of comparable high quality as determined by the Board
of Trustees. Under normal market conditions, the Treasury Fund invests
exclusively in obligations issued or guaranteed by the U.S. Treasury, its
agencies or instrumentalities and in
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repurchase agreements related to such securities. As a matter of fundamental
policy, under normal market conditions, at least 80% of the Tax-Free Fund's
total assets will be invested in Municipal Securities.
The U.S. Government Obligations Fund may invest up to 35% of the value of its
total assets in high-quality money market instruments, including Municipal
Securities, bankers' acceptances, certificates of deposit, time deposits, and
other instruments deemed to be of comparable high quality as determined by the
Board of Trustees.
The Tax-Free Fund may invest up to 20% of its total assets in obligations the
interest on which is either subject to federal income taxation or treated as a
preference item for purposes of the federal alternative minimum tax ("Taxable
Obligations"). If the Investment Adviser deems it appropriate for temporary
defensive purposes, the Tax-Free Fund may increase its holdings in Taxable
Obligations to over 20% of its total assets and may also hold uninvested cash
reserves pending investment. Taxable Obligations may include obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities (some of
which may be subject to repurchase agreements), certificates of deposit and
bankers' acceptances of selected banks, and commercial paper meeting the
Tax-Free Fund's quality standards for tax-exempt commercial paper (as described
below). These obligations are described further in the Statement of Additional
Information.
As a money market fund, each Money Market Fund invests exclusively in United
States dollar-denominated instruments which the Board of Trustees of the Group
and the Investment Adviser determine present minimal credit risks and which at
the time of acquisition are (a) U.S. government securities, (b) money market
fund shares, or (c) rated by at least two NRSROs or by the only NRSRO providing
a rating in one of the two highest rating categories for short-term debt
obligations or, if unrated, which the Investment Adviser deems to be of
comparable quality. In addition, each of the U.S. Government Obligations Fund,
the Prime Obligations Fund and the Treasury Fund diversifies its investments so
that, except for United States government securities and certain other
exceptions, not more than 5% of its total assets is invested in the securities
of any one issuer, not more than 5% of its total assets is invested in
securities of all issuers rated by an NRSRO or NRSROs (in accordance with SEC
regulations) at the time of investment in the second highest rating category for
short-term debt obligations or deemed to be of comparable quality to securities
rated in the second highest rating category for short-term-debt obligations
(either referred to as "Second Tier Securities") and not more than the greater
of 1% of total assets or $1 million is invested in the Second Tier Securities of
one issuer. All securities or instruments in which a Money Market Fund invests
have remaining maturities of 397 calendar days (13 months) or less (except for
certain variable and floating rate notes and securities underlying certain
repurchase agreements). The dollar-weighted average maturity of the obligations
in a Money Market Fund will not exceed 90 days.
The Prime Obligations Fund and, within the limitations described above, the U.S.
Government Obligations Fund may invest in commercial paper and other short-term
promissory notes issued by corporations (including variable amount master demand
notes) rated at the time of purchase within the two highest rating categories
assigned by at least two NRSROs or by the only NRSRO providing a rating or, if
not rated, which the Investment Adviser deems to be of comparable quality. For a
description of the rating categories of the NRSROs, see the Appendix to the
Statement of Additional Information. The Prime Obligations Fund may also invest
in CCP, Europaper, bankers' acceptances, certificates of deposit and time
deposits.
Variable amount master demand notes in which the U.S. Government Obligations
Fund, the Prime Obligations Fund and certain other Funds may invest are
unsecured demand notes that permit the indebtedness thereunder to vary, and that
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between a Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by credit
rating agencies,
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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. The Investment Adviser
will consider the earning power, cash flow, and other liquidity ratios of the
issuers of such notes and will continuously monitor their financial status and
ability to meet payment on demand.
Each of the Money Market Funds may acquire securities that are subject to demand
features (generally, a feature permitting the holder of the security at
specified intervals to sell the security at an exercise price equal to the
approximate market cost plus accrued interest). The demand feature may be issued
by the issuer of the underlying security or a dealer in the securities or by
another third party. The Money Market Funds use these arrangements to provide
liquidity and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership, or default by the issuer of
the demand feature, or a default on the underlying security or other event that
terminates the demand feature before its exercise, will adversely affect the
liquidity of the underlying security. Demand features that are exercisable after
a payment default on the underlying security may be treated as a form of credit
enhancement.
Certain of the Money Market Funds' permitted investments may have received
credit enhancement by a guaranty, letter of credit, or insurance. The Money
Market Funds may evaluate the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the entity
providing the credit enhancement, rather than the issuer. The bankruptcy,
receivership, or default of an entity providing credit enhancement may adversely
affect the quality and marketability of the underlying security.
Consistent with the requirements of Rule 2a-7 adopted under the 1940 Act, each
of the Money Market Funds will limit its investment, with respect to 75% of its
assets, to no more than 10% of its total assets in securities issued by or
subject to demand features or guarantees of a single issuer. With respect to the
remaining 25% of a Money Market Fund's assets, the Fund may invest in securities
subject to demand features or guarantees from, or directly issued by, one or
more institutions, provided they are rated in the highest rating category
assigned by an NRSRO and are issued by a "Non-Controlled Person," as defined in
the Rule. In addition, a demand feature or guarantee may be acquired by a Money
Market Fund only if not more than 5% of the Fund's total assets are invested in
demand features, guarantees or securities issued by the provider of the demand
feature or guarantee that are rated in the second highest short-term rating
category assigned by an NRSRO or NRSROs (in accordance with Rule 2a-7).
Each of the Money Market Funds intends to follow the operational policies
described above, as well as other non-fundamental policies that will enable the
Fund to comply with the laws and regulations applicable to money market mutual
funds, particularly Rule 2a-7 under the 1940 Act. Each of the Money Market Funds
shall determine the effective maturity of its investments, the applicable credit
rating of securities, and adequate diversification by reference to Rule 2a-7.
Each of the Money Market Funds may change its operational policies to reflect
changes in the laws and regulations applicable to money market mutual funds
without shareholder approval.
The Tax-Free Fund may acquire zero-coupon obligations, which have greater price
volatility than coupon obligations and which will not result in the payment of
interest until maturity. Additionally, the Tax-Free Fund, within the limitations
described above and subject to the quality standards for tax-exempt commercial
paper described below, may invest in commercial paper.
Although the Tax-Free Fund presently does not intend to do so on a regular
basis, it may invest more than 25% of its assets in Municipal Securities which
are related in such a way that an economic, business, or political development
or change affecting one such security would likewise affect the other Municipal
Securities. Examples of such securities are obligations the repayment of which
is dependent upon similar types of projects or projects locate in the same
state. Such investments would be made only if deemed
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necessary or appropriate by the Investment Adviser. To the extent that the
Tax-Free Fund's assets are concentrated in Municipal Securities that are so
related, the Tax-Free Fund will be subject to the peculiar risks presented by
such Municipal Securities, such as negative developments in a particular
industry or state, to a greater extent than it would be if the Tax-Free Fund's
assets were not so concentrated.
<TABLE>
<CAPTION>
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MONEY MARKET FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities (except -Foreign Securities -Government Obligations
Treasury Fund) -Guaranteed Investment Contracts -Lending Portfolio Securities
- -Municipal Securities (except (Prime obligations Fund only) -Portfolio Turnover
Treasury Fund) -Private Activity Bonds -Put and Call Options (Tax-Free Fund)
- -Repurchase Agreements (Tax.-Free Fund Only) -Restricted Securities (except
- -Reverse Repurchase Agreements and -When-Issued and Delayed-Delivery Treasury Fund)
- -Dollar Roll Agreements Transactions
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</TABLE>
RISK FACTORS AND INVESTMENT TECHNIQUES
Like an investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase or dollar roll agreements with the
Investment Adviser, BISYS, SEI or their affiliates, and will not give preference
to the correspondents of their bank affiliates with respect to such
transactions, securities, savings deposits, repurchase agreements, reverse
repurchase agreements and dollar roll agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by the Investment Adviser, and in the
case of the International Fund and Balanced Allocation Fund, Gulfstream, in the
management of each of the Funds (with the exception of the Treasury Fund)
involve complex securities sometimes referred to as "derivatives." Among such
securities are put and call options, foreign currency transactions and futures
contracts, all of which are described below. The Investment Adviser and
Subadviser believe that such complex securities may, in some circumstances, play
a valuable role in successfully implementing each Fund's investment strategy and
achieving its goals. However, because complex securities and the strategies for
which they are used, are by their nature complicated, they present substantial
opportunities for misunderstanding and misuse. To guard against these risks, the
Investment Adviser and Subadviser will utilize complex securities primarily for
hedging, not speculative purposes and only after careful review of the unique
risk factors associated with each such security.
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds, with the exception of the Money Market Funds and the Tax-Free
Income Funds, may utilize foreign currency transactions in its portfolio. The
value of the assets of a Fund as measured in United States dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract ("forward currency contracts") involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These
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forward currency contracts are traded directly between currency traders (usually
large commercial banks) and their customers. The Funds may enter into forward
currency contracts in order to hedge against adverse movements in exchange rates
between currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency. Alternatively, when a Fund believes it will increase, it may enter
into a forward currency purchase contract to buy that foreign currency for a
fixed U.S. dollar amount; however, this tends to limit potential gains which
might result from a positive change in such currency relationships. A Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
The forecasting of short-term currency market movement is extremely difficult
and whether such a short-term hedging strategy will be successful is highly
uncertain. It is impossible to forecast with precision the market value of
portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency such Fund is obligated
to deliver when a decision is made to buy the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency such Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. If forward prices
decline during the period between which a Fund enters into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. If forward prices
increase, such Fund would suffer a loss to the extent the price of the currency
it has agreed to purchase exceeds the price of the currency it has agreed to
sell. Although such contracts tend to minimize the risk of loss due to a decline
in the value of the hedged currency, they also tend to limit any potential gain
which might result if the value of such currency increases. The Funds will have
to convert their holdings of foreign currencies into United States dollars from
time to time. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
No Fund intends to enter into forward currency contracts if more than 15% of the
value of its total assets would be committed to such contracts on a regular or
continuous basis. A Fund also will not enter into forward currency contracts or
maintain a net exposure on such contracts where such Fund would be obligated to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency.
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<PAGE> 95
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES--Additional Information on Portfolio Instruments" in the
Statement of Additional Information.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Allocation Fund may invest up to 20% of its total assets in foreign
securities. The Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund and Equity Income Fund may invest in foreign securities as
permitted by their respective investment policies. Each of the Bond Fund and
Limited Maturity Bond Fund may invest up to 25% of its net assets in foreign
securities either directly or through the purchase of ADRs and may also invest
in securities issued by foreign branches of U.S. banks and foreign banks, in
CCP, and in Europaper. The Government Income Fund, the U.S. Government
Obligations Fund, the Prime Obligations Fund and the Tax-Free Fund may invest in
foreign securities by purchasing: Eurodollar certificates of deposit ("ECDs"),
which are U.S. dollar-denominated certificates of deposit issued by offices of
foreign and domestic banks outside the U.S.; Eurodollar time deposits ("ETD"),
which are U.S. dollar-denominated deposits in a foreign branch of a U.S. or
foreign bank; Canadian time deposits ("CTDs"), which are essentially the same as
ETDS, except that they are issued by Canadian offices of major Canadian banks;
Yankee certificates of deposit ("Yankee CDs"), which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank but held in
the U.S.; CCP; and Europaper.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the United States. In addition, there may be less
publicly available information about a foreign company than about a U.S.
domiciled company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States. Confiscatory taxation or diplomatic developments could also
affect investment in those countries. In addition, foreign branches of U.S.
banks, foreign banks and foreign issuers may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks and U.S domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to
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compute and distribute its income in U.S. dollars. Therefore, if the exchange
rate for any such currency declines materially after such Fund's income has been
accrued and translated into U.S. dollars, the Fund could be required to
liquidate portfolio securities to make required distributions. Similarly, if an
exchange rate declines between the time a Fund incurs expenses in U.S. dollars
and the time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars in order to pay such expenses in U.S dollars will be
greater.
U.S. dollar-denominated ADRs, which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all of the risk inherent in investing
in the securities of foreign issuers. However, by investing in ADRs rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for many ADRs. The information available for
ADRs is subject to the accounting, auditing and financial reporting standards of
the domestic market or exchange on which they are traded, standards which are
more uniform and more exacting than those to which many foreign issuers may be
subject. The ADR is sometimes referred to as a Global Depositary Receipt, or
GDR. In the United States, the GDR is, after issuance, not unlike any other ADR.
The difference is found in the purpose of the issue. GDRs are used for global
offerings, by the simultaneous issuance of a single security in multiple world
markets. The International Fund and Balanced Allocation Fund may also invest in
EDRS, which are receipts evidencing an arrangement with a European bank similar
to that for ADRs and designed for use in the European securities markets. EDRs
are not necessarily denominated in the currency of the underlying security.
Certain of the ADRs and EDRs, typically those categorized as unsponsored,
require their holders to bear most of the costs of such facilities while issuers
of sponsored facilities normally pay more of the costs. The depository of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through the voting rights to facility holders with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the
European Currency Unit ("ECU"), which is a "basket" unit of currency consisting
of specified amounts of the currencies of certain of the twelve member states of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. Such adjustments may
adversely affect holders of ECU-denominated obligations or the marketability of
such securities. European governments and supranationals, in particular, issue
ECU-denominated obligations.
FUTURE CONTRACTS
The Growth Funds, the Growth and Income Funds, the Income Funds and the
Municipal Bond Fund may also enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, a Fund can seek through the sale of
futures contracts to offset a decline in the value of its portfolio securities.
When interest
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rates are expected to fall or market values are expected to rise, a Fund,
through the purchase of such contracts, can attempt to secure better rates or
prices for the Fund than might later be available in the market when it effects
anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercising of the option at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of a Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with its portfolio securities or foreign currencies, limiting the
Fund's ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
GOVERNMENT OBLIGATIONS
The U.S. Government Obligations Fund will invest primarily in obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities.
Subject to the investment parameters described above, each of the remaining
Funds may also invest in such obligations. The Treasury Fund, however, will
invest exclusively in obligations issued or guaranteed by the U.S. Treasury and
in repurchase agreements backed by such securities.
The types of U.S. government obligations in which each of these Funds may invest
include U.S. Treasury notes, bills, bonds, and any other securities directly
issued by the U.S. government for public investment, which differ only in their
interest rates, maturities, and times of issuance. Stripped Treasury Obligations
are also permissible investments. Stripped securities are issued at a discount
to their "face value" and may exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest are
returned to investors. The Stripped Treasury Obligations in which the Money
Market Funds may invest do not include certificates of accrual on Treasury
securities ("CATS") or Treasury income growth receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the right of
the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association ("SLMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored agencies or
instrumentalities, such as FNMA, SLMA or FHLMC, since it is not obligated to do
so by law. The Funds which may invest in these
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government obligations will invest in the obligations of such agencies or
instrumentalities only when the Investment Adviser believes that the credit risk
with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS
The Bond Fund, the Limited Maturity Bond Fund and the Prime Obligations Fund may
invest in GICS. When investing in GICS, the Bond Fund, the Limited Maturity Bond
Fund and the Prime Obligations Fund make cash contributions to a deposit fund of
an insurance company's general account. The insurance company then credits
guaranteed interest to the deposit fund on a monthly basis. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expenses and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. The Bond Fund and the Limited Maturity Bond Fund may invest
in GICs of insurance companies without regard to the ratings, if any, assigned
to such insurance companies' outstanding debt securities. The Prime Obligations
Fund may only invest in GICs that have received the requisite ratings by one or
more NRSROS, see "INVESTMENT OBJECTIVES AND POLICIES--The Money Market Funds" in
this Prospectus. Because a Fund may not receive the principal amount of a GIC
from the insurance company on seven days' notice or less, the GIC is considered
an illiquid investment. For each of the Bond Fund and Limited Maturity Bond
Fund, no more than 15% of its total assets will be invested in instruments which
are considered to be illiquid. For the Prime Obligations Fund, no more than 10%,
of its total assets may be invested in instruments which are considered to be
illiquid. In determining average portfolio maturity, GICs will be deemed to have
a maturity equal to the period of time remaining until the next readjustment of
the guaranteed interest rate.
MEDIUM-GRADE SECURITIES
Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond Fund,
Municipal Bond Fund and Michigan Bond Fund may invest in fixed-income securities
rated within the fourth highest rating category assigned by an NRSRO (i.e., BBB
or Baa by S&P or Moody's, respectively) and comparable unrated securities as
determined by the Investment Adviser. These types of fixed-income securities are
considered 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, the
Investment Adviser will consider such an event in determining whether the Fund
should continue to hold that security. In no event, however, would the Fund be
required to liquidate any such portfolio security where the Fund would suffer a
loss on the sale of such security.
MORTGAGE-RELATED SECURITIES
The Government Income Fund intends to invest up to 80% of the value of its total
assets in mortgage-related securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. However, the Government Income
Fund may invest greater amounts as conditions warrant. Each of the remaining
Funds, except the International Fund, may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Such agencies or instrumentalities include GNMA, FNMA and
FHLMC. Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond
Fund, Intermediate Government Obligations Fund, Government Income Fund, Prime
Obligations Fund and U.S. Government Obligations Fund may also invest in
mortgage-related securities issued by non-governmental entities which are
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rated, at the time of purchase, within the three highest bond rating categories
assigned by an NRSRO or, if unrated, which the Investment Adviser deems present
attractive opportunities and are of comparable quality.
The mortgage-related securities in which these Funds may invest have mortgage
obligations backing such securities, consisting of conventional thirty-year
fixed-rate mortgage obligations, graduated parent 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 the payments 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 minimum
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, though, the rate of prepayment tends to decrease, thereby lengthening
the period of time over which income at the lower rate is received. For these
and other reasons, a mortgage-related security's average maturity may be
shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Fund. In addition, regular payments received with respect to mortgage-related
securities include both 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
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interest and ultimate collection of principal but are not backed by the full
faith and credit of the United States government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by non-governmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers will be considered in
determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the poolers the Investment
Adviser determines that the securities meet the Government Income Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Government Income Fund will not purchase mortgage-related
securities or any other assets which in the Investment Adviser's opinion are
illiquid if, as a result, more than 15% of the value of the Government Income
Fund's total assets will be illiquid.
Mortgage-related securities in which the above-named Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA and FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments; that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed-rate mortgages. As new types
of mortgage-related securities are developed and offered to investors, the
Investment Adviser will, consistent with the Government Income Fund's investment
objective, policies and quality standards, consider making investments in such
new types of securities.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities (Michigan Municipal
Securities, in the case of the Michigan Bond Fund) which may be held by the Bond
Fund, Limited Maturity Bond Fund, Municipal Bond Fund, Michigan Bond Fund, Prime
Obligations Fund, U.S. Government Obligations Fund and Tax-Free Fund are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from proceeds of a special excise tax or other
specific revenue source such as the user of the facility
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being financed. Private activity bonds held by the Municipal Bond Fund and
Michigan Bond Fund are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the credit quality of
private activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
The above-named Funds may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Each of the above-named Funds invests primarily in Municipal Securities which
are rated at the time of purchase within the four highest rating categories
assigned by an NRSRO or in the highest rating category assigned by an NRSRO in
the case of notes, tax-exempt commercial paper or variable rate demand
obligations. These Funds may also purchase Municipal Securities which are
unrated at the time of purchase but determined to be of comparable quality by
the Investment Adviser pursuant to guidelines approved by the Group's Board of
Trustees. The Money Market Funds may invest in Municipal Securities only in
compliance with the requirements of Rule 2a-7 under the 1940 Act, which
generally requires that they invest only in securities rated in the two highest
rating categories assigned by an NRSRO (with no more than 5% of their assets
invested in the second highest rating category). The applicable Municipal
Securities ratings are described in the Appendix to the Statement of Additional
Information. For a discussion of debt securities rated within the four highest
rating categories assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Medium-Grade Securities."
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Funds nor the Investment
Adviser will review the proceedings relating to the issuance of Municipal
Securities or the basis for such opinions.
Municipal Securities and Michigan Municipal Securities purchased by the Tax-Free
Income Funds may include rated and unrated variable and floating rate tax-exempt
notes. A variable rate note is one whose terms provide for the adjustment of its
interest rate on set dates and which, upon such adjustment, can reasonably be
expected to have a market value that approximates its par value. A floating rate
note is one whose terms provide for the adjustment of its interest rate whenever
a specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. Such notes are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate notes purchased by the Tax-Free Income Funds will be determined by
the Investment Adviser, under guidelines established by the Group's Board of
Trustees, to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under the Funds' investment policies. In
making such determinations, the Investment Adviser will consider the earning
power, cash flow and other liquidity ratios of the issuers of such notes (such
issuers include financial, merchandising, bank holding and other companies) and
will continuously monitor their financial condition. There may be no active
secondary market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to the Tax-Free Income Funds will approximate their par value.
The Tax-Free Income Funds will not purchase variable and floating rate notes or
any other securities which in the Investment Adviser's opinion are illiquid if,
as a result, more than 15% of either Tax-Free Income Fund's total assets will be
illiquid.
OTHER MUTUAL FUNDS
Each of the Funds, except the Money Market Funds, may invest up to 5% of the
value of its total assets in the securities of any one money market mutual fund,
provided that no more than 10% of a Fund's total assets may
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be invested in the securities of mutual funds in the aggregate. Each Fund will
incur additional expenses due to the duplication of expenses as a result of
investing in securities of other mutual funds. Additional restrictions regarding
the Funds' investments in securities of other mutual funds are contained in the
Statement of Additional Information.
PRIVATE ACTIVITY BONDS
The Tax-Free Income Funds and the Tax-Free Fund may invest in private activity
bonds. It should be noted that the Tax Reform Act of 1986 substantially revised
provisions of prior federal law affecting the issuance and use of proceeds of
certain tax-exempt obligations. A new definition of private activity bonds
applies to many types of bonds, including those which were industrial
development bonds under prior law. Any reference herein to private activity
bonds includes industrial development bonds. Interest on private activity bonds
is tax-exempt (and such bonds will be considered Municipal Securities for
purposes of this Prospectus) only if the bonds fall within certain defined
categories of qualified private activity bonds and meet the requirements
specified in those respective categories. If a Fund invests in private activity
bonds which fall outside these categories, shareholders may become subject to
the federal alternative minimum tax on that part of the Fund's distributions
derived from interest on such bonds. The Tax Reform Act generally did not change
the federal tax treatment of bonds issued to finance government operations. For
further information relating to the types of private activity bonds which will
be included in income subject to the federal alternative minimum tax, see
"ADDITIONAL INFORMATION--Additional Tax Information Concerning the Tax-Free
Fund, the Municipal Bond Fund and the Michigan Bond Fund" in the Statement of
Additional Information.
PUT AND CALL OPTIONS
Each of the Growth Funds, the Growth and Income Funds, the Income Funds and the
Tax-Free Income Funds may purchase put and call options on securities and on
foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. Each Fund
may also engage in writing call options from time to time as the Investment
Adviser or Gulfstream, as the case may be with respect to the Balanced
Allocation Fund or International Fund, deems 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 on 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 a Fund will cause the underlying value of portfolio securities and
currencies subject to such options to exceed 20% of its net assets, and with
respect to each of the Balanced Allocation Fund and International Fund, 20% of
its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its options transactions, also may purchase index put and call
options and write index options. As with options on individual securities, a
Fund will write only covered index call options. Through the writing or purchase
of index options a Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at a specified price, an option on a securities
index gives the holder the
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right to receive, upon exercise of the option, an amount of cash if the closing
level of the securities index upon which the option is based is greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
In addition, each of the Tax-Free Fund and the Tax-Free Income Funds may acquire
"puts" with respect to Municipal Securities (or Michigan Municipal Securities,
as the case may be), held in its portfolio. Under a put, such Fund would have
the right to sell a specified Municipal Security (or Michigan Municipal
Security, as the case may be) within a specified period of time at a specified
price. A put would be sold, transferred, or assigned only with the underlying
security. Each of the Tax-Free Fund and the Tax-Free Income Funds will acquire
puts solely either to facilitate portfolio liquidity, shorten the maturity of
the underlying securities, or permit the investment of its funds at a more
favorable rate of return. Each of the Tax-Free Fund and the Tax-Free Income
Funds expects that it will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, such Fund may pay for a put either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the puts (thus reducing the yield to maturity otherwise available for the
same securities).
REPURCHASE AGREEMENTS
Securities held by a Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as member banks of the Federal Deposit Insurance Corporation
or registered broker-dealers which the Investment Adviser or Gulfstream, as the
case may be, deems creditworthy under the guidelines approved by the Group's
Board of Trustees, subject to the seller's agreement to repurchase such
securities at a mutually agreed upon date and price. The repurchase price would
generally equal the price paid by the Fund plus interest negotiated on the basis
of current short-term rates, which may be more or less than the rate on the
underlying portfolio securities. Securities subject to repurchase agreements
will be held in a segregated account. If the seller were to default on its
repurchase obligation or become insolvent, the Fund would suffer a loss to the
extent that the proceeds from the sale of the underlying portfolio securities
were less than the repurchase price under the agreement, or to the extent that
the disposition of such securities by that Fund were delayed pending court
action. Repurchase agreements are considered to be loans by an investment
company under the 1940 Act. For further information about repurchase agreements,
see "INVESTMENT OBJECTIVES AND POLICIES--Additional Information on Portfolio
Instruments-Repurchase Agreements" in the Statement of Additional Information.
RESTRICTED SECURITIES
Securities in which each of the Funds, with the exception of the Treasury Fund,
may invest include securities issued by corporations without registration under
the Securities Act of 1933, as amended (the "1933 Act"), in reliance on the
exemption from such registration afforded by Section 3(a)(3) thereof, and
securities issued in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) securities"). Section 4(2) securities are restricted as to disposition
under the federal securities laws, and generally are sold to institutional
investors such as the Funds who agree that they are purchasing the securities
for investment and not with a view to public distribution. Any resale must also
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generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in such Section 4(2) securities,
thus providing liquidity. Pursuant to procedures adopted by the Board of
Trustees of the Group, the Investment Adviser may determine Section 4(2)
securities to be liquid if such securities are eligible for resale under Rule
144A under the 1933 Act and are readily saleable.
Subject to the limitations described above, the Funds may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registered under the 1933 Act. An illiquid investment
is any investment that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which it is valued by a Fund.
The price a Fund pays for illiquid securities or receives upon resale may be
lower than the price paid or received for similar securities with a more liquid
market. Accordingly, the valuation of these securities will reflect any
limitations on their liquidity. For each of the Non-Money Market Funds, a Fund
may not invest in additional illiquid securities if, as a result, more than 15%
of the market value of its net assets would be invested in illiquid securities.
For each of the Money Market Funds, a Fund may not invest in additional illiquid
securities if, as a result, more than 10% of the market value of its net assets
would be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Each of the Funds may borrow money by entering into reverse repurchase
agreements and, in the case of the Income Funds and the Tax-Free Income Funds,
dollar roll agreements in accordance with the investment restrictions described
below. Pursuant to reverse repurchase agreements, a Fund would sell certain of
its securities to financial institutions such as banks and broker-dealers, and
agree to repurchase the securities, at a mutually agreed upon date and price.
Dollar roll agreements utilized by the Income Funds and Tax-Free Income Funds
are identical to reverse repurchase agreements except for the fact that
substantially similar securities may be repurchased. At the time a Fund enters
into a reverse repurchase agreement or a dollar roll agreement, it will place in
a segregated custodial account assets such as U.S. government securities or
other liquid high-grade debt securities consistent with its investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently continually monitor the account to ensure that
such equivalent value is maintained at all times. Reverse repurchase agreements
and dollar roll agreements involve the risk that the market value of securities
sold by a Fund may decline below the price at which it is obligated to
repurchase the securities. Reverse repurchase agreements and dollar roll
agreements are considered to be borrowings by an investment company under the
1940 Act and therefore a form of leverage. A Fund may experience a negative
impact on its net asset value if interest rates rise during the term of a
reverse repurchase agreement or dollar roll agreement. A Fund generally will
invest the proceeds of such borrowings only when such borrowings will enhance a
Fund's liquidity or when the Fund reasonably expects that the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. For further information about reverse repurchase
agreements and dollar roll agreements, see "INVESTMENT OBJECTIVES AND
POLICIES--Additional Information on Portfolio Instruments-Reverse Repurchase
Agreements and Dollar Roll Agreements" in the Statement of Additional
Information.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis. Such Funds will engage in when-issued and delayed-delivery transactions
only for the purpose of acquiring portfolio securities consistent with its
investment objectives and policies, not for investment leverage although such
transactions represent a form of leveraging. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve a risk that the yield obtained in the
transaction will be less than those available in the market when delivery takes
place. A Fund will not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase such
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securities, its Custodian will set aside cash or liquid securities equal to the
amount of the commitment in a separate account. Securities purchased on a
when-issued basis are recorded as an asset and are subject to changes in the
value based upon changes in the general level of interest rates. In when-issued
and delayed-delivery transactions, a Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause such Fund to miss a price
or yield considered to be advantageous.
No Fund's commitments to purchase "when-issued" securities will exceed 25% of
the value of its total assets under normal market conditions, and a commitment
by a Fund to purchase "when-issued" securities will not exceed 60 days. In the
event its commitments to purchase "when-issued" securities ever exceeded 25% of
the value of its assets, a Fund's liquidity and the ability of the Investment
Adviser or Gulfstream, as the case may be, to manage it might be adversely
affected. The Funds intend only to purchase "when-issued" securities for the
purpose of acquiring portfolio securities, not for investment leverage.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund except the Treasury Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. government securities. This collateral will be valued
daily by the Group's Custodian. Should the market value of the loaned securities
increase, the borrower must furnish additional collateral to that Fund. During
the time portfolio securities are on loan, the borrower pays that Fund any
dividends or interest received on such securities. Loans are subject to
termination by the Fund or the borrower at any time. While a Fund does not have
the right to vote securities on loan, each Fund intends to terminate the loan
and regain the right to vote if that is considered important with respect to the
investment. In the event the borrower defaults in its obligation to a Fund, such
Fund bears the risk of delay in the recovery of its portfolio securities and the
risk of loss of rights in the collateral. The Funds will enter into loan
agreements only with broker-dealers, banks, or other institutions that the
Investment Adviser or Gulfstream, as the case may be, has determined are
creditworthy under guidelines established by the Group's Board of Trustees.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The SEC requires that the
calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less.
Because the Money Market Funds intend to invest primarily in securities with
maturities of less than one year (although each may invest in securities with
maturities of up to 13 months) and because the SEC requires such securities to
be excluded from the calculation of portfolio turnover rate, the portfolio
turnover rate with respect to each of the Money Market Funds is expected to be
zero for regulatory purposes. For portfolio turnover rates for each of the
Non-Money Market Funds, see "FINANCIAL HIGHLIGHTS." The Balanced Allocation Fund
does not expect that its turnover rate with respect to that portion of its
portfolio invested in (i) common stocks and securities convertible into common
stocks and (ii) other investments will exceed ___% and ___%, 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. (See "Dividends
and Taxes".) Portfolio turnover will not be a limiting factor in making
investment decisions.
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INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding shares of that Fund (as defined
in the Statement of Additional Information).
None of the Non-Money Market Funds, with the exception of the Michigan Bond
Fund, may:
Purchase securities of any one issuer, other than securities 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 any class of securities of the issuer or more
than 10% of the outstanding voting securities of the issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to such limitations.
None of the Funds will:
1. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the
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, any state, territory or
possession of the United States, the District of Columbia or any
of their authorities, agencies, instrumentalities or political
subdivisions, and repurchase agreements secured by such
obligations, or in the case of the Money Market Funds, domestic
bank obligations and repurchase agreements secured by such
obligations;
(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 the parents;
(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; and
(d) personal credit and business credit businesses will be considered
separate industries.
2. Make loans, except that the Fund may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment
objective and policies and may lend portfolio securities in an amount
not exceeding one-third of its total assets.
3. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940
Act.
For purposes of the above investment limitations, the Funds treat all
supranational organizations as a single industry and each foreign government
(and all of its agencies) as a separate industry. In addition, a security is
considered to be issued by the government entity (or entities) whose assets and
revenues back the security.
Except for the Funds' policy on illiquid securities, if a percentage limitation
is satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in the value of a Fund's portfolio securities
will not constitute a violation of such limitation for purposes of the 1940 Act.
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In addition to the above investment restrictions, the Funds are subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES--Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
BOARD OF TRUSTEES
The business and affairs of the Group are managed under the direction of its
Board of Trustees. The trustees of the Group, their addresses, principal
occupations during the past five years, other affiliations, and the compensation
paid by the Group and the fees and reimbursed expenses they receive in
connection with each meeting of the Board of Trustees they attend are included
in the Statement of Additional Information.
INVESTMENT ADVISER AND SUBADVISER
National City, 1900 East Ninth Street, Cleveland, Ohio 44114, serves as
investment adviser to the Funds. National City is a registered investment
adviser and an indirect wholly owned subsidiary of National City Corporation
("NCC"). NCC recently consolidated the asset management responsibilities of its
various bank affiliates including First of America Bank, N.A. ("FOA"). Prior to
such time, the investment adviser of the Funds was First of America Investment
Corporation ("First of America"), a wholly owned subsidiary of FOA.
Subject to such policies as the Group's Board of Trustees may determine, the
Investment Adviser, either directly or, with respect to the International Fund
and the Balanced Allocation Fund, through Gulfstream, furnishes a continuous
investment program for each Fund and makes investment decisions on behalf of
each Fund.
The ________ Funds are managed by the _____________ Team of National City, the
___________ Funds by the _________ Team and the ____________ Funds by the
_______________ Team. No single person is primarily responsible for making
investment recommendations to the _____________ Team, ___________ Team or
___________ Team.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, the Investment Adviser receives a fee from
the Large Capitalization Fund, computed daily and paid monthly, at the annual
rate of 0.80% of the Fund's average daily net assets. For its services in
connection with each of the Small Capitalization Fund, Mid Capitalization Fund,
Equity Income Fund and Balanced Allocation Fund, the Investment Adviser's fee is
computed daily and paid monthly at the annual rate of 1.00% of the applicable
Fund's average daily net assets. For its services in connection with the
International Fund, the Investment Adviser's fee is computed daily and paid
monthly at the annual rate of 1.25% of the first $50 million of the
International Fund's average daily net assets, 1.20% of average daily net assets
between $50 million and $100 million, 1.15% of average daily net assets between
$100 million and $400 million and 1.05% of average daily net assets above $400
million. For its services in connection with each Income Fund and Tax-Free
Income Fund, the Investment Adviser's fee is computed daily and paid monthly at
the annual rate of 0.74% of each Income Fund's and Tax-Free Income Fund's
average daily net assets. For its services in connection with the Money Market
Funds, the Investment Adviser's fee is computed daily and paid monthly, at the
annual rate of 0.40% of each Money Market Fund's average daily net assets. The
Investment Adviser 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.
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<PAGE> 108
Pursuant to the terms of its Investment Advisory Agreement with the Group, the
Investment Adviser 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
the Investment Adviser to manage the investment and reinvestment of the assets
of the International Fund and to manage the investment and reinvestment of those
assets of the Balanced Allocation Fund which are invested in foreign securities,
subject to the direction and control of the Group's Board of Trustees.
Gulfstream will not continue as Subadviser beyond the end of the current term of
its agreement in 1998.
Under this arrangement, Gulfstream is responsible for day-to-day management of
the International Fund's assets and the applicable portion of the Balanced
Allocation Fund, reviewing investment performance policies and guidelines and
maintaining certain books and records, and the Investment Adviser 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. The Investment Adviser may also render advice with respect to the
International Fund's investments in the United States. Gulfstream utilizes a
team approach to investment management to ensure a disciplined investment
process designed to result in long-term performance consistent with a Fund's
investment objective. No one person is responsible for a Fund's management.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with the Investment Adviser, Gulfstream receives from the
Investment Adviser a fee, computed daily and paid monthly, at the annual rate of
0.50% of the first $50 million of the International Fund's average daily net
assets and the average daily net assets of the Balanced Allocation Fund which
are invested in foreign securities, 0.45% of such average daily net assets
between $50 million and $100 million, 0.40% of such average daily net assets
between $100 million and $400 million and 0.30% of such average daily net assets
above $400 million, provided the minimum annual fee shall be $75,000.
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 Investment Adviser is the sole limited partner, and as of August
31, 1996, exercised options to increase its interest in Gulfstream from 49% to
72%. In spite of the fact that, as a limited partner, the Investment Adviser
does not possess management authority or responsibility for Gulfstream, because
of its 72% ownership interest, the Investment Adviser may be deemed to control
Gulfstream for purposes of the 1940 Act.
As of , 1998, Gulfstream had over $____ million in international assets of
institutional, investment company, governmental, pension fund and high net worth
individual clients under its investment management. Gulfstream's portfolio
management personnel average over 20 years of investment experience and 10 years
of international investment experience.
For further information regarding the relationship between Gulfstream and the
Investment Adviser, see "MANAGEMENT OF THE GROUP--Investment Adviser" in the
Statement of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
Fund of the Group. National City 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
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processing, loan servicing and 401(k) administration and record keeping services
to and through banking and other financial organizations.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from each Fund equal to the lesser of: a fee computed daily and
paid periodically at an annual rate of 0.20% of the Fund's average daily net
assets; or such other fee as may be agreed upon from time to time in writing by
the Group and the Administrator. For its services as Sub-Administrator, National
City 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.
SEI acts as the Group's principal underwriter and distributor. The Distributor
is a registered broker/dealer with principal offices located in Oaks,
Pennsylvania 19456. It acts as agent for the Funds in the distribution of their
shares and, in such capacity, solicits orders for the sale of shares,
advertises, and pays the cost of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Group, but may retain some or all of any sales
charge imposed upon the Investor A Shares and may receive compensation under the
Distribution and Shareholder Service Plan described below.
EXPENSES
The Investment Adviser, Gulfstream and BISYS each bear all expenses in
connection with the performance of their services as Investment Adviser,
Subadviser and Administrator, respectively, other than the cost of securities
(including brokerage commissions) purchased for the Group. Each Fund will bear
the following expenses relating to its operation: organizational expenses,
taxes, interest, brokerage fees and commissions, fees of the Trustees of the
Group, SEC fees, state securities qualification fees, costs of repairing and
printing prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the Custodian, Transfer Agent and Fund
Accountant, certain insurance premiums, costs of maintenance of the Group's
existence, costs of shareholders' reports and meetings, and any extraordinary
expenses incurred in each Fund's operation. As a general matter, expenses are
allocated to the Investor A Shares and the other classes of shares of the Funds
on the basis of the relative net asset value of each class. The various classes
may bear certain additional retail transfer agency expenses and may also bear
certain additional shareholder service and distribution costs incurred pursuant
to a Distribution and Shareholder Service Plan.
The Trustees reserve the right, subject to the receipt of relevant regulatory
approvals or rulings, if needed, to allocate certain other expenses to the
shareholders of a particular class, including the Investor A Shares class, on a
basis other than relative net asset value, as they deem appropriate ("Class
Expenses"). In such event, Class Expenses would be limited to: transfer agency
fees identified by the Transfer Agent as attributable to a specific class;
printing and postage expenses related to preparing and distribution 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.
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DISTRIBUTION PLAN FOR INVESTOR A SHARES
Rule 12b-1, adopted by the SEC under the 1940 Act, permits an investment company
to pay directly or indirectly expenses associated with the distribution of its
shares in accordance with a plan adopted by an investment company's trustees and
approved by its shareholders. Pursuant to such Rule, the Group has adopted an
Investor A Distribution and Shareholder Service Plan (the "Investor A Plan")
with respect to the Investor A Shares of each Fund. Pursuant to the Investor A
Plan, each Fund is authorized to pay or reimburse SEI, as Distributor of the
Investor A Shares, for certain expenses that are incurred in connection with
shareholder and distribution services. The Plan authorizes any Fund to pay SEI,
as Distributor of Investor A Shares, a shareholder and distribution service fee
in an amount not to exceed on an annual basis 0.25% of the average daily net
asset value of Investor A Shares of such Fund. Such amount may be used by SEI to
pay banks and their affiliates (including National City and its affiliates), and
other institutions, including broker-dealers ("Participating Organizations") for
administration, distribution, and/or shareholder service assistance pursuant to
an agreement between SEI and the Participating Organization. Under the Investor
A Plan, a Participating Organization may include SEI, its subsidiaries, and its
affiliates.
Fees paid pursuant to the Investor A Plan are accrued daily and paid monthly,
and are charged as expenses of Investor A Shares of a Fund as accrued. Payments
under the Investor A Plan will be calculated daily and paid monthly at a rate
not to exceed the limits described above, which rate is set from time to time by
the Board of Trustees.
Pursuant to the Investor A Plan, the Distributor may enter into agreements with
Participating Organizations for providing shareholder and distribution services
to their customers who are the record or beneficial owners of Investor A Shares.
Such Participating Organizations will be compensated at the annual rate of up to
0.25% of the average daily net asset value of the Investor A Shares held of
record or beneficially by the Participating Organization's customers. The
shareholder and distribution services provided by Participating Organizations
may include promoting the purchase of Investor A Shares of a Fund by their
customers; processing exchange and redemption requests from customers and
placing orders with the Distributor or the Transfer Agent; processing dividend
and distribution payments from a Fund on behalf of customers; providing
information periodically to customers, including information showing their
positions in Investor A Shares; providing sub-accounting with respect to
Investor A Shares beneficially owned by customers or the information necessary
for sub-accounting; responding to inquiries from customers concerning their
investment in Investor A Shares; arranging for bank wires; and providing other
similar services as may be reasonably requested.
Actual distribution and shareholder service expenses for Investor A Shares at
any given time may exceed the Rule 12b-1 fees collected. These unrecovered
amounts plus interest thereon will be carried forward and paid from future Rule
12b-1 fees collected. If the Investor A Plan were terminated or not continued,
the Group would not be contractually obligated to pay for any expenses not
previously reimbursed by the Group. During the fiscal year ended June 30, 1997,
Rule 12b-1 fees collected were sufficient to cover actual distribution and
shareholder service expenses; that is, there were no unrecovered amounts to be
carried forward.
Conflict of interest restrictions may apply to the receipt by Participating
Organizations of compensation from SEI in connection with the investment of
fiduciary assets in Investor A Shares. Institutions, including banks regulated
by the Comptroller of the Currency, the Federal Reserve Board, or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor, or state
securities commissions, are urged to consult their legal advisers before
investing such assets in Investor A Shares.
As authorized by the Investor A Plan, SEI has entered into a Participating
Organization Agreement with First of America Securities, Inc. ("FSI"), a
wholly-owned subsidiary of FABC, as a party and on behalf of its
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affiliate, First of America Brokerage Services, Inc. ("FOA Brokerage"), a
subsidiary of FOA pursuant to which FSI and FOA Brokerage have agreed to provide
certain shareholder and distribution services in connection with Investor A
Shares of the Funds purchased and held by FSI or FOA Brokerage for the accounts
of its customers and Investor A Shares of the Funds purchased and held by
customers of FSI or FOA Brokerage directly. These shareholder and distribution
services include, but are not limited to, printing and distributing prospectuses
to persons other than holders of Investor A Shares of the Funds, printing and
distributing advertising and sales literature in connection with the sale of
Investor A Shares, answering routine customer questions concerning the Funds and
providing such personnel and communication equipment as is necessary and
appropriate to accomplish such matters. In consideration of such services SEI
has agreed to pay FSI a monthly fee, computed at the annual rate of 0.10% of the
average aggregate net asset value of Investor A Shares of the Money Market Funds
and 0.25% of the average aggregate net asset value of Investor A Shares of the
Non-Money Market Funds held during the period in customer accounts for which FSI
or FOA Brokerage has provided services under this Agreement. FSI is responsible
for payment of any portion of that fee payable to FGA Brokerage under the
Agreement. SEI will be compensated by the Funds in an amount equal to its
payments to FSI under the Participating Organization Agreement. Such fee may
exceed the actual costs incurred by FSI in providing such services.
Also in accordance with the Investor A Plan, SEI has entered into a
Participating Organization Agreement with FABC on behalf of its wholly-owned
subsidiary banks (the "Subsidiary Banks"), pursuant to which the Subsidiary
Banks have agreed to provide certain distribution, administrative and
shareholder support service in connection with Investor A Shares purchased
through their accounts. Such services include, but are not limited to,
advertising and marketing the Investor A Shares, printing and distributing
prospectuses to persons other than holders of Investor A Shares, printing and
distributing advertising and sales literature in connection with the sale of
Investor A Shares, answering routine customer questions concerning the Funds and
providing such personnel and communication equipment as is necessary and
appropriate to accomplish such matters. In consideration for such services, SEI
has agreed to pay FABC a monthly fee, computed at the annual rate of 0.10% for
the Money Market Funds and 0.25% of the Non-Money Market Funds of the average
aggregate net asset value of Investor A Shares held during the period in
customer accounts for which the Subsidiary Banks provided such services under
this Agreement. FABC is responsible for making any applicable payments to each
Subsidiary Bank. SEI will be compensated by each Fund in an amount equal to its
payments to FABC under the Participating Organization Agreement with respect to
Investor A Shares of that Fund. Such fee may exceed the actual costs incurred by
the Subsidiary Banks in providing the services.
The Group understands that Participating Organizations may charge fees to their
customers who are the owners of Investor A Shares for additional services
provided in connection with their customer accounts. These fees would be in
addition to any amounts which may be received by a Participating Organization
under its Agreement with SEI. Customers of Participating Organizations should
read this Prospectus in light of the terms governing their account with a
Participating Organization.
The Investor A Plan requires the officers of the Group to provide the Board of
Trustees at least quarterly with a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made. The
Board reviews these reports in connection with its decisions with respect to the
Plan.
As required by Rule 12b-1, the Investor A Plan was approved by the Trustees of
the Group, including a majority of the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Group and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements related to
the Plan ("Independent Trustees"). The Investor A Plan continues in effect as
long as such continuance is specifically approved at least annually by the
Group's Trustees, including a majority of the Independent Trustees.
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<PAGE> 112
The Investor A Plan may be terminated by a vote of a majority of the Independent
Trustees, or by a vote of a majority of the holders of the outstanding voting
securities of the Investor A Shares. Any change in the Investor A Plan that
would increase materially the distribution expenses paid by a Fund requires
shareholder approval; otherwise, the Plan may be amended by the Board of
Trustees, including a majority of the Independent Trustees by a vote cast in
person at a meeting called for the purpose of voting upon the amendment. As long
as the Investor A Plan is in effect, the selection or nomination of the
Independent Trustees is committed to the discretion of the Independent Trustees.
CUSTODIAN, TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
National City Bank serves as the custodian of the Group's assets. State Street
Bank and Trust Company serves as the Group's transfer and dividend disbursing
agent. Communications to the Transfer Agent should be directed to P.O. Box 8421,
Boston, Massachusetts 02266-8421. BISYS Ohio, 3435 Stelzer Road, Columbus, Ohio
43219, provides certain accounting services for each of the Funds and receives a
fee for such services. See "MANAGEMENT OF THE GROUP--Custodian, Transfer Agent
and Fund Accounting Services" in the Statement of Additional Information for
further information.
While BISYS Ohio is a distinct legal entity from BISYS (the Group's
Administrator), 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.
HOW TO BUY INVESTOR A SHARES
Investor A Shares of each Fund are continuously offered and may be purchased
directly either by mail or by telephone. Investor A Shares of the Michigan Bond
Fund may only be sold in those states where the Fund has filed the required
notification documents, currently only Colorado, District of Columbia, Florida,
Georgia, Hawaii, Illinois, Indiana, Michigan, Mississippi, New Jersey, Ohio and
Virginia. Investor A Shares may also be purchased through a broker-dealer that
has entered into a dealer agreement with the Distributor. Except as otherwise
discussed below under "Other Information Regarding Purchases" and "Auto Invest
Plan," the minimum initial investment in a Fund, based upon the public offering
price, is $1,000; however, there is no minimum subsequent purchase. Shareholders
will pay the next calculated net asset value after the receipt by the
Distributor of an order to purchase Investor A Shares, plus an applicable sales
charge as described below (see "SALES CHARGES"). In the case of an order for the
purchase of shares placed through a broker-dealer, it is the responsibility of
the broker-dealer to transmit the order to the Distributor promptly.
BY MAIL
To purchase Investor A Shares of any of the Funds by mail, complete an Account
Application Form and return it along with a check or money order made payable to
The Parkstone Group of Funds at the following address:
The Parkstone Group of Funds
P.O. Box 50551
Kalamazoo, Michigan 49005-0551
An Account Application Form can be obtained by calling the Group at (800)
451-8377.
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<PAGE> 113
BY TELEPHONE
To purchase Investor A Shares of any of the Funds by telephone, an Account
Application Form must have been previously received by the Distributor. To place
an order by telephone, even if payment is to be made by wire, call the Group's
toll-free number (800) 451-8377. Payment for such Investor A Shares ordered by
telephone may be made by check or wire. Where payment is made by check, the
transaction will not be processed until the check is received by the Group's
Custodian. If a check received to purchase Investor B Shares does not clear or
if a wire transfer is not received by the Group's Custodian within three
Business Days (as defined in "HOW SHARES ARE VALUED") of the purchase order, the
purchase may be canceled and the investor could be liable for any losses or fees
incurred. When purchasing Investor A Shares by wire, contact the Distributor at
(800) 851-1227 for wire instructions.
OTHER INFORMATION REGARDING PURCHASES
Investor A Shares may also be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by National City or one of its
affiliates. Investor A Shares of the Funds sold to National City or the
affiliate acting in a fiduciary, advisory, custodial, or other similar capacity
on behalf of Customers will normally be held of record by National City or the
affiliate. With respect to such Investor A Shares so sold, it is the
responsibility of the holder of record to transmit purchase or redemption orders
to the Distributor and to deliver funds for the purchase thereof on a timely
basis. Beneficial ownership of such investor A Shares of the Funds will be
recorded by National City or one of its affiliates and reflected in the account
statements provided to Customers National City or one of its affiliates may
exercise voting authority for those Investor A Shares for which it has been
granted authority by the Customer.
Investor A Shares of the Funds are purchased at the net asset value per share
(see "HOW SHARES ARE VALUED") next determined after receipt by the Distributor
of an order to purchase Investor A Shares plus any applicable sales charge as
described below. Purchases of Investor A Shares of any of the Funds will be
effected only on a Business Day (as defined in "HOW SHARES ARE VALUED") of the
applicable Fund. An order received prior to a Valuation Time on any Business
Day will be executed at the net asset value determined as of the next Valuation
ime on the date of receipt. An order received after the last Valuation Time on
any Business Day will be executed at the net asset value determined as of the
next Valuation Time on the next Business Day of that Fund. Investor A Shares of
all Funds, except the Money Market Funds are eligible to earn dividends on the
first Business Day following the execution of the purchase. Investor A Shares
of the Money Market Funds purchased before 11:30 a.m., Eastern Time begin
earning dividends on the same Business Day. Investor A Shares of the Funds
continue to be eligible to earn dividends through the day before their
redemption.
An order to purchase Investor A Shares will be deemed to have been received by
the Distributor only when federal funds are available to the Group's Custodian
for investment. Federal funds are monies credited to a bank's account within
Federal Reserve Bank. Payment for an order to purchase Investor A Shares which
is transmitted by federal funds wire will be available the same day for
investment by the Group's Custodian, if received prior to the last Valuation
Time (see "HOW SHARES ARE VALUED"). Purchases made by check or other means are
made at the price next determined upon receipt of the purchase order. However,
proceeds from redeemed shares purchased by check will not be sent until the
payment has cleared. The Group strongly recommends that investors of
substantial amounts use federal funds to purchase Investor A Shares.
The minimum initial investment amount referred to above may be waived if
purchases are made in connection with Individual Retirement Accounts (IRAs),
Keoghs or similar plans. For information on IRAs, Keoghs or similar plans,
contact National City at (800) 544-6155. Due to the relatively high cost of
handling small
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investments, the Group reserves the right to redeem involuntarily, at net asset
value, the Investor A Shares of any shareholder if, because of redemptions of
Investor A Shares by or on behalf of the shareholder (but not as a result of a
decrease in the market price of such Investor A Shares, the deduction of any
sales charge or the establishment of an account with less than $1,000 using the
Auto Invest Plan), the account of such shareholder in that Fund has a value of
less than $1,000. Accordingly, an investor purchasing Investor A Shares of a
Fund in only the minimum investment amount may be subject to such involuntary
redemption if the investor thereafter redeems any such Investor A Shares. If at
any time a shareholder's account balance falls below $1,000, upon 30 days'
notice, the Group may exercise its right to redeem such Investor A Shares and to
send the proceeds to the shareholder.
Depending upon the terms of a particular Customer account, National City or one
of its affiliates may charge a Customer account fees for services provided in
connection with investment in a Fund. Information concerning these services and
any charges may be obtained from FABC or the affiliate. This Prospectus should
be read in conjunction with any such information so received.
The Group reserves the right to reject any order for the purchase of Investor A
Shares in whole or in part.
Every shareholder will receive a confirmation of each new transaction in the
shareholder's account which will also show the total number of Investor A Shares
of the respective Fund of the Group owned by the shareholder. Confirmation of
purchases and redemptions of Investor A Shares of the Funds by National City or
one of its affiliates on behalf of a Customer may be obtained from National City
or the affiliate. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Investor A Shares of the Funds will not
be issued.
AUTO INVEST PLAN
The Parkstone Group of Funds Auto Invest Plan (the "Auto Invest Plan") enables
shareholders to make regular monthly or quarterly purchases of Investor A Shares
through automatic deduction from their bank accounts. With shareholder
authorization, the Group's Transfer Agent will deduct the amount specified
(subject to the applicable minimums) from the shareholder's bank account which
will automatically be invested in shares at the public offering price on the
date of such deduction (or the next Business Day thereafter, as defined under
"HOW SHARES ARE VALUED" below). The required minimum initial investment when
opening an account using the Auto Invest Plan is $100; the minimum amount for
subsequent investments in a Fund is $50. To participate in the Auto Invest Plan,
shareholders should complete the appropriate section of the Account Application
Form or a supplemental Auto Invest Plan application that can be acquired by
calling the Group at (800) 451-8377. For a shareholder to change the Auto Invest
Plan instructions, the request must be made in writing to the Group's
Distributor, SEI Investments Distribution Co., c/o The Parkstone Group of Funds,
Oaks, Pennsylvania 19456 and may take up to 15 days to implement.
SALES CHARGES
The public offering price of Investor A Shares of the Funds is equal to net
asset value plus the applicable sales charge. SEI receives this sales charge as
Distributor and may reallow it as dealer discounts and brokerage commissions as
follows:
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<PAGE> 115
GROWTH FUNDS
GROWTH AND INCOME FUNDS
<TABLE>
<CAPTION>
DEALER
DISCOUNTS
SALES CHARGE AND BROKERAGE
AS % OF SALES CHARGE COMMISSIONS
AMOUNT OF TRANSACTION AT NET AMOUNT AS % OF PUBLIC AS % OF PUBLIC
PUBLIC OFFERING PRICE INVESTED OFFERING PRICE OFFERING PRICE
- ----------------------------------- -------- -------------- --------------
<S> <C> <C> <C>
Less than $50,000 4.71% 4.50% 4.00%
$50,000 but less than $100,000 4.17 4.00 3.50
$100,000 but less than $260,000. 3.09 1.00 2.50
$250,000 but lean than $500,000 2.04 2.00 1.50
$500,000 but less than $1,000,000 1.01 1.00 1.00
$1,000,000 or more 0.00 0.00 0.00
INCOME FUNDS
TAX-FREE INCOME FUNDS
DEALER
DISCOUNTS
SALES CHARGE AND BROKERAGE
AS % OF SALES CHARGE COMMISSIONS
AMOUNT OF TRANSACTION AT NET AMOUNT AS % OF PUBLIC AS % OF PUBLIC
PUBLIC OFFERING PRICE INVESTED OFFERING PRICE OFFERING PRICE
- ----------------------------------- -------- -------------- --------------
Less than $50,000 4.17% 4.00% 3.75%
$50,000 but less than $100,000 3.63 3.50 3.25
$100,000 but less than $250,000 3.09 3.00 2.50
$250,000 but less than $500,000 2.04 2.00 1.50
$500,000 but less than $1,000,000 1.01 1.00 1.00
$1,000,000 or more 0.00 0.00 0.00
</TABLE>
IN GENERAL
From time to time dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers.
In addition to amounts paid to dealers as a dealer concession out of the sales
charge paid by investors, if any, the Distributor may, from time to time, at its
expense or as an expense for which it may be reimbursed under the Investor A
Plan, pay a bonus or other consideration or incentive to dealers who sell a
minimum dollar amount of shares of a Fund during a specified period of time. Any
such additional consideration or incentive program may be terminated at any time
by the Distributor.
The dealer discounts and brokerage commissions schedule above applies to all
dealers who have agreements with the Distributor except FSI, to which the
Distributor reallows all of the sales charge on the shares sold by FSI. The
Distributor, at its expense, may also provide additional compensation to dealers
in connection with sales of shares of any of the Funds of the Group.
Compensation may include financial assistance to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns regarding one or more Funds of the Group, and/or
other dealer-sponsored special events. In some instances, this compensation may
be made available only to certain dealers whose representatives have sold or are
expected to sell a significant amount of such shares. Compensation may include
payment for travel expenses, including lodging, incurred in
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connection with trips taken by invited registered representatives and members of
their families to exotic locations within or outside of the United States for
meetings or seminars of a business nature. Compensation may also include the
following types of non-cash items offered through sales contests: (1) vacation
trips, including travel arrangements and lodging at resorts; (2) tickets for
entertainment events (such as concerts, cruises and sporting events); and (3)
merchandise (such as clothing, trophies, clocks and pens). The Distributor, at
its expense, currently conducts an annual sales contest for dealers, including
FSI, in connection with their sales of shares of the Funds. Dealers may not use
sales of a Fund's shares to qualify for this compensation to the extent such may
be prohibited by the laws of any state or any self-regulatory agency, such as
the National Association of Securities Dealers, Inc.
REDUCED SALES CHARGES
SALES CHARGE WAIVERS
The Distributor may waive sales charges for the purchase of Investor A Shares of
a Fund by or on behalf of (1) employees and retired employees (including
spouses, children and parents of employees and retired employees) of National
City, BISYS, SEI and any affiliates thereof, (2) Trustees of the Group, (3)
directors and retired directors (including spouses and children of directors and
retired directors) of National City and any affiliate thereof, (4) employees
(and their spouses and children under the age of 21) of any broker-dealer with
which the Distributor enters into an agreement to sell shares of the Funds, (5)
orders placed on behalf of other investment companies distributed by the
Distributor and (6) qualified orders placed by broker-dealers, investment
advisers or financial planners that place trades for their own accounts or the
accounts of their clients and that charge a management, consulting or other fee
for their services; and clients of such broker-dealers, investment advisers or
financial planners that place trades for their own accounts if the accounts are
linked to the master account of such broker-dealer, investment adviser or
financial planner on the books and records of the broker or agent. Investors may
be charged a fee if they effect transactions in Investor A Shares through a
broker or agent. In addition, the Distributor may waive sales charges on
Investor A Shares purchased with the proceeds from the redemption of shares of
an unaffiliated mutual fund that were purchased or sold with a sales load or
commission. The purchase must be made within 60 days of the redemption, and the
Distributor must be notified in writing by the investor, or his financial
institution, at the time the purchase is made. A copy of the investor's account
statement showing the redemption must accompany such notice. Investors are
advised that a sales charge will not be waived in situations where a broker or
dealer has reached an agreement with its customer that the sales charge will be
collected, notwithstanding the fact that a Fund purchase is made with the
proceeds from the redemption of shares of an unaffiliated mutual fund. In these
cases, investors acknowledge that the sales charge compensates the broker or
dealer for the services of such broker or dealer.
The Distributor may also waive sales charges for the purchase of Investor A
Shares of a Fund by employee benefit plans qualified under Section 401 of the
Internal Revenue Code, including salary reduction plans qualified under Section
401(k) of the Internal Revenue Code, subject to minimum requirements with
respect to number of employees or amount of purchase, which may be established
by the Distributor. Currently, those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested or
to be invested during the subsequent thirteen-month period in the Funds or the
Investor A Shares of the other Funds of the Group totals at least $1,000,000.
Participating Organizations through which employee benefit plans purchase
Investor A Shares may be compensated by the Distributor under the Investor A
Plan.
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CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining "concurrent purchases" of Investor A Shares of one Fund
and of one or more of the other Funds of the Group sold with a sales charge. For
example, if a shareholder concurrently purchases Investor A Shares in one of the
other Funds of the Group sold with a sales charge at the total public offering
price of $25,000 and Investor A Shares in a Fund at the total public offering
price of $25,000, the sales charge would be that applicable to a $50,000
purchase as shown in the appropriate table above. The investor's "concurrent
purchases" described above shall include the combined purchases of the investor,
the investor's spouse and children under the age of 21 and the purchaser's
retirement plan accounts. To receive the applicable public offering price
pursuant to this privilege, shareholders must, at the time of purchase, give the
Transfer Agent or the Distributor sufficient information to permit confirmation
of qualification. This privilege, however, may be modified or eliminated at any
time or from time to time by the Group without notice.
LETTERS OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter of
Intent which expresses the intention of such investor to purchase Investor A
Shares of a Fund at a designated total public offering price within a designated
13-month period. Each purchase of Investor A Shares under a Letter of Intent
will be made at the net asset value plus the sales charge applicable at the time
of such purchase to a single transaction of the total dollar amount indicated in
the Letter of Intent (the "Applicable Sales Charge"). A Letter of Intent may
include purchases of Investor A Shares made not more than 90 days prior to the
date such investor signs a Letter of Intent; however, the 13-month period during
which the Letter of Intent is in effect will begin on the date of the earliest
purchase to be included. An investor will receive as a credit against his/her
initial purchase(s) of shares at the end of the 13-month period the difference,
if any, between the sales load paid on previous purchases qualifying under the
Letter of Intent and the Applicable Sales Charge.
A Letter of Intent is not a binding obligation upon the investor to purchase the
full amount indicated. The minimum initial investment under a Letter of Intent
is 5% of such amount. Investor A Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the name of the
investor) to secure payment of the higher sales charge applicable to the
Investor A Shares actually purchased if the full amount indicated is not
purchased, and such escrowed Investor A Shares will be involuntarily redeemed to
pay the additional sales charge, if necessary. Dividends on escrowed Investor A
Shares, whether paid in cash or reinvested in additional Investor A Shares, are
not subject to escrow. The escrowed Investor A Shares will not be available for
disposal by the investor until all purchases pursuant to the Letter of Intent
have been made or the higher sales charge has been paid. If and when the full
amount indicated has been purchased, the escrow will be released. To the extent
that an investor purchases more than the dollar amount indicated on the Letter
of Intent and qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased, along with any purchases made
during the 90 days prior to the date such investor signs the Letter of Intent,
at the applicable public offering price at the end of the 13-month period. The
difference in sales charge will be used to purchase additional Investor A Shares
of such Fund subject to the rate of sales charge applicable to the actual amount
of the aggregate purchases.
For further information about Letters of Intent, interested investors should
contact the Distributor at (800) 451-8377. This program, however, may be
modified or eliminated at any time or from time to time by the Group without
notice.
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RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Investor A Shares of a Fund at the public offering price applicable to the total
of (a) the total public offering price of the Investor A Shares of the Fund then
being purchased plus (b) an amount equal to the then current net asset value of
the "purchaser's combined holdings" of the Investor A Shares of all of the Funds
of the Group sold with a sales charge. The "purchaser's combined holdings"
described in the preceding sentence shall include the combined holdings of the
purchaser, the purchaser's spouse and children under the age of 21 and the
purchaser's retirement plan accounts. To receive the applicable public offering
price pursuant to the right of accumulation, shareholders must, at the time of
purchase, give the Transfer Agent or the Distributor sufficient information to
permit confirmation of qualification. This right of accumulation, however, may
be modified or eliminated at any time or from time to time by the Group without
notice.
DIRECTED DIVIDEND OPTION
A shareholder may elect to have all income dividends and capital gains
distributions paid by check, reinvested in the Fund or reinvested in any of the
Group's other Funds, without the payment of a sales charge (provided the other
Fund is maintained at the minimum required balance). If you elect to receive
distributions paid by check and the check (1) is returned and marked as
"undeliverable" or (2) remains uncashed for six months, your payment election
will be changed automatically and your future dividend and capital gains
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, any
undeliverable checks that remain uncashed for six months will be cancelled and
reinvested in the Fund at the per share net asset value determined as of the
date of cancellation.
The Directed Dividend Option may be modified or terminated by the Group at any
time after notice to participating shareholders. Participation in the Directed
Dividend Option may be terminated or changed by the shareholder at any time by
writing the Distributor. The Directed Dividend Option is not available to
participants in any of the Parkstone IRAs.
EXCHANGE PRIVILEGE
The exchange privilege enables shareholders of Investor A Shares to acquire
Investor A Shares that are offered by another Fund of the Group with a different
investment objective. In order for the exchange privilege to apply, the
redemption of one Fund and corresponding purchase of another Fund must occur on
the same Business Day (as defined in "HOW SHARES ARE VALUED" below). Holders of
shares of one class may not exchange their shares for shares of another class.
For example, holders of a Fund's Investor B Shares may not exchange their shares
for Investor A Shares, and holders of a Fund's Investor A Shares may not
exchange their shares for Investor B Shares.
Holders of Investor A Shares of any of the Group's Money Market Funds (including
Investor A Shares acquired through reinvestment of dividends and distributions
on such shares) may exchange those Investor A Shares at net asset value without
any sales charge for Investor A Shares offered by any of the Group's other Money
Market Funds, provided that the amount to be exchanged meets the applicable
minimum investment requirements and the exchange is made in states where it is
legally authorized. Similarly, holders of Investor A Shares of any of the
Group's other Funds (the "Non-Money Market Funds") may exchange those Investor A
Shares at net asset value without any sales charge for Investor A Shares offered
by any Fund of the Group, including the Money Market Funds. Holders of Investor
A Shares of any of the Group's Money Market Funds may exchange those Investor A
Shares for Investor A Shares offered by the Non-Money Market Funds of the Group,
but a sales load will be charged on the exchange.
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An exchange is considered a sale of shares on which a shareholder may realize a
capital gain or loss for federal income tax purposes. A shareholder may not
include any sales charge on shares of a Fund as a part of the cost of those
shares for purposes of calculating the gain or loss realized on an exchange of
those shares within 90 days of their purchase.
A shareholder wishing to exchange his or her shares may do so by contacting the
Group at (800) 451-8377 or by providing written instructions to the Transfer
Agent. Any shareholder who wishes to make an exchange should obtain and review
the current Prospectus of the Fund of the Group in which the shareholder wishes
to invest before making the exchange. For a discussion of risks associated with
unauthorized telephone exchanges, see "HOW TO REDEEM YOUR INVESTOR A SHARES--By
Telephone" below.
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS
Investor A Shares of the Funds are available to shareholders on a tax-deferred
basis through the following retirement plans:
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A Parkstone IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Parkstone IRA contributions may be tax-deductible and earnings are tax-deferred.
The tax deductibility of IRA contributions is restricted or eliminated for
individuals who participate in certain employer pension plans and whose annual
income exceeds certain limits. Existing IRAs and future contributions up to the
IRA maximums, whether deductible or not, still earn income on a tax deferred
basis.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")
A Parkstone SEP/IRA may be established on a group basis by an employer who
wishes to sponsor a tax-sheltered retirement program by making contributions
into IRAs on behalf of all eligible employees.
All Parkstone IRA distribution requests must be made in writing to the Transfer
Agent. Any additional deposits to a Parkstone IRA must distinguish the type and
year of the contribution.
For more information on any of the Parkstone IRAs or other retirement plan
options available (401(k) Defined Contribution Plans, 403(b)(7) Defined
Compensation Plans, etc.), call the Group at (800) 451-8377. Shareholders are
advised to consult a tax adviser on Parkstone IRA contribution and withdrawal
requirements and restrictions.
HOW TO REDEEM YOUR INVESTOR A SHARES
Shareholders may redeem their Investor A Shares on any day that net asset value
is calculated (see "HOW SHARES ARE VALUED"). Holders of Investor A Shares with
over $1 million invested in the Small Capitalization Fund who redeem such shares
within one year from the date of purchase will be subject to a 1.00% redemption
fee. All other shareholders may redeem their Investor A Shares without charge,
Redemptions will be effected at the net asset value per share next determined
after receipt of a redemption request. Redemptions may be requested by mail or
by telephone.
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BY MAIL
A written request for redemption must be received by the Transfer Agent in order
to honor the request. The Transfer Agent's address is: State Street Bank and
Trust Company, c/o The Parkstone Group of Funds, P.O. Box 8421, Boston,
Massachusetts 02266-8421. The Transfer Agent will require a signature guarantee
by an eligible guarantor institution. The signature guarantee requirement will
be waived if all of the following conditions apply: (1) the redemption check is
payable to the shareholder(s) of record, and (2) the redemption check is mailed
to the shareholder(s) at the address of record. The shareholder may also have
the proceeds mailed to a commercial bank account previously designated on the
Account Application Form. There is no charge for having redemption proceeds
mailed to a designated bank account. To change the address to which a redemption
check is to be mailed, a written request therefor must be received by the
Transfer Agent. In connection with such request, the Transfer Agent will require
a signature guarantee by an eligible guarantor institution.
For purposes of this policy, the term "eligible guarantor institution" shall
include banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings associations, as those terms are
defined in the Securities Exchange Act of 1934. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that neither is a member of a clearing corporation nor maintains net
capital of at least $100,000.
BY TELEPHONE
Investor A Shares may be redeemed by telephone if the Account Application Form
reflects that the shareholder has that capability. The shareholder may have the
proceeds mailed to his or her address or mailed or wired to a commercial bank
account previously designated on the Account Application Form. Under most
circumstances, payments will be transmitted on the next Business Day (as defined
in "HOW SHARES ARE VALUED" below). Wire redemption requests may be made by the
shareholder by telephone to the Group at (800) 451-8377. While the Transfer
Agent currently does not charge a wire redemption fee, the Transfer Agent
reserves the right to impose such a fee in the future.
The Group's Account Application Form provides that none of the Transfer Agent,
BISYS Ohio, the Group or any of their affiliates or agents will be liable for
any loss, expense or cost when acting upon any oral, wired or electronically
transmitted instructions or inquiries believed by them to be genuine. While
precautions will be taken, shareholders bear the risk of any loss as the result
of unauthorized telephone redemptions or exchanges believed by the Transfer
Agent to be genuine. If the telephone feature was not originally selected, the
shareholder must provide written instructions to the Group to add it. The Group
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; if these procedures are not followed, the Group may be
liable for any losses due to unauthorized or fraudulent instructions. These
procedures include recording all phone conversations, sending confirmations to
shareholders within 72 hours of the telephone transaction, verifying the account
name and a shareholder's account number or tax identification number and sending
redemption proceeds only to the address of record or to a previously authorized
bank account. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, shareholders may mail the request to the Transfer
Agent. In addition, redemptions by telephone will be suspended for a period of
10 days following any change in the applicable telephone number.
CHECK WRITING FEATURE
Shareholders of Investor A Shares of the Money Market Funds may write checks on
accounts for a minimum of $500. Once a shareholder has signed and returned a
signature card, he or she will receive a supply of
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checks. A check may be made payable to any person, and the shareholder's account
will continue to earn dividends until the check clears. Because of the
difficulty of determining in advance the exact value of the Fund account, a
shareholder may not use a check to close his or her account. The shareholder's
account will be charged a fee for stopping payment of a check upon the
shareholder's request or if the check cannot be honored because of insufficient
funds or other valid reasons.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables shareholders of a Fund to make regular monthly
or quarterly redemptions of Investor A Shares. With shareholder authorization,
the Transfer Agent will automatically redeem such Investor A Shares at the net
asset value on the fifth and/or twentieth day of the month or quarter (or the
next Business Day, as defined in "HOW SHARES ARE VALUED," thereafter) and have
the amount specified transferred according to the written instructions of the
shareholder. Shareholders participating in this plan must maintain a minimum
account balance of $1,000, The required minimum withdrawal is $100, monthly or
quarterly.
The Auto Withdrawal Plan may be modified or terminated without notice. In
addition, the Group may suspend a shareholder's withdrawal plan without notice
if the account contains insufficient funds to effect a withdrawal or in the
event that the account balance is less than the minimum $1,000 amount.
To participate in the Auto Withdrawal Plan, shareholders should call (800)
451-8377 for more information. Purchases of additional Investor A Shares
concurrently with withdrawals may be disadvantageous to certain shareholders
because of tax liabilities and sales charges. For a shareholder to change the
Auto Withdrawal Plan instructions, the request must be made in writing to the
Distributor and may take up to 15 days to implement.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a customer's Investor A Shares may be redeemed in accordance with
instructions and limitations pertaining to his or her account at National City
or one of its affiliates.
Redemption orders are effected at the net asset value per share next determined
after the Investor A Shares are properly tendered for redemption, as described
above. The proceeds paid upon redemption of such Investor A Shares of the Funds
may be more or less than the amount invested. Payment to shareholders for such
Investor A Shares redeemed will be made within seven days after receipt by the
Transfer Agent of the request for redemption. However, to the greatest extent
possible, requests from shareholders for next day payments upon redemption of
Investor A Shares will be honored if received by the Transfer Agent before 4:00
p.m. (Eastern Time) on a Business Day (as defined below in "HOW SHARES ARE
VALUED") or, if received after 4:00 p.m. (Eastern Time), within two Business
Days, unless it would be disadvantageous to the Group or the shareholders of a
Fund to sell or liquidate portfolio securities in an amount sufficient to
satisfy requests for payments in that manner. Also to the greatest extent
possible, requests for same day payments upon redemption of Investor A Shares of
the Money Market Funds will be honored if the request for redemption is received
by the Transfer Agent before 11:30 a.m., (Eastern Time), on a Business Day or,
if received after 11:30 a.m., (Eastern Time), on the next Business Day, unless
it would be disadvantageous to the Group or the shareholders of a Fund to sell
or liquidate portfolio securities in an amount sufficient to satisfy requests
for payments in that manner.
At various times, the Group may be requested to redeem Investor A Shares for
which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed until payment has been collected for the
purchase of such Investor A Shares which delay may be for 15 days or more. Such
delay may
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be avoided if such Investor A Shares are purchased by wire transfer of
federal funds. The Group intends to pay cash for all Investor A Shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in portfolio securities at their then market value equal
to the redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
See the Statement of Additional Information ("ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION") for examples of when the Group may suspend the right of redemption
or redeem Investor A Shares involuntarily if it appears appropriate to do so in
light of the Group's responsibilities under the 1940 Act.
HOW SHARES ARE VALUED
The net asset value of the Investor A Shares of the Funds, with the exception of
the Money Market Funds, is determined and the shares are priced as of the close
of trading on the New York Stock Exchange (the "NYSE") on each Business Day
(generally 4:00 p.m. Eastern Time) (with respect to the Non-Money Market Funds,
the "Valuation Time"). The net asset value of the Investor A Shares of the Money
Market Funds is determined and the shares are priced as of 12:00 p.m. noon
(Eastern Time) and as of the close of trading on the NYSE on each Business Day
(with respect to the Money Market Funds, the "Valuation Times"). A "Business
Day" is a day on which the NYSE is open for trading and any other day other than
a day on which no shares are tendered for redemption and no order to purchase
any shares is received. Currently, the NYSE will not open in observance of the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding shares of such class.
The net asset value per share will fluctuate as the value of the investment
portfolio of a Fund changes. However, the assets in each Money Market Fund are
valued based upon the amortized cost method. Pursuant to the rules and
regulations of the SEC regarding the use of the amortized cost method, each
Money Market Fund will maintain a dollar-weighted average portfolio maturity of
90 days or less. Although the Group seeks to maintain each Money Market Fund's
net asset value per share at $1.00, there can be no assurance that net asset
value will not vary.
The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. Foreign securities are valued
based on notations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income for each Fund is declared monthly as a dividend to shareholders at
the close of business on the day of declaration and is paid monthly, except for
the Money Market Funds which declare dividends daily and pay them monthly. In
some months, certain Funds may not pay any dividends. Distributable net realized
capital gains are distributed at least annually. A shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional shares at net asset value as of the date of
declaration,
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unless the shareholder elects to receive dividends or distributions in cash or
elects to participate in the Directed Dividend Option. Such election, or any
revocation thereof, must be made in writing to the Transfer Agent, c/o The
Parkstone Group of Funds, P.O. Box 8421, Boston, Massachusetts 02266-8421, and
will become effective with respect to dividends and distributions having record
dates after its receipt by the Transfer Agent.
Each Fund's net investment income available for distribution to the holders of
Investor A Shares will be reduced by the amount of Rule 12b-1 fees payable to
Participating Organizations under the Investor A Plan. Each Fund's net
investment income available for distribution to the holders of Investor A Shares
may also be reduced by the amount of retail transfer agency fees payable to the
Transfer Agent applicable to the Investor A Shares.
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally relieves a Fund of liability for federal income taxes to
the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that a Fund distribute to its shareholders an
amount equal to at least the sum of 90% of its investment company taxable income
and 90% of its net tax-exempt interest income, if any, for such year. In
general, a Fund's investment company taxable income will be the sum of its net
investment income and the excess of any net short-term capital gain for the
taxable year over the net long-term capital loss, if any, for such year. Each
Fund intends to distribute substantially all of its investment company taxable
income and net tax-exempt income each taxable year. Such distributions by the
Growth Funds, Growth and Income Funds, Income Funds and Money Market Funds
(other than the Tax-Free Fund) will be taxable as ordinary income to their
respective shareholders who are not currently exempt from federal income taxes,
whether such income is received in cash or reinvested in additional shares.
(Federal income taxes for distributions to an IRA or to qualified retirement
plan are deferred under the Code.) For corporate shareholders, the dividends
received deduction will apply to such distributions to the extent of the gross
amount of qualifying dividends received by the distributing Fund from domestic
corporations for the taxable year. Although the Tax-Free Income Funds and
Tax-Free Fund do not intend to earn any investment company taxable income, they
intend to distribute substantially all of their net tax-exempt income (such
distributions are known as "exempt-interest dividends") each taxable year.
Exempt-interest dividends may be treated by shareholders as items of interest
excludable from their gross income under Section 103(a) of the Code unless under
the circumstances applicable to the particular shareholder the exclusion would
be disallowed. See the Statement of Additional Information under "Additional
Information Concerning Taxes."
Substantially all of each Fund's net realized long-term capital gains, if any,
will be distributed at least annually to Fund shareholders. A Fund will
generally have no tax liability with respect to such gains and the distributions
will be taxable to Fund shareholders who are not currently exempt from federal
income taxes as long-term capital gains, regardless of how long the shareholders
have held Fund shares and whether such gains are received in cash or reinvested
in additional shares. The Tax-Free Income Funds and Money Market Funds do not
intend to earn any net long-term capital gains.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date before the end of the year will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year in the event such dividends are actually paid during January of the
following year.
Prior to purchasing Fund shares, the impact of dividends or distributions which
are expected to be declared or have been declared, but not paid, should be
carefully considered. Any dividend or distribution declared shortly after a
purchase of shares prior to the record date will have the effect of reducing the
per share net asset
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value by the per share amount of the dividend or distribution. All or a portion
of such dividend or distribution, although in effect a return of capital, may be
subject to tax.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Fund shares depending upon the tax basis of such shares
and their price at the time of redemption, transfer or exchange. If a
shareholder has held shares for six months or less and during that time received
a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the purchase of
Fund shares in his tax basis for such shares for the purpose of determining gain
or loss on a redemption, transfer or exchange of such shares. However, if the
shareholder effects an exchange of such shares of another Fund within 90 days of
the purchase and is able to reduce the sales charge applicable to the new shares
(by virtue of the Group's exchange privilege), the amount equal to such
reduction may not be included in the tax basis of the shareholder's exchanged
shares but may be included (subject to this limitation) in the tax basis of the
new shares.
Taxes may be imposed on the Funds, particularly the Balanced Allocation Fund and
International Fund, by foreign countries with respect to income received on
foreign securities. If more than 50% of the value of a Fund's assets at the
close of its taxable year consists of stocks or securities of foreign
corporations, the Fund may elect to treat any foreign income taxes it paid as
paid by its shareholders. In this case, shareholders generally will be required
to include in income their pro rata share of such taxes, but will then be
entitled to claim a credit or deduction for their share of such taxes. However,
a particular shareholder's ability to utilize such a credit will be subject to
certain limitations imposed by the Code. The Funds will report to their
shareholders each year the amount, if any, of foreign taxes per share that they
have elected to have treated as paid by their shareholders.
THE MUNICIPAL BOND FUND, THE MICHIGAN BOND FUND AND THE TAX-FREE FUND (THE
"EXEMPT FUNDS")
If the Exempt Funds hold certain private activity bonds, shareholders must
include as an item of tax preference for purposes of the federal alternative
minimum tax that portion of dividends paid by these Funds derived from interest
received on such bonds. Shareholders receiving Social Security or railroad
retirement payments should note that all exempt-interest dividends will be taken
into account in determining the taxability of such benefits.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of the Exempt Funds generally will not be deductible for federal income tax
purposes.
Distributions by the Michigan Bond Fund to holders of shares who are subject to
the Michigan personal income tax and/or single business tax will not be subject
to the Michigan personal income tax, single business tax or any Michigan city
income tax to the extent that the distributions are attributable to income
received by the Michigan Bond Fund as interest from Michigan Municipal
Securities or to the extent that the distributions are attributable to interest
income and gains from the sale or disposal of United States obligations exempted
from state taxation by the United States Constitution, treaties, and statutes.
However, some or all of the other distributions by the Michigan Bond Fund may be
taxable by the State of Michigan or subject to applicable city income taxes,
even if the distributions are attributable to income of the Michigan Bond Fund
derived from obligations of the United States or its agencies and
instrumentalities. In addition, to the extent that a shareholder of the Michigan
Bond Fund is obligated to pay state or local taxes outside of Michigan,
dividends earned by an investment in the Michigan Bond Fund represent taxable
income. Investments held in the Michigan Bond Fund by a Michigan resident are
not subject to the Michigan intangible personal property tax to the extent that
the investments are attributable to bonds or other similar obligations of the
State of Michigan or a political subdivision thereof, or obligations of the
United States.
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<PAGE> 125
The Michigan Department of Treasury in a 1986 Revenue Administrative Bulletin
has taken the position that the tax attributes of the securities held by a
mutual fund flow through to the investors. Based on this position, the Michigan
Department of Treasury has stated that mutual fund distributions attributable to
interest from the fund's investment in direct U.S. government securities, as
well as Municipal Securities, will not be subject to the Michigan personal
income tax. The Michigan Department of Treasury also has stated that an owner of
a share of a mutual fund will not be subject to intangible personal property tax
to the extent that the pro rata share of the securities underlying mutual fund
would be exempt.
For Michigan personal income tax and intangible personal property tax purposes,
taxable distributions from investment income and short-term capital gains, if
any, are taxable as ordinary income, whether received in cash or additional
shares, and are subject to the Michigan intangible personal property tax and to
applicable Michigan city income taxes. The Michigan single business tax, a
modified value added tax, is computed by applying the tax rate to a tax base
determined by making certain adjustments to federal taxable income. Taxable
distributions from investment income and gains, if any, may be included in
federal taxable income or may comprise one of the adjustments made to the tax
base. Distributions of cash, other property or additional shares by the Michigan
Bond Fund to a Michigan single business taxpayer attributable to any gain
realized from the sale, exchange or other disposition of Michigan Municipal
Securities may be included in the Michigan single business taxpayer's adjusted
tax base for purposes of the Michigan single business tax to the extent included
in federal taxable income. Distributions of cash, other property or additional
shares by the Michigan Bond Fund to a Michigan single business taxpayer are not
subject to the Michigan single business tax to the extent that the distributions
are attributable to interest income from and any gain realized from the sale,
exchange or other disposition of U.S. securities. Taxable long-term capital gain
distributions are taxable as long-term capital gains for Michigan purposes
irrespective of how long a shareholder has held the shares except that such
distributions reinvested in shares of the Michigan Bond Fund are exempt from the
Michigan intangible personal property tax.
MISCELLANEOUS
Shareholders of the Funds will be advised at least annually as to the federal
income tax consequences of distributions made to them each year. Shareholders
are advised to consult their tax advisers concerning the application of state
and local taxes which may differ from federal tax consequences described above
in certain respects.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus; such laws and regulations may be
changed by legislative or administrative actions. The foregoing summarizes some
of the important tax considerations generally affecting the Funds and their
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisers with specific
reference to their own tax situation.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a class of shares in a Fund will be
calculated for the period since the establishment of the Funds and will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a class of shares in a
Fund at the beginning by the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gain distributions) and annualizing the result. Aggregate
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<PAGE> 126
total return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of annualized.
Yield of a class of shares will be computed by dividing a class of shares, net
investment income per share earned during a recent one-month period by that
class of shares' per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result. Each Fund may also present its average annual
total return, aggregate total return and yield, as the case may be, excluding
the effect of a sales charge, if any.
In addition, from time to time the Funds may present their respective
distribution rates for a class of shares in shareholder reports and in
supplemental sales literature which is accompanied or preceded by a prospectus.
Distribution rates will be computed by dividing the distribution per share of a
class made by a Fund over a twelve-month period by the maximum offering price
per share. The calculation of income in the distribution rate includes both
income and capital gain dividends and does not reflect unrealized gains or
losses, although a Fund may also present a distribution rate excluding the
effect of capital gains. The distribution rate differs from the yield, because
it includes capital gains which are often non-recurring in nature, whereas yield
does not include such items. Distribution rates may also be presented excluding
the effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Investor A Shares and the other classes of the Funds. Because of differences in
the fees and/or expenses borne by different classes of shares of the Funds, the
net yield and total return on Investor A Shares may be different from that for
another class of the same Fund. For example, net yield and total return on
Investor A Shares is expected, at any given time, to be lower than the net yield
and total return on Institutional Shares for the same period.
Investors may also judge the performance of any class of shares or Fund by
comparing or referencing it to the performance of various mutual fund or market
indices such as those published by various services, including, but not limited
to, ratings published by Morningstar, Inc. In addition to performance
information, general information about the Funds that appears in such
publications may be included in advertisements, in sales literature and in
resorts 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 the Investment Adviser 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
the Investment Adviser and BISYS voluntarily reduce all or a part of their
respective fees, as further discussed above, the total return of such Fund will
be higher than it would otherwise be in the absence of such voluntary fee
reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's Funds through FUNDATA(R), an Automated Voice
Response System, 24 hours a day by calling (800) 451-8377 from any touch-tone
phone. Shareholders may also speak directly with a Group representative,
employed by the Transfer Agent, during regular business hours.
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<PAGE> 127
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in 1987 and, as of the
date of this Prospectus, offers eighteen Funds. The shares of each of the Funds
of the Group may be offered in up to three separate classes: Investor A Shares,
Investor B Shares and Institutional Shares. Each share represents an equal
proportionate interest in a Fund with other shares of the same Fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Trustees.
Shares do not have a par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by Fund except as otherwise
expressly required by law. For example, shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of Trustees and ratification of the selection of independent accountants.
However, shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group , for purposes of approval of that Fund's
investment advisory agreement. In addition, holders of Investor A Shares of a
Fund will vote as a class and not with holders of another class of the Fund with
respect to the approval of its Investor A Plan.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve 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 therefore from shareholders holding not less than
10% of the outstanding votes of the Group. At such a meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Group), by majority vote, has the power to remove one or more
Trustees.
[AS OF JUNE 30, 1997, FABC, THROUGH ITS WHOLLY-OWNED SUBSIDIARIES, POSSESSED ON
BEHALF OF ITS UNDERLYING ACCOUNTS VOTING OR INVESTMENT OWNER WITH RESPECT TO
MORE THAN 25% OF THE SHARES OF EACH OF THE FUNDS, AND THEREFORE MAY BE PRESUMED
TO CONTROL EACH FUND WITHIN THE MEANING OF THE 1940 ACT.]
MULTIPLE CLASSES OF SHARES
In addition to Investor A Shares, the Group also offers Investor B Shares and
Institutional Shares of certain Funds pursuant to a Multiple Class Plan adopted
by the Group's Trustees under Rule 18f-3 of the 1940 Act. A salesperson or other
person entitled to receive compensation for selling or servicing the shares may
receive different compensation with respect to one particular class of shares
over another in the same Fund. The amount of dividends payable with respect to
other classes of shares will differ from dividends on Investor A Shares as a
result of the Investor A Plan fees applicable to Investor A Shares and because
Investor A Shares may bear different retail transfer agency expenses. For
further details regarding these other classes of shares, call the Group at (800)
451-8377.
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<PAGE> 128
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Pursuant to Rule 17f-2, since National City and National City Bank serve as the
Group's Investment Adviser and Custodian, respectively, a procedure has been
established requiring three annual verifications, two of are to be unannounced,
of all investments held pursuant to the Custodian Services Agreement, to be
conducted by the Group's independent auditors.
The portfolio managers of the Funds and other investment professionals may from
time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include, but are not limited to, the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products and tax, retirement and investment planning.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at P.O. Box 8421, Boston, MA 02266-8421, or by calling toll free (800)
__________.
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.
-83-
<PAGE> 129
(THIS PAGE INTENTIONALLY LEFT BLANK.)
-84-
<PAGE> 130
The Parkstone Group of Funds
BOARD OF TRUSTEES
ROBERT D. NEARY
Chairman
Retired Co-Chairman, Ernst & Young
Director:
Cold Metal Products, Inc.
Zurn Industries, Inc.
HERBERT R. MARTENS, JR.
President
Executive Vice President,
National City Corporation
Chairman, President and
Chief Executive Officer,
Officer, NatCity
Investments, Inc.
LEIGH CARTER
Retired President and
Chief Operating Officer
B.F. Goodrich Company
Director:
Acromed Corporation
Kirtland Capital Corporation
Morrison Products
JOHN F. DURKOTT
President and Chief
Operating Officer,
Kittle's Home Furnishing's
Center, Inc.
ROBERT J. FARLING
Retired Chairman, President
and Chief Executive Officer,
Centerior Energy
Director:
Republic Engineered Steels
RICHARD W. FURST, DEAN
Professor of Finance and Dean
Carol Martin Gatton College
of Business and Economics,
University of Kentucky
Director:
Foam Design, Inc.
The Seed Corporation
GERALD L. GHERLEIN
Executive Vice President and
General Counsel, Eaton
Corporation
Trustee:
Meridia Health System
WVIZ Educational Television
J. WILLIAM PULLEN
President and Chief Executive Officer,
Wayne Supply Company
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<PAGE> 131
THE PARKSTONE GROUP OF FUNDS
Investor A Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
National City Investment Management Company
1900 East Ninth Street
Cleveland, Ohio 44114
SUBADVISER
Gulfstream Global Investors, Ltd.
Suite 550
100 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR
SEI Investments Distributions Co.
Oaks, Pennsylvania 19456
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8421
Boston, MA 02266
CUSTODIAN
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44114
LEGAL COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
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<PAGE> 132
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INVESTOR B SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX-FREE INCOME FUNDS
THE PARKSTONE PRIME OBLIGATIONS FUND
FORM N-1A
CROSS REFERENCE SHEET
Part A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO.
<TABLE>
RULE 404(a) CROSS- REFERENCE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Cover Page......................................Cover Page
2. Synopsis........................................Prospectus Summary; Fee Table
3. Condensed Financial Information.................Financial Highlights; Performance Information
4. General Description of Registrant...............Cover Page; Investment Objections and Policies; Investment
Restrictions; Risk Factors and Investment Techniques,
General Information. Organization of the Group
5. Management of the Fund..........................Management of the Funds; Fee Tables
5A. Management's Discussion of Fund Performance.....Not Applicable
6. Capital Stock and Other Securities..............Directed Dividend Option, Dividends and Taxes,
General Information - Organization of the Group;
General Information - Multiple Classes of Shares;
General Information - Miscellaneous
7. Purchase of Securities Being Offered............Management of the Funds - Administrator - Sub-Administrator and
Distributor; Management of the Funds - Distribution Plan for
Investor B Shares; How to Buy Investor B Shares; Sales Charges;
Exchange Privilege; Parkstone Individual Retirement Accounts; How
Shares are Valued
8. Redemption or Repurchase........................Sales Charges; Contingent Deferred Sales Charge; Exchange
Privilege; Conversion Feature; How to Redeem Your Investor B Shares
9. Pending Legal Proceedings.......................Not Applicable
</TABLE>
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<PAGE> 133
- --------------------------------------------------------------------------------
THE PARKSTONE
GROUP OF FUNDS
INVESTOR B SHARES
- --------------------------------------------------------------------------------
GROWTH FUNDS
PARKSTONE SMALL CAPITALIZATION FUND
PARKSTONE MID CAPITALIZATION FUND
PARKSTONE LARGE CAPITALIZATION FUND
PARKSTONE INTERNATIONAL DISCOVERY FUND
GROWTH AND INCOME FUNDS
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE EQUITY INCOME FUND
INCOME FUNDS
PARKSTONE BOND FUND
PARKSTONE LIMITED MATURITY BOND FUND
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
PARKSTONE MUNICIPAL BOND FUND
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
MONEY MARKET FUND
PARKSTONE PRIME OBLIGATIONS FUND
Prospectus dated September ___, 1998
{PARKSTONE LOGO}
NOT FDIC INSURED
<PAGE> 134
{THIS PAGE INTENTIONALLY LEFT BLANK.}
<PAGE> 135
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
PROSPECTUS SUMMARY.........................................................4
FEE TABLES.................................................................9
FINANCIAL HIGHLIGHTS......................................................13
INVESTMENT OBJECTIVES AND POLICIES........................................26
RISK FACTORS AND INVESTMENT TECHNIQUES....................................43
INVESTMENT RESTRICTIONS...................................................58
MANAGEMENT OF THE FUNDS...................................................60
HOW TO BUY INVESTOR B SHARES..............................................67
SALES CHARGES.............................................................70
CONTINGENT DEFERRED SALES CHARGE..........................................71
DIRECTED DIVIDEND OPTION..................................................72
EXCHANGE PRIVILEGE........................................................73
FACTORS TO CONSIDER WHEN SELECTING INVESTOR B SHARES......................74
CONVERSION FEATURE........................................................75
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS..................................76
HOW TO REDEEM YOUR INVESTOR B SHARES......................................76
HOW SHARES ARE VALUED.....................................................79
DIVIDENDS AND TAXES.......................................................80
PERFORMANCE INFORMATION...................................................84
FUNDATA(R)................................................................85
GENERAL INFORMATION.......................................................85
</TABLE>
i
<PAGE> 136
THE PARKSTONE GROUP OF FUNDS
INVESTOR B SHARES PROSPECTUS DATED SEPTEMBER __, 1998
GROWTH FUNDS For more information call:
Parkstone Small Capitalization Fund (800) ________
Parkstone Mid Capitalization Fund or write to:
Parkstone Large Capitalization Fund Oaks, Pennsylvania 19456
Parkstone International Discovery Fund
GROWTH AND INCOME FUNDS
Parkstone Balanced Allocation Fund THESE SECURITIES HAVE NOT
Parkstone Equity Income Fund BEEN APPROVED OR
DISAPPROVED BY THE
INCOME FUNDS SECURITIES AND EXCHANGE
Parkstone Bond Fund COMMISSION OR ANY STATE
Parkstone Limited Maturity Bond Fund SECURITIES COMMISSION NOR
Parkstone Intermediate Government HAS THE COMMISSION OR ANY
Obligations Fund STATE SECURITIES COMMISSION
Parkstone U.S. Government Income Fund PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS
TAX-FREE INCOME FUNDS PROSPECTUS. ANY
Parkstone Municipal Bond Fund REPRESENTATION TO THE
Parkstone Michigan Municipal Bond Fund CONTRARY IS A CRIMINAL
OFFENSE.
MONEY MARKET FUND
Parkstone Prime Obligations Fund
The funds listed above are thirteen of the currently offered series (the
"Funds") of The Parkstone Group of Funds (the "Group") which offer Investor B
Shares. This Prospectus explains concisely what you should know before investing
in the Investor B Shares of the Funds listed above. Please read it carefully and
keep it for future reference. You can find more detailed information about the
Funds in the September __, 1998 Statement of Additional Information, as amended
from time to time. For a free copy of the Statement of Additional Information or
other information, contact the Group at the number specified above. The
Statement of Additional Information has been filed with the SEC (the "SEC") and
is incorporated into this Prospectus by reference.
THE SHARES OF THE PARKSTONE GROUP OF FUNDS ARE NOT OBLIGATIONS OR DEPOSITS OF
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY OR ITS PARENT OR ITS AFFILIATES, AND
ARE NOT ENDORSED, INSURED OR GUARANTEED BY NATIONAL CITY INVESTMENT MANAGEMENT
<PAGE> 137
COMPANY, ITS PARENT, ITS AFFILIATES, 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.
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<PAGE> 138
PROSPECTUS ROADMAP
For information about the following subjects, consult the pages indicated on the
table below.
<TABLE>
<CAPTION>
INVESTMENT
FINANCIAL OBJECTIVES RISK FACTORS AND
FUND HIGHLIGHTS AND POLICIES INVESTMENT TECHNIQUES
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Balanced Allocation Fund
- ---------------------------------------------------------------------------------------------------------------
Bond Fund
- ---------------------------------------------------------------------------------------------------------------
Equity Income Fund
- ---------------------------------------------------------------------------------------------------------------
Government Income Fund
- ---------------------------------------------------------------------------------------------------------------
International Discovery Fund
- ---------------------------------------------------------------------------------------------------------------
Intermediate Government Obligations Fund
- ---------------------------------------------------------------------------------------------------------------
Large Capitalization Fund
- ---------------------------------------------------------------------------------------------------------------
Limited Maturity Bond Fund
- ---------------------------------------------------------------------------------------------------------------
Michigan Municipal Bond Fund
- ---------------------------------------------------------------------------------------------------------------
Mid Capitalization Fund
- ---------------------------------------------------------------------------------------------------------------
Municipal Bond Fund
- ---------------------------------------------------------------------------------------------------------------
Prime Obligations Fund
- ---------------------------------------------------------------------------------------------------------------
Small Capitalization Fund
- ------------------------------------------------ -------------- --------------------- -------------------------
</TABLE>
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which offers to the public eighteen separate investment portfolios,
seventeen of which are diversified portfolios and one of which is a
non-diversified portfolio, each with different investment objectives. These
Funds enable the Group to meet a wide range of investment needs.
This Prospectus relates only to the Investor B Shares of the following Funds:
Parkstone Small Capitalization Fund (the "Small Capitalization Fund")
Parkstone Mid Capitalization Fund, formerly known as the Parkstone Equity
Fund (the "Mid Capitalization Fund")
Parkstone Large Capitalization Fund (the "Large Capitalization Fund")
Parkstone International Discovery Fund (the "International Fund")
Parkstone Balanced Allocation Fund, formerly known as the Parkstone
Balanced Fund (the "Balanced Allocation Fund")
Parkstone Equity Income Fund, formerly known as the Parkstone High Income
Equity Fund (the "Equity Income Fund")
Parkstone Bond Fund (the "Bond Fund")
Parkstone Limited Maturity Bond Fund (the "Limited Maturity Bond Fund")
Parkstone Intermediate Government Obligations Fund (the "Intermediate
Government Obligations Fund")
Parkstone U.S. Government Income Fund (the "Government Income Fund")
Parkstone Municipal Bond Fund (the "Municipal Bond Fund")
Parkstone Michigan Municipal Bond Fund (the "Michigan Bond Fund")
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<PAGE> 139
Parkstone Prime Obligations Fund (the "Prime Obligations Fund")
For convenience of reference, the above Funds are sometimes referred to as part
of a general grouping. The Small Capitalization Fund, Mid Capitalization Fund,
Large Capitalization Fund and International Fund are collectively referred to as
the "Growth Funds." The Balanced Allocation Fund and Equity Income Fund are
collectively referred to as the "Growth and Income Funds." The Bond Fund,
Limited Maturity Bond Fund, Intermediate Government Obligations Fund and
Government Income Fund are collectively referred to as the "Income Funds." The
Michigan Bond Fund and Municipal Bond Fund are collectively referred to as the
"Tax-Free Income Funds." Finally, the Prime Obligations Fund is referred to as a
"Money Market Fund."
The Trustees of the Group have divided beneficial ownership of each of the Funds
into an unlimited number of transferable units called shares. Most Funds of the
Group offer multiple classes of shares. This Prospectus describes Investor B
Shares for certain of the Group's Funds. Interested persons who wish to obtain a
copy of any of the Group's other Prospectuses or a copy of the Group's most
recent Annual Report may contact the Group at the telephone number shown above.
The investment objectives of each of the Funds are described in this Prospectus
and are summarized in the Prospectus Summary. National City Investment
Management Company, Cleveland, Ohio ("National City" or the "Investment
Adviser"), acts as the investment adviser to each of the Funds of the Group. To
provide investment advisory services for the International Fund and Balanced
Allocation Fund for investments in foreign securities, National City has entered
into a sub-investment advisory agreement with Gulfstream Global Investors, Ltd.,
Dallas, Texas ("Gulfstream" or the "Subadviser").
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<PAGE> 140
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Investor B Shares of the following Funds of the
Group:
GROWTH FUNDS
Small Capitalization Fund
Mid Capitalization Fund
Large Capitalization Fund
International Fund
GROWTH AND INCOME FUNDS
Balanced Allocation Fund
Equity Income Fund
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
TAX-FREE INCOME FUNDS
Municipal Bond Fund
Michigan Bond Fund
MONEY MARKET FUND
Prime Obligations Fund
These Funds represent thirteen separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust which is registered as an
open-end, management investment company.
Purchase and Redemption of Shares
The public offering price of Investor B Shares of each Fund is equal to the net
asset value per share, which, in the case of the Prime Obligations Fund, the
Group will seek to maintain at $1.00. Investors who purchase Investor B Shares
on or after January 1, 1997 may be subject to a contingent deferred sales charge
of up to 5.00% when such shares are redeemed prior to five years from the date
of purchase. Investors who purchased Investor B Shares prior to January 1, 1997
may be subject to a contingent deferred sales charge of up to 4.00% when such
shares are redeemed prior to four years from the date of purchase. Shares may be
purchased by mail or telephone through a broker-dealer that has entered into an
agreement with the Group's distributor, SEI Investments Distribution Co. ("SEI"
or the "Distributor"), through the Group's Auto Invest Plan or through certain
Parkstone Individual Retirement Accounts. Investor B Shares of one
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<PAGE> 141
Fund of the Group may be exchanged for Investor B Shares of another Fund of the
Group at net asset value without the imposition of a contingent deferred sales
charge, provided certain conditions are met. Shares may be redeemed by
contacting the Transfer Agent or through the Group's Auto Withdrawal Plan. See
"HOW TO BUY INVESTOR B SHARES," "EXCHANGE PRIVILEGE," "HOW TO REDEEM INVESTOR B
SHARES" and "HOW SHARES ARE VALUED."
Minimum Purchase
There is a $1,000 minimum initial purchase (based upon the public offering
price) per Fund with no minimum subsequent investments. Such minimum initial
investment may be waived for certain purchasers and is reduced to $100 for
investors using the Auto Invest Plan described herein to invest in a Fund,
although such investors are subject to a $50 minimum for each subsequent
investment in such Fund. Investor B Shares must be purchased in amounts less
than $250,000.
Conversion Feature
Investor B Shares which have been outstanding for eight years after the end of
the month in which the shares were initially purchased will automatically
convert to Investor A Shares.
Investment Objectives
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
FUND INVESTMENT OBJECTIVE
- -------------------------------------------------------------------------------
Balanced Allocation Fund seeks current income, long-term
capital growth and conservation of
capital
- -------------------------------------------------------------------------------
Bond Fund seeks to provide current income
as well as preservation of capital
by investing in a portfolio of high-
and medium-grade fixed-income
securities
- -------------------------------------------------------------------------------
Equity Income Fund seeks current income by investing
in a diversified portfolio of
high quality, dividend-paying
common stocks and securities
convertible into common stocks; a
secondary objective is growth of
capital
- -------------------------------------------------------------------------------
Government Income Fund seeks to provide shareholders with a
high level of current income
consistent with prudent investment
risk
- -------------------------------------------------------------------------------
Intermediate Government Obligations Fund seeks to provide current income with
preservation of capital by investing
in U.S. government securities with
remaining maturities of 12 years or
less
- -------------------------------------------------------------------------------
International Fund seeks long-term growth of capital
- -------------------------------------------------------------------------------
Large Capitalization Fund seeks growth of capital by investing
primarily in a diversified portfolio
of common stocks and
- -------------------------------------------------------------------------------
</TABLE>
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<PAGE> 142
- -------------------------------------------------------------------------------
securities convertible into common
stocks of companies with large
market capitalization
- -------------------------------------------------------------------------------
Limited Maturity Bond Fund seeks to provide current income as
well as preservation of capital by
investing in a portfolio of high-
and medium-grade fixed-income
securities with remaining maturities
of six years or less
- -------------------------------------------------------------------------------
Michigan Bond Fund seeks income which is exempt from
federal income tax and Michigan
state income and intangibles tax,
although such income may be subject
to the federal alternative minimum
tax when received by certain
shareholders; also seeks
preservation of capital
- -------------------------------------------------------------------------------
Mid Capitalization Funds seeks growth of capital by investing
primarily in a diversified portfolio
of common stocks and securities
convertible into common stock
- -------------------------------------------------------------------------------
Municipal Bond Fund seeks to provide current interest
income which is exempt from federal
income taxes and preservation of
capital
- -------------------------------------------------------------------------------
Prime Obligations Fund seeks to provide current income,
with liquidity and stability of
principal
- -------------------------------------------------------------------------------
Small Capitalization Fund seeks growth of capital by investing
primarily in a diversified portfolio
of common stocks and securities
convertible into common stocks of
small- to medium-sized companies
- -------------------------------------------------------------------------------
Investment Policies
Under normal market conditions, each fund will invest as described in the
following table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
FUND INVESTMENT POLICY
- -------------------------------------------------------------------------------
<S> <C>
Balanced Allocation Fund In any type or class of securities,
including all types of common
stocks, fixed-income securities and
securities convertible into common
stocks
- -------------------------------------------------------------------------------
Bond Fund at least 80% of its total assets in
bonds, debentures and certain other
debt securities specified herein
- -------------------------------------------------------------------------------
Equity Income Fund at least 80% of its total assets in
common stocks, and securities
convertible into common stocks, of
companies believed by the Investment
Adviser to be characterized by sound
management, the ability to finance
expected growth and the ability to
pay above-average dividends
- -------------------------------------------------------------------------------
Government Income Fund at least 65% of its total assets in
obligations
- -------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE> 143
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
FUND INVESTMENT POLICY
- -------------------------------------------------------------------------------
<S> <C>
issued or guaranteed by the U.S.
government or its agencies or
instrumentalities; under current
market conditions up to 80% of its
total assets in mortgage-related
securities which are issued or
guaranteed by the U.S. government,
its agencies or instrumentalities
and up to 35% of its total assets in
mortgage-related securities issued
by non-governmental entities
- -------------------------------------------------------------------------------
Intermediate Government at least 80% of its total assets in
Obligations Fund obligations issued or guaranteed by
the U.S. government or its agencies
or instrumentalities and with
remaining maturities of twelve years
or less
- -------------------------------------------------------------------------------
International Fund at least 65% of its total assets in
an internationally diversified
portfolio of equity securities which
trade on markets in countries other
than the United States and which are
issued by companies (i) domiciled in
countries other than the United
States, or (ii) that derive at least
50% of either their revenues or
pre-tax income from activities
outside of the United States, and
(iii) which are ranked as small- or
medium-sized companies on the basis
of their capitalization
- -------------------------------------------------------------------------------
Large Capitalization Fund at least 80% of its total assets in
common stocks, and securities
convertible into common stocks, of
companies believed to be
characterized by sound management
and the ability to finance expected
long-term growth
- -------------------------------------------------------------------------------
Limited Maturity Bond Fund at least 80% of the value of its
total assets in bonds, debentures
and certain other debt securities
specified herein with remaining
maturities of six years or less
- -------------------------------------------------------------------------------
Michigan Bond Fund at least 80% of its total assets in
debt securities of all types; at
least 65% of its not assets in
municipal securities issued by or on
behalf of the State of Michigan, its
political subdivisions,
municipalities and public
authorities
- -------------------------------------------------------------------------------
Mid Capitalization Fund at least 80% of its total assets in
common stocks, and securities
convertible into common stocks, of
companies delivered by the
Investment Adviser to be
characterized by sound management
and the ability to finance expected
growth
- -------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE> 144
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
FUND INVESTMENT POLICY
- -------------------------------------------------------------------------------
<S> <C>
Municipal Bond Fund at least 80% of its total assets in
tax-exempt obligations
- -------------------------------------------------------------------------------
Prime Obligations Fund in high quality money market
instruments and other comparable
investments
- -------------------------------------------------------------------------------
Small Capitalization Fund at least 80% of its total assets in
common stocks, and securities
convertible into common stocks, of
companies believed by the Investment
Adviser to be characterized by sound
management and the ability to
finance expected growth
- -------------------------------------------------------------------------------
</TABLE>
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a certain
amount of risk and may not be suitable for all investors. In addition, some
investment policies of the Funds may entail certain risks. See "RISK FACTORS AND
INVESTMENT TECHNIQUES."
Management of the Funds
National City serves as investment adviser, and, with respect to the
International Fund and a portion of the Balanced Allocation Fund, Gulfstream
serves as subadviser. National City also serves as sub-administrator. BISYS Fund
Services, L. P. ("BISYS"), a partnership owned by The BISYS Group, Inc., serves
as administrator ( the "Administrator"). BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") serves as fund accountant. National City Bank, an affiliate of National
City (the "Custodian"), serves as custodian. State Street Bank and Trust Company
("State Street" or the "Transfer Agent") serves as transfer agent and dividend
disbursing agent.
Dividends and Taxes
Dividends from net income are declared and paid, if at all, on a monthly basis,
except for the Prime Obligations Fund which declares dividends daily and pays
them monthly. Net realized capital gains are distributed at least annually. The
Directed Dividend Option enables shareholders to have dividends and capital
gains paid by check, or reinvested automatically without payment of sales
charges. See "DIRECTED DIVIDEND OPTION." Each of the Funds is treated as a
separate entity for federal tax purposes and intends to quality as a "regulated
investment company." Shareholders will be advised at least annually as to the
federal income tax consequences of distributions made each year.
-9-
<PAGE> 145
FEE TABLES (INVESTOR B SHARES)
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge (as a percentage of the offering price).................... None
Sales Charge on Reinvested Distributions........................................ None
Maximum Deferred Sales Charge on Redemptions(1)................................. 5.00%/4.00%
Redemption Fees(2).............................................................. None
Exchange Fees................................................................... None
<FN>
- ---------------------------
(1) A contingent deferred sales charge of up to 5.00% is currently charged
with respect to Investor B Shares redeemed prior to five years from the
date of purchase. For Investor B Shares purchased prior to January 1,
1997, a contingent deferred sales charge of up to 4.00% will be charged
with respect to Investor B Shares redeemed prior to four years from the
date of purchase. (See "CONTINGENT DEFERRED SALES CHARGE" herein.)
(2) Although no such fee is currently in place, the Transfer Agent has
reserved the right in the future to charge a fee for wire transfers of
redemption proceeds.
</TABLE>
-10-
<PAGE> 146
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES(3) FEES EXPENSES(3) EXPENSES(3)
---------- ----- ----------- ----------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund........................ 1.00% 1.00% 0.32% 2.32%
Mid Capitalization Fund.......................... 1.00% 1.00% 0.31% 2.31%
Large Capitalization Fund........................ 0.80% 1.00% 0.32% 2.12%
International Fund............................... 1.16%(4) 1.00% 0.39% 2.55%
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund......................... 0.75% 1.00% 0.36% 2.11%
Equity Income Fund............................... 1.00% 1.00% 0.33% 2.33%
INCOME FUNDS:
Bond Fund........................................ 0.70% 1.00% 0.24% 1.94%
Limited Maturity Bond Fund....................... 0.55% 1.00% 0.31% 1.86%
Intermediate Government Obligations Fund......... 0.70% 1.00% 0.28% 1.98%
Government Income Fund........................... 0.45% 1.00% 0.32% 1.77%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund.............................. 0.55% 1.00% 0.26% 1.81%
Michigan Bond Fund............................... 0.55% 1.00% 0.21% 1.76%
MONEY MARKET FUND:
Prime Obligations Fund........................... 0.40% 1.00% 0.27% 1.67%
<FN>
- -------------------
(3) After voluntary expense reductions.
(4) Calculated based on 1.25% of the first $50 million in average daily net
assets, 1.20% of the next $50 million, 1.15% of the next $300 million
and 1.05% over $400 million.
</TABLE>
Management Fees and Total Expenses as a percentage of average net assets for the
Balanced Allocation Fund, absent the voluntary reduction of advisory fees, would
have been 1.00% and 2.36%, respectively. Management Fees, Other Expenses and
Total Expenses, as a percentage of average net assets for the Bond Fund, absent
the voluntary reduction of advisory fees and administrative fees, would have
been 0.74%, 0.29% and 2.03%, respectively. For the Limited Maturity Bond Fund,
they would have been 0.74%, 0.36% and 2.10%, respectively. For the Intermediate
Government Obligations Fund, they would have been 0.74%, 0.33% and 2.07%,
respectively. For the Government Income Fund they would have been 0.74%, 0.37%
and 2.11%, respectively. For the Municipal Bond Fund, they would have been
0.74%, 0.36% and 2.10%, respectively. For the Michigan Bond Fund, they would
have been 0.74%, 0.31% and 2.05%, respectively. The annual percentages of Other
Expenses and Total Expenses for the Prime Obligations Fund are based on such
fees and expenses incurred by other classes. (See "MANAGEMENT OF THE FUNDS --
Investment Adviser and Subadviser" and "Administrator, Sub-Administrator and
Distributor.")
-11-
<PAGE> 147
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Investor B Shares, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund..................................... $ 74 $112 $ 144 $ 266
Mid Capitalization Fund....................................... $ 73 $112 $ 144 $ 265
Large Capitalization Fund..................................... $ 72 $106 $ 134 $ 245
International Fund............................................ $ 76 $119 $ 156 $ 289
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund...................................... $ 71 $106 $ 133 $ 243
Equity Income Fund............................................ $ 74 $113 $ 145 $ 267
INCOME FUNDS:
Bond Fund..................................................... $ 70 $101 $ 125 $ 226
Limited Maturity Bond Fund.................................... $ 69 $ 98 $ 121 $ 218
Intermediate Government Obligations Fund...................... $ 70 $102 $ 127 $ 231
Government Income Fund........................................ $ 68 $ 96 $ 116 $ 208
TAX-FREE INCOME FUNDS:
Municipal Bond Fund........................................... $ 68 $ 97 $ 118 $ 213
Michigan Bond Fund............................................ $ 68 $ 95 $ 115 $ 207
MONEY MARKET FUND:
Prime Obligations Fund*....................................... $ 67 $ 93 -- --
</TABLE>
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Investor B Shares, assuming (1) 5% annual return and (2) no
redemption at the end of each time period:
-12-
<PAGE> 148
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund..................................... $ 24 $ 72 $ 124 $ 266
Mid Capitalization Fund....................................... $ 23 $ 72 $ 124 $ 265
Large Capitalization Fund..................................... $ 22 $ 66 $ 114 $ 245
International Fund............................................ $ 26 $ 79 $ 136 $ 289
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund...................................... $ 21 $ 66 $ 113 $ 243
Equity Income Fund............................................ $ 24 $ 73 $ 125 $ 267
INCOME FUNDS:
Bond Fund..................................................... $ 20 $ 61 $ 105 $ 226
Limited Maturity Bond Fund.................................... $ 19 $ 58 $ 101 $ 218
Intermediate Government Obligations Fund...................... $ 20 $ 62 $ 107 $ 231
Government Income Fund........................................ $ 18 $ 56 $ 96 $ 208
TAX-FREE INCOME FUNDS:
Municipal Bond Fund........................................... $ 18 $ 57 $ 98 $ 213
Michigan Bond Fund............................................ $ 18 $ 55 $ 95 $ 207
MONEY MARKET FUND:
Prime Obligations Fund*....................................... $ 17 $ 53 -- --
<FN>
- ----------------------
* As of the date of this Prospectus, Investor B Shares of the Prime
Obligations Fund have not yet been offered; therefore, expense example
information is provided only for 1-year and 3-year periods.
</TABLE>
The information set forth in the foregoing Fee Tables and expense examples
relates only to Investor B Shares of the Funds. Each of the Funds also may offer
other classes of shares. The other classes of shares of the Funds are subject to
the same expenses except that sales charges and Rule 12b-1 fees will differ
between classes.
As a result of the payment of sales charges and 12b-1 fees, long-term
shareholders may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers, Inc.
(the "NASD"). The NASD rules generally limit the aggregate sales charges and
payments under the Group's Investor B Distribution and Shareholder Service Plan
to a certain percentage of total new gross share sales, plus interest. The Funds
would stop accruing 12b-1 fees if, to the extent, and for as long as, such limit
would otherwise be exceeded.
The purpose of the above tables is to assist a potential purchaser of Investor B
Shares of any Fund in understanding the various costs and expenses that an
investor in a Fund will bear directly or indirectly. Such expenses do not
include any fees charged by National City or any its
-13-
<PAGE> 149
affiliates to its customer accounts which may invest in Investor B Shares of the
Funds. See "MANAGEMENT OF THE FUNDS," "GENERAL INFORMATION" and "SALES CHARGES"
for a more complete discussion of the shareholder transaction expenses and
annual operating expenses of each of the Funds. The expense information for
Investor B Shares reflects current fees. THE FOREGOING EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables on the following pages set forth certain information concerning the
investment results of the Investor B Shares of each of the Funds since its
inception. Information is not provided for the Prime Obligations Fund, since
Investor B Shares of that Fund were not yet being offered prior to the date of
this Prospectus. Further financial information is included in the Statement of
Additional Information and the Group's June 30, 1997 Annual Report to
Shareholders which may be obtained free of charge.
The Financial Highlights for the periods presented below have been derived from
financial statements audited by PricewaterhouseCoopers LLP, independent auditors
for the Group, whose report thereon is incorporated by reference in the
Statement of Additional Information.
-14-
<PAGE> 150
SMALL CAPITALIZATION FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, FEBRUARY 4, 1994
------------------- TO
1997 1996 1995 JUNE 30, 1994(e)
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $33.78 $25.79 $19.83 $22.71
------ ------ ------ ------
Investment Activities
Net Investment Loss..................................... (0.41) (0.39) (0.19) (0.09)
Net Realized and Unrealized Gains (Losses)
on Investments........................................ (1.13) 12.03 8.30 (2.79)
------ ------ ------ ------
Total from Investment Activities...................... (1.54) 11.64 8.11 (2.88)
------ ------ ------ ------
Distributions
Net Realized Gains...................................... (5.25) (3.65) (2.15) --
------ ------ ------ ------
Total Distributions................................... (5.25) (3.65) (2.15) --
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............................. $26.99 $33.78 $25.79 $19.83
====== ====== ====== ======
Total Return (excluding sales and redemption
charges)................................................ (5.13)% 48.87% 43.78% (12.68)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $46,895 $30,310 $9,990 $2,130
Ratio of Expenses to Average Net Assets................. 2.32% 2.29% 2.32% 2.35%(b)
Ratio of Net Investment Loss to Average Net
Assets................................................ (1.94)% (1.93)% (2 03)% (2.19)%(b)
Ratio of Expenses to Average Net Assets*................ 2.32% 2.29% 2.55% 2.61%(b)
Ratio of Net Investment Loss to Average Net
Assets*............................................... (1.94)% (1.93)% (2.26)% (2.45)%(b)
Portfolio Turnover Rate (c)............................. 48.45% 67.22% 50.53% 72.64%
Average Commission Rate Paid (g)........................ $0.0788 $0.0800
</TABLE>
-15-
<PAGE> 151
MID CAPITALIZATION FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, FEBRUARY 4, 1994
------------------- TO
1997 1996 1995 JUNE 30, 1994(e)
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $20.28 $16.35 $14.63 $16.66
------ ------ ------ ------
Investment Activities
Net Investment Loss..................................... (0.24) (0.23) (0.11) (0.05)
Net Realized and Unrealized Gains (Losses)
on Investments........................................ 1.21 4.82 3.30 (1.98)
------ ------ ------ ------
Total from Investment Activities...................... 0.97 4.59 3.19 (2.03)
------ ------ ------ ------
Distributions
Net Realized Gains...................................... (6.13) (0.66) (0.48) --
In Excess of Net Realized Gains......................... -- -- (0.99) --
------ ------ ------ ------
Total Distributions................................... (6.13) (0.66) (1.47) --
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............................. $15.12 $20.28 $16.35 $14.63
====== ====== ====== ======
Total Return (excluding sales and redemption
charges)................................................ 4.94% 28.59% 23.88% (12.18)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $21,994 $15,840 $6,073 $1,616
Ratio of Expenses to Average Net Assets................. 2.31% 2.29% 2.29% 2.30%(b)
Ratio of Net Investment Loss to Average Net
Assets................................................ (1.80)% (1.70)% (1.61)% (1.57)%(b)
Ratio of Expenses to Average Net Assets*................ 2.31% 2.29% 2.54% 2.56%(b)
Ratio of Net Investment Loss to Average Net
Assets*............................................... (1.80)% (1.71)% (1.87)% (1.83)%(b)
Portfolio Turnover Rate (c)............................. 38.47% 49.27% 46.39% 70.87%
Average Commission Rate Paid (g)........................ $0.0794 $0.0796
</TABLE>
-16-
<PAGE> 152
LARGE CAPITALIZATION FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR
ENDED
JUNE 30 DECEMBER 28, 1995
------- TO
1997 JUNE 30, 1996(a)
---- ----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $11.22 $10.00
------ ------
Investment Activities
Net Investment Income (Loss).......................................... (0.05) 0.01
Net Realized and Unrealized Gains (Losses) on Investments............. 3.25 1.23
------ ------
Total from Investment Activities.................................... 3.20 1.24
------ ------
Distributions
Net Investment Income................................................. -- (0.02)
------ ------
Net Realized Gains.................................................... (0.08) --
------ ------
Total Distributions................................................. (0.08) (0.02)
------ ------
NET ASSET VALUE, END OF PERIOD........................................... $14.34 $11.22
====== ======
Total Return (excluding sales and redemption charges).................... 28.62% 8.77%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)....................................... $4,130 $832
Ratio of Expenses to Average Net Assets............................... 2.12% 1.78%(b)
Ratio of Net Investment Loss to Average Net Assets.................... (0.88)% (0.32)%(b)
Ratio of Expenses to Average Net Assets*.............................. 2.12% 4.07%(b)
Ratio of Net Investment Loss to Average Net Assets.................... (0.88)% (2.61)%(b)
Portfolio Turnover Rate (c)........................................... 48.44% 0.86%
Average Commission Rate Paid (g)...................................... $0.0932 $0.0800
</TABLE>
-17-
<PAGE> 153
INTERNATIONAL FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED JUNE 30 TO
-------------------------------------
1997 1996 1995(f) JUNE 30, 1994(e)
---- ---- ------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $13.77 $12.15 $13.21 $14.12
------ ------ ------ ------
Investment Activities
Net Investment Loss..................................... (0.16) (0.08) (0.04) (0.01)
Net Realized and Unrealized Gains (Losses)
on Investments and Foreign Currency
Transactions.......................................... 2.24 1.70 (0.40) (0.90)
------ ------ ------ ------
Total from Investment Activities...................... 2.08 1.62 (0.44) (0.91)
------ ------ ------ ------
Distributions
In Excess of Net Realized Gains......................... -- -- (0.62) --
------ ------ ------ ------
Total Distributions................................... -- -- (0.62) --
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............................. $15.85 $13.77 $12.15 $13.21
====== ====== ====== ======
Total Return (excluding sales and redemption
charges)................................................ 15.11% 13.33% (3.03)% (6.44)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $13,516 $9,489 $5,469 $2,680
Ratio of Expenses to Average Net Assets................. 2.55% 2.55% 2.57% 2.56%(b)
Ratio of Net Investment Loss to Average Net
Assets................................................ (1.29)% (0.86)% (0.49)% (0.22)%(b)
Ratio of Expenses to Average Net Assets*................ 2.55% 2.63% 2.92% 2.61%(b)
Ratio of Net Investment Loss to Average Net
Assets*............................................... (1.29)% (0.94)% (0.84)% (0.27)%(b)
Portfolio Turnover Rate (c)............................. 45.18% 54.47% 104.39% 37.23%
Average Commission Rate Paid (g)........................ $0.0329 $0.0321
</TABLE>
-18-
<PAGE> 154
BALANCED ALLOCATION FUND --- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 FEBRUARY 4, 1994
------------------ TO
1997 1996 1995(f) JUNE 30, 1994(e)
---- ---- ------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $13.36 $12.18 $10.67 $11.71
------ ------ ------ ------
Investment Activities
Net Investment Income (Loss)............................ 0.21 0.23 0.20 0.10
Net Realized and Unrealized Gains (Losses)
on Investments and Foreign Currencies................. 1.13 1.74 1.67 (1.05)
------ ------ ------ ------
Total from Investment Activities...................... 1.34 1.97 1.87 (0.95)
------ ------ ------ ------
Distributions
Net Investment Income................................... (0.22) (0.22) (0.20) (0.09)
------ ------ ------ ------
Net Realized Gains...................................... (1.48) (0.57) (0.06) --
In Excess of Net Realized Gains......................... -- -- (0.10) --
------ ------ ------ ------
Total Distributions................................... (1.70) (0.79) (0.36) (0.09)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............................. $13.00 $13.36 $12.18 $10.67
====== ====== ====== ======
Total Return (excluding sales and redemption
charges)................................................ 10.82% 16.71% 17.96% (8.16)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $6,299 $4,278 $1,291 $744
Ratio of Expenses to Average Net Assets................. 2.11% 2.16% 2.25% 2.05%(b)
Ratio of Net Investment Income (Loss) to Average Net
Assets................................................ 1.73% 1.64% 1.74% 1.94%(b)
Ratio of Expenses to Average Net Assets*................ 2.36% 2.45% 2.77% 2.61%(b)
Ratio of Net Investment Income (Loss) to Average Net
Assets*............................................... 1.48% 1.35% 1.22% 1.38%(b)
Portfolio Turnover Rate (c)............................. 425.05% 437.90% 250.66% 192.39%
Average Commission Rate Paid (g)........................ $0.0518 $0.0848
</TABLE>
-19-
<PAGE> 155
EQUITY INCOME FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED JUNE 30 TO
--------------------------------------
1997 1996 1995 JUNE 30, 1994(e)
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $17.27 $14.47 $13.49 $14.92
------ ------ ------ ------
Investment Activities
Net Investment Income (Loss)............................ 0.16 0.19 0.26 0.13
Net Realized and Unrealized Gains (Losses)
on Investments........................................ 3.57 3.25 0.99 (1.43)
------ ------ ------ ------
Total from Investment Activities...................... 3.73 3.44 1.25 (1.30)
------ ------ ------ ------
Distributions
Net Investment Income................................... (0.17) (0.19) (0.26) (0.13)
In Excess of Net Investment Income...................... -- -- (0.01) --
Net Realized Gains...................................... (1.69) (0.45) -- --
Total Distributions................................... (1.86) (0.64) (0.27) (0.13)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............................. $19.14 $17.27 $14.47 $13.49
====== ====== ====== ======
Total Return (excluding sales and redemption
charges)................................................ 22.96% 24.11% 9.41% (8.76)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $21,038 $12,590 $7,131 $3,836
Ratio of Expenses to Average Net Assets................. 2.33% 2.32% 2.32% 2.33%(b)
Ratio of Net Investment Income (Loss) to Average Net
Assets................................................ 0.88% 1.11% 1.86% 1.87%(b)
Ratio of Expenses to Average Net Assets*................ 2.33% 2.32% 2.57% 2.59%(b)
Ratio of Net Investment (Loss) to Average Net
Assets*............................................... 0.88% 1.11% 1.61% 1.61%(b)
Portfolio Turnover Rate (c)............................. 20.14% 40.75% 77.70% 69.35%
Average Commission Rate Paid (g)........................ $0.0800 $0.0800
</TABLE>
-20-
<PAGE> 156
BOND FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 FEBRUARY 4, 1994
------------------ TO
1997 1996 1995 JUNE 30, 1994(e)
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $9.51 $9.68 $9.26 $9.95
----- ----- ----- -----
Investment Activities
Net Investment Income (Loss)............................ 0.50 0.50 0.52 0.22
Net Realized and Unrealized Gains (Losses)
on Investments........................................ 0.16 (0.17) 0.42 (0.70)
----- ----- ----- -----
Total from Investment Activities...................... 0.66 0.33 0.94 (0.48)
==== ==== ==== =====
Distributions
Net Investment Income................................... (0.48) (0.50) (0.52) (0.21)
----- ----- ----- -----
Total Distributions................................... (0.48) (0.50) (0.52) (0.21)
===== ===== ===== =====
NET ASSET VALUE, END OF PERIOD............................. $9.69 $9.51 $9.68 $9.26
===== ===== ===== =====
Total Return (excluding sales and redemption
charges)................................................ 7.09% 3.46% 10.62% (4.84)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $5,967 $4,426 $1,330 $485
Ratio of Expenses to Average Net Assets................. 1.94% 1.94% 2.03% 1.89%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. 5.15% 4.97% 5.45% 5.34%(b)
Ratio of Expenses to Average Net Assets*................ 2.03% 2.03% 2.39% 2.29%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets*........................................... 5.06% 4.88% 5.18% 4.94%(b)
Portfolio Turnover Rate (c)............................. 827.00% 1189.27% 1010.64% 893.27%
</TABLE>
-21-
<PAGE> 157
LIMITED MATURITY BOND FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED JUNE 30 TO
---------------------------------------
1997 1996 1995 JUNE 30, 1994(e)
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $9.46 $9.70 $9.56 $9.99
----- ----- ----- -----
Investment Activities
Net Investment Income (Loss)............................ 0.48 0.55 0.49 0.23
Net Realized and Unrealized Gains (Losses)
on Investments........................................ 0.02 (0.22) 0.12 (0.44)
----- ----- ----- -----
Total from Investment Activities...................... 0.50 0.33 0.61 (0.21)
==== ==== ==== =====
Distributions
Net Investment Income................................... (0.47) (0.55) (0.47) (0.22)
Tax Return of Capital................................... -- (0.02) -- --
----- ----- ----- -----
Total Distributions................................... (0.47) (0.57) (0.47) (0.22)
====== ==== ==== =====
NET ASSET VALUE, END OF PERIOD............................. $9.49 $9.46 $9.70 $9.56
===== ==== ==== =====
Total Return (excluding sales and redemption
charges)................................................ 5.39% 3.43% 6.68% (2.09)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $1,492 $1,547 $892 $629
Ratio of Expenses to Average Net Assets................. 1.86% 1.84% 1.85% 1.78%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets............................................ 5.02% 5.35% 5.14% 5.36%(b)
Ratio of Expenses to Average Net Assets*................ 2.10% 2.08% 2.36% 2.33%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets*........................................... 4.78% 5.11% 4.62% 4.81%(b)
Portfolio Turnover Rate (c)............................. 607.84% 618.60% 397.97% 353.28%
</TABLE>
-22-
<PAGE> 158
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 FEBRUARY 4, 1994
------------------ TO
1997 1996 1995 JUNE 30, 1994(e)
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $9.67 $9.89 $9.60 $10.14
----- ----- ----- ------
Investment Activities
Net Investment Income (Loss)............................ 0.45 0.53 0.43 0.21
Net Realized and Unrealized Gains (Losses)
on Investments........................................ 0.03 (0.24) 0.30 (0.54)
----- ----- ----- ------
Total from Investment Activities...................... 0.48 0.29 0.73 (0.33)
----- ----- ----- ------
Distributions
Net Investment Income................................... (0.44) (0.51) (0.44) (0.21)
----- ----- ----- ------
Total Distributions................................... (0.44) (0.51) (0.44) (0.21)
----- ----- ----- ------
NET ASSET VALUE, END OF PERIOD............................. $9.71 $9.67 $9.89 $9.60
===== ===== ===== =====
Total Return (excluding sales and redemption
charges)................................................ 5.09% 2.93% 7.84% (3.31)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $1,972 $1,843 $977 $531
Ratio of Expenses to Average Net Assets................. 1.98% 1.96% 2.06% 1.92%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets............................................ 4.67% 4.78% 4.41% 4.80%(b)
Ratio of Expenses to Average Net Assets*................ 2.07% 2.05% 2.42% 2.32%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets*........................................... 4.58% 4.69% 4.05% 4.41%(b)
Portfolio Turnover Rate (c)............................. 1516.78 916.39% 549.13% 546.06%
</TABLE>
-23-
<PAGE> 159
GOVERNMENT INCOME FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED JUNE 30 TO
--------------------------------
1997 1996 1995 JUNE 30, 1994(e)
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $9.21 $9.39 $9.38 $9.88
----- ----- ----- -----
Investment Activities
Net Investment Income (Loss)............................ 0.63 0.66 0.68 0.28
Net Realized and Unrealized Gains (Losses)
on Investments........................................ (0.09) (0.18) 0.01 (0.50)
----- ----- ----- -----
Total from Investment Activities...................... 0.54 0.48 0.69 (0.22)
----- ----- ----- -----
Distributions
Net Investment Income................................... (0.52) (0.59) (0.61) (0.27)
Tax Return of Capital................................... (0.10) (0.07) (0.07) (0.01)
----- ----- ----- -----
Total Distributions................................... (0.62) (0.66) (0.68) (0.28)
----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD............................. $9.13 $9.21 $9.39 $9.38
===== ===== ===== =====
Total Return (excluding sales and redemption
charges)................................................ 6.06% 5.22% 7.71% (2.26)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $23,448 $19,556 $8,478 $2,787
Ratio of Expenses to Average Net Assets................. 1.77% 1.76% 1.83% 1.77%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets............................................ 6.89% 6.92% 7.28% 6.72%(b)
Ratio of Expenses to Average Net Assets*................ 2.11% 2.10% 2.44% 2.42%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets*........................................... 6.55% 6.58% 6.67% 6.08%(b)
Portfolio Turnover Rate (c)............................. 499.53% 348.01% 114.71% 102.24%
</TABLE>
-24-
<PAGE> 160
MICHIGAN BOND FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED JUNE 30 TO
--------------------------------------
1997 1996 1995 JUNE 30, 1994(e)
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $10.76 $10.75 $10.52 $11.09
------ ------ ------ ------
Investment Activities
Net Investment Income (Loss)............................ 0.41 0.40 0.40 0.16
Net Realized and Unrealized Gains (Losses)
on Investments........................................ 0.13 0.04 0.24 (0.57)
------ ------ ------ ------
Total from Investment Activities...................... 0.54 0.44 0.64 (0.41)
------ ------ ------ ------
Distributions
Net Investment Income................................... (0.36) (0.40) (0.40) (0.16)
In Excess of Net Investment Income...................... -- -- (0.01)
Net Realized Gains...................................... (0.04) (0.03) -- --
------ ------ ------ ------
Total Distributions................................... (0.40) (0.43) (0.41) (0.16)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............................. $10.90 $10.76 $10.75 $10.52
====== ====== ====== ======
Total Return (excluding sales and redemption
charges)................................................ 5.05% 4.13% 6.28% (3.69)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $3,503 $3,565 $2,270 $1,302
Ratio of Expenses to Average Net Assets................. 1.76% 1.77% 1.78% 1.77%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets............................................ 3.73% 3.57% 3.80% 3.51%(b)
Ratio of Expenses to Average Net Assets*................ 2.05% 2.06% 2.32% 2.32%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets*........................................... 3.44% 3.28% 3.25% 2.97%(b)
Portfolio Turnover Rate (c)............................. 28.48% 27.66% 26.06% 6.69%
</TABLE>
-25-
<PAGE> 161
MUNICIPAL BOND FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
FEBRUARY 4, 1994
YEAR ENDED JUNE 30 TO
--------------------------------------
1997 1996 1995 JUNE 30, 1994(e)
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....................... $10.39 $10.36 $10.26 $10.76
------ ------ ------ ------
Investment Activities
Net Investment Income (Loss)............................ 0.36 0.33 0.33 0.13
Net Realized and Unrealized Gains (Losses)
on Investments........................................ 0.13 0.03 0.27 (0.50)
------ ------ ------ ------
Total from Investment Activities...................... 0.49 0.36 0.60 (0.37)
------ ------ ------ ------
Distributions
Net Investment Income................................... (0.32) (0.33) (0.33) (0.13)
In Excess of Net Realized Gains......................... -- -- (0.17) --
------ ------ ------ ------
Net Realized Gains...................................... (0.05) -- -- --
------ ---- ---- ----
Total Distributions................................... (0.37) (0.33) (0.50) (0.13)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............................. $10.51 $10.39 $10.36 $10.26
====== ====== ====== ======
Total Return (excluding sales and redemption
charges)................................................ 4.81% 3.48% 6.17% (3.41)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)......................... $933 $735 $447 $359
Ratio of Expenses to Average Net Assets................. 1.81% 1.80% 1.80% 1.80%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets............................................ 3.43% 3.11% 3.22% 2.88%(b)
Ratio of Expenses to Average Net Assets*................ 2.10% 2.09% 2.33% 2.37%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets*........................................... 3.14% 2.82% 2.68% 2.31%(b)
Portfolio Turnover Rate (c)............................. 48.83% 47.46% 35.15% 44.39%
<FN>
- --------------------
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(d) Not annualized.
(e) Period from February 4, 1994 (commencement of offering of Investor B
Shares) to June 30, 1994.
(f) As of January 1, 1995, Gulfstream assumed the role of subadviser with
respect to the International Fund and the portion of the Balanced
Allocation Fund invested in foreign securities. Prior to that date,
Ivory & Sime International, Inc. and Ivory & Sime plc served as
subadvisers to the International Fund and the Balanced Allocation Fund
had no subadviser.
(g) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by
the Fund for which commissions were charged.
</TABLE>
-26-
<PAGE> 162
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds are set forth below under the
headings describing the Funds. The investment objective of each Fund may 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) although the
Board of Trustees would only change a Fund's objective upon 30 days' notice to
shareholders. There can be no assurance that a Fund will achieve its objective.
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 National City or Gulfstream,
as the case may be, each of the Funds may hold up to 100% of its total assets in
short-term obligations including domestic bank certificates of deposit, bankers'
acceptances and repurchase agreements secured by bank instruments. However, to
the extent that a Fund is so invested, its investment objective may not be
achieved during that time. Uninvested cash reserves will not earn income.
GROWTH FUNDS
THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE
CAPITALIZATION FUND
THE INVESTMENT OBJECTIVE OF THE SMALL CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS OF SMALL- TO MEDIUM-SIZED COMPANIES.
THE INVESTMENT OBJECTIVE OF THE MID CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS. THE INVESTMENT OBJECTIVE OF THE LARGE
CAPITALIZATION FUND IS TO SEEK GROWTH OF CAPITAL BY INVESTING PRIMARILY IN A
DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND SECURITIES CONVERTIBLE INTO COMMON
STOCKS OF COMPANIES WITH LARGE MARKET CAPITALIZATION.
Under normal market conditions, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund will invest at least 80% of
the value of its total assets in common stocks and securities convertible into
common stocks of companies believed by the Investment Adviser to be
characterized by sound management and the ability to finance expected long-term
growth. In addition, under normal market conditions, the Small Capitalization
Fund will invest at least 65% of the value of its total assets in common stocks
and securities convertible into common stocks of companies considered by the
Investment Adviser to have a market capitalization of less than $1 billion. The
Mid Capitalization Fund, under normal market conditions, will invest at least
65% of the value of its total assets in common stocks and
-27-
<PAGE> 163
securities convertible into common stocks of companies considered by the
Investment Adviser to have a market capitalization between $1 billion and $5
billion. The Large Capitalization Fund will do the same with companies
considered by the Investment Adviser to have a market capitalization of greater
than $5 billion. Each of the Small Capitalization Fund, Mid Capitalization Fund
and Large Capitalization Fund may also invest up to 20% of the value of its
total assets in preferred stocks, corporate bonds, notes, units of real estate
investment trusts, warrants, and short-term obligations (with maturities of 12
months or less) consisting of commercial paper (including variable amount master
demand notes), bankers' acceptances, certificates of deposit, repurchase
agreements, obligations issued or guaranteed by the U.S. government or, its
agencies or instrumentalities, and demand and time deposits of domestic and
foreign banks and savings and loan associations. Each of the Small
Capitalization Fund, Mid Capitalization Fund and Large Capitalization Fund may
also hold securities of other investment companies and depository or custodial
receipts representing beneficial interests in any of the foregoing securities.
Subject to the foregoing policies, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund may also invest up to 25% of
its net assets in foreign securities either directly or through the purchase of
American depository receipts ("ADRs") or European depository receipts ("EDRs")
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in Canadian commercial paper ("CCP"), and in Europaper (U.S.
dollar-denominated commercial paper of a foreign issuer). For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Foreign Securities."
The Mid Capitalization Fund anticipates investing in growth-oriented,
medium-sized companies. Medium-sized companies are considered to be those with a
market capitalization between $1 billion and $5 billion. The Large
Capitalization Fund anticipates investing in growth-oriented companies with
large market capitalization, defined as capitalization of over $5 billion. For
both the Mid Capitalization Fund and Large Capitalization Fund, investments will
be in companies that have typically exhibited consistent, above-average growth
in revenues and earnings, strong management, and sound and improving financial
fundamentals. Often, these companies are market or industry leaders, have
excellent products and/or services, and exhibit the potential for growth. Core
holdings of the Mid Capitalization Fund and Large Capitalization Fund are in
companies that participate in long-term growth industries, although these will
be supplemented by holdings in non-growth industries that exhibit the desired
characteristics.
The Small Capitalization Fund anticipates investing in dynamic small- to
medium-sized companies that exhibit outstanding potential for superior growth.
Small-sized companies are considered to be those with a market capitalization of
less than $1 billion. The Small Capitalization Fund will limit its investment in
securities of medium-sized companies to not more than 35% of the value of its
total assets. Companies that participate in sectors that are identified as
having long-term growth potential generally make up a substantial portion of
such Fund's holdings. These companies often have established a market niche or
have developed unique products or technologies that are expected to produce
superior growth in revenues and earnings. As smaller capitalization stocks are
quite volatile and subject to wide fluctuations in
-28-
<PAGE> 164
both the short and medium term, the Small Capitalization Fund may be fairly
characterized more aggressive than a general equity fund.
Consistent with the foregoing, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund will focus its investments in
those companies and types of companies that the Investment Adviser believes will
enable such Fund to achieve its investment objective.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE CAPITALIZATION FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-Issued and
and Dollar Roll Agreements Delayed - Delivery
Transactions
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
THE INTERNATIONAL FUND
THE INVESTMENT OBJECTIVE OF THE INTERNATIONAL FUND IS TO SEEK LONG-TERM GROWTH
OF CAPITAL.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States, or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States, and (iii) which are small-
or medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRs.
For purposes of investment by the International Fund only, companies are deemed
to be small- or medium-sized if at the time of purchase, they are of a size
which would rank them in the lower half of a major market index in the
applicable country by weighted market capitalization and in the lower half of
all equity securities listed in recognized secondary markets where such markets
exist. In addition, in countries with less well-developed stock markets, where
the range of investment opportunities is more restrictive, the equity securities
of all listed companies will be eligible for investment. In major markets,
issuers could have capitalizations of up to approximately $10 billion while in
smaller markets issuers would be eligible with capitalizations as low as
approximately $200 million.
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan,
-29-
<PAGE> 165
Korea, Malaysia, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland and the United Kingdom. Normally the International Fund will invest
at least 65% of its total assets in securities traded in at least three foreign
countries, including the countries listed above. It is possible, although not
currently anticipated, that up to 35% of the International Fund's assets could
be invested in the securities of U.S. companies. In addition, the International
Fund temporarily may invest cash in short-term debt instruments of U.S. and
foreign issuers for cash management purposes or pending investment.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
THE INTERNATIONAL FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements and
- -When-Issued and Delayed- Dollar Roll Agreements
Delivery Transactions
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
GROWTH AND INCOME FUNDS
THE BALANCED ALLOCATION FUND
THE INVESTMENT OBJECTIVE OF THE BALANCED ALLOCATION FUND IS TO SEEK CURRENT
INCOME, LONG-TERM CAPITAL GROWTH AND CONSERVATION OF CAPITAL.
The Balanced Allocation Fund may invest in any type or class of security. Under
normal market conditions the Balanced Allocation Fund will invest in common
stocks, fixed-income securities and securities convertible into common stocks
(i.e., warrants, convertible preferred stock, fixed-rate preferred stock,
convertible fixed-income securities, options and rights). The Balanced
Allocation Fund intends to invest 45% to 65% of its net assets in common stocks
and securities convertible into common stocks, 25% to 55% of its net assets in
fixed-income securities and up to 30% of its net assets in cash and cash
equivalents. Of these investments, no more than 20% of the Fund's net assets
will be in foreign securities.
For the Balanced Allocation Fund, common stocks are held primarily for the
purpose of providing long-term growth of capital. When choosing such stocks, the
potential for long term capital appreciation will be the primary basis for
selection. The Balanced Allocation Fund will invest in the common and preferred
stocks of companies with a market capitalization of at least $100 million and
which are traded either in established over-the-counter markets or on national
exchanges. The Balanced Allocation Fund intends to invest primarily in those
companies which are growth-oriented and have exhibited consistent, above-average
growth in revenues and earnings.
-30-
<PAGE> 166
For the Balanced Allocation Fund, fixed-income securities held consist of bonds,
debentures, notes, zero-coupon securities, mortgage-related securities, state,
municipal or industrial revenue bonds, obligations issued or guaranteed by the U
S. government or its agencies or instrumentalities, certificates of deposit,
time deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand notes. In addition, a portion of the Balanced Allocation
Fund's assets may, from time to time, be invested in first mortgage loans and
participation certificates in pools of mortgages issued or guaranteed by the
U.S. government or its agencies or instrumentalities. Some of the securities in
which the Balanced Allocation Fund invests may have warrants or options
attached. The Balanced Allocation Fund may also invest in repurchase agreements.
The Balanced Allocation Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, as well as "stripped" U.S. Treasury obligations ("Stripped Treasury
Obligations"), such as Treasury receipts issued by the U.S. Treasury
representing either future interest or principal payments, and other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES - Government
Obligations" below.
The Balanced Allocation Fund also expects to invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Such obligations, in the
case of debentures, will represent unsecured promises to pay, and in the case of
notes and bonds, may be secured by mortgages on real property or security
interests in personal property and will in most cases differ in their interest
rates, maturities and times of issuance.
The Balanced Allocation Fund will invest only in corporate fixed-income
securities which are rated at the time of purchase within the four highest
rating categories assigned by a nationally-recognized statistical rating
organization ("NRSRO") or, if unrated, which the Investment Adviser deems
present attractive opportunities and are of comparable quality. For a
description of the rating symbols of the NRSROs, see the Appendix to the
Statement of Additional Information. For a discussion of fixed-income securities
rated within the fourth highest rating category assigned by an NRSRO, see "RISK
FACTORS AND INVESTMENT TECHNIQUES -- Medium-Grade Securities."
The Balanced Allocation Fund may hold some short-term obligations (with
maturities of 12 months or less) consisting of domestic and foreign commercial
paper, variable amount master demand notes, bankers' acceptances, certificates
of deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, and repurchase agreements. The Balanced Allocation Fund may also
invest in securities of other investment companies.
The Balanced Allocation Fund may also invest in obligations of the Export-Import
Bank of the United States, in U.S. dollar-denominated international bonds for
which the primary trading market is the United States ("Yankee Bonds"), or for
which the primary trading market is abroad ("Eurodollar Bonds"), and in Canadian
bonds and bonds issued by institutions, such as the World Bank and the European
Economic Community, organized for a specific purpose by two or more sovereign
Governments ("Supranational Agency Bonds"). The Balanced Allocation Fund's
-31-
<PAGE> 167
investments in foreign securities may be made either directly or through the
purchase of ADRs and the Balanced Allocation Fund may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper.
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon the Investment Adviser's assessment of business, economic
and market conditions, including any potential advantage of price shifts between
the stock market and the bond market. The Balanced Allocation Fund reserves the
right to hold short-term securities in whatever proportion deemed desirable for
temporary defensive periods during adverse market conditions as determined by
the Investment Adviser. However, to the extent that the Balanced Allocation Fund
is so invested, its investment objective may not be achieved during that time.
Like any investment program, investment in the Balanced Allocation Fund entails
certain risks. As a Fund investing in common stocks, the Balanced Allocation
Fund is subject to stock market risk, i.e., the possibility that stock prices in
general will decline over short or even extended periods.
Since the Balanced Allocation Fund also invests in bonds, investors in the
Balanced Allocation Fund are also exposed to bond market risk, i.e.,
fluctuations in the market value of bonds. Bond prices are influenced primarily
by changes in interest rate levels. When interest rates rise, the prices of
bonds generally fall; conversely, when interest rates fall, bond prices
generally rise. While bonds normally fluctuate less in price than stock, there
have been extended periods of cyclical increases in interest rates that have
caused significant declines in bond prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result, the Balanced
Allocation Fund, with its balance of common stock and bond investments, is
expected to entail less investment risk (and a potentially smaller investment
return) than a mutual fund investing exclusively in common stocks.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
THE BALANCED ALLOCATION FUND
See The Following Sections In Risk Factors And Investment Techniques
<S> <C> <C>
- - Complex Securities Foreign Securities Foreign Currency Transactions
- - Futures Contracts Government Obligations Lending Portfolio Securities
- - Medium-Grade Securities Mortgage-Related Securities Other Mutual Funds
- - Portfolio Turnover Put and Call Options Repurchase Agreements
- - Restricted Securities Reverse Repurchase Agreements and When-Issued and Delayed-
Dollar Roll Agreements Delivery Transactions
- ---------------------------------------------------------------------------------------------------
</TABLE>
THE EQUITY INCOME FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY INCOME FUND IS TO SEEK CURRENT INCOME BY
INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH QUALITY, DIVIDEND-PAYING COMMON
STOCKS AND SECURITIES CONVERTIBLE
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<PAGE> 168
INTO COMMON STOCKS. A SECONDARY INVESTMENT OBJECTIVE OF THE EQUITY INCOME FUND
IS GROWTH OF CAPITAL.
The Equity Income Fund, under normal market conditions, will invest at least 80%
of the value of its total assets in common stocks and securities convertible
into common stocks of companies believed by the Investment Adviser to be
characterized by sound management, the ability to finance expected growth and
the ability to pay above-average dividends. The Equity Income Fund may also
invest up to 20% of the value of its total assets in preferred stocks, corporate
bonds, notes, units of real estate investment trusts, warrants, and short-term
obligations (with maturities of 12 months or less) consisting of commercial
paper (including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities, and demand and time
deposits of domestic and foreign banks and savings and loan associations. The
Equity Income Fund may also hold securities of other investment companies and
depository or custodial receipts representing beneficial interests in any of the
foregoing securities.
Subject to the foregoing policies, the Equity Income Fund may also invest up to
25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Foreign Securities."
The Equity Income Fund anticipates investing in securities that currently have a
high dividend yield, with the anticipation that the dividend will remain
constant or be increased in the future. These securities generally represent the
core holdings of this Fund. However, these holdings are balanced with lower
yielding but higher growth-oriented securities to achieve portfolio balance. All
securities must provide current income. Given its bias towards income, the
Equity Income Fund may be considered more conservative than growth-oriented
equity funds such as the Group's Small Capitalization Fund and Mid
Capitalization Fund.
Consistent with the foregoing, the Equity Income Fund will focus its investments
in those companies and types of companies that the Investment Adviser believes
will enable the Fund to achieve its investment objective.
-33-
<PAGE> 169
- -------------------------------------------------------------------------------
THE EQUITY INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency
- -Futures Contracts -Government Obligations Transactions
- -Mortgage-Related Securities -Other Mutual Funds -Lending Portfolio
- -Put and Call Options -Repurchase Agreements Securities
- -Reverse Repurchase Agreements -When-Issued and -Portfolio Turnover
and Dollar Roll Agreements Delayed-Delivery Transactions -Restricted Securities
</TABLE>
- -------------------------------------------------------------------------------
INCOME FUNDS
THE BOND FUND AND THE LIMITED MATURITY BOND FUND
THE INVESTMENT OBJECTIVE OF THE BOND FUND IS TO SEEK CURRENT INCOME AS WELL AS
PRESERVATION OF CAPITAL BY INVESTING IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE
FIXED-INCOME SECURITIES. THE INVESTMENT OBJECTIVE OF THE LIMITED MATURITY BOND
FUND IS TO SEEK CURRENT INCOME AS WELL AS PRESERVATION OF CAPITAL BY INVESTING
IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE FIXED-INCOME SECURITIES WITH REMAINING
MATURITIES OF SIX YEARS OR LESS.
Under normal market conditions, the Bond Fund will invest at least 80% of the
value of its total assets in bonds, debentures, notes with remaining maturities
at the time of purchase of one year or more, zero-coupon securities,
mortgage-related securities, state, municipal or industrial revenue bonds,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, debt securities convertible into, or exchangeable for, common
stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Bond Fund will invest in state and municipal securities
when, in the opinion of the Investment Adviser, their yields are competitive
with comparable taxable debt obligations. In addition, up to 20% of the value of
the Bond Fund's total assets may be invested in preferred stocks, notes with
remaining maturities at the time of purchase of less than one year, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies,
and guaranteed investment contracts ("GICs") issued by insurance companies, as
more fully described below. Some of the securities in which the Bond Fund
invests may have warrants or options attached.
Under normal market conditions, the Limited Maturity Bond Fund will invest at
least 80% of the value of its total assets in the following securities which
have remaining maturities of six years or less: bonds, debentures, notes with
remaining maturities at the time of purchase of one year or more, zero-coupon
securities, mortgage-related securities, state, municipal or industrial revenue
bonds, obligations issued or guaranteed by the U.S. government or its agencies
or instrumentalities, debt securities convertible into, or exchangeable for,
common stocks, first
-34-
<PAGE> 170
mortgage loans and participation certificates in pools of mortgages issued or
guaranteed by the U.S. government or its agencies or instrumentalities. The
Limited Maturity Bond Fund will invest in state and municipal securities when,
in the opinion of the Investment Adviser, their yields are competitive with
comparable taxable debt obligations. In addition, up to 20% of the value of the
Limited Maturity Bond Fund's total assets may be invested in the debt securities
listed above without regard to maturity, as well as preferred stocks, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies
and GICs. Under normal market conditions, the Limited Maturity Bond Fund expects
to maintain a dollar-weighted average portfolio maturity of its debt securities
of three years or less. By seeking to maintain a dollar-weighted average
portfolio maturity of three years or less, the Limited Maturity Bond Fund
attempts to minimize the fluctuation in its shares' net asset value relative to
those funds which invest in longer term obligations. Some of the securities in
which the Limited Maturity Bond Fund invests may have warrants or options
attached.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Limited Maturity Bond Fund, the effective
maturity of such securities, as determined by the Investment Adviser, will be
used.
Each of the Bond Fund and Limited Maturity Bond Fund expects to invest in a
variety of U.S. Treasury obligations, differing in their interest rates,
maturities, and times of issuance, as well as Stripped Treasury Obligations, and
other obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES - Government
Obligations."
The Bond Fund and the Limited Maturity Bond Fund 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 Bond Fund and the Limited Maturity Bond Fund each will invest only in
corporate debt securities which are rated at the time of purchase within the
four highest rating categories assigned by an NRSRO or, if unrated, which the
Investment Adviser deems present attractive opportunities and are of comparable
quality. For a discussion of debt securities rated within the four highest
rating categories assigned by the NRSROS, see "RISK FACTORS AND INVESTMENT
TECHNIQUES - Medium-Grade Securities."
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond
-35-
<PAGE> 171
Fund may also invest up to 25% of its net assets in foreign securities either
directly or through the purchase of ADRs and may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper.
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, the Investment Adviser may purchase debt
securities at a discount from face value, which produces a yield greater than
the coupon rate. Conversely, if debt securities are purchased at a premium over
face value, the yield will be lower than the coupon rate. In making investment
decisions for the Bond Fund, the Investment Adviser will consider many factors
other than current yield, including the preservation of capital, the potential
for realizing capital appreciation, maturity, and yield to maturity. In making
investment decisions for the Limited Maturity Bond Fund, the Investment Adviser
wil1 consider many factors other than current yield, including the preservation
of capital, maturity, and yield to maturity.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
THE BOND FUND AND THE LIMITED MATURITY BOND FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency Transactions
- -Futures Contracts -Government Obligations -Guaranteed Investment Contracts
- -Lending Portfolio Securities -Medium Grade Securities -Mortgage-Related Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase Agreements
- -When-Issued and Delayed and Dollar Roll Agreements
Delivery Transactions
- ---------------------------------------------------------------------------------------------
</TABLE>
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
THE INVESTMENT OBJECTIVE OF THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND IS TO
SEEK CURRENT INCOME WITH PRESERVATION OF CAPITAL BY INVESTING IN U.S. GOVERNMENT
SECURITIES WITH REMAINING MATURITIES OF TWELVE YEARS OR LESS.
Under normal market conditions, the Intermediate Government Obligations Fund
will invest at least 80% of its total assets in obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities and with remaining
maturities of twelve years or less, although up to 20% of the value of its total
assets may be invested in debt securities, preferred stocks and other
investments without regard to maturity, except as set forth below. Under normal
market conditions, the Intermediate Government Obligations Fund expects to
maintain a dollar-weighted average portfolio maturity of its debt securities of
three to ten years. By seeking to maintain a dollar-weighted average portfolio
maturity of three to ten years, the Intermediate Government Obligations Fund
attempts to minimize the fluctuation in its shares' net asset value relative to
funds which invest in longer-term obligations.
-36-
<PAGE> 172
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Intermediate Government Obligations Fund,
the effective maturity of such securities, as determined by the Investment
Adviser, will be used.
The types of U.S. government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and government securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES - Government Obligations."
The Intermediate Government Obligations Fund may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, as more fully described below under "RISK FACTORS AND
INVESTMENT TECHNIQUES - Government Obligations."
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Currency Transactions -Futures Contracts
- -Government Obligations -Lending Portfolio Securities -Mortgage-Related Securities
- -Municipal Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When Issued and Delayed -Portfolio Turnover
and Dollar Roll Agreements Delivery Transactions
-Other Mutual Finds
- -------------------------------------------------------------------------------------------
</TABLE>
THE GOVERNMENT INCOME FUND
THE INVESTMENT OBJECTIVE OF THE GOVERNMENT INCOME FUND IS TO PROVIDE
SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRUDENT
INVESTMENT RISK.
Under normal market conditions, the Government Income Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
non-governmental issuers. Consistent with the foregoing, under current market
conditions, the Government Income Fund intends to invest up to 80% of the value
of its total assets in mortgage-related securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities. The Government Income Fund
also may invest up to 35% of its total assets in mortgage-related securities
issued by non-governmental entities
-37-
<PAGE> 173
and in other securities described below. For more information, see "RISK FACTORS
AND INVESTMENT TECHNIQUES - Mortgage-Related Securities."
The types of U.S. government obligations, including mortgage-related securities,
invested in by the Government Income Fund will include obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Treasury, such as Treasury bills, notes and bonds, Stripped Treasury
Obligations and government securities, as described below in "RISK FACTORS AND
INVESTMENT TECHNIQUES -- Government Obligations."
The Government Income Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper
(including variable amount master demand notes) rated at the time of purchase
within the top two rating categories assigned by an NRSRO or, if unrated, which
the Investment Adviser deems present attractive opportunities and are of
comparable quality, bankers' acceptances, certificates of deposit and time
deposits of domestic and foreign branches of U.S. banks and foreign banks, and
repurchase and reverse repurchase agreements. The Government Income Fund may
also invest in corporate debt securities which are rated at the time of purchase
within the top three rating categories assigned by an NRSRO or, if unrated,
which the Investment Adviser deems present attractive opportunities and are of
comparable quality.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
THE GOVERNMENT INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Currency Transactions -Foreign Securities
- -Futures Contracts -Government Obligations -Lending Portfolio Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Portfolio Turnover
- -Reverse Repurchase Agreements -When-issued and Delayed -Restricted Securities
and Dollar Roll Agreements -Delivery Transactions
- ------------------------------------------------------------------------------------------------
</TABLE>
TAX-FREE INCOME FUNDS
THE MUNICIPAL BOND FUND AND THE MICHIGAN BOND FUND
THE INVESTMENT OBJECTIVE OF THE MUNICIPAL BOND FUND IS TO SEEK CURRENT INTEREST
INCOME WHICH IS EXEMPT FROM FEDERAL INCOME TAXES AND PRESERVATION OF CAPITAL.
THE INVESTMENT OBJECTIVE OF THE MICHIGAN BOND FUND IS TO SEEK INCOME WHICH IS
EXEMPT FROM FEDERAL INCOME TAX AND MICHIGAN STATE INCOME AND INTANGIBLES TAXES,
ALTHOUGH SUCH INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX WHEN
RECEIVED BY CERTAIN SHAREHOLDERS, AND PRESERVATION OF CAPITAL.
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<PAGE> 174
Under normal market conditions and as a fundamental policy, at least 80% of the
net assets of the Municipal Bond Fund will be invested in a diversified
portfolio of Municipal Securities, and at least 80% of the net assets of the
Michigan Bond Fund will be invested in a portfolio of Michigan Municipal
Securities.
"Municipal Securities" include obligations consisting of bonds, notes and
commercial paper, issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and other political subdivisions,
agencies, instrumentalities and authorities, the interest on which is both
exempt from federal income taxes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. "Michigan
Municipal Securities" include debt obligations, consisting of notes, bonds and
commercial paper, issued by or on behalf of the State of Michigan, its political
subdivisions, municipalities and public authorities, the interest on which is,
in the opinion of bond counsel to the issuer, exempt from federal income tax and
Michigan state income and intangibles taxes (but may be treated as a preference
item for individuals for purposes of the federal alternative minimum tax) and
debt obligations issued by the government of Puerto Rico, the U.S. territories
and possessions of Guam, the U.S. Virgin Islands or such other governmental
entities whose debt obligations, either by law or treaty, generate interest
income which is exempt from federal and Michigan state income and intangibles
taxes. For more information regarding Municipal Securities and Michigan
Municipal Securities, see "RISK FACTORS AND INVESTMENT TECHNIQUES -Municipal
Securities."
Under normal market conditions, at least 65% of the net assets of each of the
Municipal Bond Fund and the Michigan Bond Fund will be invested in Municipal
Securities (Michigan Municipal Securities in the case of the Michigan Bond Fund)
consisting of bonds and notes with remaining maturities at the time of purchase
of one year or more. Quality is the primary consideration in selecting Michigan
Municipal Securities for investment by the Michigan Bond Fund.
The Municipal Bond Fund also intends that under normal market conditions its
portfolio will maintain an average weighted rating of AA/Aa. Each of the
Municipal Bond Fund and the Michigan Bond Fund intends that, under normal market
conditions, it will be invested in long-term Municipal Securities (Michigan
Municipal Securities in the case of the Michigan Bond Fund) and that the average
weighted maturity of such investments will be 5 to 12 years, although the
Michigan Bond Fund may invest in Michigan Municipal Securities of any maturity
and the Investment Adviser may extend or shorten the average weighted maturity
of its portfolio depending upon anticipated changes in interest rates or other
relevant market factors. In addition, the average weighted rating of a Tax-Free
Income Fund's portfolio may vary depending upon the availability of suitable
Municipal Securities or other relevant market factors.
The Michigan Bond Fund invests in Michigan Municipal Securities which are rated
at the time of purchase within the four-highest rating categories assigned by an
NRSRO or, in the case of notes, tax-exempt commercial paper or variable rate
demand obligations, rated within the two highest rating categories assigned by
an NRSRO. The Michigan Bond Fund may also purchase Michigan Municipal Securities
which are unrated at the time of purchase but are determined to be of comparable
quality by the Investment Adviser pursuant to guidelines approved by the
-39-
<PAGE> 175
Group's Board of Trustees. The applicable Michigan Municipal Securities ratings
are described in the Appendix to the Statement of Additional Information. For a
description of debt securities rated within the fourth highest rating categories
assigned by the NRSROs, see "RISK FACTORS AND INVESTMENT TECHNIQUES -
Medium-Grade Securities."
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Tax-Free Income Funds will not treat these
bonds as "Municipal Securities" or "Michigan Municipal Securities" for purposes
of measuring compliance with the 80% tests described above. To the extent the
Tax-Free Income Funds invest in these bonds, individual shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Tax-Free Income Funds' distributions derived from these bonds. For
further information relating to the types of municipal securities which will be
included in income subject to alternative minimum tax, see "ADDITIONAL
INFORMATION - Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Bond Fund" in the Statement of Additional
Information.
Investments of the Tax-Free Income Funds may be made in taxable obligations if,
for example, suitable tax-exempt obligations are unavailable or if acquisition
of U.S. government or other taxable securities is deemed appropriate for
temporary defensive purposes as determined by the Investment Adviser to be
warranted due to market conditions. Such taxable obligations consist of
government securities, certificates of deposit, time deposits and bankers'
acceptances of selected banks, commercial paper meeting the Tax-Free Income
Funds' quality standards for tax-exempt commercial paper (as described above),
an such taxable obligations as may be subject to repurchase agreements. These
obligations are described further in the Statement of Additional Information.
Under such circumstances and during the period of such investment, the affected
Tax-Free Income Fund may not achieve its stated investment objectives.
Although the Municipal Bond Fund may invest more than 25% of its net assets in
(i) Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, it does not presently intend to do
so on a regular basis. To the extent the Municipal Bond Fund's assets are
concentrated in Municipal Securities that are payable from the revenues of
similar projects or are issued by issuers located in the same state, or are
concentrated in private activity bonds, the Municipal Bond Fund will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states, projects and bonds to a greater extent than it would be if its
assets were not so concentrated.
Because the Michigan Bond Fund invests primarily in securities issued by the
State of Michigan and its political subdivisions, municipalities and public
authorities, the Michigan Bond Fund's performance is closely tied to the general
economic conditions within the State as a whole and to the economic conditions
within particular industries and geographic areas represented or located within
the State. However, the Michigan Bond Fund attempts to diversify, to the extent
the Investment Adviser deems appropriate, among issuers and geographic areas in
the State of Michigan.
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<PAGE> 176
The Michigan Bond Fund is classified as a "non-diversified" investment company,
which means that the amount of assets of the Michigan Bond Fund that may be
invested in the securities of a single issuer is not limited by the Investment
Company Act of 1940, as amended ("the 1940 Act"). Nevertheless, the Michigan
Bond Fund intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"). The Code requires that, at the end of each quarter of a
fund's taxable year, (i) at least 50% of the market value of its total assets be
invested in cash, U.S. government securities, securities of other regulated
investment companies and other securities, with such other securities of any one
issuer limited for the purposes of this calculation to an amount not greater
than 5% of the value of the fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets be invested in the securities of any one issuer (other than U.S.
government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Michigan Bond Fund's
assets may be invested in the obligations of a limited number of issuers, some
of which may be within the same economic sector, the Michigan Bond Fund's
portfolio securities may be more susceptible to any single economic, political
or regulatory occurrence than the portfolio securities of a diversified
investment company.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
TAX -FREE INCOME FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Currency -Futures Contracts
- -Government obligations Transactions (Municipal Bond Fund Only)
- -Medium-Grade Securities -Lending Portfolio Securities -Municipal Securities
- -Other Mutual Funds -Mortgage-Related Securities -Private Activity Bonds
- -Put and Call Options -Portfolio Turnover -Restricted Securities
- -Reverse Repurchase Agreements -Repurchase Agreements
and Dollar Roll Agreements -When-Issued and Delayed-
Delivery Transactions
- -----------------------------------------------------------------------------------------------
</TABLE>
MONEY MARKET FUND
THE PRIME OBLIGATIONS FUND
THE INVESTMENT OBJECTIVE OF THE PRIME OBLIGATIONS FUND IS TO SEEK CURRENT INCOME
WITH LIQUIDITY AND STABILITY OF PRINCIPAL.
Under normal market conditions, the Prime Obligations Fund invests in
high-quality money market instruments, including Municipal Securities and other
instruments deemed to be of comparable high quality as determined by the Board
of Trustees. As a money market fund, the Prime Obligations Fund invests
exclusively in United States dollar-denominated instruments which the Board of
Trustees of the Group and the Investment Adviser determine present minimal
credit risks and which at the time of acquisition are (a) U.S. government
securities, (b) money market fund shares, or (c) rated by at least two NRSROs or
by the only NRSRO providing a
-41-
<PAGE> 177
rating in one of the two highest rating categories for short-term debt
obligations or, if unrated, which the Investment Adviser deems to be of
comparable quality. In addition, the Prime Obligations Fund diversifies its
investments so that, except for United States government securities and certain
other exceptions, not more than 5% of its total assets is invested in the
securities of any one issuer, not more than 5% of its total assets is invested
in securities of all issuers rated by an NRSRO or NRSROs (in accordance with SEC
regulations) at the time of investment in the second highest rating category for
short-term debt obligations or deemed to be of comparable quality to securities
rated in the second highest rating category for short-term debt obligations
(either referred to as "Second Tier Securities") and not more than the greater
of 1% of total assets or $1 million is invested in the Second Tier Securities of
one issuer. All securities or instruments in which the Prime Obligations Fund
invests have remaining maturities of 397 calendar days (13 months) or less
(except for certain variable and floating rate notes and securities underlying
certain repurchase agreements). The dollar-weighted average maturity of the
obligations in the Prime Obligations Fund will not exceed 90 days.
The Prime Obligations Fund may invest in commercial paper and other short-term
promissory notes issued by corporations (including variable amount master demand
notes) rated at the time of purchase within the two highest rating categories
assigned by at least two NRSROs or by the only NRSRO providing a rating or, if
not rated, which the Investment Adviser deems to be of comparable quality. For a
description of the rating categories of the NRSROs, see the Appendix to the
Statement of Additional Information. The Prime Obligations Fund may also invest
in CCP, Europaper, bankers' acceptances, certificates of deposit and time
deposits.
Variable amount master demand notes in which the Prime Obligations Fund and
certain other Funds may invest are unsecured demand notes that permit the
indebtedness thereunder to vary, and that provide for periodic adjustments in
the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time. While the
notes are not typically rated by credit rating agencies, issuers of variable
amount master demand notes (which are normally manufacturing, retail, financial,
and other business concerns) must satisfy the same criteria as set forth above
for commercial paper. The Investment Adviser will consider the earning power,
cash flow, and other liquidity ratios of the issuers of such notes and will
continuously monitor their financial status and ability to meet payment on
demand.
The Prime Obligations Fund may acquire securities that are subject to demand
features (generally, a feature permitting the holder of the security at
specified intervals to sell the security at an exercise price equal to the
approximate market cost plus accrued interest). The demand feature may be issued
by the issuer of the underlying security or a dealer in the security, or by
another third party. The Prime Obligations Fund uses these arrangements to
provide liquidity and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership, or default by the issuer of
the demand feature, or a default on the underlying security or other event that
terminates the demand feature before its exercise, will adversely affect the
liquidity of the underlying security. Demand features that are exercisable
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after a payment default on the underlying security may be treated as a form of
credit enhancement.
Certain of the Prime Obligation Fund's permitted investments may have received
credit enhancement by a guaranty, letter of credit, or insurance. The Prime
Obligations Fund may evaluate the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the entity
providing the credit enhancement, rather than the issuer. The bankruptcy,
receivership, or default of an entity providing credit enhancement may adversely
affect the quality and marketability of the underlying security.
Consistent with the requirements of Rule 2a-7 adopted under the 1940 Act, the
Prime Obligations Fund will limit its investment, with respect to 75% of its
assets, to no more than 10% of its total assets in securities issued by or
subject to demand features or guarantees of a single issuer. With respect to the
remaining 25% of the Prime Obligations Fund's assets, the Fund may invest in
securities subject to demand features or guarantees from, or directly issued by,
one or more institutions, provided they are rated in the highest rating category
assigned by an NRSRO and are issued by a "Non-Controlled Person" as defined in
the Rule. In addition, a demand feature or guarantee may be acquired by the
Prime Obligations Fund only if not more than 5% of the Fund's total assets are
invested in demand features, guarantees or securities issued by the provider of
the demand feature or guarantee that are rated in the second highest short-term
rating category assigned by an NRSRO or NRSROs (in accordance with Rule 2a-7).
The Prime Obligations Fund intends to follow the operational policies described
above, as well as other non-fundamental policies that will enable the Fund to
comply with the laws and regulations applicable to money market mutual funds,
particularly Rule 2a-7 under the 1940 Act. The Prime Obligations Fund shall
determine the effective maturity of its investments, the applicable credit
rating of securities, and adequate diversification by reference to Rule 2a-7.
The Prime Obligations Fund may change its operational policies to reflect
changes in the laws and regulations applicable to money market mutual funds
without shareholder approval.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
THE PRIME OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Government Obligations
- -Guaranteed Investment Contracts -Lending Portfolio Securities -Municipal Securities
- -Portfolio Turnover -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase -When-Issued and Delayed
Agreements and Dollar Roll Delivery Transaction
Agreements
- --------------------------------------------------------------------------------------------------
</TABLE>
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RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase or dollar roll agreements with the
Investment Adviser, BISYS, SEI or their affiliates, and will not give preference
to the correspondents of their bank affiliates with respect to such
transactions, securities, savings deposits, repurchase agreements, reverse
repurchase agreements and dollar roll agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by the Investment Adviser, and in the
case of the International Fund and Balanced Allocation Fund, Gulfstream in the
management of each of the Funds (with the exception of the Treasury Fund)
involve complex securities sometimes referred to as "derivatives." Among such
securities are put and call options, foreign currency transactions and futures
contracts, all of which are described below. The Investment Adviser and
Subadviser believe that such complex securities may, in some circumstances, play
a valuable role in successfully implementing each Fund's investment strategy and
achieving its goals. However, because complex securities and the strategies for
which they are used, are by their nature complicated, they present substantial
opportunities for misunderstanding and misuse. To guard against these risks, the
Investment Adviser and Subadviser will utilize complex securities primarily for
hedging, not speculative, purposes and only after careful review of the unique
risk factors associated with each such security.
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds, with the exception of the Tax-Free Income Funds and the Prime
Obligations Fund, may utilize foreign currency transactions in its portfolio.
The value of the assets of a Fund as measured in United States dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract ("forward currency contracts") involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These forward currency contracts are traded directly
between currency traders (usually large commercial banks) and their customers.
The Funds may enter into forward currency contracts in order to hedge against
adverse movements in exchange rates between currencies.
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
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security transaction, such Fund is able to protect itself against a possible
loss between trade and settlement dates resulting from an adverse change in the
relationship between the United States dollar and such foreign currency.
Additionally, for example, when a Fund believes that a foreign currency may
suffer a substantial decline against the U.S. dollar, it may enter into a
forward currency sale contract to sell an amount of that foreign currency
approximating the value of some or all of that Fund's portfolio securities or
other assets denominated in such foreign currency. Alternatively, when a Fund
believes it will increase, it may enter into a forward currency purchase
contract to buy that foreign currency for a fixed U.S. dollar amount; however,
this tends to limit potential gains which might result from a positive change in
such currency relationships. A Fund may also hedge its foreign currency exchange
rate risk by engaging in currency financial futures and options transactions.
The forecasting of short-term currency market movement is extremely difficult
and whether such a short-term hedging strategy will be successful is highly
uncertain. It is impossible to forecast with precision the market value of
portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency such Fund is obligated
to deliver when a decision is made to buy the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency such Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. If forward prices
decline during the period between which a Fund enters into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. If forward prices
increase, such Fund would suffer a loss to the extent the price of the currency
it has agreed to purchase exceeds the price of the currency it has agreed to
sell. Although such contracts tend to minimize the risk of loss due to a decline
in the value of the hedged currency, they also tend to limit any potential gain
which might result if the value of such currency increases. The Funds will have
to convert their holdings of foreign currencies into United States dollars from
time to time. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
No Fund intends to enter into forward currency contracts if more than 15% of the
value of its total assets would be committed to such contracts on a regular or
continuous basis. A Fund also will not enter into forward currency contracts or
maintain a net exposure on such contracts where such Fund would be obligated to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency.
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For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES -Additional Information on Portfolio Instruments" in the
Statement of Additional Information.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Allocation Fund may invest up to 20% of its total assets in foreign
securities. The Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund and Equity Income Fund may invest in foreign securities as
permitted by their respective investment policies. Each of the Bond Fund and
Limited Maturity Bond Fund may also invest up to 25% of its net assets in
foreign securities either directly or through the purchase of ADRs and may also
invest in securities issued by foreign branches of U.S. banks and foreign banks,
in CCP, and in Europaper. The Government Income Fund and the Prime Obligations
Fund may invest in foreign securities by purchasing: Eurodollar certificates of
deposit ("ECDs"), which are U.S. dollar-denominated certificates of deposit
issued by offices of foreign and domestic banks outside the U.S.; Eurodollar
time deposits ("ETDs"), which are U.S. dollar-denominated deposits in a foreign
branch of a U.S. or foreign bank; Canadian time deposits ("CTDs"), which are
essentially the same as ETDs, except that they are issued by Canadian offices of
major Canadian banks; Yankee certificates of deposit ("Yankee CDs"), which are
U.S. dollar-denominated certificates of deposit issued by a U.S. branch of a
foreign bank but held in the U.S.; CCP; and Europaper.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the United States. In addition, there may be less
publicly available information about a foreign company than about a
U.S.-domiciled company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States. Confiscatory taxation or diplomatic developments could also
affect investment in those countries. In addition, foreign branches of U.S.
banks, foreign banks and foreign issuers may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions, these
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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 wil1 be affected by changes in currency exchange rates and in exchange
control regulations, and costs will be incurred in connection with conversions
between currencies. A change in the value of any foreign currency against the
U.S. dollar will result in a corresponding change in the U.S. dollar value of a
Fund's securities denominated in that currency. Such changes will also affect a
Fund's income and distributions to shareholders. In addition, although a Fund
will receive income on foreign securities in such currencies, such Fund will be
required to compute and distribute its income in U.S. dollars. Therefore, if the
exchange rate for any such currency declines materially after such Fund's income
has been accrued and translated into U.S. dollars, the Fund could be required to
liquidate portfolio securities to make required distributions. Similarly, if an
exchange rate declines between the time a Fund incurs expenses in U.S. dollars
and the time such expenses are paid, the amount of such currency required to be
converted into U.S. dollars in order to pay such expenses in U.S. dollars will
be greater.
U.S. dollar-denominated ADRs, which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all of the risk inherent in investing
in the securities of foreign issuers. However, by investing in ADRs rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during the
settlement period for either purchases or sales. In general, there is a large,
liquid market in the United States for many ADRs. The information available for
ADRs is subject to the accounting, auditing and financial reporting standards of
the domestic market or exchange on which they are traded, standards which are
more uniform and more exacting than those to which many foreign issuers may be
subject. The ADR is sometimes referred to as a Global Depositary Receipt, or
GDR. In the United States, the GDR is, after issuance, not unlike any other ADR.
The difference is found in the purpose of the issue. GDRs are used for global
offerings, by the simultaneous issuance of a single security in multiple world
markets. The International Fund and Balanced Allocation Fund may also invest in
EDRs which are receipts evidencing an arrangement with a European bank similar
to that for ADRs and designed for use in the European securities markets. EDRs
are not necessarily denominated in the currency of the underlying security.
Certain of the ADRs and EDRs, typically those categorized as unsponsored,
require their holders to bear most of the costs of such facilities while issuers
of sponsored facilities normally pay more of the costs. The depository of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through the voting rights to facility holders with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
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Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the
European Currency Unit ("ECU"), which is a "basket" unit of currency consisting
of specified amounts of the currencies of certain of the twelve member states of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. Such adjustments may
adversely affect holders of ECU-denominated obligations or the marketability of
such securities. European governments and supranationals, in particular, issue
ECU-denominated obligations.
FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds, the Income Funds and the
Municipal Bond Fund may enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, a Fund can seek through the sale of
futures contracts to offset a decline in the value of its portfolio securities.
When interest rates are expected to fall or market values are expected to rise,
a Fund, through the purchase of such contracts, can attempt to secure better
rates or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercising the option at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of a Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall Performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not rove to be perfectly or even highly
correlated with its portfolio securities or foreign currencies, limiting the
Fund's ability to hedge effectively against
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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
closing out futures positions.
GOVERNMENT OBLIGATIONS
Subject to the investment parameters described above, each of the Funds may
invest in obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities. The types of U.S. government obligations in which
each of these Funds may invest include U.S. Treasury notes, bills, bonds, and
any other securities directly issued by the U.S. government for public
investment, which differ only in their interest rates, maturities, and times of
issuance. Stripped Treasury Obligations are also permissible investments.
Stripped securities are issued at a discount to their "face value," and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors. The
Stripped Treasury Obligations in which the Prime Obligations Fund may invest do
not include certificates of accrual on Treasury securities ("CATS") or Treasury
income growth receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported b the right of the
issuer to borrow from the Treasury; others, such as those of the Student Loan
Marketing Association ("SLMA"), are supported by the discretionary authority of
the U.S. government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation ("FHLMC"), are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. government would provide financial
support to U.S. government-sponsored agencies or instrumentalities, such as
FNMA, SLMA or FHLMC, since it is not obligated to do so by law. The Funds which
may invest in these government obligations will invest in the obligations of
such agencies or instrumentalities only when the Investment Adviser believes
that the credit risk with respect thereto is minimal.
GUARANTEED INVESTMENT CONTRACTS
The Bond Fund, the Limited Maturity Bond Fund and the Prime Obligations Fund may
invest in GICs. When investing in GICs, the Bond Fund, the Limited Maturity Bond
Fund and the Prime Obligations Fund make cash contributions to a deposit fund of
an insurance company's general account. The insurance company then credits
guaranteed interest to the deposit fund on a monthly basis. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expenses and
service costs applicable to it, and the charges will be deducted from the value
of the deposit fund. The Bond Fund and the Limited Maturity Bond Fund may invest
in GICs of insurance companies without regard to the ratings, if any, assigned
to such insurance companies' outstanding debt securities. The Prime Obligations
Fund ma only invest in GICs that have received the requisite ratings by one or
more NRSROs, see "INVESTMENT OBJECTIVES AND POLICIES -The Money Market Fund" in
this Prospectus. Because a Fund may not
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receive the principal amount of a GIC from the insurance company, on seven days'
notice or less, the GIC is considered an illiquid investment. For each of the
Bond Fund and Limited Maturity Bond Fund, no more than 15% of its total assets
will be invested in instruments which are considered to be illiquid. For the
Prime Obligations Fund, no more than 10% of its total assets may be invested in
instruments which are considered to be illiquid. In determining average
portfolio maturity, GICs will be deemed to have a maturity equal to the period
of time remaining until the next readjustment of the guaranteed interest rate.
MEDIUM-GRADE SECURITIES
Each of the Balanced Allocation. Fund, Bond Fund, Limited Maturity Bond Fund,
Municipal Bond Fund and Michigan Bond Fund may invest in fixed-income securities
rated within the fourth highest rating category assigned by an NRSRO (i.e., BBB
or Baa by S&P or Moody's, respectively) and comparable unrated securities as
determined by the Investment Adviser. These types of fixed-income securities are
considered 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, the
Investment Adviser will consider such an event in determining whether the Fund
should continue to hold that security. In no event, however, would the Fund be
required to liquidate any such portfolio security where the Fund would suffer a
loss on the sale of such security
MORTGAGE-RELATED SECURITIES
The Government Income Fund intends to invest up to 80% of the value of its total
assets in mortgage-related securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. However, the Government Income
Fund may invest greater amounts as conditions warrant. Each of the remaining
Funds, except the International Fund, may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Such agencies or instrumentalities include GNMA, FNMA and
FHLMC. Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond
Fund, Intermediate Government Obligations Fund, Government Income Fund and Prime
Obligations Fund may also invest in mortgage-related securities issued by
non-governmental entities which are rated, at the time of purchase, within the
three highest bond rating categories assigned by an NRSRO or, if unrated, which
the Investment Adviser deems present attractive opportunities and are of
comparable quality.
The mortgage-related securities in which these Funds may invest have mortgage
obligations backing such securities, consisting of conventional thirty-year
fixed-rate mortgage obligations, graduated parent 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
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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 obligations
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 loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and shortening the period of
time over which income at the higher rate is received. When interest rates are
rising, though, the rate of prepayment tends to decrease, thereby lengthening
the period of time over which income at the lower rate is received. For these
and other reasons, a mortgage-related security's average maturity may be
shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Fund. In addition, regular payments received with respect to mortgage-related
securities include both 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
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of the United States government. FHLMC is a corporate instrumentality of the
United States government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by non-governmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private, mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers will be considered in
Determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the poolers, the Investment
Adviser determines that the securities meet the Government Income Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Government Income Fund will not purchase mortgage-related
securities or any other assets which in the Investment Adviser's opinion are
illiquid if, as a result, more than 15% of the value of the Government Income
Fund's total assets will be illiquid.
Mortgage-related securities in which the above-named Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments; that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed-rate mortgages. As new types
of mortgage-
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related securities are developed and offered to investors, the Investment
Adviser, consistent with the Government Income Fund's investment objective,
policies and quality standards, consider making investments in such new types of
securities.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities (Michigan Municipal
Securities, in the case of the Michigan Bonds Fund) which may be held by the
Bond Fund, Limited Maturity Bond Fund, Municipal Bond Fund, Michigan Bond Fund
and Prime Obligations Fund are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Municipal Bond Fund
and Michigan Bond Fund are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the corporate user of the facility involved.
The above-named Funds may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Each of the above-named Funds invests primarily in Municipal Securities which
are rated at the time of purchase within the four highest rating categories
assigned by an NRSRO or in the highest rating category assigned by an NRSRO in
the case of notes, tax-exempt commercial paper or variable rate demand
obligations. These Funds may also purchase Municipal Securities which are
unrated at the time of purchase but determined to be of comparable quality by
the Investment Adviser pursuant to guidelines approved by the Group's Board of
Trustees. The Prime Obligations Fund may invest in Municipal Securities only in
compliance with the requirements of Rule 2a-7 under the 1940 Act, which
generally requires that it invest only in securities rated in the two highest
rating categories assigned by an NRSRO (with no more than 5%. of its assets
invested in the second highest rating category). The applicable Municipal
Securities ratings are described in the Appendix to the Statement of Additional
Information. For a discussion of debt securities rated within the four highest
rating categories assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Medium-Grade Securities."
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Funds nor the Investment
Adviser will review the proceedings, relating to the issuance of Municipal
Securities or the basis for such opinions.
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Municipal Securities and Michigan Municipal Securities purchased by the Tax-Free
Income Funds may include rated and unrated variable and floating rate tax-exempt
notes. A variable rate note is one whose terms provide for the adjustment of its
interest rate on set dates and which, upon such adjustment, can reasonably be
expected to have a market value that approximates its par value. A floating rate
note is one whose terms provide for the-adjustment of its interest rate whenever
a specified interest rate changes and which, at any time, can reasonably be
expected to have a market value that approximates its par value. Such notes are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate notes purchased by the Tax-Free Income Funds will be determined by
the Investment Adviser, under guidelines established by the Group's Board of
Trustees, to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under the Funds' investment policies. In
making such determinations, the Investment Adviser will consider the earning
power, cash flow and other liquidity ratios of the issuers of such notes (such
issuers include financial, merchandising, bank holding and other companies) and
will continuously monitor their financial condition. There may be no active
secondary market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to the Tax-Free Income Funds will approximate their par value.
The Tax-Free Income Funds will not purchase variable and floating rate notes or
any other securities which in the Investment Adviser's opinion are illiquid if,
as a result, more than 15% of either Tax-Free Income Fund's total assets will be
illiquid.
OTHER MUTUAL FUNDS
Each of the Funds, except the Prime Obligations Fund, may invest up to 5% of the
value of its total assets in the securities of any one money market mutual fund,
provided that no more than 10% of a Fund's total assets may be invested in the
securities of mutual funds in the aggregate. Each Fund will incur additional
expenses due to the duplication of expenses as a result of investing in
securities of other mutual funds. Additional restrictions regarding the Funds'
nvestments in securities of other mutual funds are contained in the Statement of
Additional Information
PRIVATE ACTIVITY BONDS
The Tax-Free Income Funds may invest in private activity bonds. It should be
noted that the Tax Reform Act of 1986 substantially revised provisions of prior
federal law affecting the issuance and use of proceeds of certain tax-exempt
obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Any reference herein to private activity bonds includes industrial development
bonds. Interest on private activity bonds is tax-exempt (and such bonds will be
considered Municipal Securities for purposes of this Prospectus) only if the
bonds fall within certain defined categories of qualified private activity bonds
and meet the requirements specified in those respective categories. If a Fund
invests in private activity bonds which fall outside these categories,
shareholders may become subject to the federal alternative minimum tax on that
part of the Fund's distributions derived from interest on such bonds. The Tax
Reform Act generally did not change the federal tax treatment of bonds issued to
finance government operations. For further
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information relating to the types of private activity bonds which will be
included in income subject to the federal alternative minimum tax, see
"ADDITIONAL INFORMATION -- Additional Tax Information Concerning the Tax-Free
Fund, the Municipal Bond Fund and the Michigan Bond Fund" in the Statement of
Additional Information.
PUT AND CALL OPTIONS
Each of the Growth Funds, the Growth and Income Funds, the Income Funds and the
Tax-Free Income Funds may purchase put and call options on securities and on
foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid as premiums to writers of options. Each Fund
may also engage in writing call options from time to time as the Investment
Adviser or Gulfstream, as the case may be with respect to the Balanced
Allocation Fund or International Fund, deems 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 a Fund will cause the underlying value of portfolio securities and
currencies subject to such options to exceed 50% of its net assets, and with
respect to each of the Balanced Allocation Fund and International Fund, 20% of
its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its options transaction, 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
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of its settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
In addition, each of the Tax-Free Income Funds may acquire "puts" with respect
to Municipal Securities (or Michigan Municipal securities, as the case may be),
held in its portfolio. Under a put, such Fund would have the right to sell a
specified Municipal Security (or Michigan Municipal Security, as the case may
be) within a specified period of time at a specified price. A put would be sold,
transferred, or assigned only with the underlying security. The Tax-Free Income
Funds will acquire puts solely either to facilitate portfolio liquidity, shorten
the maturity of the underlying securities, or permit the investment of its funds
at a more favorable rate return. Each of the Tax-Free Income Funds expects that
it will generally acquire puts only where the puts are available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, such Fund may pay for a put either separately in cash or by paying a
higher price for portfolio securities which are acquired subject to the puts
(thus reducing the yield to maturity otherwise available for the same
securities) .
REPURCHASE AGREEMENTS
Securities held by a Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as merger banks of the Federal Deposit Insurance Corporation
or registered broker-dealers which the Investment Adviser or Gulfstream, as the
case may be, deems creditworthy under the guidelines approved by the Group's
Board of Trustees, subject to the seller's agreement to repurchase such
securities at a mutually agreed upon date and price. The repurchase price would
generally equal the price paid by the Fund plus interest negotiated on the basis
of current short-term rates, which may be more or less than the rate on the
underlying portfolio securities. Securities subject to repurchase agreements
will be held in a segregated account. If the seller were to default on its
repurchase obligation or become insolvent, the Fund would suffer a loss to the
extent that the proceeds from the sale of the underlying portfolio securities
were less than the repurchase price under the agreement, or to the extent that
the disposition of such securities by that Fund were delayed pending court
action. Repurchase agreements are considered to be loans by an investment
company under the 1940 Act. For further information about repurchase agreements,
see "INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Repurchase Agreements" in the Statement of Additional
Information.
RESTRICTED SECURITIES
Securities in which each of the Funds may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the 1933 Act"), in reliance on the exemption from such, registration afforded
by Section 3(a)(3) thereof, and securities issued in reliance on the so-called
"Private Placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2) securities are
restricted as to disposition under the federal securities laws, and generally
are sold to institutional investors
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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 marked in such Section 4(2) securities,
thus providing liquidity. Pursuant to procedures adopted by the Board of
Trustees of the Group, First of America may determine Section 4(2) securities to
be liquid if such securities are eligible for resale under Rule 144A under the
1933 Act and are readily saleable.
Subject to the limitations described above, the Funds may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registered under the 1933 Act. An illiquid investment
is any investment that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which it is valued by a Fund.
The price a Fund pays for illiquid securities or receives upon resale may be
lower than the price paid or received for similar securities with a more liquid
market. Accordingly, the valuation of these securities will reflect any
limitations on their liquidity. For each of the Non-Money Market Funds, a Fund
may not invest in additional illiquid securities if, as a result, more than 15%
of the market value of its net assets would be invested in illiquid securities.
The Prime Obligations Fund may not invest in illiquid securities if, as a
result, more than 10% of the market value of its assets would be invested in
illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Each of the Funds may borrow money by entering into reverse repurchase
agreements and, in the case of the Income Funds and the Tax-Free Income Funds,
dollar roll agreements in accordance with the investment restrictions described
below. Pursuant to reverse repurchase agreements, a Fund would sell certain of
its securities to financial institutions such as banks and broker-dealers, and
agree to repurchase the securities at a mutually agreed upon date and price.
Dollar roll agreements utilized by the Income Funds and Tax-Free Income Funds
are identical to reverse repurchase agreements except for the fact that
substantially similar securities may be repurchased. At the time a Fund enters
into a reverse repurchase agreement or a dollar roll agreement, it will place in
a segregated custodial account assets such as U.S. government securities or
other liquid high-grade debt securities consistent with its investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently continually monitor the account to ensure that
such equivalent value is maintained at all times. Reverse repurchase agreements
and dollar roll agreements involve the risk that the market value of securities
sold by a Fund may decline below the price at which it is obligated to
repurchase the securities. Reverse repurchase agreements and dollar roll
agreements are considered to be borrowings by an investment company under the
1940 Act and therefore a form of leverage. A Fund may experience a negative
impact on its net asset value if interest rates rise during the term of a
reverse repurchase agreement or dollar roll agreement. A Fund generally will
invest the proceeds of such borrowings only when such borrowings will enhance a
Fund's liquidity or when the Fund reasonably expects that the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. For further information about reverse repurchase
agreements and dollar roll agreements, see "INVESTMENT OBJECTIVES
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AND POLICIES -- Additional Information on Portfolio Instruments -- Reverse
Repurchase Agreements and Dollar Roll Agreements" in the Statement of Additional
Information.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis. Such Funds will engage in when-issued and delayed-delivery transactions
only for the purpose of acquiring portfolio securities consistent with its
investment objectives and policies, not for investment leverage although such
transactions represent a form of leveraging. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve a risk that the yield obtained in the
transaction will be less than those available in the market when delivery takes
place. A Fund will not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase such securities, its
Custodian will set aside cash or liquid securities equal to the amount of the
commitment in a separate account. Securities purchased on a when-issued basis
are recorded as an asset and are subject to changes in the value based upon
changes in the general level of interest rates. In when-issued and delayed
delivery transactions, a Fund relies on the seller to complete the transaction;
the seller's failure to do so may cause such Fund to miss a price or yield
considered to be advantageous.
No Fund's commitments to purchase "when-issued" securities will exceed 25% of
the value of its total assets under normal market conditions, and a commitment
by a Fund to purchase "when-issued" securities will not exceed 60 days. In the
event its commitments to purchase "when-issued" securities ever exceeded 25% of
the value of its assets, a Fund s liquidity and the ability of the Investment
Adviser or Gulfstream, as the case may be, to manage it might be adversely
affected. The Funds intend only to purchase "when-issued" securities for the
purpose of acquiring portfolio securities, not for investment leverage.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks, or institutional borrowers of
securities. A Fund must receive 100% collateral in the form of cash or U.S.
government securities. This collateral will be valued daily by the Group's
Custodian. Should the market value of the loaned securities increase, the
borrower must furnish additional collateral to that Fund. During the time
portfolio securities are on loan, the borrower pays that Fund any dividends or
interest received on such securities. Loans are subject to termination by the
Fund or the borrower at any time. While a Fund does not have the right to vote
securities on loan, each Fund intends to terminate the loan and regain the right
to vote if that is considered important with respect to the investment. In the
event the borrower defaults in its obligation to a Fund, such Fund bears the
risk of delay in the recovery of its portfolio securities and the risk of loss
of rights in-the collateral. The Funds will enter into loan agreements only with
broker-dealers, banks, or other institutions that the Investment Adviser or
Gulfstream, as the case may be, has determined are creditworthy under guidelines
established by the Group's Board of Trustees.
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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 or the
monthly average value of the portfolio securities. The SEC requires that the
calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less.
Because the Prime Obligations Fund intends to invest primarily in securities
with maturities of less than one year (although it may invest in securities with
maturities of up to 13 months) and because the SEC requires such securities to
be excluded from the calculation of portfolio turnover rate, the portfolio
turnover rate with respect to the Prime Obligations Fund is expected to be zero
for regulatory purposes. For portfolio turnover rates for each of the other
Funds, see "FINANCIAL HIGHLIGHTS." The Balanced Allocation Fund does not expect
that its turnover rate with respect to that portion of its portfolio invested in
(i) common stocks and securities convertible into common stocks and (ii) other
investments will exceed ___% and ___%, 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. (See
"Dividends and Taxes.")
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding shares of that Fund (as defined
in the Statement of Additional Information).
None of the Non-Money Market Funds, with the exception of the Michigan Bond
Fund, may:
Purchase securities of any one issuer, other than securities 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 any class of securities of the issuer or more
than 10% of the outstanding voting securities of the issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to such limitations.
None of the Funds will:
1. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that:
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(a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. government, any state, territory or
possession of the United States, the District of Columbia or
any of their authorities, agencies, instrumentalities or
political subdivisions, and repurchase agreements secured by
such obligations, or in the case of the Money Market Fund,
domestic bank obligations and repurchase agreements secured by
such obligations;
(b) wholly-owned finance companies will be considered to be in the
industries of the their parents if their activities are
primarily related to financing the activities of the parents;
(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; and
(d) personal credit and business credit businesses will be
considered separate industries.
2. Make loans, except that the Fund may purchase and hold debt instruments and
enter into repurchase agreements in accordance with its investment objective and
policies and may lend portfolio securities in an amount not exceeding one-third
of its total assets.
3. Borrow money, issue senior securities or mortgage, pledge or hypothecate its
assets except to the extent permitted under the 1940 Act.
For purposes of the above investment limitations, the Funds treat all
supranational organizations as a single industry and each foreign government
(and all of its agencies) as a separate industry. In addition, a security is
considered to be issued by the government entity (or entities) whose assets and
revenues back the security.
Except for the Funds' policy on illiquid securities, if a percentage limitation
is satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in the value of a Fund's portfolio securities
will not constitute a violation of such limitation for purposes of the 1940 Act.
In addition to the above investment restrictions, the Funds are subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES - Investment Restrictions" in the Statement of Additional Information.
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MANAGEMENT OF THE FUNDS
BOARD OF TRUSTEES
The business and affairs of the Group are managed under the direction of its
Board of Trustees. The trustees of the Group, their addresses, principal
occupations during the past five years, other affiliations, and the compensation
paid by the Group and the fees and reimbursed expenses they receive in
connection with each meeting of the Board of Trustees they attend are included
in the Statement of Additional Information.
INVESTMENT ADVISER AND SUBADVISER
National City, 1900 East Ninth Street, Cleveland, Ohio 44114, serves as
investment adviser to the Funds. National City is a registered investment
adviser and an indirect wholly owned subsidiary of National City Corporation
("NCC"). NCC recently consolidated the asset management responsibilities of its
various bank affiliates including First of America Bank, N.A. ("FOA"). Prior to
such time, the investment adviser of the Funds was First of America Investment
Corporation ("First of America"), a wholly owned subsidiary of FOA.
Subject to such policies as the Group's Board of Trustees may determine, the
Investment Adviser, either directly or, with respect to the International Fund
and the Balanced Allocation Fund, through Gulfstream, furnishes a continuous
investment program for each Fund and makes investment decisions on behalf of
each Fund.
The __________ Funds are managed by the ___________ Team of National City, the
__________ Funds by the ___________ Team and the ___________ Funds by the
____________ Team. No single person is primarily responsible for making
recommendations to the ____________ Team, ______________ Team or _____________
Team.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, the Investment Adviser receives a fee from
the Large Capitalization Fund, computed daily and paid monthly, at the annual
rate of 0.80% of the Fund's average daily net assets. For its services in
connection with each of the Small Capitalization Fund, Mid Capitalization Fund,
Equity Income Fund and Balanced Allocation Fund, the Investment Adviser's fee is
computed daily and paid monthly at the annual rate of 1.00% of the applicable
Fund's average daily net assets. For its services in connection with the
International Fund, the Investment Adviser's fee is computed daily and paid
monthly at the annual rate of 1.25% of the first $50 million of the
International Fund's average daily net assets, 1.20% of average daily net assets
between $50 million and $100 million, 1.15% of average daily net assets between
$100 million and $400 million and 1.05% of average daily net assets above $400
million. For its services in connection with each Income Fund and Tax-Free
Income Fund, the Investment Adviser's fee is computed daily and paid monthly at
the annual rate of 0.74% of each Income Fund's and Tax-Free Income Fund's
average daily net assets. For its services in connection with the Prime
Obligations Fund Investment Adviser's fee is computed daily and paid monthly, at
the annual rate of 0.40% of the Prime Obligations Fund's average daily net
assets. The Investment
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Adviser 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, the
Investment Adviser 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
the Investment Adviser to manage the investment and reinvestment of the assets
of the International Fund and to manage the investment and reinvestment of those
assets of the Balanced Allocation Fund which are invested in foreign securities,
subject to the direction and control of the Group's Board of Trustees.
Gulfstream will not continue as Subadviser beyond the end of the current term of
its agreement in 1998.
Under this arrangement, Gulfstream is responsible for day-to-day management of
the International Fund's assets and the applicable portion of the Balanced
Allocation Fund, reviewing investment performance policies and guidelines and
maintaining certain books and records, and the Investment Adviser 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. The Investment Adviser may also render advice with respect to the
International Fund's investments in the United States Gulfstream utilizes a team
approach to investment management to ensure a disciplined investment ) process
designed to result in long-term performance consistent with a Fund's investment
objective. No one person is responsible for a Fund's management.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with the Investment Adviser, Gulfstream receives from the
Investment Adviser a fee, computed daily and paid monthly, at the annual rate of
0.50% of the first $50 million of the International Fund's average daily net
assets and the average daily net assets of the Balanced Allocation Fund which
are invested in foreign-securities, 0.45% of such average daily net assets
between $50 million and $100 million, 0.40% of such average daily net assets
between $100 million and $400 million and 0.30% of such average daily net assets
above $400 million, provided the minimum annual fee shall be $75,000.
Gulfstream was organized in 1991 as a Texas limited partnership by Tull, Doud,
Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is he 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 Investment Adviser is the sole limited partner, and as of August
31, 1996 exercised options to increase its interest in Gulfstream from 49% to
72%. In spite of the fact that, as a limited partner, the Investment Adviser
does not possess management authority or response for Gulfstream, because of its
72% ownership interest, the Investment Adviser may be deemed to control
Gulfstream for purposes of the 1940 Act.
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[As of _____________, 1998, Gulfstream had over $___ million in international
assets of institutional investment company, governmental, pension fund and high
net worth individual clients under its investment management. Gulfstream's
portfolio management personnel average over 20 years of investment experience
and 10 years of international investment experience.]
For further information regarding the relationship between Gulfstream and the
Investment Adviser, see "MANAGEMENT OF THE GROUP -- Investment Adviser" in the
Statement of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
Fund of the Group. National City serves as Sub-Administrator for each Fund of
the Group and provides certain services as may be requested by BISYS from time
to time. BISYS and its affiliated companies, including BISYS Ohio, are
wholly-owned by The BISYS Group, Inc., a publicly-held company which is a
provider of information processing, loan servicing and 401(k) administration and
record keeping services to and through banking and other financial
organizations.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from each Fund equal to the lesser of: a fee computed daily and
paid periodically at an annual rate of 0.20% of the Fund's average daily net
assets; or such other fee as may be agreed upon from time to time in writing by
the Group and the Administrator. For its services as Sub-Administrator, National
City 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.
SEI acts as the Group's principal underwriter and distributor. The Distributor
is a registered broker/dealer with principal offices located in Oaks,
Pennsylvania 19456. It acts as agent for the Funds in the distribution of their
shares and, in such capacity, solicits orders for the sale of shares,
advertises, and pays the cost of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the group, but may retain some or all of any sales
charge imposed upon the Investor B Shares and may receive compensation under the
Distribution and Shareholder Service Plan described below.
EXPENSES
The Investment Adviser, Gulfstream and BISYS each bear all expenses in
connection with the performance of their services as Investment Adviser,
Subadviser and Administrator, respectively,
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other than the cost of securities (including brokerage commissions) purchased
for the Group. Each Fund will bear the following expenses relating to its
operation: organizational expenses, taxes, interest, brokerage fees and
commissions, fees of the Trustees of the Group, SEC fees, state securities
qualification fees, costs of preparing and printing prospectuses for regulatory
purposes and for distribution to current shareholders, outside auditing and
legal expenses, advisory and administration fees, fees and out-of-pocket
expenses of the Custodian, Transfer Agent and Fund Accountant, certain insurance
premiums, costs of maintenance of the Group's existence, costs of shareholders'
reports and meetings, and any extraordinary expenses incurred in each Fund's
operation. As a general matter, expenses are allocated to the Investor B Shares
and the other classes of shares of the Funds on the basis of the relative net
asset value of each class. The various classes may bear certain additional
retail transfer agency expenses and pay also bear certain additional shareholder
service and distribution costs incurred pursuant to a Distribution and
Shareholder Service Plan.
The Trustees reserve the right, subject to the receipt of relevant regulatory
approvals or rulings, if needed, to allocate certain other expenses to the
shareholders of a particular class, including the Investor B Shares class, on a
basis other than relative net asset value, as they deem appropriate ("Class
Expenses"). In such event, Class Expenses would be limited to: transfer agency
fees identified by the Transfer Agent as attributable to a specific class;
printing and postage expenses related to preparing and distributing materials
such as shareholders reports, prospectuses and proxies to current shareholders;
Blue Sky registration fees incurred by a class of shares; SEC registration fees
incurred by a class of shares; expenses related to administrative personnel and
services as required to support the shareholders of a specific class; litigation
or other legal expenses relating solely to one class of shares; and Trustees,
fees incurred as a result of issues relating solely to one class of shares.
DISTRIBUTION PLAN FOR INVESTOR B SHARES
Rule 12b-1, adopted by the SEC under the 1940 Act, permits an investment company
to pay directly or indirectly expenses associated with the distribution of its
shares in accordance with a plan adopted by an investment company's trustees and
approved by its shareholders. Pursuant to such Rule, the Group has adopted an
Investor B Distribution and Shareholder Service Plan (the "Investor B Plan")
with respect to the Investor B Shares of each Fund. Pursuant to the Investor B
Plan, each Fund is authorized to pay or reimburse SEI, as Distributor of the
Investor B Shares, for certain expenses that are incurred in connection with
shareholder and distribution services. The Plan authorizes any Fund to pay SEI,
as Distributor of Investor B Shares, a distribution fee in an amount not to
exceed on an annual basis 0.75% of the average daily net asset value of Investor
B Shares of such Fund (the "Distribution Fee"). Such amount may be used by SEI
to pay banks and their affiliates (including National City and its affiliates),
and other institutions, including broker-dealers ("Participating Organizations")
for administration, distribution, and/or shareholder service assistance pursuant
to an agreement between SEI and the Participating Organization. Under the
Investor B Plan, a Participating Organization may include SEI, its subsidiaries
and its affiliates.
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Also pursuant to the Investor B Plan, a Fund is authorized to pay a service fee
in an amount not to exceed on an annual basis 0.25% of the average daily net
asset value of the Investor B Shares of such Fund (the "Service Fee"). Such
amount may be used to pay Participating Organizations for shareholder services
provided or expenses incurred in providing such services.
Fees paid pursuant to the Investor B Plan are accrued daily and paid monthly,
and are charged as expenses of Investor B Shares of a Fund as accrued. Payments
under the Investor B Plan will be calculated daily and paid monthly at a rate
not to exceed the limits described above, which rate is set from time to time by
the Board of Trustees.
Pursuant to the Investor B Plan, the Distributor may enter into agreements with
Participating Organizations for providing distribution assistance and
shareholder services with respect to the Investor B Shares. Such Participating
Organizations will be compensated at the annual rate of up to 1.00% (up to 0.75%
Distribution Fee plus up to 0.25% Service Fee) of the average daily net asset
value of the Investor B Shares held of record or beneficially by the
Participating Organization's customers. The distribution services provided by
Participating Organizations for which the Distribution Fee may be paid may
include promoting the purchase of Investor B Shares of a Fund by their
customers; processing purchase, exchange, and redemption requests from customers
and placing orders with the Distributor or the Transfer Agent; processing
dividend and distribution payments from a Fund on behalf of customers; providing
information periodically to customers, including information showing their
positions in Investor B Shares; responding to inquiries from customers
concerning their investment in Investor B Shares; and providing other similar
services as may be reasonably requested. The shareholder services provided by
Participating Organizations for which the Service Fee may be paid may include
providing sub-accounting with respect to Investor B Shares beneficially owned by
customers or the information necessary for sub-accounting; arranging for bank
wires; and other continuing personal services to holders of Investor B Shares.
Actual distribution and shareholder service expenses for Investor B Shares at
any given time may exceed the Rule 12b-1 fees and contingent deferred sales
charges collected. These unrecovered amounts plus interest thereon will be
carried forward and paid from future Rule 12b-1 fees and contingent deferred
sales charges collected. If the Investor B Plan were terminated or not
continued, the Group would not be contractually obligated to pay for any
expenses not previously reimbursed by the Group or recovered through contingent
deferred sales charges. During the fiscal year ended June 30, 1997, Rule 12-1
fees and contingent deferred sales charges collected were sufficient to cover
actual distribution and shareholder service expenses; that is, there were no
unrecovered amounts to be carried forward.
Conflict of interest restrictions may apply to the receipt by Participating
Organizations of compensation from SEI in connection with the investment of
fiduciary assets in Investor B Shares. Institutions, including banks regulated
by the Comptroller of the Currency, the Federal Reserve Board, or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor, or state
securities commissions, are urged to consult their legal advisers before
investing such assets in Investor B Shares.
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[AS AUTHORIZED BY THE INVESTOR B PLAN, BISYS HAS ENTERED INTO A SERVICE AND
COMMISSION AGREEMENT WITH SECURITY DISTRIBUTORS, INC. ("SDI"), SECURITY BENEFIT
GROUP, INC. ("SBG") AND FIRST OF AMERICA BROKERAGE SERVICE, INC.
("FOA-BROKERAGE") WHICH RELATES TO PURCHASES OF INVESTOR B SHARES MADE PRIOR TO
JANUARY 1, 1995. PURSUANT TO THE SERVICE AND COMMISSION AGREEMENT, FOA-BROKERAGE
PERFORMS CERTAIN BROKERAGE AND RELATED SERVICES IN CONNECTION WITH THE PURCHASE
OF INVESTOR B SHARES BY ITS CUSTOMERS AND MAINTAINS SHAREHOLDER ACCOUNTS FOR
SUCH CUSTOMERS. ALSO PURSUANT TO THE SERVICE AND COMMISSION AGREEMENT, SBG
PROVIDES FINANCING ASSISTANCE, CONSISTENT WITH THE INVESTOR B PLAN, IN
CONNECTION WITH THE SERVICES PERFORMED BY FOA-BROKERAGE. SERVICES PROVIDED BY
FOA-BROKERAGE INCLUDE PLACING ORDERS TO PURCHASE INVESTOR B SHARES, AS AGENT FOR
ITS CUSTOMERS, PURSUANT TO THE TERMS OF ITS DEALER AGREEMENT; PROVIDING
SHAREHOLDER LIAISON SERVICES; RESPONDING TO INQUIRIES; PROVIDING SUCH
INFORMATION AS FOA-BROKERAGE AND SDI MUTUALLY DETERMINE TO BE APPROPRIATE IN
ORDER TO PROPERLY MAINTAIN-SHAREHOLDER ACCOUNTS; AND PROVIDING AT ITS OWN
EXPENSE SUCH OFFICE SPACE, EQUIPMENT, FACILITIES AND PERSONNEL AS MAY BE
REASONABLY NECESSARY OR BENEFICIAL IN ORDER TO PROVIDE SUCH SERVICES TO
CUSTOMERS. IN CONSIDERATION FOR SUCH SERVICES, FOA-BROKERAGE RECEIVES FROM SBG A
COMMISSION RATE OF 4.00% OF THE NET ASSET VALUE OF INVESTOR B SHARES PURCHASED
BY FOA-BROKERAGE AS AGENT FOR ITS CUSTOMERS. SDI, EITHER DIRECTLY OR THROUGH AN
AFFILIATE, RECEIVES AMOUNTS SPECIFIED IN THE SHAREHOLDER SERVICES AND FINANCING
AGREEMENT DATED FEBRUARY 1, 1994 BETWEEN BISYS AND SDI. UNDER THAT AGREEMENT,
SDI RECEIVES COMPENSATION FOR FINANCING ASSISTANCE AT THE ANNUAL RATE OF UP TO
0.75% OF THE AVERAGE DAILY NET ASSETS OF INVESTOR B SHARES OF EACH FUND AND
COMPENSATION FOR SHAREHOLDER SUPPORT SERVICES AT AN ANNUAL RATE OF UP TO 0.25%
OF THE AVERAGE DAILY NET ASSETS OF THE INVESTOR B SHARES OF EACH FUND].
The Group understands that Participating Organizations may charge fees to their
customers who are owners of Investor B Shares for additional services provided
in connection with their customer accounts. These fees would be in addition to
any amounts which may be received by a Participating Organization under its
Agreement with SEI.
The Investor B Plan requires the officers of the Group to provide the Board of
Trustees at least quarterly with a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made. The
Board reviews these reports in connection with its decisions with respect to the
Plan.
As required by Rule 12b-1, the Investor B Plan was approved by the Trustees of
the Group, including a majority of the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Group and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements related to
the Plan ("Independent Trustees"). The Investor B Plan continues in effect as
long as such continuance is specifically approved at least annually by the
Group's Trustees, including a majority of the Independent Trustees.
The Investor B Plan may be terminated by a vote of a majority of the Independent
Trustees, or by a vote of a majority of the holders of the outstanding voting
securities of the Investor B Shares. Any change in the Investor B Plan that
would increase materially the distribution expenses paid
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by a Fund requires shareholder approval; otherwise, the Plan may be amended by
the Board of Trustees, including a majority of the Independent Trustees by a
vote cast in person at a meeting called for the purpose of voting upon the
amendment. As long as the Investor B Plan is in effect, the selection or
nomination of the Independent Trustees is committed to the discretion of the
Independent Trustees.
CUSTODIAN, TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
National City Bank serves as the custodian of the Group's assets. State Street
Bank and Trust Company serves as the Group's transfer and dividend disbursing
agent. Communications to the Transfer Agent should be directed to P.O. Box 8421,
Boston, Massachusetts 02266-8421. BISYS Ohio, 3435 Stelzer Road, Columbus, Ohio
43219, provides certain accounting services for each of the Funds and receives a
fee for such services. See "MANAGEMENT OF THE GROUP -- Custodian, Transfer Agent
and Fund Accounting Services" in the Statement of Additional Information for
further information.
While BISYS Ohio is a distinct legal entity from BISYS (the Group's
Administrator), 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.
HOW TO BUY INVESTOR B SHARES
Investor B Shares of each Fund are continuously offered and may be purchased
directly either by mail or by telephone. Investor B Shares of the Michigan Bond
Fund may only be sold in those states where the Fund has filed the required
notification documents, currently only Colorado, District of Columbia, Florida,
Georgia, Hawaii, Illinois, Indiana, Michigan, Mississippi, New Jersey, Ohio and
Virginia. Investor B Shares may also be purchased through a broker-dealer that
has entered into a dealer agreement with the Distributor. Except as otherwise
discussed below under "Other Information Regarding Purchases" and "Auto Invest
Plan," the minimum initial investment in a Fund, based upon the public offering
price, is $1,000; however, there is no minimum subsequent purchase. Shareholders
will pay the next calculated net asset value after the receipt by the
Distributor of an order to purchase Investor B Shares, plus an applicable sales
charge as described below (see "SALES CHARGES"). In the case of an order for the
purchase of shares placed through a broker-dealer, it is the responsibility of
the broker-dealer to transmit the order to the Distributor promptly.
BY MAIL
To purchase Investor B Shares of any of the Funds by mail, complete an Account
Application Form and return it along with a check or money order made payable to
The Parkstone Group of Funds at the following address:
The Parkstone Group of Funds
P.O. Box 8421
Boston, Massachusetts 02266-8421
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An Account Application Form can be obtained by calling the Group at (800)
451-8377.
BY TELEPHONE
To purchase Investor B Shares of any of the Funds by telephone, an Account
Application Form must have been previously received by the Distributor. To place
an order by telephone, even if payment is to be made by wire, call the Group's
toll-free number (800) 451-8377. Payment for such Investor B Shares ordered by
telephone may be made by check or wire. Where payment is made by check, the
transaction will not be processed until the check is received by the Group's
Custodian. If a check received to purchase Investor B Shares does not clear or
if a wire transfer is not received by the Group's Custodian within three
Business Days (as defined in "HOW SHARES ARE VALUED") of the purchase order, the
purchase may be canceled and the investor could be liable for any losses or fees
incurred . When Purchasing Investor B Shares by wire, contact the Distributor at
(800) 851-1227 or wire instructions.
OTHER INFORMATION REGARDING PURCHASES
Investor B Shares may also be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by National City or one of its
affiliates. Investor B Shares of the Funds sold to National City or the
affiliate acting in a fiduciary, advisory, custodial, or other similar capacity
on behalf of Customers will normally be held of record by National City or the
affiliate. With respect to such Investor B Shares so sold, it is the
responsibility of the holder of record to transmit purchase or redemption orders
to the Distributor and to deliver funds for the purchase thereof on a timely
basis. Beneficial ownership of such Investor B Shares of the Funds will be
recorded by National City or one of its affiliates and reflected in the account
statements provided to Customers. National City or one of its affiliates may
exercise voting authority for those Investor B Shares for which it has been
granted authority by the Customer.
Investor B Shares of the Funds are purchased at the net asset value per share
(see "HOW SHARES ARE VALUED") next determined after receipt by the Distributor
of an order to purchase Investor B Shares plus any applicable sales charge as
described below. Purchases of Investor B Shares of any of the Funds will be
effected only on a Business Day (as defined in "HOW SHARES ARE VALUED") of the
applicable Fund. An order received prior to a Valuation Time on any Business Day
will be executed at the net asset value determined as of the next Valuation Time
on the date of receipt. An order received after the last Valuation Time on any
Business Day will be executed at the net asset value determined as of the next
Valuation Time on the next Business Day of that Fund. Investor B Shares of all
Funds, except the Prime Obligations Fund, are eligible to earn dividends on the
first Business Day following the execution of the purchase. Investor B Shares of
the Prime Obligations Fund purchased before 11:30 a.m., Eastern Time, begin
earning dividends on the same Business Day. Investor B Shares continue to be
eligible to earn dividends through the day before their redemption.
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An order to purchase Investor B Shares will be deemed to have been received by
the Distributor only when federal funds are available to the Group's Custodian
for investment. Federal funds are monies credited to a bank's account within a
Federal Reserve Bank. Payment for an order to purchase Investor B Shares which
is transmitted by federal funds wire will be available the same day for
investment by the Group's Custodian, if received prior to the last Valuation
Time (see "HOW SHARES ARE VALUED"). Purchases made by check or other means are
made at the price next determined upon receipt of the purchase order. However,
proceeds from reclaimed shares purchased by check will not be sent until the
payment has cleared. The Group strongly recommends that investors of substantial
amounts use federal funds to purchase Investor B Shares.
The minimum initial investment amount referred to above may be waived if
purchases are made in connection with Individual Retirement Accounts (IRAs),
Keoghs or similar plans. For information on IRAs, Keoghs or similar plans,
contact National City at (800) 544-6155. Due to the relatively high cost of
handling small investments, the Group reserves the right to redeem
involuntarily, at net asset value, the Investor B Shares of any shareholder if,
because of redemptions of Investor B Shares by or on behalf of the shareholder
(but not as a result of a decrease in the market price of such Investor B
Shares, the deduction of any sales charge or the establishment of an account
with less than $1,000 using the Auto Invest Plan), the account of such
shareholder in that Fund has a value of less than $1,000. Accordingly, an
investor purchasing Investor B Shares of a Fund in only the minimum investment
amount may be subject to such involuntary redemption if the investor thereafter
redeems any such Investor B Shares. If at any time a shareholder's account
balance falls below $1,000, upon 30 days' notice, the Group may exercise its
right to redeem such Investor B Shares and to send the proceeds to the
shareholder.
Depending upon the terms of a particular Customer account, National City or one
of its affiliates may charge a customer account fees for services provided in
connection with investment in a Fund. Information concerning these services and
any charges may be obtained from National City or the affiliate. This Prospectus
should be read in conjunction with any such information so received.
The Group reserves the right to reject any order for the purchase of Investor B
Shares in whole or in part.
Every shareholder will receive a confirmation of each new transaction in the
shareholder's account which will also show the total number of Investor B Shares
of the respective Fund of the Group owned by the shareholder. Confirmation of
purchases and redemptions of Investor B Shares of the Funds by National City or
one of its affiliates on behalf of a Customer may be obtained from National City
or the affiliate. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Investor B Shares of the Funds will not
be issued.
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AUTO INVEST PLAN
The Parkstone Group of Funds Auto Invest Plan (the "Auto Invest Plan") enables
shareholders to make regular monthly or quarterly purchases of Investor B Shares
through automatic deduction from their bank accounts. With shareholder
authorization, the Group's Transfer Agent will deduct the amount specified
(subject to the applicable minimums) from the shareholder's bank account which
will automatically be invested in shares at the public offering price on the
date of such deduction (or the next Business Day thereafter, as defined under
"HOW SHARES ARE VALUED" below). The required minimum initial investment when
opening an account using the Auto Invest Plan is $100; the minimum amount for
subsequent investments in a Fund is $50. To participate in the Auto Invest Plan,
shareholders should complete the appropriate section of the Account Application
Form or a supplemental Auto Invest Plan application that can be acquired by
calling the Group at (800) 451-8377. For a shareholder to change the Auto Invest
Plan instructions, the request must be made in writing to the Group's
Distributor, SEI Investments Distribution Co., c/o The Parkstone Group of Funds,
Oaks, Pennsylvania 19456 and may take up to 15 days to implement.
SALES CHARGES
Investor B Shares may be purchased only in amounts of less than $250,000. There
is no sales charge imposed upon purchases of Investor B Shares, but currently
investors may be subject to a contingent deferred sales charge of up to 5.00%
when Investor B Shares are redeemed prior to five years from the date of
purchase. For Investor B Shares purchased prior to January 1, 1997, investors
may be subject to a contingent deferred sales charge of up to 4.00% when
Investor B Shares are redeemed prior to four years from the date of purchase.
See "CONTINGENT DEFERRED SALES CHARGE" below.
From time to time dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers.
In addition to amounts paid to dealers as a dealer concession out of the sales
charge paid by investors, if any, the Distributor may, from time to time, at its
expense or as an expense for which it may be reimbursed under the Investor B
Plan, pay a bonus or other consideration or incentive to dealers who sell a
minimum dollar amount of shares of a Fund during a specified period of time. The
Distributor also may, from time to time, arrange for the payment of additional
consideration to dealers not to exceed 6.25% of the offering price per share on
all sales of Investor B Shares as an expense of the Distributor or for which the
Distributor may be reimbursed under the Investor B Plan or upon receipt of a
contingent deferred sales charge. Any such additional consideration or incentive
program may be terminated at any time by the Distributor.
The Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of shares of any of the Funds of the Group.
Compensation may include financial assistance to dealers in connection with
conferences, sales or training programs for their
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employees, seminars for the public, advertising campaigns regarding one or more
Funds of the Group, and/or other dealer-sponsored special events. In some
instances, this compensation may be made available only to certain dealers whose
representatives have sold or are expected to sell a significant amount of such
shares. Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to exotic locations within or outside of the
United States for meetings or seminars of a business nature. Compensation may
also include the following types of non-cash items offered through sales
contests: (1) vacation trips, including travel arrangements and lodging at
resorts; (2) tickets for entertainment events (such as concerts, cruises and
sporting events); and (3) merchandise (such as clothing, trophies, clocks and
pens). The Distributor, at its expense, currently conducts an annual sales
contest for dealers, including First of America Securities, Inc. ("FSI"), a
wholly-owned subsidiary of FABC, in connection with their sales of shares of the
Funds. Dealers may not use sales of a Fund's shares to qualify for this
compensation to the extent such may be prohibited by the laws of any state or
any self-regulatory agency, such as the National Association of Securities
Dealers, Inc.
CONTINGENT DEFERRED SALES CHARGE
Investor B Shares which are redeemed prior to five years from the date of
purchase will be subject to a contingent deferred sales charge equal to a
percentage of the lesser of net asset value at the time of purchase of the
Investor B Shares being redeemed or net asset value of such shares at the time
of redemption, as set forth in the chart below:
YEAR OF CONTINGENT DEFERRED
REDEMPTION SALES CHARGE
---------- ------------
First 5.00%
Second 5.00%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Investor B Shares which were purchased prior to January 1, 1997 and redeemed
prior to four years from the date of purchase will be subject to a contingent
deferred sales charge equal to a percentage of the lesser of net asset value at
the time of purchase of the Investor B Shares being redeemed or net asset value
of such shares at the time of redemption, as set forth in the chart below:
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YEAR OF CONTINGENT DEFERRED
REDEMPTION SALES CHARGE
----------- -------------------
First 4.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Accordingly, a contingent deferred sales charge will not be imposed on amounts
representing increases in net asset value above the net asset value at the time
of purchase. In addition, a charge will not be assessed on Investor B Shares
purchased through reinvestment of dividends or capital gain distributions.
Solely for purposes of determining the number of years which have elapsed from
the time of purchase of any Investor B Shares, all purchases during a month will
be aggregated and deemed to have been made on the last day of the month. In
determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for more than four years or shares
acquired pursuant to reinvestment of dividends or distributions.
For example, assume an investor purchased 100 Investor B Shares with a net asset
value of $10 per share (i.e., at an aggregate net asset value of $1,000) and in
the eleventh month after purchase, the net asset value per share is $12 and,
during such time, the investor has acquired five additional Investor B Shares
through dividend reinvestment. If at such time the investor makes his first
redemption of 50 Investor B Shares (producing proceeds of $600), five of such
shares will not be subject to the charge because of dividend reinvestment. With
respect to the remaining 45 Investor B Shares being redeemed, the charge will be
applied only to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, only $450 of the $600 redemption
proceeds will be subject to the charge of 5.00%, totaling $22.50.
The contingent deferred sales charge is waived on redemptions of Investor B
Shares (i) following the death or disability (as defined in the Code ) of a
shareholder (or both shareholders in the case of joint accounts), (ii) to the
extent that the redemption represents a minimum required distribution from an
IRA or a Custodial Account under Code Section 403(b)(7) to a shareholder who has
reached age 70 1/2, and (iii) to the extent the redemption represents the
minimum distribution from retirement plans under Code Section 401(a) where such
redemptions are necessary to make distributions to plan participants.
DIRECTED DIVIDEND OPTION
A shareholder may elect to have all income dividends and capital gain
distributions paid by check, reinvested in the Fund or reinvested in any of the
Group's other Funds, without the payment of a sales charge (provided the other
Fund is maintained at the minimum required balance). If you elect to receive
distributions paid by check and the check (1) is returned and
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marked as "undeliverable" or (2) remains uncashed for six months, your payment
election will be changed automatically and your future dividend and capital gain
distributions will be reinvested in the Fund at the per share net asset value
determined as of the date of payment of the distribution. In addition, an
undeliverable checks that remain uncashed for six months will be cancelled and
reinvested in the Fund at the per share net, asset value determined as of the
date of cancellation.
The Directed Dividend Option may be modified or terminated by the Group at any
time after notice to participating shareholders. Participation in the Directed
Dividend Option may be terminated or changed by the shareholder at any time by
writing the Distributor. The Directed Dividend Option is not available to
participants in any of the Parkstone IRAs.
EXCHANGE PRIVILEGE
The exchange privilege enables shareholders of Investor B Shares to acquire
Investor B Shares that are offered by another Fund of the Group with a different
investment objective. In order for the exchange privilege to apply, the
redemption of one Fund and corresponding purchase of another Fund must occur on
the same Business Day (as defined in "HOW SHARES ARE VALUED" below). Holders of
shares of one class may not exchange their shares for shares of another class.
For example, holders of a Fund's Investor B Shares may not exchange their shares
for Investor A Shares, and holders of a Fund's Investor A Shares may not
exchange their shares for Investor B Shares.
Holders of Investor B Shares of any of the Group's Funds (including Investor B
Shares acquired through reinvestment of dividends and distributions on such
shares) may exchange those Investor B Shares at net asset value without the
imposition of a contingent deferred sales charge for Investor B Shares offered
by any of the Group's other Funds, provided that the amount to be exchanged
meets the applicable minimum investment requirements and the exchange is made in
states where it is legally authorized.
If a holder of Investor B Shares of the Prime Obligations Fund remains invested
in such Fund for 18 consecutive months, the investor will be required to redeem
such shares, and incur any applicable contingent deferred sales charges, or
exchange their shares for Investor B Shares of another Fund.
An exchange is considered a sale of shares on which a shareholder may realize a
capital gain or loss for federal income tax purposes. A shareholder may not
include any sales charge on shares of a Fund as a part of the cost of those
shares for purposes of calculating the gain or loss realized on an exchange of
those shares within 90 days of their purchase. An exchange of Investor B Shares
will not be considered a redemption on which a contingent deferred sales charge
will be applicable. Redemptions of Investor B Shares which have been exchanged
will be subject to contingent deferred sales charges based upon the date of the
purchase of the original Investor B Shares.
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A shareholder wishing to exchange his or her shares may do so by contacting the
Group at (800) 451-8377 or by providing written instructions to the Transfer
Agent. Any shareholder who wishes to make an exchange should obtain and review
the current Prospectus of the Fund of the Group in which the shareholder wishes
to invest before making the exchange. For a discussion of risks associated with
unauthorized telephone exchanges, see "HOW TO REDEEM YOUR INVESTOR B SHARES --
By Telephone" below.
AUTO EXCHANGE PLAN
The Group's Auto Exchange Plan enables holders of Investor B Shares of the Prime
Obligations Fund to make regular monthly or quarterly exchanges into Investor B
Shares of another Fund. With shareholder authorization, the Transfer Agent will
automatically exchange Investor B Shares of the Prime Obligations Fund in the
amount specified (subject to the applicable minimums) on the date of the
exchange. In order to participate in the Auto Exchange Plan, a minimum initial
purchase of $10,000 of Investor B Shares of the Prime Obligations Fund is
required.
Shareholders investing directly in Investor B Shares of the Prime Obligations
Fund, as opposed to obtaining such through an exchange, will be asked to
participate in the Auto Exchange Plan and to establish the time and amount of
their automatic exchanges such that all of the Investor B Shares of the Prime
Obligations Fund purchased initially will have been exchanged for Investor B
Shares of other Funds within two years of purchase.
To participate in the Auto Exchange Plan, shareholders should complete the
appropriate section of the Account Registration Form, which can be obtained by
calling the Distributor. To change the Auto Exchange Plan instructions or to
discontinue the feature, shareholders must send a written request to The
Parkstone Group of Funds, P.O. Box 8421, Boston, Massachusetts 02266-8421. The
Auto Exchange Plan may be amended or terminated without notice at any time by
the Distributor.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR B SHARES
Before purchasing Investor B Shares of a Fund, investors should consider whether
during the anticipated life of their investment in the Fund, the accumulated
Rule 12b-1 fees and potential contingent deferred sales charges on Investor B
Shares prior to conversion (as described below) would be less than the initial
sales charge and accumulated Rule 12b-1 fees on Investor A Shares purchased at
the same time, and to what extent such differential would be offset the higher
yield of such Investor A Shares. To the extent that the sales charge for
Investor A Shares is waived or reduced, investments in Investor A Shares become
more desirable. The Group will refuse all purchase orders for Investor B Shares
of over $250,000.
Although Investor A Shares are subject to Rule 12b-1 fees, they are not subject
to the higher Rule 12b-1 fees applicable to Investor B Shares. For this reason,
Investor A Shares can be expected to pay correspondingly higher dividends per
share. However, because initial sales charges are deducted at the time of
purchase, purchasers of Investor A Shares that do not qualify
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for waivers of or reductions in the initial sales charge would have less of
their purchase price initially invested in a Fund than purchasers of Investor B
Shares.
As described above purchasers of Investor B Shares will have more of their
initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Investor B Shares. Because the Group's future returns
cannot be predicted, there can be no assurance that this will be the case.
Investors in Investor B Shares would, however, own shares that are subject to
higher annual expenses and, for shares purchased prior to January 1, 1997, for a
four-year period, would be subject to a contingent deferred sales charge of up
to 4.00% upon redemption depending upon the year of redemption. For Investor B
Shares purchased on or after January 1, 1997, for a five-year period, such
shares would be subject to a contingent deferred sales charge of up to 5.00%
upon redemption, depending upon the year of redemption. Investors expecting to
redeem during a period in which a contingent deferred sales charge may be
imposed should compare the cost of the contingent deferred sales charge plus the
aggregate annual Investor B Shares' Rule 12b-1 fees to the cost of the initial
sales charge and Rule 12b-1 fees on the Investor A Shares. Over time, the
expenses of the annual Rule 12b-1 fees on the Investor B Shares may equal or
exceed the initial sales charge and annual Rule 12b-1 fees applicable to
Investor A Shares. For example, if net asset value remains constant, the
aggregate Rule 12b-1 fees with respect to Investor B Shares on the Funds would
equal or exceed the initial sales charge and aggregate Rule 12b-1 fees of
Investor A Shares approximately seven years after the purchase. In order to
reduce such fees for investors that had Investor B Shares for more than eight
years, Investor B Shares will be automatically converted to Investor A Shares,
as described below, at the end of an eight-year period. This example assumes
that the initial purchase of Investor A Shares would be subject to the maximum
initial sales charge of 4.50%. This example does not take into account the time
value of money which reduces the impact of the Investor B Shares' administrative
and Rule 12b-1 fees on the investment, the benefit of having the additional
initial purchase price invested during the period before it is effectively paid
out as administrative and Rule 12b-1 fees, fluctuations in net asset value or
the effect of different performance assumptions.
CONVERSION FEATURE
Investor B Shares which have been outstanding for eight years after the end of
the month in which the shares were initially purchased will automatically
convert to Investor A Shares and, consequently, will no longer be subject to the
higher Rule 12b-1 fees of the Investor B Plan. Such conversion will be on the
basis of the relative net asset values of the two classes, without the
imposition of any sales charge or other charge except that the Rule 12b-1 fees
applicable to Investor A Shares shall thereafter be applied to such converted
shares. Such investors will then benefit from the lower Rule 12b-1 fees of
Investor A Shares. Because the per share net asset value of the Investor A
Shares may be higher than that of the Investor B Shares at the time of
conversion, a shareholder may receive fewer Investor A Shares than the number of
Investor B Shares converted, although the dollar value will be the same.
Reinvestments of dividends and distributions in Investor B Shares will not be
considered new purchases for purposes of the conversion feature.
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The Investor A Shares into which the Investor B Shares will convert will differ
only in the amount of the Rule 12b-1 fees assessed to the shareholder. The Rule
12b-1 fees which may be assessed to holders of Investor A Shares is equal to
0.25% of the average daily net assets of the Investor A Shares owned, rather
than 1.00% of the average daily net assets assessed to holders of Investor B
Shares.
If a shareholder effects one or more exchanges among Investor B Shares of the
Funds during the eight-year period, the holding period for shares so exchanged
will be counted toward such period.
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS
Investor B Shares of the Funds are available to shareholders on a tax-deferred
basis through the following retirement plans:
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A Parkstone IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Parkstone IRA contributions may be tax-deductible and earnings are tax-deferred.
The tax deductibility of IRA contributions is restricted or eliminated for
individuals who participate in certain employer pension plans and whose annual
income exceeds certain limits. Existing IRAs and future contributions up to the
IRA maximums, whether deductible or not, still earn income on a tax-deferred
basis.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")
A Parkstone SEP/IRA may be established on a group basis by an employer who
wishes to sponsor a tax-sheltered retirement program by making contributions
into IRAs on behalf of all eligible employees.
All Parkstone IRA distribution requests must be made in writing to the Transfer
Agent. Any additional deposits to a Parkstone IRA must distinguish the type and
year of the contribution.
For more information on any of the Parkstone IRAs or other retirement plan
options available (401(k) Defined Contribution Plans, 403(b)(7) Define
Compensation Plans, etc.), call the Group at (800) 451-8377. Shareholders are
advised to consult a tax adviser on Parkstone IRA contribution and withdrawal
requirements and restrictions.
HOW TO REDEEM YOUR INVESTOR B SHARES
Shareholders may redeem their Investor B Shares, subject to the contingent
deferred sales charge described above, on any day that net asset value is
calculated (see "HOW SHARES ARE VALUED"). Redemptions will be effected at the
net asset value per share next determined after receipt of a redemption request.
Redemptions may be requested by mail or by telephone.
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BY MAIL
A written request for redemption must be received by the Transfer Agent in order
to honor the request. The Transfer Agent's address is: State Street Bank and
Trust Company, c/o The Parkstone Group of Funds, P.O. Box 8421, Boston,
Massachusetts 02266-8421. The Transfer Agent will require a signature guarantee
by an eligible guarantor institution. The signature guarantee requirement will
be waived if all of the following conditions apply: (1) the redemption check is
payable to the shareholder(s) of record, and (2) the redemption check is mailed
to the shareholder(s) at the address of record. The shareholder may also have
the proceeds mailed to a commercial bank account previously designated on the
Account Application Form. There is no charge for having redemption proceeds
mailed to a designated bank account. To change the address to which a redemption
check is to be mailed, a written request therefor must be received by the
Transfer Agent. In connection with such request, the Transfer Agent will require
a signature guarantee by an eligible guarantor institution.
For purposes of this policy, the term "eligible guarantor institution" shall
include banks, brokers, dealers, credit unions, securities exchanges and
associations, clearing agencies and savings associations as those terms are
defined in the Securities Exchange Act of 1934. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be Improper, or (3) the guarantor institution is a broker or
dealer that neither is a member of a clearing corporation nor maintains net
capital of at least $100,000.
BY TELEPHONE
Investor B Shares may be redeemed by telephone if the Account Application Form
reflects that the shareholder has that capability. The shareholder may have the
proceeds mailed to his or her address or mailed or wired to a commercial bank
account previously designated on the Account Application Form. Under most
circumstances payments will be transmitted on the next Business Day (as defined
in "HOW SHARES ARE VALUED" below). Wire redemption requests may be made by the
shareholder by telephone to the Group at (800) 451-8377. While the Transfer
Agent currently does not charge a wire redemption fee, the Transfer Agent
reserves the right to impose such a fee in the future.
The Group's Account Application Form provides that none of the Transfer Agent,
BISYS, BISYS Ohio, the Group or any of their affiliates or agents will be liable
for any loss, expense or cost when acting upon any oral, wired or electronically
transmitted instructions or inquiries believed by them to be genuine. While
precautions will be taken, shareholders bear the risk of any loss as the result
of unauthorized telephone redemptions or exchanges believed by the Transfer
Agent to be genuine. If the telephone feature was not originally selected, the
shareholder must provide written instructions to the Group to add it. The Group
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; if these procedures are not followed, the Group may be
liable for any losses due to unauthorized or fraudulent instructions. These
procedures include recording all phone conversations, sending confirmations to
shareholders within 72 hours of the telephone transaction, verifying the account
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name and a shareholder's account number or tax identification number and sending
redemption proceeds only to the address of record or to a previously authorized
bank account. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, shareholders may mail the request to the Transfer
Agent. In addition, redemptions by telephone will be suspended for a period of
10 days following any change in the applicable telephone number.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables shareholders of a Fund to make regular monthly
or quarterly redemptions of Investor B Shares, subject to applicable contingent
deferred sales charges with shareholder authorization, the Transfer Agent will
automatically redeem such Investor B Shares at the net asset value on the fifth
and/or twentieth day of the month or quarter (or the next Business Day, as
defined in "HOW SHARES ARE VALUED," thereafter) and have the amount specified
transferred according to the written instructions of the shareholder.
Shareholders participating in this plan must maintain a minimum account balance
of $1,000. The required minimum withdrawal is $100, monthly or quarterly.
The Auto Withdrawal Plan may be modified or terminated without notice. In
addition, the Group may suspend a shareholder's withdrawal plan without notice
if the account contains insufficient funds to effect a withdrawal or in the
event that the account balance is less than the minimum $1,000 amount.
To participate in the Auto Withdrawal Plan, shareholders should call (800)
451-8377 for more information. Purchases of additional Investor B Shares
concurrently with withdrawals may be disadvantageous to certain shareholders
because of tax liabilities and sales charges. For a shareholder to change the
Auto Withdrawal Plan instructions, the request must be made in writing to the
Distributor and may take up to 15 days to implement.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a Customer's Investor B Shares may be redeemed in accordance with
instructions and limitations pertaining to his or her account at National City
or one of its affiliates.
Redemption orders are effected at the net asset value per share next determined
after the Investor B Shares are properly tendered for redemption, as described
above. The proceeds paid upon redemption of such Investor B Shares of the Funds,
less any applicable contingent deferred sales charge, may be more or less than
the amount invested. Payment to shareholders for such Investor B Shares redeemed
will be made within seven days after receipt by the Transfer Agent of the
request for redemption. However, to the greatest extent possible, requests from
shareholders for next day payments upon redemption of Investor B Shares will be
honored if received by the Transfer Agent before 4:00 p.m. (Eastern Time) on a
Business Day (as defined below in "HOW SHARES ARE VALUED") or, if received after
4:00 p.m . (Eastern Time), within two Business Days, unless it would be
disadvantageous to the Group or the shareholders of a Fund to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner. Also, to the greatest extent possible, requests for same day
payments
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upon redemption of Investor B Shares of the Prime Obligations Fund will be
honored if the request for redemption is received by the Transfer Agent before
11:30 a.m. (Eastern Time), on a Business Day or, if received after 11:30 a.m.
(Eastern Time), on the next Business Day, unless it would be disadvantageous to
the Group or the shareholders of a Fund to sell or liquidate portfolio
securities in an amount sufficient to satisfy requests for payments in that
manner.
At various times, the Group may be requested to redeem Investor B Shares for
which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed until payment has been collected for the
purchase of such Investor B Shares which delay may be for 15 days or more. Such
delay may be avoided if such Investor B Shares are purchased by wire transfer of
federal funds. The Group intends to pay cash for all Investor B Shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in portfolio securities at their then market value equal
to the redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
See the Statement of Additional Information ("ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION") for examples of when the Group or pay suspend the right of
redemption or redeem Investor B Shares involuntarily if it appears appropriate
to do so in light of the Group's responsibilities under the 1940 Act.
HOW SHARES ARE VALUED
The net asset value of the Investor B Shares of the Funds, with the exception of
the Prime Obligations Fund, is determined and the shares are priced as of the
close of trading on the New York Stock Exchange (the "NYSE") on each Business
Day (generally 4:00 p.m. Eastern Time) (with respect to each of the Funds except
the Prime Obligations Fund, the "Valuation Time). The net asset value of the
Investor B Shares of the Prime Obligations Fund is determined and the shares are
priced as of 12:00 p.m. noon (Eastern Time) and as of the close of trading on
the NYSE on each Business Day (with respect to the Prime Obligations Fund, the
"Valuation Times"). A "Business Day" is a day on which the NYSE is open for
trading and any other day other than a day on which no shares are tendered for
redemption and no order to purchase an shares is received. Currently, the NYSE
will not open in observance of the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Net asset value per share for a particular class for purposes of pricing sales
and redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding shares of such class. The net asset
value per share will fluctuate as the value of the investment portfolio of a
Fund changes. However, the assets of the Prime Obligations Fund are valued based
upon the amortized cost method. Pursuant to the rules and regulations of the SEC
regarding the use of the amortized cost method, the Prime Obligations Fund will
maintain a dollar-weighted average portfolio of 90 days or less. Although the
Group seeks to maintain the Prime Obligations Fund's net asset value per share
at $1.00, there can be no assurance that net asset value will not vary.
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The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value. Foreign securities are valued
based on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. For further information about valuation of investments, see "NET ASSET
VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income for each Fund is declared monthly as a dividend to shareholders at
the close of business on the day of declaration and is paid monthly, except for
the Prime Obligations Fund which declares dividends daily and pays them monthly.
In some months, certain Funds may not pay any dividends. Distributable net
realized capital gains are distributed at least annually. A shareholder will
automatically receive all income dividends and capital gain distributions in
additional full and fractional shares at net asset value as of the date of
declaration, unless the shareholder elects to receive dividends or distributions
in cash or elects to participate in the Directed Dividend Option. Such election,
or any revocation thereof, must be made in writing to the Transfer Agent, c/o
The Parkstone Group of Funds, P.O. Box 8421, Boston, Massachusetts 02266-8421,
and will become effective with respect to dividends and distributions having
record dates after its receipt by the Transfer Agent.
Each Fund's net investment income available for distribution to the holders of
Investor B Shares will be reduced by the amount of Rule 12b-1 fees payable to
Participating Organizations under the Investor B Plan. Each Fund's net
investment income available for distribution to the holders of Investor B Shares
may also be reduced by the amount of retail transfer agency fees payable to the
Transfer Agent applicable to the Investor B Shares.
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally relieves a Fund of liability for federal income taxes to
the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that a Fund distribute to its shareholders an
amount equal to at least the sum of 90% of its investment company taxable income
and 90% of its net tax-exempt interest income, if any, for such year. In
general, a Fund's investment company taxable income will be the sum of its net
investment income and the excess of any net short-term capital gain for the
taxable year over the net long-term capital loss, if any, for such year. Each
Fund intends to distribute substantially all of its investment company taxable
income and net tax-exempt income each taxable year. Such distributions by the
Growth Funds, Growth and Income Funds, Income Funds and Money Market Funds
(other than the Tax-Free Fund) will be taxable as ordinary income to their
respective shareholders who are not currently exempt from federal income taxes,
whether
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such income is received in cash or reinvested in additional shares.
(Federal income taxes for distributions to an IRA or to qualified retirement
plan are deferred under the Code.) For corporate shareholders, the dividends
received deduction will apply to such distributions to the extent of the gross
amount of qualifying dividends received by the distributing Fund from domestic
corporations for the taxable year. Although the Tax-Free Income Funds and
Tax-Free Fund do not intend to earn any investment company taxable income, they
intend to distribute substantially all of their net tax-exempt income (such
distributions are known as "exempt-interest dividends") each taxable year.
Exempt-interest dividends may be treated by shareholders as items of interest
excludable from their gross income under Section 103(a) of the Code unless under
the circumstances applicable to the particular shareholder the exclusion would
be disallowed. See the Statement of Additional Information under "Additional
Information Concerning Taxes."
Substantially all of each Fund's net realized long-term capital gains, if any,
will be distributed at least annually to Fund shareholders. A Fund will
generally have no tax liability with respect to such gains and the distributions
will be taxable to Fund shareholders who are not currently exempt from federal
income taxes as long-term capital gains, regardless of how long the shareholders
have held Fund shares and whether such gains are received in cash or reinvested
in additional shares. The Tax-Free Income Funds and Money Market Fund do not
intend to earn any net long-term capital gains.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date before the end of the year will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year in the event such dividends are actually paid during January of the
following year.
Prior to purchasing Fund shares, the impact of dividends or distributions which
are expected to be declared or have been declared, but not paid, should be
carefully considered. Any dividend or distribution declared shortly after a
purchase of shares prior to the record date will have the effect of reducing the
per share net asset value by the per share amount of the dividend or
distribution. All or a portion of such dividend or distribution, although in
effect a return of capital, may be subject to tax.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Fund shares depending upon the tax basis of such shares
and their price at the time of redemption, transfer or exchange. If a
shareholder has held shares for six months or less and during that time received
a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the purchase of
Fund shares in his tax basis for such shares for the purpose of determining gain
or loss on a redemption, transfer or exchange of such shares. However, if the
shareholder effects an exchange of such shares of another Fund within 90 days of
the purchase and is able to reduce the sales charge applicable to the new shares
(by virtue of the Group's exchange privilege), the amount equal to such
reduction may not be included in the tax basis of
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the shareholder's exchanged shares but may be included (subject to this
limitation) in the tax basis of the new shares.
Taxes may be imposed on the Funds, particularly the Balanced Allocation Fund and
International Fund, by foreign countries with respect to income received on
foreign securities. If more than 50% of the value of a Fund's assets at the
close of its taxable year consists of stocks or securities of foreign
corporations, the Fund may elect to treat any foreign income taxes it paid as
paid by its shareholders. In this case, shareholders generally will be required
to include in income their pro rata share of such taxes, but will then be
entitled to claim a credit or deduction for their share of such taxes. However,
a particular shareholder's ability to utilize such a credit will be subject to
certain limitations imposed by the Code. The Funds will report to their
shareholders each year the amount, if any, of foreign taxes per share that they
have elected to have treated as paid by their shareholders.
THE MUNICIPAL BOND FUND AND THE MICHIGAN BOND FUND (THE "EXEMPT FUNDS")
If the Exempt Funds hold certain private activity bonds, shareholders must
include as an item of tax preference for purposes of the federal alternative
minimum tax that portion of dividends paid by these Funds derived from interest
received on such bonds. Shareholders receiving Social Security or railroad
retirement payments should note that all exempt-interest dividends will be taken
into account in determining the taxability of such benefits.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of the Exempt Funds generally will not be deductible for federal income tax
purposes.
Distributions by the Michigan Bond Fund to holders of shares who are subject to
the Michigan personal income tax and/or single business tax will not be subject
to the Michigan personal income tax, single business tax or any Michigan city
income tax to the extent that the distributions are attributable to income
received by the Michigan Bond Fund as interest from Michigan Municipal
Securities or to the extent that the distributions are attributable-to interest
income and gains from the sale or disposal of United States obligations exempted
from state taxation by the United States Constitution, treaties, and statutes.
However, some or all of the other distributions by the Michigan Bond Fund may be
taxable by the State of Michigan or subject to applicable city income taxes,
even if the distributions are attributable to income of the Michigan Bond Fund
derived from obligations of the United States or its agencies and
instrumentalities. In addition, to the extent that a shareholder of the Michigan
Bond Fund is obligated to pay state or local taxes outside of Michigan,
dividends earned by an investment in the Michigan Bond Fund may represent
taxable income. Investments held in the Michigan Bond Fund by a Michigan
resident are not subject to the Michigan intangible personal property tax to the
extent that the investments are attributable to bonds or other similar
obligations of the State of Michigan or a political subdivision thereof, or
obligations of the United States.
The Michigan Department of Treasury in a 1986 Revenue Administrative Bulletin
has taken the position that the tax attributes of the securities held by a
mutual fund flow through to the investors. Based on this position, the Michigan
Department of Treasury has stated that mutual fund distributions attributable to
interest from the fund's investment in direct U.S. government
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securities, as well as Municipal Securities, will not be subject to the Michigan
personal income tax. The Michigan Department of Treasury also has stated that an
owner of a share of a mutual fund will not be subject to intangible personal
property tax to the extent that the pro rata share of the securities underlying
the mutual fund would be exempt.
For Michigan personal income tax and intangible personal property tax purposes,
taxable distributions from investment income and short-term capital gains, if
any, are taxable as ordinary income, whether received in cash or additional
shares, and are subject to the Michigan intangible personal property tax and to
applicable Michigan city income taxes. business tax, a modified value added tax,
is computed by applying the tax rate to a tax base determined by making certain
adjustments to federal taxable income. Taxable distributions from investment
income and gains, if any, may be included in federal taxable income or may
comprise one of the adjustments made to the tax base. Distributions of cash,
other property or additional shares by the Michigan Bond Fund to a Michigan
single business taxpayer attributable to any gain realized from the sale,
exchange or other disposition of Michigan Municipal Securities may be included
in the Michigan single business taxpayer's adjusted tax base for purposes of the
Michigan single business tax to the extent included in federal taxable income.
Distributions of cash, other property or additional shares by the Michigan Bond
Fund to a Michigan single business taxpayer are not subject to the Michigan
single business tax to the extent that the distributions are attributable to
interest income from and any gain realized from the sale, exchange or other
disposition of U.S. securities. Taxable long-term capital gain distributions are
taxable as long-term capitals gains for Michigan purposes irrespective of how
long a shareholder has held the shares, except that such distributions
reinvested in shares of the Michigan Bond Fund are exempt from the Michigan
intangible personal property tax.
MISCELLANEOUS
Shareholders of the Funds will be advised at least annually as to the federal
income tax consequences of distributions made to them each year. Shareholders
are advised to consult their tax advisers concerning the application of state
and local taxes which may differ from federal tax consequences described above
in certain respects.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus; such laws and regulations may be
changed by legislative or administrative actions. The foregoing summarizes some
of the important tax considerations generally affecting the Funds and their
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisers with specific
reference to their own tax situation.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a class of shares in a
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Fund will be calculated for the period since the establishment of the Funds and
will reflect the imposition of the maximum sales charge, if any.
Average annual total return is measured by comparing the value of an investment
in a class of shares in a Fund at the beginning of the relevant period to the
redemption value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions) and annualizing
the result. Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized. Yield of a class of shares will be computed by
dividing a class of shares' net investment income per share earned during a
recent one-month period by that class of shares' per share maximum offering
price (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result. Each Fund
may also present its average annual total return, aggregate total return and
yield, as the case may be, excluding the effect of a sales charge, if any.
In addition, from time to time the Funds may represent 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 b the maximum offering price per
share. The calculation of income in the distribution rate includes both income
and capital gains dividends and does not reflect unrealized gains or losses,
although a Fund may also present a distribution rate excluding the effect of
capital gains . The distribution rate differs from the yield, because it
includes capital gains which are often non-recurring in nature, whereas yield
does not include such items. Distribution rates may also be presented excluding
the effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Investor B Shares and the other classes of the Funds. Because of differences in
the fees and/or expenses borne by different classes of shares of the Funds, the
net fund and to pay return on Investor B Shares may be different from that for
another class of the same Fund. For example, net yield and total return on
Investor B Shares is expected, at any given time, to be lower than the net yield
and total return on Institutional Shares for the same period.
Investors may also judge the performance of any class of shares or Fund by
comparing or referencing it to the performance of various mutual fund or market
indices such as those published by various services, including, but not limited
to, ratings published by Morningstar, Inc. In addition to performance
information, general information about the Funds that appears in such
publications may be included in advertisements, in sales literature and in
reports to shareholders. For further information regarding such services and
publications, see "ADDITIONAL INFORMATION -- Performance Comparisons" in the
Statement of Additional Information.
Total return and yield are functions of the type and quality of instruments held
in the portfolio, levels of operating expenses and changes in market conditions.
Consequently, total return and yield will fluctuate and are not necessarily
representative of future results. Any fees charged by
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<PAGE> 220
the Investment Adviser 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 the Investment Adviser and BISYS
voluntarily reduce all or a part of their respective fees, as further discussed
above, the total return of such Fund will be higher than it would otherwise be
in the absence of such voluntary fee reductions.
FUNDATA(R)
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's Funds through FATA(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 the Transfer Agent, during regular business hours.
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group as organized as a Massachusetts business trust in 1987 and, as of the
date of this Prospectus, offers eighteen Funds. The shares of each of the Funds
of the Group may be offered in up to three separate classes: Investor A Shares,
Investor B shares and Institutional Shares. Each share represents an equal
proportionate interest in a Fund with other shares of the same Fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund as are declared at the discretion of the Trustees.
Shares do not have par value.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested.
Shareholders will vote in the aggregate and not by Fund except as otherwise
expressly required by law. For example, shareholders of the Funds will vote in
the aggregate with other shareholders of the Group with respect to the election
of Trustees and ratification of the selection of independent accountants.
However, shareholders of a Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of that Fund's
investment advisory agreement. In addition, holders of Investor B Shares of a
Fund will vote as a class and not with holders of another class of that Fund
with respect to the approval of its Investor B Plan.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve an investment and sub-investment advisory agreements and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Group may elect not to have an annual or special meeting.
The Group has represented to the SEC that the Trustees will call a special
meeting of shareholders for purposes of considering the removal of one or more
Trustees upon written request therefor from shareholders holding not less than
10% of the outstanding votes of the
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<PAGE> 221
Group. At such a meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
[AS OF JUNE 30, 1997, FABC, THROUGH ITS WHOLLY-OWNED SUBSIDIARIES, POSSESSED ON
BEHALF OF ITS UNDERLYING ACCOUNTS VOTING OR INVESTMENT POWER WITH RESPECT TO
MORE THAN 25% OF THE SHARES OF EACH OF THE FUNDS, AND THEREFORE MAY BE PRESUMED
TO CONTROL EACH FUND WITHIN THE MEANING OF THE 1940 ACT].
MULTIPLE CLASSES OF SHARES
In addition to Investor B Shares, the Group also offers Investor A Shares and
Institutional Shares of certain Funds pursuant to a Multiple Class Plan adopted
by the Group's Trustees under Rule 18f-3 of the 1940 Act. A salesperson or other
person entitled to receive compensation for selling or servicing the shares may
receive different compensation with respect to one particular class of shares
over another in the same Fund. The amount of dividends payable with respect to
other classes of shares will differ from dividends on Investor B Shares as a
result of the Investor B Plan fees applicable to Investor B Shares and because
Investor B Shares may bear different retail transfer agency expenses. For
further details regarding these other classes of shares, Cal1 the Group at (800)
451-8377.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Pursuant to Rule 17f-2, since National City and National City Bank serve as the
Group's Investment Adviser and Custodian, respectively, a procedure has been
established requiring three annual verifications, two of which are to be
unannounced, of all investments held pursuant to the Custodian Services
Agreement, to be conducted by the Group's independent auditors.
The portfolio managers of the Funds and other investment professionals may from
time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include, but are not limited to, the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products and tax, retirement and investment planning.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at P.O. Box 8421, Boston, Massachusetts 02266-8421, or 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
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<PAGE> 222
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.
-87-
<PAGE> 223
THE PARKSTONE GROUP OF FUNDS
Investor B Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
National City Investment Management Company
1900 East Ninth Street
Cleveland, Ohio 44114
SUBADVISER
Gulfstream Global Investors, Ltd.
Suite 550
100 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8421
Boston, MA 02266
CUSTODIAN
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44114
LEGAL COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
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<PAGE> 224
The Parkstone Group of Funds
BOARD OF TRUSTEES
ROBERT D. NEARY
Chairman
Retired Co-Chairman, Ernst & Young
Director:
Cold Metal Products, Inc.
Zurn Industries, Inc.
HERBERT R. MARTENS, JR.
President
Executive Vice President,
National City Corporation
Chairman, President and
Chief Executive Officer,
Officer, NatCity
Investments, Inc.
LEIGH CARTER
Retired President and
Chief Operating Officer
B.F. Goodrich Company
Director:
Kirtland Capital Corporation
Morrison Products
JOHN F. DURKOTT
President and Chief
Operating Officer,
Kittle's Home Furnishing's
Center, Inc.
ROBERT J. FARLING
Retired Chairman, President
and Chief Executive Officer,
Centerior Energy
Director:
Republic Engineered Steels
RICHARD W. FURST, DEAN
Professor of Finance and Dean
Carol Martin Gatton College
of Business and Economics,
University of Kentucky
Director:
Foam Design, Inc.
The Seed Corporation
GERALD L. GHERLEIN
Executive Vice President and
General Counsel, Eaton
Corporation
Trustee:
Meridia Health System
WVIZ Educational Television
J. WILLIAM PULLEN
President and Chief Executive Officer,
Wayne Supply Company
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<PAGE> 225
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX-FREE INCOME FUNDS
THE PARKSTONE MONEY MARKET FUND
FORM N-1A
CROSS-REFERENCE SHEET
PART A. INFORMATION REQUIRED IN A POSPECTUS
ITEM NO.
<TABLE>
RULE 404(a) CROSS-REFERENCE
- -----------------------------------------------------------------------------------------------------------------------
<S> <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 Objections and Policies;
Investment Restrictions; Risk Factors and Investment
Techniques; General Information - Organization of the
Group
5. Management of the Fund...............................Management of the Funds; Fee Tables
5A.. Management's Discussion of Fund Performance..........Not Applicable
6. Capital Stock and Other Securities...................Dividends and Taxes; General Information - Organization
of the Group; General Information - Multiple Classes of
Shares;General Information - Miscellaneous
7. Purchase of Securities Being Offered.................How to Buy Institutional Shares; How Shares are Valued
8. Redemption or Repurchase.............................How to Redeem Your Institutional Shares
9. Pending Legal Proceedings............................Not Applicable
</TABLE>
-3-
<PAGE> 226
- -------------------------------------------------------------------------------
THE PARKSTONE
GROUP OF FUNDS
INSTITUTIONAL SHARES
- -------------------------------------------------------------------------------
GROWTH FUNDS
PARKSTONE SMALL CAPITALIZATION FUND
PARKSTONE MID CAPITALIZATION FUND
PARKSTONE LARGE CAPITALIZATION FUND
PARKSTONE INTERNATIONAL DISCOVERY FUND
GROWTH AND INCOME FUNDS
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE EQUITY INCOME FUND
INCOME FUNDS
PARKSTONE BOND FUND
PARKSTONE LIMITED MATURITY BOND FUND
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT INCOME FUND
TAX-FREE INCOME FUNDS
PARKSTONE MUNICIPAL BOND FUND
PARKSTONE MICHIGAN MUNICIPAL BOND FUND
MONEY MARKET FUNDS
PARKSTONE PRIME OBLIGATIONS FUND
PARKSTONE U.S. GOVERNMENT OBLIGATIONS FUND
PARKSTONE TREASURY FUND
PARKSTONE TAX-FREE FUND
Prospectus dated September __, 1998
{PARKSTONE LOGO}
NOT FDIC INSURED
<PAGE> 227
{THIS PAGE INTENTIONALLY LEFT BLANK.}
<PAGE> 228
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY.........................................................3
FEE TABLES (INSTITUTIONAL SHARES)..........................................6
FINANCIAL HIGHLIGHTS.......................................................9
INVESTMENT OBJECTIVES AND POLICIES........................................32
Risk Factors and Investment Techniques....................................55
Investment Restrictions...................................................70
MANAGEMENT OF THE FUNDS...................................................72
How To Buy Institutional Shares...........................................76
HOW TO REDEEM YOUR INSTITUTIONAL SHARES...................................77
HOW SHARES ARE VALUED.....................................................78
DIVIDENDS AND TAXES.......................................................79
PERFORMANCE INFORMATION...................................................82
FUNDATA(R)................................................................83
GENERAL INFORMATION.......................................................84
</TABLE>
<PAGE> 229
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES PROSPECTUS DATED SEPTEMBER __, 1998
GROWTH FUNDS For more information call
Parkstone Small Capitalization Fund (800) _________
Parkstone Mid Capitalization Fund or write to:
Parkstone Large Capitalization Fund Oaks, Pennsylvania 19456
Parkstone International Discovery Fund
THESE SECURITIES HAVE
GROWTH AND INCOME FUNDS NOT BEEN APPROVED OR
Parkstone Balanced Allocation Fund DISAPPROVED BY THE
Parkstone Equity Income Fund SECURITIES AND
EXCHANGE COMMISSION
INCOME FUNDS OR ANY STATE
Parkstone Bond Fund SECURITIES COMMISSION
Parkstone Limited Maturity Bond Fund NOR HAS THE COMMISSION
Parkstone Intermediate Government Obligations Fund OR ANY STATE SECURITIES
Parkstone U.S. Government Income Fund COMMISSION PASSED UPON
THE ACCURACY OR
ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
TAX-FREE INCOME FUNDS
Parkstone Municipal Bond Fund
Parkstone Michigan Municipal Bond Fund
MONEY MARKET FUNDS
Parkstone Prime Obligations Fund
Parkstone U.S. Government Obligations Fund
Parkstone Treasury Fund
Parkstone Tax-Free Fund
The funds listed above are sixteen of the currently offered series (the "Funds")
of The Parkstone Group of Funds (the "Group") which offer Institutional Shares.
This Prospectus explains concisely what you should know before investing in the
Institutional Shares of the Funds listed above. Please read it carefully and
keep it for future reference. Institutional Shares are currently offered only to
accounts that have a fiduciary or agency relationship with a financial
institution. You can find more detailed information about the Funds in the
September __, 1998 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.
-1-
<PAGE> 230
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
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY OR ITS PARENT OR ITS AFFILIATES, AND
ARE NOT ENDORSED, INSURED OR GUARANTEED BY NATIONAL CITY INVESTMENT MANAGEMENT
COMPANY, ITS PARENT, ITS AFFILIATES, 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.
-2-
<PAGE> 231
PROSPECTUS ROADMAP
For information about the following subjects, consult the pages indicated on the
table below.
<TABLE>
<CAPTION>
INVESTMENT
FINANCIAL OBJECTIVES RISK FACTORS AND
FUND HIGHLIGHTS AND POLICIES INVESTMENT TECHNIQUES
<S> <C> <C> <C>
Balanced Allocation
Bond Fund
Equity Income Fund
Government Income Fund
International Discovery Fund
Intermediate Government Obligations Fund
Large Capitalization Fund
Limited Maturity Bond Fund
Michigan Municipal Bond Fund
Mid Capitalization Fund
Municipal Bond Fund
Prime Obligations Fund
Small Capitalization Fund
Tax-Free Fund
Treasury Fund
U.S. Government Obligations Fund
</TABLE>
The Parkstone Group of Funds (the "Group") is an open-end management investment
company which, as of the date of this Prospectus, offers to the public eighteen
separate investment portfolios, seventeen of which are diversified portfolios
and one of which is a non-diversified portfolio, each with different investment
objectives. These Funds enable the Group to meet a wide range of investment
needs.
This Prospectus relates only to the Institutional Shares of the following Funds:
Parkstone Small Capitalization Fund (the "Small Capitalization Fund")
Parkstone Mid Capitalization Fund, formerly known as the Parkstone Equity
Fund (the "Mid Capitalization Fund")
Parkstone Large Capitalization Fund (the "Large Capitalization Fund")
Parkstone International Discovery Fund (the "International Fund")
Parkstone Balanced Allocation Fund, formerly known as the Parkstone
Balanced Fund (the "Balanced Allocation Fund")
Parkstone Equity Income Fund, formerly known as the Parkstone High Income
Equity Fund (the "Equity Income Fund")
Parkstone Bond Fund (the "Bond Fund")
Parkstone Limited Maturity Bond Fund (the "Limited Maturity Bond Fund")
Parkstone Intermediate Government Obligations Fund (the "Intermediate
Government Obligations Fund")
Parkstone U.S. Government Income Fund (the "Government Income Fund")
Parkstone Municipal Bond Fund (the "Municipal Bond Fund")
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<PAGE> 232
Parkstone Michigan Municipal Bond Fund (the "Michigan Bond Fund")
Parkstone Prime Obligations Fund (the "Prime Obligations Fund")
Parkstone U.S. Government Obligations Fund (the "U.S. Government
Obligations Fund")
Parkstone Treasury Fund (the "Treasury Fund")
Parkstone Tax-Free Fund (the "Tax-Free Fund")
For convenience of reference, the above Funds are sometimes referred to as part
of a general grouping. The Small Capitalization Fund, Mid Capitalization Fund,
Large Capitalization Fund and International Fund are collectively referred to as
the "Growth Funds." The Balanced Allocation Fund and Equity Income Fund are
collectively referred to as the "Growth and Income Funds." The Bond Fund,
Limited Maturity Bond Fund, Intermediate Government Obligations Fund and
Government Income Fund are collectively referred to as the "Income Funds." The
Michigan Bond Fund and municipal Bond Fund are collectively referred to as the
"Tax-Free Income Funds." Finally, the Prime Obligations Fund, Treasury Fund,
Tax-Free Fund and U.S. Government Obligations Fund are collectively referred to
as the "Money Market Funds."
The Trustees of the Group have divided beneficial ownership of each of the Funds
into an unlimited number of transferable units called shares. Most Funds of the
Group offer multiple classes of shares. This Prospectus describes Institutional
Shares for certain of the Group's Funds. Interested persons who wish to obtain a
copy of any of the Group's other Prospectuses or a copy of the Group's most
recent Annual Report may contact the Group at the telephone number shown above.
The investment objectives of each of the Funds are described in this Prospectus
and are summarized in the Prospectus Summary. National City Investment
Management Company, Cleveland, Ohio ("National City" or the "Investment
Adviser"), acts as the investment adviser to each of the Funds of the Group. To
provide investment advisory services for the International Fund and Balanced
Allocation Fund for investments in foreign securities, National City has entered
into a sub-investment advisory agreement with Gulfstream Global Investors, Ltd.,
Dallas, Texas ("Gulfstream" or the "Subadviser").
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<PAGE> 233
PROSPECTUS SUMMARY
Shares Offered
This Prospectus relates to Institutional Shares of the following Funds of the
Group:
GROWTH FUNDS
Small Capitalization Fund
Mid Capitalization Fund
Large Capitalization Fund
International Fund
GROWTH AND INCOME FUNDS
Balanced Allocation Fund
Equity Income Fund
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
TAX-FREE INCOME FUNDS
Municipal Bond Fund
Michigan Bond Fund
MONEY MARKET FUNDS
Prime Obligations Fund
U.S. Government Obligations Fund
Treasury Fund
Tax-Free Fund
These Funds represent sixteen separate investment portfolios of The Parkstone
Group of Funds, a Massachusetts business trust which is registered as an
open-end, management investment company.
Purchase and Redemption of Shares
The public offering price of Institutional Shares of each Fund is equal to the
net asset value per share, which, in the case of the Money Market Funds, the
Group will seek to maintain at $1.00. There are no initial or contingent
deferred sales charges on Institutional Shares. Shares may be purchased through
procedures established by the Group's distributor, SEI Investments Distribution
Co. ("SEI or the "Distributor). Shareholders may redeem their shares by
contacting their trust administrator or financial consultant responsible for the
account. See "HOW TO BUY INSTITUTIONAL SHARES," "HOW TO REDEEM INSTITUTIONAL
SHARES" and "HOW SHARES ARE VALUED."
-5-
<PAGE> 234
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
FUND INVESTMENT OBJECTIVE
Balanced Allocation Fund seeks current income, long-term
capital growth and conservation of
capital
Bond Fund seeks to provide current income as
well as preservation of capital by
investing in a portfolio of high-
and medium-grade fixed-income
securities
Equity Income Fund seeks current income by investing in
a diversified portfolio of high
quality, dividend-paying common
stocks and securities convertible
into common stocks; a secondary
objective is growth of capital
Government Income Fund seeks to provide shareholders with a
high level of current income
consistent with prudent investment
risk
Intermediate Government seeks to provide current income with
Obligations Fund preservation of capital by investing
in U.S. government securities with
remaining maturities of 12 years or
less
International Fund seeks long-term growth of capital
Large Capitalization Fund seeks growth of capital by investing
primarily in a diversified portfolio
of common stocks and securities
convertible into common stocks of
companies with large market
capitalization
Limited Maturity Bond Fund seeks to provide current income as
well as preservation of capital by
investing in a portfolio of high-
and medium-grade fixed income
securities with remaining maturities
of six years or less
Michigan Bond Fund seeks income which is exempt from
federal income tax and Michigan
state income and intangibles tax,
although such income may be subject
to the federal alternative minimum
tax when received by certain
shareholders; also seeks
preservation of capital
Mid Capitalization Fund seeks growth of capital by investing
primarily in a diversified portfolio
of common stocks and securities
convertible into common stocks
Municipal Bond Fund seeks to provide current interest
income which is exempt from federal
income taxes and preservation of
capital
Prime Obligations Fund seeks to provide current income,
with liquidity and stability of
principal
Small Capitalization Fund seeks growth of capital by investing
primarily in a diversified portfolio
of common stocks and securities
convertible into common stocks of
small-to-medium-sized companies
Tax-Free Fund seeks to provide as high a level of
current interest income free from
federal income taxes as is
consistent with the preservation of
capital and relative stability of
principal
Treasury Fund seeks to provide current income,
with liquidity and stability of
principal
U.S. Government seeks to provide current income,
Obligations Fund with liquidity and stability of
principal
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<PAGE> 235
Investment Policies
Under normal market conditions, each Fund will invest as described in the
following table:
FUND INVESTMENT POLICY
Balanced Allocation Fund in any type or class of securities,
including all types of common
stocks, fixed-income securities and
securities convertible into common
stocks
Bond Fund at least 80% of its total assets in
bonds, debentures and certain other
debt securities specified herein
Equity Income Fund at least 80% of its total assets in
common stocks, and securities
convertible into common stocks, of
companies believed by the Investment
Adviser to be characterized by sound
management, the ability to finance
expected growth and the ability to
pay above-average dividends
Government Income Fund at least 65% of its total assets in
obligations issued or guaranteed by
the U.S. government or its agencies
or instrumentalities; under current
market conditions up to 80% of its
total assets in mortgage-related
securities which are issued or
guaranteed by the U.S. government,
its agencies or instrumentalities
and up to 35% of its total assets in
mortgage-related securities issued
by non-governmental entities
Intermediate Government at least 80% of its total assets in
Obligations Fund obligations issued or guaranteed by
the U.S. government or its agencies
or instrumentalities and with
remaining maturities of twelve years
or less
International Fund at least 65% of its total assets in
an internationally diversified
portfolio of equity securities which
trade on markets in countries other
than the United States and which are
issued by companies (i) domiciled in
countries other than the United
States, or (ii) that derive at least
50% of either their revenues or
pre-tax income from activities
outside of the United States, and
(iii) which are ranked as small or
medium-sized companies on the basis
of their capitalization
Large Capitalization Fund at least 80% of its total assets in
common stocks, and securities
convertible into common stocks, of
companies believed to be
characterized by sound management
and the ability to finance expected
long-term growth
Limited Maturity Bond Fund at least 80% of the value of its
total assets in bonds, debentures
and certain other debt securities
specified herein with remaining
maturities of six years or less
Michigan Bond Fund at least 80% of its total assets in
debt securities of all types; at
least 65% of its net assets in
municipal securities issued by or on
behalf of the State of Michigan, its
political subdivisions,
municipalities and public
authorities
Mid Capitalization Fund at least 80% of its total assets in
common stocks, and securities
convertible into common stocks, of
companies believed by the Investment
Adviser to be characterized by sound
management and the ability to
finance expected growth
Municipal Bond Fund at least 80% of its total assets in
tax-exempt obligations
Prime Obligations Fund invests in high quality money market
instruments and other comparable
investments
Small Capitalization Fund at least 80% of its total assets in
common stocks, and securities
convertible into common stocks, of
companies believed by the Investment
Adviser to be characterized by sound
management and the ability to
finance expected growth
Tax-Free Fund at least 80% of its total assets in
municipal obligations the interest
on which is both exempt from federal
income tax and not treated as a
preference item for federal
alternative minimum tax purposes
-7-
<PAGE> 236
Treasury Fund exclusively in obligations issued or
guaranteed by the U.S. Treasury and
in repurchase agreements backed by
such securities
U.S. Government at least 65% of its total assets in
Obligations Fund short-term U.S. Treasury bills,
notes and other obligations issued
by the U.S. government or its
agencies or instrumentalities
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
National City serves as investment adviser, and, with respect
to the International Fund and a portion of the Balanced Allocation Fund,
Gulfstream serves as subadviser. National City also serves as sub-administrator.
BISYS Fund Services, L.P. ("BISYS"), a partnership owned by The BISYS Group,
Inc., serves as administrator (the "Administrator"). BISYS Fund Services Ohio,
Inc. ("BISYS Ohio") serves as fund accountant. National City Bank, an affiliate
of National City (the "Custodian"), serves as custodian. State Street Bank and
Trust Company ("State Street" or the "Transfer Agent") serves as transfer agent
and dividend disbursing agent.
Dividends and Taxes
Dividends from net income are declared and paid, if at all, on
a monthly basis, except for the Money Market Funds which declare dividends daily
and pay them monthly. Net realized capital gains are distributed at least
annually. Each of the Funds is treated as a separate entity for federal tax
purposes and intends to qualify as a "regulated investment company."
Shareholders will be advised at least annually as to the federal income tax
consequences of distributions made each year.
FEE TABLES (INSTITUTIONAL SHARES)
SHAREHOLDER TRANSACTION EXPENSES
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(l) ...................................................None
Exchange Fees.........................................................None
- -------------------
(1) Although no such fee is currently in place, the Transfer Agent has reserved
the right in the future to charge a fee for wire transfers of redemption
proceeds.
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<PAGE> 237
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES(2) FEES EXPENSES(2) EXPENSES(2),(3)
---------- ----- ----------- ----------------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund................... 1.00% 0.00% 0.32% 1.32%
Mid Capitalization Fund..................... 1.00% 0.00% 0.31% 1.31%
Large Capitalization Fund................... 0.80% 0.00% 0.32% 1.12%
International Fund.......................... 1.16%(4) 0.00% 0.39% 1.55%
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund.................... 0.75% 0.00% 0.35% 1.10%
Equity Income Fund.......................... 1.00% 0.00% 0.33% 1.33%
INCOME FUNDS:
Bond Fund................................... 0.70% 0.00% 0.24% 0.94%
Limited Maturity Bond Fund.................. 0.55% 0.00% 0.30% 0.85%
Intermediate Government Obligations......... 0.70% 0.00% 0.28% 0.98%
Government Income Fund...................... 0.45% 0.00% 0.32% 0.77%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund......................... 0.55% 0.00% 0.26% 0.81%
Michigan Bond Fund.......................... 0.55% 0.00% 0.21% 0.76%
MONEY MARKET FUNDS:
Prime Obligations Fund...................... 0.40% 0.00% 0.23% 0.63%
U.S. Government Obligations Fund............ 0.40% 0.00% 0.24% 0.64%
Treasury Fund............................... 0.40% 0.00% 0.17% 0.57%
Tax-Free Fund............................... 0.40% 0.00% 0.28% 0.68%
<FN>
- ----------------------------------
(2) After voluntary expense reductions.
(3) Certain purchases of the Funds through financial institutions may be
subject to fees for additional services provided to investors.
(4) Calculated based on 1.25% of the first $50 million in average daily net
assets, 1.20% on the next $50 million, 1.15% on the next $300 million
and 1.05% over $400 million.
</TABLE>
Management Fees and Total Expenses as a percentage of average net assets for the
Balanced Allocation Fund, absent the voluntary reduction of advisory fees, would
have been 1.00% and 1.35%, respectively. Management Fees, Other Expenses and
Total Expenses as a percentage of average net assets for the Bond Fund, absent
the voluntary reduction of advisory fees and administrative fees, would have
been 0.74%, 0.29% and 1.03%, respectively. For the Limited Maturity Bond Fund
they would have been 0.74%, 0.35% and 1.09%, respectively. For the Intermediate
Government Obligations Fund they would have been 0.74%, 0.33% and 1.07%,
respectively. For the Government Income Fund they are estimated to be 0.74%,
0.37% and 1.11%, respectively. For the Municipal Bond Fund they would have been
0.74%, 0.36% and 1.10%, respectively. For the Michigan Bond Fund they would have
been 0.74%, 0.31% and 1.05%, respectively. Other Expenses and Total Expenses as
a percentage of average net assets for the Prime Obligations Fund, absent the
voluntary reduction of administrative fees, would have been 0.25% and 0.65%,
respectively. For the U.S. Government Obligations Fund, they would have been
0.26% and 0.66%, respectively. For the Treasury Fund the would have been 0.27%
and 0.67%, respectively. For the Tax-Free Fund, they would have been 0.30% and
0.70%,
-9-
<PAGE> 238
respectively. (See "MANAGEMENT OF THE FUNDS -- Investment Adviser and
Subadviser" and "Administrator, Sub-Administrator and Distributor").
-10-
<PAGE> 239
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Institutional Shares, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund........................... $ 13 $42 $72 $ 159
Mid Capitalization Fund.............................. $ 13 $42 $72 $ 158
Large Capitalization Fund............................ $ 11 $36 $62 $ 136
International Fund................................... $ 16 $49 $84 $ 185
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund............................. $ 11 $35 $61 $ 133
Equity Income Fund................................... $ 14 $42 $73 $ 160
INCOME FUNDS:
Bond Fund............................................ $ 10 $30 $52 $ 115
Limited Maturity Bond Fund........................... $ 9 $27 $47 $ 105
Intermediate Government Obligations Fund............. $ 10 $31 $54 $ 120
Government Income Fund............................... $ 8 $25 $43 $ 95
TAX-FREE INCOME FUNDS:
Municipal Bond Fund.................................. $ 8 $26 $45 $ 100
Michigan Bond Fund................................... $ 8 $24 $42 $ 94
MONEY MARKET FUNDS:
Prime Obligations Fund............................... $ 6 $20 $35 $ 79
U.S. Government Obligations Fund..................... $ 7 $20 $36 $ 79
Treasury Fund........................................ $ 6 $18 $32 $ 71
Tax-Free Fund........................................ $ 7 $22 $38 $ 85
</TABLE>
The information set forth in the foregoing Fee Tables and expense examples
relates only to Institutional Shares of the Funds. Each of the Funds also may
offer other classes of shares. The other classes of shares of the Funds are
subject to the same expenses except that Rule 12b-1 fees and sales charges may
apply.
The purpose of the above tables is to assist a potential purchaser of
Institutional Shares of any Fund in understanding the various costs and expenses
that an investor in a Fund will bear directly or indirectly. Such expenses do
not include any fees charged by a financial institution, including National City
or any of its affiliates, to its customer accounts which may invest in
Institutional Shares of the Funds. See "MANAGEMENT OF THE FUNDS" and "GENERAL
INFORMATION" for a more complete discussion of the annual operating expenses of
each of the Funds. The expense information for Institutional Shares reflects
current fees. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
FINANCIAL HIGHLIGHTS
The tables on the following pages set forth certain information concerning the
investment results of the Institutional Shares of each of the Funds since its
inception. Further financial information is included in the
-11-
<PAGE> 240
Statement of Additional Information and the Group's June 30, 1997 Annual Report
to Shareholders which may be obtained free of charge.
The Financial Highlights for the periods presented below have been derived from
financial statements audited by PricewaterhouseCoopers LLP, independent auditors
for the Group, whose report thereon is incorporated by reference in the
Statement of Additional Information.
On March 31, 1993, the shareholders of all of the then-existing Funds of the
Group approved the reclassification of such Funds, outstanding shares into
Investor A Shares and Institutional Shares. The financial information provided
below and in the Annual Report includes periods prior to such reclassification.
-12-
<PAGE> 241
SMALL CAPITALIZATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1998
TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD............ $ 34.50 $ 26.08 $ 19.83 $ 20.31 $ 14.64 13.58 $ 14.82 $ 11.59 $ 10.00
-------- -------- -------- -------- -------- ----- -------- -------- --------
Investment Activities
Net Investment Loss......... (0.22) (0.27) (0.25) (0.28) (0.14) (0.08) 0.14 0.04 0.06
Net Realized and
Unrealized Gains
(Losses) on Investments..... (1.12) 12.34 8.65 0.30 6.76 1.89 (1.24) 3.23 1.59
----- ----- ---- ---- ---- ---- ----- ---- ----
Total from Investment
Activities................ (1.34) 12.07 8.40 0.02 6.62 1.81 (1.10) 3.27 1.65
----- ----- ---- ---- ---- ---- ----- ---- ----
Distributions
Net Investment Income....... -- -- -- -- -- -- (0.14) (0.04) (0.06)
Net Realized Gains.......... (5.25) (3.65) (2.15) (0.50) (0.95) (0.75) -- -- --
----- ----- ----- ----- ----- -----
Total Distributions....... (5.25) (3.65) (2.15) (0.50) (0.95) (0.75) (0.14) (0.04) (0.06)
----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD............... $ 27.91 $ 34.50 $ 26.08 $ 19.83 $ 20.31 $ 14.64 $ 13.58 $ 14.82 11.59
======== ======== ======== ======== ======== ======== ======== ======== =======
Total Return (excluding
sales and redemption
charges).................... (4.39)% 50.03% 45.32% (0.15)% 45.77% 12.95% (6.67)% 28.28% 16.60%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)............ $602,787 $528,866 $354,825 $271,425 $291,462 $180,079 $107,500 $94,517 $53,917
Ratio of Expenses to
Average Net
Assets.................. 1.32% 1.29% 1.33% 1.30% 1.26% 1.19% 1.15% 1.11% 1.29%(c)
Ratio of Net Investment
Loss to Average Net
Assets.................. (0.94)% (0.93)% (1.06)% (1.14)% (0.98)% (0.61)% 1.08% 0.37% 0.80%(c)
Ratio of Expenses to
Average Net
Assets.................. 1.32% 1.29% 1.33% 1.30% 1.28% 1.28% 1.33% 1.33% 1.54%(c)
Ratio of Net Investment
Loss to Average Net
Assets*................. (0.94)% (0.93)% (1.06)% (1.14)% (1.01)% (0.70)% 0.90% 0.15% 0.55%(c)
</TABLE>
-13-
<PAGE> 242
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
------------------------------------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio Turnover
Rate (d)................ 48.45% 67.22% 50.53% 72.64% 71.21% 95.02% 139.66% 83.10% 51.79%
Average Commission
Rate Paid
(g)..................... $ 0.0788 $ 0.0800
</TABLE>
-14-
<PAGE> 243
MID CAPITALIZATION FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD............ $ 20.83 $ 16.62 $ 14.70 $ 15.10 $ 12.80 $ 11.69 $12.37 $ 11.48 $ 10.00
-------- -------- -------- -------- -------- ------- ------ -------- --------
Investment Activities
Net Investment Loss......... (0.13) (0.16) (0.08) (0.11) (0.01) 0.17 0.45 0.30 0.20
Net Realized and Unrealized Gains
(Losses) on Investments..... 1.25 .503 3.47 (0.25) 2.73 1.59 (0.53) 1.86 1.47
---- ---- ---- ----- --- ---- ----- --- ----
Total from Investment
Activities................ (1.12) 4.87 3.39 (0.36) 2.72 1.76 (0.08) 2.16 1.67
----- ---- ---- ----- ---- ---- ----- ---- ----
Distributions
Net Investment Income....... -- -- -- -- (0.02) (0.17) (0.45) (0.28) (0.19)
Net Realized Gains.......... (6.13) (0.66) (0.49) (0.04) (0.40) (0.48) (0.15) (0.99) --
----- ----- ----- ----- ----- -----
In Excess of Net
Realized Gains............. -- -- (0.98) -- -- -- -- -- --
Total Distributions....... (6.13) (0.66) (1.47) (0.04) (0.42) (0.65) (0.60) (1.27) (0.19)
----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD............... $ 15.82 $ 20.83 $ 16.62 $ 14.70 $ 15.10 $ 12.80$ 11.69 $ 12.37 $ 11.48
======== ======== ======== ======== ======== ================ ======== ========
Total Return (excluding
sales and redemption
charges).................... 5.58% 29.83% 25.20% (2.44)% 21.34% 15.18% (0.45)% 19.23% 16.83%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)............ $544,082 $650,495 $683,320 $533,260 $595,127 $407,782 $298,655 $247,683 $180,124
Ratio of
Expenses to Average Net
Assets.................. 1.31% 1.29% 1.29% 1.28% 1.24% 1.18% 1.10% 1.07% 1.06%(c)
Ratio of Net Investment
Loss to Average Net
Assets.................. (0.80)% (0.68)% (0.64)% (0.65)% (0.09)% 1.24% 3.87% 2.51% 2.80%(c)
Ratio of Expenses to
Average Net Assets...... 1.31% 1.29% 1.29% 1.28% 1.27% 1.26% 1.28% 1.29% 1.31%(c)
Ratio of Net
Investment
Lose to
Average Net
Assets*................. (0.80)% (0.68)% (0.65)% (0.65)% (0.11)% 1.15)% 3.69% 2.29% .2.55%(c)
</TABLE>
-15-
<PAGE> 244
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
----------------------------------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio Turnover Rate (d) 38.47% 49.27% 46.39% 70.87% 66.48% 93.76% 189.26% 136.95% 87.30%
Average Commission
Rate Paid (g)........... $ 0.0794 $ 0.0796
</TABLE>
-16-
<PAGE> 245
LARGE CAPITALIZATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INSTITUTIONAL OCT. 31, 1998
SHARES to
1997 JUNE 30, 1989 (a)
---- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD
Investment Activities................................ $11.25 $10.00
----- -----
Net Investment Income (Loss)................ 0.03 0.03
Net Realized and Unrealized Gains (Losses)
On Investments............................ 3.31 1.25
---- ----
Total from Investment Activities............ 3.34 1.28
---- ----
Distributions
Net Investment Income....................... (0.03) (0.03)
Net Realized Gains.......................... (0.08) --
------ ------
Total Distributions......................... (0.11) (0.03)
------ ------
NET ASSET VALUE, END OF PERIOD....................... $14.48 $11.25
====== ======
Total Return (excluding sales and redemption charges) 29.81% 12.86%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............. $338,388 $274,150
Ratio of Expenses to Average Net Assets..... 1.12% 2.19%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets........................ 0.19% 1.26%(c)
Ratio of Expenses to Average Net Assets*.... 1.12% 2.26%
Ratio of Net Investment Income (Loss) to
Average Net Assets*....................... 0.19% 1.19%(c)
Portfolio Turnover Rate (d)................. 48.44% 0.86%
Average Commission Rate Paid (g)............ $0.0932 $0.0800
</TABLE>
-17-
<PAGE> 246
INTERNATIONAL FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
INSTITUTIONAL SHARES DEC. 29, 1992
-------------------------------------------------- TO
1997 1996 1995(f) 1994 JUNE 30, 1993(a)(b)
---- ---- ------- ---- -------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ......................... $ 14.11 $ 12.33 $ 13.24 $ 11.54 $ 10.00
Investment Activities
Net Investment Income (Loss) ........... (0.05) 0.02 0.04 (0.01) 0.04
Net Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currency Transactions .. 2.35 1.80 (0.33) 1.75 1.51
------------- ------------- ------------- ------------- -----------
Total from Investment Activities ....... 2.30 1.82 (0.29) 1.74 1.55
------------- ------------- ------------- ------------- -----------
Distributions Net Investment Income ......... -- (0.02) -- (0.02) (0.01)
Net Realized Gains ..................... -- -- (0.62) (0.02) --
In Excess of Net Investment Income ..... -- (0.02) -- -- --
------------- ------------- ------------- ------------- -----------
Total Distributions .................... -- (0.04) (0.62) (0.04) (0.01)
------------- ------------- ------------- ------------- -----------
NET ASSET VALUE,
END OF PERIOD .............................. $ 16.41 $ 14.11 $ 12.33 $ 13.24 $ 11.54
============= ============= ============= ============= ===========
Total Return (excluding sales and
redemption charges) ........................ 16.34% 14.76% (1.86)% 15.12% 15.52%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........ $ 426,111 $ 364,095 $ 264,759 $ 261,798 $ 114,822
Rate of Expenses to
Average Net Assets .................. 1.55% 1.55% 1.56% 1.52% 1.58%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets ................... (0.29)% 0.12% 0.31% (0.30)% 0.82%(c)
Ratio of Expenses to
Average Net Assets* ................. 1.55% 1.55% 1.59% 1.57% 1.63%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets* .................. (0.29)% 0.12% 0.28% (0.35)% (0.77)%
Portfolio Turnover Rate (d) ............ 45.18% 54.47% 104.39% 37.23% 12.47%
Average Commission Rate Paid (g) ....... $ 0.0329 $ 0.0321
</TABLE>
-18-
<PAGE> 247
BALANCED ALLOCATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------
INSTITUTIONAL SHARES JAN. 31, 1992
----------------------------------------------------- to
1997 1996 1995(f) 1994 1993(b) JUNE 30, 1992(a)
---- ---- ------- ---- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD......................... $13.37 $12.19 $10.67 $11.08 $9.68 $10.00
------ ------ ------ ------ ----- ------
Investment Activities
Net Investment Income (Loss)........... 0.35 0.36 0.31 0.27 0.28 0.14
Net Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currencies............. 1.12 1.74 1.68 (0.41) 1.41 (0.34)
---- ---- ---- ------ ---- ------
Total from Investment Activities....... 1.47 2.10 1.99 (0.14) 1.69 0.20
---- ---- ---- ------ ---- ----
Distributions
Net Investment Income.................. (0.37) (0.35) (0.31) (0.27) (0.29) (0.12)
Net Realized Gains..................... (1.48) (0.57) (0.03) -- -- --
In Excess of Net Realized Gains........ -- -- (0.13) -- -- --
------- ------- ------ ------- ------- ------
Total Distributions.................... (1.85) (0.92) (0.47) (0.27) (0.29) (0.12)
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD.............................. $12.99 $13.37 $12.19 $10.67 $11.08 $9.68
====== ====== ====== ====== ====== =====
Total Return (excluding sales and
redemption charges)........................ 11.86% 17.81% 19.22% (1.44)% 17.66% (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)........ $245,347 $113,493 $89,294 $71,427 42,318 $38,136
Rate of Expenses to
Average Net Assets.................. 1.10% 1.16% 1.25% 1.09% 1.15% 1.19%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets................... 2.77% 2.62% 2.75% 2.49% 2.70% 3.46%(c)
Ratio of Expenses to
Average Net Assets*................. 1.36% 1.41% 1.52% 1.39% 1.46% 1.50%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets*.................. 2.51% 2.37% 2.47% 2.18% 2.40% 3.13%(c)
Portfolio Turnover Rate (d)............ 425.05% 437.90% 250.66% 192.39% 177.99% 47.58%
Average Commission Rate Paid (g) $0.0518 $0.0848
</TABLE>
-19-
<PAGE> 248
EQUITY INCOME FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
--------------------------------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD............ $ 17.30 $ 14.49 $ 13.50 $ 14.69 $ 13.14 $12.48 $12.19 $ 11.35 $ 10.00
-------- -------- -------- -------- -------- ------ ------ -------- --------
Investment Activities
Net Investment Loss......... 0.34 0.34 0.39 0.39 0.45 0.54 0.57 0.56 0.35
Net Realized and Unrealized Gains
(Losses) on Investments..... 3.51 3.26 1.00 (0.56) 1.69 0.99 0.38 1.04 1.32
---- ---- --- ----- --- ---- ---- ---- ----
Total from Investment
Activities................ 3.85 3.60 1.39 (0.17) 2.14 1.53 0.95 1.60 1.67
---- ---- ---- ----- ---- ---- ---- --- ----
Distributions
Net Investment Income....... (0.33) (0.34) (0.39)-- (0.39) (0.45) (0.54) (0.59) (0.54) (0.32)
In Excess of Net Investment Income -- -- (0.01) -- -- -- -- -- --
Net Realized Gains.......... (1.69) (0.45) -- (0.24) (0.14) (0.33) (0.07) (0.22) --
In Excess of Net Realized Gains -- -- -- (0.39) -- -- -- -- --
Total Distributions....... (2.02) (0.79) (0.40) (1.02) (0.59) (0.87) (0.66) (0.76) (0.32)
----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD............... $ 19.13 $ 17.30 $ 14.49 $ 13.50 $ 14.69 $ 13.14$ 12.48 $ 12.19 $ 11.35
======== ======== ======== ======== ======== ================ ======== ========
Total Return (excluding
sales and redemption
charges).................... 23.80% 25.30% 10.55% (1.53)% 16.73% 12.56% 8.22% 14.37% 16.97%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)............ $315,878 $337,318 $346,164 $355,538 $384,240 $270,549 $150,980 $96,344 $66,367
Ratio of Expenses to
Average Net Assets...... 1.33% 1.32% 1.32% 1.30% 1.26% 1.19% 1.13% 1.11% 1.16%(c)
Ratio of Net Investment
Loss to Average
Net Assets.............. 1.89% 2.11% 2.86% 2.64% 3.28% 4.12% 4.75% 4.69% 4.92%(c)
Ratio of Expenses to
Average Net Assets...... 1.33% 1.32% 1.32% 1.30% 1.28% 1.27% 1.31% 1.33% 1.41%(c)
</TABLE>
-20-
<PAGE> 249
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
----------------------------------------------------------------------------- to
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Net Investment
Loss to Average Net
Assets*................. 1.89% 2.11% 2.86% 2.64% 3.25% 4.03% 4.57% 4.47% 4.67%(c)
Portfolio Turnover
Rate (d)............... 20.14% 40.75% 77.70% 69.35% 67.26% 68.42% 115.686% 53.08% 29.55%
Average Commission
Rate Paid (g)........... $ 0.0800 $ 0.0800
</TABLE>
-21-
<PAGE> 250
BOND FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT.. 31, 1988
------------------------------------------------------------------------------ to
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD............ $ 9.56 $ 9.72 $ 9.29 $ 10.53 $ 10.54 $10.07 $10.00 $ 10.11 $ 10.00
------- ------- ------- -------- -------- ------ ------ -------- --------
Investment Activities
Net Investment Loss......... 0.59 0.59 0.61 0.60 0.71 0.75 0.77 0.78 0.53
Net Realized and Unrealized Gains
(Losses) on Investments..... 0.17 (0.16) 0.43 (0.72) 0.46 0.56 0.08 (0.11) 0.09
---- ------ ---- ----- ---- ---- ---- ------ ----
Total from Investment
Activities................ 0.76 0.43 1.04 (0.12) 1.17 1.31 0.85 0.67 0.62
---- ---- ---- ----- --- ---- ---- --- ----
Distributions
Net Investment Income....... (0.59) (0.59) (0.61)-- (0.58) (0.73) (0.76) (0.78) (0.78) (0.51)
Net Realized Gains.......... -- -- -- -- (0.45) (0.08) -- -- --
----- -----
In Excess of Net Realized Gains -- -- -- (0.54) -- -- -- -- --
Total Distributions....... (0.59) (0.59) (0.61) (1.12) (1.18) (0.84) (0.78) (0.78) (0.51)
----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD............... $ 9.73 $ 9.56 $ 9.72 $ 9.29 $ 10.53 $ 10.54$ 10.07 $ 10.00 $ 10.11
======= ======= ======= ======= ======== ================ ======== ========
Total Return (excluding
sales and redemption
charges).................... 8.20% 4.49% 11.78% (1.52)% 11.84% 13.47% 8.80% 6.94% 6.42%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)............ $492,102 $549,336 $509,189 $469,903 $442,291 $477,526 $432,25 $316,477 $123,928
Ratio of Expenses to
Average Net Assets...... 0.94% 0.94% 1.02% 0.88% 0.87% 0.87% 0.84% 0.81% 0.82%(c)
Ratio of Net Investment
Lose to Average Net
Assets.................. 6.13% 5.96% 6.54% 5.97% 6.50% 7.19% 7.72% 8.04% 8.06%(c)
Ratio of Expenses to
Average Net Assets...... 1.03% 1.03% 1.14% 1.02% 1.01% 1.01% 1.02% 1.02% 1.06%(c)
</TABLE>
-22-
<PAGE> 251
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
----------------------------------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Net Investment
Loss to Average Net
Assets*................. 6.04% 5.87% 6.42% 5.83% 6.36% 7.05% 7.54% 7.83% 7.82%(c)
Portfolio Turnover
Rate (d)................ 827.00% 1189.27% 1010.6% 893.27.% 443.98% 289.38% 339.74% 314.71% 121.08%
</TABLE>
-23-
<PAGE> 252
LIMITED MATURITY BOND FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
INSTITUTIONAL SHARES
--------------------------------------------------------------
1997 1996 1995 1994 1993(b) 1992
---- ---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $9.48 $9.71 $9.57 $10.18 $10.25 $9.93
----- ----- ----- ------ ------ -----
BEGINNING OF PERIOD
Investment Activities
Net Investment Loss......... 0.57 0.65 0.58 0.64 0.65 0.71
Net Realized and Unrealized Gains
(Losses) on Investments........... 0.02 (0.21) 0.13 (0.59) 0.13 0.35
---- ------ ------ ---- ----
Total from Investment
Activities............. 0.59 0.44 0.71 0.05 0.78 1.06
---- ---- ---- ---- ---- ----
Distributions
Net Investment Income....... (0.58) (0.65) (0.57) (0.62) (0.69) (0.71)
In Excess of Net
Investment Income........ -- (0.01) -- -- -- --
Net Realized Gains.......... -- -- -- -- (0.16) (0.03)
In Excess of Net
Realized Gains........... -- -- -- (0.04) -- --
Tax Return on Capital....... -- (0.01) -- -- -- --
------
Total Distributions...... (0.58) (0.67) (0.57) (0.66) (0.85) (0.74)
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD..................... $9.49 $9.48 $9.71 $9.57 $10.18 $10.25
===== ===== ===== ===== ====== ======
Total Return (excluding sales
and redemption charges)..... 6.42% 4.65% 7.76% 0.43% 7.98% 11.00%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000)............. $136,126 $136,681 $141,781 $156,678 $141,706 $117,241
Ratio of Expenses to Average
Net Assets........................ 0.85% 0.84% 0.84% 0.76% 0.72% 0.83%
Ratio of Net Investment Loss to
to Average Net Assets.... 6.03% 6.32% 6.11% 6.32% 6.45% 7.13%
Ratio of Expenses to Average
Net Assets............... 1.10% 1.08% 1.11% 1.05% 1.01% 1.05%
Ratio of Net Investment Loss to
Average Net Assets*...... 5.78% 6.08% 5.84% 6.03% 6.16% 6.91%
Portfolio Turnover Rate (d) 607.84% 618.60% 397.97% 353.28% 123.10% 87.75%
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
INSTITUTIONAL SHARES OCT. 31,
------------------ 1988 TO
1991 1990 JUNE 30,
---- ---- --------
1989(a)
<S> <C> <C> <C>
NET ASSET VALUE, $9.88 $10.08 $10.00
----- ------ ------
BEGINNING OF PERIOD
Investment Activities
Net Investment Loss......... 0.72 0.83 0.53
Net Realized and Unrealized Gains
(Losses) on Investments........... 0.10 (0.15) 0.02
---- ------ ----
Total from Investment
Activities............. 0.82 0.68 0.02
---- ---- ----
Distributions
Net Investment Income....... (0.73) (0.83) (0.47)
In Excess of Net
Investment Income........ -- -- --
Net Realized Gains.......... (0.04) (0.05) --
In Excess of Net
Realized Gains........... -- -- --
Tax Return on Capital....... -- -- --
Total Distributions...... (0.77) (0.88) (0.47)
------ ------ ------
NET ASSET VALUE,
END OF PERIOD..................... $9.93 $9.88 $10.08
===== ===== ======
Total Return (excluding sales
and redemption charges)..... 8.66% 7.10% 5.70%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000)............. $70,870 $43,696 $71,627
Ratio of Expenses to Average
Net Assets........................ 0.91% 0.92% 0.88%(c)
Ratio of Net Investment Loss to
to Average Net Assets.... 7.47% 8.01% 8.19%(c)
Ratio of Expenses to Average
Net Assets............... 1.10% 1.14% 1.12%(c)
Ratio of Net Investment Loss to
Average Net Assets*...... 7.28% 7.79% 7.95%(c)
Portfolio Turnover Rate (d) 161.32% 319.11% 117.37%
</TABLE>
-24-
<PAGE> 253
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
---------------------------------------------------------------------------- to
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD............ $9.71 $9.93 $9.62 $10.53 $10.42 $10.05 $9.91 $10.05 $10.00
----- ----- ----- ------ ------ ------ ----- ------ -----
Investment Activities
Net Investment Loss......... 0.55 0.62 0.52 0.60 0.68 0.71 0.74 0.79 0.50
Net Realized and Unrealized Gains
(Losses) on Investments..... 0.03 (0.24) 0.31 (0.66) 0.22 0.46 0.15 (0.11) (0.02)
---- ------ ---- ------ ---- ---- ---- ------ ------
Total from Investment
Operations................ 0.58 0.38 0.83 (0.06) 0.90 1.17 0.89 (0.68) (0.48)
---- ---- ---- ------ ---- ---- ---- ------ ------
Distributions
Net Investment Income....... (0.56) (0.60) (0.52) (0.60) (0.73) (0.71) (0.75) (0.79) (0.43)
Net Realized Gains.......... -- -- -- -- (0.06) (0.09) -- (0.03) --
In Excess of Net
Realized Gains............. -- -- -- (0.25) -- -- -- --
Total Distributions....... (0.56) (0.60) (0.52) (0.85) (0.79) (0.80) (0.75) (0.82) (0.43)
----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD............... $ 9.73 $ 9.71 $ 9.93 $ 9.62 $ 10.53 $ 10.42 $ 10.05 $ 9.91 $ 10.05
======= ======= ======= ======= ======== ======== ======== ======= ========
Total Return (excluding
sales and redemption
charges).................... 6.11% 3.95% 9.02% (0.80)% 8.94% 12.03% 9.32% 7.07% 4.92%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) $187,856 $225,313 $249,169 $281,232 $272,607 $234,906 $142,864 $100,205 $83,212
Ratio of Expenses to
Average Net Assets...... 0.98% 0.96% 1.04% 0.90% 0.87% 0.87% 0.86% 0.85% 0.87%(c)
Ratio of Net Investment
Loss to Average Net Assets 5.66% 5.76% 5.43% 5.90% 6.54% 7.07% 7.48% 8.04% 7.79%(c)
Ratio of Expenses to
Average Net Assets...... 1.07% 1.05% 1.16% 1.04% 1.01% 1.01% 1.04% 1.06% 1.11%(c)
</TABLE>
-25-
<PAGE> 254
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
----------------------------------------------------------------------------- to
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Net Investment
Lose to Average Net Assets* 5.57% 5.67% 5.31% 5.76% 6.40% 6.93% 7.30% 7.83% 7.55%(c)
Portfolio Turnover
Rate (d)................ 1516.78% 916.39% 549.13% 546.06% 225.90% 114.76% 164.59% 294.62% 111.96%
</TABLE>
-26-
<PAGE> 255
GOVERNMENT INCOME FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
INSTITUTIONAL SHARES NOV. 12, 1992
------------------------------------------ TO
1997 1996 1995 1994 JUNE 30, 1993(a)(b)
---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 9.25 $ 9.42 $ 9.41 $10.04 $10.00
------ ------ ------ ------ ------
Investment Activities
Net Investment Income (Loss)..................... 0.72 0.75 0.76 0.74 0.48
Net Realized and Unrealized Gains (Losses) on (0.10) (0.17) 0.01 (0.63) 0.04
------- ------- ------- ------- ---------
Investments....................................
Total From Investment Activities............... 0.62 0.58 0.77 0.11 0.52
------- ------- ------- ------- ---------
Distributions
Net Investment Income............................ (0.61) (0.67) (0.68) (0.73) (0.48)
Tax Return of Capital............................ (0.11) (0.08) (0.08) (0.01) --
------- ------- ------- ------- ------------
Total Distributions............................ (0.72) (0.75) (0.76) (0.74) (0.48)
------- ------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD...................... $ 9.15 $ 9.25 $ 9.42 $ 9.41 $10.04
====== ====== ====== ====== ======
Total Return (excluding sales and redemption charges) 6.91% 6.34% 8.70% 1.04% 5.37%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000)................ $148,854 $130,615 $110,190 $101,506 $71,862
Ratio of Expenses to Average Net Assets............. 0.77% 0.76% 0.83% 0.72% 0.70%(c)
Ratio of Net Investment Income (loss) on Average Net 7.90% 7.94% 8.25% 7.51% 7.49%(c)
Assets...........................................
Ratio of Expenses to Average Net Assets............. 1.11% 1.10% 1.19% 1.11% 1.09%(c)
Ratio of Net Investment Income (Loss) on Average Net 7.56% 7.60% 7.89% 7.12% 7.09%(c)
Assets...........................................
Portfolio Turnover Rate (d)......................... 499.53% 348.01% 114.71% 102.24% 135.06%
</TABLE>
-27-
<PAGE> 256
MICHIGAN BOND FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------
INSTITUTIONAL SHARES JULY 2, 1990
------------------------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 JUNE 30, 1991(a)
---- ---- ---- ---- ------- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $10.77 $10.76 $10.53 $10.97 $10.58 $10.14 $10.00
------ ------ ------ ------ ------ ------ ------
Investment Activities
Net Investment Income (Loss)..... 0.51 0.50 0.50 0.48 0.50 0.52 0.55
Net Realized and Unrealized Gains 0.14 0.04 0.25 (0.36) 0.47 0.44 0.11
------ ------ ------ ------- ------ ------ ------
(Losses) on Investments........
Total From Investment Activities.. 0.65 0.54 0.75 0.12 0.97 0.96 0.66
------ ------ ------ ------ ------ ------ ------
Distributions
Net Investment Income............ (0.49) (0.50) (0.50) (0.46) (0.54) (0.52) (0.52)
In Excess of Net Investment Income.. -- -- (0.02) -- -- -- --
Net Realized Gains............... (0.04) (0.03) -- (0.01) (0.04) -- --
In Excess of Net Realized Gains.. -- -- -- (0.09) -- -- --
------ ------ ------ ------ ------ ------ ------
Total Distributions............ (0.53) (0.53) (0.52) (0.56) (0.58) (0.52) (0.52)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD...... $10.89 $10.77 $10.76 $10.53 $10.97 $10.58 $10.14
====== ====== ====== ====== ====== ====== ======
Total Return (excluding sales and 6.11% 5.12% 7.33% 1.02% 9.42% 9.73% 6.77%(e)
redemption charges).................
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000)... $194,950 $185,191 $176,068 $181,051 $165,414 $146,782 $90,182
Ratio of Expenses to Average Net 0.76% 0.77% 0.78% 0.75% 0.76% 0.84% 0.57%(c)
Assets...........................
Ratio of Net Investment Income (Loss) 4.73% 4.57% 4.79% 4.35% 4.70% 5.15% 5.67%(c)
to Average Net Assets............
Ratio of Expenses to Average Net 1.05% 1.06% 1.07% 1.04% 1.05% 1.05% 1.15%(c)
Assets...........................
Ratio of Net Investment Income (Loss) 4.44% 4.28% 4.50% 4.06% 4.41% 4.93% 5.18%(c)
to Average Net Assets............
Portfolio Turnover Rate (d)......... 28.48% 27.66% 26.06% 6.69% 35.81% 19.97% 45.30%
</TABLE>
-28-
<PAGE> 257
MUNICIPAL BOND FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1988
--------------------------------------------------------------------------- TO
1997 1996 1995 1994 1993(b) 1992 1991 1990 JUNE 30, 1989(a)
---- ---- ---- ---- ------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD............ $ 10.43 $ 10.39 $ 10.29 $ 10.92 $ 10.58 $10.20 $10.03 $ 10.18 $ 10.00
-------- -------- -------- -------- -------- ------ ------ -------- --------
Investment Activities
Net Investment Loss......... 0.46 0.43 0.46 0.41 0.49 0.52 0.55 0.57 0.40
Net Realized and
Unrealized Gains
(Losses) on Investments..... 0.14 0.04 0.27 (0.31) 0.48 0.39 0.18 (0.12) 0.14
------- ------- ------- ------- ------- ------- ------ ------- -------
Total from Investment
Activities................ 0.60 0.47 0.73 0.10 0.97 0.91 0.73 0.45 0.54
------- ------- ------- ------ ------- ------- ------ ------- -------
Distributions
Net Investment Income....... (0.44) (0.43) (0.46) (0.40) (0.53) (0.52) (0.56) (0.58) (0.36)
In Excess of Net
Investment Income........ -- -- (0.17) -- -- -- -- -- --
Net Realized Gains.......... (0.05) -- -- (0.21) (0.10) (0.01) -- (0.02) --
In Excess of Net
Realized Gains........... -- -- -- (0.12) -- -- -- -- --
Total Distributions....... (0.49) (0.43) (0.63) (0.73) (0.63) (0.53) (0.66) (0.60) (0.36)
----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD............... $ 10.54 $ 10.43 $ 10.39 $ 10.29 $ 10.92 $ 10.58 $ 10.20 $ 10.03 $ 10.18
======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return (excluding
sales and redemption
charges).................... 5.89% 4.55% 7.25% 0.81% 9.48% 9.11% 7.51% 4.57% 5.52%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000)................ $134,579 $132,527 $134,784 $147,687 $146,302 $130,788 $98,186 $100,455 $68,256
Ratio of Expenses to
Average Net Assets...... 0.81% 0.80% 0.80% 0.77% 0.73% 0.81% 0.87% 0.85% 0.85%(c)
Ratio of Net Investment
Loss to Average Net
Assets.................. 4.41% 4.10% 4.21% 3.83% 4.61% 5.09% 5.49% 5.78% 6.112%(c)
Ratio of Expenses to
Average Net Assets...... 1.10% 1.09% 1.08% 1.06% 1.02% 1.03% 1.06% 1.06% 1.09%(c)
Ratio of Net Investment
Investment Loss to
Average Net Assets*..... 4.12% 3.81% 3.93% 3.53% 4.31% 4.88% 5.29% 5.57% 5.87%(c)
Portfolio Turnover Rate (d) 48.83% 47.46% 35.15% 44.39.% 67.26% 66.31% 76.55% 113.12% 82.22%
</TABLE>
-29-
<PAGE> 258
PRIME OBLIGATIONS FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993(b)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD ................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------ ------------ ------------
Investment Activities
Net Investment Income .. 0.049 0.051 0.048 0.028 0.029
------------ ------------ ------------ ------------ ------------
Distributions
Net Investment Income .. (0.049) (0.051) (0.048) (0.028) (0.029)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF
PERIOD ................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============ ============ ============ ============
Total Return ................ 5.01% 5.17% 4.91% 2.85% 2.91%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of
Period (000) ....... $677,324 596,075 $ 640,380 $ 561,697 $ 478,821
Ratio of Expenses to
Average Net Assets . 0.63% 0.64% 0.65% 0.64% 0.64%
Ratio of Net Investment
Income (Loss) to
Average Net Assets ...... 4.90% 5.05% 4.83% 2.84% 2.88%
Ratio of Expenses to
Average Net Assets ...... 0.65% 0.66% 0.67% 0.66% 0.66%
Ratio of Net Investment
Income (Loss) to
Average Net Assets ...... 4.88% 5.03% 4.81% 2.82% 2.86%
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
INSTITUTIONAL SHARES AUG. 24, 1987
--------------------------------------------------------------- to
1992 1991 1990 1989 JUNE 30, 1988(a)
---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD ................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
------------ ------------ ------- ------- ------
Investment Activities
Net Investment Income .. 0.046 0.069 0.080 0.083 0.056
------------ --------------- --------- ------------ -----------
Distributions
Net Investment Income .. (0.046) (0.069) (0.080) (0.083) (0.056)
------------ ---------------- -------- ------------ -----------
NET ASSET VALUE, END OF
PERIOD ................. $ 1.000 $ 1.000 $1.000 $1.000 $1.000
============ ================ ======== ============ ===========
Total Return ................ 4.75% 7.15% 8.32% 8.58% 5.76%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of
Period (000) ....... $690,908 $702,340 $ 547,351 $ 526,450 $241,545
Ratio of Expenses to
Average Net Assets . 0.64% 0.64% 0.65% 0.62% 0.60%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets ...... 4.61% 6.86% 8.03% 8.26% 6.48%(c)
Ratio of Expenses to
Average Net Assets ...... 0.66% 0.66% 0.67% 0.66% 0.70%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets ...... 4.59% 6.84% 8.01% 8.22% 6.38%(c)
</TABLE>
-30-
<PAGE> 259
TAX-FREE FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------
INSTITUTIONAL SHARES
---------------------------------------------------------------------------
1997 1996 1995 1994 1993(b) 1992 1991
---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------
Investment Activities
Net Investment Income..... 0.029 0.030 0.030 0.019 0.019 0.033 0.046
----- ----- ----- ----- ----- ----- -----
Distributions
Net Investment Income..... (0.029) (0.030) (0.030) (0.0019) (0.019) (0.033) (0.046)
------ ------ ------ ------- ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ======
Total Return 2.94% 3.02% 3.00% 1.92% 2.10% 3.34% 4.73%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of
Period (000) $108,884 $106,154 $98,489 $84,465 $86,292 $141,913 $139,615
Ratio of Expenses to
Average Net Assets 0.68% 0.66% 0.64% 0.58% 0.55% 0.59% 0.60%
Ratio of Net Investment
Income (Loss) to
Average Net Assets 2.90% 2.97% 2.97% 1.90% 2.08% 3.29% 4.63%
Ratio of Expenses to
Average Net Assets* 0.70% 0.68% 0.70% 0.68% 0.65% 0.69% 0.70%
Ratio of Net Investment
Income (Loss) to
Average Net Assets* 2.88% 2.95% 2.91% 1.80% 1.98% 3.19% 4.53%
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
INSTITUTIONAL
SHARES JULY 30,
---------------- TO
1990 1989 JUNE 30, 1988(a)
---- ---- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.................... $1.000 $1.000 $1.000
------ ------ ------
Investment Activities
Net Investment Income..... 0.054 0.055 0.040
----- ----- -----
Distributions
Net Investment Income..... (0.054) (0.055) (0.040)
-------- ------- -------
NET ASSET VALUE, END OF
PERIOD $1.000 $1.000 $1.000
====== ====== ======
Total Return 5.75% 5.62% 4.08%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of
Period (000) $142,004 $120,031 $107,199
Ratio of Expenses to
Average Net Assets 0.61% 0.63% 0.64%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets 5.43% 5.46% 4.34%(c)
Ratio of Expenses to
Average Net Assets* 0.70% 0.73% 0.75%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets* 5.34% 5.36% 4.23%(c)
</TABLE>
-31-
<PAGE> 260
TREASURY FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, DECEMBER 1, 1993
----------------------------------------------------------- to
1997 1996 1995 JUNE 30, 1994(a)
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------
Investment Activities
Net Investment Income 0.048 0.050 0.048 0.017
----- ----- ----- -----
Distributions
Net Investment Income (0.048) (0.050) (0.048) (0.017)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $1.000 $1.000 $1.000 $1.000
====== ====== ====== ======
Total Return 4.93% 5.14% 4.91% 1.72%(e)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at End of Period (000) $324,377 $223,416 $192,232 $76,035
Ratio of Expenses to Average Net
Assets 0.57% 0.60% 0.64% 0.54%(c)
Ratio of Net Investment Income
(Loss) to Average Net Assets 4.83% 4.98% 4.95% 3.15%(c)
Ratio of Expenses to Average Net
Assets* 0.67% 0.70% 0.78% 0.74%(c)
Ratio of Net Investment Income
(Loss) to Average Net Assets* 4.73% 4.88% 4.81% 2.95%(c)
</TABLE>
-32-
<PAGE> 261
U.S. GOVERNMENT OBLIGATIONS FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------
INSTITUTIONAL SHARES
--------------------------------------------------------------------------
1997 1996 1995 1994 1993(b) 1992 1991
---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------- ----- ------ ------
Investment Activities
Net Investment Income..... 0.048 0.050 0.048 0.028 0.028 0.044 0.066
----- ----- ----- ----- ----- ----- -----
Distributions
Net Investment Income..... (0.048) (0.050) (0.048) (0.028) (0.028) (0.044) (0.066)
----- ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ======
Total Return 4.89% 5.10% 4.87% 2.79% 2.86% 4.78% 6.82%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of
Period (000) $210,162 $207,451 $227,565 $192,612 $223,855 $400,242 $341,903
Ratio of Expenses to
Average Net Assets 0.64% 0.64% 0.67% 0.67% 0.64% 0.64% 0.65%
Ratio of Net Investment
Income (Loss) to
Average Net Assets 4.79% 4.99% 4.76% 2.74% 2.81% 4.43% 6.54%
Ratio of Expenses to
Average Net Assets* 0.66% 0.66% 0.69% 0.69% 0.66% 0.66% 0.67%
Ratio of Net Investment
Income (Loss) to
Average Net Assets* 4.77% 4.97% 4.74% 2.72% 2.79% 4.41% 6.52%
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
INSTITUTIONAL SHARES AUG. 24, 1987
-------------------- TO
1990 1989 JUNE 30, 1988(a)
---- ---- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.................... $1.000 $1.000 $1.000
------ ------ ------
Investment Activities
Net Investment Income..... 0.078 (0.080) (0.055)
----- ------- -------
Distributions
Net Investment Income..... (0.078) (0.080) (0.055)
------ ------- -------
NET ASSET VALUE, END OF
PERIOD $1.000 $1.000 $1.000
====== ====== ======
Total Return 8.10% 8.31% 5.66%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of
Period (000) $248,671 $201,012 $136,823
Ratio of Expenses to
Average Net Assets 0.65% 0.63% 0.62%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets 7.79% 8.00% 6.25%(c)
Ratio of Expenses to
Average Net Assets* 0.67% 0.68% 0.73%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets* 7.77% 7.95% 6.14% (c)
</TABLE>
-33-
<PAGE> 262
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993 the shareholders of the Group exchanged their
shares for either the Group's Investor A Shares or Institutional Shares. For the
year ended June 30, 1993 the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities and
distributions are presented on the basis whereby the Fund's net investment
income, expenses, and distributions for the period July 1, 1992 through March
31, 1993 were allocated to each class of shares based upon the relative net
assets of each class of shares as of April 1, 1993 and the results combined
therewith the results of operations and distributions for each applicable class
for the period April 1, 1993 through June 30, 1993.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(e) Not annualized.
(f) As of January 1, 1995, Gulfstream assumed the role of subadviser
with respect to the International Fund and the portion of the Balanced
Allocation Fund invested in foreign securities. Prior to that date, Ivory & Sime
International, Inc. an Ivory & Sime served as subadvisers to the International
Fund and the Balanced Allocation Fund had no subadviser.
(g) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the Fund
for which commissions were charged.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The investment objectives of each of the Funds are set forth below under the
headings describing the Funds. The investment objective of each Fund may 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) although the
Board of Trustees would only change a Fund's objective upon 30 days' notice to
shareholders. There can be no assurance that a Fund will achieve its objective.
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 National City 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 Fun is so invested, its investment objective may not be
achieved during that time. Uninvested cash reserves will not earn income.
-34-
<PAGE> 263
GROWTH FUNDS
THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE
CAPITALIZATION FUND
THE INVESTMENT OBJECTIVE OF THE SMALL CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS OF SMALL- TO MEDIUM-SIZED COMPANIES.
THE INVESTMENT OBJECTIVE OF THE MID CAPITALIZATION FUND IS TO SEEK GROWTH OF
CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND
SECURITIES CONVERTIBLE INTO COMMON STOCKS. THE INVESTMENT OBJECTIVE OF THE LARGE
CAPITALIZATION FUND IS TO SEEK GROWTH OF CAPITAL BY INVESTING PRIMARILY IN A
DIVERSIFIED PORTFOLIO OF COMMON STOCKS AND SECURITIES CONVERTIBLE INTO COMMON
STOCKS OF COMPANIES WITH LARGE MARKET CAPITALIZATION.
Under normal market conditions, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund will invest at least 80% of
the value of its total assets in common stocks and securities convertible into
common stocks of companies believed by the Investment Adviser to be
characterized by sound management and the ability to finance expected long-term
growth. In addition, under normal market conditions, the Small Capitalization
Fund will invest at least 65% of the value of its total assets in common stocks
and securities convertible into common stocks of companies considered by the
Investment Adviser to have a market capitalization of less than $1 billion. The
Mid Capitalization Fund, under normal market conditions, will invest at least
65% of the value of its total assets in common stocks and securities convertible
into common stocks of companies considered by the Investment Adviser to have a
market capitalization between $1 billion and $5 billion. The Large
Capitalization Fund will do the same with companies considered by the Investment
Adviser to have a market capitalization of greater than $5 billion. Each of the
Small Capitalization Fund, Mid Capitalization Fund and Large Capitalization Fund
may also invest up to 20% of the value of its total assets in preferred stocks,
corporate bonds, notes, units of real estate investment trusts, warrants, and
short-term obligations (with maturities of 12 months or less) consisting of
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit, repurchase agreements, obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities, and
demand and time deposits of domestic and foreign banks and savings and loan
associations. Each of the Small Capitalization Fund, Mid Capitalization Fund and
Large Capitalization Fund may also hold securities of other investment companies
and depository or custodian receipts representing beneficial interests in any of
the foregoing securities.
Subject to the foregoing policies, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund may also invest up to 25% of
its net assets in foreign securities either directly or through the purchase of
American depository receipts ("ADRs") or European depository receipts ("EDRs")
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in Canadian commercial paper ("CCP"), and in Europaper (U.S.
dollar-denominated commercial paper of a foreign issuer). For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Foreign Securities.
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<PAGE> 264
The Mid Capitalization Fund anticipates investing in growth-oriented,
medium-sized companies. Medium-sized companies are considered to be those with a
market capitalization between $1 billion and $5 billion. The Large
Capitalization Fund anticipates investing in growth-oriented companies with
large market capitalization, defined as capitalization of over $5 billion. For
both the Mid Capitalization Fund and Large Capitalization Fund, investments will
be in companies that have typically exhibited-consistent, above-average growth
in revenues and earnings, strong Management, and sound and improving financial
fundamentals. Often, these companies are market or industry leaders, have
excellent products and/or services, and exhibit the potential for growth. Core
holdings of the Mid Capitalization Fund and Large Capitalization Fund are in
companies that participate in long-term growth industries, although these will
be supplemented by holdings in non-growth industries that exhibit the desired
characteristics.
The Small Capitalization Fund anticipates investing in dynamic small- to
medium-sized companies that exhibit outstanding potential for superior growth.
Small-sized companies are considered to be those with a market capitalization of
less than $1 billion. The Small Capitalization Fund will limit its investment in
securities of medium-sized companies to not more than 35% of the value of its
total assets. Companies that participate in sectors that are identified as
having long-term growth potential generally make up a substantial portion of
such Fund's holdings. These companies often have established a market niche or
have developed unique products or technologies that are expected to produce
superior growth in revenues and earnings. As smaller capitalization stocks are
quite volatile and subject to wide fluctuations in both the short and medium
term, the Small Capitalization Fund may be fairly characterized more aggressive
than a general equity fund.
Consistent with the foregoing, each of the Small Capitalization Fund, Mid
Capitalization Fund and Large Capitalization Fund will focus its investments in
those companies and types of companies that the Investment Adviser believes will
enable such Fund to achieve its investment objective.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE
CAPITALIZATION FUND
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements
and Dollar Roll Agreements
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 265
THE INTERNATIONAL FUND
THE INVESTMENT OBJECTIVE OF THE INTERNATIONAL FUND IS TO SEEK LONG-TERM GROWTH
OF CAPITAL.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States, or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States, and (iii) which are small-
or medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRs.
For purposes of investment by the International Fund only, companies are deemed
to be small- or medium-sized if, at the time of purchase, they are of a size
which would rank them in the lower half of a major market index in the
applicable country by weighted market capitalization and in the lower half of
all equity securities listed in recognized secondary markets where such markets
exist. In addition, in countries with less well-developed stock markets, where
the range of investment opportunities is more restrictive, the equity securities
of all listed companies will be eligible for investment. In major markets,
issuers could have capitalizations of up to approximately $10 billion while in
smaller markets issuers would be eligible with capitalizations as low as
approximately $200 million.
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Normally the
International Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
International Fund's assets could be invested in the securities of U.S.
companies. In addition, the International Fund temporarily may invest cash in
short-term debt instruments of U.S. and foreign issuers for cash management
purposes or pending investment.
-37-
<PAGE> 266
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
THE INTERNATIONAL FUND
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
-When-Issued and -Reverse Repurchase
Delayed-Delivery Agreements and Dollar
Transactions Roll Agreements
- -------------------------------------------------------------------------------
</TABLE>
GROWTH AND INCOME FUNDS
THE BALANCED ALLOCATION FUND
THE INVESTMENT OBJECTIVE OF THE BALANCED ALLOCATION FUND IS TO SEEK CURRENT
INCOME, LONG-TERM CAPITAL GROWTH AND CONSERVATION OF CAPITAL.
The Balanced Allocation Fund may invest in any type or class of security. Under
normal market conditions the Balanced Allocation Fund will invest in common
stocks, fixed-income securities and securities convertible into common stocks
(i.e., warrants, convertible preferred stock, fixed-rate preferred stock,
convertible fixed-income securities, options and rights). The Balanced
Allocation Fund intends to invest 45% to 65% of its net assets in common stocks
and securities convertible into common stocks, 25% to 55% of its net assets in
fixed-income securities and up to 30% of its net assets in cash and cash
equivalents. Of these investments, no more than 20% of the Fund's net assets
will be in foreign securities.
For the Balanced Allocation Fund, common stocks are held primarily for the
purpose of providing long-term growth of capital. When choosing such stocks, the
potential for long-term capital appreciation will be the primary basis for
selection. The Balanced Allocation Fund will invest in the common and preferred
stocks of companies with a market capitalization of at least $100 million and
which are traded either in established over-the-counter markets or on national
exchanges. The Balanced Allocation Fund intends to invest primarily in those
companies which are growth-oriented and have exhibited consistent, above-average
growth in revenues and earnings.
For the Balanced Allocation Fund, fixed-income securities held consist of bonds,
debentures, notes, zero-coupon securities, mortgage-related securities, state,
municipal or industrial revenue bonds, obligations issued or guaranteed by the U
S. Government or its agencies or instrumentalities, certificates of deposit,
time deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand notes. In addition, a portion of the Balanced Allocation
Fund's assets may, from time to time, be invested in first mortgage loans and
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<PAGE> 267
participation certificates in pools of mortgages issued or guaranteed by the
U.S. government or its agencies or instrumentalities. Some of the securities in
which the Balanced Allocation Fund invests may have warrants or options
attached. The Balanced Allocation Fund may also invest in repurchase agreements.
The Balanced Allocation Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, as well as "stripped" U.S. Treasury obligations ("Stripped Treasury
Obligations"), such as Treasury receipts issued by the U.S. Treasury
representing either future interest or principal payments, and other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES -- Government
Obligations" below.
The Balanced Allocation Fund also expects to invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Such obligations, in the
case of debentures, will represent unsecured promises to pay, and in the case of
notes and bonds, may be secured by mortgages on real property or security
interests in personal property and will in most cases differ in their interest
rates, maturities and times of issuance.
The Balanced Allocation Fund will invest only in corporate fixed-income
securities which are rated at the time of purchase within the four highest ratio
in categories assigned by a nationally-recognized statistical rating
organization ("NRSRO") or, if unrated, which the Investment Adviser deems
present attractive opportunities and are of comparable quality. For a
description of the rating symbols of the NRSROs, see the Appendix to the
Statement of Additional Information. For a discussion of fixed-income securities
rated within the four highest rating categories assigned by an NRSRO, see "RISK
FACTORS AND INVESTMENT TECHNIQUES Medium-Grade Securities."
The Balanced Allocation Fund may hold some short-term obligations (with
maturities of 12 months or less consisting of domestic and foreign commercial
paper, variable amount master demand notes, bankers' acceptances, certificates
of deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, and repurchase agreements. The Balanced Allocation Fund may also
invest in securities of other investment companies.
The Balanced Allocation Fund may also invest in obligations of the Export-Import
Bank of the United States, in U.S. dollar-denominated international bonds for
which the primary trading market is the United States ("Yankee Bonds"), or for
which the primary trading market is abroad ("Eurodollar Bonds"), and in Canadian
bonds and bonds issued by institutions, such as the World Bank and the European
Economic Community, organized for a specific purpose by two or more sovereign
Governments ("Supranational Agency Bonds"). The Balanced Allocation Fund's
investments in foreign securities may be made either directly or through the
purchase of ADRs and the Balanced Allocation Fund may also invest in securities
issued by foreign branches of U.S. banks and foreign banks, in CCP, and in
Europaper.
The amount invested in stock, bonds and cash reserves may be varied from time to
time, depending upon the Investment Adviser's assessment of business, economic
and market conditions, including any potential advantage of price shifts between
the stock market and the
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<PAGE> 268
bond market. The Balanced Allocation Fund reserves the right to hold short-term
securities in whatever proportion deemed desirable for temporary defensive
periods during adverse market conditions as determined by the Investment
Adviser. However, to the extent that the Balanced Allocation Fund is so
invested, its investment objective may not be achieved during that time.
Like any investment program, investment in the Balanced Allocation Fund entails
certain risks. As a Fund investing in common stocks the Balanced Allocation Fund
is subject to stock market risk, i.e., the possibility that stock prices in
general will decline over short or even extended periods.
Since the Balanced Allocation Fund also invests in bonds, investors in the
Balanced Allocation Fund are also exposed to bond market risk, i.e.,
fluctuations in the market value of bonds. Bond prices are influenced primarily
by changes in interest rate levels. When interest rates rise, the prices of
bonds generally fall; conversely, when interest rates fall, bond prices
generally rise. While bonds normally fluctuate less in price than stock, there
have been extended periods of critical increases in interest rates that have
caused significant declines in bond prices.
From time to time, the stock and bond markets may fluctuate independently of one
another. In other words, a decline in the stock market may in certain instances
be offset by a rise in the bond market, or vice versa. As a result, the Balanced
Allocation Fund, with its balance of common stock and bond investments, is
expected to entail less investment risk (and a potentially smaller investment
return) than a mutual fund investing exclusively in common stocks.
- -------------------------------------------------------------------------------
THE BALANCED ALLOCATION FUND
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Medium-Grade Securities -Mortgage-Related Securities -Other Mutual Funds
- -Portfolio Turnover -Put and Call Options -Repurchase Agreements
- -Restricted Securities -Reverse Repurchase -When-Issued and
Delayed-Delivery,
Agreements and Dollar Deliver Transactions
Roll Agreements
</TABLE>
- -------------------------------------------------------------------------------
-40-
<PAGE> 269
THE EQUITY INCOME FUND
THE INVESTMENT OBJECTIVE OF THE EQUITY INCOME FUND IS TO SEEK CURRENT INCOME BY
INVESTING IN A DIVERSIFIED PORTFOLIO OF HIGH QUALITY, DIVIDEND-PAYING COMMON
STOCKS AND SECURITIES CONVERTIBLE INTO COMMON STOCKS. A SECONDARY INVESTMENT
OBJECTIVE OF THE EQUITY INCOME FUND IS GROWTH OF CAPITAL.
The Equity Income Fund, under normal market conditions, will invest at least 80%
of the value of its total assets in common stocks and securities convertible
into common stocks of companies believed by the Investment Adviser to be
characterized by sound management, the ability to finance expected growth and
the ability to pay above-average dividends. The Equity Income Fund may also
invest up to 20% of the value of its total assets in preferred stocks, corporate
bonds, notes, units of real estate investment trusts, warrants, and short-term
obligations (with maturities of 12 months or less) consisting of commercial
paper (including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities, and demand and time
deposits of domestic and foreign banks and savings and loan associations. The
Equity Income Fund may also hold securities of other investment companies and
depository or custodial receipts representing beneficial interests in any of the
foregoing securities.
Subject to the foregoing policies, the Equity Income Fund may also invest up to
25% of its net assets in foreign securities either directly or through the
purchase of ADRs and may also invest in securities issued by foreign branches of
U.S. banks and foreign banks, in CCP, and in Europaper. For a discussion of
risks associated with foreign securities, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Foreign Securities."
The Equity Income Fund anticipates investing in securities that currently have a
high dividend yield, with the anticipation that the dividend will remain
constant or be increased in the future. These securities generally represent the
core holdings of this Fund. However, these holdings are balanced with lower
yielding but higher growth-oriented securities to achieve portfolio balance. All
securities must provide current income. Given its bias towards income, the
Equity Income Fund may be considered more conservative than growth-oriented
equity funds such as the Group's Small Capitalization Fund and Mid
Capitalization Fund.
Consistent with the foregoing, the Equity Income Fund will focus its investments
in those companies and those of companies that the Investment Adviser believes
will enable the Fund to achieve its investment objective.
-41-
<PAGE> 270
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
THE EQUITY INCOME FUND
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Foreign Currency
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-issued and Delayed
and Dollar Roll Agreements Delivery Transactions
- ---------------------------------------------------------------------------------------------------------
</TABLE>
INCOME FUNDS
THE BOND FUND AND THE LIMITED MATURITY BOND FUND
THE INVESTMENT OBJECTIVE OF THE BOND FUND IS TO SEEK CURRENT INCOME AS WELL AS
PRESERVATION OF CAPITAL BY INVESTING IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE
FIXED-INCOME SECURITIES. THE INVESTMENT OBJECTIVE OF THE LIMITED MATURITY BOND
FUND IS TO SEEK CURRENT INCOME AS WELL AS PRESERVATION OF CAPITAL BY INVESTING
IN A PORTFOLIO OF HIGH- AND MEDIUM-GRADE FIXED-INCOME SECURITIES WITH REMAINING
MATURITIES OF SIX YEARS OR LESS.
Under normal market conditions, the Bond Fund will invest at least 80% of the
value of its total assets in bonds, debentures, notes with remaining maturities
at the time of purchase of one year or more, zero-coupon securities,
mortgage-related securities, state, municipal or industrial revenue bonds,
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, debt securities convertible into, or exchangeable for, common
stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Bond Fund will invest in state and municipal securities
when, in the opinion of the Investment Adviser, their yields are competitive
with comparable taxable debt obligations. In addition, up to 20% of the value of
the Bond Fund's total assets may be invested in preferred stocks, notes with
remaining maturities at the time of purchase of less than one year, short-term
debt obligations consisting of domestic and foreign commercial paper (including
variable amount master demand notes), bankers' acceptances, certificates of
deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, repurchase agreements, securities of other investment companies,
and guaranteed investment contracts ("GICs") issued by insurance companies, as
more fully described below. Some of the securities in which the Bond Fund
invests may have warrants or options attached.
Under normal market conditions, the Limited Maturity Bond Fund will invest at
least 80% of the value of its total assets in the following securities which
have remaining maturities of six years or less: bonds, debentures, notes with
remaining maturities at the time of purchase of one year or more, zero coupon
securities, mortgage-related securities, state, municipal or industrial revenue
-42-
<PAGE> 271
bonds, obligations issued or guaranteed by the U.S. government or its agencies
or instrumentalities, debt securities convertible into, or exchangeable for,
common stocks, first mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The Limited Maturity Bond Fund will invest in state and
municipal securities when, in the opinion of the Investment Adviser, their
yields are competitive with comparable taxable debt obligations. In addition, up
to 20% of the value of the Limited Maturity Bond Fund's total assets may be
invested in the debt securities listed above without regard to maturity, as well
as preferred stocks, short-term debt obligations consisting of domestic and
foreign commercial paper (including variable amount master demand notes),
bankers' acceptances, certificates of deposit and time deposits of domestic and
foreign branches of U.S. banks and foreign banks, repurchase agreements,
securities of other investment companies and GICs. Under normal market
conditions, the Limited Maturity Bond Fund expects to maintain a dollar-weighted
average portfolio maturity of its debt securities of three years or less. By
seeking to maintain a dollar-weighted average portfolio maturity of three years
or less the Limited Maturity Bond Fund attempts to minimize the fluctuation in
its shares' net asset value relative to funds which invest in longer-term
obligations. Some of the securities in which the Limited Maturity Bond Fund
invests may have warrants or options attached.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Limited Maturity Bond Fund, the effective
maturity of such securities, as determined by the Investment Adviser, will be
used.
Each of the Bond Fund and Limited Maturity Bond Fund expects to invest in a
variety of U.S. Treasury obligations, differing in their interest rates,
maturities, and times of issuance, as well as Stripped Treasury Obligations, and
other obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES -- Government
Obligations."
The Bond Fund and the Limited Maturity Bond Fund 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 Bond Fund and the Limited Maturity Bond Fund each will invest only corporate
debt securities which are rated at the time of purchase within the four highest
rating categories assigned by an NRSRO or, if unrated, which the Investment
Adviser deems present attractive opportunities and are of comparable quality.
For a discussion of debt securities rated within the four highest rating
categories assigned by the NRSROs, see "RISK FACTORS AND INVESTMENT TECHNIQUES
- -- Medium-Grade Securities."
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian
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<PAGE> 272
Bonds and in Supranational Agency Bonds. Each of the Bond Fund and Limited
Maturity Bond Fund may also invest up to 25% of its net assets in foreign
securities either directly or through the purchase of ADRs and may also invest
in securities issued by foreign branches of U.S. banks and foreign banks, in
CCP, and in Europaper.
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, the Investment Adviser may purchase debt
securities at a discount from face value, which produces a yield greater than
the coupon rate. Conversely, if debt securities are purchased at a premium over
face value, the yield will be lower than the coupon rate. In making investment
decisions for the Bond Fund, the Investment Adviser will consider many factors
other than current yield, including the preservation of capital , the potential
for realizing capital appreciation, maturity, and yield to maturity. In making
investment decisions for the Limited Maturity Bond Fund, the Investment Adviser
will consider many factors other than current yield, including the preservation
of capital, maturity, and yield to maturity.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
THE BOND FUND AND THE LIMITED MATURITY BOND FUND
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex securities -Foreign Currency -Foreign Securities
Transactions
- -Futures Contracts -Government obligations -Lending Portfolio
Securities
- -Medium-Grade Securities -Mortgage-Related Securities -Municipal Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase
- -When-Issued and Agreements and
Delayed-Delivery Dollar Roll
Transactions Agreements
- --------------------------------------------------------------------------------------------------------------
</TABLE>
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
THE INVESTMENT OBJECTIVE OF THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND IS TO
SEEK CURRENT INCOME WITH PRESERVATION OF CAPITAL BY INVESTING IN U.S. GOVERNMENT
SECURITIES WITH REMAINING MATURITIES OF TWELVE YEARS OR LESS.
Under normal market conditions, the Intermediate Government Obligations Fund
will invest at least 80% of its total assets in obligations issued or guaranteed
by the U.S. government or its agencies or instrumentalities and with remaining
maturities twelve years or less, although up to 20% of the value of its total
assets may be invested in debt securities, preferred stocks and other
investments without regard to maturity, except as set forth below. Under normal
market conditions, the Intermediate Government Obligations Fund expects to
maintain a dollar-weighted average portfolio maturity of its debt securities of
three to ten years. By seeking to maintain a dollar-weighted average portfolio
maturity of three to ten years, the Intermediate Government
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Obligations Fund attempts to minimize the fluctuation in its shares, net asset
value relative to funds which invest in longer-term obligations.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculation
the weighted average maturity of the Intermediate Government obligations Fund,
the effective maturity of such securities, as determined by the Investment
Adviser, will be used.
The types of U.S. Government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and government securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Government Obligations."
The Intermediate Government Obligations Fund may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, as more fully described below under "RISK FACTORS AND
INVESTMENT TECHNIQUES --- Government Obligations."
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<PAGE> 274
- -------------------------------------------------------------------------------
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND SEE THE FOLLOWING SECTIONS IN RISK
FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<S> <C> <C>
- -Complex Securities -Foreign Currency -Futures Contracts
Transactions
- -Government obligations -Lending Portfolio Securities -Mortgage-Related
Securities
- -Municipal Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-Issued and Delayed-
and Dollar Roll Agreements Delivery Transactions
</TABLE>
- --------------------------------------------------------------------------------
THE GOVERNMENT INCOME FUND
THE INVESTMENT OBJECTIVE OF THE GOVERNMENT INCOME FUND IS TO PROVIDE
SHAREHOLDERS WITH A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH PRUDENT
INVESTMENT RISK.
Under normal market conditions, the Government Income Fund will invest at least
65% of its total assets in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, although up to 35% of the value
of its total assets may be invested in debt securities and preferred stocks of
non-governmental issuers. Consistent with the foregoing, under current market
conditions, the Government Income Fund intends to invest up to 80% of the value
of its total assets in mortgage-related securities issued or guaranteed by the
U. S. government or its agencies or instrumentalities. The Government Income
Fund also may invest up to 35% of its total assets in mortgage-related
securities issued by non-governmental entities and in other securities described
below, For more information, see "RISK FACTORS AND INVESTMENT TECHNIQUES --
Mortgage-Related Securities."
The types of U.S. government obligations, including mortgage-related securities,
invested in by the Government Income Fund will include obligations issued or
guaranteed as to payment of principal and interest by the full faith and credit
of the U.S. Treasury, such as Treasury bills, notes and bonds, Stripped Treasury
Obligations and government securities, as described below in "RISK FACTORS AND
INVESTMENT TECHNIQUES -- Government Obligations".
The Government Income Fund may also hold short-term obligations (with maturities
of 12 months or less) consisting of domestic and foreign commercial paper
(including variable amount master demand notes), rated at the time of purchase
within the top two rating categories assigned by an NRSRO or, if unrated, which
the Investment Adviser deems present attractive opportunities and are of
comparable quality, bankers' acceptances, certificates of deposit and time
deposits of domestic and foreign branches of U.S. banks and foreign banks, and
repurchase and reverse repurchase agreements. The Government Income Fund may
also invest in corporate debt securities which are rated at the time of purchase
within the top three rating categories assigned by an NRSRO or, if unrated,
which the Investment Adviser deems present attractive opportunities and are of
comparable quality.
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<PAGE> 275
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
THE GOVERNMENT INCOME FUND
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Currency -Foreign Securities
Transactions
- -Futures Contracts -Government Obligations -Lending Portfolio
Securities
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase -When-Issued and Delayed-
Agreements and Dollar Roll Delivery Transactions
Agreements
- -----------------------------------------------------------------------------------------------------
</TABLE>
TAX-FREE INCOME FUNDS
THE MUNICIPAL BOND FUND AND THE MICHIGAN BOND FUND
THE INVESTMENT OBJECTIVE OF THE MUNICIPAL BOND FUND IS TO SEEK CURRENT INTEREST
INCOME WHICH IS EXEMPT FROM FEDERAL INCOME TAXES AND PRESERVATION OF CAPITAL.
THE INVESTMENT OBJECTIVE OF THE MICHIGAN BOND FUND IS TO SEEK INCOME WHICH IS
EXEMPT FROM FEDERAL INCOME TAX AND MICHIGAN STATE INCOME AND INTANGIBLES TAXES,
ALTHOUGH SUCH INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX WHEN
RECEIVED BY CERTAIN SHAREHOLDERS, AND PRESERVATION OF CAPITAL.
Under normal market conditions and as a fundamental policy, at least 80% of the
net assets of the Municipal Bond Fund will be invested in a diversified
portfolio of Municipal Securities and at least 80% of the net assets of the
Michigan Bond Fund will be invested in a portfolio of Michigan Municipal
Securities.
"Municipal Securities" include obligations consisting of bonds, notes and
commercial paper, issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and other political subdivisions,
agencies, instrumentalities and authorities, the interest on which is both
exempt from federal income taxes and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax. "Michigan
Municipal Securities" include debt obligations, consisting of notes, bonds and
commercial paper, issued by or on behalf of the State of Michigan, its political
subdivisions, municipalities and public authorities, the interest on which is,
in the opinion of bond counsel to the issuer, exempt from federal income tax and
Michigan state income and intangibles taxes (but may be treated as a preference
item or individuals for purposes of the federal alternative minimum tax) and
debt obligations issued by the government of Puerto Rico, the U. S. territories
and possessions of Guam, the U. S. Virgin Islands or such other governmental
entities whose debt obligations, either by law or treaty, generate interest
income which is exempt from federal and Michigan state income and intangibles
taxes. For more information regarding Municipal Securities and
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<PAGE> 276
Michigan Municipal Securities, see "RISK FACTORS AND INVESTMENT TECHNIQUES --
Municipal Securities."
Under normal market conditions, at least 65% of the net assets of each of the
Municipal Bond Fund and the Michigan Bond Fund will be invested in Municipal
Securities (Michigan Municipal Securities in the case of the Michigan Bond Fund)
consisting of bonds and notes with remaining maturities at the time of purchase
of one year or more. Quality is the primary consideration in selecting Michigan
Municipal Securities for investment by the Michigan Bond Fund.
The Municipal Bond Fund also intends that under normal market conditions its
portfolio will maintain an average weighted rating of AA/Aa. Each of the
Municipal Bond Fund and the Michigan Bond Fund intends that, under normal market
conditions, it will be invested in long-term Municipal Securities (Michigan
Municipal Securities in the case of the Michigan Bond Fund) and that the average
weighted maturity of such investments will be 5 to 12 years, although the
Michigan Bond Fund may invest in Michigan Municipal Securities of any maturity
and the Investment Adviser may extend or shorten the average weighted maturity
of its portfolio depending upon anticipated changes in interest rates or other
relevant market factors. In addition, the average weighted rating of a Tax-Free
Income Fund's portfolio may vary depending upon the availability of suitable
Municipal Securities or other relevant market factors.
The Michigan Bond Fund invests in Michigan Municipal Securities which are rated
at the time of purchase within the four highest rating categories assigned by an
NRSRO or, in the case of notes, tax-exempt commercial paper or variable rate
demand obligations, rated within the two highest rating categories assigned by
an NRSRO. The Michigan Bond Fund may also purchase Michigan Municipal Securities
which are unrated at the time of purchase but are determined to be of comparable
quality by the Investment Adviser pursuant to guidelines approved by the Group's
Board of Trustees. The applicable Michigan Municipal Securities ratings are
described in the Appendix to the Statement of Additional Information. For a
description of debt securities rated within the four highest rating categories
assigned by the NRSROs, see "RISK FACTORS AND INVESTMENT TECHNIQUES --
Medium-Grade Securities."
Interest income from certain types of municipal securities may be subject to
federal alternative minimum tax. The Tax-Free Income Funds will not treat these
bonds as "Municipal Securities" or "Michigan Municipal Securities" for purposes
of measuring compliance with the 80% tests described above. To the extent the
Tax-Free Income Funds invest in these bonds, individual shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Tax-Free Income Funds' distributions derived from these bonds. For
further information relating to the types of municipal securities which will be
included in income subject to alternative minimum tax, see "ADDITIONAL
INFORMATION -- Additional Tax Information Concerning the Tax-Free Fund, the
Municipal Bond Fund and the Michigan Bond Fund" in the Statement of Additional
Information.
Investments of the Tax-Free Income Funds may be made in taxable obligations if,
for example, suitable tax-exempt obligations are unavailable or if acquisition
of U.S. government or other taxable securities is deemed appropriate for
temporary defensive purposes as determined by the Investment Adviser to be
warranted due to market conditions. Such taxable obligations consist
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<PAGE> 277
of government securities, certificates of deposit, time deposits and bankers'
acceptances of selected banks, commercial paper meeting the Tax-Free Income
Funds' quality standards for tax-exempt commercial paper (as described above),
and such taxable obligations as may be subject to repurchase agreements. These
obligations are described further in the Statement of Additional Information.
Under such circumstances and during the period of such investment, the affected
Tax-Free Income Fund may not achieve its stated investment objectives.
Although the Municipal Bond Fund may invest more than 25% of its net assets in
(i) Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, it does not presently intend to do
so on a regular basis. To the extent the Municipal Bond Fund's assets are
concentrated in Municipal Securities that are payable from the revenues of
similar projects or are issued by issuers located in the same state, or are
concentrated in private activity bonds, the Municipal Bond Fund will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states, projects and bonds to a greater extent than it would be if its
assets were not so concentrated.
Because the Michigan Bond Fund invests primarily in securities issued by the
State of Michigan and its political subdivisions, municipalities and public
authorities, the Michigan Bond Fund's performance is closely tied to the general
economic conditions within the State as a whole and to the economic conditions
within particular industries and geographic areas represented or located within
the State. However, the Michigan Bond Fund attempts to diversify, to the extent
the Investment Adviser deems appropriate, among issuers and geographic areas in
the State of Michigan.
The Michigan Bond Fund is classified as a "non-diversified" investment company,
which means that the amount of assets of the Michigan Bond Fund that may be
invested in the securities of a single issuer is not limited by the Investment
Company Act of 1940, as amended (the "1940 Act"). Nevertheless, the Michigan
Bond Fund intends to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"). The Code requires that, at the end of each quarter of a
fund's taxable year, (i) at least 50% of the market value of its total assets be
invested in cash, U.S. government securities, securities of other regulated
investment companies and other securities, which such other securities of any
one issuer limited for the purposes of this calculation to an amount not greater
that 5% of the value of the fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets be invested in the securities of any one issuer (other than U.S.
government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Michigan Bond Fund's
assets may be invested in the obligations of a limited number of issuers, some
of which may be within the same economic sector, the Michigan Bond Fund's
portfolio securities may be more susceptible to any single economic, political
or regulatory occurrence than the portfolio securities of a diversified
investment company.
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<PAGE> 278
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
TAX-FREE INCOME FUNDS
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Currency Transactions -Futures Contracts
- -Government Obligations -Lending Portfolio Securities Municipal Bond
Fund only
- -Medium-Grade Securities -Mortgage-Related Securities -Municipal Securities
- -Other Mutual Funds -Portfolio Turnover -Private Activity
Bonds
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-Issued and Delayed-Delivery
and Dollar Roll Agreements Transactions
- --------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 279
- -------------------------------------------------------------------------------
TAX-FREE INCOME FUNDS
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<S> <C> <C>
- -Complex Securities -Foreign Currency Transactions -Futures Contracts (Municipal
- -Government Obligations -Lending Portfolio Securities Bond Fund only)
- -Medium-Grade Securities -Mortgage-Related Securities -Municipal Securities
- -Other Mutual Funds -Portfolio Turnover -Private Activity Bonds
- -Put and Call Options -Repurchase Agreements -Restricted Securities
- -Reverse Repurchase Agreements -When-Issued and Delayed-Delivery
and Dollar Roll Agreements Transactions
</TABLE>
- -------------------------------------------------------------------------------
MONEY MARKET FUNDS
THE U.S. GOVERNMENT OBLIGATIONS FUND, THE PRIME OBLIGATIONS FUND, THE TREASURY
FUND AND THE TAX-FREE FUND
THE INVESTMENT OBJECTIVE OF EACH OF THE U.S.GOVERNMENT OBLIGATIONS FUND, THE
PRIME OBLIGATIONS FUND AND THE TREASURY FUND IS TO SEEK CURRENT INCOME WITH
LIQUIDITY AND STABILITY OF PRINCIPAL. THE INVESTMENT OBJECTIVE OF THE TAX-FREE
FUND IS TO SEEK AS HIGH A LEVEL OF CURRENT INTEREST INCOME FREE FROM FEDERAL
INCOME TAXES AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL AND RELATIVE
STABILITY OF PRINCIPAL.
Under normal market conditions, the U.S. Government Obligations Fund invests at
least 65% of the value of its total assets in short-term U.S. Treasury bills,
notes, and other obligations issued or guaranteed by the U S. government or its
agencies or instrumentalities. The Prime Obligations Fund invests in high
quality money market instruments, including Municipal Securities and other
instruments deemed to be of comparable high quality as determined by the Board
of Trustees. Under normal market conditions, the Treasury Fund invests
exclusively in obligations issued or guaranteed by the U.S. Treasury, its
agencies or instrumentalities and in repurchase agreements related to such
securities. As a matter of fundamental policy, under normal market conditions,
at least 80% of the Tax-Free Fund's total assets will be invested in Municipal
Securities.
The U.S. Government Obligations Fund may invest up to 35% of the value of its
total assets in high-quality money market instruments, including Municipal
Securities, bankers' acceptances, certificates of deposit, time deposits, and
other instruments deemed to be of comparable high quality as determined by the
Board of Trustees.
The Tax-Free Fund may invest up to 20% of its total assets in obligations the
interest on which is either subject to federal income taxation or treated as a
preference item for purposes of the federal alternative minimum tax ("Taxable
Obligations"). If the Investment Adviser deems it appropriate for temporary
defensive purposes, the Tax-Free Fund may increase its holdings in Taxable
Obligations to over 20% of its total assets and may also hold uninvested cash
reserves pending investment. Taxable Obligations may include obligations issued
or guaranteed by the
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<PAGE> 280
U.S. government, its agencies or instrumentalities (some of which may be subject
to repurchase agreements), certificates of deposit and bankers' acceptances of
selected banks, and commercial paper meeting the Tax-Free Fund's quality
standards for tax-exempt commercial paper (as described below). These
obligations are described further in the Statement of Additional Information.
As a money market fund, each Money Market Fund invests exclusively in United
States dollar-denominated instruments which the Board of Trustees of the Group
and the Investment Adviser determine present minimal credit risks and which at
the time of acquisition are (a) U.S. government securities, (b) money market
fund shares, or (c) rated by at least two NRSROs or by the only NRSRO providing
a rating in one of the two highest rating categories for short-term debt
obligations or, if unrated, which the Investment Adviser deems to be of
comparable quality. In addition, each of the U.S. Government Obligations Fund,
the Prime Obligations Fund and the Treasury Fund diversifies its investments so
that, except for United States government securities and certain other
exceptions, not more than 5% of its total assets is invested in the securities
of any one issuer, not more than 5% of its total assets is invested in
securities of all issuers rated by an NRSRO or NRSROs (in accordance with SEC
regulations) at the time of investment in the second highest rating category for
short-term debt obligations or deemed to be of comparable quality to securities
rated in the second highest rating category for short-term debt obligations
(either referred to as "Second Tier Securities") and not more than the greater
of lot of total assets or $1 million is invested in the Second Tier Securities
of one issuer. All securities or instruments in which a Money Market Fund
invests have remaining maturities of 397 calendar days (13 months or less
(except for certain variable and floating rate notes and securities underlying
certain repurchase agreements). The dollar-weighted average maturity of the
obligations in a Money Market Fund will not exceed 90 days.
The Prime Obligations Fund and, within the limitations described above, the U.S.
Government Obligations Fund may invest in commercial paper and other short-term
promissory notes issued by corporations (including variable amount master demand
notes) rated at the time of purchase within the two highest rating categories
assigned by at least two NRSROs or by the only NRSRO providing a rating or, if
not rated, which the Investment Adviser deems to be of comparable quality. For a
description of the rating categories of the NRSROs, see the Appendix to the
Statement of Additional Information. The Prime Obligations Fund may also invest
in CCP, Europaper, bankers, acceptances, certificates of deposit and time
deposits.
Variable amount master demand notes in which the U.S. Government Obligations
Fund, the Prime Obligations Fund and certain other Funds may invest are
unsecured demand notes that permit the indebtedness thereunder to vary, and that
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between a Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes (which are
normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for commercial paper. The
Investment Adviser will consider the earning power, cash flow, and other
liquidity ratios of
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<PAGE> 281
the issuers of such notes and will continuously monitor their financial status
and ability to meet payment on demand.
Each of the Money Market Funds may acquire securities that are subject to demand
features (generally, a feature permitting the holder of the security at
specified intervals to sell the security at an exercise price equal to the
approximate market cost plus accrued interest). The demand feature may be issued
by the issuer of the underlying security or a dealer in the securities or by
another third party. The Money Market Funds use these arrangements to provide
liquidity-and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership, or default by the issuer of
the demand feature, or a default on the underlying security or other event that
terminates the demand feature before its exercise, will-adversely affect the
liquidity of the underlying security. Demand features that are exercisable after
a payment default on the underlying security may be treated as a form of credit
enhancement.
Certain of the Money Market Funds' permitted investments may have received
credit enhancement by a guaranty, letter of credit, or insurance. The Money
Market Funds may evaluate the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the entity
providing the credit enhancement, rather than the issuer. The bankruptcy,
receivership, or default of an entity providing credit enhancement may adversely
affect the quality and marketability of the underlying security.
Consistent with the requirements of Rule 2a-7 adopted under the 1940 Act, each
of the Money Market Funds will limit its investment, with respect to 75% of its
assets, to no more than 10% of its total assets in securities issued by or
subject to demand features or guarantees of a single issuer. With respect to the
remaining 25% of a Money Market Fund's assets, the Fund may invest in securities
subject to demand features or guarantees from, or directly issued by, one or
more institutions, provided they are rated in the highest rating category
assigned by an NRSRO and are issued by a "Non-Controlled Person," as defined in
the Rule. In addition, a demand feature or guarantee may be acquired by a Money
Market Fund only if not more than 5% of the Fund's total assets are invested in
demand features, guarantees or securities issued by the provider of the demand
feature or guarantee that are rated in the second highest short-term rating
category assigned by an NRSRO or NRSROs (in accordance with Rule 2a-7).
Each of the Money Market Funds intends to follow the operational policies
described above, as well as other non-fundamental policies that will enable the
Fund to comply with the laws and regulations applicable to money market mutual
funds, particularly Rule 2a-7 under the 1940 Act. Each of the Money Market Funds
shall determine the effective maturity of its investments, the applicable credit
rating of securities, and adequate diversification by reference to Rule 2a-7.
Each of the Money Market Funds may change its operational policies to reflect
changes in the laws and regulations applicable to money market mutual funds
without shareholder approval.
The Tax-Free Fund may acquire zero coupon obligations, which have greater price
volatility than coupon obligations and which will not result in the payment of
interest until maturity. Additionally, the Tax-Free Fund, within the limitations
described above and subject to the quality standards for tax-exempt commercial
paper described below, may invest in commercial paper.
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<PAGE> 282
Although the Tax-Free Fund presently does not intend to do so on a regular
basis, it may invest more than 25% of its assets in Municipal Securities which
are related in such a way that an economic, business, or political development
or change affecting one such security would likewise affect the other Municipal
Securities. Examples of such securities are obligations the repayment of which
is dependent upon similar types of projects or projects located in the same
state. Such investments would be made only if deem necessary or appropriate by
the Investment Adviser. To the extent that the Tax-Free Fund's assets are
concentrated in Municipal Securities that are so related, the Tax-Free Fund will
be subject to the peculiar risks presented by such Municipal Securities, such as
negative developments in a particular industry or state, to a greater extent
than it would be if the Tax-Free Fund's assets were not so concentrated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<S> <C> <C>
- -Complex Securities -Foreign Securities -Government Obligations
(except Treasury Fund) -Lending Portfolio Securities -Municipal Securities
- -Guaranteed Investment Contracts -Private Activity Bonds (except Treasury Fund)
(Prime Obligations Fund only) (Tax-Free Fund only) -Put and Call Options
- -Portfolio Turnover -Restricted Securities (Tax-Free Fund only)
- -Repurchase Agreements (except Treasury Fund) -Reverse Repurchase
- -When-Issued and Delayed- Agreements and Dollar
Delivery Transactions Roll Agreements
- -------------------------------------------------------------------------------------------------------
</TABLE>
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in a Fund entails certain risks. The
Funds will not acquire portfolio securities issued by, make savings deposits in,
or enter into repurchase, reverse repurchase or dollar roll agreements with the
Investment Adviser, BISYS, SEI or their affiliates, and will not give preference
to the correspondents of their bank affiliates with respect to such
transactions, securities, savings deposits, repurchase agreements, reverse
repurchase agreements and dollar roll agreements.
COMPLEX SECURITIES
Some of the investment techniques utilized by the Investment Adviser and in the
case of the International Fund and Balanced Allocation Fund, Gulfstream, in the
management of each of the Funds (with the exception of the Treasury Fund)
involve complex securities sometimes referred to as "derivatives" among such
securities are put and call options, foreign currency transactions and futures
contracts, all of which are described below. The Investment Adviser and
Subadviser believe that such complex securities may, in some circumstances, play
a valuable role in successfully implementing each Fund's investment strategy and
achieving its goals. However, because complex securities and the strategies for
which they are used, are by their nature complicated, they represent substantial
opportunities for misunderstanding and misuse. To guard against these risks, the
Investment Adviser and Subadviser will utilize complex securities
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primarily for hedging, not speculative purposes and only after careful review of
the unique risk factors associated with each such security.
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds, with the exception of the Money Market Funds and the Tax-Free
Income Funds, may utilize foreign currency transactions in its portfolio. The
value of the assets of a Fund as measured in United States dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract ("forward currency contracts") involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These forward currency contracts are traded directly
between currency traders (usually large commercial banks) and their customers.
The Funds may enter into forward currency contracts in order to hedge against
adverse movements in exchange rates between currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the United States dollar and such foreign currency. Additionally, for example,
when a Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward currency sale contract to
sell an amount of that foreign currency approximating the value of some or all
of that Fund's portfolio securities or other assets denominated in such foreign
currency. Alternatively, when a Fund believes it will increase, it may enter
into a forward currency purchase contract to buy that foreign currency for a
fixed U.S. dollar amount; however, this tends to limit potential gains which
might result from a positive change in such currency relationships. A Fund may
also hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
The forecasting of short-term currency market movement is extremely difficult
and whether such a short-term hedging strategy will be successful is highly
uncertain. It is impossible to forecast with precision the market value of
portfolio securities at the expiration of a forward currency contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of foreign currency such Fund is obligated
to deliver when a decision is made to buy the security and make delivery of the
foreign currency in settlement of a forward contract. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency such Fund is obligated to deliver.
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If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. If forward prices
decline during the period between which a Fund enters into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. If forward prices
increase, such Fund would suffer a loss to the extent the price of the currency
it has agreed to purchase exceeds the price of the currency it has agreed to
sell. Although such contracts tend to minimize the risk of loss due to a decline
in the value of the hedged currency, they also tend to limit any potential gain
which might result if the value of such currency increases. The Funds will have
to convert their holdings of foreign currencies into United States dollars from
time to time. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
No Fund intends to enter into forward currency contracts if more than 15% of the
value of its total assets would be committed to such contracts on a regular or
continuous basis. A Fund also will not enter into forward currency contracts or
maintain a net exposure on such contracts where such Fund would be obligated to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments" in
the Statement of Additional Information.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Allocation Fund may invest up to 20% of its total assets in foreign
securities. The Small Capitalization Fund, Mid-Capitalization Fund, Large
Capitalization Fund and Equity Income Fund may invest in foreign securities as
permitted by their respective investment policies. Each of the Bond Fund and
Limited Maturity Bond Fund may invest up to 25% of its net assets in foreign
securities either directly or through the purchase of ADRs and may also invest
in securities issued by foreign branches of U.S. banks and foreign banks, in
CCP, and in Europaper. The Government Income Fund, the U.S. Government
Obligations Fund, the Prime Obligations Fund and the Tax-Free Fund may invest in
foreign securities by purchasing Eurodollar certificates of deposit ("CDs"),
which are U.S. dollar-denominated certificates of deposit issued by offices of
foreign and domestic banks outside the U.S.; Eurodollar time deposits ("ETD"),
which are U.S. dollar-denominated deposits in a foreign branch of a U.S. or
foreign bank; Canadian time deposits ("CDs"), which are essentially the same as
ETD, except that they are issued by Canadian offices of major Canadian banks;
Yankee certificates of deposit ("Yankee CDs"), which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank but held in
the U.S.; CPC, and Europaper.
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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 U.S.
government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the United States. In addition, there may be less
publicly available information about a foreign company than about a
U.S.-domiciled company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. domestic companies. There is generally government regulation
of securities exchanges, brokers and listed companies abroad than in the United
States. Confiscatory taxation or diplomatic developments could also affect
investment in those countries. In addition, foreign branches of U.S. banks,
foreign banks and foreign issuers may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting, and record
keeping standards than those applicable to domestic branches of U.S. banks and
U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after such Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
amount of such currency required to be converted into U.S. dollars in order to
pay such expenses in U.S. dollars will be greater.
U.S. dollar-denominated ADRs, which are traded in the United States on exchanges
or over-the-counter, are issued by domestic banks. ADRs represent the right to
receive securities of foreign issuers deposited in a domestic bank or a
correspondent bank. ADRs do not eliminate all of the risk inherent in investing
in the securities of foreign issuers. However, by investing in ADRs rather than
directly in foreign issuers, stock, a Fund can avoid currency risks during the
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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 man foreign issuers may be
subject. The ADR is sometimes referred to as a Global Depositary Receipt, or
GDR. In the United States, the GDR is, after issuance, not unlike any other ADR.
The difference is found in the purpose of the issue. GDRs are used for global
offerings, by the simultaneous issuance of a single security in multiple world
markets. The International Fund and Balanced Allocation Fund may also invest in
EDRs, which are receipts evidencing an arrangement with a European bank similar
to that for ADRs and assigned 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 depositary of an
unsponsored facility frequently is under no obligation to distribute Shareholder
communications received from the issuer of the deposited securities or to pass
through the voting rights to facility holders with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the
European Currency Unit ("ECU"), which is a "basket" unit of currency consisting
of specified amounts of the currencies of certain of the member states of the
European Community. The specific amounts of currencies comprising the ECU may be
adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. Such adjustments may
adversely affect holders of ECU-denominated obligations or the marketability of
such securities. European governments and supranationals, in particular, issue
ECU-denominated obligations.
FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds, the Income Funds and the
Municipal Bond Fund may also enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and entities 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
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or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercising the option at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of a Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's future positions may not prove to be perfectly or even highly
correlated with its portfolio securities or foreign currencies, limiting the
Fund's ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
GOVERNMENT OBLIGATIONS
The U.S. Government Obligations Fund will invest primarily in obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities.
Subject to the investment parameters described above, each of the remaining
Funds may also invest in such obligations. The Treasury Fund, however, will
invest exclusively in obligations issued or guaranteed by the U.S. Treasury and
in repurchase agreements backed by such securities.
The types of U.S. government obligations in which each of these Funds may invest
include U.S. Treasury notes, bills, bonds, and any other securities directly
issued by the U.S. government for public investment, which differ only in their
interest rates, maturities, and times of issuance. Stripped Treasury Obligations
are also permissible investments. Stripped securities are issued at a discount
to their "face value" and may exhibit price volatility than ordinary debt
securities because of the manner in which-their principal and interest are
returned to investors. The Stripped Treasury Obligations in which the Money
Market Funds may invest do not include certificates of accrual on Treasury
securities ("CATS") or Treasury income growth receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the right of
the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association ("SLMA"), are supported by the discretionary
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authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored agencies or
instrumentalities, such as FNMA, SLMA or FHLMC, since it is not obligated to do
so by law. The Funds which may invest in these government obligations will
invest in the obligations of such agencies or instrumentalities only when the
Investment Adviser believes that the credit risk with respect thereto is
minimal.
GUARANTEED INVESTMENT CONTRACTS
The Bond Fund, the Limited Maturity Bond Fund and the Prime Obligations Fund may
invest in GICs. When investing in GICs, the Bond Fund, the Limited Maturity Bond
Fund and the Prime Obligations Fund make cash contributions to a deposit fund of
an insurance company's general account. The insurance company then credits
guaranteed interest to the deposit fund on a monthly basis. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expenses and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. The Bond Fund and the Limited Maturity Bond Fund may invest
in GICs of insurance companies without regard to the ratings, if any, assigned
to such insurance companies' outstanding debt securities. The Prime Obligations
Fund may only invest in GICs that have received the requisite ratings by one or
more NRSROs, see "INVESTMENT OBJECTIVES AND POLICIES -- The Money Market Funds"
in this Prospectus. Because a Fund may not receive the principal amount of a GIC
from the insurance company on seven days' notice or less, the GIC is considered
an illiquid investment. For each of the Bond Fund and Limited Maturity Bond
Fund, no more than 15% of its total assets will be invested in instruments which
are considered to be illiquid. For the Prime Obligations Fund, no more than 10%
of its total assets may be invested in instruments which are considered to be
illiquid. In determining average portfolio maturity, GICs will be deemed to have
a maturity equal to the period of time remaining until the next readjustment of
the guaranteed interest rate.
MEDIUM-GRADE SECURITIES
Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond Fund,
Municipal Bond Fund and Michigan Bond Fund may invest in fixed-income securities
rated within the four highest rating categories assigned by an NRSRO (i.e., BBB
or Baa by S&P or Moody's, respectively) and comparable unrated securities as
determined by the Investment Adviser. These types of fixed-income securities are
considered by the NRSROs to have some speculative characteristics, and are more
vulnerable to changes in economic conditions, higher interest rates or adverse
issuer-specific developments which are more likely to lead to a weaker capacity
to make principal and interest payments than comparable higher rated debt
securities.
Should subsequent events cause the rating of a fixed-income security purchased
by any of the Funds listed above to fall below the fourth highest rating, the
Investment Adviser will consider such an event in determining whether the Fund
should continue to hold that security. In no
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event, however, would the Fund be required to liquidate an such portfolio
security where the Fund would suffer a loss on the sale of such security.
MORTGAGE-RELATED SECURITIES
The Government Income Fund intends to invest up to 80% of the value of its total
assets in mortgage-related securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. However, the Government Income
Fund may invest greater amounts as conditions warrant. Each of the remaining
Funds, except the International Fund, may also invest in mortgage-related
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Such agencies or instrumentalities include GNMA, FNMA and
FHLMC. Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond
Fund, Intermediate Government Obligations Fund, Government Income Fund, Prime
Obligations Fund and U.S. Government Obligations Fund may also invest in
mortgage-related securities issued by nongovernmental entities which are rated,
at the time of purchase, within the three highest bond rating categories
assigned by an NRSRO or, if unrated, which the Investment Adviser deems present
attractive opportunities and are of comparable quality.
The mortgage-related securities in which these Funds may invest have mortgage
obligations backing such securities, consisting of conventional thirty-year
fixed-rate mortgage obligations, graduated payment mortgage obligations,
fifteen-year mortgage obligations and adjusted-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 to periodic payments of interest, principal and payments (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
repayments have an adverse impact on yields for pass-through 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 litigation is repaid. The opposite is true for pass-through
purchased at a discount. The Fund may purchase mortgage-related securities at a
premium or at a discount.
If a Fund purchases a mortgage-related security at a premium, that portion may
be lost if there is a decline in the market value of the security, whether
resulting from changes in interest rates or prepayments in the underlying
mortgage collateral. As with other interest-bearing securities, the prices of
such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the securities are prone to prepayment,
thereby shortening the average life of the security and
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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 y the full faith and credit of the United States government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by non-governmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools-of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers will be considered in
determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the poolers, the Investment
Adviser determines that the securities meet the Government Income Fund's quality
standards. Although the market for such
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securities is becoming increasing liquid, securities issued by certain private
organizations may not be readily marketable. The Government Income Fund will not
purchase mortgage-related securities or any other assets which in the Investment
Adviser's opinion are illiquid if, as a result, more than 15% of the value of
the Government Income Fund's total assets will be illiquid.
Mortgage-related securities in which the above-named Funds may invest may also
include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations
issued generally by finance-subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, to whether with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates plunged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments; that is mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed-rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, the
Investment Adviser will, consistent with the Government Income Fund's investment
objective, policies and quality standards, consider making investments in such
new types of securities.
MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities (Michigan Municipal
Securities, in the case of the Michigan Bond Fund) which may be held by the Bond
Fund, Limited Maturity Bond Fund, Municipal Bond Fund, Michigan Bond Fund, Prime
Obligations Fund, U.S. Government Obligations Fund and Tax-Free Fund are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from proceeds of a special excise tax or other
specific revenue source such as the user of the facilities being financed.
Private activity bonds held by the Municipal Bond Fund and Michigan Bond Fund
are in most cases revenue securities and are not payable from the unrestricted
revenues of the issuer. Consequently, the credit quality of private activity
bonds is usually directly related to the credit standing of the corporate user
of the facility involved.
The above-named Funds may also invest in "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
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Each of the above-named Funds invests primarily in Municipal Securities which
are rated at the time of purchase within the four highest rating categories
assigned by an NRSRO or in the highest rating category assigned by an NRSRO in
the case of notes, tax-exempt commercial paper or variable rate demand
obligations. These Funds may also purchase Municipal Securities which are
unrated at the time of purchase but determined to be of comparable quality by
the Investment Adviser pursuant to guidelines approved by the Group's Board of
Trustees. The Money Market Funds may invest in Municipal Securities only in
compliance with the requirements of Rule 2a-7 under the 1940 Act, which
generally requires that they invest only in securities rated in the two highest
rating categories assigned by an NRSRO (with no more than 5% of their assets
invested in the second highest rating category). The applicable Municipal
Securities ratings are described in the Appendix to the Statement of Additional
Information. For a discussion of debt securities rated within the four highest
rating categories assigned by an NRSRO, see "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Medium Grade Securities."
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from federal income tax are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Funds nor the Investment
Adviser will review the proceedings, relating to the issuance of Municipal
Securities or the basis for such opinions.
Municipal Securities and Michigan Municipal Securities purchased by the Tax-Free
Income Funds may include rated and unrated variable and floating rate tax-exempt
notes. A variable rate note is one whose terms provide for the adjustment of
receipts interest rate on set dates and which, upon such adjustment, can
reasonably be expected to have a market value that approximates its par value. A
floating rate note is one whose terms provide for the adjustment of its interest
rate whenever a specified interest rate changes and which, at any time, can
reasonably be expected to have a market value that approximates its par value.
Such notes are frequently not rated by credit rating agencies; however, unrated
variable and floating rate notes purchased by the Tax-Free Income Funds will be
determined by the Investment Adviser, under guidelines established by the
Group's Board of Trustees, to be of comparable quality at the time of purchase
to rated instruments eligible for purchase under the Funds' investment policies.
In making such determinations, the Investment Adviser will consider the earning
power, cash flow and other liquidity ratios of the issuers of such notes (such
issuers include financial, merchandising, bank holding and other companies) and
will continuously monitor their financial condition. There may be no active
secondary market with respect to a particular variable or floating rate note.
Nevertheless, the periodic readjustments of their interest rates tend to assure
that their value to the Tax-Free Income Funds will approximate their par value.
The Tax-Free Income Funds will not purchase variable and floating rate notes or
any other securities which in the Investment Adviser's opinion are illiquid if,
as a result, more than 15% of either Tax-Free Income Fund's total assets will be
illiquid.
OTHER MUTUAL FUNDS
Each of the Funds, except the Money Market Funds, may invest up to 5% of the
value of its total assets in the securities of any one money market mutual fund,
provided that no more than 10% of a Fund's total assets may be invested in the
securities of mutual funds in the aggregate. Each
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Fund will incur additional expenses due to the duplication of expenses as a
result of investing in securities of other mutual funds. Additional restrictions
regarding the Funds' investments in securities of other mutual funds are
contained in the Statement of Additional Information.
PRIVATE ACTIVITY BONDS
The Tax-Free Income Funds and the Tax-Free Fund may invest in private activity
bonds. It should be noted that the Tax Reform Act of 1986 substantially revised
provisions of prior federal law affecting the issuance and use of proceeds of
certain tax-exempt obligations. A new definition of private activity bonds
applies to many types of bonds, including those which were industrial
development bonds under prior law. Any reference herein to private activity
bonds includes industrial development bonds. Interest on private activity bonds
is tax-exempt (and such bonds will be considered Municipal Securities for
purposes of this Prospectus) only if the bonds fall within certain defined
categories of qualified private activity bonds and meet the requirements
specified in those respective categories. If a Fund invests in private activity
bonds which fall outside these categories, shareholders may become subject to
the federal alternative minimum tax on that part of the Fund's distributions
derived from interest on such bonds. The Tax Reform Act generally did not change
the federal tax treatment of bonds issued to finance government operations. For
further information relating to the types of private activity bonds which will
be included in income subject to the federal alternative minimum tax, see
"ADDITIONAL INFORMATION -- Additional Tax Information Concerning the Tax-Free
Fund, the Municipal Bond Fund and the Michigan Bond Fund" in the Statement of
Additional Information.
PUT AND CALL OPTIONS
Each of the Growth Funds, the Growth and Income Funds, the Income Funds and the
Tax-Free Income Funds may purchase put and call options on securities and on
foreign currencies, subject to its applicable investment policies, for the
purposes of hedging against market risks related to its portfolio securities and
adverse movements in exchange rates between currencies, respectively. Purchasing
options is a specialized investment technique that entails a substantial risk of
a complete loss of the amounts paid is premiums to writers of options. Each Fund
may so engage in writing call options from time to time as the Investment
Adviser or Gulfstream, as the case may be with respect to the Balanced
Allocation Fund or International Fund, deems 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 rewritten). 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, the Fund will forego the potential benefit represented by market
appreciation over the exercise price. Under normal conditions, it is not
expected that a Fund will cause the underlying value of portfolio securities and
currencies subject to such options to exceed 50% of its net
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assets, and with respect to each of the Balanced Allocation Fund and
International Fund, 20% of its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its options transactions, also may purchase index put and call
options and write index options. As with options on individual securities, a
Fund will write only covered index call options. Through the writing or purchase
of index options a Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at 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 improvements 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 call upon exercise.
In addition, each of the Tax-Free Fund and the Tax-Free Income Funds may acquire
"puts" with respect to Municipal Securities (or Michigan Municipal Securities,
as the case may be), held in its portfolio. Under a put, such Fund would have
the right to sell a specified Municipal Security (or Michigan Municipal
Security, as the case may be) within a specified period of time at a specified
price A put would be sold, transferred, or assigned only with the underlying
security. Each of the Tax-Free Fund and the Tax-Free Income Funds will acquire
puts either solely to facilitate portfolio liquidity, shorten the maturity of
the underlying securities or permit the investment of its funds at a more
favorable rate of return. Each of the Tax-Free Fund and the Tax-Free Income
Funds expects that it will generally acquire puts only where the puts are
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, such Fund may pay for a put either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the puts (thus reducing the yield to maturity otherwise available for the
same securities).
REPURCHASE AGREEMENTS
Securities held by a Fund may be subject to repurchase agreements. Under the
terms of a repurchase agreement, a Fund would acquire securities from financial
institutions such as member banks of the Federal Deposit Insurance Corporation
or registered broker-dealers which the Investment Adviser or Gulfstream, as the
case may be, deems creditworthy under the guidelines approved by the Group's
Board of Trustees, subject to the seller's agreement to repurchase such
securities at a mutually agreed upon date and price. The repurchase price would
generally equal the price paid by the Fund plus interest negotiated on the basis
of current short-
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term rates, which may be more or less than the rate on the underlying portfolio
securities. Securities subject to repurchase agreements will be held in a
segregated account. If the seller were to default on its repurchase obligation
or become insolvent, the Fund would suffer a loss to the extent that the
proceeds from the sale of the underlying portfolio securities were less than the
repurchase price under the agreement, or to the extent that the disposition of
such securities by that Fund were delayed pending court action. Repurchase
agreements are considered to be loans by an investment company under the 1940
Act. For further information about repurchase agreements, see "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments-Repurchase Agreements" in the Statement of Additional Information.
RESTRICTED SECURITIES
Securities in which each of the Funds, with the exception of the Treasury Fund,
may invest include securities issued by corporations without registration under
the Securities Act of 1933, as amended (the "1933 Act"), in reliance on the
exemption from such registration afforded by Section 3(a)(3) thereof, and
securities issued in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) securities"). Section 4(2) securities are restricted as to disposition
under the federal securities laws, and generally are sold to institutional
investors such as the Funds who agree that they are purchasing the securities
for investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in such Section 4(2) securities,
thus providing liquidity. Pursuant to procedures adopted by the Board of
Trustees of the Group, First of America may determine Section 4(2) securities to
be liquid if such securities are eligible for resale under Rule 144A under the
1933 Act and are readily saleable.
Subject to the limitations described above, the Funds may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registers under the 1933 Act. An illiquid investment is
any investment that cannot be disposed of within seven (7) days in the normal
course of business at approximately the amount at which it is valued by a Fund.
The price a Fund pays for illiquid securities or receives upon resale may be
lower than the price paid or received for similar securities with a more liquid
market. Accordingly, the valuation of these securities will reflect any
limitations on their liquidity. For each of the Non-Money Market Funds, a Fund
may not invest in additional illiquid securities if, as a result, more than 15%
of the market value of its net assets would be invested in illiquid securities.
For each of the Money Market Funds, a Fund may not invest in additional illiquid
securities if, as a result, more than 10% of the market value of its net assets
would be invested in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Each of the Funds may borrow money by enter into reverse repurchase agreements
and, in the case of the Income Funds and the Tax-Free Income Funds, dollar roll
agreements, in accordance with the investment restrictions described below.
Pursuant to reverse repurchase agreements, a Fund would sell certain of its
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase the securities at a mutually agreed upon date and price. Dollar
roll
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agreements utilized by the Income Funds and Tax-Free Income Funds are identical
to reverse repurchase agreements except for the fact that substantially similar
securities may be repurchased. At the time a Fund enters into a reverse
repurchase agreement or a dollar roll agreement, it will place in a segregated
custodial account assets such as U.S. government securities or other liquid
high-grade debt securities consistent with its investment restrictions having a
value equal to the repurchase price (including accrued interest), and will
subsequently continually monitor the account to ensure that such equivalent
value is maintained at all times. Reverse repurchase agreements and dollar roll
agreements involve the risk that the market value of securities sold b a Fund
may decline below the price at which it is obligated to repurchase the
securities. Reverse repurchase agreements and dollar roll agreements are
considered to be borrowings by an investment company under the 1940 Act and
therefore a form of leverage. A Fund may experience a negative impact on its net
asset value if interest rates rise during the term of a reverse repurchase
agreement or dollar roll agreement. A Fund generally will invest the proceeds of
such borrowings only when such borrowings will enhance a Fund's liquidity or
when the Fund reasonably expects that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. For further information about reverse repurchase agreements and
dollar roll agreements, see "INVESTMENT OBJECTIVES AND POLICIES -- Additional
Information on Portfolio Instruments-Reverse Repurchase Agreements and Dollar
Roll Agreements" in the Statement of Additional Information.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or delayed-delivery
basis. Such Funds will engage in when-issued and delayed-delivery transactions
only for the purpose of acquiring portfolio securities consistent with its
investment objectives and policies, not for investment leverage although such
transactions represent a form of leveraging. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve a risk that the yield obtained in the
transaction will be less than those available in the market when delivery takes
place. A Fund will not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase such securities, its
Custodian will set aside cash or liquid securities equal to the amount of the
commitment in a separate account. Securities purchased on a when-issued basis
are recorded as an asset and are subject to changes in the value based upon
changes in the general level of interest rates. In when-issued and
delayed-delivery transactions, a Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause such Fund to miss a price
or yield considered to be advantageous.
No Fund's commitments to purchase "when-issued" securities will exceed 25% of
the value of its total assets under normal market conditions, and a commitment
by a Fund to purchase "when-issued" securities will not exceed 60 days. In the
event its commitments to purchase "when-issued" securities ever exceeded 25% of
the value of its assets, a Fund s liquidity and the ability of the Investment
Adviser or Gulfstream, as the case may be, to manage it might be adversely
affected. The Funds intend only to purchase "when-issued" securities for the
purpose of acquiring portfolio securities, not for investment leverage.
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LENDING PORTFOLIO SECURITIES
In order to generate additional income, each Fund except the Treasury Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. government securities. This collateral will be valued
daily by the Group's Custodian. Should the market value of the loaned securities
increase, the borrower must furnish additional collateral to that Fund. During
the time portfolio securities are on loan, the borrower pays that Fund any
dividends or interest received on such securities. Loans are subject to
termination by the Fund or the borrower at any time. While a Fund does not have
the right to vote securities on loan, each Fund intends to terminate the loan
and regain the right to vote if that is considered important with respect to the
investment. In the event the borrower defaults in its obligation to a Fund, such
Fund bears the risk of delay in the recovery of its portfolio securities and the
risk of loss of rights in the collateral. The Funds will enter into loan
agreements only with broker-dealers, banks, or other institutions that the
Investment Adviser or Gulfstream, as the case may be, has determined are
creditworthy under guidelines established by the Group's Board of Trustees.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of a Fund's purchases or sales of portfolio securities for the year by the
monthly average value of the portfolio securities. The SEC requires that the
calculation exclude all securities whose remaining maturities at the time of
acquisition are one year or less.
Because the Money Market Funds intend to invest primarily in securities with
maturities of less than one year (although each may invest in securities with
maturities of up to 13 months) and because the SEC requires such securities to
be excluded from the calculation of portfolio turnover rate, the portfolio
turnover rate with respect to each of the Money Market Funds is expected to be
zero for regulatory purposes. For portfolio turnover rates for each of the
Non-Money Market Funds, see "FINANCIAL HIGHLIGHTS." The Balanced Allocation Fund
does not expect that its turnover rate with respect to that portion of its
portfolio invested in (i) common stocks and securities convertible into common
stocks and (ii) other investments will exceed ___% and ___%, 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. (See "Dividends
and Taxes".) Portfolio turnover will not be a limiting factor in making
investment decisions.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding shares of that Fund (as defined
in the Statement of Additional Information).
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None of the Non-Money Market Funds, with the exception of the Michigan Bond
Fund, may:
Purchase securities of any one issuer, other than securities 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 any class of securities of the issuer or more
than 10% of the outstanding voting securities of the issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to such limitations.
None of the Funds will:
1. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the
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, any state, territory or
possession of the United States, the District of Columbia or
any of their authorities, agencies, instrumentalities or
political subdivisions, and repurchase agreements secured by
such obligations, or in the case of the Money Market Funds,
domestic bank obligations and repurchase agreements secured by
such obligations;
(b) wholly-owned finance companies will be considered to be in the
industries of the their parents if their activities are
primarily related to financing the activities of the parents;
(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; and
(d) personal credit and business credit businesses will be
considered separate industries.
2. Make loans, except that the Fund may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment
objective and policies and may lend portfolio securities in an amount
not exceeding one-third of its total assets.
3. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940
Act.
For purposes of the above investment limitations, the Funds treat all
supranational organizations as a single industry and each foreign government
(and all of its agencies) as a separate industry. In addition, a security is
considered to be issued by the government entity (or entities) whose assets and
revenues back the security.
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Except for the Funds' policy on illiquid securities, if a percentage limitation
is satisfied at the time of investment, a later increase or decrease in such
percentage resulting from a change in the value of a Fund's portfolio securities
will not constitute a violation of such limitation for purposes of the 1940 Act.
In addition to the above investment restrictions, the Funds are subject to
certain other investment restrictions set forth under "INVESTMENT OBJECTIVES AND
POLICIES - Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUNDS
BOARD OF TRUSTEES
The business and affairs of the Group are managed under the direction of its
Board of Trustees. The trustees of the Group, their addresses, principal
occupations during the past five years, other affiliations, and the compensation
paid by the Group and the fees and reimbursed expenses they receive in
connection with each meeting of the Board of Trustees they attend are included
in the Statement of Additional Information.
INVESTMENT ADVISER AND SUBADVISER
National City, 1900 East Ninth Street, Cleveland, Ohio 44114, serves as
investment adviser to the Funds. National City is a registered investment
adviser and an indirect wholly owned subsidiary of National City Corporation
("NCC"). NCC recently consolidated the asset management responsibilities of its
various bank affiliates including First of America Bank, N.A. ("FOA"). Prior to
such time, the investment adviser of the Funds was First of America Investment
Corporation ("First of America"), a wholly owned subsidiary of FOA.
Subject to such policies as the Group's Board of Trustees may determine, the
Investment Adviser, either directly or, with respect to the International Fund
and the Balanced Allocation Fund, through Gulfstream, furnishes a continuous
investment program for each Fund and makes investment decisions on behalf of
each Fund.
The _____________ Funds are managed by the ___________ Team of National City,
the ____________ Funds by the __________ Team, and the _____________ Funds by
the ___________ Team. No single person is primarily responsible for making
recommendations to the ________ Team, ________ Team or __________ Team.
For the services provided and expenses assumed pursuant to its Investment
Advisory Agreement with the Group, the Investment Adviser receives a fee from
the Large Capitalization Fund, computed daily and paid monthly, at the annual
rate of 0.80% of the Fund's average daily net assets. For its services in
connection with each of the Small Capitalization Fund, Mid Capitalization Fund,
Equity Income Fund and Balanced Allocation Fund, the Investment
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Adviser's fee is computed daily and paid monthly at the annual rate of 1.00% of
the applicable Fund's average daily net assets. For its services in connection
with the International Fund, the Investment Adviser's fee is computed daily and
paid monthly at the annual rate of 1.25% of the first $50 million of the
International Fund's average daily net assets, 1.20% of average daily net assets
between $50 million and $100 million, 1.15% of average daily net assets between
$100 million and $400 million and 1.05% of average daily net assets above $400
million. For its services in connection with each Income Fund and Tax-Free
Income Fund, the Investment Adviser's fee is computed daily and paid monthly at
the annual rate of 0.74% of each Income Fund's and Tax-Free Income Fund's
average daily net assets. For its services in connection with the Money Market
Funds, the Investment Adviser's fee is computed daily and paid monthly, at the
annual rate of 0.40% of each Money Market Fund's average daily net assets. The
Investment Adviser 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, the
Investment Adviser 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
the Investment Adviser to manage the investment and reinvestment of the assets
of the International Fund and to manage the investment and reinvestment of those
assets of the Balanced Allocation Fund which are invested in foreign securities,
subject to the direction and control of the Group's Board of Trustees.
Gulfstream will not continue as Subadviser beyond the end of the current term of
its agreement in 1998.
Under this arrangement, Gulfstream is responsible for day-to-day management of
the International Fund's assets and the applicable portion of the Balanced
Allocation Fund, reviewing investment performance policies and guidelines and
maintaining certain books and records, and the Investment Adviser 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. The Investment Adviser may also render advice with respect to the
International Fund's investments in the United States Gulfstream utilizes a team
approach to investment management to ensure a disciplined investment ) process
designed to result in long-term performance consistent with a Fund's investment
objective. No one person is responsible for a Fund's management.
For its services provided and expenses assumed pursuant to its Sub-Investment
Advisory Agreement with the Investment Adviser, Gulfstream receives from the
Investment Adviser a fee, computed daily and paid monthly, at the annual rate of
0.50% of the first $50 million of the International Fund's average daily net
assets and the average daily net assets of the Balanced Allocation Fund which
are invested in foreign-securities, 0.45% of such average daily net assets
between $50 million and $100 million, 0.40% of such average daily net assets
between $100 million and $400 million and 0.30% of such average daily net assets
above $400 million, provided the minimum annual fee shall be $75,000.
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Gulfstream was organized in 1991 as a Texas limited partnership by Tull, Doud,
Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is he 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 Investment Adviser is the sole limited partner, and as of August
31, 1996 exercised options to increase its interest in Gulfstream from 49% to
72%. In spite of the fact that, as a limited Partner, the Investment Adviser
does not possess management authority or response for Gulfstream, because of its
72% ownership interest, the Investment Adviser may be deemed to control
Gulfstream for purposes of the 1940 Act.
[As of _____________, 1998, Gulfstream had over $___ million in international
assets of institutional investment company, governmental, pension fund and high
net worth individual clients under its investment management. Gulfstream's
portfolio management personnel average over 20 years of investment experience
and 10 years of international investment experience.]
For further information regarding the relationship between Gulfstream and the
Investment Adviser, see "MANAGEMENT OF THE GROUP -- Investment Adviser" in the
Statement of Additional Information.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
Fund of the Group. National City serves as Sub-Administrator for each Fund of
the Group and provides certain services as may be requested by BISYS from time
to time. BISYS and its affiliated companies, including BISYS Ohio, are
wholly-owned by The BISYS Group, Inc. a publicly-held company which is a
provider of information processing, loan servicing and 401(k) administration and
record keeping services to and through banking and other financial
organizations.
The Administrator generally assists in all aspects of the Funds' administration
and operation. For expenses assumed and services provided as administrator
pursuant to its Administration Agreement with the Group, the Administrator
receives a fee from each Fund equal to the lesser of: a fee computed daily and
paid periodically at an annual rate of 0.20% of the Fund's average daily net
assets; or such other fee as may be agreed upon from time to time in writing by
the Group and the Administrator. For its services as Sub-Administrator National
City 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.
SEI acts as the Group's principal underwriter and distributor. The Distributor
is a registered broker/dealer with principal offices located in Oaks,
Pennsylvania 19456. It acts as agent for the Funds in the distribution 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
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such activities. The Distributor receives no compensation under its Distribution
Agreement with the Group.
EXPENSES
The Investment Adviser, Gulfstream and BISYS each bear all expenses in
connection with the performance of their services as Investment Adviser,
Subadviser and Administrator, respectively, other than the cost of securities
(including brokerage commissions) purchased for the Group. Each Fund will bear
the following expenses relating to its operation: organizational expenses,
taxes, interest, brokerage fees and commissions, fees of the Trustees of the
Group, SEC fees, state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal administration fees, legal expenses,
advisory and fees and out-of-pocket expenses of the Custodian, Transfer Agent
and Fund Accountant, certain insurance premiums, costs of maintenance of the
Group's existence, costs of shareholders, reports and meetings, and any
extraordinary expenses incurred in each Fund's operation. As a general matter,
expenses are allocated to the Institutional Shares and the other classes of
shares of the Funds on the basis of the relative net asset value of each class.
The various classes may bear certain additional retail transfer agency expenses
and may also bear certain additional shareholder service and distribution costs
incurred pursuant to a Distribution and Shareholder Service Plan.
The Trustees reserve the right, subject to the receipt of relevant regulatory
approvals or rulings, if needed, to allocate certain other expenses to the
shareholders of a particular class, including the Institutional Shares class, on
a basis other than relative net asset value, as they deem appropriate ("Class
Expenses"). In such event, Class Expenses would be limited to: transfer agency
fees identified by the Transfer Agent as attributable to a specific class;
printing and postage expenses related to preparing and distribution of 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.
CUSTODIAN, TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
National City Bank serves as the custodian of the Group's assets. State Street
Bank and Trust Company serves as the Group's transfer and dividend disbursing
agent. Communications to the Transfer Agent should be directed to P.O. Box 8421,
Boston, Massachusetts 02266-8421. BISYS Ohio, 3435 Stelzer Road, Columbus, Ohio
43219, provides certain accounting services for each of the Funds and receives a
fee for such services. See "MANAGEMENT OF THE GROUP -- Custodian, Transfer Agent
and Fund Accounting Services" in the Statement of Additional Information for
further information.
While BISYS Ohio is a distinct legal entity from BISYS (the Group's
Administrator), 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.
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HOW TO BUY INSTITUTIONAL SHARES
Institutional Shares of each Fund are continuously offered and may be purchased
through procedures established by the Distributor in connection with the
requirements of customer accounts maintained by or on behalf of certain
financial institutions acting as fiduciary or agent for their customers
("Customer Accounts"). These procedures may include instructions under which a
Customer Account is "swept" automatically no less frequently than weekly and
amounts in excess of a minimum amount agreed upon by the financial institution
and the customer are invested by the Distributor in Institutional Shares of the
Money Market Funds, depending upon the type of Customer Account and/or the
instructions of the customer. Institutional Shares of the Michigan Bond Fund may
only be sold in those states where the Fund has filed the required notification
documents, currently only Colorado, District of Columbia, Florida, Georgia,
Hawaii, Illinois, Indiana, Michigan, Mississippi, New Jersey, Ohio and Virginia.
Institutional Shares of the Group sold to financial institutions acting in a
fiduciary, advisory, custodial, or other similar capacity on behalf of customers
will normally be held of record by the financial institution. With respect to
Institutional Shares of the Group so sold, it is the responsibility of the
particular financial institution to transmit purchase or redemption orders to
the Distributor and to deliver federal funds for purchase on a timely basis.
Beneficial ownership of Institutional Shares of the Group will be recorded by
the financial institution and reflected in the account statements provided by
the financial institution to customers. A financial institution may exercise
voting authority for those Institutional Shares for which it is granted
authority by the customer.
Institutional Shares of each Fund are purchased at the net asset value per share
(see "HOW SHARES ARE VALUED") next determined after receipt by the Distributor
of an order to purchase Institutional Shares. Purchases of institutional Shares
of any of the Funds will be effected only on a Business Day (as defined in "HOW
SHARES ARE VALUED") of the applicable Fund. An order received prior to a
Valuation Time on any Business Day will be executed at the net asset value
determined as of the next Valuation Time on the date of receipt. An order
received after the last Valuation Time on any Business Day will be executed at
the net asset value determined as of the next Valuation Time on the next
Business Day of that Fund. Institutional Shares of all Funds, except the Money
Market Funds, are eligible to earn dividends on the first Business Day following
the execution of the purchase. Institutional Shares of the Money Market Funds
will purchased before 11:30 a.m., Eastern Time, begin earning dividends on the
same Business Day. Institutional Shares of the Funds continue to be eligible to
earn dividends through the day before their redemption.
An order to purchase Institutional Shares will be deemed to have been received
by the Distributor only when federal funds are available to the Group's
Custodian for investment. Federal funds are monies credited to a bank's account
within a Federal Reserve Bank. Payment for an order to purchase Institutional
Shares which is transmitted by federal funds wire will be available the same day
for investment by the Group's Custodian if received prior to the last Valuation
Time (see "HOW SHARES ARE VALUED"). Purchases made by check or other means are
made at the price next determined upon receipt of the purchase instrument.
However,
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proceeds from redeemed shares purchased by check will not be sent until
the method of payment has cleared. The group strongly recommends that investors
of substantial amounts use federal funds to purchase-Institutional Shares.
There is no sales charge imposed by the Group in connection with the purchase of
Institutional Shares of the Funds. Depending upon the terms of a particular
Customer Account, a financial institution may charge a Customer Account fees for
automatic investment and other cash management services provided in connection
with investment in the Group. Information concerning these services and any
charges may be obtained from the financial institution. This Prospectus should
be read in conjunction with any such information received from the financial
institution.
The Group reserves the right to reject any order for the purchase of
Institutional Shares in whole or in part.
Confirmations of purchases and redemptions of Institutional Shares of the Group
by financial institutions on behalf of their customers may be obtained from the
financial institutions. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Institutional Shares of the Funds will
not be issued.
HOW TO REDEEM YOUR INSTITUTIONAL SHARES
Shareholders may redeem their Institutional Shares without charge on any day
that net asset value is calculated (see "HOW SHARES ARE VALUED"). Redemptions
will be effected at the net asset value per share next determined after receipt
of a redemption request. Shareholders may request redemptions by contacting
their trust administrator or other financial consultant responsible for the
Customer Account.
OTHER INFORMATION REGARDING REDEMPTION OF SHARES
All or part of a customer's Institutional Shares may be redeemed in accordance
with instructions and limitations pertaining to his Customer Account with a
financial institution. For example, if a customer has agreed with a bank to
maintain a minimum balance in his or her account with the bank, and the balance
in that account falls below that minimum, the customer may be obliged to redeem,
or the bank may redeem for and on behalf of the customer, all or part of the
customer's Institutional Shares of a Fund of the Group to the extent necessary
to maintain the required minimum balance.
Redemption orders are effected at the net asset value per share next determined
after the Institutional Shares are properly tendered for redemption, as
described above. The proceeds paid upon redemption of such Institutional Shares
of the Funds may be more or less than the amount invested. Payment to
shareholders for Institutional Shares redeemed will be made within seven days
after receipt by the Transfer Agent of the request for redemption. However, to
the greatest extent possible, receipts from financial institutions for next day
payments upon redemption of Institutional Shares will be honored if the request
or 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.,
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(Eastern Time), within two Business Days, unless it would be disadvantageous to
the Group or the shareholders of a Fund to sell or liquidate portfolio
securities in an amount sufficient to satisfy requests for payments in that
manner. Also to the greatest extent possible, requests for same day by payments
upon redemption of Institutional Shares of the Money Market Funds will be
honored if the request for redemption is received by the Transfer Agent before
11:30 a.m., (Eastern Time), on a Business Day or, if received after 11:30 a.m.,
(Eastern Time), on the next Business Day, unless it would be disadvantageous to
the Group or the shareholder of a Fund to sell or liquidate portfolio securities
in an amount sufficient to satisfy requests for payments in that manner.
Shareholders should contact their trust administrator or other financial
consultant responsible for the account to determine the financial institution's
requirements for effectuating redemptions.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Group may suspend the right of
redemption or redeem Institutional Shares involuntarily if it appears
appropriate to do so in light of the Group's responsibilities under the 1940
Act.
HOW SHARES ARE VALUED
The net asset value of Institutional Shares of the Funds, with the exception of
the Money Market Funds, is determined and the shares are priced as of the close
of trading on the New York Stock Exchange ("NYSE") on each Business Day
(generally 4:00 p.m. Eastern Time) (with respect to the Non-Money Market Funds,
the "Valuation Time"). The net asset value of the Institutional Shares of the
Money Market Funds is determined and the shares are priced as of 12:00 p.m. noon
(Eastern Time) and as of the close of trading on the NYSE on each Business Day
(with respect to the Money Market Funds, the "Valuation Times"). A "Business
Day" is a day on which the NYSE 's open for trading and any other day other than
a day on which no shares are tendered for redemption and no order to purchase
any shares is received. Currently, the NYSE will not open in observance of the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Net asset value per share for a particular class for purposes of icing sales and
redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund allocable to such class, less the liabilities charged
to that Fund allocable to such class and any liabilities charged directly to
that class, by the number of outstanding shares of such class.
The net asset value per share will fluctuate as the value of the investment
portfolio of a Fund changes. However, the assets in each Money Market Fund are
valued based upon the amortized cost method. Pursuant to the rules and
regulations of the SEC regarding the use of the amortized cost method, each
Money Market Fund will maintain a dollar-weighted average portfolio maturity of
90 days or less. Although the Group seeks to maintain each money Market Fund's
net asset value per share at $1.00, there can be no assurance that net asset
value will not vary.
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The securities in each Fund will be valued at market value. If market quotations
are not available, the securities will be valued by a method which the Board of
Trustees believes accurately reflects fair value.
Foreign securities are valued based on quotations from the primary market in
which they are traded and are translated from the local currency into U.S.
dollars using current exchange rates. For further information about valuation of
investments, see "NET ASSET VALUE" in the Statement of Additional Information.
DIVIDENDS AND TAXES
GENERAL
Net income for each Fund is declared monthly as a dividend to shareholders at
the close of business on the day of declaration and is paid monthly, except for
the Money Market Funds which declare dividends daily and pay them monthly. In
some months, certain Funds may not pay any dividends. Distributable net realized
capital gains are distributed at least annually. A shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional shares at net asset value as of the date of
declaration, unless the shareholder elects to receive dividends or distributions
in cash. A shareholder wishing to make such an election, or any revocation
thereof, must contact the trust administrator or other financial consultant
responsible for the account to submit the request in writing to the Transfer
Agent, c/o The Parkstone Group of Funds, P.O. Box 8421, Boston, Massachusetts
02266-8421. Any election or revocation thereof will become effective with
respect to dividends and distributions having record dates after its receipt by
the Transfer Agent.
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally relieves a Fund of liability for federal income taxes to
the extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code for a taxable
year requires, among other things, that a Fund distribute to its shareholders an
amount equal to at least the sum of 90% of its investment company taxable income
and 90% of its net tax-exempt interest income, if any, for such year. In
general, a Fund's investment company taxable income will be the sum of its net
investment income and the excess of any net short-term capital gain for the
taxable year over the net long-term capital loss, if any, for such year. Each
Fund intends to distribute substantially all of its investment company taxable
income and net tax-exempt income each taxable year. Such distributions by the
Growth Funds, Growth and Income Funds, Income Funds and Money Market Funds
(other than the Tax-Free Fund) will be taxable as ordinary income to their
respective shareholders who are not currently exempt from federal income taxes,
whether such income is received in cash or reinvested in additional shares.
(Federal income taxes for distributions to an IRA or to qualified retirement
plan are deferred under the Code.) For corporate shareholders, the dividends
received deduction will apply to such distributions to the extent of the gross
amount of qualifying dividends received by the distributing Fund from domestic
corporations for the taxable year. Although the Tax-Free Income Funds and
Tax-Free
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Fund do not intend to earn any investment company taxable income, they intend to
distribute substantially all of their net tax-exempt income (such distributions
are known as "exempt-interest dividends") each taxable year. Exempt-interest
dividends may be treated by shareholders as items of interest excludable from
their gross income under Section 103(a) of the Code unless under the
circumstances applicable to the particular shareholder the exclusion would be
disallowed. See the Statement of Additional Information under "Additional
Information Concerning Taxes."
Substantially all of each Fund's net realized long-term capital gains, if any,
will be distributed at least annually to Fund shareholders. A Fund will
generally have no tax liability with respect to such gains and the distributions
will be taxable to Fund shareholders who are not currently exempt from federal
income taxes as long-term capital gains, regardless of how long the shareholders
have held Fund shares and whether such gains are received in cash or reinvested
in additional shares. The Tax-Free Income Funds and Money Market Funds do not
intend to earn any net long-term capital gains.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date before the end of the year will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year in the event such dividends are actually paid during January of the
following year.
Prior to purchasing Fund shares, the impact of dividends or distributions which
are expected to be declared or have been declared, but not paid, should be
carefully considered. Any dividend or distribution declared shortly after a
purchase of shares prior to the record date will have the effect of reducing the
per share net asset value by the per share amount of the dividend or
distribution. All or a portion of such dividend or distribution, although in
effect a return of capital, may be subject to tax.
A taxable gain or loss may be realized by a shareholder upon his redemption,
transfer or exchange of Fund shares depending upon the tax basis of such shares
and their price at the time of redemption, transfer or exchange. If a
shareholder has held shares for six months or less and during that time received
a distribution taxable as a long-term capital gain, then any loss the
shareholder might realize on the sale of those shares will be treated as a
long-term loss to the extent of the earlier capital gain distribution.
Generally, a shareholder may include sales charges incurred upon the purchase of
Fund shares in his tax basis for such shares for the purpose of determining gain
or loss on a redemption, transfer or exchange of such shares. However, if the
shareholder effects an exchange of such shares of another Fund within 90 days of
the purchase and is able to reduce the sales charge applicable to the new shares
(by virtue of the Group's exchange privilege), the amount equal to such
reduction may not be included in the tax basis of the shareholder's exchanged
shares but may be included (subject to this limitation) in the tax basis of the
new shares.
Taxes may be imposed on the Funds, particularly the Balanced Allocation Fund and
International Fund, by foreign countries with respect to income received on
foreign securities. If more than 50% of the value of a Fund's assets at the
close of its taxable year consists of stocks or securities of foreign
corporations, the Fund may elect to treat any foreign income taxes it paid as
paid by its
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shareholders. In this case, shareholders generally will be required
to include in income their pro rata share of such taxes, but will then be
entitled to claim a credit or deduction for their share of such taxes. However,
a particular shareholder's ability to utilize such a credit will be subject to
certain limitations imposed by the Code. The Funds will report to their
shareholders each year the amount, if any, of foreign taxes per share that they
have elected to have treated as paid by their shareholders.
THE MUNICIPAL BOND FUND, THE MICHIGAN BOND FUND AND THE TAX-FREE FUND (THE
"EXEMPT FUNDS")
If the Exempt Funds hold certain private activity bonds, shareholders must
include as an item of tax preference for purposes of the federal alternative
minimum tax that portion of dividends paid by these Funds derived from interest
received on such bonds. Shareholders receiving Social Security or railroad
retirement payments should note that all exempt-interest dividends will be taken
into account in determining the taxability of such benefits.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of the Exempt Funds generally will not be deductible for federal income tax
purposes.
Distributions by the Michigan Bond Fund to holders of shares who are subject to
the Michigan personal income tax and/or single business tax will not be subject
to the Michigan personal income tax, single business tax or any Michigan city
income tax to the extent that the distributions are attributable to income
received by the Michigan Bond Fund as interest from Michigan Municipal
Securities or to the extent that the distributions are attributable-to interest
income and gains from the sale or disposal of United States obligations exempted
from state taxation by the United States Constitution, treaties, and statutes.
However, some or all of the other distributions by the Michigan Bond Fund may be
taxable by the State of Michigan or subject to applicable city income taxes,
even if the distributions are attributable to income of the Michigan Bond Fund
derived from obligations of the United States or its agencies and
instrumentalities. In addition, to the extent that a shareholder of the Michigan
Bond Fund is obligated to pay state or local taxes outside of Michigan,
dividends earned by an investment in the Michigan Bond Fund may represent
taxable income. Investments held in the Michigan Bond Fund by a Michigan
resident are not subject to the Michigan intangible personal property tax to the
extent that the investments are attributable to bonds or other similar
obligations of the State of Michigan or a political subdivision thereof, or
obligations of the United States.
The Michigan Department of Treasury in a 1986 Revenue Administrative Bulletin
has taken the position that the tax attributes of the securities held by a
mutual fund flow through to the investors. Based on this position, the Michigan
Department of Treasury has stated that mutual fund distributions attributable to
interest from the fund's investment in direct U.S. government securities, as
well as Municipal Securities, will not be subject to the Michigan personal
income tax. The Michigan Department of Treasury also has stated that an owner of
a share of a mutual fund will not be subject to intangible personal property tax
to the extent that the pro rata share of the securities underlying the mutual
fund would be exempt.
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For Michigan personal income tax and intangible personal property tax purposes,
taxable distributions from investment income and short-term capital gains, if
any, are taxable as ordinary income, whether received in cash or additional
shares, and are subject to the Michigan intangible personal property tax and to
applicable Michigan city income taxes. business tax, a modified value added tax,
is computed by applying the tax rate to a tax base determined by making certain
adjustments to federal taxable income. Taxable distributions from investment
income and gains, if any, may be included in federal taxable income or may
comprise one of the adjustments made to the tax base. Distributions of cash,
other property or additional shares by the Michigan Bond Fund to a Michigan
single business taxpayer attributable to any gain realized from the sale,
exchange or other disposition of Michigan Municipal Securities may be included
in the Michigan single business taxpayer's adjusted tax base for purposes of the
Michigan single business tax to the extent included in federal taxable income.
Distributions of cash, other property or additional shares by the Michigan Bond
Fund to a Michigan single business taxpayer are not subject to the Michigan
single business tax to the extent that the distributions are attributable to
interest income from and any gain realized from the sale, exchange or other
disposition of U.S. securities. Taxable long-term capital gain distributions are
taxable as long-term capitals gains for Michigan purposes irrespective of how
long a shareholder has held the shares, except that such distributions
reinvested in shares of the Michigan Bond Fund are exempt from the Michigan
intangible personal property tax.
MISCELLANEOUS
Shareholders of the Funds will be advised at least annually as to the federal
income tax consequences of distributions made to them each year. Shareholders
are advised to consult their tax advisers concerning the application of state
and local taxes which may differ from federal tax consequences described above
in certain respects.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus; such laws and regulations may be
changed by legislative or administrative actions. The foregoing summarizes some
of the important tax considerations generally affecting the Funds and their
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisers with specific
reference to their own tax situation.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their average
annual total return, aggregate total return and/or yield may be presented in
advertisements, sales literature and shareholder reports. Such performance
figures are based on historical earnings and are not intended to indicate future
performance. Average annual total return of a class of shares in a Fund will be
calculated for the period since the establishment of the Funds and will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a class of shares in a
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (assuming immediate reinvestment of any
dividends or capital gain distributions) and annualizing the result. Aggregate
total return is calculated similarly to average annual total return except that
the return
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figure is aggregated over the relevant period instead of annualized. Yield of a
class of shares will be computed by dividing a class of shares' net investment
income per share earned during a recent one-month period by that class of
shares' per share maximum offering price (reduced by any undeclared earned
income expected to be paid shortly as a dividend) on the last day of the period
and annualizing the result. Each Fund may also present its average annual total
return, aggregate total return and yield, as the case may be, excluding the
effect of a sales charge, if any.
In addition, from time to time the Funds may represent 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 (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 ma also present a distribution rate excluding the effect of
capital gains. The distribution rate differs from the yield, because it includes
capital gains which are often non-recurring in nature, whereas yield does not
include such items. Distribution rates may also be presented excluding the
effect of a sales charge, if any.
Standardized yield and total return quotations will be computed separately for
Institutional Shares and the other classes of the Funds. Because of differences
in the fees and/or expenses borne by different classes of shares of the Funds,
the net yield and total return on Institutional Shares may be different from
that for another class of the same Fund. For example, net yield and total return
on Investor A Shares is expected, at any given time, to be lower than the net
yield and total return on Institutional Shares for the same period.
Investors may also judge the performance of any class of shares or Fund by
comparing or referencing it to the performance of various mutual fund or market
indices such as those established 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
resorts 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 the Investment Adviser 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
the Investment Adviser and BISYS voluntarily reduce all or a part of their
respective fees, as further discussed above, the total return of such Fund will
be higher than it would otherwise be in the absence of such voluntary fee
reductions.
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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 seek directly with a Group representative, employed
by the Transfer Agent, during regular business hours.
GENERAL INFORMATION
ORGANIZATION OF THE GROUP
The Group was organized as a Massachusetts business trust in 1987 and, as of the
date of this Prospectus, offers eighteen Funds. The shares of each of the Funds
of the Group may be offered in up to three separate classes: Investor A Shares,
Investor B Shares, and Institutional Shares. Each share represents an equal
proportionate interest in a Fund with is entitled to such dividends and other
shares of the same Fund, 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 investment and sub-investment advisory agreements and to satisfy
certain other requirements. To the extent that such a meeting is not required,
the Group may elect not to have an annual or special meeting.
The Group has represented to the SEC that the Trustees will call a special
meeting of shareholders for purposes of considering the removal of one or more
Trustees upon written request therefor from shareholders holding not less than
10% of the outstanding votes of the Group. At such a meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Group), by majority vote, has the power to remove one or more
Trustees.
[As of June 30, 1997, FABC, through its wholly-owned subsidiaries, possessed on
behalf of its underlying accounts voting or investment owner with respect to
more than 25% of the shares of each of the Funds, and therefore may be presumed
to control each Fund within the meaning of the 1940 Act.]
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MULTIPLE CLASSES OF SHARES
In addition to Institutional Shares, the Group also offers Investor A Shares and
Investor B Shares of certain Funds pursuant to a Multiple Class Plan adopted by
the Group's Trustees under Rule 18f-3 of the 1940 Act. A salesperson or other
person entitled to receive compensation for selling or servicing shares may
receive different compensation with respect to one particular class of shares
over another in the same Fund. The amount of dividends payable with respect to
other classes of shares will differ from dividends on-Institutional Shares as a
result of the Distribution and Shareholder Service Plan fees applicable to such
other classes of shares and because the different classes of shares may bear
different retail transfer agency expenses. For further details regarding these
other classes of shares, call the Group at (800) 451-8377.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Pursuant to Rule 17f-2, since National City and National City Bank serve as the
Group's Investment Adviser and Custodian, respectively, a procedure has been
established requiring three annual verifications, two of are to be unannounced,
of all investments held pursuant to the Custodian Services Agreement, to be
conducted by the Group's independent auditors.
The portfolio managers of the Funds and other investment professionals may from
time to time discuss in advertising, sales literature or other material,
including periodic publications, various topics of interest to shareholders and
prospective investors. The topics may include, but are not limited to, the
advantages and disadvantages of investing in tax-deferred and taxable
investments; Fund performance and how such performance may compare to various
market indices; shareholder profiles and hypothetical investor scenarios; the
economy; the financial and capital markets; investment strategies and
techniques; investment products and tax, retirement and investment planning.
Inquiries regarding the Group may be directed in writing to The Parkstone Group
of Funds at P.O. Box 8421, Boston, MA 02266-8421, or by calling toll-free (800)
________.
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.
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The Parkstone Group of Funds
BOARD OF TRUSTEES
ROBERT D. NEARY
Chairman
Retired Co-Chairman, Ernst & Young
Director:
Cold Metal Products, Inc.
Zurn Industries, Inc.
HERBERT R. MARTENS, JR.
President
Executive Vice President,
National City Corporation
Chairman, President and
Chief Executive Officer,
Officer, NatCity
Investments, Inc.
LEIGH CARTER
Retired President and
Chief Operating Officer
B.F.Goodrich Company
Director:
Acromed Corporation
Kirtland Capital Corporation
Morrison Products
JOHN F. DURKOTT
President and Chief
Operating Officer,
Kittle's Home Furnishing's
Center, Inc.
ROBERT J. FARLING
Retired Chairman, President
and Chief Executive Officer,
Centerior Energy
Director:
Republic Engineered Steels
RICHARD W. FURST, DEAN
Professor of Finance and Dean
Carol Martin Gatton College
of Business and Economics,
University of Kentucky
Director:
Foam Design, Inc.
The Seed Corporation
GERALD L. GHERLEIN
Executive Vice President and
General Counsel, Eaton
Corporation
Trustee:
Meridia Health System
WVIZ Educational Television
J. WILLIAM PULLEN
President and Chief Executive Officer,
Wayne Supply Company
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THE PARKSTONE GROUP OF FUNDS
Institutional Shares
INVESTMENT ADVISER (AND SUB-ADMINISTRATOR)
National City Investment Management Company
1900 East Ninth Street
Cleveland, Ohio 44114
SUBADVISER
Gulfstream Global Investors, Ltd.
Suite 550
100 Crescent Court
Dallas, Texas 75201
DISTRIBUTOR
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8421
Boston, MA 02266
CUSTODIAN
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44114
LEGAL COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
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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 IN A STATEMENT OF ADDITIONAL INFORMATION
ITEM NO.
<TABLE>
RULE 404(a) CROSS-REFERENCE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
10. Cover Page....................................................Cover Page
11. Table of Contents.............................................Table of Contents
12. General Information and History...............................Not Applicable
13. Investment Objectives and Policies............................Investment Objectives and Policies; Investment
Restrictions; Portfolio Turnover
14. Management of the Fund........................................Management of the Group
15. Control Persons and Principal Holders of Securities...........Principal Holders of Voting Securities
16. Investment Advisory and Other Services........................Investment Adviser; Administrator and
Sub-Administrator; Distributor; Custodian,
Transfer Agent and Fund Accounting Services;
Independent Auditors; Legal Counsel
17. Brokerage Allocation and Other Practices......................Portfolio Transactions; Distributor
18. Capital Stock and Other Securities............................Description of Shares
19. Purchase, Redemption and Pricing of Securities Being Offered..Net Asset Value; Additional Purchase and
Redemption Information
20. Tax Status....................................................Additional Tax Information; Additional Tax
Information Concerning the Exempt Funds;
Additional Tax Information Concerning the
International Fund and Emerging Markets Fund
21. Underwriters..................................................Distributor; Portfolio Transactions
22. Calculation of Performance Data...............................Yields of the Money Market Funds; Yields of the
Non-Money Market Funds; Calculation of Total
Return; Distribution Rates
23. Financial Statements..........................................Financial Statements
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION PAGE 1
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THE PARKSTONE GROUP OF FUNDS
Statement of Additional Information
September __, 1998
GROWTH FUNDS
Parkstone Small Capitalization Fund
Parkstone Mid Capitalization Fund
Parkstone Large Capitalization Fund
Parkstone International Discovery Fund
GROWTH AND INCOME FUNDS
Parkstone Equity Income Fund
Parkstone Conservative Allocation Fund
Parkstone Balanced Allocation Fund
Parkstone Aggressive Allocation Fund
INCOME FUNDS
Parkstone Bond Fund
Parkstone Limited Maturity Bond Fund
Parkstone Intermediate Government Obligations Fund
Parkstone U.S. Government Income Fund
TAX-FREE INCOME FUNDS
Parkstone Municipal Bond Fund
Parkstone Michigan Municipal Bond Fund
MONEY MARKET FUNDS
Parkstone Prime Obligations Fund
Parkstone U.S. Government Obligations Fund
Parkstone Treasury Fund
Parkstone Tax-Free Fund
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
and Institutional Shares Prospectuses dated September __, 1998 and the
Conservative Allocation Fund, Balanced Allocation Fund and Aggressive Allocation
Fund Prospectus dated September __, 1998, 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 _____________, Oaks,
Pennsylvania 19456, or by telephoning toll free (800) _________.
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TABLE OF CONTENTS
(CONTINUED)
PAGE
INVESTMENT OBJECTIVES AND POLICIES............................................2
Additional Information On Portfolio Instruments...............................2
Additional Investment Limitations............................................18
Portfolio Turnover...........................................................19
NET ASSET VALUE..............................................................21
Valuation Of The Money Market Funds..........................................22
Valuation Of The Non-Money Market Funds......................................23
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................23
MANAGEMENT OF THE GROUP......................................................24
Trustees And Officers........................................................24
Investment Adviser And Subadviser............................................29
Portfolio Transactions.......................................................34
Authority To Act As Investment Adviser.......................................37
Glass-Steagall Act...........................................................37
Administrator And Sub-Administrator..........................................38
Expenses.....................................................................41
Distributor..................................................................41
Custodian, Transfer Agent And Fund Accounting Services.......................44
Independent Auditors.........................................................45
Legal Counsel................................................................45
ADDITIONAL INFORMATION.......................................................45
Description Of Shares........................................................45
Vote Of A Majority Of The Outstanding Shares.................................47
Shareholder And Trustee Liability............................................47
Additional Tax Information...................................................48
Additional Tax Information Concerning The Exempt Funds.......................51
Additional Tax Information Concerning The International Discovery Fund.......53
Yields Of The Money Market Funds.............................................54
Yields Of The Non-Money Market Funds.........................................55
Calculation Of Total Return..................................................56
Distribution Rates...........................................................58
Performance Comparisons......................................................59
Miscellaneous................................................................60
PRINCIPAL HOLDERS OF VOTING SECURITIES.......................................61
FINANCIAL STATEMENTS.........................................................65
APPENDIX ....................................................................66
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STATEMENT OF ADDITIONAL INFORMATION
THE PARKSTONE GROUP OF FUNDS
The Parkstone Group of Funds (the "Group") is an open-end management
investment company composed of eighteen separate investment portfolios,
seventeen 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 eighteen portfolios (collectively, the "Funds" and
singly, a "Fund").
The Group includes four money market Funds: the U.S. Government
Obligations Fund, the Prime Obligations Fund, the Treasury Fund and the Tax-Free
Fund (collectively, the "Money Market Funds"), each of which, except the
Tax-Free Fund, seeks current income consistent with liquidity and stability of
principal by investing in high quality money market instruments. The Tax-Free
Fund seeks to provide current income free from federal income taxes,
preservation of capital and relative stability of principal. The U.S. Government
Obligations Fund invests primarily in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities. The Prime Obligations Fund invests in high quality money
market instruments. The Tax-Free Fund invests in high-quality tax-exempt
obligations and seeks to produce a high level of income which is exempt from
federal income taxes. The Treasury Fund invests exclusively in obligations
issued or guaranteed by the U.S. Treasury and in repurchase agreements backed by
such obligations.
In addition, the Group has fourteen variable net asset value Funds: the
Small Capitalization Fund , the Mid Capitalization Fund (formerly, the Parkstone
rEquity Fund), the Large Capitalization Fund, the International Discovery 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 U.S.
Government Income Fund, the Municipal Bond Fund and the Michigan Municipal Bond
Fund (collectively, the "Non-Money Market Funds"). The Small Capitalization Fund
seeks capital growth by investing primarily in a diversified portfolio of common
stocks and securities convertible into common stocks of small- to medium-sized
companies. The Mid Capitalization Fund seeks capital growth by investing
primarily in a diversified portfolio of common stocks and securities convertible
into common stocks. The Large Capitalization Fund seeks growth of capital by
investing primarily in a diversified portfolio of common stocks and securities
of companies with large market capitalization. The International Discovery Fund
seeks 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
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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 U.S. Government Income Fund seeks to provide shareholders
with a high level of current income consistent with prudent investment risk. The
Municipal Bond Fund seeks federal tax-exempt income with preservation of capital
by investing in tax-exempt fixed-income securities. The Michigan Municipal Bond
Fund 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
Municipal Bond Fund also seeks preservation of capital. The Small Capitalization
Fund, Mid Capitalization Fund, Large Capitalization Fund and International
Discovery Fund are sometimes referred to as the Growth Funds. The Conservative
Foundation Fund, Balanced Allocation Fund, Aggressive Allocation Fund and Equity
Income Fund are sometimes referred to as the Growth and Income Funds. The Bond
Fund, Limited Maturity Bond Fund, Intermediate Government Obligations Fund and
U.S. Government Income Fund are sometimes referred to as the Income Funds. The
Michigan Municipal 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. Capitalized terms not defined herein are defined in the
Prospectuses. No investment in shares of a Fund should be made without first
reading the Fund's Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
-----------------------------------------------
The following policies supplement the investment objectives and
policies of each Fund of the Group as set forth in the Prospectus for that Fund.
BANK OBLIGATIONS. Each of the U.S. Government Obligations
Fund, Prime Obligations Fund, Tax-Free Fund, 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, U.S. Government Income Fund, Municipal Bond
Fund and Michigan Municipal 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).
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Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and time deposits will be those of domestic and foreign banks and savings and
loan associations if (a) at the time of investment, the depository or
institution has capital, surplus and undivided profits in excess of $100,000,000
(as of the date of its most recently published financial statements), or (b) the
principal amount of the instrument is insured in full by the Federal Deposit
Insurance Corporation.
Each of the Prime Obligations Fund, U.S. Government Obligations Fund,
Tax-Free Fund, Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, International Discovery Fund, Conservative Allocation Fund,
Balanced Allocation Fund, Aggressive Allocation Fund, Equity Income Fund, Bond
Fund, Limited Maturity Bond Fund and U.S. 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 nine months and fixed rates of return.
Subject to the limitations described in the Prospectuses, the Prime
Obligations Fund, the U.S. Government Obligations Fund, the Tax-Free Fund, the
U.S. Government Income Fund and the Michigan Municipal 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 National
City Investment Management Corporation ("National City" 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 Discovery Fund, Conservative Allocation Fund, Balanced Allocation
Fund, Aggressive
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Allocation Fund, Equity Income Fund, Bond Fund, Limited Maturity Bond Fund and
U.S. Government Income Fund may also invest in Canadian commercial paper, which
is commercial paper issued by a Canadian corporation or counterpart of a U.S.
corporation, and in Europaper, which is U.S. dollar-denominated commercial paper
of a foreign issuer.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Prime Obligations Fund, U.S. Government Obligations Fund,
Tax-Free Fund, Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, Conservative Allocation Fund, Balanced Allocation Fund,
Aggressive Allocation Fund, Equity Income Fund, Bond Fund, Limited Maturity Bond
Fund, Government Income Fund, Municipal Bond Fund and Michigan Municipal 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. National City will consider the earning power, cash flow, and
other liquidity ratios of such notes and will continuously monitor the financial
status and ability to make payment on demand. In determining dollar average
maturity, a variable amount master demand note will be deemed to have a maturity
equal to the longer of the period of time remaining until the next interest rate
adjustment or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
FOREIGN INVESTMENT. Investment in foreign securities is subject to
special investment risks that differ in some respects from those related to
securities of U.S. domestic issuers. Since investments in the securities of
foreign issuers may involve currencies of foreign countries, and since the
International Discovery Fund may from time to time temporarily hold funds in
bank deposits in foreign currencies, the International Discovery Fund may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations and may incur costs in connection with conversions between
various currencies.
Since foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies, there may be less publicly available
information about a foreign company than about a U.S. company. Volume and
liquidity in most foreign bond markets are less than in the U.S. and securities
of many foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Fixed commissions on foreign securities exchanges are
generally higher than negotiated commissions on U.S. exchanges, although the
Funds endeavor to achieve the most favorable net results in their portfolio
transactions. There is generally less government supervision and regulation of
the securities exchanges, brokers, dealers and listed companies than in the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities.
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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 economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
Each of the Prime Obligations Fund, U.S. Government Obligations Fund,
Tax-Free Fund, Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, Equity Income Fund, Bond Fund and Limited Maturity Bond
Fund will acquire foreign securities only when National City or Gulfstream
Global Investors, Ltd. ("Gulfstream" or the "Subadviser"), the subadviser of the
International Discovery Fund, Conservative Allocation Fund, Balanced Allocation
Fund and Aggressive Allocation Fund, believes that the risks associated with
such investments are minimal.
VARIABLE AND FLOATING RATE NOTES. The Prime Obligations Fund, U.S.
Government Obligations Fund, Tax-Free Fund, Bond Fund, Limited Maturity Bond
Fund, U.S. Government Income Fund, Municipal Bond Fund and Michigan Municipal
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 National City, 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, National City will consider
the earning power, cash flow and liquidity ratios of the issuers of such notes
(such issuers include financial, merchandising, bank holding and other
companies) and will continuously monitor their financial condition. Although
there may be no active secondary market with respect to a particular variable or
floating rate note purchased by a Fund, the Fund may resell the note at any time
to a third party. The absence of an active secondary market, however, could make
it difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, as a result, or for other reasons, suffer a loss to the extent of the
default. To the extent that the Fund is not entitled to receive the principal
amount of a note within 7 days, such note will be treated as an illiquid
security for purposes of the calculation of the limitation on the Fund's
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investment in illiquid securities as set forth in that Fund's investment
restrictions. Variable or floating rate notes may be secured by bank letters of
credit.
Variable or floating rate notes invested in by the Prime Obligations
Fund, U.S. Government Obligations Fund and the Tax-Free Fund may have maturities
of more than 397 days, as follows:
1. An instrument that is issued or guaranteed by the United States
government or any agency thereof which has a variable rate of interest adjusted
no less frequently than every 397 days will be deemed by a Fund to have a
maturity equal to the period remaining until the maturity date or the next
readjustment of the interest rate, whichever is less.
2. A variable rate note, the principal amount of which is scheduled on
the face of the instrument to be paid in 397 days or less, will be deemed by a
Fund to have a maturity equal to the period remaining until the maturity date or
the next readjustment of the interest rate, whichever is less.
3. A variable rate note that is subject to a demand feature will be
deemed by a Fund to have a maturity equal to the longer of the period remaining
until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand.
4. A floating rate note that is subject to a demand feature will be
deemed by 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, 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. Each Non-Money Market Fund will incur additional
expenses due to the duplication of expenses as a result of investing in
securities of money market mutual funds.
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 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
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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 Municipal 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 Municipal Bond Fund
will be invested in Michigan Municipal Securities, and at least 65% of the net
assets of the Michigan Municipal 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
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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 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
Municipal 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 Municipal 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. National City will consider such an event in determining whether a
Fund should continue to hold the obligation.
An issuer's obligations under Exempt Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of Exempt Securities may be materially
adversely affected by litigation or other conditions.
GOVERNMENT OBLIGATIONS. Each of the Funds may invest in obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities, including bills, notes and bonds issued by the U.S. Treasury,
as well as "stripped" U.S. Treasury Obligations ("Stripped Treasury
Obligations") such as Treasury receipts issued by the U.S. Treasury representing
either future interest or principal payments. Stripped securities are issued at
a discount to their "face
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value," and may exhibit greater price volatility than ordinary debt securities
because of the manner in which their principal and interest are returned to
investors. The Stripped Treasury Obligations in which the Money Market Funds may
invest do not include certificates of accrual on Treasury securities ("CATS") or
Treasury income growth receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S.
government are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the Treasury;
others are supported by the discretionary authority of the U.S. government to
purchase the agency's obligations; and still others are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
government will provide financial support to U.S. government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
TAXABLE OBLIGATIONS. Under normal market conditions, each of the Exempt
Funds may invest up to 20% of its total assets in Taxable Obligations. Taxable
Obligations may include: (1) obligations of the United States Treasury; (2)
obligations of agencies and instrumentalities of the United States government;
(3) money market instruments, such as certificates of deposit issued by domestic
banks, corporate commercial paper, and bankers' acceptances; and (4) taxable
instruments subject to repurchase agreements (agreements under which the seller
agrees at the time of sale to repurchase the securities it is selling at an
agreed time and price). Certificates of deposit will be those of domestic
branches of U.S. banks' which are members of the Federal Reserve System or the
Federal Deposit Insurance Corporation and which have total assets at the time of
purchase in excess of $100,000,000, or of savings and loan associations which
are members of the Federal Deposit Insurance Corporation and which have total
assets at the time of purchase in excess of $100,000,000. Bankers' acceptances
will be guaranteed by U.S. commercial banks having total assets at the time of
purchase in excess of $100,000,000. Obligations of the U.S. Treasury and U.S.
government agencies and instrumentalities, bankers' acceptances, and
certificates of deposit are described in this Statement of Additional
Information.
OPTIONS TRADING. Each of the Non-Money Market Funds may purchase put
and call options. A call option gives the purchaser of the option the right to
buy, and the writer has the obligation to sell, the underlying security or
foreign currency at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price or exchange rate of the
security or foreign currency, as the case may be. The premium paid to the writer
is consideration for undertaking the obligations under the option contract. A
put option gives the purchaser the right to sell the underlying security or
foreign currency at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price or exchange rate
of the security or foreign currency, as the case may be. Put and call options
purchased by the Non- Money Market Funds are valued at the last sale price, or
in the absence of such a price, at the mean between bid and asked price.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the traded
option is the last sale price or , in the absence of a sale, the average of the
closing bid and
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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
Each of the Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, International Discovery Fund, Conservative Allocation Fund,
Balanced Allocation Fund, Aggressive Allocation Fund, Equity Income Fund and
U.S. 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 National City's opinion, present minimal credit
risks.
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WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Each Fund may purchase
securities on a "when-issued" or "delayed-delivery" basis (i.e., for delivery
beyond the normal settlement date at a stated price and yield). When the Fund
agrees to purchase securities on a "when-issued" or "delayed-delivery" basis,
the Fund's Custodian will set aside cash or liquid securities equal to the
amount of the commitment in a separate account. Normally, the Custodian will set
aside portfolio securities to satisfy the purchase commitment, and in such a
case, the Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. In
addition, because the Fund will set aside cash or liquid securities to satisfy
its purchase commitments in the manner described above, the Fund's liquidity and
the ability of National City 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 Discovery 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, U.S. 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
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mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates, the
mortgages underlying the securities are prone to prepayment, thereby shortening
the average life of the security and shortening the period of time over which
income at the higher rate is received. When interest rates are rising, though,
the rate of prepayment tends to decrease, thereby lengthening the period of time
over which income at the lower rate is received. For these and other reasons, a
mortgage-related security's average maturity may be shortened or lengthened as a
result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return to the Funds. In addition, regular
payments received in respect of mortgage-related securities include both
interest and principal. No assurance can be given as to the return the Funds
will receive when these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. government corporation within the Department
of Housing and Urban Development. GNMA certificates are also supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-related securities issued by FNMA include FNMA
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of FNMA and are not backed by or entitled to
the full faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to the timely payment of the principal and interest by FNMA. Mortgage-related
securities issued by FHLMC include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of
the United States, created pursuant to an Act of Congress and owned entirely by
the Federal Home Loan Banks. Freddie Macs are not guaranteed by the United
States or by any Federal Home Loan Banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to the timely payment of interest, which is guaranteed by
FHLMC. FHLMC guarantees either ultimate collection or the timely payment of all
principal payments on the underlying mortgage loans. When FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
MEDIUM-GRADE SECURITIES. The Conservative Allocation Fund, Balanced
Allocation Fund and Aggressive Allocation Fund, Bond Fund, Limited Maturity Bond
Fund, Municipal Bond Fund and Michigan Municipal Bond Fund may each invest in
securities which are rated within the four highest rating categories assigned by
an NRSRO (including, for example, securities
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rated BBB by S&P or Baa by Moody's) or, if not rated, are of comparable quality
as determined by National City. ("Medium-Grade Securities").
As with other fixed-income securities, Medium-Grade Securities are
subject to credit risk and market risk. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit risk relates
to the ability of an issuer to make payments of principal and interest.
Medium-Grade Securities are considered by Moody's to have speculative
characteristics.
Medium-Grade Securities are generally subject to greater credit risk
than comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of Medium-Grade Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
Because certain Medium-Grade Securities are traded only in markets
where the number of potential purchasers and sellers, if any, is limited, the
ability of a Fund to sell such securities at their fair market value either to
meet redemption requests or to respond to changes in the financial markets may
be limited.
Particular types of Medium-Grade Securities may present special
concerns. The prices of payment-in-kind or zero-coupon securities may react more
strongly to changes in interest rates than the prices of other Medium-Grade
Securities. Some Medium-Grade Securities in which a Fund may invest may be
subject to redemption or call provisions that may limit increases in market
value that might otherwise result from lower interest rates while increasing the
risk that a Fund may be required to reinvest redemption or call proceeds during
a period of relatively low interest rates.
The credit ratings issued by Moody's and S&P are subject to various
limitations. For example, while such ratings evaluate credit risk, they
ordinarily do not evaluate the market risk of Medium-Grade Securities. In
certain circumstances, the ratings may not reflect in a timely fashion adverse
developments affecting an issuer. For these reasons, National City conducts its
own independent credit analysis of Medium-Grade Securities.
RESTRICTED SECURITIES. Each of the Funds, except the Treasury Fund, may
invest in Section 4(2) securities. "Section 4(2) Securities," as described in
the Prospectuses, are securities which are issued in reliance on the "private
placement" exemption from registration which is afforded by Section 4(2) of the
Securities Act of 1933 (the "1933 Act"). The Funds will not purchase Section
4(2) Securities which have not been determined to be liquid in excess of 15%
(10% in the case of the Money Market Funds) of the total assets of that Fund.
The Group's Board of Trustees has delegated to National City 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
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qualified institutional buyer must generally own and invest on a discretionary
basis at least $100 million in securities.
National City 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, National City 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 broker-dealers which National City deems
creditworthy under the guidelines approved by the Group's Board of Trustees,
subject to the seller's agreement to repurchase such securities at a mutually
agreed upon date and price. The repurchase price would generally equal the price
paid by the Fund plus interest negotiated on the basis of current short-term
rates, which may be more or less than the rate on the underlying portfolio
securities. The seller under a repurchase agreement will be required to maintain
at all times the value of collateral held pursuant to the agreement at not less
than the repurchase price (including accrued interest). If the seller were to
default on its repurchase obligation or become insolvent, the Fund holding such
obligation would suffer a loss to the extent that the proceeds from the sale of
the underlying portfolio securities were less than the repurchase price under
the agreement, or to the extent that the disposition of such securities by the
Fund were delayed pending court action. Additionally, there is no controlling
legal precedent confirming that a Fund would be entitled, as against a claim by
such seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although management of the Group believes that, under the regular
procedures normally in effect for custody of a Fund's securities subject to
repurchase agreements, and under federal laws, a court of competent jurisdiction
would rule in favor of the Group if presented with the question. Securities
subject to repurchase agreements will be held by the Group's Custodian or
another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS. As discussed
in the Prospectuses, each of the Group's Funds may borrow money by entering into
reverse repurchase agreements and, with respect to the Income and Tax-Free
Income Funds, dollar roll agreements in accordance with that Fund's investment
restrictions. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase the securities, or substantially similar securities in the case of
a dollar roll agreement, at a mutually agreed upon date and price. A dollar roll
agreement is identical to a
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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.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercising
the option at any time during the option period.
Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. government securities or other
liquid high-grade debt obligations, to cover its performance under such
contracts. A Fund may lose the expected benefit of futures transactions if
interest rates, securities prices or foreign exchange rates move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of a Fund's futures positions may not prove
to be perfectly or even highly correlated with its portfolio securities and
foreign currencies, limiting the Fund's ability to hedge effectively against
interest rate, foreign exchange rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each of the Funds, except
the Money Market Funds and the Tax-Free Income Funds, may invest in forward
foreign currency exchange contracts. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days ("term") from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers.
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No Fund intends to enter into such forward foreign currency exchange
contracts if such Fund would have more than 15% of the value of its total assets
committed to such contracts on a regular or continuous basis. A Fund also will
not enter into such forward contracts or maintain a net exposure on such
contracts where such Fund would be obligated to deliver an amount of foreign
currency in excess of the value of such Fund's portfolio securities or other
assets denominated in that currency. National City 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 currency security.
If the value of the securities segregated declines, additional cash or
securities are added so that the segregated amount is not less than the amount
of such Fund's commitments with respect to such contracts. The Funds generally
do not enter into a forward contract for a term longer than one year.
FOREIGN CURRENCY OPTIONS. Each of the Funds, except the Money Market
Funds and the Tax-Free Income Funds, may invest in foreign currency options. A
foreign currency option provides the option buyer with the right to buy or sell
a stated amount of foreign currency at the exercise price at a specified date or
during the option period. A call option gives its owner the right, but not the
obligation, to buy the currency, while a put option gives its owner the right,
but not the obligation, to sell the currency. The option seller (writer) is
obligated to fulfill the terms of the option sold if it is exercised. However,
either seller or buyer may close its position during the option period in the
secondary market for such options any time prior to expiration.
A call rises in value if the underlying currency appreciates.
Conversely, a put rises in value if the underlying currency depreciates. While
purchasing a foreign currency option can protect a Fund against an adverse
movement in the value of a foreign currency, it does not limit the gain which
might result from a favorable movement in the value of such currency. For
example, if a Fund were holding securities denominated in an appreciating
foreign currency and had purchased a foreign currency put to hedge against a
decline in the value of the currency, it would not have to exercise its put.
Similarly, if a Fund has entered into a contract to purchase a security
denominated in a foreign currency and had purchased a foreign currency call to
hedge against a rise in the value of the currency but instead the currency had
depreciated in value between the date of purchase and the settlement date, such
Fund would not have to exercise its call, but could acquire in the spot market
the amount of foreign currency needed for settlement.
FOREIGN CURRENCY FUTURES TRANSACTIONS. Each of the Funds, except the
Money Market Funds and the Tax-Free Income Funds, may invest in foreign currency
futures transactions. As part of its financial futures transactions, the Funds
may use foreign currency futures contracts and options on such futures
contracts. Through the purchase or sale of such contracts, a Fund may be able to
achieve many of the same objectives as through forward foreign currency exchange
contracts more effectively and possibly at a lower cost.
Unlike forward foreign currency exchange contracts, foreign currency
futures contracts and options on foreign currency futures contracts are
standardized as to amount and delivery period and may be traded on boards of
trade and commodities exchanges or directly with a dealer
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which makes a market in such contracts and options. It is anticipated that such
contracts may provide greater liquidity and lower cost than forward foreign
currency exchange contracts.
REGULATORY RESTRICTIONS. To the extent required to comply with
Securities and Exchange Commission (the "SEC") Release No. IC-10666, when
purchasing a futures contract or writing a put option or entering into a forward
foreign currency exchange purchase, a Fund will maintain in a segregated account
cash or liquid high-grade debt securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of such Fund's total assets. Such Fund will not engage in
transactions in financial futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting the
values of securities which such Fund holds or intends to purchase. When futures
contracts or options thereon are purchased to protect against a price increase
on securities intended to be purchased later, it is anticipated that at least
25% of such intended purchases will be completed. When other futures contracts
or options thereon are purchased, the underlying value of such contracts will at
all times not exceed the sum of: (1) accrued profit on such contracts held by
the broker; (2) cash or high quality money market instruments set aside in an
identifiable manner; and (3) cash proceeds from investments due in 30 days.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional
income, each of the Funds except the Treasury Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks or institutional borrowers of
securities. A Fund must receive 100% collateral in the form of cash or U.S.
government securities. This collateral must be valued daily by the Custodian
and, should the market value of the loaned securities increase, the borrower
must furnish additional collateral to the Fund. During the time portfolio
securities are on loan, the borrower days the Fund any dividends or interest
paid on such securities. Loans are subject to termination on 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 recover 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 National City or Gulfstream has determined are
creditworthy under guidelines established by the Group's Board of Trustees.
ADDITIONAL INVESTMENT LIMITATIONS
Each Fund's investment objective may be changed without a vote of the
holders of a majority of the Fund's outstanding shares. In addition to the
investment limitations disclosed in the Prospectus, the Funds are subject to the
following investment limitations which may be changed with respect to a
particular Fund only by a vote of the holders of a majority of such Fund's
outstanding shares (as defined under "ADDITIONAL
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INFORMATION Vote of a Majority of the Outstanding Shares" in this Statement of
Additional Information).
No Fund may:
1. Purchase or sell real estate, except that the Fund may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Invest in commodities, except that as consistent with its investment
objective and policies a Fund may: (a) purchase and sell options, forward
contracts, futures contracts, including without limitation those relating to
indices; (b) purchase and sell options on futures contracts or indices; and (c)
purchase publicly traded securities of companies engaging in whole or in part in
such activities. For purposes of this investment limitation, "commodities"
includes commodity contracts.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as the Fund might be deemed to be an
underwriter upon the disposition of portfolio securities acquired within the
limitation on purchases of illiquid securities and except to the extent that the
purchase of obligations directly from the issuer thereof in accordance with its
investment objective, policies and limitations may be deemed to be underwriting.
In addition, the Funds are subject to the following non-fundamental
limitations, which may be changed without the vote of shareholders.
No Fund may:
1. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted under the 1940 Act.
2. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except, as consistent with the Fund's investment objective
and policies for transactions in options on securities or indices of securities,
future contracts and options on futures contracts and in similar investments.
3. Purchase securities on margin, make short sales of securities or
maintain a short position, except that, as consistent with a Fund's investment
objective and policies, (a) this investment limitation shall not apply to the
Fund's transactions in futures contracts and related options, options on
securities or indices of securities and similar instruments, and (b) it may
obtain short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities.
4. Purchase securities of companies for the purpose of exercising
control.
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5. Invest more than 15% (10% in the case of a Money Market Fund) of its
net assets in illiquid securities.
The Funds do not intend to purchase securities while their outstanding
borrowings (including reverse repurchase agreements) are in excess of 5% of
their respective total assets. Securities held in escrow or separate accounts in
connection with a Fund's investment practices are not deemed to be pledged for
purposes of this limitation.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each of the Group's Funds is calculated
by dividing the lesser of a Fund's purchases or sales of portfolio securities
for the year by the monthly average value of the securities. The SEC requires
that the calculation exclude all securities whose remaining maturities at the
time of acquisition are one year or less.
Because each Money Market Fund intends to invest entirely in securities
with maturities of less than one year and because the SEC requires such
securities to be excluded from the calculation of portfolio turnover rate, the
portfolio turnover rate with respect to each of the Money Market Funds is
expected to be zero for regulatory purposes. Portfolio turnover rates for each
of the other Funds for the fiscal period ended May 31, 1998 and the fiscal year
ended 1997, were as follows:
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<TABLE>
<CAPTION>
Fiscal Period Ended Fiscal Year Ended
May 31, 1998 June 30, 1997
Fund (Percent) (Percent)
<S> <C>
Small Capitalization 48.45
Mid Capitalization 38.47
Large Capitalization 48.44
International Discovery 45.18
Equity Income 20.14
Conservative Allocation(1) 62.11
Balanced Allocation 425.05
Aggressive Allocation(1) 44.68
Bond 827.00
Limited Maturity Bond 607.84
Intermediate Government 1,516.78
Obligations
Government Income 499.53
Municipal Bond 48.83
Michigan Municipal Bond 28.48
<FN>
(1) Portfolio turnover rates were only available for the Conservative
Allocation Fund and the Aggressive Allocation Fund since their inception on
December 30, 1996.
</TABLE>
The portfolio turnover rates for the Funds of the Group may vary
greatly from year to year as well as within a particular year, and may also be
affected by cash requirements for redemptions of shares and, in the case of the
Municipal Bond Fund and the Michigan Municipal Bond Fund, by requirements which
enable those Funds to receive certain favorable tax treatments. With respect to
the Conservative Allocation Fund, the Investment Adviser anticipates that the
annual portfolio turnover rate may be as high as 600%. With respect to the
Aggressive Allocation Fund, 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
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additional tax consequences to a Fund's shareholders. Portfolio turnover will
not be a limiting factor in making investment decisions.
Significant changes in the portfolio turnover rates for the Small
Capitalization Fund, the Mid Capitalization Fund and the Large Capitalization
Fund were primarily the result of fundamental changes in the prospects of the
companies held and/or the availability of better opportunities. In addition,
with respect to the Small Capitalization Fund and the Mid Capitalization Fund,
portfolio turnover was affected by equity market capitalization exceeding $2.5
billion and $10 billion, respectively. For the Equity Income Fund, reduced
portfolio turnover resulted from sustained suitability of securities held in the
portfolio. The decrease in portfolio turnover for the International Discovery
Fund was principally due to the fact that there were fewer changes in country
allocation during the latest 12-month period ended June 30, 1997 as heavier
weighting in continental Europe and lesser weighting in the Far East were
maintained.
For the Group's Income Funds, changes in portfolio turnover rates
occurred in connection with changes in opportunities perceived by the Investment
Adviser to be profitable to the Funds and their shareholders.
NET ASSET VALUE
As indicated in the Prospectuses, the net asset value of each Fund is
determined and the shares of each Fund are priced as of the Valuation Times
defined in the Prospectuses on each Business Day of the Group. A "Business Day"
is a day on which the New York Stock Exchange (the "NYSE") is open for trading
and any other day other than a day on which no shares of the Fund are rendered
for redemption and no order to purchase any shares is received. Currently, the
NYSE will not be open in observance of the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The offering prices for Investor A Shares of the Non-Money Market Funds
as of May 31, 1998 were calculated as illustrated in this example using the
Small Capitalization Fund:
<TABLE>
<CAPTION>
<S> <C>
Net Assets [$188,645,098.79]
Outstanding Shares [6,848,131.825]
Net Asset Value Per Share [$ 27.55]
Sales Charge, 4.50% of
the offering price (4.71 of NAV) per share [1.30]
------------------
Offering Price $ [28.85]
</TABLE>
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<PAGE> 339
The offering prices for Investor B Shares of the Funds as of May 31,
1998 were calculated as illustrated in this example using the Small
Capitalization Fund:
<TABLE>
<S> <C>
Net Assets [$ 46,894,946.20]
Outstanding Shares [1,737,673.274]
Net Asset Value Per Share $ [26.99]
Sales Charge 0.00
------------------
Offering Price $ [26.99]
</TABLE>
The offering prices for Institutional Shares of the Non-Money Market
Funds as of May 31, 1998 were calculated as illustrated in this example using
the Small Capitalization Fund:
<TABLE>
<S> <C>
Net Assets [$602,787,656.89]
Outstanding Shares [21,595,314.558]
Net Asset Value Per Share $ [27.91]
Sales Charge 0.00
------------------
Offering Price $ [27.91]
</TABLE>
Valuation of the Money Market Funds
- -----------------------------------
The Money Market Funds have elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price a Fund would receive if it sold the instrument. The value of
securities in the Money Market Funds can be expected to vary inversely with
changes in prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Funds will maintain a
dollar-weighted average maturity appropriate to each Fund's objective of
maintaining a stable net asset value per share, provided that no Fund will
purchase any security with a remaining maturity of more than 397 days (thirteen
months) (securities subject to repurchase agreements may bear longer maturities)
nor will it maintain a dollar-weighted average maturity which exceeds 90 days.
The Group's Board of Trustees has also undertaken to establish procedures
reasonably designed, taking into account current market conditions and the
investment objective of each of these Funds, to stabilize the net asset value
per share of each Fund for purposes of sales and redemptions at $1.00. These
procedures include review by the Trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
share of each Fund calculated by using available market quotations deviates from
$1.00 per share. In the event such deviation exceeds 0.5%, Rule 2a-7 requires
that the Board of Trustees promptly consider what
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<PAGE> 340
action, if any, should be initiated. If the Trustees believe that the extent of
any deviation from a Fund's $1.00 amortized cost price per share may result in
material dilution or other unfair results to new or existing investors, they
will take such steps as they consider appropriate to eliminate or reduce, to the
extent reasonably practicable, any such dilution or unfair results. These steps
may include selling portfolio instruments prior to maturity, shortening the
dollar-weighted average maturity, withholding or reducing dividends, reducing
the number of the Fund's outstanding shares without monetary consideration, or
utilizing a net asset value per share determined by using available market
quotations. As permitted by Rule 2a-7 and the procedures adopted by the Board,
certain of the Board's responsibilities under the Rule may be delegated to the
Investment Adviser.
Valuation of the Non-Money Market Funds
- ---------------------------------------
Portfolio securities, the principal market for which is a securities
exchange, will be valued at the closing sales price on that exchange on the day
of computation, or, if there have been no sales during such day, at the latest
bid quotation. Portfolio securities, the principal market for 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, SEI Investment Distribution Co.
("SEI" or the "Distributor"), and SEI 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 and
Institutional Shares. In addition to purchasing shares directly from SEI,
Institutional Shares may be purchased at net asset value through procedures
established by SEI in connection with the requirements of financial
institutions, including the Trust Department of National City Bank, an affiliate
of the Funds' Investment Adviser, National City or National City Bank'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 National City Bank 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
-23-
<PAGE> 341
quantity purchased. The public offering price of such Investor A Shares of the
Group is calculated by dividing net asset value by the difference (expressed as
a decimal) between 100% and the sales charge percentage of offering price
applicable to the purchase (see "HOW TO BUY INVESTOR A SHARES" in the relevant
Prospectus). The offering price is rounded to two decimal places each time a
computation is made. The sales charge scale set forth in the Investor A Share
Prospectus applies to purchases of Investor A Shares of a Fund.
The public offering price of Investor B Shares of each Fund is their
net asset value per share. Investor B Shares redeemed prior to five years from
the date of purchase may be subject to a contingent deferred sales charge of
2.00% to 5.00%. Investor B Shares purchased prior to January 1, 1997 may be
subject to a contingent deferred sales charge of 2.00% to 4.00%, if redeemed
prior to four years from the date of purchase.
The Group may suspend the right of redemption or postpone the date of
payment for shares during any period when: (a) trading on the NYSE is restricted
by applicable rules and regulations of the SEC; (b) the NYSE is closed for other
than customary weekend and holiday closings; (c) the SEC has by order permitted
such suspension; or (d) an emergency exists as a result of which: (i) disposal
by the Group of securities owned by it is not reasonably practicable, or (ii) it
is not reasonably practicable for the Group to determine the fair market value
of its net assets.
The Money Market Funds may redeem shares involuntarily if redemption
appears appropriate in light of the Group's responsibilities under the 1940 Act.
See "NET ASSET VALUE - Valuation of the Money Market Funds" in this Statement of
Additional Information.
MANAGEMENT OF THE GROUP
Trustees and Officers
Overall responsibility for management of the Group rests with its Board
of Trustees, who are elected by the shareholders of the Group's Funds. The
Trustees elect the officers of the Group to supervise actively its day-to-day
operations. One officer of the Trust, Herbert R. Martens, Jr., also serves as a
Trustee.
The Trustees of the Group, their addresses, birth dates and principal
occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Names, Addresses Positions(s) Held Principal Occupation
and Birthdates With the Group During Past 5 Years
------------------- -------------- -------------------
<S> <C> <C>
Robert D. Neary Chairman of the Board Retired Co-Chairman of Ernst &
32980 Creekside Drive Young, April 1984 - September 1993;
Pepper Pike, OH 44124 Director, Cold Metal Products, Inc.,
Age 64
</TABLE>
-24-
<PAGE> 342
<TABLE>
<CAPTION>
Names, Addresses Positions(s) Held Principal Occupation
and Birthdates With the Group During Past 5 Years
------------------- -------------- -------------------
<S> <C> <C>
since March 1994; Director, Zurn
Industries, Inc. (building products
and construction services), since
June 1995; Chairman of the board of
Armada Funds since November 1996 and
a trustee since August 1996.
Leigh Carter* Trustee Retired President and Chief
13901 Shaker Blvd., #6B Operating Officer, B.F. Goodrich
Cleveland, OH 44120 Company, August 1986 to September
Age 72 1990; Director, Adams Express
Company (closed-end investment
company), April 1982 to December 1997;
Director, Acromed Corporation (producer
of spinal implants), since June 1992;
Director, Petroleum & Resources Corp.,
April 1987 to December 1997; Director,
Morrison Products (manufacturer of
blower fans and air moving equipment),
since April 1983; Director, Kirtland
Capital Corp. (privately funded
investment group), since January 1992;
trustee, Armada Funds, since November
1993.
John F. Durkott Trustee President and Chief Operating
8600 Allisonville Road Officer, Kittle's Home Furnishings
Indianapolis, IN 46250 Center, Inc., since January 1982;
Age 54 partner, Kittles Bloomington
Property Company, since January 1981;
partner, KK&D (Affiliated Real Estate
Companies of Kittle's Home Furnishings
Center), since January 1989; trustee,
Armada Funds, since November 1993.
</TABLE>
-25-
<PAGE> 343
<TABLE>
<CAPTION>
Names, Addresses Positions(s) Held Principal Occupation
and Birthdates With the Group During Past 5 Years
------------------- -------------- -------------------
<S> <C> <C>
Robert J. Farling Trustee Retired Chairman, President and
1608 Balmoral Way Chief Executive Officer, Centerior
Westlake, OH 44145 Energy (electric utility), March
Age 61 1992 to October 1997; Director,
National City Corporation (bank holding
company) until October 1997; Director,
Republic Engineered Steels, since
October 1997; trustee, Armada Funds,
since November 1997.
Richard W. Furst, Dean Trustee Professor of Finance and Dean,
600 Autumn Lane Carol Martin Gatton College of
Lexington, KY 40502 Business and Economics, University
Age 59 of Kentucky, since 1981; Director,
The Seed Corporation (restaurant
group), since 1990; Director, Foam
Design, Inc. (manufacturer of
industrial and commercial foam
products), since 1993; trustee, Armada
Funds, since June 1990.
Gerald L. Gherlein Trustee Executive Vice-President and
3679 Greenwood Drive General Counsel, Eaton Corporation
Pepper Pike, OH 44124 (global manufacturing), since 1991;
Age 60 Trustee, Meridia Health System (four
hospital health system); Trustee, WVIZ
Educational Television (public
television); Trustee, Armada Funds,
since July 1997.
Herbert R. Martens, Jr. Trustee Executive Vice President, National
c/o NatCity Investments Inc. City Corporation (bank holding
1965 East Sixth Street company), since July 1997; Chairman,
Cleveland, OH 44114 President and Chief Executive
Age 45 Officer, NatCity Investments, Inc.
(investment banking), since July 1995;
President and Chief Executive Officer,
Raffensperger, Hughes & Co.
(broker-dealer), from 1993
</TABLE>
-26-
<PAGE> 344
<TABLE>
<CAPTION>
Names, Addresses Positions(s) Held Principal Occupation
and Birthdates With the Group During Past 5 Years
------------------- -------------- -------------------
<S> <C> <C>
until 1995; President, Reserve Capital
Group, from 1990 until 1993; President,
since July 1997 and Trustee, since
November 1997 of Armada Funds.
J. William Pullen Trustee President and Chief Executive
Whayne Supply Company Officer, Whayne Supply Co. (engine
1400 Cecil Avenue and heavy equipment distribution),
P.O. Box 35900 since 1986; President and Chief
Louisville, KY 40232-5900 Executive Officer, American
Age 59 Contractors Rentals & Sales (rental
subsidiary of Whayne Supply Co.), since
1988; Trustee of Armada Funds, since
November 1993.
- --------------------------------------------------------------------------------
<FN>
*Mr. Carter is an "interested person" of the Trust, as defined
in the 1940 Act, due to his ownership of _______shares of stock of National City
Corporation, the ultimate parent corporation of National City Investment
Management Company, the Funds' investment adviser. Mr. Martens is an "interested
person" because (1) he is an Executive Vice President of National City
Corporation, (2) he owns shares of common stock and options to purchase common
stock of National City Corporation, and (3) he is the Chief Executive Officer of
NatCity Investments, Inc., a broker-dealer affiliated with National City
Investment Management Company.
</TABLE>
The Group paid an aggregate of $______ in Trustees' fees and expenses
for the fiscal year ended May 31, 1998, to all Trustees of the Group. 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, and as Trustees for Armada
Funds. The following table depicts, for the fiscal period ended May 31, 1998,
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.
-27-
<PAGE> 345
<TABLE>
<CAPTION>
COMPENSATION TABLE
TOTAL
COMPENSATION
FROM GROUP
THE PARKSTONE
ADVANTAGE
PENSION OR FUND
RETIREMENT AND THE
BENEFITS ESTIMATED FUND COMPLEX
AGGREGATE ACCRUED AS ANNUAL BENEFITS (ARMADA FUNDS)
COMPENSATION PART OF FUND UPON PAID TO
NAME OF TRUSTEE FROM THE GROUP EXPENSES RETIREMENT TRUSTEES
--------------- -------------- -------- ---------- --------
<S> <C> <C> <C> <C>
Robert D. Neary -0- -0- -0-
Lehigh Carter -0- -0- -0-
John F. Durkott -0- -0- -0-
Robert J. Farling -0- -0- -0-
Richard W. Puret -0- -0- -0-
Gerald L. Gherlein -0- -0- -0-
Herbert R. Martens, Jr. -0- -0- -0- -0-
J. William Pullen -0- -0- -0-
John B. Rapp -0- -0- -0-
George R. Landreth -0- -0- -0- -0-
Robert M. Beam -0- -0- -0- -0-
Lawrence D. Bryan -0- -0- -0- -0-
Adrian Charles Edwards -0- -0- -0- -0-
James F. Jones, Jr. -0- -0- -0- -0-
</TABLE>
Each Trustee who is not an affiliated person of BISYS or National City
Corporation, the ultimate parent of National City, receives annual compensation
and compensation for meeting attendance from the Group for his or her services
as a Trustee and is reimbursed for expenses incurred in attending meetings. Mr.
Martens is an employee of National City Corporation. He receives no compensation
from the Group for acting as Trustee. Mr. Landreth served as Chairman of the
Board until his resignation as Chairman on February 12, 1997, at which time Mr.
Rapp became a Trustee and assumed that position. Mr. Landreth resigned as
Trustee and the Group's President on October 23, 1997. Dr. Jones began serving
as a Trustee on August 21, 1997. Mr. Rapp is an employee of FABC and a director
of First of America, and Mr. Landreth is an employee of BISYS. Neither of them
receives any compensation from the Group for acting as Trustee.
The officers of the Group, their addresses, and principal occupations
during the past five years are as follows:
-28-
<PAGE> 346
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name With the Group During Past 5 Years
- ---- -------------- -------------------
<S> <C> <C>
Herbert R. Martens, Jr. President Executive Vice President,
National City Corporation
(bank holding company), since July
1997; Chairman, President and Chief
Executive Officer, NatCity
Investments, Inc. (investment
banking), since July 1995; President
and Chief Executive Officer,
Raffensperger, Hughes & Co.,
(broker-dealer), from 1993 until 1995;
President, Reserve Capital Group, from
1990 until 1993; President, since July
1997 and Trustee, since November 1997
of Armada Funds.
W. Bruce McConnel, III Secretary Partner of the law firm
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania.
Gary Tenkman Assistant Treasurer Director of Financial
Services, BISYS Fund
Services since April 1998;
formerly, Audit Manager,
Ernst & Young LLP.
</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 Distributor, BISYS may retain all or a portion
of any sales charge on the shares sold and may receive fees under the
Distribution and Shareholder Service Plans described below. BISYS Fund Services
Ohio, Inc. ("BISYS Ohio," or the "Fund Accountant") receives fees from the Group
for providing certain fund accounting services. Mr. Tenkman, the Assistant
Treasurer of the Group, is an employee of BISYS.
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 National City
(formerly "First of America"), 1900 East Ninth Street, Cleveland, Ohio 44114,
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,
-29-
<PAGE> 347
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 (with respect to the International
Discovery Fund (the "Second Investment Advisory Agreement") (together called the
"Investment Advisory Agreements").
National City is a registered investment adviser and an indirect
wholly-owned subsidiary of National City Corporation ("NCC"). NCC recently
consolidated the asset management responsibilities of its various bank
affiliates including FOA. Prior to such time, the investment adviser of the
Funds was First of America Investment Corporation ("First of America"), a
wholly-owned subsidiary of FOA.
Under the Investment Advisory Agreements, National City 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 National City 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 Discovery Fund; 1.25% of the
first $50 million of the International Discovery 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. 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.
National City may periodically voluntarily reduce all or a portion of its
advisory fee with respect to any Fund to increase the net income of one or more
of the Funds available for distribution as dividends.
Pursuant to each of the Investment Advisory Agreements, National City
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, National City may retain a subadviser to manage the investment and
reinvestment of the assets of the International Discovery Fund subject to the
direction and control of the Group's Board of Trustees. Pursuant to the Group's
Investment Advisory Agreement relating to the Balanced Allocation Fund, National
City 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 that Agreement, National City may retain a subadviser
to
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<PAGE> 348
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 National City entered into a Sub-Investment
Advisory Agreement between National City 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 National City to
manage the investment and reinvestment of the assets of the International
Discovery Fund, subject to the direction and control of National City and the
Group's Board of Trustees. At a meeting of shareholders held on February 28,
1995, shareholders of the International Discovery Fund and the Balanced
Allocation Fund approved both the Initial Sub-Investment Advisory Agreement and
A Sub-Investment Advisory Agreement between National City and Gulfstream (the
"Current Sub-Investment Advisory Agreement"). The terms of the Current
Sub-Investment Advisory Agreement, except for the addition of the 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 Discovery Fund,
the Conservative Allocation Fund, Balanced Allocation Fund and Aggressive
Allocation Fund.
Under the Sub-Investment Advisory Agreement, Gulfstream is responsible
for the day-to-day management of the International Discovery 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. National City 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. National City may also render advice with respect to these
Funds' investments in the United States and otherwise participate to the extent
it deems necessary or desirable in day-to-day management of the Funds.
For its services provided and expenses assumed pursuant to the
Sub-Investment Advisory Agreement, Gulfstream is entitled to receive from
National City a fee, computed daily and paid monthly, at the annual rate of
0.50% of the first $50 million of the International Discovery 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.
Pursuant to the Sub-Investment Advisory Agreement, Gulfstream will pay
all expenses incurred by it in connection with its activities under the
Sub-Investment Advisory Agreement other than the cost of securities (including
brokerage commissions, if any) purchased for the Group.
-31-
<PAGE> 349
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. As of July ___, 1998, First of America was the sole limited partner
of Gulfstream holding a 72% interest. As of , 1998, Gulfstream had over [$863]
million in international assets of institutional, governmental, pension fund and
high net worth individual clients under its investment management. Gulfstream's
portfolio management personnel average over 20 years investment experience and
over nine years of international investment experience. Gulfstream's investment
process is designed to provide long-term growth of capital. 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. The Investment Adviser and the Trustees of the
Trust believe that Gulfstream's style of investment management is well suited to
the investment objective and policies of the International Discovery Fund,
Conservative Allocation Fund, Balanced Allocation Fund and Aggressive Allocation
Fund.
For the fiscal period ended May 31, 1998, and the fiscal years ended
1997 and 1996, 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:
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<PAGE> 350
<TABLE>
<CAPTION>
Fiscal Period Ended May 31, Fiscal Years Ended June 30,
FUND 1998 1997 1996
---- ---- ----
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 3,441,611 -- 3,144,270 84
U.S. Government Obligations 1,712,370 -- 1,638,981 17
Tax-Free 651,531 -- 629,497 6
Treasury 1,618,910 -- 1,300,994 1,189
Small Capitalization 7,049,924 -- 5,765,210 8,667
Mid Capitalization 6,531,413 -- 8,178,104 2,655
Large Capitalization(l) 2,725,217 -- 432,969 19,514
International Discovery 4,981,112 -- 3,968,550 3,839
Equity Income 4,335,969 -- 4,277,488 $206
Conservative Allocation(2) 44,485 13,345 -- --
Balanced Allocation 1,946,812 484,709 1,168,319 292,740
Aggressive Allocation(2) 136,524 20,479 -- --
Bond 4,027,206 207,298 4,106,765 222,927
Limited Maturity Bond 1,134,805 289,664 1,155,348 296,518
Intermediate Government
Obligations 1,692,438 86,957 1,982,604 106,662
Government Income 1,587,392 620,579 1,384,056 542,801
Municipal Bond 1,058,852 270,292 1,079,024 276,973
Michigan Bond 1,715,085 437,841 1,653,555 424,702
<FN>
(1) Commenced operations December 27, 1995.
(2) Commenced operations December 30, 1996.
</TABLE>
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 Sub-Investment Advisory Agreement continues in
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<PAGE> 351
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 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 National City 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 Sub-Investment Advisory
Agreement provide that neither National City 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
Discovery Fund, pursuant to the Investment Advisory Agreements, National City
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 Discovery 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 Sub-Investment Advisory
Agreement, Gulfstream determines, subject to the general supervision of National
City, the Board of Trustees of the Group and in accordance with each of the
investment objectives and restrictions of these Funds, which securities are to
be purchased and sold by the International Discovery 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 Discovery 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
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and asked prices. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Group, where possible, will deal directly with
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by National City and Gulfstream in their best
judgment and in a manner deemed fair and reasonable to shareholders. The primary
consideration is prompt execution of orders in an effective manner at the most
favorable price. Subject to this consideration, brokers and dealers who provide
supplemental investment research to National City 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 National
City or Gulfstream and does not reduce the fees payable to such advisers by the
Group or National City, as the case may be. Such information may be useful to
National City 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 National City 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 period
ended May 31, 1998 and fiscal years ended June 30, 1997 and 1996, the Group paid
an aggregate of approximately ______________, $3,118,633, $3,615,061,
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
National City Corporation (the parent corporation of National City), SEI, BISYS,
or their affiliates, and will not give preference to National City Corporation'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 National City. 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 National City believes to be equitable
to the Fund(s) and such other portfolio, investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by a Fund. To the extent
permitted by law, National City may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for other Funds or for
other portfolios, investment companies or accounts in order to obtain best
execution. As provided by the Investment Advisory Agreements, in taking
investment recommendations for the Group, National City will not inquire or take
into consideration whether an issuer of securities proposed
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<PAGE> 353
for purchase or sale by the Group is a customer of National City, its parent or
its subsidiaries or affiliates, and, in dealing with its customers, National
City, its parent, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Group.
Each of the Prime Obligations Fund, U.S. Government Obligations Fund,
Treasury Fund, Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund, Conservative Allocation Fund, Balanced Allocation Fund,
Aggressive Allocation Fund, Equity Income Fund, Bond Fund, Limited Maturity Bond
Fund, Intermediate Government Obligations Fund, and Government Income Fund held,
from time to time during the fiscal period ended May 31, 1998, securities of its
regular brokers or dealers, as defined in Rule l0b-1 under the 1940 Act, or
their parent companies, including: with respect to the Prime Obligations Funds,
those of Bank of America, Bear Stearns, Hong Kong Shanghai Bank, Goldman Sachs,
Morgan Stanley and Nomura Securities; with respect to the U.S. Government
Obligations Fund, those of Aubrey Lanston, Goldman Sachs and Morgan Stanley;
with respect to the Treasury Fund, those of Aubrey Lanston, Bank of America,
J.P. Morgan, Goldman Sachs, Hong Kong Shanghai Bank Corp., Lehman Brothers and
Nomura Securities; with respect to the Small Capitalization Fund, the Mid
Capitalization Fund and the Large Capitalization Fund, those of Goldman Sachs;
with respect to the Conservative Allocation Fund, those of Goldman Sachs and
Salomon Smith Barney; with respect to the Balanced Allocation Fund, those of
Goldman Sachs and Lehman Brothers; with respect to the Aggressive Allocation
Fund, those of Goldman Sachs and Salomon Smith Barney; with respect to the
Equity Income Fund, those of Goldman Sachs and Morgan Stanley; with respect to
the Bond Fund, those of Goldman Sachs, Lehman Brothers and Salomon Smith Barney;
with respect to the Limited Maturity Bond Fund, those of Goldman Sachs and
Lehman Brothers; with respect to the Intermediate Government Obligations Fund,
those of Goldman Sachs; and with respect to the Government Income Fund, those of
Goldman Sachs and Prudential.
As of May 31, 1998, the Prime Obligations Fund held the following
amounts of the securities of Bank of America, Bear Stearns, Hong Kong Shanghai
Bank Corp., Goldman Sachs, Morgan Stanley and Nomura Securities, respectively:
$4,901,000, $14,999,000, $4,994,000, $14,721,000, $35,001,000 and $4,999,000.
The U.S. Government Obligations Fund held the following amounts of securities of
Aubrey Lanston, Goldman Sachs and Morgan Stanley, respectively: [$56,896,000],
[$60,000,000] and [$25,000,000]. The Treasury Fund held the following amounts of
securities of Aubrey Lanston, Bank of America, Goldman Sachs, Hong Kong Shanghai
Bank Corp., Lehman Brothers J.P. Morgan, and Nomura Securities, respectively:
[$125,100,000], [$25,000,000], [$15,000,000], [$125,100,000], [$25,000,000],
[$25,000,000] and [$15,000,000]. The Small Capitalization Fund, the Mid
Capitalization Fund and the Large Capitalization Fund held the following amounts
of securities of Goldman Sachs, respectively: [$65,307,000], [$42,125,000],
[$6,210,000]. The Conservative Allocation Fund held the following amounts of
securities of Goldman Sachs and Salomon Smith Barney, respectively: [$642,000]
and [$100,000]. The Balanced Allocation Fund held the following amounts of the
securities of Goldman Sachs and Lehman Brothers, respectively: [$10,450,000] and
[$3,037,000]. The Aggressive Allocation Fund held the following amounts of
securities of Goldman Sachs and Salomon Smith Barney, respectively: [$3,016,000]
and [$75,000]. The Equity Income Fund held the following amounts of securities
of Goldman Sachs and Morgan
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<PAGE> 354
Stanley, respectively: [$5,082,000] and [$4,870,000]. The Bond Fund held the
following amounts of securities of Goldman Sachs, Lehman Brothers and Salomon
Smith Barney, respectively: [$14,157,000], [$7,837,000] and [$6,038,000]. The
Limited Maturity Bond Fund held the following amounts of securities of Goldman
Sachs and Lehman Brothers, respectively: [$21,874,000] and [$9,919,000]. The
Intermediate Government Obligations Fund held $3,298,000 of securities of
Goldman Sachs. The Government Income Fund held the following amounts of
securities of Goldman Sachs and Prudential, respectively: [$5,819,000] and
[$1,905,000].
Authority to Act as Investment Adviser
- --------------------------------------
Banking laws and regulations currently prohibit a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, or any bank
or non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibits banks
generally from issuing, underwriting, selling, or distributing securities such
as shares of the Funds, but do not prohibit such a bank holding company or its
affiliates or banks generally from acting as investment adviser, transfer agent,
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of customers. The investment adviser and
custodians are subject to such banking laws and regulations. Should legislative,
judicial, or administrative action prohibit or restrict the activities of such
companies in connection with their services to the Funds, the Group might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is anticipated, however, that any
resulting change in the Group's method of operation would not affect a Fund's
net asset value per share or result in financial losses to any shareholder.
State securities laws on this issue may differ from federal law and banks and
financial institutions may be required to register as dealers pursuant to state
law.
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-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
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<PAGE> 355
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.
National City 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 National
City from continuing to perform such services for the Group. Depending upon the
nature of any changes in the services which could be provided by National City,
the Board of Trustees of the Group would review the Group's relationship with
National City and consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of National City and/or National City
Corporation's affiliated and correspondent banks in connection with customer
purchases of shares of the Group, those banks might be required to alter
materially or discontinue the services offered by them to customers. It is not
anticipated, however, that any change in the Group's method of operations would
affect its daily net asset value per share or result in financial losses to any
shareholder.
Administrator and Sub-Administrator
- -----------------------------------
BISYS, formerly the Winsbury Company Limited Partnership, serves as
administrator (the "Administrator") to the Group pursuant to the Administration
Agreement dated January 1, 1995, as amended (the "Administration Agreement").
The Administrator assists in supervising all operations of each Fund (other than
those performed by National City under the Investment Advisory Agreements, by
Gulfstream under its Sub-Investment Advisory Agreement, by State Street Bank and
Trust Company (the "Custodian") under the Custody Agreement and by BISYS Ohio
under the 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 or the Group's
counsel; keep and maintain the financial accounts and records of the Funds,
including calculation of daily expense accruals; in
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<PAGE> 356
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 National City under the
Investment Advisory Agreements, by Gulfstream under its Sub-Investment Advisory
Agreements, by State Street Bank and Trust Company under the Custody Agreements
and by BISYS Ohio under the Fund Accounting Agreement. Under the Administration
Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
Pursuant to its authority to delegate its responsibilities under the
Administration Agreement, the Administrator has engaged National City to provide
certain services as Sub- Administrator to the Funds of the Group. National City
serves as Sub-Administrator to the Group pursuant to a Sub-Administration
Agreement dated as of January 1, 1995, and receives a fee from the Administrator
for its services. Under the Sub-Administration Agreement, National City 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 , National City 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.
For the fiscal period ended May 31, 1998 and the fiscal years ended
June 30, 1997 and 1996, 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 Period
Ended May 31, Fiscal Years Ended June 30,
FUND 1998 1997 1996
---- ---- ---- ----
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 1,717,665 168,939 1,572,135 157,229
U.S. Government Obligations 854,229 83,726 919,490 81,957
Tax-Free 325,122 31,933 314,749 31,478
Treasury 808,404 403,676 649,909 324,958
Small Capitalization 1,410,121 -- 1,153,042 1,736
</TABLE>
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<PAGE> 357
<TABLE>
<S> <C> <C> <C> <C>
Mid Capitalization 1,306,285 -- 1,635,613 --
Large Capitalization 681,310 -- 108,242 4,880
International Discovery 858,253 -- 677,155 613
Equity Income 867,179 -- 855,486 28
Conservative Allocation(1) 8,897 -- -- --
Balanced Allocation 389,895 -- 232,664 176
Aggressive Allocation(1) 27,305 -- -- --
Bond 1,089,049 270,497 1,109,936 277,654
Limited Maturity Bond 306,698 76,205 312,256 78,030
Intermediate Government
Obligations 457,683 113,651 535,839 133,851
Government Income 428,868 106,625 374,069 93,652
Municipal Bond 286,364 142,990 291,628 145,801
Michigan Municipal Bond 463,836 231,610 446,907 223,479
<FN>
(1) Commenced operations December 30, 1996.
</TABLE>
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 examination 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 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.
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<PAGE> 358
Expenses
- --------
If total expenses borne by any of the Funds in any fiscal year exceed
expense limitations imposed by applicable state securities regulations, National
City, Gulfstream (only with respect to the International Discovery 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 National City Corporation or its
affiliated or correspondent banks for cash management services are not included
within Group expenses for purposes of any such expense limitation.
Distributor
- -----------
SEI serves as Distributor to the Group pursuant to the Distribution
Agreement dated ________, 1998 (the "Distribution Agreement"). BISYS served as
the principal underwriter and distributor for the Group prior to ________, 1998.
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 period ended May 31, 1998, and the fiscal years
ended June 30, 1997 and 1996, total commissions paid in connection with sales of
the Group's shares were [$3,523,450], [$4,099,106] and [$3,263,580]
respectively. Of that amount BISYS retained [$3,241,396], [$3,814,505] and
[$2,951,224], respectively.
As described in the Prospectuses, the Group has adopted an Investor A
Distribution and Shareholder Service Plan with respect to Investor A Shares (the
"Investor A Plan") and an Investor B Distribution and Shareholder Service Plan
with respect to Investor B Shares (the "Investor B Plan") (the Investor A Plan
and Investor B 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 SEI, 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 SEI, as
Distributor of Investor A Shares, a distribution and shareholder service fee in
an amount not to exceed on an annual basis [0.25%] of the average daily net
assets of Investor A Shares of a Fund. Such amount may be used by SEI to pay
banks and their affiliates (including National City Corporation and its
affiliates), and other
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<PAGE> 359
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 SEI and the
Participating Organization.
Pursuant to the Investor B Plan, each Fund is authorized to pay SEI, 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. Such amounts may be used by SEI to pay Participating
Organizations for distribution assistance or to reimburse them for expenses
incurred in providing distribution assistance pursuant to an agreement between
SEI and the Participating Organization. Also pursuant to the Investor B Plan, a
Fund is authorized to pay SEI 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. 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.
For the fiscal period ended May 31, 1998, BISYS received $------
pursuant to the Investor A Plan to compensate dealers for their distribution and
shareholder service assistance. Of that amount, BISYS received $------ for
payments to [bank affiliate, if any] and $------ for payments to [bank
affiliate, if any] under the Investor A Plan, as described below.
For the fiscal period ended May 31, 1998, BISYS received $------
pursuant to the Investor B Plan to compensate dealers for their distribution and
shareholder service assistance.
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-
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<PAGE> 360
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, SEI has entered into a
Participating Organization Agreement with ------, a wholly-owned subsidiary of
National City Corporation and an affiliate of ------, as a party and on behalf
of ------, pursuant to which both ------ and ------ have agreed to provide
certain distribution, administrative and shareholder support services in
connection with Investor A Shares purchased through accounts of ------ and
- ------. 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,
SEI has agreed to pay ------ 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 ------ or ------ has provided services under this
Agreement. ------ is responsible for making any applicable payments to ------.
SEI will be compensated by each Fund in an amount equal to its payments to
- ------ 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 ------ and ------ in providing the services.
Also in accordance with the Investor A Plan, SEI has entered into a
Participating Organization Agreement with National City Corporation 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, SEI has agreed to pay National City Corporation
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.
National City Corporation is responsible for making any applicable payments to
each Subsidiary Bank. SEI will be compensated by each Fund in an amount equal to
its payments to SEI under the
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<PAGE> 361
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, SEI has entered into a Service
and Commission Agreement with Security Distributors, Inc. ("SDI"), Security
Benefit Group, Inc. ("SBG") and ------ which relates to purchases of Investor B
Shares made prior to January 1, 1995. Pursuant to the Service and Commission
Agreement, ------ 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 ------. Services
provided by ------ 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 ------ 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, ------ receives from SBG a commission rate of [4.00%] of the
net asset value of Investor B Shares purchased by ------ as agent for its
customers. SDI, either directly or through an affiliate, receives amounts
specified in the Shareholder Services and Financing Agreement dated _________,
1998 between SEI 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.
Custodian, Transfer Agent and Fund Accounting Services
- ------------------------------------------------------
National City Bank (the "Custodian"), 1900 East Ninth Street,
Cleveland, Ohio 44114, an affiliate of National City, serves as Custodian to the
Group with respect to each Fund, except the International Discovery Fund,
pursuant to the Custody Agreement dated as of _________, 1998. National City
Bank serves as custodian to the International Discovery Fund pursuant to a
Custodian Agreement dated as of _________, 1998 (the Custody Agreement and the
Custodian Agreement together referred to as the "Custody Agreements"). National
City 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.
State Street Bank and Trust Company 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 _________, 1998, 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
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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. Prior to __________, 1998, BISYS served as the
Fund's transfer agent and disbursing agent. For the fiscal period ended May 31,
1998 and fiscal years ended June 30, 1997 and 1996, BISYS received __________,
$2,091,000, and $1,663,309, 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 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 fiscal period ended May 31, 1998
and fiscal years ended June 30, 1997 and 1996, BISYS Ohio received __________,
$1,722,000, and $1,491,244, respectively, from the Group.
Independent Auditors
- --------------------
The Financial Statements of the Group as of June 30, 1997, which appear
in the Group's Annual Report dated June 30, 1997, have been audited by
PricewaterhouseCoopers LLP, 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 PricewaterhouseCoopers LLP as experts in auditing and accounting.
Legal Counsel
- -------------
Drinker Biddle & Reath LLP, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496 is counsel to the Group
and will pass upon certain legal matters pertaining to the shares offered
hereby.
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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 eighteen series of shares, representing interests
in each series of the Group. 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 three separate
classes: Investor A Shares, Investor B 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 Prime Obligations Fund which offers
Investor A Shares, Investor B Shares and Institutional Shares. Shares of the
Tax-Free Income Funds are offered in three classes: Investor A Shares, Investor
B Shares and Institutional Shares. The Conservative Allocation Fund and the
Aggressive Allocation Fund only offer Institutional Shares. The Group's
Declaration of Trust authorizes the Board of Trustees to classify or re-classify
any unissued shares of the Group into one or more additional series by setting
or changing in any one or more respects their respective preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares of each of the Group's Funds have no subscription or pre-emptive
rights and only such conversion or exchange rights as the Board of Trustees may
grant in its discretion. When issued for payment as described in the
Prospectuses and this Statement of Additional Information, shares of the Group's
Funds will be fully paid and non-assessable. In the event of a liquidation or
dissolution of the Group or an individual Fund, shareholders of a Fund are
entitled to receive the assets available for distribution belonging to that Fund
at a proportionate distribution, based upon the relative asset values of the
respective Funds, of any general assets not belonging to any particular Fund
which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the shareholders of the outstanding voting securities of an
investment company such as the Group shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Fund affected by the matter. For purposes of
determining whether the approval of a majority of the outstanding shares of a
Fund will be required in connection with a matter, a Fund will be deemed to be
affected by a matter unless it is clear that the interests of each Fund in the
matter are identical or that the matter does not affect any interest of the
Fund. Under Rule 18f-2, the approval of an investment advisory agreement or any
change in fundamental investment policy submitted to shareholders would be
effectively acted upon with respect to a Fund only if approved by majority of
the outstanding shares of such Fund. However, Rule 18f-2 also provides that the
ratification of independent accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
shareholders of the Group voting without regard to a Fund.
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Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held and will vote in the aggregate, and
not by class except as otherwise required by the 1940 Act or other applicable
law, or when the matter to be voted upon affects only interests of the
shareholders of a particular class. Voting rights are not cumulative, and,
accordingly, the holders of more than 50% of the Group's outstanding shares may
elect all of the Trustees, irrespective of the votes of other shareholders.
The Group does not intend to hold annual shareholder meetings except as
may be required by the 1940 Act. The Group's Declaration of Trust provides that
a meeting of shareholders shall be called by the Board of Trustees upon written
request of shareholders owning at least 10% of the outstanding shares of the
Group entitled to vote.
The Group's Declaration of Trust authorizes the Board of Trustees,
without shareholder approval (unless otherwise required by applicable law) to
(a) sell and convey the assets of a class of shares to another management
investment company for consideration which may include securities issued by the
purchaser and, in connection therewith, to cause all outstanding shares of such
class to be redeemed at a price which is equal to their net asset value and
which may be cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert the assets belonging
to a class of shares into money and, in connection therewith, to cause all
outstanding shares of such class to be redeemed at their net asset value; or (c)
combine the assets belonging to a class of shares with the assets belonging to
one or more other classes of shares of the Group if the Board of Trustees
reasonably determines that such combination will not have a material adverse
effect on the shareholders of an class participating in such combination and, in
connection therewith, to cause all outstanding shares of any class to be
redeemed at their net asset value or converted into shares of another class of
the Group's shares at their net asset value. However, the exercise of such
authority by the Board of Trustees may be subject to certain restrictions under
the 1940 Act. The Board of Trustees may authorize the termination of any class
of shares after the assets belonging to such class have been distributed to its
shareholders.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Prospectuses and the Statement of Additional
Information, a "vote of a majority of the outstanding shares" of the Group or
the Fund, means the affirmative vote, at an annual or special meeting of
shareholders duly called, of the lesser of: (a) 67% or more of the votes of
shareholders of the Group or the Fund present at such meeting at which the
holders of more than 50% of the votes attributable to the shareholders of record
of the Group or the Fund are represented in person or by proxy, or (b) the
holders of more than 50% of the outstanding votes of shareholders of the Group
or the Fund.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law, holders of units of interest in a business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. However, the Group's Declaration of Trust
provides that shareholders shall not be subject to any personal liability for
the obligations of the Group, and that every written agreement, obligation,
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<PAGE> 365
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 or his own bad faith,
willful-misfeasance, gross negligence, or reckless disregard of his duties. The
Declaration of Trust also provides that all persons having any claim against the
Trustees or the Group shall look solely to the assets of the trust for payment.
Additional Tax Information
- --------------------------
Individual federal income tax is computed on the basis of five
graduated tax rates of 15%, 28%, 31%, 36% and 39.6%. The benefit of the personal
exemptions and the benefit of itemized deductions are phased out by a rate
adjustment for taxpayers with gross income in excess of certain threshold
amounts resulting in a marginal federal tax rate in excess of 39.6%. The maximum
tax rate applicable to corporations is 35%. Although a corporation's taxable
income of less than $10 million is subject to tax at lower rates, the benefit of
these lower rates is phased out for corporations with income in excess of $15
million resulting in a maximum effective marginal tax rate of 38%.
For non-corporate taxpayers, the maximum tax rate imposed on net
capital gains is 28%. The limitation on the deductibility of capital losses has
been retained. Capital losses may be used to offset capital gains. Individual
taxpayers may deduct up to $3,000 of capital losses each year to offset ordinary
income and excess capital losses may be carried forward in future years.
The Code generally permits a corporation to deduct 70% of dividends
received from domestic corporations. Each of the Group's Funds will designate
the portion of any dividend distribution for which the dividends-received
deduction will be allowed. The amount so designated may not exceed the aggregate
amount of dividends from domestic corporations that otherwise qualify for the
dividends-received deduction received by the Fund for its taxable year.
A non-deductible excise tax is also imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. For the
foregoing purposes, a Fund is treated as having distributed any amount on which
it is subject to income tax for any taxable year ending in such calendar year.
If distributions during a calendar year were
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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 a
shareholder who has provided either an incorrect tax identification number or no
number at all, or who is subject to withholding by the Internal Revenue Service
for failure to report properly payments of interest or dividends.
Although each of the Funds expects to qualify as a "regulated
investment company" ("RIC") and to be relieved of all or substantially all
Federal income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, each Fund may be subject to the tax laws of such states or
localities. In addition, if for any taxable year a Fund does not qualify for the
special tax treatment afforded RICS, all of its taxable income will be subject
to federal tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions would
be taxable to shareholders to the extent of earnings and profits, and would be
eligible for the dividends-received deduction for corporations.
A portion of the difference between the issue price and the face amount
of zero coupon securities ("Original Issue Discount") will be treated as income
to any Fund holding securities with Original Issue Discount each year although
no current payments will be received by such Fund with respect to such income.
This original issue discount will comprise a part of that investment company
taxable income of such Fund which must be distributed to shareholders in order
to maintain its qualification as a RIC and to avoid federal income tax at the
level of the relevant Fund. Taxable shareholders of such a Fund will be subject
to income tax on such original issue discount, whether or not they elect to
receive their distributions in cash. In the event that a Fund acquires a debt
instrument at a market discount, it is possible that a portion of any gain
recognized on the disposition of such instrument may be treated as ordinary
income.
A Fund's investment in options, futures contracts and forward
contracts, options on futures contracts and stock indices and certain other
securities, including transactions involving actual or deemed short sales or
foreign exchange gains or losses are subject to many complex and special tax
rules. For example, over-the-counter options on debt securities and certain
equity options, including options on stock and on narrow-based stock indexes,
will be subject to tax under Section 1234 of the Code, generally producing, a
long-term or short-term capital gain or loss upon exercise, lapse or closing out
of the option or sale of the underlying stock or security. By contrast, a Fund's
treatment of certain other options, futures and forward contracts entered into
by the Fund is generally governed by Section 1256 of the Code. These "Section
1256" positions generally include regulated futures contracts, foreign currency
contracts, non-equity options and dealer equity options.
Absent a tax election to the contrary, each such Section 1256 position
held by a Fund will be marked to market (i.e., treated as if it were sold for
fair market value) on the last business day of that Fund's fiscal year, and all
gain or loss associated with fiscal year transactions and marked- to-market
positions at fiscal year end (except certain currency gain or loss covered by
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<PAGE> 367
Section 988 of the Code) will generally be treated as 60% long term capital gain
or loss and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-term capital losses within such Fund. The
acceleration of income on Section 1256 positions may require the Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, a Fund may be
required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources, such as the sale of
the Fund's shares. In these ways, any or all of these rules may affect the
amount, character and timing of income earned and in turn distributed to
shareholders by the Funds.
When a Fund holds options or contracts which substantially diminish its
risk of loss with respect to other positions (as might occur in some hedging
transactions), this combination of positions could be treated as a straddle for
tax purposes, resulting in possible deferral of losses, adjustments in the
holding periods of securities owned by a Fund and conversion of short-term
capital losses into long-term capital losses. Certain tax elections exist for
mixed straddles, i.e., straddles comprised of at least one Section 1256 position
and at least one non-Section 1256 position which may reduce or eliminate-the
operation of these straddle rules.
As a RIC, each Fund is also subject to the requirement that less than
30% of its annual gross income be derived from the sale or other disposition of
securities and certain other investments held for less than three months
("short-short income"). This requirement may (i) limit a Fund's ability to
engage in options, spreads, straddles, hedging transactions, forward or futures
contracts or options on any of these positions because these transactions are
often consummated in less than three months, (ii) require the sale of portfolio
securities held less than three months and (iii) as in the case of short sales
of portfolio securities, reduce the holding periods of certain securities within
such Fund, resulting additional short-short income for the Fund.
Each Fund will monitor its transactions in such options and contracts
and may make certain other tax elections in order to mitigate the effect of the
above rules and to prevent disqualification of a Fund as a RIC under Subchapter
M of the Code.
In order for a Fund to qualify as a RIC for any taxable year, at least
90% of the Fund's annual gross income must be derived from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities, including gains from foreign currencies, and
other income derived with respect to the business of investing in stock,
securities or currencies. Future Treasury regulations may provide that foreign
exchange gains may not qualify for purposes of the 90% limitation if such gains
are not directly related to a Fund's principal business of investing in stock or
securities, or options or futures with respect to such stock or securities.
Currency speculation or the use of currency forward contracts or other currency
instruments for non-hedging purposes may generate gains deemed to be not
directly related to the Fund's principal business of investing in stock or
securities and related options or futures. Pursuant to the Code, a Fund is also
required to derive less than 30% of its gross income from the sale or other
disposition of stock or securities held or less than three months. Under current
law, non-directly related gains arising from foreign currency positions or
instruments
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<PAGE> 368
held for less than three months are treated as derived from the disposition of
securities held less than three months in determining a Fund's compliance with
the 30% limitation. Each Fund will limit its activities involving foreign
exchange gains to the extent necessary to comply with the above requirements.
The federal income tax treatment of interest rate and currency swaps is
unclear in certain respects and may in some circumstances result in the
realization of income not qualifying under the 90% limitation described above or
be deemed to be derived from the disposition of securities held less than three
months in determining a Fund's compliance with the 30% limitation. Each Fund
will limit its interest rate and currency swaps to the extent necessary to
comply with these requirements.
Information set forth in the Prospectuses and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of shares of the Funds. No attempt has been made to present a detailed
explanation of the federal income tax treatment of a Fund or its shareholders
and this discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation. In addition,
the tax discussion in the Prospectuses and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the date
of the Prospectuses and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.
Additional Tax Information Concerning the Exempt Funds
- ------------------------------------------------------
As indicated in the Prospectuses, the Exempt Funds are designed to
provide shareholders with current tax-exempt interest income. The Exempt Funds
are not intended to constitute balanced investment programs and are not designed
for investors seeking capital appreciation or maximum tax-exempt income
irrespective of fluctuations in principal. Shares of the Exempt Funds would not
be suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans 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
Relations 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
50% of the total revenues derived by any 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.
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<PAGE> 369
The percentage of total dividends paid by an Exempt Fund with respect
to any taxable year which qualifies as federal exempt interest dividends will be
the same for all shareholders receiving dividends during such year. In order for
an Exempt Fund to pay exempt-interest dividends during any taxable year, at the
close of each fiscal quarter, at least 50% of the aggregate value of the Exempt
Fund must consist of exempt-interest obligations. In addition, the Exempt Fund
must distribute 90% of the aggregate exempt-interest income and 90% of the
investment company taxable income earned by it during the taxable year. After
the close of an Exempt Fund's taxable year, the Exempt Fund will notify each
shareholder of the portion of the dividends paid by the Exempt Fund to the
shareholder with respect to such taxable year which constitutes an
exempt-interest dividend. However, the aggregate amount of dividends as
designated cannot exceed the excess of the amount of interest exempt from tax
under Section 103 of the Code received by the Exempt Fund during the taxable
year over any amounts disallowed as deductions under Section 265 and 171(a)(2)
of the Code.
Under the Code, dividends attributable to interest on certain private
activity bonds issued after August 7, 1986, must be included in alternative
minimum taxable income for the purpose of determining liability (if any) for the
24% alternative minimum tax for individuals and the 20% alternative minimum tax
for corporations. These private activity bonds include: certain bonds issued to
obtain funds to provide certain water, sewage and solid waste facilities,
qualified residential rental projects, certain local electric, gas and other
heating or cooling facilities, qualified hazardous waste facilities, and
government-owned airports, docks and wharves and mass commuting facilities;
certain qualified mortgage, student loan and redevelopment bonds; and certain
bonds issued as part of "small issues" for industrial facilities. In the case of
corporations, alternative minimum taxable income will also include an item of
tax preference consisting of 75% of the excess of the corporation's "adjusted
current earnings" over the corporation's other alternative minimum taxable
income, and for this purpose all tax-exempt interest dividends will be included
in the corporation's "adjusted current earnings. In addition, tax-exempt
interest dividends paid to corporate investors may be subject to an
environmental tax which is imposed at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of a corporation over $2 million.
While each Exempt Fund does not expect to earn any investment company
taxable income, taxable income earned by each Exempt Fund will be distributed.
In general, the investment company taxable income will be the taxable income of
each Exempt Fund (for example, short-term capital gains) subject to certain
adjustments and excluding the excess of any net long-term capital gains for the
taxable year over the net short-term capital loss, if any, for such year. Each
Exempt Fund would be taxed on any undistributed investment company taxable
income. Since any such income will be distributed, it will be taxable to
shareholders as ordinary 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 Municipal 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.
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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
that each Exempt Fund could acquire under the 1940 Act. Therefore, although each
Exempt Fund will only acquire a put after concluding that it will have the tax
consequences described above, the Internal Revenue Service could reach a
different conclusion.
Although each Exempt Fund expects to qualify as a RIC and to be
relieved of all or substantially all federal income taxes, depending upon the
extent of its activities in states and localities in which its offices are
maintained, in which its agents or independent contractors are located, or in
which it is otherwise deemed to be conducting business, each Exempt Fund may be
subject to the tax laws of such states or localities. In addition, if for any
taxable year an Exempt Fund does not qualify for the special tax treatment
afforded RICS, all of its taxable income will be subject to federal tax at
regular corporate rates (without any deduction for distributions to its
shareholders). In such event, dividend distributions would be taxable to
shareholders to the extent of earnings and profits, and would be eligible for
the dividends received deduction for corporations.
Income itself exempt from federal income taxation may be considered in
addition to taxable income when determining whether social security payments
received by a shareholder are subject to federal income taxation.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting purchasers of shares of the Exempt Funds. No
attempt has been made to present a detailed explanation of the federal income
tax treatment of each Exempt Fund or its shareholders or of Michigan state
income or intangible taxes treatment of the Michigan Municipal 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 own 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 Discovery Fund
- ----------------------------------------------------------------------
The International Discovery Fund may each invest in non-U.S.
corporations, which would be treated as "passive foreign investment companies"
("PFICs") under the Code which will result in adverse tax consequences upon the
disposition of, or the receipt of "excess distributions" with respect to, such
equity investments. To the extent that the International Discovery Fund invest
in PFICs, each may adopt certain tax strategies to reduce or eliminate the
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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 Discovery Fund invest in foreign securities which are determined
to be PFIC securities and are required to pay a tax on such investments, a
credit for this tax would not be allowed to be passed through to the
International Discovery Fund shareholders. Therefore, the payment of this tax
would reduce the International Discovery 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 Discovery Fund were
treated as being a United Kingdom ("UK") resident, the worldwide income and
capital gains of the International Discovery Fund would be subject to UK tax.
If, for any reason, the International Discovery Fund or the 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 Discovery Fund
under the double tax treaty between the UK and the U.S. would not be available.
Provided that the International Discovery 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 the are likely
to receive, except with respect to income on UK securities help in the
portfolios of the International Discovery Fund. The Group believes, based on the
advice of special counsel, that it would be highly unlikely for either Fund to
be deemed or treated as being UK residents for UK tax purposes or having a
permanent establishment in the UK pursuant to the double tax treaty between the
U.S. and the UK as a result of the activities of both Funds' Subadviser,
Gulfstream.
Yields of the Money Market Funds
- --------------------------------
For the seven-day period ended May 31, 1998, the yield and compounded
effective yield for the Investor A Shares of the Prime Obligations Fund, U.S.
Government Obligations Fund, the Treasury Fund and the Tax-Free Fund were,
respectively: [ %] and [ ]; [4.81%] and [4.92%]; [4.89%] and [5.01%]; and [3.51%
and 3.57%]. For the thirty-day period ended May 31, 1998, the yield and
compounded effective yield for the Investor A Shares of the U.S. Government
Obligations Fund, the Treasury Fund and the Tax-Free Fund were, respectively:
[4.86%] and [4.97%]: and [3.26%] and [3.31%].
For the seven-day period ended May 31, 1998, the yield and compounded
effective yield for the Institutional Shares of the Prime Obligations Funds,
U.S. Government Obligations Fund, the Treasury Fund and the Tax-Free Fund were,
respectively: [ %] and [ %]; [4.91%] and [5.03%]; [4.99%] and [5.11%]; [ ] and [
]; and [3.61%] and [3.67%]. For the thirty-day period ended May 31, 1998, 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: [4.89%] and [5.00%]; [4.96%] and [5.07%];
[ ] and [ ]; and [3.36%] and [3.41%].
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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 share older 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 May 31, 1998, the tax-equivalent yield
(using a federal income tax rate of 39.6%) of the Investor A Shares of the
Tax-Free Fund was [5.81%] and its tax- equivalent effective yield (using a
federal income tax rate of 39.6%) for the same period was [5.91%]. For the
thirty-day period ended May 31, 1998, the tax-equivalent yield of the Investor A
Shares of the Tax-Free Fund (using a federal income tax rate of 39.6%) was
[5.40%] and its tax-equivalent effective yield (using a federal income tax rate
of 39.6%) for the same period was [5.48%].
For the seven-day period ended May 31, 1998, the tax-equivalent yield
(using a federal income tax rate of 39.6%) of the Institutional Shares of the
Tax-Free Fund was [5.98%] and its tax-equivalent effective yield (using a
federal income tax rate of 39.6%) for the same period was [6.08%]. For the
thirty-day period ended May 31, 1998, the tax-equivalent yield of the
Institutional Shares of the Tax-Free Fund (using a federal income tax rate of
39.6%) was [5.56%] and its tax-equivalent effective yield (using a federal
income tax rate of 39.6%) for the same period was [5.65%].
The Tax-Free Fund's tax-equivalent yields were computed by dividing
that portion of the Tax-Free Fund's yield which is tax-exempt by one minus the
stated income tax rate and adding the result to that portion, if any, of the
Tax-Free Fund's yield that is not tax-exempt. The Tax-Free Fund's tax-equivalent
effective yields were computed by dividing that portion of the effective yield
which is tax-exempt by one minus the stated income tax rate and adding to that
result the portion, if any, of the Tax-Free Fund's effective yield that is not
tax-exempt.
At any time in the future, yields may be higher or lower than past
yields and there can be no assurance that any historical results will continue.
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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 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
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 Municipal
Bond Fund, tax-equivalent yields will be computed by dividing that portion of a
Fund's yield (as computed above) which is tax-exempt by one minus a stated
income tax rate and adding that result to that portion, if any, of the yield of
that Fund which is not tax exempt.
For the period ended May 31, 1998, none of the Non-Money Market Funds
advertised or quoted yield information to shareholders or included such
information in advertisements. None of these Funds expects to quote such figures
in the current fiscal year.
Calculation of Total Return
- ---------------------------
As summarized in the Prospectuses under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value of
an investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in the Fund immediately rather than
paid to the investor in cash. Average annual total return will be calculated by:
(l) 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 May 31, 1998, the five-year period ended
June 30, 1998, and the period from commencement of operations to May 31, 1998,
the average annual total returns for the Investor A Shares of the following
Funds, assuming the imposition of
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the maximum sales load, were: Small Capitalization Fund, [(8.83)%], [23.48%] and
[19.01%]; Mid Capitalization Fund, [1.00%], [14.10%] and [13.89%]; Equity Income
Fund, [18.21%], [13.37%] and [13.73%]; Balanced Allocation Fund, [6.59%],
[11.55%] and [10.17%]; Bond Fund, [3.57%], [5.69%] and [7.37%], Limited Maturity
Bond Fund, [1.82%], [4.36%] and [6.24%]; Intermediate Government Obligations
Fund, [1.72%], [4.35%] and [6.32%]; Municipal Bond Fund, [1.30%], [4.50%] and
[5.66%] and Michigan Municipal Bond Fund, [1.64%], [4.72%] and [5.71%]. For the
one-year period ended May 31, 1998, and the period from commencement of
operations to May 31, 1998, the average annual total returns for the Investor A
Shares of the following Funds, assuming the imposition of the maximum sales
load, were: Large Capitalization Fund, [24.32%] and [23.50%]; Government Income
Fund, [2.54%] and [4.99%]; and International Discovery Fund, 10.77%] and
[11.67%].
For the one-year period ended May 31, 1998, the five-year period ended
June 30, 1998 and the period from the commencement of operations to May 31,
1998, the average annual total returns for the Investor A Shares of the
following Funds, excluding the effect of any sales charges, were: Small
Capitalization Fund, [(4.53)%], [24.63%] and [19.64%]; Mid Capitalization Fund,
[5.78%], [15.15%] and [14.49%]; Equity Income Fund, [23.81%], [14.42%] and
[14.34%]; Balanced Allocation Fund, [11.61%], [12.56%] and [11.11%]; Bond Fund,
[7.92%], [6.56%] and [7.88%]; Limited Maturity Bond Fund, [6.11%], [5.22%] and
[6.74%]; Intermediate Government Obligations Fund, [5.91%], [5.20%] and [6.82%];
Municipal Bond Fund, [5.47%], [5.35%] and [6.16%]; and Michigan Municipal Bond
Fund, [5.89%], [5.58%] and [6.33%]. For the one-year period ended May 31, 1998,
and the period from commencement of operations to May 31, 1998, the average
annual total returns for the Investor A Shares of the following Funds, excluding
the effect of any sales charges, were: Large Capitalization Fund, [29.52%] and
[27.61%]; Government Income Fund, [6.86%] and [5.93%]; and International
Discovery Fund, [15.99%] and [12.81%].
For the one-year period ended May 31, 1998 and the period from the
commencement of operations to May 31, 1998, the average annual total returns for
the Investor B Shares of the following Funds, assuming the imposition of the
maximum contingent deferred sales charges, were: Small Capitalization Fund,
[(9.12)%] and [17.72%]; Mid Capitalization Fund, [1.21%] and [11.32%]; Large
Capitalization Fund, [23.62%] and [23.59%]; Equity Income Fund, [17.96%] and
[12.50%]; Balanced Allocation Fund, [5.96%] and [9.72%]; Bond Fund [2.09%] and
[3.85%]; Limited Maturity Bond Fund [0.39%] and [3.11%]; Intermediate Government
Obligations Fund [0.09%] and [2.83%]; Government Income Fund, [1.11%] and
[4.12%]; Municipal Bond Fund [(0.19)%] and [2.37%]; Balanced Allocation Fund,
[5.96%] and [9.72%]; and Michigan Municipal Bond Fund [0.05%] and [2.57%].
For the one-year period ended May 31, 1998, and the period from
commencement of operations to May 31, 1998, the average annual total returns for
the Investor B Shares of the following Funds, excluding the effect of any
contingent deferred sales charges, were: Small Capitalization Fund, [(5.13)%]
and [18.32%]; Mid Capitalization Fund, [4.94%] and [11.93%]; Large
Capitalization Fund, [28.62%] and [26.81%]; International Discovery Fund,
[15.l1%] and [5.07%]; Equity Income Fund, [22.96%] and [13.16%]; Balanced
Allocation Fund, [10.82%] and [10.42%]; Government Income Fund, [6.06%] and
[4.85%]; Bond Fund, [7.09%] and [4.62%]; Limited Maturity Bond Fund, [5.39%] and
[3.88%]; Intermediate Government Obligations Fund,
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[5.09%] and [3.61%]; Municipal Bond Fund, [4.81%] and [3.17%]; and Michigan
Municipal Bond Fund, [5.05%] and [3.38%].
For the one-year period ended May 31, 1998, the five-year period ended
May 31, 1998, and the period from commencement of operations to May 31, 1998,
the average annual total returns for the Institutional Shares of the following
Funds were: Small Capitalization Fund, [(4.39)%], [24.85%] and [19.77%]; Mid
Capitalization Fund, [5.58%], [15.23%] and [14.54%]; Equity Income Fund,
[23.80%], [14.54%] and [14.41%]; Balanced Allocation Fund, [11.86%], [12.75%]
and [11.28%]; Bond Fund, [8.20%], [6.84%] and [8.04%]; Limited Maturity Bond
Fund, [6.42%], [5.41% and [6.85%]; Intermediate Government Obligations Fund,
[6.11%], [5.38%] and [6.93%]; Municipal Bond Fund, [5.89%], [5.56%] and [6.28%];
and Michigan Municipal Bond Fund, [6.11%], [5.76%] and [6.46%]. For the one-year
period ended June 30, 1998, the average annual total returns of the
Institutional Shares of the following Funds were: Government Income Fund,
[6.91%] and [6.10%]; and International Discovery Fund, [16.34%] and [13.11%].
For the one-year period ended May 31, 1998, the aggregate annual total returns
of the Institutional Shares of the following Funds were: Conservative Allocation
Fund, [4.87%]; and Aggressive Allocation Fund, [6.38%].
Distribution Rates
- ------------------
Each of the Funds may from time to time advertise current distribution
rates which are calculated in accordance with the method disclosed in the
Prospectuses. For the one-year period ended May 31, 1998, the distribution rates
for the Investor A Shares of the Funds, including the effect of sales loads and
capital gains, were as follows: Small Capitalization Fund, [18.21%]; Mid
Capitalization Fund, [37.26%]; Large Capitalization Fund, [0.59%]; International
Discovery Fund, [0.00%]; Equity Income Fund, [9.77%]; Balanced Allocation Fund,
[13.32%]; Bond Fund, [5.57%]; Limited Maturity Bond Fund, [5.59%]; Intermediate
Government Obligations Fund, [5.21%]; Government Income Fund, [7.37%]; Municipal
Bond Fund, [5.57%]; and Michigan Municipal Bond Fund, [4.32%]. For the one-year
period ended May 31, 1998, the distribution rates, including the effect of sales
loads but excluding the effect of capital gains, for the Investor A Shares of
the Funds were as follows: Small Capitalization Fund, [0.00%]; Mid
Capitalization Fund, [0.00%]; Large Capitalization Fund, [0.08%]; International
Discovery Fund, [0.00%]; Equity Income Fund, [1.39%]; Balanced Allocation Fund,
[2.41%]; Bond Fund, [5.57%]; Limited Maturity Bond Fund, [5.59%]; Intermediate
Government Obligations Fund, [5.21%]; Government Income Fund, [7.37%]; Municipal
Bond Fund, [3.73%]; and Michigan Municipal Bond Fund, [4.01%].
Excluding the effect of sales loads but including the effect of capital
gains, for the one-year period ended May 31, 1998, the distribution rates for
the Investor A Shares of the Funds were as follows: Small Capitalization Fund,
[19.06%]; Mid Capitalization Fund, [39.01%]; Large Capitalization Fund, [0.62%];
International Discovery Fund, [0.00%]; Equity Income Fund, [10.23%]; Balanced
Allocation Fund, [13.94%]; Bond Fund, [5.80%]; Limited Maturity Bond Fund,
[5.83%]; Intermediate Government Obligations Fund, [5.43%]; Government Income
Fund, [7.67%]; Municipal Bond Fund, [4.36%]; and Michigan Municipal Bond Fund,
[4.50%]. For the one-year period ended May 31, 1998, the distribution rates,
excluding the effect of capital gains and sales loads for the Investor A Shares
of the Funds were as follows: Small
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Capitalization Fund, [0.00%]; Mid Capitalization Fund, [0.00%]; Large
Capitalization Fund, [0.08%]; International Discovery Fund, [0.00%]; Equity
Income Fund, [1.46%]; Balanced Allocation Fund, [2.53%]; Bond Fund, [5.80%];
Limited Maturity Bond Fund, [5.83%]; Intermediate Government Obligations Fund,
[5.43%]; Government Income Fund, [7.67%]; Municipal Bond Fund, [3.88%]; and
Michigan Municipal Bond Fund, [4.18%].
Distribution rates for the Investor B Shares of the Funds, including
the effect of sales loads are not calculated by the Group, nor are they
advertised. Distribution rates for the Investor B Shares of the Funds, excluding
the effect of sales loads but including the effect of capital gains, for the
one-year period ended May 31, 1998, were as follows: Small Capitalization Fund,
[19.46%]; Mid Capitalization Fund, [40.56%]; Large Capitalization Fund, [0.55%];
International Discovery Fund, [0.00%]; Equity Income Fund, [9.68%]; Balanced
Allocation Fund, [13.15%]; Bond Fund, [4.93%]; Limited Maturity Bond Fund,
[4.93%]; Intermediate Government Obligations Fund, [4.55%]; Government Income
Fund, [6.80%]; Municipal Bond Fund, [3.54%]; and Michigan Municipal Bond Fund,
[3.61%]. For the one-year period ended May 31, 1998, the distribution rates,
excluding the effect of capital gains and sales loads for the Investor B Shares
of the Funds were as follows: Small Capitalization Fund, [0.00%]; Mid
Capitalization Fund, [0.00%]; Large Capitalization Fund, [0.01%]; International
Discovery Fund, [0.00%]; Equity Income Fund, [0.87%]; Balanced Allocation Fund,
[1.73%]; Bond Fund, [4.93%]; Limited Maturity Bond Fund, [4.93%]; Intermediate
Government Obligations Fund, [4.55%;] Government Income Fund, [6.80%]; Municipal
Bond Fund, [3.06%]; and Michigan Municipal Bond Fund, [3.29%].
For the one-year period ended May 31, 1998, the distribution rates,
including the effect of capital gains, for the Institutional Shares of the Funds
were as follows: Prime Obligations Fund, [ %]; Small Capitalization Fund,
[18.82%]; Mid Capitalization Fund, [38.76%]; Large Capitalization Fund, [0.72%];
International Discovery Fund, [0.03%]; Equity Income Fund, [10.54%]; Balanced
Allocation Fund, [14.25%]; Bond Fund, [6.07%]; Limited Maturity Bond Fund,
[6.12%]; Intermediate Government Obligations Fund, [5.72%]; Government Income
Fund, [7.83%]; Municipal Bond Fund, [4.66%]; and Michigan Municipal Bond Fund,
[4.80%]. For the one-year period ended May 31, 1998, the distribution rates,
excluding the effect of capital gains, for the Institutional Shares of the Funds
were as follows: Prime Obligations Fund, [ %]; Small Capitalization Fund,
[0.00%]; Mid Capitalization Fund, [0.00%]; Large Capitalization Fund, [0.18%];
International Discovery Fund, [0.03%]; Equity Income Fund, [1.73%]; Balanced
Allocation Fund, [2.83%]; Bond Fund, [6.07%]; Limited Maturity Bond Fund,
[6.12%]; Intermediate Government Obligations Fund, [5.72%]; Government Income
Fund, [7.83%]; Municipal Bond Fund, [4.18%]; Michigan Municipal Bond Fund,
[4.47%]; and Conservative Allocation Fund, [ %].
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
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to data prepared Lipper Analytical Services, Inc., a widely recognized
independent service which monitors the performance of mutual funds, Morningstar,
Inc. and the Consumer Price Index. Comparisons may also be made to indices or
data published in Donoghue's MONEY FUND REPORT of Holliston, Massachusetts
01746, a nationally recognized money market fund reporting service, Money
Magazine, Forbes, Barron's, The Wall Street Journal, The Bond Buyer's Weekly
20-Bond Index, The Bond Buyer's Index, The Bond Buyer, The New York Times,
Business Week, Pensions and Investments and U.S.A. Today. In addition to
performance information, general information about these Funds that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trends; (3) presentations of statistical data to
supplement such discussions; (4) descriptions past or anticipated portfolio
holdings for one or more of the funds within the Group; (5) descriptions of
investment strategies for one or more of the Funds; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, insured bank products, annuities, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; and (8) discussions of fund
rankings or ratings by recognized rating organizations. The Funds may also
include calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any of the Funds.
Morningstar, Inc., Chicago, Illinois, rates mutual funds on a one- to
five-star rating scale with five stars representing the highest rating. Such
ratings are based upon a fund's historical risk/reward ratio as determined by
Morningstar relative to other funds in that fund's class. Funds are divided into
classes based upon their respective investment objectives. The one- to five-star
ratings represent the following ratings by Morningstar, respectively: Lowest,
Below Average, Neutral, Above Average and Highest.
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments which provide fixed returns for a stated period of time. Yield and
performance are functions of a Fund's quality, composition, and maturity, as
well as expenses allocated to the Fund. Fees imposed upon customer accounts by
the Investment Adviser or its affiliated or correspondent banks for cash
management services will reduce a Fund's effective yield to customers.
Miscellaneous
- -------------
Individual Trustees are elected by the shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of shareholders at which Trustees are elected.
Such meetings are not required to be held at any
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specific intervals. Individual Trustees may be removed by vote of the
shareholders voting not less than a majority of the shares then outstanding,
cast in person or by proxy at any meeting called for that purpose, or by a
written declaration signed by shareholders voting not less than two thirds of
the shares then outstanding.
The Group is registered with the SEC as a management investment
company. Such registration does not involve supervision by the SEC of the
management or policies of the Group. The 1998 Annual Report and, when available,
the December 31, 1998 Semi-Annual Report to shareholders of the Group are
incorporated herein by reference. These reports include the financial statements
for the fiscal period ended May 31, 1998. In addition, the Annual Report
includes management's discussion of Fund performance for each of the Non-Money
Market Funds, as well as line graph comparisons to appropriate broad-based
securities indices.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the SEC. Copies of such information may be obtained from the SEC upon payment of
the prescribed fee.
The Prospectuses and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made. No salesman, dealer, or other person is
authorized to give any information or make any representation other than those
contained in the Prospectuses and this Statement of Additional Information.
As of May 31, 1998, 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 July 15, 1998, the following persons were the record owners
of more than 5% of the Investor A Shares and Investor B Shares of each of the
Group's Funds:
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As of September __, 1998, as a result of its possession of voting or
investment power with respect to such shares, through accounts for which
National City Bank and other affiliates of NCC act in a fiduciary capacity,
National City Bank and other affiliates were deemed to be the record and
beneficiary owners of [99.7%] of the Institutional Shares of the Group as
follows:
<TABLE>
<CAPTION>
Institutional Shares Beneficially Owned By National City Bank And Its Affiliates:
- ---------------------------------------------------------------------------------
Title of Institutional Share Fund
- ---------------------------------
<S> <C>
Prime Obligations Fund
U.S. Government Obligations Fund
Treasury Fund
Tax-Free Fund
Small Capitalization Fund
Mid Capitalization Fund
Large Capitalization Fund
International Discovery Fund
Conservative Allocation Fund
Balanced Allocation Fund
Aggressive Allocation Fund
Equity Income Fund
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
Municipal Bond Fund
Michigan Municipal Bond Fund
</TABLE>
Therefore, NCC owned beneficially as of such date [69.4%] the total
outstanding shares of the Group. NCC may be presumed to control both the Group
and each of the Funds
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because it possesses or shares investment or voting power with respect to more
than 25% of the total outstanding shares of the Group and of each of the Funds.
As a result, NCC may have the ability to elect the Trustees of the Group,
approve the Investment Advisory Agreements and Distribution Agreement for each
of the Funds and to control any other matters submitted to the shareholders of
the Funds for their approval or ratification.
With respect to all of the Funds, the Group's officers and directors
collectively owned less than 1% of the Funds' outstanding securities.
FINANCIAL STATEMENTS
Financial Statements describing audited financial information for the
each Fund's operations since inception appear in the Group's Annual Report dated
June 30, 1997, and on file with the SEC (File Nos. 33-13283 and 811-5105) are
incorporated herein by reference. The report of PricewaterhouseCoopers LLP,
independent auditors of the Group, appears therein.
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<PAGE> 381
APPENDIX
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating
that the obligor's capacity to meet its financial commitment is strong. Within
this category, certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
rated "A-1". However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.
"D" - Obligations are in payment default. The "D" rating category
is used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The "D" rating will also be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the rating
categories used by Moody's for commercial paper:
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"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability 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.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt 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.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the 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.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
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"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses 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.
"D-3" - Debt possesses 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.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that have
time horizons of less than 12 months for most obligations, or up to three years
for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of securities rated
"F1."
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
"B" - Securities possess speculative credit quality. this
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that the capacity for meeting financial commitments is solely reliant
upon a sustained, favorable business and economic environment.
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"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that 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" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned
by Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
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"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. This rating
is used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
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"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
The following summarizes the ratings used by Moody's for corporate
and municipal long-term debt:
"Aaa" - Bonds 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 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 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 sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca" and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned
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in operation experience, (c) rentals which begin when facilities are completed,
or (d) payments to which some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of construction or
elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD" and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of investment risk
and are
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assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is very unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. These ratings denote a very low expectation of investment risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of investment risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to adverse changes in circumstances or in
economic conditions than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this category.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC," "CC" and "C" - Bonds have high default risk. Capacity for
meeting financial commitments is reliant upon sustained, favorable business or
economic developments. "CC" ratings indicate that default of some kind appears
probable, and "C" ratings signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery on these securities, and "D" represents the lowest
potential for recovery.
To provide more detailed indications of credit quality, the Fitch
IBCA ratings from and including "AA" to "B" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
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Thomson BankWatch assesses the likelihood of an untimely repayment
of principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category assigned
by Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that 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.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC" and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
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<PAGE> 390
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality, enjoying
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, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack of
margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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THE PARKSTONE GROUP OF FUNDS
FORM N-1A
PART C. OTHER INFORMATION
ITEM NO.
- --------------------------------------------------------------------------------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) Financial Statements:
Included in Part A:
-- None.
Incorporated by Reference to Annual Report in Part B:
-- None.
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).
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<PAGE> 392
(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 app1icable.
(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, l996).
(i) Amendment dated August 26, 1993 to Schedule A
adding the Treasury Fund and Municipal Investor
Fund (incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed October
9, 1996).
(b) Investment Advisory Agreement between Registrant and
Securities Counsel, Inc. dated September 8, 1988, relating to
the Bond Fund, the Limited Maturity Bond Fund, the
Intermediate Government Obligations Fund, the Municipal Bond
Fund, the Equity Fund, the Small Capitalization Fund and the
High Income Equity Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31, filed October 9,
1996).
(i) First Amendment dated March 1, 1995 authorizing
the use of subadvisers with respect to the
Balanced Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 31,
filed October 9, 1996).
(ii) Amendment to Schedule A dated December 16, 1996
adding the Conservative Allocation Fund and the
Aggressive Allocation Fund and incorporating
previous amendments adding the Large
Capitalization Fund, the Michigan Municipal Bond
Fund, the Balanced Allocation Fund and the U.S.
Government Income Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 35, filed July 30 1997).
(iii) Second Amendment dated December 16, 1996
authorizing the use of subadvisers with respect
to the Conservative Allocation
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<PAGE> 393
Fund and the Aggressive Allocation Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 35, filed July 30,
1997).
(c) Investment Advisory Agreement between the Registrant and
First of America Investment Corporation dated December 22, 1992,
relating to the International Discovery Fund (incorporated by
reference to Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996).
(i) Amendment dated February 10, 1995 to Schedule A
adding the Emerging Markets Fund (incorporated
by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(d) Sub-Investment Advisory Agreement between First of America
Investment Corporation and Gulfstream Global Investors, Ltd.
dated March 1, 1995, relating to the International Discovery
Fund, the Balanced Fund and the Emerging Markets Fund
(incorporated by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(i) Amendment to Schedule A dated December 16, 1996
adding the Conservative Allocation Fund and the
Aggressive Allocation Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 35, filed , July 30, 1997).
(6) (a) Distribution Agreement between Registrant and The Winsbury
Company Limited Partnership dated October 1, 1993, relating to
the U.S. Government Obligations Fund, the Prime Obligations
Fund, the Tax-Free Fund, the Treasury Fund, the Municipal
Investor Fund, the Equity Fund, the Small Capitalization Fund,
the International Discovery Fund, the Balanced Fund, the High
Income Equity Fund, the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government Obligations Fund, the U.S.
Government Income Fund, the Municipal Bond Fund and the Michigan
Municipal Bond Fund (incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
(i) Amendment dated May 12, 1994 to the Distribution
Agreement adding Schedules H and I relating to
Investor C Shares (incorporated by reference to
Registrant's Post-Effective Amendment No. 31
filed October 9, 1996).
(ii) Amendment to Schedule A dated December 16, 1996
adding the Conservative Allocation Fund and the
Aggressive Allocation Fund and incorporating
previous amendments adding the Emerging Markets
Fund and the Large
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<PAGE> 394
Capitalization Fund (incorporated by reference
to Registrant's Post-Effective Amendment No. 35,
filed July 30, 1997).
(iii) Amendment to Schedule B dated November 8, 1995
adding the Large Capitalization Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9,
1996).
(iv) Amendment to Schedule D dated May 22, 1997
adding the Prime Obligations Fund and
incorporating a previous amendment adding the
Large Capitalization Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 35, filed July 30, 1997).
(v) Amendment to Schedule F dated November 8, 1995
adding the Large Capitalization Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9,
1996).
(vi) Amendment to Schedule G dated May 22, 1997
adding the Prime Obligations Fund and
incorporating a previous amendment adding the
Large Capitalization Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 35, filed July 30, 1997).
(vii) Amendment to Schedule 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).
(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) (1) Custody Agreement between Registrant and the Bank of
California, N.A., dated October 18, 1991, relating to
the U.S. Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Fund, the Bond Fund, the
Limited Maturity Bond Fund, the Intermediate
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<PAGE> 395
Government Obligations Fund, the Municipal Bond Fund,
the Equity Fund, the Small Capitalization Fund, the High
Income Equity Fund and the Michigan Municipal Bond Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
(i) Amendment to Schedule A dated December 16, 1996
adding the Conservative Allocation Fund and the
Aggressive Allocation Fund and Incorporating
previous amendments adding the Large
Capitalization Fund, the Balanced Allocation
Fund, the U.S. Government Income Fund, the
International Discovery Fund, the Treasury Fund
and the Municipal Investor Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 35, filed July 30, 1997).
(ii) Amendment dated November 20, 1992, to Schedule B
of the Custody Agreement (incorporated by
reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(iii) Securities Lending and Reverse Repurchase
Agreement Addendum dated June 8, 1995, relating
to the Bond Fund, the Balanced Fund and the
Limited Maturity Bond Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(b) Exhibit D dated March 18, 1996, adding the Intermediate
Government Obligations Fund's reinvestment policy (incorporated
by reference to Registrant's Post-Effective Amendment No. 35,
filed July 30, 1997).
(c) Exhibit D dated March 18, 1996 adding the U.S. Government
Income Fund's reinvestment policy (incorporated by reference to
Registrant's Post-Effective Amendment No. 35, filed July 30,
1997).
(d) Amendment to Exhibit D dated May 22, 1997 adding the Small
Capitalization Fund, the Mid Capitalization Fund, the Large
Capitalization Fund and the Equity Income Fund and incorporating
previous Exhibits D relating to the Bond Fund, the Limited
Maturity Bond Fund, the Balanced Allocation Fund, the
Conservative Allocation Fund and the Aggressive Allocation
Fund.**
(e) Amendment to Exhibit E dated May 22, 1997 revising the fee
schedule.**
(f) Amendment to Schedule I dated May 22, 1997 adding the Small
Capitalization Fund, the Mid Capitalization Fund, the Large
Capitalization
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<PAGE> 396
Fund and the Equity Income Fund and incorporating previous
amendments adding the Conservative Allocation Fund, the
Aggressive Allocation Fund, the Intermediate Government
Obligations Fund and the Government Income Fund.**
(i) International Custodian Agreement between
Registrar and the Bank of California, N.A.,
dated July 30, 1995 (incorporated by reference
to Registrant's Post-Effective Amendment No. 31
filed October 9, 1996).
(9) (a) Administration Agreement between Registrant and The Winsbury
Company Limited Partnership dated January 1, 1995, relating to
the U.S. Government Obligations Fund, the Prime Obligations
Fund, the Tax-Free Fund, the Treasury Fund, the Municipal
Investor Fund, the Equity Fund, the Small Capitalization Fund,
the International Discovery Fund, the Balanced Fund, the High
Income Equity Fund, the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government Obligations Fund, the U.S.
Government Income Fund, the Municipal Bond Fund and the Michigan
Municipal Bond Fund (incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
(i) Amendment to Exhibit A dated December 16, 1996
adding the Conservative Allocation Fund and the
Aggressive Allocation Fund and incorporating a
previous amendment adding the Large
Capitalization Fund (incorporated by reference
to Registrant's Post-Effective Amendment No. 35,
filed July 30. 1997).
(b) Transfer Agency Agreement between Registrant and The
Winsbury Service Corporation dated August 8, 1990.
(i) Amendment dated May 12, 1994 to Schedule B
revising the fee schedule (incorporated by
reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(c) Fund Accounting Agreement between Registrant and The
Winsbury Service Corporation dated as of February 1, 1993,
relating to the U.S. Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Fund, the Equity Fund, the Small
Capitalization Fund, the International Discovery Fund, the
Balanced Fund, the High Income Equity Fund, the Bond Fund, the
Limited Maturity Bond Fund, the Intermediate Government
Obligations Fund, the U.S. Government Income Fund, the Municipal
Bond Fund and the Michigan Municipal Bond Fund (incorporated by
reference to Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996.)
-6-
<PAGE> 397
(i) Amendment to Schedule A dated December 16, 1996
adding the Conservative Allocation Fund and the
Aggressive Allocation Fund and Incorporating
previous amendments adding the Large
Capitalization Fund, the Treasure Fund and the
Municipal Investor Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 35, filed July 30, 1997).
(ii) Amendment dated April 1, 1993 to Schedule B
revising the fee schedule (incorporated by
reference to Registrant's Post--Effective
Amendment No. 31 filed on 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 Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(i) Amendment to Schedule A dated December 16, 1996
adding the Conservative Allocation Fund and the
Aggressive Allocation Fund and incorporating a
previous amendment adding the Large
Capitalization Fund (incorporated by reference
to Registrant's Post-Effective Amendment No. 5,
filed July 30, 1997).
(e) Amended and Restated Securities Lending Record
Administration Agreement between Union Bank of California, N.A.
and BISYS Fund Services Limited Partnership dated May, 22
1997.**
(11) (a) Consent of PriceWaterhouseCoopers LLP
(b) Consent of Drinker Biddle & Reath LLP.
(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).
-7-
<PAGE> 398
(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. 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).
(b) 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).
(i) 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
Smal1 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).
-8-
<PAGE> 399
(c) 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).
(d) Amendment to Exhibit A dated November 8, 1995 adding the
Large Capitalization Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 3l filed October 9,
1996).
(i) 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 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).
(e) 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).
(f) 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).
-9-
<PAGE> 400
(ii) Service and Commission Agreement between The
Winsbury Company and Security Distributors,
Inc., Security Benefit Group, Inc. and First of
America Brokerage Services dated February 1,
1994, relating to Investor B Share shareholder
support services for the Equity Fund, the Small
Capitalization Fund, the International Discovery
Fund, the High Income Equity Fund, the Balanced
Fund, the Bond Fund, the Limited Maturity Bond
Fund, the U.S. Government Income Fund, the
Intermediate Government Obligations Fund, the
Municipal Bond Fund and the Michigan Municipal
Bond Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 3l
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).
(g) 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).
(h) 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).
-10-
<PAGE> 401
(i) 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).
(j) Amendment to Exhibit C dated November 8, 1995 adding the
Large Capitalization Fund (incorporated by reference to
Registrant's Post-Effective Amendment. No. 31 filed October 9,
1996).
(16) (a) Computation of Total Returns for the Small Capitalization
Fund, the Mid Capitalization Fund, the Large Capitalization
Fund, the International Discovery Fund, the Emerging Markets
Fund, the Conservative Allocation Fund, the Balanced Allocation
Fund, the Aggressive Allocation Fund, the Equity Income Fund.
the Bond Fund, the Limited Maturity Bond Fund, the Intermediate
Government Obligations Fund, the U.S. Government Income Fund,
the Municipal Bond Fund, the Michigan Municipal Bond Fund, the
U.S. Government Obligations Fund, the Prime Obligations Fund,
the Tax-Free Fund, the Treasury Fund and the Municipal Investor
Fund (incorporated by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(b) Computation of Yields for the Small Capitalization Fund, the
Mid Capitalization Fund, the Large Capitalization Fund, the
International Discovery Fund, the Emerging Markets Fund, the
Conservative Allocation Fund, the Balanced Allocation Fund, the
Aggressive Allocation Fund, the Equity Income Fund, the Bond
Fund the Limited Maturity Bond Fund, the Intermediate Government
Obligations Fund, the U.S. Government Income Fund, the Municipal
Bond Fund, the Michigan Municipal Bond Fund, the U.S. Government
Obligations Fund, the Prime Obligations Fund, the Tax-Free Fund,
the Treasury Fund and the Municipal Investor Fund (incorporated
by reference to Registrant's Post-Effective Amendment No. 31
filed October 9, 1996).
(c) Computation for Distribution Rates for the Small
Capitalization Fund, the Mid Capitalization Fund, the Large
Capitalization Fund, the International Discovery Fund, the
Emerging Markets Fund, the Conservative Allocation Fund, the
Balanced Allocation Fund, the Aggressive Allocation Fund, the
Equity Income Fund, the Bond Fund, the Limited Maturity Bond
Fund, the Intermediate Government Obligations Fund, the U.S.
Government Income Fund, the Municipal Bond Fund and the Michigan
Municipal Bond Fund (incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
(17) Financial Data Schedules**
(18) Amended and Restated Rule 18f-3 Multiple Class Plan adopted by
the Board of Trustees on May 22, 1997 (incorporated by reference
to Registrant's Post-Effective Amendment No. 35, filed July 30,
1997).
-11-
<PAGE> 402
(19) (a) Power of Attorney for Lawrence D. Bryan, Robert M. Beam, and
Adrian Charles Edwards (incorporated by reference to Exhibit
(17) of Registrant's Post-Effective Amendment No. 31 filed
October 9, 1996).
(b) Power of Attorney for John B. Rapp (incorporated by
reference to Registrant's Post-Effective Amendment No. 35, filed
July 31, l997).
(c) Power of Attorney for James Jones.
* The file number for all exhibits incorporated by reference is 33-13283.
** To be filed by amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of July 2, 1998, 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 Institutional
--------------- ---------- ---------- -------------
<S> <C> <C> <C>
U.S. Government Obligations Fund 51 N/A 3
Prime Obligations Fund 553 27 98
Tax-Free Fund 22 N/A 2
Treasury Fund 25 N/A 2
Small Capitalization Fund 12,953 6,649 40
Mid Capitalization Fund 6,663 3,393 9
Large Capitalization Fund 1,763 1,469 9
International Discovery Fund 5,058 2,428 12
Equity Income Fund 7,231 3,095 12
Conservative Allocation Fund N/A N/A 3
Balanced Allocation Fund 1,796 827 2
Aggressive Allocation Fund N/A N/A 3
Bond Fund 1,514 807 7
Limited Maturity Bond Fund 694 130 5
Intermediate Government
Obligations Fund 998 185 7
</TABLE>
-12-
<PAGE> 403
<TABLE>
<S> <C> <C> <C>
U.S. Government Income Fund 2,041 1,259 7
Municipal Bond Fund 178 22 7
Michigan Municipal Bond Fund 819 131 3
</TABLE>
ITEM 27. INDEMNIFICATION
Article IX Section 9.2 of the Registrant's Declaration of Trust, as
amended, provides for the indemnification of Registrant's Trustees and
officers. Indemnification of the Group's principal underwriter,
custodian, investment adviser, manager and administrator, transfer
agent and fund accountant is provided for, respectively, in Section
1.13 of the Distribution Agreement incorporated by reference as Exhibit
6(a) hereto, Section 10.1 of the Custody Agreement incorporated by
reference as Exhibit 8(a) hereto and in Section 16 of the Custodian
Agreement incorporated by reference as Exhibit 8(b) hereto, Section 8
of the Investment Advisory and Sub-Investment Advisory Agreements
incorporated by reference as Exhibits 5(a), (b), (c) and (d) hereto,
Section 6 of the Administration Agreement incorporated by reference as
Exhibit 9(a) hereto, Section 9 of the Transfer Agency Agreement,
incorporated by reference as Exhibit 9(b) hereto, and Section 6 of the
Fund Accounting Agreement 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
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 Registration 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
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of
expenses incurred or paid by a trustee, officer, or controlling person
of Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person
in connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against policy as
expressed in the Act and will be governed by the final adjudication of
such issues.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
-13-
<PAGE> 404
(a) National City Investment Management Company ("National
City") Cleveland, Ohio is an investment adviser registered under
the Investment Advisers' Act of 1940, as amended (the "Advisers
Act"). National City is an indirect, wholly-owned subsidiary of
National City Corporation. National City currently manages over
$12 billion on behalf of both taxable and tax-exempt clients,
including pensions, endowments, corporations, individual
portfolios, The Parkstone Advantage Fund and Armada Funds.
To the knowledge of Registrant, none of the directors or
officers of National City 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 National City may also hold
positions with _______, National City's parent, or National City
Corporation or other subsidiaries. Information relating to any
business, profession, or employment of a substantial nature
engaged in by officers and directors of First of America during
the past two years is incorporated herein by reference to
Schedules A and D of Form ADV filed by National City pursuant to
the Advisers Act (SEC file No. 801-446.)
ITEM 29. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services Limited Partnership, formerly known as
The Winsbury Company Limited Partnership ("BISYS") acts as
distributor and administrator for Registrant. BISYS also
distributes the securities of American Performance Funds,
AmSouth Mutual Funds, The ARCH Fund, Inc., The BB&T Mutual Funds
Group, The Coventry Group, Empire Builder Tax Free Bond Fund,
First Choice Funds Trust, Fountain Square Funds, Hirtle
Callaghan Trust, HSBC Family of Funds, The Infinity Mutual
Funds, Inc., Intrust Funds, The Kent Funds, MarketWatch Funds,
Meyers Sheppard Investment Trust, Minerva Funds, The MMA Praxis
Mutual Funds, M.S. D.&T. Funds, Pacific Capital Funds, The
Parkstone Advantage Fund, Pegasus Funds, Puget Sound Alternative
Investment Series Trust, Qualivest Funds, The Republic Funds
Trust, The Republic Advisors Funds Trust, The Riverfront Funds,
Inc, SBSF Funds, Inc., Sefton Funds, The Sessions Group, Summit
Investment Trust and The Victory Portfolios, each of which is an
investment management company.
(b) Directors, officers and partners of BISYS, as of July 15, 1998,
were as follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with BISYS Offices with
Business Address Fund Services L.P. Registrant
---------------- ------------------ ----------
<S> <C> <C> <C>
The BISYS Group, Inc Sole Shareholder of None
150 Clove Road BISYS Fund Services,
Little Falls, NJ 07424 Inc. and Sole Limited
</TABLE>
-14-
<PAGE> 405
<TABLE>
<S> <C> <C> <C>
Partner
BISYS Fund Services, Inc
3435 Stelzer Road
Columbus, Ohio 43219 Sole General. Partner None
</TABLE>
(c) Compensation to BISYS during the fiscal year ended May 31,
1998 was as follows:
<TABLE>
<CAPTION>
Net Underwriting Compensation on
Discounts and Redemption and Brokerage Other
Commissions Repurchase Commissions Compensation
- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
$ ----- $ ----- $ ----- $ -----
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
(a) National City Investment Management Company, 1900 East Ninth
Street, Cleveland, Ohio 44114-3484 (records relating to its
functions as investment adviser);
(b) Gulfstream Global Investors, Ltd., 100 Crescent Court, Suite
550, Dallas, Texas 75201 (records relating to certain functions
of the subadviser for the International Discovery Fund,
Conservative Allocation Fund, Balanced Allocation Fund and
Aggressive Allocation Fund).
(c) BISYS Fund Services, L.P., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to its functions as general manager,
administrator and distributor).
(d) Drinker Biddle & Reath LLP, Philadelphia National Bank
Building 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496 (Declaration of Trust, Code of Regulations, and
Minute Books).
(e) Union Bank of California, N.A., 475 Sansome Street, San
Francisco, California 94111 (records relating to its functions
as custodian).
(f) 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.
-15-
<PAGE> 406
ITEM 32. UNDERTAKINGS
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.
-16-
<PAGE> 407
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 38 to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Columbus and the State of Ohio on the 17th day of July, 1998.
THE PARKSTONE GROUP OF FUNDS
By /s/ HERBERT R. MARTENS, JR.
----------------------------------
Herbert R. Martens, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 38 to Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ HERBERT R. MARTENS, JR.
- ---------------------------
Herbert R. Martens, Jr. President July 17, 1998
John B. Rapp* Trustee
Robert M. Beam* Trustee
Lawrence D. Bryan* Trustee
Adrian Charles Edwards* Trustee
James F. Jones, Jr.* Trustee
/s/ GARY TENKMAN July 17, 1998
- ---------------------------
Gary Tenkman
*By: /s/ HERBERT R. MARTENS, JR. July 17, 1998
- --------------------------------
Name:
Attorney-in-Fact
</TABLE>
-17-
<PAGE> 408
POWER OF ATTORNEY
John B. Rapp, whose signature appears below, hereby constitutes and
appoints the President, Secretary, and Assistant Secretary of The Parkstone
Group of Funds, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities, to sign any and all documents
to be filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment
Company Act of 1933, the Securities Exchange Act of 1934, and the Investment
Company Act of 1940, by means of the Securities and Exchange Commission's
electronic disclosure system known as EDGAR; and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue thereof.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ John B. Rapp Trustee and February 17, 1997
- -------------------- Chairman of the Board
John B. Rapp
Sworn to and subscribed before me this 17th day of February, 1997.
/s/ Marabeth L. Maupin
- ----------------------
Notary Public
Kalamazoo County, Michigan
My Commission Expires: 5/26/98
<PAGE> 409
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints the
President, Secretary, and Assistant Secretary of The Parkstone Group of Funds,
and each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934, and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURE TITLE DATE
--------- ----- -----
/s/ George R. Landreth Trustee and May 23, 1996
- --------------------------- Chairman of the Board
George R. Landreth
/s/ Lawrence D. Bryan Trustee May 23, 1996
- ---------------------------
Lawrence D. Bryan
/s/ Robert M. Beam Trustee May 23, 1996
- ---------------------------
Robert M. Beam
/s/ Adrian Charles Edwards Trustee May 23, 1996
- --------------------------
Adrian Charles Edwards
Sworn to and subscribed before me this 23rd day of May, 1996.
/s/ Stephen Mintos
- -------------------------
Franklin County, Ohio
- ------------------------------------------
My Commission Expires: Lifetime Commission
Attorney at law
<PAGE> 410
EXHIBIT INDEX
Exhibit No.
- -----------
(11) (a) Consent of PriceWaterhouseCoopers LLP
(b) Consent of Drinker Biddle & Reath LLP
<PAGE> 1
Exhibit 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 38 to the Registration Statement of the Parkstone Group of Funds on Form
N-1A (File No. 33-13283) of our report dated August 25, 1997 on our audits of
the financial statements and financial highlights of the Parkstone Group of
Funds (comprising, respectively, the Prime Obligations Fund, U.S. Government
Obligations Fund, Tax-Free Fund, Treasury Fund, Small Capitalization Fund, Mid
Capitalization Fund, Large Capitalization Fund, International Discovery Fund,
Limited Maturity Bond Fund, Intermediate Government Obligations Fund, U.S.
Government Income Fund, Bond Fund, Municipal Bond Fund, Michigan Municipal Bond
Fund, Conservative Allocation Fund, Balanced Allocation Fund, Aggressive
Allocation Fund, and Equity Income Fund) as of June 30, 1997 and for the
periods then ended referred to in our report. We also consent to the references
to our firm under the caption "Financial Highlights" in the Prospectuses for
Investor A Shares, Investor B Shares and Institutional Shares, and under the
captions "Independent Auditors" and "Financial Statements" in the Statement of
Additional Information in this Post-Effective Amendment No. 38 to the
Registration Statement of the Parkstone Group of Funds on Form N-1A
(File No. 33-13283).
/s/ PRICEWATERHOUSECOOPERS LLP
Columbus, Ohio
July 17, 1998
<PAGE> 1
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference
to our Firm under the caption "Counsel" in the Statement of Additional
Information that is included in Post-Effective Amendment Nos. 38 and 40 to the
Registration Statement (Nos. 33-13283; 811-5105) on Form N-1A of The Parkstone
Group of Funds under the Securities Act of 1933 and the Investment Company Act
of 1940, respectively. This consent does not constitute a consent under Section
7 of the Securities Act of 1933, and in consenting to the use of our name and
the references to our Firm under such caption we have not certified any part of
the Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
/s/ DRINKER BIDDLE & REATH LLP
------------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
July 17, 1998
