<PAGE> 1
As filed with the Securities and Exchange Commission on September 16, 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. 39 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 41
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.
Title of Securities Being Registered: Shares of Beneficial Interest.
<PAGE> 2
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX - FREE INCOME FUNDS
THE PARKSTONE MONEY MARKET FUND
FORM N - 1A
CROSS - REFERENCE SHEET
<TABLE>
<CAPTION>
PART A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO. 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> 3
-----------------------------------------------------------
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 15, 1998
(PARKSTONE LOGO)
-------------------------
NOT FDIC INSURED
<PAGE> 4
{THIS PAGE INTENTIONALLY LEFT BLANK.}
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<PAGE> 5
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES PROSPECTUS DATED SEPTEMBER 15, 1998
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
For more information call:
(800) 451-8377
or write to:
One Freedom Valley Drive
Oaks, Pennsylvania 19456
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 15, 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.
Shares of the Group are not bank deposits or obligations of or guaranteed or
endorsed or otherwise supported by National City Investment Management Company,
its parent company or any of its affiliates, and are not federally insured or
guaranteed by the U.S. government, federal Deposit Insurance Corporation, or any
government agency or state, investment in the trust involved risk, including the
possible loss of principal.
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<PAGE> 6
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.
PROSPECTUS--Investor A Shares
-4-
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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
TELEPHONE ACCESS........................................................... 83
GENERAL INFORMATION........................................................ 83
</TABLE>
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<PAGE> 8
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")
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<PAGE> 9
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 Board of Trustees of the Group has divided beneficial ownership of each Fund
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 ("IMC" 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, IMC 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
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<PAGE> 10
INCOME FUNDS
Bond Fund
Limited Maturity Bond Fund
Intermediate Government Obligations Fund
Government Income Fund
TAX-FREE INCOME FUNDS
Municipal Bond Fund
Michigan Bond Fund
MONEY MARKET FUNDS
Prime Obligations Fund
U.S. Government Obligations Fund
Treasury Fund
Tax-Free Fund
These Funds represent sixteen separate investment portfolios
of The Parkstone Group of Funds, a Massachusetts business
trust which is registered as an open-end, management
investment company.
Purchase and Redemption of Shares
The public offering price of Investor A Shares of each of the Growth Funds and
each of the Growth and Income Funds is equal to the net asset value per share
plus a sales charge equal to 5.50% of the public offering price (5.80% 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 4.75% of the public offering price
(5.00% 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, Systematic Exchange Program 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 or fund of Armada Funds
("Armada") 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."
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<PAGE> 11
Minimum Purchase
There is a $500 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
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 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
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<PAGE> 12
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, with
Obligations Fund liquidity and stability of principal
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
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<PAGE> 13
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 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 at least 80% of the value of its total
Fund 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
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<PAGE> 14
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
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
IMC serves as investment adviser, and, with respect to the International Fund
and a portion of the Balanced Allocation Fund, Gulfstream serves as subadviser.
IMC 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 IMC (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.
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<PAGE> 15
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. As of October 1, 1998, dividends for the Income Funds and the Tax-Free
Income Funds , if any, will be declared on a daily basis and paid on a monthly
basis. Dividends for the Growth Funds and the Growth and Income Funds, if any,
will continue to be declared and paid on a monthly basis. Net realized capital
gains are distributed at least annually. The Directed Dividend Option enables
shareholders to have dividends and capital gains paid by check, or reinvested
automatically without payment of sales charges. See "DIRECTED DIVIDEND OPTION."
Each of the Funds is treated as a separate entity for federal 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 (INVESTOR A SHARES)
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge (as a percentage of the offering price) (1)
<TABLE>
<S> <C>
- -- Growth Funds......................................................... 5.50%
- -- Growth and Income Funds.............................................. 5.50%
- -- Income Funds......................................................... 4.75%
- -- Tax-Free Income Funds................................................ 4.75%
- -- 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
</TABLE>
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(1) The sales charge may be eliminated under certain circumstances. (See
"REDUCED SALES CHARGES -- Sales Charge Waivers.")
(2) Investors who invest over $1,000,000 in Investor A Shares of the Small
Capitalization Fund will be subject to a redemption fee of 1.00% for
redemptions of such shares made within one year of the date of purchase.
In addition, with respect to all Funds, although no such fee is currently
in place, the Transfer Agent has reserved the right in the future to
charge a fee for wire transfers of redemption proceeds.
(3) Exchanges into a Non-Money Market Fund from a Money Market Fund will be
normally subject to a sales charge.
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ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12b-1 OTHER OPERATING
FEES FEES EXPENSES EXPENSES
(AFTER WAIVER, (AFTER WAIVER, (AFTER WAIVER, (AFTER WAIVER,
IF APPLICABLE) IF APPLICABLE) (5) IF APPLICABLE)(4) IF APPLICABLE)(4)
-------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
GROWTH FUNDS
Small Capitalization Fund.... 1.00% 0.25% 0.35% 1.60%
Mid Capitalization Fund...... 1.00% 0.25% 0.30% 1.55%
Large Capitalization Fund.... 0.80% 0.25% 0.30% 1.35%
International Fund........... 1.16%(6) 0.25% 0.41% 1.82%
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% 0.27% 1.07%
Intermediate Government
Obligations Fund.......... 0.70% 0.25% 0.27% 1.22%
Government Income Fund....... 0.45% 0.25% 0.30% 1.00%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund.......... 0.55% 0.25% 0.22% 1.02%
Michigan Bond Fund........... 0.55% 0.25% 0.19% 0.99%
MONEY MARKET FUNDS:
Prime Obligations Fund....... 0.40% 0.10% 0.26% 0.76%
U.S. Government Obligations
Fund...................... 0.40% 0.10% 0.26% 0.76%
Treasury Fund................ 0.40% 0.10% 0.17% 0.67%
Tax-Free Fund................ 0.40% 0.10% 0.26% 0.76%
</TABLE>
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(4) After voluntary expense reductions.
(5) Pursuant to the Investor A Distribution and Shareholder Service Plan, each
Fund is authorized to make payments under such Plan of up to an annual
rate of 0.25% of the average daily net asset value of such Fund's Investor
A Shares. However, currently payments of only 0.10% are being charged
under such Plan with respect to the Money Market Funds.
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<PAGE> 17
(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 1.62%, 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%, 0.32% and 1.31%,
respectively. For the Intermediate Government Obligations Fund, they would have
been 0.74%, 0.32% and 1.31% respectively. For the Government Income Fund, they
would have been 0.74%, 0.35% and 1.34% respectively. For the Municipal Bond
Fund, they would have been 0.74%, 0.32% and 1.31%, respectively. For the
Michigan Bond Fund, they would have been 0.74%, 0.29% and 1.28%, 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%, 0.28%
and 0.93%, respectively. For the U.S. Government Obligations Fund, they would
have been 0.25%, 0.28% and 0.93%, 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%, 0.28% and 0.93%, 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:
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<PAGE> 18
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund .............. $ 61 $ 93 $128 $226
Mid Capitalization Fund ................ $ 60 $ 92 $126 $221
Large Capitalization Fund .............. $ 58 $ 86 $116 $200
International Fund ..................... $ 63 $100 $139 $249
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 ............. $ 50 $ 73 $ 97 $165
Intermediate Government Obligations Fund $ 52 $ 77 $104 $182
Government Income Fund ................. $ 50 $ 71 $ 93 $158
TAX-FREE INCOME FUNDS:
Municipal Bond Fund .................... $ 50 $ 70 $ 93 $156
Michigan Bond Fund ..................... $ 50 $ 71 $ 94 $160
MONEY MARKET FUNDS:
Prime Obligations Fund ................. $ 8 $ 24 $ 42 $ 94
U.S. Government Obligations Fund ....... $ 8 $ 24 $ 42 $ 94
Treasury Fund .......................... $ 7 $ 21 $ 37 $ 83
Tax-Free Fund .......................... $ 8 $ 24 $ 42 $ 94
</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 IMC 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
-18-
<PAGE> 19
CHARGES" for a more complete discussion of the shareholder transaction expenses
and annual operating expenses of each of the Funds. The expense information for
Investor A Shares reflects current fees. THE FOREGOING EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables on the following pages set forth certain information concerning the
investment results of the Investor A Shares of each of the Funds since its
inception. Further financial information is included in the Statement of
Additional Information and the Group's May 31, 1998 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.
-19-
<PAGE> 20
<TABLE>
<CAPTION>
SMALL CAPITALIZATION FUND -- INVESTOR A SHARES
ELEVEN
MONTHS
ENDED MAY 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ............ $ 27.55 $ 34.17 $ 25.88 $ 19.75 $ 20.31
------------- ------------- ------------- ------------- -------------
Investment Activities
Net Investment Loss .............. (0.35) (0.29) (0.23) (0.18) (0.15)
Net Realized and Unrealized Gains
(Losses) on Investments .... (0.18) (1.08) 12.17 8.46 0.09
------------- ------------- ------------- ------------- -------------
Total from Investment ...... (0.53) (1.37) 11.94 8.28 (0.06)
------------- ------------- ------------- ------------- -------------
Activities
Distributions
Net Investment Income ............ -- -- -- -- --
Net Realized Gains ............... (1.30) (5.25) (3.65) (2.15) (0.50)
- ------------------------------------- ------------- ------------- ------------- ------------- -------------
Total Distributions ....... (1.30) (5.25) (3.65) (2.15) (0.50)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD ...... $ 25.72 $ 27.55 $ 34.17 $ 25.88 $ 19.75
============= ============= ============= ============= =============
Total Return (excluding sales and
Redemption charges) ............. (1.90)%(e) 4.53% 49.93% 44.88% (0.55)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 163,178 $ 188,645 $ 187,016 $ 71,894 $ 42,791
Ratio of Net Investment Loss
To Average Net Assets ..... 1.60%(c) 1.57% 1.54% 1.55% 1.40%
Ratio of Expenses to Average
Net Assets ................ (1.23)%(c) (1.19)% (1.18)% (1.27)% (1.24)%
Ratio of Net Investment Loss to
Average Net Assets* ....... 1.60%(c) 1.57% 1.54% 1.58% 1.55%
Ratio of Net Investment Loss to
Average Net Assets* ....... (1.23)%(c) (1.19)% (1.18)% (1.30)% (1.39)%
Portfolio Turnover Rate(d) ..... 46.17% 48.45% 67.22% 50.53% 72.64%
Average Commission Rate Paid(f) $ 0.0788 $ 0.0800
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
OCT. 31, 1988
TO
1993(B) 1992 1991 1990 JUNE 30 1989(A)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ............ $ 14.64 $ 13.58 $ 14.82 $ 11.59 $ 10.00
------------- ------------- ------------- ------------- -------------
Investment Activities
Net Investment Loss .............. (0.13) (0.08) 0.14 0.04 0.06
Net Realized and Unrealized Gains
(Losses) on Investments .... 6.75 1.89 (1.24) 3.23 1.59
------------- ------------- ------------- ------------- -------------
Total from Investment ...... 6.62 1.81 (1.10) 3.27 1.65
------------- ------------- ------------- ------------- -------------
Activities
Distributions
Net Investment Income ............ -- -- (0.14) (0.04) (0.06)
Net Realized Gains ............... (0.95) (0.75) -- -- --
- ------------------------------------- ------------- ------------- ------------- ------------- -------------
Total Distributions ....... (0.95) (0.75) (0.14) (0.04) (0.06)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD ...... $ 20.31 $ 14.64 $ 13.58 $ 14.82 $ 11.59
============= ============= ============= ============= =============
Total Return (excluding sales and
Redemption charges) ............. 45.77% 12.95% (6.76)% 28.28% 16.60%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) $ 27,976 $ 180,079 $ 107,500 $ 94,517 $ 53,917
Ratio of Net Investment Loss
To Average Net Assets ..... 1.29% 1.19% 1.15% 1.11% 1.29%(c)
Ratio of Expenses to Average
Net Assets ................ (1.02)% (0.61)% 1.08% 0.37% 0.80%(c)
Ratio of Net Investment Loss to
Average Net Assets* ....... 1.36% 1.28% 1.33% 1.33% 1.54%(c)
Ratio of Net Investment Loss to
Average Net Assets* ....... (1.09)% (0.70)% 0.90% 0.15% 0.55%(c)
Portfolio Turnover Rate(d) ..... 71.21% 95.02% 139.66% 83.10% 51.79%
Average Commission Rate Paid(f)
</TABLE>
-20-
@@
<PAGE> 21
MID CAPITALIZATION FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED MAY 31,
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD........................ $15.72 $20.71 $16.56 $14.69
------ ------ ------ ------
Investment Activities
Net Investment Loss.......................... (0.14) (0.16) (0.16) (0.12)
Net Realized and Unrealized Gains
(Losses) on Investments................ 2.51 1.30 4.97 3.46
---- ---- ---- ----
Total from Investment Activities....... 2.37 1.14 4.81 3.34
---- ---- ---- ----
Distributions
Net Investment Income........................ -- -- -- --
Net Realized Gains........................... (3.11) (6.13) (0.66) (0.48)
------
In Excess of Net Realized Gains............. -- -- -- (0.99)
-- -- -- ------
Total Distributions................... (3.11) (6.13) (0.66) (1.47)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.................. $14.98 $15.72 $20.71 $16.56
====== ====== ====== ======
Total Return (excluding sales and
redemption charges)......................... 16.84%* 5.78% 29.57% 24.85
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............ $90,183 $80,634 $66,260 $43,803
Ratio of Expenses to Average
Net Assets............................ 1.55%(c) 1.56% 1.54% 1.51%
Ratio of Net Investment Loss to
Average Net Assets.................. (1.02)%(c) (1.05)% (0.94)% (0.87)%
Ratio of Expenses to Average
Net Assets*........................ 1.55%(c) 1.56% 1.54% 1.54%
Ratio of Net Investment Loss
to Average Net Assets*............. (1.02)%(c) (1.05)% (0.94)% (0.90)%
Portfolio Turnover Rate(d)................. 38.41% 38.47% 49.27% 46.39%
Average Commission Rate Paid(f)............ $0.0794 $0.0796
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
--------------------------------------------------------------------------------
OCT. 31, 1988
TO
1994 1993(B) 1992 1991 1990 JUNE 30 1989(A)
---- ------- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD........................ $15.11 $12.80 $11.69 $12.37 $11.48 $10.00
------ ------ ------ ------ ------ ------
Investment Activities
Net Investment Loss.......................... (0.10) (0.01) 0.17 0.45 0.30 0.20
Net Realized and Unrealized Gains
(Losses) on Investments................ (0.28) 2.74 1.59 (0.53) 1.86 1.47
------ ---- ---- ------ ---- ----
Total from Investment Activities....... (0.38) 2.73 1.76 (0.08) 2.16 1.67
------ ---- ---- ------ ---- ----
Distributions
Net Investment Income........................ -- (0.02) (0.17) (0.45) (0.28) (0.19)
Net Realized Gains........................... (0.04) (0.40) (0.48) (0.15) (0.99) --
In Excess of Net Realized Gains............. -- -- -- -- -- --
-- -- -- -- -- --
Total Distributions................... (0.04) (0.42) (0.65) (0.60) (1.27) (0.19)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD.................. $14.69 $15.11 $12.80 $11.69 $12.37 $11.48
====== ====== ====== ====== ====== ======
Total Return (excluding sales and
redemption charges)......................... (2.57)% 21.42% 15.18% (0.45)% 19.23% 16.83%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)............ $36,108 $26,460 $407,782 $298,655 $247,683 $180,124
Ratio of Expenses to Average
Net Assets............................ 1.38% 1.28% 1.18% 1.10% 1.07% 1.06%(c)
Ratio of Net Investment Loss to
Average Net Assets.................. (0.75)% (0.12)% 1.24% 3.87% 2.51% 2.80%(c)
Ratio of Expenses to Average
Net Assets*........................ 1.53% 1..35% 1.26 1.28% 1.29% 1.31%(c)
Ratio of Net Investment Loss
to Average Net Assets*............. (0.90)% (0.19)% 1.15% 3.69% 2.29% 2.55%(c)
Portfolio Turnover Rate(d)................. 70.87% 66.48% 93.76% 189.26% 136.95% 87.30%
Average Commission Rate Paid(f)............
</TABLE>
<PAGE> 22
LARGE CAPITALIZATION FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS YEAR ENDED
ENDED JUNE 30, DEC. 28, 1995
MAY 31, 1998 INVESTOR A SHARES TO
INVESTOR A SHARES 1997 JUNE 30, 1996(A)
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .................... $ 14.44 $ 11.23 $ 10.00
------------ ------------ ------------
Investment Activities
Net Investment Income (Loss) ...................... (0.06) 0.03
Net Realized and Unrealized Gains (Losses)
on Investments ............................... 3.51 3.30 1.23
------------ ------------ ------------
Total From Investment Activities ............. 3.45 3.30 1.26
------------ ------------ ------------
Distributions
Net Investment Income ....................... -- (0.01) (0.03)
Tax Return of Capital ....................... (0.03) -- --
Net Realized Gains .......................... (1.67) (0.08) --
------------ ------------ ------------
Total Distributions ............. (1.70) (0.09) (0.03)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD .......................... $ 16.19 $ 14.44 $ 11.23
============ ============ ============
Total Return (excluding sales and redemption charges) ... 25.95%(e) 29.52% 8.99%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................... $ 21,628 $ 12,260 $ 1,657
Ratio of Expenses to Average Net Assets .......... 1.35%(c) 1.37% 1.40%(c)
Ratio of Net Investment Gain (Loss) to
Average Net Assets ................................ (0.45)%(c) (0.14)% 0.31%(c)
Ratio of Expenses to Average Net Assets* .......... 1.35%(c) 1.37% 2.62%(c)
Ratio of Net Investment Loss to Average Net Assets* (0.45)%(c) (0.14)% (0.91)%(c)
Portfolio Turnover Rate (d) ....................... 24.74% 48.44% 0.86%
Average Commission Rate Paid (f) .................. $ 0.0932 $ 0.0800
</TABLE>
<PAGE> 23
INTERNATIONAL DISCOVERY FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
ELEVEN MONTHS INVESTOR A SHARES
ENDED ----------------------------
MAY 31, 1998 1997 1996
------------ ---- ----
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................. $16.25 $14.01 $12.23
------ ------ ------
Investment Activities
Net Investment Income (Loss)......................... (0.09) (0.07) (0.02)
Net Realized and Unrealized Gains (Losses)
On Investments and Foreign
Currency Transactions.................... 0.86 2.31 1.81
---- ---- ----
Total From Investment Activities......... 0.77 2.24 1.79
---- ---- ----
Distributions
Net Investment Income -- -- --
Net Realized Gains............................. (0.51) -- (0.01)
------ -- ------
Total Distributions (0.51) (0.01)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $16.51 $16.25 $14.01
====== ====== ======
Total Return (excluding sales and redemption charges)............ 5.17%(e) 15.99% 14.65%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)...................... $43,268 $48,557 $39,575
Ratio of Expenses to Average Net Assets.............. 1.82%(c) 1.80% 1.80%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.75)%(c) (0.54)% (0.11)%
Ratio of Expenses to Average Net Assets*............. 1.82%(c) 1.80% 1.88%
Ratio of Net Investment Income
(Loss) to Average Net Assets*...................... (0.75)%(c) (0.54)% (0.19)%
Portfolio Turnover Rate(d).......................... 34.15% 45.18% 54.47%
Average Commission Rate Paid(f)...................... $0.0329 $0.0321
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------- DEC. 29, 1992
INVESTOR A SHARES TO
1995 1994 JUNE 30, 1993(A)(B)
---- ---- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................. $13.18 $11.50 $10.00
------ ------ ------
Investment Activities
Net Investment Income (Loss)......................... 0.03 (0.02) 0.03
Net Realized and Unrealized Gains (Losses)
On Investments and Foreign
Currency Transactions.................... (0.36) 1.74 1.48
------ ---- ----
Total From Investment Activities......... (0.33) 1.72 1.51
------ ---- ----
Distributions
Net Investment Income -- (0.02) (0.01)
Net Realized Gains............................. (0.62) (0.02) --
------ ------ --
Total Distributions (0.62) (0.04) (0.01)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.23 $13.18 $11.50
====== ====== ======
Total Return (excluding sales and redemption charges)............ (2.19)% 14.99% 15.11%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000)...................... $34,228 $36,297 $8,353
Ratio of Expenses to Average Net Assets.............. 1.78% 1.63% 1.64%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.08% (0.29)% (1.02)%(c)
Ratio of Expenses to Average Net Assets*............. 1.91% 1.84% 1.81%
Ratio of Net Investment Income
(Loss) to Average Net Assets*...................... (0.06)% (0.49)% (0.85)%(c)
Portfolio Turnover Rate(d).......................... 104.39% 37.23% 12.47%
Average Commission Rate Paid(f)......................
</TABLE>
<PAGE> 24
BALANCED ALLOCATION FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
INVESTOR A SHARES
ELEVEN ----------------------------------
MONTHS
ENDED
MAY 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................. $ 13.00 $ 13.37 $ 12.19
------------ ------------ ------------
Investment Activities
Net Investment Income (Loss) ............. 0.29 0.32 0.32
Net Realized and Unrealized Gains (Losses)
On Investments and Foreign
Currency Transactions ................. 1.21 1.12 1.74
------------ ------------ ------------
Total From Investment Activities ...... 1.50 1.44 2.06
------------ ------------ ------------
Distributions
Net Investment Income .................... (0.32) (0.33) (0.31)
Net Realized Gains ....................... (0.36) (1.48) (0.57)
In Excess of Net Investment Income ....... -- -- --
------------ ------------ ------------
Total Distributions ................... (0.68) (1.81) (0.88)
------------ ------------
NET ASSET VALUE, END OF PERIOD ....................... $ 13.82 $ 13.00 $ 13.37
============ ============ ============
Total Return (excluding sales and redemption charges) 11.87%(e) 11.61% 17.51%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .......... $ 19,404 $ 18,826 $ 17,097
Ratio of Expenses to Average Net Assets .. 1.36%(c) 1.36% 1.41%
Ratio of Net Investment Income (Loss) to
Average Net Assets .................... 2.32%(c) 2.47% 2.37%
Ratio of Expenses to Average Net Assets* . 1.62%(c) 1.61% 1.66%
Ratio of Net Investment Income (Loss) to
Average Net Assets* ................... 2.07%(c) 2.22% 2.12%
Portfolio Turnover Rate(d) .............. 117.80% 425.05% 437.90%
Average Commission Rate Paid(f) .......... $ 0.0518 $ 0.0848
<CAPTION>
YEAR ENDED JUNE 30
INVESTOR A SHARES
----------------------------------------------------
JAN. 31,
1992
TO
JUNE 30,
1995 1994 1993(B) 1992(A)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................. $ 10.67 $ 11.09 $ 9.68 $ 10.00
------------ ------------ ------------ ------------
Investment Activities
Net Investment Income (Loss) ............. 0.28 0.26 0.28 0.14
Net Realized and Unrealized Gains (Losses)
On Investments and Foreign
Currency Transactions ................. 1.69 (0.43) 1.42 (0.34)
------------ ------------ ------------ ------------
Total From Investment Activities ...... 1.97 (0.17) 1.70 (0.20)
------------ ------------ ------------ ------------
Distributions
Net Investment Income .................... (0.29) (0.25) (0.29) (0.12)
Net Realized Gains ....................... (0.01) -- -- --
In Excess of Net Investment Income ....... (0.15) -- -- --
------------ ------------ ------------ ------------
Total Distributions ................... (0.45) (0.25) (0.29) (0.12)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD ....................... $ 12.19 $ 10.67 $ 11.09 $ 9.68
============ ============ ============ ============
Total Return (excluding sales and redemption charges) 18.96% (1.63)% 17.74% (2.06)% (e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .......... $ 12,849 $ 11,901 $ 6,115 $ 38,136
Ratio of Expenses to Average Net Assets .. 1.47% 1.18% 1.18% 1.19% (c)
Ratio of Net Investment Income (Loss) to
Average Net Assets .................... 2.54% 2.38% 2.66% 3.46% (c)
Ratio of Expenses to Average Net Assets* . 1.78% 1.63% 1.53% 1.50% (c)
Ratio of Net Investment Income (Loss) to
Average Net Assets* ................... 2.23 1.93 2.31% 3.13% (c)
Portfolio Turnover Rate(d) .............. 250.66% 192.39% 177.99% 47.58%
Average Commission Rate Paid(f) ..........
</TABLE>
<PAGE> 25
EQUITY INCOME FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
INVESTOR A SHARES
Eleven Months -------------------------------------------------------
Ended
May 31,
1998 1997 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning ............. $ 19.20 $ 17.31 $ 14.49 $ 13.50
------------- ------------- ------------- -------------
Of Period
Investment Activities
Net Investment Income (Loss) ........ 0.25 0.29 0.30 0.36
Net Realized and Unrealized
Gains (Losses)
on Investments ................. 2.72 3.57 3.27 1.00
------------- ------------- ------------- -------------
Total From Investment Activities 2.97 3.86 3.57 1.36
------------- ------------- ------------- -------------
Distributions
Net Investment Income ............... (0.21) (0.28) (0.30) (0.36)
In Excess of Net Investment Income .. -- -- -- (0.01)
Net Realized Gains .................. (3.18) (1.69) (0.45) --
In Excess of Net Realized Gains ..... -- -- --
Total Distributions ............ (3.39) (1.97) (0.75) (0.37)
------------- ------------- ------------- -------------
Net Asset Value, End of Period ......... $ 18.78 $ 19.20 $ 17.31 $ 14.49
============= ============= ============= =============
Total Return
(excluding sales and
Redemption charges) ................. 17.08%(e) 23.81% 25.05% 10.32%
Ratios/Supplementary Data:
Net Assets, End of Period (000) ..... $ 104,503 $ 99,423 $ 82,396 $ 71,063
Ratio of Expenses to Average Net
Assets .......................... 1.58%(c) 1.58% 1.57% 1.54%
Ratio of Net Investment Income
(Loss) to ....................... 1.39%(c) 1.62% 1.86% 2.65%
Average Net Assets
Ratio of Expenses to Average ........ 1.58%(c) 1.58% 1.57% 1.57%
Net Assets*
Ratio of Net Investment Income ...... 1.39%(c) 1.62% 1.86% 2.61%
(Loss) to Average Net Assets
Portfolio Turnover Rate(d) .......... 18.62% 20.14% 40.75% 77.70%
Average Commission Rate Paid(f) ..... $ 0.0800 $ 0.0800
<CAPTION>
YEAR ENDED JUNE 30
INVESTOR A SHARES
--------------------------------------------------------------------- Oct. 31,
1988 to
June 30,
1994 1993(b) 1992 1991 1990 1989(a)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning ............. $ 14.69 $ 13.14 $ 12.48 $ 12.19 $ 11.35 $ 10.00
----------- ----------- ----------- ----------- ----------- -----------
Of Period
Investment Activities
Net Investment Income (Loss) ........ 0.37 0.45 0.54 0.57 0.56 0.35
Net Realized and Unrealized
Gains (Losses)
on Investments ................. (0.56) 1.69 0.99 0.38 1.04 1.32
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment Activities (0.19) 2.14 1.53 0.95 1.60 1.67
----------- ----------- ----------- ----------- ----------- -----------
Distributions
Net Investment Income ............... (0.37) (0.45) (0.54) (0.59) (0.54) (0.32)
In Excess of Net Investment Income .. -- -- -- -- -- --
Net Realized Gains .................. (0.24) (0.14) (0.33) (0.07) (0.22) --
In Excess of Net Realized Gains ..... -- (0.39) -- -- -- --
Total Distributions ............ (1.00) (0.59) (0.87) (0.66) (0.76) (0.32)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ......... $ 13.50 $ 14.69 $ 13.14 $ 12.48 $ 12.19 $ 11.35
=========== =========== =========== =========== =========== ===========
Total Return
(excluding sales and
Redemption charges) ................. (1.63)% 16.71% 12.56% 8.22% 14.37% 16.97%(e)
Ratios/Supplementary Data:
Net Assets, End of Period (000) ..... $ 76,108 $ 50,000 $ 270,549 $ 150,980 $ 96,344 $ 66,367
Ratio of Expenses to Average Net
Assets .......................... 1.40% 1.29% 1.19% 1.13% 1.11% 1.16%(c)
Ratio of Net Investment Income
(Loss) to ....................... 2.56% 3.24% 4.12% 4.75 4.69 4.92%(c)
Average Net Assets
Ratio of Expenses to Average ........ 1.55% 1.36% 1.27% 1.31% 1.33% 1.41%(c)
Net Assets*
Ratio of Net Investment Income ...... 2.41% 3.17% 4.03% 4.57% 4.47% 4.67%
(Loss) to Average Net Assets
Portfolio Turnover Rate(d) .......... 69.35% 67.26% 68.42% 4.57% 53.08% 29.55
Average Commission Rate Paid(f) ..... 115.68%
</TABLE>
<PAGE> 26
BOND FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
--------------------------------------------------------------------------------
ELEVEN
MONTHS
ENDED
MAY 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ............ $ 9.68 $ 9.51 $ 9.67 $ 9.30 $ 10.54
----------- ----------- ----------- ----------- -----------
Investment Activities ............. 0.52 0.56 0.57 0.58 0.59
Net Investment
Income(Loss) ................ 0.52
Net Realized and Unrealized
Gains (Losses) on ........... 0.32 0.17 (0.16) 0.38 (0.72)
----------- ----------- ----------- ----------- -----------
Investments .............
Total From Investment ........ 0.84 0.73 0.41 0.96 (0.13)
----------- ----------- ----------- ----------- -----------
Activities
Distributions
Net Investment
Income ...................... (0.53) (0.56) (0.57) (0.58) (0.57)
Net Realized
Gains ....................... -- -- -- -- --
In Excess of Net Realized
Gains ...................... -- -- -- (0.01) (0.54)
----------- ----------- ----------- ----------- -----------
Total Distributions ......... (0.53) (0.56) (0.57) (0.59) (1.11)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END
OF PERIOD ....................... $ 9.99 $ 9.68 $ 9.51 $ 9.67 $ 9.30
=========== =========== =========== =========== ===========
Total Return (excluding sales and
redemption charges) ......... 8.83%(e) 7.92% 4.27% 10.85% (1.62)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ................. $ 16,669 $ 19,760 $ 20,175 $ 17,572 $ 18,391
Ratio of Expenses to Average
Net Assets ............... 1.19%(c) 1.19% 1.19% 1.24% 0.98%
Ratio of Net Investment
Income (Loss) ............ 5.81%(c) 5.88% 5.71% 6.32% 5.86%
Ratio of Expenses to Average
Net Assets* ............... 1.28%(c) 1.28% 1.28% 1.39% 1.27%
Ratio of Net Investment Income
(Loss) to Average Net ........ 5.71%(c) 5.79% 5.62% 6.17% 5.57%
Assets*
Portfolio Turnover Rate (d) .. 545.68% 827.00% 1189.27% 1010.64% 893.27%
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
--------------------------------------------
OCT. 31,
1988
TO
JUNE 30,
1993(B) 1992 1991 1990 1989(A)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ............ $ 10.54 $ 10.07 $ 10.00 $ 10.11 $ 10.00
----------- ----------- ----------- ----------- -----------
Investment Activities ............. 0.71 0.75 0.77 0.78 0.53
Net Investment
Income(Loss) ................
Net Realized and Unrealized
Gains (Losses) on ........... 0.47 0.56 0.08 (0.11) 0.09
----------- ----------- ----------- ----------- -----------
Investments .............
Total From Investment ........ 1.18 1.31 0.85 0.67 0.62
----------- ----------- ----------- ----------- -----------
Activities
Distributions
Net Investment
Income ...................... (0.73) (0.76) (0.78) (0.78) (0.51)
Net Realized
Gains ....................... (0.45) (0/08) -- -- --
In Excess of Net Realized
Gains ...................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions ......... (1.18) (0.84) (0.78) (0.78) (0.51)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END
OF PERIOD ....................... $ 10.54 $ 10.54 $ 10.07 $ 10.00 $ 10.11
=========== =========== =========== =========== ===========
Total Return (excluding sales and
redemption charges) ......... 11.93% 13.47% 8.80% 6.94% 6.42% (e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ................. $ 18,562 $ 477,526 $ 432,225 $ 316,477 $ 123,928
Ratio of Expenses to Average
Net Assets ............... 0.89% 0.87% 0.84% 0.81% 0.82% (c)
Ratio of Net Investment
Income (Loss) ............ 6.47% 7.19% 7.72% 8.04% 8.06 % (c)
Ratio of Expenses to Average
Net Assets* ............... 1.07% 1.01% 1.02% 1.02% 1.06% (c)
Ratio of Net Investment Income
(Loss) to Average Net ........ 6.29% 7.05% 7.54% 7.83% 7.82% (c)
Assets*
Portfolio Turnover Rate (d) .. 443.98% 289.38% 337.74% 314.71% 121.08%
</TABLE>
<PAGE> 27
LIMITED MATURITY BOND FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
--------------------------------------------------------------------------------
ELEVEN
MONTHS
ENDED
MAY 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .................. $ 9.49 $ 9.48 $ 9.71 $ 9.57 $ 10.18
----------- ----------- ----------- ----------- -----------
Investment Activities
Net Investment Income(Loss) .......... 0.47 0.55 0.62 0.56 0.62
Net Realized and Unrealized
Gains(Losses) on Investments ...... 0.01 0.01 (0.21) 0.13 (0.58)
----------- ----------- ----------- ----------- -----------
Total From Investment
Activities ........................ 0.48 0.56 0.41 0.69 0.04
----------- ----------- ----------- ----------- -----------
Distributions
Net Investment
Income .............................. (0.47) (0.55) (0.62) (0.55) (0.61)
Net Realized Gains ................... -- -- (0.01) -- --
In Excess of Net
Realized Gains ...................... -- -- -- (0.04)
Tax Return of Capital ................
Total Distributions .................. (0.47) (0.55) (0.64) (0.55) (0.65)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD ............................... $ 9.50 $ 9.49 $ 9.48 $ 9.71 $ 9.57
=========== =========== =========== =========== ===========
Total Return (excluding sales and
Redemption charges) ................ 5.23%(e) 6.11% 4.37% 7.53% 0.32%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ...... $ 41,571 $ 27,381 $ 14,390 $ 18,930 $ 24,907
Ratio of Expenses to
Average Net Assets ................. 1.07%(c) 1.11% 1.09% 1.05% 0.86%
Ratio of Net Investment Income (Loss)
to Average Net Assets ................ 5.37%(c) 5.76% 6.09% 5.89% 6.22%
Ratio of Expenses to Average
Net Assets* ........................ 1.31%(c) 1.35% 1.33% 1.36% 1.30%
Ratio of Net Investment
Income (Loss) to Average Net
Assets* ............................ 5.13%(c) 5.52% 5.85% 5.58% 5.78%
Portfolio Turnover
Rate (d) ........................... 225.88% 607.84% 618.60% 397.97% 353.28%
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
--------------------------------------------
OCT. 31,
1998
TO
JUNE 30,
1993(B) 1992 1991 1990 1989(A)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .................. $ 10.25 $ 9.93 $ 9.88 $ 10.08 $ 10.00
----------- ----------- ----------- ----------- -----------
Investment Activities
Net Investment Income(Loss) .......... 0.65 0.71 0.72 0.83 0.53
Net Realized and Unrealized
Gains(Losses) on Investments ...... 0.13 0.35 0.10 (0.15) 0.02
----------- ----------- ----------- ----------- -----------
Total From Investment
Activities ........................ 0.78 1.06 0.82 0.68 0.55
----------- ----------- ----------- ----------- -----------
Distributions
Net Investment
Income .............................. (0.69) (0.71) (0.73) (0.83) (0.47)
Net Realized Gains ................... (0.16) (0.03) (0.04) (0.05) --
In Excess of Net
Realized Gains ...................... -- -- -- -- --
Tax Return of Capital ................ -- --
Total Distributions .................. (0.85) (0.74) (0.77) (0.88) (0.47)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD ............................... $ 10.18 $ 10.25 $ 9.93 $ 9.88 $ 10.08
=========== =========== =========== =========== ===========
Total Return (excluding sales and
Redemption charges) ................ 7.96% 11.00% 8.66% 7.10% 5.70%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ...... $ 18,060 $ 117,241 $ 70,870 $ 43,696 $ 71,627
Ratio of Expenses to
Average Net Assets ................. 0.75% 0.83% 0.91% 0.92% 0.88% (c)
Ratio of Net Investment Income (Loss)
to Average Net Assets ................ 6.41% 7.13% 7.47% 8.01% 8.19% (c)
Ratio of Expenses to Average
Net Assets* ........................ 1.08% 1.05% 1.10% 1.14% 1.12(c)
Ratio of Net Investment
Income (Loss) to Average Net
Assets* ............................ 6.08% 6.91% 7.28% 7.79% 7.95%
Portfolio Turnover
Rate (d) ........................... 123.10% 87.75% 161.32% 319.11% 117.37%
</TABLE>
<PAGE> 28
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
ELEVEN
MONTHS
ENDED MAY
31, 1998
----
1997 1996 1995 1994 1993(b)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ............ $ 9.73 $ 9.70 $ 9.93 $ 9.62 $ 10.53 $ 10.42
------- ------- ------- ------- ------- -------
Investment Activities
Net Investment Income (Loss)
Income(Loss) ................. 0.49 0.52 0.60 0.50 0.59 0.68
Net Realized and Unrealized
Gains(Losses) on Investments 0.16 0.04 (0.25) 0.31 (0.66) 0.21
------- ------- ------- ------- ------- -------
Total From Investment Activities 0.65 0.56 0.35 0.81 (0.07) 0.89
------- ------- ------- ------- ------- -------
Distributions
Net Investment
Income ....................... (0.49) (0.53) (0.58) (0.50) (0.59) (0.73)
Tax Return of Capital .......... (0.01) -- -- -- -- --
Net Realized Gains ............. -- -- -- -- -- (0.05)
In Excess of Net Realized Gains -- -- -- -- (0.25) --
------- ------- ------- ------- ------- -------
Total Distributions ......... (0.50) (0.53) (0.58) (0.50) (0.84) (0.78)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD ......................... $ 9.88 $ 9.73 $ 9.70 $ 9.93 $ 9.62 $ 10.53
======= ======= ======= ======= ======= =======
Total Return (excluding sales and
Redemption charges) ........... 6.78%(e) 5.91% 3.69% 8.69% (0.90)% 8.92%
RATIOS/ SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ................. $14,461 $18,552 $22,954 $27,521 $36,106 $37,055
Ratio of Expenses to Average Net
Assets ....................... 1.22%(c) 1.23% 1.21% 1.25% 1.00% 0.90%
Ratio of Net Investment Income
(Loss) ........................... 5.42%(c) 5.41% 5.51% 5.22% 5.80% 6.51%
To Average Net Assets
Ratio of Expenses to Average Net
Assets* ...................... 1.31%(c) 1.32% 1.30% 1.41% 1.29% 1.08%
Ratio of Net Investment
Income (Loss) to Average Net
Assets* ...................... 5.34%(c) 5.32% 5.42% 5.07% 5.51% 6.33%
Portfolio Turnover Rate (d) .... 774.28% 1516.78% 916.39% 549.93% 546.06% 225.90%
</TABLE>
<TABLE>
<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 ............ $ 10.05 $ 9.91 $ 10.05 $ 10.00
------- ------- ------- -------
Investment Activities
Net Investment Income (Loss)
Income(Loss) ................. 0.71 0.74 0.79 0.50
Net Realized and Unrealized
Gains(Losses) on Investments 0.46 0.15 (0.11) (0.02)
------- ------- ------- -------
Total From Investment Activities 1.17 0.89 0.68 0.48
------- ------- ------- -------
Distributions
Net Investment
Income ....................... (0.71) (0.75) (0.79) (0.43)
Tax Return of Capital .......... -- -- -- --
Net Realized Gains ............. (0.09) -- (0.03) --
In Excess of Net Realized Gains -- -- -- --
------- ------- ------- -------
Total Distributions ......... (0.80) (0.75) (0.82) (0.43)
------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD ......................... $ 10.42 $ 10.05 $ 9.91 $ 10.05
======= ======= ======= =======
Total Return (excluding sales and
Redemption charges) ........... 12.03% 9.32% 7.07% 4.92%(e)
RATIOS/ SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ................. $234,906 $142,864 $100,205 $83,212
Ratio of Expenses to Average Net
Assets ....................... 0.87% 0.86% 0.85% 0.87% (c)
Ratio of Net Investment Income
(Loss) ........................... 7.07% 7.48% 8.04% 7.79% (c)
To Average Net Assets
Ratio of Expenses to Average Net
Assets* ...................... 1.01% 1.04% 1.06% 1.11%(c)
Ratio of Net Investment
Income (Loss) to Average Net
Assets* ...................... 6.93% 7.30% 7.83% 7.55%(c)
Portfolio Turnover Rate (d) .... 114.76% 164.59% 294.62% 111.96%
</TABLE>
<PAGE> 29
U. S. GOVERNMENT INCOME FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
ELEVEN
MONTHS NOV. 12,
ENDED MAY 1992
31, 1998 1997 1996 1995 1994 TO
---- ---- ---- ----
JUNE 30,
1993 (a)(b)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............... $ 9.15 $ 9.25 $ 9.42 $ 9.41 $ 10.04 $ 10.00
------- ------- ------- ------- ------- -------
Investment Activities
Net Investment Income(Loss) ..................... 0.61 0.70 0.73 0.75 0.74 0.48
Net Realized and Unrealized Gains(Losses)
on ........................................... 0.08 (0.10) (0.17) -- (0.64) 0.04
------- ------- ------- ------- ------- -------
Investments
Total From Investment Activities ................ 0.69 0.60 0.56 0.75 0.10 0.52
------- ------- ------- ------- ------- -------
Distributions
Net Investment Income ........................... (0.53) (0.59) (0.65) (0.66) (0.72) (0.48)
Tax Return of Capital ........................... (0.04) (0.11) (0.08) (0.08) (0.01) --
------- ------- ------- ------- ------- -------
Total Distributions ............................. (0.57) (0.70) (0.73) (0.74) (0.73) (0.48)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD ..................... $ 9.27 $ 9.15 $ 9.25 $ 9.42 $ 9.41 $ 10.04
======= ======= ======= ======= ======= =======
Total Return (excluding sales and redemption
Charges) ........................................ 7.80%(e) 6.86% 5.97% 8.46% 0.94% 5.35%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................ $54,710 $58,589 $52,250 $50,931 $54,027 $32,633
Ratio of Expenses to Average Net Assets ......... 1.00%(c) 1.02% 1.01% 1.04% 0.82% 0.75%(c)
Ratio of Net Investment Income (Loss) to Average
Net Assets ................................... 7.20%(c) 7.64% 7.70% 8.03% 7.42% 7.41%(c)
Ratio of Expenses to Average Net
Assets* ....................................... 1.34%(c) 1.36% 1.35% 1.44% 1.36% 1.23%(c)
Ratio of Net Investment Income (Loss) to Average
Net Assets* .................................... 6.86%(c) 7.30% 7.36% 7.63% 6.87% 6.93%(c)
Portfolio Turnover Rate (d) ..................... 278.94% 499.53% 348.01% 114.71% 102.24% 135.06%
</TABLE>
<PAGE> 30
MICHIGAN MUNICIPAL BOND FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
ELEVEN
MONTHS
ENDED MAY
31, 1998 1997 1996 1995 1994
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD ......................... $ 10.89 $ 10.76 $ 10.75 $ 10.53 $ 10.97
----------- ----------- ----------- ----------- -----------
Investment Activities
Net Investment
Income(Loss) ................... 0.42 0.49 0.47 0.48 0.47
Net Realized and Unrealized
Gains(Losses) on Investments ....... 0.23 0.14 0.04 0.23 (0.36)
----------- ----------- ----------- ----------- -----------
Total From Investment
Activities .................... 0.65 0.63 0.51 0.71 0.11
----------- ----------- ----------- ----------- -----------
Distributions
Net Investment Income .......... (0.45) (0.46) (0.47) (0.48) (0.45)
In Excess of Net
Investment Income ............. (0.01) --
----------- ----------- ----------- ----------- -----------
Net Realized Gains ............. (0.03) (0.04) (0.03) -- (0.01)
In Excess of Net Realized
Gains ......................... -- -- -- -- (0.09)
----------- ----------- ----------- ----------- -----------
Total Distributions ............ (0.48) (0.50) (0.50) (0.49) (0.55)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD ..... $ 11.06 $ 10.89 $ 10.76 $ 10.75 $ 10.53
=========== =========== =========== =========== ===========
Total Return (excluding sales and
Redemption charges) ............ 5.96%(e) 5.89% 4.87% 6.99% 0.92%
RATIOS/ SUPPLEMENTARY DATA:
Net Assets, End Of
Period (000) ................. $ 38,536 $ 38,302 $ 36,681 $ 37,874 $ 42,204
Ratio of Expenses to Average
Net Assets ....................... 0.99%(c) 1.01% 1.02% 1.00% 0.85%
Ratio of Net Investment Income
(Loss) to Average Net ........ 4.09%(c) 4.48% 4.32% 4.57% 4.25%
Assets
Ratio of Expenses to Average Net
Assets* ...................... 1.28%(c) 1.30% 1.31% 1.32% 1.29%
Ratio of Net Investment Income
(Loss) to Average Net Assets* 3.80%(c) 4.19% 4.03% 4.25% 3.81%
Portfolio Turnover Rate (d) .... 26.24% 28.48% 27.66% 26.06% 6.69%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
JULY 2, 1990
TO
JUNE 30,
1993(b) 1992 1991(a)
------- ---- ------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD ......................... $ 10.58 $ 10.14 $ 10.00
----------- ----------- -----------
Investment Activities
Net Investment
Income(Loss) ................... 0.50 0.52 0.55
Net Realized and Unrealized
Gains(Losses) on Investments ....... 0.47 0.44 0.11
----------- ----------- -----------
Total From Investment
Activities .................... 0.97 0.96 0.66
----------- ----------- -----------
Distributions
Net Investment Income .......... (0.54) (0.52) (0.52)
In Excess of Net
Investment Income ............. (0.01) -- --
----------- ----------- -----------
Net Realized Gains ............. (0.04) -- --
In Excess of Net Realized
Gains ......................... -- -- --
----------- ----------- -----------
Total Distributions ............ (0.58) (0.52) (0.52)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD ..... $ 10.97 $ 10.58 $ 10.14
=========== =========== ===========
Total Return (excluding sales and
Redemption charges) ............ 9.40% 9.73% 6.77%(e)
RATIOS/ SUPPLEMENTARY DATA:
Net Assets, End Of
Period (000) ................. $ 32,778 $ 146,782 $ 90,182
Ratio of Expenses to Average
Net Assets ....................... 0.78% 0.84% 0.57%(c)
Ratio of Net Investment Income
(Loss) to Average Net ........ 4.67% 5.15% 5.76%(c)
Assets
Ratio of Expenses to Average Net
Assets* ...................... 1.12% 1.05% 1.15%(c)
Ratio of Net Investment Income
(Loss) to Average Net Assets* 4.33% 4.93% 5.18%(c)
Portfolio Turnover Rate (d) .... 35.81% 19.97% 45.30%
</TABLE>
<PAGE> 31
MUNICIPAL BOND FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
ELEVEN
MONTHS
ENDED
MAY 31,
1998 1997 1996 1995 1994 1993(b) 1992
---- ---- ---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD ........................ $ 10.53 $ 10.43 $ 10.39 $ 10.29 $ 10.92 $ 10.58 $ 10.20
------- ------- ------- ------- ------- ------- -------
Investment Activities
Net Investment
Income(Loss) .............. 0.35 0.44 0.41 0.41 0.40 0.49 0.52
Net Realized and Unrealized
Gains(Losses) on
Investments .............. 0.22 0.12 0.03 0.27 (0.31) 0.48 0.39
------- ------- ------- ------- ------- ------- -------
Total From Investment
Activities ............... 0.57 0.56 0.44 0.68 0.09 0.97 0.91
------- ------- ------- ------- ------- ------- -------
Distributions
Net Investment Income ..... (0.39) (0.41) (0.40) (0.41) (0.39) (0.53) (0.52)
Net Realized Gains ........ (0.18) (0.05) -- -- (0.21) (0.10) (0.01)
In Excess of Net Realized
Gains ..................... -- -- -- (0.17) (0.12) -- --
------- ------- ------- ------- ------- ------- -------
Total Distributions ....... (0.57) (0.46) (0.40) (0.58) (0.72) (0.63) (0.53)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD .................... $ 10.53 $ 10.53 $ 10.43 $ 10.39 $ 10.29 $ 10.92 $ 10.58
======= ======= ======= ======= ======= ======= =======
Total Return (excluding sales
and redemption charges) ...... 5.46%(e) 5.47% 4.29% 7.02% 0.71% 9.46% 9.11%
RATIOS/ SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ............ $ 9,502 $ 9,601 $ 7,835 $11,378 $13,123 $ 9,333 $130,788
Ratio of Expenses to
Average Net Assets ............ 1.02%(c) 1.06% 1.05% 1.02% 0.87% 0.76% 0.81%
Ratio of Net Investment
Income (Loss) to
Average Net Assets ............ 3.64%(c) 4.19% 3.85% 4.00% 3.72% 4.56% 5.09%
Ratio of Expenses to
Average Net Assets* ........... 1.31%(c) 1.35% 1.34% 1.33% 1.32% 1.09% 1.03%
Ratio of Net Investment
Income (Loss) to Average
Net Assets* ............. 3.34%(c) 3.90% 3.56% 3.68% 3.27% 4.23% 4.88%
Portfolio Turnover Rate (d) 85.56% 48.83% 47.46% 35.15% 44.39% 67.26% 66.31%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
OCT. 31, 1988
TO
JUNE 30,
1991 1990 1989(a)
---- ---- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD ........................ $ 10.03 $ 10.18 $ 10.00
------- ------- -------
Investment Activities
Net Investment
Income(Loss) .............. 0.55 0.57 0.40
Net Realized and Unrealized
Gains(Losses) on
Investments .............. 0.18 (0.12) 0.14
------- ------- -------
Total From Investment
Activities ............... 0.73 0.45 0.54
------- ------- -------
Distributions
Net Investment Income ..... 0.56) (0.58) (0.36)
Net Realized Gains ........ -- (0.02) --
In Excess of Net Realized
Gains ..................... -- -- --
------- ------- -------
Total Distributions ....... (0.56) (0.60) (0.36)
------- ------- -------
NET ASSET VALUE, END OF
PERIOD .................... $ 10.20 $ 10.03 $ 10.18
======= ======= =======
Total Return (excluding sales
and redemption charges) ...... 7.51% 4.57% 5.52%(e)
RATIOS/ SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ............ $98,186 $100,445 $68,256
Ratio of Expenses to
Average Net Assets ............ 0.87% 0.85% 0.85%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets ............ 5.49% 5.78% 6.11%(c)
Ratio of Expenses to
Average Net Assets* ........... 1.06% 1.06% 1.09%(c)
Ratio of Net Investment
Income (Loss) to Average
Net Assets* ............. 5.29% 5.57% 5.87%(c)
Portfolio Turnover Rate (d) 76.55% 113.12% 82.22%
</TABLE>
<PAGE> 32
PRIME OBLIGATIONS FUND -- INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
ELEVEN
MONTHS
ENDED
MAY 31,
1998 1997 1996 1995 1994 1993(b)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING ......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- ------- -------
OF PERIOD
Investment Activities
Net ............................... 0.045 0.048 0.050 0.047 0.027 0.028
------- ------- ------- ------- ------- -------
Investment Income .............
Distributions
Net Investment Income ......... (0.045) (0.048) (0.050) (0.047) (0.027) (0.028)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD ........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= =======
Total Return ...................... 4.63%(e) 4.91% 5.07% 4.81% 2.75% 2.89%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of ............ $217,934 $195,046 $147,478 $108,565 $105,611 $129,433
Period (000)
Ratio of Expenses to
Average Net Assets ......... 0.76%(c) 0.73% 0.74% 0.75% 0.74% 0.66%
Ratio of Net
Investment Income
(Loss) to Average Net Assets 4.93%(c) 4.80% 4.93% 4.71% 2.71% 2.86%
Ratio of Expenses to
Average Net Assets* ........... 0.93%(c) 0.90% 0.91% 0.92% 0.91% 0.71%
Ratio of Net
Investment Income
(Loss) to Average
Net Assets* ................ 4.76%(c) 4.63% 4.76% 4.54% 2.54% 2.81%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
AUG. 24, 1987
TO
JUNE 30,
1992 1991 1990 1989 1988(a)
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING ......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
OF PERIOD
Investment Activities
Net ............................... 0.046 0.069 0.080 0.083 0.056
------- ------- ------- ------- -------
Investment Income .............
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, End of ............ $690,908 $702,340 $547,351 $526,450 $241,545
Period (000)
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>
<PAGE> 33
TAX-FREE FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
INVESTOR A SHARES
ELEVEN
MONTHS
ENDED
MAY 31,
1998 1997 1996 1995 1994 1993(b)
---- ---- ---- ---- ---- -------
<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 ....................... 0.026 0.028 0.029 0.029 0.018 0.019
------- ------- ------- ------- ------- -------
Investment Income
Distributions
Net Investment Income . (0.026) (0.028) (0.029) (0.029) (0.018) (0.019)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD ................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= =======
Total Return .............. 2.66%(e) 2.83% 2.91% 2.90% 1.81% 2.07%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) ....... $55,106 $47,466 $41,713 $45,102 $48,256 $54,886
Ratio of Expenses to
Average Net Assets . 0.76%(c) 0.78% 0.76% 0.74% 0.68% 0.58%
Ratio of Net
Investment
Income (Loss) to ... 2.86%(c) 2.82% 2.89% 2.88% 1.81% 2.05%
Average Net Assets
Ratio of Expenses to
Average Net Assets* 0.93%(c) 0.95% 0.93% 0.95% 0.93% 0.72%
Ratio of Net Investment
Income (Loss) to
Average Net Assets* ... 2.69%(c) 2.65% 2.72% 2.67% 1.56% 1.91%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
INVESTOR A SHARES
JULY 30, 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 ....................... 0.033 0.046 0.054 0.055 0.040
------- ------- ------- ------- -------
Investment Income
Distributions
Net Investment Income . (0.033) (0.046) (0.054) (0.055) (0.040)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD ................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return .............. 3.34% 4.73% 5.75% 5.62% 4.08%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) ....... $141,913 $139,615 $142,004 $120,031 $107,199
Ratio of Expenses to
Average Net Assets . 0.59% 0.60% 0.61% 0.63% 0.64%(c)
Ratio of Net
Investment
Income (Loss) to ... 3.29% 4.63% 5.43% 5.46% 4.34%(c)
Average Net Assets
Ratio of Expenses to
Average Net Assets* 0.69% 0.70% 0.70% 0.73% 0.75%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets* ... 3.19% 4.53% 5.34% 5.36% 4.23%(c)
</TABLE>
<PAGE> 34
TREASURY FUND - INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
INVESTOR A SHARES
ELEVEN
MONTHS
ENDED DEC. 1, 1993
MAY 31, TO
1998 1997 1996 1995 JUNE 30, 1994(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 .................. 0.045 0.047 0.049 0.047 0.016
------------ ------------ ------------ ------------ ------------
Distributions
Net Investment Income .................. (0.045) (0.047) (0.049) 0.047) (0.016)
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD ............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ ============ ============ ============ ============
Total Return ............................... 4.61%(e) 4.82% 5.04% 4.81% 1.66% (e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........ $ 240,208 $ 176,006 $ 158,723 $ 105,391 $ 56,535
Ratio of Expenses to Average Net Assets 0.67%(c) 0.67% 0.70% 0.75% 0.64% (c)
Ratio of Net Investment Income (Loss) to
Average .................................... 4.90%(c) 4.72% 4.87% 4.82% 2.84% (c)
Net Asset
Ratio of Expenses to Average Net Assets* 0.92%(c) 0.92% 0.95% 1.04% 0.99% (c)
Ratio of Net Investment Income (Loss) to
Average .................................... 4.65%(c) 4.47% 4.62% 4.52% 2.49% (c)
Net Assets*
</TABLE>
<PAGE> 35
U.S. GOVERNMENT OBLIGATIONS FUND - INVESTOR SHARES
YEAR ENDED JUNE 30,
INVESTOR A SHARES
<TABLE>
<CAPTION>
ELEVEN
MONTHS
ENDED
MAY 31,
1998 1997 1996 1995 1994 1993(b)
---- ---- ---- ---- ---- -------
<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 ....................... 0.044 0.047 0.049 0.047 0.027 0.028
------- ------- ------- ------- ------- -------
Distributions
Net Investment ............... (0.044) (0.047) (0.049) (0.047) (0.027) (0.028)
------- ------- ------- ------- ------- -------
Income
NET ASSET VALUE, END OF
PERIOD ....................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= =======
Total Return ..................... 4.53%(e) 4.79% 4.99% 4.76% 2.69% 2.84%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of ........... $169,210 $212,082 $186,944 $169,179 $172,482 $208,311
Period (000) ..............
Ratio of Expenses to ......... 0.76%(c) 0.74% 0.74% 0.77% 0.77% 0.66%
Average Net Assets
Ratio of Net Investment
Income (Loss) to .......... 4.83%(c) 4.69% 4.88% 4.62% 2.64% 2.79%
Average Net Assets
Ratio of Expenses to Average 0.93%(c) 0.91% 0.91% 0.94% 0.94% 0.72%
Net Assets*
Ratio of Net Investment Income
(Loss) to
Average Net Assets* ....... 4.66%(c) 4.52% 4.71% 4.45% 2.47% 2.73%
</TABLE>
<TABLE>
<CAPTION>
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 ....................... 0.044 0.066 0.078 0.080 0.055
------- ------- ------- ------- -------
Distributions
Net Investment ............... (0.044) (0.066) (0.078) (0.080) (0.055)
------- ------- ------- ------- -------
Income
NET ASSET VALUE, END OF
PERIOD ....................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return ..................... 4.78% 6.82% 8.10% 8.31% 5.66%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of ........... $400,242 $341,903 $248,671 $201,012 $136,823
Period (000) ..............
Ratio of Expenses to ......... 0.64% 0.65% 0.65% 0.63% 0.62%(c)
Average Net Assets
Ratio of Net Investment
Income (Loss) to .......... 4.43% 6.54% 7.79% 8.00% 6.25%(c)
Average Net Assets
Ratio of Expenses to Average 0.66% 0.67% 0.67% 0.68% 0.73%(c)
Net Assets*
Ratio of Net Investment Income
(Loss) to
Average Net Assets* ....... 4.41% 6.52% 7.77% 7.95% 6.14%(c)
</TABLE>
<PAGE> 36
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) 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, with the
exception of the U.S. Government Obligations Fund and the Treasury 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. The investment objectives of the U.S. Government Obligations Fund
and the Treasury Fund are fundamental and may not be changed without a vote of
the holders of a majority of the outstanding shares of that Fund. 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.
-36-
<PAGE> 37
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 that 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, CCP, and in 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
-37-
<PAGE> 38
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 companies that have been
determined to have a market capitalization of less than $1 billion based on
current market data. 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
-38-
<PAGE> 39
listed in recognized secondary markets where such markets exist. In addition, in
countries with less well-developed stock markets, where the range of investment
opportunities is more restrictive, the equity securities of all listed companies
will be eligible for investment. In major markets, issuers could have
capitalizations of up to approximately $10 billion while in smaller markets
issuers would be eligible with capitalizations as low as approximately $200
million.
The International Fund may invest in securities of issuers in, but not limited
to, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Malaysia, the Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland and the United Kingdom. Normally the
International Fund will invest at least 65% of its total assets in securities
traded in at least three foreign countries, including the countries listed
above. It is possible, although not currently anticipated, that up to 35% of the
International Fund's assets could be invested in the securities of U.S.
companies. In addition, the International Fund temporarily may invest cash in
short-term debt instruments of U.S. and foreign issuers for cash management
purposes or pending investment.
<TABLE>
<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 any highly
liquid security with a known market value and a maturity, when acquired, of less
than three months ("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.
-39-
<PAGE> 40
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 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
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<PAGE> 41
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 -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.
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<PAGE> 42
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.
<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, 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
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<PAGE> 43
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
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<PAGE> 44
discussion of debt securities rated within the four highest rating categories
assigned by the NRSROS, see "RISK FACTORS AND INVESTMENT
TECHNIQUES--Medium-Grade Securities."
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian Bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond Fund may also invest up to 25% of its
net assets in foreign securities either directly or through the purchase of ADRs
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper.
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, 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
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<PAGE> 45
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 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
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<PAGE> 46
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 -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."
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<PAGE> 47
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 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
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<PAGE> 48
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, 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.
TAX-FREE INCOME FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<S> <C>
- -Complex Securities Bond -Foreign Currency Transactions
- -Government Obligations -Lending Portfolio Securities
- -Medium-Grade Securities -Mortgage-Related Securities
- -Other Mutual Funds -Portfolio Turnover
- -Put and Call options -Repurchase Agreements
- -Reverse Repurchase Agreements and Dollar Roll Agreements -When-Issued and Delayed-Delivery Agreements
-Futures Contracts (Municipal Fund only)
-Municipal Securities
-Private Activity Bonds
-Restricted Securities
</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
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<PAGE> 49
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 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
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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 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.
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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 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 (except Treasury Fund) -Foreign Securities -Government Obligations
- -Municipal Securities (except Treasury Fund) -Guaranteed Investment Contracts -Lending Portfolio Securities
- -Repurchase Agreements (Prime Obligations Fund only) -Portfolio Turnover
- -Reverse Repurchase Agreements and -Private Activity Bonds (Tax.-Free Fund Only) -Put and Call Options (Tax-Free
- -Dollar Roll Agreements -When-Issued and Delayed-Delivery Transactions -Restricted Securities (except
Treasury Fund)
</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.
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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.
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
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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 ("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.
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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.
The conversion of the eleven member states of the European Union risks to a
common currency, the "euro", is scheduled to occur on January 1, 1999. As a
result of the conversion, securities issued by the member states will be subject
to certain risks including competitive implications of increased price
transparency of European Union markets (including labor markets) resulting from
adoption of a common currency and issuers' plans for pricing their own products
and services in euro; an issuer's ability to make any required information
technology updates on a timely basis, and costs associated with the conversion
(including costs of dual currency operations through January 1, 2002); currency
exchange rate risk and derivatives exposure (including the disappearance of
price sources, such as certain interest rate induces); continuity of material
contracts and potential tax consequences. Other risks include whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; the creation of suitable clearing and
settlement payment systems for the new currency; the legal treatment of certain
outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of exchange
rates for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2000 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the Fund will converge over time;
and whether the conversion of the currencies of other EU countries such as
United Kingdom, Denmark and Greece into the euro and the admission of other
non-EU countries such as Poland, Latvia and Lithuania as members of the EU may
have an impact on the euro. These or other factors, including political and
economic risks, could cause market disruptions before or after the introduction
of the euro, and could adversely affect the value of securities and foreign
currencies held by the Funds. Commissions on transactions in foreign securities
may be higher than those for similar transactions on domestic stock markets. In
addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, such procedures have been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
such transactions.
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
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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 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.
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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 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
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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 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.
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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 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-
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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.
CMOs are issued in multiple classes. Each class of CMOs , often referred to as a
"tranche," is issued at a specific adjustable or fixed interest rate and must be
fully retired no later than its final distribution date. Principal prepayments
on the mortgage loans or the mortgage assets underlying the CMOs may cause some
or all of the classes of CMOs to be retired substantially earlier than their
final distribution dates. Generally, interest is paid or accrues on all classes
of CMOs on a monthly basis.
The principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the mortgage assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the mortgage assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
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
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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 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.
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SPECIAL RISK CONSIDERATIONS APPLICABLE TO THE MICHIGAN MUNICIPAL BOND FUND
The economy of the State of Michigan is heavily dependent upon the automobile
manufacturing industry, a highly cyclical industry. This factor affects the
revenue streams of the State of Michigan and its political subdivisions because
it impacts on tax sources, particularly sales taxes, income taxes and Michigan
single business taxes.
In 1993 and 1994, Michigan adopted complex statutory and constitutional changes
which, among several other changes in tax methods and rates, have the effect of
imposing limits on annual assessment increases and of transferring a significant
part of the operating cost of public education from locally based property tax
sources to state based sources, including increased sales tax. These changes
will affect state and local revenues of Michigan governmental units in future
years in differing ways, not all of which can be presently known with certainty.
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 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
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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 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.
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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, 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
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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.
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.
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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 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 increased taxable gains 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).
The following investment restrictions apply to all Funds except the U.S.
Government Obligations Fund and the Treasury Fund:
No Non-Money Market Fund, 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,
or in the case of the International Discovery Fund, securities issued
or guaranteed by any foreign government, 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.
No Fund may:
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 instruments, or in the case of the Prime Obligations and
Tax-
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Free 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.
The following investment restrictions apply to the U.S. Government Obligations
Fund and the Treasury Fund:
Neither of the Funds may:
Purchase securities of any one issuer, other than obligations
issued or Guaranteed by the U.S. government or its agencies or
instrumentalities, if, immediately after such purchase, more
than 50% of the value of the Fund's total assets would be
invested in such issuer, or the Fund would hold more than 10%
of the outstanding voting securities of the issuer, except
that 25% or less of the value of such Fund's total assets may
be invested without regard to such limitations. There is no
limit to the percentage of assets that may be invested in U.S.
Treasury bills, notes, or other obligations issued or
guaranteed by the U.S. government or its agencies or
instrumentalities.
Irrespective of the investment restriction above, and pursuant to Rule 2a-7
under the 1940 Act, the U.S. Government Obligations Fund and the Treasury Fund
each will, with respect to 100% of its total assets, limit its investment in the
securities of any one issuer in the manner provided by such Rule, which
limitations are referred to above under the caption "INVESTMENT OBJECTIVES AND
POLICIES -- The Money Market Funds."
For purposes of the investment limitations above, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues back
the security and, with respect to a private activity bond that is backed only by
the assets and revenues of a non- governmental user, a security is considered to
be issued by such non-governmental user.
Neither of the Funds will:
1. Purchase any securities which would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that:
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(a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by
obligations of the U.S. government or its agencies or
instrumentalities;
(b) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily
related to financing the activities of their parents; and
(c) utilities will be divided according to their services. For
example, gas, gas transmission, electric and gas, electric,
and telephone will each be considered a separate industry.
(a) Borrow money (not including reverse repurchase agreements or
dollar roll agreements), except that each Fund may borrow
from banks for temporary or emergency purposes and then only
in amounts up to 10% of its total assets at the time of
borrowing (and provided that such bank borrowings, reverse
repurchase agreements and dollar roll agreements do not exceed
in the aggregate one-third of the Fund's total assets less
liabilities other than the obligations represented by the
bank borrowings, reverse repurchase agreements and dollar
roll agreements), or mortgage, pledge or hypothecate any
assets except in connection with a bank borrowing, in amounts
not to exceed 30% of the Fund's net assets at the time of
borrowing;
(b) enter into reverse repurchase agreements, dollar roll
agreements and other permitted borrowings in amounts exceeding
in the aggregate one-third of the Fund's total assets less
liabilities other than the obligations represented by such
reverse repurchase and dollar roll agreements; and
(c) issue senior securities except as permitted by the 1940 Act or
any rule, order or interpretation thereunder.
3. Make loans, except that a Fund may Purchase or hold debt instruments
and lend portfolio securities in accordance -with its investment
objective and policies, make time deposits with financial institutions
and enter into repurchase agreements.
For purposes of investment limitation number 1 above only, such limitation shall
not apply to Municipal Securities or governmental guarantees of Municipal
Securities, and industrial development bonds or private activity bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding shares of a Fund.
Each Fund will not:
1. Purchase or otherwise acquire any securities if, as a result, more than
15% (10% in the case of the Money Market Funds) of the Fund's net
assets would be invested in securities that are illiquid.. In addition
to the above investment restrictions, the Funds are subject to certain
other investment restrictions set forth under "INVESTMENT OBJECTIVES
AND POLICIES -- Investment Restrictions" in the Statement of Additional
Information.
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
IMC, formerly First of America Investment Corporation, serves as investment
adviser to the Funds. IMC is a registered investment adviser and an indirect
wholly owned subsidiary of National City Corporation ("NCC"). 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. First of
America was a registered investment adviser and a wholly-owned subsidiary of
First of America Bank, N.A., a wholly-owned subsidiary of IMC. As of December
31, 1997, First of America Investment Corporation managed over $16 billion on
behalf of both taxable and tax-exempt clients, including pensions, endowments,
corporations and individual portfolios. As of December 31, 1997, National City
Corporation had over $55 billion in assets. As a result of the merger with First
of America Bank Corporation, as of June 30, 1998, National City Corporation had
assets of over $81 billion. IMC reflects a combination of National City Bank's
investment management group and First of America. In connection with this
combination, various portfolio management changes were made. IMC has its
principal offices at 1900 East Ninth Street, Cleveland, Ohio 44114. 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.
IMC utilizes a team approach to the investment management of the funds, with
professionals working as teams to ensure a disciplined investment process
designed to result in long-term performance consistent with each Fund's
investment objective. No one person is responsible for a Fund's management.
IMC has established investment management teams by market segment: equities and
fixed income instruments. Within the equities segment, teams have been formed
based on style - growth or value -- and market capitalization.
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The Equity Growth Group is comprised of the Small Capitalization Team, the Mid
Capitalization Team and the Large Capitalization Team. The Small Capitalization
Growth Team manages the Parkstone Small Capitalization Fund. The Mid
Capitalization Growth Team manages the Parkstone Mid Capitalization Fund. The
Large Capitalization Growth Team manages the Parkstone Large Capitalization
Fund. The Large Capitalization Value Team manages the Parkstone Equity Income
Fund.
The investment management teams within IMC and Gulfstream share the management
duties of the Balanced Allocation Fund. The teams manage their respective
segment allocation within the fund, according to their areas of specialization.
The Fixed Income Team of IMC manages the Income and Tax-Free Income Funds.
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.
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.
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
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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 May 31, 1998, Gulfstream had over $876 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.
YEAR 2000 RISKS
Like other investment companies, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Investment Adviser and the Fund's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Investment Adviser is taking steps to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
assurance that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Funds or their
shareholders as a result of the Year 2000 Problem.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
Fund of the Group. IMC 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.
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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, IMC
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 at One Freedom
Valley Drive, 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.
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
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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 IMC 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 May 31, 1998,
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 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
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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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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, an affiliate of the Investment Adviser, serves as the
custodian of the Group's assets. The Funds reimburse National City Bank for its
direct and indirect costs and expenses incurred in rendering custodial services,
except that the costs and expenses borne by each Fund in any year may not exceed
.020% of each portfolio's first $100 million of average daily net assets, .010%
of each portfolio's next $650 million of average daily net assets and .008% of
the average daily net assets of each portfolio which exceed $750 million. 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 8590, Boston, Massachusetts 02266-8590. 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. The Group
will not accept third-party checks under any circumstances.
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:
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The Parkstone Group of Funds
P.O. Box 8590
Boston, Massachusetts 02266-8590
An Account Application Form can be obtained by calling the Group at (800)
451-8377.
BY TELEPHONE
To purchase Investor A Shares of any of the Funds by telephone, an Account
Application Form must have been previously received by the Distributor. To place
an order by telephone, even if payment is to be made by wire, call the Group's
toll-free number (800) 451-8377. Payment for such Investor A Shares ordered by
telephone may be made by check or wire. Where payment is made by check, the
transaction will not be processed until the check is received by the Group's
Custodian. If a check received to purchase Investor B Shares does not clear or
if a wire transfer is not received by the Group's Custodian within three
Business Days (as defined in "HOW SHARES ARE VALUED") of the purchase order, the
purchase may be canceled and the investor could be liable for any losses or fees
incurred. When purchasing Investor A Shares by wire, contact the Distributor at
(800) 451-8377 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 IMC or one of its
affiliates. Investor A Shares of the Funds sold to IMC or the affiliate acting
in a fiduciary, advisory, custodial, or other similar capacity on behalf of
Customers will normally be held of record by IMC 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 IMC or one of its
affiliates and reflected in the account statements provided to Customers. IMC or
one of its affiliates may exercise voting authority for those Investor A Shares
for which it has been granted authority by the Customer.
Investor A Shares of the Funds are purchased at the net asset value per share
(see "HOW SHARES ARE VALUED") next determined after receipt by the Distributor
of an order to purchase Investor A Shares plus any applicable sales charge as
described below. Purchases of Investor A Shares of any of the Funds will be
effected only on a Business Day (as defined in "HOW SHARES ARE VALUED") of the
applicable Fund. An order received prior to a Valuation Time on any Business Day
will be executed at the net asset value determined as of the next Valuation Time
on the date of receipt. An order received after the last Valuation Time on any
Business Day will be executed at the net asset value determined as of the next
Valuation Time on the next Business Day of that Fund. Investor A Shares of all
Funds, except the Money Market Funds, are eligible to earn dividends on the
first Business Day following the execution of the purchase. Investor A Shares of
the Money Market Funds purchased before 11:30 a.m., Eastern Time begin earning
dividends on the same Business Day. Investor A Shares of the Funds continue to
be eligible to earn dividends through the day before their redemption.
An order to purchase Investor A Shares will be deemed to have been received by
the Distributor only when federal funds are available to the Group's Custodian
for investment. Federal funds are monies credited to a bank's account within a
Federal Reserve Bank. Payment for an order to purchase Investor A Shares which
is transmitted by federal funds wire will be available the same day for
investment by the Group's Custodian, if received prior to the last Valuation
Time (see "HOW SHARES ARE VALUED"). Purchases made by check or other means are
made at the price next determined upon receipt of the purchase order. However,
proceeds from redeemed shares purchased by check will not be sent until the
payment has
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<PAGE> 76
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, call
the Group at (800) 451-8377. Due to the relatively high cost of handling small
investments, the Group reserves the right to redeem involuntarily, at net asset
value, the Investor A Shares of any shareholder if, because of redemptions of
Investor A Shares by or on behalf of the shareholder (but not as a result of a
decrease in the market price of such Investor A Shares, the deduction of any
sales charge or the establishment of an account with less than $1,000 using the
Auto Invest Plan), the account of such shareholder in that Fund has a value of
less than $1,000. Accordingly, an investor purchasing Investor A Shares of a
Fund in only the minimum investment amount may be subject to such involuntary
redemption if the investor thereafter redeems any such Investor A Shares. If at
any time a shareholder's account balance falls below $1,000, upon 30 days'
notice, the Group may exercise its right to redeem such Investor A Shares and to
send the proceeds to the shareholder.
Depending upon the terms of a particular Customer account, IMC 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 IMC 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 IMC or one of its
affiliates on behalf of a Customer may be obtained from IMC 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 $50; 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,
One Freedom Valley Drive, 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> 77
GROWTH FUNDS
GROWTH AND INCOME FUNDS
<TABLE>
<CAPTION>
GROWTH/GROWTH INCOME SALES CHARGE AS A % OF NET DEALERS' REALLOWANCE
FUNDS AS A % ASSET VALUE AS A %F
OFFERING PRICE PER SHARE OFFERING PRICE
PER SHARE PER SHARE
--------- ---------
Transaction Amount
<S> <C> <C> <C>
Less than $25,000 5.50% 5.80% 5.25%
$25,000 - $49,999.99 5.25% 5.50% 5.00%
$50,000 - $99,999.99 4.75% 5.00% 4.50%
$100,000 - $249,999.99 3.75% 3.90% 3.50%
$250,000 - $499,999.99 3.00% 3.10% 2.75%
$500,000 - $999,999.99 2.00% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
INCOME FUNDS
Transaction Amount SALES CHARGE AS A % OF NET DEALERS' REALLOWANCE
AS % O ASSET VALUE AS % OF
OFFERING PRICE PER SHARE OFFERING PRICE
PER SHARE PER SHARE
--------- ---------
<S> <C> <C> <C>
Less than $50,000 4.75% 5.00% 4.50%
$50,000 - $99,999.99 4.00% 4.20% 3.75%
$100,000 - $249,999.99 3.75% 3.90% 3.50%
$250,000 - $499,999.99 2.50% 2.80% 2.25%
$500,000 - $999,999.99 2.00% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
LIMITED MATURITY BOND
FUND
Transaction Amount SALES CHARGE AS A % OF NET DEALERS' REALLOWANCE
AS % O ASSET VALUE AS % OF
OFFERING PRICE PER SHARE OFFERING PRICE
PER SHARE PER SHARE
--------- ---------
<S> <C> <C> <C>
Less than $50,000 2.75% 2.83% 2.50%
$50,000 - $99,999.99 2.75% 2.83% 2.50%
$100,000 - $249,999.99 1.75% 1.78% 1.50%
$250,000 - $499,999.99 1.00% 1.01% 0.75%
$500,000 - $999,999.99 0.50% 0.50% 0.25%
$1,000,000 or more 0.00% 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE INCOME FUNDS
Transaction Amount SALES CHARGE AS A % OF NET DEALERS' REALLOWANCE
AS % O ASSET VALUE AS % OF
OFFERING PRICE PER SHARE OFFERING PRICE
PER SHARE PER SHARE
--------- ---------
<S> <C> <C> <C>
Less than $50,000 4.75% 5.00% 4.50%
$50,000 - $99,999.99 4.00% 4.20% 3.75%
$100,000 - $249,999.99 3.75% 3.90% 3.50%
$250,000 - $499,999.99 2.50% 2.80% 2.25%
$500,000 - $999,999.99 2.00% 2.00% 1.75%
$1,000,000 or more 0.00% 0.00% 0.00%
</TABLE>
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<PAGE> 78
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. The Distributor, at its
expense, may also provide additional compensation to dealers in connection with
sales of shares of any of the Funds of the Group.
Compensation may include financial assistance to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns regarding one or more Funds of the Group, and/or
other dealer-sponsored special events. In some instances, this compensation may
be made available only to certain dealers whose representatives have sold or are
expected to sell a significant amount of such shares. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their families
to exotic locations within or outside of the United States for meetings or
seminars of a business nature. Compensation may also include the following types
of non-cash items offered through sales contests: (1) vacation trips, including
travel arrangements and lodging at resorts; (2) tickets for entertainment events
(such as concerts, cruises and sporting events); and (3) merchandise (such as
clothing, trophies, clocks and pens). The Distributor, at its expense, currently
conducts an annual sales contest for dealers, including 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.
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<PAGE> 79
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 IMC, 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 IMC 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.
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 and of Armada that are sold
with a sales charge (each a "Load Fund"). For example, if a shareholder
concurrently purchases Investor A Shares in one Load Fund at the total public
offering price of $25,000 and Investor A Shares in another Load 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 investor's retirement plan accounts. To receive the applicable public
offering price pursuant to this privilege, investors must, at the time of
purchase, give the Transfer Agent or the
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<PAGE> 80
Distributor sufficient information to permit confirmation of qualification. This
privilege, however, may be modified or eliminated at any time or from time to
time by the Group without notice.
LETTERS OF INTENT
An investor may obtain a reduced sales charge by means of a written Letter of
Intent which expresses the intention of such investor to purchase Investor A
Shares of a Fund at a designated total public offering price within a designated
13-month period. Each purchase of Investor A Shares under a Letter of Intent
will be made at the net asset value plus the sales charge applicable at the time
of such purchase to a single transaction of the total dollar amount indicated in
the Letter of Intent (the "Applicable Sales Charge"). A Letter of Intent may
include purchases of Investor A Shares made not more than 90 days prior to the
date such investor signs a Letter of Intent; however, the 13-month period during
which the Letter of Intent is in effect will begin on the date of the earliest
purchase to be included. An investor will receive as a credit against his/her
initial purchase(s) of shares at the end of the 13-month period the difference,
if any, between the sales load paid on previous purchases qualifying under the
Letter of Intent and the Applicable Sales Charge.
A Letter of Intent is not a binding obligation upon the investor to purchase the
full amount indicated. The minimum initial investment under a Letter of Intent
is 5% of such amount. Investor A Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the name of the
investor) to secure payment of the higher sales charge applicable to the
Investor A Shares actually purchased if the full amount indicated is not
purchased, and such escrowed Investor A Shares will be involuntarily redeemed to
pay the additional sales charge, if necessary. Dividends on escrowed Investor A
Shares, whether paid in cash or reinvested in additional Investor A Shares, are
not subject to escrow. The escrowed Investor A Shares will not be available for
disposal by the investor until all purchases pursuant to the Letter of Intent
have been made or the higher sales charge has been paid. If and when the full
amount indicated has been purchased, the escrow will be released. To the extent
that an investor purchases more than the dollar amount indicated on the Letter
of Intent and qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased, along with any purchases made
during the 90 days prior to the date such investor signs the Letter of Intent,
at the applicable public offering price at the end of the 13-month period. The
difference in sales charge will be used to purchase additional Investor A Shares
of such Fund subject to the rate of sales charge applicable to the actual amount
of the aggregate purchases.
For further information about Letters of Intent, interested investors should
contact the Distributor at (800) 451-8377. This program, however, may be
modified or eliminated at any time or from time to time by the Group without
notice.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to purchase
Investor A Shares of a Fund at the public offering price applicable to the total
of (a) the total public offering price of the Investor A Shares of the Fund then
being purchased plus (b) an amount equal to the then current net asset value of
the "purchaser's combined holdings" of the Investor A Shares of all of the Funds
of the Group sold with a sales charge. The "purchaser's combined holdings"
described in the preceding sentence shall include the combined holdings of the
purchaser, the purchaser's spouse and children under the age of 21 and the
purchaser's retirement plan accounts. To receive the applicable public offering
price pursuant to the right of accumulation, shareholders must, at the time of
purchase, give the Transfer Agent or the Distributor sufficient information to
permit confirmation of qualification. This right of accumulation, however, may
be modified or eliminated at any time or from time to time by the Group without
notice.
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<PAGE> 81
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 or fund of
Armada with a different investment objective. In order for the exchange
privilege to apply, the redemption of one Fund or fund of Armada and
corresponding purchase of another Fund or fund of Armada 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) or a money market fund of Armada (an "Armada Money Market Fund")
(collectively, "no load Funds") 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 or an Armada Money Market Fund, 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") or any fund of Armada which is not an Armada Money Market Fund
(collectively, "load 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 and any fund of Armada subject to the
following. If a shareholder paid a sales charge on the previously exchanged
Investor A Shares that is less than the sales charge applicable to the Investor
A Shares sought to be acquired through the exchange, he or she must pay a sales
charge on the exchange equal to such difference. Holders of Investor A Shares of
any of the no load Funds may exchange those Investor A Shares for Investor A
Shares offered by the load Funds, but a sales load will be charged on the
exchange. Shareholders must notify the Group that a sales change was previously
paid.
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 or a fund of Armada 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. As of the date
of this prospectus, an investor is limited to one exchange every two months
during a given 12-month period beginning upon the date of the first exchange
transaction.
No exchange fee is imposed by the Group. 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
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<PAGE> 82
the Group or the fund of Armada 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.
The exchange privilege is a convenient way to respond to changes in investment
goals or in market conditions. This privilege is not designed for frequent
trading in response to short-term market fluctuations. Management of the Group
reserves the right to limit, amend, impose charges upon, terminate or otherwise
modify the exchange privilege upon 60 days' notice to shareholders. Except for
exchanges through the Systematic Exchange Program or Auto Exchange Plan
described below, as of the date of this Prospectus, an investor is limited to
one exchange every two months during a given 12-month period beginning upon the
date of the first exchange transaction.
SYSTEMATIC EXCHANGE PROGRAM APPLICABLE TO INVESTOR A SHARES
Investor A Shares may also be purchased through automatic monthly or quarterly
deductions from a shareholder's account from any of the Group's money market
funds. Under a systematic exchange program, a shareholder enters an agreement to
purchase Investor A Shares of one or more specified Funds over a specified
period of time, and initially purchases shares of one of the Group's money
market funds in an amount equal to the total amount of the investment. On a
monthly or quarterly basis, a specified dollar amount of shares of the Group's
money market fund is exchanged for Investor A Shares of the Funds specified.
The systematic exchange program of investing a fixed dollar amount at regular
intervals over time has the effect of reducing the average cost per share of the
Funds. Because purchases of Investor A Shares are subject to an initial sales
charge, it may be beneficial for an investor to execute a Letter of Intent
indicating an intent to purchase Investor A Shares in connection with the
systematic exchange program. A shareholder may apply for participation in this
program through his financial institution or by calling 1-800-451-8377.
AUTO EXCHANGE PLAN
The Group's Auto Exchange Plan enables holders of Investor A Shares of the Prime
Obligations, U.S. Government Obligations, Treasury and Tax-Free Funds to make
regular monthly or quarterly exchanges into Investor A Shares of another Fund.
With shareholder authorization, the Transfer Agent will automatically exchange
Investor A Shares of the Prime Obligations, U.S. Government Obligations,
Treasury or Tax-Free Funds 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 A Shares of the
Prime Obligations, U.S. Government Obligations, Treasury or Tax-Free Funds is
required.
Shareholders investing directly in Investor A Shares of the Prime Obligations,
U.S. Government Obligations, Treasury or Tax-Free Funds, 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 A Shares of the Prime Obligations, U.S. Government Obligations,
Treasury or Tax-Free Funds purchased initially will have been exchanged for
Investor A 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 8590, Boston, Massachusetts 02266-8590. The
Auto Exchange Plan may be amended or terminated without notice at any time by
the Distributor.
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS
Investor A Shares of the Funds are available to shareholders on a tax-deferred
basis through the following retirement plans:
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<PAGE> 83
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.
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 8590, Boston,
Massachusetts 02266-8590. 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
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<PAGE> 84
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 $100. Once a shareholder has signed and returned a
signature card, he or she will receive a supply of checks. A check may be made
payable to any person, and the shareholder's account will continue to earn
dividends until the check clears. Because of the difficulty of determining in
advance the exact value of the Fund account, a shareholder may not use a check
to close his or her account. The shareholder's account will be charged a fee for
stopping payment of a check upon the shareholder's request or if the check
cannot be honored because of insufficient funds or other valid reasons.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables shareholders of a Fund to make regular monthly
or quarterly redemptions of Investor A Shares. With shareholder authorization,
the Transfer Agent will automatically redeem such Investor A Shares at the net
asset value on the fifth and/or twentieth day of the month or quarter (or the
next Business Day, as defined in "HOW SHARES ARE VALUED," thereafter) and have
the amount specified transferred according to the written instructions of the
shareholder. Shareholders participating in this plan must maintain a minimum
account balance of $500, The required minimum withdrawal is $50, monthly or
quarterly.
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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 $500 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 IMC 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.
If any portion of the Investor A Shares to be redeemed represents an investment
made by personal check, the Group reserves the right to delay payment of the
redemption proceeds until the Transfer Agent is reasonably satisfied that the
check has been collected, which could take up to 15 calendar days from the date
of purchase. A shareholder who anticipates the need for more immediate access to
his investment should purchase shares by federal funds, bank wire, certified or
cashier's check. Financial institutions normally impose a charge in connection
with the use of bank wires, as well as certified checks, cashier's checks and
federal funds.
At various times, the Group may be requested to redeem Investor A Shares for
which it has not yet received good payment. In such circumstances, the
forwarding of proceeds may be delayed until payment has been collected for the
purchase of such Investor A Shares which delay may be for 15 days or more. Such
delay may be avoided if such Investor A Shares are purchased by wire transfer of
federal funds. The Group intends to pay cash for all Investor A Shares redeemed,
but under abnormal conditions which make payment in cash unwise, payment may be
made wholly or partly in portfolio securities at their then market value equal
to the redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
See the Statement of Additional Information ("ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION") for examples of when the Group may suspend the right of redemption
or redeem Investor A Shares involuntarily if it appears appropriate to do so in
light of the Group's responsibilities under the 1940 Act.
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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"). With respect to the Growth Funds and the Growth and
Income Funds, if a sale is not reported for that day, Shares are priced at the
mean between the most recent quoted bid and asked prices. Unlisted securities
and securities traded on a national securities market for which market
quotations are readily available are valued at the mean between the most recent
bid and asked prices. With respect to the Income Funds, other securities, and
temporary cash investments acquired more than 60 days from maturity, are valued
at the mean between quoted bid and asked prices. 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, 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 8590, Boston, Massachusetts 02266-8590,
and will become effective with respect to dividends and distributions having
record dates after its receipt by the Transfer Agent.
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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 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
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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
on such bonds. Shareholders receiving Social Security or certain other
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.
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
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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
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
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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.
TELEPHONE ACCESS
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's Funds through 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 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
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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 September 1, 1998, National City Corporation, 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 Board of Trustees under Rule 18f-3 of the 1940 Act. Investor B
Shares have distribution and service fees. Institutional Shares do not have
distribution or service fees. A salesperson or other person entitled to receive
compensation for selling or servicing the shares may receive different
compensation with respect to one particular class of shares over another in the
same Fund. The amount of dividends payable with respect to other classes of
shares will differ from dividends on Investor A Shares as a result of the
Investor A Plan fees applicable to Investor A Shares and because Investor A
Shares may bear different retail transfer agency expenses. For further details
regarding these other classes of shares, call the Group at (800) 451-8377.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Pursuant to Rule 17f-2, since IMC 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.
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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 8590, Boston, MA 02266-8590, or by calling toll free (800)
451-8377.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus, does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
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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.
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 Furnishings
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:
WVIZ Educational Television
J. WILLIAM PULLEN
President and Chief Executive Officer,
Whayne Supply Company
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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 Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8590
Boston, MA 02266
CUSTODIAN
National City Bank
4100 West 150th Street
Cleveland, Ohio 44135
LEGAL COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
-96-
<PAGE> 96
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
<TABLE>
<CAPTION>
PART A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO. 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>
-2-
<PAGE> 97
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 16, 1998
{PARKSTONE LOGO}
NOT FDIC INSURED
<PAGE> 98
{THIS PAGE INTENTIONALLY LEFT BLANK.}
<PAGE> 99
TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................................................5
FEE TABLES....................................................................10
FINANCIAL HIGHLIGHTS..........................................................14
INVESTMENT OBJECTIVES AND POLICIES............................................28
RISK FACTORS AND INVESTMENT TECHNIQUES........................................45
INVESTMENT RESTRICTIONS.......................................................62
MANAGEMENT OF THE FUNDS.......................................................63
HOW TO BUY INVESTOR B SHARES..................................................70
SALES CHARGES.................................................................73
CONTINGENT DEFERRED SALES CHARGE..............................................74
DIRECTED DIVIDEND OPTION......................................................75
EXCHANGE PRIVILEGE............................................................76
FACTORS TO CONSIDER WHEN SELECTING INVESTOR B SHARES..........................78
CONVERSION FEATURE............................................................79
PARKSTONE INDIVIDUAL RETIREMENT ACCOUNTS......................................79
HOW TO REDEEM YOUR INVESTOR B SHARES..........................................80
HOW SHARES ARE VALUED.........................................................83
DIVIDENDS AND TAXES...........................................................83
PERFORMANCE INFORMATION.......................................................87
TELEPHONE ACCESS..............................................................88
GENERAL INFORMATION...........................................................89
-i-
<PAGE> 100
THE PARKSTONE GROUP OF FUNDS
INVESTOR B SHARES PROSPECTUS DATED SEPTEMBER 16, 1998
GROWTH FUNDS For more information call:
Parkstone Small Capitalization Fund (800) 451-8377
Parkstone Mid Capitalization Fund or write to:
Parkstone Large Capitalization Fund One Freedom Valley Drive
Parkstone International Discovery Fund Oaks, Pennsylvania 19456
GROWTH AND INCOME FUNDS
Parkstone Balanced Allocation Fund THESE SECURITIES HAVE NOT
Parkstone Equity Income Fund BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE
INCOME FUNDS COMMISSION OR ANY STATE
Parkstone Bond Fund SECURITIES COMMISSION NOR
Parkstone Limited Maturity Bond Fund HAS THE COMMISSION OR ANY
Parkstone Intermediate Government STATE SECURITIES COMMISSION
Obligations Fund PASSED UPON THE ACCURACY OR ADEQUACY
Parkstone U.S. Government Income Fund OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE
TAX-FREE INCOME FUNDS CONTRARY IS A CRIMINAL OFFENSE.
Parkstone Municipal Bond Fund
Parkstone Michigan Municipal Bond Fund
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 16, 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.
<PAGE> 101
SHARES OF THE GROUP ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NATIONAL CITY INVESTMENT
MANAGEMENT COMPANY, ITS PARENT COMPANY OR ANY OF ITS AFFILIATES, AND ARE NOT
FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY OR STATE. INVESTMENT IN THE
TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-2-
<PAGE> 102
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") Parkstone Prime Obligations Fund (the "Prime
Obligations Fund")
-3-
<PAGE> 103
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 Board of Trustees of the Group has divided beneficial ownership of each Fund
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 ("IMC" 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, IMC has entered into a sub-investment
advisory agreement with Gulfstream Global Investors, Ltd., Dallas, Texas
("Gulfstream" or the "Subadviser").
-4-
<PAGE> 104
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, through the
Systematic Exchange Programs or through certain Parkstone
-5-
<PAGE> 105
Individual Retirement Accounts. Investor B Shares of one Fund of the Group may
be exchanged for Investor B Shares of another Fund of the Group or fund of
Armada Funds ("Armada") 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 $500 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>
- ----------------------------------------------------------- ---------------------------------------------------------
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 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
</TABLE>
-6-
<PAGE> 106
<TABLE>
<CAPTION>
- ----------------------------------------------------------- ---------------------------------------------------------
FUND INVESTMENT OBJECTIVE
- ----------------------------------------------------------- ---------------------------------------------------------
<S> <C>
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 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
- ----------------------------------------------------------- ---------------------------------------------------------
</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
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
-7-
<PAGE> 107
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
FUND INVESTMENT POLICY
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
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 issued
Obligations Fund or guaranteed by the U.S. government or its agencies or
instrumentalities and with remaining maturities of
twelve years or less
- ------------------------------------------------------------ ---------------------------------------------------------
International Fund at least 65% of its total assets in an internationally
diversified portfolio of equity securities which trade
on markets in countries other than the United States
and which are issued by companies (i) domiciled in
countries other than the United States, or (ii) that
derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States,
and (iii) which are ranked as small- or medium-sized
companies on the basis of their capitalization
- ------------------------------------------------------------ ---------------------------------------------------------
Large Capitalization Fund at least 80% of its total assets in common stocks, and
securities convertible into common stocks, of companies
believedc 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
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
-8-
<PAGE> 108
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
FUND INVESTMENT POLICY
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
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>
<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
IMC serves as investment adviser, and, with respect to the International Fund
and a portion of the Balanced Allocation Fund, Gulfstream serves as subadviser.
IMC 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 IMC (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. As of October 1, 1998, dividends for the Income Funds and the
Tax-Free Income Funds, if any, will be declared on a daily basis and paid on a
monthly basis. Dividends for the Growth Funds and the Growth and Income Funds,
if any, will continue to be declared and paid on a monthly basis. Net realized
capital gains are distributed at least annually. The Directed Dividend Option
enables shareholders to have dividends and capital gains paid by check, or
reinvested automatically without payment of sales charges. See "DIRECTED
DIVIDEND OPTION." Each of the Funds is treated as a separate entity for federal
tax purposes and intends to quality as a "regulated
-9-
<PAGE> 109
investment company." Shareholders will be advised at least annually as to the
federal income tax consequences of distributions made each year.
FEE TABLES (INVESTOR B SHARES)
SHAREHOLDER TRANSACTION EXPENSES
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
(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.
-10-
<PAGE> 110
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12b-1 OTHER OPERATING
FEES FEES EXPENSES EXPENSES
(AFTER WAIVER, (AFTER WAIVER (AFTER WAIVER (AFTER WAIVER
IF APPLICABLE)(3) IF APPLICABLE) IF APPLICABLE)(3) IF APPLICABLE)(3)
----------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund........................ 1.00% 1.00% 0.35% 2.35%
Mid Capitalization Fund.......................... 1.00% 1.00% 0.30% 2.30%
Large Capitalization Fund........................ 0.80% 1.00% 0.27% 2.09%
International Fund............................... 1.16%(4) 1.00% 0.40% 2.56%
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund......................... 0.75% 1.00% 0.36% 2.11%
Equity Income Fund............................... 1.00% 1.00% 0.33% 2.33%
INCOME FUNDS:
Bond Fund........................................ 0.70% 1.00% 0.24% 1.94%
Limited Maturity Bond Fund....................... 0.55% 1.00% 0.27% 1.82%
Intermediate Government Obligations Fund......... 0.70% 1.00% 0.27% 1.97%
Government Income Fund........................... 0.45% 1.00% 0.30% 1.75%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund.............................. 0.55% 1.00% 0.22% 1.77%
Michigan Bond Fund............................... 0.55% 1.00% 0.19% 1.74%
MONEY MARKET FUND:
Prime Obligations Fund........................... 0.40% 1.00% 0.26% 1.66%
</TABLE>
- -------------------
(3) After voluntary expense reductions.
(4) Calculated based on 1.25% of the first $50 million in average daily net
assets, 1.20% of the next $50 million, 1.15% of the next $300 million
and 1.05% over $400 million.
Management Fees, Other Expenses 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%, 0.37% and 2.37%, 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%, 0.32% and 2.06%,
respectively. For the Intermediate Government Obligations Fund, they would have
been 0.74%, 0.33% and 2.06%, respectively. For the Government Income Fund they
would have been 0.74%, 0.35% and 2.09%, respectively. For the Municipal Bond
Fund, they would have been 0.74%, 0.32% and 2.06 %, respectively. For the
Michigan Bond Fund, they would have been 0.74%, 0.29% and 2.03%, 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
-11-
<PAGE> 111
"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 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 $ 113 $ 146 $ 269
Mid Capitalization Fund....................................... $ 73 $ 112 $ 143 $ 264
Large Capitalization Fund..................................... $ 71 $ 105 $ 132 $ 242
International Fund............................................ $ 76 $ 120 $ 156 $ 290
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.................................... $ 68 $ 97 $ 119 $ 214
Intermediate Government Obligations Fund...................... $ 70 $ 102 $ 126 $ 230
Government Income Fund........................................ $ 68 $ 95 $ 115 $ 206
TAX-FREE INCOME FUNDS:
Municipal Bond Fund........................................... $ 68 $ 96 $ 116 $ 208
Michigan Bond Fund............................................ $ 68 $ 95 $ 114 $ 205
MONEY MARKET FUND:
Prime Obligations Fund........................................ $ 67 $ 93 $ 110 $ 197
</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> 112
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund..................................... $ 24 $ 73 $ 126 $ 269
Mid Capitalization Fund....................................... $ 23 $ 72 $ 123 $ 264
Large Capitalization Fund..................................... $ 21 $ 65 $ 112 $ 242
International Fund............................................ $ 26 $ 80 $ 136 $ 290
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.................................... $ 18 $ 57 $ 97 $ 214
Intermediate Government Obligations Fund...................... $ 20 $ 62 $ 106 $ 230
Government Income Fund........................................ $ 18 $ 55 $ 95 $ 206
TAX-FREE INCOME FUNDS:
Municipal Bond Fund........................................... $ 18 $ 56 $ 96 $ 208
Michigan Bond Fund............................................ $ 18 $ 55 $ 94 $ 205
MONEY MARKET FUND:
Prime Obligations Fund........................................ $ 17 $ 52 $ 90 $ 197
</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 IMC or any its
-13-
<PAGE> 113
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. Further financial information is included in the Statement of
Additional Information and the Group's May 31, 1998 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> 114
SMALL CAPITALIZATION FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS FEBRUARY 4, 1994
ENDED YEAR ENDED JUNE 30, TO
MAY 31, 1998 1997 1996 1995 JUNE 30, 1994(E)
----------- ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ......... $ 26.99 $ 33.78 $ 25.79 $19.83 $ 22.71
----------- ------- ------- ------ ------------
Investment Activities
Net Investment Loss ....................... (0.53) (0.41) (0.39) (0.19) (0.09)
Net Realized and Unrealized Gains (Losses)
on Investments .......................... (0.14) (1.13) 12.03 8.30 (2.79)
----------- ------- ------- ------ ------------
Total from Investment Activities ........ (0.67) (1.54) 11.64 8.11 (2.88)
----------- ------- ------- ------ ------------
Distributions
Net Realized Gains ........................ (1.30) (5.25) (3.65) (2.15) --
----------- ------- ------- ------ ------------
Total Distributions ..................... (1.30) (5.25) (3.65) (2.15) --
----------- ------- ------- ------ ------------
NET ASSET VALUE, END OF PERIOD ............... $ 25.02 $ 26.99 $ 33.78 $25.79 $ 19.83
=========== ======= ======= ====== ============
Total Return (excluding sales and redemption
charges) .................................. (2.47)%(d) (5.13)% 48.87% 43.78% (12.68)%(d)
----------- ------- ------- ------ ------------
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........... $ 41,399 $46,895 $30,310 $9,990 $ 2,130
Ratio of Expenses to Average Net Assets ... 2.35%(b) 2.32% 2.29% 2.32% 2.35%(b)
Ratio of Net Investment Loss to Average Net
Assets .................................. (1.99)%(b) (1.94)% (1.93)% (2 03)% (2.19)%(b)
Ratio of Expenses to Average Net Assets* .. 2.35%(b) 2.32% 2.29% 2.55% 2.61%(b)
Ratio of Net Investment Loss to Average Net
Assets* ................................. (1.99)%(b) (1.94)% (1.93)% (2.26)% (2.45)%(b)
Portfolio Turnover Rate (c) ............... 46.17% 48.45% 67.22% 50.53% 72.64%
Average Commission Rate Paid (f) .......... $0.0788 $0.0800
</TABLE>
-15-
<PAGE> 115
MID CAPITALIZATION FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS FEBRUARY 4, 1994
ENDED YEAR ENDED JUNE 30, TO
MAY 31, 1998 1997 1996 1995 JUNE 30, 1994(e)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ......... $ 15.12 $ 20.28 $ 16.35 $ 14.63 $ 16.66
------------ ------------ ------------ ------------ ------------
Investment Activities
Net Investment Loss ....................... (0.23) (0.24) (0.23) (0.11) (0.05)
Net Realized and Unrealized Gains (Losses)
on Investments .......................... 2.42 1.21 4.82 3.30 (1.98)
------------ ------------ ------------ ------------ ------------
Total from Investment Activities ........ 2.19 0.97 4.59 3.19 (2.03)
------------ ------------ ------------ ------------ ------------
Distributions
Net Realized Gains ........................ (3.11) (6.13) (0.66) (0.48) --
In Excess of Net Realized Gains ........... -- -- -- (0.99) --
------------ ------------ ------------ ------------ ------------
Total Distributions ..................... (3.11) (6.13) (0.66) (1.47) --
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD ............... $ 14.20 $ 15.12 $ 20.28 $ 16.35 $ 14.63
============ ============ ============ ============ ============
Total Return (excluding sales and redemption
charges) .................................. 16.27(d)% 4.94% 28.59% 23.88% (12.18)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........... $ 23,780 $ 21,994 $ 15,840 $ 6,073 $ 1,616
Ratio of Expenses to Average Net Assets ... 2.30(b) 2.31% 2.29% 2.29% 2.30 %(b)
Ratio of Net Investment Loss to Average Net
Assets .................................. (1.77)%(b) (1.80)% (1.70)% (1.61)% (1.57)%(b)
Ratio of Expenses to Average Net Assets* .. 2.30%(b) 2.31% 2.29% 2.54% 2.56%(b)
Ratio of Net Investment Loss to Average Net
Assets* ................................. (1.77)%(b) (1.80)% (1.71)% (1.87)% (1.83)%(b)
Portfolio Turnover Rate (c) ............... 38.41% 38.47% 49.27% 46.39% 70.87%
Average Commission Rate Paid (f) .......... $ 0.0794 $ 0.0796
</TABLE>
-16-
<PAGE> 116
LARGE CAPITALIZATION FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
YEAR
ELEVEN MONTHS ENDED DECEMBER 28, 1995
ENDED JUNE 30 TO
MAY 31, 1998 1997 JUNE 30, 1996(a)
------------ ------------ ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 14.34 $ 11.22 $ 10.00
------------ ------------ ------------
Investment Activities
Net Investment Income (Loss) ............................ (0.12) (0.05) 0.01
Net Realized and Unrealized Gains (Losses) on Investments 3.43 3.25 1.23
------------ ------------ ------------
Total from Investment Activities ...................... 3.31 3.20 1.24
------------ ------------ ------------
Distributions
Net Investment Income ................................... -- -- (0.02)
------------ ------------ ------------
Tax Return of Capital ................................... (0.03) -- --
------------ ------------ ------------
Net Realized Gains ...................................... (1.67) (0.08) --
------------ ------------ ------------
Total Distributions ................................... (1.70) (0.08) (0.02)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD ............................. $ 15.95 $ 14.34 $ 11.22
============ ============ ============
Total Return (excluding sales and redemption charges) ...... 25.12%(d) 28.62% 8.77%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ......................... $ 10,169 $ 4,130 $ 832
Ratio of Expenses to Average Net Assets ................. 2.09%(b) 2.12% 1.78%(b)
Ratio of Net Investment Loss to Average Net Assets ...... (1.21)%(b) (0.88)% (0.32)%(b)
Ratio of Expenses to Average Net Assets* ................ 2.09%(b) 2.12% 4.07%(b)
Ratio of Net Investment Loss to Average Net Assets ...... (1.21)%(b) (0.88)% (2.61)%(b)
Portfolio Turnover Rate (c) ............................. 24.74% 48.44% 0.86%
Average Commission Rate Paid (f) ........................ $ 0.0932 $ 0.0800
</TABLE>
-17-
<PAGE> 117
INTERNATIONAL DISCOVERY FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS FEBRUARY 4, 1994
ENDED YEAR ENDED JUNE 30, TO
MAY 31, 1998 1997 1996 1995 JUNE 30, 1994(e)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ......... $ 15.85 $ 13.77 $ 12.15 $ 13.21 $ 14.12
------------ ------------ ------------ ------------ ------------
Investment Activities
Net Investment Loss ....................... (0.19) (0.16) (0.08) (0.04) (0.01)
Net Realized and Unrealized Gains (Losses)
on Investments and Foreign Currency
Transactions ............................ 0.83 2.24 1.70 (0.40) (0.90)
------------ ------------ ------------ ------------ ------------
Total from Investment Activities ........ 0.64 2.08 1.62 (0.44) (0.91)
------------ ------------ ------------ ------------ ------------
Distributions
Net Realized Gains ........................ (0.51) -- -- -- --
------------ ------------ ------------ ------------ ------------
In Excess of Net Realized Gains ........... -- -- -- (0.62) --
------------ ------------ ------------ ------------ ------------
Total Distributions ..................... (0.51) -- -- (0.62) --
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD ............... $ 15.98 $ 15.85 $ 13.77 $ 12.15 $ 13.21
============ ============ ============ ============ ============
Total Return (excluding sales and redemption
charges) .................................. 4.47%(d) 15.11% 13.33% (3.03)% (6.44)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........... $ 12,840 $ 13,516 $ 9,489 $ 5,469 $ 2,680
Ratio of Expenses to Average Net Assets ... 2.56%(b) 2.55% 2.55% 2.57% 2.56%(b)
Ratio of Net Investment Loss to Average Net
Assets .................................. (1.49)%(b) (1.29)% (0.86)% (0.49)% (0.22)%(b)
Ratio of Expenses to Average Net Assets* .. 2.56%(b) 2.55% 2.63% 2.92% 2.61%(b)
Ratio of Net Investment Loss to Average Net
Assets* ................................. (1.49)%(b) (1.29)% (0.94)% (0.84)% (0.27)%(b)
Portfolio Turnover Rate (c) ............... 34.15% 45.18% 54.47% 104.39% 37.23%
Average Commission Rate Paid (f) .......... $ 0.0329 $ 0.0321
</TABLE>
-18-
<PAGE> 118
BALANCED ALLOCATION FUND --- INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS FEBRUARY 4, 1994
ENDED YEAR ENDED JUNE 30, TO
MAY 31, 1998 1997 1996 1995 JUNE 30, 1994(e)
----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .................. $ 13.00 $ 13.36 $ 12.18 $ 10.67 $ 11.71
----------- --------- --------- --------- -----------
Investment Activities
Net Investment Income (Loss) ....................... 0.19 0.21 0.23 0.20 0.10
Net Realized and Unrealized Gains (Losses)
on Investments and Foreign Currencies ............ 1.21 1.13 1.74 1.67 (1.05)
----------- --------- --------- --------- -----------
Total from Investment Activities ................. 1.40 1.34 1.97 1.87 (0.95)
----------- --------- --------- --------- -----------
Distributions
Net Investment Income .............................. (0.23) (0.22) (0.22) (0.20) (0.09)
Net Realized Gains ................................. (0.36) (1.48) (0.57) (0.06) --
In Excess of Net Realized Gains .................... -- -- -- (0.10) --
--------- -----------
Total Distributions .............................. (0.59) (1.70) (0.79) (0.36) (0.09)
----------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD ........................ $ 13.81 $ 13.00 $ 13.36 $ 12.18 $ 10.67
=========== ========= ========== ========= ===========
Total Return (excluding sales and redemption
charges) ........................................... 11.05%(d) 10.82% 16.71% 17.96% (8.16)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .................... $ 7,988 $ 6,299 $ 4,278 $ 1,291 $ 744
Ratio of Expenses to Average Net Assets ............ 2.11%(b) 2.11% 2.16% 2.25% 2.05%(b)
Ratio of Net Investment Income (Loss) to Average Net
Assets ........................................... 1.57%(b) 1.73% 1.64% 1.74% 1.94%(b)
Ratio of Expenses to Average Net Assets* ........... 2.37%(b) 2.36% 2.45% 2.77% 2.61%(b)
Ratio of Net Investment Income (Loss) to Average Net
Assets* .......................................... 1.32%(b) 1.48% 1.35% 1.22% 1.38%(b)
Portfolio Turnover Rate (c) ........................ 117.80% 425.05% 437.90% 250.66% 192.39%
Average Commission Rate Paid (f) ................... $ 0.0518 $ 0.0848
</TABLE>
-19-
<PAGE> 119
EQUITY INCOME FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS FEBRUARY 4, 1994
ENDED YEAR ENDED JUNE 30, TO
MAY 31, 1998 1997 1996 1995 JUNE 30, 1994(e)
------- -------- ------- ------ ------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .................. $ 19.14 $ 17.27 $ 14.47 $13.49 $ 14.92
------- -------- ------- ------ ------------
Investment Activities
Net Investment Income (Loss) ....................... 0.11 0.16 0.19 0.26 0.13
Net Realized and Unrealized Gains (Losses)
on Investments ................................... 2.71 3.57 3.25 0.99 (1.43)
------- -------- ------- ------ ------------
Total from Investment Activities ................. 2.82 3.73 3.44 1.25 (1.30)
------- -------- ------- ------ ------------
Distributions
Net Investment Income .............................. (0.10) (0.17) (0.19) (0.26) (0.13)
In Excess of Net Investment Income ................. -- -- -- (0.01) --
Net Realized Gains ................................. (3.18) (1.69) (0.45) -- --
------- -------- ------- ------ ------------
Total Distributions .............................. (3.28) (1.86) (0.64) (0.27) (0.13)
------- -------- ------- ------ ------------
NET ASSET VALUE, END OF PERIOD ........................ $ 18.68 $ 19.14 $ 17.27 $14.47 $ 13.49
======= ======== ======= ====== ============
Total Return (excluding sales and redemption
charges) ........................................... 16.28%(d) 22.96% 24.11% 9.41% (8.76)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .................... $27,767 $ 21,038 $12,590 $7,131 $ 3,836
Ratio of Expenses to Average Net Assets ............ 2.33%(b) 2.33% 2.32% 2.32% 2.33%(b)
Ratio of Net Investment Income (Loss) to Average Net
Assets ........................................... 0.64%(b) 0.88% 1.11% 1.86% 1.87%(b)
Ratio of Expenses to Average Net Assets* ........... 2.33%(b) 2.33% 2.32% 2.57% 2.59%(b)
Ratio of Net Investment (Loss) to Average Net
Assets* .......................................... 0.64%(b) 0.88% 1.11% 1.61% 1.61%(b)
Portfolio Turnover Rate (c) ........................ 18.62% 20.14% 40.75% 77.70% 69.35%
Average Commission Rate Paid (f) ................... $0.0800 $0.0800
</TABLE>
-20-
<PAGE> 120
BOND FUND - INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS FEBRUARY 4, 1994
ENDED YEAR ENDED JUNE 30, TO
MAY 31, 1998 1997 1996 1995 JUNE 30, 1994(e)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 9.69 $ 9.51 $ 9.68 $ 9.26 $ 9.95
--------- --------- --------- --------- ---------
Investment Activities
Net Investment Income (Loss) ................... 0.46 0.50 0.50 0.52 0.22
Net Realized and Unrealized Gains (Losses)
on Investments ............................... 0.32 0.16 (0.17) 0.42 (0.70)
--------- --------- --------- --------- ---------
Total from Investment Activities ............. 0.78 0.66 0.33 0.94 (0.48)
========= ========= ========= ========= =========
Distributions
Net Investment Income .......................... 0.47 (0.48) (0.50) (0.52) (0.21)
--------- --------- --------- --------- ---------
Total Distributions .......................... 0.47 (0.48) (0.50) (0.52) (0.21)
========= ========= ========= ========= =========
NET ASSET VALUE, END OF PERIOD .................... $ 10.00 $ 9.69 $ 9.51 $ 9.68 $ 9.26
========= ========= ========= ========= =========
Total Return (excluding sales and redemption
charges) ....................................... 8.18%(d) 7.09% 3.46% 10.62% (4.84)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................ $ 6,423 $ 5,967 $ 4,426 $ 1,330 $ 485
Ratio of Expenses to Average Net Assets ........ 1.94%(b) 1.94% 1.94% 2.03% 1.89%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets ..................................... 5.07%(b) 5.15% 4.97% 5.45% 5.34%(b)
Ratio of Expenses to Average Net Assets* ....... 2.03%(b) 2.03% 2.03% 2.39% 2.29%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets* .................................. 4.98%(b) 5.06% 4.88% 5.18% 4.94%(b)
Portfolio Turnover Rate (c) .................... 545.68% 827.00% 1189.27% 1010.64% 893.27%
</TABLE>
-21-
<PAGE> 121
LIMITED MATURITY BOND FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS FEBRUARY 4, 1994
ENDED YEAR ENDED JUNE 30, TO
MAY 31, 1998 1997 1996 1995 JUNE 30, 1994(e)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 9.49 $ 9.46 $ 9.70 $ 9.56 $ 9.99
--------- --------- --------- --------- ---------
Investment Activities
Net Investment Income (Loss) ................... 0.40 0.48 0.55 0.49 0.23
Net Realized and Unrealized Gains (Losses)
on Investments ............................... 0.02 0.02 (0.22) 0.12 (0.44)
--------- --------- --------- --------- ---------
Total from Investment Activities ............. 0.42 0.50 0.33 0.61 (0.21)
========= ========= ========= ========= =========
Distributions
Net Investment Income .......................... (0.41) (0.47) (0.55) (0.47) (0.22)
Tax Return of Capital .......................... -- -- (0.02) -- --
--------- --------- --------- --------- ---------
Total Distributions .......................... (0.41) (0.47) (0.57) (0.47) (0.22)
========= ========= ========= ========= =========
NET ASSET VALUE, END OF PERIOD .................... $ 9.50 $ 9.49 $ 9.46 $ 9.70 $ 9.56
========= ========= ========= ========= =========
Total Return (excluding sales and redemption
charges) ....................................... 4.50%(d) 5.39% 3.43% 6.68% (2.09)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................ $ 1,553 $ 1,492 $ 1,547 $ 892 $ 629
Ratio of Expenses to Average Net Assets ........ 1.82%(b) 1.86% 1.84% 1.85% 1.78%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets ................................... 4.63%(b) 5.02% 5.35% 5.14% 5.36%(b)
Ratio of Expenses to Average Net Assets* ....... 2.06%(b) 2.10% 2.08% 2.36% 2.33%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets* .................................. 4.39%(b) 4.78% 5.11% 4.62% 4.81%(b)
Portfolio Turnover Rate (c) .................... 225.88% 607.84% 618.60% 397.97% 353.28%
</TABLE>
-22-
<PAGE> 122
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS FEBRUARY 4, 1994
ENDED YEAR ENDED JUNE 30, TO
MAY 31, 1998 1997 1996 1995 JUNE 30, 1994(e)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 9.71 $ 9.67 $ 9.89 $ 9.60 $ 10.14
--------- --------- --------- --------- ---------
Investment Activities
Net Investment Income (Loss) ................... 0.43 0.45 0.53 0.43 0.21
Net Realized and Unrealized Gains (Losses)
on Investments ............................... 0.15 0.03 (0.24) 0.30 (0.54)
--------- --------- --------- --------- ---------
Total from Investment Activities ............. 0.58 0.48 0.29 0.73 (0.33)
--------- --------- --------- --------- ---------
Distributions
Net Investment Income .......................... (0.43) (0.44) (0.51) (0.44) (0.21)
Tax Return of Capital .......................... (0.01) -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions .......................... (0.44) (0.44) (0.51) (0.44) (0.21)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD .................... $ 9.85 $ 9.71 $ 9.67 $ 9.89 $ 9.60
========= ========= ========= ========= =========
Total Return (excluding sales and redemption
charges) ....................................... 6.07%(d) 5.09% 2.93% 7.84% (3.31)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................ $ 1,852 $ 1,972 $ 1,843 $ 977 $ 531
Ratio of Expenses to Average Net Assets ........ 1.97%(b) 1.98% 1.96% 2.06% 1.92%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets ................................... 4.67%(b) 4.67% 4.78% 4.41% 4.80%(b)
Ratio of Expenses to Average Net Assets* ....... 2.06%(b) 2.07% 2.05% 2.42% 2.32%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets* .................................. 4.58%(b) 4.58% 4.69% 4.05% 4.41%(b)
Portfolio Turnover Rate (c) .................... 774.28% 1516.78% 916.39% 549.13% 546.06%
</TABLE>
-23-
<PAGE> 123
U.S. GOVERNMENT INCOME FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS FEBRUARY 4, 1994
ENDED YEAR ENDED JUNE 30, TO
MAY 31, 1998 1997 1996 1995 JUNE 30, 1994(e)
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 9.13 $ 9.21 $ 9.39 $ 9.38 $ 9.88
---------- ---------- ---------- --------- ---------
Investment Activities
Net Investment Income (Loss) ................... 0.55 0.63 0.66 0.68 0.28
Net Realized and Unrealized Gains (Losses)
on Investments ............................... 0.07 (0.09) (0.18) 0.01 (0.50)
---------- ---------- ---------- --------- ---------
Total from Investment Activities ............. 0.62 0.54 0.48 0.69 (0.22)
---------- ---------- ---------- --------- ---------
Distributions
Net Investment Income .......................... (0.47) (0.52) (0.59) (0.61) (0.27)
Tax Return of Capital .......................... (0.04) (0.10) (0.07) (0.07) (0.01)
---------- ---------- ---------- --------- ---------
Total Distributions .......................... (0.51) (0.62) (0.66) (0.68) (0.28)
---------- ---------- ---------- --------- ---------
NET ASSET VALUE, END OF PERIOD .................... $ 9.24 $ 9.13 $ 9.21 $ 9.39 $ 9.38
========== ========== ========== ========= =========
Total Return (excluding sales and redemption
charges) ....................................... 6.98%(d) 6.06% 5.22% 7.71% (2.26)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................ $ 23,739 $ 23,448 $ 19,556 $ 8,478 $ 2,787
Ratio of Expenses to Average Net Assets ........ 1.75%(b) 1.77% 1.76% 1.83% 1.77%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets ................................... 6.45%(b) 6.89% 6.92% 7.28% 6.72%(b)
Ratio of Expenses to Average Net Assets* ....... 2.09%(b) 2.11% 2.10% 2.44% 2.42%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets* .................................. 6.11%(b) 6.55% 6.58% 6.67% 6.08%(b)
Portfolio Turnover Rate (c) .................... 278.94% 499.53% 348.01% 114.71% 102.24%
</TABLE>
-24-
<PAGE> 124
MICHIGAN MUNICIPAL BOND FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS FEBRUARY 4, 1994
ENDED YEAR ENDED JUNE 30, TO
MAY 31, 1998 1997 1996 1995 JUNE 30, 1994(e)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 10.90 $ 10.76 $ 10.75 $ 10.52 $ 11.09
--------- --------- --------- --------- ---------
Investment Activities
Net Investment Income (Loss) ................... 0.34 0.41 0.40 0.40 0.16
Net Realized and Unrealized Gains (Losses)
on Investments ............................... 0.23 0.13 0.04 0.24 (0.57)
--------- --------- --------- --------- ---------
Total from Investment Activities ............. 0.57 0.54 0.44 0.64 (0.41)
--------- --------- --------- --------- ---------
Distributions
Net Investment Income .......................... (0.37) (0.36) (0.40) (0.40) (0.16)
---------
In Excess of Net Investment Income ............. -- -- -- (0.01)
Net Realized Gains ............................. (0.03) (0.04) (0.03) -- --
--------- --------- --------- --------- ---------
Total Distributions .......................... (0.40) (0.40) (0.43) (0.41) (0.16)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD .................... $ 11.07 $ 10.90 $ 10.76 $ 10.75 $ 10.52
========= ========= ========= ========= =========
Total Return (excluding sales and redemption
charges) ....................................... 5.32%(d) 5.05% 4.13% 6.28% (3.69)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................ $ 3,983 $ 3,503 $ 3,565 $ 2,270 $ 1,302
Ratio of Expenses to Average Net Assets ........ 1.74%(b) 1.76% 1.77% 1.78% 1.77%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets ................................... 3.34%(b) 3.73% 3.57% 3.80% 3.51%(b)
Ratio of Expenses to Average Net Assets* ....... 2.03%(b) 2.05% 2.06% 2.32% 2.32%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets* .................................. 3.05%(b) 3.44% 3.28% 3.25% 2.97%(b)
Portfolio Turnover Rate (c) .................... 26.24% 28.48% 27.66% 26.06% 6.69%
</TABLE>
-25-
<PAGE> 125
MUNICIPAL BOND FUND -- INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS FEBRUARY 4, 1994
ENDED YEAR ENDED JUNE 30, TO
MAY 31, 1998 1997 1996 1995 JUNE 30, 1994(e)
------------ ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .............. $ 10.51 $ 10.39 $ 10.36 $ 10.26 $ 10.76
------- ------- ------- ------- -------
Investment Activities
Net Investment Income (Loss) ................... 0.28 0.36 0.33 0.33 0.13
Net Realized and Unrealized Gains (Losses)
on Investments ............................... 0.21 0.13 0.03 0.27 (0.50)
------- ------- ------- ------- -------
Total from Investment Activities ............. 0.49 0.49 0.36 0.60 (0.37)
------- ------- ------- ------- -------
Distributions
Net Investment Income .......................... (0.32) (0.32) (0.33) (0.33) (0.13)
In Excess of Net Realized Gains ................ -- -- -- (0.17) --
------- ------- ------- ------- -------
Net Realized Gains ............................. (0.18) (0.05) -- -- --
------- ------- ------- ------- -------
Total Distributions .......................... (0.50) (0.37) (0.33) (0.50) (0.13)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD .................... $ 10.50 $ 10.51 $ 10.39 $ 10.36 $ 10.26
======= ======= ======= ======= =======
Total Return (excluding sales and redemption
charges) ....................................... 4.75%(d) 4.81% 3.48% 6.17% (3.41)%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ................ $ 706 $ 993 $ 735 $ 447 $ 359
Ratio of Expenses to Average Net Assets ........ 1.77%(b) 1.81% 1.80% 1.80% 1.80%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets ................................... 2.89%(b) 3.43% 3.11% 3.22% 2.88%(b)
Ratio of Expenses to Average Net Assets* ....... 2.06%(b) 2.10% 2.09% 2.33% 2.37%(b)
Ratio of Net Investment Income (Loss) to Average
Net Assets* .................................. 2.59%(b) 3.14% 2.82% 2.68% 2.31%(b)
Portfolio Turnover Rate (c) .................... 85.86% 48.83% 47.46% 35.15% 44.39%
</TABLE>
-26-
<PAGE> 126
PRIME OBLIGATIONS FUND
INVESTOR B SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED
MAY 31, 1998
-------------
INVESTOR B(g)
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 1.000
--------
Investment Activities
Net investment income ................................... 0.027
--------
Distributions
Net investment income ................................... (0.027)
--------
NET ASSET VALUE, END OF PERIOD ............................. $ 1.000
--------
Total Return ............................................... 2.75%(d)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) .......................... $ 387
Ratio of expenses to average net assets .................... 1.66%(b)
Ratio of net investment income to average net assets ....... 4.01%(b)
Ratio of expenses to average net assets* ................... 1.68%(b)
Ratio of net investment income to average net assets* ...... 3.99%(b)
</TABLE>
- --------------------
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(d) Not annualized.
(e) Period from February 4, 1994 (commencement of offering of Investor B
Shares) to June 30, 1994.
(f) 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.
(g) For the period September 30, 1997 (commencement of offering Investor B
Shares) to May 31, 1998.
-27-
<PAGE> 127
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 IMC 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 that 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
- 28 -
<PAGE> 128
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, CCP and in 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 companies that have been
determined to have a market capitalization of less than $1 billion based upon
current market data. 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
- 29 -
<PAGE> 129
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.
THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE
CAPITALIZATION 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
- - 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.
- 30 -
<PAGE> 130
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.
THE INTERNATIONAL 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
- - 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 any highly
liquid security with a known market value and a maturity, when acquired, of less
than three months ("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
- 31 -
<PAGE> 131
are growth-oriented and have exhibited consistent, above-average growth in
revenues and earnings.
For the Balanced Allocation Fund, fixed-income securities held consist of bonds,
debentures, notes, zero-coupon securities, mortgage-related securities, state,
municipal or industrial revenue bonds, obligations issued or guaranteed by the U
S. government or its agencies or instrumentalities, certificates of deposit,
time deposits, high quality commercial paper, bankers' acceptances and variable
amount master demand notes. In addition, a portion of the Balanced Allocation
Fund's assets may, from time to time, be invested in first mortgage loans and
participation certificates in pools of mortgages issued or guaranteed by the
U.S. government or its agencies or instrumentalities. Some of the securities in
which the Balanced Allocation Fund invests may have warrants or options
attached. The Balanced Allocation Fund may also invest in repurchase agreements.
The Balanced Allocation Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, as well as "stripped" U.S. Treasury obligations ("Stripped Treasury
Obligations"), such as Treasury receipts issued by the U.S. Treasury
representing either future interest or principal payments, and other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. See "RISK FACTORS AND INVESTMENT TECHNIQUES --Government
Obligations" below.
The Balanced Allocation Fund also expects to invest in bonds, notes and
debentures of a wide range of U.S. corporate issuers. Such obligations, in the
case of debentures, will represent unsecured promises to pay, and in the case of
notes and bonds, may be secured by mortgages on real property or security
interests in personal property and will in most cases differ in their interest
rates, maturities and times of issuance.
The Balanced Allocation Fund will invest only in corporate fixed-income
securities which are rated at the time of purchase within the four highest
rating categories assigned by a nationally-recognized statistical rating
organization ("NRSRO") or, if unrated, which 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
- 32 -
<PAGE> 132
("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 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.
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 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
- 33 -
<PAGE> 133
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 types of companies that the Investment Adviser believes
will enable the Fund to achieve its investment objective.
- 34 -
<PAGE> 134
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 mortgage loans and participation certificates in pools of
mortgages issued or guaranteed by the
- 35 -
<PAGE> 135
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 NRSRO, 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
- 36 -
<PAGE> 136
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.
THE BOND FUND AND THE LIMITED MATURITY BOND 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 - 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.
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
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<PAGE> 137
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."
THE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
See The Following Sections In RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<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 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
- 38 -
<PAGE> 138
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.
THE GOVERNMENT INCOME FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<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.
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
- 39 -
<PAGE> 139
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 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"
- 40 -
<PAGE> 140
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.
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
- 41 -
<PAGE> 141
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.
TAX - FREE INCOME FUNDS
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<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 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%
- 42 -
<PAGE> 142
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 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.
- 43 -
<PAGE> 143
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.
THE PRIME OBLIGATIONS FUND
See the following Sections in RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<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>
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
- 44 -
<PAGE> 144
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 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
- 45 -
<PAGE> 145
]contract. Accordingly, it may be necessary for a Fund to purchase additional
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency such
Fund is obligated to deliver when a decision is made to buy the security and
make delivery of the foreign currency in settlement of a forward contract.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency such Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward currency contract prices. If the
Fund engages in an offsetting transaction, it may subsequently enter into a new
forward currency contract to sell the foreign currency. If forward prices
decline during the period between which a Fund enters into a forward currency
contract for the sale of foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, such Fund would
realize a gain to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase. If forward prices
increase, such Fund would suffer a loss to the extent the price of the currency
it has agreed to purchase exceeds the price of the currency it has agreed to
sell. Although such contracts tend to minimize the risk of loss due to a decline
in the value of the hedged currency, they also tend to limit any potential gain
which might result if the value of such currency increases. The Funds will have
to convert their holdings of foreign currencies into United States dollars from
time to time. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
No Fund intends to enter into forward currency contracts if more than 15% of the
value of its total assets would be committed to such contracts on a regular or
continuous basis. A Fund also will not enter into forward currency contracts or
maintain a net exposure on such contracts where such Fund would be obligated to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency.
For further information about the characteristics, risks and possible benefits
of options, futures and foreign currency transactions, see "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments" in
the Statement of Additional Information.
FOREIGN SECURITIES
The International Fund invests primarily in the securities of foreign issuers.
The Balanced Allocation Fund may invest up to 20% of its total assets in foreign
securities. The Small Capitalization Fund, Mid Capitalization Fund, Large
Capitalization Fund and Equity Income Fund may invest in foreign securities as
permitted by their respective investment policies. Each of the Bond Fund and
Limited Maturity Bond Fund may also invest up to 25% of its net assets in
foreign securities either directly or through the purchase of 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
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by purchasing: Eurodollar certificates of deposit ("ECDs"), which are U.S.
dollar-denominated certificates of deposit issued by offices of foreign and
domestic banks outside the U.S.; Eurodollar time deposits ("ETDs"), which are
U.S. dollar-denominated deposits in a foreign branch of a U.S. or foreign bank;
Canadian time deposits ("CTDs"), which are essentially the same as ETDs, except
that they are issued by Canadian offices of major Canadian banks; Yankee
certificates of deposit ("Yankee CDs"), which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank but held in
the U.S.; CCP; and Europaper.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include political, social or economic instability
in the country of the issuer, the difficulty of predicting international trade
patterns, the possibility of the imposition of exchange controls, expropriation,
limits on removal of currency or other assets, nationalization of assets,
foreign withholding and income taxation, and foreign trading practices
(including higher trading commissions, custodial charges and delayed
settlements). Such securities may be subject to greater fluctuations in price
than securities issued by U.S. corporations or issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the United States. In addition, there may be less
publicly available information about a foreign company than about a
U.S.-domiciled company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the United States. Confiscatory taxation or diplomatic developments could also
affect investment in those countries. In addition, foreign branches of U.S.
banks, foreign banks and foreign issuers may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks and U.S. domestic issuers.
In many instances, foreign debt securities may provide higher yields than
securities of domestic issuers which have similar maturities and quality. Under
certain market conditions, these investments may be less liquid than the
securities of U.S. corporations and are certainly less liquid than securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Finally, in the event of a default of any such foreign debt obligations, it may
be more difficult for a Fund to obtain or to enforce a judgment against the
issuers of such securities. If a security is denominated in foreign currency,
the value of the security to the Fund will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of any
foreign currency against the U.S. dollar will result in a corresponding change
in the U.S. dollar value of a Fund's securities denominated in that currency.
Such changes will also affect a Fund's income and distributions to shareholders.
In addition, although a Fund will receive income on foreign securities in such
currencies, such Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
materially after such Fund's income has been accrued and translated into U.S.
dollars, the Fund could be required to liquidate portfolio securities to make
required distributions. Similarly, if an exchange rate declines between the time
a Fund incurs expenses in U.S. dollars
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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.
The conversion of the eleven member states of the European Union to a common
currency, the "euro", is scheduled to occur on January 1, 1999. As a result of
the conversion, securities issued by the member states will be subject to
certain risks, including competitive implications of increased price
transparency of European Union markets (including labor markets) resulting from
adoption of a common currency and issuers' plans for pricing their own products
and services in euro; an issuer's ability to make any required information
technology updates on a timely basis, and costs associated with the conversion
(including costs of dual currency operations through January 1, 2002); currency
exchange rate risk and derivatives exposure (including the disappearance of
price sources, such as certain interest rate induces); continuity of material
contracts and potential tax consequences. Other risks include whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; the creation of suitable clearing and
settlement payment systems for the new currency; the legal treatment of certain
outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of exchange
rates for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2000 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the Fund will converge over time;
and whether the conversion of the currencies of other EU countries such as the
United Kingdom, Denmark and Greece into the euro and the admission of other
non-EU countries such as Poland, Latvia and Lithuania as members of the EU may
have an impact on the euro. These or other factors, including political and
economic risks, could cause market disruptions before or after the introduction
of the euro, and could adversely affect the value of securities and foreign
currencies held by the Funds. Commissions on transactions in foreign securities
may be higher than those for similar transactions on domestic stock markets. In
addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, such procedures have been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
such transactions.
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
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simultaneous issuance of a single security in multiple world markets. The
International Fund and Balanced Allocation Fund may also invest in EDRs which
are receipts evidencing an arrangement with a European bank similar to that for
ADRs and designed for use in the European securities markets. EDRs are not
necessarily denominated in the currency of the underlying security.
Certain of the ADRs and EDRs, typically those categorized as unsponsored,
require their holders to bear most of the costs of such facilities while issuers
of sponsored facilities normally pay more of the costs. The depository of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through the voting rights to facility holders with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
Subject to its applicable investment policies, each of the Growth Funds and
Growth and Income Funds may invest in debt securities denominated in the
European Currency Unit ("ECU"), which is a "basket" unit of currency consisting
of specified amounts of the currencies of certain of the twelve member states of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. Such adjustments may
adversely affect holders of ECU-denominated obligations or the marketability of
such securities. European governments and supranationals, in particular, issue
ECU-denominated obligations.
FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds, the Income Funds and the
Municipal Bond Fund may enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
A Fund may engage in such futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, a Fund can seek through the sale of
futures contracts to offset a decline in the value of its portfolio securities.
When interest rates are expected to fall or market values are expected to rise,
a Fund, through the purchase of such contracts, can attempt to secure better
rates or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercising the option at
any time during the option period.
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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 closing out futures positions.
GOVERNMENT OBLIGATIONS
Subject to the investment parameters described above, each of the Funds may
invest in obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities. The types of U.S. government obligations in which
each of these Funds may invest include U.S. Treasury notes, bills, bonds, and
any other securities directly issued by the U.S. government for public
investment, which differ only in their interest rates, maturities, and times of
issuance. Stripped Treasury Obligations are also permissible investments.
Stripped securities are issued at a discount to their "face value," and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors. The
Stripped Treasury Obligations in which the Prime Obligations Fund may invest do
not include certificates of accrual on Treasury securities ("CATS") or Treasury
income growth receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the right of
the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association ("SLMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored agencies or
instrumentalities, such as FNMA, SLMA or FHLMC, since it is not obligated to do
so by law. The Funds which may invest in these government obligations will
invest in the obligations of such agencies or instrumentalities only when the
Investment Adviser believes that the credit risk with respect thereto is
minimal.
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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 may only invest in GICs that have received the requisite ratings by one or
more NRSROs, see "INVESTMENT OBJECTIVES AND POLICIES -- The Money Market Fund"
in this Prospectus. Because a Fund may not receive the principal amount of a GIC
from the insurance company, on seven days' notice or less, the GIC is considered
an illiquid investment. For each of the Bond Fund and Limited Maturity Bond
Fund, no more than 15% of its total assets will be invested in instruments which
are considered to be illiquid. For the Prime Obligations Fund, no more than 10%
of its total assets may be invested in instruments which are considered to be
illiquid. In determining average portfolio maturity, GICs will be deemed to have
a maturity equal to the period of time remaining until the next readjustment of
the guaranteed interest rate.
MEDIUM-GRADE SECURITIES
Each of the Balanced Allocation Fund, Bond Fund, Limited Maturity Bond Fund,
Municipal Bond Fund and Michigan Bond Fund may invest in fixed-income securities
rated within the fourth highest rating category assigned by an NRSRO (i.e., BBB
or Baa by S&P or Moody's, respectively) and comparable unrated securities as
determined by the Investment Adviser. These types of fixed-income securities are
considered 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
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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 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.
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The principal governmental (i.e., backed by the full faith and credit of the
United States government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the United States government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Administration
or guaranteed by the Veterans Administration.
Government-related (i.e., not backed by the full faith and credit of the United
States government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States government. FHLMC is a corporate instrumentality of the
United States government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States government.
The Government Income Fund also may invest up to 35% of its total assets in
mortgage-related securities issued by non-governmental entities and in other
securities described below. Commercial banks, savings and loan institutions,
private, mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers will be considered in
determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers can meet
their obligations under the policies. The Government Income Fund may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the poolers, 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.
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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.
CMOs are issued in multiple classes. Each class of CMOs , often referred to as a
"tranche," is issued at a specific adjustable or fixed interest rate and must be
fully retired no later than its final distribution date. Principal prepayments
on the mortgage loans or the mortgage assets underlying the CMOs may cause some
or all of the classes of CMOs to be retired substantially earlier than their
final distribution dates. Generally, interest is paid or accrues on all classes
of CMOs on a monthly basis.
The principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the mortgage assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the mortgage assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
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, 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
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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.
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-
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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.
SPECIAL RISK CONSIDERATIONS APPLICABLE TO THE MICHIGAN MUNICIPAL BOND FUND
The economy of the State of Michigan is heavily dependent upon the automobile
manufacturing industry, a highly cyclical industry. This factor affects the
revenue streams of the State of Michigan and its political subdivisions because
it impacts on tax sources, particularly sales taxes, income taxes and Michigan
single business taxes.
In 1993 and 1994, Michigan adopted complex statutory and constitutional changes
which, among several other changes in tax methods and rates, have the effect of
imposing limits on annual assessment increases and of transferring a significant
part of the operating cost of public education from locally based property tax
sources to state based sources, including increased sales tax. These changes
will affect state and local revenues of Michigan governmental units in future
years in differing ways, not all of which can be presently known with certainty.
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'
investments 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.
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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 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
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which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option.
Price movements in securities which a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a Fund bears the risk of a loss on an index option that is not
completely offset by movements in the price of such securities. Because index
options are settled in cash, a call writer cannot determine the amount of its
settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
In addition, each of the Tax-Free Income Funds may acquire "puts" with respect
to Municipal Securities (or Michigan Municipal securities, as the case may be),
held in its portfolio. Under a put, such Fund would have the right to sell a
specified Municipal Security (or Michigan Municipal Security, as the case may
be) within a specified period of time at a specified price. A put would be sold,
transferred, or assigned only with the underlying security. The Tax-Free Income
Funds will acquire puts solely either to facilitate portfolio liquidity, shorten
the maturity of the underlying securities, or permit the investment of its funds
at a more favorable rate 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.
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RESTRICTED SECURITIES
Securities in which each of the Funds may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the 1933 Act"), in reliance on the exemption from such, registration afforded
by Section 3(a)(3) thereof, and securities issued in reliance on the so-called
"Private Placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2) securities are
restricted as to disposition under the federal securities laws, and generally
are sold to institutional investors such as the Funds who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who make a
market in such Section 4(2) securities, thus providing liquidity. Pursuant to
procedures adopted by the Board of Trustees of the Group, First of America may
determine Section 4(2) securities to be liquid if such securities are eligible
for resale under Rule 144A under the 1933 Act and are readily saleable.
Subject to the limitations described above, the Funds may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registered under the 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
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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.
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
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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 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 ___% from BISYS, 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 increased taxable gains 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).
No Non-Money Market Fund, 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
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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.
No Funds may:
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
instruments, 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 each 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
IMC, formerly First of America Investment Corporation, serves as investment
adviser to the Funds. IMC is a registered investment adviser and an indirect
wholly owned subsidiary of National City Corporation ("NCC"). 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. First of
America was a registered investment adviser and a wholly-owned subsidiary of
First of America Bank, N.A., a wholly-owned subsidiary of IMC. As of December
31, 1997, First of America Investment Corporation managed over $16 billion on
behalf of both taxable and tax-exempt clients, including pensions, endowments,
corporations and individual portfolios. As of December 31, 1997, National City
Corporation had over $55 billion in assets. As a result of the merger with First
of America Bank Corporation, as of June 30, 1998, National City Corporation had
assets of over $81 billion. IMC reflects a combination of National City Bank's
investment management group and First of America. In connection with this
combination, various portfolio management changes were made. IMC has its
principal offices at 1900 East Ninth Street, Cleveland, Ohio 44114. 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.
IMC utilizes a team approach to the investment management of the funds, with
professionals working as teams to ensure a disciplined investment process
designed to result in long-term performance consistent with each Fund's
investment objective. No one person is responsible for a Fund's management.
IMC has established investment management teams by market segment; equities and
fixed income instruments. Within the equities segment, teams have been formed
based on style - growth or value - and market capitalization.
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The Equity Growth Group is comprised of the Small Capitalization Team, the Mid
Capitalization Team and the Large Capitalization Team. The Small Capitalization
Growth Team manages the Parkstone Small Capitalization Fund. The Mid
Capitalization Growth Team manages the Parkstone Mid Capitalization Fund. The
Large Capitalization Growth Team manages the Parkstone Large Capitalization
Fund. The Large Capitalization Value Team manages the Parkstone Equity Income
Fund.
The investment management teams within IMC and Gulfstream share the management
duties of the Balanced Allocation Fund. The teams manage their respective
segment allocation within the fund, according to their areas of specialization.
The Fixed Income Team of IMC manages the Income and Tax-Free Income Funds.
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 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
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securities, subject to the direction and control of the Group's Board of
Trustees.
Under this arrangement, Gulfstream is responsible for day-to-day management of
the International Fund's assets and the applicable portion of the Balanced
Allocation Fund, reviewing investment performance policies and guidelines and
maintaining certain books and records, and 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 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 May 31, 1998, Gulfstream had over $876 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.
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YEAR 2000 RISKS
Like other investment companies, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Investment Adviser and the Fund's other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Investment Adviser is taking steps to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
assurance that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Funds or their
shareholders as a result of the Year 2000 Problem.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
Fund of the Group. IMC 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, IMC
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 at One Freedom
Valley Drive, 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.
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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 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 IMC 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
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Participating Organization. Under the Investor B Plan, a Participating
Organization may include SEI, its subsidiaries and its affiliates.
Also pursuant to the Investor B Plan, a Fund is authorized to pay a service fee
in an amount not to exceed on an annual basis 0.25% of the average daily net
asset value of the Investor B Shares of such Fund (the "Service Fee"). Such
amount may be used to pay Participating Organizations for shareholder services
provided or expenses incurred in providing such services.
Fees paid pursuant to the Investor B Plan are accrued daily and paid monthly,
and are charged as expenses of Investor B Shares of a Fund as accrued. Payments
under the Investor B Plan will be calculated daily and paid monthly at a rate
not to exceed the limits described above, which rate is set from time to time by
the Board of Trustees.
Pursuant to the Investor B Plan, the Distributor may enter into agreements with
Participating Organizations for providing distribution assistance and
shareholder services with respect to the Investor B Shares. Such Participating
Organizations will be compensated at the annual rate of up to 1.00% (up to 0.75%
Distribution Fee plus up to 0.25% Service Fee) of the average daily net asset
value of the Investor B Shares held of record or beneficially by the
Participating Organization's customers. The distribution services provided by
Participating Organizations for which the Distribution Fee may be paid may
include promoting the purchase of Investor B Shares of a Fund by their
customers; processing purchase, exchange, and redemption requests from customers
and placing orders with the Distributor or the Transfer Agent; processing
dividend and distribution payments from a Fund on behalf of customers; providing
information periodically to customers, including information showing their
positions in Investor B Shares; responding to inquiries from customers
concerning their investment in Investor B 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 period ended May 31, 1998, Rule 12b-1
fees and contingent deferred sales charges collected were sufficient to cover
actual distribution and shareholder service expenses; that is, there were no
unrecovered amounts to be carried forward.
Conflict of interest restrictions may apply to the receipt by Participating
Organizations of compensation from 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
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money managers subject to the jurisdiction of the SEC, the Department of Labor,
or state securities commissions, are urged to consult their legal advisers
before investing such assets in Investor B Shares.
AS AUTHORIZED BY THE INVESTOR B PLAN, BISYS HAS ENTERED INTO A SERVICE AND
COMMISSION AGREEMENT WITH SECURITY DISTRIBUTORS, INC. ("SDI"), SECURITY BENEFIT
GROUP, INC. ("SBG") AND FIRST OF AMERICA BROKERAGE SERVICE, INC.
("FOA-BROKERAGE") WHICH RELATES TO PURCHASES OF INVESTOR B SHARES MADE PRIOR TO
JANUARY 1, 1995. PURSUANT TO THE SERVICE AND COMMISSION AGREEMENT, FOA-BROKERAGE
PERFORMS CERTAIN BROKERAGE AND RELATED SERVICES IN CONNECTION WITH THE PURCHASE
OF INVESTOR B SHARES BY ITS CUSTOMERS AND MAINTAINS SHAREHOLDER ACCOUNTS FOR
SUCH CUSTOMERS. ALSO PURSUANT TO THE SERVICE AND COMMISSION AGREEMENT, SBG
PROVIDES FINANCING ASSISTANCE, CONSISTENT WITH THE INVESTOR B PLAN, IN
CONNECTION WITH THE SERVICES PERFORMED BY FOA-BROKERAGE. SERVICES PROVIDED BY
FOA-BROKERAGE INCLUDE PLACING ORDERS TO PURCHASE INVESTOR B SHARES, AS AGENT FOR
ITS CUSTOMERS, PURSUANT TO THE TERMS OF ITS DEALER AGREEMENT; PROVIDING
SHAREHOLDER LIAISON SERVICES; RESPONDING TO INQUIRIES; PROVIDING SUCH
INFORMATION AS FOA-BROKERAGE AND SDI MUTUALLY DETERMINE TO BE APPROPRIATE IN
ORDER TO PROPERLY MAINTAIN-SHAREHOLDER ACCOUNTS; AND PROVIDING AT ITS OWN
EXPENSE SUCH OFFICE SPACE, EQUIPMENT, FACILITIES AND PERSONNEL AS MAY BE
REASONABLY NECESSARY OR BENEFICIAL IN ORDER TO PROVIDE SUCH SERVICES TO
CUSTOMERS. IN CONSIDERATION FOR SUCH SERVICES, FOA-BROKERAGE RECEIVES FROM SBG A
COMMISSION RATE OF 4.00% OF THE NET ASSET VALUE OF INVESTOR B SHARES PURCHASED
BY FOA-BROKERAGE AS AGENT FOR ITS CUSTOMERS. SDI, EITHER DIRECTLY OR THROUGH AN
AFFILIATE, RECEIVES AMOUNTS SPECIFIED IN THE SHAREHOLDER SERVICES AND FINANCING
AGREEMENT DATED FEBRUARY 1, 1994 BETWEEN BISYS AND SDI. UNDER THAT AGREEMENT,
SDI RECEIVES COMPENSATION FOR FINANCING ASSISTANCE AT THE ANNUAL RATE OF UP TO
0.75% OF THE AVERAGE DAILY NET ASSETS OF INVESTOR B SHARES OF EACH FUND AND
COMPENSATION FOR SHAREHOLDER SUPPORT SERVICES AT AN ANNUAL RATE OF UP TO 0.25%
OF THE AVERAGE DAILY NET ASSETS OF THE INVESTOR B SHARES OF EACH FUND.
The Group understands that Participating Organizations may charge fees to their
customers who are owners of Investor B Shares for additional services provided
in connection with their customer accounts. These fees would be in addition to
any amounts which may be received by a Participating Organization under its
Agreement with 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.
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The Investor B Plan may be terminated by a vote of a majority of the Independent
Trustees, or by a vote of a majority of the holders of the outstanding voting
securities of the Investor B Shares. Any change in the Investor B Plan that
would increase materially the distribution expenses paid by a Fund requires
shareholder approval; otherwise, the Plan may be amended by the 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, an affiliate of the Investment Adviser, and Union Bank,
serve as the custodians of the Group's assets. The Funds reimburse National City
Bank for its direct and indirect costs and expenses incurred in rendering
custodial services, except that the costs and expenses borne by each Fund in any
year may not exceed .020% of each portfolio's first $100 million of average
daily net assets, .010% of average daily net assets of each portfolio's next
$650 million of assets, and .008% of daily net assets of each portfolio which
exceeds $750 million. 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 8590, Boston, Massachusetts 02266-8590. 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. The Group
will not accept third-party checks under any circumstance.
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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 8590
Boston, Massachusetts 02266-8590
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 IMC or one of its
affiliates. Investor B Shares of the Funds sold to IMC or the affiliate acting
in a fiduciary, advisory, custodial, or other similar capacity on behalf of
Customers will normally be held of record by IMC 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 IMC or one of its
affiliates and reflected in the account statements provided to Customers. IMC 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
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"HOW SHARES ARE VALUED") of the applicable Fund. An order received prior to a
Valuation Time on any Business Day will be executed at the net asset value
determined as of the next Valuation Time on the date of receipt. An order
received after the last Valuation Time on any Business Day will be executed at
the net asset value determined as of the next Valuation Time on the next
Business Day of that Fund. Investor B Shares of all Funds, except the Prime
Obligations Fund, are eligible to earn dividends on the first Business Day
following the execution of the purchase. Investor B Shares of the Prime
Obligations Fund purchased before 11:30 a.m., Eastern Time, begin earning
dividends on the same Business Day. Investor B Shares continue to be eligible to
earn dividends through the day before their redemption.
An order to purchase Investor B Shares will be deemed to have been received by
the Distributor only when federal funds are available to the Group's Custodian
for investment. Federal funds are monies credited to a bank's account within a
Federal Reserve Bank. Payment for an order to purchase Investor B Shares which
is transmitted by federal funds wire will be available the same day for
investment by the Group's Custodian, if received prior to the last Valuation
Time (see "HOW SHARES ARE VALUED"). Purchases made by check or other means are
made at the price next determined upon receipt of the purchase 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, call
the Group at (800) 451-8377. 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, IMC 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 IMC 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.
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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 IMC or one of its
affiliates on behalf of a Customer may be obtained from IMC or the affiliate.
Shareholders may rely on these statements in lieu of certificates. Certificates
representing Investor B Shares of the Funds will not be issued.
AUTO INVEST PLAN
The Parkstone Group of Funds Auto Invest Plan (the "Auto Invest Plan") enables
shareholders to make regular monthly or quarterly purchases of Investor B Shares
through automatic deduction from their bank accounts. With shareholder
authorization, the Group's Transfer Agent will deduct the amount specified
(subject to the applicable minimums) from the shareholder's bank account which
will automatically be invested in shares at the public offering price on the
date of such deduction (or the next Business Day thereafter, as defined under
"HOW SHARES ARE VALUED" below). The required minimum initial investment when
opening an account using the Auto Invest Plan is $50; 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,
One Freedom Valley Drive, 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
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reimbursed under the Investor B Plan or upon receipt of a contingent deferred
sales charge. Any such additional consideration or incentive program may be
terminated at any time by the Distributor.
The Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of shares of any of the Funds of the Group.
Compensation may include financial assistance to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns regarding one or more Funds of the Group, and/or
other dealer-sponsored special events. In some instances, this compensation may
be made available only to certain dealers whose representatives have sold or are
expected to sell a significant amount of such shares. Compensation may include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their families
to exotic locations within or outside of the United States for meetings or
seminars of a business nature. Compensation may also include the following types
of non-cash items offered through sales contests: (1) vacation trips, including
travel arrangements and lodging at resorts; (2) tickets for entertainment events
(such as concerts, cruises and sporting events); and (3) merchandise (such as
clothing, trophies, clocks and pens). The Distributor, at its expense, currently
conducts an annual sales contest for dealers 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
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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 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, 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 B Shares to acquire
Investor B Shares that are offered by another Fund of the Group or Fund of
Armada with a different investment objective. In order for the exchange
privilege to apply, the redemption of one Fund or Fund of Armada and
corresponding purchase of another Fund or Fund of Armada 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 or a Fund of Armada, 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 or a Fund of Armada 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. The exchange
privilege may be modified or terminated at any time upon 60 days notice to
shareholders.
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No exchange fee is imposed by the Group. 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.
The exchange privilege is a convenient way to respond to changes in investment
goals or in market conditions. This privilege in not designed for frequent
trading in response to short-term market fluctuations. Management of the Group
reserves the right to limit, amend, impose charges upon, terminate or otherwise
modify the exchange privilege upon 60 days' notice to shareholders. Except for
exchange through the Systematic Exchange Program or Auto Exchange Plan
described below, as of the date of this Prospectus, an investor is limited to
one exchange every two months during a given 12-month period beginning upon the
date of the first exchange transaction.
SYSTEMATIC EXCHANGE PROGRAM APPLICABLE TO INVESTOR B SHARES
Investor B Shares may also be purchased through automatic monthly or quarterly
deductions from a Shareholder's account from any of the Group's money market
funds. Under a systematic exchange program, a shareholder enters an agreement to
purchase shares of one or more specified Funds over a specified period of time,
and initially purchases shares of one of the Group's money market funds in an
amount equal to the total amount of the investment. On a monthly or quarterly
basis, a specified dollar amount of shares of the Group's money market fund is
exchanged for Investor B Shares of the Funds specified.
The systematic exchange program of investing a fixed dollar amount at regular
intervals over time has the effect of reducing the average cost per share of the
Funds. Because purchases of Investor B Shares are subject to an initial sales
charge, it may be beneficial for an investor to execute a Letter of Intent
indicating an intent to purchase Investor B Shares in connection with the
systematic exchange program. A Shareholder may apply for participation in this
program through his financial institution or by calling 1-800-451-8377.
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.
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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 8590, Boston, Massachusetts 02266-8590. 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 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
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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.
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.
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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.
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 8590, Boston,
Massachusetts 02266-8590. 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.
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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
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 $500. The required minimum withdrawal is $50, 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 $500 amount.
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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 IMC 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 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.
If any portion of the Investor B Shares to be redeemed represents an investment
made by personal check, the Group reserves the right to delay payment of the
redemption proceeds until the Transfer Agent is reasonably satisfied that the
check has been collected, which could take up to 15 calendar days from the date
of purchase. A Shareholder who anticipates the need for more immediate access to
his investment should purchase shares by federal funds, bank wire, certified or
cashier's check. Financial institutions normally
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impose a charge in connection with the use of bank wires, as well as certified
checks, cashier's checks and federal funds.
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). With respect to the Growth
Funds and the Growth and Income Funds, if a sale is not reported for that day,
shares are priced at the mean between the most recent quoted bid and asked
prices. Unlisted securities and securities traded on a national securities
market for which market quotations are readily available are valued at the mean
between the most recent bid and asked prices. With respect to the Income Funds,
other securities, and temporary cash investments acquired more than 60 days from
maturity are valued at the mean between quoted bid and asked prices. 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.
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.
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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 8590, Boston, Massachusetts 02266-8590,
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 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
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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 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
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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
on such bonds. Shareholders receiving Social Security or certain other
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.
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
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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 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
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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 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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<PAGE> 188
TELEPHONE ACCESS
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's Funds through 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 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 September 1, 1998, National City Corporation, through its wholly-owned
subsidiaries, possessed on behalf of its underlying accounts voting or
investment power with respect to more than 25% of the
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<PAGE> 189
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. Investor A Shares have
distribution fees. Institutional Shares do not have distribution or service
fees. A salesperson or other person entitled to receive compensation for selling
or servicing the shares may receive different compensation with respect to one
particular class of shares over another in the same Fund. The amount of
dividends payable with respect to other classes of shares will differ from
dividends on Investor B Shares as a result of the Investor B Plan fees
applicable to Investor B Shares and because Investor B Shares may bear different
retail transfer agency expenses. For further details regarding these other
classes of shares, call the Group at (800) 451-8377.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
Pursuant to Rule 17f-2, since IMC 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 8590, Boston, Massachusetts 02266-8590, 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 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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<PAGE> 190
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.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8590
Boston, MA 02266
CUSTODIAN
National City Bank
4100 West 150th Street
Cleveland, Ohio 44135
LEGAL COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
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<PAGE> 191
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 Furnishings
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:
WVIZ Educational Television
J. WILLIAM PULLEN
President and Chief Executive Officer,
Whayne Supply Company
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<PAGE> 192
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
<TABLE>
<CAPTION>
PART A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO. 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>
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<PAGE> 193
- --------------------------------------------------------------------------------
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 15, 1998
{PARKSTONE LOGO}
NOT FDIC INSURED
-1-
<PAGE> 194
{THIS PAGE INTENTIONALLY LEFT BLANK.}
- 2 -
<PAGE> 195
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................................................... 5
FEE TABLES (INSTITUTIONAL SHARES)..................................... 8
FINANCIAL HIGHLIGHTS.................................................. 10
INVESTMENT OBJECTIVES AND POLICIES.................................... 29
RISK FACTORS AND INVESTMENT TECHNIQUES................................ 49
INVESTMENT RESTRICTIONS............................................... 66
MANAGEMENT OF THE FUNDS............................................... 69
HOW TO BUY INSTITUTIONAL SHARES....................................... 74
HOW TO REDEEM YOUR INSTITUTIONAL SHARES............................... 75
HOW SHARES ARE VALUED................................................. 76
DIVIDENDS AND TAXES................................................... 77
PERFORMANCE INFORMATION............................................... 81
TELEPHONE ACCESS...................................................... 82
GENERAL INFORMATION................................................... 82
</TABLE>
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<PAGE> 196
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES PROSPECTUS DATED SEPTEMBER 16, 1998
GROWTH FUNDS For more information call
Parkstone Small Capitalization Fund (800) 451-8577
Parkstone Mid Capitalization Fund or write to:
Parkstone Large Capitalization Fund One Freedom Valley Drive
Parkstone International Discovery Fund Oaks, Pennsylvania 19456
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 16, 1998 Statement of
- 1 -
<PAGE> 197
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.
Shares of the trust are not bank deposits or obligations of, or guaranteed
or endorsed or otherwise supported by, national city investment management
company, its parent company or any of its affiliates, and are not federally
insured or guaranteed by the U.S. government, federal deposit insurance
corporation, or any governmental agency or state. investment in the trust
involves risks, including the possible loss of principal.
These securities have not been approved or disapproved by the securities
and exchange commission or any state securities commission, nor has the
securities and exchange commission or any state securities commission passed
upon the accuracy or adequacy of this prospectus. any representation to the
contrary is a criminal offense.
- 2 -
<PAGE> 198
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") Parkstone
Michigan Municipal Bond Fund (the "Michigan Bond Fund") Parkstone Prime
Obligations Fund (the "Prime Obligations Fund")
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<PAGE> 199
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 ("IMC" 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, IMC has entered into a sub-investment
advisory agreement with Gulfstream Global Investors, Ltd., Dallas, Texas
("Gulfstream" or the "Subadviser").
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<PAGE> 200
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> 201
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
<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
Obligations Fund 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, with liquidity
Obligations Fund and stability of principal
</TABLE>
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<PAGE> 202
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, its agencies or
instrumentalities and up to 35% of its total
assets in mortgage-related securities issued by
non-governmental entities
Intermediate Government at least 80% of its total assets in obligations
Obligations Fund issued or guaranteed by the U.S. government or its
agencies or instrumentalities and with remaining
maturities of twelve years or less
International Fund at least 65% of its total assets in an
internationally diversified portfolio of equity
securities which trade on markets in countries
other than the United States and which are issued
by companies (i) domiciled in countries other than
the United States, or (ii) that derive at least
50% of either their revenues or pre-tax income
from activities outside of the United States, and
(iii) which are ranked as small or medium-sized
companies on the basis of their capitalization
Large Capitalization Fund at least 80% of its total assets in common stocks,
and securities convertible into common stocks, of
companies believed to be characterized by sound
management and the ability to finance expected
long-term growth
Limited Maturity Bond Fund at least 80% of the value of its total assets in
bonds, debentures and certain other debt
securities specified herein with remaining
maturities of six years or less
Michigan Bond Fund at least 80% of its total assets in debt
securities of all types; at least 65% of 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
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 issued
</TABLE>
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<PAGE> 203
<TABLE>
<S> <C>
Obligations Fund by the U.S. government or its agencies or
instrumentalities
</TABLE>
Risk Factors and Special Considerations
An investment in a mutual fund such as any of the Funds involves a
certain amount of risk and may not be suitable for all investors. In addition,
some investment policies of the Funds may entail certain risks. See "RISK
FACTORS AND INVESTMENT TECHNIQUES."
Management of the Funds
IMC serves as investment adviser, and, with respect to the
International Fund and a portion of the Balanced Allocation Fund, Gulfstream
serves as subadviser. IMC 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 IMC (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. As of October 1, 1998, dividends for the Income Funds and
the Tax-Free Income Funds, if any, will be declared on a daily basis and paid
on a monthly basis. Dividends for the Growth Funds and the Growth and Income
Funds, if any, will continue to be declared and paid 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
<TABLE>
<S> <C>
Maximum Sales Charge (as a percentage of the offering price) None
Sales Charge on Reinvested Distributions ................... None
Deferred Sales Charge on Redemptions ....................... None
Redemption Fees(l) ......................................... None
Exchange Fees............................................... None
</TABLE>
- -------------------
(1) Although no such fee is currently in place, the Transfer Agent has reserved
the right in the future to charge a fee for wire transfers of redemption
proceeds.
- 8 -
<PAGE> 204
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES FEES EXPENSES) EXPENSES)
(AFTER WAVIER, (AFTER WAIVER, (AFTER WAIVER, (AFTER WAIVER,
IF APPLICABLE)(2) IF APPLICABLE) IF APPLICABLE)(2) IF APPLICABLE)(2),(3)
----------------- -------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
GROWTH FUNDS:
Small Capitalization Fund ......... 1.00% 0.00% 0.35% 1.35%
Mid Capitalization Fund ........... 1.00% 0.00% 0.30% 1.30%
Large Capitalization Fund ......... 0.80% 0.00% 0.30% 1.10%
International Fund ................ 1.16%(4) 0.00% 0.40% 1.56%
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund .......... 0.75% 0.00% 0.37% 1.12%
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% 0.27% 0.82%
Intermediate Government Obligations 0.70% 0.00% 0.27% 0.97%
Government Income Fund ............ 0.45% 0.00% 0.31% 0.76%
TAX-FREE INCOME FUNDS:
Municipal Bond Fund ............... 0.55% 0.00% 0.23% 0.77%
Michigan Bond Fund ................ 0.55% 0.00% 0.19% 0.74%
MONEY MARKET FUNDS:
Prime Obligations Fund ............ 0.40% 0.00% 0.26% 0.66%
U.S. Government Obligations Fund .. 0.40% 0.00% 0.26% 0.66%
Treasury Fund ..................... 0.40% 0.00% 0.17% 0.57%
Tax-Free Fund ..................... 0.40% 0.00% 0.26% 0.66%
</TABLE>
(2) After voluntary expense reductions.
(3) Certain purchases of the Funds through financial institutions may be
subject to fees for additional services provided to investors.
(4) Calculated based on 1.25% of the first $50 million in average daily
net assets, 1.20% on the next $50 million, 1.15% on the next $300
million and 1.05% over $400 million.
Management Fees and Total Expenses as a percentage of average net assets for the
Balanced Allocation Fund, absent the voluntary reduction of advisory fees, would
have been 1.00% and 1.37%, 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%, 0.30% and 1.04%, respectively. For the Limited Maturity Bond Fund
they would have been 0.74%, 0.32% and 1.06%, respectively. For the Intermediate
Government Obligations Fund they would have been 0.74%, 0.32% and 1.06%,
respectively. For the Government Income Fund they are estimated to be 0.74%,
0.35% and 1.09%, respectively. For the Municipal Bond Fund they would have been
0.74%, 0.33% and 1.07%, respectively. For the Michigan Bond Fund they would have
been 0.74%, 0.29% and 1.03%, 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 0.28% and 0.68%,
respectively. For the U.S. Government Obligations Fund, they would have been
0.28% and 0.68%, respectively. For the Treasury Fund they would have been 0.27%
and 0.67%, respectively. For the Tax-Free Fund, they would have been 0.28% and
0.68%, respectively. (See "MANAGEMENT OF THE FUNDS -- Investment Adviser and
Subadviser" and "Administrator, Sub-Administrator and Distributor").
- 9 -
<PAGE> 205
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 ............. $14 $43 $74 $162
Mid Capitalization Fund ................ $13 $41 $71 $157
Large Capitalization Fund .............. $11 $35 $61 $134
International Fund ..................... $16 $49 $85 $186
GROWTH AND INCOME FUNDS:
Balanced Allocation Fund ............... $11 $36 $62 $135
Equity Income Fund ..................... $14 $42 $73 $160
INCOME FUNDS:
Bond Fund .............................. $10 $30 $52 $115
Limited Maturity Bond Fund ............. $ 8 $26 $46 $101
Intermediate Government Obligations Fund $10 $31 $54 $119
Government Income Fund ................. $ 8 $24 $42 $ 93
TAX-FREE INCOME FUNDS:
Municipal Bond Fund .................... $ 8 $25 $43 $ 95
Michigan Bond Fund ..................... $ 8 $24 $41 $ 92
MONEY MARKET FUNDS:
Prime Obligations Fund ................. $ 7 $21 $37 $ 82
U.S. Government Obligations Fund ....... $ 7 $21 $37 $ 82
Treasury Fund .......................... $ 6 $18 $32 $ 71
Tax-Free Fund .......................... $ 7 $21 $37 $ 82
</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 the
Investment Adviser or any of its affiliates, to its customer accounts which may
invest in Institutional Shares of the Funds. See "MANAGEMENT OF THE FUNDS" and
"GENERAL INFORMATION" for a more complete discussion of the annual operating
expenses of each of the Funds. The expense information for Institutional Shares
reflects current fees. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The tables on the following pages set forth certain information concerning the
investment results of the Institutional Shares of each of the Funds since its
inception. Further financial information is included in the Statement of
Additional Information and the Group's May 31, 1998 Annual Report to
Shareholders which may be obtained free of charge.
- 10 -
<PAGE> 206
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.
- 11 -
<PAGE> 207
SMALL CAPITALIZATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED ---------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .............. $ 27.91 $ 34.50 $ 26.08 $ 19.83 $ 20.31
------------- ------------- ----------- ----------- -----------
Investment Activities
Net Investment Loss ........... (0.27) (0.22) (0.27) (0.25) (0.28)
Net Realized and
Unrealized Gains
(Losses) on Investments ....... (0.19) (1.12) 12.34 8.65 0.30
------------- ------------- ----------- ----------- -----------
Total from Investment
Activities ................. (0.46) (1.34) 12.07 8.40 0.02
------------- ------------- ----------- ----------- -----------
Distributions
Net Investment Income ......... -- -- -- -- --
Net Realized Gains ............ (1.30) (5.25) (3.65) (2.15) (0.50)
------------- ------------- ----------- ----------- -----------
Total Distributions ........ (1.30) (5.25) (3.65) (2.15) (0.50)
------------- ------------- ----------- ----------- -----------
NET ASSET VALUE,
END OF PERIOD ................. $ 26.15 $ 27.91 $ 34.50 $ 26.08 $ 19.83
============= ============= =========== =========== ===========
Total Return (excluding sales and
redemption charges) ........... (1.62)%(e) (4.39)% 50.03% 45.32% (0.15)%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) ............. $ 527,805 $ 602,787 $ 528,866 $ 354,825 $ 271,425
Ratio of Expenses to
Average Net Assets ....... 1.35%(c) 1.32% 1.29% 1.33% 1.30%
Ratio of Net Investment
Income (Loss) to Average Net
Assets ................... (0.99)%(c) (0.94)% (0.93)% (1.06)% (1.14)%
Ratio of Expenses to
Average Net Assets* ...... 1.35%(c) 1.32% 1.29% 1.33% 1.30%
Ratio of Net Investment
Income (Loss) to Average Net
Assets* .................. (0.99)%(c) (0.94)% (0.93)% (1.06)% (1.14)%
Portfolio Turnover
Rate (d) ................. 46.17% 48.45% 67.22% 50.53% 72.64%
Average Commission
Rate Paid (f) ............ $ -- $ 0.0788 $ 0.0800
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
------------------------------------------------------------ OCT. 31, 1998
TO
1993(b) 1992 1991 1990 JUNE 30, 1989(a)
------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .............. $ 14.64 $ 13.58 $ 14.82 $ 11.59 $ 10.00
--------- ---------- ----------- ----------- -------------
Investment Activities
Net Investment Loss ........... (0.14) (0.08) 0.14 0.04 0.06
Net Realized and
Unrealized Gains
(Losses) on Investments ....... 6.76 1.89 (1.24) 3.23 1.59
--------- ---------- ----------- ----------- -------------
Total from Investment
Activities ................. 6.62 1.81 (1.10) 3.27 1.65
--------- ---------- ----------- ----------- -------------
Distributions
Net Investment Income ......... -- -- (0.14) (0.04) (0.06)
Net Realized Gains ............ (0.95) (0.75) -- -- --
--------- ---------- ----------- ----------- -------------
Total Distributions ........ (0.95) (0.75) (0.14) (0.04) (0.06)
--------- ---------- ----------- ----------- -------------
NET ASSET VALUE,
END OF PERIOD ................. $ 20.31 $ 14.64 $ 13.58 $ 14.82 11.59
========= ========== =========== =========== =============
Total Return (excluding sales and
redemption charges) ........... 45.77% 12.95% (6. 67)% 28.28% 16.60%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) ............. $ 291,462 $ 180,079 $ 107,500 $ 94,517 $ 53,917
Ratio of Expenses to
Average Net Assets ....... 1.26% 1.19% 1.15% 1.11% 1.29%(c)
Ratio of Net Investment
Income (Loss) to Average Net
Assets ................... (0.98)% (0.61)% 1.08% 0.37% 0.80%(c)
Ratio of Expenses to
Average Net Assets* ...... 1.28% 1.28% 1.33% 1.33% 1.54%(c)
Ratio of Net Investment
Income (Loss) to Average Net
Assets* .................. (1.01)% (0.70)% 0.90% 0.15% 0.55%(c)
Portfolio Turnover
Rate (d) ................. 71.21% 95.02% 139.66% 83.10% 51.79%
Average Commission
Rate Paid (f) ............
</TABLE>
- 12 -
<PAGE> 208
MID CAPITALIZATION FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED ---------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................ $ 15.82 $ 20.83 $ 16.62 $ 14.70 $ 15.10
---------- ----------- ---------- ---------- --------
Investment Activities
Net Investment Loss ............. (0.11) (0.13) (0.16) (0.08) (0.11)
Net Realized and Unrealized Gains
(Losses) on Investments ......... 2.52 1.25 5.03 3.47 (0.25)
---------- ----------- ---------- ---------- --------
Total from Investment
Activities ................... 2.41 1.12 4.87 3.39 (0.36)
---------- ----------- ---------- ---------- --------
Distributions
Net Investment Income ........... -- -- -- -- --
Net Realized Gains .............. (3.11) (6.13) (0.66) (0.49) (0.04)
---------- ----------- ---------- ---------- --------
In Excess of Net
Realized Gains ................. -- -- -- (0.98) --
Total Distributions .......... (3.11) (6.13) (0.66) (1.47) (0.04)
---------- ----------- ---------- ---------- --------
NET ASSET VALUE,
END OF PERIOD ................... $ 15.12 $ 15.82 $ 20.83 $ 16.62 $ 14.70
========== =========== ========== ========== ========
Total Return (excluding sales and
redemption charges) ............. 16.98%(e) 5.58% 29.83% 25.20% (2.44)%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ............... $ 518,080 $ 544,082 $ 650,495 $ 683,320 $533,260
Ratio of Expenses to Average
Net Assets ................. 1.30%(c) 1.31% 1.29% 1.29% 1.28%
Ratio of Net Investment Income
(Loss) to Average Net Assets . (0.77)%(c) (0.80)% (0.68)% (0.64)% (0.65)%
Ratio of Expenses to
Average Net Assets* ........ 1.30%(c) 1.31% 1.29% 1.29% 1.28%
Ratio of Net Investment Income
(Loss)to Average Net Assets*.. (0.77)%(c) (0.80)% (0.68)% (0.65)% (0.65)%
Portfolio Turnover Rate (d) .. 38.41% 38.47% 49.27% 46.39% 70.87%
Average Commission
Rate Paid (f) .............. $ 0.0794 $ 0.0796
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
------------------------------------------------------------ OCT. 31, 1989
TO
1993(b) 1992 1991 1990 JUNE 30, 1989(a)
------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .................. $ 12.80 $ 11.69 $ 12.37 $ 11.48 $ 10.00
---------- ----------- ------------- ---------- -------------
Investment Activities
Net Investment Loss ............... (0.01) 0.17 0.45 0.30 0.20
Net Realized and Unrealized Gains
(Losses) on Investments ........... 2.73 1.59 (0.53) 1.86 1.47
---------- ----------- ------------- ---------- -------------
Total from Investment
Activities ..................... 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 ................ (0.40) (0.48) (0.15) (0.99) --
---------- ----------- ------------- ---------- -------------
In Excess of Net
Realized Gains ................... -- -- -- -- --
Total Distributions ............ (0.42) (0.65) (0.60) (1.27) (0.19)
---------- ----------- ------------- ---------- -------------
NET ASSET VALUE,
END OF PERIOD ..................... $ 15.10 $ 12.80 $ 11.69 $ 12.37 $ 11.48
========== =========== ============= ============= =============
Total Return (excluding sales and
redemption charges) ............... 21.34% 15.18% (0.45)% 19.23% 16.83%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) ................. $ 595,127 $ 407,782 $ 298,655 $ 247,683 $ 180,124
Ratio of Expenses to Average
Net Assets ................... 1.24% 1.18% 1.10% 1.07% 1.06%(c)
Ratio of Net Investment Income
(Loss) to Average Net Assets ... (0.09)% 1.24% 3.87% 2.51% 2.80%(c)
Ratio of Expenses to
Average Net Assets* .......... 1.27% 1.26% 1.28% 1.29% 1.31%(c)
Ratio of Net Investment Income
(Loss)to Average Net Assets*.... (0.11)% (1.15)% 3.69% 2.29% 2.55%(c)
Portfolio Turnover Rate (d) .... 66.48% 93.76% 189.26% 136.95% 87.30%
Average Commission
Rate Paid (f) ................
</TABLE>
- 13 -
<PAGE> 209
LARGE CAPITALIZATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
ELEVEN MONTHS INSTITUTIONAL DEC. 28, 1995
ENDED SHARES TO
MAY 31, 1998 1997 JUNE 30, 1996 (a)
------------- ------------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................ $ 14.48 $ 11.25 $ 10.00
------------- ------------- -------------
Investment Activities
Net Investment Income (Loss) ............. (0.03) 0.03 0.03
Net Realized and Unrealized Gains (Losses)
On Investments ......................... 3.52 3.31 1.25
------------- ------------- -------------
Total from Investment Activities ......... 3.49 3.34 1.28
------------- ------------- -------------
Distributions
Net Investment Income .................... -- (0.03) (0.03)
Net Realized Gains ....................... (1.67) (0.08) --
Tax Return of Capital .................... (0.03) -- --
------------- ------------- -------------
Total Distributions ...................... (1.70) (0.11) (0.03)
------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD ...................... $ 16.27 $ 14.48 $ 11.25
============= ============= =============
Total Return (excluding sales and redemption charges) 26.18%(e) 29.81% 12.86%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) .......... $ 358,221 $ 338,388 $ 274,150
Ratio of Expenses to Average Net Assets .. 1.10%(c) 1.12% 2.19%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets ..................... (0.19)%(c) 0.19% 1.26%(c)
Ratio of Expenses to Average Net Assets* . 1.10%(c) 1.12% 2.26%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets* .................... (0.19)%(c) 0.19% 1.19%(c)
Portfolio Turnover Rate (d) .............. 24.74% 48.44% 0.86%
Average Commission Rate Paid (f) ......... $ 0.0932 $ 0.0800
</TABLE>
- 14 -
<PAGE> 210
INTERNATIONAL DISCOVERY FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED -------------------------------------
MAY 31, 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .......................... $ 16.41 $ 14.11 $ 12.33
------------- ------------- -------------
Investment Activities
Net Investment Income (Loss) ........... (0.04) (0.05) 0.02
Net Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currency Transactions .. 0.84 2.35 1.80
------------- ------------- -------------
Total from Investment Activities ....... 0.80 2.30 1.82
------------- ------------- -------------
Distributions
Net Investment Income .................. -- -- (0.02)
Net Realized Gains ..................... (0.51) -- --
------------- ------------- -------------
Total Distributions .................... (0.51) -- (0.04)
------------- ------------- -------------
NET ASSET VALUE,
END OF PERIOD ............................... $ 16.70 $ 16.41 $ 14.11
============= ============= =============
Total Return (excluding sales and
redemption charges) ......................... 5.31%(e) 16.34% 14.76%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........ $ 427,922 $ 426,111 $ 364,095
Rate of Expenses to
Average Net Assets .................. 1.56%(c) 1.55% 1.55%
Ratio of Net Investment Income (Loss) to
Average Net Assets ................... (0.47)%(c) (0.29)% 0.12%
Ratio of Expenses to
Average Net Assets* ................. 1.56%(c) 1.55% 1.55%
Ratio of Net Investment
Income (Loss) to
Average Net Assets* .................. (0.47%)(c) (0.29)% 0.12%
Portfolio Turnover Rate (d) ............ 34.15% 45.18% 54.47%
Average Commission Rate Paid (f) ....... $ 0.0329 $ 0.0321
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
INSTITUTIONAL SHARES DEC. 29, 1992
------------------------------------ TO
1995 1994 JUNE 30, 1993(a)(b)
---- ---- -------------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD .......................... $ 13.24 $ 11.54 $ 10.00
------------- ------------- -------------
Investment Activities
Net Investment Income (Loss) ........... 0.04 (0.01) 0.04
Net Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currency Transactions .. (0.33) 1.75 1.51
------------- ------------- -------------
Total from Investment Activities ....... (0.29) 1.74 1.55
------------- ------------- -------------
Distributions
Net Investment Income .................. -- (0.02) (0.01)
Net Realized Gains ..................... (0.62) (0.02) --
------------- ------------- -------------
Total Distributions .................... (0.62) (0.04) (0.01)
------------- ------------- -------------
NET ASSET VALUE,
END OF PERIOD ............................... $ 12.33 $ 13.24 $ 11.54
============= ============= =============
Total Return (excluding sales and
redemption charges) ......................... (1.86)% 15.12% 15.52%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ........ $ 264,759 $ 261,798 $ 114,822
Rate of Expenses to
Average Net Assets .................. 1.56% 1.52% 1.58%(c)
Ratio of Net Investment Income (Loss) to
Average Net Assets ................... 0.31% (0.30)% (0.82)%(c)
Ratio of Expenses to
Average Net Assets* ................. 1.59% 1.57% 1.63%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets* .................. 0.28% (0.35)% (0.77)%(c)
Portfolio Turnover Rate (d) ............ 104.39% 37.23% 12.47%
Average Commission Rate Paid (f) .......
</TABLE>
- 15 -
<PAGE> 211
BALANCED ALLOCATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED -----------------------------------------------------------
MAY 31, 1998 1997 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................... $ 12.99 $ 13.37 $ 12.19 $ 10.67
------------- ------------- ------------- -------------
Investment Activities
Net Investment Income (Loss) .... 0.32 0.35 0.36 0.31
Net Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currencies ...... 1.20 1.12 1.74 1.68
------------- ------------- ------------- -------------
Total from Investment Activities 1.52 1.47 2.10 1.99
------------- ------------- ------------- -------------
Distributions
Net Investment Income ........... (0.35) (0.37) (0.35) (0.31)
Net Realized Gains .............. (0.36) (1.48) (0.57) (0.03)
In Excess of Net Realized Gains . -- -- -- (0.13)
------------- ------------- ------------- -------------
Total Distributions ............. (0.71) (1.85) (0.92) (0.47)
------------- ------------- ------------- -------------
NET ASSET VALUE,
END OF PERIOD ........................ $ 13.80 $ 12.99 $ 13.37 $ 12.19
============= ============= ============= =============
Total Return (excluding sales and
redemption charges) .................. 12.06%(e) 11.86% 17.81% 19.22%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) . $ 262,533 $ 245,347 $ 113,493 $ 89,294
Rate of Expenses to
Average Net Assets ........... 1.12%(c) 1.10% 1.16% 1.25%
Ratio of Net Investment Income to
Average Net Assets ............ 2.57%(c) 2.77% 2.62% 2.75%
Ratio of Expenses to
Average Net Assets* .......... 1.37%(c) 1.36% 1.41% 1.52%
Ratio of Net Investment
Income to
Average Net Assets* ........... 2.32%(c) 2.51% 2.37% 2.47%
Portfolio Turnover Rate (d) ..... 117.80% 425.05% 437.90% 250.66%
Average Commission Rate Paid (f) $ 0.0518 $ 0.0848
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
INSTITUTIONAL SHARES JAN. 31, 1992
------------------------------------- TO
1994 1993(b) JUNE 30, 1992(a)
---- ------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................... $ 11.08 $ 9.68 $ 10.00
------------- ------------- -------------
Investment Activities
Net Investment Income (Loss) .... 0.27 0.28 0.14
Net Realized and Unrealized
Gains (Losses) on Investments
and Foreign Currencies ...... (0.41) 1.41 (0.34)
------------- ------------- -------------
Total from Investment Activities (0.14) 1.69 0.20
------------- ------------- -------------
Distributions
Net Investment Income ........... (0.27) (0.29) (0.12)
Net Realized Gains .............. -- -- --
In Excess of Net Realized Gains . -- -- --
------------- ------------- -------------
Total Distributions ............. (0.27) (0.29) (0.12)
------------- ------------- -------------
NET ASSET VALUE,
END OF PERIOD ........................ $ 10.67 $ 11.08 $ 9.68
============= ============= =============
Total Return (excluding sales and
redemption charges) .................. (1.44)% 17.66% (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) . $ 71,427 42,318 $ 38,136
Rate of Expenses to
Average Net Assets ........... 1.09% 1.15% 1.19%(c)
Ratio of Net Investment Income to
Average Net Assets ............ 2.49% 2.70% 3.46%(c)
Ratio of Expenses to
Average Net Assets* .......... 1.39% 1.46% 1.50%(c)
Ratio of Net Investment
Income to
Average Net Assets* ........... 2.18% 2.40% 3.13%(c)
Portfolio Turnover Rate (d) ..... 192.39% 177.99% 47.58%
Average Commission Rate Paid (f)
</TABLE>
- 16 -
<PAGE> 212
EQUITY INCOME FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED -----------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................. $ 19.13 $ 17.30 $ 14.49 $ 13.50 $ 14.69
------------- ------------- ------------- ------------- -------------
Investment Activities
Net Investment Loss .............. 0.29 0.34 0.34 0.39 0.39
Net Realized and Unrealized Gains
(Losses) on Investments .......... 2.70 3.51 3.26 1.00 (0.56)
------------- ------------- ------------- ------------- -------------
Total from Investment
Activities .................... 2.99 3.85 3.60 1.39 (0.17)
------------- ------------- ------------- ------------- -------------
Distributions
Net Investment Income ............ (0.25) (0.33) (0.34) (0.39) (0.39)
In Excess of Net Investment Income -- -- (0.01) -- --
Net Realized Gains ............... (3.18) (1.69) (0.45) -- (0.24)
In Excess of Net Realized Gains .. -- -- -- (0.39) --
------------- ------------- ------------- ------------- -------------
Total Distributions ........... (3.43) (2.02) (0.79) (0.40) (1.02)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE,
END OF PERIOD .................... $ 18.69 $ 19.13 $ 17.30 $ 14.49 $ 13.50
============= ============= ============= ============= =============
Total Return (excluding sales
and redemption charges) .......... 17.31%(e) 23.80% 25.30% 10.55% (1.53)%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) ................ $ 281,395 $ 315,878 $ 337,318 $ 346,164 $ 355,538
Ratio of Expenses to
Average Net Assets .......... 1.33%(c) 1.33% 1.32% 1.32% 1.30%
Ratio of Net Investment Income
to Average Net Assets ....... 1.65%(c) 1.89% 2.11% 2.86% 2.64%
Ratio of Expenses to
Average Net Assets* ......... 1.33%(c) 1.33% 1.32% 1.32% 1.30%
Ratio of Net Investment Income
to Average Net Assets* ...... 1.65%(c) 1.89% 2.11% 2.86% 2.64%
Portfolio Turnover Rate (d) ... 18.62% 20.14% 40.75% 77.70% 69.35%
Average Commission
Rate Paid (f)................ $ 0.0800 $ 0.0800
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1989
-------------------------------------------------------------------- TO
1993(B) 1992 1991 1990 JUNE 30, 1989(a)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................. $ 13.14 $ 12.48 $ 12.19 $ 11.35 $ 10.00
------------- ------------- ------------- ------------- -------------
Investment Activities
Net Investment Loss .............. 0.45 0.54 0.57 0.56 0.35
Net Realized and Unrealized Gains
(Losses) on Investments .......... 1.69 0.99 0.38 1.04 1.32
------------- ------------- ------------- ------------- -------------
Total from Investment
Activities .................... 2.14 1.53 0.95 1.60 1.67
------------- ------------- ------------- ------------- -------------
Distributions
Net Investment Income ............ (0.45) (0.54) (0.59) (0.54) (0.32)
In Excess of Net Investment Income -- -- -- --
Net Realized Gains ............... (0.14) (0.33) (0.07) (0.22)
In Excess of Net Realized Gains .. -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Total Distributions ........... (0.59) (0.87) (0.66) (0.76) (0.32)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE,
END OF PERIOD .................... $ 14.69 $ 13.14 $ 12.48 $ 12.19 $ 11.35
============= ============= ============= ============= =============
Total Return (excluding sales
and redemption charges) .......... 16.73% 12.56% 8.22% 14.37% 16.97%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) ................ $ 384,240 $ 270,549 $ 150,980 $ 96,344 $ 66,367
Ratio of Expenses to
Average Net Assets .......... 1.26% 1.19% 1.13% 1.11% 1.16%(c)
Ratio of Net Investment Income
to Average Net Assets ....... 3.28% 4.12% 4.75% 4.69% 4.92%(c)
Ratio of Expenses to
Average Net Assets* ......... 1.28% 1.27% 1.31% 1.33% 1.41%(c)
Ratio of Net Investment Income
to Average Net Assets* ...... 3.25% 4.03% 4.57% 4.47% 4.67%(c)
Portfolio Turnover Rate (d) ... 67.26% 68.42% 115.686% 53.08% 29.55%
Average Commission
Rate Paid (f)................
</TABLE>
- 17 -
<PAGE> 213
BOND FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED ----------------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993(b)
------------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................ $ 9.73 $ 9.56 $ 9.72 $ 9.29 $ 10.53 $ 10.54
----------- --------- ----------- ----------- ----------- -----------
Investment Activities
Net Investment Loss ............. 0.56 0.59 0.59 0.61 0.60 0.71
Net Realized and Unrealized Gains
(Losses) on Investments ......... 0.31 0.17 (0.16) 0.43 (0.72) 0.46
----------- --------- ----------- ----------- ----------- -----------
Total from Investment
Activities ................... 0.87 0.76 0.43 1.04 (0.12) 1.17
----------- --------- ----------- ----------- ----------- -----------
Distributions
Net Investment Income ........... (0.56) (0.59) (0.59) (0.61) (0.58) (0.73)
Net Realized Gains .............. -- -- -- -- -- (0.45)
In Excess of Net Realized Gains . -- -- -- (0.54) -- --
Total Distributions .......... (0.56) (0.59) (0.59) (0.61) (1.12) (1.18)
----------- --------- ----------- ----------- ----------- -----------
NET ASSET VALUE,
END OF PERIOD ................... $ 10.04 $ 9.73 $ 9.56 $ 9.72 $ 9.29 $ 10.53
=========== ========= =========== =========== =========== ===========
Total Return (excluding sales
and redemption charges) ......... 9.15%(e) 8.20% 4.49% 11.78% (1.52)% 11.84%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) .............. $ 481,998 $ 492,102 $ 549,336 $ 509,189 $ 469,903 $ 442,291
Ratio of Expenses to
Average Net Assets ........ 0.94%(c) 0.94% 0.94% 1.02% 0.88% 0.87%
Ratio of Net Investment
Income to Average Net
Assets ................. 6.06%(c) 6.13% 5.96% 6.54% 5.97% 6.50%
Ratio of Expenses to
Average Net Assets* ....... 1.04%(c) 1.03% 1.03% 1.14% 1.02% 1.01%
Ratio of Net Investment Income
to Average Net Assets* .... 5.97%(c) 6.04% 5.87% 6.42% 5.83% 6.36%
Portfolio Turnover Rate (d) .. 545.68% 827.00% 1,189.27% 1,010.6% 893.27% 443.98%
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------
OCT. 31, 1988
----------------------------------------- TO
1992 1991 1990 JUNE 30, 1989(a)
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................ $ 10.07 $ 10.00 $ 10.11 $ 10.00
----------- ----------- ----------- -----------
Investment Activities
Net Investment Loss ............. 0.75 0.77 0.78 0.53
Net Realized and Unrealized Gains
(Losses) on Investments ......... 0.56 0.08 (0.11) 0.09
----------- ----------- ----------- -----------
Total from Investment
Activities ................... 1.31 0.85 0.67 0.62
----------- ----------- ----------- -----------
Distributions
Net Investment Income ........... (0.76) (0.78) (0.78) (0.51)
Net Realized Gains .............. (0.08) -- -- --
In Excess of Net Realized Gains . -- -- -- --
Total Distributions .......... (0.84) (0.78) (0.78) (0.51)
----------- ----------- ----------- -----------
NET ASSET VALUE,
END OF PERIOD ................... $ 10.54 $ 10.07 $ 10.00 $ 10.11
=========== =========== =========== ===========
Total Return (excluding sales
and redemption charges) ......... 13.47% 8.80% 6.94% 6.42%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) .............. $ 477,526 $432,25 $ 316,477 $ 123,928
Ratio of Expenses to
Average Net Assets ........ 0.87% 0.84% 0.81% 0.82%(c)
Ratio of Net Investment
Income to Average Net
Assets ................. 7.19% 7.72% 8.04% 8.06%(c)
Ratio of Expenses to
Average Net Assets* ....... 1.01% 1.02% 1.02% 1.06%(c)
Ratio of Net Investment Income
to Average Net Assets* .... 7.05% 7.54% 7.83% 7.82%(c)
Portfolio Turnover Rate (d) .. 289.38% 339.74% 314.71% 121.08%
</TABLE>
-18-
<PAGE> 214
LIMITED MATURITY BOND FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED -----------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993(b)
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, ............................ $ 9.49 $ 9.48 $ 9.71 $ 9.57 $ 10.18 $ 10.25
BEGINNING OF PERIOD --------- --------- --------- --------- --------- ---------
Investment Activities
Net Investment Loss ................. 0.50 0.57 0.65 0.58 0.64 0.65
Net Realized and Unrealized Gains (Losses)
on Investments ...................... 0.01 0.02 (0.21) 0.13 (0.59) 0.13
--------- --------- --------- --------- --------- ---------
Total from Investment
Activities ................... 0.51 0.59 0.44 0.71 0.05 0.78
--------- --------- --------- --------- --------- ---------
Distributions
Net Investment Income ............... (0.50) (0.58) (0.65) (0.57) (0.62) (0.69)
Net Realized Gains .................. -- -- (0.01) -- -- (0.16)
In Excess of Net
Realized Gains .................. -- -- -- -- (0.04) --
Tax Return on Capital ............... -- -- (0.01) -- -- --
--------- --------- --------- --------- --------- ---------
Total Distributions ............. (0.50) (0.58) (0.67) (0.57) (0.66) (0.85)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD ............................... $ 9.50 $ 9.49 $ 9.48 $ 9.71 $ 9.57 $ 10.18
========= ========= ========= ========= ========= =========
Total Return (excluding sales
and redemption charges) ............. 5.46%(e) 6.42% 4.65% 7.76% 0.43% 7.98%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) .................... $ 150,510 $ 136,126 $ 136,681 $ 141,781 $ 156,678 $ 141,706
Ratio of Expenses to Average
Net Assets .......................... 0.82%(c) 0.85% 0.84% 0.84% 0.76% 0.72%
Ratio of Net Investment Income
to Average Net Assets ........... 5.63%(c) 6.03% 6.32% 6.11% 6.32% 6.45%
Ratio of Expenses to Average
Net Assets* ..................... 1.06%(c) 1.10% 1.08% 1.11% 1.05% 1.01%
Ratio of Net Investment Income
to Average Net Assets ........... 5.39%(c) 5.78% 6.08% 5.84% 6.03% 6.16%
Portfolio Turnover Rate (d) ......... 225.88% 607.84% 618.60% 397.97% 353.28% 123.10%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
OCT. 31, 1988
----------------------------------- TO
1992 1991 1990 JUNE 30, 1989(a)
--------- -------- -------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, ............................ $ 9.93 $ 9.88 $ 10.08 $ 10.00
BEGINNING OF PERIOD --------- -------- -------- --------
Investment Activities
Net Investment Loss ................. 0.71 0.72 0.83 0.53
Net Realized and Unrealized Gains (Losses)
on Investments ...................... 0.35 0.10 (0.15) 0.02
--------- -------- -------- --------
Total from Investment
Activities ................... 1.06 0.82 0.68 0.02
--------- -------- -------- --------
Distributions
Net Investment Income ............... (0.71) (0.73) (0.83) (0.47)
Net Realized Gains .................. (0.03) (0.04) (0.05) --
In Excess of Net
Realized Gains .................. -- -- -- --
Tax Return on Capital ............... -- -- -- --
--------- -------- -------- --------
Total Distributions ............. (0.74) (0.77) (0.88) (0.47)
--------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD ............................... $ 10.25 $ 9.93 $ 9.88 $ 10.08
========= ======== ======== ========
Total Return (excluding sales
and redemption charges) ............. 11.00% 8.66% 7.10% 5.70%
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of
Period (000) .................... $ 117,241 $ 70,870 $ 43,696 $ 71,627
Ratio of Expenses to Average
Net Assets .......................... 0.83% 0.91% 0.92% 0.88%(c)
Ratio of Net Investment Income
to Average Net Assets ........... 7.13% 7.47% 8.01% 8.19%(c)
Ratio of Expenses to Average
Net Assets* ..................... 1.05% 1.10% 1.14% 1.12%(c)
Ratio of Net Investment Income
to Average Net Assets ........... 6.91% 7.28% 7.79% 7.95%(c)
Portfolio Turnover Rate (d) ......... 87.75% 161.32% 319.11% 117.37%
</TABLE>
-19-
<PAGE> 215
INTERMEDIATE GOVERNMENT OBLIGATIONS FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED ----------------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993(b) 1992
------------ ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................ $ 9.73 $ 9.71 $ 9.93 $ 9.62 $ 10.53 $ 10.42 $ 10.05
--------- ---------- --------- --------- --------- --------- ---------
Investment Activities
Net Investment Loss ............. 0.52 0.55 0.62 0.52 0.60 0.68 0.71
Net Realized and Unrealized Gains
(Losses) on Investments ......... 0.16 0.03 (0.24) 0.31 (0.66) 0.22 0.46
--------- ---------- --------- --------- --------- --------- ---------
Total from Investment
Operations ................... 0.68 0.58 0.38 0.83 (0.06) 0.90 1.17
--------- ---------- --------- --------- --------- --------- ---------
Distributions
Net Investment Income ........... (0.52) (0.56) (0.60) (0.52) (0.60) (0.73) (0.71)
Net Realized Gains .............. -- -- -- -- -- (0.06) (0.09)
In Excess of Net
Realized Gains ................. -- -- -- -- (0.25) -- --
Tax Return of Capital ........... (0.01) -- -- -- -- -- --
--------- ---------- --------- --------- --------- --------- ---------
Total Distributions .......... (0.53) (0.56) (0.60) (0.52) (0.85) (0.79) (0.80)
--------- ---------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD ................... $ 9.88 $ 9.73 $ 9.71 $ 9.93 $ 9.62 $ 10.53 $ 10.42
========= ========== ========= ========= ========= ========= =========
Total Return (excluding
sales and redemption charges) ... 7.03%(e) 6.11% 3.95% 9.02% (0.80)% 8.94% 12.03%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) .............. $ 171,481 $ 187,856 $ 225,313 $ 249,169 $ 281,232 $ 272,607 $ 234,906
Ratio of Expenses to
Average Net Assets ........ 0.97%(c) 0.98% 0.96% 1.04% 0.90% 0.87% 0.87%
Ratio of Net Investment Income
to Average Net Assets ..... 5.67%(c) 5.66% 5.76% 5.43% 5.90% 6.54% 7.07%
Ratio of Expenses to
Average Net Assets* ....... 1.06%(c) 1.07% 1.05% 1.16% 1.04% 1.01% 1.01%
Ratio of Net Investment Income
to Average Net Assets* .... 5.58%(c) 5.57% 5.67% 5.31% 5.76% 6.40% 6.93%
Portfolio Turnover Rate (d) .. 774.28% 1,516.78% 916.39% 549.13% 546.06% 225.90% 114.76%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1998
------------------------------ TO
1991 1990 JUNE 30, 1989(a)
----------- ----------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................ $ 9.91 $ 10.05 $ 10.00
----------- ----------- --------
Investment Activities
Net Investment Loss ............. 0.74 0.79 0.50
Net Realized and Unrealized Gains
(Losses) on Investments ......... 0.15 (0.11) (0.02)
----------- ----------- --------
Total from Investment
Operations ................... 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 ................. -- -- --
Tax Return of Capital ........... -- -- --
----------- ----------- --------
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 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
to Average Net Assets* .... 7.30% 7.83% 7.55%(c)
Portfolio Turnover Rate (d) .. 164.59% 294.62% 111.96%
</TABLE>
-20-
<PAGE> 216
U.S. GOVERNMENT INCOME FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED --------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................ $ 9.15 $ 9.25 $ 9.42 $ 9.41 $ 10.04
----------- ----------- ----------- ----------- -----------
Investment Activities
Net Investment Income (Loss) ..................... 0.63 0.72 0.75 0.76 0.74
Net Realized and Unrealized Gains (Losses) on .... 0.08 (0.10) (0.17) 0.01 (0.63)
----------- ----------- ----------- ----------- -----------
Investments
Total From Investment Activities .............. 0.71 0.62 0.58 0.77 0.11
----------- ----------- ----------- ----------- -----------
Distributions
Net Investment Income ............................ (0.55) (0.61) (0.67) (0.68) (0.73)
Tax Return of Capital ............................ (0.04) (0.11) (0.08) (0.08) (0.01)
----------- ----------- ----------- ----------- -----------
Total Distributions ........................... (0.59) (0.72) (0.75) (0.76) (0.74)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD ...................... $ 9.27 $ 9.15 $ 9.25 $ 9.42 $ 9.41
=========== =========== =========== =========== ===========
Total Return (excluding sales and redemption
charges).......................................... 8.04%(e) 6.91% 6.34% 8.70% 1.04%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) ................ $ 161,567 $ 148,854 $ 130,615 $ 110,190 $ 101,506
Ratio of Expenses to Average Net Assets ............. 0.75%(c) 0.77% 0.76% 0.83% 0.72%
Ratio of Net Investment Income to Average Net Assets 7.44%(c) 7.90% 7.94% 8.25% 7.51%
Ratio of Expenses to Average Net Assets* ............ 1.09%(c) 1.11% 1.10% 1.19% 1.11%
Ratio of Net Investment Income to Average Net Assets* 7.10%(c) 7.56% 7.60% 7.89% 7.12%
Portfolio Turnover Rate (d) ......................... 278.94% 499.53% 348.01% 114.71% 102.24%
</TABLE>
<TABLE>
<CAPTION>
NOV. 12, 1992
TO
JUNE 30, 1993(a)(b)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................ $ 10.00
-----------
Investment Activities
Net Investment Income (Loss) ..................... 0.48
Net Realized and Unrealized Gains (Losses) on .... 0.04
-----------
Investments
Total From Investment Activities .............. 0.52
-----------
Distributions
Net Investment Income ............................ (0.48)
Tax Return of Capital ............................ --
-----------
Total Distributions ........................... (0.48)
-----------
NET ASSET VALUE, END OF PERIOD ...................... $ 10.04
===========
Total Return (excluding sales and redemption
charges)............................................. 5.37%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) ................ $ 71,862
Ratio of Expenses to Average Net Assets ............. 0.70%(c)
Ratio of Net Investment Income to Average Net Assets 7.49%(c)
Ratio of Expenses to Average Net Assets* ............ 1.09%(c)
Ratio of Net Investment Income to Average Net Assets* 7.09%(c)
Portfolio Turnover Rate (d) ......................... 135.06%
</TABLE>
-21-
<PAGE> 217
MICHIGAN MUNICIPAL BOND FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED --------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 10.89 $ 10.77 $ 10.76 $ 10.53 $ 10.97
----------- ----------- ----------- ----------- -----------
Investment Activities
Net Investment Income (Loss) ...... 0.44 0.51 0.50 0.50 0.48
Net Realized and Unrealized Gains
(Losses) on Investments ........ 0.23 0.14 0.04 0.25 (0.36)
----------- ----------- ----------- ----------- -----------
Total From Investment Activities 0.67 0.65 0.54 0.75 0.12
----------- ----------- ----------- ----------- -----------
Distributions
Net Investment Income ............. (0.47) (0.49) (0.50) (0.50) (0.46)
Net Realized Gains ................ (0.03) (0.04) (0.03) (0.02) (0.01)
In Excess of Net Realized Gains ... -- -- -- -- (0.09)
----------- ----------- ----------- ----------- -----------
Total Distributions ............ (0.50) (0.53) (0.53) (0.52) (0.56)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD ....... $ 11.06 $ 10.89 $ 10.77 $ 10.76 $ 10.53
=========== =========== =========== =========== ===========
Total Return (excluding sales and
redemption charges) ............... 6.30%(e) 6.11% 5.12% 7.33% 1.02%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) . $ 206,246 $ 194,950 $ 185,191 $ 176,068 $ 181,051
Ratio of Expenses to Average Net
Assets ............................ 0.74%(c) 0.76% 0.77% 0.78% 0.75%
Ratio of Net Investment Income to
Average Net Assets ................ 4.34%(c) 4.73% 4.57% 4.79% 4.35%
Ratio of Expenses to Average Net
Assets* ........................... 1.03%(c) 1.05% 1.06% 1.07% 1.04%
Ratio of Net Investment Income to
Average Net Assets* ............... 4.05%(c) 4.44% 4.28% 4.50% 4.06%
Portfolio Turnover Rate (d) .......... 26.24% 28.48% 27.66% 26.06% 6.69%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
INSTITUTIONAL SHARES JULY 2, 1990
----------------------------- TO
1993(b) 1992 JUNE 30, 1991(a)
----------- ----------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 10.58 $ 10.14 $ 10.00
----------- ----------- -----------
Investment Activities
Net Investment Income (Loss) ...... 0.50 0.52 0.55
Net Realized and Unrealized Gains
(Losses) on Investments ......... 0.47 0.44 0.11
----------- ----------- -----------
Total From Investment Activities 0.97 0.96 0.66
----------- ----------- -----------
Distributions
Net Investment Income ............. (0.54) (0.52) (0.52)
Net Realized Gains ................ (0.04) -- --
(0.02)
In Excess of Net Realized Gains ... -- -- --
----------- ----------- -----------
Total Distributions ............ (0.58) (0.52) (0.52)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD ....... $ 10.97 $ 10.58 $ 10.14
=========== =========== ===========
Total Return (excluding sales and
redemption charges) ............... 9.42% 9.73% 6.77%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of Period (000) . $ 165,414 $ 146,782 $ 90,182
Ratio of Expenses to Average Net
Assets ............................ 0.76% 0.84% 0.57%(c)
Ratio of Net Investment Income to
Average Net Assets ................ 4.70% 5.15% 5.67%(c)
Ratio of Expenses to Average Net
Assets* ........................... 1.05% 1.05% 1.15%(c)
Ratio of Net Investment Income to
Average Net Assets* ............... 4.41% 4.93% 5.18%(c)
Portfolio Turnover Rate (d) .......... 35.81% 19.97% 45.30%
</TABLE>
-22-
<PAGE> 218
MUNICIPAL BOND FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED ---------------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993(b)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................ $ 10.54 $ 10.43 $ 10.39 $ 10.29 $ 10.92 $ 10.58
----------- ----------- ----------- ----------- ----------- -----------
Investment Activities
Net Investment Loss ............. 0.37 0.46 0.43 0.46 0.41 0.49
Net Realized and Unrealized Gains
(Losses) on Investments ......... 0.21 0.14 0.04 0.27 (0.31) 0.48
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Activities ................... 0.58 0.60 0.47 0.73 0.10 0.97
----------- ----------- ----------- ----------- ----------- -----------
Distributions
Net Investment Income ........... (0.41) (0.44) (0.43) (0.46) (0.40) (0.53)
Net Realized Gains .............. (0.18) (0.05) -- -- (0.21) (0.10)
In Excess of Net
Realized Gains .............. -- -- -- (0.17) (0.12) --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions .......... (0.59) (0.49) (0.43) (0.63) (0.73) (0.63)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE,
END OF PERIOD ................... $ 10.53 $ 10.54 $ 10.43 $ 10.39 $ 10.29 $ 10.92
=========== =========== =========== =========== =========== ===========
Total Return (excluding sales
and redemption charges) ......... 5.71%(e) 5.89% 4.55% 7.25% 0.81% 9.48%
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) .............. $ 123,856 $ 134,579 $ 132,527 $ 134,784 $ 147,687 $ 146,302
Ratio of Expenses to
Average Net Assets ........ 0.77%(c) 0.81% 0.80% 0.80% 0.77% 0.73%
Ratio of Net Investment Income
to Average Net Assets ..... 3.89%(c) 4.41% 4.10% 4.21% 3.83% 4.61%
Ratio of Expenses to
Average Net Assets* ....... 1.07%(c) 1.10% 1.09% 1.08% 1.06% 1.02%
Ratio of Net Investment
Investment Income to
Average Net Assets* ....... 3.60%(c) 4.12% 3.81% 3.93% 3.53% 4.31%
Portfolio Turnover Rate (d) .. 85.56% 48.83% 47.46% 35.15% 44.39% 67.26%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------
INSTITUTIONAL SHARES OCT. 31, 1998
------------------------------------------------ TO
1992 1991 1990 JUNE 30, 1989(a)
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................ $ 10.20 $ 10.03 $ 10.18 $ 10.00
----------- ----------- ----------- -----------
Investment Activities
Net Investment Loss ............. 0.52 0.55 0.57 0.40
Net Realized and Unrealized Gains
(Losses) on Investments ......... 0.39 0.18 (0.12) 0.14
----------- ----------- ----------- -----------
Total from Investment
Activities ................... 0.91 0.73 0.45 0.54
----------- ----------- ----------- -----------
Distributions
Net Investment Income ........... (0.52) (0.56) (0.58) (0.36)
Net Realized Gains .............. (0.01) -- (0.02) --
In Excess of Net
Realized Gains .............. -- -- -- --
----------- ----------- ----------- -----------
Total Distributions .......... (0.53) (0.66) (0.60) (0.36)
----------- ----------- ----------- -----------
NET ASSET VALUE,
END OF PERIOD ................... $ 10.58 $ 10.20 $ 10.03 $ 10.18
=========== =========== =========== ===========
Total Return (excluding sales
and redemption charges) ......... 9.11% 7.51% 4.57% 5.52%(e)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets, End of
Period (000) .............. $ 130,788 $ 98,186 $ 100,455 $ 68,256
Ratio of Expenses to
Average Net Assets ........ 0.81% 0.87% 0.85% 0.85%(c)
Ratio of Net Investment Income
to Average Net Assets ..... 5.09% 5.49% 5.78% 6.112%(c)
Ratio of Expenses to
Average Net Assets* ....... 1.03% 1.06% 1.06% 1.09%(c)
Ratio of Net Investment
Investment Income to
Average Net Assets* ....... 4.88% 5.29% 5.57% 5.87%(c)
Portfolio Turnover Rate (d) .. 66.31% 76.55% 113.12% 82.22%
</TABLE>
-23-
<PAGE> 219
PRIME OBLIGATIONS FUND -- INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
ELEVEN MONTHS INSTITUTIONAL SHARES
ENDED -------------------------------------------------------------------------------
MAY 31, 1998 1997 1996 1995 1994 1993(b)
------------ ------------ ------------ ------------ ------------ ------------
<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 . 0.046 0.049 0.051 0.048 0.028 0.029
------------ ------------ ------------ ------------ ------------ ------------
Distributions
Net Investment Income . (0.046) (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 $ 1.000
============ ============ ============ ============ ============ ============
Total Return ................ 4.73%(e) 5.01% 5.17% 4.91% 2.85% 2.91%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of
Period (000) .......... $ 690,947 $ 677,324 $ 596,075 $ 640,380 $ 561,697 $ 478,821
Ratio of Expenses to
Average Net Assets .... 0.66%(c) 0.63% 0.64% 0.65% 0.64% 0.64%
Ratio of Net Investment
Income to
Average Net Assets .... 5.04%(c) 4.90% 5.05% 4.83% 2.84% 2.88%
Ratio of Expenses to
Average Net Assets* ... 0.68%(c) 0.65% 0.66% 0.67% 0.66% 0.66%
Ratio of Net Investment
Income to
Average Net Assets* ... 5.02%(c) 4.88% 5.03% 4.81% 2.82% 2.86%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------------
INSTITUTIONAL SHARES AUGUST 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 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 to
Average Net Assets* ... 4.59% 6.84% 8.01% 8.22% 6.38%(c)
</TABLE>
-24-
<PAGE> 220
TAX-FREE FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------
INSTITUTIONAL SHARES
----------------------------------------------------------------------------------
ELEVEN
MONTHS
ENDED
MAY 31,
1998 1997 1996 1995 1994 1993(b)
---- ---- ---- ---- ---- -------
<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 ... 0.027 0.029 0.030 0.030 0.019 0.019
-------- -------- -------- -------- --------- ---------
Distributions
Net Investment Income ... (0.027) (0.029) (0.030) (0.030) (0.0019) (0.019)
-------- -------- -------- --------- ---------
NET ASSET VALUE, END OF
PERIOD ..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========= =========
Total Return .................. 2.75%(e) 2.94% 3.02% 3.00% 1.92% 2.10%
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of
Period (000) ............ $104,062 $108,884 $106,154 $ 98,489 $ 84,465 $ 86,292
Ratio of Expenses to
Average Net Assets 0.66%(c) 0.68% 0.66% 0.64% 0.58% 0.55%
Ratio of Net Investment
Income to
Average Net Assets 2.96%(c) 2.90% 2.97% 2.97% 1.90% 2.08%
Ratio of Expenses to
Average Net Assets* 0.68%(c) 0.70% 0.68% 0.70% 0.68% 0.65%
Ratio of Net Investment
Income to
Average Net Assets* 2.94%(c) 2.88% 2.95% 2.91% 1.80% 1.98%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
INSTITUTIONAL SHARES JULY 30,
----------------------------------------------------- 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 ... 0.033 0.046 0.054 0.055 0.040
-------- --------- -------- --------- ---------
Distributions
Net Investment Income ... (0.033) (0.046) (0.054) (0.055) (0.040)
-------- --------- -------- --------- ---------
NET ASSET VALUE, END OF
PERIOD ..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ========= ======== ========= =========
Total Return .................. 3.34% 4.73% 5.75% 5.62% 4.08%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at End of
Period (000) ............ $141,913 $ 139,615 $142,004 $ 120,031 $ 107,199
Ratio of Expenses to
Average Net Assets 0.59% 0.60% 0.61% 0.63% 0.64%(c)
Ratio of Net Investment
Income to
Average Net Assets 3.29% 4.63% 5.43% 5.46% 4.34%(c)
Ratio of Expenses to
Average Net Assets* 0.69% 0.70% 0.70% 0.73% 0.75%(c)
Ratio of Net Investment
Income to
Average Net Assets* 3.19% 4.53% 5.34% 5.36% 4.23% (c)
</TABLE>
-25-
<PAGE> 221
TREASURY FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
ELEVEN YEAR ENDED JUNE 30 DECEMBER 1,
MONTHS INSTITUTIONAL SHARES 1993 TO
ENDED -------------------------------------- JUNE 30,
MAY 31, 1998 1997 1996 1995 1994(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 0.048 0.050 0.048 0.017
--------- --------- --------- --------- --------
Distributions
Net Investment Income ................... (0.046) (0.048) (0.050) (0.048) (0.017)
--------- --------- --------- --------- --------
NET ASSET VALUE, END OF PERIOD .............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========= ========= ========= ========= ========
Total Return ................................ 4.70%(e) 4.93% 5.14% 4.91% 1.72%(e)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at End of Period (000) ...... $ 321,584 $ 324,377 $ 223,416 $ 192,232 $ 76,035
Ratio of Expenses to Average Net Assets 0.57%(c) 0.57% 0.60% 0.64% 0.54%(c)
Ratio of Net Investment Income to
Average Net Assets ................ 5.00%(c) 4.83% 4.98% 4.95% 3.15%(c)
Ratio of Expenses to Average Net Assets* 0.67%(c) 0.67% 0.70% 0.78% 0.74%(c)
Ratio of Net Investment Income to
Average Net Assets* ............... 4.90%(c) 4.73% 4.88% 4.81% 2.95%(c)
</TABLE>
-26-
<PAGE> 222
U.S. GOVERNMENT OBLIGATIONS FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
------------------------------------------------------------------------------------------
Eleven
Months
ended
May 21,
1998 1997 1996 1995 1994 1993(b)
--------- ---------- ---------- ---------- --------- ---------
<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 .............. 0.045 0.048 0.050 0.048 0.028 0.028
--------- ---------- ---------- ---------- --------- ---------
Distributions Net
Investment Income ... (0.045) (0.048) (0.050) (0.048) (0.028) (0.028)
--------- ---------- ---------- ---------- --------- ---------
NET ASSET VALUE,
END OF PERIOD ....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========= ========== ========== ========== ========= =========
Total Return .............. 4.62%(e) 4.89% 5.10% 4.87% 2.79% 2.86%
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of
Period .............. $ 185,384 $ 210,162 $ 207,451 $ 227,565 $ 192,612 $ 223,855
Ratio of Expenses to
Average Net Assets .. 0.66%(c) 0.64% 0.64% 0.67% 0.67% 0.64%
Ratio of Net Investment
Income to Average Net
Assets .................... 4.93%(c) 4.79% 4.99% 4.76% 2.74% 2.81%
Ratio of Expenses to
Average Net Assets* . 0.68%(c) 0.66% 0.66% 0.69% 0.69% 0.66%
Ratio of Net Investment
Income to Average Net
Assets* ................... 4.91%(c) 4.77% 4.97% 4.74% 2.72% 2.79%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
INSTITUTIONAL SHARES
-------------------------------------------------------------------------
Aug. 24,
1987 to
June 30,
1992 1991 1990 1989 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 .............. 0.044 0.066 0.078 (0.080) (0.055)
--------- -------- --------- --------- ---------
Distributions Net
Investment Income ... (0.044) (0.066) (0.078) (0.080) (0.055)
--------- -------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD ....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
========= ======== ========= ========= =========
Total Return .............. 4.78% 6.82% 8.10% 8.31% 5.66%(e)
RATIOS/SUPPLEMENTARY DATA
Net Assets at End of
Period .............. $ 400,242 $341,903 $ 248,671 $ 201,012 $ 136,823
Ratio of Expenses to
Average Net Assets .. 0.64% 0.65% 0.65% 0.63% 0.62%(c)
Ratio of Net Investment
Income to Average Net
Assets .................... 4.43% 6.54% 7.79% 8.00% 6.25%(c)
Ratio of Expenses to
Average Net Assets* . 0.66% 0.67% 0.67% 0.68% 0.73%(c)
Ratio of Net Investment
Income to Average Net
Assets* ................... 4.41% 6.52% 7.77% 7.95% 6.14%(c)
</TABLE>
-27-
<PAGE> 223
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) 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, with the
exception of the U.S. Government Obligations Fund and the Treasury 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. The investment objectives of the U.S. Government Obligations Fund
and the Treasury Fund are fundamental and may not be changed without a vote of
the holders of a majority of the outstanding shares of that Fund. 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 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
- 42 -
<PAGE> 224
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 that 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.
- 43 -
<PAGE> 225
banks and foreign banks, CCP and in 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 companies that have been
determined to have a market capitalization of less than $1 billion based upon
current market data. 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 as 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.
THE SMALL CAPITALIZATION FUND, THE MID CAPITALIZATION FUND AND THE LARGE
CAPITALIZATION 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
- -Mortgage-Related Securities -Other Mutual Funds -Portfolio Turnover
- -Put and Call Options -Repurchase Agreements -Restricted Securities
</TABLE>
- 44 -
<PAGE> 226
<TABLE>
<S> <C>
- -Reverse Repurchase Agreements -When-Issued and Delayed-
and Dollar Roll Agreements Delivery Transactions
</TABLE>
THE INTERNATIONAL FUND
THE INVESTMENT OBJECTIVE OF THE INTERNATIONAL FUND IS TO SEEK LONG-TERM GROWTH
OF CAPITAL.
Under normal market conditions the International Fund will invest at least 65%
of its total assets in an internationally diversified portfolio of equity
securities which trade on markets in countries other than the United States and
which are issued by companies (i) domiciled in countries other than the United
States, or (ii) that derive at least 50% of either their revenues or pre-tax
income from activities outside of the United States, and (iii) which are small-
or medium-sized companies on the basis of their capitalization.
Equity securities include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as ADRs and EDRs.
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.
- 45 -
<PAGE> 227
THE INTERNATIONAL FUND
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<S> <C> <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 -Reverse Repurchase
- -When-Issued and -Restricted Securities Agreements and Dollar
Delayed-Delivery Roll Agreements
Transactions
</TABLE>
GROWTH AND INCOME FUNDS
THE BALANCED ALLOCATION FUND
THE INVESTMENT OBJECTIVE OF THE BALANCED ALLOCATION FUND IS TO SEEK CURRENT
INCOME, LONG-TERM CAPITAL GROWTH AND CONSERVATION OF CAPITAL.
The Balanced Allocation Fund may invest in any type or class of security. Under
normal market conditions the Balanced Allocation Fund will invest in common
stocks, fixed-income securities and securities convertible into common stocks
(i.e., warrants, convertible preferred stock, fixed-rate preferred stock,
convertible fixed-income securities, options and rights). The Balanced
Allocation Fund intends to invest 45% to 65% of its net assets in common stocks
and securities convertible into common stocks, 25% to 55% of its net assets in
fixed-income securities and up to 30% of its net assets in cash and any highly
liquid security with a known market value and a maturity, when acquired, of less
than three months ("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.
- 46 -
<PAGE> 228
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 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 foreign
Governments ("Supranational Agency Bonds"). The Balanced Allocation Fund's
investments in foreign securities may be made either directly or through the
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<PAGE> 229
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.
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<PAGE> 230
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 Agreement
- -Restricted Securities -Reverse Repurchase Agreements -When-Issued and
-Dollar Roll Agreements Delayed-Delivery Transactions
</TABLE>
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
Agreements and Dollar Delayed-Delivery,
Roll Agreements Deliver 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,
- 49 -
<PAGE> 231
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.
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<PAGE> 232
THE EQUITY INCOME 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
- -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
-51-
<PAGE> 233
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 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."
-52-
<PAGE> 234
The Bond Fund and the Limited Maturity Bond Fund each may also invest in
obligations of the Export-Import Bank of the United States, in Yankee Bonds, in
Eurodollar Bonds, in Canadian Bonds and in Supranational Agency Bonds. Each of
the Bond Fund and Limited Maturity Bond Fund may also invest up to 25% of its
net assets in foreign securities either directly or through the purchase of ADRs
and may also invest in securities issued by foreign branches of U.S. banks and
foreign banks, in CCP, and in Europaper.
An increase in interest rates will generally reduce the value of the investments
in the Bond Fund and the Limited Maturity Bond Fund and a decline in interest
rates will generally increase the value of those investments. Depending upon the
prevailing market conditions, 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 Currency
Transactions
- -Futures Contracts -Government Obligations -Guaranteed Investment
Contracts
- -Lending Portfolio -Mortgage-Grade Securities -Mortgage-Related
Securities Securities
- -Other Mutual Funds -Portfolio Turnover -Put and Call Options
- -Repurchase Agreements -Restricted Securities -Reverse Repurchase
Agreements and Dollar
Roll Agreements
- -When-Issued and
Delayed-Delivery
Transactions
- ------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 235
THE BOND FUND AND THE LIMITED MATURITY BOND FUND
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<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 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 share's net asset value relative to
funds which invest in longer-term obligations.
Certain debt securities including, but not limited to, mortgage-related
securities, CMOs and asset-backed securities, as well as securities subject to
prepayment of principal prior to the stated maturity date, may be repaid prior
to their maturity dates. As a result, effective maturity of these securities may
be deemed to be shorter than the stated maturity. For purposes of calculating
the weighted average maturity of the Intermediate Government obligations Fund,
the effective maturity of such securities, as determined by the Investment
Adviser, will be used.
The types of U.S. Government obligations invested in by the Intermediate
Government Obligations Fund will include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds and certificates of indebtedness,
and government securities, as described below in "RISK FACTORS AND INVESTMENT
TECHNIQUES -- Government Obligations."
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<PAGE> 236
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."
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
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<PAGE> 237
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> 238
THE GOVERNMENT INCOME FUND
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<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 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
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<PAGE> 239
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> 240
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, with 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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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
- -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>
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
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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, issuers of variable amount master demand notes (which are
normally manufacturing, retail, financial, and
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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
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quality standards for tax-exempt commercial paper described below, may invest in
commercial paper.
Although the Tax-Free Fund presently does not intend to do so on a regular
basis, it may invest more than 25% of its assets in Municipal Securities which
are related in such a way that an economic, business, or political development
or change affecting one such security would likewise affect the other Municipal
Securities. Examples of such securities are obligations the repayment of which
is dependent upon similar types of projects or projects located in the same
state. Such investments would be made only if 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.
MONEY MARKET FUNDS
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
MONEY MARKET FUNDS
SEE THE FOLLOWING SECTIONS IN RISK FACTORS AND INVESTMENT TECHNIQUES
<TABLE>
<S> <C> <C>
- -Complex Securities -Foreign Securities -Government Obligations
(except Treasury Fund) -Guaranteed Investment -Lending Portfolio
- -Municipal Securities Contracts Securities
(except Treasury Fund) (Prime Obligations Fund only) -Portfolio Turnover
- -Repurchase Agreements -Private Activity Bonds -Put and Call Options
- -Reverse Repurchase (Tax-Free Fund only) (Tax-Free Fund only)
Agreements and Dollar -When-Issued and Delayed- -Restricted Securities
Roll Agreements Delivery Transactions (except Treasury Fund)
</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 represent substantial
opportunities for misunderstanding and misuse. To guard against these risks, the
Investment Adviser and Subadviser will utilize complex securities primarily for
hedging, not speculative purposes and only after careful review of the unique
risk factors associated with each such security.
FOREIGN CURRENCY TRANSACTIONS
Each of the Funds, with the exception of the Money Market Funds and the Tax-Free
Income Funds, may utilize foreign currency transactions in its portfolio. The
value of the assets of a Fund as measured in United States dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and a Fund may incur costs in connection with
conversions between various currencies. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward contracts
to purchase or sell foreign currencies. A forward foreign currency exchange
contract ("forward currency contracts") involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These forward currency contracts are traded directly
between currency traders (usually large commercial banks) and their customers.
The Funds may enter into forward currency contracts in order to hedge against
adverse movements in exchange rates between currencies.
For example, when a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may want to establish the United
States dollar cost or proceeds, as the case may be. By entering into a forward
currency contract in United States dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, such
Fund is able to protect itself against a possible loss between trade and
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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 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 ("CDs"), 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.; CPC, 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 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
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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.
The conversion of the eleven member states of the European Union to a common
currency, the "euro", is scheduled to occur on January 1, 1999. As a result of
the conversion, securities issued by the member states will be subject to
certain risks, including competitive implications of increased price
transparency of European Union markets (including labor markets) resulting from
adoption of a common currency and issuers' plans for pricing their own products
and services in euro; an issuer's ability to make any required information
technology updates on a timely basis, and costs associated with the conversion
(including costs of dual currency operations through January 1, 2002); currency
exchange rate risk and derivatives exposure (including the disappearance of
price sources, such as certain interest rate induces); continuity of material
contracts and potential tax consequences. Other risks include whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; the creation of suitable clearing and
settlement payment systems for the new currency; the legal treatment of certain
outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of exchange
rates for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2000 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the Fund will converge over time;
and whether the conversion of the currencies of other EU countries such as the
United Kingdom, Denmark and Greece into the euro and the admission of other
non-EU countries such as Poland, Latvia and Lithuania as members of the EU may
have an impact on the euro. These or other factors, including political and
economic risks, could cause market disruptions before or after the introduction
of the euro, and could adversely affect the value of securities and foreign
currencies held by the Funds. Commissions on transactions in foreign securities
may be higher than those for similar transactions on domestic stock markets. In
addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, such procedures have been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
such transactions.
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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 issuer's 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 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 twelve member states of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. Such adjustments may
adversely affect holders of ECU-denominated obligations or the marketability of
such securities. European governments and supranationals, in particular, issue
ECU-denominated obligations.
FUTURES CONTRACTS
The Growth Funds, the Growth and Income Funds, the Income Funds and the
Municipal Bond Fund may also enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
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A Fund may engage in such futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, a Fund can seek through the sale of
futures contracts to offset a decline in the value of its portfolio securities.
When interest rates are expected to fall or market values are expected to rise,
a Fund, through the purchase of such contracts, can attempt to secure better
rates or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercising of the option at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of a Fund's total assets, and the value of
securities that are the subject of such futures and options (both for receipt
and delivery) may not exceed one-third of the market value of a Fund's total
assets. Futures transactions will be limited to the extent necessary to maintain
each Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of a Fund's futures positions may not prove to be perfectly or even highly
correlated with its portfolio securities or foreign currencies, limiting the
Fund's ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
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
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certificates of accrual on Treasury securities ("CATS") or Treasury income
growth receipts ("TIGRs").
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Federal National Mortgage Association ("FNMA"), are supported by the right of
the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association ("SLMA"), are supported by the discretionary
authority of the U.S. government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks or the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. government would
provide financial support to U.S. government-sponsored agencies or
instrumentalities, such as FNMA, SLMA or FHLMC, since it is not obligated to do
so by law. The Funds which may invest in these government obligations will
invest in the obligations of such agencies or instrumentalities only when 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
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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 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 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 litigation 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.
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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.
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
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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
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, 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.
CMOs are issued in multiple classes. Each class of CMOs, often referred to as a
"tranche," is issued at a specific adjustable or fixed interest rate and must be
fully retired no later than its final distribution date. Principal prepayments
on the mortgage loans or the mortgage assets underlying the CMOs may cause some
or all of the classes of CMOs to be retired substantially earlier than their
final distribution dates. Generally, interest is paid or accrues on all classes
of CMOs on a monthly basis.
The principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the mortgage assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the mortgage assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
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The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments; that is mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed-rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, 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 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."
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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.
SPECIAL RISK CONSIDERATIONS APPLICABLE TO THE MICHIGAN MUNICIPAL BOND FUND
The economy of the State of Michigan is heavily dependent upon the automobile
manufacturing industry, a highly cyclical industry. This factor affects the
revenue streams of the State of Michigan and its political subdivisions because
it impacts on tax sources, particularly sales taxes, income taxes and Michigan
single business taxes.
In 1993 and 1994, Michigan adopted complex statutory and constitutional changes
which, among several other changes in tax methods and rates, have the effect of
imposing limits on annual assessment increases and of transferring a significant
part of the operating cost of public education from locally based property tax
sources to state based sources, including increased sales tax. These changes
will affect state and local revenues of Michigan governmental units in future
years in differing ways, not all of which can be presently known with certainty.
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.
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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 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
optionholder, 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
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cause the underlying value of portfolio securities and currencies subject to
such options to exceed 50% of its net assets, and with respect to each of the
Balanced Allocation Fund and International Fund, 20% of its net assets.
Each of the Growth Funds, the Growth and Income Funds and the Government Income
Fund, as part of its options transactions, also may purchase index put and call
options and write index options. As with options on individual securities, a
Fund will write only covered index call options. Through the writing or purchase
of index options a Fund can achieve many of the same objectives as through the
use of options on individual securities. Options on securities indices are
similar to options on a security except that, rather than the right to take or
make delivery of a security at 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 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
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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
generally be made in an exempt transaction. Section 4(2) securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in such Section 4(2) securities,
thus providing liquidity. Pursuant to procedures adopted by the Board of
Trustees of the Group, First of America may determine Section 4(2) securities to
be liquid if such securities are eligible for resale under Rule 144A under the
1933 Act and are readily saleable.
Subject to the limitations described above, the Funds may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registered under the 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
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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 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.
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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).
THE FOLLOWING INVESTMENT RESTRICTIONS APPLY TO ALL FUNDS EXCEPT THE U.S.
GOVERNMENT OBLIGATIONS FUND AND THE TREASURY FUND:
No 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.
No Fund may:
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 instruments,
or in the case of the Prime Obligations or Tax-Free 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.
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3. Borrow money, issue senior securities or mortgage, pledge or hypothecate
its assets except to the extent permitted under the 1940 Act.
The following investment restrictions apply to the U.S. Government Obligations
Fund and the Treasury Fund:
Neither of the Funds may:
Purchase securities of any one issuer, other than obligations issued
or Guaranteed by the U.S. government or its agencies or
instrumentalities, if, immediately after such purchase, more than
50% of the value of the Fund's total assets would be invested in
such issuer, or the Fund would hold more than 10% of the outstanding
voting securities of the issuer, except that 25% or less of the
value of such Fund's total assets may be invested without regard to
such limitations. There is no limit to the percentage of assets that
may be invested in U.S. Treasury bills, notes, or other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
Irrespective of the investment restriction above, and pursuant to Rule 2a-7
under the 1940 Act, the U.S. Government Obligations Fund and the Treasury Fund
each will, with respect to 100% of its total assets, limit its investment in the
securities of any one issuer in the manner provided by such Rule, which
limitations are referred to above under the caption "INVESTMENT OBJECTIVES AND
POLICIES -- The Money Market Funds."
For purposes of the investment limitations above, a security is considered to be
issued by the governmental entity (or entities) whose assets and revenues back
the security and, with respect to a private activity bond that is backed only by
the assets and revenues of a non- governmental user, a security is considered to
be issued by such non-governmental user.
Neither of the Funds will:
1. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that:
(a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by
obligations of the U.S. government or its agencies or
instrumentalities;
(b) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily
elated to financing the activities of their parents; and
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(c) utilities will be divided according to their services. For
example, gas, gas transmission, electric and gas, electric,
and telephone will each be considered a separate industry.
2. (a) Borrow money (not including reverse repurchase agreements or
dollar roll agreements), except that each Fund may borrow from
banks for temporary or emergency purposes and then only in
amounts up to 10% of its total assets at the time of borrowing
(and provided that such bank borrowings, reverse repurchase
agreements and dollar roll agreements do not exceed in the
aggregate one-third-of the Fund's total assets less
liabilities other than the obligations represented by the bank
borrowings, reverse repurchase agreements and dollar roll
agreements), or mortgage, pledge or hypothecate any assets
except in connection with a bank borrowing, in amounts not to
exceed 30% of the Fund's net assets at the time of borrowing;
(b) enter into reverse repurchase agreements, dollar roll
agreements and other permitted borrowings in amounts exceeding
in the aggregate one-third of the Fund's total assets less
liabilities other than the obligations represented by such
reverse repurchase and dollar roll agreements; and
(c) issue senior securities except as permitted by the 1940 Act or
any rule, order or interpretation thereunder.
3. Make loans, except that a Fund may Purchase or hold debt instruments
and lend portfolio securities in accordance -with its investment
objective and policies, make time deposits with financial institutions
and enter into repurchase agreements.
For purposes of investment limitation number 1 above only, such limitation shall
not apply to Municipal Securities or governmental guarantees of Municipal
Securities, and industrial development bonds or private activity bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Securities.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding shares of a Fund.
Each Fund will not:
1. Purchase or otherwise acquire any securities if, as a result, more than
15% (10% in the case of the Money Market Funds) of the Fund's net
assets would be invested in securities that are illiquid.. In addition
to the above investment restrictions, the Funds are subject to certain
other investment restrictions set forth under "INVESTMENT OBJECTIVES
AND POLICIES -- Investment Restrictions" in the Statement of Additional
Information.
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.
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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.
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
IMC, formerly First of America Investment Corporation, serves as investment
adviser to the Funds. IMC is a registered investment adviser and an indirect
wholly owned subsidiary of National City Corporation ("NCC"). 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. First of
America was a registered investment adviser and a wholly-owned subsidiary of
First of America Bank, N.A., a wholly-owned subsidiary of IMC. As of December
31, 1997, First of America Investment Corporation managed over $16 billion on
behalf of both taxable and tax-exempt clients, including pensions, endowments,
corporations and individual portfolios. As of December 31, 1997, National City
Corporation had over $55 billion in assets. As a result of the merger with First
of America Bank Corporation, as of June 30, 1998, National City Corporation had
assets of over $81 billion. IMC reflects a combination of National City Bank's
investment management group and First of America. In connection with this
combination, various portfolio management changes were made. IMC has its
principal offices at 1900 East Ninth Street, Cleveland, Ohio 44114. 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,
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furnishes a continuous investment program for each Fund and makes investment
decisions on behalf of each Fund.
IMC utilizes a team approach to the investment management of the funds, with
professionals working as teams to ensure a disciplined investment process
designed to result in long-term performance consistent with each Fund's
investment objective. No one person is responsible for a Fund's management.
IMC has established investment management teams by market segment: equities and
fixed income instruments. Within the equities segment, teams have been formed
based on style - growth or value - and market capitalization.
The Equity Growth Group is comprised of the Small Capitalization Team, the Mid
Capitalization Team and the Large Capitalization Team. The Small Capitalization
Growth Team manages the Parkstone Small Capitalization Fund. The Mid
Capitalization Growth Team manages the Parkstone Mid Capitalization Fund. The
Large Capitalization Growth Team manages the Parkstone Large Capitalization
Fund. The Large Capitalization Value Team manages the Parkstone Equity Income
Fund.
The investment management teams within IMC and Gulfstream share the management
duties of the Balanced Allocation Fund. The teams manage their respective
segment allocation within the fund, according to their areas of specification.
The Fixed Income Team of IMC manages the Income and Tax-Free Income Funds.
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
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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.
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 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 May 31, 1998, Gulfstream had over $876 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.
YEAR 2000 RISKS
Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Investment Adviser and the Fund's
other service providers do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Investment Adviser is taking steps to address the
Year 2000 Problem with respect to the computer systems that it uses and to
obtain assurance that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Funds or their
shareholders as a result of the Year 2000 Problem.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the administrator for each
Fund of the Group. IMC 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 IMC
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.
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SEI acts as the Group's principal underwriter and distributor. The Distributor
is a registered broker/dealer with principal offices located at One Freedom
Valley Drive, 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.
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, an affiliate of the Investment Adviser, serves as the
custodian of the Group's assets. The Funds reimburse National City Bank for its
direct and indirect costs and expenses incurred in rendering custodial services,
except that the costs and expenses borne by each Fund in any year may not exceed
.020% of each portfolio's first $100 million of average daily net assets, .010%
of each portfolio's next $650 million of average daily net assets and .008% of
the average daily net assets of each portfolio which exceed $750 million. State
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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 8590, Boston, Massachusetts 02266-8590. 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 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
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on the same Business Day. Institutional Shares of the Funds continue to be
eligible to earn dividends through the day before their redemption.
An order to purchase Institutional Shares will be deemed to have been received
by the Distributor only when federal funds are available to the Group's
Custodian for investment. Federal funds are monies credited to a bank's account
within a Federal Reserve Bank. Payment for an order to purchase Institutional
Shares which is transmitted by federal funds wire will be available the same day
for investment by the Group's Custodian if received prior to the last Valuation
Time (see "HOW SHARES ARE VALUED"). Purchases made by check or other means are
made at the price next determined upon receipt of the purchase instrument.
However, proceeds from redeemed shares purchased by check will not be sent until
the method of payment has cleared. The Group strongly recommends that investors
of substantial amounts use federal funds to purchase-Institutional Shares. The
Group will not accept third-party checks under any circumstance.
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.
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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's Institutional Shares
may be redeemed 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., (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"). With respect to the Growth Funds and the Growth and
Income Funds, if a sale is not reported for that day, shares are priced at the
mean between the most recent quoted bid and the asked prices. Unlisted
securities and securities traded on a national securities market for which
market quotations are valued at the mean between the most recent bid and asked
prices. With respect to the Income Funds, other securities, and temporary cash
investments acquired more than 60 days from maturity and valued at the mean
between quoted bid and asked prices. 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
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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.
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 8590, Boston, Massachusetts
02266-8590. 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
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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 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.
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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
on such bonds. Shareholders receiving Social Security or certain other
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
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instrumentalities. In addition, to the extent that a shareholder of the Michigan
Bond Fund is obligated to pay state or local taxes outside of Michigan,
dividends earned by an investment in the Michigan Bond Fund may represent
taxable income. Investments held in the Michigan Bond Fund by a Michigan
resident are not subject to the Michigan intangible personal property tax to the
extent that the investments are attributable to bonds or other similar
obligations of the State of Michigan or a political subdivision thereof, or
obligations of the United States.
The Michigan Department of Treasury in a 1986 Revenue Administrative Bulletin
has taken the position that the tax attributes of the securities held by a
mutual fund flow through to the investors. Based on this position, the Michigan
Department of Treasury has stated that mutual fund distributions attributable to
interest from the fund's investment in direct U.S. government securities, as
well as Municipal Securities, will not be subject to the Michigan personal
income tax. The Michigan Department of Treasury also has stated that an owner of
a share of a mutual fund will not be subject to intangible personal property tax
to the extent that the pro rata share of the securities underlying the mutual
fund would be exempt.
For Michigan personal income tax and intangible personal property tax purposes,
taxable distributions from investment income and short-term capital gains, if
any, are taxable as ordinary income, whether received in cash or additional
shares, and are subject to the Michigan intangible personal property tax and to
applicable Michigan city income taxes. 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
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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 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
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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.
TELEPHONE ACCESS
Shareholders of the Group may obtain current price, yield and other performance
information on any of the Group's Funds through 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
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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 September 1, 1998, National City Corporation, 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 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. Investor A Shares have
distribution fees. Investor B Shares have distribution and service fees. 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 IMC 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
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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 8590, Boston, MA 02266-8590, or by calling toll-free (800)
451-8377.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offering
made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
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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 Furnishings
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> 282
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.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
TRANSFER AGENT
State Street Bank and Trust Company
P.O. Box 8590
Boston, MA 02266
CUSTODIAN
National City Bank
4100 West 150th Street
Cleveland, Ohio 44135
LEGAL COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
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<PAGE> 283
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
<TABLE>
<CAPTION>
PART A. INFORMATION REQUIRED IN A PROSPECTUS
ITEM NO. 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> 284
THE PARKSTONE
GROUP OF FUNDS
INSTITUTIONAL SHARES
The LifeWorks Funds
PARKSTONE CONSERVATIVE ALLOCATION FUND
PARKSTONE BALANCED ALLOCATION FUND
PARKSTONE AGGRESSIVE ALLOCATION FUND
Prospectus dated September 16, 1998
(PARKSTONE MUTUAL FUNDS)
NOT FDIC INSURED
<PAGE> 285
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 286
THE PARKSTONE GROUP OF FUNDS
INSTITUTIONAL SHARES PROSPECTUS DATED SEPTEMBER 16, 1998
Parkstone Conservative Allocation Fund
Parkstone Balanced Allocation Fund
Parkstone Aggressive Allocation Fund
For more information call
(800) 451-8377
or write to:
One Freedom Valley Drive
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 16, 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.
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED OR OTHERWISE SUPPORTED BY, NATIONAL CITY INVESTMENT
MANAGEMENT COMPANY, ITS PARENT COMPANY OR ANY OF ITS AFFILIATES, AND ARE NOT
FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY OR STATE. INVESTMENT IN THE
TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
<PAGE> 287
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 288
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 ............................................... 24
MANAGEMENT OF THE FUNDS ............................................... 25
HOW TO BUY INSTITUTIONAL SHARES ....................................... 29
HOW TO REDEEM YOUR INSTITUTIONAL SHARES ............................... 30
HOW SHARES ARE VALUED ................................................. 31
DIVIDENDS AND TAXES ................................................... 32
PERFORMANCE INFORMATION ............................................... 34
TELEPHONE ACCESS ...................................................... 35
GENERAL INFORMATION ................................................... 35
- i -
<PAGE> 289
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 Board of Trustees of the Group has divided beneficial ownership of
each Fund 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 the LifeWorks Funds are described in this
Prospectus and are summarized in the Prospectus Summary. National City
Investment Management Company, Cleveland, Ohio ("IMC" 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, IMC has entered into a sub-investment advisory agreement
with Gulfstream Global Investors, Ltd., Dallas, Texas ("Gulfstream" or the
"Subadviser").
- ii -
<PAGE> 290
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> 291
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
IMC serves as investment adviser, and, with respect to a portion of the
Funds, Gulfstream serves as subadviser. IMC 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 IMC, (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> 292
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
EXPENSES FEES FEES EXPENSES
(AFTER WAIVER, (AFTER WAIVER, (AFTER WAIVER, (AFTER WAIVER,
IF APPLICABLE)(2) IF APPLICABLE) IF APPLICABLE)(2) IF APPLICABLE)(2)(3)
----------------- -------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Conservative Allocation Fund.............. 0.70% 0.00% 0.37% 1.07%
Balanced Allocation Fund.................. 0.75% 0.00% 0.37% 1.12%
Aggressive Allocation Fund................ 0.85% 0.00% 0.45% 1.30%
</TABLE>
- ------------------------------
(2) After voluntary expense reductions.
(3) Certain purchases of the Funds through financial institutions may be
subject to fees for additional services provided to investors.
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 1.37%,
1.00% and 1.37%, and 1.00% and 1.45%, respectively. (See "MANAGEMENT OF THE
FUNDS -- Investment Adviser and Subadviser" and "Administrator,
Sub-Administrator and Distributor").
EXPENSE EXAMPLES
You would pay the following expenses rounded to the nearest dollar on a $1,000
investment in Institutional Shares, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
----- ----- ----- -----
<S> <C> <C> <C> <C>
Conservative Allocation Fund ................ $ 11 $ 34 $ 59 $131
Balanced Allocation Fund .................... $ 11 $ 36 $ 62 $135
Aggressive Allocation Fund .................. $ 13 $ 41 $ 71 $157
</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.
- 3 -
<PAGE> 293
The purpose of the above tables is to assist a potential purchaser of
Institutional Shares of any of the LifeWorks Funds in understanding the various
costs and expenses that an investor in a Fund will bear directly or indirectly.
Such expenses do not include any fees charged by a financial institution,
including IMC 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 May 31, 1998 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
ELEVEN SHARES
MONTHS DEC. 30, 1996
ENDED TO JUNE 30,
MAY 31, 1998 1997(a)
------------ -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................................ $ 10.36 $ 10.00
------------ ------------
Income from Investment Activities
Net Investment Income (Loss) ............................... 0.35 0.14
Net Realized and Unrealized Gains (Losses) on Investments .. 0.79 0.34
------------ ------------
Total from Investment Activities .................. 1.14 0.48
------------ ------------
Distributions
Net Investment Income ...................................... (0.35) (0.12)
------------ ------------
Net Realized Gains ......................................... 0.07 --
------------ ------------
Total Distributions ............................... (0.42) (0.12)
------------ ------------
</TABLE>
- 4 -
<PAGE> 294
<TABLE>
<S> <C> <C>
NET ASSET VALUE, END OF PERIOD ..................................... $ 11.08 $ 10.36
============ ============
Total Return (excluding sales and redemption charges) ............... 11.18(e) 4.87%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ............................ $ 17,031 $ 10,287
Ratio of Expenses to Average Net Assets .................... 1.07%(c) 1.64%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets 3.69%(c) 3.12%(c)
Ratio of Expenses to Average Net Assets* ................... 1.37%(c) 1.94%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets* 3.39%(c) 2.82%(c)
Portfolio Turnover Rate (d) ................................ 99.41% 62.11%
Average Commission Rate Paid (f) ........................... $ 0.0795
</TABLE>
- 5 -
<PAGE> 295
BALANCED ALLOCATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
ELEVEN
MONTHS YEAR ENDED JUNE 30
JAN. 31, ------------------------------------------------------------- 1992
ENDED INSTITUTIONAL SHARES TO JUNE 30
MAY 31, -------------------------------------------------------------
1998 1997 1996 1995 1994 1993(b) 1992(a)
-------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ...................... $ 12.99 $ 13.37 $ 12.19 $ 10.67 $ 11.08 $ 9.68 $ 10.00
-------- -------- -------- ------- ------- ------- -------
Income from Investment
Activities
Net Investment Income
(Loss) .................. 0.32 0.35 0.36 0.31 0.27 0.28 0.14
Net Realized and Unrealized
Gains (Losses) on
Investments and Foreign
Currencies .............. 1.20 1.12 1.74 1.68 (0.41) 1.41 (0.34)
-------- -------- -------- ------- ------- ------- -------
Total from Investment
Activities .............. 1.52 1.47 2.10 1.99 (0.14) 1.69 (0.20)
-------- -------- -------- ------- ------- ------- -------
Distributions
Net Investment Income ....... (0.35) (0.37) (0.35) (0.31) (0.27) (0.29) (0.12)
Net Realized Gains .......... (0.36) (1.48) (0.57) (0.03) -- -- --
In Excess of Net Realized
Gains ..................... -- -- -- (0.13) -- -- --
-------- -------- -------- ------- ------- ------- -------
Total Distributions ......... (0.71) (1.85) (0.92) (0.47) (0.27) (0.29) (0.12)
-------- -------- -------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD ...................... $ 13.80 $ 12.99 $ 13.37 $ 12.19 $ 10.67 $ 11.08 $ 9.68
======== ======== ======== ======= ======= ======= =======
Total Return (excluding sales
and redemption charges) ..... 12.06%(e) 11.86% 17.81% 19.22% (1.44)% 17.66% (2.06)%(e)
RATIOS/SUPPLEMENTARY DATA:
Net Assets, End of Period
(000) ..................... $262,533 $245,347 $113,493 $89,294 $71,427 $42,318 $38,136
Ratio of Expenses to
Average Net Assets ........ 1.12%(c) 1.10% 1.16% 1.25% 1.09% 1.15% 1.19%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets ........ 2.57%(c) 2.77% 2.62% 2.75% 2.49% 2.70% 3.46%(c)
Ratio of Expenses to
Average Net Assets* ....... 1.37%(c) 1.36% 1.41% 1.52% 1.39% 1.46% 1.50%(c)
Ratio of Net Investment
Income (Loss) to
Average Net Assets* ....... 2.32%(c) 2.51% 2.37% 2.47% 2.18% 2.40% 3.13%(c)
Portfolio Turnover Rate
(d) ....................... 117.80% 425.05% 437.90% 250.66% 192.39% 177.99% 47.58%
Average Commission
Rate Paid (f) ............. $ 0.0518 $ 0.0848
</TABLE>
- 6 -
<PAGE> 296
AGGRESSIVE ALLOCATION FUND - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
INSTITUTIONAL
ELEVEN SHARES
MONTHS DEC. 31, 1996
ENDED TO JUNE 30,
MAY 31, 1998 1997(a)
------------ --------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ................................ $ 10.57 $ 10.00
------------ ------------
Income from Investment Activities
Net Investment Income (Loss) ............................... 0.12 0.07
Net Realized and Unrealized Gains (Losses) on
Investments ................................................ 1.19 0.56
------------ ------------
Total from Investment Activities .................. 1.31 0.63
------------ ------------
Distributions
Net Investment Income ...................................... (0.13) (0.06)
------------ ------------
Total Distributions ............................... (0.13) (0.06)
------------ ------------
NET ASSET VALUE, END OF PERIOD ...................................... $ 11.75 $ 10.57
============ ============
Total Return (excluding sales and redemption charges) ............... 12.45%(e) 6.38%(e)
RATIOS SUPPLEMENTARY DATA:
Net Assets, End of Period (000) ............................ $ 33,816 $ 39,043
Ratio of Expenses to Average Net Assets ................... 1.30%(c) 1.32%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets 1.11%(c) 1.61%(c)
Ratio of Expenses to Average Net Assets* ................... 1.45%(c) 1.47%(c)
Ratio of Net Investment Income (Loss) to Average Net Assets* 0.96%(c) 1.46%(c)
Portfolio Turnover Rate (d) ................................ 76.47% 44.68%(c)
Average Commission Rate Paid (f) ........................... $ 0.0280
</TABLE>
- ---------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS:
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On April 1, 1993, the shareholders of the Group exchanged their shares
for either the Group's Investor A Shares or Institutional Shares. For
the year ended June 30, 1993, the Financial Highlights ratios of
expenses, ratios of net investment income, total return and the per
share investment activities and distributions are presented on the
basis whereby the Fund's net investment income, expenses, and
distributions for the period July 1, 1992 through March 31, 1993 were
allocated to each class of shares based upon the relative net assets of
each class of shares as of April 1, 1993 and the results combined
therewith the
- 7 -
<PAGE> 297
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) 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 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 SECONDARY
OBJECTIVE OF LONG-TERM CAPITAL GROWTH. THE INVESTMENT
- 8 -
<PAGE> 298
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 any highly liquid security with a known market value and a maturity,
when issued, of less than three months ("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> 299
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 of 12 months or less) consisting of domestic and foreign commercial
paper, variable amount master demand notes, bankers' acceptances, certificates
of deposit and time deposits of domestic and foreign branches of U.S. banks and
foreign banks, and repurchase agreements. The LifeWorks Funds may also invest in
securities of other investment companies.
The LifeWorks Funds may also invest in obligations of the
Export-Import Bank of the United States, in U.S. dollar-denominated
international bonds for which the primary trading market is in the United States
("Yankee Bonds"), or for which the primary trading market is abroad ("Eurodollar
Bonds"), and in Canadian bonds and bonds issued by institutions, such as the
World Bank and the European Economic Community, organized for a specific purpose
by two or more sovereign governments ("Supranational Agency Bonds"). The
LifeWorks Funds' investments in foreign securities may be made either directly
or through the purchase of American depository receipts ("ADRs") and the
LifeWorks Funds may also invest in securities issued by foreign branches of U.S.
banks and foreign banks, in 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.
- 10 -
<PAGE> 300
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.
THE CONSERVATIVE ALLOCATION FUND, THE BALANCED ALLOCATION FUND AND THE
AGGRESSIVE 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 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.
- 11 -
<PAGE> 301
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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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 offsettng 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.
The conversion of the eleven member states of the European
Union to a common currency, the "euro," is scheduled to occur on January 1,
1999. As a result of the conversion, securities issued by the member states will
be subject to certain risks, including competitive implications of increased
price transparency of European Union markets (including labor markets) resulting
from adoption of a common currency and issuers' plans for pricing their own
products and services in euro; an issuer's ability to make any required
information technology updates on a timely basis, and costs associated with the
conversion (including costs of dual currency operations through January 1,
2002); currency exchange rate risk and derivatives exposure (including the
disappearance of price
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sources, such as certain interest rate induces); continuity of material
contracts and potential tax consequences. Other risks include whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; the creation of suitable clearing and
settlement payment systems for the new currency; the legal treatment of certain
outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment and maintenance of exchange
rates for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2000 and beyond; whether the interest rate, tax and labor
regimes of European countries participating in the Fund will converge over time;
and whether the conversion of the currencies of other EU countries such as the
United Kingdom, Denmark and Greece into the euro and the admission of other
non-EU countries such as Poland, Latvia and Lithuania as members of the EU may
have an impact on the euro. These or other factors, including political and
economic risks, could cause market disruptions before or after the introduction
of the euro, and could adversely affect the value of securities and foreign
currencies held by the Funds. Commissions on transactions in foreign securities
may be higher than those for similar transactions on domestic stock markets. In
addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, such procedures have been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
such transactions.
U.S. dollar-denominated ADRs, which are traded in the United
States on exchanges or over-the-counter, are issued by domestic banks. ADRs
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. ADRs do not eliminate all of the risk
inherent in investing in the securities of foreign issuers. However, by
investing in ADRs rather than directly in foreign issuers' stock, a Fund can
avoid currency risks during the settlement period for either purchases or sales.
In general, there is a large, liquid market in the United States for many ADRs.
The information available for ADRs is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which they
are traded, standards which are more uniform and more exacting than those to
which many foreign issuers may be subject. The ADR is sometimes referred to as a
Global Depositary Receipt, or GDR. In the United States, the GDR is, after
issuance, not unlike any other ADR. The difference is found in the purpose of
the issue. GDRs are used for global offerings, by the simultaneous issuance of a
single security in multiple world markets. Each of the LifeWorks Funds may also
invest in European depository receipts ("EDRs"), which are receipts evidencing
an arrangement with a European bank similar to that for ADRs and designed for
use in the European securities markets. EDRs are not necessarily denominated in
the currency of the underlying security.
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
LifeWorks Funds may invest in debt securities denominated in the European
Currency Unit ("ECU"), which is a "basket" unit of currency consisting of
specified amounts of the currencies of certain of the member states of the
European Community. The specific amounts of currencies comprising the ECU may be
adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. Such adjustments may
adversely affect holders of ECU-denominated obligations or the marketability of
such securities. European governments and supranationals, in particular, issue
ECU-denominated obligations.
FUTURES CONTRACTS
The LifeWorks Funds may also enter into contracts for the
future delivery of securities or foreign currencies and futures contracts based
on a specific security, class of securities, foreign currency or an index,
purchase or sell options on any such futures contracts and engage in related
closing transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
A Fund may engage in such futures contracts in an effort to
hedge against market risks. For example, when interest rates are expected to
rise or market values of portfolio securities are expected to fall, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its portfolio securities. When interest rates are expected to fall or market
values are expected to rise, a Fund, through the purchase of such contracts, can
attempt to secure better rates or prices for the Fund than might later be
available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts
will, respectively, give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase the underlying futures contract, upon
exercising the option at any time during the option period.
Aggregate initial margin deposits for futures contracts, and
premiums paid for related options, may not exceed 5% of a Fund's total assets,
and the value of securities that are the subject of such futures and options
(both for receipt and delivery) may not exceed one-third of the market value of
a Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain each Fund's qualification as a regulated investment
company.
Futures transactions involve brokerage costs and require a
Fund to segregate assets to cover contracts that would require it to purchase
securities or currencies. A Fund may lose the expected benefit of futures
transactions if interest rates, exchange rates or securities prices move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of a Fund's futures positions may not prove
to be perfectly or even highly correlated with its portfolio securities or
foreign currencies, limiting the Fund's ability to hedge effectively
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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 the Investment Advisor believes that the
credit risk with respect thereto is minimal.
MEDIUM-GRADE SECURITIES
Each of the LifeWorks Funds may invest in fixed-income
securities rated within the fourth highest rating category assigned by an NRSRO
(i.e., BBB or Baa by S&P or Moody's, respectively) and comparable unrated
securities as determined by the Investment Adviser. These types of fixed-income
securities are considered by the NRSROs to have some speculative
characteristics, and are more vulnerable to changes in economic conditions,
higher interest rates or adverse issuer-specific developments which are more
likely to lead to a weaker capacity to make principal and interest payments than
comparable higher rated debt securities.
Should subsequent events cause the rating of a fixed-income
security purchased by any of the Funds listed above to fall below the fourth
highest rating, 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.
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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 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.
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The principal governmental (i.e., backed by the full faith and
credit of the United States government) guarantor of mortgage-related securities
is GNMA. GNMA is a wholly-owned United States government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by pools of mortgages insured by the Federal Housing
Administration or guaranteed by the Veterans Administration.
Government-related (i.e., not backed by the full faith and
credit of the United States government) guarantors include FNMA and FHLMC. FNMA
is a government-sponsored corporation owned entirely by private stockholders.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States government. FHLMC is a corporate instrumentality of the
United States government whose stock is owned by the twelve Federal Home Loan
Banks. Participation certificates issued by FHLMC are guaranteed as to the
timely payment of interest and ultimate collection of principal but are not
backed by the full faith and credit of the United States government.
Mortgage-related securities in which the LifeWorks Funds may
invest may also include collateralized mortgage obligations ("CMOs"). CMOs are
debt obligations issued generally by finance subsidiaries or trusts that are
secured by mortgage-backed certificates, including, in many cases, certificates
issued by government-related guarantors, including GNMA, FNMA and FHLMC,
together with certain funds and other collateral. Although payment of the
principal of and interest on the mortgage-backed certificates pledged to secure
the CMOs may be guaranteed by GNMA, FNMA or FHLMC, the CMOs represent
obligations solely of the issuer and are not insured or guaranteed by GNMA,
FHLMC, FNMA or any other governmental agency, or by any other person or entity.
The issuers of the CMOs typically have no significant assets other than those
pledged as collateral for the obligations.
CMOs are issued in multiple classes. Each class of CMOs ,
often referred to as a "tranche," is issued at a specific adjustable or fixed
interest rate and must be fully retired no later than its final distribution
date. Principal prepayments on the mortgage loans or the mortgage assets
underlying the CMOs may cause some or all of the classes of CMOs to be retired
substantially earlier than their final distribution dates. Generally, interest
is paid or accrues on all classes of CMOs on a monthly basis.
The principal of and interest on the mortgage assets may be
allocated among the several classes of CMOs in various ways. In certain
structures (known as "sequential pay" CMOs), payments of principal, including
any principal prepayments, on the mortgage assets generally are applied to the
classes of CMOs in the order of their respective final distribution dates. Thus,
no payment of principal will be made on any class of sequential pay CMOs until
all other classes having an earlier final distribution date have been paid in
full.
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Additional structures of CMOs include, among others, "parallel
pay" CMOs. Parallel pay CMOs are those which are structured to apply principal
payments and prepayments of the mortgage assets to two or more classes
concurrently on a proportionate or disproportionate basis. These simultaneous
payments are taken into account in calculating the final distribution date of
each class.
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.
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Price movements in securities which a Fund owns or intends to
purchase probably will not correlate perfectly with movements in the level of an
index and, therefore, a Fund bears the risk of a loss on an index option that is
not completely offset by movements in the price of such securities. Because
index options are settled in cash, a call writer cannot determine the amount of
its settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. A Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
REPURCHASE AGREEMENTS
Securities held by each of the LifeWorks Funds may be subject
to repurchase agreements. Under the terms of a repurchase agreement, a Fund
would acquire securities from financial institutions such as member banks of the
Federal Deposit Insurance Corporation or registered broker-dealers which 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.
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Subject to the limitations described above, the LifeWorks
Funds may acquire investments that are illiquid or of limited liquidity, such as
private placements or investments that are not registered under the 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-
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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 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 500%. Such Funds do not expect that their
turnover rates with respect to that portion or their portfolios invested in
common stocks and securities convertible into common stocks and other
investments will exceed 200%.
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
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shares. High portfolio turnover rates will generally result in higher
transaction costs, including brokerage commissions, to a Fund and may result in
increased taxable gains to a Fund's 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
IMC, formerly First of America Investment Corporation, serves
as investment adviser to the Funds. IMC is a registered investment adviser and
an indirect wholly owned subsidiary of National City Corporation ("NCC"). 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.
First of America was a registered investment adviser and a wholly-owned
subsidiary of First of America Bank, N.A., a wholly-owned subsidiary of National
City Corporation. As of December 31, 1997, First of America Investment
Corporation managed over $16 billion on behalf of both taxable and tax-exempt
clients, including pensions, endowments, corporations and individual portfolios.
As of December 31, 1997, National City Corporation had over $55 billion in
assets. As a result of the merger with First of America Bank Corporation, as of
June 30, 1998, National City Corporation had assets of over $81 billion. IMC
reflects a combination of National City Bank's investment management group and
First of America. In connection with this combination, various portfolio
management changes were made.
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IMC has its principal offices at 1900 East Ninth Street, Cleveland, Ohio 44114.
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.
IMC utilizes a team approach to the investment management of
the funds, with professionals working as a team to ensure a disciplined
investment process designed to result in long-term performance consistent with
each Fund's investment objective. No one person is responsible for a Fund's
management.
IMC has established investment management teams by market
segment: equities and fixed income instruments. Within the equities segment,
teams have been formed based on style - growth or value - and market
capitalization.
The investment management teams within IMC and Gulfstream
share the management duties of these funds. The teams manage their respective
segment allocation within each fund, according to their areas of specialization.
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.
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.
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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.
As of May 31, 1998, Gulfstream had over $876 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.
YEAR 2000 RISKS
Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Investment Adviser and the Fund's
other service providers do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Investment Adviser is taking steps to address the
Year 2000 Problem with respect to the computer systems that it uses and to
obtain assurance that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Funds or their
shareholders as a result of the Year 2000 Problem.
ADMINISTRATOR, SUB-ADMINISTRATOR AND DISTRIBUTOR
BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, is the
administrator for each of the LifeWorks Funds. IMC 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,
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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, IMC 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
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
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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, an affiliate of the Investment Adviser,
serves as the custodian of the Group's assets. The Funds reimburse National City
Bank for its direct and indirect costs and expenses incurred in rendering
custodial services, except that the costs and expenses borne by each Fund in any
year may not exceed .020% of each portfolio's first $100 million of average
daily net assets, .010% of each portfolio's next $650 million of average daily
net assets and .008% of the average daily net assets of each portfolio which
exceeds $750 million. 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 8590, Boston, Massachusetts 02266-8590. 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 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.
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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. The Group will not accept third-party checks
under any circumstances.
There is no sales charge imposed by the Group in connection
with the purchase of Institutional Shares of the LifeWorks Funds. Depending upon
the terms of a particular Customer Account, a financial institution may charge a
Customer Account fees for automatic investment and other cash management
services provided in connection with investment in the Group. Information
concerning these services and any charges may be obtained from the financial
institution. This Prospectus should be read in conjunction with any such
information received from the financial institution.
The Group reserves the right to reject any order for the
purchase of Institutional Shares in whole or in part.
Confirmations of purchases and 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.
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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's
Institutional Shares may be redeemed to the extent necessary to maintain the
required minimum balance with the financial institution.
Redemption orders are effected at the net asset value per
share next determined after the Institutional Shares are properly tendered for
redemption, as described above. The proceeds paid upon redemption of such
Institutional Shares of the Funds may be more or less than the amount invested.
Payment to shareholders for Institutional Shares redeemed will be made within
seven days after receipt by the Transfer Agent of the request for redemption.
However, to the greatest extent possible, requests from financial institutions
for next day payments upon redemption of Institutional Shares will be honored if
the request for redemption is received by the Transfer Agent before 4:00 p.m.
(Eastern Time), on a Business Day or, if received after 4:00 p.m. (Eastern
Time), within two Business Days, unless it would be disadvantageous to the Group
or the shareholders of a Fund to sell or liquidate portfolio securities in an
amount sufficient to satisfy requests for payments in that manner. Shareholders
should contact their trust administrator or other financial consultant
responsible for the account to determine the financial institution's
requirements for effectuating redemptions.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the
Statement of Additional Information for examples of when the Group may suspend
the right of redemption or redeem Institutional Shares involuntarily if it
appears appropriate to do so in light of the Group's responsibilities under the
1940 Act.
HOW SHARES ARE VALUED
The net asset value of Institutional Shares of the LifeWorks
Funds is determined and the shares are priced as of the close of trading on the
New York Stock Exchange ("NYSE") on each Business Day (generally 4:00 p.m.
Eastern Time). If a sale is not reported for that day, shares are priced at the
mean between the most recent quoted bid and asked prices. Unlisted securities
and securities traded on a national securities market for which market
quotations are readily available are valued at the mean between the most recent
bid and asked prices. 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
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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 8590, Boston,
Massachusetts 02266-8590. 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
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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 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
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<PAGE> 323
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 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,
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<PAGE> 324
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.
TELEPHONE ACCESS
Shareholders of the Group may obtain current price, yield and
other performance information on any of the Group's Funds through 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 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.
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<PAGE> 325
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 September 1, 1998, National City Corporation, 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.
Investor A Shares impose distribution fees and Investor B Shares impose
distribution fees and a sales load. 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.
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<PAGE> 326
Pursuant to Rule 17f-2, since IMC 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 8590, Boston, MA 02266-8590, or by
calling toll free (800) 451-8377.
No person has been authorized to give any information or to
make any representations not contained in this Prospectus in connection with the
offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Funds
or their Distributor. This Prospectus does not constitute an offering by the
Funds or by their Distributor in any jurisdiction in which such offering may not
lawfully be made.
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<PAGE> 327
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> 328
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 8590
Boston, MA 02266
CUSTODIAN
National City Bank
4100 West 150th Street
Cleveland, Ohio 44135
LEGAL COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107
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<PAGE> 329
INVESTMENT PORTFOLIOS OF
THE PARKSTONE GROUP OF FUNDS
INVESTOR A SHARES
INVESTOR B SHARES
INVESTOR C SHARES
INSTITUTIONAL SHARES
THE PARKSTONE GROWTH FUNDS
THE PARKSTONE GROWTH AND INCOME FUNDS
THE PARKSTONE INCOME FUNDS
THE PARKSTONE TAX-FREE INCOME FUNDS
THE PARKSTONE MONEY MARKET FUNDS
FORM N - 1A
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
ITEM NO. 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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<PAGE> 330
THE PARKSTONE GROUP OF FUNDS
Statement of Additional Information
September 16, 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 16, 1998 and the
Conservative Allocation Fund, Balanced Allocation Fund and Aggressive Allocation
Fund Prospectus dated September 15, 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 One Freedom Valley Drive,
Oaks, Pennsylvania 19456, or by telephoning toll free (800) 451-8377.
<PAGE> 331
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES......................................... 2
Additional Information On Portfolio Instruments............................ 2
Additional Investment Limitations.......................................... 19
Portfolio Turnover......................................................... 23
NET ASSET VALUE............................................................ 24
Valuation Of The Money Market Funds........................................ 25
Valuation Of The Non-Money Market Funds.................................... 25
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. 26
MANAGEMENT OF THE GROUP.................................................... 27
Trustees And Officers...................................................... 27
Investment Adviser And Subadviser.......................................... 31
Portfolio Transactions..................................................... 36
Authority To Act As Investment Adviser..................................... 39
Glass-Steagall Act......................................................... 39
Administrator And Sub-Administrator........................................ 40
Expenses................................................................... 42
Distributor................................................................ 43
Custodian, Transfer Agent And Fund Accounting Services..................... 46
Independent Auditors....................................................... 47
Legal Counsel.............................................................. 47
ADDITIONAL INFORMATION..................................................... 47
Description Of Shares...................................................... 47
Vote Of A Majority Of The Outstanding Shares............................... 49
Shareholder And Trustee Liability.......................................... 49
Additional Tax Information................................................. 50
Additional Tax Information Concerning The Exempt Funds..................... 52
Yields Of The Money Market Funds........................................... 55
Yields Of The Non-Money Market Funds....................................... 57
Calculation Of Total Return................................................ 58
Distribution Rates......................................................... 60
Performance Comparisons.................................................... 62
Miscellaneous.............................................................. 63
PRINCIPAL HOLDERS OF VOTING SECURITIES..................................... 63
FINANCIAL STATEMENTS....................................................... 75
APPENDIX .................................................................. 76
</TABLE>
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<PAGE> 332
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
Equity 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
<PAGE> 333
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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<PAGE> 334
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 Company ("IMC" 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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<PAGE> 335
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. The Investment Adviser 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.
-4-
<PAGE> 336
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 the Investment Adviser 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 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 Fund's investment policies. In making such determinations, the Investment
Adviser 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
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calculation of the limitation on the Fund's investment in illiquid securities as
set forth in that Fund's investment restrictions. Variable or floating rate
notes may be secured by bank letters of credit.
Variable or floating rate notes invested in by the Prime Obligations
Fund, U.S. Government Obligations Fund and the Tax-Free Fund may have maturities
of more than 397 days, as follows:
1. An instrument that is issued or guaranteed by the United States
government or any agency thereof which has a variable rate of interest adjusted
no less frequently than every 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
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Municipal Securities. The U.S. Government Obligations Fund may invest up to 35%
of the value of its total assets in Municipal Securities. In addition, the Bond
Fund, Limited Maturity Bond Fund and Prime Obligations Fund may invest in
Municipal Securities but shall limit such investment to the extent necessary to
preclude them from paying "exempt-interest dividends" as that term is defined in
the Internal Revenue Code of 1986, as amended (the "Code").
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term Municipal Securities if the interest paid thereon
is exempt from both federal income tax and not treated as a preference item for
purposes of the federal alternative minimum tax.
Among other types of Municipal Securities, the Tax-Free Fund and
Municipal Bond Fund may purchase short-term general obligation notes, tax
anticipation notes, bond anticipation notes, revenue anticipation notes, project
notes, tax-exempt commercial paper, construction loan notes and other forms of
short-term tax-exempt loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues. In addition, these Funds may invest in other types
of tax-exempt instruments, such as municipal bonds, private activity bonds , and
pollution control bonds.
Project notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its project notes, the notes
are also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the project notes.
The assets of the Michigan 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.
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Michigan Municipal Securities include debt obligations issued by
governmental entities to obtain funds for various public purposes, such as the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses, 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. The Investment Adviser 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.
Special Investment Considerations Relating To Investing In The Michigan
Municipal Bond Fund. The following information is drawn from various Michigan
governmental publications and from official statements relating to securities
offerings of
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the State and its political subdivisions. While the Trust has not
independently verified such information, it has no reason to believe that it is
not correct in all material respects.
The State of Michigan's economy is principally dependent on
manufacturing (particularly automobiles, office equipment and other durable
goods), tourism and agriculture, and historically has been highly cyclical.
Total State wage and salary employment is estimated to have grown by
1.5% in 1997. The rate of unemployment is estimated to have been 4.1% in 1997,
below the national average for the fourth consecutive year. Personal income grew
at an estimated 4.7% annual rate in 1997, up from the 4.2% growth reported for
1996.
During the past five years, improvements in the Michigan economy have
resulted in increased revenue collections which, together with restraints on the
expenditure side of the budget, have resulted in State General Fund budget
surpluses, most of which were transferred to the State's Counter-Cyclical Budget
and Economic Stabilization Fund. The balance of that Fund as of September 30,
1997 is estimated to have been in excess of $1.1 billion.
The Michigan Constitution limits the amount of total State revenues
that can be raised from taxes and certain other sources. State revenues
(excluding federal aid and revenues for payment of principal and interest on
general obligation bonds) in any fiscal year are limited to a fixed percentage
of State personal income in the prior calendar year or the average of the prior
three calendar years, whichever is greater, and this fixed percentage equals the
percentage of the 1978-79 fiscal year state government revenues to total
calendar 1977 State personal income (which was 9.49%).
The Michigan Constitution also provides that the proportion of State
spending paid to all units of local government to total State spending may not
be reduced below the proportion in effect in the 1978-79 fiscal year. The State
originally determined that portion to be 41.6%. If such spending does not meet
the required level in a given year, an additional appropriation for local
governmental units is required by the following fiscal year; which means the
year following the determinations of the shortfall, according to an opinion
issued by the State's Attorney General. Spending for local units met this
requirement for fiscal years 1986-87 through 1991-92. As the result of
litigation, the State agreed to reclassify certain expenditures, beginning with
fiscal year 1992-93, and has recalculated the required percentage of spending
paid to local government units to be 48.97%.
The State has issued and has outstanding general obligation full faith
and credit bonds for Water Resources, Environmental Protection Program,
Recreation Program and School Loan purposes. As of September 30, 1997, the State
had approximately $677 million of general obligation bonds outstanding.
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The State may issue notes or bonds without voter approval for the
purposes of making loans to school districts. The proceeds of such notes or
bonds are deposited in the School Bond Loan Fund maintained by the State
Treasurer and used to make loans to school districts for payment of debt on
qualified general obligations bonds issued by local school districts.
The State is a party to various legal proceedings seeking damages or
injunctive or other relief. In addition to routine litigation, certain of these
proceedings could, if unfavorably resolved from the point of view of the State,
substantially affect State programs or finances. As of early 1998, these
lawsuits involved programs generally in the areas of corrections, tax
collection, commerce, and proceedings involving budgetary reductions to school
districts and governmental units, and court funding.
The State Constitution limits the extent to which municipalities or
political subdivisions may levy taxes upon real and personal property through a
process that regulates assessments.
On March 15, 1994, Michigan voters approved a property tax and school
finance reform measure commonly known as Proposal A. Under Proposal A, as
approved, effective May 1, 1994, the State sales and use tax increased from 4%
to 6%, the State income tax decreased from 4.6% to 4.4%, the cigarette tax
increased from $.25 to $.75 per pack and an additional tax of 16% of the
wholesale price began to be imposed on certain other tobacco products. A .75%
real estate transfer tax became effective January 1, 1995. Beginning in 1994, a
state property tax of 6 mills began to be imposed on all real and personal
property currently subject to the general property tax. All local school boards
are authorized, with voter approval, to levy up to the lesser of 18 mills or the
number of mills levied in 1993 for school operating purposes on nonhomestead
property and nonqualified agricultural property. Proposal A contains additional
provisions regarding the ability of local school districts to levy taxes, as
well as a limit on assessment increases for each parcel of property, beginning
in 1995. Such increases for each parcel of property are limited to the lesser of
5% or the rate of inflation. When property is subsequently sold, its assessed
value will revert to the current assessment level of 50% of true cash value.
Under Proposal A, much of the additional revenue generated by the new taxes will
be dedicated to the State School Aid Fund.
Proposal A and its implementing legislation shifted significant
portions of the cost of local school operations from local school districts to
the State and raised additional State revenues to fund these additional State
expenses. These additional revenues will be included within the State's
constitutional revenue limitations and may impact the State's ability to raise
additional revenues in the future.
A state economy during a recessionary cycle would also, as a separate
matter, adversely affect the capacity of users of facilities constructed or
acquired through the proceeds of private activity bonds or other "revenue"
securities to make periodic payments for the use of those facilities.
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Government Obligations. Each of the Funds may invest in obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities, including bills, notes and bonds issued by the U.S. Treasury,
as well as "stripped" U.S. Treasury Obligations ("Stripped Treasury
Obligations") such as Treasury receipts issued by the U.S. Treasury representing
either future interest or principal payments. Stripped securities are issued at
a discount to their "face value," and may exhibit greater price volatility than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors. The Stripped Treasury Obligations in which
the Money Market Funds may invest do not include certificates of accrual on
Treasury securities ("CATS") or Treasury income growth receipts ("TIGRs").
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.
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When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the traded
option is the last sale price or , in the absence of a sale, the average of the
closing bid and asked prices. If an option expires on the stipulated expiration
date or if the Fund enters into a closing purchase transaction, it will realize
a gain (or a loss if the cost of a closing purchase transaction exceeds the net
premium received when the option is sold) and the deferred credit related to
such option will be eliminated. If an option is exercised, the Fund may deliver
the underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss
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
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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 The Investment Adviser's opinion, present minimal
credit risks.
When-Issued and Delayed-Delivery Securities. Each Fund may purchase
securities on a "when-issued" or "delayed-delivery" basis (i.e., for delivery
beyond the normal settlement date at a stated price and yield). When the Fund
agrees to purchase securities on a "when-issued" or "delayed-delivery" basis,
the Fund's Custodian will set aside cash or liquid securities equal to the
amount of the commitment in a separate account. Normally, the Custodian will set
aside portfolio securities to satisfy the purchase commitment, and in such a
case, the Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected 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 the Investment Adviser 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
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Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"),
as well as by non-governmental issuers such as commercial banks, savings and
loan institutions, mortgage bankers and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
are otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If a Fund purchases a mortgage-related security at
a premium, that portion may be lost if there is a decline in the market value of
the security whether resulting from changes in interest rates or prepayments in
the underlying mortgage collateral. As with other interest-bearing securities,
the prices of such securities are inversely affected by changes in interest
rates. However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates, the mortgages underlying the securities are prone to
prepayment, thereby shortening the average life of the security and shortening
the period of time over which income at the higher rate is received. When
interest rates are rising, though, the rate of prepayment tends to decrease,
thereby lengthening the period of time over which income at the lower rate is
received. For these and other reasons, a mortgage-related security's average
maturity may be shortened or lengthened as a result of interest rate
fluctuations and, therefore, it is not possible 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.
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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 rated BBB by S&P or Baa by Moody's)
or, if not rated, are of comparable quality as determined by The Investment
Adviser. ("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, the Investment Adviser
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 the Investment Adviser the
day-to-day
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<PAGE> 347
authority to determine whether a particular issue of Section 4(2) Securities
that are eligible for resale under Rule 144A under the 1933 Act should be
treated as liquid. Rule 144A provides a safe-harbor exemption from the
registration requirements of the 1933 Act for resales to "qualified
institutional buyers" as defined in the Rule. With the exception of registered
broker-dealers, a qualified institutional buyer must generally own and invest on
a discretionary basis at least $100 million in securities.
The Investment Adviser 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, the Investment Adviser 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 the Investment Adviser
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
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<PAGE> 348
agreements and, with respect to the Income and Tax-Free Income Funds, dollar
roll agreements in accordance with that Fund's investment restrictions. Pursuant
to such agreements, a Fund would sell portfolio securities to financial
institutions such as banks and broker-dealers, and agree to repurchase the
securities, or substantially similar securities in the case of a dollar roll
agreement, at a mutually agreed upon date and price. A dollar roll agreement is
identical to a reverse repurchase agreement except for the fact that
substantially similar securities may be repurchased. At the time a Fund enters
into a reverse repurchase agreement or a dollar roll agreement, it will place in
a segregated custodial account assets such as U.S. government securities or
other liquid, high grade debt securities consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently continually monitor the account to ensure that
such equivalent value is maintained. Reverse repurchase agreements and dollar
roll agreements involve the risk that the market value of the securities sold by
a Fund may decline below the price at which a Fund is obligated to repurchase
the securities. Reverse repurchase agreements and dollar roll agreements are
considered to be borrowings by a Fund under the 1940 Act.
Futures Contracts. Each of the Growth Funds, Growth and Income Funds,
Income Funds and the Municipal Bond Fund may enter into futures contracts. This
investment technique is designed primarily to hedge against anticipated future
changes in market conditions or foreign exchange rates which otherwise might
adversely affect the value of securities which a Fund holds or intends to
purchase. For example, when interest rates are expected to rise or market values
of portfolio securities are expected to fall, a Fund can seek through the sale
of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, a Fund, through the purchase of such contracts, can attempt to
secure better rates or prices for the Fund than might later be available in the
market when it effects anticipated purchases.
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
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<PAGE> 349
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded directly between currency traders
(usually large commercial banks) and their customers.
No Fund intends to enter into such forward foreign currency exchange
contracts if such Fund would have more than 15% of the value of its total assets
committed to such contracts on a regular or continuous basis. A Fund also will
not enter into such forward contracts or maintain a net exposure on such
contracts where such Fund would be obligated to deliver an amount of foreign
currency in excess of the value of such Fund's portfolio securities or other
assets denominated in that currency. The Investment Adviser 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.
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<PAGE> 350
Unlike forward foreign currency exchange contracts, foreign currency
futures contracts and options on foreign currency futures contracts are
standardized as to amount and delivery period and may be traded on boards of
trade and commodities exchanges or directly with a dealer which makes a market
in such contracts and options. It is anticipated that such contracts may provide
greater liquidity and lower cost than forward foreign currency exchange
contracts.
Regulatory Restrictions. To the extent required to comply with
Securities and Exchange Commission (the "SEC") Release No. IC-10666, when
purchasing a futures contract or writing a put option or entering into a forward
foreign currency exchange purchase, a Fund will maintain in a segregated account
cash or liquid high-grade debt securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of such Fund's total assets. Such Fund will not engage in
transactions in financial futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting the
values of securities which such Fund holds or intends to purchase. When futures
contracts or options thereon are purchased to protect against a price increase
on securities intended to be purchased later, it is anticipated that at least
25% of such intended purchases will be completed. When other futures contracts
or options thereon are purchased, the underlying value of such contracts will at
all times not exceed the sum of: (1) accrued profit on such contracts held by
the broker; (2) cash or high quality money market instruments set aside in an
identifiable manner; and (3) cash proceeds from investments due in 30 days.
Lending of Portfolio Securities. In order to generate additional
income, each of the Funds except the Treasury Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks or institutional borrowers of
securities. A Fund must receive 100% collateral in the form of cash or U.S.
government securities. This collateral must be valued daily by 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 the Investment Adviser or Gulfstream has
determined are creditworthy under guidelines established by the Group's Board of
Trustees.
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<PAGE> 351
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, with the exception of
the U.S. Government Obligations and Treasury Funds. The investment objectives of
the U.S. Government Obligations and Treasury Funds are fundamental and may not
be changed without a vote of the holders of a majority of outstanding shares of
that Fund. 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
INFORMATION - Vote of a Majority of the Outstanding Shares" in this Statement of
Additional Information).
The following investment restrictions apply to all Funds except the
U.S. Government Obligations Fund and the Treasury Fund:
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
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<PAGE> 352
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.
5. Invest more than 15% (10% in the case of a Money Market Fund) of its
net assets in illiquid securities.
The following investment restrictions apply to the U.S. Government
Obligations Fund and the Treasury Fund:
No Fund may:
Purchase securities on margin, except for use of short-term
credit necessary for clearance of purchases of portfolio securities.
No Fund may:
Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities, if, immediately after such purchase, more than 5% of the
value of the Fund's total assets would be invested in such issuer, or the Fund
would hold more than 10% of the outstanding voting securities of the issuer,
except that 25% or less of the value of such Fund's total assets may be invested
without regard to such limitations. There is no limit to the percentage of
assets that may be invested in U.S. Treasury bills, notes, or other obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities.
Irrespective of this investment restriction, and pursuant to
Rule 2a-7 under the 1940 Act, the U.S. Government Obligations Fund and the
Treasury Fund each will, with respect to 100% of its total assets, limit its
investment in the securities of any one issuer in the manner provided by such
Rule, which limitations are referred to in the applicable Prospectuses under the
caption "INVESTMENT OBJECTIVES AND POLICIES-The Money Markets Funds."
None of the Funds will:
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<PAGE> 353
1. Underwrite the securities issued by other persons, except to the
extent that a Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
2. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Fund;
3. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction);
4. Purchase any securities which would cause more than 25% of the value
of the Fund's total assets at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities and repurchase agreements secured by obligations of the U.S.
government or its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents,
and (c) utilities will provide according to their services. For example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry;
5. Borrow money (not including reverse repurchase agreements or dollar
roll agreements), except that each Fund may borrow from banks for temporary or
emergency purposes and then only in amounts up to 30% of its total assets at the
time of borrowing (and provided that such bank borrowings and reverse repurchase
agreements and dollar roll agreements do not exceed in the aggregate one-third
of the Fund's total assets (10% in the case of the Money Market Funds) less
liabilities other than the obligations represented by the bank borrowings,
reverse repurchase agreements and dollar roll agreements), or mortgages, pledge
or hypothecate any assets except in connection with a bank borrowing in amounts
not to exceed 30% of the Fund's net assets at the time of borrowing;
6. Enter into reverse repurchase agreements, dollar roll agreements and
other permitted borrowings in amounts exceeding in the aggregate one-third of
the Fund's total assets (10% in the case of the Money Market Funds) less
liabilities other than the obligations represented by such reverse repurchase
and dollar roll agreements;
7. Issue senior securities except as permitted by 1940 Act or any rule,
order or interpretation thereunder;
8. Make loans, except that a Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objective and
policies , make time deposits with financial institutions and enter into
repurchase agreements; or
9. Write any call options on securities unless the securities are held
by the Fund or unless the Fund is entitled to such securities in deliverable
form in exchange for cash in
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<PAGE> 354
an amount which has been segregated for payment or without further payment. In
no event will a Fund write call options in excess of 5% of its total assets.
For purposes of investment limitation number 4 above only, such
limitation shall not apply to Municipal Securities or governmental guarantees of
Municipal Securities, and industrial development bonds or private activity bonds
that are backed only by the assets and revenues of a non-governmental user shall
not be deemed to be Municipal Securities.
The following additional investment restrictions may be changed without
the vote of a majority of the outstanding shares of a Fund. No Fund may:
1. Engage in any short sales;
2. Invest more than 10% of the Fund's total assets in the securities of
issuers which, together with any predecessors, have a record of less than three
years of continuous operation;
3. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
to the extent permitted by the 1940 Act or pursuant to any exemptions therefrom;
4. Purchase or retain securities of any issuer if the officers or
Trustees of the Group and the officers or directors of its Investment Adviser
and of its Administrator, who each owns beneficially more than one-half of 1% of
the outstanding securities of such issuer, together own beneficially more than
5% of such securities;
5. Purchase participations or direct interests in oil, gas or other
mineral exploration or development programs (although investments by the Fund in
marketable securities of companies engaged in such activities are not prohibited
by this restriction); or
6. Purchase or otherwise acquire any securities if, as a result, more
than 15% (10% in the case of the Money Market Funds) of the Fund's net assets
would be invested in securities that are illiquid.
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.
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<PAGE> 355
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
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<PAGE> 356
turnover rate may be as high as 500%. High portfolio turnover rates
will generally result in higher transaction costs to a Fund, including brokerage
commissions, and may result in additional tax consequences to a Fund's
shareholders. Portfolio turnover will not be a limiting factor in making
investment decisions.
Significant changes in the portfolio turnover rates for the Small
Capitalization Fund, the Mid Capitalization Fund and the Large Capitalization
Fund were primarily the result of fundamental changes in the prospects of the
companies held and/or the availability of better opportunities. In addition,
with respect to the Small Capitalization Fund and the Mid Capitalization Fund,
portfolio turnover was affected by equity market capitalization exceeding $2.5
billion and $10 billion, respectively. For the Equity Income Fund, reduced
portfolio turnover resulted from sustained suitability of securities held in the
portfolio. The decrease in portfolio turnover for the International 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.
PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUNDS
- ---------------------------------------------------
During the fiscal year ended May 31, 1998, portfolio turnover was 774.28% as
compared to 1516.78% for the previous fiscal year. The style of investment
management employed by the investment advisor sought to enhance shareholder's
total return through the active trading of portfolio holdings. The advisors
style involves the monitoring of market values of securities held by the fund
relative to securities available in the marketplace. When the advisor believes
the relationships to be out of line with historically normal relationships,
they would trade the securities held for those in the marketplace. The advisor
believes that these "swaps" produce profits which benefit shareholders.
The advisor believes that opportunities for profits from the above described
activity are related to market conditions such as volatility. As market
volatility varies from period to period, so to may the opportunities to profit
from those market conditions. In the advisor's estimation, the fiscal year ended
May 31, 1998 presented less opportunity for such profitable trades than did the
previous fiscal year and therefore trade activity was less than during the
previous period.
An additional factor which reduced turnover is the result of the change in
fiscal year. The fiscal year ended May 31, 1998 covers eleven months as compared
to twelve for the previous fiscal year.
PARKSTONE GOVERNMENT INCOME FUND
- ----------------------------------
During the fiscal year ended May 31, 1998, portfolio turnover was 278.94% as
compared to 499.53% for the previous fiscal year. The style of investment
management employed by the investment advisor sought to enhance shareholder's
total return through the active trading of portfolio holdings. The advisors
style involves the monitoring of market values of securities held by the fund
relative to securities available in the marketplace. When the advisor believes
the relationships to be out of line with historically normal relationships,
they would trade the securities held for those in the marketplace. The advisor
believes that these "swaps" produce profits which benefit shareholders.
The advisor believes that opportunities for profits from the above described
activity are related to market conditions such as volatility. As market
volatility varies from period to period, so to may the opportunities to profit
from those market conditions. In the advisor's estimation, the fiscal year ended
May 31, 1998 presented less opportunity for such profitable trades than did the
previous fiscal year and therefore trade activity was less than during the
previous period.
An additional factor which reduced turnover is the result of the change in
fiscal year. The fiscal year ended May 31, 1998 covers eleven months as
compared to twelve for the previous fiscal year.
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>
<S> <C>
Net Assets $ 163,177,742.80
Outstanding Shares 6,345,379.583
Net Asset Value Per Share $ 25.72
Sales Charge, 4.50% of
the offering price (4.71 of NAV) per share 1.21
----------------
Offering Price $ 26.93
</TABLE>
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<PAGE> 357
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 $ 41,399,578.97
Outstanding Shares 1,654,854.623
Net Asset Value Per Share $ 25.02
Sales Charge 0.00
---------------
Offering Price $ 25.02
</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 $ 527,805,014.00
Outstanding Shares 20,185,252.327
Net Asset Value Per Share $ 26.15
Sales Charge 0.00
----------------
Offering Price $ 26.15
</TABLE>
Valuation of the Money Market Funds
The Money Market Funds have elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price a Fund would receive if it sold the instrument. The value of
securities in the Money Market Funds can be expected to vary inversely with
changes in prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Funds will maintain a
dollar-weighted average maturity appropriate to each Fund's objective of
maintaining a stable net asset value per share, provided that no Fund will
purchase any security with a remaining maturity of more than 397 days (thirteen
months) (securities subject to repurchase agreements may bear longer maturities)
nor will it maintain a dollar-weighted average maturity which exceeds 90 days.
The Group's Board of Trustees has also undertaken to establish procedures
reasonably designed, taking into account current market conditions and the
investment objective of each of these Funds, to stabilize the net asset value
per share of each Fund for purposes of sales and redemptions at $1.00. These
procedures include review by the Trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
share of each Fund calculated by using available market quotations deviates from
$1.00 per share. In the event such deviation exceeds 0.5%, Rule 2a-7 requires
that the Board of Trustees promptly consider what action, if any, should be
initiated. If the Trustees believe that the extent of any deviation from a
Fund's $1.00 amortized cost price per share may result in material dilution or
other unfair results
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<PAGE> 358
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 Investments 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, other 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 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
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<PAGE> 359
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 and Retired Co-Chairman of Ernst &
32980 Creekside Drive Trustee Young, April 1984 to September 1993;
Pepper Pike, OH 44124 Director, Cold Metal Products, Inc.,
Age 64 since March 1994; Director, Zurn
Industries, Inc. (building products
and construction services),
</TABLE>
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<PAGE> 360
<TABLE>
<CAPTION>
Names, Addresses Positions(s) Held Principal Occupation
and Birthdates With the Group During Past 5 Years
------------------- -------------- -------------------
<S> <C> <C>
June 1995 to June 1998.
Herbert R. Martens, Jr.* President and 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 46 Officer, NatCity Investments, Inc.,
since July 1995 (investment banking);
President and Chief Executive Officer,
Raffensberger, Hughes & Co. from 1993 until
1995 (broker-dealer); President, Reserve
Capital Group, from 1990 until 1993.
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 73 1990; Director, Adams Express
Company (closed-end investment company),
April 1982 to December 1997; Director,
Acromed Corporation; (producer of spinal
implants), June 1992 to March 1998;
Director, Petroleum & Resources Corp., April
1987 to December 1997; Director, Morrison
Products (manufacturer of blowers fans and
air moving equipment), since April 1983;
Director, Kirtland Capital Corp. (privately
funded investment group), since January
1992.
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
</TABLE>
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<PAGE> 361
<TABLE>
<CAPTION>
Names, Addresses Positions(s) Held Principal Occupation
and Birthdates With the Group During Past 5 Years
------------------- -------------- -------------------
<S> <C> <C>
January 1989.
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 Bank until October 1997;
Director, Republic Engineered Steels, since
October 1997.
Richard W. Furst, Dean Trustee Professor of Finance and Dean, Carol
600 Autumn Lane Martin Gatton College of Business
Lexington, KY 40502 and Economics; University of
Age 60 Kentucky, since 1981; Director, The
Seed Corporation (restaurant group), since
1990; Director, Foam Design, Inc.,
(manufacturer of industrial and commercial
foam products), since 1993.
Gerald L. Gherlein Trustee Executive Vice-President and General
3679 Greenwood Drive Counsel, Eaton Corporation, since
Pepper Pike, OH 44124 1991 (global manufacturing);
Age 60 Trustee, Meridia Health System (four
hospital health system), 1994 to 1998;
Trustee, WVIZ Educational Television (public
television).
</TABLE>
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<PAGE> 362
<TABLE>
<CAPTION>
Names, Addresses Positions(s) Held Principal Occupation
and Birthdates With the Group During Past 5 Years
------------------- -------------- -------------------
<S> <C> <C>
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.
</TABLE>
*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.
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.
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<PAGE> 363
COMPENSATION TABLE
<TABLE>
<CAPTION>
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- 31,500
Leigh Carter -0- -0- -0- 27,750
John F. Durkott -0- -0- -0- 27,750
Robert J. Farling -0- -0- -0- 20,875
Richard W. Furst -0- -0- -0- 27,750
Gerald L. Gherlein -0- -0- -0- -0-
Herbert R. Martens, Jr. -0- -0- -0- 24,750
J. William Pullen -0- -0- -0-
John B. Rapp 6,500 -0- -0-
George R. Landreth -0- -0- -0- -0-
Robert M. Beam 25,750 -0- -0- -0-
Lawrence D. Bryan 21,000 -0- -0- -0-
Adrian Charles Edwards 25,750 -0- -0- -0-
James F. Jones, Jr. 17,250 -0- -0- -0-
</TABLE>
Each Trustee who is not an affiliated person of BISYS or National City
Corporation, the ultimate parent of IMC, receives an annual fee of $12,500 plus
$3,000 for each Board meeting attended and reimbursement of expenses incurred in
attending meetings for services as a Trustee to the Fund Complex. The Chairman
of the Board is entitled to receive an additional $5,000 per annum for services
in such capacity. 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. Landreth is an employee
of BISYS. He received no compensation from the Group for acting as Trustee.
Messrs. Rapp, Beam, Bryan, Edwards and Jones served as Trustees until
their resignations on August 14, 1998.
* Reflects total compensation paid to Trustees for the 11 month period June 30,
1997 through May 31, 1998.
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<PAGE> 364
The officers of the Group, their addresses, and principal occupations
during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name 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, SEI 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 IMC (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, Municipal
Bond Fund, Michigan Municipal Bond Fund, Conservative Allocation Fund, Balanced
Allocation Fund, Aggressive Allocation Fund and Government Income Fund) (the
"First Investment Advisory
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<PAGE> 365
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").
IMC 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, the Investment Adviser 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 IMC 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. The
Investment Adviser 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, the Investment
Adviser 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, the Investment Adviser 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, the Investment Adviser 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, the Investment
Adviser may retain a subadviser to manage the investment and reinvestment of the
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<PAGE> 366
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 the Investment Adviser entered into a
Sub-Investment Advisory Agreement between the Investment Adviser 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 the Investment Adviser to manage the investment and reinvestment of the
assets of the International Discovery Fund, subject to the direction and control
of the Investment Adviser 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 the Investment Adviser 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. 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
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 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 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
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<PAGE> 367
other than the cost of securities (including brokerage commissions, if any)
purchased for the Group.
Gulfstream was organized in 1991 as a Texas limited partnership by
Tull, Doud, Marsh & Triltsch, Inc., a Texas corporation ("TDMT"). TDMT is the
sole general partner of Gulfstream. TDMT is owned by C. Thomas Tull, Stephen C.
Doud, James P. Marsh and Reiner M. Triltsch. Messrs. Tull, Doud and Triltsch are
the portfolio managers and Mr. Marsh is responsible for client services with
Gulfstream. IMC is the sole limited partner of Gulfstream, holding a 72%
interest. As of May 31, 1998, Gulfstream had over $876 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> 368
<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> <C> <C>
Prime Obligations 3,212,525 -- 3,441,611 -- 3,144,270 84
U.S. Government Obligations 1,390,243 -- 1,712,370 -- 1,638,981 17
Tax-Free 631,554 -- 651,531 -- 629,497 6
Treasury 1,905,446 -- 1,618,910 -- 1,300,994 1,189
Small Capitalization 7,988,486 -- 7,049,924 -- 5,765,210 8,667
Mid Capitalization 6,103,574 -- 6,531,413 -- 8,178,104 2,655
Large Capitalization(l) 2,681,620 -- 2,725,217 -- 432,969 19,514
International Discovery 4,978,744 -- 4,981,112 -- 3,968,550 3,839
Equity Income 3,930,234 -- 4,335,969 -- 4,277,488 206
Conservative Allocation(2) 143,243 42,973 44,485 13,345 -- --
Balanced Allocation 2,599,865 649,964 1,946,812 484,709 1,168,319 292,740
Aggressive Allocation(2) 357,342 53,601 136,524 20,479 -- --
Bond 3,554,009 192,110 4,027,206 207,298 4,106,765 222,927
Limited Maturity Bond 1,263,800 324,490 1,134,805 289,664 1,155,348 296,518
Intermediate Government
Obligations 1,334,336 72,116 1,692,438 86,957 1,982,604 106,624
Government Income 1,649,105 646,269 1,587,392 620,579 1,384,056 542,801
Municipal Bond 954,911 245,181 1,058,852 270,292 1,079,024 276,973
Michigan Bond 1,705,361 437,864 1,715,085 437,841 1,653,555 424,702
</TABLE>
(1) Commenced operations December 27, 1995.
(2) Commenced operations December 30, 1996.
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
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<PAGE> 369
purpose. Unless sooner terminated, the Sub-Investment Advisory Agreement
continues in effect successive one-year periods ending December 31, if such
continuance is approved as described above with respect to the Investment
Advisory Agreements. The Investment Advisory Agreements and the 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 the Investment Adviser 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 the Investment Adviser 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, the Investment
Adviser 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
The Investment Adviser, 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
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<PAGE> 370
securities generally include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers may include
the spread between the bid and asked prices. Transactions on stock exchanges
involve the payment of negotiated brokerage commissions. Transactions in the
over-the-counter market are generally principal transactions with dealers. With
respect to the over-the-counter market, the Group, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Investment Adviser 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 the Investment Adviser 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 the Investment Adviser or Gulfstream and does not reduce the
fees payable to such advisers by the Group or the Investment Adviser, as the
case may be. Such information may be useful to the Investment Adviser 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 the Investment Adviser 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 $2,930,315, $3,118,633 and $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 IMC), 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 The Investment Adviser. 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 the Investment Adviser 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, the Investment Adviser may aggregate the
securities to be sold or purchased for a Fund with those
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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, the Investment Adviser will not inquire or take into consideration
whether an issuer of securities proposed for purchase or sale by the Group is a
customer of The Investment Adviser, its parent or its subsidiaries or
affiliates, and, in dealing with its customers, The Investment Adviser, 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 Goldman Sachs and Morgan Stanley, respectively:
$4,870,000 and $34,944,000. The Treasury Fund held the following amounts of
securities of Bank of America, Goldman Sachs, J.P. Morgan, and Nomura
Securities, respectively: $28,000,000, $20,000,000, $28,000,000 and
$140,000,000. The Conservative Allocation Fund held the following amounts of
securities of Salomon Smith Barney:
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$99,000. The Balanced Allocation Fund held the following amounts of the
securities of Lehman Brothers: $3,386,000. The Aggressive Allocation Fund held
the following amounts of securities of Salomon Smith Barney: $222,000 and. The
Equity Income Fund held the following amounts of securities of Morgan Stanley:
$7,493,000. The Bond Fund held the following amounts of securities of Lehman
Brothers: $2,944,000. The Limited Maturity Bond Fund held the following amounts
of securities of Lehman Brothers: $7,170,000. The Government Income Fund held
the following amounts of securities of Prudential: $5,469,000.
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
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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 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.
The Investment Adviser 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 the Investment Adviser from continuing to perform such services for the
Group. Depending upon the nature of any changes in the services which could be
provided by The Investment Adviser, the Board of Trustees of the Group would
review the Group's relationship with the Investment Adviser and consider taking
all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of the Investment Adviser 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 the Investment Adviser under the Investment Advisory
Agreements, by Gulfstream under its Sub-Investment Advisory Agreement, by
National City Bank and
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Union Bank (the "Custodians") 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 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 the Investment Adviser 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 IMC to provide certain
services as Sub- Administrator to the Funds of the Group. IMC 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, IMC 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 , IMC 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:
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<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> <C> <C>
Prime Obligations 1,606,277 160,613 1,717,665 168,939 1,572,135 157,229
U.S. Government Obligations 695,128 69,506 854,229 83,726 819,490 81,957
Tax-Free 315,780 31,575 325,122 31,933 314,749 31,478
Treasury 952,742 476,362 808,404 403,676 649,909 324,958
Small Capitalization 1,597,709 -- 1,410,121 -- 1,153,042 1,736
Mid Capitalization 1,220,724 -- 1,306,285 -- 1,635,613 --
Large Capitalization 670,411 -- 681,310 -- 108,242 4,880
International Discovery 865,301 -- 858,253 -- 677,155 613
Equity Income 786,053 -- 867,179 -- 855,486 28
Conservative Allocation(1) 28,649 -- 8,897 -- -- --
Balanced Allocation 519,977 -- 389,895 -- 232,664 176
Aggressive Allocation(1) 71,469 -- 27,305 -- -- --
Bond 960,550 240,142 1,089,049 270,497 1,109,936 277,654
Limited Maturity Bond 341,570 85,394 306,698 76,205 312,256 78,030
Intermediate Government
Obligations 360,580 90,147 457,683 113,651 535,839 133,851
Government Income 445,707 111,428 428,868 106,625 374,069 93,652
Municipal Bond 258,086 129,041 286,364 142,990 291,628 145,801
Michigan Municipal Bond 460,912 230,452 463,836 231,610 446,907 223,479
</TABLE>
(1) Commenced operations December 30, 1996.
Unless sooner terminated as provided therein, the Administration
Agreement and the Sub-Administration Agreement will continue in effect until
December 31, 1999. The Administration Agreement and the Sub-Administration
Agreement thereafter shall be renewed automatically for successive five-year
terms, unless written notice not to renew is given by the non-renewing party to
the other Party at least 60 days prior to the 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).
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The Administration Agreement and the Sub-Administration Agreement
provide that the Administrator and the Sub-Administrator shall not be liable for
any error of judgment or mistake of law or any loss suffered by the Group in
connection with the matters to which the Administration Agreement or the
Sub-Administration Agreement relate, except a loss resulting from willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
from the reckless disregard by the Administrator or the Sub-Administrator of its
obligations and duties thereunder.
Expenses
If total expenses borne by any of the Funds in any fiscal year exceed
expense limitations imposed by applicable state securities regulations, IMC,
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 September 14, 1998 (the "Distribution Agreement"). BISYS served
as the principal underwriter and distributor for the Group prior to September
14, 1998. Unless otherwise terminated, the Distribution Agreement remains in
effect for successive one-year periods ending September 14 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 and $4,099,106, respectively. Of
that amount BISYS retained $_______, $3,241,396 and $3,814,505, 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
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<PAGE> 377
"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 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 Group discontinued its Investor C Distribution and Shareholder
Service Plan with respect to Investor C Shares (the "Investor C Plan") on
____________, 1998. For the fiscal period ended May 31, 1998, BISYS received
$_______ pursuant to the Investor C Plan to compensate dealers for their
distribution and shareholder service assistance. Of that amount, BISYS received
$______ for payments to FSI under the Investor C Plan.
The Plans may be terminated as to a Fund by vote of a majority
of the Independent Trustees, or by vote of a majority of the outstanding shares
of the applicable class of the Fund. Any change in a Plan that would materially
increase the distribution cost to the Fund
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<PAGE> 378
requires shareholder approval. The Trustees review quarterly a written report of
such costs and the purposes for which such costs have been incurred. The Plan
may be amended by vote of the Trustees including a majority of the Independent
Trustees, cast in person at a meeting called for that purpose. For so long as
the Plans are in effect, selection and nomination of those Trustees who are not
interested persons of the Group shall be committed to the discretion of such
Independent Trustees. All agreements with any person relating to the
implementation of a Plan may be terminated at any time on 60 days' written
notice without payment of any penalty, by vote of a majority of the Independent
Trustees or by a vote of the majority of the outstanding shares of the
applicable class of the Fund. The Plans will continue in effect for successive
one-year periods, provided that each such continuance is specifically approved
(i) by the vote of a majority of the Independent Trustees, and (ii) by a vote of
a majority of the entire Board of Trustees cast in person at a meeting called
for that purpose. The Board of Trustees has a duty to request and evaluate such
information as may be reasonably necessary for them to make an informed
determination of whether the Plans should be implemented or continued. In
addition the Trustees in approving the Plans must determine that there is a
reasonable likelihood that the Plans will benefit the Funds and their
shareholders.
The Board of Trustees of the Group believes that the Plans are in the
best interests of the Funds since they encourage Fund growth. As the Funds grow
in size, certain expenses, and therefore total expenses per share, may be
reduced and overall performance per share may be improved.
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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, 1900 East Ninth Street, Cleveland, Ohio 44114, an
affiliate of IMC serves as Custodian to the Group pursuant to the. Custodian
Services Agreement dated as of July 24, 1998. Mitsubishi Bank serves as
sub-custodian for the International Discovery Fund pursuant to an agreement
dated ______. The Custodians' 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.
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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 September 14, 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 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 September 14, 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 $1,746,000,
$1,722,000, and $1,491,244, respectively, from the Group.
Independent Auditors
The Financial Statements of the Group as of May 31, 1998, which appear
in the Group's Annual Report dated May 31, 1998, 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
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<PAGE> 381
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.
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
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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.
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.
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Shareholder and Trustee Liability
Under Massachusetts law, holders of units of interest in a business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. However, the Group's Declaration of Trust
provides that shareholders shall not be subject to any personal liability for
the obligations of the Group, and that every written agreement, obligation,
instrument, or undertaking made by the Group shall contain a provision to the
effect that the shareholders are not personally liable thereunder. The
Declaration of Trust provides for indemnification out of the trust property of
any shareholder held personally liable solely by reason of his or her being or
having been a shareholder. The Declaration of Trust also provides that the Group
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Group, and shall satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Group
itself would be unable to meet its obligations.
The Declaration of Trust states further that no Trustee, officer, or
agent of the Group shall be personally liable in connection with the
administration or preservation of the assets of the trust or the conduct of the
Group's business; nor shall any Trustee, officer, or agent be personally liable
to any person for any action or failure to act except 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.
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A non-deductible excise tax is also imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. For the
foregoing purposes, a Fund is treated as having distributed any amount on which
it is subject to income tax for any taxable year ending in such calendar year.
If distributions during a calendar year were less than the required amount, a
particular Fund would be subject to a non-deductible excise tax equal to 4% of
the deficiency.
Each of the Funds will be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable dividends paid to 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"
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<PAGE> 385
positions generally include regulated futures contracts, foreign currency
contracts, non-equity options and dealer equity options.
Absent a tax election to the contrary, each such Section 1256 position
held by a Fund will be marked to market (i.e., treated as if it were sold for
fair market value) on the last business day of that Fund's fiscal year, and all
gain or loss associated with fiscal year transactions and marked- to-market
positions at fiscal year end (except certain currency gain or loss covered by
Section 988 of the Code) will generally be treated as 60% long term capital gain
or loss and 40% short-term capital gain or loss. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-term capital losses within such Fund. The
acceleration of income on Section 1256 positions may require the Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, a Fund may be
required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources, such as the sale of
the Fund's shares. In these ways, any or all of these rules may affect the
amount, character and timing of income earned and in turn distributed to
shareholders by the Funds.
When a Fund holds options or contracts which substantially diminish its
risk of loss with respect to other positions (as might occur in some hedging
transactions), this combination of positions could be treated as a straddle for
tax purposes, resulting in possible deferral of losses, adjustments in the
holding periods of securities owned by a Fund and conversion of short-term
capital losses into long-term capital losses. Certain tax elections exist for
mixed straddles, i.e., straddles comprised of at least one Section 1256 position
and at least one non-Section 1256 position which may reduce or eliminate-the
operation of these straddle rules.
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
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<PAGE> 386
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. 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.
Each Fund will limit its interest rate and currency swaps to the extent
necessary to comply with this requirement.
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
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<PAGE> 387
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.
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
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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.
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.
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Additional Tax Information Concerning the International Discovery Fund
The International Discovery Fund may 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 invests in
PFICs, its may adopt certain tax strategies to reduce or eliminate the adverse
effects of certain federal tax provisions governing PFIC investments. Many
non-U.S. banks and insurance companies may not be treated as PFICs if they
satisfy certain technical requirements under the Code. To the extent that the
International Discovery Fund invests 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 its 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, the International Discovery Fund were treated as 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 were treated as having a permanent establishment in
the UK, the 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 is 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 the 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: 4.82% and 4.94%; 4.80% and 4.92%; 4.84% and 4.96%; and 3.05% and
3.09%. 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:
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4.92% and 4.94%; 4.90% and 5.02%; 4.94% and 5.07%; and 3.15% and 3.19%. 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%].
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 5.04% and its tax-equivalent effective yield (using a federal
income tax rate of 39.6%) for the same period was 5.11%. 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 5.21% and its tax-equivalent effective yield (using a federal
income tax rate of 39.6%) for the same period was 5.28%. 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-
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Free Fund's tax-equivalent effective yields were computed by dividing that
portion of the effective yield which is tax-exempt by one minus the stated
income tax rate and adding to that result the portion, if any, of the Tax-Free
Fund's effective yield that is not tax-exempt.
At any time in the future, yields may be higher or lower than past
yields and there can be no assurance that any historical results will continue.
Yields of the Non-Money Market Funds
As summarized in the Prospectuses under the heading "PERFORMANCE
INFORMATION," yields of each of the Non-Money Market Funds will be computed by
analyzing net investment income per share for a recent thirty-day period and
dividing that amount by a Fund share's maximum offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
trading day of that period. Net investment income will reflect amortization of
any market value premium or discount of fixed income securities (except for
obligations backed 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 30-day period ended May 31, 1998, the yields, calculated as set
forth above, for the Funds were as follows:
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<TABLE>
<CAPTION>
Investor A B Shares Investor I
With Sales Load
<S> <C> <C> <C>
Parkstone Small Capitalization Fund 0.00% 0.00% 0.00%
Parkstone Mid Capitalization Fund 0.00% 0.00% 0.00%
Parkstone Large Capitalization Fund 0.00% 0.00% 0.00%
Parkstone International Discovery Fund % % %
Parkstone Equity Income Fund 1.01% 0.31% 1.31%
Parkstone Conservative Allocation Fund N/A% N/A% 3.06%
Parkstone Balanced Allocation Fund 1.64% 0.97% 1.97%
Parkstone Aggressive Allocation Fund N/A% N/A% 0.29%
Parkstone Bond Fund 4.87% 4.32% 5.32%
Parkstone Limited Maturity Fund 4.49% 3.93% 4.94%
Parkstone Intermediate Government
Obligations Fund 4.62% 4.06% 5.06%
Parkstone U.S. Government Income Fund 5.00% 4.47% 5.47%
</TABLE>
The tax-equivalent yields for the Municipal Bond Funds for the 30-day
period ended May 31, 1998 (assuming a 39.6% federal tax rate for the Municipal
Bond Fund and a ___% Michigan income tax rate for the Michigan Municipal Bond
Fund) were as follows:
<TABLE>
<CAPTION>
Investor A B Shares Investor I
With Sales Load
<S> <C> <C> <C>
Parkstone Municipal Bond Fund 2.92% 2.30% 3.29%
Parkstone Michigan Municipal Bond Fund 3.17% 2.56% 3.55%
</TABLE>
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.
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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 the maximum sales load, were: Small
Capitalization Fund, 0.74%, 14.72% and 16.82%; Mid Capitalization Fund, 15.93%,
13.54% and 14.32%; Equity Income Fund, 16.20%, 14.00% and 14.20%; Balanced
Allocation Fund, 10.22%, 10.78% and 10.59%; Bond Fund, 5.73%, 5.48% and 7.57%;
Limited Maturity Bond Fund, 1.60%, 4.04% and 6.17%; Intermediate Government
Obligations Fund, 3.25%, 4.22% and 6.41%; Municipal Bond Fund, 1.87%, 4.00% and
5.68% and Michigan Municipal Bond Fund, 2.50%, 4.35% and 5.79%. 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, 27.06% and 25.52%; Government Income Fund, 4.27% and 5.56%;
and International Discovery Fund, 4.42% and 10.64%.
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, 5.48%, 15.78% and 17.39%; Mid Capitalization Fund, 21.40%,
14.59% and 14.87%; Equity Income Fund, 21.68%, 14.00% and 14.20%; Balanced
Allocation Fund, 15.41%, 11.80% and 11.40%; Bond Fund, 10.12%, 6.34% and 8.03%;
Limited Maturity Bond Fund, 5.83%, 4.90% and 6.62%; Intermediate Government
Obligations Fund, 7.51%, 5.07% and 6.87%; Municipal Bond Fund, 6.14%, 4.85% and
6.14%; and Michigan Municipal Bond Fund, 6.76%, 5.21% and 6.34%. 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, 33.05% and 28.03%; Government Income Fund, 8.61% and
6.34%; and International Discovery Fund, 9.35% and 11.58%.
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<PAGE> 394
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,
(0.19)% and 13.22%; Mid Capitalization Fund, 15.79% and 12.92%; Large
Capitalization Fund, 27.13% and 25.93%; Equity Income Fund, 15.78% and 13.86%;
Balanced Allocation Fund, 9.58% and 10.45%; Bond Fund 4.29% and 5.13%; Limited
Maturity Bond Fund 0.14% and 3.71%; Intermediate Government Obligations Fund
1.83% and 3.84%; Government Income Fund, 2.72% and 5.06%; Municipal Bond Fund
0.46% and 3.19%; Balanced Allocation Fund, 9.58% and 10.45%; and Michigan
Municipal Bond Fund 1.04% and 3.48%.
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, 4.79% and
13.52%; Mid Capitalization Fund, 20.66% and 13.18%; Large Capitalization Fund,
32.13% and 27.19%; International Discovery Fund, 8.58% and 5.05%; Equity Income
Fund, 20.78% and 14.16%; Balanced Allocation Fund, 14.58% and 10.78%; Government
Income Fund, 7.72% and 5.42%; Bond Fund, 9.28% and 5.52%; Limited Maturity Bond
Fund, 5.14% and 4.10%; Intermediate Government Obligations Fund, 6.83% and
4.24%; Municipal Bond Fund, 5.46% and 3.60%; and Michigan Municipal Bond Fund,
6.04% and 3.89%.
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, 5.77%, 16.06% and 17.53%; Mid
Capitalization Fund, 21.52%, 14.73% and 14.93%; Equity Income Fund, 21.96%,
15.21% and 14.83%; Balanced Allocation Fund, 15.64%, 12.04% and 11.57%; Bond
Fund, 10.46%, 6.69% and 8.21%; Limited Maturity Bond Fund, 6.09%, 5.13% and
6.75%; Intermediate Government Obligations Fund, 7.78%, 5.29% and 6.99%;
Municipal Bond Fund, 6.27%, 5.10% and 1.38%; and Michigan Municipal Bond Fund,
7.12%, 5.45% and 6.50%. 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, 8.88%; and International Discovery Fund, 9.58%. 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,
11.18%; and Aggressive Allocation Fund, 12.45%.
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<PAGE> 395
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 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
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<PAGE> 396
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 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
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<PAGE> 397
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; and (8) discussions of fund
rankings or ratings by recognized rating organizations. The Funds may also
include calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any of the Funds.
Morningstar, Inc., Chicago, Illinois, rates mutual funds on a one- to
five-star rating scale with five stars representing the highest rating. Such
ratings are based upon a fund's historical risk/reward ratio as determined by
Morningstar relative to other funds in that fund's class. Funds are divided into
classes based upon their respective investment objectives. The one- to five-star
ratings represent the following ratings by Morningstar, respectively: Lowest,
Below Average, Neutral, Above Average and Highest.
Current yields or performance will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments which provide fixed returns for a stated period of time. Yield and
performance are functions of a Fund's quality, composition, and maturity, as
well as expenses allocated to the Fund. Fees imposed upon customer accounts by
the Investment Adviser or its affiliated or correspondent banks for cash
management services will reduce a Fund's effective yield to customers.
Miscellaneous
Individual Trustees are elected by the shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals. Individual
Trustees may be removed by vote of the shareholders voting not less than a
majority of the shares then outstanding, cast in person or by proxy at any
meeting called for that purpose, or by a written declaration signed by
shareholders voting not less than two thirds of the shares then outstanding.
The Group is registered with the SEC as a management investment
company. Such registration does not involve supervision by the SEC of the
management or policies of the Group. The 1998 Annual Report and, when available,
the November 30, 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.
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<PAGE> 398
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 August 21, 1998, the following persons were the record owners
of more than 5% of the Investor A Shares, Investor B Shares and Institutional
Shares of each of the Group's Funds:
<TABLE>
<CAPTION>
FUND OWNER SHARES OWNED PERCENT OWNED
<S> <C> <C>
</TABLE>
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<PAGE> 399
-68-
<PAGE> 400
<TABLE>
<S> <C> <C> <C>
Fund Prime Obligations A Shares National Financial Services Corp. 79,169,316.160 75.622
For The Benefit of Our Customers
Church Street Station
</TABLE>
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<PAGE> 401
-70-
<PAGE> 402
<TABLE>
<S> <C> <C> <C>
PO BOX 3908
New York, NY 10008-3908
Corelink Financial Inc. 6.153,460.765 5.877
PO Box 4054
Concord, CA 94524
U.S. Gov't Obligations A National Financial Services Corp. 21,710,398.170 13.384
Shares For The Benefit of Our Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
First of America 140,258,967.530 86.471
Trust Operations
PO Box 4042
Kalamazoo, MI 49003-4042
Tax Free Obligations A National Financial Services Corp. 28,356,994.580 56.832
Shares For The Benefit of Our
</TABLE>
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<PAGE> 403
<TABLE>
<S> <C> <C> <C>
Customers
Church Street Station
PO Box 3908
New York, NY 10008-3908
First Of America 18,322,403.120 36.721
Trust Operations
PO Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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<PAGE> 404
<TABLE>
<CAPTION>
FUND OWNER SHARES OWNED PERCENT OWNED
<S> <C> <C> <C>
Corelink Financial Inc. 2,881,332.790 5.774
PO Box 4054
Concord, CA 94524
Mid Capitalization A Corelink Financial Inc. 1,036,626.040 18.654
Shares PO Box 4054
Concord, CA 94524
J C Bradford Co. Cust FBO 518,039.510 9.322
Cust RCIP Limited Partners I
330 Commerce St.
Nashville, TN 37201-1899
Small Capitalization A Charles Schwab & Co. Inc. 273,242.656 5.047
Shares Special Custodian Account
FBO Our Customers
ATTN: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Corelink Financial Inc. 337,350.737 6.231
PO Box 4054
Concord, CA 94524
Donaldson Lufkin Jenrette 598,748.014 11.059
Securities Corporation Inc.
Jersey City, NJ 07303-9998
Limited Maturity Bond A Corelink Financial Inc. 2,267,840.436 54.273
Shares PO Box 4054
Concord, CA 94524
NFSC FEBO OL4-639028 485,752.169 11.624
NSF International
PO Box 130140
Ann Arbor, MI 48113
Wheat First Securities Inc. 385,023.284 9.214
A C 5634-2536
Midwest Foundation Corporation
PO Box 1207
Tremont, IL 61568-1207
</TABLE>
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<PAGE> 405
<TABLE>
<CAPTION>
FUND OWNER SHARES OWNED PERCENT OWNED
<S> <C> <C> <C>
Municipal Bond A Shares Corelink Financial Inc. 317,568.563 42.622
PO Box 4054
Concord, CA 94524
Michigan Municipal Bond Corelink Financial Inc. 498,963.465 16.086
A Shares PO Box 4054
Concord, CA 94524
U.S. Government Income A Corelink Financial Inc. 1,842,237.918 34.757
Shares PO Box 4054
Concord, CA 94524
International Discovery A Corelink Financial Inc. 411,419.037 17.217
Shares PO Box 4054
Concord, CA 94524
Treasury Fund A Shares First Of America 235,279,318.940 96.190
Trust Operations
PO Box 4042
Kalamazoo, MI 49003-4042
Large Capitalization Fund Corelink Financial Inc. 496,783.214 38.583
A Shares PO Box 4054
Concord, CA 94524
Prime Obligations B Shares Richard C. Sloan 61,493.380 9.694
287 Twin Lakes Drive
Moultrie, GA 31768
Donald L. Edwards 122,169.900 19.260
PO Box 1766
Moultrie, GA 31776
Wheat First Securities Inc. 32,355.830 5.100
A C 1027-5263
Florence M. Adams
Thomas L. Adams
880 E. Remus Rd.
Mt. Pleasant, MI 48858-9072
</TABLE>
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<PAGE> 406
<TABLE>
<CAPTION>
FUND OWNER SHARES OWNED PERCENT OWNED
<S> <C> <C> <C>
NFSC FEBO W69-006394 96,746.780 15.252
NFSC FMTC IRA
FBO Paul A. Spinelli
5143 SW 9th Lane
Gainesville, FL 32607
Union Bank of California, 38,563.990 6.079
Custodian
Michael D. Laughhunn
SEP IRA
6884 3 Mile
White Cloud, MI 49349
Union Bank of California, 32,336.930 5.097
Custodian
Michael D. Laughhunn
SEP IRA
6884 3 Mile
White Cloud, MI 49349
Limited Maturity Raymond James Assoc. Inc. 8,797.945 5.717
Bond B Shares CSDN
David E. Reese Jr. IRA
519 Brandwynne Ct.
Dayton, OH 45459
Wheat First Securities Inc. 10,351.967 6.727
A C 4422-0525
Isaac Walker Company
PO Box 3500
Peoria, IL 61612-3500
Intermediate NFSC FEBO OL4-634433 23,197.783 13.567
Government B Horace Burton Gemmill
Shares Joyce Louise Gemmill
2360 Mccomb Drive
Clio, MI 48420
</TABLE>
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<PAGE> 407
<TABLE>
<CAPTION>
FUND OWNER SHARES OWNED PERCENT OWNED
<S> <C> <C> <C>
Municipal Bond B Shares NFSC FEBO OL4-640557 5,252.929 8.586
Edward L. Najim
Cheri S. Najim
1300 Pine Valley Court
Springfield, IL 62704
NFSC FEBO OL4-655562 6,187.391 10.113
William G. Bruns
2604 W. Purdie Ave.
Muncie, IN 47304
Wheat First Securities Inc. 11,985.951 19.591
A C 1684-5440
Berry J. Bowen
2400 Country Club Drive
Springfield, IL 62704-3262
Wheat First Securities Inc. 5,706.210 9.326
A C 3706-4972
Frank A. Gregory
Thelma M. Gregory
3149 Shadow Brook Dr.
Indianapolis, IN 46214-1904
Wheat First Securities 3,432.051 5.609
A C 899-5047
2309 Vassar
Lansing, MI 48912
Wayne Hummer Investments LLC 12,738.296 20.821
910-33413-10
Attn: Mutual Funds
PO Box 750
Chicago, IL 60690
Prime Obligations First Of America 577,715,241.770 87.553
Institutional Shares Trust Operations
Trust 1
PO Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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<PAGE> 408
<TABLE>
<CAPTION>
FUND OWNER SHARES OWNED PERCENT OWNED
<S> <C> <C> <C>
First Of America 60,655,333.190 9.192
Trust Operations
Trust 2
PO Box 4042
Kalamazoo, MI 49003-4042
U.S. Gov't Obligations First Of America 135,122,037.050 69.604
Institutional Shares Trust Operations
Trust 1
PO Box 4042
Kalamazoo, MI 49003-4042
First Of America 48,249,492.860 24.854
Trust Operations
Trust 2
PO Box 4042
Kalamazoo, MI 49003-4042
National City Indiana 10,756,510.780 5.540
Trust Operations
Money Market 5312
PO Box 94777
Cleveland, OH 44101-4777
Tax Free Obligations First Of America 86,294,471.260 94.486
Institutional Shares Trust Operations
Trust 1
PO Box 4042
Kalamazoo, MI 49003-4042
Mid Capitalization First Of America 22,552,056.887 68.444
Institutional Shares Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
First Of America 9,585,841.409 29.092
Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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<PAGE> 409
<TABLE>
<CAPTION>
FUND OWNER SHARES OWNED PERCENT OWNED
<S> <C> <C> <C>
Small Capitalization First Of America 11,126,048.565 66.482
Institutional Shares Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
First Of America 4,772,077.175 28.515
Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
Equity Income First Of America 3,150,996.316 21.768
Institutional Shares Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
First Of America 10,555,403.660 72.920
Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
Bond Institutional Shares First Of America 30,728,727.234 64.719
Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
First Of America 15,099,647.690 31.802
Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
Limited Maturity Bond First Of America 5,420,250.683 33.818
Institutional Shares Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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<PAGE> 410
<TABLE>
<CAPTION>
FUND OWNER SHARES OWNED PERCENT OWNED
<S> <C> <C> <C>
First Of America 9,986,426.410 62.307
Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
Intermediate Government First Of America 4,636,539.591 27.678
Institutional Shares Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
First Of America 11,424,553.558 68.220
Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
Municipal Bond First Of America 9,620,841.587 84.465
Institutional Shares Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
Sheldon & Co. 813,547.001 7.142
Attn: Mutual Funds
PO Box 94984
Cleveland, OH 44101-4984
Michigan Municipal Bond First Of America 2,591,197.240 13.961
Institutional Shares Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
First Of America 15,840,243.403 85.350
Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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<TABLE>
<CAPTION>
FUND OWNER SHARES OWNED PERCENT OWNED
<S> <C> <C> <C>
Balanced Allocation First Of America 16,598,465.338 90.841
Institutional Shares Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
First Of America 1.623.261.565 8.883
Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
U.S. Government Income First Of America 1,501,504.025 8.850
Institutional Shares Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
First Of America 14,437,558.151 85.099
Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
International Discovery First Of America 14,326,201.801 56.994
Institutional Shares Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
First Of America 10,112,666.425 40.231
Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
Treasury Fund First Of America 299,234,794.650 99.208
Institutional Shares Trust Operations
Trust 1
PO Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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<TABLE>
<CAPTION>
FUND OWNER SHARES OWNED PERCENT OWNED
<S> <C> <C> <C>
Aggressive Allocation First Of America 2,675,656.559 98.427
Institutional Shares Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
Conservative Allocation First Of America 1,543,839.142 99.484
Institutional Shares Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
Large Capitalization Fund First Of America 13,585,677.460 62.982
Institutional Fund Shares Trust Operations
Cash
PO Box 4042
Kalamazoo, MI 49003-4042
First Of America 7,337,053.664 34.014
Trust Operations
Reinvest
PO Box 4042
Kalamazoo, MI 49003-4042
</TABLE>
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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:
Institutional Shares Beneficially Owned By National City Bank And Its
Affiliates:
<TABLE>
<CAPTION>
Amount of Beneficial Percent of Percent of
Title of Institutional Share Fund Ownership Fund Class Fund
<S> <C> <C> <C>
Prime Obligations Fund $627,395,529 97.9% 76.2%
U.S. Government Obligations Fund $206,964,442 97.1% 49.6%
Treasury Fund $326,098,486 100.0% 66.1%
Tax-Free Fund $120,954,861 98.6% 68.8%
Small Capitalization Fund $18,875,557 85.7% 59.3%
Mid Capitalization Fund $34,110,866 99.9% 83.0%
Large Capitalization Fund $21,173,041 99.9% 94.4%
International Discovery Fund $25,827,163 99.7% 88.6%
Conservative Allocation Fund $1,181,484 99.3% 99.3%
Balanced Allocation Fund $19,318,511 .9% 90.1%
Aggressive Allocation Fund $3,699,178 99.9% 99.9%
Equity Income Fund $15,990,298 99.8% 71.4%
Bond Fund $51,255,830 99.8% 95.0%
Limited Maturity Bond Fund $14,840,346 99.9% 82.6%
Intermediate Government Obligations Fund $18,949,652 99.9% 90.3%
Government Income Fund $16,790,066 99.8% 65.0%
Municipal Bond Fund $12,793,554 99.9% 92.6%
Michigan Municipal Bond Fund $18,356,516 99.9% 82.6%
</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 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
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<PAGE> 414
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
May 31, 1998, 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> 415
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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<PAGE> 416
"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.
"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.
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<PAGE> 417
"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.
"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:
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"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.
"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.
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<PAGE> 419
"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.
"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:
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<PAGE> 420
"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 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:
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"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 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
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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.
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.
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"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.
"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.
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"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:
-- Financial Highlights
Incorporated by Reference to Annual Report in Part B:
-- Parkstone U.S. Government Obligations Fund, Parkstone Prime
Obligations Fund, Parkstone Tax-Free Fund, Parkstone Treasury
Fund, Parkstone Small Capitalization Fund, Parkstone Mid
Capitalization Fund (formerly, the Equity Fund), Parkstone
Large Capitalization Fund, Parkstone International Discovery
Fund, Parkstone Conservative Allocation Fund, Parkstone
Balanced Allocation Fund (formerly, the Balanced Fund),
Parkstone Aggressive Allocation Fund, Parkstone Equity Income
Fund (formerly, the High Income Equity Fund), Parkstone Bond
Fund, Parkstone Limited Maturity Bond Fund, Parkstone
Intermediate Government Obligations Fund, Parkstone U.S.
Government Income Fund, Parkstone Municipal Bond Fund, and
Parkstone Michigan Municipal Bond Fund.
Independent Auditors' Report dated July 20, 1998.
Statement of Assets and Liabilities as of May 31, 1998.
Other Information
Statements of Operations for the eleven months ended May 31,
1998.
Statements of Changes in Net Assets for the eleven months
ended May 31, 1998 and the year ended June 30, 1997.
Schedules of Portfolio Investments as of May 31, 1998.
Notes to Financial Statements
All required financial statements are included or incorporated by
reference in Part B hereof. All other financial statements and
schedules are inapplicable.
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<PAGE> 426
Exhibits*:
(1) (a) Declaration of Trust dated March 25, 1987 (incorporated by
reference to Registrant's Post-Effective Amendment No. 31,
filed October 9, 1996).
(i) Amendment dated April 7, 1987 to Declaration
of Trust (incorporated by reference to
Registrant's Post-Effective Amendment No. 31,
filed October 9 , 1996).
(ii) Amendment dated July 1. 1987 to Declaration
of Trust (incorporated by reference to
Registrant's Post-Effective Amendment No. 31,
filed October 9, 1996).
(2) (a) Code of Regulations as approved and adopted by
Registrant's Board of Trustees (incorporated by reference to
Registrant's Post-Effective Amendment No. 31, filed October 9,
1996).
(i) Amendment dated May 11, 1989 to Code of
Regulations (incorporated by reference to
Registrant's Post-Effective Amendment No. 31,
filed October 9, 1996).
(ii) Amendment dated August 26, 1993 to Code of
Regulations (incorporated by reference to
Registrant's Post-Effective Amendment No. 31,
filed October 9, 1996).
(3) Not applicable.
(4) Not applicable.
(5) (a) Investment Advisory Agreement between Registrant and Securities
Counsel, Inc., dated July 9, 1987, relating to the U.S. Government
Obligations Fund, the Prime Obligations Fund and the Tax-Free Fund
(incorporated by reference to Registrant's Post-Effective Amendment No.
31, filed October 9, 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).
-2-
<PAGE> 427
(b) Investment Advisory Agreement between Registrant and Securities
Counsel, Inc. dated September 8, 1988, relating to the Bond Fund, the
Limited Maturity Bond Fund, the Intermediate Government Obligations Fund,
the Municipal Bond Fund, the Equity Fund, the Small Capitalization Fund and
the High Income Equity Fund (incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed October 9, 1996).
(i) First Amendment dated March 1, 1995 authorizing the
use of subadvisers with respect to the Balanced Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 31, filed October 9,
1996).
(ii) Amendment to Schedule A dated December 16, 1996
adding the Conservative Allocation Fund and the
Aggressive Allocation Fund and incorporating previous
amendments adding the Large Capitalization Fund, the
Michigan Municipal Bond Fund, the Balanced Allocation
Fund and the U.S. Government Income Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 35, filed July 30 1997).
(iii) Second Amendment dated December 16, 1996 authorizing
the use of subadvisers with respect to the
Conservative Allocation Fund and the Aggressive
Allocation Fund (incorporated by reference to
Registrant's Post-Effective Amendment No. 35, filed
July 30, 1997).
(c) Investment Advisory Agreement between the Registrant and First of
America Investment Corporation dated December 22, 1992, relating to the
International Discovery Fund (incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
(i) Amendment dated February 10, 1995 to Schedule A
adding the Emerging Markets Fund (incorporated by
reference to Registrant's Post-Effective Amendment
No. 31 filed October 9, 1996).
(d) Sub-Investment Advisory Agreement between First of America
Investment Corporation and Gulfstream Global Investors, Ltd. dated March 1,
1995, relating to the International Discovery Fund, the Balanced Fund and
the Emerging Markets Fund (incorporated by reference to Registrant's
Post-Effective Amendment No. 31 filed October 9, 1996).
-3-
<PAGE> 428
(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 SEI
Investments Distribution Co. dated September 14, 1998.**
-4-
<PAGE> 429
(b) Specimen Dealer Agreement between SEI Investments
Distribution Co. and dealers.**
(7) Not applicable.
(8) (a) Custodian Services Agreement between Registrant and National
City Bank dated July 24, 1998.**
(b) Custody Agreement between Registrant and the Bank of
California, N.A., dated October 18, 1991, relating to the U.S.
Government Obligations Fund, the Prime Obligations Fund, the
Tax-Free Fund, the Bond Fund, the Limited Maturity Bond Fund,
the Intermediate Government Obligations Fund, the Municipal
Bond Fund, the Equity Fund, the Small Capitalization Fund, the
High Income Equity Fund and the Michigan Municipal Bond Fund
(incorporated by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996).
(i) Amendment to Schedule A dated December 16, 1996
adding the Conservative Allocation Fund and the
Aggressive Allocation Fund and Incorporating
previous amendments adding the Large
Capitalization Fund, the Balanced Allocation
Fund, the U.S. Government Income Fund, the
International Discovery Fund, the Treasury Fund
and the Municipal Investor Fund (incorporated by
reference to Registrant's Post-Effective
Amendment No. 35, filed July 30, 1997).
(ii) Amendment dated November 20, 1992, to Schedule B
of the Custody Agreement (incorporated by
reference to 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).
(c) 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).
(d) 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).
(e) 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.**
(f) Amendment to Exhibit E dated May 22, 1997 revising the fee
schedule.**
(g) Amendment to Schedule I dated May 22, 1997 adding the Small
Capitalization Fund, the Mid Capitalization Fund, the Large
Capitalization Fund and the Equity Income Fund and
incorporating previous amendments adding the Conservative
Allocation Fund, the Aggressive Allocation Fund, the
Intermediate Government Obligations Fund and the Government
Income Fund.**
(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).
-5-
<PAGE> 430
(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
-6-
<PAGE> 431
Registrant's Post-Effective Amendment No.
35, filed July 30. 1997).
(b) Fund Accounting Agreement between Registrant and The Winsbury
Service Corporation dated as of February 1, 1993, relating to
the U.S. Government Obligations Fund, the Prime Obligations
Fund, the Tax-Free Fund, the Equity Fund, the Small
Capitalization Fund, the International Discovery Fund, the
Balanced Fund, the High Income Equity Fund, the Bond Fund, the
Limited Maturity Bond Fund, the Intermediate Government
Obligations Fund, the U.S. Government Income Fund, the
Municipal Bond Fund and the Michigan Municipal Bond Fund
(incorporated by reference to Registrant's Post-Effective
Amendment No. 31 filed October 9, 1996.)
(i) Amendment to Schedule A dated December 16,
1996 adding the Conservative Allocation Fund
and the Aggressive Allocation Fund and
Incorporating previous amendments adding the
Large Capitalization Fund, the 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).
(c) Transfer Agency Agreement.**
(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
-7-
<PAGE> 432
adding the Large Capitalization Fund
(incorporated by reference to Registrant's
Post-Effective Amendment No. 5, filed July
30, 1997).
(f) 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.
(g) Amended and Restated Securities Lending Record Administration
Agreement between Union Bank of California, N.A. and BISYS
Fund Services Limited Partnership.**
(10) None.
(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).
(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.**
-8-
<PAGE> 433
(b) Investor B Distribution and Shareholder Service Plan.**
-10-
<PAGE> 434
(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).
-11-
<PAGE> 435
(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) Specimen Amended and Restated Rule 18f-3 Multiple Class Plan.**
* The file number for all exhibits incorporated by reference is 33-13283.
** Filed herewith.
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
</TABLE>
-12-
<PAGE> 436
<TABLE>
<S> <C> <C> <C>
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
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, Sections 12 and 10.1 of the Custody Agreements
incorporated by reference as Exhibit 8(a) and (b), respectively, 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
-13-
<PAGE> 437
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
(a) National City Investment Management Company ("IMC")
Cleveland, Ohio is an investment adviser registered under the
Investment Advisers' Act of 1940, as amended (the "Advisers
Act"). IMC is an indirect, wholly-owned subsidiary of National
City Corporation. IMC 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 IMC 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 IMC 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 IMC during the past two years is
presented below as derived from Schedules A and D of Form
ADV filed by National City pursuant to the Advisers Act (SEC
file No. 801-446.)
To the knowledge of Registrant, none of the directors or
officers of IMC, except those set forth below, is or has been,
at any time during the past two calendar years, engaged in any
other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers
also hold various positions with, and engage in business for,
the Corporation, which owns all the outstanding stock of First
America Bank, N.A., which in turn owns all the outstanding
stock of IMC, or other subsidiaries of the Corporation. Set
forth below are the names and principal businesses of the
directors and certain of the senior executive officers of IMC
who are engaged in any other business, profession, vocation or
employment of a substantial nature.
NATIONAL CITY INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Position with
National
City Investment
Management Other Business Type of
Name Company Connections Business
- ---- ------- ----------- --------
<S> <C> <C> <C>
Kathleen T. Barr Managing Director, National City Bank Bank
Sales and Marketing
James R. Kirk Managing Director, National City Bank Bank
Portfolio Management
Robert M. Leggett Vice Chairman of the National City Bank Bank
Board, President and
Managing Director
Donald L. Ross Chief Investment National City Bank Bank
Officer and
Managing Director
Harold B. Todd, Jr. Chairman of the Board Executive Vice Bank holding
and Managing Director President, National company; bank
City Corporation; affiliate
Executive Vice President,
Institutional Trust and
Asset Management, National
City Bank
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) SEI Investments Distribution Co. ("SEI") acts as
distributor and administrator for Registrant. SEI 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
-14-
<PAGE> 438
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
Name and Principal Positions and Offices with
Business Address Offices with SEI Registrant
---------------- ------------------ -------------
<S> <C> <C> <C>
</TABLE>
(c) Compensation to BISYS, the Trust's former distributor, 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>
$ ----- $ ----- $ ----- $ -----
</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) SEI Investments Distribution Co. One Freedom Valley Drive,
Oaks, Pennsylvania 19456 (records relating to its functions as
distributor)
(d) BISYS Fund Services, L.P., 3435 Stelzer Road, Columbus,
Ohio 43219 (records relating to its functions as administrator
and fund accountants).
(e) Drinker Biddle & Reath LLP, Philadelphia National Bank
Building 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496 (Declaration of Trust, Code of Regulations, and
Minute Books).
-15-
<PAGE> 439
(f) National City Bank, 4100 West 150th Street, Cleveland,
Ohio 44135 (records relating to its functions as custodian).
(g) State Street Bank, and Trust Company, P.O. Box 8590,
Boston MA 02266 (records relating to its functions as
transfer agent and dividend disbursing agent).
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to furnish to each person to whom
a prospectus is delivered a copy of Registrant's latest
Semi-Annual Report to Shareholders upon request and without
charge.
-16-
<PAGE> 440
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Cleveland and the State of Ohio on the
16th day of September, 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
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 September 16, 1998
Robert D. Neary* Trustee
Leigh Carter* Trustee
John F. Durkott* Trustee
Robert J. Farling* Trustee
Richard W. Furst* Trustee
Gerald L. Gherlein* Trustee
J. William Pullen* Trustee
/s/ Gary Tenkman September 16, 1998
- --------------------------------
Gary Tenkman
*By:/s/ Herbert R. Martens, Jr. September 16, 1998
----------------------------
Name: Herbert R. Martens, Jr.
Attorney-in-Fact
</TABLE>
- ------------------ COMPARISON OF HEADERS -----------------
17
<PAGE> 441
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Robert
D. Neary, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of The Parkstone
Advantage Fund, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in any
and all capacities, every act whatsoever requisite or necessary to be done in
the premises, as fully and to all intents and purposes as he might or could do
in person, said acts of said attorneys being hereby ratified and approved.
DATED: September 15, 1998
/s/ Robert D. Neary
- -----------------------------
Robert D. Neary
<PAGE> 442
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Richard
W. Furst, Dean, hereby constitutes and appoints Herbert R. Martens, Jr. and W.
Bruce McConnel, III, is true and lawful attorneys, to execute in his name,
place, and stead, in his capacity as Trustee or officer, or both, of The
Parkstone Advantage Fund, the Registration Statement and any amendments thereto
and all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and said attorneys shall
have full power and authority to do and perform in his name and on his behalf,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as he might or
could do in person, said acts of said attorneys being hereby ratified and
approved.
DATED: September 15, 1998
/s/ Richard W. Furst, Dean
- -----------------------------
Richard W. Furst, Dean
<PAGE> 443
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Leigh
Carter, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of The Parkstone
Advantage Fund, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in any
and all capacities, every act whatsoever requisite or necessary to be done in
the premises, as fully and to all intents and purposes as he might or could do
in person, said acts of said attorneys being hereby ratified and approved.
DATED: September 15, 1998
/s/ Leigh Carter
- -----------------------------
Leigh Carter
<PAGE> 444
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, John F.
Durkott, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of The Parkstone
Advantage Fund, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in any
and all capacities, every act whatsoever requisite or necessary to be done in
the premises, as fully and to all intents and purposes as he might or could do
in person, said acts of said attorneys being hereby ratified and approved.
DATED: September 15, 1998
/s/ John F. Durkott
- -----------------------------
John F. Durkott
<PAGE> 445
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Robert
J. Farling, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of The Parkstone
Advantage Fund, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in any
and all capacities, every act whatsoever requisite or necessary to be done in
the premises, as fully and to all intents and purposes as he might or could do
in person, said acts of said attorneys being hereby ratified and approved.
DATED: September 15, 1998
/s/ Robert J. Farling
- -----------------------------
Robert J. Farling
<PAGE> 446
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Herbert
R. Martens, Jr., hereby constitutes and appoints W. Bruce McConnel, III, his
true and lawful attorney, to execute in his name, place, and stead, in his
capacity as Trustee or officer, or both, of The Parkstone Advantage Fund, the
Registration Statement and any amendments thereto and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission; and said attorney shall have full power and authority
to do and perform in his name and on his behalf, in any and all capacities,
every act whatsoever requisite or necessary to be done in the premises, as fully
and to all intents and purposes as he might or could do in person, said acts of
said attorney being hereby ratified and approved.
DATED: September 15, 1998
/s/ Herbert R. Martens, Jr.
- -----------------------------
Herbert R. Martens, Jr.
<PAGE> 447
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Gerald
L. Gherlein, hereby constitutes and appoints Herbert R. Martens, Jr. and W.
Bruce McConnel, III, his true and lawful attorneys, to execute in his name,
place, and stead, in his capacity as Trustee or officer, or both, of The
Parkstone Advantage Fund, the Registration Statement and any amendments thereto
and all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and said attorneys shall
have full power and authority to do and perform in his name and on his behalf,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as he might or
could do in person, said acts of said attorneys being hereby ratified and
approved.
DATED: September 15, 1998
/s/ Gerald L. Gherlein
- -----------------------------
Gerald L. Gherlein
<PAGE> 448
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, J.
William Pullen, hereby constitutes and appoints Herbert R. Martens, Jr. and W.
Bruce McConnel, III, his true and lawful attorneys, to execute in his name,
place, and stead, in his capacity as Trustee or officer, or both, of The
Parkstone Advantage Fund, the Registration Statement and any amendments thereto
and all instruments necessary or incidental in connection therewith, and to file
the same with the Securities and Exchange Commission; and said attorneys shall
have full power and authority to do and perform in his name and on his behalf,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as he might or
could do in person, said acts of said attorneys being hereby ratified and
approved.
DATED: September 15, 1998
/s/ J. William Pullen
- -----------------------------
J. William Pullen
<PAGE> 449
THE PARKSTONE ADVANTAGE FUND
POWER OF ATTORNEY
-----------------
Know All Men by These Presents, that the undersigned, Gary
Tenkman, hereby constitutes and appoints Herbert R. Martens, Jr. and W. Bruce
McConnel, III, his true and lawful attorneys, to execute in his name, place, and
stead, in his capacity as Trustee or officer, or both, of The Parkstone
Advantage Fund, the Registration Statement and any amendments thereto and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission; and said attorneys shall have
full power and authority to do and perform in his name and on his behalf, in any
and all capacities, every act whatsoever requisite or necessary to be done in
the premises, as fully and to all intents and purposes as he might or could do
in person, said acts of said attorneys being hereby ratified and approved.
DATED: September 15, 1998
/s/ Gary Tenkman
- -----------------------------
Gary Tenkman
<PAGE> 450
EXHIBIT LIST -- THE PARKSTONE GROUP OF FUNDS
- --------------------------------------------
EXHIBIT NO. EXHIBIT
- ----------- -------
6(a) Distribution Agreement
6(b) Dealer Agreements
8(a) Custodian Services Agreement
9(c) Transfer Agency
9(g) Securities Lending Administration and Records Agreement
11(a) Consent of PricewaterhouseCoopers LLP.
(b) Opinion of Drinker Biddle & Reath LLP
15(a) Investor A Distribution and Shareholder Service Plan
(b) Investor B Distribution and Shareholder Service Plan
18 Specimen Amended and Restated Rule 18f-3 Multiple Class Plan
Powers of Attorney
<PAGE> 1
EXHIBIT 6(a)
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this ______ day of __________, 199_ between
the Parkstone Group Of Funds (the "Trust"), a Massachusetts business trust and
SEI Investments Distribution Co. (the "Distributor"), a Pennsylvania
corporation.
WHEREAS, the Trust is registered as an investment company with the
Securities and Exchange Commission (the "SEC") under the Investment Company Act
of 1940, as amended (the "1940 Act"), and its shares are registered with the
SEC under the Securities Act of 1933, as amended (the "1933 Act"), and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Trust and Distributor hereby agree as follows:
ARTICLE 1. Sale of Shares. The Trust grants to the Distributor the
exclusive risk to sell units (the "Shares") of the portfolios (the
"Portfolios") of the Trust at the net asset value per Share, plus any
applicable sales charges in accordance with the current prospectus, as agent
and on behalf of the Trust, during the term of this Agreement and subject to
the registration requirements of the 1933 Act, the rules and regulations of the
SEC and the laws governing the sale of securities in the various states ("Blue
Sky Laws").
ARTICLE 2. Solicitation of Sales. In consideration of these rights granted
to the Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, in Common with the distribution of Shares
of the Trust; provided, however, that the Distributor shall not be prevented
from entering into like arrangements with other issuers. The provisions of this
paragraph do not obligate the Distributor to register as a broker or dealer
under the Blue Sky Laws of any jurisdiction when it determines it would be
uneconomical for it to do so or to maintain its registration in any
jurisdiction in which it is now registered nor obligate the Distributor to sell
any particular number of Shares.
ARTICLE 3. Authorized Representations. The Distributor is not authorized
by the Trust to give any information or to make any representations other than
those contained in the current registration statements and prospectuses of the
Trust filed with the SEC or contained in Shareholder reports or other material
that may be prepared by or on behalf of the Trust for the Distributor's use.
The Distributor may prepare and distribute sales literature and other material
as it may deem appropriate, provided that such literature and materials have
been prepared in accordance with applicable rules and regulations.
<PAGE> 2
ARTICLE 4. Registration of Shares. The Trust agrees that it will take all
action necessary to register Shares under the federal and state securities laws
so that there will be available for sale the number of Shares the Distributor
may reasonably be expected to sell and to pay all fees associated with said
registration. The Trust shall make available to the Distributor such number of
copies of its currently effective prospectus and statement of additional
information as the Distributor may reasonably request. The Trust shall furnish
to the Distributor copies of all information, financial statements and other
papers which the Distributor may reasonably request for use in connection with
the distribution of Shares of the Trust.
ARTICLE 5. Compensation. As compensation for providing the services under
this Agreement:
(a) The Distributor shall receive from the Trust:
(1) all distribution and service fees, as applicable, at the rate and
under the terms and conditions set forth in each Distribution and
Shareholder Services Plan adopted by the appropriate class of
shares of each of the Portfolios, as such Plans may be amended
from time to time, and subject to any further limitations on such
fees as the Board of Trustees of the Trust may impose;
(2) all contingent deferred sales charges ("CDSC's") applied on
redemptions of CDSC Class Shares of each Portfolio on the terms
and subject to such waivers as are described in the Trust's
Registration Statement and current prospectuses, as amended from
time to time, or as otherwise required pursuant to applicable
law, and
(3) all front-end sales charges, if any, on purchases of Class A
Shares of each Portfolio sold subject to such charges as
described in the Trust's Registration Statement and current
prospectuses, as amended from time to time. The Distributor, or
brokers, dealers and other financial institutions and
intermediaries that have entered into sub-distribution agreements
with the Distributor, may collect the gross proceeds derived from
the sale of such Class A Shares, remit the net asset value
thereof to the Trust upon receipt of the proceeds and retain the
applicable sales charge.
(b) The Distributor may reallow any or all of the distribution or service
fees, contingent deferred sales charges and front-end sales charges
which it is paid by the Trust to such brokers, dealers and other
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<PAGE> 3
financial institutions and intermediaries as the Distributor may from
time to time determine.
ARTICLE 6. Indemnification of Distributor. The Trust agrees to indemnify
and hold harmless the Distributor and each of its directors and officers and
each person, if any, who controls the Distributor within the meaning of Section
15 of the 1933 Act against any loss, liability, claim damages or expenses
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damages or expenses and reasonable counsel fees and
disbursements incurred in connection therewith), arising by reason of any
person acquiring any Shares, based upon the ground that the registration
statement, prospectus, Shareholder reports or other information filed or made
public by the Trust (as from time to time amended) included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements made not misleading. However, the
Trust does not agree to indemnify the Distributor or hold it harmless to the
went that the statements or omission was made in reliance upon, and in
conformity with, information furnished to the Trust by or on behalf of the
Distributor.
In no case (i) is the indemnity of the Trust to be deemed to protect the
Distributor against any liability to the Trust or its Shareholders to which the
Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Trust to be liable to the Distributor under the
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
other person shall have notified the Trust in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon the
Distributor or such other person (or after the Distributor or the person shall
have received notice of service on any designated agent). However, failure to
notify the Trust of any claim shall not relieve the Trust from any liability
which it may have to the Distributor or any person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph.
The Trust shall be entitled to participate as its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the trust elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Trust and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Trust
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Trust does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the
-3-
<PAGE> 4
reasonable fees and expenses of any counsel retained by indemnified
defendants.
The Trust agrees to notify the Distributor promptly of the commencement of
any litigation or proceedings against it or any of its officers or Trustees in
connection with the issuance or sale of any of its Shares.
ARTICLE 7. Indemnification of Trust. The Distributor covenants and agrees
that it will indemnify and hold harmless the Trust and each of its Trustees and
officers and each person, if any, who controls the Trust within the meaning of
Section 15 of the Act, against any loss, liability, damages, claim or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, damages, claim or expense and reasonable counsel fees incurred in
connection therewith) based upon the 1933 Act or any other statue or common law
and arising by reason of any person acquiring any Shares, and alleging a
wrongful act of the Distributor or any of its employees or alleging that the
registration statement, prospectus, Shareholder reports or other information
filed or made public by the Trust (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact
required to be stated or necessary in order to make the statements not
misleading, insofar as the statement or omission was made in reliances upon and
in conformity with information furnished to the Trust by or on behalf of the
Distributor.
In no case (i) is the indemnity of the Distributor in favor of the Trust
or any other person indemnified to be deemed to protect the Trust or any other
person against any liability to which the Trust or such other person would
otherwise be subject by reason or willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement or (ii) is the
Distributor to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Trust or any person
indemnified unless the Trust or person, as the case may be, shall have notified
the Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Trust or upon any person (or after the
Trust or such person shall have received notice of service on any designated
agent). However, failure to notify the Distributor of any claim shall not
relieve the Distributor from any liability which it may have to the Trust or any
person against whom the action is brought otherwise than on account of its
indemnity agreement contained in this paragraph.
The Distributor shall be entitled to participate, at its own expense in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants whose approval shall not be unreasonably withheld.
In the event that the Distributor elects to assume the defense of any suit and
retain counsel, the
- 4 -
<PAGE> 5
defendants in the suit shall bear the fees and expenses of any additional
counsel retained by them. If the Distributor does not elect to assume the
defense of any suit, it will reimburse the indemnified defendants in the suit
for the reasonable fees and expenses of any counsel retained by them.
The Distributor agrees to notify the Trust promptly of the commencement of
any litigation or proceedings against it in connection with the issue and sale
of any of the Trusts' Shares.
ARTICLE 8. Effective Date. This Agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force for two
year(s) from the effective date and thereafter from year to year, provided that
such annual continuance is approved by (i) either the vote of a majority of the
Trustees of the Trust, or the vote of a majority of the outstanding voting
securities of the Trust, and (ii) the vote of a majority of those Trustees of
the Trust who are not parties to this Agreement or the Trust's Distribution
Plan or interested persons of any such party ("Qualified Trustees"), cast in
person at a meeting called for the purpose of voting on the approval. This
Agreement shall automatically terminate in the event of its assignment. As used
in this paragraph the terms "vote of a majority of the outstanding voting
securities", "assignment" and "interested person" shall have the respective
meanings specified in the 1940 Act. In addition, this Agreement may at any time
be terminated without penalty by SFS, by a vote of a majority of Qualified
Trustees or by vote of a majority of the outstanding voting securities of the
Trust upon not less than sixty days prior written notice to the other party.
ARTICLE 9. Notices. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party
giving notice: if to the Trust, at National City Bank 1900 East Ninth Street,
Cleveland Ohio 44114, and if to the Distributor, One Freedom Valley Drive,
Oaks, Pennsylvania 19456.
ARTICLE 10. A copy of the Declaration of Trust of the Trust is on file
with the Secretary of State of the Commonwealth of Massachusetts, and notice is
hereby given that this Agreement is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees, officers or shareholders
of the Trust individually but binding only upon the assets and property of the
Trust.
ARTICLE 11. Governing Law. This Agreement shall be construed in accordance
with the laws of the Commonwealth of Massachusetts and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the
Commonwealth of Massachusetts, or any of the provisions herein, conflict with
the applicable provisions of the 1940 Act, the latter shall control.
-5-
<PAGE> 6
ARTICLE 12. Multiple Originals. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS, the Trust and Distributor have each duly executed this
Agreement, as of the day and year above written.
THE PARKSTONE GROUP OF FUNDS
By:
-------------------------------
Attest:
---------------------------
SEI INVESTMENTS DISTRIBUTION CO.
By:
-------------------------------
Attest:
---------------------------
-6-
<PAGE> 1
EXHIBIT 6(b)
Dealer Agreements
-----------------
<PAGE> 2
EXHIBIT 6(b)
THE PARKSTONE GROUP OF FUNDS
SEI INVESTMENTS DISTRIBUTION CO.
SUB-DISTRIBUTION AND SERVICING AGREEMENT
----------------------------------------
August __, 1998
Ladies and Gentlemen:
SEI Investments Distribution Co., a Pennsylvania corporation (the
"Distributor" or "SIDCO), serves as distributor of The Parkstone Group of Funds
(the "Trust"), which is an open-end investment company registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act"). The
Trust offers its shares ("Shares") to the public in accordance with the terms
and conditions contained in the Prospectus of each portfolio of the Trust. The
term "Prospectus" used herein refers to the prospectus on file with the
Securities and Exchange Commission which is part of the registration statement
of the Trust under the Securities Act of 1933 (the "Securities Act"). In
connection with the foregoing you may serve as a participating dealer (and,
therefore, accept orders for the purchase or redemption of Shares, respond to
shareholder inquiries and perform other related functions) on the following
terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Investor A Shares (front-end sales charge) and Investor B Shares (contingent
deferred sales charge) ("Shares") of the portfolios of the Trust and to transmit
to the Trust such orders and the payment made therefor, (ii) to accept orders
for the redemption of Shares and to transmit to the Trust such orders and all
additional material, including any certificates for Shares, as may be required
to complete the redemption, and (iii) to assist shareholders with the foregoing
and other matters relating to their investments in the Trust and to the
distribution of Shares, in each case subject to the terms and conditions set
forth in the Prospectus for each portfolio of the Trust. You are to review each
Share purchase or redemption order submitted through you or with your assistance
for completeness and accuracy. You further agree that, if requested by the
Distributor, you will undertake from time to time certain shareholder
communication activities ("shareholder services"), as requested by the
Distributor, for customers of yours ("Customers") who have purchased Shares. You
may perform these duties yourself or subcontract them to a third party of your
choice. These shareholder services may include one or more of the following
services as determined by the Distributor: (i) responding to Customer inquiries
relating to the services performed by you; (ii) responding to routine inquiries
from Customers concerning their investments in Shares; and (iii) providing such
other similar services as may be reasonably requested by the Distributor to the
extent you are permitted to do so under applicable statutes, rules and
regulations. In addition, you further agree to perform one or more of the
following as may be requested from time to time by the Distributor: (i)
establishing and maintaining accounts and records relating to Customers that
invest in Shares, including taxpayer identification number certifications; (ii)
processing dividend and distribution payments from the Trust on behalf of
Customers; (iii) providing information periodically to Customers showing their
positions in Shares and forwarding sales literature and advertising provided by
the Distributor; (iv) arranging for bank wires; (v) providing subaccounting with
respect to Shares owned of record or beneficially by Customers or providing the
information to the Trust necessary for subaccounting; (vi) if required by law,
forwarding shareholder communications from the Trust (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (vii) assisting in processing
purchase, exchange and redemption requests from Customers and in placing such
orders with the Trust's service contractors; and (viii) assisting Customers in
changing dividend options, account designations and addresses. In performing the
services described in this Agreement, you will provide such office space and
equipment, telephone facilities and personnel (which may be any part of the
space, equipment and facilities currently used your business or any personnel
employed by you) as may be reasonably necessary or beneficial to provide such
services.
<PAGE> 3
2. Execution of Orders for Purchases and Redemptions of Shares. All
orders for the purchase of any Shares shall be executed at the then current
public offering price per Share (i.e., the net asset value per Share plus the
applicable sales load, if any) and all orders for the redemption of any Shares
shall be executed at the net asset value per Share, plus any applicable
redemption charge, in each case as described in the prospectuses for each
portfolio of the Trust. The Trust and SIDCO reserve the right to reject any
purchase request at their sole discretion. If required by law, each transaction
shall be confirmed in writing on a fully disclosed basis. The procedures
relating to all orders and the handling of them will be subject to the terms of
the prospectuses of the Trust and SIDCO's written instructions to you from time
to time. Payments for Shares shall be made as specified in the applicable
portfolio's prospectus. If payment for any purchase order is not received in
accordance with the terms of the applicable portfolio's prospectus or if an
order for purchase, redemption, transfer or registration of Shares is changed or
altered, the Trust and SIDCO reserve the right, without notice, to cancel the
sale, redemption, transfer or registration and to hold you responsible for any
loss sustained as a result thereof.
3. Limitation of Authority. No person is authorized to make any
representations concerning the Trust, any portfolio of the Trust, or the Shares
except those contained in the Prospectus of each portfolio of the Trust and in
such printed information as the Distributor may subsequently prepare. NO PERSON
IS AUTHORIZED TO DISTRIBUTE ANY SALES MATERIAL RELATING TO THE TRUST WITHOUT THE
PRIOR WRITTEN APPROVAL OF THE DISTRIBUTOR.
4 Compensation. As compensation for the provision of the services
described herein, you will look solely to the Distributor, and you acknowledge
that the Trust shall have no direct responsibility for any compensation due to
you. In addition to any sales charge payable to you by your customer pursuant to
the schedule included in the current prospectuses for the portfolios of the
Trust, the Distributor may pay you a fee for performing distribution services
and/or shareholder services, as established by the Distributor from time to time
in its sole discretion, and other compensation in the amounts and at the times
as the Distributor may determine from time to time in its sole discretion, with
respect to the average daily net asset value of the Shares owned of record or
beneficially by your Customers for whom you are the dealer of record or the
holder of record or with whom you have a servicing relationship as full payment
for the services and facilities provided by you under this agreement. In no
event will the fee for performing distribution services and/or shareholder
services exceed .25% (25 basis points) of such average daily net assets. These
fees will be computed daily and paid monthly. Fees with respect to Investor B
shares owned by your customers (with the exception of any pre-paid service fees
as described in each portfolio's prospectus) will accrue commencing on the first
anniversary of the date of purchase of such shares. You acknowledge any
compensation to be paid to you by the Distributor shall be paid from the Rule
12b-1 Plans or Service Plan adopted by the Trust and that to the extent the
Distributor waives any payments to it from any Rule 12b-1 Plan or Service Plan
the amounts payable to you will also be reduced.
5. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectuses of the Trust to purchasers whose
Shares you are holding as record owner.
6. Qualification to Act. You represent that you are either (a) a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (b) a bank as defined in Section 3(a)(6) of the Securities Exchange
Act of 1934, as amended, and have been duly authorized by proper corporate
action to enter into this Agreement and to perform your obligations hereunder,
evidence of which corporate action shall be properly maintained and made part of
your corporate records. If you are a member of the NASD, your expulsion or
suspension from the NASD will
1
<PAGE> 4
automatically terminate this Agreement on the effective date of such expulsion
or suspension. If you are a bank, or a subsidiary or an affiliate of a bank, you
represent that you possess the legal authority to perform the services
contemplated by this Agreement without violating applicable banking laws and
regulations, and this Agreement shall automatically terminate in the event that
you no longer possess such authority. You agree that you will not offer Shares
to persons in any jurisdiction in which you may not lawfully make such offer due
to the fact that you have not registered under, or are not exempt from, the
applicable registration or licensing requirements of such jurisdiction. If you
are a member of the NASD, you agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules
and any other regulations or guidelines issued by the NASD. You agree that you
will not combine customer orders to reach breakpoints in commissions for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of Shares of a particular class or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the Trust's Prospectuses and provisions of
the Agreement.
7. Blue Sky. The Trust has registered an indefinite number of Shares
under the Securities Act. The Trust intends to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
8. Authority of Trust and Participating Dealer. The Trust shall have
full authority to take such action as it deems advisable in respect of all
matters pertaining to the offering of its Shares, including the right not to
accept any order for the purchase of Shares. You shall be deemed an independent
contractor and not an agent of the Trust, for all purposes hereunder and shall
have no authority to act for or represent the Trust. You will not act as an
"underwriter" or "distributor" of shares, as those terms are used in the 1940
Act, the Securities Act of 1933, and rules and regulations promulgated
thereunder.
9. Recordkeeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by the
Trust, promptly make such records available to the Trust as the Trust may
reasonably request in connection with its operations and (ii) promptly notify
the Trust if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner. If you hold shares
as a record owner for your customers, you will be responsible for maintaining
all necessary books and customer account records which reflect their beneficial
ownership of shares of the Trust, which records shall specifically reflect that
you are holding Trust Shares as agent, custodian or nominee for your customers.
10. Liability. The Distributor shall be under no liability to you
except for lack of good faith and for obligations expressly assumed by them
hereunder. In carrying out your obligations, you agree to act in good faith and
without negligence. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Distributor or the Trust in any matter or in any respect. By your acceptance of
this Agreement, you agree to and do release, indemnify and hold the Distributor
and the Trust harmless from and against any and all liabilities, losses and
costs (including reasonable attorneys' fees and expenses) arising from any
direct or indirect actions or inactions of or by you or your officers, employees
or agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or
2
<PAGE> 5
registration of Shares (or orders relating to the same) by or on behalf of
Customers. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, the Investment Advisors Act of 1940, or the rules and regulations
promulgated by the Securities and Exchange Commission thereunder.
11. Amendment. This Agreement may be amended by written consent of both
parties.
12. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time by
the Trust without penalty by the vote of a majority of the members of the Board
of Trustees of the Trust who are not "interested persons" (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Distribution Agreement between the Trust and the
Distributor or by the vote of a majority of the outstanding voting securities of
the Trust.
13. Communications. All communications to the Distributor should be
sent to SEI Investments Distribution Co., Oaks, Pennsylvania 19456, Attention:
The Parkstone Group of Funds. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
14. Severability and Governing Law. If any provision of this Agreement
shall be held or made invalid by a decision in a judicial or administrative
proceeding, statute, rule or otherwise, the enforceability of the remainder of
this Agreement will not be impaired thereby. This Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania. In addition, you acknowledge and
agree that this Agreement has been entered into pursuant to Rule 12b-1 under the
Investment Company Act, and is subject to the provisions of said Rule, as well
as any other applicable rules or regulations promulgated by the Securities and
Exchange Commission.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us both copies of this Agreement.
SEI INVESTMENTS DISTRIBUTION CO.
---------------------------------
(Authorized Signature)
President
Confirmed and accepted:
Firm Name:
By:
--------------------------------
(Authorized Signature)
Title:
-----------------------------
Address:
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Date:
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THE PARKSTONE GROUP OF FUNDS
SEI INVESTMENTS DISTRIBUTION CO.
SUB-DISTRIBUTION AND SERVICING AGREEMENT
August __, 1998
Gentlemen:
SEI Investments Distribution Co., a Pennsylvania corporation (the
"Distributor" or "SIDCO"), serves as distributor of The Parkstone Group of Funds
(the "Trust"), which is an open-end investment company registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act"). The
Trust offers its shares ("Shares") to the public in accordance with the terms
and conditions contained in the Prospectus of each portfolio of the Trust. The
term "Prospectus" used herein refers to the prospectus on file with the
Securities and Exchange Commission which is part of the registration statement
of the Trust under the Securities Act of 1933 (the "Securities Act"). In
connection with the foregoing you may serve as a participating dealer (and,
therefore, accept orders for the purchase or redemption of Shares, respond to
shareholder inquiries and perform other related functions) on the following
terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Institutional Shares ("Shares") of the portfolios of the Trust and to transmit
to the Trust such orders and the payment made therefor, (ii) to accept orders
for the redemption of Shares and to transmit to the Trust such orders and all
additional material, including any certificate for Shares, as may be required to
complete the redemption, and (iii) to assist shareholders with the foregoing and
other matters relating to their investments in the Trust and to the distribution
of Shares, in each case subject to the terms and conditions set forth in the
Prospectus for each portfolio of the Trust. You are to review each Share
purchase or redemption order submitted through you or with your assistance for
completeness and accuracy. You further agree that, if requested by the
Distributor, you will undertake from time to time certain shareholder
communication activities ("shareholder services"), as requested by the
Distributor, for customers of yours ("Customers") who have purchased Shares. You
may perform these duties yourself or subcontract them to a third party of your
choice. These shareholder services may include one or more of the following
services as determined by the Distributor: (i) responding to Customer inquiries
relating to the services performed by you; (ii) responding to routine inquiries
from Customers concerning their investments in Shares; and (iii) providing such
other similar services as may be reasonably requested by the Distributor to the
extent you are permitted to do so under applicable statutes, rules and
regulations. In addition, you further agree to perform one or more of the
following as may be requested from time to time by the Distributor: (i)
establishing and maintaining accounts and records relating to Customers that
invest in Shares, including taxpayer identification number certifications; (ii)
processing dividend and distribution payments from the Trust on behalf of
Customers; (iii) providing information periodically to Customers showing their
positions in Shares and forwarding sales literature and advertising provided by
the Distributor; (iv) arranging for bank wires; (v) providing subaccounting with
respect to Shares owned of record or beneficially by Customers or providing the
information to the Trust necessary for
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subaccounting; (vi) if required by law, forwarding shareholder communications
from the Trust (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers;
(vii) assisting in processing purchase, exchange and redemption requests from
Customers and in placing such orders with the Trust's service contractors; and
(viii) assisting Customers in changing dividend options, account designations
and addresses. In performing the services described in this Agreement, you will
provide such office space and equipment, telephone facilities and personnel
(which may be any part of the space, equipment and facilities currently used
your business or any personnel employed by you) as may be reasonably necessary
or beneficial to provide such services.
2. Execution of Orders for Purchases and Redemptions of Shares. All
orders for the purchase of any Shares shall be executed at the then current
public offering price per Share (i.e., the net asset value per Share) and all
orders for the redemption of any Shares shall be executed at the net asset value
per Share, plus any applicable redemption charge, in each case as described in
the prospectuses for each portfolio of the Trust. The Trust and SIDCO reserve
the right to reject any purchase request at their sole discretion. If required
by law, each transaction shall be confirmed in writing on a fully disclosed
basis. The procedures relating to all orders and the handling of them will be
subject to the terms of the prospectuses of the Trust and SIDCO's written
instructions to you from time to time. Payments for Shares shall be made as
specified in the applicable portfolio's prospectus. If payment for any purchase
order is not received in accordance with the terms of the applicable portfolio's
prospectus or if an order for purchase, redemption, transfer or registration of
Shares is changed or altered, the Trust and SIDCO reserve the right, without
notice, to cancel the sale, redemption, transfer or registration and to hold you
responsible for any loss sustained as a result thereof.
3. Limitation of Authority. No person is authorized to make any
representations concerning the Trust, any portfolio of the Trust, or the Shares
except those contained in the Prospectus of each portfolio of the Trust and in
such printed information as the Distributor may subsequently prepare. NO PERSON
IS AUTHORIZED TO DISTRIBUTE ANY SALES MATERIAL RELATING TO THE TRUST WITHOUT THE
PRIOR WRITTEN APPROVAL OF THE DISTRIBUTOR.
4. Compensation. As compensation for the provision of the services
described herein, you will look solely to the Customer, and you acknowledge that
the Trust and the Distributor shall have no direct responsibility for any
compensation due to you.
5. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectuses of the Trust to purchasers whose
Shares you are holding as record owner.
6. Qualification to Act. You represent that you are either (a) a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (b) a bank as defined in Section 3(a)(6) of the Securities Exchange
Act of 1934, as
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amended, and have been duly authorized by proper corporate action to enter into
this Agreement and to perform your obligations hereunder, evidence of which
corporate action shall be properly maintained and made part of your corporate
records. If you are a member of the NASD, your expulsion or suspension from the
NASD will automatically terminate this Agreement on the effective date of such
expulsion or suspension. If you are a bank, or a subsidiary or an affiliate of a
bank, you represent that you possess the legal authority to perform the services
contemplated by this Agreement without violating applicable banking laws and
regulations, and this Agreement shall automatically terminate in the event that
you no longer possess such authority. You agree that you will not offer Shares
to persons in any jurisdiction in which you may not lawfully make such offer due
to the fact that you have not registered under, or are not exempt from, the
applicable registration or licensing requirements of such jurisdiction. If you
are a member of the NASD, you agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules
and any other regulations or guidelines issued by the NASD. You agree that you
will not combine customer orders to reach breakpoints in commissions for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of Shares of a particular class or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the Trust's Prospectuses and provisions of
the Agreement.
7. Blue Sky. The Trust has registered an indefinite number of Shares
under the Securities Act. The Trust intends to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
8. Authority of Trust and Participating Dealer. The Trust shall have
full authority to take such action as it deems advisable in respect of all
matters pertaining to the offering of its Shares, including the right not to
accept any order for the purchase of Shares. You shall be deemed an independent
contractor and not an agent of the Trust, for all purposes hereunder and shall
have no authority to act for or represent the Trust. You will not act as an
"underwriter" or "distributor" of shares, as those terms are used in the 1940
Act, the Securities Act of 1933, and rules and regulations promulgated
thereunder.
9. Recordkeeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by the
Trust, promptly make such records available to the Trust as the Trust may
reasonably request in connection with its operations and (ii) promptly notify
the Trust if you experience any
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difficulty in maintaining the records described in the foregoing clauses in an
accurate and complete manner. If you hold shares as a record owner for your
customers, you will be responsible for maintaining all necessary books and
customer account records which reflect their beneficial ownership of shares of
the Trust, which records shall specifically reflect that you are holding Trust
Shares as agent, custodian or nominee for your customers.
10. Liability. The Distributor shall be under no liability to you
except for lack of good faith and for obligations expressly assumed by them
hereunder. In carrying out your obligations, you agree to act in good faith and
without negligence. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Distributor or the Trust in any matter or in any respect. By your acceptance of
this Agreement, you agree to and do release, indemnify and hold the Distributor
and the Trust harmless from and against any and all liabilities, losses and
costs (including reasonable attorneys' fees and expenses) arising from any
direct or indirect actions or inactions of or by you or your officers, employees
or agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of Shares (or orders relating to the same) by or on
behalf of Customers. Nothing contained in this Agreement is intended to operate
as a waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, the Investment Advisors Act of 1940, or the rules and regulations
promulgated by the Securities and Exchange Commission thereunder.
11. Amendment. This Agreement may be amended by written consent of both
parties.
12. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time by
the Trust without penalty by the vote of a majority of the members of the Board
of Trustees of the Trust who are not "interested persons" (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Distribution Agreement between the Trust and the
Distributor or by the vote of a majority of the outstanding voting securities of
the Trust.
13. Communications. All communications to the Distributor should be
sent to SEI Investments Distribution Co., Oaks, Pennsylvania 19456, Attention:
The Parkstone Group of Funds. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
14. Severability and Governing Law. If any provision of this Agreement
shall be held or made invalid by a decision in a judicial or administrative
proceeding, statute, rule or otherwise, the enforceability of the remainder of
this Agreement will not be impaired thereby. This Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania. In addition, you acknowledge and
agree that this Agreement has been entered into pursuant to Rule 12b-1 under the
Investment Company Act, and is subject to
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the provisions of said Rule, as well as any other applicable rules or
regulations promulgated by the Securities and Exchange Commission.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us both copies of this Agreement.
SEI INVESTMENTS DISTRIBUTION CO.
---------------------------------
(Authorized Signature)
President
Confirmed and accepted:
Firm Name:
By:
-------------------------------
(Authorized Signature)
Title:
----------------------------
Address:
Date:
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EXHIBIT 8(a)
Custodian Services Agreement
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EXHIBIT 8(a)
CUSTODIAN SERVICES AGREEMENT
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This Agreement is made as of July 24, 1998 by and between
NATIONAL CITY BANK (the "Custodian") and THE PARKSTONE GROUP OF FUNDS, a
Massachusetts business trust (the "Fund").
The Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
The Fund wishes to retain the Custodian to provide custodian services to each of
its investment portfolios, as listed on Exhibit A attached hereto and as such
Exhibit A may be amended from time to time (the "Portfolios"), and the Custodian
wishes to furnish custodian services, either directly or though an affiliate or
affiliates, as more fully described herein.
In consideration of the promises and mutual covenants herein
contained, the parties agree as follows:
1. Definitions.
(a) "Authorized Person" shall mean any officer of the
Fund and any other person, who is duly authorized by the Fund's Board of
Trustees, to give Oral and Written Instructions on behalf of the Fund. Such
persons are listed in the Certificate attached hereto as the Authorized Persons
Appendix as such appendix may be amended in writing by the Fund's Board of
Trustees from time to time.
(b) "Book-Entry System" shall mean Federal Reserve
Treasury book-entry system for United States and federal agency securities, its
successor or successors, and its nominee or nominees and any book-entry system
maintained by an exchange registered with the SEC under the 1934 Act.
(c) "CFTC" shall mean the Commodities Futures Trading
Commission.
(d) "Oral Instructions" shall mean oral instructions
received by the Custodian from an Authorized Person or from a person reasonably
believed by the Custodian to be an Authorized Person.
(e) "Custodian" shall mean National City Bank or a
subsidiary or affiliate of National City Bank.
(f) "SEC" shall mean the Securities and Exchange
Commission.
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(g) "Securities and Commodities Laws" shall mean the
Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange Act
of 1934, as amended (the "1934 Act"), the 1940 Act, and the Commodities Exchange
Act, as amended (the "CEA").
(h) "Shares" shall mean the units of beneficial
interest of the Fund.
(i) "Property" shall mean:
(i) any and all securities and other
investment items which the Fund may
from time to time deposit, or cause
to be deposited, with the Custodian
or which the Custodian may from
time to time hold for any
Portfolio;
(ii) all income in respect of any of
such securities or other investment
items;
(iii) all proceeds of the sale of any of
such securities or investment
items; and
(iv) all proceeds of the sale of
securities issued by the Fund,
which are received by the Custodian
from time to time, from or on
behalf of the Fund.
(j) "Written Instructions" shall mean written
instructions signed by one Authorized Person and received by the Custodian. The
instructions may be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. Appointment. The Fund hereby appoints the Custodian to
provide custodian services to each of the Portfolios, and the Custodian accepts
such appointment and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where
applicable, will provide the Custodian with the following:
(a) certified or authenticated copies of the
resolutions of the Fund's Board of Trustees,
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approving the appointment of the Custodian
or its affiliates to provide services;
(b) a copy of the Fund's most recent effective
registration statement;
(c) a copy of each Portfolio's advisory
agreement or agreements;
(d) a copy of each Portfolio's distribution
agreement or agreements;
(e) a copy of each Portfolio's transfer agency
agreement or agreements;
(f) copies of any shareholder servicing
agreements made in respect of the Fund or
any Portfolio; and
(g) certified or authenticated copies of any and
all amendments or supplements to the
foregoing.
4. Compliance with Government Rules and Regulations. The
Custodian undertakes to comply with all applicable requirements of the 1933 Act,
the 1934 Act, the 1940 Act, and the CEA, and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to all duties to be
performed by the Custodian hereunder. Except as specifically set forth herein,
the Custodian assumes no responsibility for such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement,
the Custodian shall act only upon Oral and Written Instructions. The Custodian
shall be entitled to rely upon any Oral and Written Instructions it receives
from an Authorized Person (or from a person reasonably believed by the Custodian
to be an Authorized Person) pursuant to this Agreement. The Custodian may assume
that any Oral or Written Instructions received hereunder are not in any way
inconsistent with the provisions of organizational documents of the Fund or of
any vote, resolution or proceeding of the Fund's Board of Trustees or of the
Fund's shareholders.
The Fund agrees to forward to the Custodian Written
Instructions confirming Oral Instructions so that the Custodian receives the
Written Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by the Custodian shall in no way invalidate the transactions or
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enforceability of the transactions authorized by the Oral Instructions.
The Fund further agrees that the Custodian shall incur no
liability to the Fund or any Portfolio in acting upon Oral or Written
Instructions provided such instructions reasonably appear to have been received
from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If the Custodian is in doubt
as to any action it should or should not take, the Custodian may request
directions or advice, including Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If the Custodian shall be in
doubt as to any questions of law pertaining to any action it should or should
not take, the Custodian may request advice at its own cost from such counsel of
its own choosing (who may be counsel for the Fund, the Fund's adviser or the
Custodian, at the option of the Custodian).
(c) Conflicting Advice. In the event of a conflict
between directions, advice or Oral or Written Instructions the Custodian
receives from the Fund, and the advice it receives from counsel, the Custodian
shall be entitled to rely upon and follow the advice of counsel.
(d) Protection of the Custodian. The Custodian shall
be protected in any action it takes or does not take in reliance upon
directions, advice or Oral or Written Instructions it receives from the Fund or
from counsel and which the Custodian believes, in good faith, to be consistent
with those directions, advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed so as to impose
an obligation upon the Custodian (i) to seek such directions, advice or Oral or
Written Instructions, or (ii) to act in accordance with such directions, advice
or Oral or Written Instructions unless, under the terms of other provisions of
this Agreement, the same is a condition of the Custodian's properly taking or
not taking such action.
7. Records. The books and records pertaining to the Fund and
the Portfolios, which are in the possession of the Custodian, shall be the
property of the Fund. Such books and records shall be prepared and maintained as
required by the 1940 Act and other applicable securities laws, rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records at all times during the
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Custodian's normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by the Custodian to the
Fund or to an authorized representative of the Fund, at the Fund's expense.
8. Confidentiality. The Custodian agrees to keep confidential
all records of the Fund and the Portfolios and information relative to the Fund,
the Portfolios and the shareholders (past, present and potential), unless the
release of such records or information is otherwise consented to, in writing, by
the Fund. The Fund further agrees that, should the Custodian be required to
provide such information or records to duly constituted authorities (who may
institute civil or criminal contempt proceedings for failure to comply), the
Custodian shall not be required to seek the Fund's consent prior to disclosing
such information; provided that the Custodian gives the Fund prior written
notice of the provision of such information and records.
9. Cooperation with Accountants. The Custodian shall cooperate
with the Fund's independent public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to ensure that
the necessary information is made available to such accountants for the
expression of their opinion, as required by the Fund.
10. Disaster Recovery. The Custodian shall enter into and
shall maintain in effect with appropriate parties one or more agreements making
reasonable provision for emergency use of electronic data processing equipment
to the extent appropriate equipment is available. In the event of equipment
failures, the Custodian shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions but shall have no liability
with respect thereto unless such failures result from the Custodian's own
willful misfeasance, bad faith, gross negligence, negligence or reckless
disregard of its duties and obligations under this Agreement.
11. Compensation. As compensation for custody services
rendered by the Custodian during the term of this Agreement, the Fund will pay
to the Custodian a fee or fees as may be agreed to in writing from time to time
by the Fund and the Custodian.
12. Indemnification. The Fund, on behalf of each of the
Portfolios, agrees to indemnify and hold harmless the Custodian and its nominees
from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the 1933 Act, the 1934
Act, the 1940 Act, the CEA, and any state and foreign securities and
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blue sky laws, and amendments thereto), and expenses, including (without
limitation) reasonable attorneys' fees and disbursements, arising directly or
indirectly from any action which the Custodian takes or does not take (i) at the
request or on the direction of or in reliance on the advice of the Fund or (ii)
upon Oral or Written Instructions. Neither the Custodian, nor any of its
nominees, shall be indemnified against any liability to the Fund or to its
shareholders (or any expenses incident to such liability) arising out of the
Custodian's or its nominees' own willful misfeasance, bad faith, negligence or
reckless disregard of its duties and obligations under this Agreement.
In the event of any advance of cash for any purpose made by
the Custodian resulting from Oral or Written Instructions of the Fund, or in the
event that the Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in respect of the Fund or
any Portfolio in connection with the performance of this Agreement, except such
as may arise from its or its nominee's own negligent action, negligent failure
to act or willful misconduct, any Property at any time held for the account of
the relevant Portfolio or the Fund shall be security therefor.
13. Responsibility of the Custodian. The Custodian shall be
under no duty to take any action on behalf of the Fund except as specifically
set forth herein or as may be specifically agreed to by the Custodian, in
writing. The Custodian shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing Services provided for under
this Agreement. The Custodian shall be responsible for its own or its nominees'
(including without limitation foreign sub-custodians approved by the Fund) own
willful misfeasance, bad faith, negligence or reckless disregard of its duties
and obligations under this Agreement or the Custodian's own negligent failure to
perform its duties under this Agreement. Notwithstanding the foregoing, the
Custodian shall not be responsible for losses beyond its control, provided that
the Custodian has acted in accordance with the standard of care set forth above;
and provided further that the Custodian shall only be responsible for that
portion of losses or damages suffered by the Fund or any Portfolio attributable
to the negligence of the Custodian.
Without limiting the generality of the foregoing or of any
other provision of this Agreement, the Custodian, in connection with its duties
under this Agreement, shall not be under any duty or obligation to inquire into
and shall not be liable for (a) the validity or invalidity or authority or lack
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thereof of any Oral or Written Instruction, notice or other instrument which
conforms to the applicable requirements of this Agreement, and which the
Custodian reasonably believes to be genuine; or (b) delays or errors or loss of
data occurring by reason of circumstances beyond the Custodian's control,
including acts of civil or military authority, national emergencies, fire, flood
or catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply, nor shall the Custodian be under
any duty or obligation to ascertain whether any Property at any time delivered
to or held by the Custodian may properly be held by or for the Fund or any
Portfolio. Notwithstanding the foregoing, the Custodian shall use its best
efforts to mitigate the effects of the events in clause (b) above, although such
efforts shall not impute any liability thereto.
14. Description of Services.
(a) Delivery of the Property. The Fund will deliver
or arrange for delivery to the Custodian, all the property it owns, including
cash received as a result of the distribution of its Shares, during the period
that is set forth in this Agreement. The Custodian will not be responsible for
such property until actual receipt.
(b) Receipt and Disbursement of Money. The Custodian,
acting upon Written Instructions, shall open and maintain a separate account in
the name of the Fund on behalf of each Portfolio using all cash received from or
for the account of any Portfolio, subject to the terms of this Agreement.
The Custodian shall make cash payments to or from the accounts
of a Portfolio only for:
(i) purchases of securities in the name
of a Portfolio or the Custodian or
the Custodian's nominee as provided
in sub-paragraph j and for which
the Custodian has received a copy
of the broker's or dealer's
confirmation or payee's invoice, as
appropriate;
(ii) purchase or redemption of Shares of
the Fund delivered to the
Custodian;
(iii) payment of, subject to Written
Instructions, interest, dividends,
taxes, administration, accounting,
distribution, advisory, management
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fees or similar expenses which are
to be borne by the Fund or any
Portfolio;
(iv) payment to, subject to receipt of
Written Instructions, the Fund's
transfer agent, as agent for the
shareholders, an amount equal to
the amount of dividends and
distributions stated in the Written
Instructions to be distributed in
cash by the transfer agent to
shareholders, or, in lieu of paying
the Fund's transfer agent, the
Custodian may arrange for the
direct payment of cash dividends
and distributions to shareholders
in accordance with procedures
mutually agreed upon from time to
time by and among the Fund, the
Custodian and the Fund's transfer
agent;
(v) payments, upon receipt of Written
Instructions, in connection with
the conversion, exchange or
surrender of securities owned or
subscribed to by a Portfolio and
held by or delivered to the
Custodian;
(vi) payments of the amounts of
dividends received with respect to
securities sold short;
(vii) payments made to a sub-custodian
pursuant to provisions in
sub-paragraph c of this Paragraph
14; and
(viii) payments, upon Written Instructions
made for other proper Fund
purposes.
The Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as custodian
for the account of the Fund or any Portfolio.
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(c) Receipt of Securities.
(i) The Custodian shall hold all
securities and non cash property
received by it for the account of a
Portfolio in a separate account
that physically segregates such
securities from those of any other
Portfolio, persons, firms or
corporations. All such securities
and property shall be held or
disposed of only upon Written
Instructions of the Fund pursuant
to the terms of this Agreement. The
Custodian shall have no power or
authority to withdraw, deliver,
assign, hypothecate, pledge or
otherwise dispose of any such
securities or investment, except
upon the express terms of this
Agreement and upon Written
Instructions, accompanied by a
certified resolution of the Fund's
Board of Trustees, authorizing the
transaction. In no case may any
member of the Fund's Board of
Trustees, or any officer, employee
or agent of the Fund withdraw any
securities.
At the Custodian's own expense and
for its own convenience, the
Custodian may enter into
sub-custodian agreements with other
United States banks or trust
companies to perform duties
described in this sub-paragraph c.
Such bank or trust company shall
have an aggregate capital, surplus
and undivided profits, according to
its last published report, of at
least one million dollars
($1,000,000), if it is a subsidiary
or affiliate of the Custodian, or
at least twenty million dollars
($20,000,000) if such bank or trust
company is not a subsidiary or
affiliate of the Custodian. In
addition, the Fund may authorize
the Custodian to employ one or more
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sub-custodians for the Fund's
securities and other assets
maintained outside the United
States. Any such domestic or
foreign sub-custodian must be
qualified to act as custodian and
agree to comply with the relevant
provisions of the 1940 Act and
applicable rules and regulations.
No such arrangement will be entered
into without prior written approval
of the Fund.
The Custodian shall remain
responsible for the performance of
all of its duties as described in
this Agreement and shall be liable
to the Fund for, and shall
indemnify and hold the Fund and
each Portfolio harmless from, its
own acts or omissions and those of
any domestic or foreign
sub-custodian, under the standards
of care provided for herein.
The Fund may appoint or request the
Custodian to appoint certain
sub-custodians with respect to
(including but not limited to) the
facilitation of three party
repurchase agreements. In such an
event, the Custodian shall not be
responsible for the performance or
actions and omissions of any such
sub-custodian.
(d) Transactions Requiring Instructions. Upon receipt
of Oral or Written Instructions and not otherwise, the Custodian, directly or
through the use of the Book-Entry System, shall:
(i) deliver any securities held for a
Portfolio against the receipt of
payment for the sale of such
securities;
(ii) execute and deliver to such persons
as may be designated in such Oral
or Written Instructions, proxies,
consents, authorizations, and any
other instruments whereby the
10
<PAGE> 12
authority of any Portfolio as owner
of any securities may be exercised;
(iii) deliver any securities to the
issuer thereof, or its agent, when
such securities are called,
redeemed, retired or otherwise
become payable; provided that, in
any such case, the cash or other
consideration is to be delivered to
the Custodian;
(iv) deliver any securities held for a
Portfolio against receipt of other
securities or cash issued or paid
in connection with the liquidation,
reorganization, refinancing, tender
offer, merger, consolidation or
recapitalization of any
corporation, or the exercise of any
conversion privilege;
(v) deliver any securities held for a
Portfolio to any protective
committee, reorganization committee
or other person in connection with
the reorganization, refinancing,
merger, consolidation,
recapitalization or sale of assets
of any corporation, and receive and
hold under the terms of this
Agreement such certificates of
deposit, interim receipts or other
instruments or documents as may be
issued to it to evidence such
delivery;
(vi) make such transfer or exchanges of
the assets of the Fund and take
such other steps as shall be stated
in said Oral or Written
Instructions to be for the purpose
of effectuating a duly authorized
plan of liquidation,
reorganization, merger,
consolidation or recapitalization
of the Fund;
(vii) release securities belonging to a
Portfolio to any bank or trust
company for the purpose of a pledge
11
<PAGE> 13
or hypothecation to secure any loan
incurred by a Portfolio; provided,
however, that securities shall be
released only upon payment to the
Custodian of the monies borrowed,
except that in cases where
additional collateral is required
to secure a borrowing already made
subject to proper prior
authorization, further securities
may be released for that purpose;
and repay such loan upon redelivery
to it of the securities pledged or
hypothecated therefor and upon
surrender of the note or notes
evidencing the loan;
(viii) release and deliver securities
owned by a Portfolio in connection
with any repurchase agreement
entered into on behalf of the Fund,
but only on receipt of payment
therefor; and pay out moneys of
such Portfolio in connection with
such repurchase agreements, but
only upon the delivery of the
securities;
(ix) release and deliver or exchange
securities owned by a Portfolio in
connection with any conversion of
such securities, pursuant to their
terms, into other securities;
(x) release and deliver securities
owned by a Portfolio for the
purpose of redeeming in kind shares
of the Fund upon delivery thereof
to the Custodian; and
(xi) release and deliver or exchange
securities owned by a Portfolio for
other corporate purposes.
The Custodian must also receive a
certified resolution describing the
nature of the corporate purpose and
the name and address of the
person(s) to whom delivery shall be
12
<PAGE> 14
made when such action is pursuant
to sub-paragraph d.
(e) Use of Book-Entry System. The Fund shall deliver
to the Custodian certified resolutions of the Fund's Board of Trustees
approving, authorizing and instructing the Custodian on a continuous and
on-going basis, to deposit in the Book-Entry System all securities belonging to
a Portfolio eligible for deposit therein and to utilize the Book-Entry System to
the extent possible in connection with settlements of purchases and sales of
securities by the Portfolios, and deliveries and returns of securities loaned,
subject to repurchase agreements or used as collateral in connection with
borrowings. The Custodian shall continue to perform such duties until it
receives Written or Oral Instructions authorizing contrary actions(s).
To administer the Book-Entry System properly, the following
provisions shall apply:
(i) With respect to securities of the
Fund which are maintained in the
Book-Entry system, established
pursuant to this sub-paragraph e
hereof, the records of the
Custodian shall identify by
Book-Entry or otherwise those
securities belonging to each
Portfolio. The Custodian shall
furnish the Fund a detailed
statement of the Property held for
each Portfolio under this Agreement
at least monthly and from time to
time and upon written request.
(ii) Securities and any cash of each
Portfolio deposited in the
Book-Entry System will at all times
be segregated from any assets and
cash controlled by the Custodian in
other than a fiduciary or custodian
capacity but may be commingled with
other assets held in such
capacities. The Custodian and its
sub-custodian, if any, will pay out
money only upon receipt of
securities and will deliver
securities only upon the receipt of
money.
13
<PAGE> 15
(iii) All books and records maintained by
the Custodian which relate to the
Fund's participation in the
Book-Entry System will at all times
during the Custodian's regular
business hours be open to the
inspection of the Fund's duly
authorized employees or agents, and
the Fund will be furnished with all
information in respect of the
services rendered to it as it may
require.
(iv) The Custodian will provide the Fund
with copies of any report obtained
by the Custodian on the system of
internal accounting control of the
Book-Entry System promptly after
receipt of such a report by the
Custodian.
The Custodian will also provide the Fund with such reports on
its own system of internal control as the Fund may reasonably request from time
to time.
(f) Registration of Securities. All Securities held
for a Portfolio which are issued or issuable only in bearer form, except such
securities held in the Book-Entry System, shall be held by the Custodian in
bearer form; all other securities held for a Portfolio may be registered in the
name of the Fund on behalf of a Portfolio, the Custodian, the Book-Entry System,
a sub-custodian, or any duly appointed nominees of a Portfolio, the Custodian,
Book-Entry system or sub-custodian. The Fund reserves the right to instruct the
Custodian as to the method of registration and safekeeping of the securities of
a Portfolio. The Fund agrees to furnish to the Custodian appropriate instruments
to enable the Custodian to hold or deliver in proper form for transfer, or to
register its registered nominee or in the name of the Book-Entry System, any
securities which it may hold for the account of any Portfolio and which may from
time to time be registered in the name of the Fund on behalf of a Portfolio. The
Custodian shall hold all such securities which are not held in the Book-Entry
System in a separate account for each Portfolio in the name of the Fund on
behalf of the relevant Portfolio physically segregated at all times from those
of any other person or persons.
(g) Voting and Other Action. Neither the Custodian
nor its nominee shall vote any of the securities held pursuant to this Agreement
by or for the account of any
14
<PAGE> 16
Portfolio, except in accordance with Written Instructions. The Custodian,
directly or through the use of the Book-Entry System, shall execute in blank and
promptly deliver all notice, proxies, and proxy soliciting materials to the
registered holder of such securities. If the registered holder is not the Fund
on behalf of a Portfolio, then Written or Oral Instructions must designate the
person who owns such securities.
(h) Transactions Not Requiring Instructions. In the
absence of contrary Written Instructions, the Custodian is authorized to take
the following actions:
(i) Collection of Income and Other
Payments.
(A) collect and receive for the
account of each Portfolio, all
income, dividends, distributions,
coupons, option premiums, other
payments and similar items,
included or to be included in the
Property, and, in addition,
promptly advise the Fund of such
receipt and credit such income,
as collected, to the Portfolio's
custodian account;
(B) endorse and deposit for
collection, in the name of each
Portfolio, checks, drafts, or
other orders for the payment of
money;
(C) receive and hold for the accounts
of each Portfolio all securities
received as a distribution on
that Portfolio's portfolio
securities as a result of a stock
dividend, share split-up or
reorganization, recapitalization,
readjustment or other
rearrangement or distribution of
rights or similar securities
issued with respect to any
portfolio securities belonging to
a Portfolio held by the Custodian
hereunder;
(D) present for payment and collect
the amount payable upon all
securities which may mature or be
called, redeemed or retired, or
otherwise become payable on the
date such securities become
payable; and
15
<PAGE> 17
(E) take any action which may be
necessary and proper in
connection with the collection
and receipt of such income and
other payments and the
endorsement for collection of
checks, drafts, and other
negotiable instruments.
(ii) Miscellaneous Transactions.
(A) The Custodian is authorized to
deliver or cause to be delivered
Property against payment or other
consideration or written receipt
therefor, in the following cases:
(1) for examination by a broker
or dealer selling for the
account of a Portfolio in
accordance with street
delivery custom;
(2) for the exchange of interim
receipts or temporary
securities for definitive
securities; and
(3) for transfer of securities
into name of the Fund on
behalf of a Portfolio or the
Custodian or nominee of
either, or for exchange of
securities for a different
number of bonds,
certificates,or other
evidence, representing the
same aggregate face amount or
number of units bearing the
same interest rate, maturity
date and call provisions, if
any, provided that, in any
such case, the new securities
are to be delivered to the
Custodian.
(B) Unless and until the Custodian
receives Oral or Written
instructions to the contrary, the
Custodian shall:
16
<PAGE> 18
(1) pay all income items held by
it which call for payment
upon presentation and hold
the cash received by it upon
such payment for the account
of each Portfolio;
(2) collect interest and cash
dividends received, with
notice to the Fund, to the
account of each Portfolio;
(3) hold for the account of each
Portfolio all stock
dividends, rights and similar
securities issued with
respect to any securities
held by the Custodian; and
(4) execute as agent on behalf of
the Fund all necessary
ownership certificates
required by the Internal
Revenue Code or the Income
Tax Regulations of the United
States Treasury Department or
under the laws of any State
now or hereafter in effect,
inserting the Fund's name on
behalf of any Portfolio on
such certificate as the owner
of the securities covered
thereby, to the extent it may
lawfully do so.
(i) Segregated Accounts.
(i) The Custodian shall upon receipt of
Written or Oral Instructions
establish and maintain segregated
accounts on its records for and on
behalf of each Portfolio. Such
accounts may be used to transfer
cash and securities, including
securities in the Book-Entry
System:
(A) for the purposes of compliance by
the Fund with the procedures
required by a securities or
option
17
<PAGE> 19
exchange, providing such
procedures comply with the 1940
Act and any releases of the SEC
relating to the maintenance of
segregated accounts by registered
investment companies; and
(B) Upon receipt of Written
Instructions, for other proper
corporate purposes.
(ii) The Custodian may enter into
separate custodial agreements with
various futures commission
merchants ("FCMs") that the Fund
uses (each an "FCM Agreement"),
pursuant to which the Fund's margin
deposits in any transactions
involving futures contracts and
options on futures contracts will
be held by the Custodian in
accounts (each an "FCM Account")
subject to the disposition by the
FCM involved in such contracts in
accordance with the customer
contract between FCM and the Fund
("FCM Contract"), SEC rules
governing such segregated accounts,
CFTC rules and the rules of the
applicable commodities exchange.
Such FCM Agreements shall only be
entered into upon receipt of
Written Instructions from the Fund
which state that (i) a customer
agreement between the FCM and the
Fund has been entered into; and
(ii) the Fund is in compliance with
all the rules and regulations of
the CFTC. Transfers of initial
margin shall be made into an FCM
Account only upon Written
Instructions; transfers of premium
and variation margin may be made
into an FCM Account pursuant to
Oral Instructions. Transfers of
funds from an FCM Account to the
FCM for which the Custodian holds
such an account may only occur upon
certification by the FCM to the
Custodian that pursuant to the FCM
Agreement and the FCM Contract, all
18
<PAGE> 20
conditions precedent to its right
to give the Custodian such
instruction have been satisfied.
(j) Purchases of Securities. The Custodian shall
settle purchased securities upon receipt of Oral or Written Instructions from
the Fund or its investment adviser(s) that specify:
(i) the name of the issuer and the
title of the securities, including
CUSIP number if applicable;
(ii) the number of shares or the
principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and
settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such
purchase;
(vi) the name of the person from whom or
the broker through whom the
purchase was made. The Custodian
shall upon receipt of securities
purchased by or for a Portfolio pay
out of the moneys held for the
account of a Portfolio the total
amount payable to the person from
whom or the broker through whom the
purchase was made, provided that
the same conforms to the total
amount payable as set forth in such
Oral or Written Instructions; and
(vii) the name of the Portfolio involved.
(k) Sales of Securities. The Custodian shall settle
sold securities upon receipt of Oral or Written Instructions from the Fund that
specify:
(i) the name of the issuer and the
title of the security, including
CUSIP number if applicable;
19
<PAGE> 21
(ii) the number of shares or principal
amount sold, and accrued interest,
if any;
(iii) the date of trade and settlement
and sale;
(iv) the sale price per unit;
(v) the total amount payable to the
Portfolio upon such sale;
(vi) the name of the broker through whom
or the person to whom the sale was
made;
(vii) the location to which the security
must be delivered and delivery
deadline, if any; and
(viii) the name of the Portfolio involved.
The Custodian shall deliver the securities upon receipt of the
total amount payable to the Portfolio upon such sale, provided that the total
amount payable is the same as was set forth in the Oral or Written Instructions.
Subject to the foregoing, the Custodian may accept payment in such form as shall
be satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
(l) Reports.
(i) The Custodian shall furnish the
Fund the following reports:
(A) such periodic and special reports
as the Fund may reasonably
request;
(B) a monthly statement summarizing
all transactions and entries for
the account of each Portfolio,
listing the portfolio securities
belonging to each Portfolio with
the adjusted average cost of each
issue and stating the cash
account of each Portfolio
including disbursements;
(C) the reports to be furnished to
the Fund pursuant to Rule l7f-4;
and
20
<PAGE> 22
(D) such other information as may be
agreed upon from time to time
between the Fund and the
Custodian.
(ii) The Custodian shall transmit
promptly to the Fund any proxy
statement, proxy material, notice
of a call or conversion or similar
communication received by it as
custodian of the Property. The
Custodian shall be under no other
obligation to inform the Fund as to
such actions or events.
(m) Collections. All collections of monies or other
property in respect, or which are to become part, of the Property (but not the
safekeeping thereof upon receipt by the Custodian) shall be at the sole risk of
the Fund. If payment is not received by the Custodian within a reasonable time
after proper demands have been made, the Custodian shall notify the Fund in
writing, including copies of all demand letters, any written responses,
memoranda of all oral responses and telephonic demands thereto, and await
instructions from the Fund. The Custodian shall not be obliged to take legal
action for collection unless and until reasonably indemnified to its
satisfaction. The Custodian shall also notify the Fund as soon as reasonably
practicable whenever income due on securities is not collected in due course and
shall provide the Fund with periodic status reports of such income uncollected
after a reasonable time.
15. Duration and Termination. This Agreement shall continue
until terminated by the Fund or by the Custodian on sixty (60) days' prior
written notice to the other party. In the event this Agreement is terminated
(pending appointment of a successor to the Custodian or vote of the shareholders
of the Fund to dissolve or to function without a custodian of its cash,
securities or other property), the Custodian shall not deliver cash, securities
or other property of the Portfolios to the Fund. It may deliver them to a bank
or trust company of the Custodian's choice, having an aggregate capital, surplus
and undivided profits, as shown by its last published report, of not less than
twenty million dollars ($20,000,000), as a custodian for the Fund to be held
under terms similar to those of this Agreement. The Custodian shall not be
required to make any such delivery or payment until full payment shall have been
made to the Custodian of all of its fees, compensation, costs and expenses. The
Custodian shall have a security interest in and shall have a right of setoff
against property in the Fund's
21
<PAGE> 23
possession as security for the payment of such fees, compensation, costs and
expenses.
16. Notices. All notices and other communications, including
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to the
Custodian, at the Custodian's address, 1900 East Ninth Street, Cleveland, Ohio
44114, marked for the attention of the Custodian Services Department (or its
successor); (b) if to the Fund, at the address of the Fund; or (c) if to neither
of the foregoing, at such other address as shall have been notified to the
sender of any such Notice or other communication. If notice is sent by
confirming telegram, cable, telex or facsimile sending device, it shall be
deemed to have been given immediately. If notice is sent by first-class mail, it
shall be deemed to have been given five days after it has been mailed. If notice
is sent by messenger, it shall be deemed to have been given on the day it is
delivered.
17. Amendments. This Agreement, or any term hereof, may be
changed or waived only by a written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
18. Delegation. The Custodian may assign its rights and
delegate its duties hereunder to any wholly-owned direct or indirect subsidiary
of National City Bank, or National City Corporation, provided that (i) the
Custodian gives the Fund thirty (30) days prior written notice; (ii) the
delegate agrees with the Custodian to comply with all relevant provisions of the
1940 Act; and (iii) the Custodian and such delegate promptly provide such
information as the Fund may request, and respond to such questions as the Fund
may ask, relative to the delegation, including (without limitation) the
capabilities of the delegate.
19. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Further Actions. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
21. Miscellaneous. The Custodian acknowledges that the Fund is
a Massachusetts business trust, and that it is required by the Declaration to
limit its liability in all agreements to the assets of the Fund. Consequently,
the Custodian agrees that any claims by it against the Fund may be
22
<PAGE> 24
satisfied only from the assets of the Fund, and no shareholders, trustees or
officers of the Fund may be held personally liable or responsible for any
obligations arising out of this Agreement. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties may embody in one more separate documents their agreement, if
any, with respect to delegated and/or Oral Instructions.
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
This Agreement shall be deemed to be a contract made in Ohio
and governed by Ohio law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
and shall inure to the benefit of the parties hereto and their respective
successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the day and year
first above written.
NATIONAL CITY BANK
By:
-----------------------------------
Title:
--------------------------------
THE PARKSTONE GROUP OF FUNDS
By:
-----------------------------------
Title:
--------------------------------
23
<PAGE> 25
Portfolios
----------
This EXHIBIT A, dated July 24, 1998, is that certain Exhibit A to a
Custodian Services Agreement dated as of July 24, 1998 between the undersigned
parties. This Exhibit A supersedes all previously dated Exhibits A.
Parkstone Small Capitalization Fund
Parkstone Mid Capitalization Fund
Parkstone Large Capitalization Fund
Parkstone International Discovery Fund
Parkstone Balanced Allocation Fund
Parkstone Aggressive Allocation Fund
Parkstone Conservative Allocation Fund
Parkstone Equity Income Fund
Parkstone Bond Fund
Parkstone Limited Maturity Bond Fund
Parkstone Intermediate Government Obligations Fund
Parkstone U.S. Government Income Fund
Parkstone Municipal Bond Fund
Parkstone Michigan Municipal Bond Fund
Parkstone Prime Obligations Fund
Parkstone U.S. Government Obligations Fund
Parkstone Treasury Fund
Parkstone Tax-Free Fund
NATIONAL CITY BANK
By:
-----------------------------------
Title:
--------------------------------
THE PARKSTONE GROUP OF FUNDS
By:
-----------------------------------
Title:
--------------------------------
24
<PAGE> 26
AUTHORIZED PERSONS
APPENDIX
This Appendix, dated July 24, 1998, is that certain Appendix
to a Custodian Services Agreement dated as of July 24, 1998 between The
Parkstone Group of Funds and National City Bank.
Names Signatures
----- ----------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
25
<PAGE> 27
The Parkstone Group of Funds
3435 Stelzer Road
Columbus, Ohio 43219
Re: Custodian Services Fees
-----------------------
Ladies and Gentlemen:
This letter constitutes our agreement with respect to
compensation to be paid to National City Bank (the "Custodian") under the terms
of a Custodian Services Agreement dated July 24, 1998 (the "Agreement") between
The Parkstone Group of Funds ("you" or the "Fund") and the Custodian. Pursuant
to Paragraph 11 of the Agreement, and in consideration of the services to be
provided to you, you will pay the Custodian the following:
22. With respect to each of the Fund's investment portfolios
listed on Exhibit A to the Agreement (the "Portfolios"), an annual custody fee
of .020% of each Portfolio's first $100 million of average daily net assets,
.010% of each Portfolio's next $650 million of average daily net assets and
.008% of the average daily net assets of each Portfolio which exceed $750
million, exclusive of out-of-pocket expenses and transaction charges. Custody
fees shall be calculated daily and paid monthly.
23. The transaction charges are a bundled fee. This bundled
fee will not exceed .25% of the amount of total The Parkstone Group of Funds
monthly asset based fee.
24. The Custodian's out-of-pocket expenses including, but not
limited to, postage, telephone, telex, interest claim fee ($50.00 per claim),
transfer and registration fees, federal express charges, Federal Reserve and
wire fees.
25. The Custodian's out-of-pocket costs in providing foreign
custody services and/or precious metal custody services.
The fee for the period from the date hereof until the end of
such year shall be pro-rated according to the proportion which such period bears
to the full annual period.
If the foregoing accurately sets forth our agreement and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
26
<PAGE> 28
The Parkstone Group of Funds
- -----------------
Page 2
Very truly yours,
NATIONAL CITY BANK
By:
------------------------------
Accepted:
THE PARKSTONE GROUP OF FUNDS
By:
------------------------------
27
<PAGE> 1
Exhibit 9(c)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
THE PARKSTONE GROUP OF FUNDS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Terms of Appointment and Duties ............................ 1
2. Third Party Administrators for Defined Contribution Plans .. 4
3. Fees and Expenses .......................................... 5
4. Representations and Warranties of the Transfer Agent ....... 5
5. Representations and Warranties of the Fund ................. 6
6. Wire Transfer Operating Guidelines ......................... 6
7. Data Access and Proprietary Information .................... 8
8. Indemnification ............................................ 10
9. Standard of Care ........................................... 11
10. Year 2000 .................................................. 11
11. Confidentiality ............................................ 11
12. Covenants of the Fund and the Transfer Agent ............... 12
13. Termination of Agreement ................................... 13
14. Assignment and Third Party Beneficiaries ................... 13
15. Subcontractors ............................................. 13
16. Miscellaneous .............................................. 14
17. Additional Funds ........................................... 16
18. Limitations of Liability of the Trustees and Shareholders .. 16
<PAGE> 3
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the day of , 1998, by and between THE PARKSTONE
GROUP OF FUNDS, a Massachusetts business trust, having its principal office and
place of business at 3435 Stelzer Road, Columbus, Ohio 43219 (the "Fund"), and
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its
principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Transfer Agent").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Fund intends to initially offer shares in eighteen (18) series,
such series shall be named in the attached Schedule A which may be amended by
the parties from time to time (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 13, being herein referred to as a "Portfolio", and
collectively as the "Portfolios"); and
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Transfer
Agent as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities, and the
Transfer Agent desires to accept such appointment.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment and Duties
-------------------------------
1.1 Transfer Agency Services. Subject to the terms and conditions set forth
in this Agreement, the Fund, on behalf of the Portfolios, hereby employs
and appoints the Transfer Agent to act as, and the Transfer Agent agrees
to act as its transfer agent for the Fund's authorized and issued shares
of its beneficial interest, $ par value, ("Shares"), dividend
disbursing agent, custodian of certain retirement plans and agent in
connection with any accumulation, open-account or similar plan provided
to the shareholders of each of the respective Portfolios of the Fund
("Shareholders") and set out in the currently effective prospectus and
statement of additional information ("prospectus") of the Fund on behalf
of the applicable Portfolio, including without limitation any periodic
investment plan or periodic withdrawal program. In accordance with
procedures established from time to time by agreement between the Fund
on behalf of each of the Portfolios, as applicable and the Transfer
Agent, the Transfer Agent agrees that it will perform the following
services:
(a) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof to the
Custodian of the Fund authorized pursuant to the Declaration of Trust of
the Fund (the "Custodian");
(b) Pursuant to purchase orders, issue the appropriate number of Shares
and hold such Shares in the appropriate Shareholder account;
<PAGE> 4
(c) Receive for acceptance redemption requests and redemption directions
and deliver the appropriate documentation thereof to the Custodian;
(d) In respect to the transactions in items (i), (ii) and (iii) above,
the Transfer Agent shall execute transactions directly with
broker-dealers authorized by the Fund;
(e) At the appropriate time as and when it receives monies paid to it by
the Custodian with respect to any redemption, pay over or cause to be
paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
(f) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(g) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(h) Issue replacement certificates for those certificates alleged to
have been lost, stolen or destroyed upon receipt by the Transfer Agent
of indemnification satisfactory to the Transfer Agent and protecting the
Transfer Agent and the Fund, and the Transfer Agent at its option, may
issue replacement certificates in place of mutilated stock certificates
upon presentation thereof and without such indemnity;
(i) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(j) Record the issuance of Shares of the Fund and maintain pursuant to
SEC Rule 17Ad-10(e) a record of the total number of Shares of the Fund
which are authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Transfer Agent shall also provide the Fund
on a regular basis with the total number of Shares which are authorized
and issued and outstanding and shall have no obligation, when recording
the issuance of Shares, to monitor the issuance of such Shares or to
take cognizance of any laws relating to the issue or sale of such
Shares, which functions shall be the sole responsibility of the Fund.
1.2 Additional Services. In addition to, and neither in lieu nor in
contravention of, the services set forth in the above paragraph, the
Transfer Agent shall perform the following services:
(a) Other Customary Services. Perform the customary services of a
transfer agent, dividend disbursing agent, custodian of certain
retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plan (including without limitation
any periodic investment plan or periodic withdrawal program), including
but not limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing Shareholder proxies, Shareholder
reports and prospectuses to current Shareholders,
2
<PAGE> 5
withholding taxes on U.S. resident and non-resident alien accounts,
preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions
by federal authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable transactions
in Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information.
(b) Control Book (also known as "Super Sheet"). Maintain a daily record
and produce a daily report for the Fund of all transactions and receipts
and disbursements of money and securities and deliver a copy of such
report for the Fund for each business day to the Fund no later than 9:00
AM Eastern Time, or such earlier time as the Fund may reasonably
require, on the next business day;
(c) "Blue Sky" Reporting. The Fund shall (i) identify to the Transfer
Agent in writing those transactions and assets to be treated as exempt
from blue sky reporting for each State; and (ii) verify the
establishment of transactions for each State on the system prior to
activation and thereafter monitor the daily activity for each State. The
responsibility of the Transfer Agent for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and providing a
system which will enable the Fund to monitor the total number of Shares
sold in each State;
(d) National Securities Clearing Corporation (the "NSCC"). (i) accept
and effectuate the registration and maintenance of accounts through
Networking and the purchase, redemption, transfer and exchange of shares
in such accounts through Fund/SERV (networking and Fund/SERV being
programs operated by the NSCC on behalf of NSCC's participants,
including the Fund), in accordance with, instructions transmitted to and
received by the Transfer Agent by transmission from NSCC on behalf of
broker-dealers and banks which have been established by, or in
accordance with the instructions of authorized persons, as hereinafter
defined on the dealer file maintained by the Transfer Agent; (ii) issue
instructions to Fund's banks for the settlement of transactions between
the Fund and NSCC (acting on behalf of its broker-dealer and bank
participants); (iii) provide account and transaction information from
the affected Fund's records on DST Systems, Inc. computer system TA2000
("TA2000 System") in accordance with NSCC's Networking and Fund/SERV
rules for those broker-dealers; and (iv) maintain Shareholder accounts
on TA2000 System through Networking.
(e) New Procedures. New procedures as to who shall provide certain of
these services in Section 1 may be established in writing from time to
time by agreement between the Fund and the Transfer Agent. The Transfer
Agent may at times perform only a portion of these services and the Fund
or its agent may perform these services on the Fund's behalf.
3
<PAGE> 6
(f) Additional Telephone Support Services. If the parties elect to have
the Transfer Agent provide ADDITIONAL telephone support services under
this Agreement, the parties will agree to such services, fees and
sub-contracting as stated in Schedule 1.2(f) entitled "Telephone Support
Services" attached hereto.
2. Third Party Administrators for Defined Contribution Plans
---------------------------------------------------------
2.1 The Fund may decide to make available to certain of its customers, a
qualified plan program (the "Program") pursuant to which the customers
("Employers") may adopt certain plans of deferred compensation ("Plan or
Plans") for the benefit of the individual Plan participant (the "Plan
Participant"), such Plan(s) being qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended ("Code") and administered by
third party administrators which may be plan administrators as defined
in the Employee Retirement Income Security Act of 1974, as amended)(the
"TPA(s)").
2.2 In accordance with the procedures established in the initial Schedule
2.1 entitled "Third Party Administrator Procedures", as may be amended
by the Transfer Agent and the Fund from time to time ("Schedule 2.1"),
the Transfer Agent shall:
(a) Treat Shareholder accounts established by the Plans in the name of
the Trustees, Plans or TPAs as the case may be as omnibus accounts;
(b) Maintain omnibus accounts on its records in the name of the TPA or
its designee as the Trustee for the benefit of the Plan; and
(c) Perform all services under SECTION 1 as transfer agent of the Funds
and not as a record-keeper for the Plans.
2.3 Transactions identified under SECTION 2 of this Agreement shall be
deemed exception services ("Exception Services") when such transactions:
(a) Require the Transfer Agent to use methods and procedures other than
those usually employed by the Transfer Agent to perform services under
SECTION 1 of this Agreement;
(b) Involve the provision of information to the Transfer Agent after the
commencement of the nightly processing cycle of the TA2000 System; or
(c) Require more manual intervention by the Transfer Agent, either in
the entry of data or in the modification or amendment of reports
generated by the TA2000 System than is usually required by
non-retirement plan and pre-nightly transactions.
4
<PAGE> 7
3. Fees and Expenses
-----------------
3.1 Fee Schedule. For the performance by the Transfer Agent pursuant to this
Agreement, the Fund agrees to pay the Transfer Agent an annual
maintenance fee for each Shareholder account as set forth in the
attached fee schedule ("Schedule 3.1"). Such fees and out-of-pocket
expenses and advances identified under SECTION 3.2 below may be changed
from time to time subject to mutual written agreement between the Fund
and the Transfer Agent.
3.2 Out-of-Pocket Expenses. In addition to the fee paid under SECTION 3.1
above, the Fund agrees to reimburse the Transfer Agent for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, mailing and tabulating proxies,
records storage, or advances incurred by the Transfer Agent for the
items set out in Schedule 3.1 attached hereto. In addition, any other
expenses incurred by the Transfer Agent at the request or with the
consent of the Fund, will be reimbursed by the Fund.
3.3 Postage. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all shareholder accounts shall be advanced to the
Transfer Agent by the Fund at least seven (7) days prior to the mailing
date of such materials.
3.4 Invoices. The Fund agrees to pay all fees and reimbursable expenses
within thirty (30) days following the receipt of the respective billing
notice, except for any fees or expenses which are subject to good faith
dispute. In the event of such a dispute, the Fund may only withhold that
portion of the fee or expense subject to the good faith dispute. The
Fund shall notify the Transfer Agent in writing within twenty-one (21)
calendar days following the receipt of each billing notice if the Fund
is disputing any amounts in good faith. If the Fund does not provide
such notice of dispute within the required time, the billing notice will
be deemed accepted by the Fund.
4. Representations and Warranties of the Transfer Agent
----------------------------------------------------
The Transfer Agent represents and warrants to the Fund that:
4.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
4.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
4.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
4.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
5
<PAGE> 8
4.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
5. Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Transfer Agent that:
5.1 It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
5.2 It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
5.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
5.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
5.5 A registration statement under the Securities Act of 1933, as amended is
currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
6. Wire Transfer Operating Guidelines/Articles 4A of the Uniform Commercial
------------------------------------------------------------------------
Code
----
6.1 The Transfer Agent is authorized to promptly debit the appropriate Fund
account(s) upon the receipt of a payment order in compliance with the
selected security procedure (the "Security Procedure") chosen for funds
transfer and in the amount of money that the Transfer Agent has been
instructed to transfer. The Transfer Agent shall execute payment orders
in compliance with the Security Procedure and with the Fund instructions
on the execution date provided that such payment order is received by
the customary deadline for processing such a request, unless the payment
order specifies a later time. All payment orders and communications
received after this the customary deadline will be deemed to have been
received the next business day.
6.2 The Fund acknowledges that the Security Procedure it has designated on
the Fund Selection Form was selected by the Fund from security
procedures offered by the Transfer Agent. The Fund shall restrict access
to confidential information relating to the Security Procedure to
authorized persons as communicated to the Transfer Agent in writing. The
Fund must notify the Transfer Agent immediately if it has reason to
believe
6
<PAGE> 9
unauthorized persons may have obtained access to such information or of
any change in the Fund's authorized personnel. The Transfer Agent shall
verify the authenticity of all Fund instructions according to the
Security Procedure.
6.3 The Transfer Agent shall process all payment orders on the basis of the
account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the
account number, the account number shall take precedence and govern.
6.4 The Transfer Agent reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected
balance in the account to be charged at the time of the Transfer Agent's
receipt of such payment order; (b) if initiating such payment order
would cause the Transfer Agent, in the Transfer Agent's sole judgement,
to exceed any volume, aggregate dollar, network, time, credit or similar
limits which are applicable to the Transfer Agent; or (c) if the
Transfer Agent, in good faith, is unable to satisfy itself that the
transaction has been properly authorized.
6.5 The Transfer Agent shall use reasonable efforts to act on all authorized
requests to cancel or amend payment orders received in compliance with
the Security Procedure provided that such requests are received in a
timely manner affording the Transfer Agent reasonable opportunity to
act. However, the Transfer Agent assumes no liability if the request for
amendment or cancellation cannot be satisfied.
6.6 The Transfer Agent shall assume no responsibility for failure to detect
any erroneous payment order provided that the Transfer Agent complies
with the payment order instructions as received and the Transfer Agent
complies with the Security Procedure. The Security Procedure is
established for the purpose of authenticating payment orders only and
not for the detection of errors in payment orders.
6.7 The Transfer Agent shall assume no responsibility for lost interest with
respect to the refundable amount of any unauthorized payment order,
unless the Transfer Agent is notified of the unauthorized payment order
within thirty (30) days of notification by the Transfer Agent of the
acceptance of such payment order. In no event (including failure to
execute a payment order) shall the Transfer Agent be liable for special,
indirect or consequential damages, even if advised of the possibility of
such damages.
6.8 When the Fund initiates or receives Automated Clearing House credit and
debit entries pursuant to these guidelines and the rules of the National
Automated Clearing House Association and the New England Clearing House
Association, the Transfer Agent will act as an Originating Depository
Financial Institution and/or receiving depository Financial Institution,
as the case may be, with respect to such entries. Credits given by the
Transfer Agent with respect to an ACH credit entry are provisional until
the Transfer Agent receives final settlement for such entry from the
Federal Reserve Bank. If the Transfer Agent does not receive such final
settlement, the Fund agrees that the Transfer
7
<PAGE> 10
Agent shall receive a refund of the amount credited to the Fund in
connection with such entry, and the party making payment to the Fund via
such entry shall not be deemed to have paid the amount of the entry.
6.9 Confirmation of Transfer Agent's execution of payment orders shall
ordinarily be provided within twenty four (24) hours notice of which may
be delivered through the Transfer Agent's proprietary information
systems, or by facsimile or call-back. Fund must report any objections
to the execution of an order within thirty (30) days.
7. Data Access and Proprietary Information
---------------------------------------
7.1 The Fund acknowledges that the databases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Transfer Agent as
part of the Fund's ability to access certain Fund-related data
("Customer Data") maintained by the Transfer Agent on data bases under
the control and ownership of the Transfer Agent or other third party
("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of
substantial value to the Transfer Agent or other third party. In no
event shall Proprietary Information be deemed Customer Data. The Fund
agrees to treat all Proprietary Information as proprietary to the
Transfer Agent and further agrees that it shall not divulge any
Proprietary Information to any person or organization except as may be
provided hereunder. Without limiting the foregoing, the Fund agrees for
itself and its employees and agents to:
(a) Use such programs and databases (i) solely on the Fund's computers,
or (ii) solely from equipment at the location agreed to between the Fund
and the Transfer Agent and (iii) solely in accordance with the Transfer
Agent's applicable user documentation;
(b) Refrain from copying or duplicating in any way (other than in the
normal course or performing processing on the Fund's computer(s)), the
Proprietary Information;
(c) Refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained,
to inform in a timely manner of such fact and dispose of such
information in accordance with the Transfer Agent's instructions;
(d) Refrain from causing or allowing information transmitted from the
Transfer Agent's computer to the Fund's terminal to be retransmitted to
any other computer terminal or other device except as expressly
permitted by the Transfer Agent (such permission not to be unreasonably
withheld);
(e) Allow the Fund to have access only to those authorized transactions
as agreed to between the Fund and the Transfer Agent; and
8
<PAGE> 11
(f) Honor all reasonable written requests made by the Transfer Agent to
protect at the Transfer Agent's expense the rights of the Transfer Agent
in Proprietary Information at common law, under federal copyright law
and under other federal or state law.
7.2 Proprietary Information shall not include all or any portion of any of
the foregoing items that: (i) are or become publicly available without
breach of this Agreement; (ii) are released for general disclosure by a
written release by the Transfer Agent; or (iii) are already in the
possession of the receiving party at the time or receipt without
obligation of confidentiality or breach of this Agreement.
7.3 The Fund acknowledges that its obligation to protect the Transfer
Agent's Proprietary Information is essential to the business interest of
the Transfer Agent and that the disclosure of such Proprietary
Information in breach of this Agreement would cause the Transfer Agent
immediate, substantial and irreparable harm, the value of which would be
extremely difficult to determine. Accordingly, the parties agree that,
in addition to any other remedies that may be available in law, equity,
or otherwise for the disclosure or use of the Proprietary Information in
breach of this Agreement, the Transfer Agent shall be entitled to seek
and obtain a temporary restraining order, injunctive relief, or other
equitable relief against the continuance of such breach.
7.4 If the Fund notifies the Transfer Agent that any of the Data Access
Services do not operate in material compliance with the most recently
issued user documentation for such services, the Transfer Agent shall
endeavor in a timely manner to correct such failure. Organizations from
which the Transfer Agent may obtain certain data included in the Data
Access Services are solely responsible for the contents of such data and
the Fund agrees to make no claim against the Transfer Agent arising out
of the contents of such third-party data, including, but not limited to,
the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND
SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN
AS IS, AS AVAILABLE BASIS. THE TRANSFER AGENT EXPRESSLY DISCLAIMS ALL
WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
7.5 If the transactions available to the Fund include the ability to
originate electronic instructions to the Transfer Agent in order to: (i)
effect the transfer or movement of cash or Shares; or (ii) transmit
Shareholder information or other information, then in such event the
Transfer Agent shall be entitled to rely on the validity and
authenticity of such instruction without undertaking any further inquiry
as long as such instruction is undertaken in conformity with security
procedures established by the Transfer Agent from time to time.
9
<PAGE> 12
7.6 Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this SECTION 7. The obligations of this
Section shall survive any earlier termination of this Agreement.
8. Indemnification
---------------
8.1 The Transfer Agent shall not be responsible for, and the Fund shall
indemnify and hold the Transfer Agent harmless from and against, any and
all losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributable to:
(a) All actions of the Transfer Agent or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or willful
misconduct;
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the
Fund hereunder;
(c) The reliance upon, and any subsequent use of or action taken or
omitted, by the Transfer Agent, or its agents or subcontractors on: (i)
any information, records, documents, data, stock certificates or
services, which are received by the Transfer Agent or its agents or
subcontractors by machine readable input, facsimile, CRT data entry,
electronic instructions or other similar means authorized by the Fund,
and which have been prepared, maintained or performed by the Fund or any
other person or firm on behalf of the Fund including but not limited to
any previous transfer agent or registrar; (ii) any instructions or
requests of the Fund or any of its officers; (iii) any instructions or
opinions of legal counsel with respect to any matter arising in
connection with the services to be performed by the Transfer Agent under
this Agreement which are provided to the Transfer Agent after
consultation with such legal counsel; or (iv) any paper or document,
reasonably believed to be genuine, authentic, or signed by the proper
person or persons;
(d) The offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be registered
or in violation of any stop order or other determination or ruling by
any federal or any state agency with respect to the offer or sale of
such Shares;
(e) The negotiation and processing of any checks including without
limitation for deposit into the Fund's demand deposit account maintained
by the Transfer Agent; or
(f) Upon the Fund's request entering into any agreements required by the
National Securities Clearing Corporation (the "NSCC") required by the
NSCC for the transmission of Fund or Shareholder data through the NSCC
clearing systems.
10
<PAGE> 13
8.2 In order that the indemnification provisions contained in this SECTION 8
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Transfer Agent, the Transfer Agent shall
promptly notify the Fund of such assertion, and shall keep the Fund
advised with respect to all developments concerning such claim. The Fund
shall have the option to participate with the Transfer Agent in the
defense of such claim or to defend against said claim in its own name or
in the name of the Transfer Agent. The Transfer Agent shall in no case
confess any claim or make any compromise in any case in which the Fund
may be required to indemnify the Transfer Agent except with the Fund's
prior written consent.
9. Standard of Care
----------------
9.1 The Transfer Agent shall at all times act in good faith and agrees to
use its best efforts within reasonable limits to insure the accuracy of
all services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to errors
unless said errors are caused by its negligence, bad faith, or willful
misconduct or that of its employees, except as provided in SECTION 9.2
below.
9.2 In the case of Exception Services as defined in SECTION 2.3 herein, the
Transfer Agent shall be held to a standard of gross negligence and
encoding and payment processing errors shall not be deemed negligence.
10. Year 2000
---------
The Transfer Agent will take reasonable steps to ensure that its
products (and those of its third-party suppliers) reflect the available
technology to offer products that are Year 2000 ready, including, but
not limited to, century recognition of dates, calculations that
correctly compute same century and multi- century formulas and date
values, and interface values that reflect the date issues arising
between now and the next one-hundred years, and if any changes are
required, the Transfer Agent will make the changes to its products at a
price to be agreed upon by the parties and in a commercially reasonable
time frame and will require third-party suppliers to do likewise.
11. Confidentiality
---------------
11.1 The Transfer Agent and the Fund agree that they will not, at any time
during the term of this Agreement or after its termination, reveal,
divulge, or make known to any person, firm, corporation or other
business organization, any customers' lists, trade secrets, cost figures
and projections, profit figures and projections, or any other secret or
confidential information whatsoever, whether of the Transfer Agent or of
the Fund, used or gained by the Transfer Agent or the Fund during
performance under this Agreement. The Fund and the Transfer Agent
further covenant and agree to retain all such knowledge and information
acquired during and after the term of this Agreement respecting such
lists, trade secrets, or any secret or confidential information
whatsoever in trust for the sole
11
<PAGE> 14
benefit of the Transfer Agent or the Fund and their successors and
assigns. In the event of breach of the foregoing by either party, the
remedies provided by SECTION 7.3 shall be available to the party whose
confidential information is disclosed. The above prohibition of
disclosure shall not apply to the extent that the Transfer Agent must
disclose such data to its sub-contractor or Fund agent for purposes of
providing services under this Agreement.
11.2 In the event that any requests or demands are made for the inspection of
the Shareholder records of the Fund, other than request for records of
Shareholders pursuant to standard subpoenas from state or federal
government authorities (i.e., divorce and criminal actions), the
Transfer Agent will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund as to such
inspection. The Transfer Agent expressly reserves the right, however, to
exhibit the Shareholder records to any person whenever it is advised by
counsel that it may be held liable for the failure to exhibit the
Shareholder records to such person or if required by law or court order.
12. Covenants of the Fund and the Transfer Agent
--------------------------------------------
12.1 The Fund shall promptly furnish to the Transfer Agent the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Transfer Agent and the execution
and delivery of this Agreement; and
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
12.2 The Transfer Agent hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for safekeeping of
stock certificates, check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for keeping account
of, such certificates, forms and devices.
12.3 The Transfer Agent shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To
the extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Transfer Agent agrees that all
such records prepared or maintained by the Transfer Agent relating to
the services to be performed by the Transfer Agent hereunder are the
property of the Fund and will be preserved, maintained and made
available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
12
<PAGE> 15
13. Termination of Agreement
------------------------
13.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
13.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund. Additionally, the Transfer Agent reserves the right
to charge for any other reasonable expenses associated with such
termination and a charge equivalent to the average of three (3) months'
fees. Payment of such expenses or costs shall be in accordance with
Section 3.4 of this Agreement.
13.3 Upon termination of this Agreement, each party shall return to the other
party all copies of confidential or proprietary materials or information
received from such other party hereunder, other than materials or
information required to be retained by such party under applicable laws
or regulations.
14. Assignment and Third Party Beneficiaries.
-----------------------------------------
14.1 Except as provided in Section 15.1 below and the Additional Telephone
Support Services Schedule 1.2(f) attached, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party. Any attempt to do so in
violation of this Section shall be void. Unless specifically stated to
the contrary in any written consent to an assignment, no assignment will
release or discharge the assignor from any duty or responsibility under
this Agreement.
14.2 Except as explicitly stated elsewhere in this Agreement, nothing under
this Agreement shall be construed to give any rights or benefits in this
Agreement to anyone other than the Transfer Agent and the Fund, and the
duties and responsibilities undertaken pursuant to this Agreement shall
be for the sole and exclusive benefit of the Transfer Agent and the
Fund. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
14.3 This Agreement does not constitute an agreement for a partnership or
joint venture between the Transfer Agent and the Fund. Other than as
provided in Section 15.1 and Schedule 1.2(f), neither party shall make
any commitments with third parties that are binding on the other party
without the other party's prior written consent.
15. Subcontractors
--------------
15.1 The Transfer Agent may, without further consent on the part of the
Fund, subcontract for the performance hereof with (i) Boston Financial
Data Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended, (ii) a BFDS subsidiary
13
<PAGE> 16
duly registered as a transfer agent or (iii) a BFDS affiliate duly
registered as a transfer agent; provided, however, that the Transfer
Agent shall be fully responsible to the Fund for the acts and omissions
of BFDS or its subsidiary or affiliate as it is for its own acts and
omissions.
15.2 Nothing herein shall impose any duty upon the Transfer Agent in
connection with or make the Transfer Agent liable for the actions or
omissions to act of unaffiliated third parties such as by way of example
and not limitation, Airborne Services, Federal Express, United Parcel
Service, the U.S. Mails, the NSCC and telecommunication companies,
provided, if the Transfer Agent selected such company, the Transfer
Agent shall have exercised due care in selecting the same.
16. Miscellaneous
-------------
16.1 Amendment. This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a
resolution of the Board of Trustees of the Fund.
16.2 Massachusetts Law to Apply. This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with the laws of
The Commonwealth of Massachusetts.
16.3 Force Majeure. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond
its control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages resulting
from such failure to perform or otherwise from such causes.
16.4 Consequential Damages. Neither party to this Agreement shall be liable
to the other party for consequential damages under any provision of this
Agreement or for any consequential damages arising out of any act or
failure to act hereunder.
16.5 Survival. All provisions regarding indemnification, warranty, liability,
and limits thereon, and confidentiality and/or protections of
proprietary rights and trade secrets shall survive the termination of
this Agreement.
16.6 Severability. If any provision or provisions of this Agreement shall be
held invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be
affected or impaired.
16.7 Priorities Clause. In the event of any conflict, discrepancy or
ambiguity between the terms and conditions contained in this Agreement
and any Schedules or attachments hereto, the terms and conditions
contained in this Agreement shall take precedence.
14
<PAGE> 17
16.8 Waiver. No waiver by either party or any breach or default of any of the
covenants or conditions herein contained and performed by the other
party shall be construed as a waiver of any succeeding breach of the
same or of any other covenant or condition.
16.9 Merger of Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with
respect to the subject matter hereof whether oral or written.
16.10 Counterparts. This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
16.11 Reproduction of Documents. This Agreement and all schedules, exhibits,
attachments and amendments hereto may be reproduced by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other
similar process. The parties hereto each agree that any such
reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding, whether or not the original
is in existence and whether or not such reproduction was made by a party
in the regular course of business, and that any enlargement, facsimile
or further reproduction shall likewise be admissible in evidence.
16.12 Notices. All notices and other communications as required or permitted
hereunder shall be in writing and sent by first class mail, postage
prepaid, addressed as follows or to such other address or addresses of
which the respective party shall have notified the other.
(a) If to State Street Bank and Trust Company, to:
State Street Bank and Trust Company
c/o Boston Financial Data Services, Inc.
Two Heritage Drive
Quincy, Massachusetts 02171
Attention: Legal Department
Facsimile: (617) 774-2287
(b) If to the Fund, to:
Attention:
15
<PAGE> 18
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to the attached Schedule A with respect to which it desires to
have the Transfer Agent render services as transfer agent under the
terms hereof, it shall so notify the Transfer Agent in writing, and if
the Transfer Agent agrees in writing to provide such services, such
series of Shares shall become a Portfolio hereunder.
18. Limitations of Liability of the Trustees and Shareholders
---------------------------------------------------------
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or Shareholders
individually but are binding only upon the assets and property of the
Fund.
16
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
THE PARKSTONE GROUP OF FUNDS
BY:
---------------------------------
ATTEST:
- ---------------------------------
STATE STREET BANK AND TRUST
COMPANY
BY:
---------------------------------
Executive Vice President
ATTEST:
17
<PAGE> 20
SCHEDULE A
Parkstone Prime Obligations Fund Parkstone Balanced Allocation Fund
Parkstone Tax-Free Fund Parkstone Aggressive Allocation Fund
Parkstone U.S. Government Obligations Fund Parkstone Conservative Allocation
Fund
Parkstone Treasury Fund
Parkstone Large Capitalization Fund
Parkstone Small Capitalization Fund
Parkstone Mid Capitalization Fund
Parkstone International Discovery Fund
Parkstone Equity Income Fund
Parkstone Bond Fund
Parkstone Limited Maturity Bond Fund
Parkstone Intermediate Government Obligations Fund
Parkstone U.S. Government Income Fund
Parkstone Municipal Bond Fund
Parkstone Michigan Municipal Bond Fund
THE PARKSTONE GROUP OF FUNDS STATE STREET BANK AND TRUST
COMPANY
BY: BY:
------------------------ ----------------------------------
18
<PAGE> 21
SCHEDULE 1.2(f)
ADDITIONAL TELEPHONE SUPPORT FEES AND SERVICES
Dated _______________
I. SERVICES
1. Transfer Agent and Telephone Support Functions
a. Answer telephone inquiries from [XXX 8 a.m. to 8 p.m. Boston time
Monday through Friday XXX] from [XXX existing customers and prospective
customers XXX] of the Fund [XXX for sales literature XXX] in accordance
with the telephone script provided by the Fund.
b. Answer questions pertaining thereto the extent that such questions are
answerable based upon the information supplied to the Transfer Agent by
the Fund.
c. [XXX As the Fund and the Transfer Agent may agree in writing, the
Transfer Agent will receive calls and take written transaction requests
from shareholders of the Fund. Transfer Agent transactions include:
[XXX telephone redemptions, account maintenance, exchanges, transfers,
confirmed purchases, account balances and general inquiries XXX]. Some
transactions may result in research which will be done by the Fund.
Other calls may be referred directly to the Fund. Fax any referrals to
[XXX name of company XXX] on the same day the telephone call is
received.XXX];
2. Incorporate new information into the above referenced script upon
written instructions from the Fund;
3. Maintain prospect detail information for six (6) months thereafter,
provide such information to the Fund in the form that the Fund may
reasonably request;
4. Send all literature orders for information from BFDS/DST [XXX [how?]
[to whom?] XXX] a minimum of [XXX one XXX] transmission per day;
5. Provide the Fund with a [XXX daily/weekly/monthly XXX] telephone report
detailing the calls received during the [XXX day/week/month XXX];
6. [XXX Provide the Fund with monthly conversion reports as selected by
the Fund from DST's standard report package. XXX]
II. SUBCONTRACTORS
1. The Transfer Agent may, without further consent on the part of the
Fund, subcontract ministerial telephone support services for the
performance hereof.
<PAGE> 22
III. FEES
THE PARKSTONE GROUP OF FUNDS STATE STREET BANK AND TRUST
COMPANY
BY: BY:
--------------------------------- ------------------------------
<PAGE> 23
SCHEDULE 2.1
THIRD PARTY ADMINISTRATOR(S) PROCEDURES
Dated _______________
1.On each Business Day, the TPA(s) shall receive, on behalf of and as agent
of the Fund(s), Instructions (as hereinafter defined) from the Plan.
Instructions shall mean as to each Fund (i) orders by the Plan for the
purchases of Shares, and (ii) requests by the Plan for the redemption
of Shares; in each case based on the Plan's receipt of purchase orders
and redemption requests by Participants in proper form by the time
required by the term of the Plan, but not later than the time of day at
which the net asset value of a Fund is calculated, as described from
time to time in that Fund's prospectus. Each Business Day on which the
TPA receives Instructions shall be a "Trade Date".
2. The TPA(s) shall communicate the TPA(s)'s acceptance of such
Instructions, to the applicable Plan.
3. On the next succeeding Business Day following the Trade Date on which
it accepted Instructions for the purchase and redemption of Shares,
(TD+1), the TPA(s) shall notify the Transfer Agent of the net amount
of such purchases or redemptions, as the case may be, for each of the
Plans. In the case of net purchases by any Plan, the TPA(s) shall
instruct the Trustees of such Plan to transmit the aggregate purchase
price for Shares by wire transfer to the Transfer Agent on (TD+1). In
the case of net redemptions by any Plan, the TPA(s) shall instruct the
Fund's custodian to transmit the aggregate redemption proceeds for
Shares by wire transfer to the Trustees of such Plan on (TD+1). The
times at which such notification and transmission shall occur on (TD+l)
shall be as mutually agreed upon by each Fund, the TPA(s), and the
Transfer Agent.
4. The TPA(s) shall maintain separate records for each Plan, which record
shall reflect Shares purchased and redeemed, including the date and
price for all transactions, and Share balances. The TPA(s) shall
maintain on behalf of each of the Plans a single master account with
the Transfer Agent and such account shall be in the name of that Plan,
the TPA(s), or the nominee of either thereof as the record owner of
Shares owned by such Plan.
5. The TPA(s) shall maintain records of all proceeds of redemptions of
Shares and all other distributions not reinvested in Shares.
6. The TPA(s) shall prepare, and transmit to each of the Plans, periodic
account statements showing the total number of Shares owned by that
Plan as of the statement closing date, purchases and redemptions of
Shares by the Plan during the period covered by the statement, and the
dividends and other distributions paid to the Plan on Shares during the
statement period (whether paid in cash or reinvested in Shares).
<PAGE> 24
7. The TPA(s) shall, at the request and expense of each Fund, transmit to
the Plans prospectuses, proxy materials, reports, and other information
provided by each Fund for delivery to its shareholders.
8. The TPA(s) shall, at the request of each Fund, prepare and transmit to
each Fund or any agent designated by it such periodic reports covering
Shares of each Plan as each Fund shall reasonably conclude are
necessary to enable the Fund to comply with state Blue Sky
requirements.
9. The TPA(s) shall transmit to the Plans confirmation of purchase orders
and redemption requests placed by the Plans; and
10. The TPA(s) shall, with respect to Shares, maintain account balance
information for the Plan(s) and daily and monthly purchase summaries
expressed in Shares and dollar amounts.
11. Plan sponsors may request, or the law may require, that prospectuses,
proxy materials, periodic reports and other materials relating to each
Fund be furnished to Participants in which event the Transfer Agent or
each Fund shall mail or cause to be mailed such materials to
Participants. With respect to any such mailing, the TPA(s) shall, at
the request of the Transfer Agent or each Fund, provide at the TPA(s)'s
expense complete and accurate set of mailing labels with the name and
address of each Participant having an interest through the Plans in
Shares.
THE PARKSTONE GROUP OF FUNDS STATE STREET BANK AND TRUST
COMPANY
BY: BY:
--------------------------- ---------------------------
<PAGE> 25
SCHEDULE 3.1
FEES
Dated September 15, 1998
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
Annual Account Service Fees
- --------------------------------------------------------------------------------
Annual Base Fee (per class/per fund) $15,000
Annual Account Maintenance $15.00/account
Annual Closed Account Fees $ 2.40/account
Each class is considered a fund and will be billed accordingly.
- --------------------------------------------------------------------------------
Conversion Fee
- --------------------------------------------------------------------------------
Fee $25,000
- --------------------------------------------------------------------------------
Activity Based Fees
- --------------------------------------------------------------------------------
New Account Set-up $ 4.00/each
Manual Transactions $ 2.50/each
Telephone Calls $ 5.00/each
Correspondence $ 2.50/each
- --------------------------------------------------------------------------------
IRA Custodial Fees
- --------------------------------------------------------------------------------
Annual Maintenance $ 10.00/account
- --------------------------------------------------------------------------------
Out-of-Pocket Expenses Billed as
incurred
- --------------------------------------------------------------------------------
</TABLE>
Out-of-Pocket expenses include but are not limited to: confirmation statements,
investor statements, postage, forms, audio response, telephone, records
retention, customized programming / enhancements, federal wire, transcripts,
microfilm, microfiche, and expenses incurred at the specific direction of the
fund.
This fee schedule is subject to an annual cost of living ajustment based on a
regional consumer price index.
THE PARKSTONE GROUP OF FUNDS STATE STREET BANK AND TRUST
COMPANY
By: By:
---------------------------- ----------------------------
<PAGE> 26
WIRE TRANSFER SECURITY PROCEDURES
FUND SELECTION FORM
SECTION I
Details the types of funds transfers processed on behalf of
--------------------
SECTION II
Lists the types of security procedures offered.
Please select the appropriate security procedures from Section II for each type
of funds transfer listed in Section I.
I. TYPES OF FUNDS TRANSFERS
Expedited Redemptions
-----
Same Day Wires
-----
Manual Wires
-----
Wire Transfers Initiated by FAX
-----
Group Dividend Wire
-----
Remote Batch Transmissions
-----
ACH Transactions
-----
1
<PAGE> 27
WIRE TRANSFER SECURITY PROCEDURES
II. SECURITY PROCEDURES
A. REPETITIVE WIRES/ACH TRANSACTIONS
B. TELEPHONE CONFIRMATION
C. ENCRYPTION
AUTHORIZATION
Boston Financial Data Services, Inc. Is hereby instructed to implement the above
checked security procedure(s) in regard to payment orders initiated by or on
behalf of our organization or its shareholders.
- ---------------------------------- -----------------------
Authorized Signature Date
- ----------------------------------
Title
2
<PAGE> 28
WIRE TRANSFER SECURITY PROCEDURES
FUNDS TRANSFER SECURITY PROCEDURES DEFINITIONS
REPETITIVE WIRES
1. Shareholder Generated
Wires initiated from existing authorized shareholder accounts. Each wire is sent
to the same pre-established destination bank and beneficiary account number.
Only the date of the wire and dollar amount may vary from instruction to
instruction. Changes to that file can only be performed based on written
instructions coupled with a signature guarantee. The establishment of the
repetitive wire is confirmed via a written notice to the shareholder's address
of record.
2. Client Generated
Manual Wires processed on behalf of the client. Wires are initiated from the
same authorized debit account and sent to the same destination bank and
beneficiary account number each time. Only the date and the dollar amount may
vary from instruction to instruction.
TELEPHONE CONFIRMATION
Telephone confirmation will be used to verify funds transfer instructions
received via telephone, untested facsimile or mail. This security procedure can
be used to authenticate non repetitive and repetitive wire transfers
instructions. Repetitive wires may be subject to a specific threshold at the
client's discretion.
As part of the confirmation process customers must designate individuals as
authorized initiators and authorized confirmers. Within 24 hours of receipt of
the wire instruction and prior to execution, a Boston Financial Data Services
associate will contact someone other than the originator at the customer's
location to authenticate the instructions. Additionally, a confirmation log will
be maintained to provide an evidentiary control as well as providing an
invaluable operational tool for resolving any disputes.
ENCRYPTION
Delivery of wire transfer is completed via computer to computer data
communications between the client and State Street Bank. Recommended security
procedures include encryption, the process by which data traveling over
communication lines is cryptographically transformed (encrypted). This control
is appropriate not only for terminal based initiation, but is also being used by
some institutions in the form of both encrypted facsimile and encrypted voice
communication. This delivery mechanism is typically used for high volume
business such as shareholder redemptions and dividends.
3
<PAGE> 29
WIRE TRANSFER SECURITY PROCEDURES
ADDITIONAL INFORMATION
- ----------------------
Telephone Communications
- All telephone communication between BFDS and the client will
be handled on recorded telephone lines.
Transfers Initiated Via Facsimile Transmission
- Transfers initiated via fax may use either repetitive wire
security procedures, telephone confirmation or a combination
of both.
Optional Security Procedure
- Client may establish telephone confirmation procedures to
authenticate repetitive manual wires initiated via telephone,
untested facsimile or mail in excess of certain dollar amounts
using the attached forms.
4
<PAGE> 30
WIRE TRANSFER SECURITY PROCEDURES
- --------------------------------------------------------------------------------
SECTIONS I and II SHOULD BE COMPLETED BY ALL CLIENTS
- --------------------------------------------------------------------------------
Please type all documentation.
- ------------------------------
SECTION I
Client/Fund
- --------------------------------------------------------------------------------
Street: Apt:
------------------------------------------------ ------------------
City: State: Zip:
------------------------------ ------------- -------------------
Phone Number: ( )
--------------------------
Fax Number: ( )
--------------------------
SECTION II
Please list the number of all demand deposit accounts (DDAs) from which you
intend to initiate wire transfers.
Maximum $ Limit Maximum $ Limit
--------------- ---------------
DDA Number Per Transaction DDA Number Per Transaction
- ---------- --------------- ---------- ---------------
(8 Digits) (if any) (8 Digits) (if any)
- ---------- -------- ---------- --------
1. 7.
--------- --------------- -------- ---------------
2. 8.
--------- --------------- -------- ---------------
3. 9.
--------- --------------- -------- ---------------
4. 10.
--------- --------------- -------- ---------------
5. 11.
--------- --------------- -------- ---------------
6. 12.
--------- --------------- -------- ---------------
5
<PAGE> 31
WIRE TRANSFER SECURITY PROCEDURES
SECTION - III CALLBACK VERIFICATION FORM
COMPLETE THIS SECTION FOR ALL TRANSFERS BY TELEPHONE ONLY.
NOTE: INDIVIDUAL AUTHORIZED FOR CALLBACK IS RESTRICTED TO VERIFICATION ONLY.
INDIVIDUAL INITIATING TRANSFERS CANNOT PERFORM CALLBACK VERIFICATION.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Account A) Individual Authorized to Callback B) Authorized Individual (Optional) Dollar Authorized for Limited to
Number Initiate Transfer Instructions Phone No. for Callback Verification Limitation All Transfers Repetitive
(last name, first name) (last name, first name) Transfers
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$
- ------------------------------------------------------------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------ Check ( ) here if you would like to request callbacks on all repetitive transfers over a specified dollar amount.
Please provide the information below.
Please Callback on Please callback on
Account Number all transfers over this amount: Account Number all transfers over this amount:
-------------- ------------------------------- -------------- -------------------------------
1. $ 3. $
---------------- -------------------------------- ------------- ------------------------------
2. $ 4. $
---------------- -------------------------------- ------------- ------------------------------
</TABLE>
6
<PAGE> 1
EXHIBIT 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective No. 39 to
the Registration Statement of the Parkstone Group of Funds on Form N-1A (File
No. 33-13283) of our reports dated July 20, 1998 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 May 31, 1998 and for the periods then ended referred
to in our report. We also consent to the reference to our Firm under the
captions "Financial Highlights" in the Prospectuses for the 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. 39 to the Registration Statement of Form
N-1A (File No. 33-13283).
PricewaterhouseCoopers LLP
Columbus, Ohio
September 15, 1998
<PAGE> 1
Exhibit(11)(b)
Law Offices
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Telephone: (215) 988-2700
Fax: (215) 988-2757
September 15, 1998
The Parkstone Group of Funds
3435 Stelzer Road
Columbus, Ohio 43219
RE: POST-EFFECTIVE AMENDMENT NO. 39 TO THE REGISTRATION
STATEMENT ON FORM N-1A (FILE NOS. 33-13283
AND 811-5105)
---------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to The Parkstone Group of Funds, a
Massachusetts business trust (the "Trust"), in connection with the preparation
and filing with the Securities and Exchange Commission of Post-Effective
Amendment No. 39 (the "Amendment") to the Trust's Registration Statement on Form
N-1A under the Securities Act of 1933, as amended.
The Trust is authorized to issue an unlimited number of shares of
beneficial interest (the "Shares"), without par value. The Board of Trustees of
the Trust has the power to designate one or more series ("Series") of Shares and
to classify or reclassify any unissued Shares with respect to such Series. The
Board of Trustees of the Trust also has the power to designate separate classes
("Classes") of Shares within the same Series. Currently, the Trust is offering
Shares of eighteen Series: the Small Capitalization Fund, Mid Capitalization
Fund, Large Capitalization Fund, International Discovery Fund, Equity Income
Fund, Conservative Allocation Fund, Balanced Allocation Fund, Aggressive
Allocation Fund, Bond Fund, Limited Maturity Bond Fund, Intermediate Government
Obligations Fund, Government Income Fund, Municipal Bond Fund, Michigan
Municipal Bond Fund, Prime Obligations Fund, U.S. Government Obligations Fund,
Treasury Fund and Tax-Free Fund. Currently, the shares of each Series of the
Trust may be offered in up to five separate Classes: Investor Z Shares, Investor
B Shares, Investor C Shares, Investor Z Shares and Institutional Shares. This
opinion is limited to Investor A Shares, Investor B Shares and Institutional
Shares, as applicable, of each Series of the Trust. The Board of Trustees has
previously authorized the issuance of Shares to the public.
<PAGE> 2
The Parkstone Group of Funds
September 15, 1998
Page 2
We have reviewed the Trust's Declaration of Trust, Code of Regulations,
resolutions of its Board of Trustees and such other legal and factual matters as
we have deemed appropriate. We have also relied upon an opinion of Ropes & Gray,
local Massachusetts counsel to the Trust, as to matters to which the laws of the
Commonwealth of Massachusetts are applicable. We assume that the Shares have
been or will be issued against payment therefor as described in the Trust's
applicable Prospectuses.
This opinion is based exclusively on Massachusetts law and the federal
law of the United States of America.
Based upon the foregoing, it is our opinion that the Shares have been
and will be validly issued, fully paid and non-assessable by the Trust.
We note that under Massachusetts law, shareholders of a Massachusetts
business trust could, under certain circumstances, be held personally liable for
the obligations of such trust. However, the Declaration of Trust disclaims
shareholder liability for claims against the Trust. The Declaration of Trust
further provides that every note, bond, contract, instrument, certificate or
other undertaking made or issued by the Trust's trustees or officers shall
recite to the effect that the same was executed or made by or on behalf of the
Trust or by them as trustees or officers and that the obligations of such
instrument are not binding upon the Trust's shareholders individually but are
binding only upon the assets and property of the Trust or a particular Series
thereof. The Declaration of Trust provides for indemnification out of the assets
of the Series of which a shareholder owns or owned Shares, for any and all loss
or expense for which the shareholder shall be charged or held personally liable
solely by reason of the shareholder's being or having been such a shareholder.
Thus, the risk of a shareholder's incurring financial loss on account of
shareholder liability is limited to circumstances in which the relevant Series
itself would be unable to meet its obligations.
We hereby consent to the filing of this opinion as an exhibit to the
Amendment to the Trust's Registration Statement.
Very truly yours,
/s/ Drinker Biddle & Reath LLP
DRINKER BIDDLE & REATH LLP
<PAGE> 1
EXHIBIT 15(a)
THE PARKSTONE GROUP OF FUNDS
INVESTOR A DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
This Plan (the "Investor A Plan") constitutes a distribution and
shareholder service plan of The Parkstone Group of Funds, a Massachusetts
business trust (the "Trust"), adopted pursuant to Rule 12b-1 under the
Investment Act of 1940, as amended (the "1940 Act"). The Investor A Plan
pursuant relates to the Investor A Shares of those investment portfolios
identified on Schedule B to the Trust's Distribution Agreement and as amended
from time to time (the "Investor A Plan Funds").
Section 1. Each Investor A Plan Fund shall pay to SEI Investments
Distribution Co., a Pennsylvania Corporation and the distributor (the
"Distributor") of the Trust's shares of beneficial interest of its Investor A
class (the "Investor A Shares"), a fee in an amount not to exceed on an annual
basis .25% of the average daily net asset value of the Investor A Shares of such
Fund (the "Investor A Plan Fee") for: (a) payments the Distributor makes to
banks and other institutions and broker/dealers (a "Participating Organization")
for distribution assistance and/or Shareholder service pursuant to an agreement
with the Participating Organization or for distribution assistance and/or
Shareholder service provided by the Distributor pursuant to an agreement between
the Distributor and the Trust; or (b) reimbursement of expenses incurred by a
Participating Organization pursuant to an agreement in connection with
distribution assistance and/or Shareholder service including, but not limited
to, the reimbursement of expenses relating to printing and distributing
prospectuses to persons other than Shareholders of an Investor A Plan Fund,
printing and distributing advertising and sales literature and reports to
Shareholders used in connection with the sale of Investor A Shares, and
personnel and communication equipment used in servicing Shareholder accounts and
prospective shareholder inquiries. For purposes of the Investor A Plan, a
Participating Organization may include the Distributor or any of its affiliates
or subsidiaries.
Section 2. The Investor A Plan Fee shall be paid by the Investor A Plan
Funds to the Distributor only to compensate or to reimburse the Distributor for
payments or expenses incurred pursuant to Section 1.
Section 3. The Investor A Plan shall not take effect with respect to an
Investor A Plan Fund until it has been approved by a vote of at least a majority
of the outstanding Investor A Shares of such Fund.
Section 4. The Investor A Plan shall not take effect until it has been
approved, together with any related agreements, by votes of the majority (or
whatever greater percentage may, from time to time, be required to Section 12(b)
of the 1940 Act or the rules and regulations thereunder) of both (a) the
Trustees of the Trust, and (b) the Independent Trustees of the Trust cast in
person at a meeting called for the purpose of voting on the Investor A Plan or
such agreement.
<PAGE> 2
Section 5. The Investor A Plan shall continue in effect for a period of
more than one year after it takes effect only so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Investor A Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Investor A Plan Funds pursuant to the Investor A Plan or any
related agreement shall provide to the Trustees of the Trust, and the Trustees
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
Section 7. The Investor A Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Investor A Shares of an Investor A Plan Fund.
Section 8. All agreements with any person relating to implementation of the
Investor A Plan shall be in writing, and any agreement related to the Investor A
Plan shall provide:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding Investor A Shares of the Investor A Plan
Fund, on not more than 60 days' written notice to any other party to the
agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. The Investor A Plan may not be amended to increase materially
the amount of distribution expenses permitted pursuant to Section 1 hereof
without approval in the manner provided in Section 3 hereof, and all material
amendments to the Investor A Plan shall be approved in the manner provided for
approval to the Investor A Plan in Section 4.
Section 10. As used in the Investor A Plan, (a) the term "Independent
Trustees" shall mean those Trustees of the Trust who are not interested persons
of the Trust, and have no direct or indirect financial interest in the operation
of the Investor A Plan or any agreements related to it, and (b) the terms
"assignment," "interested person" and "majority of the outstanding voting
securities" shall have the respective meanings specified in the 1940 Act and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission.
Adopted by the Trustees: January 26, 1993
Adopted by Investor A Shareholders: March 31, 1993
-2-
<PAGE> 1
EXHIBIT 15(b)
THE PARKSTONE GROUP OF FUNDS
INVESTOR B DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
This Plan (the "Investor B Plan") constitutes a distribution and
shareholder service plan of The Parkstone Group of Funds, a Massachusetts
business trust ("the Trust"), adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Investor B Plan
relates to the Investor B Shares of those investment portfolios identified on
Schedule D to the Trust's Distribution Agreement and as amended from time to
time (the "Investor B Plan Funds").
Section 1. Each Investor B Plan Fund is authorized to pay to SEI
Investments Distribution Co., a Pennsylvania Corporation and the distributor
("the Distributor") of the Trust's shares of beneficial interest of its Investor
B class (the "Investor B Shares");
(a) a distribution fee in an amount not to exceed on an annual basis .75%
of the average daily net asset value of the Investor B Shares of such Fund
(the "Distribution Fee") for: (i) payments the Distributor makes to banks
and other institutions and broker/dealers (a "Participating Organization")
for distribution assistance pursuant to an agreement with the Participating
Organization or for distribution assistance provided by the Distributor
pursuant to an agreement between the Distributor and the Trust; or (ii)
reimbursement of expenses incurred by a Participating Organization pursuant
to an agreement in connection with distribution assistance including, but
not limited to, the reimbursement of expenses relating to printing and
distributing prospectuses to persons other than Shareholders of an Investor
B Plan Fund, printing and distributing advertising and sales literature and
reports to Shareholders for use in connection with the sales of Investor B
Shares, processing purchase, exchange and redemption requests from
customers and placing orders with the Distributor or the Trust's transfer
agent, and personnel and communication equipment used in servicing
Shareholder accounts and prospective shareholder inquiries; and
(b) a service fee in an amount not to exceed on an annual basis .25% of the
average daily net asset value of the Investor B Shares of such Fund (the
"Service Fee") for (i) payments the Distributor makes to a Participating
Organization for Shareholder services pursuant to an agreement with the
Participating Organization or for Shareholder services provided by the
Distributor pursuant to an agreement between the Distributor and the Trust;
or (ii) reimbursement of expenses incurred by a Participating Organization
pursuant to an agreement in connection with Shareholder service including,
but not limited to, personal, continuing services to investors in the
Investor B Shares of a Fund, providing sub-accounting, arranging for bank
wires, and providing office space, equipment, telephone facilities and
various personnel including clerical, supervisory and computer, as is
necessary or beneficial in connection therewith.
For purposes of the Investor B Plan, a Participating Organization may include
the Distributor or any of its affiliates or subsidiaries.
<PAGE> 2
Section 2. The Distribution Fee and the Service Fee shall be paid by the
Investor B Plan Funds to the Distributor only to compensate or to reimburse the
Distributor for payments or expenses incurred pursuant to Section 1.
Section 3. The Investor B Plan shall not take effect with respect to the
Investor B Shares of any Investor B Plan Fund until it has been approved by a
vote of the initial Shareholder of the Investor B Shares of such Fund.
Section 4. The Investor B Plan shall not take effect until it has been
approved, together with any related agreements, by votes of the majority (or
whatever greater percentage may, from time to time, be required by Section 12(b)
of the Act or the rules and regulations thereunder of both (a) the Trustees of
the Trust, and (b) the Independent Trustees of the Trust cast in person at a
meeting called for the purpose of voting on the Investor B Plan or such
agreement.
Section 5. The Investor B Plan shall continue in effect for a period of
more than one year after it takes effect only so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Investor B Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Investor B Plan Funds pursuant to the Investor B Plan or any
related agreement shall provide to the Trustees of the Trust, and the Trustees
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
Section 7. The Investor B Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding Investor B Shares of an Investor B Plan Fund.
Section 8. All agreements with any person relating to implementation of the
Investor B Plan shall be in writing, and any agreements related to the Investor
B Plan shall provide:
(c) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding Investor B Shares of the Investor B Plan
Fund, on not more than 50 days' written notice to any other party to the
agreement; and
(d) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. The Investor B Plan may not be amended to increase materially
the amount of the Distribution Fee and Service Fee permitted pursuant to Section
1 hereof without approval in the manner provided in Section 3 hereof, and all
material amendments to the Investor B Plan shall be approved in the manner
provided for approval of the Investor B Plan in Section 4.
Section 10. As used in the Investor B Plan, (a) the term "Independent
Trustees" shall mean those Trustees of the Trust who are not interested persons
of the Trust, and have no direct or indirect financial interest in the operation
of the Investor B Plan or any agreements related to
-2-
<PAGE> 3
it, and (b) the terms "assignment," "interested person" and "majority of the
outstanding voting securities" shall have the respective meanings specified in
the 1940 Act and the rules and regulations thereunder, subject to such
exemptions as may be granted by the Securities and Exchange Commission.
Adopted by the Trustees: January 26, 1993
Adopted by the initial Investor B Shareholder: November 1, 1993
-3-
<PAGE> 1
EXHIBIT 18
THE PARKSTONE GROUP OF FUNDS
AMENDED AND RESTATED RULE 18f-3 MULTIPLE CLASS PLAN
DATED AUGUST 14, 1998
WHEREAS, The Parkstone Group of Funds (the "Group") is an open-end
management investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, shares of beneficial interest of the Group are currently
divided into a number of separate series (the "Funds"), including the Parkstone
Prime Obligations Fund, the Parkstone Treasury Fund, the Parkstone Tax-Free Fund
and the Parkstone U.S. Government Obligations Fund (collectively, the "Money
Market Funds"); the Parkstone Large Capitalization Fund, the Parkstone Mid
Capitalization Fund (formerly, the Parkstone Equity Fund), the Parkstone Small
Capitalization Fund, the Parkstone International Discovery Fund, the Parkstone
Conservative Allocation Fund, the Parkstone Balanced Allocation Fund (formerly,
the Parkstone Balanced Fund), the Parkstone Aggressive Allocation Fund, the
Parkstone Equity Income Fund (formerly, the Parkstone High Income Equity Fund),
the Parkstone Bond Fund, the Parkstone Limited Maturity Bond Fund, the Parkstone
Intermediate Government Obligations Fund, the Parkstone U.S. Government Income
Fund, the Parkstone Michigan Municipal Bond Fund and the Parkstone Municipal
Bond Fund (the "Non-Money Market Funds");
WHEREAS, the Group desires to offer multiple classes of shares pursuant
to Rule 18f-3 under the 1940 Act;
WHEREAS, Rule 18f-3 requires that the Trustees of the Group adopt a
written plan setting forth (1) the specific arrangement for shareholder services
and the distribution of securities for each class, (2) the allocation of
expenses for each class and (3) any related conversion features or exchange
privileges; and
WHEREAS, the Trustees of the Group, including a majority of the
Independent Trustees, as defined in Section 7 below, have determined that the
following amended and restated plan (the "Plan"), adopted pursuant to Rule 18f-3
under the 1940 Act, is in the best interests of each class individually, each
Fund as a whole and the Group as a whole.
NOW, THEREFORE, the Group hereby adopts, on behalf of the Funds, the
Plan, in accordance with Rule 18f-3 under the 1940 Act on the following terms
and conditions:
1. FEATURES OF THE CLASSES
Each of the Money Market Funds, as indicated on Exhibit A hereto, which may be
supplemented from time to time, may issue its shares of beneficial interest in
up to three classes: "Investor A Shares," "Investor B Shares" and "Institutional
Shares." Each of the Non-Money Market Funds, as indicated on Exhibit B hereto,
which may be supplemented from time to time, may issue its shares of beneficial
interest in up to three classes: "Investor A Shares," "Investor B Shares" and
<PAGE> 2
"Institutional Shares." Shares of each class of a Fund shall represent an equal
pro rata interest in such Fund and, generally, shall have identical voting,
dividend, liquidation, and other rights, preferences, powers, restriction,
limitations, qualifications and terms and conditions, except that: (a) each
class shall have a different designation; (b) each class shall bear any Class
Expenses, as defined in Section 4 below; (c) each class shall have exclusive
voting rights on any matter submitted to shareholders that relates solely to its
distribution arrangement; and (d) each class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interest of any other class. In addition, Investor A Shares,
Investor B Shares and Institutional Shares shall have the features described in
Sections 2, 3, 4 and 5 below.
2. SALES CHARGE STRUCTURE
(a) Institutional Shares. Institutional Shares of each Fund shall be
offered at the then-current net asset value without the imposition of a
front-end or contingent deferred sales charge.
(b) Investor A Shares. Investor A Shares of the Money Market Funds
shall be offered at the then-current net asset value without the imposition of a
front-end or contingent deferred sales charge. Investor A Shares of the
Non-Money Market Funds shall be offered at the then-current net asset value plus
a front-end sales charge. The front-end sales charge shall be in such amount as
is disclosed in such Fund's current prospectus or prospectus supplement and
shall be subject to reductions for larger purchases and such waivers or
reductions as are determined or approved by the Board of Trustees.
(c) Investor B Shares. Investor B Shares of the Money Market Funds
shall be offered at the then-current net asset value without the imposition of a
front-end or contingent deferred sales charge. Investor B Shares of each of the
Non-Money Market Funds shall be offered at the then-current net asset value
without the imposition of a front-end sales charge. A contingent deferred sales
charge in such amount as is described in each Fund's current prospectus or
prospectus supplement shall be imposed on Investor B Shares subject to such
waivers or reductions as are determined or approved by the Board of Trustees.
3. ADMINISTRATION, SERVICE AND DISTRIBUTION PLANS
(a) Institutional Shares. Institutional Shares of each of the Funds
will not pay a fee for distribution, account administration and/or shareholder
liaison services (each as defined in paragraph (d) below).
(b) Investor A Shares.. Investor A Shares of the Funds shall pay a fee
for distribution, account administration and/or shareholder liaison services in
such amount as is disclosed in such Funds' prospectus or prospectus supplement.
Such fee will be paid to the distributor for such Funds pursuant to a
distribution and shareholder service plan for Investor A Shares (the "Investor A
Plan"), which is more fully described in paragraph (d) below.
(c) Investor B Shares. Investor B Shares of the Funds shall pay a fee
for distribution, account administration and/or shareholder liaison services in
such amount as is disclosed in such
-2-
<PAGE> 3
Funds' prospectus or prospectus supplement. Such fee will be paid to the
distributor for such Funds pursuant to a distribution and shareholder service
plan for Investor B Shares (the "Investor B Plan"), which is more fully
described in paragraph (d) below.
(d) Account Administration Services, Shareholder Liaison Services
and Distribution Services.
(i) As used herein, the term "account administration services"
shall include (A) aggregating and processing purchase, exchange and redemption
requests from customers and placing net purchase, exchange and redemption orders
with the distributor; (B) providing customers with a service that invests the
assets of their accounts in shares pursuant to specific or pre-authorized
instructions; (C) processing dividend payments from an investment company on
behalf of customers and assisting customers in changing dividend options,
account designations and addresses; (D) providing and maintaining elective
services such as check writing and wire transfer services; (E) acting as sole
shareholder of record and nominee for customers; (F) maintaining account records
for customers; (G) issuing confirmations of transactions (H) providing
sub-accounting with respect to shares beneficially owned by customers or
providing the information to an investment company necessary for such
sub-accounting; (I) if required by law, forwarding shareholder communications
from the investment company (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
customers; and (J) providing other similar administrative services.
(ii) As used herein, the term "shareholder liaison services"
shall include (A) forwarding sales literature provided on behalf of the
investment company; (B) preparing, printing and distributing prospectuses and
shareholder reports; (C) providing facilities to answer questions from
prospective investors about Fund shares; (D) receiving and answering
correspondence, including requests for prospectuses and statements of additional
information; (E) complying with federal and state securities laws pertaining to
the sale of Fund shares; (F) assisting investors in completing application forms
and selecting dividend and other account options; and (G) other reasonable
assistance in connection with the distribution of Fund shares.
(iii) As used herein, the term "distribution services" shall
include services rendered by the Funds' distributor, broker-dealers and other
financial institutions including, but not limited to, service organizations, in
connection with the distribution of Investor A or Investor B and/or the
provision of support services to Investor A or Investor B shareholders. Such
services may include, but are not limited to, printing of prospectuses and
reports for other than existing shareholders, preparation and distribution of
advertising material and sales literature, organizing and conducting sales
seminars and payments made to financial institutions in the form of
transactional compensation or promotional incentives.
4. ALLOCATION OF INCOME AND EXPENSES
(a) Daily Dividend Funds. Funds that declare distributions of net
investment income daily and that maintain the same net asset value per share in
each class ("Daily Dividend Funds") will allocate gross income, realized and
unrealized capital gains and losses and expenses (other
-3-
<PAGE> 4
than Class Expenses, as defined below) to each class on the basis of relative
net assets (settled shares). "Relative net assets (settled shares)," for this
purpose, are net assets valued in accordance with generally accepted accounting
principles, excluding the value of subscriptions receivable, in relation to the
net assets of the particular Daily Dividend Fund. Expenses to be so allocated
include expenses of the Group that are allocated to a Fund and which are not
attributable to a particular Fund or class of a Fund ("Group Expenses") and
expenses of the particular Fund that are not attributable to a particular class
of the Fund ("Fund Expenses"). Group Expenses include, but are not limited to,
Trustees' fees, insurance costs and certain legal fees. Fund expenses include,
but are not limited to, certain registration fees, advisory fees, custodian fees
and other expenses relating to the management of the Fund's assets.
(b) Non-Daily Dividend Funds. The gross income, realized and unrealized
capital gains and losses and expenses (other than Class Expenses, as defined
below) of each Fund, other than the Daily Dividend Funds, shall be allocated to
each class on the basis of its net asset value relative to the net asset value
of the Fund. Expenses to be so allocated include Group Expenses and Fund
Expenses (as those terms are defined in paragraph (a), above).
(c) Class Expenses. Expenses attributable to a particular class ("Class
Expenses") shall be limited to: (i) payments made pursuant to a Rule 12b-1 plan
("12b-1 Plan Fee"); (ii) transfer agent fees attributable to a specific class;
(iii) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders of a specific class; (iv) Blue Sky registration fees incurred by a
class; (v) Securities and Exchange Commission registration fees incurred by a
class; (vi) expenses of administrative personnel and services to support the
shareholders of a specific class; (vii) litigation or other legal expenses
relating solely to one class; and (viii) Trustees' fees incurred as a result of
issues relating to one class. Expenses in category (i) above must be allocated
to the class for which such expenses are incurred. All other "Class Expenses"
listed in categories (ii) - (viii) above may be allocated to a class, but only
if the President and Treasurer of the Group have determined, subject to Board
approval or ratification, which of such categories of expenses will be treated
as Class expenses, consistent with applicable legal principles under the 1940
Act and the Internal Revenue Code of 1986, as amended (the "Code").
Therefore, expenses of a Fund shall be apportioned to each class of
shares depending on the nature of the expense item. Group Expenses and Fund
Expenses will be allocated among the classes of shares based on their relative
net asset values in relation to the net asset value of the Group. Class Expenses
shall be allocated to the particular class to which they are attributable. In
addition, certain expenses may be allocated differently if their method of
imposition changes. Thus, if a Class Expense can no longer be attributed to a
class, it shall be charged to a Fund for allocation among classes, as determined
by the Board of Trustees. Any additional Class Expenses not specifically
identified above which are subsequently identified and determined to be properly
allocated to one class of shares shall not be so allocated until approved by the
Board of Trustees of the Group in light of the requirements of the 1940 Act and
the Code.
-4-
<PAGE> 5
5. EXCHANGE PRIVILEGES
Subject to the restrictions and conditions set forth in the Funds'
prospectuses, shareholders may exchange shares of one class of a Fund for shares
of the same class of another Fund, 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. Exchanges from one class of shares into
another class of shares are not permitted; provided, however, that exchanges
between the Investor A Shares of a Fund and the Institutional Shares of a Fund
may be made for the purpose of addressing a change in a Fund shareholder's
standing which qualifies him or her for that particular Class.
6. CONVERSION FEATURES
Investor B Shares. Eight years after purchase, Investor B Shares will
convert automatically to Investor A Shares. The conversion from Investor B
Shares to Investor A Shares takes place at net asset value, which results in an
investor receiving Investor A Shares with the same dollar value as the Investor
B Shares held at the time of conversion. The conversion occurs eight years after
the beginning of the calendar month in which the shares are purchased. As a
result of the conversion, the converted shares are relieved of the Rule 12b-1
fees borne by Investor B Shares, and instead are subject to the Rule 12b-1 fees
borne by Investor A Shares.
If the shareholders of Investor A Shares approve any increase in the
Class Expenses to be allocated to the Investor A Shares in accordance with
Sections 2b, 3b, and 4c, and the shareholders of Investor B Shares do not
approve such increase, the Group will establish a new class for Investor B
Shares on the same terms as applied to Investor A Shares before such increase.
7. QUARTERLY AND ANNUAL REPORTS
The Trustees shall receive quarterly and annual statements (the
"Statements") concerning all allocated Class Expenses and distribution and
servicing expenditures complying with paragraph (b)(3)(ii) of Rule 12b-1, as it
may be amended from time to time. In the Statements, only expenditures properly
attributable to the sale or servicing of a particular class of shares will be
used to justify any distribution or servicing fee or other expenses charged to
that class. Expenditures not related to the sale or servicing of a particular
class shall not be presented to the Trustees to justify any fee attributable to
that class. The Statements, including the allocations upon which they are based,
shall be subject to the review and approval of those Trustees of the Group who
are not "interested persons" of the Group (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of this Plan (the
"Independent Trustees") in the exercise of their fiduciary duties.
-5-
<PAGE> 6
8. ACCOUNTING METHODOLOGY
The following procedures shall be implemented in order to meet the objective of
properly allocating income and expenses among the Funds:
(a) On a daily basis, the fund accountant shall calculate the 12b-1
Plan Fee to be charged to each 12b-1 class of shares by calculating the average
daily net asset value of such shares outstanding and applying the applicable fee
rate of the respective class to the result of that calculation.
(b) The fund accountant will allocate all other designated Class
Expenses, if any, to the respective classes.
(c) The fund accountant shall allocate income and Group and Fund
Expenses among the respective classes of shares based on the net asset value of
each class in relation to the net asset value of the Fund for Fund Expenses, and
in relation to the net asset value of the Group for Group Expenses. These
calculations shall be based on net asset values for all Non-Money Market Funds
and the relative value of settled shares for the Money Market Funds.
(d) The fund accountant shall then complete a worksheet developed for
purposes of complying with Section 8 of this Plan, using the allocated income
and expense calculations from paragraph (c) above, and the additional fees
calculated from paragraphs (a) and (b) above.
(e) The Fund accountant shall develop and use appropriate internal
control procedures to assure the accuracy of its calculations and the
appropriate allocation of income and expenses in accordance with this Plan.
9. WAIVER OF REIMBURSEMENT OF EXPENSES
Expenses may be waived or reimbursed by any adviser to the Group, by
the Group's underwriter or by any other provider of services to the Group
without the prior approval of the Group's Board of Trustees.
10. EFFECTIVENESS OF PLAN
This Plan shall not take effect until it has been approved by votes of
a majority of both (a) the Trustees of the Group and (b) the Independent
Trustees.
11. MATERIAL MODIFICATIONS
This Plan may not be amended to modify materially its terms unless such
amendment is approved in the manner provided for initial approval in Section 10
herein.
-6-
<PAGE> 7
Adopted by the Board of Trustees: November 8, 1995
Amended and Restated by the Board of Trustees: September 30, 1997 and August 14,
1998
THE PARKSTONE GROUP OF FUNDS
BY:
-----------------------------------
TIMOTHY A. THIEBOUT
SECRETARY
-7-
<PAGE> 8
Dated: August 14, 1998
EXHIBIT A
TO RULE 18f-3 MULTIPLE CLASS PLAN
PARKSTONE MONEY MARKET FUND SHARE CLASSES OFFERED
Prime Obligations Fund Investor A Shares
Investor B Shares
Institutional Shares
U.S. Government Obligations Fund Investor A Shares
Institutional Shares
Treasury Fund Investor A Shares
Institutional Shares
Tax-Free Fund Investor A Shares
Institutional Shares
A-1
<PAGE> 9
Dated: August 14, 1998
EXHIBIT B
TO RULE 18f-3 MULTIPLE CLASS PLAN
PARKSTONE NON-MONEY MARKET FUND SHARE CLASSES OFFERED
Small Capitalization Fund, Mid Capitalization Investor A Shares
Fund, Large Capitalization Fund, International Investor B Shares
Discovery Fund, Balanced Allocation Fund, Equity Institutional Shares
Income Fund, Bond Fund, Limited Maturity Bond
Fund, Intermediate Government Obligations Fund
and U.S. Government Income Fund
Municipal Bond Fund and Michigan Municipal Investor A Shares
Bond Fund Investor B Shares
Institutional Shares
Conservative Allocation Fund and Aggressive Institutional Shares
Allocation Fund
B-1
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<PER-SHARE-NII> 0.05<F1>
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<PER-SHARE-NAV-END> 1.00<F1>
<EXPENSE-RATIO> 0.66<F1>
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<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 021
<NAME> PARKSTONE U.S. GOVERNMENT OBLIGATIONS FUND
<MULTIPLIER> 1000
<S> <C>
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<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 355,530
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<FN>
<F1>CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 024
<NAME> PARKSTONE U.S. GOVERNMENT OBLIGATIONS FUND
<MULTIPLIER> 1000
<S> <C>
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<PERIOD-START> JUL-01-1997
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<PER-SHARE-NII> 0.05<F1>
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<FN>
<F1>INSTITUTIONAL CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 031
<NAME> PARKSTONE TAX-FREE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUL-01-1997
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<GROSS-EXPENSE> 1,200
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<PER-SHARE-NAV-BEGIN> 1.00<F1>
<PER-SHARE-NII> 0.03<F1>
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<FN>
<F1>CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 034
<NAME> PARKSTONE TAX-FREE FUND
<MULTIPLIER> 1000
<S> <C>
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<FN>
<F1>INSTITUTIONAL CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE MUTUAL GROUP OF FUNDS
<SERIES>
<NUMBER> 041
<NAME> PARKSTONE MID CAPITALIZATION FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 11-MOS
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<PERIOD-START> JUL-01-1997
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<PER-SHARE-NII> (0.14)<F1>
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<FN>
<F1>CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 042
<NAME> PARKSTONE MID CAPITALIZATION FUND
<MULTIPLIER> 1000
<S> <C>
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<PER-SHARE-NII> (0.23)<F1>
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<AVG-DEBT-OUTSTANDING> 0
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<FN>
<F1>CLASS B
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 043
<NAME> PARKSTONE MID CAPITALIZATION FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1998
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<NET-INVESTMENT-INCOME> (5,117)
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<NUMBER-OF-SHARES-REDEEMED> 66<F1>
<SHARES-REINVESTED> 31<F1>
<NET-CHANGE-IN-ASSETS> (14,457)
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<PER-SHARE-NII> (0.23)<F1>
<PER-SHARE-GAIN-APPREC> 2.46<F1>
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<PER-SHARE-NAV-END> 14.36<F1>
<EXPENSE-RATIO> 2.30<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS C
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 044
<NAME> PARKSTONE MID CAPITALIZATION FUND
<MULTIPLIER> 1000
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<REALIZED-GAINS-CURRENT> 108,493
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<NUMBER-OF-SHARES-REDEEMED> 10,548<F1>
<SHARES-REINVESTED> 4,836<F1>
<NET-CHANGE-IN-ASSETS> (14,457)
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<PER-SHARE-NII> (0.11)<F1>
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<PER-SHARE-NAV-END> 15.12<F1>
<EXPENSE-RATIO> 1.30<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 051
<NAME> PARKSTONE EQUITY INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 11-MOS
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<PERIOD-END> MAY-31-1998
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<NUMBER-OF-SHARES-REDEEMED> 1,074<F1>
<SHARES-REINVESTED> 928<F1>
<NET-CHANGE-IN-ASSETS> (22,358)
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<PER-SHARE-NII> 0.25<F1>
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<PER-SHARE-NAV-END> 18.78<F1>
<EXPENSE-RATIO> 1.58<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 052
<NAME> PARKSTONE EQUITY INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAY-31-1998
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<NET-ASSETS> 414,759
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<SHARES-REINVESTED> 223<F1>
<NET-CHANGE-IN-ASSETS> (22,358)
<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NII> 0.11<F1>
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<PER-SHARE-DIVIDEND> 0.10<F1>
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.68<F1>
<EXPENSE-RATIO> 2.33<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 053
<NAME> PARKSTONE EQUITY INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 370,490
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<NET-CHANGE-IN-ASSETS> (22,358)
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<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>class c
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 054
<NAME> PARKSTONE EQUITY INCOME FUND
<MULTIPLIER> 1000
<S> <C>
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<PERIOD-START> JUL-01-1997
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<NET-CHANGE-IN-ASSETS> (22,358)
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<AVG-DEBT-OUTSTANDING> 0
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<FN>
<F1>institutional class
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 061
<NAME> PARKSTONE SMALL CAPITALIZATION FUND
<MULTIPLIER> 1000
<S> <C>
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<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUL-01-1997
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<NET-CHANGE-IN-ASSETS> (106,160)
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<FN>
<F1>class a
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 062
<NAME> PARKSTONE SMALL CAPITALIZATION FUND
<MULTIPLIER> 1000
<S> <C>
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<FISCAL-YEAR-END> MAY-31-1998
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<FN>
<F1>class b
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 063
<NAME> PARKSTONE SMALL CAPITALIZATION FUND
<MULTIPLIER> 1000
<S> <C>
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<FN>
<F1>class c
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 064
<NAME> PARKSTONE SMALL CAPITALIZATION FUND
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<S> <C>
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<FN>
<F1>CLASS A
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 092
<NAME> PARKSTONE LIMITED MATURITY FUND
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<S> <C>
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<PERIOD-START> JUL-01-1997
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<F1>CLASS B
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 093
<NAME> PARKSTONE LIMITED MATURITY FUND
<MULTIPLIER> 1000
<S> <C>
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<FN>
<F1>CLASS C
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 094
<NAME> PARKSTONE LIMITED MATURITY FUND
<MULTIPLIER> 1000
<S> <C>
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<FN>
<F1>INSTITUTIONAL CLASS
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
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<NUMBER> 101
<NAME> PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
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<S> <C>
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<F1>class a
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<FN>
<F1>class b
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<TABLE> <S> <C>
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<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
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<NUMBER> 103
<NAME> PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
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<F1>class c
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<TABLE> <S> <C>
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<NAME> THE PARKSTONE GROUP OF FUNDS
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<NAME> PARKSTONE INTERMEDIATE GOVERNMENT OBLIGATIONS FUND
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<FN>
<F1>institutional class
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<NAME> THE PARKSTONE GROUP OF FUNDS
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<NAME> PARKSTONE MICHIGAN MUNICIPAL BOND FUND
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<EXPENSE-RATIO> 0.99<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>class a
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<NAME> THE PARKSTONE GROUP OF FUNDS
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<NUMBER> 112
<NAME> PARKSTONE MICHIGAN MUNICIPAL BOND FUND
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<S> <C>
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<F1>class b
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<NAME> THE PARKSTONE GROUP OF FUNDS
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<NAME> PARKSTONE MICHIGAN MUNICIPAL BOND FUND
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<S> <C>
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<FN>
<F1>institutional class
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<TABLE> <S> <C>
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<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
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<NUMBER> 121
<NAME> PARKSTONE BALANCED ALLOCATION FUND
<MULTIPLIER> 1000
<S> <C>
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<FISCAL-YEAR-END> MAY-31-1998
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<FN>
<F1>Class a
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<TABLE> <S> <C>
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<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 122
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<MULTIPLIER> 1000
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<PER-SHARE-NII> 0.19<F1>
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<AVG-DEBT-OUTSTANDING> 0
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<FN>
<F1>class b
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<TABLE> <S> <C>
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<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 123
<NAME> PARKSTONE BALANCED ALLOCATION FUND
<MULTIPLIER> 1000
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<NET-CHANGE-IN-ASSETS> 19586
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<EXPENSE-RATIO> 2.11<F1>
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<FN>
<F1>class c
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<TABLE> <S> <C>
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<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 124
<NAME> PARKSTONE BALANCED ALLOCATION FUND
<MULTIPLIER> 1000
<S> <C>
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<FN>
<F1>institutional class
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 131
<NAME> PARKSTONE U.S. GOVERNMENT INCOME FUND
<MULTIPLIER> 1000
<S> <C>
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<FN>
<F1>class a
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<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
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<NUMBER> 132
<NAME> PARKSTONE U.S. GOVERNMENT INCOME FUND
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<FN>
<F1>class b
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</TABLE>
<TABLE> <S> <C>
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<NAME> THE PARKSTONE GROUP OF FUNDS
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<NAME> THE PARKSTONE GROUP OF FUNDS
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<NET-CHANGE-IN-ASSETS> 35466
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<INTEREST-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 14.44<F1>
<PER-SHARE-NII> (0.06)<F1>
<PER-SHARE-GAIN-APPREC> 3.51<F1>
<PER-SHARE-DIVIDEND> 0.00<F1>
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<EXPENSE-RATIO> 1.35<F1>
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<FN>
<F1>class a
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 182
<NAME> PARKSTONE LARGE CAPITALIZATION FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 353466
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<FN>
<F1>class b
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 183
<NAME> PARKSTONE LARGE CAPITALIZATION FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1998
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<FN>
<F1>class c
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 184
<NAME> PARKSTONE LARGE CAPITALIZATION FUND
<MULTIPLIER> 1000
<S> <C>
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<EXPENSE-RATIO> 1.10<F1>
<AVG-DEBT-OUTSTANDING> 0
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<FN>
<F1>institutional class
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 194
<NAME> PARKSTONE AGGRESSIVE ALLOCATION FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1998
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<SHARES-REINVESTED> 40<F1>
<NET-CHANGE-IN-ASSETS> (5227)
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<FN>
<F1>institutional class
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000812304
<NAME> THE PARKSTONE GROUP OF FUNDS
<SERIES>
<NUMBER> 204
<NAME> PARKSTONE CONSERVATIVE ALLOCATION FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUL-01-1997
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1027
<NET-ASSETS> 17031
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<SHARES-REINVESTED> 57<F1>
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<GROSS-EXPENSE> 196
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<PER-SHARE-NAV-BEGIN> 10.36<F1>
<PER-SHARE-NII> 0.35<F1>
<PER-SHARE-GAIN-APPREC> 0.79<F1>
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<PER-SHARE-DISTRIBUTIONS> 0.07
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<PER-SHARE-NAV-END> 11.08<F1>
<EXPENSE-RATIO> 1.07<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>institutional class
</FN>
</TABLE>
